By Marcela Sanchez
Inequality has been a perennial curse for Latin America. No matter how much progress the region has made in democracy, macroeconomics, investment climate -- you name it -- it never has seemed able to shake off the label of “most unequal region in the world.”
The reason is pretty clear. Entrenched, moneyed elites made sure new developments served their interests, making them richer while the incomes of the rest remained stagnate. Eventually, popular discontent grew to the point that governments ignored the gaping disparities at their peril. By the turn of this century, there was a broad commitment in the region to get serious about inequality.
Now, according to the United Nations Development Program (UNDP), Latin American inequality is showing signs of easing. Increased social spending and investments in education, in particular, appear to be paying off and income distribution began to improve two years ago.
Latin America, however, is the exception, as disparity has grown everywhere else. According to the UNDP’s latest Human Development Index (HDI), “more countries have a higher (income inequality) now than in the 1980s.”
This is not good news for the likes of Liberia or Vietnam, poor nations that have many other problems. Neither it is good for emerging countries such as Poland or South Africa, where rising inequality poses new challenges and could undermine important gains.
But it is bad news for all of us that the United States is included among those with growing inequality. According to the HDI, the concentration of wealth in the U.S. is higher than among its peers. In fact, in the latest HDI, which measures human development in terms of income, health and education, the U.S. ranks fourth most developed among 169 nations. With inequality added in, it drops to twelfth. Today, income inequality is worse in the United States than in Indonesia, Uzbekistan or India.
As Latin Americans know, income inequality, and its companion disparities in political power, education or health, has negative ramifications for the economy. And like Latin American-made inequality, U.S. inequality is beginning to look more and more like a function of increased poverty. Today U.S. unemployment hovers around 10% and the number of working-age poor reached a 50-year high last year. One in six Americans are now without health insurance and more than 17 million U.S. households had difficulty putting enough food on the table in 2009.
According to Jeni Klugman, UNDP Human Development Report office director, Latin American made progress against inequality thanks to efficient redistribution efforts that increased public spending on health and education among the poor. Nancy Birdsall, Center for Global Development president, added that such spending has also been carefully balanced with sound macroeconomic policies, especially fiscal discipline. In several countries tax revenues also increased, making it possible for governments to take on more responsibilities without becoming fiscally irresponsible.
Enacting anything remotely similar here seems improbable. The new leadership headed to Washington is vehemently opposed to increased social spending and wants to make tax cuts for the wealthiest permanent. In other words, they’ll be serving the rich and undermining the principal means of reducing inequality.
If they get their way, the unhappy result will be greater and greater weaknesses in the U.S. economy and ultimately the world’s economy, which is overly dependent on American consumers. Moreover, the U.S. will have less economic means for taking on increasingly urgent matters such as climate change, and will remain a grave environmental liability for all of us. The UNDP calls climate change the “main threat to maintaining progress in human development,” around the world.
The consequences of inequality in Latin America have been great. The Organization of American States says it is incompatible with democracy, making it more fragile and impeding its full exercise. The World Bank, which once promoted prosperity through mere economic reforms, views inequality as drag on the region’s economic growth and detrimental to development. And, of course, it has been a great source of political turmoil.
At the end of the day, many of these impacts have been isolated to the region. Latin America’s GDP in total is $4.7 billion this year, less than one third the size of the United States.
The range and depth of impact will be much greater if the land of opportunity goes down a similar rabbit hole. It may not lead to political upheaval -- recall that many Americans voted against their best economic interests this past election cycle -- but the consequences will affect us all eventually.Marcela Sanchez is one of the most respected journalists writing about Latin America, as evidenced by her work for the most important papers in the United States -- including both the New York Times and The Washington Post -- as well as the two most important newspapers in Colombia -- El Espectador and El Tiempo -- Colombia's En Vivo and QAP TV channels, and Venezuela's Daily Journal. We welcome her back to the Latin American Herald Tribune, where her hemispheric wisdom appears every Friday.