Global Policy Forum

By Steven Gutkin

The Sambil shopping mall in eastern Caracas is Latin America's largest. It boasts 450 stores, two movie theatres, an amusement park, a 30,000-gallon (115,000-litre) aquarium - and a McDonald's where Big Macs cost a half day's pay for the average Venezuelan worker.

A slum just a few miles (kilometres) to the west has open sewers running alongside tin shacks perched on unstable hillsides, flies buzzing in uncollected garbage and idle young men nursing bullet wounds. Blanca Vera, 65, lifts her baby granddaughter's blouse to reveal blotches on her tiny stomach. "This is from the pollution," she says.

Among the 12 heads of state who met in Brazil's capital last week for the first South American summit, even those whose countries have experienced spectacular growth have been unable to narrow the gap between shiny mall and poisonous slum.

A decade of economic decline in the 1980s was only partially reversed in the 1990s, and the World Bank estimates nearly 40 percent of the region's population - or some 175 million people - live in poverty.

The news is not all bad. Absolute poverty in most Latin American nations appears to be falling, with key indicators such as infant mortality, literacy and life expectancy showing improvement.

Still, inequality of wealth and opportunity is a huge obstacle to development in Latin America. The existence of so many have-nots threatens to undermine the success of the region's two great experiments of recent years: democracy and free markets.

On average, half of each nation's income goes to the wealthiest 15 percent of the population, the Inter-American Development Bank says.

In Chile, the highest-paid 6 percent of workers get 30 percent of salaries, while 75 percent of workers get just 4 percent, according to the United Nations' Economic Commission for Latin America and the Caribbean. In Brazil, the richest 10 percent of the population accounts for 46 percent of the wealth, while the poorest 50 percent accounts for just 14 percent.

The U.S. income gap is not much different from Latin America's, but the magnitude of poverty south of the border is much greater.

Some blame the growing inequality on globalisation. Thousands of workers have been laid off in privatizations of state enterprises, and international competition often drives down wages for low-skilled jobs and raises pay for jobs requiring greater skills.

In Peru, as in most Latin American nations, overall poverty went down during the 1990s. But Oscar Ugarteche, a Peruvian economist and author, says that cuts in subsidies and higher utility bills from privatised telephone and energy sectors have driven up the cost of living for Peru's poor. "It's trickle up, not trickle down," he insists.

Yet most economists say the real culprit is not globalisation but misguided state policies that deprive the poor of a decent education, fail to collect taxes and encourage corruption.

There's another factor that's harder to define but likely is just as real: a culture of elitism that regards poor people as unworthy. "You can't operate in a globalised economy with a narrow, tiny elite sector that has absolutely no connection or appreciation of the vast majority of people in society," said Michael Shifter, a Latin America specialist at the Washington-based Inter-American Dialogue.

Of all the elements widening the gap between rich and poor in Latin America, inadequate education is probably the most destructive. Public schools are in decay from Mexico to Argentina, perpetuating the advantages of the wealthy who almost always send their children to private schools.

Most Latin American countries have directed precious state resources to universities at the expense of primary and high schools. John Scott, an economist in Mexico City, notes that in Europe there's an average gap of two to four years in education levels between the richest 10 percent and the poorest 10 percent of the population, while in Mexico the gap is 10 years.

It's no accident that two of the region's most forward-looking leaders, President-elect Vicente Fox of Mexico and Chilean President Ricardo Lagos, have made investing in basic education a cornerstone of their policy platforms.

Having embraced free-market economic reforms, most of the region's policy-makers are now looking for ways to bridge the wealth gap - concluding that aggressive government action is needed to ensure poor people benefit from the increased productivity, income growth and technological advances that accompany globalisation.

Venezuelans have taken that conclusion a step further, electing as president a leftist former coup leader who rails against the wealthy and promises to restore dignity to the masses. Venezuela's vast oil reserves - the largest outside the Middle East - let it avoid many of the free-market reforms that swept the rest of Latin America in recent years.

"We have money in this country," said Xiomara Tortosa, a Venezuelan activist who helps organise poor communities in Caracas. "But there is no policy that directs resources to where they're needed most."

Persistent poverty and inequality have turned Venezuela into fertile ground for a populist like President Hugo Chavez. Many wealthier Venezuelans fear Chavez's statist bent will prevent their country from competing in the modern world, but the poor still see him as their best hope.

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