November 27th, 2012
10:32 AM ET

Latin America's challenge

By Global Public Square

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With President Obama’s visit to Asia and war in Gaza, Washington's foreign policy energies have been focused this past week on the Far East and the Middle East. But let’s not forget the surprising developments in a region we share a 2,000 mile border with: Latin America.

I just read a new World Bank report, and it has some important findings. Between the years of 2003 and 2009, nearly 50 million people joined Latin America's middle class – that’s twice the entire population of the state of Texas, and a sixth of America's population as a whole. In those six years, the size of the region’s middle class expanded by 50 percent. The proportion of people in poverty fell sharply, from 44 percent, to 30 percent. And as the rest of the world became more unequal, Latin America was the only region to decrease the gap between rich and poor.

The findings have important consequences locally, but also for the world. When China lifted hundreds of millions of people out of poverty in the 1980s, it set out on a path towards increased consumption and growing global clout. Is Latin America heading the same way?

Let’s take a look.

The World Bank cites a number of reasons behind the region's rise. 70 million women joined the labor market in recent years, contributing to a reduction in extreme poverty. Education also boosted opportunities: children now spend three extra years in school compared with a decade ago, thanks to targeted government initiatives. And of course, there's been a rise in exports: Brazil enjoyed the region's fastest growth fueled largely by a boom in commodities.

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The question is whether the rise is sustainable. The World Bank cautions that class remains a major obstacle to opportunity in Latin America. You are likely to spend the same number of years at school as your parents. And simply getting children into school isn't enough – The Economist points out that the difference in the quality of schools attended by those at the top and bottom income groups is bigger than anywhere else in the world.

The growth of a Latin American middle class is obviously good news, but there's reason to worry about its economic future. We recently reported how Brazil's growth rate closely tracks global commodity prices. If those prices drop as a result of a slowdown in China and Europe – as many economists expect – Brazil and Latin America's growth will stall.

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That could mean new entrants to the middle class may slip back into poverty. These economies need to be diversified. Schools and health services need more investment; the many closed sectors and markets across the region need to open up further and foster competition.

But how will these governments raise money? This is where Latin America is different from China in the 1980s. Too many entitlements and subsidies have been doled out. Argentina, for example, has put in place a non-contributory pension scheme – essentially free support for the elderly. What happens when it’s time to pay up? Apart from Brazil and Argentina, taxes are low across the region. How do you increase them? As we know all here in the United States, entitlements once given are difficult to take back.
It’s heartening to read about the millions of people who have climbed out of poverty. But Latin America’s leaders face a major challenge to sustain these gains. Otherwise we could look back on this period as a peak from which it fell.


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soundoff (60 Responses)
  1. Rita Policarpo

    I went to Lima, Peru in 1966. I had just one Economic class as a graduate student. I could easily diagnose the problem with the economy however, it was so obvious. There was no money for working people and they couldn;t buy anything except the most basic needs. There was wealth in Peru, but it didn't circulate. We often have returned over the years and I am always so happy to see and feel the prosperity of this thriving people. Yes, there is still poverty, but not prevalent as it was when I arrived. It is a classic case study that everyone thrives when money is distributed to working people.

    November 27, 2012 at 12:29 pm | Reply
    • Bobpitt

      Peru is doing much better now than 10 years ago, Peruvians look south for inspiration, also you will find lots of investment from the South as well. The South being Chile..

      November 28, 2012 at 9:16 am | Reply
    • guerreropac

      I've visited Peru many times in the last six years, during which I've witnessed incredible economic growth in such a short period of time. Much of this growth is due to foreign direct investment, growing tourism, and free trade policies adopted by its governmnet. The country is experiencing a real estate boom, commerce is thriving, the Sol is gaining value, and banks are lending like crazy. Its GDP figures are impressive. Of course, extreme poverty is still evident, but hopefully this will also diminish within the next generation(s).

