A Final Post: The Road Ahead for Wastepickers and Brazil

It has been several months since I have written on this blog, mainly because I have been in the middle of a transition in my professional life. In the fall of 2012, I decided to temporarily change course and return to the U.S. to pursue a career opportunity that would allow me to learn more about how to build and manage a social enterprise. While I learned a lot from my experience with INSEA, I decided that there was not a clear path forward for CATAUNIDOS and that I would be better served by taking a step back from the organization and focusing on my own professional development so that I could make a more significant contribution to the wastepicker movement in the future.

I applied to and was selected for the Venture for America program, a two-year fellowship for recent graduates to learn about entrepreneurship by helping to build and grow start-ups in struggling cities in the U.S. such as Detroit and New Orleans. (For a profile of the organization, see this recent piece in the New York Times). In a few weeks, I will be moving to Las Vegas to start work at the Downtown Project, a unique urban revitalization initiative coordinated by Tony Hsieh, the CEO of Zappos, Inc. The Downtown Project is essentially looking to rebuild the Fremont East district of the city and create an engaging, community-focused urban environment that will become a breeding ground for creativity and entrepreneurship. It is doing this by focusing on real estate development, small business support, a tech fund, community events, charter schools, a health clinic, urban transport, and more. For a good synopsis of the project, see this article from the Las Vegas Review-Journal. I still do not know what my specific role will be in the project, but I do hope to continue to pursue my interest in waste management and there should be opportunities for me to do so in my new position.

Because I am no longer working with INSEA, I will not be posting regularly on this blog in the future. It will remain active for people to have access to my previous posts about the wastepicker movement and Brazilian economic development, but I will not be publishing here in the future. I do hope that this collection of my experience and insights will be useful for people looking for more information on these topics.

As a final note, I will say that Brazil as a whole, and the wastepicker movement in particular, seem to be standing at a crossroads. Brazil has just completed one of the most successful periods of economic expansion and widespread prosperity in its history. The country has developed significantly in the past 15 years, building a new middle class, creating world-class companies in aerospace, offshore oil, and agriculture, and solidifying democratic institutions based on pragmatic, centrist economic principles. Yet this period of success has clearly reached its end, and a growing public frustration with the lack of progress in other areas finally boiled over during the major street protests last month. Every day Brazilians struggle with poor quality public services in areas such as public transport, education, health care, and security. Impunity and corruption are still the norm among the political class, and a high cost of living combined with wasteful spending and poor quality products and services have led to increasing resentment amongst the public. I experienced this frustration when talking to people on a daily basis during my time in Brazil, but I never expected that public anger would escalate so quickly as it did during the protests. The society has clearly reached a turning point, and it will be up to a new generation of leaders to undertake the major reforms needed to keep Brazil's progress moving forward. As in France and Egypt, the weaknesses of Brazil's unwieldy state bureaucracy have become apparent to all national and international observers, and modernization of the public sector at all administrative levels will now be a serious topic of national discussion. For the last few years, the common thinking was that low unemployment and high wages would keep the public happy, and that the best action was staying the course. That thinking has now been upended and the political system seems to be entering its biggest period of flux since the advent of democracy. The national elections in 2014 now look more significant than ever.

This debate will have a profound impact on the wastepicker movement, as waste management represents one of the core public services of government and the debate about modernization of the sector is bound to become more intense. I mentioned in previous posts that the new regulatory regime surrounding waste management in Brazil provided a window of opportunity for the wastepickers that would be lost if they could not take advantage of it. However, progress toward implementing the law has been slow up to this point. Minas Gerais state, for example, looks unlikely to meet its goal of closing all open-air dumps by 2015. The recent protest movement may increase demands for governments to speed up progress on this issue, thereby increasing demands on the wastepickers.

I still believe in the possibility of the business model I proposed for wastepicker cooperatives to operate successfully in Brazil, and if this model is successful it could be implemented in other countries in Latin America, Africa and Asia. There are other organizations out there doing similar work such as Ciudade Saludable in Peru and Waste Ventures in India, and I plan to keep my eye on both of them to determine the potential for growth in this sector moving forward. But there are still many questions to be answered about how developing countries will manage the transition to integrated solid waste management systems. Will these nations simply mimic the path of developed nations in the West, or will they adapt new models that emphasize opportunity for wastepickers and the usefulness of the recycling social safety net both in providing an income stream for marginalized individuals and in developing uniquely efficient reverse logistics systems for certain goods such as aluminum and cardboard? Urban policies in emerging economies are changing quickly as these countries rapidly urbanize and the tech revolution starts to create new opportunities for innovation in the public and private sectors. What that will mean for waste management remains unclear, but I do know that this often-overlooked industry that employs millions of workers across the world is ripe to be disrupted by new business models focused not just on traditional profit indicators, but on social and environmental indicators as well. I look forward to being part of that discussion in the coming years.

Brazil in 2013: Five Storylines to Watch

2012 turned out to be quite an eventful year in Brazil. Dilma Rousseff settled into her role as president and became more assertive in pushing her agenda. The Supreme Federal Tribunal presided over a landmark corruption case. Major laws and executive orders were passed dealing with stimulus packages, infrastructure privatization, electricity generation, car manufacturing, affirmative action, forestry, a truth and reconciliation commission and petroleum royalties. More worryingly, the country’s economic downturn deepened, proving that the disappointing performance in 2011 was not a temporary blip but rather the beginning of a long-term shift.

