Semper crescis, aut decrescis, vita detestabilis

(Carl Orff, O Fortuna)

Will Brazil be able to generate a model of sustainable and sustained growth, with more social justice, serious democracy, and reasonable sovereignty? If we look back in history, we see an attempt at autonomous development with Getúlio Vargas at the beginning of the 1950s, interrupted by an opposition that led to his suicide. Another attempt, with Juscelino Kubitshek, a few years later, heavily opposed by the traditional elites, lead to the military and corporate coup in 1964, and a dictatorship lasting 21 years, until 1985. The 1988 Constitution, rolling back the dark times, brought much hope: a model of institutional change balancing the economic, social and environmental challenges. It did not last, and amendments followed, promoted by the same elites, gradually turning the Constitution into a toothless paper.

Even so, the 2003-2013 phase, with Lula and Dilma, called “the golden decade of Brazil” by the World Bank, created an impressive tempo of balanced growth, with more social justice, public investment and serious environmental policies. The average GDP growth during this period was 3.8%. Unemployment fell from 12% in 2002 to 4.6% in 2012. The country was taken out of the FAO Map of Hunger. The Amazon forest loss was brought down from 28 thousand square kilometers in 2002 to 4 thousand in 2014. Massive attacks (Lava Jato, interest rates war, and international fight for the Pre-Sal huge oil reserves) brought the experience down. The narrative was that the government had spent too much on the poor, generating a public deficit, but the issue was over political power. President Dilma Rousseff was impeached in 2016, but from 2014 on the balanced development experiment was torn down. Authoritarian and austerity-based politics were back.

In 2022, after 9 years of economic stagnation, reversal of social policies, soaring unemployment, the Amazon on fire, and hunger reaching a disastrous level – in mid-2022 we have 33 million suffering from hunger, and 125 million in “food insecurity”. The hope is, that with Lula back in government, we can have Brazil back on track. But the main challenge is that after each disastrous phase with the oligarchy, we have a few years of democratic administration and sound policies; but as soon as the elites feel their absurd privileges are threatened, we are thrown back to the dark ages, as with the Temer and Bolsonaro governments. It seems that we can only have democracy if we do not use it. And democracy is not just about having elections, it is mainly about making people live better as well. How long will Brazil continue to live in this sickening back-and-forth swinging historical process?

The fact is that Brazil, as the third most unequal country in the world, is set back into authoritarian regimes every time democratic measures threaten the inherited privileges at the top. There is technological progress, no doubt, during all phases, but it is used to reproduce the same system, even if technically more sophisticated. High-tech primitivism is based on an alliance between the local oligarchy and the US corporate interests.1

With every new election, we hope winds will change, and that the change will last. And it is not a question of not knowing what should be done, but a question of generating the necessary decision power. Here are some of the main changes that could help restore the Brazilian development process, breaking this tragic history of economic growth without social progress. The key necessary transformations can be summed up as productive inclusion, the financial transformation to fund it, the corresponding governance change and a broadening of the political support to make it all possible.2

Productive inclusion

Productive inclusion is a strategic axis directly linked to the immense underutilization of production factors. For a population of 214 million, we have only 33 million formal private jobs. If you add the 11 million public servants, we reach 44 million. But 40 million are in the informal sector, street vendors, the precariat and the like. Adding 15 million unemployed and over 50 million underutilized working capacity. And Brazil has an area of fallow agricultural land, 160 million hectares, equivalent to five times the size of Italy. The country’s financial capacity, instead of being used to fund productive activities, is basically used in financial speculation.

The concrete measures for productive inclusion are well known and have been successfully applied during the Lula/Dilma administrations. The starting initiative is to ensure more money at the bottom of the pyramid, with higher minimum wage, basic income, pensions and the like. It will not generate inflation since businesses are working below capacity and can respond with more products, provided they have customers to sell to. The stagnant or declining funding of public social policies, particularly health, education, security, social housing and the like must also be restored: this generates welfare and jobs. The third group of initiatives lies in the infrastructure area, which improves the quality of life, business productivity and productive employment. And the remaining underutilization of the working force should be faced with a residual job guarantee program, as it is applied on a large scale in India and described for the US by Pavlina Tcherneva.3

Restructuring finance

We must evolve from the austerity policies and the “fiscal responsibility” narrative to an overall approach based on basic needs and productive activities promotion. This implies restructuring the tax system. In Brazil, distributed profits and dividends are tax-exempt since 1995, which is a grotesque deformation. Also tax-exempt are export-oriented activities, since 1996, which led to a huge growth of commodities exports, rather than production for internal markets, and the dramatic increase of hunger seen above. And the tax system is centered on consumption taxes, making the majority of the population, which spends most of its earnings on daily purchases, pay proportionally much more than the middle and high-income groups. The basic issue here is turning the regressive tax system in Brazil into a progressive one, as applied in Europe and many countries.

The second group of measures to make finance stimulate development instead of draining the economy is credit regulation. Article 192º of the 1988 Constitution defined usury as a crime, but the banks managed to take it down in 2003, and Brazilian banks present the third highest spread in the world, with revolving credit card rates above 350% (for inflation around 10%), overdraft above 150% and commercial credit for installments around 80%. Since five banks control 85% of the credit, it is an oligopoly draining the economy. The Central Bank's control over interest rates must be reinstated, and credit must be organized in a way that stimulates demand, investment and productive activities.

