Costa Rica: where the market is not the master.

A recent month-long trip confirmed my view that Costa Rica is a model Central American country try. Its 3.5 million people have one of the highest per capita incomes among third-world countries--an economic benefit that flows largely from the abolition of Costa Rica's military force in 1948. Life expectancy exceeds that of the United States and is far higher than Costa Rica's near neighbors. Its literacy rate is also among the highest in the region.

It is Costa Rica's efficient, educated, healthy labor force, rather than low wages, that President Jose Maria Figueres emphasizes in attempting to draw more U.S. investment. Though the current unemployment rate is about 4 percent, between 20 and 25 percent of Costa Rican families live in poverty, with annual incomes under $5,000. The high poverty rate comes from considerable underemployment and a large immigration from neighboring Nicaragua. Despite the end of the war between contras and Sandinistas, Nicaraguans continue to stream to the relatively more bountiful Costa Rica. They now number 475,000 people or 14 percent of the population.

Nevertheless, walking the streets of Costa Rica, one sees few beggars. One sign of general prosperity in San Jose is the multitude of auto dealerships that seem to outnumber the ubiquitous shoe stores of other third-world capitals. In a modest middle-class development where we stayed on the outskirts of San Jose, virtually all of the seventy-five families had cars, telephones, and TV sets. In 1993, the economy grew by more than 6.5 percent and exports climbed 17 percent.

This performance has not sparked much interest in the United States. Following the demise of the Sandinista government in Nicaragua, U.S. news coverage fell dramatically. For three years, including the first twenty-one months of the Clinton administration, the United States did not even appoint an ambassador. In contrast, Costa Rica's salutary conditions have not been overlooked by Costa Ricans themselves and investors from Europe and Japan, who recognize its promise as a tourist haven. Hotels, condos, and shopping malls are going up. Costa Ricans, recognizing the import of their parks and plant and animal life, are becoming the most environmentally conscious people in Latin America. Hospitality and honesty are widely practiced--even toward Americans!

In a world where welfare statism is considered passe, Costa Rica holds to its democratic-socialist policies and strong social safety net. Virtually all the officials with whom I spoke declined to see privatization as a panacea for the problems of economic development. Roderigo Carreras, vice-minister of foreign affairs, remarked in an interview that "even Poland, the Czech Republic, and Hungary are not finding untrammeled privatization to their liking....People who have had many years of a safety net, do not easily give it up." Guido Alberto Monge, vice-minister of housing, said that "the market is only the servant of government. It cannot be our master." He told me about a group of visiting Chilean officials and economists who had "debunked the myth that free-market policies were a panacea for Chile, and pointed out that such policies did not work without considerable government intervention and assistance."

The previous conservative administration of Rafael Calderon had attempted to sell many state-owned enterprises, and dealt summarily with Costa Rica's traditional cooperatives. But President Figueres's governing party, which won the 1994 election by less than 2 percent of the vote, continues to debate the issue. In an interview, he told me that he was not dogmatic about privatization. If private ownership in a particular industry were more efficient than government ownership, say in sugar production, he would be in favor of it. But in his opinion, the government should make these enterprises so efficient that the public would derive greater benefit from them as nonprofit services than from privatization. Health-care programs, which are among the most efficient in Latin America, could be improved, Figueres believes, by allowing patients a freer choice in physicians, while the government continues to provide coverage. At the same time, the government is shifting some insurance operations to the cooperatives which are able to broker their own coverage.

Education is another area where privatization is of concern. Demilitarization has allowed Costa Rica to devote a very large share of its budget to schooling. There is universal education through the primary grades, and the educational attainment of Costa Rican children is the best in Central America. But 20 percent of Costa Rican children go to private schools and a very large proportion of these go on to university education. In order to reduce the differences between public and private schools, President Figueres has introduced measure to teach English as a second language; to bring computers to the classroom; and to raise teachers, salaries.

Though Figueres has worked in the private sector, he is well disposed toward the cooperatives, which play a larger role in the Costa Rican economy than in any other Central American country. They provide 85 percent of the nation's milk,45 percent of its meat, and 40 percent of its coffee production. When United Fruit abandoned its banana plantation recently, the cooperatives took it over and are continuing production with moderate success. The cooperatives also play an important role in running credit unions. Their own bank supports housing ventures. In fact, cooperatives now account for 10 percent of all housing construction, and by the end of the Figueres administration, they are expected to produce 35 to 40 percent of new housing. Rudolfo Navas Alvarado, the president of Unacoop, says the cooperative program enables workers to play a significant part in the management of their enterprise and provides "profit-seeking" motivation which state operations lack.

One of the significant ways that Costa Rica seems to be raising itself out of third-world status is in its approach to taxes. Costa Ricans rarely exclaim, as some Americans do, "I'm entitled to this, I'm a taxpayer." They don't think of themselves as such, and with good reason. Only 50 percent of the tax liability is collected. Many small businessmen, professionals, and skilled workers with second jobs do not pay taxes, which are collected primarily from salaried workers. Hence, there is a proposal to raise the sales tax from 10 to 15 percent. There is considerable opposition, with many arguing for more efficient enforcement of the income tax. Criminalization of income tax evasion seems to be in the works.

Another sign of the maturation of Costa Rica is its approach to the decentralization of power. Ten years ago, President Oscar Arias announced that decisions made in San Tose would be better made on a regional basis. The current administration agrees. Recently, the governing party decided its candidates will be nominated on a regional basis, bringing assembly candidates closer to the control of local people. A similar sort of decentralization is being attempted in the school system.

Perhaps the clearest evidence of the growing strength of Costa Rica is the fact that so few Costa Ricans apply to come to the United States, except for study or visits. The brain drain so common in other Latin American countries is not apparent here. All of this might indicate that the country is rising out of its third-world status. But that would be misleading. Costa Rica's mountainous debt (its debt service is 8 percent of GNP) continues to put it at the mercy of the World Bank and the IMF. The most important element in raising Latin America out of poverty is restructuring the debt owed to the developed countries. Almost equally important is access to the U.S. market. Sixty-five percent of Costa Rican imports come from the United States, but only 1 percent of U.S. imports come from all of Central America. While NAFTA may be a step in the right direction, President Figueres believes that an expansion of the Caribbean Basin Initiative may be even more productive for the region.

J. S. Fuerst has taught for many years in the social work department of Loyola University, Chicago.