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Latin America has long been characterized as the most unequal region of the world in terms of income and wealth. Analyse and explain why in the twenty- first century there appears to have been some improvement in equity. Essay Example


Factors that have contributed to changes in equity in Latin America countries in the twenty-first century

For long, Latin American countries have been characterised as the most unequal societies of the world in terms of distribution of income and wealth. Data from major economies in the region has indicated that the countries have experienced high levels of inequality (as indicated by the Gini coefficient) throughout the nineteenth century. Wealth has been concentrated in the hands of the top 10 per cent of the population whereas the bottom 20 per cent has had control of the least percentage of national income. The high level of inequality in these countries has its origins in the history of inequality in terms of land ownership as well as a rise in cheap urban labour in the mid nineteenth century. The situation was exacerbated by inequalities in terms of education levels, returns on labour and age differences resulting from hard economic times under recession experienced by many of these countries during the 1960s and 70s. Yet by the beginning of the twenty-first century, the situation started changing. Significant decreases in measures of inequality indicated a sharp decline in levels of poverty as well as those of inequalities in terms of distribution of income and wealth. The objective of this paper is to examine and analyse factors behind this trend of improvements in equity in Latin American countries in the twenty-first century.

There is evidence that Latin American countries have the highest levels of economic inequality. According to the World Bank, Latin American countries exhibited a high level of inequality in terms of how wealth and income are distributed among the populations. For instance, measures indicating the level of income inequality (the Gini coefficient and the income share of the bottom 20 per cent of the population) remained relatively higher for Latin American countries as compared to other regions in the world (World Bank 16). It should be noted that the Gini coefficient figures indicate slight variations in the region in the course of the first decade of the twenty first century. Whereas the average figure for the region remains at 0.52, there are significant variations between the countries represented with Bolivia and Haiti having the highest levels of inequality at 0.62 as compared to other less unequal countries like Venezuela and Uruguay which have a measure of 0.42 (Lopez and Perry 3). The causes of inequality in these countries are complex. Huber et al. observe that the roots of inequality in these countries lie in patterns of land ownership and political control by an elite section of the population during the colonial times (3). Since land was owned by an elitist minority and the majority of rural populations were left poor, large-scale levels of rural poverty inevitably led to increased rural-to-urban migration. Consequently, increasing populations of the urban poor, combined with inequality in education and income levels, resulted into decreased wages of urban unskilled workers. The result of this trend was that a large section of populations in these countries was composed of unskilled workers who were unequally paid. In the same vein, Lopez and Perry observe that the high level of inequality in Latin American countries was a culmination of a long historical process that commenced in the colonial times. In their opinion, the colonial governments in these countries allowed the development and survival of a privileged minority that controlled access to land, politics and education (13). Fukuyama observes that although inequality in Latin American Countries has its roots in changes in land ownership policies prior to and during the nineteenth century, inequality in household incomes persisted even after changes in the land policies prior to 1960s and 70s (n.pag). The reason given for this observation is that because Latin American growth was labour-intensive, there was little improvement in labour productivity during the middle of the twentieth century. This meant that large sections of the populations in these countries continued living in poverty in spite of the changes.

As it has been stated, social, economic and political factors played a key role in establishing inequality in Latin American countries. It is important to note that these factors continued to play an important role by entrenching inequality in these countries throughout the twentieth century. According to Lustig, the period of the 1980s marked a period of economic crises and adjustment for many countries in the Latin American region (16). This was a culmination of a huge burden of external debt that the economies of many of these countries were facing (Cohen 4; Cardoso and Helwege 115). Emerging from widespread inequalities in the earlier years which had been well documented, many Latin American countries entered the 1980s with a more or less the same scenario as in the previous decades. A joint study commissioned by the World Bank and the International Labour Organization indicated a varied picture. For instance, Brazil, Guatemala, Honduras and Panama had the highest levels of unequal distribution of wealth with 20 per cent of the bottom population sharing 3 per cent of the total national income in each of these countries (Lustig 17). Many of these countries experienced a sharp rise in inequality during the period while others such as Venezuela, Costa Rica and Uruguay experienced substantial reductions in the levels of inequality (World Bank 20). The consensus has been that whereas many countries in this region adopted an economic model that supported economic growth through a state-led industrialization programme, the sustainability of this import substitution model of development remained vulnerable as a result of rising levels of urban poverty, persistent underemployment and a general rise in levels of inequality in terms of distribution of income and wealth (Cohen 5). This trend resulted in widespread economic crises experienced by these countries in the 1980s.

Further, it is important to note that a close relationship between national income levels and trends in income distribution existed in these countries during the period covering the 1980s and early 1990s. Tulchin and Garland observe that trends in the levels of inequality were influenced by changes in per capita income of the countries under observation (22). For instance, countries such as Argentina, Panama and Venezuela experienced negative per capita income growth and a corresponding rise in inequality. All these countries were experiencing severe recession resulting from different socio-political factors. Whereas Argentina was struggling to manage severe fiscal deficits, the economy of Panama was experiencing the effects of economic sanctions imposed upon the country by the United States. The economy of Venezuela was in a recession as a result of the government seeking to implement new measures that were meant to realign the fiscal policy of the country to the revenues (World Bank 24). On the other hand, countries which were experiencing positive, albeit slow rates of economic growth, reported decreasing levels of income distribution. This was more common in countries such as Colombia, Costa Rica and Uruguay (Lustig 21). This shows that inequality in Latin American countries reached the highest levels in the 1980s and remained relatively stable afterwards towards the end of the nineteenth century (Colburn 82).

