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ABSTRACT
This paper proposes to critically situate how social developmentalism reshaped social policy in Brazil in the 2000s, to stimulate access to credit and to financial markets, thereby fostering a transition towards a mass-consumption society. This structural move is radically distinct from the very framework which inspired the tenets of early Latin American structuralist thought in the post-war period. Whereas seminal structuralism neglected the role of social policy, Brazilian social developmentalism reframed it to broaden access to consumer credit and other financial services, such as insurances. In this new financialised framework, social policy has been used to underwrite a financial inclusion model that overturned classic tenets of social policy. As a result, not only household debt has abruptly escalated, but also social insurance and welfare benefits have been partially absorbed as financial rents, deepening economic insecurity and social vulnerability.
Acknowledgements
I thank Ana Carolina Cordilha for her assistance with data collection and processing. Special thanks are due to Alfredo Saad-Filho, Luiz Fernando de Paula, Eudes Lopes, and the anonymous referees for their valuable comments to a previous draft. I am indebted to Gunnar Trumbull for authorising the use of his data in this paper.
Disclosure statement
No potential conflict of interest was reported by the author.
Notes on contributors
Lena Lavinas is currently Fellow at the Wissenschaftskolleg (Institute for Advanced Study, Berlin (2016-2017). She is Professor of Welfare Economics at the Institute of Economics at the Federal University of Rio de Janeiro and Senior Researcher (Level 1) at the Brazilian National Research Council (CNPQ). She holds a PhD from the University of Paris. Most recent publications: The Takeover of Social Policy by Financialization: The Brazilian paradox (Palgrave Macmillan, forthcoming 2017) and A Moment of Equality for Latin America? Challenges for Redistribution, along with Barbara Fritz (Ashgate 2015).
Notes
1 See Palley (Citation2013: 203) for the Keynesian era virtuous circle growth model.
2 In March 2013, the annual nominal interest rate in the retail sector for personal loans was 60.10 per cent, skyrocketing to 92.29 per cent in January 2016. Annual average interest rates in both periods for consumer credit were, respectively, 87.97 per cent and 142.74 per cent (Anefac Citation2016).
3 Despite a positive trajectory of real increases, average earnings in Brazil remain relatively low (R$ 2000 is the average monthly labour earnings in December 2014, or less than US$700). It is worth recalling that 84 per cent of all 21 million formal jobs created in the period 2003–2014 were below two times the minimum wage (or approximately US$525) (IBGE, Citation2015b).
4 Brazilian Central Bank, database 2015a.
5 From 1990 to 1994, the annual average inflation rate reached 1.158 per cent. After the Real stabilisation plan, adopted in 1994, it dropped to 9.4 per cent p.a. in the period 1995–1998, and later on, from 1999 to 2003, to 8.9 per cent p.a. (Hermann Citation2010).
6 Throughout this article, we are in conversation with the social developmentalist current of economic thought – also termed “redistributive developmentalism guided by the state” (Bastos Citation2012). This growth model was favourable towards a particular articulation between social policy and political economy, the key object of our analysis.
7 Robert Boyer reminds us that Fordism, which resulted in three decades of prosperity, heightened social justice, and further equity, was bolstered by two central pillars: technical progress and institutional innovations in the social reproduction sphere. These key building blocks made (1) universal access to education and to high-skills training an achievement of democracy; (2) de-commodified access to healthcare, housing, and other goods and services a priority; and (3) the development of a progressive tax system with emphasis on the redistribution of individual wealth a strategic focus. These were foundational principles of welfare capitalism (Boyer Citation2015: 302).
8 For an update on this trend, see Lavinas forthcoming (Citation2017).
9 On the markets for debt renegotiation, see Marques (Citation2015). The article uncovers how debt maturity extensions help obviate insolvency, but in return for higher interest rates.
10 DRU – Disconnecting of Federal Revenue. Since 2014, the DRU reserves 20 per cent of gross revenue from all public expenditures. This confiscation of taxation is implemented in the name of forming a fiscal surplus, which represents forced federal savings at the expense of the reduction of public spending.
