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Business News/ Opinion / Online-views/  A Latin American success story

A Latin American success story

There's much to be learnt from Brazil's efforts at reducing inequality and cash transfers are just a small part of it

While the Brazilian success story on poverty and inequality reduction is remarkable, it is unfortunate that a large part of it is ignored. Photo: ReutersPremium
While the Brazilian success story on poverty and inequality reduction is remarkable, it is unfortunate that a large part of it is ignored. Photo: Reuters

If there is one example of cash transfers that its champions ought to study, it surely has to be the Brazilian case. Much credit has gone to the Brazilian conditional cash transfer (CCT) Bolsa Familia in reducing poverty and inequality in that country. And rightly so. But what the proponents of cash transfer have chosen to ignore is that CCTs are only a small and rather insignificant part of Brazil’s success.

Brazil’s story began in the 1990s. Before that the country experienced a severe crisis, including inflation of 2,500% in 1993. Even in terms of growth rate, its performance was mild: 3.8% during 1993-97, 1.6% during 1998-03 and only 4.4% between 2004 and 2010, the best since the 1970s. India, in contrast, seems to belong to a different universe. It has witnessed an average growth of 6% since the 1980s and 8.4% between 2004 and 2009.

Even with its sluggish growth in the last decade, Brazil has managed to bring down income inequality substantially. It had a high Gini Coefficient of 0.594 in 2001 that was brought down to 0.539 by 2009. Inequality in India—measured on the basis of consumption—increased from 0.263 in 1999-2000 to 0.288 in 2009-10 in rural areas and from 0.347 in 1999-2000 to 0.383 in 2009-10 in urban areas. That is, while inequality declined by roughly 9% in Brazil in the last decade, it increased by almost 10% in India. Even the progress in poverty reduction has been much better in Brazil than in India.

One big reason for the spectacular performance of Brazil has been due to its investment in social security and labour market reforms. The latter aspect is, however, largely ignored in most discussions. It is also worth mentioning that the Brazilian economy created 2.4 million formal jobs during 1999-03, 5.1 million during 2003-07 and 8.7 million between 2007 and 2011. As against this, the total employment created in India between 2004 and 2009 was a paltry million jobs and those too largely in the informal sector.

The other striking feature of the Brazilian economy is that even with a low growth rate, Brazil’s tax-to-gross domestic product (GDP) ratio is 35%, while India with much higher rates of growth barely manages to garner 15% of its output as taxes. Even better, Brazil spends 50% of taxes collected on social security. India hardly spends 25% and even that number is considered extreme by neo-liberal ideologues and their apologists. Brazil spends 3.8% of GDP on education; India is yet to touch the 3% mark. This is in spite of the fact that Brazil is already fully literate and the mean number of years of education for every citizen in Brazil is almost double that of India.

A large part of Brazilian social security expenditure—11% of GDP—is incurred on social security and pensions. This is primarily a social security cover for workers, providing them with minimum wages that are generally above the poverty line. This minimum wage payment is guaranteed by the constitution and is adjusted every year to take into account GDP growth and inflation. Between 1995 and 2011, the real minimum wage in Brazil increased by three times; in India it did not even double in real terms during the same period.

Brazil has provided near universal healthcare to its citizens. In urban areas, the private sector also shoulders some responsibility for this. In rural areas, where it is non-contributory, the government pays for it. It also pays minimum wages to those who are disabled and the old, similar to India’s disability and old-age pension. However, unlike India, where the disability and old-age pensions are equal to less than 10% of monthly wages, Brazilian transfers are pegged to monthly minimum wages. In 2009, more than 90% of the old-age and disabled population in Brazil received these benefits, making it almost universal. These citizens account for nearly 12% of the Brazilian population. This is less than 4% of the population in India. Yet the contrasts are striking.

Finally, the last component of Brazilian social security apparatus is the much talked-about cash transfers. The famous CCT of Bolsa Familia accounts for 12 million households and only 0.4% of GDP. This is less than 3% of all social sector expenditure of Brazil. In fact, this is even lower than the other cash transfer programme called Benefício de Prestação Continuada (BPC–continuous cash benefit). This is unconditional cash transfer given to very poor families and accounts for 0.55% of GDP.

In fact, the Brazilian cash transfer is an attempt to ensure participation of the poor in accessing public services. This was never seen as a substitute for the actual provision of services. This is despite the fact that the level of hunger, illiteracy and morbidity in Brazil is much lower than in India.

While the Brazilian success story on poverty and inequality reduction is remarkable, it is unfortunate that a large part of it is ignored. While the cash transfers are certainly helpful for the poorest of the poor, including the unconditional ones, these are but a tiny part of its overall social sector transformation. The larger story of labour market restructuring, including the creation of formal jobs, social security benefits, minimum wages, universal healthcare, universal education are ignored, often deliberately. If there is one lesson to be learnt from Brazil, it is the fact that growth rates don’t matter if there is political will to help the poor and underprivileged.

Himanshu is an assistant professor at Jawaharlal Nehru University and visiting fellow at Centre de Sciences Humaines, New Delhi.

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Published: 03 Jan 2013, 07:16 PM IST
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