      November 28, 2012 at 5:08 pm | Reply
    • Jampy

      As a Peruvian living in the US, I have traveled back to my country since I left in 1990, the amount of growth, development and investment has been obvious. This is not the Peru of the 1980's....the country has made great strides through the mining industry, foreign investment, exports/imports...you can just see the streets of Lima with the amount of American stores, restaurants; but most importantly the consumer's purchasing power, something that wasn't there 15 years ago. I think my country still has long ways with poverty, but in the last 5 years it has been at the top of the fastest growing economies in Latin America, from a macro level – they are moving in the right direction. I think the US needs to really start paying attention to their surrounding brother countries within the same continent, there is room for so much and I think we've ignored them long enough.

      November 29, 2012 at 12:20 pm | Reply
  2. allthingsgeography1

    Reblogged this on All Things Geography.

    November 27, 2012 at 12:36 pm | Reply
  3. babooph

    US taxing rich at arate allowing a fat life in NYC & min .wage set for a Haitian slum seems to be making a mess...

    November 27, 2012 at 2:40 pm | Reply
  4. Jocho Johnson

    It would have been unthinkable to say when I was a kid 30 yrs ago but we should study the Latin American economy to find out what is working for them and try to apply these lessons in the U.S. because clearly we are shrinking the heck out of our middle class.

    November 27, 2012 at 2:57 pm | Reply
    • BobPitt

      The secret is education, Chile went from a devastating illiteracy in the 1930s to a state of the art education system that provided a huge pool of educated people ready to be absorbed into a high end economy, many textiles and low skill manufacturing moved to Asia and was replaced by high skill industry. Also the infrastructure of the country has brought up to the 21st century by reconstructing roads, tunnels, ports, and a good distributing system to provide a good exporting environment.
      The same principles are being successfully applied by other countries in Latin America.

      November 29, 2012 at 10:01 am | Reply
  5. Ali

    And as the rest of the world became more unequal, Latin America was the only region to decrease the gap between rich and poor.
    -----Of course it did. Mexico alone sent about 10% of its population, its poorer citizens, here illegally. And the middle class in Mexico is supported heavily by remittances from those working illegally in the US as well as returning illegal aliens. Meanwhile, the US has experienced MORE income inequality (the 1% own more of our wealth now) as well as a larger percentage of poor people, many of them Hispanics. In fact, the number of Hispanic kids living in poverty now exceeds the number of non HIspanic White kids who do.

    November 27, 2012 at 3:26 pm | Reply
    • Ricky

      You mention Mexico alone sent %10 of it's population, but the reality is that Mexico is the main contributor of illegal immigration (%80 of the total, which includes Asian and European illegal immigrants), so that means that out 500 million people who live in Latin America, around 2% moved to US in the last 20 years. Thus, illegal immigration to the US would not account for the 14% decrease in poverty around the region in a period of 6 years.

      November 27, 2012 at 6:12 pm | Reply
      • Kara Marie

        And according to Pew Research, the net migration from Mexico is at least zero if not more. Mexicans do not account for the majority of immigration today, but Asian Americans do.

        November 27, 2012 at 6:27 pm |
      • Ali

        I didn't say Mexican illegal immigration contributed to poverty in Latin America. I said it contributed to poverty in the US. It probably decreased poverty in Latin America.

        November 28, 2012 at 4:29 pm |
    • Bobpitt

      Ali, Mexico is not all of Latin America. google Chile and you will see a country with better infrastructure than the US, and is much newer..

      November 28, 2012 at 9:14 am | Reply
      • riverice7

        Chile has internal political problems, primarily with the young Chileans who held a massive socialist/communist? protest over college tuition. They want government subsidies and many feel Bachelet shoudl come back and be president once again.

        November 30, 2012 at 11:14 pm |
    • ochano

      Totally wrong. The Latin American countries have been able to boost thier economies because of more inclusive political and economic policies to reach out more of thier population. Policies that are less self selfish with social conscious goals. The region had alreadywent through social and economic revolutions that demanded change. This new development is the result of these revolutions and political changes. What happened in in latin America in the 70's and 80's is now happening in the middle east where those countries' majority populations have always been marginalized, especially women.

