Income Distribution

The term income distribution is normally used to describe the process that directly determines the division of income and indirectly provides an indication of the division of consumption, saving, and welfare. The two-way relationship between income distribution and development in Latin America has been complex and ever-changing. An examination of the relative, factoral, sectoral, and other aspects of the distribution of income and the issue of poverty yields a multitude of information on the absolute and relative welfare of Latin Americans and of the forces behind it.

Relative income distribution (referring to personal or household income) represents purchasing power over commodities (goods and services) and thus provides an indirect measure of relative consumption, saving, welfare, and well-being of people in Latin America. Factoral distribution of income (class or functional income) focuses on the welfare of persons as determined by the prices of the labor, land, and capital services—wages, rent, and interestprofit—they offer in the market. It also focuses on the relationship between the price of these factor services and their supply, especially skilled labor and capital, which ultimately determine total output and welfare. Until the 1960s most research focused on the forces determining the distribution of income between the labor and capitalist classes and their respective wage and profit income shares. Since the 1970s research has focused almost exclusively on the nature and determinants of the relative distribution of income and poverty. Sectoral distribution of income focuses on the welfare of people as determined, in a derived way, by the output value of the sectors (agriculture, mining, industry, finance, education, trade, transport, government, and other services) in which their incomes are generated.

RELATIVE DISTRIBUTION OF TOTAL INCOME

Have a few families received most of the income in Latin America or has there actually been little inequality? Has the distribution of income been more or less unequal in Latin America than in other regions? The relative distribution of income (wealth or consumption)—the terms size, personal, and household distribution have also been widely used—deals with the distribution of a mass of income (wealth, consumption) among the members of a set of economic units (families, households, individuals) considering either the total income (wealth, consumption) of each economic unit or its disaggregation by source of income, such as wages and salaries, property income, self-employment income (or by type of consumption, such as individual, semipublic, or collective; or wealth, such as land, home equity, financial assets).

The relative distribution of income typically presents percentage income shares of deciles (tenths) or quintiles (fifths) of the total population of households, families, or individuals. Table 1 presents, in quintiles, the relative distribution of per capita household income in Latin America and the Caribbean, primarily in 1989. The distribution of income can be considered as being highly unequal if the income share of the poorest 20 percent is less than 3.0 percent or if the income share of the lowest 40 percent is less than 12 percent. According to the first criterion, relative income distribution was highly unequal in Brazil, Guatemala, Honduras, and Panama. If the second criterion is used, the distribution of income was also highly unequal in Chile, Colombia, and Mexico. The lowest degree of inequality is found in Paraguay and Uruguay. (All tables in this entry provide snapshot pictures, not lifetime reels, of inequality and absolute poverty. Lifetime mobility between income groups is ignored. For a detailed examination of limitations of these household-survey-based statistics, see Markos Mamalakis' 1999 paper, "Distributional Mobility and Justice in Latin America: Macro, Meso and Micro Issues.")

The relative distribution of income is, most frequently, visually illustrated by the so-called Lorenz curve and numerically measured by the related Gini coefficient of income concentration. The Lorenz curve, devised by the statistician Max Lorenz, is an ingenious device most widely used to graphically demonstrate and analyze the relative distribution of income (wealth, consumption). The Lorenz curve is a graph of the cumulative percentage of income (wealth, consumption) received (owned) by the cumulative percentage of population (families, households, individuals) arranged from the poorest to the richest. The difference between this graph and the line of perfect equality (the diagonal between the two corners of the square in which the Lorenz curve is graphed) is a visual illustration of the degree of inequality of an income (wealth, consumption) distribution.

In their 1993 study, George Psacharopoulos and colleagues present Lorenz curves of the income distribution in most Latin American and Caribbean (LAC) countries, primarily in 1989 but also in a few preceding years. (The most comprehensive study of relative distribution and poverty in Latin America in the 1980s, this study, and consequently also the materials in this entry, has the same limitations as the household surveys on which it is based.) Figure 1 presents the Lorenz curve of the per capita household income distribution in Brazil during the fourth quarter of 1989, along with the underlying statistics. These statistics show that the lowest 10 percent of the population received 0.7 percent of per capita household income, the lowest 20 percent received 2.1 percent, the lowest 40 percent received 7.0 percent, the lowest 60 percent received 15.9 percent, and so on, until the lowest 100 percent received 100 percent of income. These points are then plotted on figure 1 to show the Lorenz curve of income distribution. The Psacharopoulos study contains a comprehensive analysis and bibliography of the vast number of studies of the relative distribution of income and consumption in Latin America in the pre-1990 decades. It also describes and uses other, less common, measures of the relative distribution of total as well as workers' income.

