Waxing and Waning

Institutional Rhythms of Inequality

For the last few decades, a strong consensus has held that Latin America is not only the most economically unequal region in the world, but also one where inequality has become structurally entrenched. Even in countries where income levels are relatively high by global standards, a small elite continues to control a disproportionate share of national wealth. This consensus reflects a broader shift in the development community and public arenas. Nobel Prize winners, best-selling authors and other luminaries have brought the historical roots of inequality to the forefront of the debate.

Inequality is not a single problem with a single cause—it is a multidimensional condition that resists easy explanation. Scholars argue whether inequality should be understood as the accumulation of income, resources and wealth, or as a set of ongoing, relational dynamics, shaped by culture, power and social institutions. The tempo and trajectory of change also matter: gradual shifts may stabilize systems; sudden ones may destabilize them. While some view inequality as an impediment to growth, others treat it as a necessary by-product of capitalist development. What is clear is that inequality lies at the heart of enduring political and ethical debates, touching on core questions of well-being, justice and the capacity of individuals to act in the world.

Over the last two decades, new evidence has revealed more varied and dynamic trajectories, suggesting that inequality has changed over time in response to shifting political and economic forces. At the same time, recent theoretical work has treated inequality as a historical legacy derived from the “original sin” of colonialism. This essay engages with these emerging debates and findings, arguing that inequality in Latin America is best understood as a historically constructed phenomenon—rooted in long-standing structures but also shaped by contingency, conflict and change. The result is a landscape that is neither fixed nor linear, but one where outcomes often defy conventional expectations.

One of the most dynamic areas of recent research concerns the estimation of inequality in Indigenous societies prior to, or on the eve of, European conquest. Drawing on a growing body of archaeological evidence—now enhanced by Lidar imaging technologies—researchers have begun to reconstruct the distribution of household space within settlements as a proxy for material inequality. The densest and most detailed findings come from Mesoamerica, particularly for the Classic and Postclassic periods, some extending into the early 16th century.

The emerging picture is one of significant regional and temporal variation. As is often the case in the early stages of new empirical work, the findings resist simple generalization. Nonetheless, a few patterns stand out. Inequality in residential space appears to have been more pronounced in larger urban centers, especially in the Maya lowlands and the Mexica heartland. Preliminary evidence from the Valley of Mexico suggests that inequality may have intensified during the 15th and 16th centuries. A more controversial approach uses early colonial manuscripts to estimate a “social table” for Tenochtitlan, yielding a high Gini coefficient (the measure used to rate inequality) and suggesting deep pre-conquest inequality. While the finding has drawn attention, archaeologists remain skeptical of its sources and assumptions. Future research may succeed in triangulating these textual reconstructions with material evidence—such as refuse patterns, burial practices or skeletal remains—offering a more grounded and comprehensive view of inequality in pre-Columbian societies.

It is common to trace Latin America’s high levels of inequality to the colonial period, often citing unequal factor endowments—land, labor and capital—or institutional arrangements that empowered rent-seeking settler elites. Yet a closer look reveals a more complex trajectory. Rather than a single, uninterrupted pattern of entrenchment, the colonial era is better understood in two distinct phases shaped by major demographic and institutional factors: the immediate aftermath of conquest, and a second beginning in the 18th century and extending into the early decades of independent rule.

The destruction of life, culture and social organization brought by conquest is well known. The demographic collapse, especially in densely populated areas, disrupted labor-intensive agriculture and created new land-use dynamics. In many regions, depopulation opened land to creole elites, laying the groundwork for large estates—or latifundia—that would persist across generations. In other areas, particularly coastal zones, decline in the native population prompted the transatlantic slave trade, reinforcing new forms of inequality. Yet the post-conquest economy was not uniformly regressive. The abundance of fertile land, the introduction of new crops and animals, and the reorganization of production expanded economic opportunity. In central Mexico, real wages rose while land values declined—a combination that suggests a temporary narrowing of inequality. Indigenous actors adapted to new conditions, often participating in markets and retaining land access, although by the 17th century many Indigenous elites became increasingly dependent on creole patrons.

Colonial church in Chiapas, by Paulina Gonzalez Cussi.

Estimates for income per capita and real wages in the early 18th century place Latin America in a relatively favorable position globally. These gains, however, were not only for elites. The colonial state imposed real constraints on their ability to monopolize wealth. Property rights were far from secure; legal titles were contested and landownership frequently changed hands. Membership in the colonial elite—and the wealth that defined it—were both unstable. Meanwhile, colonial officials were tasked with defending Indigenous landholdings and issuing titles to native communities. While conflicts over land and labor were widespread, so too were alliances and accommodations—often brokered through the bureaucracy or the Church.

