Conservative transformation in Latin America: can social inclusion justify unsustainable production? Vivianne Ventura-Dias

Conservative transformation in Latin America: can social inclusion justify unsustainable production? Vivianne Ventura-Dias

Latin America: inequality and violence. Why so unequal? Why so violent? Conservative transformation: the left of the possible or pragmatic left. Who pays the costs of social inclusion? What next? Slow growth increases the costs of redistribution. Unsolved international financial crisis, slow growth of international trade, and slow growth of China. What will happen to the fragile new middle classes? Outline of the presentation

Source: Poverty continues to fall in Latin America, The economist. 20.12.2011 (http://www.economist.com/blogs/dailychart/2011/12/poverty 1. Latin America: the most unequal and the most violent region. WHY?

Source: OECD Income Distribution Database (IDD) available at http://www.oecd.org/social/income-distributiondatabase.htm)

Source: OECD Income Distribution Database (IDD) available at http://www.oecd.org/social/income-distribution-database.htm)

High levels of inequality as regards the distribution of: Income Consumption Land Access to education Access to basic services Inequality between women and men Inequality by race and ethnic groups Gini coefficient 60.0 55.0 50.0 45.0 40.0 35.0 30.0 25.0 20.0 32.2 High Income 33.6 Europe and Central Asia 38.9 38.9 39.1 South Asia North Africa and the Middle East East Asia and the Pacific 44.7 Sub-Saharan Africa 53.2 Latin America and the Caribbean Source: Asian Development Bank (as in Nora Lustig presentation at the Conference Social Inclusiveness in Asia s Emerging Middle Income Countries, 13.09.2011) Latin America: inequality of opportunities and of outcomes.

Between one-fifth and one-third of the high levels of earnings inequality in several countries in Latin America can be explained by the unequal opportunity associated with six circumstance characteristics: Gender Ethnicity Parental education levels Father s occupation and Birthplace Equality of opportunity seeks to level the playing field so that circumstances such as gender, ethnicity, birthplace, or family background, which are beyond the control of an individual, do not influence a person s life chances. Success in life should depend on people s choice, effort, and talents, not on their circumstances at birth. Barros, Ricardo P. de, Francisco H. G. Ferreira, et alia (2012), Measuring Inequality of Opportunities in Latin America and the Caribbean, Washington, D.C., The World Bank, pp. 1,131.

Homicide Rate (per 100,000 inhabitants) Chile Bolivia Ecuador Peru Uruguay Paraguay Nicaragua Argentina Panama Costa Rica Mexico Puerto Rico Dominican Republic Colombia Brazil Guatemala Jamaica Honduras Venezuela El Salvador 0 20 40 60 80 100 120 Source: InsightCrime based on national sources (http://www.insightcrime.org/newsanalysis/insight-crime-homicide-round-up-2015-latin-america-caribbean) Source: Crime Prevention Research Center (http://crimeresearch.org/2014/03/comparing-murderrates-across-countries/) Latin American population accounts for fewer than 9 per cent of world population, but the region accounts for 33 per cent of world s homicides. Brazil, alone, accounted for half of all homicides in 2014 (almost 59 thousand persons).

Probability of being victim of homicide by age and education Probability of being victim of homicide by age and race Source: Cerqueira,D. R. C. e D. S. C. Coelho ( 2015), Redução da idade de imputabilidade penal, Educação e Criminalidade, Rio de Janeiro, IPEA, Nota Técnica n. 15 as in Cerqueira, Daniel et alia, 2016, Atlas da Violencia 2016, Rio de Janeiro, IPEA, Nota Técnica n. 17, figures 5.1 and 5.2 (available at hhtp://www.ipea.org). Characteristics of victims of homicide and inequalities in Brazil, 2010

2. Pragmatic leftism: redistribution yes, but without pain to the top

Source: Poverty continues to fall in Latin America, The economist. 20.12.2011 (http://www.economist.com/blogs/dailychart/2011/12/poverty) Latin American governments were able to fulfill their obligations towards the Millenium Development Goals in terms of erradicating extreme misery and hunger

Income inequality in Latin America 1. Inequality reached very high levels in the last decades of the 20 th century; 2. Inequality in the region followed a declining trend in the last ten years or so of the 21 st century. 3. Although the trend was similar for all countries in the region, the magnitude of the change has been heterogeneous across countries and subregions in Latin America.