Several factors have been identified as being the source of inequality in Latin American Countries during the period between the 1980s and early 1990s. As it has already been mentioned, land redistribution policies had little effect on income distribution within the populations. This is because productivity levels remained low despite the fact that land distribution reflected the situation of the 1850s (Fukuyama n.pag). Other factors such as employment, education, differences in age and sectors of the economy have had varying levels of contribution to general inequality in these countries. For instance, disparities in the level of education among individuals were found to be the highest variable of inequality in these countries (Lustig 80). Lopez and Perry also draw a very significant relationship between inequalities in access to education and resulting inequalities in terms of how income and wealth are distributed. The main way in which inequalities in education contribute to general inequity is that inequality in education levels in these countries contributes to low social mobility (14). The implication of this trend is that as huge differences in levels of education continue to exist in the society, the gap between the rich and the poor also increases as a result of differences in personal income. Differences in the other factors (age, type of employment and sector of the economy) contribute to income disparities between individuals in these societies, although at much lower levels as compared to differences in levels of education.

The situation in Latin American countries has been changing since the beginning of the twenty-first century. Lustig, Lopez-Calva and Ortiz-Juarez state that there has been an unambiguous decline in inequality in Latin American countries beginning in the early 2000s (2). Indicators such as the Gini coefficient declined considerably in fourteen of the seventeen countries in Latin America. The decline in inequality was significant because its magnitude exceeded the increase in inequality levels which was experienced by these countries in the 1990s (Lustig, Lopez-Calva and Ortiz-Juarez 4). Changes in inequality have been reflected in different ways. According to the United Nations Economic Commission for Latin America and the Caribbean, incidences of extreme poverty in majority of Latin American countries have dropped significantly during the first decade of the twenty first century (19).

Different factors are said to have contributed to this trend. To start with, many governments in Latin America have adopted the ideas of social liberalism in developing social and economic policies for their countries (Levitsky and Roberts 23). Although the practice of social liberalism differs slightly from the classical European model of social democracy, this approach (which combines orthodox approaches to monetary policies with redistributive social policies), has contributed to a decrease in levels of inequality in leading countries such as Brazil, Chile and Uruguay (Huber and Stephens 155). Also, many of these countries have experienced better management of macroeconomic policies beginning from the early 2000s. Good management of fiscal, monetary and exchange rates in many of Latin America countries has translated to increased rates of economic growth and substantial decreases in poverty levels, despite the effects of the Argentine crisis of 2001-2002 on the economies of the regions (Wiesner 102). It is also noted that many of the Latin American countries have elected left-leaning parties into power. All these parties share a common ideology of redistributive policies. Many of these governments have implemented moderate policies that have had the effect of cancelling out extreme economic effects of the post-import substitution industrialization order. This has led to a decline in not only poverty levels in these countries but also the measures of inequality as indicated by the Gini coefficient.

It is also argued that changes in inequality levels in Latin American countries has been the result of changes in labour income inequality which has resulted to a decline in inequality in overall income (Kacowicz 85). Expansion in employment (as well as the hours of work) and changes in the distribution of hourly wages in countries such as Brazil, Mexico and Argentina have led to a sharp decline in labour income inequality since the beginning of 2000s. Provision of equal opportunities for education to all members of the society in these countries has affected the demand and supply of workers bearing different skills in their economies. Significant expansion of basic education reduced the amount of unskilled labour available. The result has been that there has been a sharp decline in poverty levels as well as a decline in the level of general income inequality in these countries.

In conclusion, it can be stated that several factors have contributed to a decline in the levels of inequality in terms of income and wealth in Latin American countries from the beginning of the twenty first century. To start with, the general decline in poverty levels has been as a result of good macroeconomic management policies adopted and implemented by the governments of these countries. Many of these governments have adopted policies that combine prudent management of fiscal issues with social redistributive policies in a system known as social liberalism. The effect has been that many Latin American countries have experienced sharp declines in poverty levels in their populations. Apart from political and economic interventions, social measures have also played a role in reducing the levels of inequality in Latin American countries. The beginning of the twenty first century was marked with large-scale expansion programmes in basic education in many of these countries. The effect of increased education levels has altered labour distribution in these economies in several ways. From reducing the number of unskilled labour to expanding employment and income levels, such social programmes have contributed to a decline in the levels of income in these countries.

Works Cited

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Cohen, Michael A. The Global Economic Crisis in Latin America: Impacts and Responses. New York: Routledge.

Colburn, Forrest D. Latin America and the End of Politics. Princeton: Princeton University Press, 2002.

Fukuyama, Francis (ed). Falling Behind: Explaining the Development Gap Between Latin America and the United Sates. New York: Oxford University Press, 2010.

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Lustig Nora, Lopez-Calva, Luis F & Ortiz-Juarez, Eduardo (eds.). Deconstructing the Decline in Inequality in Latin America. Tulane Economics Working Paper No. 1334, 2005. 22 May 2013. <http://www.google.co.ke/url?q=http://econ.tulane.edu/RePEc/pdf/tul1314.pdf&sa=U&ei=7sicUf2lN4Kt0QWp_oGgAQ&ved=0CBoQFjAA&usg=AFQjCNEEizJgOP9s0Xhme_kV5Sb3_sgKpA>

Lustig, Nora. “Introduction”. In Lustig, Nora (ed.). Coping With Austerity: Poverty and Inequality in Latin America. Washington D. C: The Brookings Institution, 1995. pp. 1-41.

Tulchin, Joseph S & Garland, Allison M. Development in Latin America: The Politics of Reform. Colorado: Lynne Rienner Publishers, 2000.

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