The yawning gap between rich andpoor is at its widest in Latin America. Nowhere on earth is there less equal distributionof wealth or such a striking degree of social inequality. Although overall poverty levelsare lower than those of other developing regions, they are still extremely high and,distressingly, they are higher today overall than they were before the debt crisis of the1980s. Nearly a decade of growth and continued economic development has failed to correctthe imbalance.

During the so-called "lostdecade"of the 1980s the region lost so much ground that in 1990 poverty levels wereeven higher than those at the start of the 1970s. Indicators have improved with aresumption of economic growth in the 1990s, but not nearly enough. In 1980, 35% of allhouseholds were poor. By 1990, that figure had risen to 41% and was still 39% in 1994.

The effort to account for thesetrends has sparked a great deal of controversy as to how macroeconomic performance,structural reform and globalization influence social indicators. A number of studies haveconfirmed that poverty tends to decline in the presence of economic growth. Others pointto a growing amount of evidence that economic liberalization and globalization have leadto a deterioration in income distribution. In a number of recent studies ECLAC hasattributed this deterioration in income distribution to the widening wage gap betweenhighly-skilled and unskilled workers in a context of sluggish rates of job creation forskilled occupations. According to ILO estimates, eight out of every ten new jobs in the1990s are in poor-quality occupations within the informal sector.

In Latin America, one possibleexplanation has to do with the fact that the trade liberalization process was launched onthe heels of a decade-long downturn in social expenditure, and the shift in labour demandtowards highly-skilled manpower consequently ran up against an inelastic supply of suchworkers. Furthermore, no serious effort was made to match supply and demand for differentskill levels. Another hypothesis focuses on the argument that the tendency towardscurrency overvaluations and steps taken to open up the capital account, among other reformmeasures, created patterns of growth in which exports rose more slowly than imports andthe production of tradeable goods was less buoyant that non-tradeable goods and services,thereby skewing labour demands. Macroeconomic policy management has also gone throughabrupt stop-and-go cycles which, in combination with fluctuations in capital flows, hascaused growth rates to remain highly volatile, thereby interfering with the creation ofmore stable types of jobs.

One of the major challenges facingLatin America today is to demonstrate that the new development model is compatible with agradual correction of the region's social inequity. Failure to attain this objectivecould undermine political foundations of the reform process, largely because therestoration of macroeconomic stability has been viewed favorably by the general public.Another equally serious hazard is that such a failure might generate social tensions whichcould create problems of governance and erode the political consensus that has made itpossible for democracy to thrive in the region, which is unquestionably one of the majorachievements witnessed in recent years. 

Many experts conclude that economicliberalization policies need to be coupled with more ambitious, efficient and effectivesocial policies, known as the "second generation" reforms. Some services havealready been been opened up to the private sector, while services that remain theresponsibility of the State are being decentralized, new results-oriented publicmanagement schemes are being devised, public-sector service providers are being giveneffective autonomy, and mechanisms are being established to give the general public a rolein overseeing government management.

These reforms offer promisingopportunities but they are not a panacea: they need to be pragmatic and based on agradual, learning-by-doing approach. The participation of the private sector cannot alwaysserve as a substitute for government-provided services, so it is advisable to design mixedsystems in which public and private agents can compete with one another. Where competitionis not a viable option efforts must be made to upgrade public services throughdecentralization, implementing results-based public management systems, granting autonomyto public service providers and allowing the citizenry to play a role in overseeing theseactivities. These measures are essential, and perhaps the most basic, elements of anysocial service reform initiative.