In short, while Iberian colonialism institutionalized ethnic hierarchies that produced enduring inequalities, it did not immediately generate the extreme concentrations of economic power seen in later periods. On several key dimensions—land access, labor markets and mobility—inequality in the early- and middle- colonial eras may have been lower than under the liberal republican regimes of the 19th century.

The scene changed in the 18th century. From about 1750 to 1850 marked the century in which Latin America began to fall behind the industrializing economies of Europe and North America. Through most of Latin America (and other Atlantic societies), the late 18th century was a period of stagnation, or even decline, in popular living standards. It was also likely a period of rising inequality. The case of Mexico is the best documented: unskilled urban income remained largely stagnant, while skill premiums and land rents increased by about 25 percent. It was at this point that Bishop Abad y Queipo and Baron von Humboldt famously denounced the high levels of inequality in Mexico, laying the foundation for a narrative of entrenched disparities. In other areas of Latin America, it is apparent that social tensions became more prevalent. While the direct measurement of inequality remains elusive, qualitative accounts tend to support the view of widening gaps between social classes. The weak Iberian states focused their resources on strengthening defense, repressing rebellions, and extracting sufficient tax revenues to do both. They had little energy or resources left to invest in public services. They had little energy or resources left to invest in public services. Imperial weakness resulted in institutional constraints that persisted after independence, limiting the potential for reform.

The concentration of wealth and economic opportunity generated social tensions that, in the context of the broader crisis of the Iberian empires, helped fuel insurrections and a prolonged cycle of violence following independence. In Mexico, where the destruction of fortunes and the mobilization of the peasantry shifted the social balance, inequality appears to have decreased. Some institutional reforms, such as the elimination of trade guilds, coincided with a short-term decline in skill premiums. Research on South America is advancing quickly and tentatively supports a similar downward trend in inequality after independence.

Yet the renewal of elite power and the destruction of capital did not lead to a sustained equilibrium of lower inequality—let alone durable economic growth. For one, the elite’s resistance to institutional modernization preempted the adoption of property rights reforms, which were crucial for fostering industrialization. The absence of inclusive policies and investments in public goods further constrained the development of human capital—a key vehicle for reducing inequality over the long term. As economic elites gained power after independence, their exclusionary practices deepened social divisions and undermined the structural reforms needed to support broader economic transformation.

Modern economic growth took root in the region in the mid- to late 19th century and was often linked to the consolidation of economic liberalism and oligarchic rule. This growth was largely driven by the expansion of export economies, particularly in agriculture and mining. Rates of economic growth finally converged with those of industrialized economies, although this convergence was not sufficient to close the long-term gap in income and productivity. Well-established elites certainly benefited, consolidating economic power and constructing political systems that favored their interests while restricting broader civic participation. In South America, the export boom attracted migrants seeking better opportunities and, in some cases, opened avenues for social mobility.

Economists and historians have generally viewed the era of export-led growth as one of high inequality, though not all agree—largely due to the previous lack of systematic data on wealth and income distribution. Moreover, for scholars who emphasize the colonial roots of Latin American inequality, this period appears less a rupture than a reinforcement of earlier patterns. Recent scholarship, however, has begun to reframe the period as a decisive moment in the historical trajectory of inequality. In Mexico, indicators such as wealth Ginis, land-to-labor ratios, height gaps and GDP-to-wage ratios all point to a sharp rise in inequality, one that continued even into the early years of the postrevolutionary regime. In Brazil and Uruguay, income inequality rose steadily throughout the period. Chile followed a less linear trajectory: income inequality surged in the mid-19th century with the growth of the export sector, declined somewhat as new agricultural lands were incorporated into commercial use, but eventually returned to high levels by the early 20th century. While trends varied by country, the regional pattern suggests a widespread increase in inequality during Latin America’s so-called Belle Époque that persisted into the 20th century.

In all, this first globalization period is crucial for understanding inequality in Latin America, as it marked a significant shift in the region’s political economy. State capacity improved in this period, but it was channeled toward elite-centered growth, often bypassing redistribution. The sins that much of the new political economy attributes to the colonial era were actually committed in this period: relatively high economic inequality, dominance of government by narrow economic elites, exclusion of competing interests and groups from political influence, and ‘bad’ institutions that failed to protect the property and human rights of majorities. Exclusionary policies—only partially rooted in the social hierarchies of colonialism—impeded institutional modernization and deepened the structural barriers to equitable development. The concentration of wealth and power among elites curtailed the possibilities for broader social advancement and ultimately constrained the region’s long-term development prospects in the 20th century.

The Great Depression disrupted the export-led growth model that had dominated Latin American economies since the late 19th century, triggering political instability and a turn toward economic nationalism. Industrialization under import-substitution strategies required the expansion of domestic markets, which in turn necessitated the partial inclusion of labor—particularly in urban areas—as both consumers and political actors.

