SMOKINCHOICES (and other musings)

February 15, 2014

Economic growth not shared

Economic growth should serve people

  Commentary
Joe Nocera

Not long after I got back from my recent trip to Brazil, I called some economists to gain a better understanding of where the country stood economically. To me, Rio de Janeiro felt a little like Shanghai: there was plenty of high-end shopping in neighborhoods like Ipanema — and plenty of poverty in the favelas, or slums. There was also a lot in between. What is most striking to a visitor is how many middle-class citizens there seem to be. Cars were everywhere; traffic jams, I’ve come to believe, are a sign of a growing middle class. It means people have enough money to buy automobiles.

What I saw was no illusion. Brazil is a country that has seen income inequality drop over the past decade. Unemployment is at near-record lows. And the growth of the middle class is quite stunning. By most estimates, upward of 40 million people have been pulled out of poverty in the past decade; extreme poverty, says the government, has been reduced by 89 percent. Per capita income has continued to grow even as gross domestic product growth has slowed.

Nevertheless, the economists I spoke to were bearish about the short-term future of the Brazilian economy. They pointed, for starters, to that slowdown in GDP, which they didn’t expect to pick up anytime soon.

Despite the country’s enormous economic gains since the beginning of this century, there has been very little accompanying productivity gains. Indeed, several economists told me that the main reason unemployment was so low was that the economy was terribly inefficient. Too much of the economy was in the hands of the state, I was told, and, what’s more, it was a consumption-based economy that lacked necessary investment. And on and on. I got the sense that many economists believe that Brazil had been more lucky than good, and now its luck was running out. In a recent article about the Brazilian economy, The Economist put it starkly: “The Deterioration,” read its headline.

As I listened to the economists, though, I couldn’t help thinking about our own economy. Our GDP growth was more than 4 percent in the third quarter of 2013, and, of course, our productivity has risen relentlessly. But, despite the growth, unemployment can’t seem to drop below 7 percent. And the middle class is slowly but surely being evisceratedthanks, at least in part, to those productivity gains. Income inequality has become a fact of life in the United States, and while politicians decry that fact, they seem incapable of doing anything about it. Which made me wonder: Whose economy runs better, really?

  • A few years ago, Nicholas Lemann of The New Yorker wrote a lengthy article about Brazil in which he quoted from an email he received from Brazil’s president, Dilma Rousseff. “The main aim of economic development must always be the improvement of living conditions,” she told him. “You cannot separate the two concepts.”

In other words, Brazil’s admittedly leftist government doesn’t spend a lot of time worrying about growth for its own sake, but rather connects it with alleviating poverty and growing the middle class. Thus, it has a high minimum wage, for instance. It has laws making it exceedingly difficult to fire a laggard employee. It controls the price of gasoline, helping to make driving affordable.

  • And most striking of all — at least from the point of view of an American — for the last 10 years, Brazil has had a program called Bolsa Famlia, which essentially hands money to mothers living in poverty. In return, they have to ensure that their children go to school and avail themselves of health-care services. There is no question that Bolsa Famlia has been enormously effective in reducing poverty.

By contrast, here in the United States, Congress just refused to extend unemployment insurance. The farm bill envisions cutting back on food stamps. Various other programs to help the poor or the unemployed have been reduced. Even those who oppose such heartless cuts assume that once the economy comes back, all will be well again. Growth will take care of everything. Thus in this country, we tend to view economic growth less as a means to an end than an end in itself.

It is, of course, possible that Brazil’s economy could hit the wall and some of the gains made could be reversed. A new emphasis on investment and entrepreneurship could probably help it. The spontaneous protests last summer were the results of the new middle class wanting the sorts of things that the middle class always wants: better services, higher-quality schools, less corruption. Still, the Brazil example gives rise to a question we don’t ask enough in this country:

What’s the point of economic growth if nobody has a job?

Joe Nocera writes for The New York Times.

(Joe Nocera always makes his points so clear that frankly, no comments need to be made. It does however, leave us with much to contemplate about our own country’s direction. 

At least it is clear from this article that in Brazil, there is a high degree of respect for “all” of the people which denotes, perhaps a more equitable, honorable and ethical type of consciousness. . . . works for me,   Jan )

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