Waylaid Dialectic

August 12, 2010

Inequality in Latin America

Filed under: Inequality — terence @ 4:14 pm
Tags: , ,

Some time ago I took a dig at uncritical supporters of Hugo Chavez, arguing on the basis of a chart from VoxEU, that Chavez was a relative under-performer when it came to reducing inequality.

My certainty on such a claim was shaken by this post at Duncan Green’s blog, which seemed to show the opposite, that Venezuela was doing particularly well at reducing inequality. Green then argued that, say what you might about Chavez, he should be given some credit for his achievements in this area.

Was I wrong?

The first thing I noticed was that Duncan’s post was based on data that spanned from 1990 to 2008. Possibly, I thought, he was giving Chavez credit for inequality which had declined before his time in power. Nevertheless, in penance for my original smearing of the Great Socialist Hope, I decided to devote an afternoon up to my arms in World Bank data to see what was actually going on with inequality in Latin America.

In a moment, I’ll tell you what I found, but first, let’s recap: what’s actually wrong with inequality?

First, everything else being equal, inequality is bad simply because, for any given level of national income, a more unequal country will do a worse job in lifting it’s people out of poverty than a more egalitarian country on the same income level. Of course everything else isn’t equal and a key way that people are lifted out of poverty is through economic growth (growing national income effectively). And it’s always possible that higher inequality might be more conducive to higher growth and, over time this will lead to lower levels of absolute poverty in poorer countries.

However, there’s also some pretty good research to suggest that high levels of inequality actually undermine economic growth. Seminal papers by Engerman and Sokoloff (see here and here) as well as research by William Easterly, point to this being the case. Of course, this doesn’t mean that absolute equality will be optimal for growth or that all attempts to reduce inequality will help growth. However, the evidence does seem to show that high inequality is not good for economic development.

On top of that, there is evidence best summarised by Richard Wilkinson in his book The Impact of Inequality (which is more statistically rigorous, albeit duller, than his other book Spirit Level) to suggest that more unequal societies are beset by all manner of problems including worse crime, lower levels of trust, and worse health outcomes. Wilkinson’s work is most emphatically not beyond critique (as David Runciman points out he’s stretching it a bit to suggest everyone will be worse off in unequal countries; while Claude S Fischer offers excellent critique in the Boston Review). Quite possibly the biggest flaw is that Wilkinson does not, from my recollection, convincingly cover for omitted variables in his analysis – for example: perhaps it’s poor governance that causes countries to both be less trusting and more unequal. Inequality might merely be an effect not a cause. Nevertheless, there remains enough evidence in Wilkinson’s work to at least plausibly suggest that high inequality leads directly to social harm.

Finally, if you’re not a Consequentialist you might also object to high levels of inequality because they seem patently unjust.

To me, the above reasons are, one way or other, good cause to think that reducing inequality (so long as you don’t resort to draconian measures or ransack your economy to do so) is a good thing. So, has anyone being doing this in Latin America?

First, let’s show the obvious: Latin America is a very unequal part of the World (all inequality information in the following charts is in the form of a Gini Index (Gini coefficient * 100)). All numbers come from World Bank data, except those numbers for Sweden, the UK, the USA, and Australia, which come from the CIA World Fact Book; and the figure for New Zealand, which is from New Zealand’s ministry of social development.  Please bear in mind that there are other ways of measuring inequality (such as decile ratios) which might return different results, and that my numbers here are only as good as their imperfect source data.

Inequality 2006 Selected Countries

The Latin American countries on the chart are all significantly more unequal than my selection of developed countries (the difference between Colombia and Sweden is staggering!), with the only exception being the USA, which actually (according to the CIA World Fact Book) was more unequal than Venezuela in 2006. However, it’s worth noting that, according to the OECD, the Gini index for the USA is actually 38, not 44. If this is right, then the US remains more equal than Venezuela.

So much for today’s figures, what about trends.

Inequality Selected Latin American Countries 1980 to 2006

That’s quite a ride for a number of the Latin American Nations. For simplicity’s sake let’s look at more recent years.

Inequality in Selected Latin American Countries 1990 to 2006/7

A few interesting points to notice: Brazil has seen a steady decrease in inequality since democractisation, with good progress in the Lula years. It’s to early to really tell the impact of Morales in Bolivia and Correra in Equador (although it seems positive for Morales). In general in the countries on this graph at least the current millennium has been one characterised by falling inequality, with the big exception being Columbia.

And as for Chavez, yes, he has presided over a good fall in inequality (the change in trend may have predated him perhaps but he deserves credit). That 2005/2006 change is especially impressive, assuming it’s correct and that it’s not just the result of the wealthy freeing the country. Quite possibly the VoxEU chart that I linked to didn’t have 06 info in it, which might explain Venezuela’s poor performance in it.

Finally, two charts showing change as columns, the first from 1990 (or closest year) to 2006 (or closest year), the second from 2000 (or closest year) to 2006 (or closest year).

Change in Inequality Selected Latin American Countries 1990 to 2006

Change in Inequality Selected Countries 2000-2006

To conclude: from the numbers I have, Chavez seems to have done a pretty good job in reducing inequality in Venezuela. I think a lot of what he is doing is very questionable, but in this area at least the results to-date fall in his favour. As, it should be said, do they fall for a number of left-wing reforming regimes in Latin America, such as those in Chile and Brazil over the time studied.

June 27, 2010

The Econometrics of Imperialism

Filed under: Social Justice — terence @ 8:09 am
Tags: , ,

Over at my health and hillsides blog a while ago I jotted down what I think is a pretty reasonably typology of explanations for global poverty. If you live in a developed country and have even a vaguely international outlook, global poverty is pretty much an inescapable fact. If you live in a developing country it’s an utterly inescapable fact. Unsurprisingly, then, there are numerous different explanations for its existence.

Yet for all their quantity I think these explanations can fairly easily be sorted into the following broad categories (with a couple of also-rans which I detail in my original post).

1. It’s Nature’s Fault – Sachs type arguments which directly blame geography for the existence of poverty.

2. It’s Their Fault – arguments which blame developing countries for their own poverty. Which blame corruption, poor governance and poor institutions. This is a very diverse category – spanning conservatives who do, literally, blame poor countries for their plight, to more enlightened views which see poor countries’ institutional inheritances as the product of colonialism and other historical trends such as slavery.

3. It’s Our Fault – New Internationalist magazine type arguments, which blame the West for global poverty.

Obviously, a lot of people will hold views from across all three camps to differing degrees. I know I do.

To my mind the best evidence for camp 3 (It’s Our Fault) has always come from Latin America. Authors like Noam Chomsky have done an excellent job in detailing the role of the US in supporting dictators and toppling democrats amongst their Southern neighbours. Such studies have usually being qualitative/historical, which makes recent work by Berger et. al and Dube et. al really interesting. Econometric work digging away at the same issues and revealing some pretty compelling results.

I don’t think It’s Our Fault type arguments get anywhere near explaining the totality of global poverty, but this recent work in economics is a very helpful reminder our own role in aiding and abetting the phenomenon.

Blog at WordPress.com.