What type of reform do we want?
Few serious and relevant political actors today disagree that the central theme of Brazil’s current political debate is the reform of the state. But at the same time, few agree about the priorities of where and how to reduce spending and the presence of the state. These issues are behind the reform measures the Temer government has put forth and will be the fundamental choice to be made in the 2018 elections.
The most innocent and simplistic observers often associate the size of the state and its spending – which is seen as enormous, inefficient and unjust, with groups on the left or, in fact, the policies of Lula and Dilma. In this puerile view, the widespread presence of the state in the economy, whether in the area of social reforms, the credit market or in the hundreds of state enterprises is the creation of political groups who promote liberal policies and projects. Nothing could be further from the truth. The political left in Brazil may have a discourse advocating a greater presence of the state in the economy and in society, but they have never had the power or the ability to successfully enact such policies.
The presence and the spending of the Brazilian state is the result of centrist political groups, the neoliberal right (including military governments), regional political groups, business interests and civil servants. Each in their own way, have argued in favor of the state’s role in the leadership and financing in many areas, and when doing so, always reference the national interest.
Some of the most eloquent examples can be seen in the creation of BNDES (National Development Bank) and Petrobras. Neither case had a leftist vision behind them. In fact, it was nationalist tendencies with the objective of financing emerging domestic enterprises in the first case, and the management of strategic national resources, in the second. These examples are similar to actions taken in the military period, particularly in the Geisel government, where the creation of numerous state owned companies had nothing to do with policies of the left.
In more than 200 years of existence, the Bank of Brazil has become the main financier of agriculture in the country, in addition to its role as a retail banker. On the other hand, the Caixa Econômica Federal (Federal Savings Bank) has played a major role in funding the real estate sector and urban infrastructure in the country. Again, none of these were a result of a statist project, but were development projects focused on sectoral agendas and interests.
In other words, the apparatus of state owned enterprises in Brazil had nothing to do with leftist projects, nor tools of income distribution, nor the desire to benefit the lower classes. They were created by centre-right governments who asserted different versions of national development.
A brief analysis illustrates the forces that affect social spending, particularly in education and healthcare in Brazil. Public spending on healthcare, measured as a percentage of GDP – about 4.5% – is lower than that of several other Latin American countries, including those with a lower level of development. Although the concept underlying the Unified Healthcare System (SUS) has a socialist bias, the Brazilian state never allocated the funds to this sector the amount which had been set forth in the constitution. If the left won the conceptual debate, it failed to win the budget negotiations.
A similar situation occurred in the field of education. Although it is a constitutional right, the distortion of the allocation of public funds for this field is notorious. While the quality of basic education for the lower classes is poor, a large portion of the budget is channeled to public universities attended mostly by the middle class (graduated from private schools).
A final example of public spending that has little to do with left politics is the case of social security. The system was built over several decades and became universal during the military government when it decided to guarantee the right of retirement for the rural working class, even though they made no contributions to it. This decision was ratified by the constitution of 1988. Today, 80% of retirees and pensioners receive the monthly minimum wage. Only 20% receive a higher amount.
This history indicates that Brazil’s political and economic elite sees the state as a key agent for various activities and not just the essential needs of society. It also helps to explain the size and role of the Brazilian state, which has little to do with policies of the left. Over the past 30 years, the party that contributed more to the expansion of the state in the Brazilian economy was the PMDB (Brazilian Democratic Movement Party).
Reform will depend on the size of the state that the political elites desire and in which areas they will concentrate on, regardless the political spectrum. They must also define which interest groups will be accommodated and which will not. Distancing itself from the polarization of the political discussion, the Temer government and the 2018 elections will be responsible for either giving new dimensions to the current nationalist model, or for continuing to maintain the present course for some time.
Ricardo Sennes is a managing partner at Prospectiva and a specialist in political and economic scenarios, the formulation and implementation of public policies, and the evaluation of their impacts on companies. He has experience in industrial policy, industrial promotion, and international integration. Sennes possesses a doctoral degree and a master’s degree in political science from the University of São Paulo (USP) and serves as the general coordinator of the university’s leading international affairs think tank (Gacint). He is currently a non-resident partner of the Atlantic Council’s Latin America program, a member of FIESP’s Council of Strategic Affairs, and a member of the council overseeing of the journal Foreign Affairs (Mexico and the United States).
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