This chapter studies the evolution of the Peruvian welfare system from the mid-1970s to the late 1990s. The case of Peru also provides further evidence to identify some of the key causal mechanisms underlying the main statistical relationships analyzed in Chapter 4 through regression analysis and studied in more detail through qualitative analysis in Chapters 5 and 6. First, Peru reinforces two key insights developed in the case study of Chile. The first is that fast and radical trade liberalization hurts domestic producers and shifts the structure of employment toward sectors where workers typically accumulate lower welfare entitlements (i.e., the informal sector and the service sector). This is one of the most important mechanisms through which greater integration into international trade markets is associated with lower levels of social spending – especially social security expenditures. Unlike in Costa Rica, where there is a much greater dispersion of political power, Pinochet in Chile and Fujimori in Peru concentrated executive authority to such an extent that they could overcome practically all resistance to their policies of trade liberalization and labor market flexibilization.

Second, the Peruvian case also shows that a process of democratization in the absence of a prior history of continuous democracy can have a weaker effect on social welfare expansion than a process of democratization in a country with a longer democratic tradition. This is not intuitively obvious.