Brazil, a Country for the Rich--But That Only Contains the Poor

Just what in the world is happening to Brazil's economy?

And what do Brazil's new economic conditions truly mean for its working class and poor?

It is with mixed feelings of inspiration and disgust that I note Brazil may be the most interesting place in my Hemisphere for a political economist of Latin America to spend one year of study and research. And this thought in some ways mirrors the paradoxes implied by the overflowing amount of economic speculation in today's Brazil--the so-called Country of the Future (and, as Brazilians have pessimistically liked to quip--"will always be"...). As I foreshadowed in my previous post, before finally arriving in Brazil after a four-year hiatus, my ears were filled with "Brazil this," "Brazil that," "Brazil is a powerhouse!" "Brazil is great!" "Why is dental floss used not only for teeth in Brazil?" "Gosh, if only I had money to invest in Brazil..." and "Why aren't you living in Brazil!?" As a native of perhaps the world's most famous land of (blind) optimists, of course I am inclined to agree with such enthusiasm. But as one who has repeatedly witnessed what it means to be poor in Brazil, an existence characterized by an ability to simply afford a steady diet of manioc flour, beans, and rice, I am compelled to examine the country's economic fluctuations in a more informed and cautious fashion.

Upon arrival in Brazil on February 14th, only one series of thoughts dominated my mind: prices, prices, prices, cost, cost, cost. Or, in the words of Brazilians, a little something we like to call custo Brasil--the "Brazil Cost." I knew that given an enormous recent surge in the value of Brazilian currency, the real, making it through a year here on an academic grant was going to take some careful budgeting and maneuvering, as well as my own conceptual reconstruction of what it means to be middle class. After flying into Salvador's Luis Eduardo Magalhães Airport and waiting through the inefficient excruciation of Northeast Brazilian customs, the first conversation I had when picked up by my godsister, Clara, was regarding hergratitude for my bringing her a 64 GB WiFi iPad 2. This was the result of a personal transaction for which Clara reimbursed me for the delivery, in order to save herself US$470 versus the same model's price in Brazil, and not pay 40% in customs duties had she, like many other Brazilians nowadays do, traveled to Miami to import the tablet herself. In other words, the transaction was facilitated by the fact that as an airline passenger with the option of entering Brazil with my US passport, I can circumvent absurdly high taxes on self-imported consumer goods with which so many regular Brazilians must grapple. Aggravated by the ways in which Brazil's price regime seems to defy not only local consumers' ability to pay for goods, but also all conventional notions of the international trade, supply and demand, I grumbled to Clara about the inaccessibility of such items to the average, hardworking Brazilian. I remarked that given the need for many Brazilians' spending to far exceed their earnings just to survive at a basic middle class standard, I fail to understand how such a system can remain in place without causing a massive consumer credit bubble sometime soon. "It is true," Clara agreed. "Brazil today is a country for the rich--but all it contains are the poor."

...

Fast forward some two-and-a-half weeks into my time in Brazil, and I was enjoying the last few days of a personal research trip to Rio de Janeiro, Brazil's second economic heavyweight after São Paulo. Trying to make sense of Brazil's lingering paradoxes, I wrote a letter to some friends and family members, observing the following about what I immediately see as remaining obstacles to consolidating Brazil's position as a Rich Country (my apologies to those who have already read this verbatim):

"I'm sitting in my friend Humberto's apartment in Bangú, a suburban district in the West Zone of Rio... In this poorer peripheral area of the "Marvelous City," more removed from the picturesque South Zone [i.e. the posh postcard districts of Copacabana, Ipanema, Leblon, and Barra da Tijuca] than even the infamous City of God, things aren't quite so marvelous: no beach in sight, no luxury hotels or high-rise apartments, no Olympic Village under construction, no VIP clubs and designer sunglasses, no cable car to Sugar Loaf, no foot volleyball and certainly no dental floss bikinis. It's about 95 degrees and congested, and all I can smell is dust and the scent of diesel. The other thing I can't help but smell is opportunity and promise. Believe the hype you've heard: Brazil is indeed booming at an eye-popping rate. Prime office rents in Rio are higher than in Manhattan, everywhere one turns in middle-class Salvador there are new higher rises breaking ground, traffic is a mess given the new explosion of easy credit and hence car ownership, the stadiums for 2014 and 2016 are underway, and everyday inflation is rampant--to the point that I may not be able to sustain a decent living standard on my grant funds without establishing additional streams of income. Airplanes are packed with passengers visiting all of the regional capitals at a rate before unseen, and at a level that cannot be absorbed by most of the country's large airports. More surprising and refreshing, still, is that those airline passengers are darker skinned than I've ever before witnessed. (Only a relatively mere four years ago I vividly remember stepping onto planes in Brazil and STILL being the only Afro-descendant passenger--not so anymore). Still, the monthly national minimum wage is less than the local price of a pair of basic over-the-ear Bose headphones, or just around the same amount as a pair of high-end Nike sneakers. Still, the Salvador Metro is ten years behind schedule and remains incomplete, and Rio's poor Blacks are getting forced from their homes to make way for the demolitions for Olympics constructions that are also behind schedule. Still, growth does not mean development. The rise in incomes in high-skilled sectors here tends to only continue benefitting the propertied upper-middle class and ultra rich in particular. I fear that if Brazil does not 1) completely overhaul its public education system, 2) restrain its oppressive tax regime..., 3) provide enhanced training and facilities for its transition into highly-skilled production and a truly information-based economy, 4) make hiring practices more socio-racially democratic, and 5) allow government and big business decision-making to become more racially inclusive, in a manner that paves the way for a Latin American civil rights movement, then the country is bound to shoot itself in the foot. That would mean missing out on seizing the decade that could translate into actually cementing its position as a global power and a nation that actually has a credible internal market. Here arises a moment for collaboration, invention, and and innovation..."

