Journal of Business and Economics, ISSN 2155-7950, USA

September 2017, Volume , No. 1, pp.

DOI: .
Academic Star Publishing Company, 2017
http://www.academicstar.us

Constructing Brazilian welfare: achievements and dilemmas

Kleber Chagas Cerqueira

University of Brasilia
kleberch@unb.br

Abstract

Grounded on the concept of ratchet effect of distributive social policies, I propose in this
work an explanation on the intriguing resilience of levels of social welfare and distributive
outcomes, despite the severe economic crisis faced by Brazilian economy since 2013. By
working on the more recent data of PNAD (National Survey by Household Sample), I seek
to demonstrate that some existing distributive social policies - like Minimum Wage and
Income Cash Transfers (Bolsa Famlia), are crucial to explain that resilience. Relying on
opinion polls and on political debate at the country, I show that these policies have
transformed the distribution of preferences and the universe of actors, raising the political
and social costs of moving to another regime. This is a path dependent effect which
supports the approach on public policies as institutions, that is say, as rules of the game
that produce policy effects and, thus, can create new politics. In light of this approach and
of the available data, the work shows that social policies implemented by the Lula
government (2003-2010) transformed the political preferences of the population and
altered the distribution balance of these preferences among Brazilian political and social
actors. Finally, it shows that this ratchet effect is at the root of political and economic trap
experienced by Brazil in the present crisis, by reducing the options of the macroeconomic
adjustment and narrowing the possibilities of a new political pact needed to overcome the
crisis.

Key words: Brazilian welfare; economic policy; social policy; rachet effect;
JEL codes:
Introduction

In his very interesting article on the effects of large-scale public policies over
institutions, Pierson (2006) argues that there are good reasons to treat public policies as
institutions, since most of the politically generated rules of the game that directly help to
shape the lives of citizens and organizations in modern societies are, in fact, public
policies. Moreover, he points that we have already considerable evidence that specific
policy interventions often have very substantial and enduring political consequences.

Furthermore, Huber and Stephens (2001) identify the policy ratchet effect as the
most important mechanism through which the pattern of long-term government changes
the preferences, the expectations and the universe of actors, thus affecting social policy.

Thereby, Huber and Stephens (2001) defined the ratchet effect on social policies
as the difficulty to reverse patterns of welfare state policies since they were embedded as
institutions into society. In their terms:

Until the era of retrenchment, it was rare for secular conservative parties to
roll back welfare state reforms instituted by social democratic or Christian
democratic parties. Indeed they generally accepted each new reform after it
had been instituted, and the new center of gravity of the policy agenda
became defined by the innovations proposed by the progressive forces in
society. The reason for the change in posture of the conservative parties
was that the reforms were popular with the mass public, especially the
broad-based policies in the areas of pensions, education, and health care,
which constitute the overwhelming majority of social expenditure in all the
countries under study here. The support for policies quickly broadened
once citizens enjoyed the benefits of the new policies, and thus the mass
opposition to cutbacks in the policies was much broader than the mass
support for their introduction. Thus, the new policy regime fundamentally
transforms the preferences of the population.

Following this approach, I also tried to understand in what sense politics matters
for social policies outcomes, by taking Brazilian case to show that partisan preferences
result in different patterns of distributive governmental choices. Thereby, as pointed by
Huber and Stephens (2012), the strength of left parties has shaped social policy and
inequality in Latin America.

From that, I show that some social policies implemented by Lulas government
(2003-2010), of the leftist Partido dos Trabalhadores-PT (Workers Party), have altered
the preferences, the expectations and the universe of actors in Brazilian society. These
social policies did so by increasing the political and social costs of moving to another

2
regime and have contributed to the enlargement of the Brazilian welfare state designed by
de Federal Constitution of 1988.

Thus, grounded on the concept of ratchet effect of distributive social policies, I

propose an explanation on the intriguing resilience of levels of social welfare and
distributive outcomes in Brazilian society, despite the severe economic crisis faced by
Brazil since 2013.

In fact, Brazil has widely been recognized as a major example of unequal society.
As shown by Haggard and Kaufman (2008), around 1980 Brazil exhibited the worst Gini
Index among the major Latin American countries.

