Opinion – Marcos Mendes: The social contract is on the edge

The social contract drawn up after redemocratization is running out. Governance conditions are deteriorating. This signals institutional problems ahead.

A high degree of distributive conflict is inherent in an unequal society such as Brazil. At the top of the pyramid are people with political and economic power to use the State to their advantage, through policies such as subsidized credit provided by public banks, protection against competition from imported products or privileged contracts with the public administration. At the other extreme, there is great poverty demanding social assistance policies.

Fertile ground for redistributive populism to clash with the preservation of privileges. The result is political instability, a familiar script in Latin American history.

The social contract of Brazilian redemocratization sought to alleviate this conflict by using the State to serve everyone at the same time. Privileges of the elite were preserved and expanded and a broad policy of benefits to the poorest and middle class was introduced. The Brazilian State distributes to everyone: from Bolsa Empresarial to Bolsa Família. What pressure groups ask Congress, they take: salary floors, sectoral subsidies, preferential rates.

With everyone taken care of, the social tension subsided. The cost, however, is the growth in the tax burden, public debt and interest expenses. Furthermore, policies to favor groups generate a loss of economic efficiency, reducing the potential for growth. The blanket is short and you can’t keep distributing it to everyone.

The 2013 demonstrations, whose main feature was to bring together several groups that asked for more from the state, was already a sign of stress.

Since the 1990s, the unsustainability of this model has already been noticed. Different governments have tried to limit access to coffers and the distortion of state regulatory decisions through institutional reforms.

To advance these reforms, and keep public finances under control, there was a division of powers in which the Executive was strong and had instruments to maintain a majority coalition in Congress, facilitating the approval of its projects. Crooked instruments, such as the release of amendments in exchange for votes, added to the power of agenda (Provisional Measures) and veto.

However, the strength of the Executive has been dehydrated. Governability, which has always been precarious, is becoming impossible.

MPs, which could be freely edited and re-edited, were limited by the STF and are often amended or rejected by Congress. Presidential vetoes, which were previously uncontested, are now frequently dropped. Executive bills run aground and parliamentary initiatives thrive. Regulatory agencies, state institutions, are being allotted among politicians.

Parliamentary amendments became mandatory, losing co-opting power. It was necessary to create another modality of amendment, that of rapporteur, to use as a co-option instrument. As a result, the amendments no longer consume a fringe of the budget and now represent 24% of non-compulsory expenditure, stifling the Executive’s fiscal space.

The multiplication of parties, financed by royal public transfers, pulverized political representation and made it even more difficult to form coalitions.

Faced with fiscal limitations, congressional leaders transformed the model of distributing to all into distributing primarily to themselves: financing of electoral campaigns, parties and parish budget amendments. In doing so, they demoralize the political system and feed the discourse that democracy does not work.

Any president who takes office in 2023 will struggle to regain control of the budget and the political agenda. In a polarized environment, it will not be easy to redesign the social contract without further turmoil.

I had the pleasure and privilege of working with Eduardo Guardia. If he had read this column, he would have said to me: “Marcos, you’re always a pessimist. Let’s work and improve this country!” Ed, thank you.