Commentary: An agenda for Brazil's Lula
By Ian Campbell UPI Chief Economics Correspondent www.washtimes.com
His family was poor. He did not finish secondary school. He was a metal worker. In many respects Luiz Inacio da Silva, universally known as Lula, who is likely to win the presidency of Brazil later this month, reflects his countrymen far more than previous Brazilian presidents. The question is whether one of their own will do his poor countrymen any good. Top Stories • Congress approves resolution • Manassas killing was sniper • Democrats hit GOP on 'bumpy' economy • Motorists taking cover at filling stations • Stewart's new ads puzzling • Israelis rule out open trial • Heritage duo had right stuff
Lula's left-wing politics reflect the harsh lives of ordinary Latin Americans. It is the current, outgoing Brazilian president, Fernando Henrique Cardoso, who is more typical of the region's leaders. An academic and author of a famous book on Latin American development before becoming a politician, Cardoso, a social democrat, hails from the educated minority that runs Latin America. Most observers would judge that Cardoso did a goodish job as president. Inflation was slashed from thousands of percent to less than 10 percent. Some of the worst fiscal nonsense has been cleaned up, at the federal, state and even municipal level. The economy has grown, though no more than slowly. But the poverty of most Brazilians has not been eased; about that there can be no question. That creates a problem. Who or what do we blame? In the eyes of the poor, the conquest of inflation was something good, for high inflation tends to hurt the poor more than the financially sophisticated, dollar-rich rich, with their second homes in Miami and their stock accounts on Wall Street. But the poor would not judge that privatization and deregulation and opening up the economy to foreign trade have helped them. In the slums that surround the big cities or ascend the steep hills of Rio de Janeiro, and in the dirt poor countryside, grinding poverty prevails. What might Lula do about that? There are ironies here. Having taken 46 percent of the vote in the first round of the election Sunday, Lula appears poised for victory in the runoff Oct. 27 -- his fourth attempt to win the presidency. But in order to get to this point he has had to don a suit and tie and tone down his left-wing rhetoric and express his approval of some of those changes, such as privatization, from which the poor have so far drawn little benefit. Soon it may be the poor, rather than the middle class, who are asking whether Lula's colors have changed. But the deepest irony of all, and the most troubling, is that there is only one way for Lula to help the poor and that is to do what Cardoso did better -- just as Cardoso's chosen successor, Jose Serra, who faces Lula in the second round run-off, promises to do. Many in Brazil and many critics of free markets outside Brazil blame "globalization" or the "Washington consensus" or "neo-liberalism" for the failure to improve the lot of the poor in Brazil and the rest of Latin America. What the critics tend to recommend are policies that, if suggested for domestic consumption in the United States or Europe, would generally be decried -- and with reason. Close off Brazil's markets, they say, so that local jobs can be protected against the might of foreign competition. But it's been done before, for decades, has never worked and helps more than anything else to explain why Latin America is where it is now. The poverty of the region reflects protectionism, which was a by-product late in the 19th century of government tariffs on imports and, since World War II, a conscious policy tool. Protected markets, state monopolies, government industries: This was the way to develop, Latin America decided. What it led to was inefficiency, lack of competitiveness, small, weak economies, and, ugliest of all, corruption that enabled a small number to prosper from what wealth there was while the majority remained low-paid, uneducated, without opportunity: poor. It is opportunity that the poor need. The way to bring it to them is to continue unraveling the entangling web woven in Latin America for at least decades and perhaps centuries. The poor need the education Lula himself was denied. They need health care. These should be priorities for Lula. But to provide them will require government spending. And here we have the crunch seen traditionally as that between left and right but which, in reality, ought to unite both against privilege, special interests and corruption. Brazil's government is permanently in deficit. It pays benefits, such as lucrative pensions, not to the poor but to wealthy people who have served as senior civil servants. The pensions deficit absorbs about 4 percent of GDP. The government is obliged permanently to issue debt at very high interest spreads on which investors and banks, mostly Brazilian ones, make very high profits. Brazil's bankers are not poor; some of them count among the world's richest citizens. Lula would have the money to help the poor without causing the government's budget to explode or defaulting on debt, if he attacked the privileges the state grants to the rich, cut bureaucracy and unproductive jobs in the state sector, and stopped feeding excessive interest payments to banks because the state cannot get its finances in order. By cutting Brazil's very high public spending, Lula could at last get fiscal finances under control. Interest spreads on government debt, which have climbed now to over 20 percent above the rates on U.S. Treasuries, because of the radical Lula's likely election success, could be slashed if Lula turned out to be a wise radical, one who spends government money where it is needed, not where it does no more than make the middle class still more comfortable. Could Lula do this? He could, but it seems unlikely that he will. It is more likely that he will find he has no money to devote more to the poor and no will to cut away at the perquisites of the middle class. And if he grows frustrated, simply spends more rather than spending better, then the market will quickly take fright, the debt will become unmanageable, and default and financial crisis and recession and currency collapse and inflation and worse poverty will follow, just as they have done in Argentina. Lula is a man of the poor. His sincerity does not seem to be in doubt. His policies are. We do not expect him to help the poor but hope he does. -0- Comments to icampbell@upi.com.