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Inequality In Latin America

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					1 March 2009 Gimnasio La Montaña Actualidad Internacional José Maria de Brigard Guillermo Umaña Juan Pablo García Sossa 11b Paper Inequality in Latin America Latin America’s biding constrain is inequality. It has been proof that inequality in this region is not between countries but within countries. This problem has placed Latin America in a vicious circle that has not let the region advance with a good pace. Inequality is this region’s biding constrain because this problematic promotes the development of other big problematics, as well as its solution will bring the solution for other problems. The solution wouldn’t affect only the economic aspects that concern a region, besides solving unemployment, poverty, competitiveness, etc. it would have a huge social impact; violence indexes would go down, and people’s health would improve making the quality of life much better. Nowadays, Latin America has improved a lot in its school enrollment indexes as well as poverty. Meanwhile in the decade of the 90’s countries like Bolivia had 87.5% of its homes living in poverty and 65.8% of them living in extreme poverty. In the new millennium this statistic went down to 71.1 % and 45.4% respectively. Also, income in the region has improved, for example Ecuador in 1990 had a $1011 income yearly and 2008 of $ 3960. 1 In the latest years many countries have improved their export growth. For example, in Argentina and Brazil there is a 16.1% annual growth. Also the Theil’s Index of per capita household income inequality in Peru has improved a little. For Peru in 1991 it was of 0.41 and in the beginning of the millennium it was of 0.51. Also the Education indexes have improved. There is the case of El Salvador that in 1995 had 87.6% of 10-year-old children attending school and in 2002 it changed to 93%.2 In addition, mortality rate has improved. In 1990 the probability was of 119 per 1000 population between the 15 and 60 years, and in 2006 it passed to 132.3 Even though statistics look rather positive, many of the improvements are not so significative and could be better if inequality is resolved because improvements would go evenly to the whole population. As it was said previously, the solution of inequality would have economic impacts and social ones. That is why this paper will show first the whole economic implications and second the social resolutions. A. Economic Impact
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Ecuador’s Central Bank, "Cifras Económicas del Ecuador", October 2008 Inter-American Development Bank WHO Statistical Information System

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Through the years Latin America has develop a not very healthy dynamic: Elitism. Elites are small groups of people that have taken control over Latin American countries. Usually are in the big cities and affect deeply rural areas. For measuring how people are distributed within the society according to a random variable, for example income, it is used the quintile, that is each of the four values of the random variable that divide a population into five groups. There is a top quintile meaning the richest people and a bottom quintile meaning the poorest ones. A good example showing inequality in Latin America is Bolivia. The percentage of rural residents in top quintile is of 4.9% meanwhile those in the bottom quintile are 44.6%. This also happens in countries like Colombia that presents in 2003 a 4.12% of rural residents in top quintile and 30.05% in bottom quintile. In Central America, for example Nicaragua, happens the same, the percentage of rural residents in the top quintile is of 7.4% and the percentage in the bottom quintile is of 34.73%. Even in the most developed countries of the continent as Chile and Mexico happens the same. For Mexico the percentage of rural residents in the top quintile is of 10.22% and in the bottom is of 36.95%. For Chile in the top quintile is of 6.09% and in the bottom quintile is of 42.26%.4

Inter-American Development Bank As we have just shown, and according to the table shown above inequality is present in great measure in the whole region. It is expressed with special strength in the rural areas because elites have been able to discriminate them. It is clear that much of the power is not in rural areas but in urban areas. If there were no more inequality, a good amount of people would have
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Inter.-American Development Bank

