Toward the Social Problems of the Latin American Countries

Jiang Shixue

Toward the Social Problems of the Latin American Countries

Jiang Shixue

Owing to low development levels, unfair income distribution and deficient social development concepts and policies, the Latin American countries have accumulated a great number of striking social problems over the years such as deteriorated social security, rampant drug production and traffic, frequent conflicts and aggravation of the poverty of the people at lower strata. In recent years, the upbeat economy has mitigated the problems to some extent. However, one cannot expect that the social and economic bottlenecks of the Latin American countries could be overcome overnight and their serious social problems can be solved fundamentally in the short run.

I

In the past decades, the Latin American countries have made remarkable achievements in the promotion of social development. For instance, the expected life span of an average Latin American increased from 56 years of age in 1960 to 62 in 1975 and further to 73.4 in 2007. The gap in life span between the developed countries and Latin America reduced from 13 years to 6.7 years and the infant mortality rate dropped from 58.3‰between 1980 and 1985 to 21.8‰ between 2005 and 2010. The school entrance rate has improved sharply while the illiterate rate has dropped by a big margin.

However, the Latin American countries are also faced with a lot of serious social problems. Among others, the following problems are the most serious:

1. Deteriorated social security

According to the relevant studies of the Inter-American Development Bank (IDB), although both the developed and the developing countries are faced with rising crime rate, the crime rate rises faster in the Latin American countries, giving an unending boost to the crime prevention industry. In many Latin American countries, the industry of private bodyguard is very prosperous. An enterprise of Colombia has designed 192 styles of body armor.

The social security deterioration in Latin America presents the following conspicuous features:

Firstly, both the rich and the poor fall victims to the process. The rich become the targets of theft or robbery for their huge wealth, but they can reduce risks by employing bodyguards or equipping their family properties with anti-theft facilities. In contrast, low-income people are more vulnerable to the crimes as they cannot afford the preventive measures. Take Peru for example, low-income people are twice as vulnerable to thefts and other crimes as high-income people.

Secondly, violent crimes of kidnapping and murder occur frequently. For instance, 2006 saw a total of 3928 people died in murders or other violent incidents in such a small country as El Salvador, registering an average daily death toll of 10.8 persons. In Venezuela, a country with only a population of 26 million, three people die of violence in every two hours and about 10,000 murders occur annually. From 2003 to 2006, the kidnapping cases were doubled and the number of the missing people increased rapidly.

Thirdly, more and more aliens are inflicted with criminal activities. Latin America boasts a lot of tourist attractions and ancient relics attracting numerous foreign visitors. The number of overseas people doing business in Latin America also keeps increasing. These foreigners are increasingly vulnerable to theft, robbery and kidnapping. On May 10, 2002, the Cuban Ambassador to Mexico was robbed at home. The Chinese enterprises in Latin America have also the “honor” of being frequented by the criminals. Virtually none of the dozen Chinese enterprises in Venezuela has been free from burglary. Even the Chinese Embassy in Venezuela suffered theft.

Fourthly, crimes involving drug production and traffic keep occurring. The Andean area is one of the major drug production sources in the world. The terrorist activities of the drug cartels constitute tremendous threats to the people’s life and properties, and even the political stability and the social safety of the Latin American countries. The drug cartels are the violent groups composed of people engaged in drug production and traffic. They purchase fine arms, the state-of-the-art communication equipments and transportation tools with the fountain of the “drug dollars”, and organize armed forces defying the governmental anti-drug forces. To discourage the governmental anti-drug acts, they are involved in direct assassination of the governmental officials, judicial officers, journalists, and social figures who advocate harsh measures against drug, in addition to waging a series of terrorist actions like explosion and kidnapping.

The waves of “drug violence” come from not only the revenges and rebels of the drug cartels against the governmental antidrug campaign, but also the dogfights between the drug cartels struggling for drug market. For instance, in Colombia, the Medellin and Cali drug cartels run into clashes from time to time, every time affecting a large number of innocent outsiders. Sometimes, these clashes even extend to the peripheral countries and even the streets of the United States.

