Development

Latin American in 2011: How middle-class is Latin America

 

Launch of Latin American Economic Outlook 2011

Remarks by Angel Gurría, OECD Secretary-General

 

3 December 2010, Mar del Plata, Argentina

Ladies and gentlemen,
It is a pleasure to present our Latin American Economic Outlook 2011, on the occasion of the 20th Ibero-American Summit. This is the fourth consecutive Ibero-American Summit, following those in Santiago, San Salvador and Estoril, at which we have presented our annual flagship publication on the region.

This is already a tradition, but also an indicator of our commitment to work harder and better with and for Latin America. We recently launched a new Initiative for the region to foster public service delivery, investment, innovation and fiscal policy. And of course, we continue our yearly production of this report, in which we give an overview of recent progress on the macroeconomic front and take an in-depth look at a key issue concerning Latin America’s development – this time, the role of the middle class.

Macroeconomic landscape: post-crisis opportunities

This year’s report confirms the encouraging performance of most Latin American economies during the global financial crisis. The region was certainly affected, but so far the recovery has been better and quicker than in many OECD countries. Growth forecasts are favourable compared with OECD economies: while we project 2.3% growth for the OECD member countries in 2011, Latin America will grow by 4% in 2011.

This resilience is the result of responsible macro-economic management and prudent financial regulation in recent years. Certainly, the recovery in the demand for the region’s commodities has also contributed to this positive outcome; but the recovery is mostly a reward for good policies at home.

That said, we have a lot of homework ahead. Growth still lags behind most emerging regions, which in many cases are growing three times faster than Latin America. Here, boosting productivity, increasing the quantity and quality of investments, and tapping the potential of the green economy will be essential to maintain sustainable growth.

Even in the fiscal policy domain, which we analysed in last year’s report, much remains to be done: this is the right moment to consolidate the good practices developed during the last decade by institutionalising fiscal rules in law. It is also time to promote efficient tax systems and a better allocation of public spending that will deliver better social services for all,  particularly in education and health.

This year’s topic: a different look at the middle class in the region

This year's report analyses in detail the nature and role of the middle class in the region, and it does so from a new angle, asking such questions as "how middle-class is Latin America?", or “have sound macroeconomic management and reduced poverty indices served to underpin an incipient middle class, -– a middle class whose consumption demand may have contributed to the region’s resilience during the crisis?”

There are also high expectations in Latin America for the middle class as a supporter of democratic consolidation and progressive reforms. But what does “middle class” mean in Latin America? And who are these people in the middle of the income distribution?

Our analysis shows that the so called “middle class” is a heterogeneous group that does not correspond to the stereotypical notion that we have of the middle class in most OECD countries. Their purchasing power, their level of education and their job security are unlike those in more advanced economies.

This is the reason why our report prefers to talk about “middle sectors” of the population rather than “middle class”. Because when we talk about the Latin American middle class, we are actually talking about a segment of the population that has overcome poverty but is still vulnerable and faces serious hurdles. These are people that in most cases do not hold a university degree, do not have a stable employment and are far from enjoying a fairly comfortable economic situation.

In many countries, downward social mobility is a real threat to those who have made it into the middle sectors. If we take employment conditions, for example, we see that out of a total of 72 million middle sector workers in Bolivia, Brazil, Chile and Mexico, more than half of them are in the informal sector. This means that when they get sick, lose their job, or retire, they will not get access to public health insurance, unemployment benefits or the right to a pension, They run a high risk, then, of falling back into the ranks of the disadvantaged.

In fact, the middle sectors are closer to the disadvantaged than to the affluent in many aspects: 39% of so-called middle class workers in Chile do not benefit from pension coverage; 52% in Brazil; 67% in Mexico; and a staggering 95% in Bolivia.

How can policy makers promote the economic consolidation of the middle sectors? 

 So the big question here is what governments can do to promote the economic consolidation of the middle sectors and protect them from falling down the economic ladder. Here, our report provides specific policy recommendations.

Let me highlight a few of them:

In the first place, governments need to protect people from the threat of downward mobility. We show how safety nets and more flexible social protection options can be put in place to protect the most vulnerable people within these middle-sectors – in addition to policies favouring the poorest households.

Second, governments must promote upward mobility, to make Latin American societies fairer, more stable and more cohesive. Here, the most powerful policy lever is the theme of this year's Summit: education. Our report underlines that education policies –particularly those with a focus on early childhood, making secondary education compulsory, and ensuring that schools are better-run– is central in the fight against the transmission of inequality from one generation to the next.

But it’s not just about quantity. The quality of the education provided to young people is equally or perhaps more important. The OECD has a lot of accumulated policy experience in this domain through programmes like PISA, PIAAC, Talis, CERI and AHELO. They have helped us draw important lessons on best practices that can be useful for countries in Latin America and the Caribbean. Some of the highlights of this work on education are summarised in a document that we have brought to the leaders at the Summit. Next Tuesday, I will be in Washington presenting the new results of PISA, where 9 countries from Latin America and the Caribbean take part.

Third, and lastly, governments need to improve the quality of public services. This will help to strengthen the social contract between the state and its citizens. Latin American middle-income sectors express strong support for democracy, but they are on the whole critical of how it works, largely due to the low quality of the public services they receive.. They feel they are losers in the fiscal bargain, and this creates a vicious cycle: middle-income voters will not support tax reform, public services will deteriorate further given shrinking revenues, and policies to promote upward mobility will become less effective.

But this vicious cycle can be transformed into a virtuous one: Latin America’s middle sectors will be more willing to pay taxes for services if they perceive them to be of good quality. Improving the quality of public services will not only enable them to climb the social ladder; it will also make middle-sector voters more satisfied with the fiscal bargain they are being offered and thereby build a constituency for tax reform. This in turn will help strengthen credibility and support for democratic institutions, as well as the engagement of citizens in public life.

Ladies and gentlemen, dear friends,
Improving social mobility and making Latin American societies stronger, fairer and more cohesive will not be easy. But many countries in the region have shown a remarkable capacity to improve their economic governance and institutions. We can see the results in terms of an encouraging economic performance in difficult times, as well as a reduction in poverty levels.

Learning how to do things better is one of the core missions of the OECD. Policy makers in Latin America and the Caribbean have important new perspectives and policy experience, and we all have much to learn from each other. The OECD is committed to generating useful policy lessons with and for Latin America, in order to contribute to the region’s well-being. I hope this report contributes to this endeavour and provides valuable insights on how we can consolidate together a strong, vibrant middle class that can contribute to the region’s development.

Thank you,

 

 

 

 

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