How Latin America tackles inequality

by Juan Pablo Ferrero

A recent OECD report has shown that income inequality has increased in the majority of OECD countries – and in some, at historic speed.

The OECD countries’ wealthiest 10% owns 9.6 times more wealth than the poorest 10%, up from a roughly 7:1 ratio in the 1980s.

This represents an increase of 11% in the Gini Coefficient, from 0.29 in 1980 to 0.32 today. The report underscores that the income gap also widened in emerging economies such as China, Russia, Indonesia and South Africa.

Yet the majority of Latin American countries, Brazil in particular, have been reducing income inequality over the past decades – from 0.6 in the mid-1990s to 0.55 – representing an overall improvement of 8%.

Latin America is not the world’s poorest region, but it has long been one of its most unequal, so it’s worth asking how it managed to buck what’s become a global trend. The answer is that after they were laid low by economic collapse, many Latin American countries managed to radically redraw the boundaries of political and economic possibility to turn themselves around.

Years before the banking collapse in 2008, much of Latin America was embroiled in a cataclysmic “debt crisis” of its own. But whereas much of Europe has tried to deal with the post-2008 crisis by rolling back the boundaries and spending of states, Latin American countries responded to their debt crisis by steering away from neoliberal orthodoxy – albeit in different ways across different countries.

But Latin America’s performance in social indicators has not been as consistent as all that, which makes it hard to pin their progress on the global economy. Poverty, for example, has decreased across the region due to favourable conditions in global trading, including the rise of China, which boosted Latin American economies by pushing commodity prices up. Although the argument is valid to explain a common regional trend with regards to economic growth and general poverty reduction, it is less so to explain improvements in inequality levels, which have been rather more uneven across countries. As a UN report put it:

In some countries reduction in inequality began to pick up speed in 2008, especially in the Plurinational State of Bolivia, Uruguay, Argentina, Brazil, Mexico and Colombia. Of these countries, three (the Plurinational State of Bolivia, Argentina and Brazil) also saw striking improvements in inequality reduction in 2002-2008.

The data in the recent report also shows a downward trend in “income bipolarisation”, an indicator used to measure the size of a country’s middle class (the larger the bipolarisation figure, the smaller the “middle” is). Among the countries with the most significant improvements were Argentina, Uruguay and Brazil – all of whom have spent much of the 21st century governed by left-wing governments and coalitions. Many of these governments originated in mass mobilisation and social protest movements, successful political uprisings that reworked the “common sense” assumptions on which their states and economies were run.

One of the reasons inequality widened in Europe but narrowed in Latin America is that the latter’s politics have undergone a major transition, which some have called a move to the left – and which is only in its embryonic stages in most of Europe, if it is even happening outside of a few countries.

In much of Latin America, the results are very visible. Public policies such as Brazil’s Bolsa Familia, which establishes a minimum income for households with children, lifted millions of Brazilians out of poverty and improved the standard of living for tens of millions more. As a consequence, poor people suddenly had access to shopping centres and holidays.

Large capital

Alfredo Saad-Filho rightly points out that some of these aspirations are not necessarily to be praised, since they are socially undesirable, economically destabilising and environmentally unsustainable, or because they still support large capital.

Nonetheless, something fundamental has changed in Latin America which explains the difference with Europe: the function of the state.

As most Latin American countries (Mexico being a conspicuous exception) emerged from their debt crises, they set about dismantling the neoliberal orthodoxy that had held sway over their states and economies for decades. The result was a “redistributive state” – a “class compromise” between capital and labour that is now starting to bring down outrageous levels of income inequality. This is only possible because the dominant “common sense” has been changed, and the policies of governments along with it.

– Third World Network Features.