A boy from the "Insurgentes de la Paz" (Peace Insurgents) school receives lessons inside an old bus turned into a class room in the settlement of Pueblo Nuevo, Oaxaca (Courtesy Reuters).

It is campaign season in Mexico, and aside from security issues, front-runners Enrique Peña Nieto of the PRI and Andrés Manuel López Obrador of the PRD are focusing on poverty and inequality. Both criticize the past two PAN governments for not improving the lot of Mexico’s poor, and for perpetuating if not exacerbating an uneven playing field that benefits the few and not the many. In a recent campaign stop in the Southern state of Veracruz, Peña Nieto came down hard on the PAN, saying “[the PRI] knows what Mexico hasn’t achieved in the past decade. We haven’t forgotten that more people are poor, that we haven’t had the economic growth that creates jobs that the public demands.”

But recent data from the World Bank and Mexico’s own household survey call these claims into question. Over the past fifteen years, inequality has fallen consistently, and since 1996 Mexico’s Gini coefficient has dropped by nearly one percent each year (reaching pre-1980s crisis levels – 49.8 – in 2006). Poverty is also down slightly, as five million fewer people live on four dollars a day or less in 2010 than in 2005.

A number of factors are behind these trends. First, macroeconomic stability (even with slow growth) has been particularly beneficial for the poor, who, studies show, are hit the hardest by economic crises.  Real wages also improved, due to a mix of broader education and increased worker productivity. Finally, social spending targeting the poor rose. Programs such as Oportunidades (started under President Zedillo as Progresa), give monthly stipends to low income households that keep their kids healthy and in school, and now reach nearly six million families.

Unfortunately, the world financial crisis of 2008 brought this progress to a standstill. In contrast to the rest of Latin America, Mexico has seen an uptick in extreme poverty in its wake, with more families dropping below the poverty line even as the economy recovered in 2010. The big question going forward is whether – and how – Mexico can get back to spreading the gains of strong growth more evenly among the larger population. To make this happen, the next president should learn from the lessons of the last fifteen plus years – and focus on improving education, expanding targeted social programs, and redistributing wealth more generally (for instance through a more progressive tax system). These policies already have and would continue to make a difference in the lives of the many Mexicans that still struggle to make ends meet.

Published in conjunction with Latin America’s Moment at the Council on Foreign Relations.

Customers look at laptops at a Wal-Mart store in Mexico City (Henry Romero/Courtesy Reuters).

Another 2011 trend is the rise of the middle class. While in the United States article after article – as well as the country-wide “Occupy Wall Street” protests — denounced the decline of the middle class, in Latin America the middle continued its gains.  Despite the tougher international climate, economic growth averaged over 4 percent, and unemployment rates fell to 6.8 percent (from 7.3 percent in 2010). Perhaps more important, GINI coefficients –  which measure inequality — lowered slightly to just over 50 (from roughly 53 in 2000). This means that the growth that happened actually spread to the bottom and middle of the pyramid.

There is an ongoing debate about how to measure the global middle class. Some of these issues I addressed in this past post. But whatever the starting point, the 2011 regional trend was positive. In Brazil, the middle topped 100 million, in Mexico it reached 67 million, and in Argentina more than 21 million.

This doesn’t mean Latin American nations don’t continue to struggle with poverty. According to the latest World Bank data, just under 30 percent of the population — 160 million people — lives on less than $4 a day (in PPP terms), and 14 percent — some 80 million — live in abject poverty (on less than $2.50 a day). The growing middle though does show the path forward, and reinforces the goal for those concerned with the less fortunate, helping them too rise the economic ranks into a more comfortable middle.

Published in conjunction with Latin America’s Moment at the Council on Foreign Relations.

Shoppers carry an electronic item outside a store in Caracas (Jorge Silva/Courtesy Reuters).

As journalists, policymakers, and activists of various stripes and interests focus on the rise of the global middle class, scholars struggle with how exactly to define this category of people worldwide. The method matters, as differences can make one exceedingly optimistic or pessimistic as to today’s reality, tomorrow’s promise, and of what people, governments, companies, and markets should and should not be doing to encourage this growth.

One way of measuring the middle class is in relative terms, by looking at who is within the middle range of incomes in any given country. Scholars such as Lester Thurow, Nancy Birdsall and William Easterly have done this in various formats. But it is often unclear exactly what their results mean for emerging economies, where the middle of the country is not necessarily one and the same as the middle class. It is also hard to use this approach comparatively, as the “central” income range differs widely from country to country.

