Opinion – Arminio Fraga: Time to bet on the electorate

Brazil needs to find an inclusive growth path. In theory, a country like ours, with relatively low education, unequal, investing little and regularly experiencing macroeconomic crises, should have plenty of room to grow rapidly, accumulating institutional, social, human, physical and ideas capital. It would be a process that scholars call convergence (to the living standards of advanced countries).

Back in 1987, economist Lant Prichtet published a very popular article in the prestigious Journal of Economic Perspectives saying that, in emerging countries, “Divergence is what you see” (my very free translation). Institutions and political systems capable of making decisions aimed at the well-being of society as a whole were lacking. Good leaders were lacking too, of course. Countries should learn to avoid paths that systematically go wrong, but that didn’t seem to happen (let’s say).

This month, based on updated data, Michael Kremer (Nobel winner last year) and colleagues circulated a more upbeat discussion paper in the National Bureau for Economic Research series, which documents a lot of progress over the past quarter century. With the naked eye you can see that Asia has been growing much faster than the advanced economies. Less well known is the performance of Sub-Saharan Africa, which, for all its problems, has been converging for many years as well.

There is, however, a large region of the world that has been lagging behind: Latin America. We have to face the reality that today Brazil is out of the convergence trajectory, victim of populism and wrong economic proposals.

Next year we will have the chance to choose a new president. The campaign has already started. The economic and social framework is fragile. We will be facing a crucial choice. The country can no longer stand incompetence. We already know that all candidates will promise growth, better public services, less inequality, more opportunities, more security, less corruption, better education and health and so on. Unfortunately, the electorate will find it extremely difficult to identify who can deliver concrete results.

In general, campaign speeches say that everything is possible at the same time and only depends on the government’s will. Any deviation from this magical path is accused of macabre austerity. Few realize that austerity was never the rule in Brazil. Proof of this is that in the last 30 years, total public spending rose from 25% to 33% of GDP. Austerity?

Well, some austerity did happen, with public investment, which from a peak of 5% of GDP in 1969 has collapsed to around 1.5% today. Clearly the crunch occurred in the wrong place. But overall, there was no austerity. What was needed was to define priorities. This gap extends to the revenue side, which in Brazil is a space full of distortions and injustices. And it also includes the country’s indebtedness pattern, now at a high and already at a level that weakens us and penalizes the younger generations.

The current situation reflects this lack of governance. Brazil has been indebted since 2014 without, however, growing. “He abused the overdraft and the card”, and now he is paying high interest again and trembling with fear of inflation.

A good candidate should explain how they are going to handle these issues. It will not be easy, as it will compete with miracle merchants. One possibility would be for each candidate to clarify their priorities by publicly displaying a draft budget for 2023 (with expenditures and revenues broken down into large blocks). In any case, candidates who do not clearly state their priorities and how they are going to achieve them should not be trusted.

Will any candidate have the courage to open the game to the electorate? It better have. Many believe that people are not capable of understanding such complex issues. They forget that the population has shown common sense in emergency situations, especially if well informed.

Recent examples include FHC’s re-election in the first round, shortly after the announcement of a harsh fiscal adjustment, and the strong adherence to vaccination in the current pandemic. The general state of the nation represents a clear emergency.

It is quite possible that a candidate who demonstrates that he understands the harsh reality of the country and presents concrete responses to the challenges will be rewarded at the polls. And more: once elected, the candidate will have a mandate that will give him conditions to deliver results. The time has come to bet on the electorate.