The Pandemic and Poverty: Was the Intended Model a House of Cards?

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The predictions never varied much: hundreds of thousands, if not millions, of Chileans would fall into poverty, and those that are already poor would see their situation worsen further. Specialists agree that the Covid-19 pandemic is a perfect storm for a country notable for the vulnerability of its population and its economic system. If most of the country lives in a sort of elevator that rises and falls above and below the poverty line, Covid-19 cut the elevator cables. And it’s not clear how that elevator is going to be lifted back out of the depths.

By Francisco Figueroa

At the end of 2019 the Plaza Italia in Santiago was the epicentre of a massive social uprising that demanded a social dignity beyond having enough to eat. Months later and that same space, popularly renamed the Plaza de la Dignidad, echoes with a less ambitious but much more desperate struggle: to avoid the hunger caused by the havoc inflicted by Covid-19.

Credit: Alejandra Fuenzalida.

This shift in the collective imaginary of the country reflects the brutal fall in social and economic expectation thanks to the Coronavirus pandemic. Added to the Cepal predictions of a 4% increase in absolute poverty in Chile, are the worrying numbers given by the INE (Instituto Nacional de Estadísticas) about the last trimester: employment fell by 16.5% and unemployment is at 11.2%.

Given the difficulty of accessing reliable data because of current sanitary measures of quarantining, these data projections and data are produced with an uncertain economic outlook and relative “statistical blindness” about the real evaluation of unemployment and income. What is clear, however, is that as well as revealing a very real increase in poverty, this crisis also challenges the way in which we perceive the concept of poverty and the strategies the country had used to reduce it.

Flattening the (poverty) curve

The sociologist Emmanuelle Barozet, professor and researcher at the Faculty of Social Sciences (Facso) at the Universidad de Chile, poverty will increase at the cost of those who were considered “middle class” but never really were. Using sociological measures based on job identification she explains that “the middle class is a consolidated group, with stable contracts; qualified professionals who have a greater capacity for withstanding economic shocks such as the one we are experiencing”. She argues that not more than 30% of the population are, by these measures, middle class.

Others who are “neither rich nor poor” are in a different category. “There is a large percentage of the workforce in Chile, about 40% of the population, who are not middle class, as they don’t have qualified jobs or stable contracts, and are deeply in debt. This group works informally. While this large sector of society wasn’t previously poor, their situation is now threatened by job loss, sickness, the death of a close relative, the need to stay at home and look after dependents, and the corresponding loss of income”, argues Barozet.

The sociologist Emmanuelle Barozet, professor and researcher at the Faculty of Social Sciences (Facso) at the Universidad de Chile.

Carlos Ruiz Encina, also sociologist at the Facso, adds that the fact that these sectors of society were above the poverty line before the Covid-19 pandemic doesn’t mean that they were better prepared to resist it than those below the poverty line. “The social situation is basically the same on either side of the poverty line, because there’s a high level of exchange around this line. For those people just above the poverty line, at least 4 or 5 deciles, it only takes one thing to pull them back down below the line. The Covid-19 curve wasn’t flattened, but the poverty curve has been”, he argues.

This rotational shift and the precariousness of work, the insecurity of income and the level of private debt, adds Ruiz Encina, are the outstanding characteristics of this sector of society. Which is why, he suggests longitudinal studies (that look individual trajectories over time) are more revealing than studies that “take a snapshot” as the Casen one does. “If at the moment the snapshot was taken more people in the household were working, then the whole group would be three or four deciles above the line. But when that work ends the whole group falls below the line again”.

The Fundación Superación de la Pobreza (FSP, the Foundation for Overcoming Poverty) undertook one of the first longitudinal studies in Chile between 1996 and 2006. Leonardo Moreno, the public policies advisor on the study, describes how they discovered that “while Chile has low levels of income poverty, the number of people experiencing the phenomenon of that poverty is extremely high. We have people constantly shifting in and out of poverty”. Only about 3% of people remain permanently in income poverty, but about 30% of the population falls in and out of this poverty.

“It was considered that we had finally developed a sort of middle class, but in reality the situation was much more precarious. They were “vulnerable”, which is to say that being middle class was an illusion. Even the World Bank has argued that in these last years individuals and families who have managed to escape poverty are not necessarily middle class”, agrees Barozet. She refers to a 2011 study of this sector of society A vulnerability approach to the definition of the middle class, which places the vulnerability threshold in percentile 60 of the income distribution in Chile and other Latin American countries.

Abandoned to the market

Barozet argues that the non-consolidation of these sectors of workers into a middle class better prepared to resist the shock of the pandemic is linked to the fact that “the policies for overcoming poverty and for increasing wellbeing in the population are centred on integration into the labour market and on economic growth”. Which are precisely the two elements “on hold” or experiencing negative figures thanks to the current crisis.

Ramón López, professor and researcher at the Faculty of Economics and Business at the Universidad de Chile argues that the vulnerability of these sectors of society has grown steadily over the last 30 years “fundamentally because of an imbalance between the market assets, which grew substantially, and public and social assets, which didn’t grow at the same rate”. The crisis generated by this pandemic is made worse by the fact that it coincides with the accumulated results of this increased vulnerability.

At the end of the 1990s and beginning of the 2000s, López writes, “we had a younger population that was benefitting substantially from their private wealth: they had better health and weren’t near retirement age, so they didn’t feel a lack of social protections. The vulnerability in society was developing but a large sector of society was unaware of it. But as the population ages, gets ill, is unemployed or has an accident, they feel increasingly vulnerable because in those circumstances the state offers nothing”.

Ramón López, professor and researcher at the Faculty of Economics and Business at the Universidad de Chile.

