Brazil v South Africa: what can the BRICS tell us about overcoming inequality?

The blog’s inequality week here in South Africa continues with some thoughts on inequality and the BRICS. An edited version of this post appeared earlier this week on the FT’s Beyond BRICS blog

The acronym may have been cooked up in far-off New York, but the BRICS grouping of countries is starting to generate some interesting life of its own. Last week, I was in Durban, chairing a discussion between academics and activists from South Africa and Brazil ahead of the BRICS summit later this month. The topic? ‘Tackling inequality across BRICS’.

The starting point was Brazilian exceptionalism. Long held up as exhibit A in Latin America’s gross distortions of wealth, Brazil is now the only BRIC where inequality is falling (and fast – see chart). In the wider G20 group of leading economies, only 4 can boast falling inequality levels; three of them – Brazil, Argentina and Mexico – are Latin American.

The stats, captured in a new Oxfam briefing, published in conjunction with Rio’s BRICS Policy Center, are striking. Over the last decade, the incomes of the poorest Brazilians have risen more than five times faster than those of the richest (but both are rising – no zero sum games here). In the words of Brazilian poverty guru Ricardo Paes de Barros, “the incomes of individuals in the lowest decile of the income distribution is growing at Chinese rates, while the income of the richest decile grows at German rates”.

Even though GDP growth is sluggish, two weeks ago President Dilma Rousseff was able to announce the end of ‘registered extreme poverty’ – note her careful choice of words. Some Brazilian academics put this historic turnaround on a par with the New Deal in the US, or Britain’s post war creation of its welfare state.

The fine grain is just as encouraging: women’s incomes are rising faster than men’s; black people’s faster than whites’; the impoverished North-east faster than the rich South-east. Hunger is ‘largely dealt with’ according to Oxfam’s country director Simon Ticehurst, speaking in Durban, although food insecurity continues to plague communities in the northeast of Brazil. Near full employment is transforming lives, as people move from a day to day scrabble for survival into the better paid, more stable world of the formal economy. Brazil’s middle classes complain bitterly about having to pay more for maids, and even give them days off, as labour markets tighten.

Not that Brazil has become some kind of development nirvana: the quality of state education remains poor, large scale agriculture sucks up state subsidies on a far greater scale than those going to poor farmers; and despite the progress, the country is still in the world’s top 15 most unequal countries, twice as unequal as the OECD average.

Caveats aside, how did Brazil pull this off? Ticehurst and Adriana Erthal Abdenur of the BRICS Policy Center both stressed that such a transformation is complex and multi-tiered, involving all parts of state and society. This is most definitely not a magic bullet story of Brazil’s famous ‘Bolsa Familia’ social protection system, a programme of cash transfers to women in return for getting their kids vaccinated and keeping them in school, which has won admirers and imitators as far afield as New York City. UNDP estimates that such spending programmes account for under a fifth of the fall in inequality. Ticehurst argued that other critical factors include:

-          The transition from military rule to democracy, which bequeathed a constitution and political process attuned to the importance of basic rights, such as the right to food

-          The election of a centre-left government, led by Lula, committed to tackling poverty and inequality

-          Major increases in the minimum wage, the introduction of a universal pension (particularly important in deprived rural households)

-          An integrated and more effective public administration, working tightly across ministries and between the different levels of a federal, decentralized political system.

-          A high level of public participation, for example in holding 19 different ministries to account on Brazil’s ‘zero hunger’ effort to achieve universal access to food, through a virtuous circle of linking poor family farms to government procurement for school feeding programmes that in turn feed poor children.

-          Political and economic stability throughout the period of reforms.

In terms of economy and politics, Brazil is probably closer to South Africa than the other BRICS (commodity producer, democracy, transition from autocracy, centre left government) and the discussion inevitably centred on why South Africa has failed to emulate such successes. While there has been substantial progress since the end of Apartheid on access to health, education and housing, inequality remains obstinately high and rising.

The two elements of Brazil’s success that South Africa seems to be missing (by a mile) are full employment and more competent administration. Patronage and corruption exist in both countries, but their extent in South Africa is undermining the state’s ability to implement policies, however well designed. Brazil, with its more diversified economy and public investments, seems able to generate jobs in a way that remains a distant dream in South Africa, which remains dependent on agribusiness and mining, neither of which generate the employment the country needs. Substantial land redistribution seems essential to tackling the jobs crisis, yet has been systematically postponed by the government in the interests of stability. Even those who manage to navigate the dilapidated education system and emerge with a degree still find it difficult to find jobs. Alarm bells are ringing, with observers warning of anything from a slow meltdown of the ANC government to an Arab Spring style uprising led by educated, jobless youth.