The straight line between O and A is called the line of perfect equality, or the egalitarian line. If the Lorenz curve coincides with the egalitarian line, it means that each unit receives the same income (wealth, consumption), which is the case of perfect equality of incomes (wealth, consumption). In the case of perfect inequality of incomes (wealth, consumption), the Lorenz curve coincides with OA and AB, which implies that all income (wealth, consumption) is received (owned) by only one unit. Because the Lorenz curve displays the deviation of each individual income (wealth, consumption) from perfect equality, it graphically captures, in a sense, the essence of inequality. The closer the Lorenz curve is to the line of perfect equality, the more equal the distribution of income (wealth, consumption) will be. The further the Lorenz curve is from the line of perfect equality, the more unequal the distribution of income (wealth, consumption) will be.

The Lorenz curve presented in Figure 1 is far below the diagonal OA line of perfect equality, thus revealing a highly unequal relative distribution of income in Brazil. The richest 20 percent of households received 67.5 percent of total income, while the poorest 60 percent of households received only 15.9 percent of total income.

The most commonly used summary measure of distributional inequality is the Gini coefficient, which is defined as the ratio of the area enclosed between the 45-degree line of perfect equality and the Lorenz curve to the area of the entire triangle enclosed by the 45-degree line. The closer the Lorenz curve is to the diagonal, the closer the ratio of this area to the area below the diagonal would be to zero. At the same time, the farther the Lorenz curve dips away from the line of perfect equality, the greater the area between the two and the closer the ratio of this area and all the area enclosed by the 45-degree line will be to 1. Hence, a Gini coefficient closer to zero indicates greater equality in a distribution, whereas one closer to 1 represents greater inequality in a distribution.

According to many scholars and studies, Latin America has historically exhibited a high degree of inequality in the relative distribution of income and consumption in comparison with the rest of the world. For example, according to a joint study by the World Bank and the International Labor Office (ILO) (cited by Psacharopoulos et al., p. 19), for years during the 1970s, and in some cases the 1960s, twenty non-Latin American and Caribbean countries had a mean Gini coefficient of 0.39 and a mean bottom 20 percent income share of 6.5 percent of total income. In comparison, the three LAC countries in the World Bank/ILO study had a mean Gini coefficient of 0.52 and a mean bottom 20 percent income share of 3.1 percent of total income. Furthermore, the LAC countries in the Psacharopoulos study had a mean 1989 Gini coefficient of 0.50 and a mean bottom 20 percent income share of 4.0 percent of total income. Thus, although the World Bank/ILO study was based on data from the 1960s and the 1970s, the disparities that they find between LAC countries and non-LAC countries continued to hold true and may even have increased in the 1980s. During that decade, according to the Psacharopoulos study, and the statistics presented in Table 2, the relative distribution of income, as measured by the Gini coefficient, became more unequal in Argentina (Buenos Aires), Bolivia (urban), Brazil, Guatemala, Honduras, Mexico, Panama, Peru (Lima), and Venezuela; it improved, however, in Colombia (urban), Costa Rica, Paraguay (Asunción), and Uruguay (urban). In 1989 the degree of inequality was highest in Brazil and lowest in Paraguay.

No consensus exists, however, that the relative distribution of income in Latin America has been unusually high in the 1960s and 1970s. According to Miguel Urrutia's 1993 study, Brazil, Colombia, Mexico, and Peru appear to have had high degrees of concentration of relative distribution of income in the 1970s, but these rates were not too different from those found after the first phase of industrialization in England and Wales or Denmark. Because the explanations of the high inequality in relative income distribution are similar to those offered about poverty, they are discussed together in subsequent sections.