      November 30, 2012 at 1:39 pm | Reply
  6. robertsjohnson

    Reblogged this on robertsjohnson and commented:
    I was surprised when I read this article during 2003 to 2009. Latin America had fifty million people join the middle class society, poverty decrased by fourteen percent and Latin America closed the gap between the rich and the poor. I was also pleased to see that seventy million women joined the labor market, the government has given opportunities to students which has lead to three more years in school for children. It states the governemtn initiavties did this but I would like to know more in detail what this means. On the downside the difference between the quality of schools attended by top and bottom income classes is greater than any other country. However I was concerned when the writer brought up China and Europe and how Latin America could be affected if both nation growth rate decreases. I also didnt know that entillements were a big concern in Latin America

    November 27, 2012 at 5:08 pm | Reply
  7. Heloisa

    As a Brazilian-American who imigrated to the US in 1982, I can tell you exactly what happened with the Brazilian economy. It's called OIL. Brazil went thru the same oil crisis the US went thru in the 70s, but its people demanded that the government would seek another alternative to buying energy from the arabs. Every year when I go back to visit my family, I see a change for the better. The shopping malls are packed, business are busy attending to custumers paying cash for their goods. My wish for the US is that president Obama will reconsider the Canadian pipeline deal, and that we become energy independent. Jobs will come!

    November 27, 2012 at 6:33 pm | Reply
    • Fernando

      As a Brazilian who migrated to the US, I think oil is not the cause of the progress, but a consequence. President Fernando Henrique Cardozo stabilized the economy and and privitized many of the ineficient state owned companies, including Petrobras, the once 100% goverment owned Brazilian oil company. These now new privite/semi-private companies started spending less of the public money and hiring and exporting, helping to bring back the middle class. The self-called socialist President Lula followed the same path as President Cardozo. Brazil is not a commodity only country, it also has a very modern and string industrial basis. However, the industry responsible for largest share of economic growth in the last decade in Brazil was agriculture, not oil.

      November 29, 2012 at 10:32 pm | Reply
  8. Lost

    Hooray!

    November 27, 2012 at 9:03 pm | Reply
  9. Johnathan

    You guys are forgetting the drug money trade it's a 30 billion dollar export for Latin America then that money start circulating around so it also helps.

    November 27, 2012 at 9:18 pm | Reply
    • Bobpitt

      Get real 30 billions would not cover much these days..

      November 28, 2012 at 9:19 am | Reply
    • nelson

      are you suggesting those 50 million people joined the middle class with the aid of drug money?
      get real, i think you have an extra h in your name or you are missing your marbles, jonahhhhhhthan

      November 29, 2012 at 9:52 am | Reply
    • Andrew

      Yeah, that's what Latin America is known for, right? Get real, these countries are modernizing and moving away from that stereotype...

      November 29, 2012 at 4:36 pm | Reply
  10. j. von hettlingen

    Politicians shower their voters with largesse in exchange for their elections. Now voters take all these social benefits for granted. Nothing new!

    November 28, 2012 at 8:29 am | Reply
    • j. von hettlingen

      Argentina and Brazil are not Greece. Yet even Italy with a vibrant manufacturing industry has to struggle with huge deficits, due to excessive spending in the past. A lesson for some Latin American countries to learn.

      November 28, 2012 at 8:29 am | Reply
      • Henry Blake

        If you have been following, Argentina is pretty much Greece.

        The question is whether the populace will demand free market reform, or protest for more benefits A LA Greece.

        November 28, 2012 at 12:51 pm |
  11. Amy

    I must say that instead of calling the grow in Latin America you should point out that the grow has been in Southamerica (Mercosur: Chile, Brazil, Argentina, Uruguay, Venezuela are those with great numbers, the majority of these countries have left wing governments by the way) Mexico and the rest of the Central American countries have still terrible problems (huge poverty and a bad education system) The grow is in the south, the Mercosur is considering signing a free -trade deal with China, the Chinese are Mercosur's second-biggest trade partner.

