How Sustainable are Latin America’s Advances on Poverty and Inequality?

By Eric Hershberg

Brazil Contrasts

“Projeto Contrastes.” Photo Credit: Gabriela Sakamoto / Flickr / Creative Commons

The significant decline in poverty rates and income inequality in Latin America over the past two decades – driven by a combination of sustained economic growth and intelligently designed social policies – may slow or even be reversed as economic conditions deteriorate across much of the region.  Poverty had begun to drop in most countries even before the commodity boom accelerated growth rates in South America beginning around 2003.  The “Washington Consensus” policies of the 1990s impacted wage income and employment negatively, but other factors diminished their impact on poverty.  By overcoming profound macro-economic instability, which among other things produced hyperinflation that devastated disadvantaged sectors of the population, the economic adjustments of that period were not entirely regressive.  Moreover, a concurrent shift toward targeted social programs – which redirected subsidies away from less vulnerable segments of the population in order to protect the poorest of the poor.  By 2002, the number of people living on less than $1.90 a day had declined 4.6 per cent from where it had been at the beginning of the 1990s, according to the World Bank, while the number living on less than $3.10 stayed flat and actually rose (from 135.6 million to 138.1 million).  Performance varied across countries.  By 2012, after a strong decade of growth and a wave of progressive governments, the progress was much more impressive, with poverty dropping to 33.7 million ($1.90/day) and 72.2 million ($3.10/day).

Inequality declined also – a different challenge in the region that Kelly Hoffman and Miguel Centeno aptly labeled the “lopsided continent.”  Measured by GINI coefficients, income inequality in Latin America, which exceeded that of any other world region at the beginning of the century, grew less pronounced under governments of various ideological proclivities.  A substantial body of research shows that this was a product of two factors.

  • Investments in primary and secondary education, which accelerated during the neo-liberal years, meant lower wage premiums for those with more than basic skills: near universal attendance in secondary school reduced the significance of gaps between workers who had secondary education and those who had little schooling.
  • Innovative social policies – particularly conditional cash transfers – meant that the lower rungs of the income ladder received meaningful transfers from the state, enabling them to narrow the income gaps vis-à-vis less disadvantaged sectors. Less frequently acknowledged was the positive impact of reforms on minimum wage policies and the creation or expansion of non-contributory pensions, both of which were pushed aggressively by several governments associated with the “Left Turns.”  Non-contributory pensions were especially important since the most vulnerable of Latin American aged populations, having spent their working years toiling in the informal sector, had previously lacked any sort of retirement pension.  (Read further analysis of pension reform.)

The region’s slowdown in economic growth and the pressure on public finance brought about by the end of the commodity boom – and the infusion of cash into state coffers that it afforded – raise questions about the sustainability of these advances.  The benefits of investments in education will endure for some time.  Even if education budgets decline, the costs in terms of lower educational achievement would take years to become evident, and it is not at all certain that the funding will decline.  However, the social programs are much more vulnerable, as are the ambitious efforts to increase minimum wages and labor protections more broadly.  Should the economic contraction underway in some countries and on the horizon in others generate an increase in informality, the labor market achievements of recent years could be quickly eroded.   This would impact inequality, and it might soon exacerbate poverty as well.

June 3, 2016

The Amazon Basin: Rainforests, Oil, Politics, and the U.N. Climate Negotiations

By Todd A. Eisenstadt and Karleen Jones West

Photo by Caroline Bennett / Rainforest Action Network / Flickr / CC BY-NC 2.0

Caroline Bennett / Rainforest Action Network / Flickr / CC BY-NC 2.0

Research that we have undertaken with National Science Foundation support indicates that rural, indigenous, and impoverished citizens in Latin America mobilize on environmental issues out of simple self-interest.  In daily testimonials at last week’s meeting in Lima of the United Nations Framework Conference on Climate Change (UNFCC), activists reaffirmed that they have been mobilizing all across Latin America to protect their land and water.  The conventional argument in the political science scholarly literature is that environmental issues are a post-materialist concern that influence only the relatively affluent populations of advanced democracies, but our research shows that the self-interest of vulnerable populations in developing countries is a powerful motivation for environmental consciousness.

Original data from a national survey we conducted in Ecuador this year point to three interest-driven hypotheses as explaining attitudes towards the environment.  First, similar to literature developing in geography, vulnerability to environmental changes that impact on people’s livelihood greatly enhances interest in environmental issues.  Second, political competition affects individuals’ environmental concerns because politics determine the extent to which citizens will benefit from extraction as a development policy.  Third, we claim – particularly for respondents in the Amazon region subsample – that a respondent’s location on the “extractive frontier” (i.e. whether they live in an area where extraction is under consideration) will affect their level of environmental concern.  Using original survey data from Ecuador, we find that populations threatened by environmental change and who are on extractive frontiers (where mining and oil concessions are being considered) are more likely to express concern over the environment, but that these factors are conditional upon how much citizens trust that the government will use profits from extraction to invest in their communities.

