Is Taiwan the Next Hong Kong?
China Tests the Limits of Impunity
In recent years, as public anxiety over growing inequality has intensified, policymakers and academics have started scrambling for some increasingly extreme solutions. India, for example, has launched massive programs to provide the poor with food and jobs, and the French economist Thomas Piketty has famously proposed a redistributive global wealth tax.
But there are big problems with such efforts. Huge, heavily bureaucratic programs such as India’s have proved inefficient and expensive. And the planet’s richest citizens are certain to use all their influence to block any proposals along Piketty’s lines from being implemented.
The good news is that these and other radical solutions are also unnecessary. Over the last dozen years or so, one country—Brazil—has shown that there’s a far better, less provocative, and more market-friendly way to fight inequality.
Not long ago, the idea that Brazil might have something to teach the world about reducing inequality would have sounded like a joke. Latin America’s largest nation had long been among the most unequal places on earth, a state synonymous with savage social injustice. The country may have been blessed with a large, youthful population and abundant natural resources, but for a long time, Brazil did as bad a job spreading its wealth as could be imagined. Even tiny, benighted Haiti was more equal.
At the turn of the millennium, about a third of Brazil’s population languished beneath the international poverty line.
In the 1980s and 1990s, Brazil moved from dictatorship to democracy and embraced structural reforms that finally brought hyperinflation under control. But the mass of the population remained trapped in rural penury or urban favelas, while the fortunate few soared over the country’s ungovernable megacities in private helicopters. At the turn of the millennium, about a third of Brazil’s population languished beneath the international poverty line (surviving on $2 a day), and about 15 percent was indigent (living on less than $1.25 a day).
Since then, however, a peaceful revolution has occurred. By 2011, the Brazilian economy was growing at a respectable four percent a year and unemployment had hit a record low—and for once, the benefits were actually being widely shared. In the first decade of the new century, some 40 million Brazilians moved from poverty into the middle class, per capita household income shot up by 27 percent, and inequality dropped dramatically—unlike in every other BRIC country (Russia, India, and China), where it rose. Today, Brazil still faces many challenges, from an economic downturn to corruption scandals to the end of the commodity boom. But the country’s incredible success in reducing poverty and inequality can and should light the way for further progress, both there and abroad.
The urbane Fernando Henrique Cardoso, Brazil’s president from 1995 to 2003, started his career as a leftist academic but governed the country as a centrist. So when, during the 2002 presidential campaign, it started to look as though he would soon be succeeded by Luiz Inácio Lula da Silva, Brazil’s elites and markets panicked.
Lula, as he is universally known, has attained such iconic status today that it can be hard to remember just how scary he seemed—at least to the rich—when he first burst onto Brazil’s political scene. A proud child of the country’s destitute northeast, Lula had been born the seventh of eight children in the hardscrabble state of Pernambuco. His family was so hard up that the future president was forced to drop out of school after the second grade in order to make money shining shoes. At ten, he taught himself to read. At 14, Lula somehow worked his way into a factory, where he eventually lost his left pinky finger to a machine press. Then he got involved in Brazil’s powerful labor movement and discovered his calling. Rising rapidly through the ranks of the São Bernardo do Campo Metalworkers’ Union, Lula became the organization’s leader at age 30, and five years later—while the country was still ruled by a military dictatorship—he helped found the leftist Workers’ Party (PT) in order to give the downtrodden a voice on the national stage.
By 2002, Lula had already run for president—and lost—three times. Although he had never been a Marxist (unlike many of his PT comrades), his earlier campaigns had featured calls to nationalize industry and default on the country’s debt. When he finally started climbing in the polls, such talk, along with his rough roots and his campaign promise to eradicate poverty within a generation, thoroughly spooked elites and investors at home and abroad. In the United States, Henry Hyde, the Republican chair of the House International Relations Committee, denounced him as a “pro-Castro radical.” Goldman Sachs began publishing a “Lulameter” that purported to track the risks to investors should the PT win. Nervous foreign banks started cutting off credit. Brazil’s fragile economy, which was just starting to pick up, went into a dive. The main stock index fell by 30 percent. Investors started dumping their Brazilian holdings, yanking more than $12 billion in capital out of the country within a few months. And the value of the real, Brazil’s currency, fell by 40 percent against the dollar, hitting an all-time low toward the end of 2002.
