Brazil is not a poor country. With a GDP of roughly 1.8 trillion dollars, and a population of 210 million, what we produce amounts to US$2,830 per month per four-member family. In Brazil, living with the equivalent 15 thousand Real a month would be a dream for most families. In fact, a moderate reduction in inequality would be sufficient to make sure everyone has a dignified and comfortable life. This simple way of presenting the situation, not in yearly per capita, but in monthly family income, helps bringing us down to earth. Our challenge is not the lack of resources, but the social and political organization gap. To put it more bluntly, we are facing social and political chaos.
This is also true in global terms. Present world GDP is about US$88 trillion, for a population of 7.8 billion, which amounts to 3.8 thousand dollars a month per four-member family. Whatever the economic impact of the pandemic, what the world produces should ensure we all have enough for a decent life. We are mourning more than two million deaths resulting from Covid-19, but we should put this in perspective. In the world, over 3 million children aged under-five die every year from lack of access to food and clean water. Solving this challenge is simple and cheap, no lockdown is necessary, and the world produces over 1 kilo of grain per person per day, not to speak of other food sources. In fact, supplying food to the 820 million hungry in the world would rather stimulate than hamper the economy. No wonder so many are furious against politics in general, and voting for any demagogue spreading hate.
In Brazil, which had been taken out of the FAO world hunger map during the Lula governments, we are back to over 16 million people suffering from hunger, in a country which in 2019 produced over 3.5 kilos of grain per person per day. We do not lack food, we lack policies. With a devalued Real, the traders in food commodities find it more interesting to export than to sell on the local market, leading to inflated prices of such staples as rice and beans, and more poverty. This in a country where the fallow land, used for rent accumulation, barely disguised as “extensive cattle farming,” is equivalent to five times the territory of Italy, 160 million hectares. There is no economic reason for poverty in Brazil.
In the international debate, the issue is clear: we must ensure our societies are economically viable, but also socially fair and environmentally sustainable. In Brazil, the way we manage the economy is not viable –business is using around 70% of its capacity, even before the pandemic. Socially, we are among the 10 most unequal countries in the world, with scandalous unproductive fortunes at the top. And the environment is simply being systematically destroyed for the short-term interests of local and international corporations, commodity traders selling wood, soya, meat and minerals from the burning Amazon. The pandemic, on top of this convergence of critical deformations, only pulls us further down. This is a systemic crisis.
The absurdity of this all, is that we know what works. In 2003, with the election of President Lula, Brazil started an inclusive development experience with impressive results. Although the Bolsa Familia is best known, it was part of 149 programs, such as the government purchases policy, electricity access to millions in isolated regions, nation-wide support for ailing municipalities, systematic improvement of minimum wage, basic income for elderly or incapacitated populations and so many other initiatives. Access to income at the bottom of the pyramid was essential, but families also depend crucially on access to public social policies, particularly health, education, security, water and sewage and the like, which are not purchased directly with money, but must be made accessible as free universal public services.
It was also a management success. An initiative was launched in 2003 to organize a nation-wide register of the poor, putting together the information of different ministries, states and municipalities, relying on NGOs and religious organizations to reach to the most isolated or marginalized communities. The human, social and economic dramas were given names and precise localization, allowing for targeted policies. The resulting projects did not depend only on a specific ministry, but involved cross-sector decision making in the government, and relied heavily on civil society organizations on the terrain. Moreover, the managers of key projects were selected among people with long experience in social issues, at community level.
More money at the bottom, access to expanded social policies and sound management transformed the social and economic landscape. Around 36 million were taken out of poverty, 18 million formal jobs were created, the number of university students doubled, child mortality continued to fall, life expectancy rose to 76 years. Unemployment, at 12% in 2002, fell under 6% in 2010. GDP grew by 3.8% a year during 2003-2013, in what the World Bank called “the golden decade of Brazil”. Just as important, it was a glaring demonstration that democracy can work, and particularly that political democracy can be strengthened with economic democracy.
