The structural impact of recent Brazilian poverty reduction attempts

Brazil

In the latter half of the 20th century, Brazil faced conditions of political instability and poor policy-making that resulted in a country with a high degree of wealth disparity, chronic inflation problems and an antiquated economic structure with high levels of privatization and low levels of foreign investment. The Cardoso regime tackled inflation through a currency-fixing scheme that was ultimately ill-fated, and began an extensive process of privatization and attempts to increase foreign direct investment. The government of Luiz da Silva (Lula) then halted the privatization program (Baer & Love, 2009), but continued to seek out foreign investment, while placing more emphasis on addressing the high degree of wealth disparity in the country. Ten years on from the beginning of that plan, it is worth taking a look at how Brazil's attempts to reduce poverty have been structured, and whether or not those plans have been successful. The evidence shows that while the attempts have not yet resulted in rousing success, Brazil has made strides in reducing the gap between rich and poor, and its investments over the past decade are building a nation better equipped not only to compete in the future, but a nation that will continue to see levels of poverty and income inequality decline.

Antecedents of Poverty

To understand what Brazil has done, why it has done it, and how these efforts can be expected to work, the first step is to understand where poverty comes from. In a sense, it begins with Hobbes' state of nature, which implies that nobody is born with rights, and that any rights and privileges we as humans enjoy is the function of a social contract we have with each other, the ultimate representation thereof being government (Lloyd & Sreedhar, 2008). If for whatever reason people within a nation state are not provided the means to life themselves out of this state, they are unlikely to do so, because the product of their efforts will remain uncertain. Poverty, therefore, is a default state and people within a nation can only rise out of this state if given the tools necessary to do so. These include education, health, adequate access to food and water, economic incentive to work, and resources that can be exploited (be they land to be worked or access to markets to sell their goods and services).

Most post-war Brazilian governments appear to have had little interest in providing the infrastructure and opportunities necessary to lift the majority of Brazilians out of poverty. A brief exception occurred in the late 1950s with the auto industry, when the government demanded that foreign automakers manufacture in Brazil in order to sell in Brazil (Shapiro, 2006). This policy allowed for the creation of thousands of value-added jobs to the Brazilian economy, which in turn allowed those workers to provide better educations to their children. That period of economic policy did not last long, and the intervening decades until Cardoso were characterized by a total lack of investment in key infrastructure that facilitates the type of economic growth that results in poverty reduction. Brazil's economy was controlled by a combination of elite families and corrupt government entities. As a result, the benefits of any economic progress were not share by the people, who had not genuine opportunity to partake of the benefits of economic expansion.

Recent Brazilian Socio-Economic Policy

The Cardoso era did see some progress made in terms of modernizing the Brazilian economy. In particular, pegging the real to the dollar (da Fonseca, 1998), while ultimately resulting in a currency crisis, allowed the country to halt the cycle of inflation that was reducing the economic incentive for average Brazilians to make contributions to their economy -- the fruits of their labors were being constantly devalued. Because Brazilians were still receiving no support in terms of the basic tools to pull themselves out of poverty (education and health care being two major ones), Cardoso-era economic policies for modernizing the economy did not have any positive impact in terms of poverty reduction. Governments, by way of their social contract with the people, need to specifically implement policies that create the building blocks of economic success for all of the people, as opposed to those who already control the resources. At the end of the Cardoso era, the GINI index, which measures wealth disparity, was at very high levels, indicating that the country's degree of wealth disparity was one of the highest in the world (Baer and Amman, 2002).

The Lula era saw a shift in both economic and social policy. The privatization program was discontinued, and the government began implementing policies aimed at reducing poverty in the country. In terms of economic policy, the Lula government maintained for the most part the free market principles of the Cardoso regime. It has been argued that this was a necessary step, as policies solely focused on economic growth are only likely to contribute to economic growth, with social outcomes not being affected much. The government, in order to improve social outcomes, needed to pay more attention in its policy-making to ensuring that the wealth created was distributed differently, with social outcomes in mind (Ferraz, Kupfer and Iootty, 2004).

Lula began by redefining the role of the state in economic development. He saw the role of the state as being a driver of the economy and its regulator, rather than as being actively involved in all sectors of the economy. He saw opportunity for strategic intervention to improve specific social outcomes. For example, he defined the need for financing of used cars as a mechanism to allow more Brazilians to have transportation mobility, and as a means of improving the economic efficiency of the automobile sector. He mandated banks develop used car finance programs, and this spurred that segment of the economy, offering immediate upward mobility to Brazilians who otherwise would not have it (da Silva & Bartiromo, 2009).

Lula also maintained the country's participation in the global economic community. Under Cardoso, Brazil became a participant in the WTO and had begun signing international trade agreements. Lula maintained these policies. This approach correctly realizes that in order to improve wealth distribution in the country, Brazil needed to continue to generate more wealth. Without wealth generation, there can be no wealth distribution. Brazil has continued to sign trade agreements under the Rousseff regime, highlighting an ongoing commitment to creating more economic opportunity -- and therefore more economic incentive for poor Brazilians (Martin, 2011). Moreover, the Lula regime has promoted greater trade not just with developed nations but with other developing nations as well, particularly within Latin America but also China and Africa as well (Cepalini, 2007).

Another feature of Brazil's recent socio-economic policy is that the country has begun to pay more attention to how the wealth generated in the country is distributed. Brazil has long been blessed with tremendous resources -- it has massive tracts of farmland and oil reserves such that the country is essentially both food and energy self-sufficient (da Silva & Bartiromo, 2009). The country therefore has the opportunity to create widespread wealth, but for decades lacked the fundamental building blocks of widespread wealth growth. The poor received very little public education, and it was of low standard, and the same can be said of both housing and health care, two other critical elements of upward economic mobility.

