Costa Rica’s Economic Equality Sliding
With 10 of the globe’s 15 most economically unbalanced countries, Latin America has earned the distinction of being the most unequal region in the world.
According to a report released last Thursday by the United Nations Development Program (UNDP), economic inequality is 65 percent higher in Latin America and the Caribbean than in developed countries and 18 percent higher than in Africa. The report relied on the Gini Coefficient, which measures inequality based on income on a scale of zero to one – with zero meaning income is equally distributed throughout a country’s population and one indicating a country in which all the income goes to the wealthiest.
While Costa Rica is among the most economically egalitarian nations of the region, placing behind only Uruguay on the basis of income distribution, UNDP officials said the Central American country still has a balancing act to perform.
Costa Rica’s Gini Coefficient slid from an average of 0.38 during the 1990’s to an average of 0.42 over the last decade.
Luiza Carvalho, UNDP’s representative in Costa Rica, attributed much of this drop in equality to tax exemptions granted during the past 20 years to Costa Rica’s most profitable economic sectors, such as tourism and financial services. “The most dynamic sectors of the economy, with the most elevated profits, are precisely those that don’t contribute,” she said.
The report also shed some light on poverty in the country.
In Costa Rica, 18.5 percent of the country was impoverished in 2009. In the central part of the country, where most of the population lives, roughly 15 percent of the people lived in poverty, while the country’s poorest region, the southern Brunca region, reported a 30.9 percent poverty level.
Of the 10 Latin American and Caribbean countries with the highest Gini Coefficient, three – Panama, Honduras and Guatemala – are in Central America. Bolivia proved the most unequal country of the region with a Gini Coefficient of 0.60, joining Cameroon and Madagascar as the three most lopsided countries in the world
How is Costa Rica Different?
According to the UNDP report, among the most important differences between Costa Rica and the other countries of the region is that more Costa Ricans have access to drinking water and electricity than any country in Central America.
In addition, the number of people per room in each home is nearly equal across social classes, and the country’s houses are built with sturdier materials than those of its neighboring countries, the report concludes. These factors have helped eliminate some of the most polarizing and noticeable differences between the rich and the poor.
“Countries that have lower coverage in these sectors tend to be less equal,” Carvalho said. “Costa Rica has invested a lot in these areas and in its education and health systems.
As a result, these areas are relatively stable, which leads to a lower rate of inequality.”
While Costa Rica generally boasts a higher standard of living than its Central American neighbors, the report states that the country has not adequately balanced its salaries.
The wage gap between skilled and unskilled workers and between employees in the formal and informal sectors of the economy has grown over the past 20 years.
The breach in income between skilled and unskilled workers is 16 percent higher than it was in 1990, while the gap between formal workers and their informal counterparts is 18 percent greater.
According to Costa Rica’s 2009 State of the Nation report, 60 percent of Costa Rica’s workers are “unskilled.”
To compound matters, a report by the University of Costa Rica’s Economic Science Research Institute found that 30 percent of Costa Rica’s private sector workforce earns less than the minimum wage established for their profession.
“The management of the minimum wage salaries policy is undoubtedly a factor that has contributed to the growth in inequality in Costa Rica,” Carvalho said.
While the recent worldwide recession could help explain the reluctance of the private sector to raise wages and of the government to regulate salaries, some believe the country’s efforts to attract international businesses are to blame for the expansion of inequality here.
“Inequality in Costa Rica owes its increase, in part, to an outward-oriented development model,” said Francisco Robles, a sociologist at the University of Costa Rica.
This external development method, Robles reasoned, means that much of the wealth generated by international companies, such as many tourism and financial services firms, leaves the country.
A study released this week by Costa Rica’s National University indicated that of the $23 million in business spawned by the tourism sector around Rincón de la Vieja, a national park in the northwestern province of Guanacaste, 61 percent of the capital left the country in the hands of international travel agencies and foreign tour operators during 2009.
While tax breaks and financial incentives for international tour operators explain part of the lost income opportunity for Costa Rica, according to Robles the cash drained from state pockets in order to provide these incentives is just as costly.
“A good portion of state subsidiaries have been used as instruments to promote foreign direct investment, which has limited the capacity of the state to improve education, health, living services and so on,” Robles said. “To create more equality, Costa Rica, in the first place, needs to start charging taxes.”
The report acknowledges that Latin America and the Caribbean region has made strides in eliminating inequality between 1980 and the beginning of the 21st century, but warned that the recession could halt this progress.
In order to avoid regressing, the report recommends that Central American countries invest in education; a venture that officials say has helped eradicate disparity over the past three decades.
“The principal causes of the decrease in inequality (from 1980 through 2009), were more equitable achievements in education and improvements in the impact of social spending through the implementation of specific programs,” the report states.
For Costa Rica, this means investing more heavily in education to strengthen and go beyond programs such as the government’s Avancemos program, which provides grants to help high school students stay in school (TT, Aug. 7, 2009).
While high school enrollment has increased from 64 percent in 2003 to 72 percent in 2008, Carvahlo noted that less than half of those who register for high school classes actually graduate.
“The study highlights the relevance of helpful programs such as Avencemos, in Costa Rica in relation to reducing inequality,” she said. “But the more productive employment opportunities are for those who have graduated and this is an important key for governments.”
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