The meetings in Lima and implementation of its results are testing the findings of our research.  The social impact of the 2009 Baguazo – the slaying of some 33 protestors against mining in Peru’s Bagua Province – is still a recent memory to many and is a constant reminder that the “extractive frontier” is long, dynamic, and fraught with social conflict.  For Ecuador, Peru, and the other Amazon Basin nations on the front lines of climate change, our findings imply that in this part of the developing world at least, vulnerability to environmental change has a great impact on public opinion.  Competing political interests and debate over whether to accept mineral or petroleum extraction is also intense because of the trade-offs they entail between environmental conservation and economic growth.  This is not a new debate, but one which is acquiring more precise definition by academics in studies such as ours (click here for full paper) as well as the policymakers who last week pushed the debate onward to Paris in 2015, where a new climate change framework is expected from the UN.

December 16, 2014

Replicating the U.S. Shale Gas Revolution in Latin America

By Thomas Andrew O’Keefe*

Photo credit: Energy Information Administration / Foter.com / Public domain

World Shale Gas Map / Photo credit: Energy Information Administration / Foter.com / Public domain

The shale gas revolution in the United States promises not only to soon make the country energy self- sufficient but also serve as the catalyst for a major revival of manufacturing.  Similar high hopes have been raised for Latin America, where some of the planet’s largest reserves of shale gas are found.  According to U.S. Energy Information Administration estimates, Argentina is said to have the world’s second largest reserves of technically recoverable shale gas (China is first).  The United States is currently in fourth place, followed by Canada and Mexico.  Brazil is in tenth place, with Chile and Paraguay not far behind.  The possibility that Latin America can pursue a successful shale gas strategy, however, is tempered by a number of important legal and/or geological differences that can serve as important bottlenecks.  In addition, the region’s tumultuous politics often get in the way of implementing policies that boost investment and encourage a highly productive energy sector.

The most important legal difference is that subsoil rights belong to the above ground property owner in the United States, while everywhere else in the Western Hemisphere the government (national, state or provincial) is the owner.  Developers have had an easier time purchasing access to shale gas deposits from individual landowners throughout the United States.  This explains, in great measure, why Canada’s significant shale gas reserves have not been as extensively exploited as in the United States, despite a hydrocarbons regime receptive to private-sector investment.  In addition, environmental protection legislation that impacts the shale gas industry is fractured among Federal, state, and local government authorities in the U.S.  That has facilitated developers extracting waivers and more lenient treatment in the United States that would be harder to obtain in most Latin American nations, where environmental protection is the exclusive or predominant prerogative of the central government.  Furthermore, current technology for extracting natural gas from shale reserves demands huge amounts of water, a resource that is scarce in those regions of Mexico, for example, where most of its extensive shale gas reserves are located.

Political realities are the most crucial (and often overlooked) factor that can easily undermine any effort to develop Latin America’s extensive shale gas reserves.  On paper, Argentina should be a regional energy powerhouse, supplying not only its own energy needs but those of its neighbors. However, the country has for years pursued policies that have scared off private-sector investment, heightened Argentine dependence on foreign energy imports, and led to a steady hemorrhaging of hard currency reserves.  To outsiders these policies appear illogical, but they make perfect sense to Argentine political leaders trying to consolidate their power base.  Mexico is an example of a country constrained by its Constitution from developing its extensive off-shore hydrocarbon resources.  Any political party that tries to make major amendments to those constitutional provisions, however, risks annihilation at the polls.  Brazil’s recent adoption of nationalistic legislation to encourage the domestic manufacturing of hydrocarbon-related technology could well impede exploiting its shale gas reserves if similar mandates are created for the highly specialized and capital-intensive hydrofracking equipment the industry utilizes.  In fact the only Latin American country where the stars seem aligned to repeat the U.S. shale gas success story is investor-friendly, politically-stable, energy-starved, and free-market oriented Chile, whose shale gas reserves are concentrated in the remote, under populated (and very wet) far south of the country that desperately seeks new opportunities to promote local economic development.  

*Thomas Andrew O’Keefe is the President of San Francisco based Mercosur Consulting Group, Ltd. and teaches at Stanford University.

September 11 Coup in Chile: Global Ramifications

By Eric Hershberg

Chilean Grape export photo by Dick Howe Jr CC-BY-NC Flickr / Indictment of Pinochet, Photo by a-birdie CC-BY-NC Flickr

Chilean Grape export photo by Dick Howe Jr CC-BY-NC Flickr / Indictment of Pinochet, Photo by a-birdie CC-BY-NC Flickr

In Washington last week many events recalled the bloody coup of September 11, 1973, which overthrew the Popular Unity government of Chilean Socialist President Salvador Allende and ushered in a dictatorship that, even by South American standards of the time, stood out for its brutality.  Discussion about “the other September 11” highlighted the human cost of the coup, the role of U.S. government agencies in undermining Chilean democracy and encouraging the military’s actions, and the memories of the coup and dictatorship that remain deeply embedded in Chile today.  These and similar gatherings around the world and in Chile featured demands for the full truth about the dictatorship’s crimes – the fate of some thousand of the disappeared remains unknown today, according to the Human Rights Observatory of the Diego Portales University – and to hold those who committed them fully accountable.

