The Rise of Middle Class in Latin America - Research Paper Example

The Rise of Middle in Latin America of the Contents Contents 2 Introduction 3 Discussion 4 Conclusion 23 References 25 Introduction Latin America is economically diversified as well as one of the largest continents of the world. As per the estimates from World Bank (2014), the economy constitutes of population of more than 604 million. This combined Gross Domestic Product (GDP) of this sub-region of America accounts for more than 550 million in 2014. The province integrates 20 sovereign countries by capturing nearly 13% of the earth’s land surface. Among these, Venezuela, Argentina and Colombia are some of the most important economies of Latin America in terms of population growth, natural resources, employment opportunities, their contribution towards the continent’s GDP and exim policy. Venezuela is the most urbanized and largest economy of Latin America whereas Argentina is the second largest and Colombia holds the third position, in terms of GDP (Venezuela Analysis, 2013). Latin America puts huge emphasize on economic integration since the inception of Latin American Free Trade Association and Central American Common Market in 1960s. In fact, the economy has undergone various structural changes due to the effect of a number of economic influences such as World Wars, financial crisis in 2008 and several ongoing civil wars. However, the internal economic development program of this continent has been uninterrupted by the policies taken by the economy such as import substitution by industrialization and public investment on health sector (Balderston, Gonzalez and López, 2000). All these factors have led the economy to experience population explosion. Moreover, as the education system and employment opportunities began to expand combining with enhanced social security, the economy experienced rise of middle class society in Latin America. The paper will explore the nature and determinates of economic growth and rise of middle class in Latin America, especially concentrating on the three biggest economies of the constitute such as Venezuela, Argentina and Colombia as well as possible consequences of such social transformation. Discussion Since decades, poverty continued to be the main challenge for the economy of Latin America. However, after experiencing a long series of stagflation, the population of Latin America started expanding and overtimes the middle class evolved in a major proportion of the population. Prior to this, the demographics of Latin America were characterized by the presence of vulnerable income group, suffering from economic insecurity (López-Calva and Juarez, 2013). However, over a period of time, economic growth as well as declining economic inequality apparently gave rise to an economically secured population class with less probability to be hooked on poverty. This is categorized as middle class in Latin America. This has been supported by a statistical survey which has revealed that at least 43% of the population of the continent has raised their social classes over the last decade, from the middle of 1990s to 2000s (Birdsall, 2012). This has clearly shown an upward mobility trend of the population in Latin America. As a positive consequence, approximately one third of the families in Latin America are categorized now under middle class. Such development has also facilitated to shrink the size of poor class in the continent by almost same proportion of 30%. According to the economists, such increment is significant in the history of transformation in social classes. Such social transformation became possible on the basis of changed equilibrium of a number of macroeconomic variables such as, decreasing rate of unemployment and per capita income growth (Birdsall, 2012). Concentrating on the recent statistics, multiple contributory factors have been identified such as engagement of 70 million women in labor market, increasing numbers of college going students, enhancement of academic as well as professional skills. For instance, the third largest nation of Latin America, Colombia has been successful to stretch its middle class almost by 50%, taking into account the cross border associates such as Costa Rica and Peru. Mexico’s middle class reached 17% whereas Brazil experienced a growth of 40% of middle income group citizens between 2000 and 2010. Observing such sudden spur in socio-economic circumstance, respective governments have introduced reforms in existing policies in order to mitigate region specific needs. Such reform comprises of better labor policies, provision for sound social security as well as controlled safety net protocols by providing adequate subsidies to poor. Method of tax collection is also improved in order to finance public services and social insurances rather than protection (Rhodes, 2012). Though millions of Latin Americans welcomed such social transformation through elevating to the newly formed social class by achieving a per capita income between US$10 to US$50, worsening condition of global economy especially the incidents of great recession and financial crisis in 2008, compelled the economists to worry about the longevity and potential of the transformation to continue in long run (Monteón, 2009). Of course Latin America has been able to expand the economy in the time of global financial turmoil and as a result job creation has been accelerated to a great extent which in turn created better opportunities for quality education for the future generation. Hence, it has been derived that better education opportunities and application of safety net measurements for the next generation will drive the