A Moment of Equality for Latin America?

Challenges for Redistribution

Barbara Fritz, Lena Lavinas

• Publisher: Routledge
• Year: 2016
• Print ISBN:
  9780367598013
• eBook ISBN:
  9781317187561
• Topic: Política y relaciones internacionales
• Subtopic: Globalización

Unlike other regions around the world, several Latin American countries have managed to reduce income inequality over the last decade. Higher growth rates and growing employment, but also innovative wage policies and social programs, have contributed to reducing poverty and narrow income disparities. Yet, despite this progress, nation-states in the region demonstrate little capacity to substantially change their patterns of deeply rooted inequalities. Focusing on the limits and challenges of redistributive policies in Latin America, this volume synthesizes and updates the discussion of inequality in the region, introducing the perspective of global and transnational interdependencies. The book explores the extent to which redistributive policies have been interlinked with the provision and quality of public goods as well as with structural changes of the productive sector. Inspired by structuralist and neostructuralist thinking of Latin American economists, such as Raúl Prebisch and Celso Furtado, authors question the redistributive impact of the interplay of recent macroeconomic, fiscal and social policies, particularly under left and center-left administrations committed to greater equality. Bringing together experts in social, fiscal and macroeconomic policies to investigate the interdependent and global character of inequalities, this book will appeal to scholars of sociology, economics, development and politics with interests in Latin America, inequality and public policy.

PART 1
Opening the Question

Chapter 1
Redistribution and Persistent Challenges: An Introduction

Lena Lavinas and Barbara Fritz

The Latin American continent has seen an unprecedented drop in income inequality amidst a vigorous return to economic growth, with indicators at levels not seen for quite some time (4.1% p.a. on average for the region as a whole from 2004–2013, as opposed to 2.7% p.a. for the period 1984–2003, according to IMF, 2014). This recent growth with equity has been cast as a paradox (Boyer, 2014), as it goes against the grain of tendencies observed in other regions around the world at the turn of this century, as well as the trajectory of this region over the 20th century. In Göran Therborn’s words, in the chapter that lends the book its title, Latin America is experiencing a “moment of equality.” Is this unexpected inversion simply a parenthesis in the development of Latin America, or a historical breakthrough in a region marked by extraordinary levels of inequality? To what extent does this virtuous coincidence reflect structural changes capable of ushering in a new era in development, free of the impasses that for decades hindered the expansionary potential of such a rich, diverse, and plural region?

Many studies have attempted to explain this phenomenon. A convergence in the literature indicates that this state of affairs is not simply the result of significant economic growth over the period, but also of key political interventions. What policies were these? What did they stipulate, and how sustainable will they prove in the effort to maintain a continuous reduction of inequality indices in Latin America in the middle and long term? On these points, the critical consensus splits in many directions.

Most scholars who have examined the novelty of this “moment of equality” in Latin America recognize that it has become the stage for new experiments in the field of public policy, with clear effects in terms of reduced social and economic disparities. Authors such as Lustig and López Calva (2010) have seen, beyond the substantial economic growth of the 2000s, a notable increase in the education levels of the less fortunate classes, and the subsequent reduction in skill premium as the principal factor driving income disparities down—an explanation also adopted by Tsounta and Osueke (2014). The latter add other explanatory factors, such as the considerable rise in direct investments and high levels of tax collection. Cornia, in a recent compilation focusing on the subject, has even detected the gradual emergence of a new model, dubbed “open-economy growth with equity” (Cornia, 2014: p. 4). Working off a series of country studies for the years 2002–2010, he indicates a broad array of factors and economic, fiscal, and social policies that were fundamental to the exceptional fall in inequality, against the tide of global trends. Cornia concludes that this phenomenon, irrespective of the political orientation or economic structure prevalent in the countries in the region, is also the result of an improvement in external conditions, changes in the dependency ratio and activity rates, and the adoption of fiscal and employment policies.