3 the same opportunities no matter if he comes from a rural area or an urban area. Benefits won’t be given to elites, so inclusion of the lower classes would be possible. On the other hand there are various inequality indexes, which determine a country’s situation. For example the gini coefficient is a coefficient that contrasts the actual situation with a hypothetical equal distribution. The values vary from 0 to 1, being 0 totally equal and 1 totally unequal. In Latin America the index shows how the waging of the primary job is affected by the binding constraint. In the countries mentioned above it clearly happens. For Bolivia the national coefficient is of 0.62, for Colombia is of 0.51, for Nicaragua is of 0.58, for Mexico is of 0.52, and for Chile is of 0.55.5 This data shows that most countries are rather unequal, because they are closer to 1. if this improves and the waging equalizes no benefits would be given to anybody so the income possibilities get better making the country grow economically. If the access to education is the same for everybody, the competitiveness within the country will increase. The more qualified people there are within a country, the greater innovation is. Unfortunately, Latin American countries have stayed behind in terms of access to education. Governments have focused in economic and security problems leaving education behind. Public schools have become low qualified institutions so the upper classes have decided to create their own private schools, with a good educational system but unreachable for the lowest classes, making inequality to grow. While the richest part has the money to graduate from school and go to good universities, the poorest one cannot afford paying a good secondary education system. This leads to a situation where only a really small part of society has the knowledge to create sustainable and innovative industries, while the vast majority of the population has to stick to old school techniques, which harm the country’s economy because industries become uncompetitive with other regions of the world. In most of the Latin American countries there is a really high percentage of labor force without any schooling titles. In 2001 Bolivia had 28.87% of its labor force completing No Schooling, Colombia 15% and Nicaragua 44%. This amount of people working without any type of education will not contribute to the country’s industrial growth because they will not contribute to innovation, which is not good at all for a developing region as Latin America. The only exception to this situation in the region is Chile, which has only a 3.7% of its workers without schooling and has showed a growth in its economy and industry that is higher than most Latin American countries. This contributes to the argument that countries of this regions will be more productive in terms of innovation if the lower the amount of workers without education. But nowadays situation is not the best one, in Mexico only 10% of its the labor
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Inter.-American Bank of Development

4 force has any Post-Secondary schooling, in Bolivia only 11.9% and in Colombia only 13%. Another problem related with the access to education is the great amount of young people that get out of school and never complete even secondary school. This problem is caused because of a lack of a knowledge culture and a poor educational system. People do not see education as an important way to overcome poverty, get good jobs and contribute to the countries development because public schools are not good and private ones are too exclusive. The lowest income part of society focuses into getting easy jobs, leaving education behind and preventing development. The amount of individuals that complete at least secondary school is alarming. In most Latin American countries not even 45% of the people under 19 complete secondary school. In Panama 44% of young people complete secondary school, in Argentina 43%, in Bolivia 37% and in Guatemala only 21%. Getting rid of this situation will happen if inequality reduces in the region. As people start having full access to a good education system, culture around knowledge and learning will change leading to innovative societies. Also, a huge unequal situation happens between rural and urban areas of most of Latin American countries. Besides that access to tertiary education is really low, mainly because of economic inequality and the lack of culture explained before, the access to education in rural areas is really low compared to the access in urban areas. In Latin America, a high percentage of low-income families live in rural areas. Around 45% of the resident of the rural areas are in the bottom quintile. Also, rural post-secondary institutions are not very common, which means people of the rural areas would have to move to urban areas to study, an impossible situation for most of the residents of this areas that live in poverty. The percentage of people attending to university in Bolivia is 31, which only 4% is rural population; in Chile, of 36.4% of people attending to university, only 14% are rural population and in Colombia, of 17.4%, only 3.8% are rural population. All this problems related to access to education would be solved if inequality lowers in Latin American countries. As more people start having access to good institutions, competitiveness within the country will increase and in addition competitiveness with other countries and regions will grow. Innovation, as a key to strong industries will be more likely achieved because there will be more people with the tools and knowledge to create new technologies and make companies competitive around the world. If inequality reduces, education will be better in urban and rural areas and qualified people will get the power in every sector of society, making human capital better prepared.6 Taking into a count the global competitiveness report the Latin nations are no so well off with the labor market efficiency, today the human capital is not so good as it is in other developing countries. The report ranked 134 nations according to a score from 1 to 7, being seven the best and 1 the worst. In
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Inter.-American Bank of Development

