Economic Theory and Reality:

Evidence from San Lucas Tolimán and the Rest of the World

Introduction

     It is an interesting and somewhat daunting task to write an essay about economic theory for an interdisciplinary audience.  If a field of study only has to meet the dictionary definition of the word interdisciplinary to actually be considered interdisciplinary —“involving two or more academic disciplines”[1]—then economics certainly qualifies.  Economics has a distinct quantitative focus and draws heavily from disciplines such as math and statistics.  Its underpinnings are rooted in political philosophy and more recent specialty areas make extensive use of law, history, psychology, sociology, and international studies.

     The Foreward to various editions of the Journal of Interdisciplinary Education suggests a meaning of the word interdisciplinary that is considerably more complicated, however, and possibly casts a bit of doubt as to whether economics is as interdisciplinary as perhaps it ought to be. The issue on Ecology of Education (1997, p. 5), e.g., speaks of “the interrelatedness of all creation.” The issue on Unity Through Diversity (2000, p. v.) suggests that, “Education grounded in nonviolence, social and economic justice, political justice that recognizes and promotes human rights, and ecological justice is the ethical responsibility of educators from pre-school through university.” It goes on to state that, “Educators have an ethical responsibility to promote an understanding of how humans relate to all of creation. The three C’s—caring, compassion, and commitment—must be rooted in hope, understanding and love.” With few exceptions, a majority of these concepts simply do not appear in economics textbooks. In a review of the indexes of 21 principles of economics textbooks, the word justice appeared twice and the expression ethical issues appeared twice. Words or concepts such as humanity, human rights, nonviolence, ecology, love, commitment, or community, do not appear at all. The word human appears in every textbook, but only in the context of human capital.  Robert Sexton’s definition of human capital in his principles textbook (1999, p. 466), “People used as resources in production,” seems the antithesis of most of the above concepts.

     Among the more important core concepts to economists are economic growth, efficiency, and comparative advantage.  These three, in fact, lie at the heart of all modern macroeconomic policy deliberations. Underlying these concepts, of course, is the assumption of the primacy of individual initiative and rationality in a free market setting, implying that the majority of all human activities are undertaken to maximize our well being. McEachern (Economics 5^th ed., 2000), for example, refers to us as having wants or desires that are “virtually unlimited (p.2).”  Burns and Stone (Economics 5^th ed., 1992) describe our human wants as “virtually unlimited” and “insatiable (p. 5).” Frank and Bernanke (Principles of Economics, 2001) state that we have “boundless needs and wants (p.4).” 

     If these books are reasonably accurate in describing human behavior—that maximizing consumption is the goal of society—then supporting concepts like economic growth, efficiency, and comparative advantage make perfect sense.  If society is organized to meet the needs of consumers with “insatiable” demands, then Gross Domestic Product (GDP)[2], a measure of the value of all goods and services produced, is a logical way to measure our collective well being.  Furthermore, if the goal is to maximize GDP (or its growth rate), then you could imagine that the wasteful use of scarce resources in the production of a product, or not producing something using the lowest possible cost technique would certainly not be desirable. 

     It is the purpose of this analysis to examine 1) the theories and assumptions of economic growth, efficiency, and comparative advantage, and how well they correlate with real world outcomes, and 2) the impacts on society of having these three concepts at the core of economic policy making. A major point to be made in the analysis that follows is that these three concepts are possibly too narrow to use as guide-posts for all societies in all places, at all times.

     In the following sections there will be three analyses that will address the appropriateness of these three concepts as policy tools. The first entails a multi-country empirical analysis of the relationship between economic growth and a number of social welfare indicators such as literacy, infant mortality rates, life expectancy, income distribution, caloric intake, and availability of doctors.  Also, because the theory associated with these three concepts leads policy makers to the conclusion that for many countries, the way to generate economic growth is to focus on the production of exports, a second empirical analysis will examine the relationship between exports and the same list of social welfare indicators mentioned above. 

     The third analysis focuses on alternative economic development programs in a small community in the central highlands of Guatemala, San Lucas Tolimán. On the surface it might appear that San Lucas appears to be violating a number of textbook economic axioms.  Many of the programs there do not appear to have been designed with the goal of maximizing Guatemala’s GDP, nor do they appear to be (economically) efficient or meet the criteria of comparative advantage.  Upon closer inspection, though, it is argued that if the founder of the discipline of economics, Adam Smith, from whose work all of the above concepts originated,[3] were to walk the streets of San Lucas, he might appreciate the robust little economy as being exactly what he had in mind when he wrote the Wealth of Nations over 200 years ago.

     These three analyses will be preceded by a section examining some of the theoretical issues related to economic growth, efficiency, and comparative advantage, along with criticisms and statistical evidence from the developing world.

Economic Growth, Efficiency, and Comparative Advantage

     According to McEachern (2000), economic growth is “arguably the most important criterion for judging an economy’s performance (p.111).” Samuelson and Nordhaus (1992) suggest that most nations regard economic growth as “a central economic and political objective,” and the failure to provide such growth as the primary reason for the collapse of the Soviet Union and Eastern bloc countries (p. 546). The popular expression, “a rising tide floats all boats,” is a metaphor for the good things that come to a society that experiences economic growth. According to many economists, when the economy is growing, everyone benefits, rich and poor alike; therefore, growth should be the primary focus of policy actions, rather than government programs to redistribute income or wealth. Economic growth as a cure for underdevelopment has long been a primary focus of World Bank programs.  The entire issue of the World Development Report 2000/2001, published by the World Bank, is focused on poverty. The Bank argues that the poor need more material opportunities and that “overall economic growth” along with “market reforms” are essential for enhancing opportunities” (p.7).

     The market reforms to which the World Bank refers, entail a return to (or possibly for some countries their first experiment ever with) the orthodoxy of laissez faire—a hands off approach to the economic organization of society.  There is no need for an activist government to oversee market activities if the following textbook assumptions hold: 1) producers and consumers of goods and services are motivated to maximize their well-being, 2) there are sufficiently large numbers of buyers and sellers in the marketplace, 3) no barriers to market participation exist, 4) there is adequate access to information such that rational decision making is facilitated, and 5) the transaction costs of acting on such information are “reasonable.” Suppose a corporation decided to overcharge for its products.  Rather than needing a governmental watchdog agency to step in to protect the consumer from this behavior, the presence of other similar corporations all producing similar products will ensure that the corporation doing the overcharging will not be successful in this endeavor.  If the corporation’s customers are aware that lower prices exist at its competitors, and if it is not too costly to get to their locations, then they will travel to those locations to make their purchases. With falling sales, because of the loss of its customers, the overcharging corporation will have no choice but to reduce its prices back into line with those of its competitors. This is an example of what Adam Smith referred to as the “invisible hand of the market place” (2000, p. 485).

     Note the importance of consumers in the above example. According to textbook theory, consumers have the power to compete on equal terms with producers.  Nothing will be produced that is not desired in the first place.  If consumers don’t want a product, or they don’t want it at a certain price, it is simply not going to sell. Therefore, economic growth, by definition, is a positive thing.  The increase in the nation’s output of goods and services occurs only because producers respond to the needs and wants of consumers.

     In a society in which the actions of profit maximizing private producers and utility-maximizing consumers provide the driving force of the economy, economic growth, according to textbook theory, will occur naturally.  And the growth will be facilitated by decisions made with regard to efficiency and comparative advantage. Textbook definitions of efficiency are specifically concerned with maximizing output.  McEachern (2000, p. 34) states that “efficiency involves getting the maximum possible output from available resources.” Case and Fair (2002) reiterate the concern for the consumer that was noted above.  They state that “an efficient economy is one that produces the things that people want at least cost.... that the economic system exists to serve the wants and needs of the people. If resources can be reallocated to make the people ‘better off,’ then they should be” (p.251).  One of the more widely used concepts of efficiency in economic decision-making was developed by the Italian economist Wilfredo Pareto. An economic allocation of goods and services or resources is considered to be Pareto efficient or Pareto optimal if, in an attempt to make some group better off, (i.e., to provide them with more goods, or more resources), others are made worse off in the process.

