After a decade of economic reforms that dramatically altered the structure of economies in Latin America, making them more open and more competitive, and a decade of substantial increases in public spending on education, health and other social programs in virtually all countries, poverty and high inequality remain deeply entrenched. In this paper we ask the question whether some fundamentally different approach to what we call "social policy" in Latin America could make a difference — both in increasing growth and in directly reducing poverty. We propose a more explicitly "bootstraps"-style social policy, focused on enhancing productivity via better distribution of assets. We set out how this broader social policy could address the underlying causes and not just the symptoms of the region's unhappy combination of high poverty and inequality with low growth.
The US government's proposed $5 billion Millennium Challenge Account (MCA) could provide upwards of $250-$300m or more per year per country in new development assistance to a small number of poor countries judged to have relatively "good" policies and institutions. Could this assistance be too much of a good thing and strain the absorptive capacity of recipient countries to use the funds effectively? Empirical evidence from the past 40 years of development assistance suggests that in most potential MCA countries, the sheer quantity of MCA money is unlikely to overwhelm the ability of recipients to use it well, if the funds are delivered effectively.
In this paper I set out the economic logic for why good global economic governance matters for reducing poverty and inequality and argue that a step towards better global governance would be better representation of developing countries in global and regional financial institutions.