Brazil’s ‘Lost Decade’ of Development


EspañolEveryone knows that Brazil is mired in economic and political crisis, the ramifications of which led to the beginning of impeachment proceedings against President Dilma Rousseff last week.

But what you wouldn’t know from reading the headlines is that the ruling Workers’ Party (PT) has been neck-deep in corruption for over a decade. Underneath their seemingly prosperous surface, a cohort of power-hungry politicos have been ballooning the government and plundering state coffers to bankroll political campaigns and weaken institutions.

Villa argues that Brazil lost the opportunity to make a big jump. (Amazon)
Villa argues that Brazil lost the opportunity to make a big jump. (Amazon)

The kickbacks scandal involving the state-owned oil firm Petrobras that investigators unveiled in 2014, the largest corruption scheme the country has ever seen, was just the cherry on top. It opened a can of worms that revealed that the Brazilian miracle, like many other Latin American populist governments riding on favorable wind, was actually a mirage.

The economy has officially entered a recession, inflation has reached double digits, unemployment is soaring, and credit agencies have downgraded Brazil’s bonds to junk status. On the World Economic Forum’s latest competitiveness ranking, Brazil tumbled 18 places — more than any other country. Firms are fleeing to neighboring countries.

It is not always easy to track the origin of a country’s economic and political woes. Some factors, like China’s slowdown, are external, but the failure to adopt adequate policies fall on the shoulders of the ruling PT, which has governed Brazil since 2003. Further, the prosecution resulting from the Petrobras scandal has caused some of the country’s biggest firms to go bust.

To get a sense of the damage done to Brazil, one need only pick up historian Marco Antonio Villa‘s book, Lost Decade: Ten Years of the PT in Power. He provides a year by year account of the three PT administrations, from January 2003 to December 2013.

Despite the somewhat vitriolic rhetoric, Villa convincingly shows how the Workers’ Party has long abandoned the ideals of social justice, and become just another mafia whose only goal is to remain in power.

Cool Story, Lula

The rise to power of the Workers’ Party is a story the media loves to tell: its most prominent leader, Luíz Inácio Lula da Silva, a former metalworker from the poor, rural northern region of Brazil, was the underdog who conquered the presidency in 2002, after three failed election bids.

However, instead of enacting reforms in favor of the proletariat, Lula rode on the success of his predecessor’s liberal policies, which he had denounced for years as “neoliberal.” He appointed Antonio Palocci as his Finance minister, a physician loved by the opposition who, as a former Trotskyist union leader, kept many austerity measures in place.

“Everybody knows I never accepted the leftist label,” Lula allegedly said soon after being sworn in January 2003. As a presidential candidate, he penned an “Open Letter to the Brazilian People,” as a way to calm concerns within financial markets that he would overhaul the economy.

Socialists inside the party felt so betrayed by the government’s compromises with traditional “bourgeois” parties, like the Brazilian Social Democracy Party (PSDB) and the Brazilian Democratic Movement Party (PMDB), that they abandoned the PT. Others, like Senator Heloísa Helena, the PT would later expel for not following the party line on pension reform.

The Impeachment that Wasn’t

Several scandals shook the Lula administration to the core. The first one came just one year into his term, in February of 2004. A top aid to Lula’s Chief of Staff José Dirceu was caught on tape extorting a casino businessman for the ruling party.

But the big one came a year later, and hit Lula’s closest allies. Brazilian media revealed that none other than José Dirceu, once again, masterminded a vote-buying scheme in Congress, known as the Mensalão (Monthly Allowance). The Supreme Court eventually convicted him, along with the PT president and treasurer at the time.

Lost Decade argues that the opposition thought Lula was involved as well, but decided not to initiate impeachment procedures because they were afraid it would affect the economy. Instead, they counted on the scandals debilitating his image and defeating the Workers’ Party in the 2006 presidential elections.

It was a mistake that cost the opposition the next three presidencies and a much worse economic crisis down the road.

When Dirceu resigned from his post as chief of staff, Dilma Rousseff stepped in, paving the way for her ascendance to the presidency in 2011.

PT on Balance

Analysts love to highlight the millions of people that the PT allegedly pulled out of poverty, but the truth is never that simple. Poverty and inequality rates began to fall in 2001, before Lula got elected. Favorable market conditions, a demographic boom, and rising education probably had more to do with Brazil’s increase in GDP during the initial years.

The PT’s welfare programs certainly played a role in alleviating extreme poverty. However, these were the sort of conditioned cash transfers that Friedrich Hayek or Milton Friedman could have gotten behind, not populist handouts implemented in other countries like Venezuela and Argentina.

The lesson to be learned from Brazil’s lost decade, as Villa puts it, is that you don’t need Nicolás Maduro’s style of populist adventurism to tear a country apart. Corruption makes a country miss out on opportunities, and undermines confidence in the economy in a way similar to direct interventionism, even if it takes a long time to manifest itself in concrete terms.

When you expand the government and base economic growth on huge public works that employ millions, you are inviting scandal to foil your plan.

Few expected Brazil’s crisis to spiral out of control to this degree. If Brazilians are lucky, it will be contained with Rousseff’s ousting. If they are smart, they won’t elect another president who promises easy solutions to the country’s very complicated problems.

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