Fernand Braudel Institute of World Economics Associated with the Fundação Armando Alvares Penteado

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Fernand Braudel Institute of World Economics

Associated with the Fundação Armando Alvares Penteado

Rua Ceará 2•São Paulo, Brazil 01243-010

Phones 3824-9633/826-0103/214-4454 Fax 825-2637/ ngall@braudel.org.br

El Alto de la Paz

A Report to the World Bank on the Origins and Prospects of Poverty in Bolivia

Norman Gall

Executive Director

Fernand Braudel Institute of World Economics

May 1985

Part I: General Issues Of Poverty In Bolivia
1. Framework of Analysis. Poverty is the inability to create wealth, ultimately leading to hardship and deprivation among individuals, communities or nations. While Bolivia has received substantial flows of resources from abroad in recent decades, it has not been able to use these resources to create new wealth on the scale of recent population growth and urbanization. Throughout Bolivia's republican history, internal capital-formation has been insufficient for economic development, thanks in good measure to the relentless siphoning away of economic surpluses under colonial rule and the equally-relentless pressures for distribution in the 20th Century. Instead of capital-formation, recent decades have produced recurrent spectacles of entropy or degradation of capital by which investments frequently become yet another form of consumption. Nevertheless, the need for capital is deeply and widely felt, not only among officials and workers of nationalized industries, but also among the market women and shoe-shiners interviewed for this study. Edited texts of these interviews appear in the appendix.

This report is an analysis of the consequences of an ecological imbalance on the Bolivian altiplano (highland plateau) that ultimately threatens the survival of a growing population. It first provides an introductory framework for this analysis and then an overview of the new urban concentration of El Alto, the focus of this study. The report next addresses the spatial and logistical difficulties of settlement and economic development in Bolivia.

In this context, it then discusses the fragile growth of urban communities in this century, recalling the instability of these settlements in the past, and subsequently provides a brief history of the growth of La Paz. It next discusses the role of migration and employment in shaping the city's peculiar development and the overflow of La Paz into the new satellite agglomeration of El Alto. It traces the rapid growth of El Alto over the past decade before analyzing the main characteristics of its concentration of poverty. In its final two sections, this study relates historic trends in government spending and taxation to death rates and, lastly, poses options for World Bank policy in this setting.

Despite high mortality and low life-expectancy, the population of Bolivia is expanding rapidly. Although today's malnutrition among children may weaken future generations of adults, the financial crisis in the formal economy does not seem to threaten imminent demographic catastrophe. If such a catastrophe were threatened, foreign governments and welfare agencies seem to stand ready to contribute massively toward relieving the immediate emergency, as they did during the 1983 drought on the altiplano and floods in the eastern lowlands, which truncated domestic food production.

The guardian angel of survival in Bolivia is the donor of last resort, a mythological figure akin to the lender of last resort in troubled financial markets. However, these donations may not be able to continue under conditions similar to the three curtailments of world trade and financial flows that occurred between 1914 and 1945, or diversion of donor interest. One of the most disturbing realities underlying discussions of poverty in Bolivia is that the institutional apparatus for receiving international aid is far more developed, flexible and articulated than is the institutional capacity for production and export. Nevertheless, individual survival stories carry impressive demonstrations of courage and tenacity.

In ancient societies, the labor of ten agricultural workers was needed to support each member of the nonagricultural population of an urban center.1 Highland Bolivia is ancient conglomerate of societies that has undergone radical transformations since the 1952 Bolivian Revolution, which hastened a flow of foreign resources into the Bolivian economy for political reasons. In the mid-19th Century, only 8.5% of Bolivia's population was settled in urban locations, conforming roughly to the spatial and occupational distribution in ancient societies. Since then, urban population grew by 0.4% yearly from 1847 to 1900; by 2.6% from 1900 to 1950, and by 4.3% from 1950 to the last national census in 1976, reaching an estimated 47% of the total population by 1984.2 In other words, the urban population grew from 180,000 in 1847 to nearly 3 million in 1984, with more than three-fourths of this increase taking place since 1950. While food production also increased, it failed to keep pace with the increase in urban population. In the altiplano hinterland of La Paz, where most urbanization has taken place, peasant minifundia still are exploited with ancient farming practices.

