Are Entrepreneurs Widening Income Inequality in Latin America?

April 23, 2019

Innovation and entrepreneurship are blazing a trail through the economies within Latin America. Within the past decade, entrepreneurship has begun to surge in Latin America as more people emerge with cutting edge businesses and products. Entrepreneurship is an appealing path for much of the aspiring youth in Latin America, as it offers a flexible and creative work environment. In addition, many countries are initiating policies and programs that create a more favorable ecosystem for entrepreneurs (Segal, 2019). However, the stigma surrounding the entrepreneurial sector is that anyone with the talent and unique ideas can be successful entrepreneurs. The reality consists of high barriers to entry for those of lower education and classes—regardless of the level of talent and creativity. Thus, entrepreneurship is not a path that is pursuable by anyone, despite the implications made by media and society.

In 2017, Latin America was labeled as the region with the second highest entrepreneurial population. This population is persisting in its economic dominance due to the business-friendly environment promoted by lower labor costs, free trade, and low tax jurisdictions (Dempsey, 2019). The National University of General Sarmiento has documented the escalation of entrepreneurship in Latin America and reported that Chile, Brazil, Argentina, and Mexico are the most influencing countries in the entrepreneurial field. These countries have been recognized for their economic ecosystems that promote the creation of businesses. However, it has been noted that barriers to entry for entrepreneurs are decreasing at a slow rate (Solidaridad Latina, 2019).

 Entrepreneurs have been portrayed as people who are able to defy the traditional methods of social mobility. People of the lower-class can jump out of their rags into riches at the flip of a groundbreaking and innovative business or idea. However, a research paper published by Viviana and Roberto Velez-Grajales under the Inter-American Development Bank (IDB) demonstrated how social mobility is not conquered as easily by entrepreneurs of the lower class. Viviana and Roberto Velez-Grajales demonstrate how even for the entrepreneurial sector those with less education and lower levels of income are limited to their range of social mobility. In addition, countries with higher inequality in income distribution have lower social mobility. Thus, this publication indicates that entrepreneurs are more than their talent and ideas, their success depended greatly on familial factors (Castellani, 2015).

Parental occupation is the primary force that influences a person’s social mobility. Specifically, the IDB research demonstrated that mobility is more likely to occur within certain professions that are economically stable. In addition, the research focused on males in Mexico and found that a father’s wealth and education was not of primary influence with social mobility. Thus, a conclusion that results from this research is that a lack of social mobility within certain professional fields often correlates with certain family values and experiences. This research suggests that entrepreneurship can enhance the income and economic well-being of those who are lucky enough to succeed, but this success is only available for those who won the family lottery (Castellani, 2015).

Those of lower and even middle classes are likely to belong to families whose occupations limit their chances of upward social mobility. Therefore, these people are limited by their parent’s occupations because there is pressure to take a more traditional route that focuses on job security. Thus, barriers to entering the entrepreneurial field include the inability to take risks and making advantageous decisions regarding the operations of a business. These barriers inhibit not only the lower class but also most of the middle class. In addition, regardless of the middle class were able to overcome the barriers and become entrepreneurs their profit would be considerably less than those of the upper class (Castellani, 2015).

Although entrepreneurship is on the rise in Latin America, entrepreneurs are dominated by those who come from families are of the wealthier percentage of the populations. Parents with economically stable occupations provide encouragement to their children to take risks and pursue their innovative business ideas. This demographic of parents is primarily those of the upper-class, as they have the means to provide financial support to their children who aspire to be entrepreneurs. Thus, entrepreneurship is a welcoming field to those born into a certain type of family. Aspiring entrepreneurs are within all socioeconomic classes, but due to the nature of economic barriers, some will never see their ideas come to life. Therefore, in a sense, this rise in entrepreneurship in Latin America acts a means to further widen wealth inequality, as well as the control of the wealthy over the economy.  

There is a group within the entrepreneurial sector that aims to stimulate business while focusing on developing programs that aim to eliminate this wage gap, as well as poverty, poor education, and declining infrastructure in Latin America. Those who focus on promoting a sustainable market are known as social entrepreneurs. Thus, not all entrepreneurs are solely focused on innovating and making a profit (Llorente and Cuenca, 2017).

Social entrepreneurs are a brand of people who develop programs to combat the growing gap between the rich and the poor through innovative ideas and programs. However, it is likely that social entrepreneurs are mainly focused within the portion of workers whose parents hold a type of occupation that allows for social mobility and economic risk taking. Thus, the only difference is that social entrepreneurs are fighting back against the inequality gap that their parents helped to grow.

 

REFERENCES

  1. Lorrente & Cuenca. (Nov 30, 2017). "What Is Behind Social Entrepreneurship In Latin America?". Retrieved Saturday, April 20, 2019.
  2. Francesca Castellani. (Feb 27, 2015). " The Dark Side of Entrepreneurship in Latin America.".
  3. Solidaridad Latina. (N/A). "The 4 Most Entrepreneurial Countries In Latin America". Retrieved Saturday, April 20, 2019.
  4. Susan Segal. (N/A). "How to Keep Latin America's Entrepreneurship Boom on Track". Retrieved Saturday, April 20, 2019.
  5. Craig Dempsey. (Feb 9, 2019). "The Rise of Entrepreneurship in Latin America".

About Author(s)

Carley Clontz
Carley is an undergraduate senior at the University of Pittsburgh. She is studying Economics, Spanish, French, Global Studies, and Latin American Studies. Through academic and research programs, Carley has traveled to Mexico, Peru, and Bolivia. This is her second year as an intern for Panoramas.