However, since the democratization and the new Federal Constitution of 1988, the
country began to build something like a welfare state. The major social policies
responsible for the first steps in that direction are the universal public retirement and
pension system, the universal public health care and the universal public basic education.

Nevertheless, despite many significant social improvements brought by them,

these great universal social policies were not able to produce considerable changes in
Brazilian welfare nor in inequality reduction, as we can see below:

Share of household in extreme poverty (%)

25.00
Constitut 1988
20.00
Gov FHC
15.00

10.00

5.00
Cruzado Plan
0.00
1976
1977
1978
1979
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1992
1993
1995
1996
1997
1998
1999
2001
2002

Source: ipeadata.gov.br.

3
 Share of household under poverty line (%)
45.00
40.00
Constit 1988
Gov FHC
35.00
30.00
25.00
20.00
15.00
10.00 Cruzado Plan
5.00
0.00

1982
1976
1977
1978
1979
1981

1983
1984
1985
1986
1987
1988
1989
1990
1992
1993
1995
1996
1997
1998
1999
2001
Source: ipeadata.gov.br.

Income inequality - Gini Index

0.640

0.620

0.600

0.580 Gov FHC

Constitution 1988
0.560
End of Military Regime
0.540

2001
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000

2002
Source: ipeadata.gov.br. Estimated data to 1991, 1994 and 2000.

In fact, in a study on social policies and on Brazilian welfare state, Doctor (2012)
asks herself how can countrys social outcomes be so bad, considering that the level of
expenditure on social policies, as share of gross domestic product (GDP), is similar to the
level observed among developed countries. For her, the explanation could be at the very
nature of Brazilian democracy, in its development process and in the kind of welfare state
regime.

Schneider (2013) presents an approach that help us to understand this intriguing

reality. According to him, Latin America has a distinctive and enduring form of hierarchical
capitalism characterized by multinational corporations, diversified business groups, low
skills of labor force, and segmented labor markets.

In this view, institutional complementarities combine features of corporate

governance and labor markets, and thus contributed to institutional resiliency. Political
systems generally favored elites and insiders who further reinforced existing institutions
and complementarities. Hierarchical capitalism has not promoted rising productivity, good
4
jobs, or equitable development, and the efficacy of development strategies to promote
these outcomes depends on tackling negative institutional complementarities that make it
difficult to escape the perverse balance that is the low-skill trap.

Changing the trend: the Model of Domestic Mass Consumer Market and its
performance.

However, despite this institutional framework, things began to change in Brazil

from begin of the current century, with Lulas government (2003-2010).

Share of household in extreme poverty (%)

25.00

Constitut 1988
20.00
Gov FHC
15.00
Gov Lula

10.00

5.00

0.00
1976 1978 1981 1983 1985 1987 1989 1992 1995 1997 1999 2002 2004 2006 2008 2011 2013

Source: ipeadata.gov.br.

Share of household under poverty line (%)

45.00
Constit 1988
40.00
35.00
Gov FHC
Gov Lula
30.00
25.00
20.00
15.00
10.00
5.00
0.00
1976 1978 1981 1983 1985 1987 1989 1992 1995 1997 1999 2002 2004 2006 2008 2011 2013

Source: ipeadata.gov.br.

5
 Income inequality - Gini Index
0.700

0.600

0.500

0.400 Constitution 1988 Gov FHC Gov Lula

0.300

0.200

0.100

0.000
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Source: ipeadata.gov.br. Estimated data to 1991, 1994, 2000 and 2010.

What can explain such a new situation in terms of inequality and of welfare
outcomes?

Having in mind that there was no remarkable change in the major social policies
(the universal public retirement and pension system, the universal public health care and
the universal public basic education) and nor substantial shift at the countrys institutional
framework, we are strongly led to suppose that the causal factors stay in other distributive
social policies.

Our Hypothesis points to the minimum wage promotion policy and to the cash
transfers program (Bolsa Famlia).

Since Lula began his government (2003-2010), he introduced a policy for

minimum wage explicitly oriented to produce distributive effects on Brazilian society. This
policy consisted in make the minimum wage, nationally determined, increase annually
above the annual inflation rate, in order to expand the historically very restricted Brazilian
market and thus creating a real domestic mass consumer market.

