Income Inequality. Its Social Repercussions in Mexico

INTRODUCTION
The purpose of this article is to outline some of the social consequences that have arisen in Mexico from the combination, on the one hand of high levels of income distribution inequality that have characterized the country and, on the other hand, of market development, driven by the adoption of the Washington Consensus tenets [see box 1].

The second section presents assorted studies that agree that income inequality in Latin America is among the highest in the world. In addition, this section shows the evolution of income distribution inequality in Mexico over the three decades between 1992 and 2022.

With the aim of shedding light on the change of era (the shift from the preeminence of the state over the market), the third section briefly traces the theoretical, historical, and political background that alters the state-market equation. This section seeks to provide the background needed to understand the process experienced by Mexico from the mid-1960s onward, during the last three five-year periods of the 20^th century, when the market advanced over the state, assuming functions that had traditionally been almost entirely in the hands of the state.

The fourth section links both phenomena: income inequality and the predominance of the market over the state in the provision of social goods and services. Some of the multiple social consequences resulting from the combination of important levels of income distribution inequality and the expansion of the market in various areas of community life are outlined in a very general way and by way of example.

In the fifth and final section, the main conclusions derived from the developments presented throughout the text are presented.


INEQUALITY IN LATIN AMERICA AND THE CARIBBEAN, ESPECIALLY IN MEXICO
There are several sources that suggest that Latin America is the region of the world with the highest income inequalities. The Inter-American Development Bank (IDB) has asserted that around the 1990s the region exhibited levels of inequality more pronounced than Africa (figure 1). The World Bank (De Ferranti et al., 2004), based on comparable global data, has concluded that Latin America and the Caribbean have higher inequality coefficients than Asia, the countries of the Organization for Economic Cooperation and Development (OECD), and those of Eastern Europe [box 2].

Ilustration: Monserrat García Silva

In this same vein, the Economic Commission for Latin America and the Caribbean (ECLAC), throughout its 80 years of existence, has documented that the region of Latin America and the Caribbean is the most unequal of the globe. A summary of this idea can be found in a publication that states:

In the Social Panorama of Latin America 2024, the ECLAC states that “The countries of Latin America are characterized by a high level of income inequality, a trait that has persisted even though in recent years income concentration indices have tended to decrease” (ECLAC, 2024).

In recent times, the World Inequality Database (WID), presented in the World Inequality Report 2022 (Chancel et al., 2022), states that Latin America is one of the three regions with the highest income inequality, surpassed only by the Middle East and North Africa, and Sub-Saharan Africa. In the three most unequal regions, the ratios of average income between the richest 10 percent of the population and the poorest 50 percent are: Middle East and North Africa, 32; Sub-Saharan Africa, 31, and Latin America, 27 (Chancel et al., 2022). According to these figures, it would be necessary to combine the income of 32, 31, and 27 people from the poorest half of the population, respectively, to match that of one person in the top ten percent. Unlike other studies based on the Gini coefficient, WID bases its conclusion on the relationship between the income of the wealthiest decile and the income of the five poorest deciles.

Regardless of whether Latin America is currently the region that exhibits the highest levels of income inequality compared to the rest of the world, what is indisputable is that our region has maintained high levels of inequality over time, despite the slight downward trend in recent years.

Additionally, inequality is not distributed equally across all countries in Latin America. By 2022 and 2023, Brazil and Colombia exhibited the highest levels of inequality, with Gini indexes of around 0.5 or higher, followed by Panama, Costa Rica, and Honduras, with coefficients in the range of 0.48 to 0.46. In a third group are Mexico along with Chile and Ecuador, with Gini indexes around 0.44. Peru and El Salvador make up the fourth group (around 0.41), while Uruguay, Argentina, and the Dominican Republic are the countries with the lowest levels of income distribution inequality; their measures fluctuate between 0.39 and 0.4 (CEPAL, 2024).