     Such concepts are not without controversy.  The poor of Africa, Asia, or Latin America who have never visited a doctor, attended a school, or taken a drink of clean water, or who have no hope of owning their own land probably take little comfort in the teachings of economic theorists who contend that the pursuit of economic growth and efficiency goes hand in hand with serving the wants and needs of the people. As will be discussed in the analysis below on San Lucas Tolimán, Guatemala, oftentimes, the concept of Pareto efficiency, rather than serving as a criterion for economic growth, instead, serves to maintain the status quo.  In a country where land, which is the primary means of production for a majority of the population, is unevenly divided and extremely scarce, adopting an efficiency measure such as Pareto optimality, in effect, assures that serious agrarian reform will never be undertaken.  To redistribute even an acre of land from the oligarchy to poor families would, following the Pareto principle, make one person worse off and should thus not be considered, regardless of how much better off the families receiving the land might be.

     David Ricardo’s (1817) Classical Theory of Comparative Advantage states that each nation is blessed with (or over time has acquired) a set of particular factor endowments (rich soil, navigable waterways, ideal climate, highly skilled work force, etc.) that allow it to produce certain products at a lower per unit cost than its neighbors.  For example, the U.S. has a skilled work force and rich mineral deposits that allow it to produce cars and computers relatively cheaper than Guatemala could.  Guatemala, on the other hand, has rich volcanic soil and a semi-tropical climate in which it can produce bananas and coffee at much lower cost than in the US.  It would therefore be more efficient, i.e., less wasteful of scarce resources, for the US to specialize in the production of cars and computers, and for Guatemala to specialize in the production of bananas and coffee, than if each country strived for self-sufficiency in each product.[4] By focusing a country’s scarce resources only on the products for which it has a comparative advantage and then freely trading for all other products in the international market place, each nation’s GDP will be maximized as a result.  The policy implications of this theory, as they have evolved over the years, are that countries should devote more and more of their resources to the production of export goods and services as the surest route to development.

     Critics such as Susan George (1990) or David Korten (1995, 1999) argue that Ricardo’s simple theory has been taken out of its original European context and carried to extremes by the IMF and World Bank who force borrowing nations to adhere rigidly to economic strategies that narrowly focus on the production of export products to the exclusion and detriment of the domestic economy. Such strategies, often labeled as neo-liberal, include privatization, elimination of government subsidies and programs, devotion of more land and resources to the production of export products, discouragement of labor unions, and devaluation of the local currency in order to make export products more attractive to foreign buyers.  Often a case can be made that attention to some of the above changes might in fact help to streamline a highly inefficient economy that has come to rely too heavily on the government for most economic decision making.  The former Soviet Union and its eastern bloc allies come immediately to mind in this regard.  But IMF and World Bank programs are applied in a rather uniform manner to most countries regardless of their unique circumstances.  Such countries may well need to make a number of adjustments in the direction of a more market-oriented economy, but for the sake of the general population, a slower transition might be more advantageous than the instantaneous, shock-therapy approach the IMF usually requires. The case of Nicaragua is instructive.

     After the elections in 1990 that threw the Sandinistas out of power in Nicaragua, the new UNO government of Violeta Chamorro immediately signed on to a structural adjustment program with the IMF. One of its first moves was to eliminate approximately 10,000 government jobs that were deemed to be wasteful and inefficient.  Unfortunately, no thought was given as to what these former workers and their families might do, or where they might live once they lost their means of support.  Economic theory suggests that when dislocations occur, resources will move toward their highest use in the long run.  Theory says nothing about what is supposed to happen in the short run.  In Nicaragua’s capital city of Managua, many of the laid off workers and their families found themselves literally living in open fields—vast areas that were never rebuilt after the 1972 earthquake—in hastily constructed shacks made of cardboard, discarded pieces of wood, and pallets. I was there on a visit shortly after the elections and the one lasting memory I have from a visit to the under-funded children’s hospital was of children with third-degree burns suffered from fires associated with cooking over open fires.  The hospital administrator told me that many of those kids were living in the cardboard shacks mentioned above.  They would either accidentally tip over a pot of boiling water on themselves or get caught in the cooking fire. 

     In spite of such detrimental impacts on the population, Nicaragua has strictly adhered to the IMF’s structural adjustment program.  For example, exports as a percentage of GDP have increased from 25% to 39% over the decade of the 1990s.  Its currency has been devalued by nearly 100%, but none of this has brought any visible improvement to the country.  Its economy, as measured by GDP per capita shrank continuously over the decade—from $460 in 1990 to $452 in 1998 (1995 US$) and, among the countries of Latin America, its social indicators rank near the bottom of the United Nation’s Human Development Index scale.[5]  Only Guatemala and Haiti are ranked lower. (United Nations Human Development Report [UNHDR] 2000, Tables 1, 7, and 15).

     Ghana is another example of a country that has faithfully restructured its economy along the lines dictated by the IMF and World Bank.  In fact it has been under IMF and World Bank tutelage since 1983 and has been frequently touted by these institutions as a showcase of the benefits that can come to a country that follows an export-led economic strategy.  As evidence of its adherence to this strategy, the country has nearly doubled its exports as a percent of GDP over the last decade from 16.9% to 32% (UNHDR 2000, Table 15), and, like Nicaragua, has aggressively devalued its currency by more than 90%. The Bank’s own statistics, however, suggest that the showcase may be illusory.  Ninety-six out of every 1000 children will not live to see their 5^th birthday. Overall life expectancy is only 60 years and 44% of the population does not have access to clean water. (WDR, Tables 2 and 7).  Ghana ranks 129^th on the UN Human Development Index. The UNHDR reports that there are only 4 doctors for every 100,000 Ghanaians, and that 31% of the population cannot read or write. Furthermore, the economic growth that had been promised has simply not materialized. GDP per capita stood at the end of the decade of the 1990s at approximately the same level it was when the country entered into its first IMF standby agreement--$399 (1995 US$). (UNHDR, Tables 4, 7, and 10).

     One of the problems Ghana is facing, and one that potentially affects all countries that follow export-led strategies, is that if a majority of developing countries are being encouraged to increase their export volume, this has the effect of creating a glut of commodities on world markets.  Economic theory is rarely wrong in predicting that an excess supply of commodities will drive down their prices.  For various reasons, however, this ever-so-obvious outcome is overlooked when countries are encouraged by the IMF and World Bank to devote more resources to exports. In the case of Ghana, a majority of its export commodities have seen falling prices over the past two decades.  The price of its primary export, cocoa, has fallen over 46%, or 4.1% per year, since 1983. Other important commodities such as gold, copra, tea, and coffee have all faced serious declines in prices. (International Financial Statistical Yearbook 2000, IMF, pp. 180-1).  For a country to maintain the value of its export earnings in the face of falling prices, it must increase its output—thus devoting more land and resources to export production.  But the dilemma it faces is that if all developing countries react to falling prices in the same way, the glut of commodities on world markets that contributed to falling prices in the first place is simply expanded, creating a vicious downward commodity price spiral. 

