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High Levels of Inequality Putting Latin America’s Future Generations at Risk

MD Staff

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Returning economic growth across Latin America could mask serious economic challenges for future generations, according to the World Economic Forum’s Inclusive Development Index (IDI). The index seeks to provide leaders with a more accurate picture of an economy’s health based on inequality, debt and environmental burdens placed on future generations as well as economic growth.

The 2018 assessment was undertaken following two decades of solid economic activity. During this time, expansion of access to education and government transfers contributed to reducing the level of income inequality in Latin America. While these developments and measures have helped to narrow the income gap between skilled and unskilled workers, Latin America remains among the most unequal regions in the world.

“Economic approaches need to emphasize the well-being of future generations and inclusion as key priorities for Latin American economies, and many countries lag behind their peers according to the Inclusive Development Index. As countries move out of recession, they should seize the window of opportunity for speeding up reforms to this end,” said Margareta Drzeniek-Hanouz, Head of Future of Economic Progress, Member of the Executive Committee.

The index’s findings provide a fresh lens through which to examine the region’s economic challenges. While 2017 finished on a positive note with recessions ending in Brazil and Argentina, modest rises in economic activity and efficiency over the past five years and a projected growth rate of 1.7% in 2018 will be insufficient to alleviate the region’s sustainability concerns and support a robust rise in median living standards.

The World Economic Forum believes that building inclusive societies is essential for long-term economic growth. With elections in Brazil, Chile, Colombia, Costa Rica and Mexico in 2018, governments are urged to prioritize proactive strategies to further reduce levels of inequality and ensure the well-being of future generations.

Key findings

According to the index, the most inclusive Latin American economies are Panama, Uruguay, Chile, Costa Rica and Peru. Panama made great strides in reducing its carbon intensity of GDP, down 39.7% from five years ago. The country also has the second highest level of labour productivity in the region after Chile.

Adjusted net savings, which measures the true rate of savings in an economy after taking into account investments in human capital, depletion of natural resources and damage caused by pollution, has declined in one-half of the Latin American economies ranked in the index, with Bolivia, Brazil and El Salvador performing the worst on this indicator.

Moreover, public indebtedness as a share of GDP, which roughly illustrates the scale of borrowing by the current generation against the capacities of future ones, has increased in every country, notably in Brazil (+16%) and Mexico (+14.9%) over the last five years.

Although income inequality has declined in 14 out of the 16 Latin American countries ranked in this year’s IDI, the region accounts for 11 out of the 25 developing economies with the highest levels of income inequality.

Latin America’s largest economies

Ranking 23rd, Argentina’s overall score is supported by its performance on inclusion and intergenerational equity and sustainability. The indicators of economic growth and labour productivity are on the decline as the IDI data predate the current recovery. While Argentina’s income and wealth inequalities are relatively low compared with other Latin American countries, these disparities have been shrinking in recent years. The net income and wealth Gini indicators have dropped nearly 5% and 10%, respectively, over the last five years. Furthermore, the median household income in Argentina ranks in the top quintile of emerging economies in the sample. Although the employment rate is relatively low compared with the regional average, it has increased slightly despite the recent recession.

Mexico’s performance, ranking 24th among emerging economies, is driven by its higher score on intergenerational equity and sustainability. Through the lens of the IDI framework, this is in part due to a higher savings rate and low carbon intensity in national production. The country performs comparatively well across the board on growth and development factors, ranking 13th out of 74 emerging economies. It performs in the top quintile among Latin American countries in terms of labour productivity. In contrast, inclusion measures illustrate high levels of economic disparity, although they have shrunk over the last five years.

Brazil ranks 37th out of 74 emerging economies on this year’s IDI. Brazil’s overall score in the index is pulled up by its performance on intergenerational equity and sustainability. The country benefits from a highly favourable dependency ratio and relatively low carbon intensity. With the IDI data reflecting the period preceding the economic recovery, growth and development indicators, such as GDP per capita growth, labour productivity and employment rates, are trending negatively. Nonetheless, median household income levels appear to have improved throughout this period. Wealth concentration in Brazil is among the highest in both Latin America and emerging economies and has increased slowly over the past five years. With the Brazilian economy slowly recovering, growth and development factors in the IDI are expected to improve; trends may also be affected by the growth-enhancing reforms proposed by the government to address its fiscal constraints.

The Inclusive Development Index

The IDI is published by the World Economic Forum’s System Initiative on Shaping the Future of Economic Progress, which aims to enable sustained and inclusive economic progress. It seeks to achieve this through deepened public-private cooperation, thought leadership and analysis, strategic dialogue and concrete cooperation, including by accelerating social impact through corporate action. The Latin American countries ranked in this index are Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala Honduras, Mexico, Nicaragua, Panama, Peru, Paraguay and Uruguay.

