One of the defining characteristics of Latin America is the enormous income gap that exists between the region’s wealthy and the region’s poor. One way that geographers measure disparity is with the 20/20 income ratio. That ratio takes the average income of the wealthiest 20% of a country’s population, and compares it to the average income of the country’s poorest 20%. Here are some 20/20 ratios for a selection of countries around the world:
- China 12:1
- United States 8:1
- France 6:1
- Turkey 5:1
- Japan 3:1
If you take the average incomes of Japan’s wealthiest 20% and their poorest 20%, the wealthy earn about three times more than the poor. The gap in the United States is much wider – the wealthiest 20% are eight times wealthier than the poorest 20%. Still, between 3:1 and 12:1 is a typical ratio for many countries around the world. But not in Latin America. Here are the 20/20 ratios for a selection of the region’s countries:
- Colombia 25:1
- Brazil 22:1
- Guatemala 20:1
- Chile 16:1
- Mexico 13:1
These are pretty typical numbers for Latin America. So, is Brazil a wealthy country? Yes. Brazil is home to a lot of very wealthy people. Is Brazil a poor country? Yes. Brazil is home to a lot of very poor people. And the middle class that falls between the rich and the poor is very small. The same can be said for most countries in Latin America.
This disparity exists for three primary reasons. One is the historic lack of industrialization. The foundation of the European and American urban middle classes in the 20th century were millions of well-paying manufacturing jobs. Since Latin America didn’t industrialize much during the 20th century, that middle class never materialized. Another reason for Latin America’s economic disparity is the historic lack of democracy. Consider the United States. In 1932, Americans suffering in the Great Depression swept Franklin D. Roosevelt to power in hopes that his New Deal would rescue the economy. In 1980, voters suffering from the recession of the 1970s elected Ronald Reagan with similar hopes. Republicans and Democrats still debate the merits of the New Deal and Reaganomics, but the simple fact that Americans can elect governments that listen to their economic concerns is significant. In many Latin American countries, that was not the case until the 1990s, and in some countries, it’s still not the case.
The primary reason for economic disparity in Latin America, however, is the legacy of economic institutions established during the colonial period. The primary goal of colonization was to extract as many raw materials as possible. Spanish and Portuguese colonizers wanted to harvest minerals, timber, and agricultural products in Latin America and ship them back home. This was by no means a partnership with the indigenous people. Native Americans either moved onto very marginal land, or served as labor on farms and mines.
A fundamentally important trait of the colonial economies were large rural estates. Wealthy Spanish and Portuguese colonizers acquired vast tracts of land – particularly land that had the best soil and/or most available resources. Poorer European migrants were, like the Native Americans, either forced onto marginal land or worked the land owned by the wealthy. The colonial economy revolved around three different economic institutions – haciendas, plantations, and mines.
The word hacienda refers to a large rural estate, or to the large house occupied by the owner of such an estate. Haciendas were usually located in the interior highlands, such as the Brazilian Highlands, the Andes, Mexico’s Central Plateau, or the Central American Highlands. These farms grew a variety of grains and raised livestock to feed the people of Latin America’s cities, missions, plantations, and mines. A hallmark of the hacienda was sharecropping.
The owners of the haciendas rarely worked the land themselves – sometimes they didn’t even live on the land they owned. These large rural estates were divided into dozens, or even hundreds, of smaller plots farmed by sharecroppers. The sharecroppers worked the land, and got to keep part of their crop to feed their families. The remainder of the crop went to the hacienda owner, who sold it for a profit. The end result was that the hacienda owner became wealthy (more accurately, wealthier), while the sharecroppers remained poor.
Plantations were a very different kind of agriculture. First, they were generally located on what is known as the Atlantic Rimland – the tropical areas of coastal Brazil, the Guyanas, the Caribbean side of Central America, the east coast of Mexico, and the Caribbean islands. Instead of producing food for domestic consumption, plantations usually produced a luxury crop for export back to Europe – usually things like sugar cane, coffee, tobacco, or rubber. Most plantations practiced monoculture, meaning they grew only one crop (a coffee plantation grew only coffee, a sugar cane plantation grew only sugar cane, etc.). The labor differed from haciendas as well. The plantation workers didn’t live on their own small plot, but worked in crews, much like factory workers.
There are plenty of plantations in Latin America to this very day, and wages on plantations are extremely low. But, years ago, the situation was even worse. Initially, Native Americans were enslaved and forced to work on the plantations. As the native populations plummeted because of disease, Spanish and Portuguese colonizers began to import slaves from Africa. The first enslaved Africans arrived in the Americas in 1502 – just a decade after Columbus’s discovery. Slaves would serve as the main source of labor on the plantations for nearly four centuries.
The third major colonial economic institution were mines. Mining was the most profitable element of the colonial economy, and mines were located throughout Latin America, but were especially prevalent in the Andes, Mexico, and the Brazilian Highlands. The mine owners became very wealthy. The miners themselves, usually poorer immigrants or Native Americans, were paid meager wages, and remained poor.
These colonial economic institutions created a two-class system in Latin America. The region’s merchants, hacienda owners, plantation owners, and mine owners became very rich. The sharecroppers, the miners, and especially the slaves, lived in poverty. And these colonial institutions outlived colonization.
Most Latin American countries gained their independence in the early 1800s. The leaders of the wars for independence were largely members of the colonial elite – people of European descent who had been born in the Americas, and who owned the haciendas, plantations, mines, and businesses. They staged these revolutions because, after three centuries of colonization, they’d largely lost their allegiance to the Spanish and Portuguese crowns. More to the point, the resented the high taxes they paid to the colonizing countries, and the trade restrictions that forced them to sell all of their products to Spanish or Portuguese merchants.
After the countries of Latin America gained their independence, not much changed in the day-to-day lives of most of the region’s population. The wealthy classes controlled the new governments, and still controlled the land and the economy. In short, those who were wealthy during the colonial days remained wealthy after independence, and those who were poor during the colonial days remained poor after independence. Over the next century and beyond, the ruling class did little to extend economic opportunity to the poor. In the United States, the Jeffersonian Ideal created the small family farm, and a thriving rural middle class. No such thing happened in Latin America.
These historic institutions continue to haunt Latin America even as more and more people are living in cities. Someone who lives in a luxury high-rise in Sao Paulo, Brazil, is likely the descendant of a wealthy merchant or landowner. Someone who lives in one Sao Paulo’s slums is likely the descendant of a miner, a sharecropper, or a slave.