Can Wealth Bring Equality In Latin America?

Some 100 million people have emerged from poverty since the 1980s. Is that enough?

In Mata de Sao Joao
In Mata de Sao Joao
Rodrigo Lara Serrano*

SANTIAGO — Sibele and Odair dos Santos live and work in Porto Seguro on Brazil’s Northern Atlantic coast, and together earn about $590 a month. A decade ago their quality of life was transformed thanks to hard work, an increased minimum wage and government aid programs.

At a certain point, 32-year-old Sibele stopped working in a bakery and became an assistant teacher while studying education at university. And she is no exception. “I see how, like us, many people have a better life today,” she says.

For sure in Brazil, households whose members had an average per capita income of less than $2.50 a day fell from 24.1 per cent in 1995 to 10.2 per cent in 2011.

The same is happening elsewhere, and the most recent studies have shown an “important decrease in inequality in almost all" Latin American countries in the past decade, says César Bouillon, a lead research economist at the Inter-American Development Bank (IDB).

Bouillon says Latin America has discarded the shameful reputation of being the world’s most unequal region, and is now behind Africa in that respect. It may not seem much he says, but “if in the 1980s, half of Latin Americans were poor, now only three out of 10 are poor. More than 100 million people have left the state of poverty.”

Real democracy

Eduardo Ortiz-Juárez, an economist working with the United Nations, says efforts to reduce inequality not only reduce poverty, but also help create “a new middle class.” This class he said grew in Latin America over the past decade, from 21.9% to 31.3% of the population.

Why is this shift happening now? Conventional wisdom might link this to the "automatic effect" of economic growth derived from booming commodity prices. But the spread of "real democracy" is cited as another reason. Though still with some holes, democracy has taken root in the region and allowed "parties committed to equality and solidarity to grow," says Evelyne Huber, political science professor at the University of North Carolina. She believes that once legitimate democracy is installed, two decades are needed on average for inequality to begin to fall. That was the time needed in Latin American states for parties defending the underprivileged to consolidate their positions in the face of residual resistance by "authoritarian enclaves."

Celia Lessa Kerstenetzky of Brazil's public Fluminense Federal University agrees that "economic inequality moves inside the political system." Money and influence "carry a lot of weight in politics, especially in unequal countries," she says of Brazil, though her comments also apply to Colombia, Paraguay and Central American states.

Virtuous circle

While transparent, democratic politics maintain the virtuous cycle Latin America has to set in motion, the cycle of declining inequality was given its initial push by vast aid programs to the poor and increases to the minimum wage.

It is a model that needs revision today, says Huber, given the differing population sizes of Latin American countries. She says direct state aid initiatives like Bolsa Familia in Brazil or Renta Dignidad in Bolivia, need scrutiny when they "focus" on a segment as big as 40% to 70% of the entire population. Eduardo Ortiz-Juárez says initiatives like Oportunidades in Mexico helped reduce inequality by one per cent a year. This, alongside increased hourly and minimum wages "explains 50% of the drop in inequality," he says.

After this initial phase, quality education becomes fundamental. Ortiz-Juárez says public educational services must meet the market's demands if inequality is to keep falling. He urges an extension of quality, cost-effective education across the population. In Porto Seguro where Sibele lives, only 47.3% of people have finished their primary and secondary schooling, and higher education offered in the region is minimal and expensive.

The absence of quality mass education — or educational segregation — is said to distort market patterns and productivity across the economy, helping to keep inequality entrenched. In Mexico, for example, inequality persists because of the inability to create quality jobs for the increasing number of job seekers, while in Chile the dearth of qualified workers impedes productivity gains in practically all areas of its economy.

Argentina, Brazil, Mexico and Peru have recently reduced inequality in part by narrowing wage differences between the highest and lowest-paid workers. But this followed earlier progress in making education universal. In Chile, says Evelyne Huber, children attending municipal schools have "dramatically lower" chances of ultimately entering one of the country's eight best universities. Differences in the quality of education let inequality fester for generations.

Tax Revolution

Massive investment in public education systems is needed to make them world class. For that, taxation must be reformed, and researchers agree more people must pay income tax and not just consumer levies like sales tax. César Bouillon says states must review their labor "black markets" in a region where those avoiding taxes can reach 60% of the working public.

"Until these people enter the system, raising income tax will merely increase the tax burden on those" already paying income and consumer taxes, he says.