Can we expect more of the same in 2013? Here are five storylines to keep your eye on in the year to come:

1. Will stimulus help the economy rebound, or is the new “Brazilian Miracle” over?

After robust growth throughout the 2000s and a quick bounce-back from the 2009 financial crisis, 2011 was considered a very disappointing year for Brazil. Growth slowed to a rate of 2.7%, the worst performance in Latin America and barely faster than the U.S. economy. Furthermore, inflation crept upward again, finishing the year at a dangerously high level of 6.5%, the upper limit of the Central Bank’s target. Many expected that the government’s fiscal and monetary stimulus would begin to take effect the following year, and that Brazil would rebound to a 4% growth rate in 2012.

In fact, the economy slowed even more drastically in 2012, growing at a meager rate of 1%. Rather than revive the economy, government stimulus measures simply ignited further inflation, which is set to finish the year at a still uncomfortably-high level of 5.8%.  Investment has poured out of the country this year, and the real lost about 10% of its value. The world economy as a whole performed worse than expected in 2012, primarily due to the ongoing crisis in Europe, which looks set to suffer through a lost decade. But the extent of the economic collapse in Brazil was truly surprising, and the markets have turned quite bearish on Latin America’s former shining star.

Once again, expectations are that the economy will rebound in 2013. The market is currently betting that the country will grow 3.3% in the coming year, although that number has already fallen quickly from 4% several months ago. I expect that these numbers will continue to deteriorate over time, and that the country will register subpar growth once again in 2013 (probably in the 2% range). The economy is suffering from long-term structural problems, principally a lack of competitiveness and productivity growth. This is not a situation that can turn around overnight, especially without major reforms by the government. Further stimulus measures look likely to fuel credit bubbles rather than long-term, sustainable growth. In addition to anemic growth, inflation looks likely to remain stubbornly high in 2013 due to a weakening currency, fuel price increases, and a new 9% increase in the minimum wage.

Rather than adopt a drastically new approach, Brazilian policymakers are doubling down on their traditional solutions: protectionism, cheaper credit, and salary increases to promote consumption. I have written before about Brazil’s labor cost problem and its antipathy toward free trade and how both policies have furthered the country’s loss of competitiveness. While I respect the government’s desire to reduce inequality and promote local manufacturing capacity, I believe that these policies will ultimately backfire and will only exacerbate the country’s weak macroeconomic performance. Brazil needs a new model focused on finding competitive advantages within open markets and increasing labor productivity.

The economic indicator that I will most keep an eye on in 2013 will be the unemployment rate. Despite Brazil’s mediocre economic performance in 2011 and 2012, the unemployment rate continues to drop, hitting a new low of 4.9% this month. There is no doubt that the surprisingly strong performance of the labor market has kept people from noticing the downturn and is a major factor in President Rousseff’s incredible 78% approval rating. As I have mentioned before, this success has a lot to do with the country’s booming construction market, which employs nearly 10% of the entire labor force. If unemployment remains low, popular discontent will remain minimal and the government will not be forced to take radical action. However, it seems likely that at some point the labor market will catch up to the rest of the economy and unemployment will begin to rise steadily. This will mark a major turning point for the country.

2. Will Aecio Neves emerge as a viable challenger for the presidency?

For background understanding of Brazil’s political environment, see my earlier posts on the country’s political history and the 2012 municipal elections.

Eduardo Campos, the popular governor of Pernambuco state and the leader of the Brazilian Socialist Party (PSB), made headlines last week when he announced that he would not run for the presidency in 2014 and would instead support President Rousseff’s reelection.* This cleared the way for a two-person race between the incumbent and Aecio Neves of the center-right Social Democrats (PSDB). Due to Ms. Rousseff’s high personal approval ratings and the low unemployment rate, Mr. Neves starts the race as a significant underdog. He will no doubt use 2013 to lay the groundwork for his campaign, and by the end of the year we should have a better sense of whether he represents a viable threat to the ruling party.

Mr. Neves faces two major tasks in 2013. The first will be to present a broad vision for the country based on center-right economic principles, outlining an alternative model of governance that capitalizes on the perceived weaknesses of the ruling Worker’s Party. Mr. Neves has hinted before that his agenda will focus on improved efficiency in public service provision, decentralization of federal powers, and promotion of the PSDB’s legacy of structural reforms during the 1990s. His second major task will be to enhance his name recognition among the public, as he is currently not well known outside of his home state of Minas Gerais. It has become clear that he plans to do this primarily through organizing a primary election within the PSDB, a tool that opposition groups in Italy and Venezuela used to galvanize voters with great success in 2012. The party is expected to announce that campaigning for its primary will occur between October 2012 and June 2013, giving Mr. Neves ample time to travel the country and introduce himself to voters. If the deteriorating economic situation begins to turn voters away from Ms. Rousseff, Mr. Neves will certainly be ready to take advantage of the opportunity. 