Another approach is to use absolute thresholds, which has the advantage of getting at attributes that are more universally acknowledged as middle class. The question here becomes how to define this “fixed band.” The most expansive calculation – used by Martin Ravallion at the World Bank — classifies a middle class person as anyone who makes between $2 and $13 a day in PPP terms. Intended to measure the expansion of the middle in emerging markets,  this definition includes those who have just made it across the World Bank $2 poverty line. By this measure, China and India have made incredible strides over the past fifteen years, developing a true middle class. But to those in advanced Western economies many of these people would almost certainly be considered abjectly poor, questioning the comparative value, and universality of this scale.

On the more restrictive end, a study by Branko Milanovic and Shlomo Yitzaki sets the the upper and lower bounds of the global middle at the average incomes of Brazil ($4,000 in 2000 PPP terms) and Italy ($17,000) as, and counts anyone earning between $12 and $50 a day as middle class. These may not be the right threshold incomes either, however, particularly because this bottom line leaves out the millions in India and China who earn less than $12 a day and yet still, as households, lead quite comfortable middle class lifestyles. This definition puts Mexico’s middle at less than half the population, in contrast to those that count Mexico as now majority middle class.

Finally, a Brookings report by Cárdenas, Kharas and Henao takes a slightly different approach to the issue. Based on an earlier study by Kharas, they use the poverty line in Portugal and Italy – the lowest among advanced European countries – as the lower limit and twice the average income in Luxembourg, the richest European nation, as the upper limit of the global middle. As the authors note, their calculation “excludes those who are considered poor in the poorest advanced countries and those who are considered rich in the richest advanced country.”

Source: Cárdenas et al., "Latin America's Global Middle Class," Brookings (2011).

By this definition, the Latin American countries with the largest middle classes are Mexico (60%), Uruguay (56%), and Argentina (53%), while Bolivia (13%), Honduras  (16%) and Paraguay (19%) fall on the lower end of the spectrum. As a whole, the region cannot be called middle class, but it is moving in the right direction, and may qualify in the near future. The model predicts that by 2030 over half of Latin American countries will have a majority middle class. It contrasts with China and India in this regard, where, despite great progress, a true middle class as a substantial percentage of the overall population is still decades away.

Recognizing the enormous expansion of the middle class in Latin America and worldwide does not deny the destitute poverty in which hundreds of millions, even billions, still live. But ignoring the progress of recent years also has its perils for the poor. Better measuring and understanding the rise of the global middle is vital precisely because it suggests paths for those still less fortunate to follow.

Published in conjunction with Latin America’s Moment at the Council on Foreign Relations.

To watch on YouTube, click here.

Published in conjunction with Latin America’s Moment at the Council on Foreign Relations.

Members of Venezuela's militia and supporters of Venezuela's President Chavez attend a ceremony in Caracas (Jorge Silva/Courtesy Reuters).

Today, chances are Hugo Chávez will face off against Henrique Capriles Radonski in the 2012 October presidential elections. The 39-year-old former mayor of Caracas’s Baruta Municipality (2000-2008) and current Miranda state Governor is leading the opposition candidates, and polling just 2 percentage points below Chávez. He is a lawyer who entered politics at the age of 26 to become the youngest member of the Chamber of Deputies until it was dissolved in 1999.

Capriles appeals to the non-Chavista Left. Following in Lula’s Brazilian footsteps, he has poured money into education and social programs, drawing strong support among the lower classes as well as from a growing contingent of independent voters put off by the Chávez-centered polarization of Venezuelan politics. Comfortable among slum dwellers and businessmen alike – and unafraid to don Chávez’s signature Veneuelan flag jacket– the young candidate has won hearts and minds with his intensity and obvious passion. He has also attracted Chávez’s ire. In 2004, he was arrested for “trespassing, intimidation and ‘violating international principles’” for his involvement in a protest outside the Cuban embassy in the wake of the 2002 attempted coup. The charges were eventually thrown out and two months after leaving prison he was reelected to his post as mayor with 80 percent of the vote.

