LocationsCOVID-19 and Wealth at the Top: More and Wealthier Billionaires After the Crisis in LAC
May 27, 2021
There are many ways in which inequality manifests in Latin America and the Caribbean (LAC). In some cases it is more subtle; reflected, for instance, in disparities in access to good quality public services or in the amount of savings that households are able to accumulate to carry them through tough times. Indeed, inequality is also reflected in our capacity to navigate through difficult times. Dealing with a shock is expensive and wealthier people tend to cope better. And some people much, much better. According to data from the World Inequality Database in Latin America, before the COVID-19 crisis (2019) the Top 1% of the income distribution captured 27% of all pre-tax national income, while the bottom 50% were left with just 10%. How did the rich fare during such unprecedented crisis?
As expected, the COVID-19 pandemic has only exacerbated these extreme disparities. Millions of households across the region have struggled to get by, as they saw their incomes fall in the wake of closing and suffering businesses, rising unemployment and exit from the labor force, and limited opportunities for remote work during the extensive periods of lockdown. Alongside inadequate safety nets for low-income, vulnerable, and informal workers, this has led to a situation of rising poverty in the region. Estimates from the World Bank project an increase of extreme poverty in LAC from 24% in 2019 to 27.6% in 2021. Estimates from ECLAC point to an increase of poverty in LAC from 30.5% in 2019 to 33.7% in 2020, and an increase in extreme poverty from 11.3% to 12.5%. Associated concerns about rising hunger in region have also been prominent, with the WFP estimating an increase of 269% in the number of people in LAC facing severe food insecurity.
Yet, not everyone is worse-off. Those at the very, very top appear to be doing very, very well. While it is hard to gather a full picture on this, as data on the richest in society are often scarce (and, where available, tend to be reported with a delay of several years), the Forbes World’s Billionaires List provides us with a glimpse into how the region’s richest have fared during this time. It is well known that wealth values in that list fluctuates due to changes in the valuation of stocks of companies owned by the billionaires in the list and those might reflect market volatility, but overall these numbers do show a trend with enough information regarding real trends.
The Forbes database tracks the net worth of billionaires in countries around the world, and publishes both an annual list (providing yearly snapshots in time) and a “real-time” list (providing a daily up-to-date snapshot). Data from the 2020 annual list (published on March 18, 2020, just as the pandemic was beginning) reveals that there was a total of 76 billionaires in LAC with a combined net worth of $284 billion. Data from the 2021 annual list (published on March 5, 2021, one year into the pandemic), shows that this grew to a total of 105 billionaires with a combined net worth of $448 billion. Finally, the most recent data from the real-time list (referenced as May 17, 2021) shows that this again increased to a total of 107 billionaires with a combined net worth of $480 billion. Taken together, we see that during the pandemic the total number of billionaires in LAC increased by 31 and their combined net worth increased by $196 billion – this is roughly to the size of the economy in Ecuador. That is, the stock of wealth by billionaires in LAC –as measured by Forbes list-- has grown by more than 40 percent during COVID-19 so far.
The graph below shows these changes at the regional level (in orange) and at the country-level (in yellow). Notably, around three quarters of the billionaires in the region are from Brazil and Mexico, as is around 80% of their combined net worth. It is important to note, however, that even among billionaires there are wide disparities. While 40% of the billionaires in LAC have an individual net worth between $1-2 billion, the top three richest billionaires have an individual net worth of over $20 billion each.
The concentration of resources in the hands of a few individuals is not only a problem intrinsically for inequality, but also a problem instrumentally for inequality. When the concentration of resources translates into a concentration of political power, which is often the case, it can lead to a vicious cycle that perpetuates these outcomes and distorts policy and resource allocation.
As a previous GraphForThought noted, this cycle is becoming an area of increasing concern for people in the region, with the vast majority of people stating that they believe that their country is governed in the interest of a few powerful groups rather than for the good of all. However, this extreme level of affluence does not have to be a curse. In a context of constrained fiscal space and growing needs for increased social spending during the pandemic, there is a resurgent debate on taxation in the region and who should bear what share of that burden.
In LAC—the second most unequal region in the world—taxing the richest could provide some of necessary resources to promote widespread social and economic gains (this does not necessarily include taxing wealth, but the return to that wealth). Under the right circumstances, this could have positive impacts on both equity and efficiency outcomes. For example, a recent study from researchers at the University of São Paulo found that in Brazil, a social protection policy of monthly cash transfers of R$125 (approximately USD$23) to the poorest 30% of society, financed by taxes on the richest 1%, could generate a positive impact of 2.4% on GDP through consumption multiplier effects. This is an important finding as countries struggle with the fiscal sustainability of temporary emergency income support measures provided to households during the pandemic. As the pandemic rages on in the LAC region, it is putting ever greater pressure on our fiscal systems and exposing the existing cracks in our social safety nets. We must now reimagine a new pathway forward, one that is both more equitable and more sustainable than the one we were on before.