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Luis Bértola Universidad de la República, Uruguay ECLAC consultant

The Political Economy of Structural Change and Progressive Income Distribution LAC-EU ECONOMIC FORUM 2013 Globalization, International Trade and the Welfare State at Crossroads: Converging Views in European and Latam countries? Santiago, ECLAC, January 2013.

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Luis Bértola Universidad de la República, Uruguay ECLAC consultant

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  1. ThePoliticalEconomy of StructuralChange and ProgressiveIncomeDistributionLAC-EU ECONOMIC FORUM 2013Globalization, International Trade and the Welfare State at Crossroads:Converging Views in European and Latam countries?Santiago, ECLAC, January 2013 Luis BértolaUniversidad de la República, UruguayECLAC consultant

  2. Content 1. Productivity, structuralheterogeneity and incomedistribution. 2. Productivitydistributionamongworldcitizens (structuralheterogeneity). 3. Functionaldistribution and productivity: whatisleftbehindthecycles? 4. Differentdimensions of inequality 5. TheRobin Hood paradoxrevisited Final remarks: Thedistinctive case of thepoliticaleconomy of natural resource-intensiveeconomies

  3. 1. Productivity, structuralheterogeneity and incomedistribution: mainarguments • High income inequality in Latin America is deeply rooted in its heterogeneous productive structure. • Other institutional features, as the weak State and unequal distribution of economic, social and political power, add to inequality in factoral distribution. • The role of natural resources in capital building, concentration of property and generation of rents is crucial to understand the heterogeneous productive structure and the patterns of income distribution. • The role of natural resources is also crucial to understand the extreme volatility of the Latin American economy and the challenges imposed to policy-making and sustainable growth. • The scarce diversification of the productive structure, adds to power relations, in limiting income growth and the expansion of the public sector and the welfare state. • Structural differences with Europe are clearly noticeable.

  4. 2. Productivitydistributionamongworldcitizens (global structuralheterogeneity) A classicaltopic at ECLAC sinceAnibal Pinto Integratingcross-section and convergence-divergenceapproaches. • 32 countries • 7 groups(AL, Asia, Scandinavia, Eurolatin, Settlers, EuropeCore, USA, (and alsoAllEurope). • 9 productivesectors: GDP at currentdollars, employment, labourproductivity. • Years: 1991, 1996, 2001, 2006.

  5. Basic data

  6. “Global” inequality in productivity, 1991-2006 • A slightincrease in inequalityduringthese 15 years.

  7. Inequalitybysectors Inequalitywithinsectorsis a proxy forinequalitybetweencountries, giventhateachobservationcorrespondstoone particular country and thateach country has onlyoneobervation per sector. Inequalityincreasesbothwithin and betweensectors (countries), butishigherwithinsectors (betweencountries). Inequality, at a global level, ismainlywithinsectors (i.e., international, betweencountries). However, thedynamicforceisbetween-sector inequality, whichalso poses theproblem of specialization.

  8. Whichsectors are more heterogeneous?

  9. Inequalityby country groups Inequalityisslightlyhigherbetweengroupsthanwithin, a featurethatisreinforcedduringtheseyears.

  10. Whichgroups are more heterogeneous? LatinAmericaisthe more heterogeneousgroup… … and the more volatileone!!!!!!!! (even in comparisontoEurope, with more countries 13-10, and higher pop. share, 30-26%).

  11. LatinAmerica:Inequalitybysectors

  12. Thedominating and increasinginequality-sourceisbetween-sector inequality (i.e., withincountries).

  13. Inequality in productivitywithinLatinAmericaisnotmainlyarisingfromdifferencesbetweencountries, butwithinthem. • ThisconfirmsLatinAmerica as theonewithhihestheterogeneity and volatility.

  14. Structural heterogeneity by country(Gini-coefficient for productivity)

  15. Structuralheterogeneity and incomedistribution are highlycorrelated: Norway, Venezuela are outliers Source: Astorga, R. (ECLAC)

  16. 3. Functionaldistribution and productivity: whatisleftafterthecycles?

  17. Minerals

  18. Agriculture

  19. Uruguay: real landprices (deflatedby CPI) and productivityadjusted real landprice, 1913=100

  20. LABOUR SHARES (AT CONSTANT FACTOR COSTS), 1990-2009 - Labour shares are low in LatinAmerica and tended todecrease in 1990-2009- as labourproductivityincreases, labour shares are reduced (ECLAC, 2012, Box V.2)

  21. The dynamics of the functional distribution of income • The role of the rents of natural resources • Control of natural resources • Distribution of rents • Sustainability vs. volatility • The political economy of structural change and relative price movements

  22. 4: Differentdimensions of inequality: theHumanDevelopmentEqualityIndex

  23. 5. Per capita GDP and PublicExpenditure, 2001-2007. • The 1rst Robin Hood Paradox: thosecountriesthatneed more publicexpenditure are thosethatcollectlesstaxes in relationto GDP and thushave a lessthanproportional per capitapublicexpenditure.

  24. TheSecondRobin Hood Paradox: thelowerthe per capitaincome, thelowertheimpact of social expenditureonthereduction of inequality Source: Lindert, P.

  25. TheThirdRobin Hood Paradox: social expedniturenotalwayshelpreducinginequality.

  26. Final remarks:Thedistinctivepoliticaleconomy of natural resource-intensiveeconomies • Unless capital investment and human capital investmentcreatesconditionsforinnovation and a drastic and persistentchange in theproductivestructure, sustained per capita GDP convergencewillnottake place and thewelfarestatewillnotbesustainable. • Inequalitywillnotsignifcantlydecrease, as a consequence of persistentstructuralheterogeneity, and because of thepersistence of forcesrecreatinginequality. • Thegreatproblemisthatthisprocesscannottake place withoutthesimultaneouscreation of a welfarestate. • Thekeyisanintegratedapproachto industrial policy, innovation, structuralchange and social policy. • The risk is the combination of cycles of optimism with redistribution without structural change.

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