This model of economic and social policy was presented in the first four-year plan
released by Lulas government (Plano Plurianual-PPA 2004-2007) and adopted the
concept of a virtuous circle, started by income gains that would generate enlargement of
consumer market, what would produce more investment and thus productivity
improvements, which, in turn, could be transferred to labor force. Some of its formulators
identified this policy as the strategy for growth along with income redistribution via
production and mass consumption, or, simply, the model of domestic mass consumer
market (Bielschowsky, 2015).
6
 As stated in the Plano Plurianual-PPA 2004-2007:

If the mechanism of transmission of productivity increase to the purchasing

power of working families get right, you can establish the following virtuous
circle: increased incomes of working families / expansion of mass
consumer base / investment / increase productivity and competitiveness /
increase in income of working families - or, in short, a virtuous circle
between investments and workers' household income. Brazil is one of the
few countries in the world that has the conditions for growth by this strategy
due to the size of its potential consumer market. (PPA 2004-2007).

The model of domestic mass consumer market in stylized fashion 1:

Wage
Increases

Increasing Increase
Productivity in demand

Increase in
Investiment

The implementation of this model produced an expressive new trend in the real
value of the minimum wage. Indeed, this value, which at the end of the 1990s had not yet
recovered the level reached at the early of the decade (around R $ 400), almost doubles
its value in the next decade, as shown in chart:

1 Roda Castro-Bielschowsky (The Castro-Bielschowsky Wheel). For more information, see Cerqueira
(2015).
7
 Minimum Wage - Real Value (1993-2016)
1,000.00
900.00
800.00 Gov FHC
700.00
600.00
500.00
400.00
300.00
200.00
100.00
Gov Lula
0.00

2000.01

2015.01
1993.05
1994.01
1995.01
1996.01
1997.01
1998.01
1999.01

2001.01
2002.01
2003.01
2004.01
2005.01
2006.01
2007.01
2008.01
2009.01
2010.01
2011.01
2012.01
2013.01
2014.01

2016.01
Source: ipeadata.gov.br.

The economic and social data of Brazil between 2003 and 2014 show that the
model of domestic mass consumer market reached, for almost twelve years, its goal to
produce economic growth through income distribution. The proposal of the virtuous cycle
triggered by continuous wage increases and redistributive social policies, in order to
positively impact demand, investments and productivity, ran exuberantly by 2010. Over the
following four years, already under economic growth stagnation, this policy still showed
enough energy to put puzzles to conventional economic theory, such as maintaining
historically low levels of unemployment and labor market informality, as we can see below:

GDP Annual Rate (2001-2014)

8.00

6.00

4.00

2.00

0.00
1 2 3 4 5 6 7 8 9 10 11 12 13 14
-2.00
Source: ipeadata.gov.br.

8
 Unemployment Rate (1992-2012)
12.0
10.0
8.0
6.0
4.0 Gov FHC Gov Lula
2.0
0.0

2004

2011
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003

2005
2006
2007
2008
2009
2010

2012
Source: IPEA (estimated data to 1994, 2000 e 2010).

Informal economy Rate (1992-2012)

70.0
60.0
50.0
Gov FHC
40.0
Gov Lula
30.0
20.0
10.0
0.0
2008
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007

2009
2010
2011
2012
Source: IPEA (estimated data to 1994, 2000 e 2010).

Indeed, recent data of poverty reduction and social mobility have made Brazil one
of the major world reference in fighting hunger and poverty, according to the Food and
Agriculture Organization of the United Nations-FAO (FAO, 2014). This led to a huge
academic debate on the rise of a new middle class in the country.

The important deconcentration movement experienced by income distribution,

revealed by the Gini Index trend since the begin of the century, was observed in recent
study of International Labor Organization of the United Nations-ILO, which shows Brazil as
the second country in the entire world in reducing wage inequality in the period (ILO,
2014).