The negative impacts of the deteriorated social security are multifaceted. According to the calculation of the World Bank economists, the never dipping high crime rate has made the national economic growth rate of Latin America drop by 8%. If the occurrence of murders in Brazil were reduced to the level of Costa Rica in the1990s (Costa Rica registered only one sixth of the murders occurred in Brazil), the per capita income of Brazil in the late 1990s would have increased by US$200 and its GDP growth rate would have risen from 3.2% to 8.4%.

2. Large impoverished population

Latin America boasts rich natural resources, yet with numerous poor people. Nicknamed “beggars on the gold hill”, the poor people either suffer prolonged unemployment or make a living in informal sectors with low pay and poor working conditions. Although they are granted some government allowances, their low living standards linger on. According to the statistics of the United Nations Economic Commission for Latin America and the Caribbean (ECLAC), starting from 2002, although the poverty rate has been lowered considerably, there were still as many as 180 million impoverished people, as is illustrated in Figure 1.

Figure1 Impoverished Population and Poverty Rate of Latin America

The Latin American poverty presents the following features. Firstly, apart from the poverty in common sense, Latin America also suffers serious extreme poverty or dire poverty. According to the statistics of the ECLAC, from 1980 to 2002, the extreme poverty rate of Latin America was around 20%. Since 2006, it has dropped, alas, somewhere above 10%. Secondly, the poverty rate is high. In the 1980s when Latin America was inflicted with the double attacks of the debt crisis and the economic crisis, the poverty rate rose from 40.5% in 1980 to 48.3% in 1990. Although Latin America achieved relatively fast economic achievement from 2002 to 2008, the poverty rate still registered 33% in 2008. Thirdly, children are poorer than the seniors. As the poor families tend to have more children, the children under 15 years old in Latin America are seriously impoverished. On the contrary, people above 65 years old, with the fixed income of pensions, are not as poor as the children. Fourthly, the Indians, the black, women, and people with low level of education are more vulnerable to poverty. Fifthly, the rural areas suffer more severe poverty than the urban areas. Sixthly, the slums in the outskirts of cosmopolitans are the main place where the poor make a living. The slums are equipped with poor infrastructure, short of electricity and running water, and wanting such life service facilities as school and hospital. More seriously, a large number of slums are characterized by high frequency of various crimes.

3. Serious social discrimination

The Latin American indigenous people, most of whom live in the rural areas, are cast under the spell of discrimination. The agricultural modernization practiced over a long period of time has not brought any due benefits to the indigenous people. On the contrary, the waves of neo-liberalist reforms have increasingly squeezed their living space. For instance, in 1992, Mexico amended Article 27 of the Constitution, which symbolized one of the major achievements of the 1910 Mexican Revolution, to legalize land transaction. Thus, the land titles of the indigenous people were put under the attacks of the privatization waves. The Land Law of Peru promulgated in the 1990s also stipulated that the state is authorized to transfer the land titles to private developers in the form of auction.

Along with the industrial and urban development, more and more indigenous people begin to make a living in the city. However, wherever they live, they are always the vulnerable group of the society and their social status can hardly be improved, with very unstable jobs, low pay, and scant opportunities of promotion. In Bolivia, the Indians are denied access to high level swimming pools and their salary is only 41% of their white colleagues.

The social marginalization of the indigenous is closely connected with poverty. In Bolivia, the poverty rate of the indigenous is 64%, 16 percentage points higher than that of the others. In Peru, the poverty rate of the indigenous people is 79%, nearly 30% higher.

In the past several decades, along with the social development of Latin America, the status of women has been drastically lifted. By 1961, women had won the right to vote across the board in Latin America. In some countries, for example, Chile, Argentina, Nicaragua, and Panama, there have even appeared female presidents, in addition to the numerous female ministers and members of the parliament. The economic status of the Latin American women has also been improved correspondingly. However, the discrimination against women is still considerable. For instance, on the labor market, women as discriminated participants could not get equal pay for equal work. Women are less educated than men in average. Under the influence of the special Latin American male chauvinism culture, women usually fall victims to family violence.

