Tuesday, November 13, 2012

The Informal Economy Drives Latin America’s Middle Class

Experts are puzzled at Latin America’s rapid growth of the middle class.
The Economist writes
But the political implications of Latin America’s growing middle class are not yet clear. Some commentators have argued that the “new middle class” is entrepreneurial, is partly drawn from the informal sector, and will be hostile to statism and high taxes. (In fact, the bank finds that the middle class tend to be salaried employees of private companies.) Some of them send their children to private schools that have sprung up in many once-poor communities.
The mainstream vehemently denies it, but the share of informal economy in Latin America has been substantial.

For many poor people in urban areas, the primary means of economic survival is the production or sale of goods or services through semi-legal or illegal ventures, known as the informal economy. Conservatively, informal employment accounts for half to three quarters of all nonagricultural employment in developing countries: 48 percent in North Africa, 51 percent in Latin America, 65 percent in Asia, and 72 percent in sub-Saharan Africa.
You cannot have sustained rising standards of living or a middle class or a broadening of societal wealth without an increase in capital accumulation.

As the late great Professor Ludwig von Mises wrote,
Saving—capital accumulation—is the agency that has transformed step by step the awkward search for food on the part of savage cave dwellers into the modern ways of industry. The pacemakers of this evolution were the ideas that created the institutional framework within which capital accumula­tion was rendered safe by the principle of private ownership of the means of production. Every step forward on the way toward prosperity is the effect of saving. The most ingenious technological inventions would be practically useless if the capital goods required for their utilization had not been accumulated by saving.
So despite the many statist regimes in Latin America, the informal economy has been representative of guerrilla capitalism which has breathed life to the region's middle class.

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