What Happened to Brazil?

brazil flag brick wall.TC

This article was originally published by Fair Observer and FPIF.

John Feffer | Latin America’s largest country once looked ascendant. Now it’s been laid low by widespread violence, structural racism, endemic corruption and external economic shocks.

In the 2014 FIFA World Cup, Germany not only ousted Brazil from the semifinals. It gave the legendary team a drubbing—7 goals to 1. For most of the match, Brazil faced a shutout. Only in the last minute did Brazilian striker Oscar manage to put the ball in the net.

The staggering loss was all the more painful because it took place in Brazil, which was hosting the World Cup. Brazil’s national football team hadn’t lost at home in 62 matches going back to 1975. It was a very public humiliation that took place before heads of state and millions of people watching the televised match.

The World Cup was supposed to be a crowning achievement, the proof that Brazil had made it to the club of advanced nations. It was an opportunity for the world to acknowledge all that Brazil had achieved in the previous 15 years.

Not only had the Brazilian economy grown at a rapid pace in the first decade of the 21stcentury—averaging between 4-5%—but it had dramatically reduced its inequality. The policies of President Lula da Silva, the charismatic leader and former trade unionist, had pulled 26 million Brazilians out of poverty. The Bolsa Familia—the family allowance of direct cash payments to the poor—helped to swell the middle-class from 45 million to 105 million in just ten years, a truly remarkable development in a country of 200 million people.

The Brazilian model didn’t just offer hope for other countries facing underdevelopment and economic inequality.

Along with the other BRICS—Russia, India, China and South Africa—Brazil was leading the “rise of the rest” that would dethrone the United States and usher in a truly multipolar world. Lula, the left-winger turned powerbroker, epitomized this new post-post-Cold War world, negotiating deals with both George W. Bush and Hugo Chavez, Germany and China, the mandarins of the international financial system and the poorest inhabitants of the urban slums. He had turned a country best known for carnival, samba and beaches into a serious global competitor.

Lula’s successor, Dilma Rousseff, took over in 2011. Going into 2014, the Brazilian economy wasn’t performing at quite the same levels as in the Lula years, but it was still registering modest growth. Rousseff had reasonably high approval ratings in her first term and polled a still-respectable 40% at the end of 2014.

All of that has changed. Today, Rousseff’s approval rating has nearly bottomed out at 8%, and the Brazilian economy is set to shrink by nearly 3% this year. Anti-government demonstrations brought several hundred thousand protestors into the streets of more than 200 cities in March and August to demand that Rousseff step down. In the economic equivalent of the 2014 World Cup loss, Standard & Poor’s recently downgraded Brazil’s bonds from investment-grade to “junk.”

Critics have taken aim at the Rousseff administration for its corruption and mismanagement. Analysts blame the collapse of the commodities market and the slowdown in Chinese imports. Still others identify Brazil’s persistent poverty and inequality as the culprits.

Brazil was heading into the semifinals of world development as an odds-on favorite. How did the country go from world-class performer to global embarrassment in what seems like the blink of an eye?

There Will Be Blood

The most violent cities in the world are not in the war zones of the Middle East. Nor are they, by and large, in the poorest parts of Africa.

In the most recent United Nations report on global homicide figures, Africa was overtaken by a surprise entrant: Latin America. One-third of the world’s homicides take place in a region that contains only 8% of the global population. And of the top 50 most dangerous cities, in terms of homicide, an astounding 19 of them are located in Brazil.

In the US, Detroit has the worst murder rate: 44.9 murders per 100,000 people. For the Brazilian city of Ananindeua, it’s nearly triple that: 125.7. The murder rate overall in Brazil is 29, making it even more dangerous than Mexico. Suketu Mehta writes in The New York Review of Books:

“Four Brazilian cities had a murder rate of over 100 per 100,000 residents. Between 5 percent and 8 percent of Brazilian homicides are solved — as compared to 65 percent of U.S. murders and 90 percent of British murders. Most of the victims are male and poor, between fifteen and just shy of thirty. The homicide rate has shaved seven years off the life expectancy in the Rio favelas (slums).”

Prior to the 1980s, Brazil was not an especially dangerous country. But the rise of the drug trade, the involvement of organized crime and the spread of gangs all contributed to the spiraling violence. It’s also been increasingly dangerous to write about Brazil’s dangers. As John Otis of the Committee to Protect Journalists has written,

“at least seven Brazilian journalist were killed in direct relation to their work between January 2011 and November 2012, making the nation one of the world’s deadliest for the press.”

Brazilians might take some comfort from the fact that, as a whole, their country comes out pretty well in the Global Peace Index. In 2015, Brazil ranked 103 out of 162—not great, but better than Honduras, Guatemala and El Salvador. It’s also a far cry from Syria, Iraq and Afghanistan, the worst performers on the list. Brazil isn’t that far off from the US, ranked 94, either.

On second thought, these ratings are only good news in the sense that Brazil is better off than countries at war and states on the verge of failing altogether.

After all, these relative rankings don’t really convey the atmosphere of pervasive violence in the country, even during the Lula years, when the economy was expanding and the poorer population was getting more of a share of the pie. During Lula’s first term, for instance, rural violence actually increased as disputes over land spiraled up 83%. Despite his commitment to greater income equality, Lula failed to address the enormous concentration of land in the hands of large farmers and landowners. He did try to reduce the deforestation that was eating away at the Amazon and other parts of the country, but that trend reversed after 2012.