From 1880 to 1950, the urbanization process was sustained and accelerated by successive mining booms, first in silver and then in tin, that greatly expanded the cities of La Paz and Oruro as commercial and supply entrepots and created urbanized mining enclaves in the altiplano. Since then, the mining economy has declined steadily, from exhaustion of existing mines and failure to find new ones, while no new production systems have been developed to sustain urbanization at its high and increasing postwar levels. Production of tin, Bolivia's main 20th Century export commodity, peaked in 1929 at 47,082 metric tons, fell to 18,014 tons by 1958, gradually revived to another peak of 33,787 tons in 1977, only to fall precipitously to 17,875 tons in 1984, amid signs of the industry's collapse. The early 1980s also saw aggravation of Bolivia's incapacity to finance either subsidized consumption or the normal functioning of government. According to the World Bank's World Development Report 1984 (Table 27), Bolivia's 1981 total government revenues (8.5% of GNP) were lower than any country in the world except Nepal (8.1%), Uganda (0.7%) and Yugoslavia (8.4%). Moreover, Bolivia's public finances have deteriorated much further since 1981. For several years, Bolivia was dependent on foreign loans and grants not only to build its roads, railways and airports, but also on subsequent foreign loans to maintain them. The importance of official financial flows is reflected in Bolivia's foreign debt, five-sixths of which is owed to foreign governments and international agencies.

Today the Bolivian government can neither tax nor borrow. Real incomes of most Bolivians have been drastically reduced. Large parts of the country's productive apparatus have deteriorated. To a significant degree, Bolivia's urban population has become dependent for survival on foreign food donations, which seem to have attracted further urbanization. These are the conditions in which a cursory study of the political economy of poverty in Bolivia was undertaken.

2. The Meaning of El Alto. With a population currently estimated at 300,000 - 350,000 inhabitants, the giant satellite community of El Alto has spread so fast over the altiplano near La Paz over the past decade that it may be bigger today than any Bolivian city except Santa Cruz (400,000) and La Paz itself (1 million). Given the limited time budgeted for this study, a decision was made to focus mainly on El Alto because of its size, its strategic location, its concentration of poverty, its dynamic role in current urbanization and its weight in the political economy of Bolivia's crisis of the 1980s. Field work for this study was carried out in El Alto during three weeks in late 1984. Edited translations of taped interviews done during this period are annexed to this report to illustrate and support some of its qualitative conclusions.

The interest of the World Bank in the broader processes of poverty in Bolivia's has channeled this investigation beyond the specific population and economic movements in El Alto toward an explanation of the historic forces creating this urban configuration. Between 1976 and 1980, La Paz's population accelerated its growth to 4.9% yearly from the long-term trend rate of slightly above 3% for this century.3 According to the municipal government, most of this added growth is taking place among the proliferating adobe communities of El Alto, where population growth is estimated at 20% yearly and where roughly one-third of La Paz's nearly 1 million people now dwell, against only one-seventh (95,433) of the 654,713 counted in the 1976 census.4

This rapid growth of El Alto has meant a change in the urban character of La Paz. City becomes village; village becomes city. In other words, as La Paz becomes more a receptacle of a homogeneous peasant migration from its immediate Aymara hinterland, the city becomes ethnically and economically more alike the smaller population centers of the altiplano. The financial crisis of the 1980s, reinforcing the impact of the steady decline of the highland mining economy, has limited the urban functions of Bolivia's main seat of government to administration, education and petty commerce, as in the towns and villages of its hinterland, as a result of the loss by La Paz of what little strength it once had as the country's center of capital-formation, credit-creation and modern industry.

