The Poor Shall Inherit Brazil

For centuries Brazil promised prosperity amidst the constant plague of poverty and inequality. Forty years ago, the country’s military dictatorship managed to achieve the perplexing “Brazilian miracle” in economic growth, averaging 11 percent a year between 1968 to 1973, in part by concentrating income and deepening poverty to boost profits and investment. Today the tide has turned, and it appears that indeed the poor shall inherit Brazil.

The Brazilian government’s well respected Instituto de Pesquisa Econômica Aplicada (IPEA) recently published its Presidential Communication #38 Poverty, Inequality, and Public Policies which concludes that

“If Brazil maintains the same trend toward decreasing poverty and inequality as it has in the past five years, by 2016 these social indicators will resemble those found in developed countries. Extreme poverty could be eradicated for all practical purposes, and income inequality could be furthered reduced below the Gini coefficient of 0.500.”

In other words, more and more Brazilians are experiencing the transition from extreme poverty and working poverty to a level of economic security only reserved for the small middle and upper classes in the past.

How did Brazil reduce poverty and inequality?

Most conservatives and liberals would likely point to the economic stabilization achieved under the Fernando Henrique Cardoso administration (1994-2002) and compensatory policies that led to modest reductions in poverty and inequality during that period. They argue that such economic and social policies set the stage for equitable economic growth under the Lula government (2003-current). It is true that economic stability was a necessary condition for Brazil’s contemporary era of growth and its successful weathering of the recent global financial storm that rocked the world last year. Yet, IPEA’s numbers reveal that current government social policies have clearly accelerated the trend toward lower poverty levels and the shrinking income gap between the rich and poor.

Between 1995 and 2008, the average annual reduction in absolute poverty (measured as one half of the official minimum wage per capita, given that the modal wage in Brazil is the monthly minimum salary valued at approximately $290)) was 0.9 percent and for extreme poverty (one quarter of the official minimum wage per capita) was on the order of 0.8 percent. These averages are smoothed across both the Cardoso and Lula administrations. However, these rates accelerate under President Lula’s government with average annual decreases in absolute poverty of 3.1 percent and extreme poverty at 2.1 percent. Could economic growth explain lessening poverty in Brazil? Remember the perverse economic miracle four decades before!

While economic growth creates opportunities to reduce poverty and inequality, such opportunities are contingent on social democratic policies that effectively redistribute the wealth created through expansion. Brazil is now an exemplar case of this association. As IPEA carefully inventories, the federal government has developed a long list of targeted policies and programs to eradicate poverty and lessen income inequality, from old-age pensions to the family stipend program, known as “bolsa familia,” that delivers cash assistance to over 11 million families who keep their children in school. And that’s not all! The government strategy also includes special jobs programs for youth, increasingly aggressive public health programs to keep Brazilians healthy and productive, expanding educational opportunities from primary to higher education, and the Lights for All program that is bringing electricity to the rural poor. IPEA documents that such transfer programs and social policies, largely delivered to the poor, constitute a significant redistribution of federal, state, and local government resources, growing from 13.3 percent of total government outlays at all levels of government in 1985 (the first year of civilian government following the military dictatorship (1964-1985) to 21.9 percent by 2005.

IPEA is also careful to note that such policies and programs are not developed and executed in top down fashion, but are the result of sustained deliberations of participatory councils, such as the food security councils, found throughout all levels of government today. Participatory democracy is shaping these policy efforts, increasing their efficiency, and guaranteeing their success.

Clearly, Brazil’s current success in reducing poverty and inequality are dependent upon continued growth and stability, but if these social democratic policies and programs continue then poverty and inequality will continue to plummet. Moreover, as IPEA documents, most Brazilians suffer from an extremely regressive tax system that places the greatest relative burden on the poorest social classes. For example, IPEA reports that in 2003 for those Brazilians earning two minimum wages or less, nearly half of their income is paid in a myriad of taxes while those at the opposite end of the income scale (earning 30 or more minimum wages per month) hand over less than 30 percent to the government. If Brazil were to reform the tax system, introducing more progressive taxation and eliminating the most onerous regressive taxes, then poverty and inequality could be reduced even further!

Brazil is headed in the right direction. Most of the country’s political parties and the major candidates for the presidency confirm the social democratic trajectory with their own spin or two. The more intriguing question for foreign policy analysts is what effect will the reduction of poverty and inequality have on Brazil’s role in the world, can it continue to be a forceful voice for the Group of 77 and the developing world in general or will its social democratic vocation anchor a South American social democratic era and move it closer to European social democracy?