Meanwhile, police brutality has reached epidemic proportions. In 2013, police in the US killed about 768 people (and 1,100 in 2014). In Brazil, with two-thirds the population, the police killed over 2,000 people in 2013. Extra-judicial killings escalated during the lead-up to the World Cup, as the military police and affiliated death squads tried to “clean up” the slums surrounding the stadiums.

As in the US, people of African descent face a much greater chance of dying in Brazil—at the hands of police or in homicides—than white people. This summer, a version of the Black Lives Matter movement, called React or Die, began to gather steam in Brazil. It was about time. For a country that was the last in the Americas to give up slavery, that imported ten times more slaves from Africa than the US did, and where Afro-Brazilians make up more than half the population, Brazil has long been in denial about its structural racism.

There Will Be Corruption

It’s a safe bet that where there’s oil, there’s corruption. Even in Norway, which generally gets reasonably high marks from Transparency International, the country’s oil company Statoil has been embroiled in a corruption scandal around its dealings in Angola.

Brazil’s government-controlled energy company, Petrobras, is involved in a set of scandals of much greater magnitude and impact. The company, beginning in 2004, orchestrated a series of kickbacks in which contractors colluded in overcharging for services and then shared the proceeds in the form of, essentially, bribes. A handful of Petrobras employees enjoyed huge windfalls, as did a cadre of officials from the ruling Workers’ Party.

The estimated size of the corruption: $3 billion. In comparison, the much more widely publicized corruption in FIFA, the international football federation, has reached only around $150 million.

Petrobras’ self-inflicted wound coincides with a significant drop in world oil prices. Since the company represents an astonishing 10% of Brazil’s gross domestic product (GDP), the fact that it lost half its value in the last year has had a disproportionate effect on the country’s economy.

Unlike many oil-exporting countries, Brazil isn’t dependent entirely on the market for crude. It has a rather diverse portfolio of goods that it sells to other countries—from soybeans to iron ore. But it did develop a dependence on one country to buy those goods: China. Between 2000 and 2013, Brazilian exports to China rose from $2 billion to $83 billion, and more than half of all exports began to flow to that country. A drop in commodity prices in the spring followed by Beijing’s devaluation of the yuan—which made Brazil’s exports more expensive—was a devastating one-two punch.

Widespread violence, structural racism, endemic corruption and a set of external economic shocks have all contributed to Brazil’s fall from grace. Can the country recover from such a public embarrassment?

Lula’s Legacy

When asked about Brazil’s current travails, former President Lula remarked that “the poor helped save Brazil. And today I say that to take care of the poor is the solution.”

The Bolsa Familia will likely continue, since it enjoys broad political support. It’s not just a handout. Payments to mothers are contingent on children going to school, getting proper meals and receiving adequate health care. It’s an early-intervention program that works.

But the larger legacy of Lula remains at risk: For instance, the nature of the state’s involvement in the economy. Ideally, the state can play an important role in stimulating the economy, putting resources into such sectors as sustainable energy, and providing a measure of stability to counteract market volatility. But that assumes a “clean” state. The Bolsa Familia has been a critically important program, but what’s the point of redistributing wealth to the poor while at the same time redistributing wealth to the wealthy through corrupt practices?

And what’s the Brazilian state currently planning to do to pull the country out of recession? The Rousseff administration would like to reintroduce the financial transactions tax that was rescinded in 2007, but that proposal faces stiff resistance in the legislature. So instead, the government is looking into legalized gambling, a recipe for more corruption and impoverishment of the populace.

Even an uncorrupt state invested in oil and gas is likely to make policy decisions slanted toward Big Energy. If the state has a vested interest in fossil fuel companies, like Petrobras, it may be less willing to forgo profits by putting more investment in renewable energy sources. Indeed, despite an impressive record of expanding electricity use without acquiring the carbon footprint of comparable countries its size, Brazil has also witnessed a decline in the proportion of renewables in its energy portfolio. Oil and natural gas are powerful drugs, and the Brazilian state is hooked on them.

Finally, the BRICS model, including a new BRICS bank, sounds like something new and different. But in reality, the BRICS basically just want to change the nameplates on the existing international financial system. This isn’t South-South cooperation as imagined in the New International Economic Order of the 1970s—an envisioned restructuring of the global economy for the benefit of the South as a whole rather than just a few leading players. When push came to shove, Brazil under Lula engaged in the same ruthless scramble for resources in Africa that the US, China and other powers have engaged in for years.

It’s not too late, of course, for Brazil to make a major, mid-course correction. The Petrobras scandal is already prompting a major anti-corruption drive. China’s economic slowdown is pushing the country to seek a more diverse set of trading partners. And in response to the omnipresent violence in society, various civic initiatives are addressing the nexus of police, gangs, and poverty. Still unknown is whether Brazil can pull this altogether as a credible development alternative, which can then perhaps influence the trajectory of the BRICS.

A poor performance in front of a global audience can have long-term psychological impact. But fortunately, in life as in sports, countries get second chances. Brazil has all the right ingredients to be a world-class performer. It just has to clean house first and come up with a different strategy.

This article was originally published by Fair Observer and FPIF.

About the Author

The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.