     While a majority of economists see economic growth as a cure for underdevelopment, there is by no means a consensus of all observers on this issue. At one extreme is Walter Rostow’s (1960) “stages-of-growth” model, for example. He suggests that all countries develop along a fairly well scripted time path, each beginning at some earlier stage of underdevelopment and culminating eventually in a “high mass consumption” society. To an orthodox economist, a country that has not yet arrived at the pinnacle of high mass consumption need not be concerned and turn to the government for assistance, rather, it simply needs to “stay the course” and continue relying on market signals and private initiatives.[6]

     The idea that economic growth (not to mention high mass consumption) might be equated with development is especially controversial if your definition of development is something along the lines of Walter Rodney’s, instead of Walter Rostow’s. Rodney (1972) describes a country that is undergoing development as one in which “its members increase jointly their capacity for dealing with the environment” (p.4).  It is a safe bet that a sizeable number of the world’s peoples, six decades into the era of modern approaches to economic development, are still at the stage of learning to cope with their environment, rather than worshipping at the alter of high mass consumption.  A number of social indicators from the United Nations Human Development Report (2000) suggest that this is indeed the case.  For the 34 countries in the Low Human Development category—most of which are in Africa—citizens can expect to live only 51 years.  In comparison, the number one ranked country in the High Human Development category, Canada, has a life expectancy of 79 years. For every 1000 live births in these 34 countries, 105 infants will die and 167 will not make it to age five (Canada: 6 and 6, respectively). In those same countries 51% cannot read or write (Canada: near 0%), and 39% do not have access to safe water (Canada: near 0%).  People in need of a doctor in those countries will likely have difficulty finding one given that there are only 27 doctors per 100,000 people on average (Canada: 221 per 100,000) (Tables 4, 9, and 10).

     What is especially disturbing about these statistics is that many of these countries are, in fact, experiencing economic growth. Using the yardstick of GDP per capita (1995 US$), the 34 Low Human Development countries averaged 3.8% growth per year from 1975-1998.  Compare this to Canada: 1.5% or the United States: 1.9%.  On a dollar basis though, these 34 countries have an average GDP of only $980. Compare to Canada: $20,458 or the United States: $29,683. The 93 countries in the Medium Human Development category have grown even faster—6.2%, but their average GDP per capita is only $3460.  (UNHDR 2000, Table 7). 

      Clearly, something has gone wrong along the way in these countries that has caused a disconnect between growth and development. Barnet and Müller, in their book Global Reach (1974), suggest that “poor countries are poor because they are deficient in what economists call capital stock: that is, they lack the tangible (and expensive) infrastructures that enable modern developed societies to function and to create more wealth--roads, communications systems, schools, machines and factories.  But capital stock, unlike mushrooms, does not grow wild.  Its appearance at a particular time and place is the result of specific human decisions about investment taken in the past.  If a country is poor in wealth-producing structures (capital stock), it is because whoever controlled wealth in that country decided to invest their finance capital in something else or somewhere else (pp. 134-135).”[7]

      Among the more glaring indicators that the decisions by a country’s elite to invest elsewhere can lead to gross inequities in poor countries are income distribution figures.  For the Low Human Development countries, the richest 20% of all income earners receive 50% of their countries’ incomes, on average.  For the Medium Human Development countries, the figure is even higher: 52%.  Poverty rates are another indicator of the impacts of such investment decisions. In the Low Human Development countries 49.4% of the population, on average, live below their respective nations’ poverty lines. The figure for the Medium Human Development countries is 28.8% (UNHDR 2000, Table 4).

     One final disturbing thought about these countries is that they have borrowed heavily--from governments, private banks, the IMF, and World Bank—to facilitate their pursuit of economic growth, but apparently have accomplished very little with their funds.  In 1990 Susan George titled her book A Fate Worse Than Debt in response to the fact that Third World debt had hit $1 trillion dollars and no end appeared in sight.  According to the World Bank’s latest figures (1998), developing country external debt has now surpassed $2.5 trillion (WDR 2000/2001, Table 21).

     The issues in this section suggest that economic theory and real world outcomes don’t always have a strong correlation.  According to David Korten (1995), market players (policy makers, CEOs, etc.) selectively choose certain theoretical concepts to suit their needs and ignore others.  For example, he reminds us that according to theory, efficient market outcomes are obtained only if all of the costs of production are included in the producer’s selling price. But he suggests that this is rarely the case, as most companies externalize these costs onto the public, the environment, and other countries (pp. 74-80).[8]  Wilber and Jameson (1988) offer criticism of a different sort. They argue that economists are so wedded to their theories—Wilber and Jameson refer to them as paradigms—“that empirical disconfirmation of some particular hypothesis is almost automatically rejected” (p. 4). Adherents to Rostow’s stages of growth approach to development, for example, would not consider any of the above depressing social statistics as an “empirical disconfirmation” of the hypothesis that economic growth is beneficial to the well being of these countries. Rather, they would point out that either not enough time has passed and that further strict adherence to an export-led strategy is needed, or that extenuating circumstances, such as a government that has not been willing to sufficiently reduce its presence in the marketplace, are preventing the normal development process that follows from economic growth to take place.

     The lack of theoretical consensus on these matters highlights the need for an objective look. Allowing the data from the developing world itself to speak to the issue of whether or not its societies have benefited from attention to economic growth and exports should prove useful. The following section empirically examines the correlation between economic growth (as well as exports) and a variety of social welfare indicators in the developing world to see exactly how well countries are doing that have pursued strategies designed to generate high rates of economic growth.

Economic Growth, Exports, and Social Welfare: An Empirical Analysis

     In this section, two hypotheses are tested that follow from the previous theoretical discussion:  1) Economic growth is positively correlated with social welfare, and 2) Export production is positively correlated with social welfare. Ideally, one might want to establish causality, rather than simple correlation, running from economic growth (or exports) to the various social welfare indicators. This is a complex undertaking, however, especially if one seeks to verify that economic growth or exports are the “agents” that specifically bring about a change in any of the social welfare indicators, or in other words, if one seeks to establish causality in the dictionary sense of the word.  Statistical causality on the other hand, is more manageable, but still requires that the following minimal conditions hold: 1) there must be concomitant variation between variables, such as correlation or covariation, 2) there must be a time dimension, e.g., one event precedes another event, and 3) one must be able to reasonably rule out that an additional event is not influencing your primary variables of concern.[9] So, simple correlation may not be sufficient for a researcher to claim that economic growth or export sales improve social welfare in a statistically causal sense, but it is necessary that such simple correlation exist in the first place. If the researcher cannot first establish simple correlation, then further analysis of causality is destined to be a fruitless exercise.

     The statistical measure used to establish correlation is the correlation coefficient (r).

,  where cov(X,Y) is the covariance of X and Y, and σ_X and σ_Y are the standard deviations of X and Y. By construction, -1 ≤ r ≤1.  The case in which r = 1 would indicate a perfectly positive correlation. In other words, increases in X are always associated with increases in Y. r = -1 would indicate a perfectly negative correlation, i.e., increases in X are always associated with decreases in Y.  r = 0 would indicate no relationship.  According to Younger (1979, pp. 243-4) a value halfway between 0 and 1 (or –1), 1/2, would indicate a “moderate” relationship. 1/4 would indicate a “moderately weak” relationship, and 3/4 would indicate a “moderately strong” relationship.    

     The variables used in the analysis, their definitions, their sources, and the sign of their expected correlation with both GDP and exports (on the basis of orthodox theory) are listed in Table 1:

Table 1, Data

Notes: UNHDR 2000 is the United Nations Human Development Report 2000. WDR is the World Bank’s World Development Report 2000/2001.  All UN data came from the UNHDR on-line statistical annex: http://www.undp.org/hdro/statistics.html 

* The data used in the calculation of the life expectancy growth rate are based on average life expectancies in the periods: 1970-75 and 1995-2000.