This book takes a different tack. Instead of segregating its analysis by policy fields or by interpreting the measurable effects of specific interventions in a number of areas, so as to evaluate the contribution of each to the recent fall in inequality in Latin America, it brings together specialists from the fields of social, macroeconomic, and fiscal studies to discuss the interdependences that may restrict—or, rather, boost—the dynamics of inequality reproduction.

The jumping-off point is reference to a broad concept of inequalities as multidimensional and interdependent, as well as transnational. This was developed through the international research network desiguALdades (www.desigualdades.net; see Braig et al., 2013), in collaboration with a wide-ranging and multidisciplinary array of academics working on the topic. Both the network and the conceptual field structuring the collection are especially influenced by dialogue with structuralist and neostructuralist thought. These currents of economic thinking are both relevant and crucial in reflections currently taking shape across the region around the advances and stumbles that have marked the return to a new trajectory of development with greater social inclusion, at the turn of this century.

As the reading of many of the chapters in this collection will reveal, the Prebischian and Furtadian analytical framework¹ for interpreting the causes of Latin America’s underdevelopment and its peripheral place on the international stage retains great freshness and pertinence in approaching the challenges that lie ahead. Other referential frameworks brought into the debate on growth and redistribution are the return to a Keynesian approach regarding the centrality of social spending, on one hand, and the relevance of fiscal policy in the construction of a fairer and more sustained redistributive pattern, on the other. Speaking from various schools of thought, these chapters ask whether the return to economic growth with a more egalitarian income distribution has managed to overcome the profound social and productive heterogeneity of the region; the weakness of its institutions; the bottlenecks to innovation and continued technological progress, inhibiting productivity gains; its low investment capacity; its recurrent external vulnerability; the stumbling-blocks of the process of late industrialization; and prevailing resilience to structural changes that might sustainably promote the deconcentration of wealth, thus broadening opportunities. These issues, which have dominated the regional agenda since the 1950s, have taken on new vigor in the context of the regulatory scheme introduced by so-called “neoliberal” reforms in the reestablishment of market mechanisms, particularly so in recent decades. During this period, most countries in the region sought, albeit in quite different ways, to forge instruments and policies that might help them overcome two decades of stagnation and crises, rising poverty and inequality, loss of competitiveness, and the absence of leadership on the international political stage.

While the issues that marked seminal structuralist thought remain atop the regional agenda, others have become equally relevant and urgent. The recognition of the persistence of marked ethnic/racial and gender inequalities, and the place of nature and the preservation of the extraordinary biodiversity of the region, are just two of the countless points that spell out the complexity of the formulation of alternatives that may support sustained and inclusive development in Latin America. At the turn of the 1990s, Fajnzylber (1990) had warned that it would be impossible to move forward without linking growth and equity in development strategies. Indeed, it was precisely amidst a new phase of economic growth with falling inequality, then, that new redistributive conflicts and the struggle for human rights dovetailed, revealing an intricate web of interdependent and entangled asymmetries.

This book proffers a dense debate around the advances, limits, and, above all, the quality of this “moment of equality,” underscoring the interdependence of macroeconomic, fiscal, and social policies. By focusing on the challenges and limits of redistributive policies in Latin America, this edited volume seeks to synthesize and update the discussion on the topic. To what extent does inequality reduction reflect changes in both public funding and public spending? How much is it backed by the provision of public goods? What sorts of coordination and convergence between macroeconomic and social policy have come forth over the course of this recovery? How to face the challenge of increasing productivity? Our preliminary analysis of these changes reveals a highly complex state of affairs. The 21st century has brought new energy and hope, but has likely not undone the multiple restrictions that characterized the “problematic expansion”² (Bielschowsky, 2000) of Latin America.

