Brazil faces two very different economic models in Bolsonaro and Haddad

Brazil faces two very different economic models in Bolsonaro and Haddad

Brazil’s far-right candidate, Jair Bolsonaro, has won the first round of the country’s recent presidential elections. The former military captain won 46% of the vote, making him the favourite to become Brazil’s next president when the second round of voting takes place on October 28. He is up against Fernando Haddad of the Workers’ Party (PT), which was in power from 2003-16, but has been mired in high-profile corruption scandals.

The rise of Bolsonaro marks an extreme shift for Brazilian politics. A great deal of focus has been on his controversial anti-establishment rhetoric and monstrous opinions. As well as having potentially dangerous politics, a Bolsonaro presidency would mark a significant shift for Brazil’s economy, too.

Much of Brazil’s recent history has been marked by a state-led economic strategy known as social-developmentalism. This is, broadly-speaking, Haddad and the PT’s approach. It is focused on the potential of Brazil’s internal market, demand for natural resources, and developing internal demand through investment in infrastructure.

Mixed results

It cannot be said that the 13 years of PT government followed strict social-developmentalist rules. But it gave great importance to both public investment (federal investment grew by around 10.6% per year) and internal demand (via income distribution and raising the real minimum wage, which grew almost 5% per year). It was a period of relative steady growth (3.3% per year) and decreasing poverty.

But stability collapsed in no small part thanks to a plummet in global commodity prices in 2011, which hurt Brazilian exports. And this was coupled with the high-profile investigation into systemic cases of government corruption. Much of it involved political bribery run by construction companies, the same ones that were a key part of PT’s economic strategy.

Presidential candidate for the Worker’s Party (PT), Fernando Haddad. EPA-EFE/Sebastião Moreira

Without the international growing demand for Brazilian natural resources and a limited investment in infrastructure, the PT’s social-developmentalist strategy collapsed. The economy followed closely and in 2015-16 Brazil’s GDP declined by 7%. The failure of public services was made evident by the numerous problems with putting on the 2014 football World Cup and the 2016 Olympic Games.

This all helped to create an atmosphere of discontentment, which was channelled to PT’s last president, Dilma Rousseff. Bolsonaro has been extremely skilled in attacking PT and putting himself forward as the solution to Brazil’s woes. But rather than investing in public infrastructure projects, it is likely that he will open the country up to privatisation and there is no guarantee it will help the majority of people.

Extreme economic liberalism

Bolsonaro seems to favour a much more neoliberal approach to running the Brazilian economy. There is scant detail of his economic plans in his manifesto (a requirement of presidential candidates in Brazil). In fact, Bolsonaro has confessed to being ignorant of economic matters.

Instead, he has deferred to the economist Paulo Guedes, who is now under investigation for fraud in businesses with state pension funds. He is a graduate of the Chicago school, which is renowned for emphasising the power of the free market.

Guedes’ interviews suggest that he embraces an extreme degree of liberalism never seen before in Brazil. This includes maintaining and reinforcing the extensive cuts in public spending promoted by current president Michel Temer, privatisation of all state-owned companies and an unfair, non-progressive taxation scheme where almost everyone would pay the same level of tax – even though the bottom 10% spend a third of their income in tax while the top 10% spend only a fifth.

Bolsonaro’s combination of social conservatism with extreme economic liberalism has even made it to the front page of the pro-free market Economist newspaper, which characterised Bolsonaro as a populist menace to Latin America.

While I have my reservations over the social-developmentalist approach, it is irrefutable that it has managed to combine economic growth and stability, while reducing poverty. This was, however, in the context of favourable commodity prices.

But the competing strategy espoused by Bolsonaro seems to focus solely on a type of economic growth that does not necessarily mean socioeconomic development. The 1970s Chilean model of economic growth, which Guedes has praised, contributed to increasing social inequality there. This is a pivotal issue for Brazil, which must be addressed by the next government’s economic strategy: the six richest Brazilians own as much as the poorest 100m.

If addressing Brazil’s great economic recession, rising crime and a 12% unemployment rate does not sound complicated enough, the country also needs a plan for rebuilding social cohesion. Recent years have left Brazil polarised. Respectful and democratic debates have been few and far between – from family WhatsApp groups to the higher judicial bodies. Bolsonaro seems to be taking advantage of this polarisation (the latest poll gave him 49% compared to Haddad’s 36%). This leaves Haddad with a serious challenge ahead of polling day on October 28.