5 labor market efficiency Bolivia scored 3.5, which positioned the country in the place 129. Colombia scored 4.1 as the nation number 92. Nicaragua scored 4.1 and was the country number 99. Mexico scored 4.0 and was in position number 110. And finally, Argentina as nation number 130 scored 3.5. Meanwhile many Asian countries are all above place 60: china (51), Taiwan (21), Hong Kong (4), Thailand (13), Cambodia (33) and Indonesia (43). This data shows that Latin countries in general terms are not creating good and cheap human labor. This makes that the industrial development turns into a very slow process, affecting at the same time the goods market efficiency. For instance, Ecuador scored in this rubric 3.3 and was placed as 129, Peru scored 4.2 and was placed as 61, Paraguay scored 3.9 as nation 104, Uruguay scored 4.1 and was 79, and Panama scored 4.4 as nation 57.7 The improvement of these aspects would let industry develop evenly. One problematic that is present in almost everywhere in the world is unemployment, and Latin America couldn’t be untouched by this challenge. Some countries in Latin America present concerning rates of unemployment, as well as there are some that do it well in this aspect and are improving. Even though it is still a challenge that is almost all the time present and the aim is to keep it the closer it is possible to 0%. Unfortunately for some countries in the region it isn’t so by now. For instance, Honduras is listed as number 171 in a list of 198 countries according to unemployment rates, with 27.8% of unemployed people. Argentina is a good example for a country with a good industry, but has a high rate of unemployment, probably because of the economic crisis it suffered not so long ago. Argentina has a 14.64% of people between 25 and 49 years unemployed, and is one of the highest rates in the region. Dominican Republic, Uruguay and Colombia have 15.4% 12.24% and 11.8% of unemployment respectively. Although those are high rates in the region, they are still below the world average, which is pretty high, and far of what is expected. The World average is 30%. The average in Latin America is 8%.8 Some people are unemployed for a certain time that is considerable long. As a matter of fact, in Brazil the average time someone is unemployed is 36 months. In Colombia, Panama, Argentina and Uruguay this time is of 8.1 months, 6 months, 6 months, and 6 months correspondingly.

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The Global Competitiveness Report 2008-2009 World Economic Forum CIA World Fact book

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Inequality is also present in genres having women a higher range of unemployment than men. In Colombia 15.59% of women between 25 and 49 years are unemployed meanwhile there are 8.93% of men unemployed, as it was shown in the graphic above. In Uruguay situation is similar having 16.23% of unemployed women and 8.7% of unemployed men. Maybe Latin America isn’t so bad comparing it to other regions, but it also has high rates of workers in informal jobs. Colombia has a 70% of workers in informal jobs between 25 and 49 years. Argentina presents 37% in the same criteria, Bolivia 86.65%, Guatemala 78.11%, Nicaragua 78.06%, and Peru 80.16%, among others. This means that working opportunities isn’t big in Latin America so people are unemployed, or have an informal job. This may also be the reason why many Latin Americans go away from their countries to other ones to have exactly the same: Informal Jobs; but this time paid in Dollars or Euros. In this region people have to be an idea producer but not for developing or creating technology, but for surviving.9 If inequality is no longer there anymore, the situation would be different. People would have the same chances of working no matter if they come from rural areas or urban areas; no matter if they are males or females. All the creativity would be focus on developing new technologies instead of developing new ways for surviving. All those informal jobs would decrease significantly and unemployment rates would be closer to 0. Once developed industry and unemployment indexes have decreased, the countries will start to be richer, because the income will start to increase, as well as the GNI per capita. In the past years Latin America has increased its GNI per capita but it has not been so significative as in other countries, precisely because the enrichment has not been the same for everybody, if all Latin Americans would have showed the same growth the increasing of the GNI per capita would have been much bigger. In 2000 the GNI per capita was of $3767, in 2005 was of $4153,

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Inter.-American Development Bank

