Brazil and Mexico: stubborn inequality highlights progress still to be made

Social and economic equality remains high despite concerted efforts to remedy structural problems, and recent instances of civil unrest serve to back up OECD head’s warning over failure to act.

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The levels of inequality in Latin America’s two most populous countries (and the region’s two biggest economies), Brazil and Mexico, have again been highlighted in recent weeks, shedding light on the persistence of the problem in spite of steady progress in economic growth and poverty reduction. It suggests that while the size of the cake has increased over the last decade or so, as has the slice enjoyed by the poorest sectors of society, those at the top are still taking a disproportionately large portion, and most of the icing and cherries on top as well.

The towering skyscrapers of downtown São Paulo provide a backdrop to the Brazilian city’s many favelas

First up, a rich list of Brazilians whose wealth is estimated at R$1bn (about US$450) was compiled by Forbes and released in September. It showed that the 124 Brazilians who make up the list are worth some R$544bn (US$250bn), equivalent to fully 12.3% of the country’s entire GDP. Bearing in mind that Brazil is a country of some 200m people, this means that this 12.3% of the nation’s wealth is owned by 0.000062% of the population, or 1 in 1,612,903 if that makes for easier reading. The man at the top of the list, Jorge Paulo Lehman, head of the global investment firm 3G Capital, is valued at R$38.2bn (US$17.5bn); by way of comparison, the minimum wage in Brazil stands at R$678 (US$311) per month, meaning that Lehman’s total wealth could pay the equivalent of 56.3m minimum-wage salaries for one month, or 4.7m for one year.

Figures such as these reinforce the fact that Brazil has historically been seen as one of the most unequal countries in the world, and while progress has certainly been made in recent years, the country continues to stand out for the disparity between its growing elite of super-rich and the significant minority of Brazilians who still live in shoddy living conditions and lack basic needs such as water, electricity, a decent education, and neighbourhood security.

Meanwhile, earlier on this month the secretary general of the Organisation for Economic Cooperation and Development (OECD), the Mexican Ángel Gurría, warned that while the “glaring inequality between rich and poor” in his home country was going down, the differences are still “brutal”. In Mexico, the top 10% earn 26 times more than the bottom 10%, which as Gurría told Spanish newswire Efe was far more marked than the ratios in the rest of the OECD, of which Mexico is a member, with the average being 9:1 and ratios in countries such as Germany closer to 6:1. Speaking after his appearance before the Parliamentary Assembly of the Council of Europe, he said: “when there is a crisis, these differences are accentuated, workers’ salaries fall and the difference (between rich and poor) grows”, before adding that given that tax avoidance leads to some sectors among the rich and multinationals not paying their taxes, “how can one be surprised that the young have no faith in their government, in ministers, in political parties, in the President, in multinationals, in banks, in anyone?”

Furthermore, back in July a report from the National Council for the Evaluation of Social Development Policy revealed that poverty levels in Mexico had risen between 2010 and 2012, with 45.5% of Mexicans now in poverty and a further 34.7% “vulnerable” and at risk of falling into poverty – meaning that almost 80% of the entire population is in, at best, a precarious economic position. All this in the country that is home to Carlos Slim, the telecommunications magnate and world’s richest man with an estimated wealth of US$66.8bn.

Mexico’s poverty rates are especially high in rural areas

These patterns are all the more significant for the fact that Brazil and Mexico are the two biggest countries in Latin America, and the stubborn levels of inequality are emblematic of those found across much of the rest of the continent. While Brazil and Mexico are not quite at the head of regional rankings for most unequal countries – Colombia is the not-so-proud owner of that title – they do feature, and have done over time, quite near the top, along with other countries renowned for their historic inequality such as Bolivia, Chile, Guatemala, Honduras, and Paraguay.

However, just as in Brazil and Mexico, social programmes initiated by governments have helped to close the gap to some extent in recent years, helped to no small extent by the solid economic growth experienced across much of the region since the turn of the century. Brazil offers arguably the most pertinent example, with the Bolsa Família (Family Allowance) programme helping to lift millions of Brazilians out of poverty since its inception in 2003. This conditional cash transfer (CCT) scheme works by giving cash handouts to families on the condition that their children attend school and are vaccinated on a regular basis. Mexico was the scene of the first widespread CCT programme in Latin America, with Oportunidades (Opportunities) based on an earlier scheme titled Progresa (Progress) which began in 1997 and operated on a similar basis to Bolsa Família. Both of these landmark programmes are seen as blueprints for other countries across Latin America and the rest of the developing world, and are credited with helping bring about improvements in socio-economic indicators, both in Brazil and Mexico, and in countries such as Chile, Colombia, Honduras, Guatemala, and Peru.

Nevertheless, the threat remains that such gains could be hindered or even reversed in the not-too-distant future if due care is not taken to ensure that these efforts to make societies more equal become institutionalised. Brazil has suffered a relative decline in economic growth since its peak in 2010, and the recent protests across the country have proven that many Brazilians are unhappy with the social situation of their country, while also demonstrating that a simple reduction in poverty or inequality is not enough – quality public services, a deepening of democracy and elimination of corruption can all become just as important. Mexico, meanwhile, is in the midst of an economic slowdown, with growth forecasts for this year having already been slashed from around 3.5% to just 1.2% according to the latest figures from the International Monetary Fund (IMF). Across the region in general, growth is expected to remain steady for the time being at between 3-4%, but this is still below the average for the last decade or so.

However, at least in Mexico there are plans in place to increase government revenue for social spending, with the Partido Revolucionario Institucional (PRI – Institutional Revolutionary Party) government of President Enrique Peña Nieto attempting to push through reforms to the country’s fiscal system which, they hope, will result in higher tax receipts providing more financial resources to be poured into education, health and living conditions. While Mexican tax receipts as a percentage of government spending and national GDP are extremely low even when compared to other Latin American countries, the rest of the region is still well behind Western and developed countries in this regard, and so governments from across the region will be keeping a close eye on Mexico to see exactly how these latest attempts pan out. If they are successful and encourage other administrations to do the same, maybe we will eventually see more solid government schemes to tackle poverty and inequality at its roots, and create the more equal societies (or perhaps we should say less unequal?) found in Europe and indicated by Ángel Gurría.