Trapped: high inequality and low growth in Latin America and the Caribbean

The region is in a trap of high inequality and low growth. Concentration of power, violence, and inefficient social protection policies fuel this vicious circle and limit human development, according to new UNDP report

Posted On June 22, 2021

The report recommends that the solutions must lead to greater growth with environmental sustainability, and to greater inclusion and social mobility.

Photo:
UNDP Colombia

New York - In the wake of the COVID-19 pandemic, the gap between extreme wealth and extreme poverty and vulnerability that characterizes the region, was made more evident and deepened even further. The 2021 Regional Human Development Report 'Trapped: High Inequality and Low Growth in Latin America and the Caribbean', launched virtually today by the United Nations Development Program (UNDP), analyzes the trap in which the region is immersed, which prevents progress towards achieving the 2030 Agenda and its Sustainable Development Goals.

Despite the progress of recent decades, countries in Latin America and the Caribbean are more unequal than countries in other regions with similar levels of development, and their social indicators are still below those expected for their average income level.

The report explores critical factors that underlie the mutual reproduction of high inequality and low growth: concentration of power, violence in all its forms -political, criminal and social-, and poorly functioning social protection policies.

The report calls on Latin Americans to understand the connection between all these factors and highlights an entry point that can serve to break free from low growth and high inequality: the implementation of universal social protection systems that are redistributive, fiscally sustainable, and more favorable to growth.

Luis Felipe López Calva, Assistant Administrator and UNDP’s Regional Director for Latin America and the Caribbean

The document points out that concentration of power in the hands of a few who defend their private interests is one of the factors that connect high inequality with low growth. Through its political influence, power misuse distorts public policies and weakens institutions. One example explored in the report is the role of economic elites in blocking fiscal reforms that would support a more progressive form of redistribution. To balance the distribution of power, UNDP suggests exploring lines of action such as lobbying regulation and financing of political campaigns.

It also points out that the region is the most violent on the planet, and warns that although inequality causes greater violence, violence also increases inequality because it disproportionately affects the most vulnerable populations, contributing to perpetuate their state of deprivation. Violence also limits growth through its impact on human capital (and productivity), the distortion of public and private investments, increased security spending and uncertainty about property rights.

Some of the the lines of action proposed in the document to address this issue include the strengthening of local justice systems and the expansion of mental health care for victims of violence.

The report also looks at the fragility of the region's social protection systems, evidenced by their limited response capacity during the pandemic. The linking of risk insurance systems with formal employment has motivated governments to create parallel systems, of lower quality, to cover the people who are excluded, who are the majority in the region. Countries in Latin America and the Caribbean have segmented labor markets and social protection systems that reproduce inequalities and encourage the organization of production in very small and unproductive businesses. To tackle this issue, the document suggests rethinking social protection to ensure universality.

Finally, the report recommends that the solutions must lead to greater growth with environmental sustainability, and to greater inclusion and social mobility. These are solutions require balancing power by defining rules and policies, eradicating violence in all its forms and redefining the institutional environment that constitutes the essence of the social contract: opportunities in the labor market, taxation and social protection.

More information about the 2021 Regional Human Development Report.

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The United Nations Development Program is the leading United Nations agency dedicated to ending the injustice of poverty, inequality and climate change. Through our work with an extensive network of experts and partners in 170 countries, we help nations build integrated and durable solutions for people and the planet. More information at undp.org. You can also follow us @UNDP.

About the report: This fourth Human Development Report for Latin America and the Caribbean is an independent editorial publication commissioned by UNDP. The report was prepared with the financial support of the Spanish Agency for International Development Cooperation (AECID) and the Andalusian Agency for International Development Cooperation.