3. Will Ms. Rousseff get serious in her “war on the bureaucracy”?

During a state visit to Moscow this month, Ms. Rousseff announced that she was “declaring war” on bureaucracy in Brazil and plans to make public administration more efficient and transparent over the next two years of her presidency. Such strong language was significant, coming from a left-leaning politician with close ties to the nation’s powerful public sector unions. Bureaucracy is without a doubt a major problem for the country and Ms. Rousseff’s desire to cut through red tape and reduce wasteful spending is an encouraging development. 2013 will be the year for Ms. Rousseff to prove that she has bite to match her bark and is willing to confront the bureaucracy head-on.

In 2013, several of Ms. Rousseff’s signature transparency initiatives will take full effect, including a new tax transparency law that informs citizens of how much tax they are paying on products they purchase, a freedom of information law that government agencies are now phasing in, and open-data portals for reviewing budgetary information, complete with information on public employee salaries. Another law that she plans to put into effect in the upcoming year is a “clean slate” law for the public sector whereby anyone convicted of a serious crime is prohibited from working for the government for a period of ten years.

These transparency initiatives, as well as a refusal to cave under pressure to public union strikes this year, have been a welcome start in efforts to simplify the country’s byzantine system of public administration and mobilize public opinion against the bureaucracy. But Ms. Rousseff has so far shown little effort in implementing more meaningful restructuring. In her two years as president, Brazil has slipped steadily in the World Bank's "Ease of Doing Business" rankings from 127 in 2011 to 128 in 2012 and 130 in 2013. If Ms. Rousseff is serious about improving Brazil's competitiveness, she must begin to reverse this trend in the upcoming year.

4. Will the private sector bite on new infrastructure and oil-drilling contracts?

One of the biggest developments of 2012 was Ms. Rousseff’s proposal to update the country’s infrastructure by creating new contracts to open up the country’s roads, railways, ports and airports to private investment. This was a significant ideological reversal for the Workers’ Party, which had previously considered such privatization anathema, and marked a steadily emerging liberal consensus regarding the role of private investment in the country’s development. The scale of the proposed packages was unexpectedly large: $65 billion USD to modernize Brazil’s roads and railways, $27 billion USD for ports, $9 billion USD for airports, and $16 billion USD in urban mobility projects such as metros and bus rapid transit systems. All together, the government is looking to attract roughly $100 billion USD in private investment in infrastructure, nearly 5% of the country’s GDP. This is one of Ms. Rousseff’s signature initiatives to reduce production costs in Brazil and improve the country’s international competitiveness.

In 2013, moving these plans off the drawing board will be the government’s top priority. The year will be spent organizing auctions and designing contracts, with construction not likely to begin until 2014 at the earliest. The government will face a major test as it moves forward in terms of setting clear, sensible auction rules and designing transparent contracts that promote the best possible investment at the lowest cost for taxpayers and end-users. It will also have to reduce red tape to ensure that the projects begin quickly and will not suffer time-delays due to confusing bureaucracy or other setbacks.

Most importantly, the government needs to hope that top-notch private sector investors are willing to partner with them on these projects. As I mentioned above, the macroeconomic situation is deteriorating quickly and investment is fleeing the country. Brazil is not the attractive destination for foreign investors that it was several years ago. Furthermore, public-private partnerships to manage infrastructure projects in the developing world have produced disappointing returns over the last several years, most notably in India. The government’s $100 billion target is very ambitious, and until the auctions begin next year there will be considerable hand-wringing regarding the government’s ability to attract the investment needed to turn these infrastructure plans into reality.

In addition to infrastructure contracts, the government is preparing to auction new licenses for oil-drilling in its pre-salt offshore reserves in 2013. After Congress spent most of 2012 bickering over the distribution of future royalties, a law was finally passed at the end of the year and the government is eager to let the drilling begin. However, further political quarrelling regarding the royalties could continue to hold the process up and make investors even jumpier. The finalized law that passed the Congress this year called for increased royalties on existing oil contracts to be distributed among non-coastal states. Ms. Rousseff vetoed this portion of the law, arguing that the new royalties distribution should only apply to future concessions because the government needed to honor the contracts it had already signed with the private sector. However, Congress is likely to override the veto in January and Ms. Rousseff has declared that there is nothing more she can do to stop this from happening. Oil companies as well as the coastal states benefitting from the current royalties distribution are likely to take the fight to Brazil’s judiciary, which means that the uncertainty regarding the pre-salt oil concessions should continue well into 2013. This could severely undermine one of the most dynamic sectors of Brazil’s economy.

5. Will there be new victories in the battle against corruption, or is it back to business as usual?

2012 was a landmark year in Brazil’s struggle against corruption, thanks to the first elections held under the country's new "clean slate" law as well as a watershed verdict in the Mensalão case that saw numerous politicians convicted of serious crimes and sentenced to years in prison. With the case now closed, attention in 2013 will turn to three other high-profile corruption scandals that will test whether the Mensalão trial was a one-off event or a sign of a broader, long-term shift. The Supreme Federal Tribunal will be pressured to move forward in judging the Mensalão Mineiro, a similar vote-buying scheme run by the opposition PSDB in the state of Minas Gerais. Also, the Federal Police will be expected to continue its investigation of an influence-peddling scheme run by an aide of former president Lula that could further damage the reputation of the man once considered “the most popular politician on Earth”.