11 One should recall that cash and benefits in kind achieve different goals in terms of preserving and enhancing well-being. Though income support varies considerably, either in the form of contributory or non-contributory benefits, they have been tailored for purposes of insurance, smoothing consumption, and poverty relief. They tackle primarily income deficits and help in solving problems of market failures. In contrast, benefits in kind address other complex issues referring to equality of opportunity and, therefore, are intimately related to equity issues (Barr, Citation2004).
12 These clinics are not always staffed with doctors, but rather with community health agents and nurses.
13 A total of 14 federal universities were created. Meanwhile, the Program for the Restructuring and Expansion of Federal Universities (REUNI) sought to improve existing institutions and dramatically expand class sizes at public institutions.
14 PROUNI, or the University for All Program, created in 2004, awards full or partial (50 per cent) scholarships to students from poor families and public high schools to study at private institutions – which, moreover, are tax-free.
15 Educational credit was introduced with Programa Crédito Educativo - CREDUC, in 1971. It offered loans to finance undergraduate degrees at private colleges. In 1999 it was substituted by FIES, under the Cardoso administration.
16 In 2015, under the fiscal adjustment introduced by Rousseff, FIES’ interest rates returned to 6.5 per cent p.a.
17 A publicly traded company, with 70 per cent of its capital in the hands of international groups from the USA, China, South Africa, and Singapore.
18 Personal credit is credit supplied to households and individuals, basically under two distinct modalities: either oriented (mortgages, for rural investments, and other collateralised loans) or ‘open’ (known as ‘consumer credit’).
19 The credit instruments to individual consumers included overdraft banking services, consigned credit, non-consigned credit, automobile loans, credit cards, credit discounts, and miscellaneous ‘open credit’ (BCB Citation2015a).
20 New data series for credit only from March 2007.
21 Borça Júnior and Guimarães (Citation2015) conducted an ordinary least squares estimation and concluded that consumer credit was responsible for nearly 45 per cent of the growth in household consumption and one-third of GDP growth in that period.
22 While interest payments are mainly determined by monetary policies, principal risk and moral hazard are ultimately a consequence of information asymmetries (Stiglitz and Weiss Citation1981), a structural trait of credit markets.
23 Informality impeded the tracking of cash flows in the past, encouraging lenders in the financial sector to raise interest rates to compensate for excessive losses from defaults.
24 The consigned credit for workers regulated by the CLT was instituted by Law 10.820 on December 17, 2003, during the Lula administration. Soon after, in September 2004, by way of Law 10.953, which amended the previous law, this right was extended to retirees and pensioners of the INSS. Consequently, the creation of consigned credit favoured initially public employees and workers regulated under CLT. The so-called Personal Loan with Payroll Deductions rapidly overtook the retail banking sectors across the country for those who held steady jobs that were stable and practically without risk, as well as public service positions. A year later, this practice was opened to pensioners and retirees as well, regulated by the INSS (Social Security System).
25 Microcredit was initially introduced in Brazil under President Fernando Henrique Cardoso, first in the hands of NGOs, and from 1999 onwards as a product of the banking system. It is only with President Lula that a federal microcredit programme was created, under the rule of the National Monetary Council. See Hermann (Citation2010) for a detailed analysis on distinct modalities of microcredit in Brazil.
26 Law 10.735 of 2003.
27 Public bank.
28 In theory, it was predicted that the beneficiaries of Bolsa Família would be granted access to mortgage loans, life insurance, capitalisation, and savings. While savings accounts were in fact created, with 2.3 per cent of family beneficiaries receiving this service, the rest of the financial inclusion mechanisms failed to reach more than 0.3 per cent of these families by 2010. Ultimately, the adherence to the programme would be very low.
29 BCB, Relatório de Inclusão Financeira, n. 2, 2011.
30 Monthly balance limited to R$3000 or US$750.
31 The inflation rate measured by the IPCA index was 10.67 per cent in 2015.
32 According to Barr (Citation2004), disposable income is calculated by retracting from the total household income the expenses allocated for direct taxes and social contributions such as Instituto Nacional de Seguridade Social - INSS. It does not take into account, however, the payment of services that should be public and whose supply is nevertheless private.