Latin American equality: free markets or a left-wing success?

HAVANA, Cuba — Latin America has long been a case study in the social ills brought by sharp economic inequality, its class-stratified societies marked by too few haves and too many have-nots.

But even as income divisions widen across the United States and much of the developing world, they are narrowing in Latin America. Poverty in the region is at its lowest point in decades, according to several new reports, and millions are moving upward into the middle class.

A World Bank survey released this month said Latin America’s broadening middle grew by 50 percent between 2003 and 2009. 

It was followed by a new United Nations regional economic study showing the percentage of Latin Americans living in poverty at the lowest level in 30 years. 

Now the question is: Who gets credit for these trends?

The region’s improved economic outlook has coincided with the rule of left-wing governments in some of Latin America’s biggest economies: Brazil, Argentina and Venezuela. They have devoted a greater share of their national resources to anti-poverty programs and development projects, boosting social spending.

Yet the drop in poverty has also come as Latin governments adopt many of the market-driven policy prescriptions long vilified by the left as “neoliberalism.” Foreign investment has poured into countries like Peru, Colombia, and Chile as they’ve opened their economies and embraced globalization.

Foreign direct investment into Latin America topped $150 billion last year, UN data shows, up from around $25 billion in 1990.

Regardless of political orientation, Latin American governments have also benefited from soaring demand for raw materials, much of it fueled by China. High global commodity prices have allowed countries to reap billions in tax revenues and direct income from sales of copper, gold, soybeans, oil, beef and other exports.

In its report, the World Bank credited regional governments for improved economic stability and the delivery of social programs, saying upward mobility has been driven by higher levels of formal employment, urbanization, reduced family size and greater numbers of women in the workforce.

It defined the middle class broadly, as anyone earning between $10 and $50 a day, and said about half the population of Latin America now falls into that range.

“The recent experience of Latin America and the Caribbean shows the world that policies balancing economic growth while still expanding opportunities for the most vulnerable can spread prosperity to millions of people,” World Bank President Jim Yong Kim said of the findings.

“Governments in Latin America and the Caribbean still need to do much more — one-third of the population is still in poverty — but we should celebrate this achievement of growing the middle class and learn from it,” Kim said.

Learning from the trend is now a matter of defining what’s really driving it.

Left-populist leaders such as Venezuela’s Hugo Chavez, Bolivia’s Evo Morales, and Ecuador’s Rafael Correa have won at the polls in the past decade by railing against their country’s economic elites and promising to re-slice the pie in favor of the masses.

By directing more of their nations’ resource wealth to social spending, they have eased poverty and invested billions into health care, education and other services.

But their state-driven development models are heavily dependent on high commodity prices, and often contrasted with the so-called “Brazilian model” made fashionable by former President Luiz Inacio “Lula” da Silva. His leftist government remained friendly to foreign investors and maintained pro-business policies even as it lifted tens of millions out of poverty with greater social spending.

Geoff Thale, program director at the DC-based Washington Office on Latin America, said splitting the region into those two models is an oversimplification.

“While there's a lot of discussion about the differences between left-populists like Chavez and social democrats as in Brazil, I don't think that the lines are drawn that clearly or that either camp has a single, well-defined approach,” he said. “In reality, it's more an era of experimentation than of ideological lines.”

Thale said he views the region today as dominated by “post neoliberal” governments, “whose leaders believe that the state can and should play an active role in the economy and the market, and that social spending targeted at the poorest sectors (even when it's wrapped in neoliberal language about conditionality) is an important government function.”

“I think those left-of-center beliefs, shared by a wide range of governments, have had an impact on both poverty and inequality,” Thale added.

Other regional experts say the expansion of Latin America’s middle should not overshadow how fragile the region’s gains are.

Much of the emerging middle class has a slippery foothold and could easily slide back down, said Christopher Sabatini, senior director of policy at the Council of the Americans and the editor of Americas Quarterly journal, which dedicated its fall issue to the trend.

“Access to formal jobs remains an obstacle to stable social mobility,” he said.

Sabatini added that Latin America’s tenuous middle class also needs new innovations in social policy that look beyond welfare programs for the poor. What’s lacking, he said, are “more formal social safety nets such as unemployment insurance that can provide more universal coverage, and insurance against sliding back into poverty.”

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