But in the face of these challenges, the regional middle class face a dilemma: should they use the mediocre public services or pay for private ones? If they pay more taxes and want to buy private services, they must then choose between restricting consumption and tax evasion. The challenge is to bring the middle class back to public education and health services.

Middle-class participation says Huber, "not only reduces rejection of paying taxes to finance services they do not use, but also uses the energies and contribution to education of middle-class parents."

The last two components Huber proposes are innovation and smart finance. In an economy open to global commerce, per capita income levels can rise through industrial modernization and investments in technology. But this should be moderated with measures to control capital flows and manage exchange and interest rates.

The last thing anyone wants now are the boom-and-bust cycles that crippled the region in the 1970s and 80s.

*Camilo Olarte in Mexico City and Marlene Jaggi in Sao Paulo contributed reporting

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7 Ways The Pandemic May Change The Airline Industry For Good

Will flying be greener? More comfortable? Less frequent? As the world eyes a post-COVID reality, we look at ways the airline industry has been changing through a pandemic that has devastated air travel.

Ready for (a different kind of) takeoff?

Carl-Johan Karlsson

It's hard to overstate the damage the pandemic has had on the airline industry, with global revenues dropping by 40% in 2020 and dozens of airlines around the world filing for bankruptcy. One moment last year when the gravity became particularly apparent was when Asian carriers (in countries with low COVID-19 rates) began offering "flights to nowhere" — starting and ending at the same airport as a way to earn some cash from would-be travelers who missed the in-flight experience.

More than a year later today, experts believe that air traffic won't return to normal levels until 2024.

But beyond the financial woes, the unprecedented slowdown in air travel may bring some silver linings as key aspects of the industry are bound to change once back in full spin, with some longer-term effects on aviation already emerging. Here are some major transformations to expect in the coming years:

Cleaner aviation fuel

The U.S. administration of President Joe Biden and the airline industry recently agreed to the ambitious goal of replacing all jet fuel with sustainable alternatives by 2050. Already in a decade, the U.S. aims to produce three billion gallons of sustainable fuel — about one-tenth of current total use — from waste, plants and other organic matter.

While greening the world's road transport has long been at the top of the climate agenda, aviation is not even included under the Paris Agreement. But with air travel responsible for roughly 12% of all CO2 emissions from transport, and stricter international regulation on the horizon, the industry is increasingly seeking sustainable alternatives to petroleum-based fuel.

Fees imposed on the airline industry should be funneled into a climate fund.

In Germany, state broadcaster Deutsche Welle reports that the world's first factory producing CO2-neutral kerosene recently started operations in the town of Wertle, in Lower Saxony. The plant, for which Lufthansa is set to become the pilot customer, will produce CO2-neutral kerosene through a circular production cycle incorporating sustainable and green energy sources and raw materials. Energy is supplied through wind turbines from the surrounding area, while the fuel's main ingredients are water and waste-generated CO2 coming from a nearby biogas plant.

Farther north, Norwegian Air Shuttle has recently submitted a recommendation to the government that fees imposed on the airline industry should be funneled into a climate fund aimed at developing cleaner aviation fuel, according to Norwegian news site E24. The airline also suggested that the government significantly reduce the tax burden on the industry over a longer period to allow airlines to recover from the pandemic.

Black-and-white photo of an ariplane shot from below flying across the sky and leaving condensation trails

High-flying ambitions for the sector

Joel & Jasmin Førestbird

Hydrogen and electrification

Some airline manufacturers are betting on hydrogen, with research suggesting that the abundant resource has the potential to match the flight distances and payload of a current fossil-fuel aircraft. If derived from renewable resources like sun and wind power, hydrogen — with an energy-density almost three times that of gasoline or diesel — could work as a fully sustainable aviation fuel that emits only water.

One example comes out of California, where fuel-cell specialist HyPoint has entered a partnership with Pennsylvania-based Piasecki Aircraft Corporation to manufacture 650-kilowatt hydrogen fuel cell systems for aircrafts. According to HyPoint, the system — scheduled for commercial availability product by 2025 — will have four times the energy density of existing lithium-ion batteries and double the specific power of existing hydrogen fuel-cell systems.

