Why you shouldn’t get too excited about Brazil’s new middle class

Bolívar Lamounier is presently director of Augurium, a São Paulo based political risk consultancy. He graduated in Sociology and Political Sciences at the UFMG (1964) and holds a Ph.D. in Political Science from the University of California, Los Angeles (1974). He was among other things member of the commission in charge of drafting Brazil’s constitution in 1985;  a member of COPS (Conselho de Orientação Política e Social) of FIESP, the Federation of Industries of São Paulo State, from 1989 a 2001; a program coordinator on constitutional reform at the University of São Paulo in 1992-1993, and chairman of CESOP (Centro de Estudos de Opinião Pública) at the University of Campinas, from 1993 to 1999. At the moment Professor Lamounier is a member of the Academic Committee of the Club de Madrid, an organization composed of former presidents and prime ministers with the aim of promoting democracy internationally. Mr. Lamounier is also the author of many scientific works and articles. In 1997 he was elected to the Academia Paulista de Letras. His latest book, published in 2010 and coauthored with Amaury de Souza, analysed Brazil’s new middle class and is called “A Classe Média Brasileira: ambições, valores e projetos de sociedade”. Brazil Weekly spoke to Bolívar Lamounier in São Paulo.

Professor Lamounier, thank you for talking to Brazil Weekly. Why did you decide to write a book about Brazil’s middle classes? Well, of course we were concerned with the issue of sustainability of this new class. When the debate about it came up, my colleague Amaury de Souza and I felt that there was too much enthusiasm. That is why we decided to address the issue of sustainability. If you think about a new middle class, in fact it is about upward social mobility that we are talking, especially in Brazil, a country without clearly marked class lines, by European standards at any rate.

The main factor in sustaining upward mobility is continued economic growth. At the time we began to study the rise of the new middle class, our economic growth rate was very high, thanks among other things to our exports to China. In our book, Amaury and I argued that, as long as we have economic growth and as long as social policies like the minimum wage readjusted above inflation and the Bolsa Familia, remain in place, we will have upward social mobility. Add to that the expansion of credit and you come close to a full explanation of the processes taking place at that time. But, of course, if we try to see what can happen in the long run, the issue is how these new upwardly mobile people are going to generate their income. At this point you start thinking about education, skills and technical training, among several other things. Unfortunately – and this is the picture we draw in our book – training and education remain disastrous in Brazil.

“Unfortunately, training and education remain disastrous in Brazil”

More recently, as Brazil began to experience its economic slowdown, a contradictory picture emerged. We keep seeing upward social mobility, because growth did not plummet all at once. It declined slowly, and credit continued to be available, certainly much more than in the past. It is still easy to go out and buy nearly anything you want on credit. So, it is not an exaggeration to say that easy credit has become one of the most important pillars which keep the new middle class going. The downside of this is of course the fast growth of the number of indebted families.  It seems that as many as 40% of the new middle class families are presently indebted. This  strongly suggests that the growth of the middle class in terms of the existing growth model may be close to reaching its limits.

In our book, Amaury de Souza and I  looked  at a host of other factors, a bundle which you might call micro-determinants, as opposed to macroeconomic ones.

Take education, for example. It is obviously unfair to demand that an extremely negative situation be changed in a few years. No government can perform such a miracle. But poor education is a stumbling block in the way of the middle class, there can be no doubt about that. In this regard we can be sure that difficulties we remain for a long time and may well increase.  This is something we should not deny or try to hide. Problems will arise not only in Brazil, but in the other countries where a comparable expansion of the middle class is taking place.

From the standpoint of this discussion, the Brazilian macroeconomic situation does not look good, and here I am very critical of our PT (Workers’ Party)  government. At the moment, the key factor for resuming and sustaining growth is infrastructure: roads, ports, telecom, airports – you name it-, and it is very hard  to say something positive about the PT government in this whole range. Without a stronger infrastructure I am afraid the presently mediocre growth rate will not improve on a sustained basis very soon.

But the Dilma government is in fact investing in infrastructure and huge programs like PAC have been announced. Even if some of these projects are delayed, is it not enough to improve the country’s infrastructure? No, definitely not! PAC was actually an attempt to bring together a number of existing initiatives that were being carried out too slowly. Our infrastructure problem is just huge. I think the government failed awfully in two aspects. One is management. It is just too inefficient. Secondly, they should and could have brought in foreign investment for infrastructure, which they didn’t. Look at what they are doing for example in bringing down the cost of electricity. Reducing that cost is important for growth, no doubt about it, but the way  in which Ms. Rousseff  chose to do it came close to breaking down the sector and may well scare investment away from public & private joint undertakings. That is not the way to do it.

Although president Dilma Rousseff is somewhat more pragmatic than the Workers’ Party, I think she is not overall free of  old socialist and nationalist ideological prejudices. We cannot go on experimenting with economic models for ever. Brazil is not China. We do not have a communist party in charge of everything. This is a plural society.

