Declining Inequality in Latin America: Some Economics, Some Politics

[joshcryer]

Countries of all political stripes in Latin America enjoyed a reduction in inequality in the 2000s. Nonetheless, the region continues to be the most unequal one in the world, and while in the last decade social policy became more pro-poor, in most countries public spending continues to be neutral or regressive. In this paper we show that there is more to the story, however. In some countries the politics of redistributive policy appears to be changing in a fundamental way, suggesting that in those countries at least the recent declines in inequality are likely to stick.

On the basis of our econometric analysis and our comparison of governance and other characteristics, we conclude that in the social democratic regimes at least (but not in the populist regimes), the inequality decline is the outcome of what might be called a structural change. In contrast, in the populist regimes our evidence indicates that the declines in inequality have been due more to good luck than to good policy; that in Argentina and Venezuela inequality levels fell from levels higher than they had been historically is consistent with the good luck explanation.

PDF: http://www.cgdev.org/files/1425092_file_Birdsall_Lustig_McLeod_FINAL.pdf

Earlier paper with similar conclusions: http://econ.tulane.edu/RePEc/pdf/tul1117.pdf

May the bashing of the authors commence without even reading one paragraph of the analysis. :hi:

[Lydia Leftcoast]

1. Sorry, I'm not going to download PDFs, something I avoid doing in general

However, attributing the decline in inequality in Argentina and Venezuela (which just happen to be the two countries that defied the neoliberal consensus) to "luck" is disingenuous.

I assume that the analysts are going to attribute the improvements in Venezuela to oil. Plausible, except that Venezuela has been a major oil producer for decades. (It was listed as such in my sixth grade social studies textbook in the 1960s. The Maracaibo oilfields and all that.) Could it be because Chavez insisted on the oil companies sharing the wealth with the Venezuelan people?

I'm not sure why they think Argentina was so lucky. Could it be because they defaulted on their crippling debt and stopped pegging their currency to the dollar, which freed up funds for domestic development? Yeah, that was all due to the Luck Fairy swooping down on them with her magic wand.

[ChangoLoa]

2. Oil prices were 7-10 times lower for the previous Venezuelan govt (10-15$).

And considering that half of Ven. govt's fiscal income comes from oil, it counts a lot. Specially if we're talking about governmental programs to reduce poverty. Still, I agree that Chavez's govt. has been quite efficient in reducing poverty and inequality during the oil shock (but not since it stopped in 2008). Just less than Brazil.

"Venezuela has been a major oil producer for decades":
It was the world's largest exporter from 1928 to 1970.

[joshcryer]

4. Absolutely, the second PDF says they should definitely still get credit.

Credit where credit is due, after all. The question is whether or not it's the most efficient means to reduce poverty quickly. Apparently it's not. (Add in the relative corruption indexes and I bet the results are even more telling.)

[joshcryer]

3. It's attributed to a rise in commodity prices in both the case of Venezuela and Argentina.

The correlation is direct, it is not a cause and effect observation. It happened that way.

Venezuela and Argentina had windfalls (both countries being rich with natural resources) which had they been used like Brazil or Chile could've been far more beneficial to the population as a whole.

[Lydia Leftcoast]

6. You mean Chile with its privatized pension system that is leaving old people destitute?

OK.

[joshcryer]

7. The 2008 reforms were designed to fix those issues.

And will probably make Chile's pension system last at least beyond Social Security which has been robbed blind while benefitting many more.

But yes, even with Chile's privatized pension system they did better than Argentina or Venezuela. Pretty damning. But you can read the report yourself if you wish.

[naaman fletcher]

8. What's the latest on that?

When I was in business school the Chilean model was of course taught as the greatest thing that has ever happened to pensioners. Has it gone that bad? I haven't read much on it in a few years.

[joshcryer]

9. Yes, compared to US Social Security which has returns of 1-2%, theirs has returns of nearly 10%.

Apparently however there were a lot of people who didn't pay into it and weren't covered and whom wound up hurting badly for it (they subsidize those people but not in a significant way). Everyone is required to pay in it now I believe so it should be remedied.

[joshcryer]

5. Here are some graphs from the paper, because it's not all about "it's just luck."

I feel sometimes people just skim some text to look for something that they'd agree or disagree with and don't delve further. It's intrinsic to the type of system that has been set up.

Social democracies spend more on social programs as a percentage of GDP than left populist:



Interestingly social democratic states redistribute more to the 1st-3rd quintiles.



Meanwhile two left populist states benefited from a surge in commodity prices, suggesting that the social democratic approach is more sustainable (this boom will bust eventually):