continent towards further development. However, among the 73 million inhabitants of Latin Americans who have promoted their social status in the last decade; have spent an average of 5 to 8 years in education. Such education level of the ageing population of the continent raises question on their credibility to guide the new generation in the right direction. In the next segment, various macro economic variables and social indicators will be analyzed in order to manifest the rise of middle class in Latin America. Macro Economic Variables and Social Indicators For the purpose analysis, the economic indicators such as economic growth rate, population distribution, and change in unemployment rate etc. over the last decade of three main countries of Latin America will be evaluated. Evolution of Population The population of Latin America had drastically evolved during the period from 1990s to 2000s. As per the estimates of 2014, the total population of the continent is 588,019,503. According to the review result of BRICS (Brazil, Russia, India, China and South Africa), continuance of increment in working population may lead the country to become the largest economies in the world by 2050, leaving behind big economies like China and the United States. Figure 1: Population Trend of Venezuela over the Last Decade (Trading Economics, 2015) Considering the characteristics of the population of Venezuela, it has been noticed that more than 93% of the inhabitants of this largest economy of Latin America resides in the urban areas. According to the census report of the country published by National Institute of Statistics (2013), the scenario of extreme poverty has been drastically changed by the last decade. Where more than 11.63% of populations of the country were suffering from extreme poverty, the level has decreased to 6.97% by 2011 (The Economist, 2012). The social indicators such as life expectancy and urbanization also improved. Life expectancy improved from 74.5 in 2001 to 79.5 in 2011. The increment in general population also enhanced from 24.8 million to 28.9 million in the last 10 years (Venezuela Analysis, 2013). Such transformation in socio policies has been possible due to a number of contributory factors such as improvement in health sector, creation of job opportunities in the urban areas, more female participation in organized as well as unorganized sector and changing mindset to eliminate inequalities etc. Incidents such as women securing high level positions and accessing secured jobs in the urban sector of Venezuela is an indicator of social transformation of the country’s population and consequently evolution of middle class (Clark, 2001). Figure 2: Population Trend of Argentina over the Last Decade (Trading Economics, 2015) Coming to the population characteristics of Argentina, the country stands third in the Latin America in terms of total population. As per the estimates of 2014, the total population of Argentina is 42,669,500 and according to the census report, the population is increasing at a rate of 1.03% annually. Prior to the last decade, Argentina’s population was characterized by low growth as well as low infant mortality rate. However, from 2012 to 2014, rapid population growth resulted in an increment in total population of more than 40 million, improving the life expectancy as well. In fact the growth rate of population increased from 2001 and 2010 by 10%, approaching towards 45 million. The census report has also revealed that during the last decade, the young working population of Argentina is 25.6%. Though this average rate is below the world youth standards of 28%, contribution from this decent youth population rate aids the country to experience a sustainable economic growth. The domestic industry of Argentina, particularly, automotive and appliances industry is experiencing record growth through the contribution of such youth population. Observing that, the government has also taken initiative to emphasize on social spending through various societal and infrastructural developments. For example, the Universal Child Allowance prioritizes the education and rehabilitation of children and adolescents. Combining effect of all such factors substantially improved the standard of living and purchasing power of a large chunk of Argentina’s population which in turn elevated the population from poor to middle class. Figure 3: Population Trend of Venezuela over the Last Decade (Trading Economics, 2015) From the above graphical representation, marked increment in the population of Colombia; the third largest country of Latin America in the last decade is clearly evident. Total population of Colombia is estimated to be 48,014,026 as on March, 2014. During the period of 2001 to 2010, the population growth of the country has experienced considerable fluctuations. Considering the age profile of the country, Colombia is blessed with a youth population rate of more than 30% of the total population of the country whereas the aging population is as low as 5.1%, as on 2005. From the beginning of 2001, the country experienced a rapid mobilization of rural population to the urban regions and by the time of 2005, the urban proportion rose to 72.2%. The life expectancy ratio also improved and became 79 in 2012. Infant mortality also increased by 15% in 2013. The literacy rate of the country also indicates a stable percentage of 93.6 for adults and 98.2 for youths. All such development was facilitated by increasing concentration of the government of the country towards public spending and promoted the major population from poor to middle class. GDP Per Capita Income GDP per capita indicates the relative share of gross