However, the biggest test in Brazil’s struggle against corruption in 2013 will be in the case of Carlos Cachoeira, an organized crime boss who was revealed last year to have deep ties to several major political parties, including the opposition PSDB and the ruling PMDB. The Cachoeira scandal dominated news coverage for several weeks and a high-profile congressional inquiry was assembled to investigate. However, the assembly was quietly disbanded this month without approving a detailed report, as politicians from various parties came together to sweep the case under the rug as the public was distracted with the Mensalão case and end-of-the-year festivities. It now falls to the attorney-general, Roberto Gurgel, to investigate the case on his own. Unfortunately, he is suspected of having ties to Mr. Cachoeira as well, which means that he is unlikely to lead the charge for any further inquiries. The future of the Cachoeira case thus represents the biggest test yet of Brazil’s efforts to deal with corruption. If the public rallies behind this cause and pushes for further investigations and indictments, 2013 could be another banner year in the country’s struggle against impunity, especially once Mr. Gurgel steps down in June. If, however, the issue falls out of the spotlight and no one is ever brought to account, then it will be back to business as usual for the country’s politicians.

* Mr. Campos has since backtracked on these statements, and continues to play coy about his presidential ambitions. The possibility of his entry into the 2014 campaign continues to be a matter of much speculation in the media, and a major worry for the PT.

The 2012 Municipal Elections in Review

In an earlier text, I gave a broad outline of Brazil’s political history and current electoral landscape in the run-up to this year’s municipal elections. With the final results now tallied, all eyes are turning to the transition process and, perhaps more importantly, the 2014 national elections. In this post, I will give a brief overview of the election results and explain what they could mean for the country’s future. I will not provide much background information here, so those who want to know more should consult my previous article. 

The Results

By far, the most important race of this election cycle was in São Paulo, where former presidential candidate for the opposition Social Democrats (PSDB) and de facto party leader José Serra was bidding to regain his previous position as mayor of the country’s largest city. Mr. Serra’s principal challenger was President Lula’s hand-picked candidate from the ruling Workers’ Party (PT), former education minister Fernando Haddad. The contest represented a marquee matchup between Brazil’s two largest parties and received an enormous amount of coverage in the press.

Perhaps the most surprising aspect of the campaign was the unexpected rise of Celso Russomanno, a third-party candidate with a popular consumer advocacy TV show who was buoyed by support from evangelical groups. For most of the campaign season, Mr. Russomanno led by double digits in the polls, and his sudden rise was seen by many as a sign of local frustration with the PSDB-PT duopoly of power. Yet as the election neared, his popularity flagged amid a bevy of attacks from his opponents and the superiority of their well-funded campaign machines. Mr. Serra and Mr. Haddad advanced to a run-off, with Mr. Russomanno finishing in third. Mr. Haddad went on to win a decisive double-digit victory over Mr. Serra, a dramatic triumph for the ruling party that cemented its political dominance while probably providing the nail in the coffin of Mr. Serra’s political career.

Elsewhere in Brazil, the PT was not so successful. In the second-most high profile contest of the campaign, the incumbent mayor of Belo Horizonte, Marcio Lacerda, won a commanding double-digit victory over the PT candidate, former mayor and national minister Patrus Ananias. Mr. Ananias’ candidacy had been planned by President Rousseff and President Lula, and the race was considered to have major national implications as Mr. Lacerda had the backing of Aecio Neves, a likely presidential contender for the PSDB in 2014. In the three most important cities of the Northeast, a PT bastion, the ruling party’s candidates failed to secure victory. The right-wing Democrats, a traditional ally of the PSDB, won in Salvador, while the prefectures of Fortaleza and Recife were captured by the Socialist Party (PSB), led by the popular governor of Pernambuco and another possible presidential candidate, Eduardo Campos. The PSDB was also able to hang on to the two most important cities in the North, Manaus and Belem.

Overall, it is difficult to point to clear winners and losers from this election cycle. Many local commentators point to the total number of prefectures won or the total value of municipal budgets in order to determine which party now claims control over the most powerful local political machines. But overall, in terms of implications for 2014, the contest essentially played to a draw. Perhaps the most notable result was the rise of the Socialist Party as a new force in national politics. This helped to dramatically increase Mr. Campos’ profile and increase speculation about a presidential run (see this recent piece in The Economist). Mr. Campos may now be the most talked-about politician in Brazil, as everyone wonders aloud about his intentions. 

2014: A Shifting Landscape, or a Look Ahead to 2018?

As soon as the municipal elections ended, speculation began to grow surrounding the 2014 presidential contest. It now seems increasingly likely that Aecio Neves will be the PSDB’s candidate, seeing that his main adversary within the party, Mr. Serra, has been effectively sidelined following his defeat. President Cardoso, the principal elder statesman of the PSDB, spoke openly after the election about the need to “renew” the party and present fresh faces and new ideas to the public. Mr. Neves traveled this week to São Paulo to meet with President Cardoso, and it seems clear that the two are already beginning to plan campaign strategy. Mr. Neves and Mr. Cardoso have defended the implementation of presidential primaries within the party, an idea proposed by Sergio Guerra, the PSDB president. That idea had been strongly resisted by supporters of Mr. Serra, who wanted to resist challenges to his leadership from within the party. It now looks increasingly likely that primaries will indeed go ahead at some point in the upcoming election cycle, with Mr. Neves as the odds-on favorite.