Although practically all countries in Latin America have seen economic growth with improved redistribution, there are significant differences between their trajectories. This book highlights those singularities even as it formulates a diagnosis for the region as a whole. Without excluding original processes, such as those seen in certain Andean countries with policies of high redistributive impact, this work privileges an interpretation of Brazil’s trajectory. Beyond its weight in the GDP of Latin America and the Caribbean (39.7% in 2013, according to the World DataBank), Brazil has emerged as a paradigm over the last decade, given the success of its genuine mix of (relatively conservative) economic policies and (active) social policies.

The phenomenon of the reduction of social and economic inequalities is still recent, and will thus call for redoubled efforts in forging a more conclusive and definitive evaluation of both the trajectory sought and the conquests consolidated. The chapters in this volume present critical arguments, as opposed to readings whose paeans to progress achieved may speak more to the novelty of the strategy at hand than a rigorous evaluation of its ultimate result. It would be impossible to ignore that there have been significant and remarkable results. Nor can we turn a blind eye to the persistence of a legacy of hurdles and brick walls facing full citizenship, which promises to drive structural transformations in both the productive sphere and the institutions that guide values and norms.

Latin America’s fall in inequality over recent years evidences, above all, a successful process of recuperation, essentially wiping out the severely deleterious effects of two decades of neoliberal experimentation on the continent. A key point in this respect is the significant upward trend in Gini indices in the majority of Latin American states, as seen amidst adjustment policies and unbridled economic opening. Likewise, the numbers of the poor rose notably, going from 136 million to 225 million from 1980 to 2002 (CEPAL, 2011) in the wake of the costs of stabilization policies and an ideology resistant to public social protection systems. Spending cuts and the privatization of public provision of services contributed to exacerbating the negative externalities of what had been cast as a lifeline for Latin America.

Thus, the century now beginning offers the reassurance of a trend reversal. The profoundly unjust, determinant starting-point of a dependent, peripheral capitalism has been left behind, even as elites’ consumption predominated, fueling a development model that never went beyond its premises.

Given this context, the question is whether, beyond recovering from the losses that undercut and delayed social change and frustrated hopes for greater equality and well-being, which forged resistance to the authoritarianism of both dictatorial regimes and the market on the continent, there might lie such a “moment of equality,” and whether it can spur on an even greater leap, with even more remarkable structural repercussions, able to ensure a sustainable, substantive socioeconomic trajectory that might finally break with the region’s underdeveloped roots.

Counterpoints

This volume opens with a chapter from Göran Therborn, wielding a global lens in order to contextualize and emphasize the singularity of the current “moment of equality” in Latin America, described as “virtually the only ray of light” in the “contemporary darkness of accelerating economic inequality.” He compares Latin America’s trajectory to other historical periods that brought the reduction of multiple inequalities, especially during the postwar period (1945–1975/80), which brought favorable changes in many regions across the world, such as North America, almost all of Europe, Northeast Asia, and Oceania, Australia and New Zealand. Despite the temporal difference, he identifies commonalities between the Latin America of the turn of this century and the trente glorieuses that transformed Western democracies. But Therborn also emphasizes profound differences between historical moments marked by processes of social equalization, geopolitical context among them. From this comparative perspective, he evaluates the Latin American moment as being one of respectable proportions, especially considering processes of “existential equalization,” as a wealth of ethnic, racial, and gender issues have bloomed on the political and institutional scene. Nevertheless, the author makes it plain that despite a clear tendency towards decline, hemispheric inequality still persists “at Andean levels,” far above figures seen in other regions; and he points out present and worrisome risks, such as the ongoing deindustrialization of the region or the favorable context of the commodities boom, making this moment of equality both unprecedented and demonstrably fragile. Although their political bases and their power when dealing with regional executives remain intact, pro-equity Latin American governments cannot camouflage their limits or vulnerabilities.

