Introduction In this essay, I will be taking a look into the general growth and development experience of the Oriental Republic of Uruguay over the period of 1950 to present day. Using several dimensions of development, I hope to provide a glimpse into the development process that Uruguay has gone through in the above mentioned period.
Description
Uruguay is a South American country with a relatively small population of 3.3 million people, as of 2008, living in a land area of 176,000km2 (World Bank, 2009). However, they do possess a fairly good Gross National Income (GNI) per capita of US$8260, which is fairly high compared to the Latin America & Carribean average of US$6781 (World Bank, 2009). Throughout the last 60 years of its history, Uruguay has undergone much changes in terms of its social, economic and political scenes. Uruguay suffered many years of turmoil during the period of the 1950s and 1960s. Though at one point of time, the people living in Uruguay had the highest per capita income in the continent, that did not last and economic problems occured. In the 1970s, Uruguay suffered a military coup, in which the generals took power from the elected officials and thus began a period of military rule from 1973 to 1985. During the early years of military rule, the economy did recover from the economic downturn of the previous period. However, the Uruguayan economy began to worsen once again towards the end of this period. Because of this, the military was forced to return power to the civilian population and democracy was returned in 1985. Since then, the Uruguayan economy has been seen to have grown. Since then, it has continued to be very unstable and fluctuated based on the economic performances of its neighbouring countries. One example of such an event was the Argentine economic crisis of 1999 to 2002 which had large spillover effects onto the economy of Uruguay. (HistoryWorld, 2001)
Dimensions of Development In developing nations, there are often certain characteristics that are common amongst these developing countries and often, it is in these dimensions that developing countries face development problems. However, there is some differences in the dimensions and problems that each developing country faces in its development process. Some of these include the development of human capital, inequality and poverty, the geography of the country, productivity, population as well as external dependence.
Development of Human Capital Human capital is one of the key dimensions of development. Human capital is often seen as a crucial element towards economic growth as well as a means for the poor to pull themselves out of the poverty trap. Key components of human capital would be that of education & healthcare.
Firstly, in terms of education, Uruguay has been perceived as widely successful in developing its education system. Its literacy rate of 98% of the population, as of 2008, is one of the highest in South America as well as being comparable to developed countries like the United States (World Bank, 2010). It is also important to note that Uruguay has possessed high literacy rates over the past 30 years. In 1975, the literacy rate of the adult population already stood at a decent 93.8% (World Bank, 2010). Youth literacy rates have also been on an upward trend, though they were originally higher than that of the adult population. This can be seen through Graph A of Appendix 1. It can be seen that the development of the education system in Uruguay has been fairly extensive. In the earlier years, teaching, as a profession, was also seen as a respectable profession which is in contrast to many other developing countries whom are normally facing absent teachers (Hudson & Meditz, 1990). In other recent developments, Uruguay is also the first country to offer free internet-enabled computers to primary school children as a means of “encouraging each child’s passions and inclinations” (de Russe, 2009). This was done in an effort to increase the skills of the students as well as could potentially increase the value of the student when he or she goes out into the labour force. However, there are still key concerns to note of. Whilst it can be seen that a large proportion of the Uruguayan public has been receiving education to at least the primary school levels, the rural population still tends to suffer from the lack of facilities as well as a lack of a lack of opportunities to seek tertiary education due to the majority of tertiary institutes being centralised in the capital (Arocena & Sutz, 2008). In recent years, there has also been some decline in the education system. In the 1990s, research was conducted on the “actual learning of young people” (Masena & Salaverria, 2003). It revealed problems in the form of high non-completion rates as well as a high number of students who had to repeat years.