In some countries, labor was integrated into political systems not through democratization from below, but through co-optation and elite-led arrangements. While the origins of this incorporation can be traced to liberal oligarchic regimes, the model was later extended under corporatist frameworks, as in Mexico and Brazil, where labor unions were brought under state control and used to stabilize elite rule rather than to expand democratic participation. In countries like Argentina, Brazil and Mexico, populist movements and parties especially in the 1930s tended to extend the coalition to formerly excluded groups, including unionized workers. These regimes offered material benefits—social security, wage gains and legal protections—but generally constrained labor’s autonomy and political leverage. The result was a system that offered recognition without redistribution, inclusion without empowerment, and weak and co-opted state capacities.

In most industrialized economies, the mid-20th century is associated with the so-called “great compression”—a sustained decline in income inequality due to capital destruction during the world wars, postwar welfare state expansion and progressive labor policies. In Latin America, however, recent research suggests that no such compression occurred. Reconstructions based on tax records and wage ratios show stagnation or even a rise in income inequality during the import-substitution era. There are exceptions: Chile and Mexico appear to have experienced a reduction in inequality from the 1930s to the 1970s, though both were followed by a sharp and sustained increase in inequality that continued into the early 21st century.

Inequality in Lima, by Paher Leonel Gutiérrez, Ojos Propios.

Despite labor’s formal incorporation, inequality persisted. These coalitions rested on fragile foundations: political inclusion was often more about maintaining stability than enabling transformation. Industrialization remained elite-controlled, and labor’s participation—while symbolically significant—did not challenge the deeper structures of inequality. Growth was achieved, but without the institutional reforms needed to redistribute opportunity or wealth.

The international context further constrained the emergence of welfare states or genuinely labor-inclusive development coalitions. During the Cold War, efforts to overcome inequality through government policy did not occur. Elites in the region forged an anti-communist alliance with the U.S. government. Whenever governments committed to social change were elected, local elites and their U.S. allies induced the local military establishments to overthrow them. Under these conditions, redistributionist policies became politically untenable, and inequality remained a structural feature of the region’s development model.

The 1980s marked another watershed moment in Latin America. From the perspective of the social sciences, this period saw the widespread adoption of household surveys, which enabled the construction of modern measures of income inequality and allowed for international comparisons. While these indicators are not without limitations, they painted a consistent picture: Latin America was—and remains—the most unequal region in the world.

At the same time, the region’s political-economic model shifted. Mounting foreign debt and stagnant productivity led to the collapse of import-substitution industrialization and corporatist labor integration. Structural adjustment programs soon followed, centered on liberalization, privatization and fiscal discipline. In Argentina and Chile, the old model had already imploded under authoritarian regimes that dismantled labor protections and public services. These cases, alongside Brazil, illustrate how Cold War geopolitics and elite alliances obstructed egalitarian reforms—even under nominal democracies. In other countries, drug cartels and guerrilla movements deepened the crisis and drew U.S. intervention. Cartel wealth and corruption—much like privatized monopolies—created new avenues for elite consolidation.

Across most of the region, most governments adopted market-oriented reforms with limited capacity to redistribute wealth or oversee markets effectively. Fiscal systems stayed regressive; cuts in health and education, along with weakened labor protections, further entrenched inequality. Gains accrued to those with capital or skills, while broader social needs were sidelined.

Two developments since the 1980s helped moderate, and in some cases reverse, the inequality trend. First, the restoration of electoral democracy in the region opened space for governments more committed to social inclusion. By the 21st century, left-leaning parties came to power in several countries on platforms aimed at addressing Latin America’s historical social deficit. In response, conservative and centrist parties also began to adopt social agendas, recognizing that electoral success increasingly depended on engaging with poverty and inequality. Second, the economic influence of the United States in the region has declined. This erosion of U.S. leverage created greater policy autonomy, especially in countries like Brazil, Venezuela and Bolivia. Yet this new room for maneuver has yielded mixed results. In many cases, China’s growing presence in the region has encouraged commodity-driven growth strategies that risk replicating the extractive patterns of earlier export booms.

Democratization and greater relative autonomy have not “solved” the problem of inequality. Popular disenchantment with democracy remains high as much of the population perceives a gap between redistributive rhetoric and the reality of economic vulnerability.

In conclusion, more granular research by economic historians—at both national and subnational levels—reveals a long-term pattern of rising inequality punctuated by sharp swings, often driven by demographic crises, state formation and varying degrees of dependence on global powers. The last half-century, marked by the consolidation of competitive but uneven democracies, has amplified these oscillations. The recent rise of authoritarian governments, the internal crisis of U.S. democracy, and the unraveling of the neoliberal global order pose new questions about the trajectory of inequality in Latin America’s next chapter.