You once said (to Folha de São Paulo) that Brazil is not ready for the rise of the new middle class. Do you want to temper the enthusiasm of the world and Brazil about the rise of the middle class? Yes, exactly. As I pointed out earlier, the Brazilian process of upward mobility is credit-driven to a substantial extent. On the basis of short run disposable income, the middle class would be able to afford a much smaller quantity of the goods it is presently buying. And the middle class families will have to pay off or roll their debts in the near future. But Brazil is not alone in this. If you look at Russia, Turkey, India or South Africa, I believe you will see  a similar picture. Earlier this year the Sao Paulo-based  IFHC (Instituto Fernando Henrique Cardoso) held an academic conference with participants from South Africa and India, and I saw quite a few similarities.

“If I were a businessman I would put my money on the C-class and invest”

OK, the C-class in Brazil consists of people with a very modest income, but it is essential to keep in mind that we are talking about huge numbers. The people now climbing the social ladder account for a staggering 45-55% of the population, depending on how you measure. It is a huge social group! If I were a businessman I would put my money on them and invest, regardless of my previous caveats about medium-term sustainability.

Even when they are vulnerable, are the new C-class people changing the country in other ways? They reportedly are very interested in becoming entrepreneurs. If you want the middle class to be the backbone of your country you require a lot more small enterprises, but in Brazil we have not really provided the incentives needed to strengthen small businesses. The bureaucracy to be faced when opening a small business is awful, and even worse if you want to close it down. The tax burden is heavy. There is the issue of know how: people often try to launch a small business without adequate knowledge of the products and markets. The “mortality rate” of small business is therefore very high. Dilma approved a bill to create a government position dedicated to the small business class. It took two years to get it approved in Congress! As the matter a fact, though I admit I do not have statistical evidence, I have the impression that in relation to the survivability of small businesses we are rolling backwards a little bit.

If I may digress a little, just think about the Brazilian crime rates. Violence has grown a lot over the last 20 to 25 years, everywhere in the country. In Sao Paulo, people have become a lot more careful about dining out. Small businesses like restaurants are bound to suffer from this trend, needless to say.

Now that poverty is declining in Brazil, people were expecting that crime would also go down, because it is partly related to poverty. I agree that most people think that, but I do not think they think correctly in this particular issue. In the long run we may accept that less poverty makes for less crime, but we can’t forget the many “ifs” involved. In Brazil, the increase in crime that took place over the last 30 years or so is in the main related to drugs. Petty crime is at a normal level, a little more or a little less than in other countries. The frightening thing is drug-related crime, which also means organized crime.

In the case of voting the C class appears to be a bit adventurous, don’t you think? Indeed, we saw some big changes in voting behavior in the last 25 years  but such changes took place for a number of reasons. I don’t think they fit nicely into one explanatory model.  The C (or new middle) class voted massively for Cardoso in 1994 and in 1998, enough to elect him president, defeating Lula in the first round. At that time the issue was inflation and Cardoso was clearly identified as the candidate who tackled it as minister and effectively brought it down. In 2002 and 2006 they voted for Lula, who now appeared as the man likely  to do the right thing on social policy. So, I would not say that this new middle class was electorally “adventurous”; it  went first to the right and then to the left, but I think that is a normal pattern, given the issues prevailing at those two moments.

Does this new middle class also have explicit views about the corruption scandals? Is there more pressure to do something about it? In general terms, yes, the middle class is growingly concerned about corruption, like every other sector in Brazil. But the overall picture is contradictory.  On one hand, a big chunk of the new middle class identifies itself with the PT (Workers’ Party), but  PT politicians have been the ones hit the  hardest by the corruption investigations. Within that chunk, what we have is then a classical cross-pressure situation. Many PT backers have become critical of the party’s politicians. Have they or has the majority of the citizens become critical of democracy itself?

“Barbosa has become a hero for just about everyone, not for blacks specifically”

In my view, the existing evidence does not allow us to draw stark conclusions either way. Until the middle of 2012, the public’s state of mind was certainly becoming negative, the prevailing perception being that corruption was widespread and worsening. There seemed to be almost no hope; people were getting depressed because of corruption and tended to see politicians as being all of one cloth.  During the second semester – thanks to the Supreme Court’s sentencing even of some big shots involved in the infamous “mensalão” case (vote-buying in Congress by the PT ) – , that previous negative attitude has changed considerably. If the country stays on that track, a substantial part, possibly even the majority of the people will say: yes, we can tackle corruption.

