By Eric Jurado
In the early 2000s, Brazil’s economy was growing rapidly. The government had enacted economic and monetary reforms, and divested holdings in some state-run companies, giving the private sector more room to breathe. Inflation—a chronic problem in Brazil—was dramatically reduced. Foreign investors poured into the country, eager to catch a portion of their expanding economy. The future seemed promising.
But today, their economy is in shambles, unemployment and debt are massive, and powerful politicians are being investigated for involvement in the largest scandals of fraud and corruption in the country’s history.
What happened?
In 2002, a socialist politician named Lula da Silva ran for the presidency. He was a socialist, but painted himself as a modern, cool kind of socialist. He would be the politician who would heal national divisions and unite everyone. He even had a nickname: “Lulinha paz e amor,” which means “Little Lula peace and love” in Portuguese.
But the old message about the need for income redistribution to decrease inequality was still there. The media, academic elite, and celebrities assured Brazilians that by transferring the money from the rich to the poor, the poor could finally be richer. But the only ones who really got rich were Lula and his corporate and political friends. It only got worse under his successor, Dilma Rousseff.
The socialists increased government spending, deficits, and debt. They called it a “stimulus.” They increased the minimum wage and the benefits of social programs. They called it “social justice.” They increased the salaries and retirement benefits of the civil service. They called it “investing in the future.” They handed out thousands of jobs in the government and state-owned companies as favors to their political allies. And they called it “good governance.” Sounds familiar?
It worked for a while. Socialism always works at the beginning. But government spending just kept going up, and then Lula’s socialist paradise fell apart and the economy fell with it. The outcome: from 2008 to 2015, government spending grew nearly four times as fast as tax revenue.
The economy shrank 3.8 percent in 2017, the worst result in 25 years. According to the Heritage Foundation, Brazil’s economic freedom score is 51.4, making its economy the 153rd freest out of 180 countries in the 2018 Index. Its overall score has decreased by 1.5 points, with a steep drop in fiscal health and declines in labor freedom, business freedom, government spending, and government integrity overwhelming improvements in judicial effectiveness and property rights. Brazil is ranked 27th among 32 countries in the Americas region, and its overall score is below the regional and world averages.
Economically and morally, the 15 years of socialist policies have greatly harmed Brazil. They also remain among the world’s leaders in murder and robbery, and they rank near the bottom of industrialized nations in terms of education and health care.
Citizens in freer societies take it for granted that they can be born into the lower class and reach the middle or even upper class. Many Brazilians take it for granted that they can’t.
But finally some things are starting to change. There may be reason for hope. Today, more and more Brazilians see that capitalism and limited government are the only way forward.
Thankfully for Brazil, Lula has been charged in several lawsuits for corruption, involvement in a criminal organization, influence peddling, money laundering, and obstruction of justice. Rousseff was impeached in 2016 for falsifying the government’s finances and illegally using money from state-owned banks to run the government. This crisis prompted the new government to freeze federal spending, reduce the government’s role in state-owned companies, and to encourage some of the massive federal workforces to resign.
Since taking office in August 2016, President Michel Temer has proposed economic reforms to slow the growth of government spending and reduce barriers to foreign investment. Government spending growth helped to push public debt to 70 percent of GDP at the end of 2016, up from 50 percent in 2012. Policies to strengthen Brazil’s workforce and industrial sector, such as local content requirements, may have increased employment at the expense of investment.
Brazil’s economy advanced only 0.1 percent in the last three months of 2017, following an upwardly revised 0.2-percent expansion in the previous period and well below market expectations of a 0.4-percent rise. It is the lowest growth rate in one year after a two-year recession.
No one knows whether these basic measures will be enough to rescue Brazil economically. Truthfully, the damage has been so extensive, it may take decades for the country to recover.
But if they do, it won’t be socialism that saves them.
Philippine citizens and leaders, take note.
