Cities and Economic Inequality in Latin America

Intra-Urban Inequality in Argentina

Lena Simet

• Publisher: Routledge
• Year: 2022
• Print ISBN: 9781032063607
• eBook ISBN: 9781000569643
• Edition: 1
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

This book examines trends and determinants of economic inequality in cities in Latin America, the world's most unequal region. It explores how the gap between the haves and the have nots manifests in every part of urban life – from housing to schooling to employment. It asks why some cities have higher inequality than others and what we can learn from these differences as we push back against inequality.

The book starts with reviewing the policies and forces that explain the rise and fall of inequality in Latin America since the 1990s and why progress in reducing inequality has stalled. It then focuses on Argentina's cities and applies a set of quantitative tools to identify inequality determinants. It finds that intra-urban inequality generally mirrors national-level trends, but local idiosyncrasies related to a city's labor market, informal employment, and social protection systems matter. The book discusses the pitfalls of privatizing public services that turned access to water in metropolitan Buenos Aires more unequal. It explores the promises and unintended consequences of slum upgrading initiatives in Buenos Aires' Villa 20.

The book presents lessons that can inform policies and practices in the region and beyond. Developing a strategy against inequality that incorporates local features and resists the temptation to rely on the "free market" for solutions to urban problems offers a powerful opportunity. Drawing from the field of economics and social and urban policy, this book shows that the battle against inequality is not only won and lost in cities but also requires a uniquely public and urban response. As such, it will be of interest to advanced students, researchers, and policymakers across development economics, urban studies, and Latin American studies.

1Why another book on inequality?

DOI: 10.4324/​9781003201908-1

We live in a deeply unequal world, where the growing gap between the rich and the poor is one of the defining challenges of our time. The gains from modern economic growth and globalization have not been equally distributed, with some people not seeing any gain at all. Inequality has undermined the fight against poverty, damaged our economies and societies, contributed to mass migration, and harms ecological sustainability.

In its most extreme forms, inequality manifests in the contrasts between the hundreds of millions of people living in extreme poverty unable to afford drinking water or food and the ever-deepening pockets of those at the very top.

Some 736 million people lived on less than US$1.90 a day in 2015 – a daily allowance equivalent to two bus tickets in Sao Paulo (World Bank 2018a; Numbeo 2021). More than half of the world’s population lives on just US$7.40 a day or less, no more than US$3,000 a year, which even in lower-income countries is not enough to live a decent life.

The COVID-19 pandemic has highlighted and exacerbated these inequalities like no other. While the virus could have infected anyone, people with low incomes and without savings were more exposed to the virus and likelier to catch it. They were also more prone to experience economic devastation and see their jobs and incomes disappear.

For hundreds of millions of workers, 2020 was one of the worst years in history. The International Labor Organization (ILO 2021) estimates that it costed workers about US$3.7 trillion in lost earnings. At the same time, an Oxfam report (Berkhout et al. 2021) calculates that the world’s 2,200-plus billionaires saw their wealth grow by US$3.9 trillion. Job losses were concentrated in low-wage industries and disproportionately affected women and people of color. Hundreds of millions were pushed into poverty, experienced hunger, or faced risk of eviction. People who were already struggling with poverty before the pandemic sank even deeper into economic distress.

If one believes estimates by the American economist Jeffrey Sachs (2006), the growth in total billionaire wealth during the pandemic alone would be more than enough to end extreme poverty worldwide in 20 years (he suggests it takes about US$175 billion per year to do so).¹ And even if one believes more is needed to tackle poverty, it can’t be denied that without challenging the accumulation of wealth at the very top, the struggles at the bottom will continue.

In part due to the extreme and rising gap between the rich and the poor, inequality has become part of the public debate in the last decade. In 2013, former US president Barack Obama declared rising inequality as a national priority. In 2014, a survey by the Pew Research Center found that people in the United States perceived inequality as one of the “greatest dangers in the world.” At the same time, this attention served as a magnet for non-profit and multilateral spending. Across the globe, the case against the super-rich is gaining support, stressing the adverse effects of wealth accumulation, tax avoidance, and abuse of power to corrupt political processes and policymaking, with some suggesting that “every billionaire is a policy failure” (Riffle 2019).