Is Brazil’s first black Supreme Court president, Joaquim Barbosa, some kind of a symbolic figure for the black people in the country? Until he was appointed, no one really paid attention to the fact that he is black; in the United States it would be different, of  course. We in Brazil are not sharply color-aware as the Americans are. Take another example, the election of Celso Pitta as Mayor of Sao Paulo two decades ago. I don’t recall a single person saying he was the first black mayor in this huge metropolis! Joaquim Barbosa is a similar case insofar as color or race is concerned. Regarding corruption they are polar cases: Pitta turned out to be a corrupt politician, Barbosa as the first Supreme Court judge really inclined to clamp down on corruption. During his term as president, Lula wanted to appoint a black person, but until then this issue was not on people’s minds. It may well be that color will be increasingly and positively taken into account from now on, I don’t know.  Surely Barbosa has become a kind of hero, but a hero in the fight against corruption, hence a symbolic figure for just about everyone, not for blacks specifically.

Is the middle class also developing views about Brazil in the world? I would say not yet. I have observed that in very big countries most people do not really think about foreign policy. That is true even in the US, and Brazil is  no exception. Surely the amount of information available to the C class has increased exponentially, so it knows or can come to know a lot more about Brazil’s status in the world, but increased information does not automatically translate into job or business opportunities. My impression is that most people in Brazil, and not only in the C class, pay attention to particular issues, if at all. They may have views on the US, or Cuba, or Iran, but most lack a structured perception of Brazil’s role on the international scene.

And what about Brazil’s foreign affairs at the moment? As the sixth world economy, is Brazil’s diplomacy doing well? The first thing to be said is that Brazil’s diplomacy under Lula and Dilma has been very shy. It lacks the dimension it should, I mean, a dimension commensurate with the country’s economic importance. I don’t see the government say: all right, Brazil has become economically important and is now reshaping its objectives and values accordingly. I do not see that. I see the government wasting an incredible amount of time with issues like Iran or Cuba. These issues are, let’s put it bluntly, nearly irrelevant to Brazil’s position. Concerning the situation in Europe, Dilma may be on target now, when she says that Brazil can be part of the solution for Europe’s problems. She said that in Madrid and it makes sense. Europe needs places to invest and needs to mobilize economic cooperation in a variety of forms.

“Brazil’s diplomacy lacks the dimensions of the world’s sixth economic power”

In terms of economic and political models, I tend to think that Brazil lacks an adequate ideological formulation –  adequate formulae or templates, let me put it this way, to avoid the pitfalls associated with the word ideology. In some circles, within and without the government, I get the impression that our trade relations with China are celebrated as if China is also a desirable political model, which I think is very far from being the case.  Apart from that, thinking just about trade, the reality of the matter is, on one hand, that at some point China will grow less, and on the other Brazil cannot become a pure commodity exporter. In the long run, we need a diversified economy. Whatever our ultimate agricultural X industrial X service profile may become, it is certainly a misconception to take China as a model. China is neither an economic nor a political model for us. It is a powerful market, but let us not take that to mean she has a healthy political and ideological foundation. Politically, my understanding is that Brazil needs to remain close to the more liberal economies and political systems in the world. In South America, trade apart, we should look more to Chile and less to  Argentina.

How do you see the political developments in Brazil in the near future? The next presidential elections are still two years from now, but what can be said already? The one big factor at the moment is Lula’s popularity. That is fundamental. But, as you point out,  two years is a long time. In the recent local elections the one remarkable event was the contest here in São Paulo, with the PT’s candidate Haddad coming out the winner. Nation-wide,  the outcomes were quite balanced.

What about the future? If Mr. Haddad does a wonderful job in São Paulo, that will be very  good for Lula and Dilma in 2014. By the way, there is some talk about Lula running for governor of Sao Paulo state. But if Haddad’s performance turns out to be less than wonderful, Lula and Dilma will profit less, who knows? The only certain thing is that the city has serious problems to face, here it is very hard for mayors to finish their terms unscathed.

“Brazil’s presidential elections of 2014 will be more competitive than the previous ones”

Coming back to the national scene, governor Eduardo Campos, of Pernambuco, is an ascending star, but let us wait and see. And of course senator Aécio Neves, the former governor of Minas Gerais state, is a competitive presidential candidate, and will likely be the social-democrat (PSDB) candidate. He will obviously have the support of most PSDB backers in the South and South East of the country. He is also capable of drumming up a lot of support in Minas Gerais, his home state, and in the North East. True,  a lot of potential PSDB voters are angry at the party, which in their eyes is incapable of playing the role of a visible and effective  opposition. But most of the voters I am talking about here don’t realize the implications of being in a sharp minority position in Congress, which is presently the PSDB condition. Without an adequate number of seats, the fight in parliament gets very complicated in every aspect and in the whole country. But that may change now, as Dilma is already two years in office. The economy is not shining anymore, the 2012 growth record was in fact mediocre. So, it is conceivable that cracks may appear in the monolith. My guess is that we are going to see a more competitive election in 2014 than we saw in both 2006 and 2010, when Lula and Dilma respectively came out the winners.

Professor Lamounier, thank you so much!

February 5th, 2013. All rights reserved by Brazil Weekly/Rotterdam Week.

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