Ending inequality, not poverty, is the real challenge for the new Brazilian government
Brazil is three times the size of India; it has one-sixth its population; it has a per capita income of over $10,000; it has vast mineral wealth; is self-sufficient in oil (has recently discovered untold undersea reserves); it is water surplus; has immense areas of fertile arable land; it is now the world’s largest producer and exporter of sugar and coffee (among other things); it has no insurgencies; it has friendly relations with all its neighbours and has not fought a war in 150 years.
It is, however, among the world’s most unequal countries. Over 42 per cent of its national income goes to the richest 10 per cent, while the poorest 30 per cent get by on around 6 per cent. As President Lula da Silva’s successor Dilma Rousseff takes stock in her first month in office and deals with the fallout from landslides that have killed nearly a thousand people in what is the country’s worst natural disaster in 50 years, this paradox is impossible to ignore. Particularly since the eight years President Lula da Silva was in office delivered real, tangible change in Brazil.
Supporters and critics of President Lula agree that he leaves behind a less unequal country. Brazil’s gini coefficient (the 0-1 scale most often used to measure income concentration, with 0 representing perfect equality) is .54. When President Lula entered office in 2002, it was .59. Among other things, this shift represents almost 30 million people no longer in extreme poverty, down from a total of 50 million in 2002. It also includes over a quarter of a million people who are part of a new consuming lower middle class.
Brazilian economists relate this seemingly small but significant dip in inequality to two overlapping factors: one, jobs with an improved, inflation-indexed, minimum wage. Two, Bolsa Familia — the Brazilian government’s conditional cash transfer programme — which provides an income supplement to poor families so long as they send their children to school and for vaccinations and medical checks.
Job creation has been spurred in part by government policy, in particular the Growth Acceleration Programme (popularly known by its Portuguese acronym PAC), which includes thousands of local and regional infrastructure projects, from sanitation in urban favelas to highway construction. After a dip following the global economic crisis in 2008, employment is on the rise again and government figures put the number of new jobs created in 2010 at 2.5 million.
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Certainly, low inflation and economic growth (spurred by a commodities boom in the early 2000s) have played an important part. But Brazil has seen other periods of spectacular economic growth — notably in the 70s — with joblessness, a concentration of wealth, increased income inequality which ended in spectacular economic decline. What sets the last eight years apart is the possibility that Brazil has bucked this trend and is headed in another direction.
President Lula’s election in 2002 signalled that something might be changing. The 34 presidents who preceded him were all men of means and education and, somewhat frequently, part of the military establishment. Lula da Silva spent his childhood selling fruit and polishing shoes on the street while his mother and sisters cleaned other people’s homes. Although, most often, it is Lula the factory worker and trade union organiser who is referred to, to context his politics, it seems that his experience of childhood poverty and escaping it defined him as a president.
He leaves President Rousseff a country that is more at ease with itself and with the world, not least because there is a larger number of Brazilians with a stake in the country’s future. But, concentration of wealth remains a problem. A problem made starker by the fact that Brazil is the world’s ninth-largest economy and expects to move up the scale. Its rich are seriously rich and their number remains abysmally small.
At her inauguration, Ms Rousseff said that a long period of growth, job creation and strong social programmes were necessary to deal with poverty and inequality. However, Brazil’s strong economic growth, which has acted as ballast to its development programmes, is under pressure both from a declining dollar and an undervalued yuan that threaten its balance of payments situation, and from high public expenditure, an absence of domestic saving and a tax structure that is bad for everyone except the rich.
In the first weeks in power, Ms Rousseff’s administration signalled that while there will be cuts in public expenditure, not all public expenditure can be “demonised”; some expenditures, such as on programmes like Bolsa Familia, have an impact that far outweighs their relatively low cost. At present, spending on Bolsa Familia is around 0.5 per cent of GDP (total social sector spending, including on old age pensions for the poor, is just over 8 per cent) but is expected to rise as the programme extends to more people.
The government also announced a reduction in payroll tax paid by employers towards social security for workers. This should act as an incentive to make formal hires in domestic businesses more attractive. At present, well over a third of working Brazilians are in unregistered “informal” work. While the payroll tax cut is good for Brazilian business and reaffirms the government’s commitment to decent work, it will add to its fiscal burden.
Doffing her cap at her predecessor, Ms Rousseff said that Brazil was on the threshold of a new era. Her job was to take it across that threshold. Poverty, the previous administration showed, is not that hard to deal with so long as there is political will. Indeed, with a little tweaking of existing policies, the government believes Brazil could end extreme poverty by 2016. Inequality, however, is the real challenge. Significantly reducing inequality is what might change the old, slightly mocking appellation “country of the future” to what one hopeful government minister prophesied “the world’s first developed tropical country”.