    November 28, 2012 at 10:28 am | Reply
    • Henry Blake

      Argentina and Venezuela are doing the opposite of growth, and they have the most "left wing" governments of the bunch. Modest liberalism can work, but socialism fails just about every time.

      November 28, 2012 at 12:53 pm | Reply
      • BobPitt

        Chile has had two socialist presidents and the economy has flourish..
        Google it..

        November 29, 2012 at 10:04 am |
    • Gonzalo

      Actually, that is inaccurate regarding Chile: the president–Sebastián Pilñera–belongs to a centre-right coalition. You should consider checking your facts FIRST before making an inaccurate post. you're welcome for the info and tip, though.

      November 29, 2012 at 10:13 am | Reply
      • BobPitt

        Some of the people posting in here could not find Florida on a map, you can't expect them to find south America, or to understand there is a world there that is not their own country..

        November 29, 2012 at 1:51 pm |
      • Caballo

        Sebastian Pinera is indeed from the Center-Right Coaltion, but I don't think that's who BobPitt is referring to.
        The two Presidents before Pinera, Michelle Bachelet and Ricardo Lagos, were both from the left-leaning (and basically socialist) Concertacion. Much of the economic growth and infrastructure development occurred during their presidencies (especially during Lagos')

        November 29, 2012 at 4:51 pm |
    • Economist Reader

      This is just such an ignorant comment!!

      November 29, 2012 at 2:48 pm | Reply
    • Economist Reader

      This is just such an ignorant comment!! Mercosur is practically dead

      November 29, 2012 at 2:48 pm | Reply
    • Anthony

      Just to let you know, Mexico has a way better public education system the the US, google it. MExico has more engineers graduating than the us. Also, Mexico's economy is bigger than any other latin american country except brazil's, BTW, less unemployment than the u.s.

      November 30, 2012 at 1:22 am | Reply
  12. Jamie

    Dittos on Peru. I moved there for a few years around 2008-2010. Still corruption but definitely saw an improvement in the middle class. Amazing country on the uptick.

    November 28, 2012 at 10:50 am | Reply
  13. MKinSoCal

    A real amazing economic story from South America is Colombia. Even with an active guerilla war, a high level of narcotrafficking and the usual Latin American problems of poverty and corruption, the country has consistently experienced economic growth in every year of the past decade if I'm not mistaken.

    November 28, 2012 at 12:29 pm | Reply
  14. Matt

    A non-contributory pension scheme is no different than social security. Everyone pays in, the elderly then use it late in life. Nothing damaging about this structure.

    November 28, 2012 at 12:55 pm | Reply
  15. palintwit

    We need to figure out a way to get all the baggers and birthers south of the Mason-Dixon Line.

    November 28, 2012 at 2:13 pm | Reply
  16. Destiny V

    In what countries do you see the most growth or most opportunities for future growth?

    November 28, 2012 at 6:54 pm | Reply
    • GC

      Peru

      November 28, 2012 at 8:02 pm | Reply
  17. American

    It's all of that money that the illegals earn here in the USA and they send back to their own countries that is fueling the growth.

    November 29, 2012 at 9:08 am | Reply
    • Marcus

      You're kidding, right? What's 30 billion dollars in Brazil's GDP? Please, read a little before making those kinds of comments.

      November 29, 2012 at 10:00 am | Reply
    • RickyD

      "Remittances remain a major source of income for many countries in this (Latin American) region. In several of the smaller and poorer nations, they far exceed external aid and net foreign direct investment." From the InterAmerican Development Bank. I lived in a poorer S. American country for 10 years, and entire extended families were dependent on remittances from their relatives breaking their backs in the U.S. Many times these immigrants, some legal, some not, wanted to go back but their families back home in Honduras, Bolivia, wherever don't let them because they have become too used to not working and getting that wire transfer every month. $60 billion per year and rising to the region as a whole, drained from the U.S. economy, AND TWICE THAT MUCH FROM LATINO IMMIGRANTS IN EUROPE (Spain and Italy, mostly). It is a huge part of many country's income, within their top 3 sources of foreign exchange.