What is less known is whether Mr. Campos will decide to run in 2014 as the PSB candidate. The PSB is currently allied to the PT in Congress and Mr. Campos was a minister during President Lula’s government, but the numerous head-to-head contests in municipal elections have strained the bond between the two parties. For now, it is unclear whether the PSB will continue in its role as coalition ally, join forces with the opposition, or go its own way entirely. The PSDB and PSB appeared to work side-by-side in many municipal campaigns, with Mr. Neves openly supporting many PSB candidates against the PT. If the two parties decide to join forces, they would represent a formidable challenge to the PT. However, this is hard to envision seeing as both Mr. Neves and Mr. Campos appear to have presidential ambitions. Adding to the confusion is the fact that, despite its name, the Socialist Party has yet to define a clear governing philosophy, unlike the PT (center-left) and PSDB (center-right). For now, the party appears to be more opportunistic and pragmatic than ideological.

Ultimately, both Mr. Neves and Mr. Campos may really be looking to 2018 as their realistic shot to claim the presidency, and could wind up as each other’s principal opponent. Ms. Rousseff continues to enjoy a wide degree of popular support and looks likely to cruise to reelection in 2014. A recent survey showed her besting both Mr. Neves and Mr. Campos easily in the first round of voting. As I wrote in my previous piece, her position may decline somewhat if the economy continues to stall. Despite reports of an incipient recovery, growth has yet to pick up and industrial production is still weak. But unemployment remains at record lows, and the build-up to the 2014 World Cup has kept the construction industry humming along, maintaining favorable trends in the labor market. Yet it looks likely that the Workers’ Party will be in considerably weaker position by 2018, especially if the end of the World Cup causes a large bubble to pop in the real estate or consumer credit markets. (In light of sufficient dynamism in the economy due to competitive weaknesses and low productivity, the government has been increasingly relying on credit to prop up growth, which could be a recipe for disaster in the long term.) Mr. Neves and Mr. Campos may thus see 2018 as their best opportunity to claim the presidency and hope to use campaigns in 2014 to increase their national profiles.   

Of course, much could change in the next few years and it is difficult to make political predictions so far in advance. Other presidential contenders could certainly arise. One possible candidate is Eduardo Paes, the popular mayor of Rio de Janeiro from the PMDB (a centrist party currently serving in the PT coalition). Mr. Paes was reelected easily this year and is clearly hoping to use the 2016 Rio Olympics to raise his national profile, possibly laying the ground for a potential presidential run. As Brazil’s other main political party, the PMDB has not fielded its own candidate since 1994, and is thus something of a wild card in future elections. Like the PSB, it has no clear governing ideology, but may be looking to break the PT-PSDB duopoly as well, although no one is exactly sure of the party leaders’ long-term intentions.

Another main question within the PSDB is whether a failed 2014 run by Mr. Neves would raise his profile for 2018 or force him to step aside to make room for others. There are certainly other figures within the party interested in exploring a presidential run, such as Alvaro Dias, a senator from the state of Paraná, or Beto Richa, a popular state governor.

Perhaps the most notable of these contenders is Geraldo Alckmin, the current governor of São Paulo state and the PSDB’s presidential candidate in 2006. Mr. Alckmin looks unlikely to challenge Mr. Neves in 2014, as he will probably be focused on securing his reelection in São Paulo. After winning the mayoral race as well as several important contests in other municipalities in the state, the PT looks likely to make a strong run at Mr. Alckmin in 2014, aiming to end the PSDB’s dominance (it has won every statewide race since 1998). There is growing speculation that the PT candidate may be none other than former President Lula himself, who campaigned heavily in this year’s elections and has openly expressed his desire to return to politics. Like Mr. Serra, Mr. Alckmin has been a fixture on the political scene over the last decade, having twice served as governor in addition to two failed campaigns for São Paulo mayor and a failed presidential run. Mr. Serra’s overwhelming rejection by the electorate in 2012 served as a stark reminder of the public’s desire for fresh faces in local and state politics, and Mr. Alckmin will be in for a challenging campaign in 2014, especially if President Lula throws his hat into the ring. But if he is able to win a second term, he will emerge as a strong contender for the PSDB nomination for president in 2018. Of course, there is also the possibility that both the PSDB and PT could lose the governor's race in 2014. As Mr. Russomanno showed in this year's campaign, voters are itching for the chance to vote for a viable third-party candidate. In the unpredictable world of Brazilian politics, anything could happen.

Looking overall at Brazil's political landscape, it is clear that the country is moving in a positive direction, with alternation of power between moderate center-right and center-left elements. I believe that this is the most desirable political outcome, as each ideological vision brings important perspectives to the table. I have written many times on this blog about the complicated trade-off between efficiency and social inclusion, and how it represents a very complex challenge for human society. This same trade-off tends to be represented in moderate politics, with the ideological right representing efficiency and the ideological left representing social inclusion. The more that these two sides listen to each other, share perspectives and try to craft suitable public policies respecting both elements, then the better we as a society are able to address these problems.

