Class inequality and capital accumulation in Brazil, 1992-2013

Class inequality and capital accumulation in Brazil, 1992–2013 Pedro Mendes Loureiro* This article explores the patterns of class inequality and capital accumulation in Brazil, showing the drivers and limits of the decline in inequality that occurred during the Workers’ Party governments. It proposes that minimum wage hikes and greater social security changed the demand pattern and kick-started a cumulative causation process. Growth and redistribution thus reinforced each other for a period, and then spelled their own limits. As growth accelerated in the 2000s, a Gini decomposition indicates that class inequality decreased, but confined to changes between workers—capitalist income and social stratification were preserved. This also endogenously led to a regressive structural change, as low-productivity, labour-intensive services grew and international trade patterns worsened. This created a medium-term dependence on commodity prices for balance-of-trade solvency, and heightened cost-push inflation, which could not be overcome under the limited policy framework in place. The constrained basis for reducing inequality and the regressive structural change underscore that developmental strategies requires broad, multi-dimensional inequality-reducing measures and an encompassing catching-up project. Key words: Inequality, Class analysis, Structural change, Development, Brazil JEL classifications: D63, L16, O10 1. Introduction Brazil, alongside other countries of the Latin American ‘Pink Tide’, underwent a growth and redistribution process during the 2000s, after two ‘lost decades’ of economic stagnation and income polarisation. Seemingly flying against the country’s entrenched patterns of exclusionary, pro-rich growth, output grew as social indicators improved during the centre-left Workers’ Party (PT, Partido dos Trabalhadores) administrations. Under the permissive conditions provided by the ‘commodities supercycle’ and high international liquidity, euphoria reigned as domestic and international commentators exclaimed Brazil showed the path ahead for middle-income countries. A few years Manuscript received 8 December 2017; final version received 10 February 2019. Address for correspondence: University of Cambridge (CLAS-POLIS), The Alison Richard Building, 7 West Road, Cambridge, CB3 9DT, UK; email: PML47@cam.ac.uk * University of Cambridge (CLAS-POLIS). The author is grateful for the contribution several colleagues and friends made to this article, and would especially like to thank Alfredo Saad-Filho, Claudio Amitrano, Ítalo Pedrosa, Leonardo Lins and Pauline Debanes, as well as the members of the 2017 EAEPE-Simon Young Scholar Prize committee for awarding it the prize which has stimulated the development of this research. The usual disclaimers apply. The author also thanks CAPES for the grant BEX 0840/14-9. © The Author(s) 2019. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved. Downloaded from https://academic.oup.com/cje/advance-article-abstract/doi/10.1093/cje/bez030/5536570 by University of Cambridge user on 07 January 2020 Cambridge Journal of Economics 2019, 1 of 26 doi:10.1093/cje/bez030 Page 2 of 26 P. M. Loureiro 2. Growth, redistribution and regressive structural change in a cumulative causation framework The main argument of this article is that the PT implemented key policies that delivered growth and improved social standards between 2003 and 2013, particularly lower income inequality and poverty, but fell short of securing conditions that would Downloaded from https://academic.oup.com/cje/advance-article-abstract/doi/10.1093/cje/bez030/5536570 by University of Cambridge user on 07 January 2020 later, in 2019, none of these conditions held any longer: Brazil was in a critical economic and social crisis, unemployment had risen massively, commodity prices had fallen, and former president Dilma Rousseff of the PT had been impeached and later substituted by the far-right politician Jair Bolsonaro, with few centre-left governments still standing in Latin America. Optimism had been unfounded, the positive cycle short-lived and no real prospects of inclusionary growth were to be found. What explains this volte-face, the incapacity of Brazil embarking on a sustained process of development? What was the connection between the two phases: did the boom period lay the seeds for its own end, or was the downturn an external event that does not speak to insufficiencies of the former? On the undeniably nuanced answer to these questions rest major issues for understanding the contemporary possibilities for development, which extend much beyond the Brazilian case. Although historically specific, the key mechanisms behind the growth and redistribution episode—structural change, the country’s insertion into the world market, social security and labour market policies—are widely relevant for other experiences. Brazil’s advances and limits during the 2000s can thus provide lessons for other middle-income countries about how, to which extent and under which circumstances it is possible to pursue pro-poor, equality-driven growth agendas. This article hence seeks to discern the drivers and the limitations of growth and redistribution in Brazil, seen as interconnected phenomena, focusing on the decrease of income inequality between 2003 and 2013. It is organised as follows. The second section presents the main argument, which is empirically substantiated in the following ones. It argues there was a cumulative causation process explaining both growth and redistribution, driven by rising minimum wages (MWs) and social-security transfers. These policies increased low incomes and hence shifted the pattern of demand towards wage-goods and services, heating the low-skilled segment of the labour market, reducing inequality and thus reinitiating the cycle. In doing so, this process brought about a regressive structural change—the rise of low-productivity, labour-intensive sectors— and inflationary pressures that would become major medium-term constraints. The third section explores the growth pattern of the economy, identifying the drivers of growth, their sectoral dimension and their implications for income distribution. The fourth section analyses the evolution of inequality through a decomposition of the Gini index (known as the Analysis of Gini, ANOGI), applied to a typology of class positions based on household surveys. It shows how there were indeed gains, but restricted to shifts between workers which preserved capital income. The fifth section explores how these developments modified the economy’s constraints and eventually led to a conundrum. The two main points are, first, that the regressive structural change deteriorated the country’s insertion into the world market. Second, wage gains in services, the motor of both growth and redistribution, led to escalating cost-push inflation. It is shown that the policy framework in place, with low public investment, high interest rates, an overvalued exchange rate and a poorly planned industrial policy, could not overcome this conundrum. The sixth section concludes. If you would like to continue reading this article, please access https://doi.org/10.1093/cje/bez030