Squandering Brazil's Resources

Brazil is a rich country, with a poor majority and a prodigiously rich elite. Forbes’ 2019 presentation of the 206 billionaires (in reais, equivalent to $200 million) shows them thriving, raising their fortunes by 24 percent compared to 2018. With the pandemic, in four months during 2020, 42 major billionaires saw their personal fortunes grow by $34 billion, while the economy was in free fall. This amount is equivalent to six years of the Bolsa Família program, which took fifty million people out of extreme poverty.

This shows a negative correlation between the country’s economic growth and the growth of the elite’s fortunes. But it is also raises questions of what the elites are doing, for if they were investing in production and job generation the correlation should be positive. A better look at how the country’s resources are squandered gives us a clearer picture.

Employment

Unemployment is a drama for the families; moreover, it shows that the country is squandering opportunities, since a person out of the working force is a loss of potential economic contribution. The population of Brazil is 212 million, growing by around 1.7 million a year. But total formal private employment amounts to 33 million (before the pandemic), as compared to 140 million adults and a working force of 105 million. If we add 11 million in public service, the total 44 million formal employment represents only 42 percent of the working force. Around 40 million try to find some income in the informal sector, and 14 million are officially unemployed. The average income in the informal sector, according to official statistics, is about half the income of the formal sector.¹

This is an impressive squandering of potential productive capacity, mostly due to mismanagement. Almost all the 5,570 municipalities of Brazil face a common situation: huge underutilization of labor, and barren land around the cities: a green belt of small scale food producing agriculture is an obvious alternative, providing jobs, food and revenue. Urban maintenance, arborization, sewage improvement and so many other initiatives —which improve systemic local productivity— are obvious possibilities, and the overall result would be improved financial balance. How would we evaluate a business that uses only half of its employees?

Land

The 2017 agricultural census shows another dimension of underutilization of productive potentials. Farming units cover 353 million hectares. In these, 225 million are fit for agricultural activities, but the sum of temporary and permanent agriculture covers only 63 million hectares. This means Brazil has around 160 million hectares of idle or grossly underutilized land 5 times the size of Italy. The government statement about allowing to cut down the Amazon forest to open space for production is absurd.

Most of the agricultural land is owned by rent-seeking urban elites, which neither use it productively nor allow others to use it. Another part is used for free-ranging cattle raising, with roughly a hectare for every head. A simple enacting of the existing land tax (Imposto Territorial Rural ITR), presently simply ignored by the landowners, would stimulate them to either make it productive or sell it to whomever would use it productively. The long and bloody fight of peasants for access to land is impressive, but the very need to fight for it is absurd, considering the extension of agricultural land not being used.

Capital

The impressive underutilization of two of the main resources for development, labor and land, is a structural characteristic of Brazilian society. Slavery was abolished only at the end of the XIX century and landowners at the time proclaimed that the liberated slaves should not have access to their own land, “for who would then work on ours?” The resulting divide, between export-oriented monoculture and family farming, remains to this day.

But just as critical is the underutilization of capital, which through financialization diverts resources from productive investment to financial speculation. The 206 billionaires mentioned above make their fortunes essentially through debt, dividends, real-estate and other extractive activities. Michael Hudson sums it up:

Tax favoritism for real estate, privatization of oil and mineral extraction, banking and infrastructure monopolies add to the cost of living and doing business. Labor is being exploited increasingly by bank debt, student debt, credit-card debt, while housing and other prices are inflated on credit, leaving less income to spend on goods and services.²

He writes about capitalism in general, but in Brazil this has reached a grotesque dimension. This is crucial since productive capital could be criticized for paying low wages, but to exploit workers jobs would need to be created. With financial capitalism families, businesses and the State are drowning in debt. With privatization, extractive corporations like Petrobrás or Vale —instead of generating resources for the development of the country— presently prioritize dividends to national and international financial interests. Capital goes not to where it is more productive, but to where it generates more rent.

Science and technology

Since 2016 investment in science and technology has been frozen in Brazil, scholarships have been reduced, the Ciência sem Fronteira program —which sends students to top universities abroad— has been suspended, and technological centers of excellence such as at Petrobrás or Embraer have been curtailed. In the 2003-2013 decade of the Lula and Dilma administrations many new universities opened, more than doubling the number of students. Brazil has numerous first-class research centers, presently surviving on drastically reduced funding.

In the name of “austerity” and “responsible fiscal policy” all these programs were brought down, which in a country like Brazil, with a huge semi-illiterate population in the face of modern technologies, is disastrous. Digital inclusion, in the hands of an oligopoly with Carlos Slim and similar magnates, has left out one third of the population. One of the important programs of the Lula administration was to direct the resources generated by oil and iron ore exports to promote scientific progress in the country: with the privatization of Petrobrás and Vale these presently produce dividends. The long term structural impact for the country is disastrous.

Public policies

The Covid-19 crisis has shown what chaos can result with the absence of dynamic coordination and planning at the different public administration levels. Mariana Mazzucato has shown the importance of public policies in key areas of development. It is not a question of “big government”, but of the essential regulation and coordinating activities, as well as direct provision of essential social services such as education, health, security, environment protection and the like. Taking money away from the public health system (SUS), in the middle of the pandemic, has resulted in hundreds of thousands of deaths, and forcing more people to pay for private health service corporations, many of them multinationals.

The official discourse is that we should leave it to the markets to solve the problems, a distant echo of Ronald Reagan’s 1980 vision. What works is a balanced participation of the State with the business and the civil society organizations, with vigorous decentralization of public management, so that public policies and business activities respond to the economic, social and environmental challenges we face. There is no economic reason for poverty, joblessness and other social problems. The key issue is mismanagement, with an elite incapable of seeing beyond the financial results in the next quarter.

Brazil is indeed a rich country; the 2019 GDP, 1.8 trillion dollars, means we produce the equivalent of 3,000 dollars a month per a four-member family. But if we take into account the idle working force, the underutilized agricultural land, the capital diverted to financial rentiers, the regressive science and technology policies, as well as an inapt centralized public management in the hands of elites, we have a better understanding of the overall irrationality of the present political and social structures.