Although the improvement in income distribution in this period is common to many

of Latin Americas countries (Ferreira, 2013), it is far from be uniform. In fact, and
remarkably, the wage share in gross domestic product (GDP) increased systematically in
Brazil since the beginning of the century, in a trend inverse than the observed in other

9
major countries of the continent, like Mexico, Chile, Colombia and Venezuela, as shown by
Tosoni (2014):

Another way to see the important deconcentration movement experienced by

income distribution, revealed by the Gini Index trend, is by looking to the ratio between
10% richer and 40% poorer household income per capita:

Household Income Per Capita - Ratio between

10% richer and 40% poorer
35.00
Gov FHC
30.00
Gov Lula
25.00
20.00
15.00
Constit 1988
10.00
5.00
0.00
1988
1989
1990
1992
1993
1995
1996
1997
1998
1999
2001
2002
2003
2004
2005
2006
2007
2008
2009
2011
2012
2013

Fonte: Ipeadata.

Large number of families with members who receive minimum wage in Brazil have
their monthly income per capita situated below the poverty and the extreme poverty lines.2
Thus, it is clear that one of the main instruments of the extraordinary reduction in poverty

2 IBGE (2013). On poverty lines, see http://www.mds.gov.br/brasilsemmiseria/Livro/artigo_2.pdf. On

methodological problems of measurement, Soares (2009).
10
recorded in the country, during the PT Governments, was the minimum wage promotion
policy. Lavinas and Martins (2012) believe "what else contributed to the reduction of
poverty and indigence was economic growth, which has generated a large number of new
jobs, coupled with the strong recovery of the real value of the minimum wage".

At the same time, the large portion of the poor population outside the formal labor
market, which would not be directly reached by the increase on minimum wage, was
directly benefited by the massive expansion of social policies, especially of the Bolsa
Famlia program.

Indeed, again according to Lavinas and Martins (2012),

almost 45% of the indigent busy performing activities that can be

associated with non-market, such as construction and subsistence
production or still unpaid. The condition of informal employee has small
weight, about 25%. It means that more than two out of every three workers
living in extreme poverty are working on almost subsistence activities or are
employed.

So, we can say that the combined action of the minimum wage promotion with the
Bolsa Famlia has been the great engine of the model of domestic mass consumer market,
and responsible for significant changes in Brazilian social structure.

As point Costa and Lobo (2014), from UNDP and Eclac data, Brazil remains one
of the world champions in terms of inequality in income distribution, behind 113 countries.
However, in terms of poverty reduction, the country advanced 10.2 percentage points
between 2001 and 2007, i.e. achieved in seven years what the Latin America as a whole
took 15 years to achieve.

The advent of the Bolsa Familia not only improved the living conditions of tens of
1,000,000 of Brazilian families in recent years located in informal working class category
in terms of Huber and Stephens (2012) but also contributed to important changes in the
structure of income distribution in the country. Hoffmann (2013) estimates in up to 20% the
participation of the Program in reducing inequality in household income distribution in
Brazil between 2001 and 2011.

There is, however, another effect of the Bolsa Famlia, indirect and far less
commented, over the country's economy, the program turned miserable and poor into
consumers, ie, it was a key piece in the establishment of the model of domestic mass
consumer market.

11
 Thus, the economic rise of the former poor and miserable resulted in the creation
of a huge new segment of the informal working class, leading it to be engaging in social
and political support to the developmental coalition3.

The consumption explosion of this new segment of working class has promoted an
unprecedented dynamism of trade in "deep Brazil". The thousands of small municipalities
of the country, cities with less than 30000 inhabitants, which concentrate the largest
portion of vulnerable population. Places that have undergone a real revolution in
consumption, witnessing a volume of wealth movement never seen, beside a
corresponding climate of prosperity4.

During more than 10 years, economic dynamism and economic prosperity put
large part of the population of these regions supporting these social policies, and attracted
the support of large portions of the petty bourgeoisie (small businesses) and even big
business segments, animated and interested in the continuity of this process.

But there is another equally important aspect, pointed by Chomitz and others
(2007), observing that the ratio of per capita income in the richer State over the poorest
State was 8.9, in 1960, went to 6.2, in 1996, and to 7.7 in 2000. The same goes for the
human development index (HDI): among the ten cities with the worst HDI in Brazil, seven
were in the Northeast in 1991 and eight in 2000.

That is, the regional income disparity, which fell between 1960 and 1996,
increased since then until the end of the Decade of 1990. And subsequently decreased as
a result of the heavy social and economic action of PT Governments in the poorest parts
of the country5.