     In an effort to keep the statistical analysis manageable, verifiable, and replicable, all data come from either the UN Human Development Report 2000 or the World Bank World Development Report 2000/2001. A comment on the samples used to construct the correlation coefficients is necessary. The UNHDR reports data from 174 countries.  The WDR reports data from 132 countries.  Not surprisingly, there are a number of countries that for one reason or other do not have entries for certain categories.  Some are too new, some have difficulty collecting the data, etc.  Therefore, there is a wide range of sample sizes.  For example, 160 countries (117 for just the medium and low human development categories) reported data on both infant mortality rates and GDP per capita, but only 104 countries (76 for just the medium and low human development categories) reported data on both exports and income distribution. Rather than attempt to pare the sample size down to a common number of countries for all correlation calculations, I used the largest sample size possible in making each calculation. It didn’t make sense to lose the valuable information about the relationship on GDP and life expectancy, e.g., from 56 countries just because those countries don’t report Gini coefficients on income distribution.  The specific countries used in every correlation coefficient calculation are available upon request.

     Also, for every social welfare indicator category to be compared to GDP or exports, a correlation coefficient was generated for all countries (reporting data) in the Low, Medium, and High Human Development categories (ALL) as reported in the UNHDR. Then the High Human Development countries were eliminated and a correlation coefficient for the Medium and Low Human Development countries combined (L-M) was generated.  The purpose is to see if there is a difference in the manner in which economic growth and exports affect social indicators of the rich vs. the poorer countries.

     This is a cross sectional study by necessity. As the data permits, the variables were transformed to give the analysis a long run focus. Rather than compare current GDP and current life expectancy, for example, the variables were transformed into long-term growth rates. In cases where data are only available for a single recent period, e.g., literacy rates (1998), it still makes sense to compare this number to the long-run GDP growth rate.  If, in fact, economic growth has a beneficial effect on literacy rates (i.e., higher growth leads to higher incomes and the means to spend more money on education), then the accumulated effects of 23 years of GDP growth should exhibit a positive correlation with 1998’s literacy rate.  On the other hand, export data are only available from 1990-98.  It doesn’t make sense that export growth during the 1990s would have an impact on life expectancy, infant mortality, or calorie consumption over a period from the 1970s to the present.  Therefore, for these three categories, the comparison is for the most recent years for which data are available: 1995-2000 for life expectancy, 1998 for infant mortality, and 1997 for calories.

     Column four in Table 1 contains the expected signs of the correlations of each social indicator with both GDP and exports.  The previous section made the general theoretical argument that increased economic growth, as well as increased export sales would be beneficial to social welfare. In the case of life expectancy, this beneficial effect results from the additional income generated from higher GDP growth or export sales that allow a nation to gain access to greater quantities and better quality of food, health care, clean water, education, and other infrastructural necessities, all of which are assumed to extend life expectancy. In the case of the infant morality rate, the beneficial effect shows up as a negative sign if increases in GDP and exports result in a lowering of this rate.  The infant mortality rate should improve for the same reasons as life expectancy, with benefits coming particularly from improvements in women’s education, health care, and nutrition. The two literacy rates should have a positive relationship with GDP and exports if some of the additional income that results flows in the direction of education. To the extent that gender discrimination still exists, then one would expect the female literacy rate to have a smaller correlation with GDP and exports than the overall literacy rate.  The correlation of doctors and GDP and exports should be positive for many of the same reasons already mentioned above: additional income flowing to health care and education. Regarding calories, orthodox theory would suggest a positive correlation for many of the same reasons already mentioned.  Non-orthodox theorists, on the other hand, would be quick to point out that the more export-driven is an economy, the fewer resources are available for domestic food production.  The export agricultural sector may be the driving engine of an apparently healthy economy that, in actuality, is doing a poor job of feeding its citizens. Finally, there is a question mark in the box for the income distribution category.  A rising economic tide may or may not float the boats of all members of society.  Orthodox theorists would assume everyone benefits from the general prosperity associated with economic growth. Critics, though, are not so sanguine.  However, even if the orthodoxy is correct, that all of the citizens of a country benefit from economic growth and export sales, there is no reason to assume that the poor might gain at the expense of the rich. The distribution of income could still worsen even as the economy grows.  Thus, this correlation could be positive or negative, but it is likely to be weak, one way or the other. 

     The correlation results are presented below in Table 2:

Table 2, Correlations

Note:  Asterisks indicate significance at the 5% level.[10]

    If, in fact, the policy goal variables of economic growth and exports are associated with the positive social outcomes that theory and policy makers suggest, then one might expect a correlation coefficient of .5 or greater. In other words, one would hope for at least a “moderate,” or possibly a “moderately strong” relationship. By this criterion, then, the results in Table 2 collectively are not very supportive of the two hypotheses. There is only a single correlation coefficient larger (in absolute value) than .5, and it happens to be the wrong sign (doctors: -.52).  While many of the coefficients on GDP are significant, none are significant for exports.

     In the first half of the table are GDP correlations. The coefficients for the category, life expectancy, have the correct sign for the two samples (ALL and L-M) and are statistically significant, but the values of .20 and .33 suggest only a moderately weak relationship.  The coefficients for infant mortality, -.43 and -.38, have the correct sign, are statistically significant, but also suggest only a moderately weak relationship. The coefficients for the literacy rate, .24 and .13, indicate a weak relationship, at best. Note that the coefficient for the L-M countries is only about half of that of ALL countries (and insignificant), indicating that when the rich countries are left out of the sample, the correlation of economic growth and literacy is seriously weakened. The coefficients for the female literacy rate, .09 and -.02, are small and statistically insignificant. In comparison to the results for overall literacy, these results suggest that well into the post-modern era, there are apparently still global forces at work that act to prevent the few positive effects of economic growth on literacy that were noted above to spill over to significantly affect women. The coefficients for the category, doctors, -.25 and -.52, have the opposite signs of what theory would predict. The coefficient for the L-M countries is more than double the coefficient for ALL countries, a result that does not bode well for the future health of the developing world. The coefficients for the category, calories, have the correct sign and are statistically significant, though the values, .31 and .43, suggest once again only a moderately weak relationship. Finally, the coefficients for income distribution, -.03 and -.13, shed very little light on the uncertain relationship between economic growth and income distribution.  It appears that the spread between rich and poor narrows as economic growth occurs, however, both values are extremely small and statistically insignificant.

     The results for exports are even less impressive than those for GDP. The coefficients are extremely small, and nearly half have the opposite sign as predicted.  However, as noted above, none are statistically significant. 

     This analysis provides only modest support for the notion that economic growth is correlated with improvements in social welfare. In some categories, such as doctors per population and female literacy in developing countries, the relationship is actually the opposite of what theory would predict.  In the case of the hypothesis that increases in export production are correlated with improvements in social welfare, there was absolutely no statistically significant evidence in support of this notion.  Based on these results, it cannot be stated with any certainty that theoretical predictions about the benefits of economic growth or an export-oriented economy are closely aligned with evidence from the real world.

     The following analysis offers a glimpse of a small-scale model of economic development that has a genuine concern for social and human welfare at its core, rather than a concern for economic growth or export production. 

Economics as if People Mattered:[11] Capitalism With a Small “c” in San Lucas Tolimán

     Among the countries of Latin America, Guatemala is near the bottom of the United Nation’s Human Development Index; only Haiti ranks lower.  The country has been under IMF and World Bank tutelage for over two decades now, and is seriously committed to export-led economic growth. During this time, it has diversified its traditional exports of coffee, bananas, sugar, cotton, and beef to include “non-traditional” crops such as snow peas, cauliflower, and broccoli, as well as the myriad of textiles and small goods produced in the growing maquiladora industry. During the troubled decade of the 1980s, when the country was experiencing civil war, exports actually fell at an average annual rate of –1.8%.  Since 1990, however, they have increased at an annual average rate of 6.4% (WDR 2000/2001Table 11). Exports currently represent nearly 19% of the country’s GDP (UNHDR 2000 Table 15). Unfortunately, though, this attention to exports does not seem to have had much impact on Guatemala’s standard of living. Its GDP per capita of $1533 (1995 US$) in 1998 is actually less than it was before the country signed on to the banks’ programs (1980: GDP = $1598) (UNHDR 2000 Table 7).

