THE DECLINE IN INEQUALITY IN LATIN AMERICA: Policies, Politics or Luck?
Lustig, Nora, Americas Quarterly
While real, the recent gains in income equality remain fragile. Sustaining the trend will require some tough policies before the luck runs out.
Latin America has been basking in good news lately. High growth, combined with an unusual resilience to the global fi nancial crisis, has contrasted sharply with events in Europe and the United States. Even the countries hardest hit by the crisis have managed quite well.
Another piece of good news has received less attention. Income inequality in the region has declined in 13 out of 17 countries for which comparable data exist. After rising in the 1990s, inequality in Latin America declined by nearly 1 percent per year between 2000 and 2009 [see figure, p.44].
More impressively, this decline has occurred even as inequality has grown in China, India, South Africa, and most advanced countries. To a large extent, inequality in Latin America has always been the result of state capture on the part of predatory elites, inequality of opportunities, lack of access to credit for the poor, and discrimination against nonwhites and women. This means the observed fall is good news both in terms of fairness and overall effi ciency.
Has the decline in inequality been the result of policies, politics or luck? The answer is a bit of all three.
Shifts in Politics, Policy, Demographics, and Global Demand
Two major factors account for the decline in Latin America's inequality: the wage gap between skilled and lowskilled workers has narrowed and governments' social policies have become more pro poor. The decline in the wage gap occurred, in part, because of the expansion of basic education during the past two decades. Emphasis on universal coverage of basic education (both primary and the fi rst three years of high school) and cash transfer programs targeted to the poor have been unambiguous moves toward pro-poor public spending.
In the 2000s, there was a signifi cant rise in the importance of government transfers to the poor. This had the effect of increasing public distribution to those sectors. Large-scale conditional cash transfer (CCT) programs such as Bolsa Familia (Brazil) and Progresa/ Oportunidades (Mexico) had remarkable redistributive power. These programs are a small share of total government social spending, but go a long way in terms of redistributing income to the bottom of the income scale. Bolsa Familia reaches around 11 million families and Oportunidades about 5 million. Their cost (including administrative costs), however, is below 0.5 percent of GDP.
In some countries, increases in the minimum wage and union-friendly governments have contributed as well.
What about the political dynamics behind pro-poor government spending? The fi rst large-scale CCT program, Progresa (later called Oportunidades), began in Mexico in the late 1990s and spread to other countries later in that decade and in the 2000s. Its launch could be seen as part of a democratization process that shifted political power away from corporatist groups, like labor unions, toward rural voters.
Redistributive programs are more likely to be introduced where their poor benefi ciaries have become politically vocal and organized. Bolsa Familia was instituted nationwide after Luiz Inácio Lula da Silva, leader of the Partido dos Trabalhadores (PT)-a political party whose support comes from the rural and urban poor-won the 2000 presidential election.
In Bolivia, redistribution policies took hold in 2005 when the rural party movement, Movimiento al Socialismo (MAS), led to the election of Evo Morales as president. Largescale redistributive programs in Argentina became pervasive after the Kirchners (fi rst Nestor and then Cristina Fernández) were elected by voters from the ranks of the unemployed, the impoverished working class and the disempowered. Although inequality declined in countries governed by both leftist and non-leftist regimes, leftist governments in general have been more redistributive than the nonleft. …