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Income inequality in Latin America is not persistent

04.03.2008
By western standards, the gap between rich and poor in Latin American countries is disproportionately wide. PhD candidate Ewout Frankema investigated the development of income inequality since colonial times and concludes that differences in income have fluctuated sharply.

Contrary to what is usually assumed, income inequality according to Frankema is absolutely not persistent and there are definitely ways to close the gap between rich and poor. He will defend his thesis on 6 March 2008 at the University of Groningen.

Frankema compares the income and possessions inequality in Latin American countries in the period from 1870 to 2000 in his thesis. With the help of historical-comparative and economic-qualitative methods, he demonstrates that the inequality in this period varied and thus disposes of the idea that the current income inequalities in Latin America are determined by the colonial past. Frankema: ‘It’s definitely not as is often claimed in the literature; it was so, it is so and it will always be so.’

Colonial roots
According to Frankema, although the political climate has the most influence on income differences, the roots of the income and possession inequality lie in the colonial past. Ethnic discrimination of Indian/African groups by descendents of the white colonists, and the associated unfair distribution of land, are remnants of the colonial time. One of the consequences of this inequality is poor education facilities for the poor, because the elite sends its children to private schools and has little interest in a good public education system. Without good education possibilities for the poor, social mobility in Latin America will remain limited.
Redistribution and economic decline
According to Frankema, the inequality issue is the leitmotif of Latin American politics. Both political and economic forces, both national and international, affect the extent of income inequality. Frankema makes clear that differences in income increased up to about 1920, then declined until in the 1970s they began to increase sharply again. In the period between 1920 and 1970, the increasing power of trades unions and left-wing political parties resulted in a redistribution. The period after 1975 was a period of economic decline, caused by increasing international competition and a huge national debt. Frankema: ‘If factories have to close due to an economic crisis, it’s usually the poor who lose their jobs first. The inflation that struck Latin American countries hard in the 1980s also hit the poor the hardest. The rich with their money safely in Swiss bank accounts were not hit at all.’
Poverty issue
According to Frankema, poverty policy should be less about redistribution and more about development. If Latin American countries can put the past to rest by tackling ethnic discrimination and the inequality of land ownership, for example, then he thinks that it will be possible to tackle poverty issues in the region in a constructive way. Frankema: ‘The redistribution of income via taxes is very nice in the short term, but is not effective enough in the long term. Before you can beat poverty in the long term you have to allow people to participate in the labour process, invest more in the quality of the public education system and ensure that the starting point for government policy is “equal opportunities for everyone”.’

Eelco Salverda | alfa
Further information:
http://www.rug.nl/staff/e.h.p.frankema/index

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