The workings of inclusive policies are simple. Orienting the economy towards the welfare of the majority, we increase demand, which in a stagnant economy stimulates production, which in turn generates jobs. Both growing demand and production generate taxes, and government can balance the budget. In a country like Brazil, with huge idle riches and production capacity, the returns are very solid. It is, like Hazel Henderson writes, a win-win process.
But as in other Latin-American countries that adopted inclusive development policies, the elites reacted strongly. In Brazil, as of 2013/2014, this took the shape of a wide range of attacks from a right-wing coalition, in the name of fighting corruption, a recurrent and effective way of mobilizing society. The Lava Jato judicial attacks on Lula and the government, paralyzing key national corporations like Petrobrás and Odebrecht, the political fighting of the 2014 presidential election, all contributed to paralyze the inclusive development experiment. Dilma was elected, but as the elites claimed, if elected she would not govern. From 2014 on, Dilma was still president, but fighting political chaos. The inclusion phase was reversed. And Lula was conveniently jailed for the time of the 2018 elections, which he was going to win, on the basis of absurd accusations.
The 2014-2020 period is one of dismantling the inclusive process, and orienting the economy back to the traditional reproduction of the elite, in the name of “austerity.” Austerity is a well-found name, it sounds responsible, serious. In fact, what has been happening in this second period, is more wealth concentration, increasing inequality, a stagnant economy, and exploding deficit. The numbers are clear: the 3.8% economic growth of the 2003-2013 period was followed by a recession in 2015 and 2016, and stagnation until and including 2019: the average GDP growth between 2014 and 2019 was minus 0.4%. In 2020, with the pandemic, GDP has fallen by about 4.5%.
What is important for our argument here, is that the stagnation of the Brazilian economy, the reversal of key indicators such as inequality in income and wealth, child mortality, rainforest destruction and other aspects of economic, social and environmental backwardness, as well as a growing budget deficit, were to be expected. The rightwing governments that took over after the coup against Dilma Roussef dismantled the social policies, and reduced purchasing power of the population. A businessman from São Paulo put the problem in a nutshell: “It is true that it is cheaper for me to hire, but why should I hire if I do not have whom to sell to?”
In fact, capitalism is changing. We could criticize the owner of a shoe-factory for exploiting his workers, but he produced shoes, which is useful, generated jobs and paid taxes. The taxes could in turn be used to finance infrastructure and social policies. The economic wheels turned, even if with unequal returns. Presently, exploitation through low wages continues, but has been reinforced by the debt system hitting families, productive businesses, and governments. Financialization is expanding, and changing the rules. Wealth concentration could enable entrepreneurs to make productive investments, nowadays it allows for huge financial, unproductive gains, on debt, dividends, speculation in derivatives and the like. Profits from productive activities have been substituted by rent generating speculation.
The respected Valor Econômico published the 2019 figures for the 200 major economic corporations in Brazil: Petrobrás has the highest net profits, an extractive activity of natural resources. But the five following positions are held by Itaú Unibanco, Bradesco, Caixa, Banco do Brasil, Santander: banks. In the 200 group, banks earned 37% of the total profits in 2018, and 49% in 2019. While industry, commerce and services were falling, banking sector profits soared by 27% during this one year. It is, as Marjorie Kelly and Ted Howard call it, extractive capitalism. (Valor Econômico: Grandes Grupos, December 2020).
The pandemic only made matters worse: between March 18 and July 12, 2020, 42 Brazilian billionaires (in US dollars) saw their fortunes grow by 34 billion dollars. This is the equivalent of six years of Bolsa Familia, for 42 persons, in less than four months. And in Brazil, since 1995, distributed profits and dividends are exempt of taxes.
Austerity is not working, because it essentially means a huge transfer of financial resources to the hands of an unproductive financial elite, and a reduction of purchasing power at the bottom of the pyramid, which in turn means stagnant demand, reduced production and employment, and a growing deficit. There is no miracle: for the economy to work, money must go to where it is productive.
Overall, studying what happened to Brazil in these first two decades of the millennium is enriching, because we have two clearly opposed development models, distribution and inclusion during one period, and the concentration and exclusion process during the other. With the converging impacts of deepening inequality, environmental catastrophe, financial chaos —and the pandemic— we are bound to get back to basics. The economy must work for all.