Pandering to the masses … not just an American politician’s game

If one understands that the best way to improve the lot of the poor is to boost economic freedom, it’s hard to avoid disappointment when reading this Bloomberg Businessweek article about Brazilian president Dilma Rousseff’s economic policies.

Brazil’s once-richest man, Eike Batista, is watching his empire crumble. The São Paulo stock exchange has plunged almost 16 percent this year, wiping out billions in investor wealth. Yet Luzia Souza is doing better than ever.

The mother of two is one of 22 million Brazilians who have emerged from extreme poverty during President Dilma Rousseff’s three years in office. Under the auspices of a resettlement program financed by the government and the World Bank, Souza, 29, moved from a shack surrounded by open sewage and prone to flooding to a house with running water on the outskirts of Teresina, the capital of Piaui state in northeast Brazil.

Voters like Souza may help Rousseff win reelection in October, even though the economy has grown at half the pace it did under her predecessor and inflation has exceeded the official target throughout her tenure. While investors fret about Brazil’s widening budget deficit, there’s little question that Rousseff’s expansion of social programs has shored up support among her political base. …

… Thanks to efforts such as these, Brazil was the only country in the group known as the BRICS, which also includes Russia, India, China, and South Africa, to achieve a reduction in inequality in the decade through 2009. The Gini coefficient, a statistical measure of income distribution, fell 5.08 points in Brazil during that period, while in Russia and China it increased 2.62 points and 2.86 points, respectively, according to World Bank data.

Those gains have come at a cost. Lula, and now Rousseff, made “a very deliberate policy choice” to focus on inequality rather than tackling Brazil’s complex tax code, poor infrastructure, and other obstacles to economic growth, says Deborah Wetzel, the World Bank director for Brazil. As a result, Brazil’s economy has proved less resilient in the face of the global slowdown. Gross domestic product expanded 1.9 percent a year during Rousseff’s first two years in office, less than half the 4 percent annual average during Lula’s two terms. Economists surveyed by the central bank estimate growth reached 2.3 percent in 2013. “Growth has been more volatile, but the progress in reducing inequality has just been amazing,” says Wetzel. …

… Not all Teresina residents are fans of Rousseff’s policies. Afonso Noronha, a farm equipment salesman, complains that shoddy infrastructure and high labor costs are strangling business. Says Noronha: “If she did as much to help create wealth as she does to distribute it, this country would be doing better.”

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