At the turn of the 21st century, Latin American societies strengthened their democracies and set up public policies within a variety of citizen agreements that pushed for new institutional arrangements to reduce inequality and poverty and improved living conditions in the region. Augmented citizen participation in the region allowed voter turnout to reach a high participation (see table 1), similar to that observed in democratic societies of developed countries. In the reform of the welfare state, countries’ experiences depend not only on their economics, institutions, and policy responses but also on politics, that is, on governments’ ability to gain agreement for reform through discourse, understood as both a set of ideas and an interactive process (SCHMIDT 2002).
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As political discourse in Latin America became more acquainted with inequality, new public policies were enacted to reduce poverty and inequality; the results observed are positive. According to the Economic Commission for Latin American and the Caribbean’s (ECLAC) there was a dramatic reduction in poverty: Argentina from 45 to 4 percent of its population1, Brazil more than halved its poverty indicator from 1990 to 2012, Chile reduced it to one third, Colombia by 40 percent, and Mexico by 30 percent (see graph 1). Inequality as measured by Gini coefficient also dropped in the last twenty years: in Brazil from 0.627 in 1990 to 0.557 in 2011; in Chile from 0.552 in 1994 to
0.516 in 2011; in Colombia from 0.601 in 1994 to 0.547 in 2011; and in Mexico from
0.542 in 2000 to 0.481 in 2010.
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Although data varies among sources, downward trend is shown in all cases. Different studies agree on the trend, however they differ on the origin of the process. Otaviano Canuto, Vice President of Poverty Reduction and Economic Management at the World Bank in a conference in 20122, argued that the region was able to reduce poverty and inequality simultaneously, due to a stronger labor market that increased employment and raised wages for unskilled workers, especially those in the lowest deciles of the income distribution; also, the demographic shifts have allowed for greater female labor market participation in the region, growing from 35 percent in the 1980’s to more than 55 percent today; these changes were accompanied by a progressive fiscal policy especially in the form of redistributive transfer programs — such as Oportunidades, Bolsa Familia, and the like — have greatly improved the opportunities of the poor. And last, governments in the region have taken a more pro-union stance, which has raised minimum wages and increased pensions.
A similar stance is argued by Lustig, Lopez Calva and Ortiz Juarez (2012); they suggest two main phenomena underlie this trend: “a fall in the premium to skilled labor and more progressive government transfers”, where “the fall in the premium to skills resulted from a combination of supply, demand, and institutional factors”.
This paper argues that the large push to reduce inequality came from income policy that helped to develop a larger middle class in the region, as has been recently debated by Ferreira et al. (2013). Differences in outcome were related to a complex process of redesigning the Welfare States among the region. Most of the countries established conditional cash transfer (CCT) programs, readapted public care on health and education modifying institutional arrangements and some were able to set up income policies to foster equality. Policy mix for reducing poverty was based on three pillars: the CCT Programs, Income Policies and Social Security Reforms. This paper explores what changes were more effective in bringing down poverty and inequality in Latin America, and how they helped to redefine welfare standards in the region. The emergence of conditional cash transfer programs: bringing relief to the lowest incomes in the region.
Debt crisis in the eighties led to a reduction of government expenditure in Latin America, deteriorating the population standards of living and increasing their poverty levels. After a long period of distress, governments among the region agreed with International Organizations and debtors for a systematic reduction of State intervention and the establishment of stabilization policies. As a consequence, social unrest intensified and unions and political organizations claimed for a new social policy. Governments’ response was the adoption in the 1990s of CCT programs as the main instrument of their poverty reduction strategies. As mentioned by Bastagli (2009), CCT have three components in common: a cash transfer, a targeting mechanism and conditionality. In sum, CCT pay a transfer to the poor following a pre-specified course of action. Even though all CCTs share the objective of reducing poverty, there are differences in the emphasis placed on how this objective is to be achieved (Table 2).
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The recent expansion of CCT programs provides a promising approach for enhancing the distributive power of public spending in developing economies. These programs target income transfers at poor households and condition the continued receipt of the transfer on households investing in the education and health of family members. Such programs have been adopted in many developing economies, including some low-income African economies, albeit on a smaller scale (FISZBEIN and SHADY, 2009; GARCIA and MOORE, 2012). In Latin America, 17 economies are currently operating CCT programs, with program expenditures typically falling below one percent of GDP. It has been estimated that the largest programs, in Brazil and in Mexico, have reduced the Gini for disposable income by 2.7 percentage points, accounting for about a fifth of the decrease in the Gini coefficient between the mid-1990s and the mid-2000s (SOARES and others, 2007). However, these programs are most cost-effective when targeted at the poorest households, which tend to be most disadvantaged in terms of human capital, so expansions need to be carefully designed in order to generate human capital impacts and avoid labor supply disincentives.
In some countries, the...