All this helps to explain the spatial dimension of PT Governments support and to
answer the question of why it has been so much stronger in the Northeast.

3 One of the first work in this approach is Hunter and Power (2007).
4 Neri and others (2013) calculated the multiplier effects of social transfers on the gross domestic product
(GDP) and concluded that the greatest impact is by the Bolsa Famlia. In their simulations, the multiplier
effect of the Bolsa Famlia is of R$ 1.78; that is, each additional real spent on the Program would stimulate
an increase of 1.78 R$ in GDP. Bigger still was the effect of the Program found on final consumption of
households, with a multiplier effect of R$ 2.40 per real spent.
5 It is not negligible the relative weight of the population receiving up to one minimum wage or Bolsa Famlia

in the Northeast. But others strategic actions of infrastructure as ports, highways, railways, dams,
hydroelectric plants and other investments provided a more accelerated growth of income of North,
Northeast and Midwest compared to the rest of the country and help to understand why this reversal
occurred in regional income disparities during the PT Governments. See
http://www.ibge.gov.br/home/presidencia/noticias/imprensa/ppts/00000015422711192013272921125925.pdf
[accessed on 03/04/2015].
12
 From the point of view of the social structure of the country, the policy of
permanent valorization of the minimum wage, central to the model of domestic mass
consumer market, besides helping in raising the standards of living of the most vulnerable
population, also contributed to the rise of several segments. Consequently contributed to
important changes in the structure of social classes in the country, with the emergence of
a majority portion of the population to the income bracket C, the so-called "new middle
class" or "new working class.

Also quite significant is the impact of the recent and strong increase of the
minimum wage on retirees and pensioners, considering that the larger share of this
segment receives this value and. Moreover, the fact that there is a high concentration of
poor households whose main source of income is exactly in retirement benefits payments
and pensions. This fact had already been noted by the Special Committee on minimum
wage formed in the House of representatives and that dealt with this issue in the year
20006.

In addition to the significant recovery of the purchasing power of the population

directly benefited by the adjustments of the minimum wage, there were repercussions also
in located just above this income range. Here, the impact focused basically on economic
conditions and of working-class consumption and not workers ' manual-manuals (technical
level and low earners State bureaucracy). As much as in another case, a good part of its
members were not directly affected by the increases in the minimum wage of winning
above it-but rather by their indirect effects: the general wage improvement driven by this
policy and the consequent change in the functional distribution of income, with the
increase in the wage share in GDP (IBGE, 2013).

And just as in the case of Bolsa Famlia, valorization policy of minimum wage
positively impacted segments of the petty bourgeoisie (small businesses) and the medium
and large business community, who benefited by the significant increase in consumption
and consequently of their sales and profits.

Finally, with regard to the policy of permanent valorization of the minimum wage, a
fundamental aspect, related to the political dynamics to building of a developmental
coalition, is the process of construction of the minimum wage policy along with the national
central trade unions.

6 Study of the Welfare Ministry estimates that in 2007, for example, pension transfers were responsible for the removal
from poverty of approximately 22,230,000 people: http://www.previdencia.gov.br/arquivos/office/3_090126-092058-
729.pdf [accessed on 3/12/2015]. On the Special Commission of the minimum wage, see its Final report: Chamber of
Deputies (2000).
13
 According to the Inter-union Department of Statistics and Socioeconomic Studies
(Departamento Intersindical de Estatsticas e Estudos Socioeconmicos-Dieese), an
intense negotiation with the Trade Union Centers aimed to establish a policy of valorization
of the minimum wage came before the current legislation.

The federal Government from 2005, in response to the claims of the Trade Union
Centers, instituted a Quadripartite Commission, to propose a program of strengthening of
the minimum wage and analyze its impact on the labor market, on Welfare system and on
other sensitive areas of Government.

In January 2006, as a result of the debates, was signed a memorandum that laid
the foundations for the long-term policy of increasing the real value of the minimum wage
based on the pass-through of inflation of the previous period plus an increase
corresponding to real GDP variation of the previous two years.

After a decade of liberal hegemony (1990 's), the policy of permanent valorization
of the minimum wage, adopted in Lula Government, promoted marked elevation of their
actual value, in an environment of reducing unemployment at the lowest historical level,
significant reduction of informality, poverty and inequality, inflation under control and
reduction in the debt/GDP ratio.
It represented, at least until here and compared with any previous periods, the
undisputed success of the model of domestic mass consumer market, adopted by the
developmentalist Brazilian Government.