While all sides stressed that merely trying to transfer policies from one country to another seldom works, this kind of South-South exchange holds huge potential for helping the BRICS develop their own solutions to some of the problems such as inequality that continue to plague the old guard of the G8.

And here’s a 25m video summary of the Durban event

Is food the new oil? Fertiliser wars and Brazil as food superpower

In the Financial Times, Javier Blas gives us the back-story to the attempt by the world’s largest mining company, BHP Billiton, to buy its largest fertiliser company, PotashCorp. Suddenly fertiliser is big business: in the first eight months of the year, deals valued at $61bn have been announced by companies in the industry, a high that more than doubles the peak hit in 2008.

Why? “Countries are starting to see potash much as they see crude oil: as a hunted, strategic commodity. But, as with oil, potash deposits are not evenly spread. A handful of nations – led by Canada, Russia, Belarus and Israel – command the bulk of the reserves. Eight companies control more than 80 per cent of global supply. Two marketing groups – Canpotex for North American producers and BPC for the Russian and Belarusian groups – dominate the global trade.”

And just as with oil, China is getting worried: “[It] has to import about half of its needs, a dependency that “may become a major threat to China’s fast-developing national economy and long-term strategic needs”, according to the Chinese Academy of Social Sciences, a think-tank that advises the government. Little surprise, then, that its primary importer of the mineral, Sinochem, says it is paying “close attention” to the PotashCorp battle, suggesting the group could launch a counterbid.”

And Blas thinks this is just the start. “The bid for PotashCorp is a litmus test for how companies – and nations – view the prospect of a world with tighter food supplies. In the past century, anguish over who will feed the world has always been answered with breakthroughs that have more than compensated for growing populations. But if a Chinese state-owned company should plant its flag on the potash industry, it could indicate the introduction of a more cut-throat edge to the geopolitics of agriculture.”

Meanwhile, this week’s Economist focuses on the transformation of Brazil into the world’s first tropical food giant (see chart), without deforesting the Amazon (the action has been 1,000km away from the rainforest). It’s all down to the transformation of the cerrado, the Brazilian savannah, from scrubland to breadbasket.

How? Embrapa, the Brazilian Agricultural Research Corporation, set up in 1973. Embrapa shows what publicly-funded R&D can achieve, transforming the cerrado’s acidic soils by mass application of lime, importing and adapting African grasses to make cattle ranching feasible, developing nitrogen-fixing bacteria suitable for cerrado soils and most important of all, turning soyabeans into a tropical crop through ‘old-fashioned crossbreeding’, and now GM. It has also pioneered ‘no-till’ agriculture, in which the soil is not ploughed and so retains its nutrients (and its carbon): in 1990 Brazilian farmers used no-till farming for 2.6% of their grains; today it is over 50%.

‘Can the miracle of the cerrado be exported, especially to Africa?’, asks the magazine? Here’s its answer: ‘Brazil’s agricultural miracle did not happen through a simple technological fix. No magic bullet accounts for it—not even the tropical soyabean, which comes closest. Rather, Embrapa’s was a “system approach”, as its scientists call it: all the interventions worked together. Systems are much harder to export than a simple fix. “We went to the US and brought back the whole package [of cutting-edge agriculture in the 1970s],” says Dr Crestana. “That didn’t work and it took us 30 years to create our own. Perhaps Africans will come to Brazil and take back the package from us. Africa is changing. Perhaps it won’t take them so long. We’ll see.”’

What’s missing from these two articles on food? The people who grow it. The Economist dismisses Brazil’s millions of small scale farmers as ‘hobby farmers’, incapable of improving yields or playing a useful role. But countries like Vietnam have shown that given the right support, small farmers are perfectly capable of driving agricultural take-offs. Small farmers also constitute many of the world’s poorest communities. Will they benefit or lose as food becomes the new oil?

Brazil’s boom; Africa’s pentecostals; food fears and more reasons to invest in health: highlights from this week’s Economist

Another bumper issue of the Economist this week. Here are some snapshots from my four favourite articles:

Politics: A three page feature on Brazil, as its election campaign kicks off today. Constitutional term limits means that Lula is stepping down, despite 75% approval ratings (amazing, after eight years in office), but the country’s success means his chosen successor, Dilma Rousseff, is ahead in the polls:

“The statistics of social progress in Brazil are remarkable. The number of people living in poverty has fallen by 20m under Lula, from 49.5m (or 28.5% of the total) in 2003 to 29m (16% of the total) in 2008. Although the world recession and its brief impact in Brazil temporarily halted the progress, it did not reverse it. The number of Brazilians too poor to feed themselves properly has fallen from 17% of the population in 2003 to 8.8% in 2008.

