A Dutch Treat for Brazil?

Brazil's successful return to the financial markets at the end of April and the strengthening of the country's currency, the real, have shown that the election of President Luiz Inácio da Silva (Lula) has not led to a collapse of foreign confidence. But nor do recent positive developments eliminate the need for structural economic reforms. Lula recognizes that progress in this area, including labor market reform, is critical if Brazil is to grow sufficiently to allow him to carry on his ambitious social agenda.

How Lula, a former metal worker and founder of CUT, which also represents most automobile workers, manages relations with the trade unions will be critical. Recent strikes by car workers at General Motors, Renault, Volvo, and Ford factories in Brazil do not augur well. Proposed social security and tax reforms, presented to Congress at the end of April, seem to be creating additional tension.

Lula should look to Europe for examples of how to achieve high rates of growth and job creation yet maintain social protection. Europe also can provide a roadmap for politicians determined to move from being anti-market left-wingers in opposition to reform-minded statesmen holding power. Spain's Felipe González and Britain's Tony Blair both made that journey. But a better example may be Wim Kok, who stepped down last year after eight years as Dutch Prime Minister. Both Lula and Kok share the unusual distinction of becoming heads of government after serving as trade union leaders.

Upon reaching the top of the FNV, Holland's largest trade union, Kok found himself in a position of considerable influence in Dutch economic policymaking. During his tenure as a union leader in the late 1970s and early 1980s, the Dutch economy experienced prolonged malaise--stagnant growth, high unemployment, prohibitive interest rates, and low corporate profitability. Large fiscal deficits crowded out private investment.