domestic product among the aggregate population for a particular year. This is used as an indicator of individual’s wealth in a particular nation (Klasen and Lehmann, 2009). An increasing per capita income signifies prosperity of the domestic economy and improvement of the country’s social strata. Figure 4: GDP Per Capita of Venezuela over the Last Decade (Trading Economics, 2015) Evaluating the GDP per Capita Income of Venezuela, the largest country of Latin America, it can be indicated that in the last decade the country has been able to maintain a consistent augmentation of the per capita income of the aggregate population. Only in the year of 2004, the country experienced a decline in per capita income mainly due to the effect of Bolivarian Revolution and political unrest. Otherwise, an ever- increasing per capita income of Venezuela clearly indicates increasing level of education, employment and wealth of the population and societal transition of the priory deprived class, towards the middle class section of the society. Figure 5: GDP Per Capita of Argentina over the Last Decade (Trading Economics, 2015) The GDP per capita of Argentina shows a similar increasing trend. Such incremental per capita income establishes the country’s expertise to create sufficient jobs and capitalize the potential of its youth population. Such initiative has helped the economy of Argentina in two ways: the GDP of the economy boosted by the significant contribution from organized and unorganized sector and the citizens are enabled to maximize their wealth and raise their standard. In this way, a large chunk of Argentina’s population entered the middle class societal segment over the last decade (Monteón, 2009). Figure 6: GDP Per Capita of Colombia over the Last Decade (Trading Economics, 2015) The per capita income of Colombia has demonstrated the best trend of incremental per capita income among the three countries of Latin America in the last decade. Venezuela, Argentina and Colombia are the three largest economics of Latin America. Therefore, aggregate per capita income of the three countries highly reflects the economic condition of the continent. Examining the GDP- per capita income of these three countries, it can be clearly stated that the individuals of Latin America has considerably improved their present situation from their wretched past condition over the ten years of time and has been able to steadily shift their social status towards the middle class income group (OECD, 2010). Indicators of Inequality Inequality in economics indicated an uneven distribution of economic wealth and resources among the existing population of the economy. It is a country specific phenomenon that shows disparity in terms of gender discrimination, rural and urban population, differences in employment opportunities, level of poverty and many more and aggregate of all those factors in all countries across the globe leads to formulate the international inequality. Therefore, the concept of inequality is based on two distinct avenues: inequality of opportunities and inequality of outcomes. In the next segment of the paper, existing inequalities in various countries of Latin America will be evaluated in terms of Human Development Index and GINI Index (The Guardian, 2011). Human Development Index Human Development Index (HDI) calculates the composite of life expectance, education index as well as income indices of countries for the purpose of ranking the countries according to their respective achievements of human development. The HDI of Latin America will be discussed in the light of HDI of Venezuela, Argentina and Colombia (Human Development Report, 2013). Figure 7: Human Development Index of Venezuela (Human Development Report, 2013) The HDI of Venezuela was 0.764 in 2013 which is above the average as compared to the other countries of Latin America and Caribbean and it has been categorized under very high human development countries of the world because of their developed health care system, control over life expectancy and high level of awareness about education. Figure 8: Human Development Index of Argentina (Human Development Report, 2013) Argentina is considered to be one of the countries with very high Human Development Index in Latin America as well among whole world. Consciousness of the population towards health and education and positive response towards capturing public benefits provided by the government has enabled the country to achieve a rank of 0.808 in 2013 and continue with the same position in 2014 as well (Human Development Report, 2013). Figure 9: Human Development Index of Colombia (Human Development Report, 2013) Colombia also continues to hold a significant Human Development Index throughout the last decade as a result of having sustainable and 360 degree development of the economy, and sufficient effort from the public sector to enhance sustained progression in the field of health and education (Human Development Report, 2013). GINI Index GINI Index or GINI coefficient is widely used to for measuring statistical dispersion in income distribution of a specific country. The coefficient ltends to measure the degree of inequality through measuring the values of frequency distribution associated with the macro economic variables such as income, consumption or investment etc. A GINI Index of zero indicates that no inequality exists in the country in terms of wealth, income and resource distribution i.e. perfect quality exists in the economy. In contrast, a GINI Index of 100 shows the condition of maximum possible inequality prevailing in an economy (Monteón, 2009). GINI index is calculated with the help of Lorenz Curve through