How to grow Latin America’s middle class
Demonstrations in Latin America show just how far societies have come, and how much further they must go to meet the expectations that come with rising incomes. A healthy, middle-class society requires reliable, quality public services – not just income growth.
Mass protests that roiled several countries in Latin America over the summer and earlier are a healthy development – one that can press political leaders to deliver the services that support a stable, growing middle class.
In June, Brazil saw the biggest public demonstrations in 20 years. A month later Peru witnessed the largest in more than a decade. Meanwhile in Chile, the student protests of 2011 have evolved to encompass issues well beyond education, with some of the student activists running for Chile’s Congress in Nov. 17 elections.
All of these protests are significant for their sheer magnitude. But even more remarkable is that they have taken place in three of the most economically successful countries in Latin America.
Brazil is Latin America’s largest economy and the sixth largest in the world. Chile, long recognized as one of the best-run emerging economies, recently became a high-income country, the top category of per capita earning as defined by the World Bank. Peru, despite global uncertainty, has managed stellar economic growth in the past four years.
Why then are people protesting, instead of celebrating?
The fact is that in recent months they have been paying higher prices for services that have not improved. In Brazil, for instance, prices for personal services (which include anything from health care to banking), as well as basic foods started to rise a year ago at a rapid pace, at about double the average inflation rate for the country. In Chile, meanwhile, prices for education, personal services, and food and beverages were up to three times higher than average inflation.
By demonstrating, the population can make the significant social and economic gains of the past decade more sustainable. As people demand services that are more affordable and of higher quality, elected officials are pressured to deepen and reinforce the gains they have been able to accomplish.Those elected officials who understand the challenge have an opportunity to increase transparency and accountability.
In the second half of the 20th century, Latin America’s middle classes were small, accounted for less than 20 percent of the population, and had limited commitments to and expectations from the government. They were not asked to pay much in taxes and did not expect to receive much from public services. They opted out of public services and paid for private education, health, security, and even electricity.
Today, many of those in the much larger middle class realize there is a limit to opting out. There are public goods that everyone depends on, such as roads, public transport, quality of education and health care, fresh air, and safety.
Between 2003 and 2011, Latin America’s middle class expanded by more than 50 percent. For the first time in history, there are more Latin Americans in the middle class than in poverty.
But a middle-class society is defined by more than income. It requires reliable, quality public services. Only then can these countries’ social contracts be strengthened – breaking the vicious cycle of low taxes and low quality of public education, safety, and health.
All this is not to say that the protests testify to government failure. Poverty reduction has happened in a context of macroeconomic stability thanks to key government reforms and better-targeted social policies for the poor.
Demonstrations show how dramatically Latin American societies have changed. The transformation in fact has come so fast that it has been hard for governments to keep up and improve services sufficiently to meet demand.
In today’s interconnected world, Latin Americans’ expectations are only likely to grow. National, state, and local governments will need to become ever more efficient to meet demands. More than the inevitable price of success, the recent protests represent the price of a successful agenda – still unfinished.
Hasan Tuluy is the vice president of the World Bank for Latin America and the Caribbean.