Yet enough Brazilians were sick of the country’s feudal social structure and the pain caused by Cardoso’s necessary but unpopular structural reforms and austerity measures that Lula won anyway. As the unkempt union man prepared to take office and the economy continued to crater, the country braced for the epic confrontation. But the cataclysm never arrived.
Lula entered office plotting a revolution, but it was nothing like the one his conservative critics feared.
Although Lula did enter office plotting a revolution, it was nothing like the one his conservative critics feared. His earlier defeats and the vicious reaction to his eventual victory hadn’t weakened Lula’s commitment to social change, but they had made him rethink how to produce that change. Between 1993 and 2001, he and José Graziano, an American-born agronomist who was one of Lula’s closest advisers, had gone on extensive listening tours throughout the country, and the politician who emerged was far more moderate, conciliatory, and politically canny than his earlier incarnation. Lula had realized that he would never get far if he tried to govern on behalf of just part of Brazil. He needed to ensure that his revolution would benefit everyone.
And so the rabble-rouser metamorphosed into the Great Conciliator. Lula banished all talk of debt defaults and wealth redistribution from his lexicon, recasting himself as what the Rio-based journalist Mac Margolis has called “the CEO-whisperer, amigo to the middle class, [and] champion of a rules-based market democracy.” The move caused grumbling within the PT, but Lula held firm. On taking office, he pledged to preserve Cardoso’s tight fiscal and monetary policies. Shortly after his inauguration in January 2003, he picked Henrique Meirelles—a well-regarded financial executive and Cardoso ally—to run Brazil’s central bank and Antonio Palocci, another sober centrist, as finance minister. And then he started hacking away at Brazil’s bloated national budget, cutting spending by about $4 billion in his first year and imposing an even stricter budget-surplus target than the International Monetary Fund recommended.
The payoff was immediate. Many of the same antagonists who had attacked him during the campaign now swooned. In March 2003, Mohamed El-Erian, then managing director of the bond giant PIMCO, declared that the president’s initial moves had been “very good,” and the markets agreed. Within six months of Lula’s inauguration, the value of Brazil’s bonds rose by 20 percent, and even Goldman Sachs sheepishly admitted that its warnings had been wrong.
At the same time that Lula was wooing the moneymen, however, he was hard at work on another front, preparing to use his growing political capital to launch an ambitious new social welfare campaign. Rolled out a few months after his election, Fome Zero (Zero Hunger) eventually featured more than 40 different programs run by close to 20 government ministries. But one initiative stood at the campaign’s core: Bolsa Família (Family Grant), a poverty-fighting effort that was revolutionary in its size, ambition, and design.
Rather than provide the poor with goods or services, as most development programs did at the time, Bolsa Família would do something far more daring: simply hand out money. Brazil had actually started experimenting with this approach back in 1995, when the cities of Campinas and Brasília had launched small cash-giveaway programs on a trial basis. These proved so effective that they were soon copied by more than 100 other local governments, and in 2001, Cardoso had begun testing a similar scheme on the national level (although the payments were tiny and the execution was flawed). Lula, acting on Graziano’s advice, decided to roll all these various programs into a single new streamlined national initiative and to expand it to a scale far larger than even most experts had ever imagined possible.
The idea proved hugely controversial, at least at first. At the time, most experts and international organizations still considered the notion of simply handing money straight to the poor to be dangerously wrong-headed. It just felt wrong on an intuitive level. It also flew in the face of decades of social science research and what the World Bank had long considered best practice. Yet three insights had convinced Lula and his advisers of the benefits of their new approach.
First, Brazil’s own experience had shown that large-scale attempts to alleviate poverty by distributing goods, such as a massive food program Cardoso launched in the late 1990s, generally flopped in an embarrassing and expensive fashion. Providing the poor with physical stuff is complicated, costly, and inefficient. It also requires a large bureaucracy, which creates endless opportunities for corruption—a perennial problem in Brazil.
