The Middle Path
Marcelo Cortes Neri
(marcelo.neri@fgv.br)
Centro de Políticas Sociais do IBRE e da EPGE
The Centre for Social Policies has done recent studies which showed the Brazilian New Middle Class, or Class C, earning between R$ 1064 and R$ 4591 per month at current prices in the Greater São Paulo area. Contrary to the analysis of distribution of the relative share of each group in the total income, we have focused on the share of the population who is within the parameters of income for the whole period. The present approach is similar to that of absolute poverty; only we are now concerned with other limits, such as those which determine the inclusion in class C and into classes A&B. By analogy, in the relative distribution analysis, there is a pizza-shaped graph with a fixed size of 100%: if one groups gains, another must loose. In the analysis here, not only the distributive pace, but the size of the pizza may change. The answer lies in the fact that those with lower income have grabbed a larger relative size of the pizza (inequality reduction), whereas the pizza itself has grown (growth). In the present analysis, we divide people in strata according to the amount of pizza owned by each one.
The Class C would be the real middle class in Brazil. We advise those who feel slightly rich by our parameters to use our simulator available on the study website http://www.fgv.br/cps/desigualdade/ to see the percentage of the population who is below you. For instance, to those who bear the costs of living in the Great São Paulo living with four people in the household (the average size of the household in the region): if the total family income was R$ 1064, 45,7% of the population live below this family. This would be the beginning of the class C, or the new middle class. But if the total income of this family was R$ 4591, there would be 92% of the Brazilians below it. Welcome to the middle of Belindia. The term Belindia suits Brasil well, because the little rich country
representing our elite – Belgium – é predominantly catholic. Our elite is capitalist, but attached to some guilt because of capital accumulation and enrichment. The elite, on the other side, does not enjoy seeing the existing inequality reflected in the numbers. The objective of this simulator is to provide a relative scale for each one to see his/her weight in the Brazilian income distribution.
Our study shows the emergence of a new middle class like a national phenomenon. Before the Real Plan, the same class included less than a third of the Brazilian population: 30,9% in 1993; 36,5% in 1995 (and also 2003), reaching 47,1% in 2007. In our first study, the middle class included 51,89% of the population in the six main metropolitan areas in April 2008, having grown 6,2% in the last year and 22% in the last 4 years. In the second study, the first with IBGE´s PNAD data, the new middle class included 47.1% of the Brazilian population in Ocotober 2007 – which is when the data was released. In the Brazilian metropolises, the new middle class was 50,4%. By projecting the 6.2%
growth in the last 12 months of the first research with the national coverage of the second study, 50% of the Brazilian population is in the new middle class.
Brazilian society is now half Belindia and half new middle class. A year from now, when PNAD 2008 data is released, we will make the pizza test again.
Fonte: CPS/FGV processando os microdados da PNAD/IBGE
* projetando usando PME IBGE; **1994 e 2000 são médias.
Classe C - % da População Nova Classe Média - Brasil
30,98 37,01 37,39 37,64 39,85 47,06 49,96*
41,96
38,69
32,52 36,74
36,52 38,11
36,37 45,08
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Other indicators also point to a boom in class C: house, car, computer, credit and employment registration were recently in the historical record level. The question now refers to the crisis Made in USA: until when? Our domestic market, symbolized by the new middle class, will be fundamental in the recession predicted by 99 among 100 economists. Keynes´1939 book was inspired not by the general case, but by an economy in recession, where demand was short. His 1940 article “How to pay for the war?”, in its turn, deals with the opposite: the lack of supply capacity. Parodying the “we are all monetarists now” from Franco Modigliani, “we are all Keynesian” in today’s demand scarcity. In between opening and closing holes that fuel the economy, as cited by Keynes, some essential mechanism may be jeopardized. The unconscious Keynesian policies of President Vargas in 1932 – cited by Marcelo de Paiva Abreu – that harvested and burned coffee irrigated the whole economy but more intensely the rural oligarchy. How to foster the investment, capital accumulation and the production of the poorest segments? Looking at the aggregate demand, there are some parts more and others less interesting from the efficiency and equity point of view, in the short and long run.