RELATIVE DISTRIBUTION OF LABOR INCOME

Few characteristics of Latin American economies stand out as much as the pervasive inequality in the relative (size, personal) distribution of labor income—that is, compensation of employees. Ever since the end of the colonial era, the high inequality in the relative distribution of total income has coincided with an equally pronounced high inequality in the relative distribution of labor income, that is, wages and salaries.

There have been poor, middle, and rich workers, and the income differences among them have been vast. The average income of the richest workers (top decile) was 89 times the average income of the poorest workers (bottom decile) in Colombia in 1980 but only 29 times in 1989; it was 46 (1986) and 44 (1989) times in Guatemala; 46 (1979) and 68 times (1989) in Brazil; 12 (1980) and 22 times (1989) in Argentina; 30 (1981) and 20 (1989) times in Costa Rica; and 24 (1981) and 15 (1989) times in Uruguay (calculated from data presented in the Psachar-opoulos study). Mamalakis' 1965 study found sharp inequalities in the distribution of workers' income in Chile between 1940 and 1963. Indeed, during much of the modern history of Latin America, the differences in income within the working class have been as great as, or even greater than, between the labor and capitalist classes. These differences have been so pronounced that they cast doubt about the existence of a homogeneous labor class, or proletariat, with common features—that is, in conflict with a homogeneous capitalist class. To many, the Latin American problem of an unfair and unequal distribution of income has been primarily a problem of a highly unequal and unfair distribution of labor income, of income within the working class.

The high inequality in the relative distribution of workers' income was evident in the 1980s. According to chapter 3 of the Psacharopoulos study, the distribution of workers' income continued to be highly unequal in the 1980s in Argentina (Buenos Aires), Bolivia (urban), Brazil, Colombia (urban), Costa Rica, Guatemala, Honduras, Panama, Uruguay (urban), and Venezuela.

The concentration of labor income in the hands of the richest 20 percent of workers was extremely high both in earlier years and in 1989. The following are selected statistics for 1989: The richest 20 percent of workers received 42.1 percent of total workers' income in Argentina, 46.9 percent in Bolivia, 67.2 percent in Brazil, 57.0 percent in Colombia, 47.1 percent in Costa Rica, 57.0 percent in Guatemala, 57.7 percent in Honduras, 49.6 percent in Panama, 47.7 percent in Uruguay, and 52.2 percent in Venezuela. In contrast, the poorest 20 percent of workers received only 1.6 percent of total workers' income in Argentina, 1.4 percent in Bolivia, 0.8 percent in Brazil, 1.1 percent in Colombia, 1.6 percent in Costa Rica, 0.9 percent in Guatemala, 1.1 percent in Honduras, 1.5 percent in Panama, 1.6 percent in Uruguay, and 1.1 percent in Venezuela. Furthermore, even the poorest 40 percent of workers received extremely small fractions of total workers' income. This share was 14.2 percent in Argentina, 12.1 percent in Bolivia, only 7.8 percent in Brazil, 12.3 percent in Colombia, 16.0 percent in Costa Rica, 10.9 percent in Guatemala, 10.7 percent in Honduras, 14.1 percent in Panama, 15.5 percent in Uruguay, and 9.4 percent in Venezuela. The remaining, intermediate ("middle") 40 percent of workers (5th-8th deciles) received 33.7 percent of total workers' income in Argentina, 30.9 percent in Bolivia, 25.1 percent in Brazil, 30.7 percent in Colombia, 37.0 percent in Costa Rica, 32.2 percent in Guatemala, 31.0 percent in Honduras, 36.2 percent in Panama, 36.9 percent in Uruguay, and 38.4 percent in Venezuela.

The Gini coefficients for these countries (Table 3) confirm the presence of high inequality in the distribution of workers' income. The highest degree of inequality in the distribution of income in 1989 was found in Brazil and Honduras; the lowest in Costa Rica and Uruguay.

Many factors have contributed to the differences in workers' incomes. Unequal endowments of human capital—for example, education—explains a significant part of these differences. Other factors include employment status (being an employee, self-employed, or an employer), age, gender, sector of employment, or belonging to indigenous populations.

