Battling extreme poverty -Made in Brazil

According to the latest figures of the World Bank, extreme poverty causes enormous human suffering and still afflicts over one in every five people on earth. As a result, the goal of combating extreme poverty is the bedrock of the entire development community and has been embraced by legions of World Bank presidents.
The need to bend the arc of history in order to eliminate extreme poverty and achieve shared prosperity is gaining appropriate attention.  At a time when the World Bank’s resources as well as the budgetary resources of governments around the world are more limited than people might wish, Brazil offers important lessons on how to eliminate extreme poverty and reduce inequality.
Perhaps the biggest lesson to be learned from Brazil is that real progress on reducing poverty levels can be achieved in a very cost-effective manner if the programs pursued are well-targeted. Brazil is an unlikely success story in that regard. The country has long been known for having one of the most unequal levels of income distribution on the planet. And it has often been cast as the “country of the future”, a place where the poor rarely saw the benefits of industrialization and economic growth.
A decade after coining the term “BRIC” to denote Brazil, Russia, India and China, Goldman Sachs economist Jim O’Neill remarked that Brazil’s growth had surprisingly overshadowed its counterparts and exceeded all economic projections. His observation highlights the significant economic and sociopolitical changes that have transformed Brazil from a regional to a global power with dramatic speed.
After decades of political and economic instability, Brazil entered the 21st century as a vibrant democracy and the economic engine of Latin America. At the same time, Brazil’s political leaders are looking outward and actively pursuing an influential role in regional and international affairs as a “champion” of the Global South.
Brazil is currently the world’s sixth largest economy and the second largest among the BRICS (including South Africa.) World Bank Economists projected that Brazil will surpass France to become the world’s fifth largest economy by 2016. Brazil’s economy is largely fueled by manufacturing and natural resources, primarily oil, timber and minerals. Industry comprises 28% of the country’s Gross Domestic Product (GDP) and agriculture accounts for 6%. The country is also an appealing destination for foreign investment due to its growing middle class, abundant natural resources and high interest rates.
Much of the country’s economic success can be traced to the fiscal and social policies of the last two presidents: Fernando Henrique Cardoso and Luiz Inácio Lula da Silva (a.k.a Lula). Lula in particular, is considered to be one of the most successful national leaders in recent decades. Brazil’s GDP per capita more than doubled since 1990 to US$11,220 in 2010. Sound economic policy and a robust domestic market also enabled Brazil to be one of the first emerging market economies to recover from the recent global financial crisis. While Brazil’s economy contracted 0.6% in 2009, Brazil posted 2.7% growth in 2011.
Despite all this progress, extreme poverty is one of the serious domestic challenges Brazil faces. Infrastructure gaps and social inequality could undercut continued progress, and the World Bank currently ranks Brazil as the 13th most unequal country globally by the Gini index. The Brazilian government has been investing in a range of social programs, including increases in minimum wage and conditional cash transfer programs. These have helped lift 28 million Brazilians out of severe poverty over the past ten years.
This was done by President Lula da Silva. He was elected in 2002 on a platform, not only to boost social and economic inclusion and to fight poverty and inequality, but also to achieve that goal within a single generation. Building on the economic foundation established under his predecessor, Fernando Henrique Cardoso, Lula’s strategy was not at all aimed at doing the typical politician’s thing; to spend more on social programs.
Instead, Lula, a man who had experienced long bouts of poverty firsthand, made the fight against poverty and inequality the central organizing principle for his entire presidency. In fact, the government’s other policymaking initiatives were of secondary importance, in the sense that they had to support his main policy plank. At long last, the fight against poverty was not just an add-on, as it so often is, even in very poor countries around the globe.
It is well known that President Lula’s program initially did not receive a warm welcome from the financial markets. People in the financial sector were concerned that his commitment to what they perceived as a utopia would lead him to implement irresponsible, populist and unsustainable policies. To the surprise of many, however, President Lula proved that they were wrong. There were plenty of doubters within Brazil itself as well. They were convinced that, after 500 years of a national history marred by exclusion and inequality, bending the arc of history would certainly take far more than a single generation.
By the end of Lula’s two-term mandate, the results were already impressive. Income inequality, measured by the Gini coefficient, had declined sharply from 0.553 in 2002 to 0.500 in 2011. Household per capita income had increased by 27% from 2003 to 2011. Unemployment rates fell from 9.1% in 2002 to a record low 6.8% in 2011. When President Dilma Rousseff, President Lula’s former chief of staff, was elected as his successor, she upped the ante, running on a platform to eliminate extreme poverty not in a generation, but in just five years.
As it is well known by everybody, the world of politics is full of skepticism. Considering the lofty speeches by endless numbers of politicians declaring big goals, usually without ever intending to meet them or coming close to meeting them, there is good reason for doubt. And yet, in Brazil’s case, the target of eliminating extreme poverty is surprisingly close to being achieved. The reform agenda’s cornerstone was a determined expansion of the social protection programs by making sure that all poor households in the country would be reached.
The two key programs in this regard are, first, the “Bolsa Familia”, a conditional cash transfer program that increases the incomes of the poorest families while promoting health and education, and, second, the “Brasil sem Miséria”, an extension of Bolsa Familia aimed at people living in extreme poverty, with elements for inclusion in the productive sector and access to public services. The per capita transfer is currently an equivalent of 647 Birr or $35 a month.
The two programs now reach 100% of all Brazilians that are listed in the national database used to manage and monitor the social programs of the country. At this moment, there still are 700,000 people that live under the poverty line who do not yet receive payments from either of the support programs, because they have not been included in the registry.
According to Brazil’s 2012 Economic Report, the cost of Bolsa Familia has been extremely low. In 2012, the program cost the Brazilian government less than 1% of its budget. On the social front, the results are solid. While much more needs to be done, Brazil has seen a marked decline in violence and an increase in political activism and cultural movements. In many of the urban areas, ambitious programs were launched to “pacify” areas previously associated with drug trafficking and violence.
A key part of the improved urban environment is that the urban poor now have a sense of destiny and direction. They welcome the government’s focus on investment in families’ futures and especially the smart focus on the young and their education. Many NGOs and development partners, including high level officials of the World Bank, witnessed that there is a quiet confidence in the eyes of young children living in the slum areas that has never been there before. Without knowing it, they can sense that their government is giving them a true head start.
The real fruits to be harvested from the Bolsa Familia may still be a generation away. But here, there is a rigorously implemented social program that has nothing to do with consumption and the usual instant-gratification handouts, which too many politicians over the world like to specialize in, and not just in poor countries. When the World Bank’s new president visited Brazil early this month, one of the many things he found there was inspiration for what can be done on the poverty front globally, even in these lean budgetary times.