Andrés Solimano Regional Adviser CEPAL, United Nations Washington - June 27 & 28, 2006 Asset Accumulation by the Middle Class and the Poor: Economic Considerations and the Latin American Experience The Brookings Institution / Ford Foundation Workshops

2 Themes: 1.Current Paradigm in Social Policy (linked to the Washington Consensus). 2.Asset Distribution in Latin America (LA). 3.Savings, Capital Markets and Property Rights. 4.What to do?: Alternatives for Social Policy and Role for Asset Accumulation.

3 1. Current Paradigm in Social Policy linked to the Washington Consensus  Main assumptions: i) Growth-led poverty reduction. ii) Targeted cash transfers. iii) Social safety nets.  Results have not been encouraging in Latin America: i) Persistency of poverty (over 40% of the population is poor). ii) High inequality (Gini coefficients over 0.5).  Why? i) Modest economic growth (see figure 1). ii) High frequency of growth crisis (see table 1). iii) Persistent inequality that reduce the impact of growth on poverty. iv) Narrowly defined social policies.

4 Figure 1. Latin America and the Caribbean GDP per capita (PPP) as a percentage of the United States GDP per capita (PPP), (Constant 2000 International US$) Source: World Bank, WDI Indicators online database Ratio (%) 2004

5 Table 1. Growth Crises in LA and Reference Group, Source: Solimano, A. (2006). Vanishing Growth in Latin America. The Late Twentieth Century Experience. Edward Elgar Publishers.

6 2. Asset Distribution in Latin America (LA)  Housing is the most important asset hold by households in LA.  Education is another important “asset” in LA.  A large proportion of the population (69%) owns their homes.  This high pattern of home ownership in LA is associated with the prevalence of illegal settlement and with housing policy for the poor and the lower middle class.  Relative concentration of land tenure (partially corrected by agrarian reform).  Capital and financial assets are more concentrated than home equity.  “Quality education” is unevenly distributed.

7 3. Savings, Capital Markets and Property Rights  There are three main impediments for a more evenly distribution of assets in LA region: 1.The limited saving capacity of low income groups (although their savings capacity is not zero). 2.The property rights often do not reach to the poor. Lack of titling of property (“dead capital”). 3.Capital markets are segmented, low access by the poor to productive credit and education loans.

8 4. What to do?: Alternatives for Social Policy and Role for Asset Accumulation  Six highlights: 1.Reassess the link between economic growth and poverty reduction. Attention to inequality. 2.Focus on labor markets and education. 3.Go beyond targeting and bring the middle class as a beneficiary of broader social policy. 4.Widen the access to assets to the middle class and the poor. 5.Reforms in credit markets and the legal system. 6.Avoid the populist temptation.

Andrés Solimano Regional Adviser CEPAL, United Nations Washington - June 27 & 28, 2006 Asset Accumulation by the Middle Class and the Poor: Economic Considerations and the Latin American Experience The Brookings Institution / Ford Foundation Workshops