A generation of “young people graduating, deeply in debt, from universities that were a scam”, and, at the same time, more generations retiring under the AFP scheme “with professors earning 800 thousand pesos receiving only 150 the day they retire”, are, for the economist, the cold blasts of reality that expose the weak foundations of the attempts made to reduce poverty since the 1990s. He insists that “the pandemic hit the pensioners who have no savings, while the middle class is in debt and with few savings because they had to pay for services which in other countries are free”. An added problem is that “these are families who receive little or no support from the state”, writes Barozet.

The Emergency Family Income (IFE) only affects households with an income of up to CLP$400,000, which only represents 34% of households in the country. “The problem arises from the fact that the poverty line doesn’t discriminate between a wide variety of social conditions, but it does discriminate in terms of access to benefits” says Ruiz Encina. “This is why (the line of absolute poverty) can’t be the baseline for a policy addressing the benefits and attention accorded to the most vulnerable families”. The sociologist suggests that, in addition to an increase in poverty “we will also see a growth and change in the make-up of the inequality in Chilean society. When people thought about what was behind the Gini Index they imagined it to be a concentration of wealth, not poverty, as in the rest of Latin America”. Inequality will grow in both directions, he argues, pointing to the emergency funds for small and micro businesses (Fogape): “they put themselves into the hands of private banks who use state expenditure and make it available with interest. These types of mechanisms stimulate the concentration of income”.

At the other extreme, adds Moreno, “we are facing a situation that we haven’t seen for 35 years. Which is that there are people with real food insecurity. Malnutrition is an issue in all developing countries, but food insecurity is something we’ve not faced. This is a big step backwards”. Soledad Ruiz Jabbaz, professor at the Universidad de Chile, specialist in social and community psychology, writes that low-income sectors of society “have always faced insecurity, it’s their daily situation”. Not knowing whether the wage earned will be enough to get to the end of the month, or whether there’ll be another job afterwards, has lead this sector of society to “develop a way of living around this uncertainty. Extended families live close to each other so that they can support each other; generations live in the same neighbourhood and the networks are tight”. Which is why so many “communal kitchens” quickly emerged in the current situation, she emphasises.

Soledad Ruiz Jabbaz, professor at the Universidad de Chile, specialist in social and community psychology.

Asked about the relationship between low-income sectors of society and the state, whose policies are fundamental for addressing extreme poverty, Ruiz Jabbaz warns that “this relationship isn’t experienced on a daily basis, and when it appears it is experienced through a lot of bureaucracy, with the accompanying feeling of being scrutinised, of having to prove that you’re poor. In order to be eligible for state help you have to be willing, in a way, to be subjected to that scrutiny, which can be a humiliating process”. One relationship that is experienced on a daily basis, however, is “repression”, she adds, “although perhaps the overriding feeling is one of absence, of abandonment”.

Is there another way of redistributing and producing wealth?

For Emmanuel Barozet “the magnitude of the social and economic and crisis could push the country towards a change in the rules of the game, given that the current crisis challenges all our concepts of social and sanitary policies. Even groups from the middle class, who don’t feel vulnerable, can become so today or tomorrow”.

Asked about how to confront the current crisis, Leonardo Moreno argues that Chile is better equipped now that it was at the beginning of the 1990s to increase public spending so as to “help people who are living complex situations, and thereby to reactivate the economy”. He considers the biggest problem “is how, through public policies, we are going to identify who should receive support, whether this is their right or whether the action will be more focused, and how”. “With such significant movement in an out of poverty and a homogenous 60% of the population in poverty, using such focused policies is complicated” he suggests.

He adds that “it is shocking to see the psychological and social problems, and the breakdown in family networks, due to this system of focused support. Here the poor don’t only have to be poor, they have to be able to show it, and more than that, they have to compete”.

At the Fundación Superación de la Pobreza, says Moreno, they have been suggesting the need to change the way certain policies are focused, and to ensure that a greater effort is made in this direction. He refers to the need to focus “not on individuals but rather on groups or regions, working more closely with the communities”. The “fixation on the individual, or at the most on a family group” impedes the development of policies that encourage social cohesion and “engage with a fundamental element of multi-dimensional poverty: loneliness and social isolation”.

Carlos Ruiz Encina agrees in the need to rethink social policies: “they will have to be based on other ways of understanding, measuring and dealing with poverty and the way in which social spending is designed. To discriminate against those living below the poverty line, is absurd”.  But he warns that “this is like using first aid on the problem of poverty, to contain it”. The greater problem, he warns, is that “the model of growth that was used to reduce poverty no longer has the advantages that it used to”.

“There are limits to the advantages of an economy based primarily on commodity exports, and we’re already reaching those limits. It wasn’t a sustainable model over the long term. We won’t see another cycle of reduction of poverty like we did at that moment”. Ruiz Encina argues that “one would have to re-think the pattern of growth, to find other ways of inserting the country into the international economy that doesn’t entail having to check the price of commodities every morning. Hopefully the constituent process will take this into consideration”.

Ramón López agrees that the reduction of poverty is inherently linked to the system of production and distribution of wealth. “Large-scale monopolies, the super rich, those 260 individuals who have an average fortune of more than 700 million dollars, only made a fraction of their own wealth, the rest was generated by appropriating existing wealth. That of the consumer, by charging them exorbitantly high prices; that of the worker by paying them lower wages than their marginal productivity; by exploiting small businesses, or by using access to privileged information to extract wealth from other investors”.

Which is why he proposes taxing economic income, “the returns on investment that are much higher than the level of investment”. It’s the case with copper-mining companies, which, he asserts in the study he co-authored New estimates of the wealth gifted to the large private copper mining companies: Chile 2005-2015, generate “120 billion dollars during the 10-year boom that were not taxed by the state and were taken by private companies. Chile could tax that money without affecting even a tiny proportion of the investment, and invest that money in public and social works that we have so neglected”.

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