SÃO PAULO – Brazil has changed dramatically over the past 15 years. It has set its economy on the right course, reduced poverty, lessened inequality, and consolidated its democracy. The ghosts of the past – authoritarianism, political persecution, and censorship – have been left behind, as Brazilian democracy passed important tests suchas the impeachment of a president and the rise to the presidency of a former trade union leader.
Brazil has now passed another test: having a woman at the height of executive power. The challenges facing President-Elect Dilma Rousseff are huge, but so are her advantages. The basis for continued rapid economic development has been established, and there is nothing to suggest the possibility of significant change in inflation targets, in the autonomy of the central bank, or in the floating exchange rate.
Rousseff owes her victory to outgoing President Luiz Inácio Lula da Silva and the success of his administration. She knows that Brazil’s progress under Lula was supported by stable economic growth, higher social transfers to poor households through programs such as Bolsa Familia, and democracy.
But will this same formula still work for Brazil in the future? There are warning signs that more must be done, because economic stability doesn’t automatically produce dynamism. Nor is democracy synonymous with strong institutions, and social protection cannot substitute for an efficient labor market.
More investment is essential in order for Brazil to compete in the international market, and the country’s economy needs a jolt of innovation. Productivity is low and the incorporation of new technology is still limited to an elite group of companies. Without a structural transformation, Brazil will not be able to maintain its growth for long.
Of course, state intervention in the economy risks asphyxiating the dynamism of Brazil’s companies and private initiatives. On the other hand, if the state does nothing, the economy’s structure could remain unaltered, leaving Brazil dependent on commodities.
There is no easy solution to this problem. So the main challenge for the new president will be to continue Lula’s effort to build a new relationship between the public and private sectors – a model capable of combining transparency and proactive measures that neither devolves into centralizing statism nor surrenders to the markets.
How Rousseff will manage this effort will be the clearest demonstration of her leadership abilities. Lula’s eight years in office showed developing countries everywhere that the state cannot do everything, while making no less clear to even the most orthodox that the interests of the markets do not always coincide with those of the country.
The state’s larger presence during Lula’s term in office helped Brazil find its way again. The challenge in the next 15 years will be to consolidate the advances made, continue to reduce social inequality, and eradicate extreme poverty. To succeed, support for tax, labor, and political reforms – once a part of Lula’s agenda – needs to be revived.
Brazil has come far, but in order to compete with China, India, South Korea, Russia, and other emerging countries, the predominance of low valued-added products needs to give way to the rise of an economy based on more innovative and dynamic firms. Otherwise, the country will be condemned to shine weakly on the periphery of the global market.
Meanwhile, those segments of Brazil’s population that are newly arrived to the market, while enthusiastic about their social betterment, need lasting support to lock in the gains that have been achieved in their standard of living. Indeed, a large part of the population subsists on low-productivity jobs. Their progress, therefore, depends on real improvement in the quality of an education system that was designed for the Brazil of the past.
So, to the three pillars of Lula’s success – economic growth, wealth redistribution, and democracy – two more are now needed: education and innovation to consolidate Brazil’s economic growth and ensure higher-quality institutions.
Brazilian politics hasn’t always been admirable. But today it is clear that Brazil has matured faster than its elite. Let us hope that Rousseff continues to narrow this gap and can give Brazilians the country they deserve.