Secondly, Uruguay’s healthcare system has also undergone much development. In fact, Uruguay has even been called the “first welfare state of South America” due to its policies on education, healthcare and social security (Hudson & Meditz, 1990). Recent statistics have shown a slow but steady increasing life expectancy from 67 years in 1960 to 75 years as of 2008 (World Bank, 2010). Reducing child mortality, which is one of the 8 Millennium Development Goals (MDGs), has been very well handled by the Uruguayan authorities. This is demonstrated by a reduction of the infant mortality rate from 51 per 1000 births in 1960 to 11 per 1000 births in 2008. Besides the infant mortality rate, the mortality rates of both the adult male population as well as the adult female population have been on a downward trend as evidenced by statistics provided in Appendix 1 Graph B. However, there were many problems on the way to forming the current healthcare system. Due to the economic sluggishness in the 1950s, the welfare state mentality of the authorities had caused a burden on the economy (Hudson & Meditz, 1990). Corruption also became a problem in the healthcare system in the 1950s with politicians seeking promised votes from the people in return for quicker processing of social security transfers (Hudson & Meditz, 1990). Political problems had also affected the development of this area, especially during the years of military rule of 1973 to 1985. During this period, the military government chose to divert funding towards military hospitals, which were only for relatives of military personnel (Hudson & Meditz, 1990). This would inevitably mean neglecting the needs of the main population whilst only aiding a selected group. However, a problem that has arisen in the current health care system is inefficiencies in the healthcare system. This is because of insufficient resources being allocated by the government and has been found to be overloaded. This, thus, affected the healthcare system in terms of its “efficiency and quality of service” (Latin America Directorate, 2006). However, the overall quality and standard of treatment in the Uruguayan healthcare system has been deemed to be good with a sufficient stock of medications as well as having some public healthcare establishments fitted with high levels of technology (Latin America Directorate, 2006).
Overall, in terms of human development, Uruguay has performed significantly well in human development. As of 2009, Uruguay has since been given a Human Development Index of 0.865, which indicates that the country has attained a state of High Human Development (United Nations Development Programme, 2009). This can be attributed to the development of the education and healthcare systems in the country as well as to the government for adequete response to the rising threat of diseases like the Acquired Immune Deficiency Syndrome (AIDS) and the good handling of an increasing problem of youth abusing drugs. (Hudson & Meditz, 1990).
Inequality & Poverty
Next, another important dimension of development would be the level of inequality and poverty levels in the country. This is yet another of the MDGs that the members of the United Nations agreed to attempt to reach.
Uruguay has faced problems with inequality in the past. Recent data from 2008 showed that in Uruguay, the income shared by the lowest 20% of society was only 4.34% compared to the 52.11% shared by the highest 20% of society (World Bank, 2010). Also comparing with the preceding years, the income shared by the lowest 20% has been generally decreasing whilst the income shared by the highest 20% has continued on an upward trend (World Bank, 2010). As evidenced by Graph C of Appendix 2, it can be seen that, in fact, in almost all the quintiles, other than the first, there is a mild downward slope in terms of the share of income they receive whilst the highest quintile is beginning to take a larger share of income. There are several reasons for the increasing inequality and there are differing trends in the country. For instance, within the capital of Montevideo, it seems that the inequality has been caused by the differing education levels of the people (Gradin & Rossi, 2000). Though public tertiary education has become more easily available in Uruguay, it is still mainly available only in the capital (Arocena & Sutz, 2008). This has caused the differing reasons for inequality in the country. The differing education levels of people in the capital has since caused the wage ratio to increase from 181% in the early nineties to 193% in 1997 (Gradin & Rossi, 2000). However, outside the capital, education plays a much diminished role in causing inequality. Because of the higher numbers of unskilled workers outside the capital, education seemed to be less of a contributing factor to inequality, as compared to within the capital. Instead, the main reason for inequality outside the capital is the type of occupation a worker is in. It does indeed appear that the wage distribution is generally becoming more unequal as the country continues to become more developed (Gradin & Rossi, 2000). This is probably one of the greater developmental problems that Uruguay is currently facing due to unequal educational opportunities. In the most recent Human Development Report in 2009, it indicated that the GINI Coefficient for Uruguay is now 46.2, an increase from the 44.6 in the year 2000 (United Nations Development Programme, 2009). This demonstrates the gradual increasing inequality that is facing Uruguay.
Along with inequality, poverty and absolute poverty continue to exist in Uruguay. According to the United States Central Intelligence Agency’s World Factbook, 27.4% of households continue to live below the national poverty line (Central Intelligence Agency, 2010). This was in part due to the spillover effects of the economic downturns in Argentina and Brazil, two of Uruguay’s closest trading partners (Meyer, 2010). However, the proportion of the population that is living in absolute poverty of 2% can be considered to be lower than most developing countries (World Bank, 2010).
