Latin America suffers from both the world’s highest rate of income inequality and from a lackluster economic performance that puts it well behind the growth levels of other emerging regions such as Asia. Could there be a connection? Recent research suggests that high inequality and low social mobility are more than just poor people’s problems: they represent a severe drag on economic growth and stability. In Latin America, vast numbers of people are not only cut off from the benefits of economic progress: they are unable to contribute meaningfully to the development of their societies.
This phenomenon, often ignored by economists, has profound implications for the region on every level, ranging from low levels of investment and untapped human potential, to high crime rates and macroeconomic instability. But these facts do not imply that the region’s special history and flawed institutions condemn it to permanent levels of high inequality and low growth.
Several Latin American governments are pursuing policies that, in fact, have simultaneously reduced inequality of opportunities, if not yet of income, and enhanced growth. Chile, for instance, has adopted conservative macro-financial policies and encouraged free trade and private-sector participation in infrastructure and public services, while at the same time expanding coverage of basic services and implementing an ambitious integrated program, Chile Solidario, aimed at the extreme poor. Uruguay and Costa Rica have similarly struck an effective balance between pro-market policies and universal access to basic services. As a result, today they show relatively high per capita incomes and less unequal income distribution than most other countries in the region…