     As bad as those figures seem, given the vast gulf between rich and poor in Guatemala, they are not particularly meaningful. There are only three countries in the world with a more highly skewed distribution of income than Guatemala. The top 20% of all income earners receive 63% of the nation’s income.  Moreover, the top 10% of all income earners receive 47% of all income. In the way of a comparison, those same numbers for Canada are 39% and 24%, respectively, and for the U.S., 46% and 31%, respectively (WDR 2000/2001Table 5). A Bread for the World study revealed that only two percent of the population own 80% of the land (Bread for the World 1990, p. 80), many of whom live on estates that average nearly 600 acres (Barry 1992, p. 104). Inequality of this magnitude cannot help but contribute to unfortunate social outcomes. The average life expectancy in the country, according to the United Nations, is only 64 years and the infant mortality rate is 41 (deaths per 1000 live births) (UNHDR 2000 Tables 1 and 9). Suzanne Jonas reminds us, however, that the life expectancy for Guatemala’s indigenous Mayan population is 16 years lower than for the ladino population[12], and also that the infant mortality rate is twice as high for the indigenous population as it is for ladinos (Jonas 1991, p. 179). The adult literacy rate is an oppressively low 63%—only Haiti is worse, out of all of the Latin American countries.[13] 32% of the population does not have access to safe water and 40% does not have access to health services (UNHDR 2000, Tables 1 and 4). The Bread for the World Study further noted that three quarters of Guatemala’s citizens live in poverty, with nearly 60% unable to meet minimal nutritional needs. An astonishing 85% of children under 5 years of age experience malnourishment to some degree. Stunted growth was observed in up to 95% of non-Spanish speaking children[14] (Bread for the World 1990, pp. 79-80). It is difficult to see evidence of a rising tide of prosperity in Guatemala after two decades of pursuing neo-liberal development strategies except among a privileged few citizens.  For the majority, day-to-day living remains a precarious struggle.

     In stark contrast, there is a community nestled on the southeast shore of Lake Atitlán in central Guatemala—San Lucas Tolimán—where social indicators are significantly more hopeful than those of the rest of the country.  This is not the result of luck or good circumstance, but rather the outcome of a human-first approach to economic development in place now for nearly four decades.  In the early 1960s, San Lucas was a typically poor and downtrodden highlands community. The hopes that had been temporarily raised during the brief experiment with democracy under the Arevalo and Arbenz administrations (1944-54) had faded quickly in the face of a military insurgency that violently suppressed the reform movement. Approximately 500,000 peasants, including some in San Lucas, had received land under Jacabo Arbenz’ 1952 Agrarian Reform Law, decree 900. To the beneficiaries, this was long overdue justice after nearly 500 years of oppression and land grabs, but to the oligarchy, this was an affront to their privileged way of life—this was communism. The land, for the most part, was forcibly returned, and so brutal was the military dictatorship that followed, that it spawned a rebel counterinsurgency. The rebel forces demanded land, justice, and indigenous rights, among other things. The country was essentially at war with itself.[15] 

     It was in such a volatile environment that the Catholic Diocese of New Ulm, Minnesota made a commitment to link its parish with that of San Lucas Tolimán with a permanent mission project.[16] The Diocese provided two young priests, fresh out of seminary, Father Greg Schaffer (arriving in 1964) and Father John Goggin (arriving in 1967), to oversee the operation. They didn’t come armed with fancy degrees in economics, engineering, or business. They simply arrived full of the social gospel and with ideas about peacemaking and community building from studying the works of Ghandi, Dorothy Day, and E.F. Schumacher[17]. 

     San Lucas, at the time, was like many other communities in the central highlands.  It was poor, with little infrastructure, little hope, and a distribution of land that heavily favored the coffee-owning oligarchy. The skewed land holding patterns were not accidental. From the arrival of Hernan Cortes’ lieutenant Pedro de Alvarado in 1523 until the present, those in power have arranged the laws of the country to ensure the landed elite a steady supply of seasonal workers. Vagrancy laws, forced labor laws, evictions, threats, and scorched earth military policies have all been used to make sure that the peasantry—mostly Mayan indigenous peoples—are not capable of sustaining themselves for an entire year on their tiny plots of land.  When their food supply runs out, they have no choice but to travel long distances to the giant fincas (plantations) at planting or harvest times. 

     Those left with no land at all often find themselves with no choice but to live permanently in stark colonias (worker colonies) on the edge of the patrón’s (boss or owner) coffee or sugar plantation in a fashion not unlike the feudal system of the middle ages. They are therefore available to meet the immediate needs of the patrón throughout the year.  In exchange, the landowner is obligated (at least according to the constitution) to provide shelter, water, healthcare, schooling, and a minimum wage. In practice, the colonias are among the most destitute places on earth, with few provisions at all. The appearance of the children tell the whole story; most look like they have never had baths, or a toothbrush, or a change of clothes, or enough food for a single day of their lives.

     You might think that in an enlightened age in which we supposedly live, early in the 21^st century, that such a social/economic arrangement would have ceased to exist. In fact, it is beginning to crumble, slowly, but unfortunately, it is happening not because of a general enlightenment, but rather because the patróns have discovered that it is more profitable to “release” their workers to the freedom of the marketplace and then hire them back on a seasonal or day-to-day basis.  This sounds like it might meet some of the criteria associated with economic efficiency discussed earlier, but if there is no land, jobs, or affordable housing for the workers upon their “release,” then in many respects, they are worse off with their economic “freedom,” than they were under the gun of the patrón and his foremen.

     This was the setting into which Padres Schaffer and Goggin were thrown.  Some of the immediate needs in the community were straightforward and merely required focused attention, creativity, manpower, and funding. A lack of schools, water, and health care were among the most pressing, as well as a problem of how to care for the growing numbers of orphaned children, many of whom had lost parents to the widening circle of violence and poverty. With funding from New Ulm, construction on school, church, and orphanage buildings was begun, teachers were hired, a health clinic staffed with volunteers from the states was begun, and designs for a pumping system to deliver water from Lake Atitlán were implemented. 

     The people, though, needed more than physical goods and services; they needed hope and a vision for the future. As Father Greg saw things, the role of the church was to empower people, rather than to merely save souls.  Empowerment would come from addressing not only physical needs, but spiritual and intellectual needs, as well. Furthermore, empowerment, as opposed to charity, comes from having control over decisions that affect your life.  Recognizing this, the parish collaborated with community leaders, establishing the Christian Action Committee, a group that is involved in all project planning, helping to ensure that decisions are made from the bottom up—recognizing the needs of the people first—rather than from the top down.

     A particularly fateful decision was made with the construction of the first church annex building that would guide all future parish/committee activity.  Rather than use scarce money from contributions to bring in professional builders and material resources from outside the community, it was decided to use as many local resources—workers and materials—as possible.  The idea was one right out of the pages of an economics textbook—to allow locally generated wages and expenditures on materials to multiply throughout the community to create even greater wealth. With few leakages in the process to Guatemala City or elsewhere, the local multiplier effect would be magnified. A local stonemason was found along with a student who taught himself how to read a blue print. The stonemason pointed out that the region was abundant with beautiful, high quality volcanic rock and so this material was chosen for many of the early construction projects.  Paid volunteers for the project learned new skills along the way, which they were quick to share with others, for along with basic skills, hope and pride were being learned as well.

