A Wholesome Investigation into Economic Inequality: Latin America Edition
According to the United Nations Economic Commission for Latin America and the Caribbean (UN ECLAC), Latin America is the most unequal region in the world. That’s a hefty crown to take, the global prevalence of economic inequality--especially during this period of COVID-19. And that is because there are strong social, political, and economic reasons for this.
Start with a prevalent social reason: economic inequality between different races. According to the research of Edward Telles, a distinguished professor of Sociology at the University of California at Irvine, there are clear correlations between skin color and educational attainment. In many Latin American countries, most prevalently Brazil, Guatemala, and Bolivia, those with darker skin colors tend to have significantly less educational attainment relative to their lighter skin counterparts. This effect is apparently pronounced through historical discriminatory institutions like the Casta system. However, Telles observed this effect to be existent regardless of parental occupation, meaning that this social effect continues to reverberate in Latin American societies today. In countries like Bolivia and Guatemala, this is most evident in the low status of darker skin indigenous populations.
To exacerbate this social issue, the economic structure of many Latin American countries possess a sizable informal sector, which is the market for non-governmentally-recognized employment (e.g. street vendors). According to the International Labor Organization (ILO), around 40% of total employment in Latin American countries are in the informal market. These informal markets form the root of the social vulnerability trap, in which workers employed in the informal sector inevitably earn low incomes. Without sufficient income to invest in their human capital (through educational attainment), these workers will continue to work in the informal sector, so long as they lack the necessary skills to acquire formal sector employment. COVID-19 has especially been detrimental to these informal workers for two reasons. First, these informal jobs are more often than not those that require on-site employment, which consequently means that the work-from-home structure employed by many firms and employees around the world is not feasible for these informal workers. Therefore, government lockdown mandates severely impact the feasibility for these informal workers to acquire income. Second, as a consequence of this inability to acquire income from the informal jobs, these informal workers are unable to receive income from any other revenue streams. Of course, this is perhaps due to their inability to acquire other forms of employment. But more significantly, the lack of recognition from the government of the informal sector means no social protection programs for these economically-ravaged workers.
And as a final detriment to this economic factor, bad governance ensures that these economic ramifications remain highly apparent in Latin America. With large-scale cases like Odebrecht, it is clear that corruption remains a pertinent issue (and perhaps even a norm) in Latin America. In recent months, due to economic struggles pertaining to the COVID-19 crisis, Latin American governments have relaxed corporate regulations in attempts to save affected industries. However, especially in the healthcare sector, this relaxation has permitted violations of the FCPA, including massive bribery and price gouging schemes. From a political perspective, corruption and focus on fighting corruption diverts necessary attention away from schemes to fight inequality, and it even hinders governments’ abilities to perform core economic functions (like passing fiscal stimulus packages).
It just so happens that, with the topic of economic inequality in Latin America, we are able to ascertain a full painting of factors from all over the spectrum. Therefore, attempts to effectively mitigate this pertinent issue must consequently resolve these factors from the three disparate lenses: social, economics, and politics. Socially, there must be educational reforms to emphasize educational spending for low-income and racially-disadvantaged populations. This may take the form of vocational technological training, which may become even more pertinent in a technological post COVID-19 world. Economically, policies must exist not only to address issues in the formal market, but also those in the informal market. Education is an obvious solution that would mitigate the necessity for the informal market. But even more than that, Latin American governments must increase their accountability in measuring informal markets, and consequently enact social safety nets for those populations that are currently unaccounted for. Politically, corruption will be incredibly difficult to stave off. However, persistent regulatory changes that force political and business compliance may be key to understanding ways to mitigate corruption. In the meantime, we can only hope that the right policies are enacted in order to guide Latin America through this crisis.