Second, a few academic studies (which would later be confirmed by a slew of follow-on research) had started to confirm what Lula, who disdained experts, already knew: that the people who best understood what the poor really needed were the poor themselves. When given the chance, destitute families generally didn’t squander their windfalls. Most spent the money quite rationally—especially when the cash went to mothers, not fathers, as it would under Bolsa Família. “It sometimes bothers my educated friends when I say this,” Lula told me in late 2014,
but the number one teacher in my life was a woman who was born and died illiterate: my mother. With all due respect to experts and academics, they know very little about the poor. They know a lot about statistics, but that’s different, sabe? To an intellectual, putting $50 in the hands of a poor person is charity; an academic has no idea what a poor person can do with it. But that’s because at university, they don’t teach you how to care for the poor. And it’s because most experts have never experienced what the poor go through every day. They’ve never had to go to work without breakfast. They’ve never lived in a flooded house, or had to wait three hours at a bus stop. To experts, a social problem like inequality is only numbers.
Finally, Lula had also realized that the wave of privatizations that had swept Latin America in the 1980s and 1990s—as governments sold off everything from airlines and energy producers to utility providers—had left hundreds of millions of citizens stranded, too poor to participate in the expanding market economies. Lula and his advisers reckoned that, rather than go through the nightmare of renationalizing big businesses, the best and simplest way to reverse the poor’s exclusion was to put a little cash in their pockets. So Lula decided to do just that.
As the president and his aides devised the program, qualifying for assistance under Bolsa Família would be simple. Any family that could prove that it lived in extreme poverty—then defined as earning less than 50 reais (about $42) per person per month—would be eligible for payments, as would moderately poor families that earned less than 100 reais per person.
But if getting into the program would be easy, staying in it would take work. Participants would have to meet several conditions, or contrapartidas (counterpart responsibilities): ensure that all their children between six and 15 years old attended school at least 85 percent of the time, make sure that any of their children under seven got immunized, and guarantee that both mothers and children got regular medical checkups. (Pregnant women would also be required to get prenatal care and to breastfeed their infants.)
Lula had two reasons for imposing such rules. He knew that while he himself might have managed to claw his way out of poverty by the tips of his nine fingers, he had been exceptionally lucky to do so. For most Brazilians, demographics were destiny: if you were born poor, you would die that way, too. Lula was determined to break the intergenerational trap by enabling—and requiring—parents to give their children greater advantages than they themselves had enjoyed, in the form of education, health care, and nutrition.
Lula also knew that attaching strict conditions to his new aid program would make it easier to sell to the rest of society, something that would otherwise have been difficult. Prior to Lula, most social assistance programs in Brazil had taken the form of insurance schemes that disproportionately benefited the middle and upper classes. Bolsa Família was the first time a Brazilian president had really put combating poverty and inequality at the center of his agenda (at least more than rhetorically), and that all but guaranteed a fight.
The pushback started the moment the program was introduced in October 2003. Some economists argued that the government should be investing in infrastructure, such as schools, rather than paying people to have their children attend them. Others said that parents shouldn’t be told what to do for their kids. And conservative pundits warned that the cash transfers would create welfare dependency. “The opposition said we were going to create an army of lazy people,” Lula told me.
Under Brazil’s constitution, the president was able to launch a program such as Bolsa Família on his own executive authority. But the law also stipulated that he needed congressional approval within a year in order to get it renewed. This meant that Lula would have to secure broad-based support if his signature program was going to survive—and the contrapartidas were his key to getting it. “The idea was to show that we are not giving out money for free,” Lula explained to me. “We had to build trust, even among those who were skeptical about this kind of a program.” As Ariel Fiszbein and Norbert Schady, two World Bank economists, have documented, the conditions helped Lula do that by creating the popular impression that Bolsa Família was not some sop to the poor but rather a new sort of social contract with them, under which recipients had to do their part as well. Making beneficiaries show “clear evidence of commitment” to the “positive behaviors” required by the program made those beneficiaries seem more deserving, explained Fiszbein and Schady, giving the public the sense that they had earned the cash.
Lula knew that attaching strict conditions to his aid program would make it easier to sell to the rest of society.
Of course, simply announcing formal conditions wasn’t enough; there also had to be consequences for noncompliance. To that end, Bolsa Família’s architects designed a system of graduated penalties for those who failed to do their duty. Rule breakers would get a warning; if they still didn’t comply, their benefits would be suspended; and if the trouble continued, they’d eventually get bounced out of the program altogether.