Yet while a rising star, he faces three major challenges. The first is the divisions within Venezuela’s anti-Chávez opposition. There are other worthy competitors — Leopoldo López, the former Mayor of Chacao Municipality and Pablo Pérez, another young and dynamic governor of the state of Zulia. While one of these — probably Pérez — may give him a run for the nomination, the real test will be whether the opposition can remain united. In the past, their divisions have weakened them perhaps as much as any moves Chávez has made.

The opposition’s track record has gotten a lot better. In the 2008 regional elections they were able to come together, winning governorships in 5 of Venezuela’s 22 states (including the two most populous, Miranda and Zulia). The 2010 Congressional run was their best showing yet. By uniting behind candidates chosen either by consensus or in local primaries, they managed to win the popular vote (52%) — though only  40% of the legislature due to gerrymandering. Signs look good for this coming year, as last month the three major opposition parties signed a pact promising to support the winner in February’s primary.

A second challenge is Chávez’s electoral machinations. While the ballot box itself has not yet been in question, the Chávez administration has repeatedly tilted the electoral playing field —  arresting prominent opposition leaders, silencing independent media outlets, and undercutting autonomous institutions such as the National Electoral Council (CNE). The meddling for 2012 has already started, beginning with moving up the election date from December to October 2012. This is likely just the first of many measures to take the wind out of opposition sails.

The third, less analyzed challenge is Chávez’s health. At first brush his potential inability to run for reelection should boost the opposition’s chances. But it could make it all the much harder. Left without a popular candidate, hard-line Chavistas might pull the plug on elections all together. Hugo’s brother Adán has already suggested as much, saying recently, “It would be inexcusable to limit ourselves [PSUV] to only the electoral and not see other forms of struggle, including the armed struggle.” Instead of opening up Venezuela’s political system, Chávez’s absence might put an end to Venezuela’s democratic trappings altogether.

Published in conjunction with Latin America’s Moment at the Council on Foreign Relations.

Governors (L-R) Jose Guadalupe Osuna Millan of Baja, Humberto Moreira Valdes of Coahuila, Texas Governor Rick Perry, California Governor Arnold Schwarzenegger, Jose Natividad Gonzalez Paras of Nuevo Leon, Arizona Governor Janet Napolitano and Eduardo Bours Castelo of Sonora pose as characters from the movie "Terminator" at the 26th Border Governors Conference (Courtesy Reuters).

This week the Mexican state of Baja California will host the two-day Border Governor’s Conference. Started nearly two decades ago, the annual meeting brings together governors from all four U.S. and six Mexican border states to discuss the issues directly affecting their states and citizens. At its height in the early 2000s, the governors and their ministers met not just with each other but also with representatives from Commerce, Homeland Security, the Environmental Protection Agency (EPA), and other departments and agencies to influence border-centered debates in both Washington, DC and Mexico City.

But in recent years the conference has fallen on hard times, a victim of polarizing politics. The 2009 session hinted at the divides, as the governors of Arizona, California and Texas failed to make it to Monterrey due to “scheduling conflicts.” It hit its nadir in 2010 in the wake of Arizona SB 1070. The Mexican governors wrote a letter calling the law “discriminatory [and] racist” and announced their plan to boycott the meeting if hosted, as planned, by Arizona Governor Jan Brewer in Phoenix. Brewer cancelled the conference in retaliation. In the end, Governor Richardson of New Mexico held the meeting, but no other U.S. governors attended, leaving the future of this consultative mechanism in limbo.

The conference also has suffered from a sprawling agenda and size. With its initial successes the agenda items grew, as did the number of participants. In recent years there have been some 25 working groups on topics ranging from wildlife to science and technology. The influx of hundreds of staffers and activists has made the process much more cumbersome, and reduced the intimacy and spirit of cooperation that guided the conference in the past. Reduced in large part to the signing of agreements and photo opportunities, many governors (particularly from the United States), began skipping the event.

As the United States and Mexico search for common ground and mutual solutions to pressing problems, it is time to revitalize this mechanism. It should refocus on practical problems facing the border states and their residents. Rather than covering the gamut, the agenda should be streamlined to emphasize a few vital issues. It must enable leaders to actually meet and discuss the serious challenges facing their states and constituencies, re-energizing the consultative element of the event. Most pressing today is security, where policy so far has been guided from the center, even though the effects are concentrated on the border.

