THE DISTRIBUTIVE ISSUE IN LATIN-AMERICA

Inequality is usually regarded as an ethical issue. This article attem pts to show that inequality also has a central role to play in the wor kings of the economy. Economic theories have not given sufficient atte ntion to this view of the problem, and this is why they cannot account for situations of social instability. Economic equilibrium has been i dentified as being the same thing as social equilibrium. This article presents the central features of an economic theory of social equilibr ium based on the theory of distributive equilibrium. The situation in Latin America in the 1980s and 1990s is used to test the validity of s uch a theory. The observed decline in private investment, combined wit h a drastic fall in real wages in an environment of social violence in the region, is consistent with the predictions stemming from this the ory. A society in which there is excessive inequality is an unstable s ociety. It cannot experience sustained growth or aspire to being fully democratic.