     Over the years, this skill building became more formalized in the manner of an apprenticeship program, thus filling a sizeable gap in the technical and trades education in the central highlands, since government money for such schools was virtually nonexistent. There have evolved over the years apprentice programs in stone masonry, stone cutting, carpentry, welding, plumbing, and electricity, with master craftsmen and teachers supervising in each area. The process is streamlined. For example, if someone comes to the parish and asks if he can learn how to become a stonemason, Father Greg will send him directly to Lucas Xiruc, the director of the apprentice program, and Lucas will direct him to one of six building projects that are currently underway and see to it that he receives training in stone masonry.  He will be paid a wage along the way and eventually be certified to start up his own operation. There are over 300 individuals who have graduated from the apprenticeship program over the years who remain in the region running their own businesses. The apprenticeship program, therefore, results in a constant stream of skilled workers being channeled into the community.

     As an example of the apprenticeship program and the use of local skills and resources, a new community hospital was recently completed to address the burgeoning health care needs of the region. Master craftsmen and apprentices in all of the above-mentioned categories—stone masonry, construction, plumbing, etc.—were employed in the general construction. The cinder blocks that were used in making the walls, for example, came from some of the three-man cement block fabricas (factories), located throughout town, most of which trace their origins to the apprenticeship program. There are more technologically efficient ways of making cement blocks than to use a hand press to be sure, but factories employing such technology are in distant locations and thus would not make use of local labor and materials. Another aspect of the construction of the hospital that can be traced back to earlier decisions to utilize local materials was the use of bamboo trunks as interior wall studs, rather than purchasing lumber from Guatemala City at great cost.  Bamboo is abundant throughout the region, free of cost, and just as sturdy as finished lumber, and equally important, the cutting and preparation is done using local labor. 

     While many of the successful parish programs have evolved over the years relying on the method of trial and error and based on the exigencies of the moment—for example, if the money doesn’t exist to buy cut lumber, then there is no choice but to use bamboo—there is, in fact, a theoretical logic behind most of them. The rationale for the use of local resources comes partly from the writings of E.F. Schumacher. He notes that the products of sophisticated technology are “not normally an urgent need of the poor. What the poor need most of all are simple things—building materials, clothing, household goods, agricultural implements—and a better return for their agricultural products. They also most urgently need... trees, water, and crop storage facilities.  Most agricultural populations would be helped immensely if they could themselves do the first stages of processing their products” (1973, p. 186).

     The parish programs—nearly every single one of them—take Schumacher seriously and literally. Wherever physically and feasibly possible, as many stages of processing are done using local resources and workers. The construction of the hospital, mentioned above, is a perfect example of this approach.

     In addition to the need to maximize the use of local resources, most decisions are also made with a concern for sustainability. This is a multifaceted concept. In the broadest sense, it refers to methods of organizing society in ways such that human activities are carried out within the bounds of the earth’s carrying capacity.[18] The upper limit of resources that can be sustained for a region (or possibly for the entire world) defines its carrying capacity. Theoretically, a sustainable activity could be pursued forever. An economic system that reserves the majority of all arable land for the production of chemical intensive export crops such as coffee or sugar is not sustainable.  It is not sustainable in terms of the impacts on the soil in that ever-increasing quantities of fertilizers and pesticides need to be applied to maintain harvest levels. It is not sustainable in terms of the displacement of indigenous peoples from their lands, who then have no choice but to seek out ever more distant and disagreeable plots on which to carry out their family farming activities.  Lands that never should never have been cleared for agricultural purposes such as rainforests or steep hillsides are now laid bare to the negative effects of erosion and loss of vegetative transpiration. Also, a system that throws people off their lands and forces them to sell their labor at starvation wages is not economically sustainable.

     To address the problems of environmental non-sustainability in the region, the parish committee decided early on to initiate a forestry project. The project had two goals: 1) to provide lumber for local construction needs—bamboo isn’t appropriate for all construction needs—and 2) to assist in the reforestation of the region. Experimentation with crossbreeding over the years has resulted in a strain of fast growing cypress trees that are capable of producing mature trees in 15 years. They are either given away or sold at cost for local building projects and regional reforestation projects.  The program has gained an international reputation over the years and is occasionally called upon to assist with reforestation projects in other parts of the world.  This is an example of the modern adage: “think globally, act locally.”

     The inability of the small amount of land to meet the basic needs of the population was the most vexing of all the many sustainability-related problems facing San Lucas. The community was hemmed in, in practically every direction; giant coffee fincas lay to the south and west, Lake Atitlán to the north, and a steep 2000 foot ridge to the east.  An orthodox economist might view such a situation from a distance and claim it to be Pareto Optimal, in that any redistribution of land would make at least one person worse off. Also, on the basis of comparative advantage, any such land reform, it could be argued, would represent an inefficient use of resources and thus contribute to a reduction of overall economic output. It would not make any theoretical sense, therefore, to take land that is divided into large enough tracts to take advantage of what economists refer to as economies of scale[19] and subdivide it into a lot of little parcels for use as family farms. The coffee plantations are earning the maximum possible revenues that could be obtained from such rich, nutritious soil, and to reorganize the land into small plots of corn, beans, and squash, would be seen as a GDP-minimizing reallocation.  

     The parish committee, not feeling particularly restricted by economic theory, however, viewed this problem as one with both short-term and long-term solutions. In the short-run, it was necessary to determine the most efficient agricultural techniques and highest yielding crops that could be grown on the limited amount of land in the community.  Also, every possible piece of land that was not otherwise claimed, such as steep slopes on the sides of the two nearby dormant volcanoes, was considered for cultivation. Ecologically friendly fruit bearing trees, such as citrus and avocado, were planted in such locations. Analysis and experimentation was begun with crop growth rates, different soil compositions, and importantly, with composting. In the spirit of sustainability, and given limited funding, the decision was made to avoid expensive chemical fertilizers and pesticides. An educational program was needed to convince small landholders of newer, and greener ways of farming.  For example, it was quite a task to convince farmers to not burn off last year’s corn stalks, but rather to collect them along with other organic roughage and start compost piles.

     Diligence in this area paid off, as it was discovered that the organic techniques, along with the 60 inches of rain during the rainy season, could yield as many as two separate harvests for most crops. Furthermore, with careful attention to terracing and the construction of seed beds, as many as four separate crops could be grown on the same amount of land that would normally be used for a single crop if commercial approaches were used. A typical campesino’s milpa field is likely to consist of corn (maize), pole beans, bush beans, and squash. One particular program that grew out of the early experiments with organic farming continues to provide sustainable futures for local families; namely the production of export-quality coffee. The small local growers can never hope to compete with the large fincas in terms of quantity, but their goal, rather, is to compete on the basis of quality. Coffee grown at the nearly mile-high elevation on the land surrounding San Lucas, in conjunction with the rich volcanic soil, is some of the best in the world.

     In order for the program (known as the Juan-Ana Coffee Program[20]) to be a success—where success would be defined as pulling families out of poverty and offering hope for the future—new ways of thinking were required. Coffee is not a traditional part of the indigenous culture, though the Mayans have been exposed to the industry in one way or another ever since its appearance in Guatemala as a cash crop in the 19^th century. Had the Spaniards and their cash crops never shown up in the highlands, the peasant farmers would have remained content to this day working their milpa fields. However, since a typical plot of land is not sufficient to meet most families’ food needs for a year, coffee production offers an alternative use for part of that small parcel. The proceeds from the sale of the coffee, thus, might generate enough income to pay for additional food and for other household needs such as medicine or tuition for school. A mere half acre devoted to coffee production may make the difference between health and hunger. Depending on market prices for coffee, a well managed, half acre plot could generate as much as $500 US, or significantly more if the family is participating in the Juan-Ana program.

