Why do subsidies not end poverty in Latin America?

By Anderson Ayala Giusti (@anderson2_0).

https://www.elnacional.com/opinion/por-que-los-subsidios-no-acaban-con-la-pobreza-en-
america-latina/

Reducing poverty is the eternal goal of governments in Latin America, but to combat it they
continue to resort to the same measure that has been used since the 20th century: granting subsidies
to the most disadvantaged sectors. After decades of this, it is clear that poverty has not disappeared,
and governments do not finish thinking that the solution lies in another way.

The subsidies, which translate into money granted directly to people, have the main objective of
attacking income poverty, that is, the so-called conjunctural poverty. This means alleviating the
immediate lack of money that many families may suffer, but it does not mean digging beyond that
superficial feature.

Money can be given to a family that is in a vulnerable situation, and this may allow them to solve
their basic needs in the short term, without solving the underlying problem. On the contrary, it can
end up creating dependency if that subsidy becomes permanent.

Here lies the root of the problem. Governments shoot up their public spending on subsidies, but
these subsidies remain at the superficial level of poverty. This does not resolve the conditions that
originate this situation; that is to say, structural poverty is not combated, which is what prevents
citizens from really progressing.

The precarious situation of access to quality education, a health system that provides guarantees,
public services that function properly, urban transport systems that facilitate mobility, health
security conditions and the lack of access to credit are problems that are not solved, to the regret
of the governments, with the direct granting of a basic monthly income.

All of these are examples of the joints that plague many citizens in their daily lives, and they are
the roots that should be addressed if poverty is to be eradicated once and for all. Of course, this
does not mean that it should be the State that invests in all these areas, because this would only
trigger its spending even more, generate inflation and would not provide such efficient services.

The most ideal, which in fact is the formula for success in many countries, is to allow individuals
(the market) to provide services aimed at solving these problems, and grant them investment
facilities and tax exemptions, so that they can reduce your final costs. This would also mean the
generation of new jobs that could incorporate hundreds of families.
Solving the structural conditions that generate poverty is, in fact, something that cannot be attacked
with subsidies as the governments intend, but it is much more capitalizable to grant them so that
people have some money and thereby increase their consumption, even if it is short term.

All of this has also been undermined and exacerbated by the pandemic, which has increased poverty
to the highest levels in recent years. In fact, the sectors living in poverty totaled some 22 million
people throughout the region in 2020 alone, of which some 8 million fell directly into extreme
poverty, according to an ECLAC report.

That is not counting those that could be added during 2021, for whose measurement surely we still
have to wait. But in a region with an estimated 209 million people living in poverty, with more
than 78 million living in extreme poverty, subsidies no longer seem to be a panacea, and proof of
this is that governments no longer have the margin budget to continue granting universal income.

If you want to eradicate poverty once and for all, then it is necessary to think about generating
wealth, but for this you must prune the structural problems that prevent people from progressing.
And this also involves reducing the interventionist weight of the State and giving free rein to the
free entrepreneurial initiative of people.