The Latin American “Incorporation Crisis”

Today, the Latin American landscape is marked by an expansion in leftist political governments and a reduction in economic inequality. However, the region is still plagued by the “incorporation crisis,” which refers to the deep-rooted poverty and the political and social underrepresentation of the region’s poorest inhabitants. While many indicators suggest that Latin American countries have made great strides in improving the standard of living for the poorest citizens, the region is still lagging behind the developing world. Despite a clear trend towards political and social change across Latin America, economic progress in the region remains fragile. As the region’s socio-economic history reveals, political underrepresentation, income inequality, and racial inequality are three persistent barriers that undermine sustained economic growth among the poorest citizens of Latin America.

The Socio-Economic History of Latin America

In order to evaluate the political and economic changes that are taking shape in Latin America today, it is important to examine the social and economic developments that shape current development policy in the region. Though Latin America has a long indigenous history that extends past European colonization, Spanish settlers who arrived beginning in the 16th century shaped the region’s economic traditions. In 1503, Queen Isabella of Spain encouraged the exploitation of Latin America for natural resources when she permitted Spanish settlers to oversee indigenous laborers under the encomienda system (Franko 37). Through this system, ambitious Spanish settlers were given possession of productive land and resources throughout Latin America in exchange for returning a portion of their profits to Spain (37). The result of encomienda was that an economic social order was established in Latin America that placed white Spanish settlers at the top of the economic pyramid while placing indigenous individuals at the bottom as forced slave laborers (37). Further, in Brazil, access to the Atlantic slave trade enabled African and Portuguese trade. The Portuguese imported African slaves who served at the bottom of the country’s social and economic order (36). The ability of the Spanish to exploit larger racial groups contributed significantly to the political development of the region.

While the Spanish became a dominant group, they always remained a minority on the Latin American continent. As Franko notes, by 1935 African descendants accounted for 13.3 percent of the population and indigenous groups accounted for 50.5 percent of the population in Spanish-controlled territories (38). In Portuguese-controlled Brazil, African-Brazilians exceeded the indigenous population, accounting for 35.5 percent of the Brazilian population (38). Thus, while whites in Latin America never emerged as a majority population as was the case in North America, they became an economically elite group. European monarchies granted land to Spanish and Portuguese settlers, which led to the establishment of a white political and social elite that governed its own affairs in the New World (39). Because the Spanish and Brazilians sought to obtain large estates and had little regard for their African and indigenous laborers, they utilized government to secure low tax rates and limited public goods, such as infrastructure or education (39). Thus, while white Latin American citizens were able to meet their needs through their economic power, African and indigenous laborers lacked the social supports that were needed to make up for their low economic standing.

While colonization explains the emergence of racial disparities in Latin American society, latter 20th century economic development policies explains the economic inequalities faced by the region today. As Castaneda notes, policies of neoliberalism, which enabled foreign direct investment and free trade as a strategy to development, led to greater conditions of economic inequality leading up to the 1990s in Latin America (Castaneda 46). During the period, urbanization that centered around growing industrial areas led to the introduction of the urban poor between the years 1940 and 1980 (46). Demonstrating the inefficacy of neoliberal policies in promoting economic equality, the poorest 50 percent of the population in Brazil received 17.7 percent of the national income in 1960, a share which decreased to only 10.4 percent of the national income by 1990 (45). Further, Mexico’s bottom 50 percent shared 20.7 percent of the national income in 1985 and only 13.7 percent in 1992 (45). The political reforms that emerged during the 1990s were largely in response to the widening poverty caused by neoliberal economic policies.

The “Pink Revolution” and the Trend Towards Democratic Reform

Political movements that emerged during the 21st century reflected a transition towards democratic government in Latin America. As Jon Beasley-Murray, Maxwell A. Cameron, and Eric Hershberg note, the Latin American countries attempted to “refound” their constitutional and social pacts during the wave of left-leaning victories (Beasley-Murray, Cameron, and Hershberg 4). The succession of elections that yielded victories for populist candidates, including Hugo Chavez of Venezuala, Ricardo Lagos of Chile, and Evo Morales in Bolivia, is refereed to as the “pink tide,” lasting from the late 1990s to 2009 (2). This trend is also characterized by the mobilization and wider protest among citizens who wish for expanded cultural change within Latin American society (2). Further, the governments ushered in by the revolution enjoy greater legitimacy than governments of previous Latin American revolutions (3). Also, contributing to the success of the left-leaning governments under the period was the increase in revenue received by the government due to the commodities boom between 2003 and 2008 (3). However, there are many challenges that new governments face in sustaining democracy in the region.