     For newly participating families in the program, there are the usual complications one would expect for any new business owner: resource costs, maintenance, financing, labor, security, processing, transportation, marketing, etc. Only the highest quality Arabica trees are used. There is the matter of selecting the right kinds of shade trees to prevent the coffee beans from over-exposure to the sun.  Another issue is the timing and method of the harvest.  Small owners need to carefully pick only those berries that are ripe.  This may necessitate several passes through the stand of trees during the harvest season—something that would be considered economically inefficient on the giant fincas.  This is very time and labor intensive, but guaranteed to maintain high levels of production. The branches from which berries have been delicately picked will suffer no damage and produce bountiful yields in future years, unlike those that get stripped clean by day laborers on the fincas who are paid by the pound. Careful picking also ensures that the 100 lb. bags are full of ripe berries, rather than hard green berries, sticks, and stems. All of these are important issues because if the overall program is to be successful, only the best quality berries will be accepted.

     In addition to offering educational assistance to new farmers in the above areas, the program offers the services of a beneficio (a processing plant), where the beans are cleaned and roasted. The beneficio employs a number of full time employees who, in the spirit of E.F. Schumacher, are engaged in every single stage of coffee processing, from the initial weighing and cleaning, to the roasting, packaging, and transporting. The program, in an effort to address the issue of economic sustainability, offers participating families above-market prices for their coffee and directly markets the finished product in the United States, thus eliminating the markup of the middleman.

     The parish consulted with local growers to determine their costs of production and their family financial needs and arrived at a fixed price of 200Q (approximately $26 at the current exchange rate: 1.00$ US = 7.75 Quetzals) per 100 lbs. of raw beans.  World market prices may drop to a quarter of that, but the project holds its payments to the families firm at 200Q. The processed coffee is then marketed in attractive 17 oz bags selling for just $5.00 in the US from parish offices in New Ulm, Minnesota. At this point, the sale of the coffee is just covering the costs of the project back in San Lucas, i.e., it is sustainable.  The growers receive prices that can support their families, the employees at the beneficio receive a livable wage, and coffee lovers in the US enjoy an earth and human-friendly cup of quality coffee.  At the moment, there are over 200 families participating in the program, up from approximately 65 in 1996.  Father Greg anticipates the numbers to grow to over 300 just as soon as a second beneficio, located on the newly acquired finca El Pornvenir, is reactivated. Success in accommodating the additional families will also necessitate that the diocese in New Ulm spread the word of the availability of this quality product farther and wider among sister parishes in the US. Mainstream advertising is not yet in the works, though the parish for the past two years has added a holiday mailer to its newsletter that advertises the coffee as well as locally made crafts.

     An interesting note to this coffee story is that, as most readers are by now aware, there is a rather serious slump in the world coffee market.  The introduction of Vietnamese coffee, encouraged by the World Bank, has swamped global markets with excess production leading to falling prices at many of the stages of production. Quetzal prices for raw beans are expected to fall to as low as 35 or 40Q this harvest season, less than a quarter of the 200Q the parish is paying its participating farmers.  Lower grade coffee from the coastal region is already starting to sell at only 20Q, a most ominous sign. While many producers in Guatemala and throughout the world are facing bankruptcy, the Juan-Ana program is still in good shape. In previous years when specialty coffee prices brought extremely high prices in boutique markets—Jamaican Blue Mountain coffee selling for as much as $45 a pound is one extreme example—many growers jumped on the bandwagon and increased production significantly and sellers of roasted coffee built the higher retail prices into their future expectations.  The Juan-Ana program, on the other hand, has kept its retail prices fixed for nearly a decade at $5.00 per 17 oz. bag and has only accepted families into the program willing to produce the highest quality coffee.  As retail prices at grocery stores for quality grades of coffee have fallen from earlier highs of $7-10 per pound toward prices in the vicinity of $4-7 per pound, the Juan-Ana coffee continues to be competitively priced. As a result, the program has not been adversely affected by the world slump, and in fact, as mentioned above, it hopes to expand its coverage to 100 additional families.

     Earlier, it was suggested that there were both short and long-term solutions to the various problems facing San Lucas. The long-term aspect of the land problem required a great deal of patience. Prime agricultural land, like that surrounding San Lucas, rarely, if ever, becomes available for sale in Guatemala. Occasionally, however, a family, many generations into the ownership of a farm, may grow weary of the responsibilities of maintaining the operation. The parish committee, with its local contacts, keeps a close eye on such affairs and stands ready to make offers to purchase land on behalf of various groups of families.  There have been a number of successful purchases over the years and no one single transaction has been identical to another.  A situation that is not atypical, however, involves the purchase of land for families living on colonias, the tiny residential parcels attached to the corners of the giant fincas, mentioned earlier.  The following actual case history illustrates the complexity of Guatemala’s land issues.   

     A new patrón took over the finca Santa Teresa in April 1997. He was a businessman from Guatemala City and was unfamiliar with the long-standing traditions in many of the coffee fincas whereby the day starts as early as 4:00 or 5:00 AM with work concluding by mid-day, at which point the laborers retire to their own tiny plots to tend their crops.  This arrangement had been in place for generations producing high yields of export quality coffee for the previous patrón and allowing a subsistence lifestyle for the workers and their families.  The new owner was of the opinion that a full workday consisted of early morning to early evening hours, such as was the case in the factories in the city.  Furthermore, he felt that the workers needed to increase their daily workload, or tarea, by a factor of five.  At this point in the work cycle, they were applying limestone fertilizer to the trees.  He felt that they should increase their tarea from 100 to 500 lbs. of fertilizer. 

     To the workers, these were impossible demands.  In addition to the unbearable physical strain of carrying four additional 100 lb. bags of limestone up the hillsides, there was a second and even more serious matter.  By having their workday extended into the evening, this would reduce or possibly eliminate the time they could spend farming their own little parcels. One cannot overemphasize the critical nature of these plots. As small as they are, they provide the additional food that their meager wages are not capable of buying. Access to them in many cases literally determines life or death.

     The workers’ protests over the new demands fell on deaf and uncaring ears, and, in fact, since the patrón was used to dealing with perfectly subordinate workers, he responded to their defiance with vengeance.  They were ordered to leave the property. One hundred families with ties to the land extending over many generations were given two days to pack their belongings and depart.

     Fortunately for these families, Father John Goggin had been visiting them over the years as part of his ministry to the outlying aldeas (rural communities surrounding San Lucas) and he was made aware of their plight. The presence of a small parcel of land near a sugar plantation that the families might move to and that was available for purchase was brought to the attention of the parish committee and an agreement was signed.  This was only a temporary arrangement, however. The land was hardly suitable for a permanent stay.  In addition to being too small for 100 families, it was of questionable agricultural quality.  A search for a larger parcel of land ensued, vigorous fund raising began back in the US, and eventually two impressive estates were identified that had come on the market and they were purchased at a cost of approximately $450,000. The families’ occupation of the new land is taking place in stages. 

     One of the two parcels was better suited for agriculture.  On this site there is sufficient water and high quality soil for extensive farming, though much work lies ahead even two and a half years after the August 1998 closing of the purchase. Part of the property had been a coffee finca, but had been long since abandoned.  This section of the land will require extensive care and attention, and probable replanting of a majority of the trees. On the remainder of the property, as it gets cleared section by section, plans are under way for vegetable gardens, bean, and corn fields, as well as a number of spices, flowers, and Spanish Cedar trees. There are high hopes that the cedar trees will thrive on the new parcel because they bring a good price in export markets.