Meanwhile, Rolls-Royce is looking to smash the speed record of electrical flights with a newly designed 23-foot-long model. Christened the Spirit of Innovation, the small plane took off for the first time earlier this month and successfully managed a 15-minute long test flight. However, the company has announced plans to fly the machine faster than 300 mph (480 km/h) before the year is out, and also to sell similar propulsion systems to companies developing electrical air taxis or small commuter planes.

New aircraft designs

Airlines are also upgrading aircraft design to become more eco-friendly. Air France just received its first upgrade of a single-aisle, medium-haul aircraft in 33 years. Fleet director Nicolas Bertrand told French daily Les Echos that the new A220 — that will replace the old A320 model — will reduce operating costs by 10%, fuel consumption and CO2 emissions by 20% and noise footprint by 34%.

International first class will be very nearly a thing of the past.

The pandemic has also ushered in a new era of consumer demand where privacy and personal space is put above luxury. The retirement of older aircraft caused by COVID-19 means that international first class — already in steady decline over the last decades — will be very nearly a thing of the past. Instead, airplane manufacturers around the world (including Delta, China Eastern, JetBlue, British Airways and Shanghai Airlines) are betting on a new generation of super-business minisuites where passengers have a privacy door. The idea, which was introduced by Qatar Airways in 2017, is to offer more personal space than in regular business class but without the lavishness of first class.

Aerial view of Rome's Fiumicino airport

Aerial view of Rome's Fiumicino airport

Hygiene rankings  

Rome's Fiumicino Airport has become the first in the world to earn "the COVID-19 5-Star Airport Rating" from Skytrax, an international airline and airport review and ranking site, Italian daily La Repubblica reports. Skytrax, which publishes a yearly annual ranking of the world's best airports and issues the World Airport Awards, this year created a second list to specifically call out airports with the best health and hygiene standards.

Smoother check-in

​The pandemic has also accelerated the shift towards contactless traveling, with more airports harnessing the power of biometrics — such as facial recognition or fever screening — to reduce touchpoints and human contact. Similar technology can also be used to more efficiently scan physical objects, such as explosive detection. Ultimately, passengers will be able to "check-in" and go through a security screening anywhere at the airports, removing queues and bottlenecks.

Data privacy issues

​However, as pointed out in Canadian publication The Lawyer's Daily, increased use of AI and biometrics also means increased privacy concerns. For example, health and hygiene measures like digital vaccine passports also mean that airports can collect data on who has been vaccinated and the type of vaccine used.

Photo of planes at Auckland airport, New Zealand

Auckland Airport, New Zealand

Douglas Bagg

The billion-dollar question: Will we fly less?

At the end of the day, even with all these (mostly positive) changes that we've seen take shape over the past 18 months, the industry faces major uncertainty about whether air travel will ever return to the pre-COVID levels. Not only are people wary about being in crowded and closed airplanes, but the worth of long-distance business travel in particular is being questioned as many have seen that meetings can function remotely, via Zoom and other online apps.

Trying to forecast the future, experts point to the years following the 9/11 terrorist attacks as at least a partial blueprint for what a recovery might look like in the years ahead. Twenty years ago, as passenger enthusiasm for flying waned amid security fears following the attacks, airlines were forced to cancel flights and put planes into storage.

40% of Swedes intend to travel less

According to McKinsey, leisure trips and visits to family and friends rebounded faster than business flights, which took four years to return to pre-crisis levels in the UK. This time too, business travel is expected to lag, with the consulting firm estimating only 80% recovery of pre-pandemic levels by 2024.

But the COVID-19 crisis also came at a time when passengers were already rethinking their travel habits due to climate concerns, while worldwide lockdowns have ushered in a new era of remote working. In Sweden, a survey by the country's largest research company shows that 40% of the population intend to travel less even after the pandemic ends. Similarly in the UK, nearly 60% of adults said during the spring they intended to fly less after being vaccinated against COVID-19 — with climate change cited as a top reason for people wanting to reduce their number of flights, according to research by the University of Bristol.

At the same time, major companies are increasingly forced to face the music of the environmental movement, with several corporations rolling out climate targets over the last few years. Today, five of the 10 biggest buyers of corporate air travel in the US are technology companies: Amazon, IBM, Google, Apple and Microsoft, according to Taipei Times, all of which have set individual targets for environmental stewardship. As such, the era of flying across the Atlantic for a two-hour executive meeting is likely in its dying days.

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