Can the Latin American unrest be turned into a development opportunity?

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Trabajador en Buenos Aires
Worker in Buenos Aires. Juan Ignacio Coda / World Bank 

 

Over the past weeks we’ve heard many different theories on why protests and demonstrations have swept across Latin America. There’s no single trigger to blame for the explosion of frustration in the region. In some cases, it is anger with economic policies. In others, contested elections. In others, organized groups, including trade unions, are demanding change. 

And yet there is a common thread. First, people are frustrated with disappointing growth. At best, GDP is likely to be flat this year, and it could very well end up contracting due to the disruption caused by the unrest. This lack of growth means less jobs and opportunities. 

This is coupled with a sense of unfairness. Latin America has the highest economic inequality in the world. And there is a vocal middle class which increased by 50% over the last decade, which are fed up with the status quo.  They are calling for more and better institutions, governance and public services. And this increasingly demanding middle class is empowered and connected through social media. 

Sadly, this is nothing new in the region, so it begs the question “why now?” The truth is, I don’t know. But I have no doubt that we need to tackle these issues head on. Patience with the lack of opportunities, unfairness, and weak institutions has worn thin.  

So perhaps it’s time to seize on this moment as a unique opportunity to drive reform aimed at stimulating growth and opportunities for all.  

At the heart of the lackluster growth in Latin America is low investment. On average, just 19% of GDP is invested, according to the World Bank. That’s a full 10 percentage points lower than the average of middle-income countries.  The path to improving the business and investment climate in the region is clear. That includes boosting competition and removing barriers to entry. Those reforms would unleash the private sector to innovate, and – most importantly - create well-paying  jobs. Those jobs will require new, more sophisticated skills. 

So, we’re not just talking about physical capital. We need to be talking about people – about human capital. Here’s a shocking fact: more than half of all fourth graders in Latin American can’t read and understand a simple text. What does that mean for their future prospects and opportunities? We have education systems designed in the 19th century using schools built in the 20th century which need to be reformed to better serve children living in the 21st century.

It is also key to tackle inequality in development outcomes and opportunities. That requires fiscal reforms that make the tax benefit systems more progressive. Social programs need to be refined so things like people’s gender, where they live, and their parent’s education levels don’t affect their access to basic opportunities. 

Finally, the little faith Latin Americans have in their institutions requires efforts to address the fragility of those institutions. It is a fundamental challenge to governance. This is glaringly clear in the refusal of many citizens to pay taxes. They often feel that public spending is inefficient and resources are wasted. Corruption compounds this. As a result, informality in the labor market is close to 50% of GDP. This lack of a broad formal sector prevents governments from delivering the services the population demands. It’s a vicious circle. 

We can’t kid ourselves. It is no mean feat to improving the business climate, reform the education sectors, implement fiscal reforms, modernize the existing social programs and strengthen institutions. It hasn’t happened so far because it is extremely complex and requires the kind of national consensus that’s difficult to find in our increasingly-polarized countries. But as governments - and society - pause to reflect on the underlying causes of the current protests, a window of opportunity may emerge allowing key actors to build the bridges required to unlock much-needed reforms. 

Challenging? Yes. Big time. An opportunity? Yes. And a much needed one. As the old saying goes: “never let a good crisis go to waste.”

Authors

Humberto López

Acting VP and World Bank Director of Strategy and Operations for the Latin America and the Caribbean Region

Join the Conversation

Martín Oelz
December 17, 2019

Thanks for this timely blog. In moving forward we will also have to consider that the region’s indigenous peoples have not benefited from formalization and poverty reduction policies to extent of other parts of the population. Indigenous peoples have been playing an active and sometimes leading role in social protest over recent months. Overcoming their persisting exclusion from the impact sphere of public policies will have to include putting in place effective state institutions and mechanisms that deliver on their collective rights to consultation and participation under ILO Convention No. 169 which is ratified by 14 countries in the region.

Jorge A. Chávez-Presa
December 17, 2019

We need more data on youth employment, remuneration-education. What is happening with the demographic bonus if there is no access to good education? The difficulties families are facing where no there is no