While such sanctions looked good on paper, Lula soon learned the hard way that getting the public to take them seriously would require proof that the rules were actually being enforced. In 2004, the program’s rapid expansion diverted effort and attention away from overseeing compliance with its requirements. Learning that only 55 percent of Brazil’s public schools were even bothering to report on whether Bolsa Família recipients were meeting their attendance quotas, the administration decided to suspend all monitoring temporarily. This decision might have made sense bureaucratically, since it bought the government time to get its house in order. But it proved to be a public relations disaster.
Globo, an anti-Lula media conglomerate, saw the opportunity and pounced. Just a few days before nationwide municipal elections in October, Fantástico, a popular Sunday-evening news program on a Globo network, broadcast an investigative report alleging widespread abuse of Lula’s flagship program by undeserving recipients. The rest of Brazil’s media quickly jumped on the story, the public was incensed, and within a week of the broadcast, the government had received several thousand angry complaints.
Sensing the danger, Lula decided to face his critics head-on. “What is the lesson we learned from this moment? Humility,” he told me. “You have to recognize that a very big program will have mistakes. You have to admit them. And then you have to fix them.” To that end, Lula set up the new Ministry of Social Development and Fight Against Hunger (known by its Portuguese abbreviation, MDS) to centralize oversight of Bolsa Família. Departing from Brazil’s long tradition of patronage politics, he staffed the new body with highly trained technocrats rather than partisan hacks. Then, in January 2005, he personally presided over the public launch of a sweeping new multiagency strategy for improving Bolsa Família’s implementation, including establishing a unified national registry to keep track of everyone who got assistance, centralizing Bolsa Família’s eligibility criteria, implementing audits and spot checks, setting up citizen oversight committees and complaint hot lines, and requiring that Bolsa Família participants get recertified every two years.
By mid-2006, monitoring and enforcement had improved dramatically: in June of that year, the MDS cut some half a million ineligible recipients from its rolls. Brazilians noticed, and were impressed. The criticism ebbed, and public support for the program began to climb. Indeed, a 2010 analysis of polling data and media coverage by Kathy Lindert and Vanina Vincensini, two World Bank experts, found that by imposing rigorous conditions for assistance, Lula’s government legitimized Bolsa Família with Brazilian voters, generating widespread enthusiasm for it on both ends of the political spectrum.
As useful as Lula’s contrapartidas were in boosting Bolsa Família’s popularity, two other innovations would prove almost as important. First, for all its ambitions, Bolsa Família was, and remains, cheap—radically so, compared with most other social welfare programs in Brazil and elsewhere. Today, more than a decade after its launch, Bolsa Família reaches about 14 million families, which translates to about 55 million Brazilians—an enormous number. Yet because Lula and his advisers recognized that it takes only a small sum of money to make a big difference in a poor family’s life, the individual payments (which vary according to income and family size) are tiny: the average family gets just $65 a month, and benefits top out at $200.
As a result, “the amount spent on Bolsa Família is nothing,” says Yoshiaki Nakano, the director of the São Paulo School of Economics. That’s an exaggeration, but not a big one. The fact is that one of the world’s most ambitious antipoverty programs currently costs Brazilian taxpayers less than half a percent of the country’s $2.3 trillion GDP, far less than the government spends on, say, pensions (a much more regressive support mechanism). Although precise international comparisons are hard to make, the evidence suggests that Bolsa Família is one of the cheapest antipoverty programs anywhere. Indeed, a 2011 study by the British government found that thanks in part to their minimal administrative expenses, cash-transfer programs such as Bolsa Família cost 30 percent less per person than more traditional aid programs.
The program was also structured in such a way that it would ultimately benefit all Brazilians, not just those at the bottom. As Lula explained when he first introduced it, “When millions can go to the supermarket to buy milk, to buy bread, the economy will work better. The miserable will become consumers.” By giving people money that they could spend however they wanted, Lula created what Lena Lavinas, a welfare economist at the Federal University of Rio de Janeiro, has called “a pro-market approach to combating poverty.” Indeed, no less an authority than Jorge Castañeda, a former conservative foreign minister of Mexico turned columnist and scourge of the Latin American left, has called Bolsa Família an “innovative welfare program” that is as “neoliberal . . . as one can get.”