One of the keys to the success of developed economies has been the emergence of moderate politics and the competition for ideas between right and left. In the U.S. this is represented by the struggle between Republicans and Democrats, in Britain between Tories and Labor, and in Germany between Christian Democrats and Social Democrats. Latin America has long struggled to find this moderate center, instead being torn between competing extremist visions: military dictatorships on the right and revolutionary communists on the left. As the region has developed, however, moderates have gained force and continue to grow stronger. In Brazil, first President Lula and then President Rousseff have pulled the left-wing PT more toward the center. In Colombia, President Juan Manuel Santos has also pulled his party from the right-wing toward the center and is now beginning a new round of peace talks with the radical leftist FARC. In Peru, a former radical leftist candidate, Ollanta Humala, has morphed into a moderate president, earning praise from political elements on the right (and criticism from the hard left). In Chile, conservative president Sebastian Pinera has been proposing more generous social policies in order to shore up political support from the center. In El Salvador, president Mauricio Funes from the radical left-wing FMLN has also moved his party sharply to the center, and in Mexico, president-elect Enrique Pena Nieto is working to enact a series of liberalizing reforms that are traditionally anathema to his leftist Institutional Revolutionary Party. While sharp political differences still prevail and certain countries (most notably Venezuela) continue to reject more moderate candidates, it is clear that the region is maturing politically, representing an important breakthrough in its development.

Struggling Against Impunity: The Budding Revolution in Brazil’s Judiciary

For decades, Brazil has earned itself an international reputation as a land of impunity, where corrupt politicians, crime bosses, and former military torturers have been able to live above the law, unburdened by the fear of having to pay for past misdeeds. With a weak and deferential court system burdened by systemic corruption, parliamentary immunity against prosecution, and a generous amnesty law shielding past members of the military regime, the government and its citizens were virtually powerless to hold the powerful elite to account. No story better exemplifies this state of affairs than that of former president Fernando Collor. After resigning the presidency and being impeached by the Senate in 1992 on corruption charges, he was acquitted by the country’s Supreme Federal Tribunal (STF), the nation’s highest court. Collor lay low for a decade, but returned to politics in 2006 and was elected to the Senate, where he currently serves. Many Brazilians I talk to are infuriated by Collor’s presence in their highest legislative body, and point to this as evidence that the rule of law does not seem to apply to the country’s ruling elite.

This state of affairs is more than simply unjust. It is a major inhibitor of the country’s development. I have written before about the importance of developing shared norms and rules to govern societal interactions in order to build an economy’s human capital stock and improve its prosperity. The rule of law is an essential ingredient in this process. It represents the truest form of fairness that human society has yet developed: communities coming together to determine their own rules and enforcement procedures to guarantee that each individual will be held to the same standards. When the rule of law is not strong in a society and decisions appear to be made arbitrarily by government officials, citizens’ faith in the collective is undermined.

Many of the world’s major emerging economies are struggling to build an adequate rule of law (China and Russia come to mind). Brazil is much further along in this regard, as it has fully functional legislative, executive and judicial institutions defined within a constitution supported by popular mandate. But the country’s long tradition of impunity for the elite undermines faith in these institutions, and thus weakens the rule of law. When those at the top do not play by the same rules, those below fear that strict obedience to rules and laws will put them at a disadvantage. This has led to the famed “jeitinho brasileiro” (Brazilian way), a strategy for circumventing rules and procedures by a variety of approaches, such as using insider contacts, emotional appeals, or offering favors. Such behavior is considered a necessary strategy to get ahead here, but it poses a major challenge to Brazil in terms of building an honest, fair, meritocratic society.

Despite this disappointing history, there is reason to hope that Brazil is finally turning a corner. In a previous text, I mentioned some positive signals in the country’s fight against corruption, most notably a new Freedom of Information Act to empower citizen watchdogs as well as the “Clean Record” law that bars those convicted of a crime in the last eight years from holding office. But the most heartening signs of change are coming from an institution that was once widely distrusted by the public: the Supreme Federal Tribunal itself. 

The Mensalão Trial and the CNJ

Over the last several months, Brazilians across the country have been glued to their televisions watching daily broadcasts from the STF as the court tries the most high-profile corruption case in its history. Known as the “mensalão” (big monthly payment), the scandal dates back to President Lula’s first term in office, when some of his top aides and congressional allies were caught diverting money from state-owned enterprises in order to buy votes in the Congress. The scandal caused a massive uproar in the press, as it embroiled President Lula’s chief of staff and presumed successor, José Dirceu, who was accused of coordinating the scheme on behalf of the executive. Although Mr. Dirceu was expelled from Congress, President Lula denied any knowledge of the incident and went on to be reelected by a wide margin just a year later. Furthermore, Mr. Dirceu’s replacement as chief of staff, Dilma Rousseff, was elected president in 2010, and members of the ruling PT claimed that the election results spoke for themselves, acquitting the party of any wrongdoing.

While the scandal did not shake the PT’s hold on power, it did spring the country’s judiciary into action. The attorney general brought charges against 38 individuals, including Mr. Dirceu, accusing them of money laundering, embezzlement, corruption, and formation of a criminal gang. After six years of legal wrangling, the STF finally heard the case this year. Many Brazilians were cynical about the process. Opinion polls showed that, while the vast majority believed that those involved were guilty, few believed they would actually be convicted, considering that eight of the court’s eleven ministers were PT appointments. It was thus a pleasant surprise when 25 of the accused were convicted, including the PT’s three “big fish”: Mr. Dirceu, José Genoino, the PT’s ex-president, and Delubio Soares, ex-treasurer of the party. While the STF is just beginning to hand out sentences and many are still skeptical that any of these three will serve prison time, it has nevertheless been a watershed moment for Brazil. There is growing hope that the case is a sign of things to come, that the STF will begin to exert its influence as a fair and independent arbitrator, and that impunity will no longer have free reign. There is no denying the important psychological impact the case has already had across society.