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Americas

Trump’s New Wall? Mexico’s Southern Border

Lisdey Espinoza Pedraza

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For much of modern history, Mexico defined itself in opposition to the United States. In recent years, the two countries stepped up cooperation on almost all relevant issues, and the two nations are now deeply intertwined politically, economically and culturally. This is bound to change. After months of ignoring Donald Trump’s provocations, López Obrador reacted rapidly to Trump’s shakedown and agreed to a number of resolutions of extraordinary scope and urgency: the new Mexican administration agreed to deploy the country’s federal police to its southern border to crack down on immigration; and opened the door to the controversial “Remain in Mexico” policy that would turn Mexico into a Third Safe Country in less than a month from now.

As stated in the agreement, Mexico would take in all the refugees that the US decides to send back to Mexico to await resolution of their asylum process. This could take years, given the substantial immigration backlog in American courts. The agreement goes further: Mexico is responsible for the provision of education, health care and employment for such refugees. This could easily lead to a serious humanitarian crisis that Mexican institutions will be unable to deal with.

This approach contradicts previous Mexican presidential vows for regional development and humanitarian relief rather than confrontation and enforcement. Conditions on the ground in Mexico are far harsher than the Mexican Foreign Affairs Minister, Marcelo Ebrard and the President, Andrés Manuel López Obrador, would like to admit, and this is partly due to the current administration’s miscalculations: López Obrador has dramatically cut the budget for governmental agencies responsible for managing refugees and processing removals. Mexican border towns are also ill-equipped for handling transient migrant populations; and Mexico also faces other more systematic challenges, such as corruption and lack of rule of law enforcement. The new policy agreed with the American government is likely to result in a significant increase in claims filed for asylum in Mexico. Mexico’s immigration bureaucracies are utterly overwhelmed, and López Obrador’s misguided budget cuts have exacerbated their failings.

Mexico’s immigration policy is now bound by an immoral and unacceptable deal that will effectively turn Mexico into Trump’s border wall. The global system for the protection of refugees is based on the notion of shared responsibility among countries. It is very dangerous for the US to use Mexico as a pawn to set an example and ignore its international responsibility. This agreement also violates international law on refugees: Mexico is a life-threatening country for undocumented migrants. Human trafficking, recruitment for organised criminal organisations, abduction, extortion, sexual violence, and disappearances are some of the issues migrants face in Mexico. Finally, Mexico’s National Guard, the agency that will be in charge of monitoring the southern border, was created by López Obrador to tackle domestic crime. Its members have no training nor knowledge on immigration matters. It is an untested new military force that could end up creating more problems than the ones it is trying to solve.  Deploying agents to the border could also have a high political cost for the president.

The agreement with Trump gives López Obrador 45 days to show progress. If Mexico fails, Mexico will be forced to set in motion some version of Safe Third Country agreement, or face further tariff bullying from the US. This deal has been sold by the new Mexican administration as a victory over the US. More migrants, less money, extreme violence and a recalcitrant, unpredictable northern neighbour are the ingredients for a potential, impending refugee crisis, not a diplomatic victory.

Could Mexico have taken a different approach? Yes. Trump’s decision to impose tariffs would exacerbate the underlying causes of immigration in the region and do nothing to address it. His bullying to force Mexico to crack down on immigration was a cheap electoral ploy to mobilise its base with a view to winning the 2020 elections. This is nothing new. Trump is not seeking a solution; he is seeking a political gain. He built his first presidential campaign on an anti-Mexico and an anti-immigrant rhetoric. It worked in 2016, and he is planning to repeat the same formula.

The Mexican administration lack of knowledge on diplomatic matters, and their inability to play politics let a golden opportunity go. Using trade to bludgeon Mexico into compliance with an immigration crack down makes no sense: Mexico is not responsible for the increase in migratory flows. Central America’s poverty and violence trace back to American policies in the 1980s. Mexico is not responsible either for America’s famously dysfunctional immigration system. Trump’s economic threats against Mexico may not even have been legal: both the North American Free Trade Agreement (NAFTA), and the newly agreed US-Mexico-Canada Agreement (USMCA) require most trade between members to be tariff free.

Mexico could also have hit back with by levying tariffs that would have hurt swing-state voters, and in turn hurt Trump. This was the golden opportunity Mexico let slip from its hands. Mexico could have responded by hitting Trump where it hurts: Tariffs on American goods heading south. Mexico responded in a similar manner in June last year in response to the steel and aluminium tariffs. Mexico could have raised those tariffs each month in tandem with American levels.

This retaliation would have highlighted the gap between Trump’s anti-Mexican rhetoric and the underlying interdependence of the US and Mexico with stark consequences for the US presidential elections of 2020. Many of the biggest exporters to Mexico such as Arizona. Florida. California, Michigan and Illinois are swing states. New tariffs could have thrown Texas into recession and put its 38 electoral votes into play. It is all too late now, Mexico could have inadvertently helped Trump to get re-elected. Mexico has less than a month left to show some backbone and demand real American cooperation on the region’s shared challenges and rejecting Trump’s threats once and for all. The relationship between Mexico and the US could have been an example of cooperation under difficult conditions, but that would have required different American and Mexican presidents.