     The other parcel, which is detached from the agricultural site, will be the location for housing, as well as a soccer field.  While the agricultural site is aggressively being cleared and farmed, the preparation of the second site for housing has been significantly delayed because of water source problems, mainly of a legal nature. These problems have only recently been resolved, thus allowing work on the retention tanks at the water source to begin. I was in San Lucas back in August (2001) and accompanied Andres Chajil, the water project manager, for a day of work at the nacimientos (the water sources) several miles up-slope from the housing parcel. I was using the trusty chronometer feature on my runners watch to measure the rate of water flow from each of the three springs. After making the conversion from the number of seconds it took to fill a five-gallon bucket to the more usable measure of gallons per minute and announcing my findings, Andres broke into a big smile. He announced that the water flow was clearly acceptable for supporting the housing project. His next words were simply, “This is good. Water is life.” He gave a chuckle at having made such a profound statement, and with that, we packed up our tools and headed back to the parish to report the good news.

     Until Andres and his work crews can connect the water pipes to the retention tanks and run them to the housing plot, the families will continue to live on the tiny parcel next to the sugar plantation and commute each day to their new farm.  The parish is paying the workers a daily wage for their efforts until they are firmly ensconced on their property. The construction and financing of the houses will likely take place in a manner similar to previous land deals.  The new owners, for example, will offer their collective sweat equity, much like the process with Habitat for Humanity homes in the US.  Any costs, such as building materials that can’t come straight from the land, will be financed through the parish with long-term loans.

     There is an ancient Mayan saying that aptly expresses the feelings of the 100 families as they move ahead in their new venture of independence: “Tortillas made from corn we grow on our own land taste better.” For the first time in their lives, there is a sense of hope for these people.  The daughter of one of the families was asked by a visiting American, “How do you like it here?”  Her response was an enthusiastic, “My mom and dad are happy because this is our own.”

     Bringing hope to families is probably the best measure of success for any economic development program. In stark contrast to the gloomy statistics on social welfare for Guatemala, the citizens of San Lucas appear to be faring much better, thanks to the parish related programs. To an unprepared visitor, the people of San Lucas would appear desperately poor, at least by US standards.  By Guatemalan standards, however, or by the standards of communities in other developing countries, one would have to conclude that progress has been made in a number of areas.  The apprentice program mentioned earlier is a good example of such progress.

     There has also been remarkable progress in education. Parish-related schools educate 600 students per year, many of whom attend at least through 6^th grade. They employ over 50 teachers, many teaching in the outlying colonias or aldeas. There are 17 elementary schools serving the metropolitan area, all but two of which the parish had a direct hand in creating.  Back in 1963 there was only a single public school. As the parish schools have flourished over the years, reaching out to ever more distant communities, the government has stepped into the picture to assist with funding. Most highlands communities are lucky to have a single functioning school, much less 17. A study in the early 1990s found that San Lucas Tolimán had a literacy rate of 85%, which is an amazing statistic for a highlands community.

     I was lucky enough to be able to attend an elementary school class near the community of Godenes. The teacher appeared highly qualified—over qualified possibly—and offered the students a vibrant lesson in math and Mayan culture.  The students were eager to participate and seemed highly motivated. They became especially animated when the math section ended and the discussion shifted to the subject of their Mayan heritage. This is a topic that never would have been allowed in the past—it would have been considered subversive. This was another sign of progress.

     Visible progress has been made in the provision of medical services. Health care is available through the clinic and new hospital at little or no cost—no one is turned away. The metropolitan area is served by 6 full time doctors, 3 full time dental technicians, and 17 nurses or nurse practitioners. Most use the parish facilities or in some manner are linked to the parish’s health programs. The area would benefit from additional health care providers to be sure, but vast strides have been made since 1963 when there was essentially no medical care except that provided by local curanderos (the equivalent of medicine men or women).

     Finally, over the last four decades, approximately 2,100 families have received property through parish efforts at locating and purchasing available land, such as the example of the 100 families of Santa Teresa.  If one assumes an average family size of six, this means that over 12,000 formerly landless people, out of a population of only 20,000 in San Lucas proper, or 40,000, if the surrounding aldeas are included, have received land. This is a rather impressive accomplishment.  On a percentage basis, the parish’s land assistance program has been even more successful than Arbenz’ agrarian reform program in the 1950s.

Conclusion

     Economic theory, as embodied in noble goals like efficiency and growth, offers hope to all the people of the world according to the principles textbooks.  These goals are at the core of international development programs administered by the World Bank and IMF, for example. Sometimes though, when economic theory collides with human reality, the results can be disastrous, as evidenced by the disturbing statistics from Nicaragua, Ghana, or the 100 or so countries of the developing world most of which are aggressively pursuing export-led, neo-liberal economic strategies, as shown in the empirical section of this study.  The disaster that befell the people of the colonia Santa Teresa in the section above on Guatemala is an example of what happens when decisions are made only on the basis of economic efficiency and profit maximization.

     Occasionally, there are development efforts by groups, institutions, or communities that culminate in programs such as those of the parish of San Lucas Tolimán that are capable of uplifting, empowering, and providing hope to people like those of the colonia Santa Teresa. Such programs are successful, though, specifically because they avoid a dogmatic adherence to theory—a one-size-fits-all approach. They certainly don’t draw upon the tired notions of socialism, which would be heavily frowned upon by the authorities in a country like Guatemala. Rather, the programs described in the previous section on San Lucas Tolimán, upon close inspection, look a lot like capitalism. “Capitalism with a small c,” however, is how Father Greg Schaffer and I prefer to think of them. They rely upon basic human drives to own a piece of property and to be able to make decisions that affect one’s life’s outcomes. They are based on hard work, a spirit of community, and a love of life. In fact, the programs’ success clearly depends upon the capitalist assumptions of rationality and the primacy of individual initiative. The designation “capitalism with a small c” comes from the emphasis on local needs and resources, rather than an embracing of the neo-liberal version of global capitalism. Adam Smith was apparently interested in “capitalism with a small c” as well. In the famous passage from the Wealth of Nations where he introduces the concept of the invisible hand of the marketplace mentioned earlier, he makes specific reference to the primacy of domestic over foreign industry. “By preferring the support of domestic (emphasis added) to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is…led by an invisible hand to promote an end (the betterment of society as a whole) which was no part of his intention” (2000, pp. 484-5).

     David Korten, author of When Corporations Rule the World, approaches this issue even more emphatically. Addressing what he sees as a global crisis of deepening poverty, social disintegration, and environmental destruction, all of which are problematic in Guatemala, he states, “Solutions require local action—household by household and community by community. This action can be taken only when local resources are in local hands. The most pressing unmet needs of the world’s people are for food security, adequate shelter, clothing, health care, and education—the lack of which defines true deprivation. With rare exception, the basic resources and capacity to meet these needs are already found in nearly every country. The natural inclination of local people is usually to give these needs priority. If, however, control lies elsewhere, different priorities usually come into play (2001, p. 31).

     The programs of San Lucas Tolimán are designed specifically with Korten’s assumptions in mind. The community has learned over the years that there are no individuals or institutions—not the Guatemalan government, not the US government, and not the IMF or World Bank—who understand its problems, appreciate its problems, and who can devise solutions better than its own citizens. The positive outcomes of four decades of community-oriented development might alert the official world of economics that there are useful alternatives to neo-liberal, outward-looking, export-oriented policies. And I suspect that Adam Smith would agree whole-heartedly.

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*The author wishes to give thanks to Melissa Abell and Elizabeth Perry for reading and commenting on earlier drafts of this paper. Travel to Guatemala for observations and interviews was funded by a Davidson Grant from Randolph-Macon Woman’s College.