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How could the region’s apparent shift away from the Left/populism affect inequality reduction?

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12 June 2017

Silvana Maubrigades

In the last 15 years, the region has experienced favorable political environments for improvements in inequality indicators, both in terms of income distribution and access to better living conditions. The situation, however, is not homogeneous across the region. The southern cone continues to stand out for providing better living conditions to its population and Chile is still a country with high levels of inequality, especially in terms of wages, despite the levels of economic growth.

During the same time period, many countries in the region have experienced a change in political direction towards the Centre-Left, though this did not substantially change countries’ economic policies. Inequality decreased through redistribution among the lower and middle classes, while the upper classes were little affected by this redistributive process. The labor market has been the largest source of redistribution, with reduction in global unemployment and a steady increase in regulation. It is not clear that this is an easy phenomenon to maintain over time, especially with this current scenario of slowing economic growth, or possible recessions looming in countries like Brazil.

 

Silvia Otero Bahamón

First, one has to ask whether Left-leaning or populist regimes are more capable of reducing inequality. We’ve definitely seen a reduction in income inequality in Bolivia, Ecuador, Argentina and Brazil. But we’ve also seen countries with no populist or Left-leaninggovernments with important inequality reductions, such as Peru, Mexico or Guatemala. For example, in 1986, Guatemala had a Gini coefficient as high as Brazil, but in 2014 it’s lower than Brazil, and Bolivia. And you have countries like Chile, with strong Centre Left rule for long periods, since democracy returned, that had less success  with inequality reduction. And obviously countries with no Left-leaning, or populist rule, that showed also no improvements in income inequality reduction! 

But looking at other types of inequality reduction, especially when looking at subnational inequality in access to education and health, I’ve found that both Left-leaning and non-Leftist, populist and non-populist have been successful in reducing inequality. We have strong sub-national inequality reduction in health, for example, in Brazil, but also in Peru and Mexico. 

So I think the relationship between Left-leaning or populist governments and inequality reduction is not that clear. There are some policies that are considered crucial for income inequality reduction, such as cash transfers. But these are not exclusive to the Left. But we do know that some Left-leaning policies, such as an increase in the minimum wage, better labour union negotiations, a universal rights approach to social services—these have positive effects on different types of inequality. Also, if these policies focused on the formal sector, then they might be missing inequality in the majority of the population that works in the informal sector.

 

Jose Itzigsohn

I think you could challenge that there really is a shift away from Left-leaning populism. Brazil has experienced a soft coup, but it was never considered as Left-leaning populism. In Argentina, perhaps it’s true, but elsewhere, in Ecuador and Bolivia, I’m not sure, and Venezuela is a case of its own. You could say that populism in Latin America has always been associated with inclusive and redistributive policies, and so by moving away from Left-leaning populism, it doesn’t bode well for inequality reduction.

I think when you look at the commodity boom, you see the economic growth in the region which always leads to some kind of inequality reduction through an increase of opportunity. And it’s true that the Left-leaning governments in the area - the populist version in Argentina, or the non-populist version in Brazil, and in Uruguay, Bolivia – they did develop policies specifically aimed at reducing inequality. And so when these governments leave the stage, it does mean that those policy objectives won’t be there any more. 

 

Miguel Niño-Zarazúa

The Left, the Centre, and the Right, they all embraced populist policies, which didn’t really lead to declining inequality, but inequality has been falling. Maybe the question is what are the drivers of inequality reduction over the last ten years and to what extent those policies respond to political ideology.

Based on some of the work I’ve been doing with some colleagues, there is no strong or clear correlation. So you find countries like Colombia, where the government is really Centre-Right, or have traditionally been Centre-Right. Or you have countries that were embracing really Centre-Right policies, like Bolivia before Evo, who introduced successful policies in the past. This is also the case in Mexico, where the PRI, a very populist party at the Centre, introduced progress.

So it is not unidirectional. It’s not like the Left is now moving to the Right, but also we observe some countries in the Centre moving to the Left. So, I don’t know the answer really. I suspect that now we know that inequality in the region has started to increase again. The decline stopped around the year 2012, partly because of the economic recession. There are a number of reasons why inequality has been falling in Latin America, but one of the reasons why it is now in reverse trend is, to a large extent, because some of the drivers of redistribution have been exhausted, and economies have stagnated for over five years. So, this reverse trend is in partly, a result of a decrease in appetite for natural resources in the international market. 

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