Tackling inequality in Latin America: A report from the Organization of American States Private Sector Forum

I’ve been talking about the importance of inequality to everyone in Peru who cares to listen for quite some time now. When I left Peru over six years ago, this ‘inequality’ concept was a term used by a few social and economic researchers with poor communication skills. We had not yet figured out how to explain why it mattered that not everyone benefited from growth in the same way (and at the time we were still in a recession) and resorted to pointing at the persistence of extreme absolute poverty. One of the most compelling arguments was made by a senderólogo (someone who studies Sendero Luminoso, Shining Path, the Peruvian Maoist group). He argued that if Sendero were defeated, another guerrilla movement would emerge because the root cause of the problem, inequality, would still exist. Inequality would continue to breed violence.

With time, the concept became clearer and the term was picked up by the popular media. This has made it easier to explain and for others to understand the importance of inequality. Last year, I sat through a few presentations by government officials that included Gini-coefficient graphs and discussions about how their policies had to address inequality. Yes, they were using evidence that was to their own advantage, but at least they were using it.

Then, when I was on holiday in Lima this year, I came across another change. While the government has been busy figuring out how to talk about inequality and bold redistributive policies without scaring Peruvian and foreign investors and markets, the corporate sector has leap frogged them and is now – unlike the government – ready for radical policies. The old ‘inequality breeds violence’ concept had finally made it to the mainstream. What made it happen?

The last electoral process seems to have changed everything: the threat of a radical nationalist government, fuelled by feelings of exclusions and injustice and inequality, had put the country on hold for two years. With three years until the next elections, business leaders can expect just two more of stability – unless the situation of the poor changes dramatically, and soon.

This is a feeling shared by business leaders across the country. The Conferencia Anual de Ejecutivos (CADE), the annual business leaders’ forum, has focused on education, poverty and inequality, unemployment and other issues commonly left for the NGOs and the ‘social sectors’. And this is not unique to Peru, either.

This is not new, of course. The Economist has reported on a new kind of partnership between corporations and NGOs campaigning for public and social change, and ODI has a growing portfolio of action research projects focused on the role of the private sector in development policy and practice.

I recently participated in the Organization of American States’ Private Sector Forum in Medellin, Colombia (29-30 May). The Forum brought together business leaders from the Americas to make recommendations to OAS delegates during their Annual Assembly.

All the usual suspects talked about the importance of democratic governance for development and public–private partnerships.

Eugenio Marulanda (President of the Private Sector Forum) set the tone by calling for the development of a regional ‘block’, commitment to democratic governance, collective prosperity and sustainable development. The Mayor of Medellin then told the fascinating story of public–private partnership for the public rather than the private sector that has revolutionised the city. The words security and trust made an entrance to the Forum in his speech.

These new institutions – public–private partnerships for the public rather than the private sector – were echoed by Alan Rosling, Tata Sons Group Executive Director, and Gabriel Rozman, who oversees emerging markets for Tata Sons. A new breed of southern transnational corporations is characterised by business models that serve customers wherever they are, have an entirely diverse workforce, and are linked together through new technologies. These new corporations need to earn their place in the global economy. To do so they have to focus not only on making a profit but on how they make it (Tata Sons, for example, is owned by a foundation). Latin America, however, does not yet have the institutional arrangements, including legislation, that would help it take advantage of these new initiatives.

What is happening right now, the Forum suggested, is that Latin American countries are competing with each other, but it will take the block to be competitive in this new world.

The second day was capped by speeches by José Miguel Insulza, OAS Secretary General, Enrique Iglesias, Secretary General of the Iberoamerican Secretariat, Luis Alberto Moreno, President of the Inter-American Development Bank, and Colombian President, Alvaro Uribe.

Insulza echoed the need for pro-poor democratic governance, a term used throughout the conference but not defined, while Enrique Iglesias spoke of the need for new institutions for development and strategies that focus on democratic governance, private investment, competitiveness and social cohesion.

Luis Alberto Moreno picked up where Chilean Senator Carlos Ominami left off the day before, and urged increased public investment. Latin America is famous for missing opportunities and this time, it was agreed, the region risks missing the chance to use its record international reserves to ensure the sustainability of record growth. Moreno focused on the food price crisis. In his view, this has been fuelled by: an increased demand for food (in particular meat); record high fuel prices; restrictions to trade (partly as a consequence of political panic to increasing food prices); speculative commodity investors; global warming; a new demand for bio-fuels; and the weak dollar. The crisis is a sign for the region to refocus its attention on the countryside: ‘Hay que volver al campo’, he concluded.

Overall, the Private Sector Forum painted a picture of a new kind of world: one with new global drivers, new institutions and new rules of the game. The food price crisis and high fuel prices, according to Joyce Chang. Head of Emerging Markets at JP Morgan, are not temporary. But Latin America is in an historic position to deal with both and come out on top. It can produce enough food and energy as a block.

Overall, the Private Sector Forum was full of goodwill but resulted in few policy solutions. On the one hand, we heard recommendations such as the types of policies supported by the Inter-American Development Bank (IADB) and those voiced by Insulza, Iglesias and Chang, but no conclusive regional action plans. And on the other , endless stories of fantastic corporate social responsibility initiatives, public–private partnerships and innovation. But no policies yet.

What the private sector in Peru and at the OAS meeting seem to want, but could not articulate was not ‘how can I do good’, but ‘what do I tell the government to do?’

In the end, the key words to remember are: public-private partnerships, security, trust, investment, social cohesion and innovation.

And the question is: are governments and regional political bodies ready to respond to this demand for new bold institutions and policies to tackle inequality?

It seems the private sector is willing to listen and is challenging governments to be bolder. There is an opportunity here that should be grasped by those trying to convince governments of the need for change.