FACTORAL DISTRIBUTION OF INCOME

The factoral distribution of income (the terms class and functional distribution of income are also widely used) describes the levels of payments to the services provided by the trinity of land, labor, and capital factors of production—rents, wage rates, and rates of profits—and by extension the shares of these factors in the total income.

According to the classical school (as exemplified by the economists Adam Smith and David Ricardo) and its followers, the class distribution critically affects income and welfare growth because landowners—the recipients of rents—and workers—the recipients of wages—largely consume their incomes, whereas capitalists—the recipients of profits—largely save them. Because the supply of capital in the long run is the supply of saving, a higher return (profit rate) on capital is expected to increase saving, investment, and income growth.

Since 1820 saving and investment have been low in most of Latin America, in spite of a favorable distribution of income, that is, a high profit share of capitalists. Saving and investment have been less than 20, or even 10, percent of gross domestic product (GDP), whereas the share of profits (operating surplus) has fluctuated between 40 and 60 percent of GDP. During the so-called golden age of free trade and exports, which lasted from 1860 to 1930, vast operating surpluses and profit shares did not increase saving and investment enough to transform the underdeveloped Latin American countries into developed ones. Similarly, during the era of protectionism from 1930 to 1980, government intervention, promotion of industry, and saving and investment never reached the levels needed to transform Latin America into a developed region, in spite of high profit shares. Even during the years 1980 to 2006, with the exception of Chile, high and rising profit shares did not give rise to the investment levels needed to achieve sustained development. Since 1820 the often fabulous resources of Latin America were used primarily for consumption rather than saving and investment.

SECTORAL DISTRIBUTION OF INCOME

The sectoral distribution of income examines the welfare of people in Latin America as determined by the creation and redistribution of sectoral incomes. Mamalakis' "Theory of Sectoral Clashes and Coalitions" (1971) attempts to offer an explanation of both inequality and poverty. He argues that, before 1930, the relative distribution of income was unequal because the fabulous riches created by agriculture and mining were appropriated primarily by the richest 40 percent of households. Even semipublic services funded by sectoral, export-generated surpluses were provided largely to the privileged upper classes. These sectoral, or mesoeconomic, constitutions failed to generate either the demand for or the supply of skilled labor that could sustain rapid growth and eradicate poverty and extreme inequality. Use of sectoral surpluses primarily for consumption by the rich rather than for tangible and intangible human capital for all, but especially the poor, largely contributed to the failure of export "miracles" in Argentina, Brazil, Bolivia, Chile, Colombia, Cuba, Ecuador, Guatemala, Honduras, Mexico, Peru, Uruguay, Venezuela, and other countries.

Public policies shaping the sectoral distribution of income also slowed down growth and perpetuated inequality and poverty between 1930 and 1990. Redistribution of sectoral income from agriculture and exports to industry and selected services led to agricultural, export, and, ultimately, overall stagnation. Furthermore, systematic discrimination, that is, an unfair, artificially low share of income in financial services, led to hyperinflation and chaos in much of the continent, but especially in Argentina, Chile (before 1973), Brazil, Nicaragua, and Peru. In Venezuela and Ecuador from 1973 till 2000, it was once again the use of fabulous oil surpluses for consumption and entitlements by the privileged social groups that caused developmental "failure."

The policy implications are clear: Unless all forms of discrimination in the sectoral distribution of income are eliminated, and sectoral surpluses are used for both tangible and intangible (human) capital, stagnation, inequality, and poverty will persist. Only nondiscriminatory sectoral (mesoeconomic) and microeconomic policies can guide resources to their most efficient uses—which is the function of income distribution—and accelerate growth. Such policies were adopted in the 1980s in Chile, and to a lesser extent in Mexico, Peru, Uruguay, and elsewhere.

ABSOLUTE POVERTY

Absolute poverty, a measure of those members of the population who have a welfare that is below some absolute standard, is closely related to the various facets of income distribution. Latin America and the Caribbean have experienced high degrees of poverty throughout the period from 1800 to 2006. Absolute poverty has declined over time, even though it has increased during periods of severe crisis and unemployment. Table 4 presents statistics of the percentage of individuals in poverty and extreme poverty in selected years between 1979 and 1990.

