Rural Poverty in Latin America

The objective of this working paper series is to present the results and conclusions of studies carried out by the Inter-American Development Bank, the Department of Integration and Regional Programs, in order to promote the exchange of ideas and opinions on topics relating to economic and social development.

The author presents data to demonstrate that the incidence and severity of income poverty and capability poverty are higher in the countryside than in the cities. He explores fundamental causes of rural poverty, such as the system of labor control that alters the terms on which labor is acquired by employers to ensure a captive work force.

The paper presents the modern system of labor controls that can be divided into three sub-systems, namely:

• Social controls - It consists essentially of cultural barriers to the occupational mobility of labor, to differentiate labor, to create non-competing groups;
• Environmental controls - It leads to the spatial fragmentation of the labor market, a unified, integrated rural labor market is broken up into a myriad of small, local, fragmented labor markets;
• Institutional controls - These comprise the innumerable organizations (church, trade unions, landowners' associations), codes of law and instruments of coercion which affect resource allocation and individual behavior.

The effect of land concentration gives landowners monopsonic power in the local labor market. The overall effects of this system of labor controls are:

• Reduction in total agricultural output;
• Inefficiency in the use of resources;
• Lower total rural incomes;
• Lessened agricultural employment and creation of "surplus" labor;
• Creation of a highly unequal distribution of income between landowners and campesinos;
• Rise in the absolute income of landowners;
• Reduction in the incomes of campesinos absolutely, thereby creation of rural poverty.

The author concludes that:

• Rural poverty in Latin America is a product of the system of labor controls, in particular of the monopsonistic control of the labor force exercised by large landowners in small, fragmented local markets;
• The large proportion of unutilized and poorly utilized land, and the consequent low volume of production are the inevitable products of a system in which landowners do not exploit their land fully in order to be able to obtain cheap labor.