Inequality and poverty continue to be problems that are being faced in Uruguay and current trends do show that the problem is not being substantially reduced. However, the country’s leaders continue to be taking aim at solving this issue with the new government planning to “do away with extreme poverty and reduce poverty by 50 percent” (Cariboni, 2010).
Importance of Geography
Another dimension of development is the geography of the country. Though Uruguay is one of the smallest of the South American countries, it does appear that it has utilised its land area well. The climate in Uruguay as well as the landform has aided Uruguay in its development in terms of its trade with other countries and its agricultural industry.
As of 2007, almost 84% of the total land area in Uruguay has been used for agriculture, which is one of the key contributors to Gross Domestic Product (GDP) in Uruguay (World Bank, 2010). Exports of agriculture form a large portion of the total exports from Uruguay. According to the World Trade Organization, 69.4% of exports from Uruguay come from the agricultural sector (World Trade Organization, 2010). This demonstrates the importance of the agricultural industry in the Uruguayan economy. Employment in the agricultural industry has also been steadily increasing in recent years and hence, is a key contributor to growth in the country. The country’s geography and climate are critical to the further growth and development of this sector. However, in recent years, it is important to note the challenges that are now facing the further development of this sector due to the threat of climate change. It is projected that there will be a rise in temperature and rainfall as well as changes in weather patterns that are likely to affect the agricultural sector (World Bank, 2008). This could then cause problems for the rural population that are involved in agriculture as well for the whole country since there is a large proportion of national income that has been coming from Agriculture..
Trade has also formed an integral part of the Uruguayan economy. With a large portion of Uruguay’s national boundaries facing the ocean and with good sea transportation facilities, Uruguay tends to have a open economy with trade forming up to 58.3% of GDP, as of 2008 (World Bank, 2008). This is aided by the formation of the Southern Common Market, or MERCOSUR. Through the MERCOSUR, South America’s largest trading bloc was formed with the intentions of creating a trade area that allows for the “free movement of good, services and factors of production” (MERCOSUR, 2010). This could potentially help with the further development of the country but it is not too clear if it has successfully attained its objectives.
Geography has indeed played an important role in the Uruguay’s development and is likely to continue to be an important factor in its continued development. Through the country’s geography and climate, it has been able to make use of these in building up its economy through agriculture and trade. However, there may be problems in future, such as climate change, but these are potentially unavoidable as they are global problems.
Productivity & Gross Domestic Product
With relation to trade, GDP is often seen as one of the key indicators of development in the world. Through the GDP figures, it is possible to see the productivity level of the country as well as the average national income per capita. Low income countries often find themselves in a poverty trap due to their lack of funding required to begin their developmental process. With regards to Uruguay, it has been showing a dramatic increase in its productivity levels in recent years. As of 2008, Uruguay’s GDP stood at US$32.2 billion as compared to US$8.2 billion in 1988 (World Bank, 2009). Refering to Appendix 2 Graph D, it can be seen that GDP levels have increased much over the past 40 years. This is partially in light of the economy being diversified as well as having undergone limited industrialisation.
Since independence, Uruguay’s GDP per capita has been growing at a rather consistent rate of one percent per year, barring the effects of recessions that have been taking place on average once every 30 years (Economic History Association, 2010). Since the 1950s, Uruguay has been diversifying its agricultural practices in light of the greater competition as well as European regulations on the export of meat to that area. Due to this, Uruguay has began to produce other types of agricultural products such as wool (Economic History Association, 2010). Their manufacturing industry also began to grow around this period. This was mainly due to protectionist policies that were introduced. These basically isolated the manufacturing industry from the outside world but their development was curtailed by the lack of technology, which was brought about by their isolation policies. Thus, productivity often hinged on “technology transfer” from imports as well as the updating and modification of current technology (Economic History Association, 2010). However, this in-ward growth process was severely limited due to the population size of the country as well as the uncompetitive nature of the domestic industries and resulted in a long period of economic stagnation. After the military government of 1973 to 1985 took over, they believed that a restructuring of the economy was required in order to reverse the current growth trends. The military regime eased protectionist policies to allow the domestic industries to become more competitive and this manifested itself in the economic boom that happened during the 1979-82 period (Favaro & Bension, 1993). More recently, with the foundation of the Mercosur and Union of South American Nations to attempt to create a common market between the South American nations, this led to an expansion of trade between the members of Mercosur. However, a continuing drawback in this was that tariffs continued to be high on imports from non-Mercosur members and thus, “access to advanced technologies of the developed countries” continues to be restricted (Connolly & Gunther, 1999).