Although the price tag for Bolsa Família may be small, its impact has proved enormous. Not only has it reached more than a quarter of the overall population (and 85 percent of the poor), but the payments, tiny though they are, have doubled the incomes of Brazil’s most destitute families. In its first three years, Bolsa Família cut extreme poverty by 15 percent, and by 2014, the percentage of Brazilians living in indigence had been slashed to less than three percent—a level the World Bank considers equivalent to eradication. At the same time, Bolsa Família has helped lift a total of 36 million people out of general poverty, producing what Matias Spektor, a political scientist and columnist for Brazil’s biggest newspaper, Folha de S.Paulo, described to me as “the single largest ten-year change to a country’s class structure since Japan after World War II.”
As for inequality, recent studies credit Bolsa Família with having helped reduce the country’s overall income gap by a third and rank the program as the second most important contributor to this change after general economic growth. According to Tereza Campello, the country’s minister of social development, the income of the poorest 20 percent of Brazilians rose by 6.2 percent between 2002 and 2013, while that of the country’s richest 20 percent grew by only 2.6 percent. (That stands in sharp contrast to the United States, where during the same period, the income of the richest ten percent rose by 2.6 percent, while that of the poorest ten percent shrank by 8.6 percent.) Although the Brazilian government has implemented a number of other important social support programs, including big hikes to the minimum wage, and although a growing economy helped matters, most experts agree that Bolsa Família deserves a huge amount of the credit for the overall improvement in the lives of the country’s poor. Bolsa Família has also proved an important cushion as Brazil’s growth has slowed in recent years. The country’s overall economy may be hurting today, but thanks to the buffer provided by Bolsa Família, the masses are not—or at least not compared to the way they suffered during the country’s many past crises.
Bolsa Família has also made great strides toward Lula’s goal of breaking the transmission of poverty from one generation to the next: by helping increase vaccination rates to 99 percent of the population, by decreasing malnutrition among children in Brazil’s poorest regions by 16 percent, and by increasing their chances of having a healthy weight-to-age ratio by 26 percent. Infant mortality has dropped by 40 percent in the last decade, with deaths from malnutrition specifically down by 58 percent—one of the sharpest reductions ever seen anywhere. Meanwhile, the number of children forced to work instead of attending school has fallen by 14 percent. Bolsa Família recipients now boast a graduation rate double that of poor Brazilian children outside the program, and the initiative is credited with improving school attendance in the country’s poorest regions by 14 percent. One happy consequence: the national literacy rate has already risen.
The program has also produced some less tangible and less predictable—although just as important—changes in the lives and attitudes of Brazil’s poorest citizens. One recent survey found that by giving them authority over their families’ bank accounts, Bolsa Família has empowered Brazilian women; for example, female Bolsa Família participants are ten percent more likely to say that they have exclusive authority over contraception in their marriages. And the program seems to have had a dramatic impact on poor Brazilians’ sense of agency. A recent survey of 1,400 Bolsa Família beneficiaries in three different cities found that rather than feeling stigmatized by their dependence on the government program, three-quarters of respondents said that they were proud to be enrolled and that, by allowing them to properly feed and clothe their children without having to beg, Bolsa Família has helped them “lead more autonomous and dignified lives.”
Brazilians enrolled in the program even express increased faith in their country’s democracy. That might seem an odd outcome for a welfare program, but as Lula explains, “Part of the reason Bolsa Família has been so successful is because the money is paid directly, with no intermediary. It is the beneficiary who goes to the bank with a plastic card to withdraw the money. So this person doesn’t owe any favors to the president, to their governor, to their congressman, or to their mayor.” And the lack of middlemen also makes it hard, if not impossible, for officials to skim off the top.
Since its launch, Bolsa Família has increased Brazil’s GDP growth by 1.78 reais for every one real disbursed.
Finally, just as Lula promised, Bolsa Família has provided a significant boost to the overall economy. By giving the poor more money to spend, the program has increased domestic consumption, an especially important economic driver in a country like Brazil, which shuns most imports. Although most of the money is spent on food, Lula says that “of the people that received benefits under the Bolsa, 80 percent of them bought a television set, 79 percent of them bought a refrigerator, and 50 percent of them bought a washing machine. So what had seemed like a program just for people who were living in eighteenth-century conditions helped meet the needs of modern manufacturers, generating millions of jobs. Everyone won.” That may sound like boasting, but the numbers bear it out: economists calculate that since its launch, Bolsa Família has increased Brazil’s GDP growth by 1.78 reais for every one real disbursed.