The Mensalão case comes on the heels of another recent groundbreaking decision from the STF. In 2010, Eliana Calmon, a career judge, was appointed as head of the National Council of Justice (CNJ), an ombudsman agency for the judiciary. She quickly earned a reputation as a fiery crusader determined to promote accountability and fight corruption, excessive benefits, nepotism, and general sclerosis and inefficiency within the third branch of government. Ms. Calmon made headlines when she accused many of the country’s judges of being “bandits who hide behind their togas” (referring to the black robes high-ranking judges wear in court), interested only in advancing their own interest rather than promoting the rule of law. The judiciary pushed back, threatening to curtail the CNJ’s investigative powers. Yet the public rallied to her cause, and Ms. Calmon quickly emerged as a popular hero in social media and national news outlets. The issue came to a head in February of this year, when the STF voted by a nail-biting 6-to-5 margin to maintain the ombudsman’s full powers intact. Ordinary Brazilians were overjoyed by the news, and Ms. Calmon even earned a Carnival float in her honor. Former President Fernando Henrique Cardoso was effusive in his praise, calling the case “crucial for Brazilian democracy”. 

Future Cases 

Several upcoming cases will continue to test the mettle of the STF and will serve as crucial indicators as to whether the Mensalão trial and the CNJ case were flashes in the pan or signs of a broader shift. The first of these is expected to be the “Mensalão Mineiro”, a vote-buying program in the state of Minas Gerais run by the PSDB that was widely seen as the model for the PT-led scheme (even involving some of the same individuals). The second is a more recent scandal involving a major organized crime boss, “Carlinhos Cachoeira” (Charlie Waterfall), who was arrested earlier this year. Extensive wiretaps have revealed Mr. Cachoeira’s relation to numerous high-level politicians, including Demostenes Torres, a right-wing senator who gained fame in 2005 for leading the congressional inquiry into the Mensalão scandal. Mr. Torres was recently removed from the Senate by his colleagues and looks likely to face prosecution in the near future. A congressional panel continues to investigate the affair, but it may end up ensnaring several governors and congressmen and is likely to have involved the embezzlement of hundreds of millions of reals earmarked for construction projects. At some point, the case is likely to end up at the STF as well.

PT leaders, including former President Lula, have been especially keen to prosecute both cases, as they see them as a chance to even the score following the Mensalão trial. In essence, political parties are now eager to use corruption scandals in order to discredit their opponents and strengthen their popular support. These motivations may not be pure, but they do represent a hopeful sign in the struggle against impunity. Rather than politicians conspiring amongst themselves to avoid prosecution, they now see anti-corruption crusades as their ticket to electoral success. This should ultimately help to strengthen the rule of law, providing that an attentive public and investigative media continue to press the issue.

In addition to corruption scandals and oversight of the judiciary, Brazilians have opened up one more front in their fight against impunity: the blanket amnesty for those involved in the military dictatorship. I have written before about President Rousseff’s promotion of the Truth and Reconciliation Commission that is currently investigating human rights violations by the former regime, an issue that her predecessors preferred to avoid altogether. Before relinquishing control, Brazil’s generals passed a generous amnesty law that would shield them from any future prosecutions. Unlike its Southern Cone neighbors, Brazil chose to keep the law on the books well after its democracy became firmly established. A 2010 STF review upheld the law, although it was struck down later that year in a non-binding decision by the Inter-American Court of Human Rights. Yet the issue remains a somewhat grey legal area, and human rights lawyers have argued that kidnapping and torture of “disappeared” individuals constitutes an ongoing crime that is not protected by the amnesty law. They were successful this week in convincing the São Paulo judiciary to take up just such a case. While no one is sure where such prosecutions will lead, and what the end result of the Truth Commission will be, there is growing optimism that Brazil will finally gain some closure on the issue and end the legacy of resentment and frustration caused by the amnesty law. 

Problems Ahead: Will Real Reforms Come? 

While these recent cases have created some optimism around the future of the Brazilian judiciary, a few words of caution are in order. High profile corruption cases may cause a political stir for some time and generate hope that the system will be forced to change, but that is not necessarily the case. Italy is the perfect example of this. The “Bribesville” corruption scandals in the early 1990s toppled the entire political order and brought to power new parties and individuals who promised to bring about major change. Twenty years later, Italy is facing a new Bribesville, as a new series of scandals has emerged and the political order is once again in flux. Without undergoing major reforms to root out corruption and change its political culture, the country wound up repeating its own history. A series of cases in front of the STF may make Brazilians feel that justice has been served, but it will ultimately be meaningless if major reforms to combat white-collar crime are not undertaken as well. A former president of the STF recently claimed that the Mensalão trial would not change the country’s history if not accompanied by more meaningful political reforms to change the process of coalition-building in Congress and discourage vote-buying schemes.