The ideal approach for making poverty assessments is to formulate a constant basket of commodities (goods and services) that satisfies a set of minimum basic needs with respect to nutrition, housing, clothing, education, and health, that is, a minimum level of composite consumption. The poor are then defined as those individuals whose consumption, or equivalent level of income, is less than the value of the poverty line. A uniform $60 income per person per month in 1985 purchasing power parity (PPP) dollars, that is, having the same purchasing power in all countries, was chosen as the national poverty line for the entire Latin American and Caribbean region. To assess levels of extreme poverty, economists chose an additional extreme poverty line at $30 per month in 1985 PPP dollars. Psacharopoulos developed a regional absolute poverty standard that represents a uniform welfare level across all countries and presents the most comprehensive assessment of poverty in Latin America in the 1980s. Poverty was defined in terms of per capita household income because this is the single most identifiable factor for assessing welfare levels across the Latin American and Caribbean region through available household surveys.

The poverty lines for each Latin American country were assessed as two times the cost of a basic food basket for metropolitan/urban areas, and 1.75 times the cost of a basic food basket in rural areas. The relative income distribution and poverty estimates of the Psacharopoulos study were based on thirty-one household surveys. These surveys covered eighteen countries for various years in the 1980s. Some countries counted only labor income, while less than half of the surveys included in-kind income or the value of owner-occupied housing. None of these surveys included estimates of the welfare benefits derived from the distribution of free educational, health, and other social services to households.

The simplest and most commonly used index of poverty is the headcount ratio, defined as the fraction of the population with income that is below the poverty line. Table 4 presents the headcount ratios for poverty and extreme poverty. The highest degree of absolute poverty in 1989 was encountered in Guatemala, where the headcount index was 70.4 percent. High degrees of absolute poverty, as measured by a poverty headcount that was about 50 percent of the population, were also found in the urban regions of Bolivia and Honduras. The lowest poverty rates of 3.4 percent and 5.3 percent were observed in Costa Rica and Uruguay (urban), respectively.

A similar picture emerges when the headcount indices of extreme poverty are considered. Again, Bolivia (urban), Guatemala, and Honduras (urban) reveal headcounts of above 20 percent of the population living in extreme poverty. In contrast, the incidence of extreme poverty was the lowest in Argentina (Buenos Aires), Chile, Costa Rica, Jamaica, Paraguay (Asunción), and Uruguay (urban), with less than 2 percent of the population in each of these countries having an income below $30 per month in 1985 PPP dollars in the 1980s.

Table 5 presents estimates of the size and distribution of the total population in Latin America with income that was below the $60-per-month poverty reference in 1980 and 1989. In absolute terms, 131 million people in Latin America had a per capita income that was less than the $60-per-month poverty reference defined in the Psacharopoulos study. Poverty, which in 1989 was probably near its highest level for the entire decade, subsequently declined in countries experiencing rapid economic growth. A disproportionately large share (more than 70 percent) of the poverty in the region, as compared to their population share (48 percent), was concentrated in Brazil, Peru, and the small, relatively impoverished, countries of Bolivia, El Salvador, Guatemala, Haiti, Honduras, and Nicaragua. More than 45 percent of the poor lived in Brazil, even though it had only one-third of the population in the region. Brazil's high degree of poverty reflected the extreme inequality that has historically characterized its income distribution. More than 9 percent of the poor were concentrated in Peru, and 19 percent in the aforementioned small countries.

The statistics of Table 5 also reveal large, but changing, inequalities in regional and intraregional poverty and income distribution. In 1989 the percentage of people living in poverty was more than double in rural regions (53.4 percent), which were generally neglected by government, than in urban regions (22.0 percent). However, because Latin America has become increasingly urbanized, the absolute number of people living in 1989 in poverty in the cities (66.0 million) has exceeded those in the rural areas (64.8 million). Inadequate provision of social and public services by the state, that is, discriminatory mesoeconomics of government, has thus contributed not only to rural but also urban inequalities and poverty.

