Nocera: Does Brazil have the answers?

  • Drivers navegate in a congestion of traffic at Copacabana in Rio de Janeiro, Brazil, Thursday, May 10, 2012. Host city for the Rio + 20 conference, Rio de Janeiro's hotel infrastructure is woefully lacking. With a total of just 33,000 beds for the estimated 50,000-plus visitors expected to flood the city for the June 20-22 summit, the mayor resorted to begging residents to leave town and rent out their apartments. (AP Photo/Felipe Dana)

Not long after I got back from my recent trip to Brazil, I called some economists to gain a better understanding of where the country stood economically. To me, Rio de Janeiro felt a little like Shanghai: There was plenty of high-end shopping in neighborhoods like Ipanema -#8212; and plenty of poverty in the favelas, or slums.

There was also a lot in between. What is most striking to a visitor is how many middle-class citizens there seem to be. Cars were everywhere; traffic jams, I've come to believe, are a sign of a growing middle class. It means people have enough money to buy automobiles.

What I saw was no illusion. Though its starting point was quite extreme, Brazil is a country that has seen income inequality drop over the last decade. Unemployment is at near record lows. And the growth of the middle class is quite stunning. By most estimates, upward of 40 million people have been pulled out of poverty in the last decade; extreme poverty, says the government, has been reduced by 89 percent. Per capita income has continued to grow even as GDP growth has slowed.

Nevertheless, the economists I spoke to were uniformly bearish about the short-term future of the Brazilian economy. They pointed, for starters, to that slowdown in GDP, which they didn't expect to pick up anytime soon. Despite the country's enormous economic gains since the beginning of this century, there has been very little accompanying productivity gains.

Indeed, several economists told me that the main reason unemployment was so low was that the economy was terribly inefficient. Too much of the economy was in the hands of the state, I was told, and, what's more, it was a consumption-based economy that lacked necessary investment. And on and on. I got the sense that many economists believe that Brazil had been more lucky than good, and now its luck was running out.

In a recent article about the Brazilian economy, the Economist put it starkly: "The Deterioration," read its headline.

As I listened to the economists, though, I couldn't help thinking about our own economy. Our GDP growth was more than 4 percent in the third quarter of 2013, and, of course, our productivity has risen relentlessly. But, despite the growth, unemployment can't seem to drop below 7 percent. And the middle class is slowly but surely being eviscerated -#8212; thanks, at least in part, to those productivity gains. Income inequality has become a fact of life in the United States, and while politicians decry that fact, they seem incapable of doing anything about it. Which made me wonder: Whose economy runs better, really?

A few years ago, Nicholas Lemann of the New Yorker wrote a lengthy article about Brazil in which he quoted from an email he received from Brazil's president, Dilma Rousseff. "The main aim of economic development must always be the improvement of living conditions," she told him. "You cannot separate the two concepts." In other words, Brazil's admittedly leftist government doesn't spend a lot of time worrying about growth for its own sake but rather connects it with alleviating poverty and growing the middle class. Thus, it has a high minimum wage, for instance.

It has laws making it exceedingly difficult to fire a laggard employee. It controls the price of gasoline, helping to make driving affordable.

And most striking of all -#8212; at least from the point of view of an American -#8212; for the past 10 years, Brazil has had a program called Bolsa Fam?ia, which essentially hands money to mothers living in poverty. In return, they have to ensure that their children go to school and avail themselves of health care services. There is no question that Bolsa Fam?ia has been enormously effective in reducing poverty.

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