Brazil’s protests are not just about the economy

By Christopher Garman and Clifford Young
June 21, 2013

More than a million Brazilians have taken to the streets this past week in the largest mass demonstrations since the impeachment of President Fernando Collor de Mello in 1992. It began as a modest protest movement in Sao Paulo against a seemingly routine 20 cent bus fare increase, but has quickly transformed into a broader and more diffuse protest against a range of grievances: political corruption; the dismal performance of public services such as transportation, health and education; and even excessive spending in preparation for the World Cup. The mostly peaceful protests have spread to dozens of cities across the country while capturing the world’s attention.

Explanations for this outburst of angst are varied. Some analysts point to Brazil’s economic woes and suggest that two and a half years of low growth, and signs that the consumption-led credit boom is coming to an end, are finally catching up politically, prompting popular discontent. Others see the protests as a manifestation of the government’s inability to meet basic needs, and potentially, as an indication that governance challenges are on the rise in Brazil in a more meaningful way.

All of these explanations have a kernel of truth but are ultimately incomplete. To be sure, the current macroeconomic cycle has generated an environment more prone to discontent, but that doesn’t explain the outburst on the streets. Something deeper and more structural is going on, and it has to do with how a cycle of economic enrichment over the past ten years is changing the public’s expectations of its politicians.

Delivering on growth and employment is no longer good enough. Voters will increasingly hold their leaders accountable to improve the quality of public services such as health, education, transport and crime prevention. The good news for President Dilma Rousseff is that such a trend, and even the current protests, don’t pose an immediate governance challenge. Nor are her prospects for re-election next year in serious jeopardy. The bad news, however, is that delivering on these new demands won’t be easy, and they will only intensify in years to come.

While the current economic environment doesn’t explain the recent bout of protests, it does enable them. The general mood in Brazil is one of growing pessimism and unease. To understand this sentiment, it’s important to remember that Brazil has undergone profound social changes over the last decade. The best example is the expansion of Brazil’s so-called “C” class, which is how Brazilian economists describe the equivalent to the American lower middle class. In 2005, it represented only 21 percent of the population, but in the ensuing years it has jumped to 54 percent. The rise of the C class has already had profound effects on Brazilian society, from politics to consumer products to the content of Brazilian telenovelas. Much of this demographic’s growth was due to the explosion in access to personal credit and the ability of lower-income Brazilians to buy goods and services in installments.

But now the C class’ growth has plateaued. Economic growth has stalled due to a combination of lower demand for Brazil’s exports, government policy that has stressed investor confidence, and even a credit cycle that has made it harder for families to accumulate debt. Government policies, which attempted to counteract these trends, have helped keep inflation uncomfortably high.

The end result is rising default rates and mounting debt for the C class. Since 2012, for example, the lower middle class and lower classes (C, D and E) no longer have extra income left over to purchase additional goods. With their average disposable income on a monthly basis dipping under zero, families are now merely focused on paying off debt or replacing existing goods. Below, note the red line of the C class’ disposable income dip over time.

Source: Ipsos Pulso 2005-2013

The slowdown in consumer-driven growth combined with higher inflation and lower overall growth has also muted consumer optimism. Only a few years ago, Brazilians were among the global leaders in consumer confidence; now they have become increasingly more pessimistic about the economy. Recent polls by IBOPE and Datafolha indicate similar declines in optimism.

 

Source: Ipsos Global Advisor 2007-2013

But does decaying optimism associated with a slowdown in Brazil’s demand-driven growth really explain why more than a million people have taken to the streets in the country’s major metropolitan regions? On the one hand, it’s no coincidence that the protesters tend to be more from the upper middle class. It is precisely this segment of society that has been hit the hardest with the escalating cost of living in large cities. Yet in a context in which unemployment remains at near historic lows, something else must be going on.

