Deja vu in Brazil (and the rest of Latin America)?

Last week my colleague Tim Power organised a great conference on Brazil at the Latin American Centre. There was a rather pessimistic discussion of Brazil's political and economic problems, but a recognition that the anti-corruption agenda was going in the right direction.

Something left me a little uneasy: the claim that Brazil's (and by extension Latin America's) economic management has been disastrous in recent years and that the country and the region suffer from exactly the same problems than twenty or thirty years ago.  Don't take me wrong: together with my coauthor Juliana Martinez Franzoni, I have been rather critical of the lack of policies in favour of structural change in Latin America (see, for example, this article).  Yet we can not simply assume that Brazil's problems are the same as in the past (and do a "cut and paste" from our analysis of other recessions) and fail to study what has changed.  A few things that we should consider and explore with more detail:

a. The formalisation of employment increased significantly: has this expanded protection for workers in times of crisis?  Could this have a positive effect on aggregate demand in the medium run?

b. The creation of new social programs that could, potentially, protect workers from the crisis: Bolsa Familia is the best well known one.  I realise that most of these programs have been recently cut in real terms... but are still important when comparing Brazil today with Brazil in the last two recessions.

c. Industrial policy: was Brazil's recent industrial policy really very interventionist? Did the role of the state really expanded that much? Didn't the policy try to promote new high tech activities? How much do we know about what was attempted and how successful it was?  We know that policies in some areas like intellectual property rights (see some of the recent work of my friend Ken Shadlen) were actually quite good. We must find ways to evaluate some of these policies independently of their impact on the very short run. Are they promoting structural change? Are the inefficiency costs too high?

d. Macroeconomic policy: I find the analysis in this area particularly frustrating.  As they figure below (that comes from this webpage) shows, Brazil's effort to reduce the external debt was impressive. The recent increases have more to do with the crisis itself that with poor macroeconomic management. Nevertheless, observers talk about Brazil as if were were in the 1970s... does that make any sense?

Of course, Brazil has plenty of economic problems and resolving them will take time.  The 2000s were a lost opportunity in several areas and development policy could have been more ambitious.  Inflation could accelerate in the future if the government is not careful (even if it is now rather sustainable and not the primary concern).  Yet simply arguing that the country faces some long term problems and that the same structural reforms than twenty years ago are required is unsatisfactory and not really useful.

Los problemas del sistema de salud costarricense

La Caja Costarricense del Seguro Social fue durante décadas el soporte de uno de los sistemas de salud más inclusivos no sólo de América Latina sino de todo el mundo en desarrollo. Sin embargo, lleva años con problemas derivados de distintas reformas equivocadas... pero también de la negligencia de actores internos que se han aprovechado de ella para su propio beneficio.  Mi colega, coautora y amiga Juliana Martínez Franzoni explica con enorme claridad y contundencia este problema en la siguiente entrevista televisiva.

Se trata de un caso significativo para entender mejor cómo nacen los problemas del Estado y cómo estos tienen muchas veces nombres y apellidos.  Por desgracia, la falta de respuestas en este momento muestran también la debilidad de la administración de Luis Guillermo Solís que prometía mucho y ha tenido muy pocos resultados.

What is development and developing countries?

In the last few weeks, I have had several conversations with colleagues and friends about the meaning of development and the usefulness of the distinction between developed and developing countries.

 This is obviously important for those of us who work in Departments of International Development and have been brought on the belief that there were structural differences between various types of societies. Yet as soon as one walks in the streets of Mexico DC or any Brazilian city, the problematic nature of the categories becomes clear. Despite all its problems, Mexico and Brazil have high quality infrastructure, a strong middle class and high consumption patterns. They have GDP per capita that are closer to Spain than to some low income countries.

 The "DFID solution" (influenced by prominent economists like Paul Collier) is to leave the term "developing country" only for very poor countries in post-conflict situations. Development is about fragile states and the bottom billion. Yet this seems totally unsatisfactory for many reasons: most poor people are in middle income countries and in many emerging economies, institutions are weak; the middle class is still small and much of the territory away from big cities suffers from poor infrastructures and the absence of the state (and well functioning markets).

 But we are still left with the question of what separates developing countries and developed ones or, in terms of specific examples, what distinguishes, say, Mexico from Greece. There are many potential answers, but let me emphasise a few:

 a. The concept of vulnerability at the household and country level is particularly important. When there is a crisis in a developed country, the middle class may suffer but has some insurance mechanisms. As a result, most of the middle class maintains its living standards. When the same happens in a developing country, much of the middle class ends up among the poor and have difficulties to rebuild their lives. This also happens at the country level: any shock has more negative implications in a developing country.

 b. The sustainability of the growth patterns: it is not only about how fast you grow but about how sustainable those growth patterns are. c. At the same time, however, it is more important than ever to compare different groups among various countries to understand better what a "poor" and a "middle class" person means in different contexts.

 Other factors I am forgetting?