The Lula regime began to focus on these elements, by channeling the taxes collected through the increased economic activity to making improvements in infrastructure. The regime made improving the quality of and access to education a key priority of its poverty reduction policies. In 2000, an OECD survey found that "only half of Brazilian children finished primary education" and that "three out of four adults were functionally illiterate" (The Economist, 2010). The poor state of education in Brazil was holding people back -- they could not take advantage of economic opportunities, and in most cases were unable to conceive on what opportunities there might be. Education is one of the most fundamental of elements that government fulfills as part of its social contract with its people, specifically because of how important education is to the ability of people to access and exploit economic opportunities. After decades of neglect, the Brazilian education system was in a state of disrepair so bad that it did very little to serve the needs of its people.

Education reform began with the Cardoso regime. Under the initial reforms, there was a minimum level of per-pupil spending on federal public education and on teacher salaries. Another policy had the government paying poor families to keep their children in school. Previously, poor parents -- too uneducated to understand the long-term value of education -- had pulled their children out of school to enter the workforce performing menial labor. This perpetuated the cycle of poverty, as these children would not have the skills required to improve their socioeconomic status as adults. The Lula regime not only maintained these policies, but extended them (Ibid).

More money was put into developing better teachers -- in Brazil the best and brightest students seldom pursued education as a vocation. Further reform of the teacher system reduced inefficient spending. Teachers were allowed to retire after 25 or 30 years, meaning that nearly half of school budgets were going to pensions; teachers were also allowed high levels of absenteeism. Improving the quality of teachers also reduced the amount of money spent on students who were repeating grades. These real world structural reforms all cost money to implement, especially those that served to improve the quality of teachers by teaching them the subject matter and how to teach, things that were not previously part of the teacher training curriculum (Ibid).

Health care is another area where Brazil has made strides as part of its poverty reduction strategy. Health care reform in Brazil began pre-Cardoso in 1998 with the creation of the Unified Health System from two state systems. These changes, however, have had less impact than the changes on the education system and today only 60% of Brazilians have access to a doctor (The Economist, 2011). The government has taken baby steps to improve the state of health care, adding coverage for more things to the health care system. This costs money, and some tax dollars have been funneled into improving the state of the health care system in Brazil. Spending on public health care in Brazil currently equates to 6.6% of the total federal budget (Rabello, 2011). This level is virtually unchanged from the 6.7% in 1990 (U.S. Library of Congress, n.d.) and the Rousseff government, however, has fought to see this level increase. Thus, the commitment from the Brazilian government to health care as a poverty reduction strategy lags its commitment to education and even to trade programs.

All told, recent Brazilian government policy under Lula and Rousseff appears to involve using the pre-existing reforms of the 1980s and 1990s to implement the needed reforms. These regimes appear to recognize that there is value is maintaining existing systems, given the high potential cost of setting up entirely new system. The disruption to the economy, for example, of moving away from the Cardoso reforms towards full-blown socialism would have been disastrous. The Lula regime recognized this and set its economic policy more in line with its own interpretation of the existing system. The same can be said for the education and health care systems -- the reforms that have been conducted were done so under the structures already in place.

Outcomes

The outcomes of the reforms have been mixed thus far. Neri (2011) argues that the changes have generally been positive. The bottom 20% of Brazilians have seen their income improve 6.3% from 2000-2007, while the top 20% of Brazilians have seen their income improve just 1.7%. The GINI Index, which in 1990 was at 60.91, has fallen to 53.04. This level is still very high, with Brazil ranking 13th-highest in the world, and far higher than any developed country except Hong Kong (CIA World Factbook, 2012). These outcomes indicate that although there is still a significant amount of income disparity in Brazil, the country is taking steps to reduce poverty.

Education is the building block of sustainable economic growth, particularly as development pushes Brazil towards the knowledge economy. Brazil's education outcomes in recent years bode well for the country's economic future. Students are improving their proficiency across the board as the result of the reforms that began years ago. As these students, with greater proficiency in reading, science and other important disciplines, graduate and enter the workforce, they will be better equipped to take advantage of the opportunities afforded them by their government's pro-trade and pro-investment policies.

Health care, on the other hand, remains a significant issue. Clearly, ill or infirmed people are unlikely to get out of poverty because they are unable to work, and caring for ill or informed family members is something that reduces the workplace productivity of many otherwise productive adults. That the Rousseff government has sought to limit health care spending shows signs that the government still does not recognize the role that health care plays in lifting people out of poverty. However, the government's anti-poverty economic policies do score it points. The Brazilian economy has experienced something of a miracle, with strong and sustained growth since the Lula era began. The country has rebounded from the global economic crisis and has continued with its free trade policies. Ideally, a robust and growing economy will continue to create opportunity precisely at a time when more Brazilians have the education needed to take advantage of it.

Conclusion

It cannot yet be said that Brazil has successfully addressed poverty in its nation, nor has it enacted enough reforms to deliver on its poverty reduction strategies. While the economy is certainly a feel-good story, the level of wealth inequality remains very high. Brazil's wealth remains in the hands of those who are positioned to take advantage of the new opportunities that have been opened up as the result of the pro-trade and pro-investment policies enacted by Cardoso, da Silva and Rousseff. The GINI index is a good measure of poverty, and this needs to come down further before Brazil can be considered a success.