World Bank/LAC (2011), A Break with History: Fifteen Years of Inequality Reduction in Latin AmericaI, p.3

CEQ Assessment: Income Concepts MARKET INCOME PLUS DIRECT TRANSFERS MINUS DIRECT TAXES DISPOSABLE INCOME PLUS INDIRECT SUBSIDIES MINUS INDIRECT TAXES POST-FISCAL or CONSUMABLE INCOME PLUS MONETIZED VALUE OF PUBLIC SERVICES: EDUCATION & HEALTH FINAL INCOME

Government Revenues Composition of Total Government Revenues as share of GDP (circa 2010) (ranked by total government revenue/gdp; GNI right hand scale) 50% 25,000 45% 40% 20,000 35% 30% 15,000 25% 20% 10,000 15% 10% 5,000 5% 0% Guatemala (2011) Honduras (2011) Colombia (2010) El Salvador (2011) Chile (2013) Mexico (2010) Costa Rica (2010) Peru (2009) Ecuador (2011) Uruguay (2009) Argentina (2012) Bolivia (2009) Brazil (2009) Average 13 Countries 0 Direct Taxes Indirect and Other Taxes Social Security Contributions Other Revenues GNI per capita (2011 PPP) GNI per capita for Argentina in 2005 PPP Source: Lustig (2015b) 15

Rich countries Income concentration before and after taxes

Fiscal Redistribution 0.6500 Market, Disposable, Consumible and Final Income Gini (circa 2010) (Contributory Pensions as Transfer) 0.6000 0.5500 0.5000 0.4500 0.4000 0.3500 0.3000 0.2500 Market Income Disposable Income Consumable Income Final Income Argentina (2012) Bolivia (2009) Brazil (2009) Chile (2013) Colombia (2010) Costa Rica (2010) Ecuador (2011) El Salvador (2011) Guatemala (2011) Honduras (2011) Mexico (2010) Peru (2009) Uruguay (2009) Ginis for Chile are estimated using Total Income. Official figures of inequality are estimated using Monetary Income Source: Lustig (2016) 17

Mining Few interindustry linkages From site to port Agribusiness Technology intensive Productive complexes Impact on income concentration High land concentration High impact on income distribution Extractivism: as a mode of accumulation based on the extraction and export of nonrenewable resources Mining, oil extraction and agribusiness Similar detrimental environmental impacts but different economic impacts Different economic organisation Extractivism: unsustainable production and trade

3. El final de un ciclo: no se logró todo lo que se quería, pero puede ser peor. Supremacia del mercado y subordinación del Estado

Fuente: CEPAL, 2016, Balance Preliminar de las Economías de América Latina y el Caribe, p. 17. Source: WTO No hay consenso entre los economistas acerca del anémico crecimiento del comercio en los últimos años.

Vertically linked Foreign Subsidiaries and their parents Source: Blyde, Juan S. (ed.), 2014 Synchronized Factories. Latin America and the Caribbean in the Era of Global Value Chains, Washington, D. C.: IDB. Note: The size of the circles in each country indicates the total number of parent companies located in that country that own vertically linked subsidiaries in other countries. The thickness and colour intensity of the lines represent the number of bilateral vertical subsidiaries between each parent country and a corresponding host country. With exception of Mexico, Latin America has a weak participation in global supply chains

The pragmatic left Social inclusion without social conflict, but social inclusion with growth; Conservative productive structure to sustain redistribution without pain; Subsidise consumption to encourage private investment; subsidise consumption of public goods privately provided; State as arbiter of social conflicts but market role in social provision is not questioned Market guardians Macroeconomic recipe: macroeconomic fundamentals first, social inclusion later; Growth preceding job creation; Fiscal austerity leading to cuts in social programmes; Deepening the privatisation of remaining Public Enterprises Reducing the role of the State. The conservative transformation: in spite of their errors, progressive governments fall because of their positive achievements.