Though populist leaders show promise in increasing representation for previously disenfranchised citizens of the region, there are many barriers that these governments must anticipate. First, many states in Latin America are weak and lack the resources to sufficiently establish economic or domestic security for their citizens (5). Additionally, regional governments have been ineffective in enacting economic development in the region. For example, while the election of Evo Morales was characterized by his commitment to redirecting oil revenues back to the general population, Bolivia still yield a 14 percent rate, which is 3 percent higher than the overall unemployment rate for the region (160). Though Bolivia benefits from its energy industry, the challenges it faces utilizing its resources to address the needs of the poor demonstrates the difficulties that regional governments can face in reducing persistent unemployment and poverty.

The Persistence of Regional Economic Inequality

Economic analysis conducted by the World Bank supports the contention that Latin America has been making significant economic progress at the start of the 21st century. According to a World Bank report, Latin America has experienced a significant drop in income inequality between the years 1995 and 2009 (World Bank LAC 1). According to the Gini coefficient, inequality levels have been reduced by 7 percent during this 15-year period (3). Further, the Theil index of inequality captures a .093-point decrease during this period (3). Also, the area of income inequality provides another optimistic outlook. Chile, Brazil, and Paraguay are regional leaders in income inequality reduction with respective 10 percent, 9 percent, and 5 percent decreases in economic inequality (9). Additionally, the opportunity for Brazil to host the World Cup almost but guaranteed further reward of an economic boost. Yet, despite these impressive figures, the World Bank report demonstrates that the story of economic growth is more complex. 

As the World Bank’s report reveals, income inequality is an important aspect of economic growth to scrutinize in order to determine the accuracy of the inequality metrics in describing the standard of living for Latin Americans. In Latin America, income is correlated with economic well being because it accounted for 74 percent of total household income in the 2009 figures (8). This is significant considering that pensions accounted for only 12 percent of household income in the region and monetary transfers from either the government or private entities accounted for only 3 percent of household income (8). It is also revealing that in 2009 73 percent of total economic inequality in Latin American countries could be accounted for in the rates of income inequality (8). Thus, greater scrutiny on labor data is necessary for assessing whether today’s poor Latin Americans are truly in better economic health.

An analysis of the cause of reductions to income inequality suggests that Latin America’s improved performance on economic inequality metrics might conceal the nature of the regions poverty. Though income inequality reductions might convey the rise in middle-income occupations, the data suggests that decreases in income for middle-income occupations were responsible for reducing income gaps in the region. For example, between 1995 and 2009, the expected increase that one could expect to their salary following the completion of their education declined by 25 percent (10). Though many economists assert that lowering the price of wages to skilled workers will increase the demand for skilled laborers in Latin American countries, this trend is believed to be detrimental because it may decrease demand for unskilled labor, creating a barrier for poor citizens who wish to obtain social mobility (13). Further, this trend is undesirable because it prevents skilled Latin American labors from obtaining a similar purchasing power as workers in developed countries, causing the region to remain less consequential than developed markets. Further, it diminished the return on investment for citizens who currently expend their own resources to obtain vocational training or attend college. Thus, while the depression of wages for skilled workers may lead to the appearance of increased economic equality, it essentially lowers the standard of living that can be enjoyed by workers in all strata of the economy.

Sociologists Kelly Hoffman and Miguel A. Centeno further examine shortcomings in current metrics on inequality in Latina America. As the researchers note, it can be anticipated that levels of inequality are worse than the collected data on household income and spending suggest because of the omitted factors that are necessary to assessing standard of living (368). For example, the researchers note that these figures used to assess inequality don’t describe the number of individuals within a household who are participants in the workforce (368). This is significant because while increases in household income might increase, lower per capita income could force more members of a family to obtain a job to contribute to the household financially. Further, Hoffman and Centeno note that increased working hours and increased crime from the disintegration of social connections lead in decreasing the standard of living for individuals throughout Latin America (368). As Hoffman and Centeno illustrate, a full qualitative assessment is necessary in order to successfully gauge the levels of economic inequality in Latin American society.

