The Economist Daring to Challenge Brazil's 'Successful' Anti-Poverty Policy

The Economist Daring to Challenge Brazil's 'Successful' Anti-Poverty Policy

Economist Lena Lavinas at home in Rio de Janeiro. Her new book takes aim at Brazil's recent social welfare policies that promoted credit as a means for expanding financial inclusion — only to expand household debt.

SourceLeonardo Coelho

Why you should care

Because Brazil’s failed social engineering is being replicated worldwide.

Days after returning to Rio de Janeiro from a yearlong fellowship at Berlin’s Institute for Advanced Studies, Lena Lavinas attended a conference and delivered an unrelievedly bleak diagnosis of Brazil’s economic crisis. The economist and Federal University of Rio de Janeiro (UFRJ) professor went on the offensive after a speaker’s comments about the country’s overvalued currency, saying he had failed to consider the crippling impact of high interest rates. It was, she said, a symptom of the financial sector’s outsize power in Brazil — a power that can nurture, or strangle, development in the world’s ninth largest economy. Tracking the consequences of that power is Lavinas’ particular area of expertise.

Lavinas, 64, is a onetime member and now harsh critic of Brazil’s Workers Party (PT), which presided over a decade of 3.8 percent annual growth starting in 2003 — only to abruptly leave office in 2016 following President Dilma Rousseff’s impeachment. Recent federal anticorruption probes have revealed bribery at the party’s highest levels.

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Former president Luiz Inácio Lula da Silva touring Brazil.

Source Ricardo Stuckert

Lavinas’ biggest beef with the PT? As she details in her new book, The Takeover of Social Policy by Financialization, Lavinas contends that Rousseff, and former president Luiz Inácio Lula da Silva before her, sold Brazilians on a pledge to reduce inequality — only to sentence them to insecurity. She argues that PT policies pushing easy credit for the poor have — instead of being a silver bullet out of underdevelopment — set the country up for stagnation and crushing household debt.

There is a strong divide in Brazil on how best to guarantee social welfare — and the coming elections will further shine a light on that chasm. Lavinas has jumped into the crisis-fueled policy debate, calling on government to provide more public services to reduce inequality and not, as the right would like — and as she argues the PT has done — rely on market forces to do the work and buoy the economy.

In Rocinha, shiny new bank branches advertising easy-access loans appear on streets running with sewage.

The PT won kudos both at home and abroad for development policy designed so “the vast majority of the population will tend to be winners,” economist Ricardo Bielschowsky wrote of the strategy he helped implement. Through cash transfers to poor parents who kept their children in school, expansion of public universities, tax breaks to large Brazilian companies and easier access to credit, “we progressed 100 years in 13,” the PT’s former minister of social development Tereza Campello tells OZY. Campello estimates that 36 million Brazilians moved out of extreme poverty, and PT conditional cash transfers have since been imitated from Guatemala to Indonesia.

But Lavinas, whose bright green eyes and talkative hands match her constant energy, tells OZY that PT policies led to “a downsizing of social protection.” She argues government focus on income transfers and credit encouraged millions of Brazilians to access health and education not through publicly provided services, but through financial products like insurance plans and loans that can lead to “a cycle of permanent, exploitative debt.” University of London economist Ben Fine says the global cash transfer craze speeds up financialization to the detriment of the lower classes by measuring poverty in dollar terms rather than well-being; in Brazil, he notes, poverty’s causes remain “unexamined and untouched by social policy.”

Lavinas advocates for increased health and education spending supported by a long-discussed progressive tax reform. But the PT never moved forward with the reforms, and more than 18 million Brazilians bought private health plans from 2003 to 2014, while just under half of all federal spending on public higher education in 2015 took the form of loans to finance degrees at private colleges. In the same period, Brazil’s base interest rate was the highest in the world. Wages rose under the PT, but uptake in individual credit rose faster, while labor and industrial productivity moved at sluggish and even negative rates. Brazilians’ average household debt rose from 18.4 percent in January 2005 to 46.2 percent in January 2015; by this past July, more than a fourth of all Brazilians were in default.

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Lena Lavinas, professor of welfare economics at the Institute of Economics at the Federal University of Rio de Janeiro, Brazil

Source Maurice Weiss/OSTKREUZ

Meanwhile, banks’ profits soared. The consequences are visible in places like Rio’s low-income favelas; in Rocinha, shiny new bank branches advertising easy-access loans appear on streets running with sewage. Tuberculosis persists. “A federal program that promised basic sanitation has been stalled for nine years,” journalist Michel Silva tells OZY.

Lavinas, who tells OZY “it’s the lack of self-criticism on the left” that has “brought populism back” the world over, has been a polemicist since the 1970s, when she wrote for Opinião, a newspaper critical of Brazil’s military regime. After receiving death threats, she moved to France, where she participated in political forums with Jean-Paul Sartre and Simone de Beauvoir. There, she deepened her conviction that social rights should be universal, not conditional (as Brazil’s cash transfers would later become), and earned an economics doctorate at the New Sorbonne.

A UFRJ professor since 1985, Lavinas also worked at Brazil’s Institute for Applied Economic Research from 1993 to 2000, followed by two years as a researcher at the International Labour Organization. She has held visiting professorships at UCLA and Princeton and is a frequent commentator in Brazilian and international media.

Lavinas’ critiques have drawn sharp rebukes. “The PT took Brazil in the opposite direction of financialization,” Campello tells OZY, adding, “We built 126 public university campuses.” When asked about the 53 percent of Brazilians currently defaulting on state-sponsored student loans, ex-PT education minister Fernando Haddad says that “borrowers should be screened better, but it’s the expansion of public education that will be the major PT education legacy.”

As Brazil readies for the 2018 election, Campello insists that “poor Brazilians gained an expectation of a better life that even the current crisis can’t erase.” Lula da Silva, who plans to run for president if he beats corruption charges, was recently seen touring the country’s poor northeast celebrating social gains there.

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