These accomplishments have made Bolsa Família incredibly popular in Brazil; recent polls put its approval rating at around 75 percent. “Today everybody’s happy,” Lavinas told me. “The poor because they are less poor, and the rich because the program is so cheap that they don’t care.” Even the middle class, traditionally the most conservative segment of Brazil’s electorate, has embraced Bolsa Família. As Spektor explains, this group “grew up in a country that was always getting worse. As Brazil democratized [in the mid-1980s], violence went up, inequality went up, inflation went up. We were geared toward thinking things were awful. If you hoped for a future, you wanted to learn English and get the hell out of here. Now, suddenly, I’d rather be here than anywhere else. And that’s thanks to Bolsa.”
Seeing how popular the program is and how much it did to help Lula’s political fortunes over the years, virtually all other Brazilian politicians have rushed to embrace it. Dilma Rousseff, Lula’s successor, has expanded the program’s reach and upped its benefits several times. She even launched an initiative called Busca Ativa (Active Search) that sends intrepid social workers to the country’s most remote corners—sometimes by jungle boat—in search of more needy Brazilians to enroll in the program. Meanwhile, during the 2014 election, both of her opponents promised to extend Bolsa Família still further. To do otherwise would have been “political suicide,” says Thiago de Aragão, a political consultant in Brasília.
None of this enthusiasm means that Bolsa Família is perfect. Although the program has helped Brazil make historic progress, the country still remains far too unequal. Under Rousseff, economic growth has ground to a halt and the country’s debt has soared. And despite Bolsa Família’s massive reach, about 28 million Brazilians still live in poverty. Some experts worry that by focusing so intensely on the needs of Brazilian children, the program neglects their impoverished parents (whose benefits drop precipitously when their children reach 17). Feminist scholars such as Maxine Molyneux of University College London caution that “by making transfers conditional on ‘good motherhood,’” initiatives such as Bolsa Família reinforce traditional gender roles. And Lavinas, among others, points out that while the Brazilian government has done a good job getting kids into school, it has done far less to improve the education they receive there—one of many reasons massive numbers of Brazilians took to the streets to protest poor government services in 2013.
Bolsa Família’s positive impact is also undermined by Brazil’s regressive tax system, which relies excessively on consumption tariffs. These fees, which cover virtually every imaginable good and many services, eat up a big share—as much as 55 percent, by some estimates—of Bolsa Família stipends. Finally, financial analysts attack Bolsa Família for reducing inequality at the expense of overall growth, and some Brazilians still insist the cash transfers only make people more dependent on the dole.
Certainly, Bolsa Família can and should be improved. Brazil also desperately needs tax, health-care, and educational reform, as well as greater investment in infrastructure. But a wealth of evidence contradicts at least some of the critics’ charges. Government statistics show that 75 percent of adult Bolsa Família recipients do work, for example, and generally those who don’t, can’t—because they live in areas with too few job opportunities.
It should come as no surprise, then, that despite its imperfections, the program has attracted wide admiration abroad as well as at home. Nancy Birdsall, the president of the Washington-based Center for Global Development, has called Bolsa Família “as close as you can come to a magic bullet in development.” Other boosters range from The New York Times (which dubbed Bolsa Família “likely the most important government anti-poverty program the world has ever seen”) to The Economist (which declared it “a stunning success”).
Perhaps the best testament to the brilliance of Bolsa Família’s design, however—as well to the defiantly unorthodox, something-for-everyone approach Lula used to formulate and then sell it—is the fact that since the program’s creation, more than 63 countries have sent experts to Brazil to copy its model. Within just a few years of Bolsa Família’s inception, in fact, the MDS was so swamped by all the foreign requests for advice that it began holding twice-yearly seminars on how to launch similar programs elsewhere. As of this writing, at least 40 states have taken that step, including most of the countries of Latin America, as well as Bangladesh, Indonesia, Morocco, South Africa, and Turkey (to name just a few). There have even been some copycat programs deployed in U.S. cities, such as Memphis and New York—more proof, if it’s needed, of the global appeal of Brazil’s great experiment.