Post-COVID recovery: how Latin America should treat its inequalities


The following article is authored by Armando Barrientos.



In response to the impact of the COVID-19 pandemic, governments have strengthened social protection provision. In the initial stages of the pandemic, social protection, and especially social assistance, supported households affected by the health crisis and the suspension of economic activity.  The transfer programmes in place at the start of the pandemic enabled governments to direct resources to the population groups most affected. Addressing the economic effects of the pandemic will require a sustained effort over the medium- and longer- term.
Poverty is expected to climb in Latin America. Social assistance will continue to play an important role in mitigating the effects of the economic crisis on living standards of disadvantaged groups. But what about inequality? Could social assistance contribute to addressing high and persistent inequality in the region?

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Latin American countries suffer from high levels of inequality. Policy debates often focus on differentials across co-existing income groups, described here as intra-generational inequality. Yet, to an important extent intra-generational inequality is itself a consequence of the persistent accumulation of wealth in a few hands and of its effects on future generations. Inter-generational inequality works through the concentration of ownership of productive assets - like land or financial and human capital – which is sustained and reinforced across generations. Wealth concentration grants elites a political veto on inequality reduction policies. 
This is a crucial distinction in the context of thinking through medium- and longer-term policies to address poverty and inequality in the region, including social protection. The punchline of this piece is that strategies capable of challenging inequality in the region need to pay attention to both types of inequality. In the absence of policies addressing the concentration of productive assets, mitigating intra-generational inequality, through tax-transfer policies for example, will feel like pushing a rock up a hill.   
Redistributing income to disadvantaged groups lowers intra-generational inequality, in addition to reducing poverty. Tax-financed income transfers to vulnerable families with children and/or elderly raise low incomes relative to the better off. In practice, the extent of the inequality reduction is limited by the size of transfer budgets, the effectiveness with which transfers reach poorest families, and the progressivity of tax collection. Research confirms that, in general, social assistance transfers have positive but relatively small effects on intra-generational inequality reduction. This is not surprising. Across the region, social assistance budgets are very small and tax collection is largely neutral. The reduction in inequality might be small in the aggregate, but hugely important to low income groups.
Does social assistance contribute to reducing inter-generational inequality? To the extent that social assistance transfers include social investment components, they support improvements in health, education, and productive capacity among disadvantaged groups. In particular, improvements in the human capital of children in vulnerable households have a direct effect on inter-generational inequality. The primary objective of conditional income transfers is to break the inter-generational persistence of disadvantage. The effectiveness of social investment components is crucial. To date, research has produced conflicting findings on this issue. Potentially beneficial effects of transfers are limited by supply side provision of health and education and by the distribution of opportunities in future labour markets. A cautious summing up of available research would again point to positive but relatively small social assistance effects on the reduction of inter-generational inequality.

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Policy proposals, and debates, on inequality lean heavily towards the redistribution of income and consumption but need to pay more attention to the concentration of wealth. As regards social assistance, extending its reach to the large share of the population in Latin America facing vulnerability and strengthening its social investment component will help maximise its inequality reduction impact.
From a macro perspective, improvements in the distribution of human capital among disadvantaged groups are likely to be dwarfed by the concentration of wealth pushing in the opposite direction. To be effective, social protection reforms need to be embedded in a broader and more radical strategy to reverse wealth concentration.      

Armando Barrientos is Professor Emeritus of Poverty and Social Justice at the Global Development Institute at the University of Manchester in the UK. His research interests focus on the linkages existing between welfare programmes and labour markets in developing countries, and on policies addressing poverty, vulnerability, and population ageing. His most recent books are ‘Just Give Money to the Poor’ (2010, with J. Hanlon and D. Hulme, Kumarian Press) and ‘Social Assistance in Developing Countries’ (2015, Cambridge University Press).               

The author is responsible for the facts contained in the article and the opinions expressed therein, which are not necessarily those of UNESCO and do not commit the Organization.