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Latin America's Growing Equality: Myth or Reality?

 

Jeffrey Puryear was at the Foundation from 1973 to 1990 in the Latin America and Caribbean Program.

By Jeffrey Puryear

May 18, 2010

Originally published in Jeffrey Puryear's “Human Capital” column in the Dialogue's daily Latin America Advisor WASHINGTON'It's worth noting that inequality has declined recently in much of Latin America. The most commonly used indicator for income inequality, the Gini coefficient, decreased in 13 Latin American countries between 2002 and 2007. Among them is Brazil–the region's largest country and one of its most unequal. But are these decreases part of a long-term trend? Has Latin America found an effective and sustainable strategy for reducing inequality? We should certainly be encouraged. Latin America is the most unequal region in the world, so any progress in reducing inequality is positive and deserves applause. But it is unclear if a long-term trend is underway. The declines in inequality have coincided with an extraordinary boom in commodity prices and an increase in remittances'both of which have since been reversed by the global economic crisis. Absent robust economic growth, it is not clear that inequality will continue to fall. Moreover, few Latin American governments have adopted the fundamental policy changes that would systematically bring inequality down. To be sure, most countries have increased social spending over the past decade. But the programs they fund have a sorry record of helping the poor. Social programs tend to be neutral or even regressive in Latin America, favoring the richest 40 percent and doing little for the poor. The big exception is conditional cash transfer programs (CCTs), which provide the extreme poor with a monthly stipend in return for positive behaviors like keeping children in school or regular visits to health clinics. These programs have clearly reduced inequality by establishing an income floor for very poor families. But they are only a small part of social spending. Larger social programs like education are of such low quality that they contribute little to giving the poor a leg up in the job market. Pension programs, which dwarf spending on CCTs, overwhelmingly benefit the richest 40 percent. Tax revenues are relatively low in most countries, and fail to shift the burden of funding government from poor and middle-income households to the rich. Latin America has probably gotten as much reduction in inequality as it can from the commodities boom and relatively small progressive programs like CCTs. Additional, sustained progress will depend on qualitatively different policies that will be much more difficult to enact. Governments will have to reduce tax evasion and close loopholes, particularly in personal income taxes. They will have to re-engineer education and improve teaching so that poor children learn what they need in order to be successful in modern job markets. And they will have to establish pension programs that benefit the poor, rather than just the richest 40 percent. Making these changes will involve tough choices. Leaders will have to invest significant political capital to get them approved and implemented. Those who benefit from the status quo will fiercely resist these changes. But the alternative is hardly preferable: the world's highest rates of inequality and fertile ground for authoritarian, populist politicians. Jeffrey Puryear is vice president for social policy at the Inter-American Dialogue and co-director of the Partnership for Educational Revitalization in the Americas (PREAL).

 

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