ECONOMIC ANALYSIS DANGER 2

SURVEY OF BRAZIL PART 2 TO BE CONTINUED

5- GINI INDEX

This index, created by the Economist Coraddo Gini, represents the repartition of national revenues between citizens. 1.0 means than one person receives the whole revenue of the country and zero means than each citizen receives the same revenue.

In France this index is 0.33 (quite high for Europe average of 0.31), and is much better in Germany with 0.27 and Sweden with 0.23. This index is near 0.57 in Brazil and expresses a very high inequity between people, whose roots are deep. This index improved a little but is still unbearable particularly if we take into account that President Lula is ending a second and last mandate and was assumed to represent the interest of poor people.

This institutional inequality has many roots, which can be seen in my report on Brazilian History dated 4 January 2010 and generates social instability and disorders, which we will develop in the following chapter. This shows that workers do not benefit of the fruits of their works and are mostly exploited to a big extent. The National Revenue is kept in the hands of a small part of the population and its limited amount per capita generates high poverty.

The Federal Government could have moderated this situation by increasing direct taxation with the purpose of redistribution in various forms and by reducing substantially indirect taxation which affects in priority the revenues of poor people.

Increasing direct taxation may also lead corporations to more managerial efficiency to achieve their targets instead of lulling them with more financial subsidies and alleviations.

 The Wealth taxation (tax on High Revenues) has been voted but its application is still pending. OCDE thinks that wealth tax should be cancelled despite an evident need of Ethics and solidarity between citizens. We will come back on this issue.

Ending with underground economy would have also brought more resources to the Nation but requests more stringent controls.

The current federal system generates also much inefficiency and probably prevents the Government to implement of adequate policies at the scale of the Nation but here also recent History of Brazil is resilient at the expenses of the whole Brazilian people.

The possibility of reaching in many years, a Gini Index similar to the one of USA as indicated by OCDE does not make sense since USA have a very unfair Gini index of 0.45 for a developed country. Many aspects of USA as revenue repartition, Social protection and access to Education should be corrected and this is the target of President Obama. Nevertheless these inequalities are more tolerable in USA because of their very high GDP i.e. an unfair repartition may still give a decent minimum Revenue per person [Federal minimum wage in USA is USD 1250 (900 Euros) and is much higher is many States]. This situation has nothing to do with Brazil.

6-POVERTY LINE – POVERTY AND CONSEQUENCES

A-POVERTY LINE DEFINITIONS

According to Brazil 31% of its population is under poverty line (2005). This figure is by far underestimated according to more acceptable criteria as presented below.

They are many ways to assess poverty line like earning of less than 1.4 Euros per day (USD 2) or daily food representing less than 2200 calories.  In France poverty line definition is much higher in value with 50% of the median wage, but European Union prefers 60% of median wage.

According to French criteria poverty line is 733 Euros per month for one single person (population below poverty line in France was 6.2% of the whole population in 2004). Population below poverty line is in appearance bigger in Germany than in France but in Germany the threshold is 1 764 Euros as compared to only 733 Euros in France i.e. 2.4 times more. With a more reduced Gini Index and a much higher poverty line threshold Germany appears to be a more social country than France.

In Brazil 54 Millions of people i.e. 27% of the population has less than half of the minimum wage (see www.brasilescola.com), which means that 27% of the population lives with less than 100 Euros per month.

Brazil is discreet regarding figures on real poverty. According to “Ministerio do Trabalho” the median wage of teachers was 943 Reals in 2004. Even if increased to an assumed figure of 1 200 Reals, this gives 480 Euros, which is less than 65% of French poverty line, this is significant since prices in Brazil are similar or higher than in France.

 We might assume than more than half of Brazilian population is under poverty line according to French criteria and in the context of high Brazilian prices.

As a matter of fact, many Brazilian prefer to buy basic domestic equipment abroad if they can afford to travel. Brazilian Airlines authorizes passengers to bring luggage of 64 kg per person with cost of only 85 Euros by additional 32 KG.

B-CONSEQUENCES OF GREAT POVERTY

-Food

If probably the majority of Brazilian people live below poverty line, most of them live in poverty according to French criteria.

The new minimum wage of 510 REALS i.e. 200 EUROS does not permit to live.  The basic need is food composed traditionally of rice mixed with beans (feijão) to form a kind of nutritive mash consumed regularly everywhere in Brazil.

-Lodging

With such revenues lodging is difficult after having paid food, and many families’ members may share a same lodging or build a free one in Favelas.

Favelas are thus an economic necessity for many people due to their purchasing power. Favelas are everywhere in Brazil and accepted by the whole population and Authorities as a normal lodging. The large population of Favelas cannot afford the payment of lodging. Normal lodging rented or bought is in the vicinity of European level in big cities.  Favelas may be in simple wood planks against a wall or built with more solid materials; the persons inside have no property rights and may be expelled at any moment.  Favelas are favorite places for drug trade and might suffer gang laws since police presence is punctual in such places which do not exist officially. They concentrate high criminality. Favelas built with solid materials remind in certain aspects the Palestinian camps. They are due to inadequate social policy and unfortunate traditions of the country. Police is thus not an adequate response to the problem of Favelas. The adequate solution is a social policy permitting to lodge decently population of Favelas in normal districts. This could be an excellent challenge to achieve before Olympic Games, instead of developing Police squadrons to welcome future spectators of the Games.

7-PUBLIC DISORDERS CREATED BY THE INSTITUTIONAL POVERTY

Deprivation does not bring lot of expectations to most of people; drugs and alcoholism is common way of consolation. On top insufficient remuneration from work leads among others many people to find additional money in criminality.

Many figures are published regarding murders in Brazil. In 2009, many sources reported 55 000 murders committed in Brazil, which represents a rate of near 28 murders for 100 000 inhabitants.

As a big country Brazil seems to rank number 3 (more or less same ranking as Venezuela) in term of murders index just after Colombia (number one) and South Africa (Number 2).

Murders are more concentrated in cities and risk varies from one to another city. If we consider the 3 main cities of Brazil, Belo Horizonte ranks first with a rate of 49 murders for 100 000 inhabitants, followed by Rio de Janeiro: 38 and Sao Paulo: 24.

From 1998 to 2009 Brazil has known a regular and substantial increase of population in jail from 102 for 100 000 inhabitants to 242 for 100 000 inhabitants (Index in France and Germany are around 90). The population in Jail is near half a million people in a premises made for a maximum of 260 000 persons. Prisons are overcrowded and are crime schools.

Bureau of Consular Affairs of US Department of State made a pragmatic description of the situation (extract): “Crime throughout Brazil has reached very high levels.  The Brazilian police and the Brazilian press report that the rate of crime continues to rise, especially in the major urban centers, though it is also spreading in rural areas.  Brazil’s murder rate is more than four times higher than that of the U.S.  Rates for other crimes are similarly high.  The majority of crimes are not solved.”