To characterize the evolution of inequality in Mexico, it was decided to start in the year 1992 because comparable information is available since that year, but only up to 2014. In 2016, the National Institute of Statistics and Geography (INEGI) introduced changes in the operational processes of collecting information for the National Survey of Household Income and Expenditure (ENIGH), so the series starting that year is not strictly comparable with the one covering the period from 1992 to 2014. This fact leads to separating the information for 1992-2022 into two graphs: one for 1992-2014 and another for 2016-2022 (the latest available information at the time of writing this text).In Mexico, between the years 1992 and 2014, inequality in the distribution of total current household income, measured by the Gini index, has fluctuated between 0.49 and 0.45 (figure 2). In general, it can be said that over a little more than two decades, the degree of inequality has not changed substantially, although at first glance a slightly decreasing trend seems to be observed when comparing the early years with the later ones. In figure 3, the behavior of income inequality among Mexican households between 2016 and 2022 can be observed. Although the level of inequality remains high, in recent years there has been a systematic trend towards reduction. The decline in the last six-year period is of a magnitude equivalent to that experienced over more than two decades between 1992 and 2014. Over the past 30 years, Mexico has been a good example of the trends that ECLAC has outlined to describe the behavior of inequality in income distribution in Latin America: elevated levels of inequity, slightly decreasing.

THE MARKET ADVANCE
To account for the progress of the market, it is necessary to go back to the background that led to moving away from the import substitution model adopted by Latin American countries after World War II, with the impetus of ideas and research developed by ECLAC.

The first factor comes from an economic crisis. After enjoying years of economic prosperity, driven by the Keynesian model, once World War II ended, the world’s main capitalist economies fell, between the late 1960s and the 1970s, into stagflation (a combination of economic stagnation and inflation). Economic instability was compounded by social protests in which the youth of the time played a key role. In those years, people took to the streets, and their demonstrations were repressed by law enforcement; strikes intensified, and the slowing economy led to the impoverishment of a significant part of the population, mass unemployment, and terrorism (Escalante Gonzalbo, 2015).

The final blow to the old order took place in the realm of power. In England, Margaret Thatcher was appointed Prime Minister (from 1979 to 1990) and, two years later, Republican Ronald Reagan was elected President of the United States (from 1981 to 1989). They used their political power to dismantle the old economic order in which the state played a vital role in managing the economy and replaced it with a new economic strategy essentially based on the free functioning of the market.

It is interesting to highlight the historical intertwining of politics in two of the most influential central countries and the conceptual development that led to neoliberalism [see box 3], which by then already had more than 30 years of conceptual development. Indeed, the prolongation in the 1930s of the Great Depression that began in 1929 in the capitalist world, combined with the rapid advancement of the planned economy in the Union of Soviet Socialist Republics (USSR), was the breeding ground for Louis Rougier to convene a meeting in Paris in 1938 to discuss a book by Walter Lippmann, The Good Society. The participants, reunited a decade later in Mont Pèlerin, founded a society—a kind of think tank—under that name and set out to redefine liberalism; neoliberalism was born (Escalante Gonzalbo, 2015).

A clear distinction must be made between classical liberalism and neoliberalism. In the former, it is argued that due to the complexity of economic processes, in order to have a dynamic economy, the state must guarantee and extend economic freedom and act cautiously in this area. The central idea of classical liberalism is that the state should be prudent in its economic actions and, when it is absolutely necessary to intervene, do so indirectly because it is incompetent to do so directly (Amable, 2011).

On its side, neoliberal thought postulates that capitalism and the market are artificial and historical constructions whose existence is only possible within an institutional framework. Therefore, the state must act on the economy, and especially in the market, but with limitations. “The neoliberal state has the duty to maintain market order; it must refrain from interfering in production and exchange, but punish attacks against competition” (Amable, 2011). This way of conceiving the role of the state in society requires it to intervene to guarantee the free functioning of markets and also in cases where these present failures. This is an essential difference with classical liberalism.


THE GROWING TREND OF STRATIFICATION IN EDUCATION IS WORRYING, AS IT IS ONE OF THE BASIC PROCESSES OF SOCIALIZATION AND DIRECTLY AFFECTS SOCIAL INTEGRATION

ECONOMIC INEQUALITY AND SOCIAL INEQUALITIES
In the early 1980s, the unusual growth of external debt forced Mexico, as well as many other governments in Latin America, to resort to loans from international financial organizations. These imposed conditions such as opening economies to international trade and promoting competition in the domestic market.

To achieve these goals, most of the measures of the Washington Consensus were gradually implemented. According to François Bourguignon:

In the transition from a state that intervened openly—promoting the economic and social development of the country, participating in the economy in various ways, among others, through powerful public enterprises, managing interest rates and exchange rates, favoring exports, and restricting or preventing those that could compete with domestic production—to one closer to the ideal corresponding to the neoliberal economic conception—intervening only if free competition in the markets is threatened and in cases of market failures—most public enterprises are privatized and competition in the national market is promoted without distinguishing between domestic or foreign companies.

