Who are society’s most vulnerable in Latin America?
If we talk about poverty, it is important to remember it’s not just poor households that are vulnerable in Latin America, but also the non-poor who have a high risk of becoming poor. In the case of Peru, our research has found that this vulnerability is structural: the high income instability of the primary sector and informal microenterprises in urban areas; levels of education; ethnicity; the demographics of the household, and the geographic surroundings. These factors define an individual’s productive opportunities, and reflect the presence of the state. As such, 30% of Peru’s total population, and almost 50% of its non-poor population, should be considered as being vulnerable to poverty.
Why does Latin America remain the most unequal region in the world?
An important factor that could explain the high level of inequality in the region is the role of the public sector. If you look at levels of domestic inequality before taxes, using the Gini coefficient, Latin American countries perform quite similarly to European countries (see the graph below). The role of the public sector here is crucial in reducing levels of inequality, by providing welfare to the less advantaged in society in the form of direct cash transfers, or via public services (education, health services etc.)Source: “Towards financial geographies of the unbanked: international financial markets, ‘bancarization’ and access to financial services in Latin America” by Ed Brown, Francisco Castañeda, Jonathon Cloke and Peter Taylor, in The Geographical Journal, vol 179-3, September 2013, 198-210.
To reduce inequality, we not only have to think about the capacity of the state to provide public services in each Latin American country, but also the tax sector. The region is known for having high tax evasion and avoidance, which only makes the government’s role of redistribution and social spending more difficult.
What should every policy maker have at the front of their mind when working to reduce inequality in Latin America?
Social policies need to address not only the population living in poverty, but also the non-poor population who are at a high risk of becoming poor. So policy makers should consider a more dynamic approach, not a static one. This means using historic data to understand the behavior of households, to see the evolution of their welfare and the realities of this ‘vulnerable non-poor’, or transient poor population.
But one thing that can be done is providing insurance and protection mechanisms against adverse shocks to the system, such as natural disasters. Being covered by health insurance has an important reduction effect in the household’s risk of falling into poverty. The big challenge, though, is finding a way of implementing these mechanisms for the majority of households whose income comes from informal employment and does not provide this health coverage.
The region is one of the most violent, it is also one of the most unequal, is there a link?
High levels of inequality can provoke feelings of social injustice among the population, as well as affect the social fabric and its stability. These effects may cause an increase in the number and types of crimes committed given the concentration of wealth in a certain group. Not only the potential benefits of the crime increases but the lack of opportunities for segments less favored in unequal societies can result in a scenario where crime is the only option to sustain a certain well-being level.
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