      November 29, 2012 at 10:07 am | Reply
  18. Gigi

    oh my, so much ignorance displayed here, along with also a lot of well-informed/educated folks :) I am proud to be American... and South American also since I was born in Brasil. My country learned the hard way to say no to Arab oil, we found an altenative fuel source, and by the grace of God, found an oil reserve off of our coast which is even larger than Venezuela's. The beauty of all this? we do not need the oil. America MUST find a way to become independent of foreign oil. We MUST guide our own destiny. By the way, let's not forget the likes of Uruguay, with a population of scarcely 3 million, their country is amazing.

    November 29, 2012 at 11:01 am | Reply
    • frankiex

      Let´s not mention Uruguay. Too many people are finding out about it already. The Europeans already are familiar with it but let´s keep it a secret from Americans for a little longer. Thanks

      November 29, 2012 at 12:55 pm | Reply
    • massoud

      We could cut back oil use in the US if we were not the policemen of the world the US military is the largest user of oil in the US thanks to our over involvement in the Middle East. If the EPA would let us drill for oil in the Gulf and other coastal areas we could produce a lot of oil here and also by opening up drilling and fracking on Federal lands.

      November 30, 2012 at 12:34 am | Reply
  19. Jampy

    Latin America continues to move in the right direction from a macro level, some countries are doing better than others. I think the US has ignored the rest of our continent long enough, there is a lot of ground to cover and stronger partnerships that can be built. As a Peruvian living in the US, I have seen my country go from the poor 1980's Peru dealing with terrorism, to now a country that is flourshing, growing, the amount of foreign investment, exporting/iimporting not to mention purchasing power from consumers both in the city and outside in other states around the country. The infrastructure of Lima is very modern and solid. Of course there is room for growth on the micro level with poverty, no question about it; but there is something to say about these countries moving into a direction that seems to have been ingored by the US for too long.

    November 29, 2012 at 12:25 pm | Reply
  20. James

    It is good Latin America is propering now but I believe the U.S. destiny is where it has been going since the 60s. Allied with the rich economies of Europe and the growing economies in Asia.

    November 29, 2012 at 12:43 pm | Reply
  21. massoud

    The United States has the smallest middle class % wise of the leading industrial nations, don't expect that to change anytime soon with Obama as President.

    November 29, 2012 at 2:09 pm | Reply
  22. Paco

    I agree with the new President . (Nieto), More tourist exchange is needed between all of the AMERICAS, Why are we in the USA so much into CHINA A COMMUNIST country with little human rights is puzzling to me. Sending a tv set to Brazil shouldn't have to cost nearly 1/2 a thousand dollars, what type of neighborly love is that, after all we souldn't be stiff-neck to a group that has done so much for this country.

    November 29, 2012 at 6:32 pm | Reply
  23. ross

    One one the reason's is growing is also because it's one of the biggest country that washes $$$ through the illegal drugs shipped out north. This is one of biggest underground operation as to why you see lot's of building being built.

    November 29, 2012 at 11:09 pm | Reply
    • london bridge

      Typical american comment

      November 30, 2012 at 1:07 am | Reply
  24. Franco

    I like it when poverty rates drop. We all benefit from that.

    November 30, 2012 at 6:43 am | Reply
  25. Rick McDaniel

    Mexico is simply using America, for their own benefit. We are willing be used, by our government, in spite of the people's desire to stop that process. The government of America has not been "by the people" for a very long time now.

    We are being taken over, gradually, over time, and America is going to continue to decline. How low we are going to fall, depends on how willing the socialistic leanings of the people take us. I have zero hope for this country, in the future. None.

    December 1, 2012 at 11:15 am | Reply
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