New directions for a more prosperous Brazil.

• Author: Trebat, Thomas J.
• Position: Key Regional Voices - Report

This article examines whether increasing global confidence in Brazil is well founded and, if so, what the implications might be for the global community. Landmark political, economic, and social achievements in contemporary Brazil are reviewed as well as the obstacles to raise human welfare to developed country standards within the next decade. The paper concludes that Brazil's growing influence in the global community is based on sound empirical evidence, a diverse economy, and an emerging society; it is not the result of passing good fortune. At the same time, the crushing legacy of past problems in areas that are vital to human welfare, including the education system and deficiencies in innovation and technological advance, continues to weigh heavily. Depending on how well its leadership deals with the legacy of the past, Brazil could become a more important actor in the international community over the next ten years. Brazil's rising use of "soft power" will contribute to addressing global issues such as clean forms of energy, sustainability, food security, and social inclusion. Even for this possibility alone, Brazil merits much closer attention from a global community not yet fully aware of Brazil's transformation.

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Reductions in poverty and a movement toward greater income equality are e most exciting and important developments in Latin America today. (1) This process, which is gradual and subject to reversal, can eventually transform Latin American society and the region's role in global affairs. In many respects, Brazil has been emblematic of the emergence of a new, more inclusive, and more socially mobile Latin America, winning praise for the strength of its vibrant democracy, the consistency of its economic management, and the effectiveness of its social policies. (2) Brazil's vision of itself as the dominant country in Latin America, a leader of the global South, and an important partner for the United States--and the West in general--now seems more within its grasp than at any other moment in its history.

Brazil's peaceful rise might evoke criticism from skeptics who would attribute it to a short-term rise in commodity prices caused by demand from China. How can it be, critics might well ask, that a country so dependent on natural resource wealth like Brazil, and so beset by problems of inequality, infrastructure, and education is experiencing anything other than a blip in the age-old Brazilian pattern of boom and bust? In order to understand where Brazil is today and where it is headed, one first needs to construct a framework based upon the fundamental changes in the economy, society, and politics that have occurred over the last three decades. This essay is an attempt to do so and to draw upon the implications for a global community likely to be puzzled by what to make of this new Brazil.

ECONOMIC TRANSFORMATION

While the economy of Brazil has lagged behind China in terms of economic growth in the last thirty years, Brazil started from a higher base of development than China and has developed an impressive economy (seventh largest in the world) and a much more diverse economic structure than it once had. The most noteworthy structural development is the growth of a competitive agribusiness sector. Spurred by advances in agricultural research, especially soybean production in semi-arid areas, Brazil's center-west region, sparsely inhabited thirty-five years ago, is today the engine room of a global powerhouse in agricultural exports. (3)

The emergence of agriculture complements a more established industrial sector that has become much less protected over the last several decades, more receptive to foreign investment and technology, and more sophisticated technologically. (4) While difficult to quantify, entrepreneurial resources appear to abound in Brazil to a greater extent than in other Latin American economies. These resources seem to have found plenty of outlets in the last thirty years.

Demographic changes help to explain why Brazil seems so different than four decades earlier. The population has more than doubled from 95 million in 1970 to nearly 200 million today. (5) It is also an older society, as population growth has slowed, and fertility rates have plunged. (6) Today, Brazil is in a demographic sweet spot with more young workers entering the workforce than older workers retiring from it, thereby freeing more family and government resources to spend on the education and wellbeing of smaller cohorts of children and youth.

Brazil is now an overwhelmingly urban society; more than 85 percent of its people reside in cities spread throughout the country with particularly rapid urban growth in the heart of the agricultural regions in the south and center-west. (7) This growth in once largely rural areas is beginning to diminish the traditional concentration of population and wealth in the urban corridor of Sao Paulo and Rio de Janeiro, while providing better jobs and social services and enhanced social mobility for the rural poor.

As much as the structure of the Brazilian economy has changed in the last three decades, the most important changes have arguably occurred in economic policy, where advances have recast the institutional underpinnings of the economy. Throughout the 1970s and 1980s, Brazil struggled fiscally in a losing battle to reconcile poor economic growth, balance of payments and external debt constraints, and an unmet social agenda. High rates of inflation and repeated currency debasements appeared as outward signs of the inherent conflicts in policy. (8) Yet the grave difficulties of the 1980s gave way not to despair, but to an era of innovations in economic management in the 1990s that have transformed the Brazilian economy in the last twenty years.

After reforms to open Brazil to freer trade and to reduce external debt in the early 1990s, the truly revolutionary economic reforms came with the launching of the Real Plan in 1994. The brainchild of a cadre of brilliant economists working under the general direction of Fernando Henrique Cardoso, the Plan ended the inflationary era for Brazil and stabilized its currency. (9) With the benefit of hindsight, the true importance of the Real Plan may have been to embolden policymakers to set the stage in the latter half of the 1990s and early 2000s for a series of reforms that went well beyond the original anti-inflation objective that has set the foundation of the modern Brazilian economy.

The mere listing of these policy innovations hints at the breathtaking pace of change in Brazil in the late 1990s and 2000s. Federal, state, and local government finances were reorganized legally and modernized in practice through such measures as the consolidation of public debt procedures and the Law of Fiscal Responsibility. The banking sector, undermined by years of mismanagement and the distortions created by high rates of inflation, was rescued, recapitalized, and more properly regulated through programs such as Program of Incentives for the Restructuring and Strengthening of the National Financial System (PROER). (10) Huge and inefficient government firms in steel, energy, and telecommunications were privatized, and entirely new regulatory bodies were created in each of these sectors to safeguard the public interest in their operations. Toward the end of the 1990s, the Central Bank's mandate was reformed in order to focus the Bank on inflation, implicitly stripping away a responsibility for economic development as such. At about this time, the newly-stabilized Brazilian currency was floated in international markets. Simultaneously, other structural reforms affected the social security provision, the primary education system, social assistance programs, and agrarian reform.

What is even more remarkable is that virtually the entire set of innovations of the Cardoso era survived intact after voters handed power to the leftist government of Luiz Inacio Lula da Silva in 2002. Perhaps reluctantly at first, Lula came to see that the overall set of economic policies put in place by his more elitist predecessor were popular with broad sectors of the population and, not insignificantly, supported strongly by the entrepreneurial class and foreign investors who showered Brazil with capital throughout the 2000s. When global economic conditions improved for Brazil in the 2000s, it was Lula, not Cardoso, who was in a position to garner the political credit. As government resources also increased, Lula was able to expand government expenditures in social programs and extend his hold on power for two terms in office.

In recent decades...