4. Frequent social conflicts

The social conflicts in Latin America include both civil demonstrations and bloodsheds caused by confrontations be-tween classes or strata. There are two famous examples. One is the Indian farmer rebel in Chiapas, Mexico. The crisis, not settled until today, has drawn international attention with its strong social impact and long duration.

The second is the confrontation of the Brazilian “Landless Farmer Movement” (Movimento dos Trabalhadores Rurais Sem Terra, MST) vis-a-vis the big landowners and the government. In the end of the 1970s, events of landless farmers seizing the idle land of big landowners broke out in a row. In order to enhance their chips to bargain with the government and the big land owners, the landless farmers set up the MST in 1984. In 1985, the organization held its first national assembly of representatives, which adopted seizure as the major form of land acquirement. The confrontation between the landless farmers of the MST and the big estate owners often lead to bloodshed. It was estimated that the conflicts claimed a total of 1,520 lives between 1980 and 2000.

II

The social problems of Latin America attribute not only to low levels of economic development and unfair income distribution, but also to the deficiencies of the governmental development concepts and social development policies. Whether the Latin American countries could properly tackle serious social problems depends somehow on the following factors:

1. The sustainability of fast and stable economic development.

The social problems of Latin America are mainly owing to the economic difficulties. Latin America was trapped in frequent economic crises, each of which wreaked huge havocs to the various social strata (especially the low-income strata). For instance, the Mexican financial crisis of 1994 resulted in a loss of US$45 billion, an equivalent to 16% of the GDP of Mexico. In 1995, the GDP of Mexico dropped by 6.9%, the largest decline in economic growth since the Mexican Revolution breaking out at the beginning of the 20th century. With an over 50% inflation rate and a 20% drop of real salary, the consumers could hardly repay the liabilities including house mortgages. A great number of enterprises went bankrupt and the total unemployment increased by two million compared to the pre-crisis period.

During the Argentine Financial Crisis between 2001 and 2002, the average monthly nominal wages of various trades decreased from 961 pesos to 616 pesos, that of the formal sectors dropping to 769 pesos, the informal sector 363 pesos. After the collapse of the currency board system in January 2002, the peso was dramatically depreciated and the commodity price was rocketing, resulting in sharp increases of poor people and unemployment. By October 2002, the poverty rate increased to 57.5% with the extreme poverty rate increasing from 13.6% to 27.5%.

Under the influence of the international financial crisis, the economic growth rate of Latin America dropped to -1.9% in 2009 from the 4.2% in 2008, and the unemployment rate rose to 8.1% in 2009 from the 7.3% in 2008. This crisis has thrown a total of nine million people of Latin America into poverty. Consequently, the UN Millennium Development Goals for this region are even more difficult to realize by 2015.

Therefore, only the fast economic development to create more social wealth remains the fundamental approach to the solution of the social problems of Latin America. The reason is that relatively fast economic growth not only creates more job opportunities to benefit more poor people but also enhances the governmental revenue to accelerate social development. For instance, in the 1990s, as the Latin American economy moved out of the shadow of the “Lost Decade”, the reinforced economic strength of the governments enabled the expansion of government social expenditure. According to the statistics of the ECLAC, the per capita government funds earmarked for social expenditures of 17 Latin American countries increased from US$360 in the early 1990s to US$540 in the late 1990s, a remarkable increase of 50%.

2. The availability of the pro-social-development concept

The government should not confine itself to economic development (efficiency). Rather, considerable attention should be paid to all-round development of various social strata (fairness). Efficiency and fairness oppose and yet complement each other. Efficiency remains the driving force and necessary condition for fairness, while the default of fairness will inevitably lead to imbalanced social development, undermining the original objective of efficiency.

Over a considerably long period of time, the Latin American governments seem to have preferred efficiency to fairness. The“growth preceding allocation” concept put economic development above social development, only to deteriorate the social problems as time elapsed.

