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Caribbean and Latin America

In Latin America, inequality is the social dimension of outmost concern. Income and social inequality in Latin America and the Caribbean is the highest in the world and the performance of the social sector is inadequate. These conditions are severely affecting individual prosperity and economic growth. More investment and attention and investment is needed to improve social performance and reduce inequality.

(Evelyne et al) The region constituted by Latin America and the Caribbean as a whole has the highest level of inequality in the world, and during the last three decades of the 20th century, inequality increased in most countries of the region. There is increasing consensus that this inequality is a serious obstacle to both poverty reduction and economic growth generally.

Inequalities in landholding and political power originating in the colonial order are at the centre of theoretical explanations for the deep roots of inequality in Latin America and the Caribbean. After independence, inequality in assets and income was conditioned by and reinforced inequality in political influence and thus in institutions and policies, which in turn perpetuated the vicious cycle of inequality.

If we accept that the high degree of economic inequality in Latin America and the Caribbean has been reproducing itself historically, at least in part, through political domination by an elite, then we would expect difference among countries in political institutions and political power distributions to make a difference for the degree of economic inequality at the end of the 20th century. Specifically we would expect that countries with longer records of democracy would have lower degrees of inequality, because democracy over the long term offers the possibility for the underprivileged to organize and make their voices heard.

(Evelyne et al) Since the publication of Kuznets (1955) influential work, the cross-national quantitative and more recently pooled time series analyses of determinants of income inequality have been mostly the work of development sociologists predominantly interested in the relative contribution of variables related to economic development (educational expansion, the changing weight of economic, sector, per capita income), economic dependency and in some cases, political democracy. (Evelyne et al)

Although political variables such as partisan legislative power strength of democratic tradition and the native of social expenditures are expected to be important in determining inequality levels in Latin America and the Caribbean, it is suspected that these variables have weights different from those in advanced industrial societies and somewhat different effects. The region does have a weaker record of democracy less consolidated parties and weaker organizations of the underprivileged, particularly, weaker labor unions and weaker parties of the left.

(Evelyne et al) The buoyancy of the three major categories of services differs markedly. First, trade in other services (including communications, financial and information technology services and business services, among others) has grown more quickly than transport and travel (tourism) in both Latin American in Latin America and the Caribbean, the share of general services classified as “other services” has remained much lower than in Asia and the rest of the world.

To understand why the region’s growth in this area has been relatively sluggish, three key determinants are analyzed: national regulatory systems, human capital and information and communication technologies (ICTs). Although the countries of Latin America and the Caribbean tend to be less heavily regulated than Asia, the latter is more dynamic when it comes to service exports, which is the opposite of what might be expected. (Evelyne et al) Morley’s (2001) study examining the differences in equality of income distributing among countries in Latin America combines multiple regression analyses with nine country case studies.

His variables include national income, inflation, education, economic reform indices, and land distribution. Rudra (2004) has paid particular attention to world system or globalization variables, along with demography and economic development. ( Evelyne et al) There are strong theoretical reasons to expect that the length of a country’s democratic experience is associated with lower inequality. Democracy gives the powerless and underprivileged the chances to organize and use organization as a power base to gain entry into the political decision-making process.

The most effective channels for underprivileged groups into the political decision-making process are political parties, because the poor the connections lack and funds to influence decision makers directly. In privileged groups to consolidator and gain representation in competition with parties representing privileged groups enjoying a financial advantage. (Evelyne et al) The prime policy instruments for shaping the distribution of income are taxes and social expenditures.

In advanced industrial democracies, the size of the welfare state is strongly associated with reduction in inequality. In Latin America and the Caribbean, the evidence for the disruptive impact of social spending is more mixed and tends to be different for different kinds of expenditure. Social security spending particularly the largest share that goes to pensions is generally regressive. Social security schemes are typically tied to the formal sector and thus exclude the sizeable informal sector.

Furthermore, social security benefits are very unequally distributed among those covered not only because they are earnings rated, but even more so because different schemes exist for different groups, with particular privileges for some such as the military, police, upper level civil servants, judges and the like. (Evelyne et al) There is a lot of statistical research that has been devoted to establishing and explaining the U-curve relationship between inequality and economic development.

Based on the theory on Kuznets (1955), it can be hypothesized that increasing inequality can be associated with the shift of the labor force out of the agriculture because the agricultural sector has a degree of inequality that is assumed to be lower. This assumption is questionable in the case of Latin America. Indeed, a comparison of Gini indices based on rural and urban surveys contained in the full UNU_Wider (2005) database shows that inequality in the rural Latin America is generally higher than the national level.

(Evelyne et al) Previous studies have shown a strong association between size of the population growth of the young, and a positive impact of population growth on inequality. This impact can be explained as resulting from the oversupply of young unskilled workers, which further depresses lower incomes and increases wage differentials. We therefore expect an increasing percentage of the population younger than 15 years to push up the level of inequality. (Evelyne et al)

The spread of education in the population or the improvement of human capital is regarded as a positive factor not only for the promotion of economic development, but also for the reduction of inequality. In most of the Caribbean and Latin America primary education has been universalized since 1970 for the younger cohort, but a large proportion of these cohorts drop out at that point. Accordingly, we would expect higher levels of secondary school enrollment to have a depressing effect on inequality in Latin America and the Caribbean.

(Evelyne et al) The dependent variable is the Gini index of income inequality from the United Nations University world income inequality Database, WILD (UNU-Wider 2005). Democracy matters or inequality in at least two ways. It matters over the longer term because it allows those leaders concerned with the welfare of the underprivileged to build organizations in the form of political parties and allows those parties to build a support base, gain influence in the legislature and use that influence to shape policies in a redistributive direction.

It also matters because it induces political leaders in general to be more responsible to the underprivileged. This effect is easy to understand if we keep in mind that the alternative to democracy in Latin America in the great majority of cases has been right-wing authoritarianisms not communism or other forms of left-wing authoritarianism. (Evelyne et al)

Reference:

Evelyne H, Jenny P, Francois N, John D. Politics and Inequality in Latin American and the Caribbean. University of North Carolina, Chapel Hill.

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