plotting the cumulative percentages of aggregate income gained against the cumulative number of participants, starting from the poorest to richest (Monteón, 2009). Figure 10: GINI Index of Venezuela during the Last Decade (Trading Economics, 2015) The graph shows that the GINI Index of Venezuela varied between 45 and 50 during the last decade. This indicates a moderately equal distribution of economic resources among the population of the country (The World Bank, 2015). Figure 11: GINI Index of Argentina during the Last Decade (Trading Economics, 2015) According to the estimates from World Bank, the GINI Coefficient of Argentina was 44.49 in the year of 2010 which indicates that indicates that the distribution of income is deviating from the measures of perfect distribution in the economy. In fact, the declining trend in GINI Index over the last decade indicated that the economy should be more conscious regarding distribution of income and consumption opportunities among individuals in the upcoming future so that inequality can be eliminated as such as possible. Figure 12: GINI Index of Colombia during the Last Decade (Trading Economics, 2015) In 2010, the GINI Coeffecient of Coloumbia was 55.91. The index crossed 60 during the period of 2001- 2002. Such efficient GINI coefficient of the contry crealry ensure sound distribution of economic resources. The trend of the coefficient in last 10 years also indicates that the country’s progression towards social transition was strated from the very beginning of the last decate. The Evolution of Extreme and Moderate Poverty in Latin America and the Caribbean In economics, extreme poverty may be defined as the situation when the daily average consumption of individuals of a country is equal to or less than $1.25 USD and the population are struggling to the extreme to secure their subsistence. When average individual income becomes equal to or more than $2 USD in order to persist daily consumption requirement, then it is said that the economy is experiencing moderate poverty level (Klasen and Lehmann, 2009). The level of poverty is very critical in most of the countries of Latin America and Caribbean. A large number of populations of the continent suffer from extreme and moderate poverty level since centuries. However, from the last decade the economies of Latin America took significant steps to rectify the situation and improve their social status in the global societal framework. Such endeavor of Latin America will be examined by evaluating poverty levels of Venezuela, Argentina and Colombia (Trading Economics, 2015). Figure 13: Poverty Headcount Ratio of Venezuela over the Last Decade (Trading Economics, 2015) The poverty headcount ratio that measures the deviation of the poverty level of a county from national poverty line, over the last decade indicates a sharp declining trend from 2001 to 2010. The condition recovered in the country after the recovery of oil prices in 2001. Since then, the poverty line started declining only except in 2008 when the world economy was thrashed by the adverse effect of financial crisis. In 2009, the poverty headcount ratio was 28.50 which indicated that a less number of citizens are lying under the poverty line as compared to the previous five years (United Nations, 2015). Figure 14: Poverty Headcount Ratio of Argentina over the Last Decade (Trading Economics, 2015) Considering the case of Argentina, the country also depicted a declining trend of poverty headcount ration during the last decade. Argentina is one of the economies in the world which is growing at a faster rate than the average growth rate of global economy. As calculated in 2012, the poverty headcount ration of this seventh richest country of the world was as low as 5.40%, indicating sound economic expansion and social progress of Argentina. Figure 15: Poverty Headcount Ratio of Colombia over the Last Decade (Trading Economics, 2015) In Colombia, the poverty headcount ratio was 28.40 during the period of 2011-2012. According to the World Bank reports (2014), more than 30% population was under the poverty line among which 9.1% was suffering under extreme poverty. However, the concave curve of the last decade’s poverty line is a result of the country’s attempt of financial inclusion for poverty eradication. Conclusion Studying the past economic records of Latin America it is understood that the province had been trying to exploit their full potentials and refurbishing the poor economic condition since long past. Over the past decade, starting from 2001 to 2010, all the nations of the continent have struggled a lot to reformulate their economic policies and recover the internal economic condition. Examining the movement of macroeconomic variables and indicators of social inequalities of the three largest economies of Latin America such as, Venezuela, Argentina and Colombia, inference can be drawn that all factors of development, ranging from poverty and unemployment eradication to equal distribution of income and consumption have positively contributed towards the transition and evolution of social classes and subsequently gave rise to the middle classes in Latin America. References Balderston, D., Gonzalez, M. & López, A. M. (2000). Encyclopedia of Contemporary Latin American and Caribbean Cultures. London: Taylor & Francis. Birdsall, N. (2012). A Note on the Middle Class in Latin America. London: SAGE. Clark, M. A. (2001). Gradual Economic Reform in Latin America: The Costa Rican Experience. 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Census Figures Show Reduction in Poverty in Venezuela over Last Decade. Retrieved from http://venezuelanalysis.com/news/7644 Read More