Wednesday, August 20, 2008

New flash: Latin America is unequal

In the "better late than never" category, we have Andres Oppenheimer noting that the commodity boom has further concentrated wealth at the top in Latin America:

My opinion: The steady concentration of wealth within Latin America should set off alarm bells.

It suggests that the region's recent five years of steady economic growth may not have translated into creation of a new middle class of tens of millions of small entrepreneurs, but rather led the very rich to become even richer.

True. But this should not surprise us, since Latin America historically has had the highest regional rates of inequality in the world.


Anonymous,  3:18 PM  

Arguments like these don't hold too much water. In a growing economy where the middle class is growing (Mexico, Peru, Colombia, Chile, etc), the richest people are by definition also going to see their wealth grow. Just because the rich are getting richer does not mean that inequality is also getting out of hand as long as the middle class continues to grow. The goal should be to see people enter the middle class, period. What the top 1% earns is somewhat irrelevant to the argument.

Greg Weeks 4:00 PM  

Did you read the article's mention of the middle class?

Anonymous,  5:06 PM  

Mike: We can use data to see if inequality is growing or not (GINI coefficient, 90/10 wage ration, however you want to measure it), meaning we can have an empirical rather than theoretical argument about if it's true or not.

Greg: I often find myself asking what is new about many news stories, but, as you say, better late than never.

Greg Weeks 5:25 PM  

I would add only one thing. Only the self-deluded, or the ahistorical, or both, believe that income inequality in Latin America is "somewhat irrelevant."

Anonymous,  6:35 PM  

My point is that any person measured against the richest 1% in any country looks dirt poor by comparison. If you compare Joe Six Pack in Iowa with Warren Buffett or Bill Gates, there is an enormous income inequality. Does it mean that Joe Six Pack can't afford to eat? No.

We should be looking at the absolute numbers of people in each country who are classified as middle class. Just saying that the richest 1% make 8,000,000 times the average guy's income doesn't really mean anything in my opinion. They're rich, but whatever multiple of wealth they have over the average guy is irrelevant. What is relevant is creating a larger middle class. Just because the rich are getting richer does not mean that the middle class can't grow. In fact, it probably HELPS to grow the middle class, if you assume that many of them work at the companies owned by the tycoons.

Greg Weeks 6:42 PM  

Mike--give me links about the advances of the Latin American middle class.

Anonymous,  7:02 PM  

Here's one that references a Goldman Sachs report related to Brazil.

Here's a WSJ article which mentions the growing middle classes in emerging markets and how that's creating more demand for overseas Applebee's and Chili's (not necessarily a good thing):

Here's a third one which mentions the growing middle class in Brazil and how Fisher-Price is taking advantage:

The middle class is growing in most of Latin America. This is an undisputed fact.

Greg Weeks 7:19 PM  

You do realize that your WSJ article lists Nigeria? The other does not mention Latin America.

I will repeat. Give me a link that gives me data, and I will accept even minimal data, to assert your claim. One mention about Brazil is not exactly convincing.

If you think Nigeria is a good example, then don't bother.

Greg Weeks 8:07 AM  

It occurs to me as well that the question is not whether a middle class exists, because obviously it does. More important is whether it is growing, but also whether people believe they have a chance to join it and/or not fall from it. More Chili's or Applebee's doesn't tell us anything about that.

Unknown 9:20 AM  

No opinion at the moment, just some numbers from an Economist article last year (that's now behind their firewall):

In Brazil between 2000 and 2005 the number of households with an annual income of $5,900 to $22,000 grew by half, from 14.5m to 22.3m, while those receiving less than $3,000 a year fell sharply to just 1.3m. In Mexico, according to Alejandro Hope of GEA, a consultancy in Mexico City, the number of families with a monthly income of between $600 and $1,600 has increased from 5.7m in 1996 to 10.7m in 2006....

...In Latin America as a whole, according to calculations by Banco Santander, a Spanish bank, some 15m households ceased to be poor between 2002 and 2006. If the trend continues, by 2010 a small majority in the region will have joined the middle class, with annual incomes above $12,090 in purchasing-power-parity terms. In Mexico some 15m out of 27m households could have middle-class incomes by 2012, reckons Mr Hope.

Unknown 9:25 AM  

On a related subject and worth reading, I really liked this article from Slate about the Gini coefficient.

Greg Weeks 9:35 AM  

For a less rosy view, see this IADB edited volume. There are many other similar studies.

Anonymous,  10:49 AM  

Thanks to Boz for finding the data I could not. (I would not have made a very good academic.) You may discount the relevance of seeing new Applebees and Chilis in Santiago, Lima, and Guadalajara, but it's not Carlos Slim and Sebastian Pinera who are eating there - it's the new middle class. Brinker doesn't build these restaurants for fun - they do it to make money, and they only will make that investment on behalf of their shareholders when there is a demonstrated growth (and projected growth) of the middle class.

Greg Weeks 11:03 AM  

No, they will make that investment when they think they will make money, which may or may not be related to the projected growth of the middle class. I hope it is, but the idea that a new Applebee's can be equated to a "new" and "growing" middle class is very flawed logic, akin to a gut reaction.

Greg Weeks 11:10 AM  

If you don't like the IADB, then also check out ECLAC. Either way, expand out from the WSJ and the Economist.

Anonymous,  11:22 AM  

OK then how about Barron's? Financial Times? Forbes? Fortune?

Seriously, the business press has far more credibility (and information) on this issue than a bunch of NGOs because in general their stories tie back to concrete financial results versus hypothetical numbers prepared by some think-tank.

In general, investment by multinational retailers and consumer brands in emerging markets grows in concert with that of the middle class. If you don't want to use Applebees as your barometer, use Nintendo, or Intel, or Toyota, or Procter and Gamble, or countless other examples. Their growth rates in Latin America outpace their US/Europe/Japan growth rates, and that's because the middle class is growing and consuming more of their goods.

Anonymous,  11:27 AM  

When do I get to come to Charlotte and do a guest lecture in your class on how a capitalist views Latin America?

Greg Weeks 11:31 AM  

Once again, you confuse profit with middle class. You may sometime come and lecture, and I suspect you will be surprised at the ways in which students pick holes in the logic.

Justin Delacour 1:19 AM  

Thanks to Boz for finding the data I could not. (I would not have made a very good academic.) You may discount the relevance of seeing new Applebees and Chilis in Santiago, Lima, and Guadalajara, but it's not Carlos Slim and Sebastian Pinera who are eating there - it's the new middle class.

Some clarifications are in order. When we talk about the Latin American "middle class," we're typically talking about those who are among the top 20 to 25 percent of income earners in any given country. We're not talking about the median income earner, who wouldn't meet the "middle class" standard anywhere in Latin America.

Now, as for Applebees, Chilis (or McDonald's, for that matter), they will cater to higher strata in Latin America than in the United States. In Latin America, McDonald's is quite popular among the relatively well-to-do (and much less so among the poor). Notice that the opposite holds true in the United States.

So I have to agree with Greg here that it's really fallacious logic to suggest that Applebees franchises tell us much of anything about Mexico.

Justin Delacour 1:30 AM  

Ah yes, what a surprise that Boz peddles an article by some complete ignoramus who dismisses the relevance of the Gini coefficient. If I were the type of person who wanted to hide the fact that Latin America is the most inequitable region in the world and that the Washington establishment pushes policies that exacerbate such gross inequities, I'd try to dismiss the significance of the Gini coefficient as well.

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