As a matter of fact, in the early 1990s, the ECLAC put forward the slogan of “Realize the Transformation of Fair Production”(Transformación Productiva con Equidad). At the turn of the new century, the ECLAC paid even more attention to the acceleration of social development and went further to advance the concept of strengthening the social cohesion.

The ECLAC refers the social cohesion to the sense of belonging of each member of the society and their agreement with the social development objectives. It is closely related to the social inclusion mechanism, the behavior of members of the society, and their judgment on social values. The social inclusion mechanism includes employment, education, and policies to ensure social fairness, while the behavior of the members of the society, and their judgment on social values concern people’s trust in institutions, social capital, social solidarity, and social rules, and the willingness of each member of the society to participate in the social development process, and their collective efforts.

The concept of social cohesion is characterized by the following three aspects: Firstly, it is oriented to economic development. That is to say, only when the cake is made bigger could the social cohesion be enhanced; secondly, it is focused on the ability of each member of the society to do his or her part, while the effective means to realize this goal is to improve each individual’s capacity and qualities through education; and finally, it stresses the important role to be played by the government in strengthening social cohesion.

The concept of social cohesion is widely accepted and appreciated in the international society. The 17th Ibero-American Summits held in Santiago, the capital city of Chile, in November 2007, had social cohesion as the theme of the meeting. The Santiago Declaration and the Action Plan adopted at the meeting further emphasized the importance and necessity for the Latin American countries to enhance social cohesion. In his speech at the opening ceremony of the meeting, Ban Ki-moon, Secretary General of the United Nations, indicated that social cohesion was also “intimately linked with the work of the United Nations around the world”. It was an essential part of the efforts of the UN as manifested in the Millennium Development Goals, the Declaration of the Protection and Promotion of the Rights of Indigenous Peoples, and the Convention the Rights of Persons with Disabilities. It was in accordance with the very mission of the UN for “peace, development and human rights”. He even regarded social cohesion as essential to addressing the threat of climate change.

The various parties, be they governments or non-governmental organizations, enterprises or civilians, are all interested in solving the social problems through enhancing social cohesion. The development concepts of the leaders of Latin American countries have also undergone fundamental changes. All of the above are crucial to the promotion of the all-round and sound social development of the Latin American countries.

3. The ability to formulate and implement effective social development policies.

As a totality of codes of conduct and regulations established by the government to improve people’s living standards, mitigate social problems, and accelerate social development, social policies reflect the aspiration, determination, and ideas to solve the social problems. The social policies formulated by the Latin American countries cover such areas as social security, social relief, health and medical care, education, poverty alleviation, employment, salary, and taxation. Some countries have even promulgated laws to ensure the stability of the social policies.

However, in the course of implementing the above-mentioned social policies, the Latin American countries are commonly faced with the following difficulties. Firstly, given the shortage of the governmental financial resources, a lot of projects with a fine start came to a poor finish. For instance, in countries like El Salvador and Peru, although the ratio of social expenditure to GDP increased from 12.8% in the 1990s to 15.1% at the beginning of the 21st century, it was still much lower than the 23.6% of the United States, the 33.6% of Germany, and the 35% of France. Secondly, the various social policies could not complement each other to produce integrated solutions to social problems. Thirdly, the social policies are often frustrated by the various interest groups. The civil servants at the top of the“pyramid” could always squeeze the maximal benefits from the various social policies leaving little for the vulnerable groups. Fourthly, with inadequate professionalism and management capacity of the relevant governmental departments, the social policies are not effective enough. The phenomenon is especially common in local governments. Fifthly, the governments have blind faith in the power of market, believing that the market could take over the role of government in the areas such as social security, health and medical care, labor market and taxation.

