What now? Learning from the past while looking toward the future

This is Part V of a five-part series entitled "What now? The trade-offs and budget cuts needed to fix Brazil’s finances." Part V looks back to determine what lessons Brazil can learn from its past as it attempts to move forward, beyond political and economic crises.

Brazil is currently living a historic moment, or rather, several of them: a historic economic depression, a historic political crisis, a historic corruption scandal. As the country’s leaders try to find a way out this mess, they have tended to focus on the here and now, prioritizing their own survival over the long-term prospects of the country. However, they would do well to remember that these crises also represent a historic opportunity to enact reforms that will hopefully prevent this type of chaos from occurring again. It is important for policymaking at this critical juncture, then, to have an eye toward the future. And one of the best ways to determine what to do going forward is take stock of the past: Considering the previous decade or so, in which Brazil’s economy soared to new heights and then unceremoniously crashed back down to earth, there is clearly a lot to examine.

In this regard, the three-week-old interim government of Michel Temer is off to a shaky start. Although he has put together a strong economic team, he has also made a number of gaffes and questionable decisions, chief among them the appointment of politicians cited in the Car Wash corruption investigation to government ministries (indeed, leaked wire-taps indicating a plot to sabotage the investigation have already forced two ministers to step down). Many fear that a backward-looking Temer, a member of the old-school Brazilian Democratic Movement Party (PMDB), will roll back the more successful policies of his Workers’ Party (PT) predecessors, such as the social programs that have helped tens of millions of poor Brazilians. It would indeed be tragic if this progress were reversed. While these programs represent a modest investment, their continued implementation and improvement is a vital first step in the long-term development and diversification of the Brazilian economy. In addition, progressive ideals like fighting racism, advocating for women’s reproductive rights and ensuring equal protection to members of the LGBT community must remain priorities in Brazilian policy making in order to fight the rising tide of more conservative sentiment, particularly the regressive influence of the evangelical movement, with which Temer’s party has close ties.

In light of these developments, the PMDB is quickly being painted as the villain of Brazilian politics, the long-time “rent-a-party” with no principles, whose allegiance is for sale and whose only objectives are power and enrichment through corruption. This is undoubtedly true, and yet, how quickly we forget that during the past 13 years, when the policies that culminated in the crisis were enacted, the country was led not by the PMDB but by the PT and its presidents, Luiz Inacio Lula da Silva and Dilma Rousseff. When they first came into office, they were political outsiders who vowed to stand up for regular Brazilians against the traditional ruling elites. Now, after more than a decade in power, they have committed many of the same misdeeds for which they criticized the political establishment, perhaps even to a greater extent.

The Car Wash investigation is looking into unprecedented levels of corruption at state-owned oil company Petrobras that took place on the PT’s watch, while Lula was president and Dilma was the chair of the company’s board. Dirty money is thought to have financed PT electoral campaigns across Brazil, including Dilma’s and Lula’s. Dilma engaged in illegal accounting maneuvers to conceal a budget deficit during an election year, something that arguably allowed her to win reelection, barely, under false pretenses. Lula is being investigated for influence peddling and accepting bribes. His former chief of staff was the mastermind of a massive scheme to buy Congressional votes. Leaked wire-taps of calls between Lula and several others, including Dilma, indicate a desire to interfere with the Car Wash investigation. Lula’s appointment to a government ministry by Dilma has widely been perceived as an attempt to obstruct justice by shielding him from prosecution. It was the PT that created a strategic alliance with the PMDB early on in an effort to consolidate its power. The much maligned Temer was named Vice President by Dilma herself, and voted into office by her supporters. She was the one who broke the law and got herself kicked out of office, leaving him in charge. In short, although the PMDB was always part of the ruling coalition and therefore certainly deserves a share of the blame, the PT was the one calling the shots and is ultimately responsible. Its consistent shirking of this responsibility, blaming everyone else instead of owning up to past mistakes, is symptomatic of the broader pathology that has characterized the PT’s tenure.

The PT is polarizing in Brazil. People either love it or hate it, and they defend their perspectives with a ferocity uncharacteristic of the traditionally easygoing Brazilian culture. Many criticisms of the party revolve around its “leftism” or “socialism,” but these are not entirely fair for two reasons. First, there is nothing wrong with leftism per se. After all, leveling the social playing field is an admirable goal and much needed in the context of highly unequal Brazil, and socialist or social-democratic policies work well in many countries. Second, the PT didn’t strictly adhere to leftist ideology much of the time anyway.

The problem with the PT is not its ideology but its populist and demagogue approach, through which it greatly overstated its accomplishments and refused to admit its mistakes. This prevented course-corrections from being made over the past few years, as the economic crisis began to take hold, despite many opportunities to do so. The consequences of this rigidity are tragic considering that the economic crisis could have been less severe if Dilma’s failed economic interventions had been reversed sooner, for example. Further, a divisive rhetoric setting “the people” against “the elite” created deep divides in Brazilian society that will take much time to heal. As a result, during a moment of crisis when the country is in desperate need of action, this polarization has created gridlock and hysteria, further delaying the implementation of solutions and extending collective suffering.

