Inequality in the Southern Cone: A Northian Analysis of Political and Economic Stability

The commodity boom of the mid-2000s saw prices of commodities increase after two decades of relatively depressed prices, in large part due to the rapid industrialization of several East Asian nations (Gruss 2014: Adler and Sosa 2011). Commodity prices are notably volatile, even during booms and busts, and as of 2008, 95 out of 141 developing world countries relied on the export of primary commodity prices for over half of their foreign exchange reserves (Brown, Crawford, and Gibson 2008). Commodity dependence in South America is significant, with 10Percent of GDP deriving from exports of primary commodities (Adler and Sosa 2011). This paper will be a quantitative case study of Argentina, Brazil, and Chile that looks to examine the relationship between the prices of their most relied upon commodity exports and the level of income inequality in each country. For this study, income inequality, as measured by the GINI coefficient, serves as a measure of political and economic stability. The study will look at three time periods. First, the period from 1992 to 2002, known hereafter as the pre-boom period. Then, from 2003 to 2014, the years of the boom. Finally, an analysis of the post-boom years with policy recommendations and future insights. Scholars have disagreed over some of the primary causes of the progress that has been made in reducing inequality in recent years. Some propose that the inclusive nature of democratic institutions, improvements in education, and technological advancements have created more equal societies (Lopez-Calva, Nustig 2010 Ch.1). Conditional and unconditional cash transfers and improving labor market institutions have ameliorated income inequality. Others have seen that the increase in rents from commodities have had mixed overall effects depending on how diversified the commodities are and which kind of commodities are extracted (Salas 2016). Overall, this paper will investigate the relationship between the price of the commodity that makes up the largest share of the overall commodity production of Argentina, Brazil, and Chile, soybean, iron ore, and copper ore, respectively, and income inequality, used as a proxy for political and economic stability over a period from 1992 to 2014. All three countries saw dramatic economic growth over this period, as well as reductions in their GINI Coefficients, allowing more people to enjoy the vast mineral and overall resource wealth equitably. The causes and sustainability of such stability remain in question. After a decade of leftist rule by the Kirschners in Argentina, current President Mauricio Macri won the 2015 elections, despite not being the candidate supported by Cristina Kirschner, the then popular outgoing president. Macri instituted neoliberal reforms by decree to improve the country’s woeful economic situation. In Brazil, economic policy remains focused on extractive enterprises, while the political system remains marred by constant ongoing investigations of presidents and members of Congress. Chile after years of center-left governance under Concertacion, elected a candidate from the center-right coalition. Chile appears to have achieved economic stability, yet income inequality remains a significant issue.