7 in 2006 was of $4756, and in 2007 was of $5540, a difference between 2000 and 2007 of $989, not a very significative change.10 This has many implications that would also make an important part of the enrichment of the country. One of these implications is that the cost (% of the GNI per Capita) of procedures to start a business would represent much less difficulties for most of the citizens. Actually the percentage of the GNI dedicated for this cost by nations as Argentina is of 13%, for Colombia of 25%, Bolivia 154%, Guatemala 58% and Chile 10%.11

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As shown in the data and the figure when a country is richer less of its GNI is dedicated to start a business, meanwhile Bolivia has to dedicate over a 100% of its GNI, because of its economic problems, a country as Chile, with few economic distress only dedicates 10% of its total GNI. So it can be said that if the country gets richer, among other things, people will be able to start business in an easier way making that the income increases, as well as the country grows economically even more. As an effect of unemployment decrease and industrial growth, Latin American countries´ economy would grow and they would become more competitive within the continent. As this happens exports will increase and trade within Latin American countries will get stronger, goods and services will have a better quality contributing to a strong regional economy. In addition GDP per capita will increase making markets more sustainable as more people have purchasing power. More people with purchasing power will push industries to create better products and this way competitiveness will increase among the
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World Bank Database Inter-American Development Bank

8 continent. Today’s Latin American countries´ GDP per capita is low compared to smaller countries in other regions of the world. For example, Argentina’s GDP per capita in 2008 was of $14,500 meanwhile Belgium’s was of $38,300. This happens because Argentina, with a big population and a vast territory suffers of the same problem of the region, inequality, preventing industries to develop as European ones. As industries in Belgium are strong and sustainable, industries in any Latin American country are not, although they have many human capital and large territories in general. In 2008, Colombia’s GDP per capita was of $9000, Bolivia’s of $4500 and Chile’s of $15400.

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As it was said before, and according to the table above, as industries develop, exports increase. This will make Latin America a competitive region and it will help the region keep growing as markets as the European or Asian. For this to happen high tech products must be developed in order to star competing with other markets. Nowadays exports of high technology in Latin America represent less than 5% of the total. Chile, known as the most developed country of the region, exports only 4.76% of its total in technology, which shows how the strongest industries of the region are agriculture and natural resources industries. If inequality lowers, more people will have the tools to create new technologies and stop depending on natural resources that one day will stop being sustainable. Today’s exports in Latin America are low compared to imports. El Salvador, for example, exports around US$2,165 millions and imports US$7,525 millions, and Colombia exports US$29,991 and imports US$30,815.12 Compared to developed countries of the world, Latin America has to do a great job to increase its exports. To start being competitive worldwide, the
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9 region has to overcome many of the problems that prevent industries to develop, mainly caused by inequality. While exports of countries as Australia (that is an island relatively far from economic centers) are around $178.9 billions, exports of Argentina (which is a huge country close to many others as Brazil) are around 73 billions. For Latin America to start making good use of its human and natural resources, inequality has to be overcome. People have to learn how to use the land in a good way, to make it a prospective for income and start creating new knowledge and technologies to export and get to worldwide recognition. That is the way how the solving of inequality can make an economy grow, as countries get richer, and its people have more opportunities of advancing and helping in the enrichment of the countries, and at the same time the region gets stronger as an economic block than can compete with the biggest economies of the planet. B. Social Impact In Latin America there are still people living on extreme poverty. For example, in Bolivia 23.2% of the population live under the poverty line, in Colombia 7% live in this condition, in Chile less than 2%, in Guatemala 13.5% and in Honduras 14.9%. Seemingly are not a very big numbers, but the condition of living with less than a dollar a day is unacceptable in any level. 13 If inequality is abolished immediately the main needs of the people will start to be resolved. The coverage of the main services will be much better as well as its quality. Nowadays services as access to drinkable water and sanitation systems is not very good and even, and in some cases can be qualified as luxury. For example, in Bolivia only 43% of the population has access to improved sanitation, and 86% access to improved drinkable water. In Colombia 78% has access to improved sanitation and 93% has access to drinkable water. In El Salvador 84% has access to sanitation and 86% to drinkable water. And in Peru 72% of the population has access to sanitation and 84% has access to drinkable water.14

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World Health Organization Database “ “ “ “

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The table shows the access to sanitation facilities, even though is pretty good for urban areas, for rural areas is almost a luxury, another proof of inequality between urban and rural areas. Besides this kind of inequality, the access to the services is also conditioned by the quintiles, for example Bolivia shows how the lowest quintile is totally behind from the middle and high quintiles, as shown in the table below:

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This kind of behavior between quintiles and any kind of service is very similar for almost all, such as electricity and home infrastructure.

