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Want to reduce inequality? Look at Latin America!

March 19, 2009
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I was at DFID again this week (I should be on a retainer) , presenting a paper on the impact of the global crisis on Latin America (it should be on the Oxfam website by the middle of next week). One interesting glass-half-full v glass-half-empty discussion was over income inequality: I said the region was doing well in reducing the gulf between haves and have-nots, but another NGO colleague disagreed, saying that only 9 out of 18 countries in the region reduced inequality from 2002-2007. Hang on a minute – ‘only’? Show me one other region in recent times where half the countries have reduced inequality. So I went back to the source, the excellent ‘Social Panorama of Latin America and the Caribbean’ published by the UN Economic Commission for Latin America and the Caribbean (ECLAC, or CEPAL in Spanish). Here’s what it says:

‘Changes in the structure of income distribution between 2002 and 2007 reveal three clearly distinct situations. Nine countries (Argentina, Bolivarian Republic of Venezuela, Bolivia, Brazil, Chile, El Salvador, Nicaragua, Panama and Paraguay) have significantly narrowed the gap between the groups at the extreme ends of the spectrum, both by increasing the poorer groups’ share of total income and by lowering that of the highest-income households. The most notable reductions in the two aforementioned indicators (36% and 41%, respectively) were recorded in the Bolivarian Republic of Venezuela. Significant improvements were also observed in Bolivia, Brazil and Nicaragua, where both indicators fell by about 30% (see figure).

The second group consists of countries in which income distribution has remained relatively unchanged. These countries are Colombia, Costa Rica, Ecuador, Mexico, Peru and Uruguay. Although the income gap has tended to shrink in most of them, the variations have not been highly significant.

Meanwhile, the income gap has widened between the richest and poorest segments of society in the Dominican Republic, Guatemala and Honduras.’

That’s amazing: in a region renowned for its high and ever-rising inequality, all but three relatively small countries have bucked the trend. This should be getting far more attention from development wonks.

Cepal’s explanation? ‘Most of the improvements in income distribution were generated by changes in labour income. Higher wage income was in fact the main factor of income growth in the lowest quintile.. Unemployment rates in the poorest decile of households fell from 30.2% to 23.8% in 2002-2006…. The percentage of informal workers in urban areas dropped from 47.2% to 44.9% between 2002 and 2006.’ (Workers in the informal economy generally have worse wages and conditions, so the recent formalization of the economy is good news).

Increased spending on social protection and other government transfers to poor people must also be playing a part, and in the longer term, increased spending on health and education should help reduce the transmission of inequality to the next generation in particular.

What Cepal fails to point out, perhaps unsurprisingly, is the politics of all this. Hugo Chavez‘ Venezuela as the fastest improver? A pile of centre-left governments (Evo Morales in Bolivia, Lula in Brazil and -ahem – Daniel Ortega in Nicaragua) following close behind? This is provocative stuff. Don’t get too excited, though. These improvements only get us back to the level of the early 1990s, (though that’s no small achievement in a world where inequality generally goes in the opposite direction). Moreover, a lot of these positive trends are now under threat from the impact of the global crisis, which is cutting regional growth to zero (from 5%), hitting employment and wage levels and reversing the trend towards formalization. Sigh.


  1. Duncan,

    Latin America was left under the cruel hands of IMF for far too long time, fell totally behind, submissive, and still has a long path to build.

    However, it is clear that the political changes have brought new waves to Latin shores. These improvements are not results of eventual and unstable economical growth, it is result of a decade long social investments.

    I speak for Brazil and Venezuela only because I don’t really think Evo has had the time and the funds to establish ground breaking social initiatives YET. But he is on his way.

    In Brazil FHC started some of social benefits, Lula improved then and now, 15 years later, these benefits have provided the poor with a fundamental help that allow families to plan a minimum decent existence.

    Whatever comes after Bolsa Familia is a plus that makes a great difference in any household. The BF is a mother/wife/woman-related benefit and reach the entire family.

    Chavez is working on the same direction, providing poor families with a ‘never-seen-before’ social support from government.

    As one act the results come. Cuba will start soon to show amazing results. With or without Obama’s help.



  2. It seems like dictators all over the world are coming to an end of their reign. South America certainly has seen some big changes – for the good but my concerns are still with Africa. Will someone ever intervene and sort out dictators like Mugabe in Zimbabwe? Africa is one of the richest countries in the world yet the people live in complete poverty.

    James Stewart
    Webmaster at OnlineShareTading.com

  3. I think that many of these formerly dictator-led countries are in for a massive revolution economically. As these dictators leave and people gain their freedom they will thrive economically as people get the opportunity to dictate their own lives. China (although very different) has shown similarities with a massive new middle class that strives for a high quality lifestyle which really stimulates economic growth unlike anything else. * Danika

  4. “These improvements only get us back to the level of the early 1990s, (though that’s no small achievement in a world where inequality generally goes in the opposite direction).” Duncan, this is very well stated! But do we really want to move backwards? Yes trends and economic landscapes change improvement but I think the focus is on leadership or the lack of it.

    Take the US, currently every state is in financial fallout except three of four of them. Why? Government spending, the leaders of the states that are not in jeopardy work with the public to set standards for spending and governing laws of that state. The “big-heads” of the other states feel they don’t need to address the actual people they represent.

    Hence leadership within the voice of the people rule the driving force of any country, nation or state in need of change.

    TJ Nelson
    Webmaster at Miracleii-4u.com
    Learn about how to eliminate electromagnetic chaos.

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