Peru and the Persistence of Inequality

Peter Low | Update 154. 19 December 2012

This year’s annual conference saw Latin American and European academics and development professionals come together to discuss the causes and consequences of inequality in Peru. Below we synthesise the main points made by the various speakers.

Root Causes

The economic and political disparities evident in Peru today cannot be fully understood without reference to the country’s historical development. Indeed, inequality is a deep-rooted phenomenon which first manifested itself in the, highly hierarchical, Inca society. Distribution of wealth and power in the country became even less equitable following the arrival of Spanish colonisers in the 16th century. Under their rule, class and ethnic identities became conflated, resulting in the increased marginalisation of the indigenous population. This trend continued in independent Peru, as did moves to centralise political authority in the hands of a small elite in the capital. Discrimination against indigenous groups also continued, and the mountainous and jungle regions these communities inhabited gradually ceded more power to Lima.

Inequality Today

More recently, there has been a degree of improvement in the situation of the country’s traditionally marginalised groups. High rates of economic growth have contributed to a decline in the poverty rate from 50% eight years ago to 30% today. This has been accompanied by an, albeit less dramatic, drop in the level of income inequality (between individuals) in the country.

However, much remains to be done to fully overcome the pernicious effects of Peru’s historical legacy. Despite the improvements, income remains highly unevenly distributed. The country still registers a Gini coefficient – a measure of inequality where 1 is totally unequal and 0 totally equal – of around 0.6. Furthermore, inequality between groups has actually increased over recent years, thereby reinforcing traditional ethnic and geographical divisions. Poverty in rural areas remains high and reaches up to 60% in some regions. This is coupled with stark differences in literacy rates and access to water and sanitation. Such disparities have resulted in substantial variations in life expectancy between different parts of the country. While a newborn in one of the poorer provinces, such as Huancavelica, can expect to live to around 60, their counterparts in more affluent areas, such as Lima, are anticipated to live almost 20 years longer.

The persistence of inequality is the result of various factors, both old and new. For one, little progress has been made in altering political and economic systems which have centralised power in the capital. Moreover, the absence of strong political parties and structures has made it difficult to mobilise a large support base for transformative policies (as has happened, for example, in Brazil). This has undermined the ability of the poor to ensure that economic growth – which, in Peru, has been mainly commodities driven – is effectively harnessed for local development.

Related to this has been the underwhelming performance of successive governments in increasing the tax take from the extractive industries. Humala, for example, pledged on the campaign trail that under his administration mining firms would contribute 5bn soles (£1.2bn) to state coffers annually. During subsequent debates in Congress this figure was revised down to 3bn soles (£725m). A later study found that the government has, in reality, received only 1.5bn soles (£363m). This figure also included voluntary contributions of 500m soles (£121m), which have since ceased, meaning that the total annual tax earnings from mining firms will likely end up in the region of just 1bn (£242m) soles. This equates to 0.15% of GDP, a sum far too small to finance the level of investment and social programmes needed to effectively alleviate poverty and reduce inequality.

Impacts

Unevenly distributed wealth and income is problematic in that it creates social tensions between the ‘haves’ and the ‘have-nots’. Such underlying resentments have been evident in a number of the country’s recent, and most forceful, social conflicts. They also help explain why provincial authorities, such as those in Cajamarca and Espinar, have increasingly asserted their independence and voiced criticism of the policies of the central government.

Research in other areas suggests that countries with high levels of income inequality (a Gini coefficient of more than 0.5) are more likely to become transit or production locations for illicit substances. The UN Office on Drugs and Crime, for example, stated in their 2012 World Drug Report that ‘the level of social inequality within a given society appears to contribute to or enable the development of a drug problem’. Coca cultivation in Peru has now risen for a sixth consecutive year and the country has become the world’s largest cocaine producer. The resilience of the illegal drugs trade in Peru is, in part, due to the fact that some members of marginalised groups see involvement in drug production and trafficking as the only feasible strategy for upward social mobility. This, in turn, lends strength to violent organisations, such as Shining Path, which are heavily involved in the trade. To counter such impacts, the government has recently announced new programmes to boost local development and tackle inequality as part of its counter-narcotics strategy in the coca-producing VRAEM region. Yet, given the weakness of state institutions in the area, doubts remain over how effective this programme will ultimately prove to be.

Overcoming Inequality

The most successful experiences of combating inequality in Latin America have been through formal job creation, achieved in tandem with economic growth. However, in the Peruvian context this has proved to be more challenging as there is relatively little productivity outside of the mining sector. Given the comparatively low number of jobs created by the extractive industries, diversifying Peru’s economy will be key to rectifying such shortcomings in future.

Renewed investment will also be required in public education to address the sizeable differences in quality between private and state-run educational institutions. Despite outperforming its regional partners in other areas, Peru consistently ranks last or second last in surveys of educational quality in Latin America. This effectively deprives the poor of the opportunity to obtain the skills and knowledge which could help them escape poverty. In so doing, it perpetuates the very cycles which created inequality in the country in the first instance.

Both of the above strategies represent possible long-term solutions to the problem of inequality in Peru. In the short-term, the Humala administration has sought to provide impoverished groups with immediate relief by expanding income support and conditional cash transfer (CCT) programmes. Over the past year, new initiatives have been introduced such as Pension 65 and Beca 18, both of which provide additional income to either young or elderly Peruvians. The government has also doubled the size of the Juntos programme, a CCT scheme under which beneficiary families receive payments in return for participating in child welfare programmes (in areas such as health, nutrition and education).

While such initiatives have enjoyed success in helping impoverished groups meet their immediate needs, they are not without their problems. Research indicates that they may actually serve to exacerbate gender inequality by reinforcing traditional divisions within households. The Juntos scheme, for example, cements the position of women as the primary care provider for children, by making them responsible for ensuring compliance with the various programme requirements. Furthermore, as these initiatives are based only on wealth transfers, not job creation, their long-term sustainability is questionable. Many fear that if the programmes were to end suddenly, the beneficiaries’ situation would simply revert back to its former state.

Conclusions

The causes of inequality are multi-faceted and therefore do not easily lend themselves to one clear policy solution. Economic growth offers the potential to reduce poverty and inequality, but in a commodities driven development model like Peru’s, such effects will not be automatic. Tackling this issue will require a range of reforms and social programmes which focus on both short and long-term remedies. Our conference suggests that, to do so, the country will need to focus on overcoming its history of weak institutions, strengthening its political parties, combating discrimination, improving its education system and diversifying the economy away from the extractive industries. Each of these various elements will involve substantial challenges. Yet, if these can be overcome effectively, the country will be well down the road towards creating a more equitable and just society.

 

The Peru Support Group wishes to express thanks to all speakers at the conference: Lord Avebury, Julio Cotler, Ursula Durand, Pedro Francke, Leonith Hinojosa, Diego Moya Ocampos, Marilyn Thomson.

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