This shrinking of differences between city and village may be a worldwide trend. However, in Bolivia and especially in La Paz, this blurring of differences has been dramatized by a fusion of the peasant market into the city market, and by the rapid growth of village-type economic activities in city life. As pointed out in a major migration study, Chukiyawu: La Cara Aymara de La Paz: "The success of the peasant in the city is achieved not in urban style activities, but in those most like the work of peasants in their rural regions of origin: artisanship and small family businesses.5

The changes in the character of economic activity in La Paz will be discussed in greater detail later in this study. It may be sufficient to say at this point that, by 1980, 40% of the city's inhabitants and 62.5% of its working population were migrants. In 1976-80, the growth rate of La Paz's population rose to 4.9%, reflecting a postwar migratory peak rate of 2.3% yearly. In the seven-year boom-and bust period (1976-83) since the last national census, the La Paz labor force grew by an annual rate of 4.7%. However, salaried employment grew by only 1.6% while the number of self-employed increased by 6% and the family sector (self-employed plus unpaid relatives) by 7.7% yearly. From 1976 to 1983, the family sector's share of all employment in the city rose from 29% to 34%. By 1983 the informal sector --tiny workshops and stores, street sellers and roving artisans, domestic servants-- was generating 64% of all employment in La Paz, against only 13% for larger private firms and 22% for the public sector. The ultimate difference between city and village may be in the pace of life. The spectacle in El Alto, especially at the crossroads of petty commerce such as the teeming markets of La Ceja and 16 de Julio, is less of economic or biological prostration than of great vitality. Despite deficient nutrition, great amounts of will and energy are expended not only on physical survival but also on keeping families together and keeping children in school.

3. Space and Population Densities. Throughout its modern history, Bolivia has been plagued by problems of space, population density and communications, again and again threatening its survival as a national state. Its past role in the world economy might have implied some success in overcoming these difficulties. In the 17th Century silver mining complex of Potosí, Bolivia, harbored the biggest and richest export enclave of the preindustrial West, with the largest urban concentration in the New World (120,000 population by 1610, against 200,000 for London around the same time). Operations at Potosí were supported by an extensive system of forced labor mobilization and food and materials supply, extending over much of the area today embraced by northern Argentina and by the highlands and valleys of Bolivia and Peru. nevertheless, following collapse of the Potosí mining boom, internal communications had deteriorated so badly by the time of Independence that a British diplomat, in a detailed report on the new republic's economic potential, reported in 1827: "the roads throughout Bolivia are only adapted for mules and llamas --a cart or carriage road does not exist in any part of the Republic, and with the exception of one or two carriages used in religious ceremonies at Chuquisaca (Sucre), a wheeled vehicle does not exist in any part of Bolivia. "6

These logistical disadvantages tended to widen during the 19th Century. In her Bolivia: Land, Location and Politics since 1825, J. Valerie Fifer observed that Bolivia "failed to share the advantages of direct contact with new ocean steamship routes and the effective lessening of distances they initiated. It failed to experience or benefit directly from the increased mobility afforded by the first phase of railway construction in South America. In both respects, therefore, a landlocked location represented serious isolation from two of the most important technological advances bearing on the growth of State organization and State power during the 19th century." 7 By the mid-20th Century, following loss of half of its original territory in wars with neighboring states that it could have avoided, Bolivia still had occupied only a small part of its remaining area --the least of all Latin American republics. It also had the smallest proportion of farming land to total area (0.3%), with only 0.2 acres (0.8 hectare) per inhabitant in crops. 8.

In her parthbreaking Population and Technological Change: A Study of Long-Term Trends (1981), the Danish economist Ester Boserup develops a relationship between population densities and technological evolution in ancient and modern economies that contributes toward an understanding of Bolivia's retardation. In a chart grouping countries by density and technological level around 1970 (reproduced on the next page), Boserup places Bolivia as the sole Western Hemisphere nation amid a cluster of African states, most of them with lower per capita incomes, sharing the same range of population densities (4-8 persons per km 2) and roughly the same access to modern technology, averaging 47 years life expectancy at birth, 29% adult literacy, six telephones per 1,000 people and a per capita energy consumption of 205 Kilos coal equivalent. Boserup could have been describing La Paz and Bolivia when, referring mainly to 19th century tropical colonies in Africa, she explained:9"Colonial towns differed sharply from other preindustrial towns, because they did not fulfill the usual function of producing nonagricultural products in exchange for food from the surrounding rural areas...Food was cheaper from other continents than from rural areas in the same colony. The failure to produce food surpluses to supply the towns meant that when a rural area ceased to be a subsistence economy only, it became heavily dependent upon foreign trade. The foreign trade component of total national income is very large in this type of economy, on both the export and import side, while the internal monetized sector is very small...In the sparsely populated hot colonies, population densities in the mining districts was much lower and the transport networks in the colonial mining areas much poorer, than those of Western Europe and the U.S. Northeast during the period of industrial breakthrough. Therefore, neither mining nor administrative centers in the sparsely populated hot colonies grew into centers of manufacturing...In some countries, rural - urban migrations become very large (after World War), especially when pull of the towns went together with the extensification of agriculture due to large-scale imports of food. In four countries in the Andean region, a large share of the land which had borne wheat in the 1950s was turned into pastures. Consumers shifted consumption from other cereals to wheat, and 80% of a much-expanded per capita consumption of wheat was covered by imports.