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Americas

Scandinavia Veers Left plus D-Day Reflections as Trump Storms Europe

Dr. Arshad M. Khan

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Mette Frederiksen of the five-party Social Democrat bloc won 91 of the 169 seats in the Danish parliament ending the rule of the right-wing Liberal Party group that had governed for 14 of the last 18 years.  The election issues centered on climate change, immigration and Denmark’s generous social welfare policies.  All parties favored tighter immigration rules thereby taking away the central issue dominating the far-right Democrat Freedom Party which has seen its support halved since the last election in 2015.

Ms Frederiksen promised more spending to bolster the much loved social welfare model and increased taxes on businesses and the wealthy.  A left wave is sweeping Scandinavia as Denmark becomes the third country, after Sweden and Finland, to move left within a year.  Mette Frederiksen will also be, at 41, the youngest prime minister Denmark has ever had.

Donald Trump has used the 75th anniversary of D-Day commemorations to garner positive publicity.  The supreme promoter has managed to tie it in with a “classy” (his oft-chosen word) state visit to the UK spending a day with royals.  It was also a farewell to the prime minister as her resignation is effective from June 7.  Add a D-Day remembrance ceremony at Portsmouth and he was off to his golf course in Ireland for a couple of days of relaxation disguised as a visit to the country for talks — he has little in common with the prime minister, Leo Varadkar, who is half-Indian and gay.

Onward to France where leaders gathered for ceremonies at several places.  It is easy to forget the extent of that carnage:  over 20,000 French civilians were killed in Normandy alone mostly from aerial bombing and artillery fire.  The Normandy American cemetery holds over 9600 soldiers.  All in all, France lost in the neighborhood of 390,000 civilian dead during the whole war.  Estimates of total deaths across the world range from 70 to 85 million or about 3 percent of the then global population (estimated at 2.3 billion).

Much has been written about conflict resolutions generally from a cold rational perspective.  Emotions like greed, fear and a sense of injustice when unresolved lead only in one direction.  There was a time when individual disputes were given the ultimate resolution through single combat.  Now legal rights and courts are available — not always perfect, not always fair, but neither are humans.

It does not take a genius to extrapolate such legal measures to nations and international courts … which already exist.  Just one problem:  the mighty simply ignore them.  So we wait, and we honor the dead of wars that in retrospect appear idiotic and insane.  Worse is the attempt to justify such insanity through times like the “good war”, a monstrous absurdity.

It usually takes a while.  Then we get leaders who have never seen the horror of war — some have assiduously avoided it — and the cycle starts again.

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Americas

To Impeach Or Not To Impeach? That Is The Question

Dr. Arshad M. Khan

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Robert Mueller let loose a thunderbolt midweek.  Donald Trump had not been charged, he said, because it was Department of Justice policy not to charge a sitting president.  Dumping the issue firmly into Speaker Nancy Pelosi’s lap, he reminded us of the purpose of the impeachment process.  According to Mueller there are ten instances where there are serious issues with the president obstructing justice adding that his report never concludes that Trump is innocent.

So here is a simple question:  If Mueller thought the president is not innocent but he did not charge him because of Justice Department policy, and he appears also to favor impeachment, then why in heaven’s name did he not simply state in his report that the preponderance of evidence indicated Trump was guilty?

Nancy Pelosi is wary of impeachment.  According to the rules, the House initiates it and when/if  it finds sufficient grounds, it forwards the case to the Senate for a formal trial.  The Senate at present is controlled by Republicans, who have been saying it’s time to move on, often adding that after two years of investigation and a 448-page report, what is the point of re-litigating the issue?  They have a point and again it leads to the question:  if Special Counsel Mueller thinks Trump is guilty as he now implies, why did he not actually say so?

Never one to miss any opportunity , Trump labels Mueller, highly conflicted, and blasts impeachment as ‘a dirty, filthy, disgusting word’,  He has also stopped Don McGahn, a special counsel at the White House from testifying before Congress invoking ‘executive privilege’ — a doctrine designed to keep private the president’s consultations with his advisors.  While not cited anywhere in the Constitution, the Supreme Court has held it to be ‘fundamental to the operation of government and inextricably rooted in the Separation of Powers under the Constitution.’  Separation of powers keeps apart the executive branch, the legislature and the judiciary, meaning each one cannot interfere with the other.

Nancy Pelosi is under increasing pressure from the young firebrands.  Rep Alexandra Ocasio-Cortez has already expressed the view that it is time to open an impeachment inquiry against Trump given the obstruction of lawmakers’ oversight duty.

Speaker Pelosi is a long-time politician with political blood running through her veins — her father was Mayor of Baltimore and like herself also a US Representative.  To her the situation as is, is quite appealing.  Trump’s behavior fires up Democrats across the country and they respond by emptying their pockets to defeat the Republicans in 2020.  Democratic coffers benefit so why harm this golden goose — a bogeyman they have an excellent chance of defeating — also evident from the numbers lining up to contest the Democratic presidential primaries, currently at 24. 

Will Trump be impeached?  Time will tell but at present it sure doesn’t look likely.

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