There’s a contradiction in Brazil that has long intrigued us at Bluming Thoughts: on the one hand the discredit of politics, or at least of politicians – understandably so – but on the other, a permanent wish for the government to be the solution for all the problems, especially through increased regulation or subsidies. At the same time that Brazilians are eager to become entrepreneurs, there is some sort of general opposition to making the economy more flexible. It relates to the paternalism, much talked about by social scientists, dating back from slavery times.
In an economy with so much inequality, reforms targeting fiscal sustainability can be seen by many as an unacceptable loss of rights. It is never easy to argue that increasing flexibility is the key to dynamism, and that in a more thriving economy fewer rights are necessary. In other words, attempting to grant too many “rights” actually leads to less efficiency and thus less output to be shared between both labor and capital. The government of a less flexible economy will have less available resources for anything, including income redistribution, for instance. Ceteris paribus, more rigidity will imply higher taxation levels for the same amount of desired “benefits”. Nevertheless, higher taxation implies lower competitiveness, and the country locks itself in a low growth trap.
In an economy with so much inequality, reforms targeting fiscal sustainability can be seen by many as an unacceptable loss of rights. It is never easy to argue that increasing flexibility is the key to dynamism, and that in a more thriving economy fewer rights are necessary.
Obviously, no economic outlook will ever justify leniency towards “wrong-doers”. “Rouba mas reforma” (he steals, but he reforms), a sort of variation of the once popular motto “Rouba mas faz” (he steal, but he delivers) does not make any sense. Because something that increases the conviction among Brazilians that sticking to the rules is worth doing would be the most essential “reform”. The more Brazilians abide by the law, the more predictable the economy becomes, with growth as a by-product. The example has to come from the top.
That said, we have been surprised by the relative silence coming from Brazilian streets. First, as regards the recent reform agenda. The cap on federal government expenditure was approved, being probably the biggest curb to public spending growth since the 1988 Constitution. Still, the country has not walked off on strike. Maybe a new idea is gaining momentum: that if public institutions are so flawed, the “loot” (in this context, the government budget) needs to be smaller.
And second, the silence towards leniency. Bluming Thoughts has had no access to good surveys on why that is the case, and would not dare to come up with a sociological explanation for that. But preferences have been revealed. Someway somehow, people have preferred to ignore the whole political class and do their things instead of “negotiating” via demonstrations. Austrian economists tend to say that the increase in liberty in a society does not come from within: the system does not change by more libertarians joining the government. Instead, liberty comes by means of more libertarians operating in a way that makes the system less relevant – using currency that is not government controlled, for example. Or advertising in virtual platforms free from regulation. Or maybe by finding ways of ignoring the government instead of debating with it?
Smaller loot to be shared among politicians, lower necessity to talk to politicians: bearing in mind the approaching 2018 elections, it seems like an opportunity not for those who claim they are outsiders in politics but change their minds the second after they join the government. Instead, it seems like whoever is able to promise and deliver less damage from politicians has an edge. In the current Brazilian state of affairs, it will only seem feasible via a reduced and more restricted government. Make it small, then make it simple: quite a big and complicated task.