Once refocused, the border governors need to organize better to influence their respective governments, shaping policies that in turn shape the border. One potential model is the Pacific Northwest Economic Region (PNWER), which brings together state legislators, governors, civil society and businesses to lobby the federal government and strengthen U.S.-Canada border security and the region’s economic competitiveness. Another is scaling up the San Diego Association of Governments’s (SANDAG) annual binational conference, which brings together local leaders in California and Baja California to address just one broad agenda item at each meeting – such as the economic impact of wait times at shared border crossings.

As Arizona Governor, Janet Napolitano repeatedly said that one of her closest day-to-day working relationships was with Sonora Governor Eduardo Bours. This reality – that cross-border issues and events strongly affect border state residents’ daily lives — hasn’t changed. Revitalizing the Border Governor’s Conference is one means to address these shared challenges, and reincorporate regional problem-solving strategies into larger U.S.-Mexico debates.

Published in conjunction with Latin America’s Moment at the Council on Foreign Relations.

Container ship sails beneath Golden Gate Bridge en route to port in California (Robert Galbraith/Courtesy Reuters).

Today the Council on Foreign Relations is releasing its independent Task Force report, “U.S. Trade and Investment Policy.” Led by Andrew H. Card — former White House Chief of Staff under George W. Bush – and Thomas A. Daschle – former U.S. Senator and Senate Majority Leader – and directed by my CFR colleagues Edward Alden and Matthew Slaughter, the 22 members took on the increasingly thorny issue of the future of  U.S. trade policy.

One of the most interesting discussions within the report is of multinational corporations. While representing less than 1 percent of all companies, they provide nearly a quarter of all private sector jobs, nearly 40 percent of all U.S. capital investment, and conduct the vast majority of research and development. These are the engines of today and tomorrow’s economy – and as such the United States needs to become much more competitive in attracting these corporations to its shores.

Another important discussion involves the increasing skepticism among the U.S. public toward trade’s benefits. The group rightly points out this has occurred not because of the general public’s lack of understanding or “ignorance”, but because of the experience of the average American worker. Over the last ten years –the time frame within which trade became a much harder sell — nearly all American workers saw their real earnings fall. U.S. based export oriented jobs – which in general pay more than domestically oriented ones – haven’t grown, even as the world economy exploded. Inequality too has grown during this time frame. And while the report rightly points out that trade was not the only, or perhaps even the deciding factor behind these shifts, it did play a role. As such, any new policy must take into account and work to enhance the widespread benefits of trade for America’s citizens.

Too often participants in policy debates come out as for or against trade, without defining for what end. Here, the Task Force usefully defines the main goals of U.S. trade and investment policies as “improving American living standards and advancing America’s broader interests.” To better meet this end it provides several concrete recommendations, including prioritizing service sector opening in ongoing trade negotiations, reforming the tax code and removing protectionist regulations on international mergers and acquisitions in order to encourage foreign investment in the United States, streamlining the WTO and creating stronger international trade enforcement mechanisms, and expanding adjustment assistance programs to provide a broader safety net for American workers.

As is often the case in trade oriented debates, Task Force members weren’t able to reach a unanimous consensus on what a better trade policy would look like, and how to get there. It is worth looking at the additional dissenting views section to get a sense of the varied perspectives on the report’s conclusions.  Still, everyone did agree to the Task Force’s basic takeaway – that the administration and Congress must revise America’s trade strategy or risk losing out on the enormous potential gains of deeper global engagement.  The report is well worth a read, offering insights on how the United States can emerge from the recession and financial crisis a stronger and more capable leader in the international economy.

Published in conjunction with Latin America’s Moment at the Council on Foreign Relations.

A general view of Sao Paulo, the biggest Latin American city (Paolo Whitaker/Courtesy Reuters).

A new piece by Eduardo Guerrero in Nexos looks at the growing problem of extortion in Mexico. Differentiating it from drug trafficking, he finds it more brutal and violence, and  argues it is on the rise for three reasons: fragmentation of cartels, displacement of crime rings (and their response to expand into new territories), and finally rampant impunity for such acts.

Drug abuse in the United States is on the uptick overall, though use of “harder drugs” seems to be down, according to a recent study by the Substance Abuse and Mental Health Services Administration (SAMHSA). Marijuana use has increased some 20 percent over the last four years, particularly among young people. Today more than one in five Americans aged 18-25 get high on a regular basis. On the other hand, rates of methamphetamine and cocaine abuse have been steadily declining since 2006.