This book describes how inequality manifests in Latin American cities and discusses what cities can do to win the fight for more egalitarian societies. Cities are the places where most of humanity lives. In Latin America, one of the most urbanized regions of the world, more than eight in ten people live in cities. Cities are also the places where social tensions and economic inequality can be most clearly felt and seen, as they morph into sums of fragments, where quality urban living has become a commodity for those with money. Wealthy neighborhoods are often provided with all kinds of services, such as quality public and private schools, medical care, golf courses, tennis courts, and private police patrolling the area around the clock; this world is intertwined with informal settlements where water is scarce, no formal sanitation systems exist, electricity is pirated, the roads become mud streams when it rains, and where house sharing is the norm.

Just outside the central train station in Buenos Aires is no stranger to such fragmentation. On one side of the train tracks, one can find Retiro, Buenos Aires’ wealthiest neighborhood home to large and beautiful houses, quiet streets, art galleries, and chic cafes. Luxurious five-star hotels like Four Seasons, Marriott, and Sheraton give their guests an aerial view of Plaza San Martin from their 40-floor bar. After crossing the train tracks in the other direction, a drastically different urban landscape appears when entering Barrio Mugica (also known as Villa 31), Buenos Aires’ largest slum home to more than 40,000 people. Like most informal settlements in Argentina, Barrio Mugica is not connected to an official power grid, there are almost no paved roads, and there is no sewage system or piped water. Out of necessity, residents have developed a parallel economy, with housing, commerce, and many social services being handled informally.

These spatial divisions are a cardinal symptom of income and wealth inequality. Socioeconomic segregation in Latin American cities often comes with unequal access to municipal services and infrastructure, such as piped drinking water, formal and reliable electricity, or access to public transport. But these divisions did not happen by chance, nor were they the natural result of living preferences. They are the result of historical land use and urban development plans that disadvantaged those with fewer resources. They are the consequence of past and present municipal and political priorities, budgetary allocations, and public investment decisions, which respond more to the needs and demands of the wealthy than those of the poor.

In the early 2000s, New School Professor Michael A. Cohen and researcher Dario Debowicz (2004) examined the importance of place as a factor of urban poverty and inequality by reviewing spatial patterns of public investment in infrastructure and social services over six years. Their findings are striking: some districts received more than 130 times the level of public infrastructure investment per capita than others. People living in the wealthier parts of town were exponentially more likely to enjoy a high quality of life. Recoleta, one of the city’s wealthiest neighborhoods, received 68 percent of all public investment in infrastructure, even though just 11.5 percent of the city’s population lived there. In contrast, the lower-income neighborhoods in the south west and far west of the city, home to 67 percent of the city’s population, received just about 25.3 percent of infrastructure investment. Investments in education and health care also favored wealthier parts of the city.

As these urban inequalities and the practices that reinforce them have become increasingly visible, cities also emerged as the places where people come together to demand for greater equality and social justice. Three years after the 2008 financial crisis, the Occupy Wall Street movement in New York City, which inspired rallies around the world, began as a protest against the concentrations of wealth in the hands of the top 1 percent. In Istanbul, the occupation of Gezi Park to prevent the construction of a shopping mall became a symbol of the fight against the privatization of public spaces. In Chile, a hike in the Santiago Metro’s subway fare in 2019 grew into a widespread protest against the increased cost of living and the privatization of public services and the pension system. The eruption of unrest in Ferguson, Baltimore, and other US cities is the response to racialized policing and segregation. And the 2019 Berlin May Day protests were organized under the slogan of “the city of the rich,” rallying against rising rents, displacement, and gentrification.

These collective struggles for justice call for the right to the city, a concept termed first by French philosopher Henri Lefebvre in 1968. It resurfaced again through British geographer David Harvey (2008), who described the right to the city as the fight for democratic control over the urban development process, which makes it a broader right than the individual freedom to access urban amenities. Foremost, it includes citizen participation in urban management via “the right to participate” and the “right to inhabit,” which promotes inclusive cities through urban regulations. These struggles call for the urgent need for new knowledge, policies, and practices to move from a “planet of slums,” as the American geographer Mike Davis (2007) illustrates, to a planet of inclusive cities.

