The politics of inequality and redistribution in Latin America

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  • 2012•05•10

    James Stewart

    The politics of inequality and redistribution in Latin America

    Photo: Alex Eflon

    The decline in social and economic inequality registered in many Latin American countries since the late 1990s coincided with a shift away from the politics of market-based structural adjustment and towards a political landscape in which the social problems of poverty and inequality play a prominent role. This repoliticization of inequality has manifested itself both in the revival of mass protest movements and in an electoral turn to the left, and it has generated a diverse array of policy tools for tackling inequality, poverty and underemployment.

    In the recent UNU-WIDER Working Paper No. 2012/8, “The Politics of Inequality and Redistribution in Latin America’s Post-Adjustment Era”, Kenneth M. Roberts explores how the region’s dual transitions to political democracy and market liberalism in the 1980s and 1990s set the scene for this new politics of inequality.

    Market reforms and rising inequality: the 1980s and 1990s

    Market reforms spread across Latin America when the attempts at import substitution industrialization (ISI) collapsed in the debt crisis of the 1980s. (ISI is a policy aimed at aiding a country to reduce its foreign dependency by augmenting local production of industrialized products.) Governments across the region cut back their already limited redistributive measures, introduced during the populist-ISI era, which were viewed as wasteful and undermining market efficiency by market reformers. Governments pursuing market liberalization also slashed tariffs, privatized state-owned industries and public utilities, lifted price controls and subsidies, and deregulated labour, capital and foreign exchange markets.

    These market reforms had three main implications for the politics of inequality. First, the combination of economic crisis and market restructuring altered the regional class structure by shifting employment from the formal to the informal sector of the economy. Second, these changes created impediments to collective action, thereby increasing the political challenges facing unions. Finally, this weakening of class-based collective actors helped shield neoliberal technocrats and policy makers, now in the ascent, from societal pressure, thus allowing them to experiment with social policies that were more compatible with free market principles.

    Efforts to achieve greater growth and efficiency through market liberalization did not suffice to alleviate the region’s chronic problems with underemployment, inequality and poverty. In fact both the proportion of people living below the poverty line and the GINI coefficient, used to measure a county’s income inequality levels, rose between the 1980s and 1990s. The new economic model adopted by Latin America left the region with a “social deficit”; low wages and a lack of secure employment were central elements of this.

    Democracy and the repoliticization of inequality

    The failure of market liberalization to deal with the crisis of poverty, inequality and underemployment did not mean that these problems would inevitably be turned into political issues. In fact many of the social and political actors who had traditionally politicized such issues were not well positioned to do so during the period of economic adjustment.

    The strength of labour unions was in decline and their ties to political parties had been eroded. The left was on the defensive due to the collapse of socialism in the Soviet Bloc, and in many countries it was the historically labour-based populist parties who took the lead in imposing structural adjustment policies.

    However, while in the late 1990s over 70 percent of Latin Americans expressed support for free trade and in the aggregate placed themselves slightly to the right-of-centre on the ideological spectrum, there was growing discontent with other aspects of market liberalization. There was a high level of support for a state role in economic and social welfare activities and for the public control of key resources.

    It is, therefore, not surprising that as democratic regimes became increasingly consolidated and the scourge of hyperinflation was extinguished, the political dynamics in the region shifted. This shift of political dynamic coincided with the economic downturn at the end of the twentieth century and expressed itself in two distinct ways: first through an outbreak of social protests, and second through the unprecedented election of 15 different left-leaning presidents across 11 countries in the region between 1998 and 2011.

    The most explosive patterns of social protest occurred in those countries that had experienced bait-and-switch patterns of market reform, and which were therefore left with no major institutionalized left-wing party into which discontent with the process of liberalization could be channeled. The mass protests that erupted in countries such as Venezuela, Ecuador and Bolivia culminated in the traditional party system being outflanked on the left, leading to the rise of new populist or leftist movements seizing power, rewriting national constitutions and refounding state institutions. As a consequence of the bypassing of the traditional party system, the social policies introduced in these countries tend to be characterized by decisive breaks with macroeconomic orthodoxy.

    However, not all the leftist electoral gains in the region were due to a bypassing of the traditional party system. In countries where a conservative military regime (Chile) or political parties (Uruguay, Brazil and El Salvador) led the process of market reform, and where a major party of the left remained in opposition, it was through these parties that discontent with market liberalization was channeled. Even in countries such as Mexico, where leftist parties have not captured political office, they have gained in strength and forced conservatives to pay greater attention to social issues.

    Consequently, the broad pattern across the region is that equity gains have been made under some conservative as well as leftist governments. In these countries, where the opposition between left and right has been contained within the traditional party system, the policies introduced have generally been compatible with macroeconomic orthodoxy, although reforms have occurred on the social policy front.

    Clearly, the Latin American “left turn” has not spawned a singular “model” of social and economic development that could be counterposed to that of neoliberalism. Instead, it offers a diverse array of policy tools for tackling social problems of poverty and unemployment, some of which are compatible with neoliberal orthodoxy and others that lead away from it.

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    This article originally appeared in the April issue of the WIDER Angle newsletter.