‘New C class’ lost ground and was left behind, says Marcelo Neri

One of the main specialists in the phenomenon that became known as the rise of the C class, economist Marcelo Neri says that today’s middle class has a new profile in relation to PT governments: it suffers more.

According to the director of FGV Social, the socioeconomic framework that leveraged this public in the 2000s was composed of three main factors: economic progress; growth of income above GDP (Gross Domestic Product) and continuous reduction of inequality.

However, all these effects lasted until 2014 and were reversed. “Inequality has increased, growth has fallen and we have inverted this equation”, says Neri, in an interview with Sheet.

In his view, the concept of the middle class is currently closer to the traditional middle class, which rose in the early 1970s. During this period, which became known as an economic miracle, Brazil had high growth rates, but with an escalation of inequality.

“Perhaps we have lost that element of the new middle class, from the first [a acessar certos itens de consumo]. I would say that today it is more a tendency towards conservatism, an apology for the era of the economic miracle,” he says.

For Neri, other profile changes are also noticeable. The work card, which he considers the great symbol of the middle class of Lula’s governments, no longer fits into today’s context.

“I think this is a time that has gone. We are more in an era of entrepreneurship, uberization, it’s not a formal contract anymore.”

Is there today a new middle class in Brazil, a new profile? We’ve talked a lot about polarization, often in the political sense, but polarization is the opposite of middle class. In other words, the extremes are growing at the expense of the middle, which is by definition where the middle class is, whether the new middle class —more linked to a C class— or a traditional middle class.

But obviously there is such a group. There was an episode in 2020, the height of emergency aid, in which we saw people from classes A and B falling, due to social isolation, and people from classes D and E rising. But it was something that didn’t last long.

Perhaps we are experiencing a process similar to this granting of the R$ 600 aid, but nothing that is very permanent. That’s the concern.

What surprised that movement of the new middle class [dos governos petistas] is that it persisted for a while. There was always a lot of instability, but it lasted from the end of the 2003 recession until 2014. It was a three-part, continuous growth process.

One part is the growth of the economy itself, GDP growth, at the time of the commodity boom. Another was a growth in people’s income above GDP growth. In addition, a continuous reduction of inequality.

But all the effects lasted until 2014 and were reversed. Inequality has increased, growth has fallen, and we have inverted this equation. People’s income began to grow less than GDP. So, there is this middle class, but in recent years it has suffered.

What changes in the consumption profile of this most suffering middle class? There are two types of middle class. One is the American middle class, the European standard, which figures in the imagination of people around the world. The one who had two cars, two dogs and two kids. But this is a pattern of rich countries.

There is also the so-called C class, which is more associated with the new middle class, which is a Brazilian middle class and in a certain global sense, because the Brazilian income distribution —from which we calculate the middle class— is surprisingly close to the average. global.

Now, from 2015 onwards, Brazil performed much worse. It certainly didn’t behave like an emerging country, so we lost ground.

There was this flattening, due to the great recession. The rise in labor income inequality has continued for 17 consecutive quarters — a record of permanence.

Nowadays, when we talk about the middle class, maybe we are talking more about a traditional middle class and less about this C class.

Is class C today leaner than it was in the 2000s and 2010s? Yup. That’s an important point. It’s not that we totally undid the gains that did exist. Basically we live in a lost decade. If we look, for example, at work income inequality —which is an important driver of change, as it is more structural—we are at the same average income as we had in 2012.

There is now talk of a reduction in unemployment, an increase in the number of formal jobs – which used to be the symbol of this new middle class. This is indeed happening and it is good news.

But when we look at the average per capita income from work, which is a kind of summary of the labor opera, we are not only at a level as bad as 2012, but we are not performing well in recent quarters.

The effect of inflation has been stronger. People have lost income, there has been a certain precariousness at the same time as there is this gain in occupation.

You talked about a class B that dropped to class C during the pandemic. How relevant is this compared to that new middle class of the 2000s? That was an ongoing process. [Naquele período] The traditional middle class, passing through B and arriving at A, was growing. Perhaps it was the one that, in percentage terms, grew the most.

Although inequality has declined, it was a period of continuing trends, change upon change. It was a virtuous cycle.

In the process of falling class B, we have segments more linked to the external sector, such as commodities. For example, we carried out a study on high incomes, and the municipality of Nova Lima —on the outskirts of Belo Horizonte— stood out, which is the mining capital. Where there is the highest concentration among the municipalities of this upper class.