Financial policy, meaning the productive use of state-controlled resources, must also be oriented towards basic needs and economic support for producers. The issue is not where the money comes from, either through the budget, debt or emission. As long as the use of the money stimulates development and thus generates the real economic growth corresponding to the injected money. Presently the public debt, instead of being used to fund education, science, infrastructure and jobs, basically uses our taxes to pay high interest to holders of government bonds. 82% of the growth of the public debt results from the payment of interest to the 10% of the richest groups, instead of funding development. Money has to go to where it has a multiplying effect on the real economy.4

And Brazil has to rescue control over oil, iron ore, and other primary exports. Petrobrás, Vale and other world-scale corporations, presently privatized, generate dividends for international shareholders and their internal allies, instead of funding productive investment in the country. The enormous natural capital Brazil has is being squandered: it is counted as production in the GDP, but as the World Banks have already shown, it is basically a decapitalization of nonrenewable assets.

The decision-making process: managing transformation

As so many studies are presently showing, with Joseph Stiglitz, Mariana Mazzucato, Thomas Piketty and even Financial Times editorials, we must bring back some balance between the public sector, the private initiatives and the civil society organization, a universe presently deeply deformed in favor of the corporate giants. The role of the State, as an investor and overall organizer, must be built back. The invisible hand is not only invisible, it is inexistent. What we have is chaotic corporate power struggles and a loss of State regulation capacity. The whole system is supposed to work for the benefit of society, and strong organizations with bottom-up pressures are essential. Behind our economic, social and environmental dramas are our incapacity to face them.

Centralized management is not working; what we have is mismanagement. The main issue is that the economy, and particularly the financial corporations, work on a world scale, while governments are national so we have an overall loss of control. On the other hand, the central government's excessive power hinders the essential capacity of every region, every municipality, with local group's participation, to organize and manage initiatives according to their needs and particularities. Decentralization of public initiatives is essential both to rebuild local development capacity and to free central government from micro-negotiations, allowing it to concentrate on the structural and broader issues. Issues such as long-term technological policies, major infrastructures, international negotiations and the like. In Brazil, with the 1988 Constitution, many initiatives have been transferred to municipalities, but the money is concentrated in Brasilia. Neither local nor central decision making are working.

A third basic issue concerning the decision process is a major overhaul of management, incorporating the digital revolution, with the horizontal collaborative network management it allows. Financial resources can be decentralized to local administration, without losing control, since the final control of means and results can be followed online, with radically more flexibility and democratization. In Brazil, the government has been withholding digital inclusion infrastructures and allowing an oligopoly to charge absurd prices for access. Electromagnetic waves that carry digital information belong to nature, but their use has been privatized. One-third of the Brazilian population has no access, and only one-third has full quality access. Not having access to good digital services hampers practically all sectors of activity. Instead of global platforms like Uber, we can have local collaborative platforms that reduce costs and ensure increased social capital.

Finally, instead of the “minimum state” narrative, management must be seen in the perspective of a complex society, where basic infrastructure is better managed with public planning and long-term investment, while consumption goods and services adequate to consumer needs can work better with private companies and markets. Social policies such as health, education and security are better managed as free public services with universal access. Banking and other intermediation services, on the other hand, need solid public alternatives to reduce the “toll-booth” economic effect, on debt-ridden students, families and businesses. The inherited regulation systems inherited from the industrial age are not adequate for the digital platform economy.5

Broader political horizon

Inequality is the key structural issue, but it must be seen far beyond economic inequality. Income and wealth inequality, both reaching dramatic levels between and within countries, can be faced with the means we have. Even with the stop-and-go alternate phases of development, and with huge natural resources, Brazil did reach a level of production, equivalent to roughly 2700 dollars per month per four-member family. Where, a moderate reduction of inequality, could ensure everyone could live with dignity and comfort. But there are deeper inequalities ingrained in the social and political cultures. In particular, the deep racial inequalities (56% of the population declare themselves black or of black origin),6 but also deep gender prejudices, the humiliating situation of so many elder people, or the deep regional inequalities. Can we bring ourselves to this cultural change, where the very existence of inequality and humiliation of large parts of the population would be considered a moral scandal? We have the means, we have the information, the technology and even the well-defined sustainable development goals. We are facing a civilization crisis and the challenge of structural change. Talking about ESG is barely scratching the surface.

Notes

1 Jessé Souza - A elite do atraso - Casa da Palavra/LeYa, 2017.
2 For a more detailed program, see L. Dowbor Resgatar a Função Social da Economia – Pré-publicação, 2022.
3 Pavlina Tcherneva, The Case for a Job Guarantee, Polity Press, 2020.
4 For a detailed analysis, see L. Dowbor The Age of Unproductive Capital, Cambridge Scholars, 2019.
5 UNCTAD, Digital Economy Report, 2021, UN, 2022.
6 Mario Theodoro, A sociedade desigual, Zahar, Rio de Janeiro, 2022.