11 This means that another place where inequality hits is in the non-fulfillment of services, which means that if inequality is resolved the services will be evenly and properly fulfilled, which will make living conditions an improving rubric. The improvement of living conditions and the access to health care would be better so situations as infant mortality rates and neonatal mortality rates would decrease and the healthy life expectancy rate would increase. Regions with an even income population are more likely to have healthy populations because more people are able to access to health care systems, get a more balanced nutrition and focus on healthy activities as sports. As people have the purchasing power to get all these services, life expectancy at birth will increase and mortality rates will decrease. The result would be a sustainable growing population. For Latin America to get to the improvement of living conditions and health in population, inequality must be overcome. Today, Infant Mortality rate (death/1000 births) is of 11.78 deaths/1,000 live births in Argentina, 14.26 deaths/1,000 live births in Aruba, 23.65 deaths/1,000 live births in Belize and 19.51 deaths/1,000 live births in Colombia. Meanwhile in developed countries as Canada infant Mortality rate is of 5.08 deaths/1,000 live births, in Belgium of 4.5 deaths/1,000 live births and in Austria of 4.48 deaths/1,000 live births. Latin America could get to the low mortality rates of the developed countries listed above if everybody in the region can access good hospitals and get the money to buy healthy and balanced food, which means getting to a more balanced society.15 Even if Life expectancy at birth in most Latin American countries is not as bad as other developing nations in regions as the sub-Saharan Africa, it would be a sustainable and healthy life expectancy rate if inequality is reduced. Today Life Expectancy in whole Latin America is around 70 years, for example in Peru is 70.44, Trinidad y Tobago is 67, Venezuela is 74, Chile is 77.2, Argentina 66.5 and Bahamas 65. Life expectancy average in Europe is 76.8, which is the goal Latin America could focus on as inequality is reduced. Health systems in Europe, the same as nutrition are good and inclusive, if Latin America gets to equality in those terms, life expectancy will increase. Once the problem of main needs satisfaction and the problem of health are resolved the struggle between social classes will end, because there will be less people living under the poverty line, stopping the need of delinquency for satisfying main needs, decreasing the indexes of violence. Taking to two main aspects needed for the development of any society: security and basic survival conditions. Solving this biding constraint will permit the region develop in many areas. Latin America is a region that had been doing well until now but not good enough as many countries in Asia. As it was shown, solving it will have consequences in economic and social ambit that will help the region being
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World Health Organization Database

12 capable of being one of the most successful in the world. Some of the effects of inequality are the stoppers of other matters. A biding constraint is a restraint that has to be taken down. As it happens with restraints, when they are removed many things can advance again. People would live in better conditions and would not have to fight for getting them or for surviving. People would start focusing in making better lives instead of making basic lives (Right now the aim for many people is having a basic life because they live in extreme poverty). People would live anywhere because there wouldn’t be just a place for opportunities, but many places. Rural or urban, people would live well and the typical Latin American picture of modern buildings, and fancy restaurants beside houses made of boxes and people starving would not be present anymore. Equality would make this region a good place for living and working, and citizens wouldn’t be “forced” because of conditions to leave their countries and give their knowledge to other regions.

Sources:  Graphics: Inter-American Development Bank  Inter-American Development Bank Database  World Bank Database  CIA World Fact book  World Health Organization Database  UN Database  USAID Database  Ecuador’s Central Bank, "Cifras Económicas del Ecuador", October 2008