The Fight against Latin Poverty

Wednesday, September 12, 2007

Governments are trying novel solutions in partnership with business–and the poor themselves San Juan de las Manzanas is a hardscrabble little village in central Mexico where families live in barren adobe hovels with dirt floors and no running water. They eke out a living raising pigs and coaxing corn out of the dry clay soil, as their parents and grandparents did before them. Their children rarely attend more than a few years of primary school before dropping out to take menial jobs to help support their families. Politicians hardly ever visit the town except at election time. ’’Then you never see them again, and you continue to live in the same misery,’’ says Agustina Martinez, a mother of four whose weathered skin makes her look far older than her 35 years. Yet just 30 miles away, as the crow flies, a state-of-the art BMW factory turns out luxury sedans for Mexico’s moneyed elite.

Latin America is awash in such contrasts. Nowhere in the world is the gap between the haves and have-nots wider than in this region. The top fifth of the population controls more than half of the wealth, while the bottom fifth receives just 4.5%. More than 40% of Latin America’s 470 million citizens scrape by on just $2 a day, which is the World Bank’s definition of poverty. And one-fourth live in extreme poverty, earning just $1 a day. Policymakers have struggled for decades to improve on those numbers, but economic crises, ill-conceived policies, and natural disasters have reversed most of the progress made.

FALLING BEHIND. Now, there is a new urgency in Latin America’s war on poverty. Thanks to globalization, one of the region’s main assets, its huge pool of cheap, unskilled labor, is fast becoming a liability. ’’We’re seeing a skill-biased technology change worldwide, which may conspire against our hopes of achieving a rapid reduction in poverty,’’ says Nora Lustig, who heads the Inter-American Development Bank’s Poverty & Inequality Advisory Unit. Policymakers must find a way to lift up the poor, educate them, and train them for a more competitive workplace. If they fail, Latin America risks falling further behind in the global race.

This desperate need is driving governments to try solutions never contemplated before. Policymakers are moving away from blanket subsidies for food and housing and experimenting with programs that teach the poor the skills they need to build a better life. They’re also forming alliances with businesses, which for the first time see philanthropy as a competitive tool. And they’re enlisting the poor to help design and run the projects that will benefit them. Many of these efforts are still in their early stages, while others are small scale. Yet several already have produced dramatic results.

Latin governments desperately need these success stories. Politicians promised that the painful free-market reforms of the 1990s would produce prosperity for all. But that has not been the case. It’s true that in Peru and Brazil the poor benefited from the demise of hyperinflation. Although poverty actually increased in Mexico during the decade, the government, feeling flush from privatization revenues, invested heavily in infrastructure projects that have improved living conditions for millions. Thanks to robust growth and a 60% increase in social spending, Chile slashed poverty by 15% in the past decade.

But few other Latin countries have had such success. Economic restructuring has led to layoffs of millions of workers. In Argentina the number of people living below the poverty line rose by 30% in the 1990s. In other countries, gains against poverty have proved temporary. According to the U.N.’s Economic Commission for Latin America & the Caribbean (ECLAC), poverty fell from 41% to 35% of the population in the 1990-97 period. But that promising trend was probably reversed by a nearly regionwide economic downturn last year. ECLAC figures that it takes just one year of recession to wipe out five years of progress.

Latin America’s boom-bust cycles are just one reason regional economic growth averaging 3.2% in the 1990s has done little to help the poor. Social spending in the region rose almost 25% during the decade. But the returns on such investment are low in Latin America, where public services are plagued by mediocrity and waste, to say nothing of corruption. ’’If your ministries of health and education are in shambles, then growth and low inflation are not going to do a lot of good,’’ says Moises Naim, a former Venezuelan Economy Minister who is a fellow at the Carnegie Endowment for International Peace, a Washington (D.C.) think tank.

BUSINESS ROLE. Few in Latin America believe that governments can end poverty on their own, given the pressure to cut big deficits. This realization has led businesses and other players to take on an expanded role in the poverty fight–a big change in a region where the elite has traditionally left social work to the government and the church. Companies that have benefited from privatization are creating charitable foundations as a way of paying back society and earning customer loyalty. ’’People are demanding that corporations take more responsibility for helping to resolve social problems,’’ says Manuel Arango, president of the Mexican Center for Philanthropy.

Latin America’s poor also are playing a bigger role in the poverty fight. With the resurgence of democratic politics since the mid-1980s, they are speaking up for better living conditions and jobs, aided by hundreds of nongovernment organizations. ’’The programs that work are the ones that involve the people directly,’’ says Marcelo Monsalves, deputy director of Chile’s Fund for Solidarity & Social Investment (FOSIS). This government-run fund awards grants of between $2,000 and $70,000 for the poor to start small businesses. Recipients include a group of rural women who run commercial greenhouses and a collective of trash pickers in Santiago.

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Source: Business Week (link opens in a new window)