Sunday, October 26, 2014

Brazil's elections: a choice of development models

A short break in the debate about the Beijing Consensus for some breaking news:

Today, Brazil decided to re-elect its President, keeping Dilma Rousseff for another 4 years in power. The margin of victory was really small (51.6%). The wealthy regions (south and southeast) have largely favoured Dilma's opponent, Aecio Neves, while the poorest regions (north and northeast) have strongly supported Dilma.

While the elections clearly show a divided country, those who have followed the debates and scrutinized the policy proposals know that the results reflect more than a division based on income levels. The outcome of this election shows a country divided over two very different development projects. 

Before the Worker's Party (PT) came to power with Lula in 2002, the country was ruled by the Social Democrats for eight years. During this time, the Social Democrats (PSDB) created a much needed stabilization plan to fight inflation (which had reached 1,000% annually in the early 1990s). However, they also adopted a plan to reduce the size of the state through privatization, while at the same time creating strong institutions that could support private investments (such as independent regulatory agencies). According to the social democrats, fiscal responsibility, small state and strong institutions would create the conditions for the private sector to act as engine of growth. In sum, from 1998 to 2002 Brazil has followed an economic agenda very much in tune with the Washington Consensus.

In 2002, the Worker's Party came to power with the intention to keep the strong pillars that secured macroeconomic stability. However, the party also came with a plan to increase redistribution and reduce poverty. The results achieved were so impressive that the ambitious anti-poverty program implemented in Brazil was touted by the World Bank as a model to be followed by other countries. Alongside its redistributive programs, the Worker's party has also strengthened and increased the state's presence in the economy. This has been accompanied by an increased role for the Brazilian development bank, and a number of informal institutional changes that have undermined the institutional make-up of the previous model. The independence of the Central Bank is a topic that gained a surprising and unexpected prominence during the campaign. Along the same lines, the independence of regulatory agencies for infrastructure sectors has also been a concern, but this one has been confined to a more specialized audience.    

The candidates also had opposing views on foreign policy, which were also in line with their views of domestic policies. As one blogger described: "Rousseff’s vision is clearly represented by the BRICS model, which constitutes a multipolar challenge by the some of the world’s biggest economies to the hegemony of the United States." In contrast, according to The Economist: "Mr Neves would seek closer ties with developed countries (a main source of technology and markets for Brazil’s manufactures) without abandoning Asia or Africa. In South America, he’d “de-ideologise” policy, rather than team up with Venezuela, Argentina and Cuba." In sum, not only on the economic policy the candidates were not seeing eye to eye, but their differences in the domestic sphere echoed into their thoughts about how Brazil was supposed to relate to the rest of the world.

Brazilian citizens were utterly divided between these two options and for a good reason. The proposals presented to Brazilians during this electoral process are not only very different but represent models of development grounded on irreconcilable premises. On the one hand, liberal (and neoliberal) economists have developed strong arguments on the importance of institutions and the private sector to promote development (combined with free trade and foreign direct investment). This is the model supported by the Social Democrats. On the other hand, there are those who support greater state intervention and a higher degree of protectionism. Such policies have strong roots in Latin America, dating back to the creation of the ECLAC, which was based on structuralist thinking. Today, such views are articulated and strongly supported by prominent scholars, such as Ha-Joon Chang. The influence of this school of thought over the Worker's Party agenda is undeniable. 

So, Brazilians today were asked to choose between two radically different development models. Considering that this topic has generated fierce debates among development experts for decades, it does not come as a surprise that Brazilians were also divided over the choices. There is no conclusive empirical evidence supporting one model or another. As Brazilian voters had very little information to determine where each of these models would take them, they turned to the past in search for guidance. By and large, the poor have chosen the development model that has mostly favoured them in the last 12 years. The wealthy, in turn, have favored the model that promised higher rates of growth, which is what has benefited them most in the past. While the results may be a victory for lower classes and for those concerned with poverty and inequality, they have not reduced the country's anxieties about its future. The redistributive and interventionist model won in the ballots today, but only time will shows if this was indeed the right path for the country in the long term.

Wednesday, October 1, 2014

No São Paulo Consensus or Happiness for Pessimo

 Pessimo brought a measure of well-being to suggest that São Paulo would be probably be a good place to be. I suggest instead that we adopt a development-related concept, which is the World Happiness Index. As Michael Trebilcock and Mariana Mota Prado describe in their new book, Advanced Introduction to Law and Development:

"A movement to redefine development based on well-being supported the development of the Gross National Happiness (GNH) Index. Spearheaded by the King of Bhutan, the index includes nine domains: psychological wellbeing, health, education, time use, cultural diversity and resilience, good governance, community vitality, ecological diversity and resilience, and living standards. These domains are considered conditions of a ‘good life’ and are measured by 33 indicators. While initially supported only by a few academics and the government of Bhutan, the concept has gained international attention recently. In 2011, the United Nations approved a resolution entitled "Happiness: Towards a Holistic Approach to Development". (...) This resolution was followed by two World Happiness Reports, published in 2012 and 2013, which measure the overall happiness in different countries and rank them against each other. Alongside its recognition at the UN, in 2013 the OECD issued guidelines for an international standard for the measurement of well-being, largely subscribing to the concerns that have driven to the creation of the happiness index."

So, how happy was Optimo in Brazil? Not very happy. According to the 2013 report, Brazil ranks 24th. This is not the worse place to be, but it is still not at the top of the ranking as Pessimo suggested in his previous post. It is certainly a better place to be than Singapore (30th), but not better than Canada (6th). Therefore, we would not be on solid grounds to propose a São Paulo consensus on this basis. Moreover, we need to consider that Germany was two positions in the ranking below Brazil in 2013. This may have changed since the World Cup. 

If we focus the analysis in São Paulo, the city is going through one of the worse droughts in its history, which is threating water supply. While this may be a temporary problem, the UN indicated that São Paulo is the city with the highest level of mental disorders associated with urbanization among 23 cities analyzed. So, let me assure Pessimo that levels of well being are not particularly high down there. 

Considering the Index, and the fact that Optimo is now (happily!) back to higher levels of happiness Canada, I am looking forward to continuing the conversation about the Beijing Consensus.

Post scriptum: Would Portugal have been able to produce the most melancholic music in the World (fado) if they were not occupying the last position in the ranking?