Economists have offered numerous explanations of the high inequality in the distribution of income, and of persistent absolute poverty, in major parts of Latin America. Although a complete consensus is absent, many emphasize the following explanatory factors: Inequality has been more extreme and poverty more concentrated in Brazil, Peru, Guatemala, and Honduras because of vast differences in the quality of labor among socioeconomic groups. These differences in the quality of labor, which constitute a supply-side problem, have been attributed, in turn, to public policies that have failed to provide minimum levels of social services to the poor, often indigenous, populations. Inequality in labor skills contributed to inequality in income, welfare, and to absolute poverty. In turn, unequal incomes, and unequal consumption of the semipublic services of education, health, and welfare (that is, unequal and unequitable mesoeconomic constitutions) perpetuated inequalities in labor quality. Inequality has persisted, and poverty has been aggravated also, however, by low, even declining income growth rates that barely have exceeded the growth of population. Low saving and investment levels, as a consequence of domestic policy failures and external factors, have been widely advanced as demand factors preventing the synchronous achievement of growth and equality.

INEQUALITY-RELATIVE DISTRIBUTION OF INCOME, 1990–2006

Inequality, as measured by relative distribution of per capita household income or consumption, remains high during the period from 1990 to 2006. Although the data presented in Table 6 is only for selected years between 1992 and 2003, it can be considered as representative of the whole period. The poorest (lowest) 20 percent of households receives between 1.5 percent (Bolivia, 2002) and 6.7 percent (Jamaica, 2000) of income or consumption. The richest (highest) 20 percent of households receives between 45.9 percent (Trinidad and Tobago, 1992) and 64.1 percent (Guatemala, 2000). The richest 20 percent receives more than 60 percent of income in Bolivia (63.0, 2002), Brazil (63.2, 2001; 62.1, 2003), Chile (62.2, 2000), Colombia (61.8, 1999; 62.7, 2003), Guatemala (64.1, 2000), Panama (60.3, 2000, 2002) and Paraguay (61.3, 2002).

Income/consumption inequality, as measured by the Gini coefficient—the relevant statistics presented in Table 7—also is high during the period from 1992 to 2003. The value of the Gini coefficient ranges between a low of 37.9 percent (Jamaica, 2000) and a high of 60.1 percent (Bolivia, 2002). It is above 55.0 percent in Brazil (59.3, 2001; 58.0, 2003), Chile (57.1, 2000), Colombia (57.6, 1999; 58.6, 2003), Guatemala (59.9, 2000; 55.1, 2002), Honduras (55.0, 1999), Panama (56.4, 2000, 2002) and Paraguay (57.8, 2002). It is below 45.0 percent in Bolivia (44.7, 1999), Ecuador (43.7, 1998), Jamaica (37.9, 2000), Nicaragua (43.1, 2001), Trinidad and Tobago (40.3, 1992), Uruguay (44.6, 2000; 44.9, 2003), and Venezuela (44.1, 2000). Furthermore, as also presented in Table 7, the percentage share of income of the poorest 10 percent of population is less than 1 percent in Bolivia (0.3, 2002), Brazil (0.7, 2001; 0.8, 2003), Colombia (0.8, 1999; 0.7, 2003), Ecuador (0.9, 1998), El Salvador (0.9, 2000; 0.7, 2002), Guatemala (0.9, 2000, 2002), Honduras (0.9, 1999), Panama (0.7, 2000; 0.8, 2002), Paraguay (0.6, 2002), and Peru (0.7, 2002).

Latin America and the Caribbean also have experienced, not only from 1990 to 2006, but throughout their history, high degrees of inequality in the satisfaction of individual final needs (food, clothing, and shelter consumption inequality), semipublic final needs (education, health, and welfare consumption inequality) and collective final needs (political freedom consumption-satisfaction-inequality), where political freedom is the pillar of procedural democracy. As Mamalakis has observed (2005a, 2005b), the region has also experienced high degrees of consumption-satisfaction inequalities in terms of the five moral collective needs that provide the foundation of civil society: 1) economic freedom(s), (2) safety, security, and protection of life and private property, (3) equal treatment by government, (4) social harmony, and (5) environmental protection.