Looking at just the Mensalão trial alone, the weaknesses in Brazil’s judiciary are readily apparent. The general sensationalism of the trial was on full display during the proceedings, as ministers at time switched their votes following public outcry that they were being too lenient. Two separate votes to condemn Mr. Dirceu were taken right before the first and second rounds of the municipal elections, causing suspicion among many observers that the timeline was planned for political theatre.

The bigger problem, however, has been the relative inefficiency of the process. The case took six years to be tried, highlighting the complexity and slowness of the judiciary. (The Cachoeira case, if charges are indeed brought, is not expected to reach the STF for many years.) The trial itself has already been ongoing for three months, and looks likely to be extended for a significant amount of time due to a chaotic sentencing process that had even the STF ministers confused on procedures. The fact that politicians are entitled to trial by the STF rather than in lower courts makes the process significantly slower, and adds to the public perception that politicians are not treated as equal to ordinary citizens.

The wheels of justice turn notoriously slowly in all judiciaries, including the U.S., but the sclerosis of the judicial system is especially problematic, as it slows down the general functioning of the economy as a whole. The World Bank’s most recent “Ease of Doing Business index” gave Brazil poor marks in important legal matters such as resolving insolvency, enforcing contracts, and registering property.

There is certainly much work to be done in the future, and changes to Brazil’s legal system, if they come, will be slow and steady, not sudden and spectacular. But the country does seem to be moving in the right direction. No longer will politicians be able to assume they are automatically above the law. They are now aware that the public has the power to hold them to account in certain situations. This in itself amounts to a sea change in the way Brazilians view their political system.

Brazil's War on Drugs: The New Incarceration Nation

Over the last several decades, the illegal drug trade has wrought havoc on Latin America. Cocaine produced in the Andean valleys of Colombia, Peru and Bolivia is transported by violent cartels to the U.S., either overland via Central America and Mexico or by boat across the Caribbean. It is also exported to Europe, normally passing first through Brazil and West Africa. Marijuana, which is also grown throughout the region, travels along these same routes. The violence and corruption caused by drug traffickers are well known, and have been major obstacles to the creation of peaceful, prosperous and democratic societies in the region.

The nature of the drug trade has changed significantly in recent years. There has been much international focus on the escalating situation in Mexico and Central America, as violence spirals out of control and governments struggle to rein in the traffickers. But there has also been another major change: the rapid growth of local consumer markets. Whereas Latin America’s primary role in the drug trade was traditionally in production and transport, it is now a major consumer as well. Nowhere has this shift been more apparent than in Brazil, which now has the largest crack market and second largest cocaine market in the world. Instead of being a transit point, Brazil is now the final destination for much of the region’s drugs. This is unwelcome news for a country already plagued by violent crime.

Brazil’s approach to its crack epidemic bears striking resemblance to the U.S. Citizens emphasize a law-and-order approach that focuses on throwing perpetrators behind bars. Since 1992, the incarceration rate has increased by 251%. (In the U.S., the increase was 46%, though from a higher baseline; the U.S. has approximately 750 prisoners per 100,000 population, while in Brazil the figure is roughly 250.) As in the U.S., the war on drugs has a very disconcerting racial component, as blacks are much more likely to end up in jail than whites. They represent over two-thirds of prisoners but only half the population. Yet this trend looks set to continue as a “tough on crime” approach has propelled many political candidates to victory in recent elections, including several ultra-conservatives recently elected to the São Paulo city council. In a 2008 opinion poll, 73% of respondents said that prison conditions should be made even tougher. (Poor blacks are just as likely to express such sentiments as rich whites.)

The surging incarceration rate is especially dangerous in Latin America, and in Brazil in particular, because it has the potential to reinforce traditional institutional weaknesses. As Brazil struggles to build an effective judiciary governed by rule of law (more on that in an upcoming post), it is still prone to police abuse, human rights violations and inhumane conditions within its facilities. Cramming more people into already overstretched prisons exacerbates the problem.

Moving toward the future, the real question is if Brazil will change course in its war on drugs. Will it follow in the U.S.’s footsteps, or take an alternative approach? Rumors of change in Latin America have been gaining steam in recent years, as politicians in Mexico, Guatemala, Chile, Colombia and Uruguay have started arguing more forcefully for decriminalization or perhaps legalization of certain drugs. Uruguay looks set to consider such a bill in its current legislative session. In Brazil, the most prominent dissenting voice has been former president Fernando Henrique Cardoso, who headed the Latin American Commission on Drugs and Democracy together with the ex-presidents of Colombia and Mexico. Cardoso has argued for a rethink of Brazil’s drug policy, suggesting that the country follow the Portuguese model of decriminalization and increased focus on public health programs

So far, few sitting politicians have taken up his call. The conservative, U.S.-style law and order approach still pervades in Brazil. However, the overall dynamic of Latin America’s approach to this issue does seem to be changing, and the debate is finally being joined in earnest. Many Latin Americans understand the illegal drug trade much better than their peers in the U.S. and Europe because they witness firsthand the side effects at every step in the process: production, transport and consumption. If a drug policy rethink does occur, it would make sense that this region would act as the pioneer. Brazil’s role in this policy shift, if it does happen, is still quite uncertain. But if its neighbors start to move in a new direction, it is difficult to imagine the country not getting swept up in the tide as well.