We view the outburst of protests as a symptom of radically shifting demands, driven in great measure by Brazil’s economic success. With the expansion of the C class, citizens’ priorities, and what they want from their government, have changed. From 1994, when measures were taken to stabilize the economy, to the mid-2000s, Brazilians have been most concerned about two very basic issues: jobs and the economy. Policy makers, in turn, have crafted solutions to meet these needs.

But with heightened prosperity voters have turned their attention to other priorities, most linked to quality of life issues such as healthcare, education, transportation and public safety. No longer do Brazilians need to worry about putting rice and beans on the table; they are instead focused on providing their children with a good education and living healthy lifestyles, in addition to their personal safety and reliable transit. Such a trend is evident in polling data. In 2005 nearly 60 percent of the public considered issues surrounding jobs and income to be their main concern. The sum of issues surrounding quality of life issues, like healthcare, transport, crime and education, were front and center for only a bit over 20 percent of the population. By 2013 the tables turned entirely, with concern over jobs dropping to 30 percent, and issues of the quality of life surpassing that of jobs and income.

Source: Ipsos Pulso 2005-2013

The quality of life agenda is apparent in Brazilians’ rallying cry these past few days — Menos Corrupção, mais saude, educação, transporte e segurança (Less corruption, more health, education, transport and security). What we are seeing in Brazil is a symptom of how the political landscape changes with economic enrichment. Put differently, if the bus fare hike was the catalyst, then the lukewarm economic conditions are the context, and the public’s shifting priorities are the drivers. No one fact can explain the protests, but taken together they do.

Rousseff can be confident that the street protests are unlikely to generate a near-term challenge to governance or to the president’s bid for re-election in 2014. In contrast to the protests in Turkey, the grievances of Brazil’s protesters aren’t directed against a single leader or even the national government. They in fact place more pressure on local and state authorities. Brazil is a large federal democracy, with mayors and governors on the frontlines to deliver basic services such as education, health and urban transport.

We believe Rouseff’s polling numbers will continue to tumble, but not so far as to undermine her re-election chances. According to the latest CNI/IBOPE poll, the president’s approval ratings have dropped from 79 percent to 71 percent since March. Her numbers can probably fall another 20 percentage points before her re-election is earnestly at risk. Our analysis shows that incumbents with approval ratings exceeding 50 percent six months prior to an election win re-election more than 80 percent of the time. Rousseff’s numbers will suffer, but pundits under-appreciate the heights of her starting point.

In the longer term, we see the rising quality of life agenda — meeting citizen demands with meaningful policy solutions — as the ultimate political kingmaker. Gone are the days of populist politicians. Now it’s the savvy, management-oriented politicians who can run large multifaceted organizations. Rousseff’s track record of sacking government officials who are political appointments in favor of those with stronger technocratic credentials fits with that trend. There’s hope yet.

PHOTO: Demonstrators carry a banner made of Brazilian national flags during a protest against the Confederations Cup and President Dilma Rousseff’s government, in Recife City June 20, 2013. REUTERS/Marcos Brindicci

3 comments

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“Rousseff’s track record of sacking government officials who are political appointments in favor of those with stronger technocratic credentials fits with that trend. There’s hope yet.” This is a joke! Dilma and her party ARE the problem. You cannot be a consumption-based economy such as US or UK if your economy is more than 70% dependent on the price of commodities. Brazil’s once in a generation opportunity to invest the money generated during the 2000s commoditidy bubble in order to turn Brazil into a modern high added value economy has be wasted on … consumption!

Posted by fernando80 | Report as abusive

otimo comentario!
Só gostaria de acrescentar meu ponto de vista como brasileira. Penso que a principal razão dos protestos está baseada na corrupção de autoridades governamentais que agem segundo a politica da Roma antiga “PÃO E CIRCO” para o povo.

Posted by Elisangela | Report as abusive

First class article which explains clearly the current situation . Basically we were all surprised by the protests but this article explains the ” why ” very well . Well,written . Congratulations .

Posted by Burn1938 | Report as abusive