Professor Kenneth Scheve: Inequality in US is becoming similar to Latin America’s.
By Ignacio Portes
Buenos Aires Herald
Stanford academic Kenneth Scheve talks to the Herald about equality and protectionism.
“Taxing the rich” is both a controversial subject in Argentina and the region. It’s also the title of an upcoming book that Stanford academic Kenneth Scheve has co-authored with NYU professor David Stasavage. Following years of research into what drives support for or against income distribution and trade protectionism, Scheve has come to Argentina to present his work in local universities, and took some time to speak to the Herald in the lobby of his hotel. He argued that Latin America has had a long history of conflict over inequality in the 20th century, but little end product has emerged in terms of progressive change, as the broad consensus seen in post-war developed countries for tax reform was absent here.
Latin America seems to be an exception when compared to Europe, the US, Asia in terms of how it seems to favour wealth redistribution and protectionist policies over the last 15 years. Why is that?
I would say first of all it’s in part a function of the relatively high levels of inequality in the continent. This created a preference for a larger presence of the state in the economy, to correct these distributional problems. There are plenty of examples of countries with large states that have done very well, with healthy welfare states that support education, the integration of women into the labour market, social insurance, unemployment, pensions and so on. So it’s perfectly possible for Latin America to chose this path and have solid economic growth. The one thing I would emphasize, however, is that these are not countries that are closed to trade, they are quite engaged with the world economy.
The debate on trade protectionism has been very present over the last decade in Argentina. Those policies gained a lot of support after a decade of pro-market reforms (in the '90s) that didn’t end very well.
Integration with the world economy creates winners and losers, so in every country around the world there are protectionist pressures. They get stronger depending on the overall success of the economy. Given the economic crisis that took place in Argentina, it makes sense that there were a lot of people wondering whether this is a good model for the economy.
The worry among policymakers is what happens when, without protection, uncompetitive industries close down, as that can create unemployment and social unrest.
It is very difficult because job creation is the key to social stability. So one might argue that the priority should be making it easier for new firms to get started and ensuring the provision of public goods that make innovation and competitiveness possible such as education.
What’s your view on Latin America’s historical inequality?
Research suggests that levels of inequality were not that different in the middle of the 19th century when compared to, say, the US. What happened was that there were some increases in inequality in Latin America after that; but also they didn’t experience that compression that took place in Europe and the US when they became more equal over the course of the 20th century.
http://buenosairesherald.com/article/197132/%E2%80%98inequality-in-us-is-becoming-similar-to-latin-america%E2%80%99s%E2%80%99
= new reply since forum marked as read