After the debt crisis breaking out in the 1980s, some Latin American countries established social investment funds or similar social relief programs to mitigate the impacts of the crisis on the low-income strata. The funds were either financed by the governmental allocation or by the donations or loans of international organizations. The Social Investment Fund (Fondo de Inversión Social, FIS) founded by Bolivia with the funds of the World Bank was regarded as a relatively successful case. The Fund was earmarked for four areas-economic infrastructure, social infrastructure, social assistance, and credit supply, benefiting 3.5—4 million Bolivian poor people. This kind of funds are mainly used to create job opportunities for the unemployed (for instance，through road building, bridge renovation, and highway cleaning) or to provide low-priced food and medical service directly to the low-income strata. However, on the one hand, deeply affected by the debt crisis and the economic crisis, the Latin American governments could hardly afford the large scale social expenditures at that time; on the other, under the influence of the neo-liberalism, the policy makers of the Latin American countries believed that the government should not get involved too much in social development. Therefore, after a few years of implementation, the social investment funds or the similar social relief programs ceased to exist except in name. This partly explained why in the late 1980s the social problems of many Latin American countries ever deteriorated.

The economic recovery of Latin America in the 1990s enhanced the revenue so that the governments were able to increase investment in social development. At the same time, the governments acquired new understanding on the complementary relationship between social development and economic development. A lot of Latin American leaders realize that they should not neglect social development while promoting econo-mic reforms. According to the statistics of the ECLAC, the governments of 21 Latin American countries doubled the social expenditure from 2006 to 2007 compared to the period from 1990 to 1991. The per capita social expenditure increased from US$318 to US$604 (in the price of US dollar in 2000). However, there was great difference between countries. For instance, from 2006 to 2007, the per capita social expenditure of the Argentine government was US$2,000, while the per capita social expenditure of Nicaragua and Ecuador was only about US$100, a difference of 20 times.

Social development falls into four areas：social security, education, health, and housing. In contrast to the past, the Latin American governments pay more attention to social security and education. Since the 1990s, Latin America has spent 5.2% of GDP in social development, with expenditures in social security and education accounting for 2.6% and 1.4% of GDP, while health and housing 0.7% and 0.5%，respectively.

In some Latin American countries, the “Conditional Cash Transfer Programs” have become the most important social relief actions implemented by the governments, whereby the governments will directly grant poor families the allowances in cash on the basis that the family heads must keep a series of promises. For instance, they must send their children to school without dropout; they must send their children for health and nutrition check-up and vaccination regularly; families with pregnant women should ensure to facilitate perinatal health care and regular lectures on health information for the women. Up to date, 17 Latin American countries have implemented the “Conditional Cash Transfer Programs” covering 100 million people of 22 million families, accounting for 17% of the total Latin American population. These programs consume 2.3% of the total social expenditure of Latin America, and 0.25% of the aggregate GDP. The ECLAC believed that the conditional cash transfer programs of Mexico entitled “Opportunity” has reduced the poverty rate of the country to 1.1%.

4. The ability to improve income allocation

The unfair income allocation is another key contributing factor of the serious social problems of Latin America, one of the regions in the world with the most unfair income allocation. According to the World Bank, even in the comparatively fair countries in the region such as Uruguay and Costa Rica, the income allocation is unfair compared with any member countries of the Organization for Economic Cooperation and Development (OECD) or any East European countries. In most Latin American countries, the rich, accounting for 10% of the total population, enjoy 40% to 47% of the total national income while the poor, accounting for 20% of the total population, only share 2% to 4% of the total national income. According to the statistics of the ECLAC, in 18 Latin American countries, the Gini coefficient exceeds 0.6 in two countries,0.5 in 12 countries and 0.45 in four countries (See Table 2).

Table 2 Gini Coefficient of Latin American Countries

The causes of the serious unfair income allocation in Latin America are manifold. There are historical, social, and economic reasons.

The historical reasons boil down to the land ownership system as a question left over by history. As the land ownership system goes, the big estate owners hold thousands of hectares of fertile land while many farmers do not have even a square foot of land to their names. The Latin American Wars of Independence in the early 19th century failed to change the high concentration land ownership. On the contrary, the land annexed into the big estates in the 19th century equaled to the total land annexation in the previous three centuries.

