Breaking the Cycle

Discussions of Latin America often lament its inequality, but few attempt to quantify the impact of such inequality while also recognizing the unquantifiable harm caused by its intergenerational nature across the region.

These issues were at the heart of a talk given at RAND by Heraldo Muñoz, UN Assistant Secretary General and Regional Director for Latin America and the Caribbean at the United Nations Development Programme (UNDP). Muñoz highlighted the results of the UNDP’s first-ever human development report for the region, “Acting on the Future: Breaking the Intergenerational Cycle of Inequality.” That report documented regional inequalities and proposed policies to deal with them.

PHOTO BY THOMAS ISAAC

UN Assistant Secretary General Heraldo Muñoz challenged the conventional view of tackling inequality — which emphasizes upward mobility, removing social barriers, and boosting competition — as “incomplete” for Latin America.

Beyond Conventional Wisdom

Muñoz challenged the conventional view of tackling inequality, which emphasizes upward mobility (pushing the bottom and middle up rather than dragging the top down), removing social barriers (such as to education), and boosting competition. In Latin America, he said, such a formula, though useful, is an “incomplete view of the best way to combat inequality.”

Inequality in Latin America and the Caribbean has become one of the main traits that characterize the history of the region, he argued, because of how deeply ingrained inequality has become. “Features of inequality have been an inheritance for hundreds of years. Inequality is very significant, very profound, very persistent, and very difficult to break. Inequality in income, education, and health pass from one generation to another.”

Addressing such intergenerational transfer of inequality should be a top priority for policymakers, said Muñoz, “both because it affects people’s lives and because it erodes social cohesion and democracy. If democracy doesn’t translate into better opportunities and the diminution of poverty, then frustration, apathy, corruption, and weakened institutions will ensue.”

Objective Measures

Although Latin America is not the world’s poorest region, it is the most unequal one, said Muñoz. It has 10 of the 15 most unequal countries in the world, when measured by household per-capita income. “Latin America is 65 percent more unequal than high-income countries, 36 percent more unequal than East Asia, and 18 percent more unequal than even the average for sub-Saharan Africa.”

He indicated that although Uruguay has the highest levels of equality in Latin America, Uruguay still is more unequal than the most unequal country in the European Union (Portugal) or than all the countries in the Organisation for Economic Co-operation and Development (OECD). “It’s like being champion in soccer but of the fourth division, not the premier league,” the president of Uruguay, José Mujica, ruefully told Muñoz during his official visit to the country to discuss the report.

Inequality imposes an important constraint on human development, as measured by the report’s Human Development Index. “When you incorporate inequality into that indicator, we find that human development drops an average of 19 percent across the region — with countries like Bolivia, Nicaragua, and Honduras experiencing drops of between 38 and 47 percent,” said Muñoz. “Such drops are a true reality check for the region.”

Despite all the bad news, Muñoz noted that there has been progress. “Of the 17 countries we analyzed, 13 of them have shown decreases in inequality of late, a trend not seen in China, India, and South Asia.” One reason for this is the expansion of public services across Latin America. He pointed to major successes in public welfare programs, known as conditional cash-transfer programs, such as Bolsa Familia in Brazil and Oportunidades in Mexico. These government programs make the cash transfer conditional upon the recipients’ actions, such as enrolling children in public schools, obtaining regular medical checkups, or receiving vaccinations.

The focus of reform needs to be on the poorest and most vulnerable populations, Muñoz continued. “Much of the focus has been on reducing income inequality, but, in reality, we are talking about ‘inequalities’ in the plural: gender inequality, territorial inequality (rural areas that have less access than urban areas), and ethnic inequality (indigenous peoples who have fewer opportunities than nonindigenous ones).”

Enhancing the effectiveness of public cash-transfer programs requires a focus on “quality” services and increasing the amount of resources available to the state. “There is a need to reach consensus to ensure tax revenues for states that allow services to be sustained over time,” Muñoz said. “The average tax burden is very small in Latin America and the Caribbean — only 17 percent compared to 36 percent for OECD countries, 40 percent for the 15 countries of the European Union, and about 27 percent for the United States.” Tax evasion is also very high, he said, running at 50 percent in Guatemala.

Subjective Factors

There is also a need to address the “subjective factors,” such as aspirations and autonomy, that perpetuate inequalities, said Muñoz. “When the distance between people’s aspirations and the resources needed to achieve them is too large, some families feel the investment in resources to get out of poverty is so large that it is hopeless.”

Such a fatalistic attitude is typical of stratified societies in Latin America and can lead families not to send their kids to school, he said. “Only about 3 percent of young people whose parents did not complete primary school ever finish college; by comparison, nearly 72 percent of kids whose parents have college degrees do complete college.”

Reducing inequality in Latin America and the Caribbean is possible, said Muñoz, but public policies should focus on “the three R’s of reform,” as proposed by Nobel Prize winner Amartya Sen in 2005: reach, range, and reason. “Policies geared toward redistribution must be effective at reaching the target groups they were intended for,” he said.

“The policies put forth must appreciate that households face multiple constraints that perpetuate poverty and inequality.” This range of constraints, he said, “refers to the need to address the multiple inequalities that are prevalent in Latin America.”

Finally, “the beneficiaries of the policies must have a say in the design and implementation process and be active agents of their own development and destinies.” This reason to participate, or motivation, “gets at the subjective factors — the lack of aspirations, for example — that keep countries mired in the inequality trap.”

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