So it’s important to distinguish. This upper class lost, a lot because of social isolation. There was also no emergency aid, which helped the lower classes.

This episode I think is interesting to recover, because we may be experiencing something similar today, with this aid of R$ 600.

Looking at poverty estimates, right at the beginning of the pandemic there were 64.5 million poor people. At the height of aid fell to 42 million. Those 23 million people have gone up. However, six months later, in January 2021, we have 67 million poor again. It was a turnaround.

Basically, the C class grew by two forces in the pandemic. On the one hand, the loss of the top, because the upper class also lost. And for a boost at the base, due to emergency aid.

Would you say that the share of people who fell from class B to class C is greater today than during the governments of the EN? It was very focused. This also depends on the place. The growth of the new middle class was very strong in the Northeast, where there was an old poverty that became a new middle class to some extent.

Pernambuco was where poverty increased the most in the last two years. It grew by 8.14 percentage points. If we look at the Lula government, there were 17 percentage points of poverty reduction. From people who went up. If we consider 2014, instead of 2010, the drop was 25 percentage points.

In the eight years of Fernando Henrique Cardoso’s government, poverty has dropped by 8 percentage points – which is more or less what we have lost now in the pandemic.

What made all the difference was the fact that it was a long period of growth upon growth. The three macro factors behind this are: GDP growth, income growth above GDP, and on top of that, a continued inequality reduction that has lasted 13, 14 years straight. It came before the Lula government and continued until 2014.

In general, in most emerging countries, growth was positive, but inequality was rising. In the Brazilian case, inequality fell, as it did in Latin America. But the average income of people here in Brazil rose above GDP. This led to a growth in consumption potential.

The work card was the great symbol of this new middle class, and I think that time is gone. We are more in an era of entrepreneurship, uberization, it is no longer a formal contract.

Another important point of the new middle class is the existence of the first in the family who were able to access certain items of consumption — such as placing their child in a private school or hiring a private health plan.

Today, even if there is a return to growth, we will not have the first [consumidores]. The first do not forget. It has a more marked effect on the trajectory, which then becomes hostage to these past consumption peaks.

Anyone who eats meat once a week today will be more satisfied if he didn’t eat meat before than if he ate meat three times a week.

Today, there is a portion of the C class that has not experienced a shortage. What does it change? not have lived [a escassez], as is the case with the new generations, or having already experienced it in the past, makes the person feel more resentful. Sociologists say that a previous peak in consumption is a reason for present unhappiness. As well as the “neighbor’s grass is greener” effect.

Perhaps Bolsonaro’s biggest competitor today, to make the Auxílio Brasil of R$ 600, is Bolsonaro himself in 2020, when he gave the Emergency Aid. You are a prisoner of this situation.

At the height of the program there were 67 million beneficiaries. One-third of the population received. On the way, some people lost.

You spoke of some symbols of the middle class of that period, such as the formal contract. What is the symbol of the current middle class? Perhaps we have lost that element of the new middle class, from the first [a acessar certos itens de consumo]. I would say that today it is more a tendency towards conservatism, an apology for the era of the Economic Miracle.

The new middle class emerged in this period of commodity boom, with inequality reduction, formal employment growth, etc. The traditional middle class, which are classes A and B, to a large extent emerged at the time of the Miracle, when [a economia] grew, but with increasing inequality.

Perhaps our concept of the middle class today is more of a traditional middle class, the one that ascended back then, and less of a pioneer middle class, which consumed certain goods and services for the first time.

And many of those goods and services are important. A pension plan, a health plan, a private school for the children… These are elements that allow social ascension. It was not a pursuit of consumption, but an acquisition of income-generating capacity.

X-RAY

Marcelo Neri, 59

An economist, Marcelo Neri is director of FGV Social and founder of the Center for Social Policies at FGV. He was chief minister of the SAE (Secretariat of Strategic Affairs), of the Presidency of the Republic, and president of IPEA. He holds a doctorate in economics from Princeton University (USA), a master’s and a bachelor’s degree in economics from PUC-Rio (Pontifical Catholic University of Rio de Janeiro). He is also a professor in the doctorate, master’s and undergraduate programs at EPGE (Brazilian School of Economics and Finance), at FGV, in Rio de Janeiro.