Home Column Eiiti Sato Brazil: social rigidities and economic stagnation

Brazil: social rigidities and economic stagnation

´Though unpopular politicians are afraid to confront labor unions in many cases because they were elected with their support. Perhaps the ultimate case is the former president Lula who indeed transformed the support to labor unions into official state policy due the fact that before becoming president his entire life experience was restricted to labor union activities`.

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Eiiti Sato is Master in International Relations (University of Cambridge, U.K.) and PhD. in Sociology (University of São Paulo - Brazil)

By Eiiti Sato

In the mid 1970’s, Brazilians were pride to enter the group of manufactured goods exporting countries. In those days industrialization was a symbol of development and of technological prowess, and to be a manufacture exporting country was an international recognition of such a condition pursued by every developing society. Forty years later Brazilian economy went back to the condition of commodity exporter. In the beginning of the 21st century commodity exports overtook the export of manufactured goods. In the 1980s Brazil became the 7th economy but now it seems that the country is going steadily to drop to the 10th position once productivity has been stuck, and it is not expected that in the near future productivity in Brazil will increase as much as other economies. Here follows a rough portrait of the current international position of the Brazilian economy whose performance in the last five years can be compared only to problematic countries like Venezuela and Argentina.

At the first glance when one looks at the figures it seems that the reversal of the Brazilian recession can be attained by coping with the public debt and by adopting a more pragmatic economic policy. Nevertheless in the long run it seems necessary to look at the underpinning forces behind the figures, and to look at some structural problems which may show that we have some structural problems which can reveal to be much more stubborn and harder to handle, even compared to countries like Argentina and Venezuela.

Labor unionism: a factor for economic backwardness?

Brazil is a rare case of a country in which labor unions are sponsored by the state. Brazilian government uses the state machinery to collect money to feed the administration and the development of activities of the labor unions. Like taxes the contributions to labor unions are collected compulsorily from workers, and differently from what happens in other countries, an immediate consequence is that labor unions do not depend on membership’s will and on formal enrollment. Another particularity of the labor unionism in Brazil is the fact that public sector is allowed – actually public servants are stimulated – to have their own labor unions. Every year the Ministry of Labor distributes around US$ 1 billion to labor unions and to federations of labor unions (CUT, CGT, FS, etc.). Another form by which the Brazilian state feeds the labor unionism is indirect; according to the laws there are positions in the labor unions administration (president and directors) which benefit from automatic waiver, i. e. those who occupy such positions do not need to attend their regular job, and are paid to perform their duties as union leaders. Regarding the public sector there is an additional strong stimulus: strikes are full paid.

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Total number of registered labor unions in selected countries

Country Labor unions

Argentina         91

Germany         16

Denmark        164

United Kingdom       168

United Sates        130

Brazil     16,290

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In former times there were some labor unions in the private sector which were enough strong to mobilize the whole society like the metallurgical union which included the workers in the car industry. Today by far the strongest unions are in the public sector whose demands in most cases are unpopular because when they go on strike (which is quite frequent) the public knows that the strikers are going to be full paid while the population will be virtually abandoned for long time, and essential services provided by the state will be denied to the population. Public transportation, issuing of identity cards, and even health care and elementary and secondary education provided by the state can be denied to the population for weeks, even for months. In a region like the Federal District everybody know that the wages and benefits paid by the public sector is remarkably higher than those paid by the private sector, nevertheless strikes are much more frequent in the public sector. Though unpopular politicians are afraid to confront labor unions in many cases because they were elected with their support. Perhaps the ultimate case is the former president Lula who indeed transformed the support to labor unions into official state policy due the fact that before becoming president his entire life experience was restricted to labor union activities.      

In most countries corporatism within the state machinery is seen as something to be avoided and even to be fought due to the distortion it produces by transforming public officials into regular workers instead of public agents whose duties should be driven to serve the public interest. In fact technically a worker in a factory or in a shop has basically the commitment to perform adequately his job, while he or she expects to be fairly paid both in terms of wages and in terms of recognition, while differently public agents have to attend the public as their basic duty, and furthermore most of public agents hold also some kind of authority which is not compatible with the principles of labor unionism. Recently the Courts in Brazil have decided that Police and other armed forces in Brazil are prohibited to go on strike, nevertheless there are many other categories of public servants who are benefitted by the general regulation of labor unionism even when they legally hold authoritative positions. As a matter of fact there are enormous differences between private and public sector. In the private sector the driving force is competition and the public decides if he wants or need some product or service while in the public sector services are provided under the authority of the state. Even in the case of services available in the private sector (health and education, for example) the services are provided by public agents paid by the public supposedly because the private companies are unable to provide them.

Theoretical explanations

Theoretically Mancur Olson has developed the argument that any society moves under the influence of two types of conflicting forces: those driven to change and to progress, and those driven to avoid changes and to protect private interest. Olson became a famous scholar when in the mid 1960s he published “The Logic of Collective Action” in which he argued that public goods have to overcome the “free rider” behavior of the most people, i. e. regarding issues involving the interest of a great number of people individuals are not stimulated to push the cause but rather to be a “free rider” waiting that someone else is going to do the job. In 1982, he expanded the scope of his earlier work in an attempt to explain why nations tend to go through a process of rise and decline. The title of his book is self revealing: The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities (1982). He argues that groups such as cotton-farmers, steel-producers, and labor unions have an incentive to form lobby groups in order to influence policies in their favor even against the public interest. These policies will tend to be protectionist and due to corporatist behavior in the end they will hurt economic growth as a whole. Nevertheless because the benefits of such policies are concentrated, and their costs are diffused throughout the whole population, there will be little public resistance to them. As distributional coalitions accumulate, nations will be burdened by them taking the nation to economic decline. His work influenced the formulation of the Calmfors–Driffill hypothesis of collective bargaining. The Calmfors–Driffill hypothesis is a macroeconomic theory in labor economics that states that in any economy there is a direct relationship between the degree of collective bargaining and the level of unemployment and of economic growth.

Among conservative forces, i. e. forces resistant to changes and to modernization of economic activities, Olson includes labor unions, industries based on natural resources such as oil, copper, and aluminum. In “The Rise and Decline of Nations…” he mentions as an example the case of Chile where the industry of copper brings together a large association of corporatist interests from mining producer and mining labor unions to several industrial and commercial firms dependent on copper production. Even governmental agencies should be included in the “copper lobby” considering that copper export and copper business represent a great deal of the national taxes and even jobs in the public service. To what extent new technologies like optical fibers and electronics should be considered as threats to the copper business?

Figures in Brazil seem confirm Olson and Calmfors–Driffill hypotheses. Roughly the public sector in Brazil represents almost 40% of the country’s GDP, and some 75% of the public sector budget go to salaries, social benefits, and pensions paid to retired workers in the public sector. Only the remaining 25% is driven to maintenance and to investment, and in spite of the poor quality of the public services, labor unions continue to press for raising salaries and for hiring more public workers. Indeed in every agency and department of the public service in any level (federal, state, and municipal) inefficiency, lack of means, and lack of investment have been remarkably present. Analysts usually say that proportionally public sector in Brazil spends as much as developed economies but public services are typical to “fourth world” economies. Further than failing to provide sensitive services to the population, inefficiency of the state institutions affects the whole society by hampering productivity and burdening every economic activity. Bad roads, huge traffic jams, heavy bureaucracy, and soaring criminal indexes are only visible parts of a jumbo problem of inefficiency of the state institutions.

Eeiti Professor of the Institute of International Relations, UnB. 

Brasilia/April/2017