Despite its rhetoric, the PT has generally not operated strictly according to any specific principles, leftist or otherwise, but has rather taken what could generously be described as an “overly pragmatic” approach to government. This has led to an astounding level of short-sightedness, both in terms of irresponsible policies and misguided coalitions. A glaring example of this revolves around the lauded social policies they put in place, policies that may have offered the country’s most destitute some much needed short-term respite, but which have otherwise done little to address the structural causes of poverty in Brazil. Instead of generating real, long-term progress, any gains created by these programs were fragile and easily reversed.

Still,in maintaining its populist narrative, the PT often tries to disqualify protests against it by claiming that they are not the result of general dissatisfaction with the state of the country, but rather stem from the fact that the “elites” want to take away the rights of the poor. However, when it says “elites,” what it really means is the middle classes, who have been hit hard by the recent economic downturn. In fact, the “plutocrats” or “oligarchs” against whom the PT so often rails have actually served as their key allies and have thrived under PT rule, continuing to do so even as the economy tanks (except for the few who have been caught by corruption investigations, of course). The sad fact is that the self-proclaimed defenders of the poor against the elites cynically provided the former with meager assistance while greatly boosting the fortunes of the latter (and, arguably, themselves) through short-sighted deals and plain old corruption.

An important lesson going forward, then, comes not from what the PT did, but what it failed to do. The party that made fighting poverty the center of its domestic agenda stopped at short-term, palliative assistance (the country’s premier welfare program, Bolsa Familia, provides families with modest payments of about US$ 70 per month) and failed to address the long-term drivers of poverty and inequality, like Brazil’s dismal public education or health systems. This led to a situation where poor families could afford to consume a bit more, perhaps save up to buy cell phones or cars, but otherwise did not benefit from any real change in their prospects for social mobility. Indeed, as a result of the crisis, many of the people who were lifted out of poverty in the past decade are starting to slide back. Going forward, social assistance must continue to help in the short-term but have the greater prerogative of addressing the underlying causes of poverty to generate lasting change.

The narratives of fighting the establishment in the name of the poor and fighting for justice in the face of tyranny were also further undercut by the PT’s political strategies. Indeed, it established a number of unholy alliances in its pursuit of power, both at home and abroad. While claiming to stand up for democracy, it was providing support to authoritarian regimes like those in Cuba, Venezuela, Russia and Iran. At home, in an effort to consolidate power, alliances were made with the billionaire business classes, as demonstrated by the fallout of the Car Wash investigation, as well as the corrupt political establishment, exemplified by the PMDB. Given the possible consequences of the interim Temer government, with its potential rollback of progressive policies and the efforts of some of its senior political figures to declaw the Car Wash investigation, it could perhaps be said that of the many strategic mistakes and political miscalculations made by the PT, this allegiance with the PMDB was the worst of all. Instead of fighting against the corrupt establishment machine, the PT tried to co-opt it in its own favor. Instead of fighting patronage, the PT tried to use it as a governing strategy, to buy alliances and political support for its agenda. Instead of solving the problem, this approach simply led to more corruption.

Another lesson moving forward then, is not really about policy making at all, but simply about politics. The PT used a flawed, “ends-justify-the-means” approach full of legally questionable shortcuts to create the illusion of rapid progress. As a result, it was likely doomed to failure from day one. Now, the façade has fallen apart, revealing the rot within. Hopefully, future policymakers will absorb this lesson. There are no shortcuts to real progress: It takes consistent hard work over a long, long time.

Beyond this, there are more tangible lessons to be learned as well. The crises do not have one specific cause, but are the culmination of a perfect storm of calamity: a global commodities glut, misguided economic interventionism, populism, the ever greater ingraining of institutionalized corruption. The cost of all this has been steep, and not just in the obvious form of jobs lost to rising unemployment or purchasing power strangled by creeping inflation. A high price continues to be paid in the insidious and routine misallocation of public funds, with far-reaching consequences in the form of chronic underinvestment in areas that actually generate development.

The problem is not only one of waste and corruption, but also of opportunity cost. Policies that subsidize the wealthy can only do so at the expense of something else. Indeed, Brazil consistently under-invests in infrastructure, healthcare and education. This perpetuates poverty and human suffering. Aside from slowing growth and encouraging inequality, this creates new expenses that the country simply cannot afford. Poor infrastructure takes an estimated R$ 150 billion per year out of the Brazilian economy. Beyond that, such policies generate a number of unintended consequences and distortions. Companies will neglect to invest in improving productivity or innovation when they can just lobby for preferential treatment by the government. Corporate subsidies, tax breaks, and protectionist policies stifle competitiveness, efficiency and growth. The government’s single-minded focus on growing the extractive sectors of the economy, like energy and mining, perpetuate the so-called “resource curse” that has plagued so many developing countries, hindering economic diversification and resilience. All of this has impacts on real people, through fewer jobs, higher prices, and excessive dependence on the whims of international commodities markets. In order for the country to move forward, all of this must change.

A good crisis is a terrible thing to waste, and Brazil has several. Let’s hope that at least some of them did not occur in vain, that at least some of them will be used to catalyze change and lead to actual long-term progress.

 <<< Part IV: Corruption | Part V: Lessons Learned