The Impact of Regional Racial Inequality

As the previous assessment of Latin America’s racial history suggests, economic inequality along racial barriers is still endemic in the region. Even as economic growth has increased average household incomes across the region, historically marginalized racial groups are least likely to share in the expanded prosperity. The status of Latin Americans of African heritage is especially significant to the overall economic health of the region. As Judith Morison establishes, with a population of 150 million in 2006, African descendants account for 30 percent of the region’s population, yet account for more than half of the impoverished in the region (Morison 44). In comparison, there are only 28 million indigenous individuals in Latin America, which placed the African descendant population at five times the number of the indigenous population 44). Further, Morison highlights that in Colombia, while 94 percent of all white municipalities are able to meet their basic service needs, 75 percent or more of Afro-Columbian municipalities lack basic water, sewer systems, health care, and education (45). Further, of all of the poor citizens in Latin America, blacks are the most likely to suffer extreme levels of poverty (45). Though the presidencies of leaders such as Evo Morales and Hugo Chavez might have placed emphasis on indigenous rights in the region, marked inequality will continue to persist if the needs of African descendants remain overlooked.

As Morison also establishes, regional development projects have not alleviated the overall conditions faced by African descendants in the region. First, the ability of programs to assist those of African descent was limited because the international community traditionally believed that addressing the needs of African descendents within the region was of low priority (45). Further, she asserts that the Millennium Development Goals of 2000, which established goals for poverty reduction pertaining to women and children, failed to take into account the discrimination faced by blacks in developing regions (45). Further, in the case of Brazil, where the overall economy has improved from economic development initiatives, the disparities between black and white Brazilians undermines the benefits that the country’s economic gains bring to its black citizens. For example, unemployment is 50 percent higher among Afro-Brazilians than white Brazilians and 78 percent of Afro-Brazilians live below the poverty line (66). Citing an Inter-American Development report, Morison establishes that if African descendants and all non-white groups were given full inclusion in the workforce, Latin American economies could expand by one-third (66). Thus, addressing systemic racism is a significant step for alleviating the incorporation crisis that has alienated so many of the region’s citizens from political and economic life.

Conclusion

With a history of institutional racism and authoritarian government, Latin American political tradition has been supportive of the economic inequality that characterizes the region. Recently, Latin America has experienced trends towards democratization and left-leaning economic policies accompanied by periods of economic growth and inequality reductions. Yet, a closer examination reveals that the trend towards greater prosperity is quite fragile if the fundamental economic needs of the citizens are not met. First, while the declining income inequality in the region appears to denote successful economic policies, it might also foreshadow depressed wage conditions among skilled laborers that will eventually threaten the standard of living for both poor and middle-class laborers. Further, the inability or unwillingness of political leaders and international organizations to address the racism experienced primarily by African descendants in the region will lead to continued stagnation among the largest, yet poorest, segment of Latin American society. In order for the impact of the “pink revolution” to be lasting, Latin American governments must improve the standard of living for low-skilled laborers while taking policy action that remedies the economic impact that racism has upon ostracized racial groups in Latin American society.

Works Cited

Beasley-Murray, Jon, Maxwell A. Cameron, and Eric Hershberg. “Latin America’s Left Turns: A Tour d’Horizon.” Reading in Latin America’s Left Turns: Politics, Policies, and Trajectories of Change. Eds. Maxwell A. Cameron and Eric Hershberg. London: Lynne Rienner Publishers, 2010. 1-20. Print.

Castañeda, Jorge. “Democracy and Inequality in Latin America: A Tension of the Times.” Reading in Constructing Democratic Governance: Latin America and the Caribbean in the 1990s, Themes and Issues. Eds. Jorge I. Domínguez and Abraham Lowenthal. Baltimore: Johns Hopkins University Press, 1996. 42-63. Print.

Dunkerley, James. "Evo Morales, the 'Two Bolivias' and the Third Bolivian Revolution." Journal of Latin American Studies 39.1 (2007): 133. ProQuest. Web. 29 Oct. 2013.

Franko, Patrice. The Puzzle of Latin American Economic Development. 3rd ed. New York: Rowman & Littlefield Publishers, Inc., 2007. Print.

Hoffman, Kelly, and Miguel Angel Centeno. "The Lopsided Continent: Inequality in Latin America." Annual Review of Sociology 29 (2003): 363-90. ProQuest. Web. 29 Oct. 2013.

Morrison, Judith. "Race and Poverty in Latin America." UN Chronicle 44.3 (2007): 44-45,66-67. ProQuest. Web. 29 Oct. 2013.

World Bank LAC. A Break with History: Fifteen Years of Inequality Reduction in Latin America. Apr. 2011. Web. 25 Oct. 2013.