On Growth and Labor, Lula Leads

Photo via Associated Press

JIYON CHATTERJEE: When Luiz Inácio “Lula” da Silva defeated right-wing populist incumbent Jair Bolsonaro in the 2022 Brazilian presidential election, his victory was touted by many as a “return to normality” for Latin America’s most populous nation. But on a policy level, Lula’s government has proved uninterested in simply maintaining the status quo, instead embracing wholesale economic reforms and investments to fundamentally transform Brazil’s economy. The result has been faster growth for Brazil as Lula proves himself to be the most effective pro-labor president in the world, wielding an approach that combines a firm left-wing ideological basis with practical policy implementation.

Lula’s Workers’ Party (PT) has a history of transformative economic governance. In his first stint in the Brazilian presidency, from 2003 to 2010, he focused his attention on dramatically reducing poverty through large-scale cash transfers: the “Bolsa Família” welfare program implemented by his government is widely recognized, even by pro-market institutions such as the World Bank, as one of the world’s most successful anti-poverty social policies. The family cash assistance program has lifted tens of millions out of poverty and has been used as a policy model for 20 other countries. The key to the program’s success is in its design: Lula’s government took a fundamentally left-wing ideological approach—government cash transfers to the poor—and tied it to practical conditions for all beneficiaries, such as keeping their children in school and taking them to regular medical checkups. This created a cascade effect where poverty was not merely temporarily lowered, but also reduced in the long-term through better child education and health.

Upon his recent return to the job, Lula has widened his focus from poverty to full-scale economic transition. First on the docket has been a technocratic change three decades in the making: in December, Brazil’s Congress finally passed the ruling government’s broad tax reform proposal to streamline Brazil’s five complicated consumption taxes into two value-added taxes. The new law will simplify the system for firms, reduce administrative waste from lengthy tax disputes, and ultimately create a more consistent stream of tax revenue for the state. Though the policy is technical in nature, it is by no means a trivial change: tax reform has long been resisted by special interests in Brazil who have benefitted from the system’s chaotic enforcement and exemptions granted by “special tax regimes,” which have finally been narrowed by the recent law. The change will ultimately help to ensure the solvency of social programs like Bolsa Família for the foreseeable future.

The next items on Lula’s list are even more ambitious—and are bound to attract more controversy. The president has embraced “industrial policy”—a comprehensive official state strategy to achieve economic targets—with a new $60 billion, 10-year plan to invest in renewable energy, pharmaceutical manufacturing, and agricultural productivity. Inspired by the similarly expansive 2022 Inflation Reduction Act passed in the United States, the “re-industrialization” plan aims to create long-term growth for Brazil by creating jobs in modern economic sectors that address climate change, pandemics, and the need for resilient supply chains.

International investors were not enthused by the announcement; due to fears of the expensive policy causing fiscal problems for Brazil, the value of the nation’s currency fell by 1.2% immediately following the unveiling of the plan. But the investors who lack faith are proving themselves short-sighted; Lula’s agenda is a necessary step to create an economically sustainable and viable future for Brazil.

The first reason why is because of Brazil’s extreme vulnerability to the effects of climate change. If the country chooses to continue on its current high-emission trajectory, the G20 projects that Brazil will see heatwaves that last 7,644% longer coupled with an ensuing 854% rise in heat-related excess death. For those solely consumed by economic figures (pay attention, investors), the projections are equally concerning: the deadly combination of extreme weather, sea level rise, and coastal erosion could cause a 7% GDP drop by 2100. The choice for Brazil is either sustainable transition now, or mass death and poverty later. In this respect, an ambitious green energy industrial plan is a necessity, not an ideological preference.

Secondly, there is an increasingly apparent need in Brazil for strengthening the domestic production of essential items. The COVID-19 pandemic has exposed a long-standing vulnerability in Brazil’s healthcare system: its excessive dependence on pharmaceutical imports. Nearly 95% of essential inputs needed to manufacture drugs in Brazil are imported, largely from China, and 80% of Brazilian municipalities face drug shortages—with the COVID pandemic only exacerbating the problem. For a country of Brazil’s size, continuing a policy of importing nearly all crucial drugs would be foolhardy if the nation hopes to emerge as a consistently healthy labor force and a stable economy in the long run. An industrial policy that ramps up pharmaceutical manufacturing is a wise response to the shortages experienced during COVID.

Finally, boosting Brazilian agricultural production would crucially increase domestic food security in an emerging economy whose agricultural agenda has traditionally been largely export-oriented. Though hunger in Brazil significantly declined after the implementation of Bolsa Família during Lula’s previous presidential terms, the pandemic saw large-scale food insecurity return to Brazil as a result of high food inflation due to supply chain challenges. Taking advantage of the potential for higher agricultural yields—combined with sustainable farming practices—could help to shore up Brazil’s existing public food procurement program and protect local consumers from global food price hikes.

Lula’s economic ambitions have not been limited to his tax reform law and industrial policy. True to the name of his party, he has advocated an active agenda in support of Brazilian workers: along with U.S. President Joe Biden, Lula is leading the Partnership for Workers’ Rights—the first ever joint global initiative to end the global “race to the bottom” in wages and workplace conditions, instead pushing for a just, inclusive economic agenda for international labor. Domestically, the president has pursued pro-labor targets by crafting a gig economy bill that will create a minimum wage and social security benefits for ride-hailing drivers,who are currently excluded from wage laws due to their status as independent contractors instead of employees. The legislation is on the path to passage after engagement with not only the 778,000 ride-hailing drivers in Brazil, but with all stakeholders—including ride-hailing employers themselves.

It is evident that, as expansive and ambitious as Lula’s plans may appear, the policies of the ruling PT government are rooted in the economic realities of Brazil and its working class. They are also proof that macroeconomic success and a concern for socioeconomic justice need not be opposing goals. Lula’s economic stewardship is demonstrably yielding fruit: his first year in office beat the first year of President Bolsonaro’s comparatively laissez-faire government in most economic indicators, including GDP growth, trade balance, and unemployment. Both pragmatism and political passion, it seems, can go a long way. In Lula’s Brazil, economic justice is fueling economic power.

Jiyon Chatterjee is a columnist for On the Record. He is from New York City and is a freshman studying economics in the College. He is especially interested in the intersection between policy, law and economic justice.