Latin America and the Caribbean also display throughout their history high parallel degrees of inequality in the satisfaction of "means" needs of all institutional units (households, corporations, nonprofit institutions [NPI] and government units) and sectors (financial and nonfinancial corporations, nonprofit institutions serving households [NPISH], general government and households). There is inequality in the satisfaction of their needs for such means as final individual, semipublic, and collective commodities, (agricultural, industrial and service value-added) components thereof, factor services, labor and property incomes (compensation of respective services), and labor (skilled) and property (land and other) endowments that are required to satisfy their final needs. These production or income means inequalities, as Mamalakis (2005a, 2005b) notes, are found across groups classified by gender, age, ethnicity, employment status, and so forth.

ABSOLUTE POVERTY, 1990–2006

Absolute poverty, as measured by the headcount index (percentage of population below $60 poverty line), also differs significantly among countries. As revealed by the statistics presented in Table 8, it is highest in Nicaragua (79.9, 2001) and lowest in Uruguay (4.56, 1998). It exceeds 40 percent in Bolivia (42.2, 2002), Ecuador (52.3, 1995; 40.8, 1998), El Salvador (45, 1998; 40.6, 2002), Honduras (44.4, 1998; 44, 1999), Nicaragua (79, 1998; 79.9, 2001), and St. Lucia (59.8, 1995). Poverty is below 10 percent in Chile (8.64, 1998; 9.58, 2000), Costa Rica (7.52, 2001), and Uruguay (4.56, 1998; 5.73, 2003).

Extreme absolute poverty, as measured by the extreme poverty headcount index (percentage of population below $30 poverty line), is highest in Nicaragua (45.1, 2001) and lowest in Chile (<2.0, 1998, 2000), Jamaica (<2.0, 1999, 2000) and Uruguay (<2.0, 1998, 2003). It exceeds 20 percent in Bolivia (20.4, 1997; 23.2, 2002), Ecuador (20.2, 1995), El Salvador (21.4, 1998), Honduras (23.8, 1998; 20.7, 1999), Nicaragua (44.7, 1998; 45.1, 2001), and St. Lucia (25.4, 1995).

Furthermore, Latin American and Caribbean countries have experienced different degrees of individual (food, clothing, shelter), semipublic (health, education, welfare) and collective (freedoms, protection of life and private property, equal treatment by government, social harmony, and environment protection) output-consumption poverty, depending on such factors as ethnicity, gender, age, employment status, and so forth. People in these countries also have experienced means absolute poverty, that is, final individual, semipublic, and collective commodities (shortfall in production), value-added components, labor and property factor services, income and endowments poverty.

As Mamalakis (2004, 2005a, 2005b) has argued, final output and means poverty resulted from an excessive emphasis on (re)distribution, rather than on accumulation and increased production, of means, that is, from neglect of the two golden rules. Collective markets have been inefficient and production has suffered because the first golden rule of recognition of the complementarity (complementary nature of) between procedural democracy and civil society has not been recognized and satisfied. Furthermore, collective markets have been inefficient and output growth has suffered because the second golden rule of recognition of the complementarity of the five moral collective needs has also not been recognized and satisfied. Ultimately, persistent inequality and absolute poverty are attributed, and explained by, the neglect and inadequate satisfaction of the moral collective needs for political freedom (absence of procedural democracy), as well as for economic freedom, safety of life and private property, equal treatment by government, social harmony (absence of civil society), and environmental protection. All existing indices and measures of inequality, absolute poverty, income, and consumption, while including the basket of minimum basic needs, exclude any reference to the usefulness and costliness of the satisfaction of these eternal, indestructible, moral collective needs.

Yet satisfaction of these needs determines, on the one hand, who has the power of the state (the degree of satisfaction of the political freedom need) and, on the other hand, how and whether the power of the state is used to create a civil society (satisfaction of the other four moral collective needs).

Inequality and absolute poverty have persisted in those countries where collective markets have failed to establish sustainable electoral democracy and civil society (Argentina, Brazil, Peru, Bolivia, Venezuela, Mexico, Guatemala, Ecuador, El Salvador, Ecuador, and others). Inequality and absolute poverty have, however, been reduced in those countries where collective markets have succeeded in establishing both procedural democracy—that is, where the power of the state is in the hands of politically free people—and civil society—that is, where the power of the state has been used to satisfy all five complementary moral collective needs, as in Chile since 1990

It can be argued that the proximate explanation of the enduring, widespread, absolute poverty and income/consumption inequality in Latin America and the Caribbean is the low rate of growth of labor productivity and per capita output/income. However, a better explanation, according to the Mamalakis political economy approach of collective markets, is the failure of collective markets to satisfy the two golden rules of sustainable democracy and growth: to obtain both procedural democracy and civil society.