In the past few decades, many Latin American countries have conducted land reforms to solve the land problems. The land reforms enabled many landless farmers to have land and reduced to some extent the high concentration rate of land ownership. However, the land reforms have not resulted in fundamental improvement of the income allocation structure in the rural areas, mainly due to the following factors: Firstly, some Latin American countries have not taken the fundamental interests of farmers into account in the land reforms. For instance, when formulating the laws of land reform, the Colombian Government invited the representatives of large land-owners to provide advice instead of inviting representatives of landless farmers to take part in policy making. It is imaginable that such kind of land reform could hardly change the unreasonable land ownership system. Secondly, the big land-owners have got due compensation from the governments for the land lost. Besides, in order to protect their own property, the big land-owners tried their best to exploit the loopholes of the laws on land reforms. For instance, in the light of the rule stipulating that “the idle land should be forfeited”, the big land-owners used to sow some seeds randomly on the land lying idle for years to create a false appearance that the land was not idle. From the economic perspective, it is evident that the land reforms have not caused any losses to the big land-owners. Thirdly, after the land reforms, a lot of farmers were unable to manage the productive activities on their own due to the lack of necessary financial and material resources. Therefore, many farmers had to sell their land in the end and were reduced to landless farmers. In short, the land reforms only dispossessed the big land-owners of a fraction of their land while the farmers did not benefit much from the initiatives. It was estimated that the re-allocated land only accounted for 15% of the confiscated land, and the farmers benefiting from the reform only accounted for 22% of the potential beneficiaries.

In addition to the land ownership system, the following factors also contribute to the unfair income allocation.

Firstly, the industrialization can rely either on labor-intensive industries or on capital-intensive and technology-intensive industries. The development of the capital-intensive and the technology-intensive industries will increase the organic composition of capital and reduce the demand of labor. As the returns of capital are mainly concentrated at the rich strata, the gap between the rich and the poor will necessarily be widened.

Secondly, the urban-rural differences can hardly be reduced. In Latin America, the income of a labor in the rural areas is usually 20% less than that of an urban worker. Given that the coverage of the social security in the rural areas is smaller than that of the urban areas, the real income for a farmer is even lower. According to an economist at the Inter-American Development Bank, when the urbanization rate reaches 50%, urbanization will exert the greatest adverse impact on income allocation. In the past few decades, the urbanization process of Latin America has just reached this stage. If the urbanization process continues, the trend of unfair income allocation will be alleviated to some extent.

Thirdly, the taxation systems are unreasonable. In every country, taxation exerts significant influence on income allocation. Some tax burdens could be shifted, in other words, the tax payers could shift tax to other people in economic activities. Given this feature, tax can be divided into direct tax and indirect tax. The former refers to the taxes that cannot be shifted to other people, for instance, income tax and property tax, while the latter refers to those that can be shifted to other people, for instance, sales tax, consumption tax, and tariff, etc. The indirect taxes are easy to collect, yet disadvantaging the low-income people. The tax structure of the majority of the Latin American countries is based on indirect taxes, with the property tax accounting for a very little share. This indicates that the bulk of the revenue of the Latin American countries comes from the laboring masses that constitute the majority of the population, instead of the rich strata.

Fourthly, the educational opportunities are unevenly distributed. In Latin America, as the major source of income for common workers, wage accounts for 80% of their total income in general, and it is closely related to their level of education. The allocation of educational resources is very unfair. The difference in the level of education between the richest 10% of the population and the poorest 30% is eight to nine years in Mexico, Brazil, Panama, and El Salvador. The incomes of the manual laborers with low level of education cannot be mentioned in the same breath with the incomes of the management and technological personnel with high level of education.

There have appeared positive changes in the four key elements influencing the social development process of Latin America in recent years. In particular, as the basis for social development, the economic development is gaining gratifying momentum with a promising outlook. The acute social problems commonly existing in the Latin American countries are mitigated to some extent. However, as the Latin American countries are all developing countries and they can hardly achieve substantial improvement in economic and social development over-night, the severe social problems cannot be solved in the short run.

Jiang Shixue is Senior Research Fellow of Chinese Academy of Social Sciences.