A conversation on universalism and taxing the private option

My colleague and friend Ken Shadlen and I have begun a conversation on how to deal with the private option in social policy (much influenced in my case by my joint work with Juliana Martínez). Here you have the initial exchange. Feel free to join the conversation!

Ken: When I was in Brazil I was talking with someone about the "problem" of wealthy people leaving the SUS [the public health system] for private options and then coming back to the state system for expensive treatments. It got me thinking.... Why not put a special sales tax on private health care plans (like a higher VAT or something like that), and earmark the money for public health system. After all, if the rich people are leaving public sector for basic stuff, that actually could be good as it allows public resources to be used on smaller number of people, and the point that the rich people come back to public sector for expensive stuff is sort of irrelevant, because they'd be covered in the public sector anyway if they didn't leave. So those who want to go can go, but at a higher price, so there are not just fewer people left to treat in the pub sector but there's more money to treat the with too.

Diego: I think you are totally right and it is something that can be expanded to education. Expanding taxes on the private option is a way to expand revenues (although we had not thought about earmarking and I think it is a great idea) and reduce demand. However, this is much easier to do if the only ones leaving are the top 10% (or 15%) than if large parts of the middle class (say the top 40% of the population) are both in the private and public sector. In those cases, a tax on the outside option will be rather unpopular and very difficult to implement. At the end that is why confronting the outside option requires a commitment of the middle class to public services, which also require that those services are of relatively high quality.

Ken: I understand what you write, but if the top 40% of the population is leaving that suggests that the pub sector needs to be improved, which only makes a tax to acquire the revenues that much more important. I’m less sure about this line of reasoning for education, because the effects of segregation on those left behind less clear in education. The poor people in the public health system may benefit from the rich people not being there consuming doctors’ and nurses’ time and resources, and, provided the resources are available, the poor people left can be treated well. In contrast, the poor people in the public education system do benefit from having the richer people in their classroom, and the quality of education being delivered in a public education system that is almost all poorer kids will be worse. So here I think everything is different. To put it simply, I don’t think exit from the public system has to damage the system in health, but I do think it does so in education.

Diego: I agree that in terms of the delivery, the exit from the middle class is worse in education than health. Yet it is also quite problematic in health for two reasons: (a) The creation of tax specifically for these services will become politically challenging. The middle class will argue that "not only the public health is weak but we also need to pay for our private insurance! It is double payment!" If this tax affects the middle class, then it may be impossible to implement it. (b) Much of the argument about involving the middle class in public services is about voice: if public health care is poor, they are more likely to protest individually and collectively than the poor. This is why letting the middle class simply leave is quite problematic (the very rich are likely to leave almost by definition in much of Latin America).

Brazil pensions: has the time for change come?

Useful article on Brazil's pension system in the NYT. It clearly describes what is useful about the system but also its huge problems of inequality. The good comes from generous non-contributory pensions, particularly in the rural sector:

The pension system can ease extreme poverty. For instance, rural workers can retire five years before others even if they have never contributed to the public pension system, receiving a monthly payment equal to the minimum wage, about $210 a month.

The growth of the minimum wage has made these advances even more significant. Yet, at the same time, there are huge problems with inequality in the system--something that Hunter and Sugiyama explained well years ago. See this extreme case

In 2000, for instance, officials did away with rules allowing the daughters of military officials to receive the pensions of their fathers after they died. But the shift applied only to new entrants into the armed forces, so more than 185,000 women still draw military survivors’ pensions, often amounting to the full salary of their fathers upon retirement. Spending on such pensions is forecast to last through the end of this century, economists say.

There is little doubt that advances towards a more universal, redistributive system require a reduction of some of these benefits and an increase in other transfers and services. Yet this will be difficult as the upper middle class uses anti-austerity rhetoric to prevent reform. Here you have a former leader of the shopkeepers' associations:

Making retirees pay the price is just not fair,” said João Pimenta, 63, a former director of a shopkeepers’ association who retired at age 49 and regularly leads protests against pension cuts in Brazil’s capital, Brasília. “Why isn’t the economic elite being called upon to sacrifice? I’m sick of hearing that normal people need to pay the price with their pensions.”

How can we promote anti-austerity and, at the same time, reduce segmentation in social policy is one of the main challenges of Latin America in the post-commodity boom era.

How useful lectures are?

Molly Worthen offers a nice defence of the value of lectures in the NYT. Yet I have two problems with it: a. I am not totally convinced that this is a humanities vs "hard" science. Yes, lectures makes more sense in humanities but the lack of attention is a problem everywhere. b. What she never really demonstrate is that students are actually paying attention in the lecture. Moreover, as this useful set of videos show, the problem is that great students will truly benefit from lectures but many others accustomed to surface learning will not. c. Presenting lectures vs gadgets as a trade off does not make much sense. There is obviously space for lectures in the classroom but there is also room for all kinds of activities that may or may not involve computers.

Horizontes: Latin American Centre Newsletter

The last issue was published some time ago and can be found here. It has a nice summary of the experience of key academics who were members of the LAC. It is quite funny!