After struggling with various economic models under extremely corrupt leaders, foreign debt of $122 billion, and hyperinflation with negligible growth, in 1994, finance minister Fernando Enrique Cardoso adopted an IMF-style economic liberalization program that entailed selling off state-owned enterprises and providing all types of incentives (low taxes and fewer bureaucratic obstacles) to foreign capital investment, while curtailing the rights and protections of workers.
When Argentina suffered through the IMF austerity program in 2001, Brazil's economy also suffered, forcing it to resort to IMF borrowing ($32.4 billion) in September 2002. The IMF compelled Brazil to introduce austerity in the form of fiscal and labor reform intended to strengthen the private sector, especially foreign capital, and to open the petroleum, telecommunications, mining, power generation, and internal transportation sectors to foreign investors. Brazilian law as early as 1997 had offered the same protections and guarantees to foreign capital as it had to national capital, but after 2003, foreign capital gained even greater advantages under the Lula regime.
Luiz Inácio Lula da Silva first elected in 2002, earned a reputation as a 'pragmatic' politicians, a man that Obama praised as the world's most famous politician. Lula founded the Workers' Party and forged close ties with regimes that the US demonized - Venezuela, Iran, Cuba, Libya. But did Lula, the founder of the Workers' Party and tough labor negotiator do anything for Brazil's working class and the million of poor people?
When he came to office, multinational corporations and Western governments feared that Lula would hit hard at the private sector, adopting policies similar to those of Hugo Chávez known for leftist-oriented populist measures and anti-corporate policies. Rhetoric notwithstanding, Lula was no different than the Socialist governments of Portugal, Spain and Greece that talked left and governed very much from right on behalf of foreign and domestic capital. Unlike the left-oriented populist regimes of Bolivia, Ecuador and Venezuela, Lula could afford to talk left and govern from the right because of what Brazil had to offer to foreign capital in comparison with other Latin American republics.
While Lula strengthened government influence in some sectors of the economy, his achievement is that he co-opted the left and labor into accepting a neo-liberal consensus that would result in massive foreign capital investment and curtailing labor rights for the promise of a brighter future. Besides foreign capital from US, EU, and Japan that poured billions into Brazil, Chinese investment that was almost negligible up until a few years ago soared to $10 billion in 2010. Foreign investment has entailed that the country is experiencing rapid growth. However, Brazil has an economy basically serving the consumers of the metropolis, and not its own who work for very low wages.
Just because Brazil's national economy overall has been performing very well in the last decade or so, that does not translate into equitable income distribution and higher living standards across the board. Even more significant, leftist leaders (former president Lula and now president Dilma) have embraced neoliberalism in Brazil, no differently than center-leftists and 'Socialists' as in Portugal, Spain and Greece. The economic growth miracle of Brazil, like that of Russia, India, and China has not translated into equitable income distribution or poverty eradication. Instead, the 'miracle' is the strengthening of their national economies under strong national governments.
In 2007, Brazil's poverty was 35%, which translates to people living on less than $2 per day. In 2010 poverty is estimated at 26%, mostly in the rural areas, especially in the northeast region that has the highest concentration of rural poor people in the entire Western Hemisphere. This is the result of gross inequality in land tenure, in a country where 70% of food is produced by small family farms, many of which are in the subsistence category. Lula did nothing to help subsistence farmers in comparison with his policies to benefit agribusiness.
Brazil's commercial agriculture is part of large agribusiness. Therefore, Brazil exports agricultural products while a large percentage of its own population, especially the bottom 50%, pays dearly for foodstuffs. The crisis of agriculture has been caused in part by the lucrative bio-fuel industry, but drought is also a cause in the erratic commodities market. This was the case in 1998 when more than 10 million people, mostly women and children, were on the edge of starvation, forcing many into prostitution and human trafficking and 'tourism prostitution' that has also thrived in Brazil.
The countless problems with urban and rural poverty, and gross income inequality remain largely because of very high concentration of wealth and rampant official corruption. The top ten percent of the wealthy enjoying 43% of consumption and the average salary hovering just under $11,000. In 1999, the top one percent of the Brazilian population enjoyed higher percentage of income (13%) than the bottom fifty percent of the population combined that received 12%. Given that the political elites from right to left have settled into the neo-liberal mode, it is unlikely that there will be any change as long as the economy grows as proof that policies are working for the 'greater good of the nation'.
With a national economy of more than $2 trillion, Brazil is part of the G-20 and it will continue to grow, because it has the natural resources, cheap labor force, a large domestic market that is slowly growing with the slow expansion of the middle class, a solid multilateral trade policy, especially strong with Asia, and momentum that will continue for the rest of the decade. Brazil, along with the BRIC nations, were among the few that were not as seriously impacted by the 2008-2011 global recession. In fact, Brazil has been leading Latin America out of the current recession. This does not mean there is no end to growth, but the growth engine has a lot of steam when one looks at the billions pouring in from foreign investors.
The high cost of goods and services, especially in major cities, indicates that Brazil has a problem with inflation, and indeed it has been running an inflation rate twice that of the US. However, a country cannot have growth at the pace of Brazil's (averaging 5%) without inflation running above the growth level. From 1966 to 2010 South Korea's inflation rate averaged 8.35%, and that country managed to become one of the most important economies of Asia, no matter what Western economists think about inflation as a detriment to development.
Brazil will continue to experience phenomenal growth, but that will not translate - not any time soon - into more equitable income distribution and higher living standards for the bottom two-thirds of the population. Brazil with the rest of the BRIC nations have a long way to go before their current economic development translates into benefits for the majority of the population. In the late 1990s, half of the work force was listed as part of the informal economy - small businesspeople, but mostly workers outside the legal protection of labor laws.
What is revealing about the contradiction of Brazil's phenomenal growth versus the grossly uneven income distribution is that when we compare Brazil's per capita income in terms of purchasing power parity (PPP) with neighboring Chile that has also struggled throughout its history to develop, but it has not achieved the miracle of Brazil, what we find is that Chileans are actually better off than Brazilians.
Not only is there much lower poverty level (18% as compared with 26% for Brazil), but the IMF figures indicate that whereas Brazil's per capita GDP will rise from $4,545 in 1985 to $12,870 in 2013, Chile will see an increase from US$3,225 to US$19,520. Even Argentina, which the IMF put through torture in 2001, has a lower poverty line, pulling 11 million people out of poverty out of 39 million, although it still has 30% of its people living below poverty. And once Argentina was out of the IMF's claws, it managed to grow its GDP by more than 60% in the decade, an impressive figure considering how low it had sunk.
For all the talk of a Brazilian economic miracle, it seems that domestic and foreign corporations are the ones enjoying the miracle, while the leftist government wants the masses to be filled with pride knowing that their national economy will continue to grow benefiting foreign corporations and the top ten percent of Brazilians that own most of the wealth.
Lula's former chief of staff Dilma Rousseff is continuing the Lula legacy of pragmatism, namely talking left while governing from the right. Why do capitalists and politicians love Lula so much and hope that Dilma follows his example? For eight years he managed to pursue a political economy of pragmatism, namely, delivering market-friendly policies, while appearing left for the masses and on foreign affairs. If only Obama could be like Lula, if only any politician on earth could be like Lula delivering the goods to capitalists and lots of hot air to the masses!