By Jamele Rigolini , Renos Vakis
In 2010, Latin America set a new record: for the first time ever the region had more middle class people than poor.
Historically deemed unequal and saddled with deeply-rooted pockets of poverty, a booming economy and shrinking income gap over the past decade pushed over 70 million people out of poverty — twice the population of Canada. At the same time the middle class swelled to almost one-third of the total population.
Fast forward four years and despite these dramatic advances, a fifth of Latin Americans never left poverty, as we discovered in a recent study.
We call them the “chronic poor.” Born into poverty and unable to escape their status, they benefitted little from the growth of the 2000’s and some have even fallen into the cracks of the social assistance system.
What’s driving such a stubborn plight? It may surprise you to know that a few simple factors are big contributors. These include, for sure, their low endowments, but also a lack of basic services such as power or water; weak local institutions and capacity who underservice the poor; high levels of uninsured risk (against shocks or natural hazards), and a depressed state of mind with low aspirations.
Why is this happening in Latin America?
Fact 1: One in five Latin Americans lives in chronic poverty
That’s an astounding 130 million people. But chronic poverty and downward mobility (people who became poor) vary considerably country to country.
At around 10 percent of the population, Uruguay, Argentina and Chile have the lowest rates of chronic poverty. Rates in Nicaragua, Honduras and Guatemala are significantly higher than the regional average of 21 percent — ranging from 37 percent in Nicaragua to 50 percent in Guatemala.
What’s more, even within countries chronic poverty is not uniform.
Santa Catarina, in southern Brazil, chronic poverty is around 5 percent, lower than the national average of 20 percent and close to that of Uruguay, the best performing country in Latin America. But in Ceara, around 40 percent of the population is chronically poor, comparable to Honduras, which has one of the highest incidences in the region.
Fact 2: Chronic poverty is as much an urban issue as it is rural
Rural areas are often associated with higher poverty persistence. In Bolivia, (national average 20 percent), rural poverty chronicity is three times higher and over 20 percentage points higher than in urban areas.
However, in absolute numbers, urban areas in many countries hold higher numbers of chronic poor than rural areas (for 2004 to 2012). In at least five countries (Chile, Brazil, Mexico, Colombia and the Dominican Republic), the number of urban chronic poor surpasses the number of rural chronic poor, and in many other countries, the number of urban and rural chronic poor is roughly equal.
Fact 3: Economic growth was not enough to lift the chronic poor out of poverty
Countries with the highest rates of chronic poverty grew the least in the past decade. For example, Guatemala grew less than 1 percent per year, with about 50 percent of the initial poor still stuck in poverty in 2012. In comparison, Panama with its annual growth of 6 percent has just 20 percent of the population trapped in poverty.
Secondly, chronic poor households tend to be poorer than those households which managed to escape poverty, rendering economic growth insufficient. Thirdly, even though the incomes of those in chronic poverty rose during the period, they increased less than for those who managed to escape poverty.
Fact 4: The chronic poor have limited income opportunities
Labor income was by far the biggest driver behind the strong reduction in poverty seen in 2004-2012. Unfortunately, the chronic poor face stronger barriers to entering the labor force and therefore rely more on non-labor incomes. They are also more active in low-productivity or subsistence sectors.
In every country chronic poor households had fewer labor income earners, compared to households who escaped poverty and non-poor households. On average, chronic poor households have 20 percent fewer human resources to generate income.
So what can be done?
‘House’ improvements. The context in which people live matters. The same chronically poor family living in a remote district of the Andean sierra or Amazon selva might not be poor if they were to live in São Paulo, Bogota or Lima. Returns on skills and characteristics depend heavily on available opportunities. An optimal social policy should balance direct support to the chronic poor with broader investments that improve their respective environment.
Stop the intergenerational transmission of poverty. Malnutrition, poor stimulation, fragile health, absent parents, and a risky or violent environment limit a person’s ability to develop to their full potential and keep them mired in poverty. The integration of early childhood development into the social development agenda is therefore welcome and should be further expanded with a focus on quality.
Double down on labor opportunities. Boosting labor income is among the few ways to sustainably lift people out of poverty. As such, comprehensive poverty reduction programs should include labor income promotion strategies such as training and labor insertion programs.
Treat urban and rural as one. In many instances, more chronic poor families can live in urban areas. Expanding programs to reach urban areas will require addressing the increased mobility of the urban poor, which makes them more difficult to identify and support.
Improve coordination of social programs. There’s been a dramatic surge in social programs in the region in the past decade, yet, they are often uncoordinated, which limits their impact. Clear, specific and measurable objectives are crucial, as are incentives that go beyond goodwill and build an accountability system rewarding performance.
Don’t forget state of mind. Strategies to address the mindset and low aspirations of the chronic poor must be mainstreamed into policy design or they may easily fall through the cracks of the social safety net system by failing to register for social programs.