In Bolivia's growing cities, products made from wheat flour become the staples of survival for poor people at very low prices. In 1953 Milton Eisenhower, the U.S. President's brother, visited Bolivia shortly after the revolution and saw shipment of U.S. surplus farm commodities as saving the country from starvation. In The Bolivian Revolution and U.S. Aid since 1952, James W. Wilkie observed: "In a large measure, aid to Bolivia should not have been labeled ‘economic assistance'. Of the $275.9 million disbursed by the U.S. from the inception of the programs through 1964, between one-third and one-half of all grant and loan assistance consisted of shipments of agricultural commodities to Bolivia.”10 While U.S. aid also helped develop and diversify other areas of Bolivian agriculture, it created a dependence on food donations that continues today. Not only must a donor bring the food over long distances to a port of entry to Bolivia. It also must transport the donation by rail or truck up the Andes to a major distribution center and then impose continuous and costly administrative controls to prevent the donation from being smuggled out of the country at higher border prices. "Low prices to producers are accompanied by subsidies to urban consumers," the U.S. agricultural attaché wrote in his 1984 situation report. "The low prices received by producers has encouraged contraband exports to neighboring countries. The low food prices paid by consumers (generally half the level of neighboring countries) also result in illegal border trade."

In the decades following the Second World War, nevertheless, major advances were made in strengthening Bolivia's logistical integration. Between 1956 and 1983, the highway network doubled to 41.000 Km, still very scant coverage for a sparsely-settled country of 1 million Km2. In 1956, there were only 550 Km. of paved roads and only 3.000 Km wide enough for two trucks to pass each other.11 By 1983 the length of paved roads had tripled. In 1949, there w ere only 22.292 motor vehicles registered in Bolivia.12 By 1974, there still were only 71.127 vehicles, but over the next decade they multiplied to 184.658.13 Railroad trackage increased by only about 20% since 1956 to 3.568 Km, reflecting mainly the completion in 1964 of the 643-Km line across the eastern semi-desert Chaco from Santa Cruz to Corumbá (Brazil). Curiously, freight traffic has been flat at around 1.1 million tons yearly from 1965 to 1983, reflecting the flatness of Bolivia's export volumes.

Meanwhile, passenger rail traffic fluctuated dramatically, declining in prosperous years and rising in times of difficulty, reflecting not only subsidized fares but also the use of these old export corridors by "ant" (hormiga) smugglers carrying contraband goods to and from border trading points.14 However, perhaps the most important tying together of distant points has come from the multiplication and improvement of airports and the consequent growth of passenger traffic from 66.000 persons in 1951 to 1.5 million in 1983. By contrast, the growth of road traffic seems to be a product of densification rather than dispersion of settlement patterns. In the ninefold increase of motor vehicle registrations from 1949 to 1983, the biggest growth was among those used most for local transport: motorcycles (119 to 40.514), buses (404 to 8.008), while the number of trucks rose by only half (18.409 to 29.073). Much of the improvement in Bolivia's transportation facilities is associated with new patterns of urbanization.