Amidst this profound transformation of the economic model and the radical change in the conception of the role the state should play in society, the goods and services previously offered primarily by the state were combined with high levels of income inequality, which has impacted various areas of social inequality. This is observed in the provision of services such as health, education, housing production, and financing; under the new model, the prices of these goods are determined by the market and, therefore, those with more money can buy more and better goods.

Take education as an example. Being a commodity today, it is offered by both the public and private sectors with variable quality, and corresponding price differentials. Children from wealthy families have a wide range of options, from preschool education to postgraduate studies, and it is a matter of family or personal decision to take one path or another. Additionally, they have the opportunity to pursue their pre-university studies in those private schools that guarantee quality education, including, among other things, proficiency in at least one foreign language.

There are also families that have economic resources, although limited, to allocate to their children’s education and can afford private schools and universities of lower quality than those chosen by the wealthiest, but assuming they are better than public schools (there are quite a few cases of students attending these types of private schools and high schools because they did not pass the entrance exams for public upper secondary education institutions). However, a large part of the population does not have the necessary resources to pay for their children’s education (the sector that receives government scholarships, which have had the explicit purpose of preventing children from taking on work to contribute to household maintenance, is not negligible).

An educational system with these characteristics, which is in effect in a society with high levels of inequality, becomes a mechanism for deepening the disparities in the levels of schooling attained by the population, which in the long run affects income distribution, as one of the factors that influence its inequity.

THE QUALITY OF HEALTH SERVICES AND ACCESS TO THEM DEPEND ON HOW MUCH YOU HAVE OR HOW MUCH YOU EARN

The growing trend of stratification in education is worrying, as it is one of the basic processes of socialization and directly affects social integration, in addition to being the gateway to new information and communication technologies, pillars of economic development in the 21^st century, which would once again leave the sectors with fewer opportunities on the margins of social transformation processes.

The withdrawal of the state and the advance of the market that have taken place over the past 40 years have also been reflected in the growth and stratification of the system of hospitals and private clinics: from large hospital conglomerates to pharmacy consulting offices. At the same time, there has been a deterioration of the services offered by federal and state health systems.

The growth and diversification of private hospital services is combined with differentiated demand, where some people have the necessary resources, including major medical expense private insurance, which allows them to cover the costs of medical services, tests, long and expensive treatments such as those used to fight cancer [see pp. 304 in this issue], or hospitalization. However, a significant portion of the population must turn to hospitals and clinics within the social security system, which excludes about 55 percent of people because they work informally or engage in informal activities; these people only have the option of going to open-access system hospitals or the lower tiers of the private health sector. In the last 20 years, between 2003 and 2023, private health spending has fluctuated between 58 and 45 percent of total health expenditure. Most of the private expenditure has been out-of-pocket spending, the percentage of which during that period has ranged between 80 and 95 percent of private health spending. The quality of health services and access to them depend on how much you have or how much you earn.Income distribution inequality not only affects education and health; it also impacts housing, public spaces, and residential areas, and all of this influences the segmentation of social life.

People belonging to different social strata tend to reside in geographically well-defined areas in the urban space (Rubalcava & Schteingart, 2012), which usually have differentiated facilities and services. As schools and hospitals become hierarchical and living space decreases, social mixing is minimal. In this way, the habitat gradually transforms, as do wealth and income, and these processes lead to a loss of social cohesion.

CONCLUSION
Income distribution inequality is an economic phenomenon with wide-ranging repercussions on various aspects of people’s lives, but it not only affects individuals and their family environments, it also extends to social life, influencing local relationship dynamics and social cohesion.

To illustrate the arguments in this article, the cases of education, health, and housing have been taken as examples, but the repercussions are not limited to them. For instance, it could be expanded by considering the links between inequality and poverty, social security, access to nutritious and quality food, job opportunities, general living conditions, etc.

Although the approaches presented highlight the relationships between income inequality and the social phenomena considered, this does not mean that these processes do not have their own dynamics; for example, being born into a poor family in a society like Mexico’s, with limited social mobility, is associated with a high probability that the children will also be poor. What is stated in this article is that there are a series of social inequalities in which income inequity is one of their multiple sources.

Finally, until the early 21^st century, the idea that inequality was good for economic growth prevailed. Today, a quarter of a century later, economists and international organizations argue that it is harmful because it inhibits economic growth. If this is the prevailing idea, the conceptual premises would be in place to promote economic measures that reduce inequality and, consequently, raise the meager growth rates of our economies and, as a result, reduce poverty. Following this path, it would be possible to move through a virtuous spiral: less inequality, greater growth, less poverty. 

---