Brazil: Democracy vs. Poverty

LATIN AMERICA AND THE CARIBBEAN, 2 Aug 2010

Arthur Ituassu – Open Democracy

In half a generation, a period that straddles two presidencies, politics has lifted millions of Brazilians from misery. Arthur Ituassu explains how it was done.

Democracy and politics are winning the war against poverty in Brazil. A report published on 22 July 2010 by the Instituto de Pesquisa Econômica Aplicada (IPEA) – Brazil’s federal economic-research institute – reveals striking detail on the diminution of poverty in the country. It shows that in the 1995-2008 period, as many as 12.8 million Brazilians escaped pobreza (poverty), and 13.1 million more were lifted from a deeper condition of miséria (destitution). IPEA defines pobreza according to individual earnings of less than 250 reais [$140] per month, and miséria by earnings below 125 reais [$70] per month).

There are other ways to measure the improvement. In 1995, 43.4% of Brazilians were considered poor by IPEA’s criteria, and 20.9% were living in destitution; by 2008, the respective numbers had fallen to 28.8% and 10.5%.

In addition, the Gini coefficient for Brazil – which measures economic inequality – fell from 0.64 to 0.54 in the same period (the coefficient deteriorates as gets closer to 1.0). True, income concentration in Brazil remains one of the worst in the world, but the improvement here is significant. IPEA expects that if the trends are found to have continued in the 2009-16 period, miséria will be vanquished in Brazil by 2016 and pobreza will by then affect only 4% of the population.

A single era

But the numbers tell only part of the story. For Brazil’s democracy and institutional continuity have been vital in this impressive reduction in the country’s economic inequalities. After all, the period researched by IPEA covers two two-term presidencies, those of Fernando Henrique Cardoso (1995-2002) and of Luís Inácio Lula da Silva (2003-08, part of a presidency that will end in January 2011 after the elections of October 2010). Their administrations, by working constructively during this specific historical period, are responsible for a substantial achievement that has improved the lives of millions of Brazilians (see “Brazil: democracy as balance”, 15 November 2008).

The emphasis on democracy as an instrument of social progress in Brazil is justified, for the governments of “FHC” and of Lula were the first true democratic governments after the fall of Brazil’s twenty-year military dictatorship (1964-85). Fernando Collor de Mello was elected by the people in 1989 in the first democratic election of the new regime, but he was impeached after two years due to corruption scandals; his vice-president and successor Itamar Franco could have only a transitional role, albeit an important one.

The political era that oversaw these immense social and benefits began in effect in February 1994 when Cardoso – as finance minister in Itamar Franco’s administration – initiated the Real plan reforms, which crushed an epic inflation-rate that since 1980 had destroyed the value of Brazil’s currency. The success of Cardoso’s economic policy gave him the momentum to reach the presidency and govern from January 1995.

The results of this era, taken as a whole, demonstrate the complementarity of Cardoso and Lula’s governments (see “The price of democracy in Brazil“, 21 May 2009). FHC’s main purpose was to establish a stable economy, where the defeat of inflation was followed by major investments of political will and resources in the public healthcare and basic educational systems; Lula’s was to enlarge direct social benefits (most famous, the bolsa família, a minimum-income project that supports millions of Brazilians) in order to create new classes of consumers, and to boost the country’s domestic industrial production.

In the first six months of 2010 alone, Lula transferred R$ 7 million ($4 million) to more than 50 million people through the bolsa família. 25% of Brazilians now receive the benefit, which pays families between R$ 22 ($12) and R$ 200 ($113) a month.

A Brazilian prospect

The macro perspective, however, still allows for a more detailed view where some traditional issues of Brazil’s economic-development process come into focus. Two points in particular are notable.

First, poverty is being reduced at a faster rate in Brazil’s already more “educated” regions. Here, in the south and southeast, poverty fell by 47.1% and 34.8% respectively; whereas in the northeast, the north and centre, it fell by 28.8%, 14.9% and 12.7% (the figures for destitution are proportionally similar). In fact, the bolsa família’s impact in the northeast – historically Brazil’s poorest region – accounted for its achieving similar levels of miséria-reduction as the south and southeast.

Second, IPEA’s research confirms that economic growth alone cannot reduce poverty and destitution. The central part of the country – Brazil’s mid-west, where the capital Brasília is located – experienced the fastest annual growth of GDP per capita from 1995-2008: 5,3% per year. At the same time, the region had the second-worst annual record in poverty-reduction: 2,3%, better only than the north’s 1.6% per year. This result highlights a very powerful distortion in the Brazilian economic context: namely, the constant and disproportionate growth of the number of public employees and their salaries in relation to the marketised sector.

In 2002-08, for example (according to separate research published in 2009), private-sector salaries grew by 8.7% above the inflation-rate for the period (43.3%); while salaries around Brazil’s top public institutions (the presidency, congress and judicial system) grew on average by 74.2%, 28.5% and 79.3% above inflation. In February 2009, the average salary within the presidential apparatus – including all kinds of jobs – was R$ 6,691; in Brazil’s private sector, it was R$ 1,154. A major consequences of this situation is the weakening of entrepreneurship among highly educated young people, who prefer the “low work-high payment-very secure” conditions of the public service than to seek adventure and risk in the Brazilian marketplace.

But the results presented by the Instituto de Pesquisa Econômica Aplicada show that Brazil is at least on the right path in terms of poverty-reduction. Moreover, as I have argued in an earlier article on openDemocracy, this trend is unlikely to change irrespective of who will be the winner in the presidential election in October 2010, and assume office as Lula’s successor in January 2011 (see “Brazil after Lula: left vs left”, 23 March 2010).

This “virtuous cycle” is no less than a byproduct of major improvements in the Brazilian political environment since 1989: a “re-democratisation” process, a political and economic stabilisation, and a series of international compromises made by Brazil concerning such sensitive issues as trade, the environment, intellectual property and nuclear proliferation. It is a vivid endorsement of the value-creating, life-enhancing, society-enriching effect of sustained democratic politics.

Brazil, by continuing on this path, will most likely be in a much better shape than in the past to host international visitors during the football world cup of 2014 and the Olympic games of 2016. Any major problems ahead would seem to lie in the international financial and economic crisis coming from the north.

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Arthur Ituassu is professor in the department of social communication at the Pontifícia Universidade Católica in Rio de Janeiro.

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