Why does Latin America remain the most unequal region in the world?

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12 June 2017

Silvia Otero Bahamón

There are many different inequalities that overlap, and reinforce each other. There are class inequalities, where rural dwellers and informal, uneducated urban dwellers are abandoned. There are race inequalities, overlapping with class inequalities, where indigenous- and African-descendent populations overrepresented among the poor, are systematically excluded and segregated from the mainstream. And then there’s also regional inequality, with some regions receiving the benefits of development and others that don’t. Again, these regions have strong class and racial components. There are also gender inequalities, of course, and these are only aggravated by the previous three. 

Why do these inequalities remain? One reason is obviously the pro-wealth nature of the taxation system, where the rich are not paying their share of tax to the government. And government’s aren’t willing to change that! High quality education is often identified as a means of tackling inequality, but then we have a problem in Latin America: the segmentation of the education system. The poor attend public schools, and the middle and wealthy classes go to private schools. There is the absence of a class alliance that puts pressure of policy-makers to demand high quality education in the public sector. And for this reason, inequality remains high in the region. 


Jenny Pribble

My research has looked at how commodity production has created inequalities at the subnational level. In Chile, for example, you find the wealthiest region’s in the north – low unemployment, low rates of poverty, low income inequality – and, yet, they have the worst healthcare. Why? Because the copper boom in 1982 brought with it the establishment of the health care system, but at the time, copper mining was almost exclusively in the hands of US companies. These companies built mining towns - with shops, healthcare, education and police – exclusively for their employees, around 40% of the population. So in these areas we see a serious underdevelopment of public infrastructure. In the Chilean case, non-state provision of these public services has actually disincentivised the state from providing them. 

You’ll find local politicians and activists turning to these companies to find solutions to their service problems, rather than state actors. They run parallel to the state, or even replace it. It’s these types of cases, in the region’s brown zones, that contribute to Latin America’s ongoing inequality. 


Angelo Cozzubo

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.) 

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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 have to think not only about state capacity in each Latin American country, but also the tributary 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.


Jose Itzigsohn

I think much of this is rooted in a powerful historical structure inherited from the colonial era. But today, the World Bank talks about the 2000s as being a decade of inequality reduction, due to social and redistributive policies. We had the economic boom, and economies grew, but nevertheless, this broad structure of inequality – class and racial inequalities inherited form the colonial period – remains. Through processes of industrialization, and the regions' entry into global markets, new opportunities have emerged in the private and public sector, but it has also created large, exclusionary informal markets formed around these inequalities. And while they change over time, they remain powerful, persistent inequalities.

It also bears emphasis that when we talk about Latin America, we’re talking about a very different reality in terms of inequality. It’s not homogenous across the region. Every single country has a different historical structure, and different political histories that have produced different patterns and levels of inequality.

We can see these historical legacies in at least two ways. Firstly, Latin American societies emerged with strong elites, or oligarchies, whose power has historically been challenged, but never truly eliminated. As a consequence patterns of class inequality and structures of labour and production have changed, but are still present in forms of social exclusion. For example, the plantation economies may have disappeared, but they have transformed into informal economies of exclusion, or migration. Secondly, there are racial inequalities that are pervasive in the region, which again have changed but were never eliminated. The only real example of real change with racial inequality is Bolivia.


Miguel Niño-Zarazúa

It depends on how you look at it. Let's say you access the trajectory of inequality looking at income. So, income has been evolving over the last 20 years. Between 2000-2010, which is the decade that people talk about, the region saw a reduction in inequality, so there are things happening within the countries that have been pushing inequality down. But also, between the countries there was a process of economic convergence. So it seems like Latin American countries are converging, slowly, but they are converging to a point that they have similar levels of development. There are still important gaps, but over time they have been convergent. So the difference between, let’s say, Argentina and Bolivia, was much more substantial twenty years ago than now. So, I think the main driver of inequality has been within countries. Of course, inequalities of income don't always capture all dimensions of inequality, like health. Health inequalities are often greater than in income for a number of reasons: the way services are provided, and the quality of the services and also there are significant inequalities within the countries in terms of regional distribution.

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