The Inefficiency of Inequality

Thirty-Seventh Session of ECLAC (Havana, 7-11 May 2018)

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Inequality is inefficient because it hinders learning, productivity, innovation and growth. Equality is, then, not only an ethical principle inherent to development, but also a key tool for achieving it. This document examines the mechanisms by which inequality erodes dynamic efficiency in the Latin American and Caribbean economies. It analyses and measures the productivity and income effects of unequal access to health and education, as well as the consequences of inequality of opportunities arising from gender-, race- or ethnicity-based discrimination. It also examines how these inequalities play out at the level of territory, infrastructure and urban dynamics, where their costs not only weigh on productivity, but also worsen energy inefficiencies and environmental degradation, thereby compromising the development possibilities of present and future generations. ECLAC proposes strategic guidelines for increasing the dynamic efficiency of the Latin American and Caribbean economies on the basis of equality.

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External vulnerability hinders development and increases inequality

Chapter II discussed the slow growth of international trade and the persistence of a global recessionary bias, which are affecting the region’s economic performance through both trade and financial channels. The trade channel produces the most direct effect, seen in export growth figures, while the financial channel transmits the portfolio decisions that determine inward and outward volumes of cross-border capital flows. The financial channel became more important in recent decades as the countries of Latin America and the Caribbean were integrated into global credit markets, local financial systems were deregulated and the preponderance of transnational corporations in the region’s economies —including trans-Latin companies— steadily increased.

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