In March I found myself in a typical scene of inefficiency and madness in which six flights boarded through three gates simultaneously at São Paulo's Guarulhos Aiport, Brazil's largest and one of Latin America's busiest--yet its worst-rated by the continent's business travelers. This is but one of the results of Brazil's recent easy credit boom, which has made flying more accessible to millions that just a couple of years ago had never before set foot on an airplane.

With those considerations in mind, in the months ahead, I would like to dedicate some time to focusing on those barriers to lasting development that I mentioned in that late February letter. In this entry I will first consider the seemingly bland but very telling matter of Brazil's exchange rate, namely the overvalued real. How can we tell? Well, let's run a quick test in the vein of The Economist's famed Big Mac Index. (A disclaimer: an explanation and some history of the Big Mac Index can be found here; despite how much I am fond of 'The Economist,' I am not finding the price of a Brazilian Big Mac displayed in that page's table holding true on the ground in Brazil in 2012, but discovering a considerably higher dollar-denominated price for the sandwich... So given that the data in the 2004 article is outdated, please consider that page for purposes of conceptual explanation only.) In my host city, Salvador, today, the average value meal (sandwich, french fries, and beverage) at a McDonald's drive through costs just under R$20 (twenty Brazilian reais, in the Portuguese plural form). That's US$10.80 at the April 16th, 2012 exchange rate. Meanwhile, let us generously overestimate that the average equivalent meal in the States costs US$8. Hence I approximate that the average McDonald's value meal costs nearly US$3 more (or more, depending on the meal) in Brazil than in major US cities. Meanwhile, the average McDonald's drive thru security guard in Salvador, nine times out of ten a Black man, earns Brazil's still measly minimum wage, R$700--or US$379--per month. So how many Big Macs, fries, and cokes can you buy on a Brazilian minimum wage? I'll let you do the math...

What's for lunch?

Or...

?

What does this indicate about Brazil's import scenario? That, as is especially seen when considering a wider basket of goods, the Brazilian consumer pays 130 percent to double, or more, on the average household consumer item, and much more if that item carries an international brand name--reflecting a price discrepancy even more worrying that that between the US and Brazilian Big Macs. A case in point: a Lacoste polo T-shirt (considered highly fashionable in Brazil today) costs US$90 retail in the States--but is often easily attainable for US$55 when in that country's basically never-ending online sale season; the same shirt retails for R$210, or US$114, in Brazil... So, if we assume that the US consumer is just basically savvy enough to take advantage of ubiquitous clothing discounts (far scarcer in Brazil because of its poorer online shopping and shipping infrastructure, less vigorous competition between retailers, and retail culture that values higher profit margins per unit sold), then his Brazilian counterpart will pay double for the polo. This is to say, if the exchange rate of the real to the dollar (about R$1.8 as I write this) were telling the truth, then the dollar-value equivalent of the price of the polo in reais would correspond just about exactly with that same polo's US dollar price in the US. But that is just not the case. Time and time again, when the real price of a given good is translated into dollars, that price is higher than the local dollar price of the same good in the US. Another way to put it is that the real purchases less in Brazilian markets than its exchange rate with the dollar suggests.