4. Urbanization and poverty. Bolivia has followed the global urbanization trend by which the number of people living in the world's towns and cities multiplied from 25 million in 1800 (2.5% of total population) to 1.8 billion (41%) in 1980. Between its last two censuses (1950 and 1976), Bolivia's urban population grew by 4.2% yearly, about as fast as in the rest of Latin American. However, since 1970 Bolivia's urbanization slowed to 3.3% yearly, closer to the world rate (3%) and to its own long-term rate for this century, accompanying a similar abatement among the 13 other peculiarities and a bias toward three classes of communities: (1) the cities of more than 100.000 people, increasing in number from one to four and in share of total population from 10% to 26%; (2) medium-sized towns (10.000-20.000), increasing in number from two to 12 and in population share from 1% to 3.6%, and (3) small towns (2.000-5.000), doubling in number from 30 to 65 but increasing their population share only marginally (from 3.2% to 3.5%). In addition, the number of non-urban concentrations (200-2.000, excluding dispersed population) grew mainly in the altiplano departments (La Paz, Oruro and Potosí) from 341 to 471, but the share of these villages in total population fell from 8.3% to 6.9%.15 It has been suggested that the rural-urban migratory movements and creation of new towns between the 1950 and 1976 censuses reflect the liberation of peasant mobility and the diversification of peasant economic activity since the agrarian reform that followed the 1952 Revolution. Land redistribution and subdivision, combined with accelerated growth of rural population that doubled overall densities on the altiplano between 1950 and 1980, aggravated the chronic minifundia problem as farmers' children came of age. In his article on "New Towns- A Major Change in the Rural Settlement Pattern in Highland Bolivia," David A. Preston observed:16 “Many Bolivian new towns would appear to be scarcely worthy of the name hamlet (caserío) when judged by their size. But their inhabitants as well as people from neighboring communities consider them to be urban and many of the larger nuclei have a maximum population during the week of 500-800 people: they offer a range of services and have administrative functions greater than their size would suggest.…These new towns vary in size between clusters of five or ten houses --at an early stage of development-- to towns with 150 or more houses. a school offering perhaps four or five grades of primary education, a church and a municipal building (alcaldía). Many of the new settlements have administrative functions such as being a canton center, the local center for a group of peasant unions, or even a provincial section with a series of dependent cantons.…One of the more surprising characteristics of the altiplano new towns is that for much of the week the majority of the houses are empty. The people who have built homes in the new towns are rural smallholders and as such they need to spend most of their time in the fields and in the old-style houses close to their fields and livestock. On market days and for festivals, however, they head for the new town which then loses its normally rather desolate air and becomes a bustling social center.”

In dealing with the differences between urban and rural poverty, one not only must remain aware of the relatively modest degrees of Bolivian urbanization (45% of its people in communities of at least 2.000 in 1982, against 65% "urban" settlement for all Latin America). One also must focus on the newly-articulated intermediate gradations between city and village economies. This expanding common ground is formed by new transportation and marketing facilities that continually incorporate more people into commercial and artisan activity. Nowhere is this city-village fusion more dramatically articulated than in La Paz. Just as peasants have built seldom-occupied houses in the "new towns" since the 1952 revolution, they also have built many others, also seldom-occupied, in the outlying adobe villas of El Alto. Concentrated in El Alto and other marginal areas of La Paz, the peasant purchases of cheap urban land, at prices as low as between one at eight U.S. cents per square meter in the 1970s, took place amidst frenzied real estate speculation in a region where productive farmland not only was much more expensive but seldom placed on the market. For many peasants, however, these urban property purchases are speculative only in the recognition of the need for future migration to secure the livelihood and education of their children. They also enable the peasant to participate more efficiently in the great peasant market that is sprawling over La Paz.

The village-type markets of La Paz flood the city, hungrily occupying every open ground or sidewalk where goods can be spread out and the movement of pedestrians offers a chance for sale. The petty commerce goes on at ever greater intensity at many locations and levels of concentration, from street corners in wealthy residential neighborhoods to the teeming market areas of El Gran Poder in the lower city and the 16 de Julio in El Alto. They mobilize tens of thousands of sellers and a spectacular variety of goods arranged in special sections spread over several city blocks. The proliferation of sellers seems to have accelerated after the general strike of March 1985 dealt more blows to the formal economy of La Paz.