The harms of inequality

Why is inequality so bad? There are so many ways in which inequality harms societies that it is hard to know where to start and how to give justice to inequality’s many repercussions on our lives. Extreme and rising inequality is not only unjust but also negatively impacts economies, human rights, and political stability. It raises crime and corruption and undermines democracy. It has contributed to ever more fragmented cities where housing has become unaffordable for most and homeownership is becoming an ever more distant dream.

Inequality impedes the fight against poverty. Extreme and growing economic inequality undermines poverty reduction as the increasing power by the top 1 percent shifts the focus of governments to them and away from the majority of the population. For the rich, wealth begets power.² Extreme wealth “buys political power, it silences dissent, and serves primarily to perpetuate ever-greater wealth […] (Manjoo 2019).” A 2018 Oxfam study (Cañete Alonso 2018) demonstrates the many ways Latin American politics continue to be captured by the super-rich, with substantial financial backing for many new populist and even racist leaders.

Early defenders of inequality argued that it is good for economic growth and that growth lifts all boats and eventually eradicates poverty. But decades of growth alongside poverty have proven these claims to be false. Bourguignon (2002) finds that poverty does not decrease automatically when average incomes rise, but it decreases when distribution patterns change. How else could we explain the hundreds of millions of people living in extreme poverty despite years of strong economic growth?

Take Honduras, a country that – before COVID-19 – experienced the second-highest economic growth rates in Central America, only behind Panama. Yet, almost half of its population lives in poverty, and inequality is among the highest in the region (World Bank 2021a). We see a similar situation in Chile, one of Latin America’s fastest-growing economies in the last decades. Still, almost a third of the population is economically vulnerable, and the income gap has remained high. The social unrest in 2019 was in part a response to the high and persistent inequality, high unemployment, segregated labor markets, and the segmented service provision in education and health care (World Bank 2021b).

Not only does unequal growth hamper poverty reduction, but it also hurts long-term economic well-being. The Economic Commission on Latin America (ECLAC) describes “inequality as a development obstacle” (Bárcena et al. 2018, p. 115). Segal (2018) estimates that in Mexico, rising inequality since the 1970s has cost the average worker nearly 60 percent of their income. Evidence by the Organisation for Economic Co-operation and Development, short OECD, (Cingano 2014) shows that more equal countries grow faster and over a more extended period. This is because a broader consumer base, human capital, and the social stability that greater equality enables provide a stronger basis for sustained growth than concentrated wealth does. Even institutions like the World Bank (Brueckner and Lederman 2018) and the International Monetary Fund (IMF) (Ostry et al. 2017) have noted this.

Cities, in their very origin, were thought of as places of opportunity and socioeconomic mobility. However, the concentration of poverty can have a first-order impact on several policy-relevant outcomes. The British epidemiologists Richard Wilkinson and Kate Pickett (2009) studied inequality and societal well-being in several high-income countries and large metropolitan areas in the United States. They found that high inequality has detrimental effects on health outcomes (physical and mental health), educational levels, and crime. Countries and cities with high inequality perform worse in life expectancy, math and literacy, infant mortality, and social mobility. Crime and homicides are also higher in more unequal places.

In Moving to Opportunity, Chetty and Hendren (2015) look at the neighborhood effects on children in US cities. The study reviewed the results of an experiment initiated in 1994 by the Department of Housing and Urban Development, which randomly assigned public housing tenants in three groups. The first group received a housing voucher to move to a better neighborhood, the second group received a voucher to move anywhere they wanted, and the third group received no voucher. Chetty and Hendren find that children who moved to a better neighborhood before the age of 13 earned 31 percent more as adults than those who stayed.

In Latin ...

Table of contents

• Cover Page
• Half-Title Page
• Series Page
• Title Page
• Copyright Page
• Contents
• List of illustrations
• Acknowledgments
• 1 Why another book on inequality?
• PART I The Rise and Fall of Inequality in Latin America and Argentina
• PART II Why Some Cities Are More Unequal: Evidence from Argentina’s Cities
• PART III Closing the Gap
• Index