A tale of two Brazils: What COVID-19 has made explicit

by Roberto A.Z. Borghi

Favela
PHOTO:

Favéla do Prazères, Rio de Janeiro. dany13 via Flickr

The widespread consequences of COVID-19 around the world have challenged many shared principles among politicians, policymakers, mainstream economists and the media. One such principle is that of fiscal constraint. The crisis has also demonstrated that low investment in healthcare and science, together with huge income disparities across the world, pose a great risk to the way economies and societies have been operating.

If this can be seen clearly in more organised societies and higher-income economies, such as European countries, the risks are potentially far greater for the developing world. Not by chance, the World Health Organisation is concerned about the great famine that the economic recession provoked by COVID-19 may cause in poor regions, if governments take no action to rein in the economic downturn.

To step in is now recognised as a key governmental responsibility. Just a few months ago, however, many austerity programmes were in place around the world. In Brazil, the government narrative promoted by Minister of Economy, Paulo Guedes, has been that the economy was growing until it was hit severely by the external shock. However, according to the Brazilian Institute of Geography and Statistics, the country was, in fact, experiencing a timid recovery from the 2015–16 crisis that resulted in the big -3.5% and -3.3% drop in GDP annual growth. The economy grew by only 1.3% in the following two years and 1.1% last year, alongside a cap on government expenditure and highly controversial economic reforms. By the end of 2019, 11.6 million people were unemployed and around 41% of the workforce had only informal jobs.

COVID-19 has had dramatic effects on Brazil. While the pronouncements of President Jair Bolsonaro continue to underestimate the actual consequences of the virus and the need for immediate action to control it, the number of cases and deaths have both surpassed those registered in China. The situation may rapidly worsen, given that Brazil is still at the beginning of the contagion and the health system in some regions of the country has already reached full capacity.

The economy is also suffering. According to World Bank estimates, the Brazilian economy may shrink by 5% this year. In the face of the current crisis, the federal government has declared a state of public calamity, which releases it from meeting the fiscal primary balance target for this year. Meanwhile, a ‘war budget’ constitutional amendment is under consideration by the Congress in order to allow higher, extraordinary expenditures. Some measures have been adopted in the meantime, including, for example, emergency assistance of  R$600 (around 120 USD) per month for unemployed, informal and self-employed low-income workers. Over 45 million people have already applied for the benefit. Many of them were not registered on the government’s data system, revealing both the large number of vulnerable people even before the COVID-19 crisis and the government’s unawareness of the actual degree of poverty in Brazilian society. The lack of planning has caused several days of long queues at banks to make cash withdrawals at a time when crowds need to be avoided.

It should not be admissible that, once the COVID-19 crisis has passed, we simply return to our lives in a society marked by vast inequalities

Brazil is known worldwide for its high level of income inequality. According to data from the United Nations Development Programme, the richest 10% possess 41.9% of the national income, while the share of the poorest 40% of the population is only 10.6%. If we think of this in terms of people who can afford to order food at home and those people who make these express food deliveries by motorcycle, one could say that at least the latter have a job. However, we know how precarious and temporary this job is. With such poor working conditions, the narrative of a prospering economy is fallacious.

The list of existing and now explicit problems is long, revealing different dimensions of the abyss of Brazilian society. Take, for example, the effects of suspended classes in public elementary schools, where the majority of students have their main meal of the day. According to the Brazilian National Fund for Educational Development, over 40 million students take daily meals in the public educational system. Therefore, now they are at home, there should be a way to provide them with adequate nutrition, in addition to content for their studies.

Although Brazil has a universal public health system, guaranteed by the 1988 Federal Constitution, investments in public healthcare have been reducing in recent years. From 2017 to 2019, the public health budget was cut by more than R$20 billion (around 4 billion USD) in accordance with the dominant view that governments should step back from several economic and social areas. Scientists in general and students pursuing postgraduate degrees have also been suffering from cuts in scholarships and other research support.

There are four strategies that could be pursued together to fight inequality in Brazil: (i) introducing more progressive taxes on income and wealth; (ii) expanding conditional cash-transfer programmes; (iii) increasing formal employment, which entails a reversal of the de-industrialisation process in the country; (iv) improving long-term investments in education. More than ever, these areas call for special attention. Otherwise, it is likely we will see the return of austerity programmes, as advocated by some of the government’s economic advisors.

It should not be admissible that, once the COVID-19 crisis has passed – and even that is still a long way ahead – we simply return to our lives in a society marked by vast inequalities and the continued lack of government commitment to address them. Politicians, policymakers, economists and the media all have the opportunity to make this crisis a turning point, as we can no longer remain indifferent to the problems of the society we are living in.

About the author

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Roberto A.Z. Borghi is Professor of Economics at the University of Campinas (UNICAMP), Brazil. He is also a researcher at the Centre for Studies on International Economic Relations (CERI) and the Centre of Industrial and Technology Economics (NEIT), both at UNICAMP. He has published several papers and book chapters on the Brazilian economy, the Chinese economy and macroeconomics. @Rob_Borghi

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