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What Is the State of Poverty and Inequality in Latin America?

By Nora Lustig, Jacqueline Pitanguy, and Maria Velez de Berliner
Latin America Advisor, January 14, 2014

 

Credit: San Salvador, El Salvador/José Alejandro Álvarez Ramírez/CC BY 3.0
Q: Despite economic progress in the past 15 years, Latin American countries have failed to adequately address the plight of people living right on the poverty line, leaving millions at risk of falling back into poverty, according to a paper released Dec. 23 by four World Bank economists. The authors add that Latin America remains one of the world's most unequal regions. Where in Latin America have efforts to bring people more firmly out of poverty succeeded, and where have they failed? Which successful initiatives can be replicated elsewhere? Why has inequality continued to persist in the Americas?

A: Nora Lustig, Samuel Z. Stone professor of Latin American economics at Tulane University and nonresident fellow at the Center for Global Development and the Inter- American Dialogue: "It is not really accurate to say that inequality in Latin America has 'continued to persist.' On the contrary, the big news is that during the 2000s, inequality declined almost everywhere. Thus, inequality in Brazil and Mexico, for instance, is at its lowest level ever since data started to be reported in the 1960s. Declining inequality accounted for a third to a half of poverty reduction since 2000. True, the region continues to be the most unequal in the world. However, if current trends continue, this may no longer be true: as inequality fell in Latin America, it rose elsewhere including China, India, South Africa and the United States. Lower wage inequality explains more than 40 percent of the decline in overall inequality in Latin America. Part of the reduction in the wage gap of the skilled and low-skilled workers is due to market forces. Following the surge in educational investments by governments during the 1990s and 2000s, the supply of skilled workers grew considerably, while the supply of unskilled labor declined due to rising educational attainment, falling birth rates, and increasing emigration. The wage gap also declined because of rising minimum wages. However, the wage gap also narrowed because as coverage expanded, subpar colleges flourished and the quality of tertiary education fell. The latter is not good news. Larger and more progressive government transfers were the second most important driver of declining inequality: on average, government transfers accounted for between 13 to 20 percent of the decline in overall inequality. Although in most countries this is good news, in Argentina and Venezuela, for example, the large expansion of transfers has fueled inflation and conspired against sustainable economic growth."

A: Jacqueline Pitanguy, executive director of Citizenship, Study, Research, Information and Action (CEPIA) in Brazil: "Latin American countries today have marked differences in terms of their political and economic directions. However, they share one common trend: Latin America remains an unequal continent where reduction of poverty and reduction of social inequality do not necessarily walk hand-in-hand. In recent decades, Chile has scored one of the highest Human Development Indexes in the region and yet this is also one of the countries with the highest rate of social inequality. Brazil has made enormous progress in reducing poverty through direct income transfer social programs such as Bolsa Família and Brasil Sem Miséria. The country has met and even overcome the 2015 Millennium Development Goal to reduce poverty by half. In 2002, 41 million Brazilians were living in poverty. This number dropped to 15.7 million in 2013. These programs are success stories that are being replicated in other countries. However, the richest 5 percent of the country also increased their income between 2011 and 2012, according to the Instituto de Pesquisa Econômica Aplicada (IPEA). Inequality remains high. Its reduction requires other economic and political measures, such as higher taxes on larger fortunes. Finally, it is important to remember that poverty is a complex, multidimensional phenomenon and requires coordinated investments not only in income distribution, but also in access to good education, health, sanitation and transportation, as recent social mobilizations in Brazil have shown. Unequal distribution of the access to such services is also an indicator of social inequality."

A: Maria Velez de Berliner, president of Latin Intelligence Corporation: "Unequal or nonexistent university education lies at the core of inequality in the Americas. It is also a critical security threat because the criminal gangs that proliferate in the region are the employers of last resort of the uneducated. Latin America's pre-university education is based on rote learning. Poorly qualified teachers discourage innovative thinking, instead teaching to tests that measure memorization. Graduates lack the critical thinking, analytical, math and science skills necessary to compete in the knowledge-dominated global economy. Only about 1 percent of Latin America's students pass international examinations in science and math. Access to legal, in-country opportunities is mostly available only to those with high-quality, advanced education. Half of high school graduates in Brazil, Colombia, Mexico and Peru can neither do arithmetic nor solve elemental algebraic equations. About 115 million youth who live on less than $2 a day are excluded from the education they need to overcome their poverty. Add 25 million 'ni-nis' (who neither study nor work) and Latin America has about 140 million youth whose potential, most viable employment is to join the criminal gangs. Income transfers that require poor parents to send their kids to school have had extraordinary success. However, these programs go only so far if poverty prevents youths from advancing to university-level education and the jobs that require it. The yearly cost of one of the few world-class universities in the region is equal to or exceeds the total income of an average family. To remediate inequality and eliminate criminal gangs, Latin America must build educational systems that meet the requirements of the knowledge economy."

The Dialogue's Latin America Advisor features Q&A from leaders in politics, economics and finance every business day. It is available by subscription to members of the Dialogue's Corporate Circle. Learn more here.

Photo Credit: San Salvador, El Salvador/José Alejandro Álvarez Ramírez/CC BY 3.0.