There are some problems on the way. Depending on the credit scenario, demand in real markets will be like a glass half empty, half full. The credit contraction must be reverted not only rapidly but also wisely in order to avoid a negative aftermath of the present recession. The habit of talking more about political failure than market failures will give place to public choices that take credit towards areas where productive investments finance is more restricted, but which will leave longer lasting impacts. As already mentioned, Brazil has its own version of a Grameen Bank represented by CrediAmigo that today operates not only in the northeast but which also holds more than two thirds of the national market for microcredit. The program follows a private rationale but is managed by a public bank, Banco do Nordeste, without subsidies. For those who believe that microcredit is – or that it should be – private, CrediAmigo has been given an award as the best experience of regulated microcredit in the American continent, according to IADB. A sign of the new Keynesian times.
In the same way as in the last years we have seen the ascension of microcredit in the developing world, reaching the Nobel Peace Prize given to Muhammad Yunus for his Grameen Bank initiative in Bangladesh, we are now shifting towards micro insurance. Microcredit works as a platform that helps people progress over the poverty line in times of growth, whereas micro-insurance are the safety nets that prevent people from receding into poverty in times of decreasing incomes.
Bolsa Família, in turn, represents a social insurance, particularly, well entrenched in the country and very valuable in times of turbulence, such as the one ahead of us. Which other country in the world has a social safety net in the same scale and design as Bolsa Familia? It does more than improving the purchasing power of the poorest population in Brazil. For instance, when food prices went up recently, it was possible to readjust the income for the poorer through an administrative decision of simple and immediate execution. Even though the food crisis would not be an aggregate problem for Brazil, a crop exporter, it would be an issue in view of Engel´s law that affects the poorest harder. Additional expenses covered by Bolsa Familia are, according to Cedeplar´s study, more intensively allocated to food consisting of a volunteer zero-hunger initiative by the families. By readjusting Bolsa Familia – resonating the election calendar – it was possible to redistribute the cake, saving the poorest from the fasting as a result of the food price inflation.
Brazil has been on a so-called middle path, not so much towards either the State or the market, combining social programs with respect for market rules;
with a large, generous, eager government without a reformist impetus.
Consequently, the country did not present the agility or speed of growth as the Asian Tigers, but it resembled more a whale with slow movements. One whale which had been stuck for the two lost decades, and since it was release only after 2004, it faces a certain reluctance of Brazilian authorities in terms of grasping the expansionary moment. Even after the worsening of the international crisis, Brazilian authorities have made statements in favour of keeping the inertia that has been unscathed by the international crisis that was
approaching. The Brazilian external reserves functioned as the additional fat that could be burned off.
Beside the prosperity of the internal consumer market and international reserves, and the official and headstrong optimism, there are other factors soothing the impacts from external crisis in Brazil, beyond the middle class impact. Despite the growing external opening and the recent credit growth, Brazil still is slightly vulnerable to these transmission channels for we are a relatively closed economy and financially regulated. In other words, what was considered inept during the world’s golden times has become a virtue in harder times.
Our current inefficiencies and inequities may become prospective virtues if well fought against. Our tax burden, which had been growing, ensured a fiscal surplus. The taxes and the size of the State in Brazil grew at on percentage point per year. As a consequence, nosso deslocamento de produto era aquém da de outros países emergentes mas agora gozamos de capacidade de não submergirmos durante a tempestade financeira ora em curso. In times of rigorous economic weather such as the one waiting for us, the accumulated reserves from the times of milder weather will ensure our survival in hardship.
Brazil, which was outside the pattern of international excellence for its inefficiencies, will be fit for the crisis that unfolds.