This all results in a situation in which it is very, very difficult to be middle class (read, fashionable when in public, in the Brazilian social consciousness) in The Country of the Future. Hence, let us ask ourselves: is Brazil's middle class growing? Yes. Statistically it has amplified by some 20-30 million residents since the inception of Luis Inácio Lula da Silva's presidency in 2002 (I've read and heard different figures). But at the same time: is economic pressure on the Brazilian middle class growing? Undoubtedly also yes. And with literally zero room for the Brazilian minimum wage to rise given intense resistance from the current political opposition, that trend shows no signs of abating. That is the story, I fear, which receives too little attention in today's dazed and unreasonably optimistic international media accounts of Brazil's boom. So consider: accounting for inflation and an increasingly overvalued real, attached to misleading price setting, for how long can Brazil's new members of the middle class remain there? As President Obama famously cracked late in September, 2011: "This is not class warfare. It's math." I wish Brazil's economic technocrats would show the same sort of pragmatism. This is just part of what I mean when I say I fear Brazil risks shooting itself in the foot...

And what of Brazil's (overwhelmingly Black and Indigenous) poor? According to a 2009 World Bank report quoted in this article, as of the end of that year Brazil's poverty headcount ratio, or the percentage of the national population living underneath the national poverty line, was 21.4 percent. As an added, and perhaps more internationally relevant, measure, according to the World Bank's Development Indicators, Brazil's poverty headcount for the very poor--defined as those living under US$2 per day--was 10.1 percent in 2009. For comparison, various sources shows the proportion of US residents living below the nationally-defined poverty line at 12 percent--still nearly 10 percentage points less than in Brazil, and at a nationally-defined poverty line that represents still higher earnings than the earnings that correspond with Brazil's poverty threshold (when both earnings levels are denominated in US dollars). Unfortunately, the statistics delineating the proportion of US residents living under US$2 per day are not published by the World Bank at this time. Still, I think the overall discrepancy is rather well illustrated in this interactive map. Conclusion: at very least, one fifth of Brazil--40 million people--are living in misery. And I'm not talking about misery strictly in terms of the World Bank's definition. I am talking about misery from the point of view of anybody who holds an ounce of compassion. Would you like to make US$379 per month in a country in which most consumer goods other than food are 1.3 to 3 times the price of the same goods in the US? How would you feel about eating beans and rice seven days a week, and not having enough extra change to do anything leisurely with your family on Sundays? If your mouth puckers or your eyebrows rise when you think about these questions, then you agree with my definition of misery.

So is Brazil rich? Yes, unimaginably. We have one of the world's largest natural resource and energy endowments, a fact that motivated President Rousseff in 2011 to reinforce a common Brazilian legend, publicly exclaiming that indeed, "God is Brazilian!" We have wonderful things here that simply don't exist with the same fervor elsewhere--natural beauty, human beauty, diversity, music and dance, food and drink, energy and athleticism, social positivity, human connection. But is Brazil still very poor? I think we need look no further than the US government's persistently anachronistic (albeit under Obama, recently easing) visa requirements for Brazilian travelers to see that the answer is obviously yes. At least a fifth--but I will estimate in the country's North and Northeast, at least two-fifths--of Brazilians still find themselves trapped in effectively desperate earnings, professional growth potential, and consumer power scenarios that trouble me on a daily basis. Therefore, at least that proportion of the the country, as potentially nomadic emigrants seeking a better life, represents a perceived threat to the US Department of State's understanding of national security. In that light, I must admit the US' reaction to Brazilian travelers is merely logical, as sad as its root may be. This tells me that for all the economic progress Brazil has made since the turn of the century, there still exist roadblocks afflicting its path to equitable and lasting prosperity. (Some of the roadblocks, in fact, are made from recycled beer bottles and bikinis.)

So what is my prediction? Brazil will disappoint those expecting the upcoming Mega Event years of 2014 and 2016 to cement its status as a global economic power. I believe that Brazil's government and business leaders need to take a long, hard look in the mirror and discern how they will construct more equity-producing policies governing taxes, exchange rates, import volumes, wages, and hiring. If I had all of the time in the world tonight, I would love to instantly disaggregate the country's development statistics, separating educational professional outcomes between rich and poor, White and Black/Indigenous, and earnings/consumer power outcomes between North and South, allowing the data to tell the story for me. (Assuming I can get my hands on all of the measurements I seek, I intend to discuss those data in a later post.) But for this moment, I hope that you readers will take my word for it as a newly reincorporated Brazilian local: not everything in The Country of the Future is as it seems--and it may particularly not be as optimists hope. I hope you accept my invitations to challenge conventional thinking on Brazil and on international development, and to come down here yourself and see what things look like on the ground... When you get to Bahia, I'll be more than happy to serve you a plate of one of my personal favorites: beans and rice.

Thanks for reading,

SCE