Review: Brazil’s toughest tests lie off the pitch

May 16, 2014

By Dominic Elliott 

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Michael Reid’s astute new book has a stark warning: the country of samba, sex and soccer is teetering on a knife-edge. “Brazil: The Troubled Rise of a Global Power” explains why protests against this year’s World Cup are turning increasingly violent. Reid, a journalist for The Economist, persuasively urges a return to the broad liberal consensus that served Brazil so well between 1994 and 2006.

Brazil taxes and spends like a European country and shares other bad habits with the West. Yet it produces “distinctly Latin American” results, says Reid. GDP per person is still a disappointing $12,000, about two-thirds of the level of Argentina, and it remains the world’s twelfth most unequal country. The masses understandably want more opportunity, as well as better hospitals, schools and public transport.

The book’s central argument is that Brazil’s underlying problem is a dysfunctional political system, built on a “bastardised version of liberalism,” made illegitimate by patrimony and elitism. Reid’s on-the-record interviews with Brazilian presidents past and present sit alongside a masterful analysis of the hard data. Everything points to the urgent need for profound reforms.

Rare economic advantages that provided air cover for an overhaul are evaporating fast. Brazil’s economy briefly replaced the UK’s as the world’s sixth biggest by GDP in 2011. But Chinese demand for Brazil’s commodities is waning, and the population is ageing rapidly after an almost Chinese decline in the birth rate from six to two children per woman over the last two generations. Brazil already spends as much on pensions as southern European countries, and that can only rise.

Still, it’s not all doom and gloom for Brasilia. The left-wing Workers’ Party (PT) of Luiz “Lula” Inacio da Silva and Dilma Rousseff has greatly reduced income inequality since taking power in 2003. The country has strengths in farming and commodities, despite government mismanagement of state-owned oil company Petrobras. A vigorous entrepreneurial spirit is evident in the country’s competitive airlines sector.

But in other ways the PT has failed to improve Brazil’s standing much. Aircraft manufacturer Embraer and a handful of other mega-cap companies are impressive, but Brazil has fewer multinationals than befits a country of its size. The country’s savings rate is pitiful compared to other developing countries; ditto its productivity. The ubiquity of rubberstamping notaries is testament to Brazil’s chronic inefficiency. Social problems, meanwhile, range from the proliferation of arms linked to the drugs trade to a burgeoning prison population and daily commutes of between three and four hours for 80 percent of the population.

Small wonder Brazilians are angry. Lula and Rousseff have ducked critical reforms of the country’s archaic pension and labour laws, and its dysfunctional political system. Rousseff’s government is a “baroque contraption” of 39 ministries, in Reid’s withering description. Brazil also has the world’s most fragmented political system: the 513 seats in the lower house of Congress were shared by 21 parties in October 2013. Clientelism abounds.

Reid’s proposed solutions are wise. Larger states should indeed be split into smaller districts to avoid excess influence. Brazil needs a threshold of 5 percent of the national vote for political representation, despite objections from the supreme court. Taxes need to be cut and savings raised. Finance Minister Guido Mantega may have pledged to trim public spending by $18.5 billion in February, but that should be only a first step. Rousseff now faces a real contest in national elections later this year from two rivals. Whoever takes power would be advised to follow Reid’s prescriptions. Otherwise, the troubles of Brazil will stop its rise.

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