Brazil's Economic Success: An Incomplete Project

By Alexandre Luis Schultz Bier · 5 Dec 2009

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Picture: Ricardo Stuckert
Picture: Ricardo Stuckert

"Swiftness, audacity, courage and creativity to unfold new ways," are the words, Brazilian president and former trade union leader, Luiz Inácio Lula da Silva, declared at the onset of his second presidency on 01 January 2007.

In contrast to the ceremonial pomp of his first presidential inauguration in 2003, when several heads of state were present and when the streets of the country’s capital, Brasilia, were taken over by more than 150,000 people, this time the festivities were muted. Only 400 of the official 1,250 guests arrived and on the streets, no more than 10,000 people were celebrating.

The atmosphere of revolutionary change, the idea-verb defined by Lula as the desirable epithet for his first administration, had largely dissipated.

It is true that the government still had popular sympathy. At the beginning of 2007, 53% of Brazilians considered government policies against hunger and poverty “good” or “excellent.” But a survey commissioned by the National Confederation of Industry, published in January 2007 by the Brazilian Institute of Public Opinion and Statistics, revealed that people were expecting more from the government. Its approval ratings dropped from 57% in December 2006 to 49% after Lula’s 2007 inauguration.

In his inaugural speech Lula insisted, "Those who bet on the failure of Brazil will be defeated." And the idea-verbs for his second term as president were articulated as accelerate, grow and include.

Almost three years after those words were spoken, a significant proportion of international media seem to have concluded that Lula was right. In a world where most countries have internalized the bitter results of the global economic meltdown, Brazil's economy embodies the "good news story" on the pages of numerous publications.

In the November 14th-20th edition of the weekly news magazine, The Economist, more than 14 pages effusively celebrated the country’s economic success. Even Moody's, the international risk classification agency (cherished by Wall Street financiers), recently announced that the Brazilian economy would have positive results in 2009 -- an increase of up to 1%, compared to a possible decrease of up to 2% for global GDP.

Moreover, international investors, pressured by the bankruptcy of central economies are directing more and more of their capital to the Brazilian stock market.

Brazil’s relative success is evident in the paragraphs of its economic narrative: lower basic interest rate (for public securities), one-digit unemployment rate, increases in the minimum wage above inflation, increases in the rate of formalization of the labour market, increase of workers’ real average yield, and so on.

But it can also be argued that Brazil’s national policies and especially management of the economy can’t be sheltered from critique. All Brazilians are not sharing in the country’s success and there are questions about possible costs that may arise from this economic success.

For example, in the face of rising demand for securities in Brazilian companies, even the government recognized the risk associated with a massive entry of speculative capital. In order to discourage the entrance of such capital, a tax of two percent on foreign investments on deals in the stock market and fixed income investments was introduced last October by presidential decree.

But even then the Sao Paulo Stock Exchange accumulated a record positive influx of foreign investments, much of which applied to securities issued by the Santander Bank in one operation that in October 2009 was one of the world's largest IPOs (initial public offerings) at approximately US$17,119 billion.

If, on the one hand this government initiative was celebrated (even by some Banks and financial agents) as an advance in the control of the capital account, on the other hand, for many economists on the left, this apparently progressive decision was nothing more than palliative. Even with more taxes on these transactions, many economists say that when black clouds start to appear on the economic horizon, much of this money will probably disappear from the Brazilian economy. As will the well-known "remittances from profits" and "dividends" that always, in crisis periods, go abroad.

From the perspective of progressive economists, the government needs to be challenged to create new legal rules that require a longer staying period for capital in the national economy.

A Misinterpretation? Maybe not. The reality suggests some truth in their prediction.

Foreign investment in the productive sector, in the same month of October, did not amount to more than US$1.6 billion. That mountain of money, the US$17.119 billion, is not in Brazil to stay, and when the financial combustion and stampede occurs (given the cyclical nature of the capitalist crisis), the current account deficit, standing at US$14 billion this year, will be even worse.

The Brazilian government will of course take some measures to address the crisis, but much of what it will be forced to do will amount to burning money that could have been used for social investment.

Not to split hairs about Brazil’s achievements, but one must also examine the country’s economic success in relation to the benefits it has brought to those most in need. In this regard, one can argue that there are certainly challenges that the internal policies of the Brazilian government must overcome in the second half of Lula's presidential term to establish, for future generations, the heritage of the first leftist government in Brazilian history.

Brazil needs more equity in the reduction of poverty, an issue commonly linked with the public image of PT government policies (the Workers Party that brought Lula into power). Certainly, much has been done in the past two decades, mainly after the return to democracy and after the process of building a new mark of civilization with the 1988 Constitution.

However, in Brazil, some uncomfortable facts still exist, like the concentration of marginalized people in the northeast region and an uneven wealth distribution, which straddles racial inequality.

According to the Institute of Economic and Applied Research (IPEA), in the northeast of Brazil, 44.3% of the population was considered poor in 2006 - a percentage three times higher than the proportion of poor people in the south, which stood at 12,6% that same year.

Blacks Brazilians have benefited least from the economic strength of this historic period. Even though there has been a reduction of poor black people, they still make up a substantial proportion of Brazil’s poor. Of the entire group of 30 million people considered poor in Brazil in 2006, blacks accounted for 66% of them. At the end of 2006, there were more than 20 million black citizens living on less than US$1 a day in Brazil.

Even among the better off, a recent survey conducted by the Department of Statistics and Socio-Economic Studies indicated that the average earnings of blacks remain lower than the average earnings of whites -- 43.8% lower in 2009.

This means that despite social inclusion policies adopted by Brazilian governments in the last two decades and especially by Lula, expected economic results remain elusive for Brazil’s black population, particularly those living in the northwest. It’s possible that Brazil’s economic results are too small to change their realities. In this case we must ask: how much longer do they need to wait to feel themselves a part of Brazil -- the Brazil that is now economically stronger and which some people can enjoy?

More is needed. It has become urgent for the development of new programs to promote the comprehensive inclusion of black people in Brazilian society. Without more progressivism in immediate government practices and without more audacity and ambition, the leftist government of Lula will leave - even though this is not his intention - an inheritance that will maintain the inequality of black workers’ incomes for the next two generations.

There are other problems casting a shadow on the Lula government’s economic successes. Among the more pressing is the need for a redesign of health policies to improve an, as yet, inefficient urban public healthcare system. The country also needs a deeper discussion about agrarian reform given the environmental impact of Brazil’s agricultural model, which generally embraces GMOs as well as monocultures for agrofuels, resulting in deforestation and a clear threat to food sovereignty.

If, like Barack Obama, Lula is the "man of the moment," now is the time for him to show the Brazilian people that he has the power to develop an economic model for society's reproduction. Or, if he may venture to be more courageous, perhaps it's time for him to show that he is able to construct new forms of social development.

One hopes that foreign capital does not obscure the interests of the Brazilian people. One hopes for more progressive long-term solutions to the country’s problems. This is what people expect from the traditional left, and now from Lula -- today a more conciliatory politician, thousands of times less radical than the trade unionist he once was.

As Brazil, under Lula’s leadership forges a new future for itself, the more pertinent questions are: Will Lula’s legacy transform Brazilian society? Will he be remembered as the worker who became a politician and a president? Or will he be remembered as a revolutionary who provided the basis for a more sustainable and democratic society?

Bier is a Brazilian anthropologist and economist.

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