Brazil is in a soup, thanks to the colossal expenses it bore to build the massive infrastructure for the World Cup. So much so that President Dilma Rousseff may lose the election in October because welfare projects had to be curtailed for the event. Yet, all this cannot negate Brazil’s singular achievement in keeping unemployment at a record low and eradicating poverty substantially even though the growth rate was falling. This is a feat that no other democracy has achieved.
Brazil, the seventh largest economy of the world, did not bother about growth. Instead, it was concerned with the living conditions of the people. More than 40 million people have been pulled out of poverty, and the government says that extreme poverty has been reduced by 89 per cent in the past decade. Even allowing for exaggeration, this is an achievement. As per the World Bank, poverty dropped from 21 per cent of the population in 2003 to 11 per cent in 2009. Extreme poverty fell from 10 per cent in 2004 to 2.2 per cent in 2009.
Unemployment fell to a record low of 4.3 per cent in December 2013 from an already low of 4.6 per cent in November 2013 when growth was just 2.3 per cent. This is all the more impressive, considering the fact that unemployment, which was 12.4 per cent in 2003, fell to 5.5 per cent in 2012, the year growth fell to 0.9 per cent from 2.7 per cent in 2011. All this was achieved in a market economy within the constraints of democracy.
Over the last decade, Brazil has launched a unique scheme for the poor called Bolsa Família under which money is given to poor mothers. In return, they have to ensure that their children attend free schools and avail themselves of free healthcare services provided by the State. The enormous success of the programme has earned Brazil high credibility with the people. It is because of this socio-political strength that Brazil could continue to spend heavily on social welfare, keep the minimum wage high and enact laws that make it difficult to fire a worker. Admittedly, these have affected industry profitability. But Brazil succeeded in keeping unemployment to a record low. It reduced poverty considerably and provided free schooling and healthcare for all in spite of low growth, rising inflation, falling exports and increasing fiscal deficit.
The key factor behind low unemployment is that teenagers and young adults opted out of the job market to join State-funded, affordable college education and professional training to upgrade their skills. The success of such measures reduced the number of jobseekers: unemployment dropped by 0.8 per cent, year-on-year, its seventh straight decline. Thus, Brazil ensured that the fruits of growth reached the poor and the lower middle class through State intervention rather than relying on the market forces and the trickle-down process.
Employers are raising wages to retain employees in a tight labour market. The rise in real wages enabled the workers to spend and prevented consumption from falling sharply even though growth was declining. This kept the wheels of industry running with excess capacity. The real worries are inflation and the consequent high rate of interest. Consumer prices rose 6.4 per cent in mid-June 2014 over June 2013. So the central bank has had to raise the benchmark rate of interest to 10.5 per cent early this year from 7.25 per cent to counter inflation. Predictably, it has affected investment.
Yet, the fact that Brazil did achieve the unique feat of record low unemployment and significant poverty reduction in a situation of low and falling growth through welfare measures is a fitting reply to the marketwallahs.