The Income Distribution Threat in Latin America

Most of the Latin America countries which have introduced market-friendly economic reforms during the course of the last two decades have also suffered serious increases in inequality; the systematic timing coincidence of the two events suggests that the reforms have been one of the causes of the worsening distribution. That major increases in inequality have occurred in many Latin American countries over the last two decades is now generally accepted (Altimir, 1992; Morley, 1995). This study adds new information for a few countries (Colombia, Costa Rica, Ecuador), but its main focus is on the possible causes of those increases, a complicated question because so many different currents have affected the region over this period—the crisis, the reforms, technological change, terms of trade shifts, and others. Morley (1995) and others have argued that much of the observed increase in inequality was related to the economic crises suffered by nearly all of the countries. This might suggest that the optimists who predicted positive distributional outcomes from the reforms (e.g. Krueger, 1988) will eventually be vindicated, after the negative effects of the crises have played themselves out. While we agree that this factor played a significant role, the fact that inequality appears to be significantly higher in the post-crisis than the pre crisis period (Altimir, 1992) implies that other important factors were also at work. Of these, the reforms are suspect because of their content and implicated by the timing coincidences with the increases.1