Alicia Puyana Mutis FLACSO Mexico Inequality, Work, Poverty and economic policies A link to explain the Latin American protracted malady Alicia Puyana Mutis FLACSO Mexico

A dash of history The history of Latin American inequality shows: The link between economic concentration and política power The prevalence in the long run of inequality with changes emanating from political transformtions. Income concentration in a century and a half has evolved around a 0.54 Gini Land property and economic growth and specialization centered in concentrated resources reproduce economic, social en political divergences

A dash of history Inequality is a topic that comes and goes depending on political and social circumstances. In “modern economics”, the treatment of inequality and poverty have evolved concentrated on individual’s income. For classic economists inequality and poverty affect individuals morally and socially (Smith & Ricardo) and fracture the social fabric. If the majority of its members live in poverty there is no basis for mutual respect (as noted by Humboldt in Mexico) Wages are social arrangements between a handful capitalist and numerous workers While laws prohibit workers from uniting and demanding better wages, nothing impedes capitalists from coming together to devalue labor, exacerbating inequality and the imbalance of power

The roots of poverty and inequality In Smith, a person is rich or poor, depending on the amount of labor they needs to offer or can buy. because of the causality between poverty (lack of resources) and inequality (lack of opportunities) there is the need to considered together So the divide emerges from the property of means of production and the uneven bargain capacity between the very many workers and the very few capitalist Governments enacted then and now, laws and norms discriminating against labor to reduce the its compensation at the lowest possible and socially acceptable level .

A misleading analisis By focusing in income rather in wealth concentration economic theory obscured the roost of inequality, let it be income, wage, education, health and hides the primary distribution of income. By taking the effects as causes of inequality acts on the former leaving the latter intact. The 2008 crisis demonstrated the direct relationship between concentration of wealth and political power and that the market does not allocate resources efficiently -The practical effects of analyzing only income concentration is to hide the evolution of compensation to labor and to capital which is the central topic of political economy -“wealth, like Hobbes said, is power” (Smith) the power to purchase and control labor and everything that labor produces and exchanges in the market

Inequality in New Spain Circa 1770 Source: Milanovic et al (2007) Milanovic, Branko, Lindert, P. Williamson, G. (2007) “MEASURING ANCIENT INEQUALITY”, NBER Paper 13550, downloaded from: http://www.nber.org/papers/w13550. Milanovic elaborated the averages from: Humboldt, A. V (1822) “Ensayo político sobre el reino de la Nueva España”, en: https://archive.org/details/bub_gb_D5Fla3_P_h8C

Chile, index of income concentration 1850-2009 -For a shorter period, 1960-2014, we find a similar trajectory in 13 Latin American countries with the inequality index revolving around the level registered in 1960 -The Chilean example is important since in the decades from 1950 to 1970 Chile was one of the most equal nations in Latin America, and turned out to be one of the most unqueal after 1974. -we find five periods of approximately 30 years each: (1) 1852-1882 in which inequality tends to increase; (2) 1883-1910 (minimum inequality in 1903); (3) 1911-1941 (maximum inequality in 1933); (4) 1942-1974 inequality decreases, minimum Gini 45 in 1974; (5) 1975-2009 inequality remains on average equal to 54 The changes in the concentration of inocme coincde with changes in political regimes: the Reductions when socially oriented political forces took power and the increases with the arrival of the opposite forces. We see this oscilations today in Argentina, Brazil, Ecuador And decades before in Peru and Mexico.

From the colonial times up to day: The extreme concentration of land

Gini index of income concentration in Latin American Countries 1960-2014 -The increase in inequality since 1974, up to 1987, is amongst the highest ever recorded (Scott, 1996). -As elsewere in Latin America, the transition to the liberal economic model implied a worsening of inequality and poverty, in many cases this economic transition was founded on a political transition to undemocratic regimes -(Bulmer-Thomas 1996). The author adds that the curtailing of human rights and political freedoms was accepted as the way to discipline labor.

Functional distribution of income in selected countries, share of payments to labor as percentage of GDP 1970-2014 -The reasons for the persistence of the intense inequality of Latin American are many. Birdsall (2005) points to the destructive character which reverses instead of triggering emulation and savings -The liberal model is the main cause of the changes in the productive structure and the abandonment of active fiscal, sector and employment policies -Besides all these factors, a powerful catalyst of inequality is the sustained decline of the labor income share in total national rent -In Latin America and other countries, the fall of labor income in national rent is an effect of the productivity growth being lower than wage growth, which increases the gains of capital and intensifies the concentration of income and wealth

Conclusions Latin American inequality is deeply rooted in the colonial period and the changes in income concentration seem to be marginal, temporal and induced by changes in political regimes. The concentration of land property and the specialization in commodities are the main causes of the protracted Latin American inequality. Such intense fragmentation is destructive inhibits growth and investments The international specialization in commodities and maquila final consumption manufactured goods has induced an economic model intensive in imports low growth, stagnating productivity and incomes Concentration of wealth is the central element determining the functional distribution of income in which a fast deterioration of the labor retribution has intensified since the structural reforms initiated in mid 1980s -A very weak link between the growth of exports and the rate of expansion of the economy; second, the reduction of the income elasticity of employment, so today the economic needs a faster rate of growth to generate the same amount of jobs than before the structural reforms and the liberalization of international trade policies and, third, the reduction of the pace of the productivity of the total economy. Together all those factors, induced the contraction of the share of labour in the functional distribution of income.