Result of the resumption of economic growth, but also as an indirect effect of this policy
of permanent recovery of the minimum wage, there was also widespread and substantial wage
improvements, identifiable in the evolution of the real average income of labor, which after falling
between 1997 and 2003, to below R$ 1,000 (in October 2012 values), going on to recover
strongly, reaching the level of R$ 1,433 in 2012 [valuation of 44.4%] (Campos , 2015).

Thus, the wage share as a proportion of national income (GDP) in Brazil, dropping both
the dictatorial period as in years of neoliberal hegemony, recovered from 2003, increasing
consistently since then, an opposite movement observed in other major countries of Latin
America, such as Mexico, Chile, Colombia and even Venezuela (Tosoni, 2014).

Consequently, the distribution of income, measured by the Gini index, which

remained practically unchanged since the end of the Decade of 1980, around of 0.6,
experienced substantial movement of deconcentration from the turn of the century,
reaching in 2013 the level 0.5. In large measure, this evolution of Gini index was a result of
14
stronger earnings in less affluent households, verified extensively in the first decade of the
21st century.

With this, a recent study released by the International Labor Organization-ILO,

which compares data from 130 countries, shows Brazil as the second country that has
reduced wage inequality in the world in the last decade (ILO, 2014).

The simultaneous decrease of the unemployment rate and the degree of

informality put in check the dominant theory about the supposed job-effect of minimum
wage increases above productivity gains and inflation.

Several scholars have attempted to explain this intriguing situation, resorting to

factors such as employment proportionately larger growth in the service sector, low
remuneration, demographic change and the active-age population profile and demand for
employment. In this last case, by seeking to establish themselves as self-employed, but
primarily by the extent of student life and the consequent delay of the young people in
seeking employment.

In this last aspect, what might seem like a sign of the limited beneficial effects of
the model of domestic mass consumer market, is actually more a demonstration of vitality:
for young people be able to adopt this kind of behavior, it was obviously necessary to have
not only enough educational offer, but also that their families have greater income to afford
that choice. Something that did not have in prior periods, as point data.

This conclusion is consistent with the fact that the reduction in the vacancy rates of
9.9% (6.7%) and informal (51.7% to 39.3%) in the labor market occurred while the active-
age population increased from 81.1% to 85.4% of the total population, between 2002 and
2012 (the so-called demographic bonus), which represents higher pressure not less for
the generation of jobs (Campos, 2015).

Furthermore, the conclusion is also consistent with the fact that the largest share
of workers that left the labor market between 2009 and 2012 is concentrated among young
people of 15 to 24, in the Northeastern region, exactly that experienced the highest rates
on income growth between the regions of the country during the PT Governments
(Ulyssea, 2013).

As Berg and Tobin (2011) ague, front of the painful feeling of global financial crisis,
the G-20 meeting in Toronto, in June 2009, emphasized the urgent need to balance public
budgets through austerity measures. Social policies in particular the wage and income

15
transfers seen as overly expensive, and should therefore be avoided under the belief
that the deterioration of public finances would endanger economic prosperity.

For these authors, the experience of Brazil was an important example of how
income policies can play a crucial role in mitigating the effects of serious economic crises
and how, instead of harming economic growth, they can help restore the economy.

So, with actions of wage policy, social policy and tax cuts, the Government
managed to increase the income of families and sustaining domestic demand, which
contributed to the internal market would make up the fall in exports caused by the
shrinkage of external demand.

As a result, still following Berg and Tobin (2011), the growth strategy of the country
changed from a export-led and a commodity-driven model, that characterized the decade
before the crisis, to a policy aimed at lifting domestic consumption and investment.

Consequently, even though the good international winds have ceased and the
Brazilian economy has entered into a phase of stagnation in 2014 and 2015, the positive
economic and social results of twelve years of application of the model of domestic mass
consumer market have changed the face of the country.

Instead of a country with a countless legions of miserable, another one that no

longer part of the "hunger map" of the UN. Instead of a country historically champion in
inequalities in the world, another one that is capable of export anti-poverty programs to the
world and of leading distributives efforts.