GDP growth in Uruguay has undergone much changes since the 1950s. However, through these changes, it has managed to attain a Gross National Income per capita that is one of the highest amongst the South American nations.
Population
Population and its associated statistics are often seen as signs of development in a country. Rural-urban migration as well as the population growth rate are key in the development of a country in terms of its labour force as well as the dependency burdens that come with population growth.
Another of the important indicators of development is the rural-urban migration. Uruguay has been showing this clear sign of development since the 1960s as rural population figures fell from 19.8% to 7.7% in 2008 (World Bank, 2010). Appendix 3’s Graph E shows the data on the recent trends of urban-rural migration. It clearly showed an upward trend in rural-urban migration with the rural population growth figures mostly showing a contracting rural population size. Usually, rural-urban migration takes place as the economy transits from being agricultural centred towards manufacturing and services. However, in the case of Uruguay, the economy still tends to be centered towards its agricultural sector. This is attributed to the fact that due to the economic development of the country, there are now more large scale commercial farms that are taking over the industry that used to be dominated by family farms. Hence, a large proportion of the rural population have been moving into satellite towns and cities. Especially in recent times, when technological advancements have generally made agriculture a less manual industry, workers no longer need to stay in rural areas and could instead move into urban areas, where they could enjoy better facilities and provisions. Another key reason for move from the rural parts of the country into the urban city areas was due to the lack of facilities. An example, as previously mentioned, would be of tertiary education. Almost all of the universities in Uruguay are located within the capital and thus, people seeking further education are forced to move into the capital. As a result of rural-urban migration, Uruguay’s capital Montevideo now has about two fifths of the total population living within its city boundaries (Todaro & Smith, 2009). This, inevitably, brings about the problem of Urban Giantism. Problems associated with having such large cities are that its urban core may become too large for costs of industries to remain low (Todaro & Smith, 2009). Also, an added problem associated with Urban Giantism is that there is “potential for rentseeking by bureaucrats” which can lead to a less than optimal distribution of resources as well as the potential for exploitation of consumers (Todaro & Smith, 2009).
However, with relation to population changes due to rural-urban migration, another interesting dimension of development is the population growth rate.In most cases of developing countries, there tends to be a higher birthrate and deathrate. However, Uruguay, even though still considered as a developing country, does not seem to exhibit these same traits. Instead, Uruguay seems to be exhibiting characteristics of a developed country in this aspect. The birthrate has been falling consistently, although it does show spikes in certain years. In 1960, the crude birthrate stood at 22.2 per 1000 inhabitants but since then, it has been falling to 14.58 per 1000 inhabitants as of 2008 (World Bank, 2010). The most recent birthrate is on par with developed countries such as the United Kingdom and the United States. Because of the falling birthrate, Uruguay has a fertility rate of 2.01 as of 2008 (World Bank, 2010). Graph F of Appendix 3 also shows the falling trend of the fertility rate since the 1960s. There have been some short term peaks but it does show a overall downward trend. The current fertility rate of 2.01 is already below the natural replacement rate of 2.1 and Uruguay has been shown to be having a maturing population, especially with the high rate of emigration by the younger people. Since the 1960s, the younger population has been seen to be moving abroad in search of greater prosperity abroad. This mainly began due to the political and economic problems faced by Uruguay in the 1970s. Even after the end of the military dictatorship in Uruguay, the option of migration had already been firmly imprinted onto the minds of many young people and the trend continued. (Pellegrino, 2002). In a survey conducted in 1990, it showed that 25% of youth hoped to venture abroad for at least a short period of time (Pellegrino, 2002). With this in mind, Uruguay could in time face the same problems that many developing and some developed countries face – the economic dependency burden. This happens when there is a large number of people who need to be financially supported by those with that are currently working. Another associated problem with the falling birthrate and rising rate of migration is the potential for brain drain to become a real issue in Uruguay. Hence, even though Uruguay’s human capital has been improved, the issue of the loss of skilled workers to foreign countries is likely to pose a problem as the country’s population ages (Pellegrino, 2002).
