China’s Sputnik Moment?
How Washington Boosted Beijing’s Quest for Tech Dominance
During the last decade, the best place to witness Brazil’s long economic boom was on an airplane. On almost every flight, you could spot the first-timers struggling to find their seats or nervously asking an attendant for help with their seat belts. In a country larger than the United States, their exhilaration at this seemingly miraculous form of travel was palpable. One elderly man from São Paulo was excited to finally meet his three-year-old granddaughter in Recife; the 21-hour trip by bus was too hard on his back, but it was only three hours by air. He had just one misgiving: “Does it hurt when we land?” I assured him that we’d be fine.
The broader miracle that made all this possible is by now familiar. Pro-market reforms stabilized Brazil's economy in the 1990s, and then, spurred by Chinese demand for commodities, economic growth took off in the 2000s and lifted more than 40 million people out of poverty. Many of this new middle class could afford washing machines, flat-screen TVs, and smartphones for the first time. From 2005 to 2014, domestic air travel rose by an average of 11 percent a year, more than doubling in just a decade. Many people who had grown up hungry were now traveling to Rio de Janeiro, Orlando, and Buenos Aires.
Imagine, then, what it has been like for them to suddenly lose that privilege—to trudge back onto those overnight buses and worry they might never fly again. It’s starting to become a reality; an estimated four million middle-class Brazilians, from a population of 200 million, fell back into poverty in 2015, and a similar fate is the single greatest fear of tens of millions of others.
Although a steep recession began in early 2015, just after President Dilma Rousseff began her second term, the downturn wasn’t too severe for most people until the second half of the year. Air travel tumbled 7.5 percent in November compared with the year before, the fourth straight month of decline. Unemployment jumped from 5.2 percent a year ago to 7.5 percent today, and many analysts expect it to hit double digits later this year. All told, 2015–16 is likely to be Brazil’s worst two-year recession since at least 1901—the economy is expected to shrink three percent this year.
It is the reaction of Brazil's new middle class, and of those Brazilians who briefly tasted middle-class lives before falling back into poverty, that will determine the political consequences of the country's economic crisis.
The most dramatic scenario is that recent denizens of the middle class pour into the streets, joining an anti-Rousseff movement that has grown since 2013, when more than one million people turned out to demonstrate against corruption, but has until now been composed largely of Brazilians who are richer than average. If Rousseff’s former electoral base begins to demonstrate against her en masse, it would in all likelihood be the final nail in her political coffin. The opposition would gain the votes necessary to impeach the president and remove her from office, and her vice president, Michel Temer, would take command of Brazil until the next presidential election in 2018.
That scenario is the one that keeps officials in Rousseff’s palace awake at night. But at the moment it does not seem the most likely outcome.
The reaction of Brazil's new middle class will determine the political consequences of the country's economic crisis.
There’s no doubt that Brazilians are disgusted with Rousseff. In a November poll, 65 percent of those surveyed said they wanted to see her impeached; that number is even higher among working-class voters. But the disgust extends well beyond Rousseff to the political class in general. In another poll in December, just 19 percent said that Temer would make a “good” or “great” president. Almost every politician in Brazil, including the candidate who lost to Rousseff in the 2014 runoff, currently has higher disapproval than approval ratings.
Brazil is not gripped by the polarization that afflicts neighboring Argentina or Venezuela. There is no battle raging between two competing parties or ideologies. There is just one big, weary national shrug. As long as this remains the case, Rousseff will probably maintain the support of one-third of the congressional Chamber of Deputies—the number of votes she needs to avoid impeachment. Some legislators remain genuinely convinced that Rousseff knew nothing about the corruption at Petrobras and should therefore keep her job. But many others make the more cynical calculation that in the absence of widespread public outrage, it’s better to continue enjoying the pork-barrel spending that accompanies an alliance with the federal government.
Rousseff seems unable to take the steps necessary to restore fiscal balance, encourage greater trade, or improve Brazil’s woeful productivity.
There are many explanations for Brazil’s political apathy. One is a vacuum of leadership—the face of the opposition is an 84-year-old former president, and the legislator behind the impeachment process is himself the subject of a criminal probe. Another, related theory is that the massive corruption scandal at Petrobras has discredited Brazil’s entire establishment in such a unique and historic way that national politics will remain stagnant until the investigation shows signs of coming to an end (or a Brazilian Donald Trump materializes).
And it is also true that life for many in the new middle class is still better than it was ten years ago, despite the recession. Luiz Inácio Lula da Silva, who was president during the peak years of the boom, recently mused that in the last decade Brazilians “started eating meat almost every day, but now (because of the crisis) I'll have to go a day without eating meat.” That seems unacceptable to many Brazilians, but the example of air travel is instructive. A seven percent fall in air travel may be bad, but Brazil is still up 150 percent in the last decade.
But if seven percent drops become 15 and 20 percent drops, and if Brazilians have to start eating meat only three or four times a week, attitudes may change. The seasonality of Brazilian labor and some of the world’s strictest labor laws have so far shielded Brazilian workers from the worst effects of the recession. But Rousseff seems unable or unwilling to take the steps necessary to restore fiscal balance, encourage greater trade, or improve Brazil’s woeful productivity, by, for instance, reforming the world’s most complicated tax code. Economists say recovery isn’t likely until 2017 or later; Goldman Sachs recently warned of an “outright depression.”
Many upper-class Brazilians are boarding flights to Miami, New York, and London and then staying there to make new lives. But many poorer Brazilians no longer have that option. Their reaction will be the big Brazilian story of 2016.