See alsoEconomic Development .

BIBLIOGRAPHY

Altimir, Oscar. "Income Distribution and Poverty through Crisis and Adjustment." In Latin America's Economic Future, ed. Graham Bird and Ann Helwege, pp. 265-302. London and San Diego: Academic Press, 1994.

Commission of the European Communities-Eurostat, International Monetary Fund, Organisation for Economic CoOperation and Development, United Nations, and World Bank. System of National Accounts 1993. Brussels/Luxembourg, New York, Paris, Washington, DC: Commission of the European Communities-Eurostat, 1993. Also available from United Nations Statistics Division, National Accounts, at http://unstats.un.org/unsd/sna1993/toctop.asp.

Mamalakis, Markos J. "Public Policy and Sectoral Development: A Case Study of Chile 1940–1958." In Essays on the Chilean Economy, by Markos J. Mamalakis and Clark Winton Reynolds, pp. 1-200. Homewood, IL: R. D. Irwin, 1965.

Mamalakis, Markos J. "The Theory of Sectoral Clashes." Latin American Research Review 4, no. 3 (1969): 3-46.

Mamalakis, Markos J. "The Theory of Sectoral Clashes and Coalitions Revisited." Latin American Research Review 6, no. 3 (1971): 89-126.

Mamalakis, Markos J. "Urbanization and Sectoral Transformation in Latin America, 1950–1965." 29th Congresso Internacional de Americanistas Lima. Actas y Memorias, Vol. 2: El Proceso de Urbanizacion en America desde sus Origenes Hasta Nuestros Dias, pp. 193-345. Lima: Instituto de Estudios Peruanos, 1972.

Mamalakis, Markos J. The Growth and Structure of the Chilean Economy: From Independence to Allende. New Haven, CT: Yale University Press, 1976. See especially chapters 3 and 10.

Mamalakis, Markos J. "Sectoral Clashes, Basic Economic Rights and Redemocratization in Chile: A Mesoeconomic Approach." Ibero-Americana, Nordic Journal of Latin American Studies 22, no. 1 (1992).

Mamalakis, Markos J. "Sectoral Conflicts in the U.S. and the Soviet Union: A Mesoeconomic Analysis." Eastern Economic Journal 18, no. 4 (1992): 421-428.

Mamalakis, Markos J. "Distributional Mobility and Justice in Latin America: Macro, Meso and Micro Issues." In Distributional Mobility in Latin America: Evidence and Implications for Public Policy. Latin American Program Working Paper 242, pp. 7-121. Washington, DC: Woodrow Wilson International Center for Scholars, November 1999.

Mamalakis, Markos J. "Las reglas doradas" [The golden rules]. In Supplemento Anniversario 16 años of Diario Financiero (Santiago, Chile), November 29, 2004, p. 133. Published in English as "Sustainable Democracy and the Golden Rules." Center for International Education, University of Wisconsin-Milwaukee, Global Currents 1, no. 2 (2005a): 18-19.

Mamalakis, Markos J. "Social Justice in a Global Environment: A Theory of Natural Law and Social Justice." In The Quest for Social Justice III: The Morris Fromkin Memorial Lectures, 1992–2002, ed. Peter G. Watson-Boone, pp. 227-304. Milwaukee: UWM Libraries, University of Wisconsin-Milwaukee, 2005b.

Psacharopoulos, George, et al. Poverty and Income Distribution in Latin America: The Story of the 1980s. World Bank, Regional Studies Program, Report No. 27. Washington, DC: World Bank, 1993.

Urrutia, Miguel, ed. Long-Term Trends in Latin American Economic Development. Washington, DC: Inter-American Development Bank, 1991. See especially chapter 1 by Angus Maddison and chapter 2 by Miguel Urrutia.

World Bank. World Development Report 1990: Poverty. Oxford: Oxford University Press, 1991.

                                   Markos J. Mamalakis