In terms of population growth and migration, Uruguay seems to be close to having the same trends as the developed countries. However, as mentioned above, these trends may pose problems of its own.
External Dependence
Uruguay has often been seen to be dependent on its closest neighbours as well as international organisations in its development process. Developing countries tend to be largely dependent on other external countries or organisations and in many cases, developing countries are sometimes given less importance in international affairs because of their lack of influence. Uruguay has been known to have been largely dependent on its two neighouring countries, namely Brazil and Argentina. Because of this dependence, Uruguay’s business cycle has been found to be “highly correlated” to that of these 2 countries. (Sosa, 2010) However, it has at times seeked help from various international organisations, especially in times of economic downturns.
Uruguay has been largely dependent on Argentina for several reasons. Though Uruguay’s trade with Argentina is not as large as with Brazil, Uruguay has seemed more susceptible to economic problems when Argentina faces financial crises. This is because the statistics on exports often only take into account physical goods. However, it is of critical importance to note that a large proportion of Uruguay’s exports to Argentina come in the form of services. This is because of the large amount of tourism that Uruguay gets from Argentina. In fact, Argentina is currently Uruguay’s largest source of tourism income (Sosa, 2010). Another important factor that contributes to Uruguay’s dependence on Argentina is the fact that there is much Argentine deposits that are located within Uruguay’s banking system (Sosa, 2010). At the end of 2001, the amount of foreign deposits, which are mainly of Argentine origin, came up to more than 40%. Because of these, Uruguay has become very vulnerable to shocks and economics downturns in Argentina like the one which caused Uruguay’s economy to contract in 2002.
However, it should also be noted that Uruguay has been able to strengthen its economy in order to be less susceptible to shocks from its neighbours. Today, the Uruguayan economy has implemented much improved macroeconomic policies that have kept its inflation rate to a low level, built up sufficient reserves as well as managed its debts and kept a flexible exchange rate (Sosa, 2010). The Uruguayan banking sector has also been greatly reformed and its financial strength has been greatly improved with the merging of banks. Also, the amount of deposits of Argentine origin has fallen and is half its previous levels. Uruguay has also begun branching out its exports to other distinations in order to avoid the concentration of its export trade into a certain few countries. This is demonstrated by the decrease in exports to Argentina from more than 15% in the 1990s to an average of about 8% since 2001 (Sosa, 2010). Tourism income from Argentina has also declined from about 70% in the 1990s to less than 45% today (Sosa, 2010). Overall, these have allowed the Uruguayan economy to become less dependent on its most important neighbour Argentina. However, it is still of imperative importance to note that even though the chances of Uruguay being greatly affected by a major financial crisis in Argentina has been significantly reduced, there is still a high probability that it will still have some effect on the economy.
Conclusion
Uruguay has gone through much to reach the current stage of its developmental process. By reviewing the dimensions of development mentioned above, it can be seen that Uruguay is almost reaching the same standards and characteristics of the other developed countries worldwide. As Uruguay becomes more well known on the world stage, they will definitely be given much more chances to grow through foreign direct investment and tourism. Especially with their performances on the Global stage in non-economic events such as the 2010 FIFA World Cup, Uruguay is definitely becoming more prominant on the global landscape. However, there are many challenges and problems that have the potential to arise due to factors that have arisen because of development. These range from a slowly ageing population, a brain drain of society due to increasing amounts of youth leaving the country as well as inequality and poverty that continue to exist despite very good efforts by the government to reduce it. Healthcare and education have reached levels that are similar to their developed counterpart’s. However, the development of human capital continously faces new problems. Overall, Uruguay has also become much less dependent on its traditional trade partners but recent studies have shown that although the country has become less dependent on Argentina, it may well be becoming more dependent on Brazil for trade. However, the future of the Uruguayan population and economy does look well provided that they are able to counter the problems that are likely to occur. Bibliography
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