Jorge Arbache
Vicepresidente de Sector Privado, CAF -banco de desarrollo de América Latina y el Caribe-
One of the great challenges governments have is to design and implement public policies that respond to the population’s expectations. To this end, governments identify problems and design and implement policies to address them, but do not always receive recognition from the public, who often view the government’s actions with skepticism.
Frustration is often expressed on both sides. There are issues such as shortage of government human resources, low technical capacity, weak diagnostics, poorly designed policies to tackle market implementation or inspection failures, lack of financial resources, and many other possible factors. But there are issues of another nature that may also help explain some of these disappointments. These include income and other forms of inequality.
Let’s focus on income inequality. In countries where there is much inequality, the needs and priorities of different income groups may vary widely even with regard to the same issue, such that people may perceive the effects of a particular government intervention very differently.
There are no shortage of examples. Think about general public policy issues, such as education, health, taxation, public transportation, land use and occupancy, as well as the environment. It would not be strange to see that lower income groups prioritized aspects such as the availability of public schools in the area, of school canteens, of vocational training courses, of health centers in the area and their opening hours, as well as taxes on basic food stuffs and cooking gas, public transport availability and coverage, and workplace regulations.
Nor would it be strange to find that the highest income strata prioritize aspects such as regulation and oversight of private schools, hospitals and clinics, inheritance and capital gains taxes, toll roads, parks and environmental reserves.
The hypothetical difference in priorities seems appropriate when characterizing Latin American and Caribbean countries, a region known as one of the most unequal in the world, particularly due to the low effectiveness of public policies. In fact, according to the World Inequality Database, the richest 10% hold 54% of the national income on average, and three of the most unequal countries in the world are in that region. Countries in the region are also poorly positioned in governmental effectiveness indicators, such as the Worldwide Governance Indicators. While the relationship between the two variables has many possible explanations, the truth of the matter is that statistically, the two variables are quite well-aligned.
In contrast, let us now turn to countries with good income inequality indicators and relatively large and compact middle classes, such as the Scandinavian countries. There, it would be no exaggeration to expect public policy priorities to align. This is because the majority of the population uses public health and education, pays the same taxes, and uses public transport, for example. Perhaps it is not coincidental that the effectiveness indicators of governments in these countries are among the best in the world.
That said, it will be more challenging to make public policy in more unequal countries than it is in less unequal countries. After all, it will be harder for the government to identify and even order and prioritize highly fragmented demands. In other words, it will be more difficult to reach a consensus. A context such as this encourages opportunistic and short-sighted behavior by groups in pursuit of their private interests and even more opportunistic behavior by exploitive politicians. The consequences of this is the fragmentation of public policy itself, a loss of efficiency and effectiveness of interventions, and a general distrust on the part of the population.
What is to be done? The pandemic offered us a natural experiment that shed some light on the subject. Under the circumstances, it became clear that public policies of general interest and scope were necessary and would be more effective in addressing everyone’s interests, rather than isolated actions in favor of groups. This is because it was in everyone’s interest that we all be protected from the virus, properly treated by the health system and vaccinated. As a result, public policies of a collective nature gained prominence in a way not seen during peacetime for a long time. There were also targeted policies, such as emergency income plans for vulnerable groups and support for micro and small enterprises, but these policies were largely consensual.
What lessons can be learned from the pandemic? One is that public policies of general interest work, even in highly unequal countries. Another lesson is that we cannot wait for inequality to decrease and only then move forward with policies of general interest. Alongside specific policies to combat inequality in its various forms, one way out is to manage policies that target seemingly widespread aspects and interests, but that can be aligned. This strategy is especially useful when there are severe budgetary restrictions.
As an example, the government could design urban development policies that offer comprehensive utility and infrastructure solutions for adjacent residential neighborhoods of different middle-income levels, in such a way that engages these communities around issues of common interest. Other examples are support for innovative technologies and business models and financial instruments that prioritize social interest, while also providing good opportunities for new businesses. After all, the shortest path to social stability is by incorporating people into markets.
Lastly, it is important to constantly improve communication, transparency and governance of public policies, a sure recipe to help reduce skepticism and engage people in agendas that aim at a common future.