The World Economic Forum released its Global Competitiveness report this week, which measures competitiveness based on twelve benchmarks that include “basic requirements”, such as institutions, “efficiency enhancers” such as market size, and “innovation and sophistication factors”, such as innovation. Among Latin American countries, Mexico had the biggest boost in the rankings, moving up 8 spots from 66^th to 58^th, and improving on 10 of the 12 categories (its only drop was in macroeconomic environment). Brazil also made gains, up 5 places to 53^rd overall (due largely to the size of its internal market and its sophisticated business environment), and Chile remains at the top of the region and the 31^st most competitive nation worldwide. Central American countries such as Guatemala, El Salvador and Nicaragua registered steep declines in their ratings, due to weakening institutions and rising insecurity, while Argentina and Venezuela remained generally unchanged, but near the bottom of the list at 84^th and 124^thoverall, respectively.

Published in conjunction with Latin America’s Moment at the Council on Foreign Relations.

Miner Gomez celebrates as he arrives on the surface as the ninth to be rescued in Chile (Ho New/Courtesy Reuters).

Today is the one year anniversary of the collapse that buried 33 Chilean miners deep underground for more than two months. Their rescue inspired a jolt of nationalistic pride in Chile, and not a little media fanfare, but now many of the survivors find themselves worse off than before the ordeal. Despite, and in some cases because of their fame (sure to increase with the production of a movie based on their tale), almost half of the 33 are unemployed, and some are back working underground to make ends meet.

Sebastián Piñera’s high hasn’t lasted either – recent polls show his ratings slipped to 31 percent last month, a far cry from his 63 percent approval rate in October 2010. Even the Economist is down on Piñera at this point, criticizing the billionaire for creating ties between government and the private sector that are often too close for comfort.

Dilma Rousseff recently unveiled the “Bigger Brazil Plan”, or “Plano Brasil Maior”, a program designed to make Brazil more competitive and stimulate investment in the face of an increasingly overvalued real and the influx of inexpensive goods from abroad. Some question whether the bill will have any positive effect in the long-run, arguing that the $16 billion in tax cuts for manufacturers will be offset by higher sales taxes, needed to finance recent government spending sprees.

For those that haven’t seen it, this Los Angeles Times four-part series on the Sinaloa cartel is an illuminating profile of the more average citizens involved, the way the business works, and one particular DEA attempt to take down a cartel.

Published in conjunction with Latin America’s Moment at the Council on Foreign Relations.

]]> http://www.latintelligence.com/2011/08/05/reads-of-the-week-chiles-miners-brazils-industrial-policy-and-mexicos-sinaloa-cartel/feed/ 0 http://www.latintelligence.com/2011/07/07/reads-of-the-week-latin-america%e2%80%99s-democracies-mexican-migration-and-more/ http://www.latintelligence.com/2011/07/07/reads-of-the-week-latin-america%e2%80%99s-democracies-mexican-migration-and-more/#comments Thu, 07 Jul 2011 15:45:50 +0000 Shannon http://www.latintelligence.com/?p=1211

Venezuelan President Chavez looks on as his Brazilian counterpart Lula da Silva speaks during their meeting at Miraflores Palace in Caracas in July, 2010 (Jorge Silva/Courtesy Reuters).

Jorge Dominguez’s recent testimony before the Senate Subcommittee on Western Hemisphere gives an overview of Latin America’s progress toward democratic consolidation in recent history, and the role the international community has played in this slow, but steady, march.

Time and America’s Quarterly have two good pieces on Mexico’s state level elections last weekend. While both rightly focus on the PRI’s strength coming out of the election, it didn’t win everywhere. The party lost nine municipalities it previously held in the state of Hidalgo, due in large part to successful alliances between the PAN and PRD. Meanwhile, the PRD mayor of Mexico City urges that these ties must become stronger to give his party and its allies a fighting chance in the 2012 presidential elections.

A recent New York Times article looks at the current state of  illegal immigration from Mexico to the U.S., highlighting how changing dynamics within both countries dissuade Mexicans from crossing the border illegally. This discussion addresses issues I raised in the past, namely changing demographics and new economic realities, including the rise of the middle class in Mexico and the region more broadly.

Lastly, for readers worried about Brazil’s overheating, this Economist graph won’t calm your fears.

Published in conjunction with Latin America’s Moment at the Council on Foreign Relations.