At the same time Brazil’s notoriously unequal distribution of income is becoming a bit less so (see chart). The Gini coefficient, a standard statistical measure of inequality, has fallen steadily since 2001 (though it remains very high by international standards). Over that period the income of the poorest 10% of the population has grown at 8% a year, while that of the richest tenth has grown at only 1.5% a year.

In various ways Brazil is starting to become a more homogeneous society. Regional inequality has been diminishing, too: average income in the poor north-east has been growing faster than the national average. A majority of Brazilians (some 52%, up from 44% in 2002) now belong to what marketers call social class C, or the lower-middle class, meaning that they have a monthly household income of between 1,064 and 4,561 reais.

This progress stems from a mixture of faster economic growth and government policies. Though there is debate about the details, around half of the fall in poverty comes from higher income from employment. Better social policy accounts for a big share of the fall in inequality—or at least of the narrowing of the bottom of the pyramid. Bolsa Família has been particularly effective in helping the poorest.”

Of course, it remains to be seen whether evan all that is enough to counter the gloom after Brazil’s premature ejection from the World Cup……

Faiths and Development: The rise of the Pentecostal Protestant churches in Africa is transforming society and politics in the region, and not always in good ways. The new churches campaign against corruption, but also exhibit an alarming degree of homophobia.

“About 17m Africans described themselves as born-again Christians in 1970. Today the figure has soared to more than 400m, which accounts for over a third of Africa’s population. And they are now having a noticeable effect on public-policy debates in East Africa. Regardless of the outcome of the vote on the constitution in Kenya, for example, their interventions are likely to make abortion a defining political issue in the country. Similarly, the efforts of new churches in neighbouring Uganda have made political controversies out of homosexuality and the right of Muslims to convert to Christianity.”

Science and Tech: The return of wheat rust threatens catastrophe for one of the world’s major food crops.

“It is sometimes called the “polio of agriculture”: a terrifying but almost forgotten disease. Wheat rust is not just back after a 50-year absence, but spreading in new and scary forms. In some ways it is worse than child-crippling polio, still lingering in parts of Nigeria. Wheat rust has spread silently and speedily by 5,000 miles in a decade. It is now camped at the gates of one of the world’s breadbaskets, Punjab. In June scientists announced the discovery of two new strains in South Africa, the most important food producer yet infected.”

Researchers are scrambling to respond, but face huge obstacles compared to the last time, when Green Revolution spread seeds that were both higher yield and contained a gene that combatted wheat rust (the new rust attack has found a way round the gene):

“The high-yield seeds of the Green Revolution were not only developed but often marketed by state-financed agricultural institutions. In many poor African countries such institutions barely exist, whereas in wealthier ones spending on them has fallen over the years. Worst of all, farmers in earlier generations had a big incentive to get their hands on high-yielding seeds. Now, the vast majority have no experience of wheat rust. They may therefore see no reason for sowing rust-resistant seeds when they first appear—until the disease destroys their harvest. By then it will be too late.”

Health:  Diarrhoea and malaria, in particular, not only kill, but do life-long damage to cognitive skills. The result?

“The control of such diseases is crucial to a country’s development in a way that had not been appreciated before. Places that harbour a lot of parasites and pathogens not only suffer the debilitating effects of disease on their workforces, but also have their human capital eroded, child by child, from birth.”

Crunch the numbers, and there is a clear correlation between disease burden and average IQ (see graph). New research turns a controversial, quasi-racist story (’countries are poor because their people are less intelligent’) on its head:

“As countries conquer disease, the intelligence of their citizens rises. It is called the Flynn effect after James Flynn, who discovered it. Its cause, however, has been mysterious—until now. The near-abolition of serious infections in these countries, by vaccination, clean water and proper sewerage, may explain much if not all of the Flynn effect……

It is lack of development, and the many health problems this brings, which explains the difference in levels of intelligence. No doubt, in a vicious circle, those differences help keep poor countries poor. But the new theory offers a way to break the circle.”