In this sense, the re-election of President Dilma Rousseff, in a context of

stagnating economy, political crisis and strong opposition by mass media, was due, in
large part, to the economic legacy of the model of domestic mass consumer market.

The Politics of Collapse and the Future of the Model of Domestic Mass Consumer
Market.

The deep economic recession faced by the country in the last two years (2015-
2016) ascended wide-ranging debate about the balance and the future of the model of
domestic mass consumer market. For some, in the liberal camp, it proved be a disaster for

16
the country. Others recognize their deeds, but consider the model sold out. Other, finally,
consider it has still a good way to go in favor of the development of the country.

Anyway, the analysis undertaken here suggests that the experience of its
implementation and the set of social policies implemented by the PT Governments, have
transformed the political preferences of the population and altered the balance of
distribution of these preferences among the most relevant social and political actors.
These policies increase the costs of cutbacks and exemplify the ratchet effect of public
policies.

Especially with regard to the Bolsa Famlia program, and the policy of minimum
wage, the "ratchet effect" triggered by these social policies can be easily identified in the
posture of the main opponents of both Lula and Dilma in the presidential elections, from
2006 to 2014.

Indeed, even though they were criticized from the outset such policies as
unsustainable and populist and count among their supporters with fierce critics, Serra,
Alckmin and Acio, not only do not endorsed these criticisms. On the contrary, they
pledged publicly during their election campaigns to maintain and extend these policies7.

Nevertheless, these policies seems to have triggered a huge and uncommon

political polarization on country. The presidential election campaign in 2014 manifested
this polarization by the narrowest margin of votes on election victory, to give a second term
to Dilma Russeff, from PT. During the campaign, she invested in the polarization between
her developmentalist program and the liberal adjustment agenda of his opponent, Acio
Neves, from the liberal-conservative Partido da Social Democracia Brasileira-PSDB8.

This moment coincided with the end of the expressive boom of commodities
prices, affecting Brazilian exports and raising the country's fiscal problems. Moreover, right
after her victory, Dilma started to propose a fiscal adjustment that looked like to her

8
The PSDB's position on the Bolsa Famlia has fluctuated from his conviction, as populist and
electioneering, to the argument that it was merely a continuation of the social programs of FHC
(http://www.psdb.org.br/bolsa-esmola-editorial/ e http://ultimosegundo.ig.com.br/politica/2014-05-
16/defendido-por-aecio-neves-bolsa-familia-ja-foi-taxado-de-bolsa-esmola-pelo-psdb.html) access
02/04/2015]. As for the minimum wage promotion policy, the PSDB transitioned from a position contrary to
real increases above inflation or productivity growth of the economy, when it was Government, for a position
in favor of even larger than the increases proposed by the Government, when in opposition
(http://161.148.1.43/portugues/documentos/2000/pr000322.asp;
http://www1.folha.uol.com.br/fsp/brasil/fc01099904.htm e http://www.psdb.org.br/alvaro-dias-defende-
salario-minimo-de-r60000/) [accessed on 02/04/2015].
17
supporters as a betrayal of her electoral campaign promises. This feeling increased with
the appointment of a major exponent of the financial market to the Ministry of Finance, the
former Bradesco Bank CEO, Joaquim Levy.

At the same time, opposition was very reinforced by the rise of a great corruption
scandal involving some persons in government and in PT with the bigger Brazilian
Company, the oil state-owned Petrobras. Although the scandal reveled many others
political parties involved, including from opposition, a huge alliance with major part of mass
media and opposition parties puts government against the ropes.

Then, all attempts of Dilmas government to face the crisis with significant fiscal
adjustment were blocked by Congress, which further deteriorates the economic situation of
the country.

So, the same social policies that produced a positive ratchet effect, in terms of
enduring welfare, is at the root of political and economic trap experienced by Brazil in the
present crisis.

If, by one hand, no political force is advocating the end or the retrenchment of
these social redistributive policies, specially the Bolsa Famlia and the minimum wage
promotion policy, by the other hand, this very ratchet effect has been reducing the options
of the macroeconomic adjustment and narrowing the possibilities of a new political pact
needed to overcome the crisis.

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