The coup led by General Augusto Pinochet destroyed Latin America’s longest standing democratic regime and ended a unique experiment testing the proposition that electoral democracy could catalyze a transition to socialism.  In Chile, the coup initiated 17 years of military rule grounded in state-sponsored violence, but it also resonated far beyond that country’s borders, marking a watershed in global affairs.  To this day how people around the world conceive fundamental issues of political change, economic development and human rights is affected by September 11, 1973.  These broader legacies were the focus of a panel discussion at American University, co-sponsored by the Center for Latin American Studies and the Washington College of Law, this week.  (Click here for details.)

We can now see three large sets of consequences that the Chilean coup had far beyond its borders. 

Political:  Across Southern Europe, it reverberated powerfully, undermining the confidence of sectors of the Left that believed fervently a socialist transition could be effected through victory at the ballot box.  After the coup, Eurocommunists in Italy and Spain came to believe that victory would require an alliance with Christian Democrats or other centrists, lest a coup coalition akin to that in Chile bring down democracy altogether. For much of the Latin American left, the Chilean experience would over time prove a wake-up call, alerting those aspiring to turn the world upside down that democracy was not a mere bourgeois luxury and suggesting that “second-best” options – more gradual change –were preferable to maximalist goals that would likely jeopardize democracy.

Economic: The coup paved the way for “neoliberal” policies that would shake the foundations of conventional thinking about development for nearly three decades.  They were prescribed across Latin America.  It would not be until the emergence of ALBA in the mid-2000’s that the region would again witness a faith (however misguided), in the capacity of import-substitution and inward-oriented redistribution to achieve lasting economic advance in the region. 

U.S. policy:  Finally, the coup set in train levels of violence and human rights abuses so abhorrent that they drove major changes in U.S. human rights policy and international jurisprudence.  In the United States, advocacy organizations, progressive majorities in Congress, and the Carter Administration introduced unprecedented legislation aimed at preserving democracy and curbing human rights abuses.  Well beyond Washington, numerous international regimes put in place to combat impunity were motivated and influenced by what had taken place in Chile and the imperative of ensuring that it not happen again.  

Just as the cataclysmic event that took place in the U.S. on 9/11/01 opened the door to extreme and ongoing changes felt around the world, so too did the Chilean tragedy that began on 9/11/73.

Obama’s Second Trip to Central America

SICA logo | Wikimedia Commons | GNU Free Documentation License

SICA logo | Wikimedia Commons | GNU Free Documentation License

The White House has cast President Obama’s trip to Mexico and Central America on May 2-4 as “an opportunity for the President to demonstrate his leadership in the international community in a really important way.”  The spokesman emphasized the “important people-to-people ties” between the United States and Central America because “there are a lot of immigrants” from the region.  The Administration’s press releases stress that the summit in San José, with the presidents of the Central American countries and the Dominican Republic under the rubric of the Central American Integration System (SICA), will focus on collective efforts to promote economic growth and development in the region and on “our ongoing collaboration on citizen security.”

Regional reaction to the visit and summit has been positive – Obama’s interest is clearly welcome – but leaders are already managing expectations.  Costa Rican Foreign Minister Castillo last weekend cautioned that the United States is not able to provide significant new assistance for either economic or security programs.  Commentators note that the visit has not been preceded by the sort of diplomatic activity that would indicate the rollout of significant new policies or programs.

At a summit in Guatemala with Vice President Biden one year ago, Costa Rican President Chinchilla crystalized regional criticism of the U.S. counternarcotics strategy when she said that Central America “is sacrificing the lives, making its enormous sacrifice” and, in a clear reference to Washington, called on the “international community [to] take greater co-responsibility in this struggle.”  Hosting the SICA summit with Obama suggests she is prepared to put such criticism aside, perhaps in hopes that talks focus on the economic and immigration issues.  The White House spokesman’s reference to immigrants – at a time that Obama is pushing ahead with related legislation – may indicate that immigration will be a primary concern for him also.  The last time Obama went to Latin America, for the Summit of the Americas in Cartagena in April 2012, he seemed ill-prepared for criticism of U.S. policies, including its counternarcotics strategy, even from Washington’s closest friends.  With perhaps the exception of Nicaraguan President Ortega, the participants in this Central American get-together seem less likely to deliver a similar grilling, making what diplomats call a “successful meeting” very likely.