[BRIEF NOTE] Brazil's economic ascendancy

[rfmcdonald]

The economy of Brazil has tigerish growth rates in the 1970s followed by debt-ridden slow growth and recession in the 1980s and the slow recovery in the 1990s. Now, The New York Times' Alexei Barrionuevo says in his article "Strong Economy Propels Brazil to World Stage". Critically, this growth is shared among all strata of society thanks to innovative social programs, with the better off doing well thanks to growth industrial and resource extraction even as very large numbers of poor people escape to the middle class thanks to innovative social rpgorams.

Desperate to escape her hand-to-mouth existence in one of Brazil’s poorest regions, Maria Benedita Sousa used a small loan five years ago to buy two sewing machines and start her own business making women’s underwear.

Today Ms. Sousa, a mother of three who started out working in a jeans factory making minimum wage, employs 25 people in a modest two-room factory that produces 55,000 pairs of cotton underwear a month. She bought and renovated a house for her family and is now thinking of buying a second car. Her daughter, who is studying to be a pharmacist, could be the first family member to finish college.

"You can’t imagine the happiness I am feeling," Ms. Sousa, 43, said from the floor of her business, Big Mateus, named after a son. "I am someone who came from the countryside to the city. I battled and battled, and today my children are studying, with one in college and two others in school. It’s a gift from God."

Today her country is lifting itself up in much the same way. Brazil, South America’s largest economy, is finally poised to realize its long-anticipated potential as a global player, economists say, as the country rides its biggest economic expansion in three decades.

[. . .]

Long famous for its unequal distribution of wealth, Brazil has shrunk its income gap by six percentage points since 2001, more than any other country in South America this decade, said Francisco Ferreira, a lead economist at the World Bank.

While the top 10 percent of Brazil’s earners saw their cumulative income rise by 7 percent from 2001 to 2006, the bottom 10 percent shot up by 58 percent, according to Marcelo Côrtes Neri, the director of the Center for Social Policies at the Getulio Vargas Foundation in Rio de Janeiro.

But Brazil is also outspending most of its neighbors on social programs, and overall public spending continues to be nearly four times as high as what Mexico spends as a percentage of its gross national product, Mr. Ferreira said.

[. . .]

In Ms. Sousa’s case, for instance, she owes much of the success of her underwear business to loans she has received from the Bank of the Northeast, a government-financed bank that has awarded microloans to 330,000 people to develop businesses in this fast-growing region.

Other programs, like Bolsa Familia, give small subsidies to millions of poor Brazilians to buy food and other essentials. Bolsa Familia, which benefits 45 million people nationwide in distributing an annual budget of about $5.6 billion, has been far more effective at raising per-capita incomes than recent increases in the minimum wage, which has risen 36 percent since 2003.

The bottom-up nature of such social programs has helped expand formal and informal employment as well as the Brazilian middle class. The number of people under the poverty line--defined as those earning less than $80 a month--fell by 32 percent from 2004 to 2006, Mr. Neri said.

The programs have been particularly effective here in Brazil’s northeast, historically one of poorest parts of the country. Residents here have received more than half the $15.6 billion doled out in social programs from 2003 to 2006, according to Empresa de Pesquisa Energetica, an arm of the Energy Ministry.

People here are using that new wealth to buy items like televisions and refrigerators at a faster rate than the rest of the country. The northeast, in fact, passed the country’s south in electricity use this year for the first time, the energy agency said.

Many families have bridged the gap to the middle class by using Bolsa Familia to meet basic needs, and then applying for small loans to start businesses and escape the informal economy. That is what Maria Auxiliadora Sampaio and her husband did in Fortaleza, a coastal city of 2.4 million people. They were receiving Bolsa Familia payments of about $30 a month, which they used to support their three children. Then, two years ago, Ms. Sampaio used a microloan of about $190 to buy nail polish and kick-start her manicure business, which she runs from home.

Today she is making around $70 a day--about four minimum salaries per month, she said. With her next loan she plans to put about $140 toward a stove to sterilize nail clippers, which today she does with hot water.

If this model succeeds in the future--and that may be a big if--then Brazil's place in the BRIC (Brazil Russia India China) group of large emerging economic powers would be secure. Co-blogger Edward Hugh did make a point when he pointed out that Brazil's population growth counterbalances employment growth, although it is considerably richer on a GDP per capita basis than India, and has a population with a stabler ageprofile, now and in the future, than a Russia and China where cohort fertility has been depressed sharply by (among other factors) the low fertility typical of advanced countries and is now very sharply below replacement rates. Hugh's Brazil Economy Watch blog also points out that the Brazilian government has its macroeconomics right Brazil's growth may be lower than other BRIC countries', but slow and steady may yet win the race.