Successful Green Industrial Policy – Brazilian biofuels

The highly polarized debate on the role of industrial policy in development is dominated by discussions of the East Asian tigers, so good to see a discussion from another continent on what makes for successful state intervention – Brazil and biofuels. Here’s the highlights from a recent article by Tarun Khanna of the Harvard Business School and Santiago Mingo of the University of Miami School of Business Administration:

“Brazil’s experience at promoting renewable fuels, beginning in the 1970’s, is directly relevant to today’s polarized views of industrial policy. A 10-year industrial policy program called Pro-álcool was crucial in the development of the industry. Today, Brazil is the world’s most competitive producer of renewable fuels, based primarily on bioethanol. Ethanol accounts for more than 50% of current light-vehicle fuel demand in the country, and Petrobras – Brazil’s energy giant and one of the largest companies in Latin America – expects this share to increase to more than 80% by 2020.

Our research shows that industrial policy was successful in promoting a competitive bioethanol industry in Brazil. A massive stimulus package, prompted by the 1970’s rise in oil prices, gave rise to an entirely new industry. But it would not have worked without the crucial role played by competition.

Brazil was attempting to become energy self-sufficient in a manner similar to modern efforts by other countries. But, as opponents of industrial policy are right to remind us, freebies never lead to a good outcome. The aftermath was the key. As world energy prices collapsed, Brazil fortuitously turned off its subsidy tap, whereupon a brutal Darwinian free-for-all ensued. This competitive rationalization was the key to the policy’s success.

The government did not bail out the underperformers, allowing market forces to restructure the industry during the post-subsidy phase. Certainly, the beneficiaries of Pro-álcool’s subsidies lobbied the state to continue the protective policies even after their usefulness – inducing the development of the industry – had expired. Fortunately, the government was not persuaded.

Brazil’s experience offers three important lessons for nations implementing renewable energy initiatives: (1) government policies must be consistent, simple, and long-lasting, providing assurance to would-be entrepreneurs that they can invest for the long haul; (2) picking winners, the familiar weakness of overenthusiastic bureaucrats, must be kept to a minimum; and (3) the state must have the discipline to dismantle subsidies when the need for them has passed.”

And sugar-based ethanol is also much better at reducing carbon emissions than the corn-based stuff being churned out in the US and elsewhere.

For a somewhat less green energy/industrial policy check out this recent Economist piece on China’s electricity boom.

What can the BRICS teach us about reducing poverty?

An excellent new paper from the prolific Martin Ravallion, head of the World Bank’s research department, compares the successes in poverty reduction in three of the biggest beasts of the developing world: China, India and Brazil.

Between them, these countries are home to a bit less than half the world’s poor people, but it used to be a lot more. Each has combined market-oriented reforms with different kinds of social policy, producing different combinations of growth, inequality and poverty reduction that hold lessons for each other, and for other developing countries seeking their own paths out of poverty. Some highlights:

‘Brazil, China and India have seen falling poverty in their reform periods, but to varying degrees and for different reasons. History left China with favorable initial conditions for rapid poverty reduction through market-led economic growth; at the outset of the reform process there were ample distortions to remove and relatively low inequality in access to the opportunities so created, though inequality has risen markedly since.

By concentrating such opportunities in the hands of the better off, prior inequalities in various dimensions handicapped poverty reduction in both Brazil and India. Brazil’s recent success in complementing market-oriented reforms with progressive social policies has helped it achieve more rapid poverty reduction than India, although Brazil has been less successful in terms of economic growth.

In the wake of its steep rise in inequality, China might learn from Brazil’s success with such policies. India needs to do more to assure that poor people are able to participate in both the country’s growth process and its social policies; here there are lessons from both China and Brazil. All three countries have learned how important macroeconomic stability is to poverty reduction.’

Similarly this week’s Economist has an excellent 14 page special report on Brazil:

‘The country is enjoying probably its best moment since a group of Portuguese sailors (looking for India) washed up on its shores in 1500. Brazil has been democratic before, it has had economic growth before and it has had low inflation before. But it has never before sustained all three at the same time. If current trends hold (which is a big if), Brazil, with a population of 192m and growing fast, could be one of the world’s five biggest economies by the middle of this century, along with China, America, India and Japan.’

And long before then, if it continues on its current path, it will have become less unequal than the US (see graph). See here for previous blog on Brazil’s achievements on inequality.

Brazil is top of the world on an environmental issue – recycling

I’m mugging up on green jobs as part of the research for a forthcoming paper on the need for a ‘global green new deal’ and came across this great and (to me) unexpected example from Brazil. It’s drawn from UNEP’s ‘Green Jobs’ paper.

Brazil is the global leader in aluminium can recycling — some 10.3 billion cans were collected in Brazil in 2006. This saves the country enough electricity to supply a city of over 1 million inhabitants for one year. Aluminium can recycling also provides jjobs for close to 170,000 people in Brazil. Read More …