"Whenever this swarm of triflers buzz in a market, I take a minute and vicious division of the soil for granted," observed an Englishman, Arthur Young, during travels in France in 1788.17 In a broader historical framework, this market fever in Bolivia today might easily be confused with the diversification of peasant economic activity in preindustrial Europe and Japan. El Alto's merchant-truckers of peasant origin, operating out of their new two-story brick headquarters that serve as both home and warehouse located strategically at the crossroads of Bolivia, might even fit into the historic mold of wandering merchants in the early modern era of these rich countries of today. But these prosperous two-story warehouse-dwellings are pimple-like islets in a sea of adobe hovels. The occupants of the adobe hovels are comerciantes, too, sometimes whole families of them. Yet there is so little value added by their trading, and by the artisan work often associated with their commercial activity, and so little credit or capital-formation generated or used in their daily operations that it is hard to find in then any measurable standard of progress. The only economic event clearly associated with the frenzied proliferation of market activity in recent years is the calamitous decline of the mineral export structure of the altiplano that was the basis of La Paz's growth in the 20th Century. During 1984, tin production fell by one-fourth to 17,875 tons, barely half of 1977 output, with much of this output coming from nearly-exhausted nationalized mines operating at big losses. In his classic Peddlers and Princes, the anthropologist Clifford Geertz wrote of the proliferation of commercial activity in an Indonesian market town during the economic contraction of the Depression and World War II, but he could have been discussing La Paz today when he observed: "The decrease in opportunities for commercial profit led to an overcrowding of those which remained, so that although the town suffered a loss in income it experienced, if anything, an intensification rather than a slowing-down of economic activity. No retreat to traditional subsistence agriculture, village craft work and highly localized part-time peddling was possible, and the over-all trend toward the conversion of the bulk of Modjokuto's citizens into small-scale businessmen has continued into the postwar period."18

Boserup describes "an urban economy relapsing into ruralism" as a recurring event in ancient and modern times. In Bolivia, this has happened repeatedly. The most famous, and still the most mysterious of such events is the appearance and disappearance of Tiahuanaco, presumed from evidence of its ruins to have been a ceremonial and market city extensive trading and cultural influence that emerged near Lake Titicaca c. 600 BC and flourished from 500 to 1200 AD. These dates coincide roughly with the emergence and equally mysterious collapse of Teotihuacan, one of the largest cities of the world at the time, occupying the present site of Mexico City with a population that approached 150.000 in 300-750 AD.19 Both Tiahuanaco and Teotihuacan were lakeside communities, located in centers of agricultural domestication: of maize in Mexico and of potatoes and camelids in the higher Titicaca altiplano. Boserup observes that the ancient cities of America and Asia suffered sudden population losses from warfare, famine and plagues, adding that "population reductions resulted in a decay of the infrastructure necessary for urbanization and in a consequent relapse into ruralism. Changes in resource-population ratios (such as erosion caused by destroying forests for city-building and to make charcoal for metallurgy) also played a role in the decay and breakdown of the densely settled urbanized regions."20

In colonial Bolivia, cities collapsed on a similar scale. The most famous was the boom town of Potosí, occupying an inhospitable site 13.000 feet high, grew from 14.000 population in 1547 to 150.000 by 1611 before falling to 70.000 early in the 18th Century and an estimated 9.000 in 1827, shortly after Independence, before growing again to about 110.000 today. Similarly, the highland mining entrepot of Oruro (population today: 173.000) grew from 20.000 in 1608 to 76.000 seven decades later, only to fall to 8.000 in the early 19th Century. An even more spectacular case is Colquechaca, in the 1970s mining village of 1.790 people, which in colonial times had 70.000 inhabitants.21

The obvious question to ask next is whether or not, given the crisis in the highland mining economy, Bolivia is faced with a relapse into ruralism in its most densely populated region. This question will be discussed at the end of this report. To make this discussion more meaningful, it would be useful to provide first an analysis of the human ecology of El Alto and of La Paz, the city from which it grew.

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