Internal Struggles: Predictable, Now Surfacing...
www.infobrazil.com Analysis by Alcides Ferreira Jan 11 - 17, 2003
President Luiz Inácio Lula da Silva's first few days in office offered the news media an abundance of photo opportunities. He visited poor towns in the Northeast and brought his entire cabinet with him for a close-up look. In many ways, Lula is still behaving as if he were in the middle of an election campaign – at times, he seems more like a pop star than a president in his public appearances.
Probably the last time Brazil had such a popular president was in the fifties, with the late Juscelino Kubitschek. This is not negative, but the big hopes for change that carried him to victory may well work like a double-edged sword, and turn into deep disillusion in a while. All it would take is a return trip by reporters to the same impoverished locations Lula visited in recent days, and their subsequent stories showing that not much has changed.
As I predicted here, Lula's economic team has so far produced the best performance among all cabinet members. Markets are reacting positively to that. There is, however, one important exception: new Labor Minister Jacques Wagner, who declared that the past administration's proposal to change Labor Legislation Consolidation (Consolidação das Leis do Trabalho, in Portuguese) – a proposal that gathered dust in Congress since the end of 2001 without being voted on – will now be set aside.
In fact, this is consistent since the Worker's Party was among the biggest opponents of the changes proposed. The fact remains that Brazil's labour regulations are a road to hell paved with nothing but good intentions. More than one thousand specific labour rules clutter the Constitution and the Labor Legislation Consolidation The end result of one of the most detailed and strict set of labor laws in the world is that just 40 percent of Brazilian workers are formally registered employees. The majority of workers in Brazil are informal, unregistered, without basic benefits.
As I have been saying here *, a thorough revision of Brazil's labour laws is a vital pre-requisite for employment growth. As things stand, when a company hires someone in Brazil it has to follow every detail in the law, and that means offering the new employee a number of benefits called for in legislation. It makes no difference whether the employer is in a poor state, or if it's a startup company – it will have to put out just as an established enterprise in a bustling city would have to.
Not only has this led to Brazil's enormous informal labour market, but there is also an incredible amount of labor litigation in Brazilian courts. According to University of São Paulo Professor José Pastore, one of Brazil's foremost labor law specialists, there are currently two million litigations making their way through the court system, all related to employment issues. In Japan, which has a labor market equivalent in size to Brazil's, there are just 1,500 lawsuits under way.
As Americans like to say, only a person who has never met a payroll would push aside this issue. Labour Minister Wagner said he intends to modernize labour regulations, and mentioned, for instance, the idea of ending the payment of a fine every time a company fires someone without just cause. Under current legislation, the company pays the employee a fine equivalent to 40 percent of the Employees Severance Indemnity Fund, known as FGTS account, when it fires a employee. FGTS are the initials, in Portuguese, of this fund. Every registered worker in Brazil has an FGTS account, which receives monthly deposits from the employer. These accounts are managed by the government, and can only be drawn in three circumstances: if the employee buys a home, opens a business, or is fired without just cause.
This penalty paid by the employer was created in 1988, when the Brazilian Constitution was given a thorough review in Congress. It was the result of a bizarre negotiation between right and left-wing parties. Leftists, led by the Worker's Party, wanted to re-introduce employment stability as a constitutional guarantee, something that was dropped in the 60s and replaced by the FGTS accounts. The left didn't get its way, but obtained this fine. **
The idea of penalizing a company because it fires someone is nonsense. The result of this is clearly visible in Brazil. What it has generated is a growing informal market, as well as giving rise to yet another very Brazilian "solution" for regulations that don't make a lot of sense. It is quite common for companies and employees to reach informal agreements, in which the company agrees to fire the employee. This allows the worker to draw the funds from the FGTS account. To return the "favour", the employee agrees to give back to the company the 40 percent fine. This money returns to the company under the table, since this type of deal between employer and employee is not recognized in the law books.
Labour unions in Brazil consider this fine is a hard-earned "conquest" and a form of insurance for employees, so predictably, reaction against the new Labour Minister's suggestions was strong. And not surprisingly, Jacques Wagner was forced to backtrack, saying he never really intended to remove the fine specifically. This was another clear indication of the contradictions the Worker's Party will face in government. On one side, part of its members recognize the need to continue reforms and modernize the economy, in spite of the fact that in the recent past, the Worker's Party voted against all major reforms.
On the other side, there are those within the party, as well as key supporters in the labour movement, who will continue to react strongly to these changes, much as they did while in the opposition. In the case of this specific change involving labor regulations, those who might benefit most – the unemployed – have no way of applying pressure, since there are no lobbies or unions acting for the jobless. Barring an unexpected burst of internal defiance, the unfortunate likelihood is that we'll continue to see union leaders grabbing headlines, calling on the new government to preserve, and never extinguish these "worker's rights".