Like Therborn, Sáinz, in examining these recent trends, sees a factor in the “expansion of basic citizenship,” especially so in those countries that saw Bolivarian revolutions (Venezuela, Bolivia, and Ecuador). In his opinion, while the distributive sphere was not enough to revert inequalities in the countries studied, the break with a highly exclusive pattern came through redistribution. The author affirms that, beyond conditional cash transfer programs and increased social security coverage, the increase in social spending by an unprecedented magnitude wrought profound transformations in the three countries in question. Two aspects contributed to realize the potential of voluntary redistributive mechanisms in a “postneoliberal” context. On one hand, broad-based political coalitions, supported by popular and historically marginalized subaltern sectors, legitimized a new, heretofore unseen redistributive pattern. This pattern is rooted in the recognition of the rights of citizenship, which Sáinz sees as difficult to posteriorly contest or annul, as the process has empowered once-“invisibilized” social groups. Though these economies continue to focus on the extraction and exportation of primary goods, reinforcing their dependence on the commodity cycle, the author believes that the so-called progressive neo-extractivist model made it possible to reserve funds and shift revenues in order to finance social citizenship. While the future may present a heavy bill in economic, environmental and social terms, for Sáinz, Venezuela, Ecuador, and Bolivia managed to break away from a historical trend of profound socioeconomic asymmetries.

This interpretation is not echoed, however, by other authors in this volume, especially, but not exclusively, in examining the case of Brazil. For some, the quality and structure of social spending seem to have significantly restricted their effectiveness in fighting inequalities. This is the point of view put forth most emphatically by Lo Vuolo, Lavinas, and Simões, Jiménez and Azcúnaga, and Hermann and Gentil, as they emphasize the persistence in the region of low complementarity between macroeconomic and social policy.

Taking a balance of the 20th century, Lo Vuolo runs down the structural factors that have been gnawing away at the pillars of a more egalitarian development in Latin America and explain the limits on redistribution. After identifying three distinct models for coordinating economic and social policy (the ISI regime, from the ‘50s to the ‘70s; the neoliberal solutions of the ‘90s; and, finally, the recent phase of growth with inclusion), the author affirms that “the distributional issue is again a dependent variable of a sound macroeconomic policy and growth.” This argument rests on the fact that trends in the shrinkage or expansion of social spending converge with economic and political cycles. The frequency of crises, a structural element in Latin America—given the permanence of high economic instability—makes social policies essentially secondary. They remain the adjustment factor, and this stands as one indication that structural change has not yet occurred. Another problem is considerable heterogeneity, unchallenged and reinforced by the structure of social policies that do not promote universality and greater social cohesion. Contrary to Sáinz’s analysis, Lo Vuolo sees the persistence of structural heterogeneity and income and job insecurity as revealing “failures in the arena of the primary distribution [that] are not counterbalanced by progressive redistribution in the fiscal arena,” a problem mainly stemming from the design of social policies,

Hermann and Gentil, taking Keynesian thought and the multiplier effects of social spending as their jumping-off point, underscore that, in the case of Brazil, public transfers (both contributive and noncontributive) played a key role in reducing income inequality and spurring economic growth, especially given their multiplier effect on GDP. They also recognize that these transfers contributed to an increase in tax revenue, given their strong impact on consumption. However, they conclude that the continued constriction of the offering of public goods and services, on one hand, and monetary policy (high interest rates and the appreciation of the exchange rate), on the other, have impeded virtuous complementarity between macroeconomic policy and redistribution.

Bielschowsky and Saboia also view the combination of high interest rates and appreciated exchange rates as conspiring against an enduring increase in manufacturing investments, hence limiting the chances of successfully promoting structural changes able to forge a new model of eco...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Contents
• List of Figures
• List of Tables
• Notes on Contributors
• Acknowledgements
• Foreword
• PART I Opening the Question
• PART II Challenges for Coordinating Economic and Social Policies
• PART III Widening Political, Social and Fiscal Space: Which Outcomes for Redistribution?
• PART IV “Final Insights and Future Challenges”
• Index