Reducing poverty in Brazil: Finding policy space for meeting development needs

Abstract

The first decade of the twenty-first century brought an unprecedented mix of good economic news to Brazil. Strong aggregate macroeconomic outcomes made their effects felt deep in the Brazilian population, lifting millions out of economic misery and millions more into the middle class. Even Brazil's infamously high income inequality was reduced. A cover of the Economist magazine showed Rio de Janeiro's statue of Christ lifting off into the stratosphere, with a special section inside to tell “Latin America's Big Success Story.” This chapter examines that success story more closely, identifying the major components of Brazil's emerging economic model and its strengths and weaknesses. Overall, the lesson is that more inclusive growth contributed to sustained domestic demand, which in turn generated the employment and government revenues that could further support an ongoing positive cycle of investment and growth. The economic approach that produced these Brazilian results is a heterodox mix. Increasing levels of state spending and planning were placed on a foundation of policies designed for macroeconomic stability and market opening. As such, the Brazilian model involves a larger state role than the neoliberal Washington Consensus would condone, but does not step away from market forces altogether. The chapter begins with a discussion of how Brazil found the “policy space” to make these development choices. From there I turn to the model itself. I focus on the two administrations led by former president Luiz Inácio “Lula” da Silva (2003–2010), pointing out elements of continuity and discontinuity with his successor, Fernando Henrique Cardoso (1995–2002). Lula's first term generally extended Cardoso's policy choices, while the second was marked by more significant departures. Thus Lula's Workers’ Party (PT, Partido dos Trabalhadores) and Cardoso's Brazilian Social Democratic Party (PSDB, Partido Socio Democrático Brasileiro) both claim – and deserve – credit for the recent successes.