According to a new study by the Economic Commission for Latin America and the Caribbean, 224 million people in the region are living in poverty. The study attributes increased social inequality in the region to disparate productivity and income levels between the minority large, modern companies and the informal sector which provides most of the employment.

By Chakravarthi Raghavan

May 2000

Geneva: The accumulated weight of social differences that have affected the Latin American and Caribbean region for so long is improving too slowly, and with each new economic crisis inequality worsens again, says the Economic Commission for Latin America and the Caribbean.

In a new paper, ‘The Equity Gap: A Second Look’, ECLAC finds that 224 million of the region’s people are living in poverty.

The document was presented at the second Regional Follow-up Conference to the Social Development World Summit, which took place from 15 to 17 May at the UN organisation’s Santiago headquarters.

The meeting reviewed compliance with the Social Development Summit’s Action Plan - approved by over 160 countries in 1995 in Copenhagen, Denmark - which aims to overcome poverty, unemployment and social exclusion. Governments then had set concrete goals for meeting this commitment; representatives from each Latin American and Caribbean country now reported on their progress.

In ‘The Equity Gap’, ECLAC provides details on the region’s situation in terms of the past decade’s efforts to overcome poverty, create productive employment and improve social integration within the broader context of economic and social reforms.

The 331-page study focuses, with tables and graphs, on the magtitude of poverty and indigence, changes in income distribution, trends in social spending, as well as successes and failures in resolving a range of social problems.

On average, the number of households in the region living in poverty fell from 41% in 1990 to 36% in 1997, says the study.

But this advance pales somewhat when the increase during the 1980s (from 35% to 41%) is taken into consideration. Furthermore, between 1998 and 1999 the tendency in many countries for poverty to decline slowed to a halt, while in others it actually began to rise again.

However, the ECLAC overview also identifies some progress associated with sustained economic recovery. From 1990 to 1997 poverty fell in 11 of 14 countries.

The document indicates that the countries showing the greatest progress in reducing poverty are those that have managed to reconcile relatively fast growth rates over several years with reduced unemployment and high employment rates for people from poorer families.

Lower inflation has also stimulated a genuine increase in earnings and, on occasion, in pension systems, and has encouraged investment continuity which had a positive impact on the labour market.

ECLAC however points out that ‘growth alone will not guarantee better income distribution’.

Another crucial factor, it stresses, is the quality of growth, that is, its ability to continue over time, combined with its translation into productive employment, better wages and efficient and high-impact social policies.

The intensity of the economic restructuring process that Latin America and the Caribbean have been experiencing for over a decade has defined new winners and losers, says ECLAC.

As a result, the gap has grown between large companies leading modernisation and a wide range of backward areas of the economy where most employment is concentrated.

This ‘establishes the material base for greater social inequality, as it accentuates internal gaps in productivity and income’, ECLAC warns.

It also affects economies’ ability to grow, as it limits linking between a variety of productive sectors and the distribution of technical progress, as well as exports’ stimulating effect on other sectors.

In the last decade, most employment was generated in the informal sector, where job quality is the poorest.

According to ECLAC estimates, for every 100 new jobs created between 1990 and 1997, 69 were in this sector, which already accounts for 47% of urban occupations in the region, a situation that explains the current stagnation in labour productivity levels.

It also explains the fact that in 13 or 18 countries, minimum wage levels have fallen below those of 1980. On average, the mean wage earned by informal sector workers is half that received by employees at modern establishments. The distance between professional and tradepeople’s earnings and those of low-productivity sectors rose 28% on average between 1990 and 1997.

Governments have expressed the political commitment to deal with this social lag, ‘which creates a more promising scenario for reforming social policy’, according to ECLAC.

In 12 of the 17 countries for which information is available, social spending per inhabitant was higher between 1996 and 1997 than it was during the 1980s. Moreover, between 1990 and 1991, and 1996 and 1997, public spending on social programmes expressed as a percentage of GDP (gross domestic product) rose on average by 2.3% and it even improved in those countries where the coefficient of public spending fell.

The sectors that most benefited were education and social security. Real per capita spending on the former rose in 13 of 15 countries, while spending on health and nutrition rose in 11 of 14 countries; spending on social security rose in all 13 countries for which information is available.

However, says ECLAC, this is still not enough, given that for example the additional costs of implementing a strategy for improving the quality of preschool and primary education would be 3.9% of GDP, a sum that many of these countries cannot afford.

This makes it essential to ‘concentrate social spending on those areas of education where  it  can  have  the most  social and  economic  impact,  while stimulating  private contributions’. Reforms to health care, for example, must change the institutional framework to ‘increase the efficiency, coverage and quality of service’ and focus subsidies more precisely, while strengthening regulatory and supervisory capacities. - Third World Network Features


About the writer: Chakravarthi Raghavan is Chief Editor of SUNS (South-North Development Monitor), a daily bulletin, and Third World Network’s representative in Geneva.