Brazil's Persistent Income Inequality: Lessons from History

Latin American Politics and Society, Summer 2004 by Skidmore, Thomas E

ABSTRACT

Official data for the last three decades show that Brazil has one of the world's most unequal distributions of income. This article examines the relevant data and then explains the causes of this persistent inequality, considering them also in cultural and historical context. It discusses the politics of continuing inequality and possible strategies for reducing it.

The following analysis is based on the assumption that Brazil's historical experience can help us understand why Brazil's income distribution has remained one of the world's worst for the last half-century. I believe that the causes are complex and that they include cultural and political factors, as well as economic ones. As I shall argue, income distribution has become a residual in Brazilian debates over economic policy.

THE LINK BETWEEN POVERTY AND INCOME DISTRIBUTION

Income inequality is not the same as poverty, although they are closely related in Brazil's case. One can imagine, for example, a policy in Brazil that would eliminate poverty (by any absolute measure) and yet leave the income distribution highly uneven (World Bank 2001a, 22). Furthermore, measures to eliminate poverty are easier to envision because they focus on relatively easily identifiable subpopulations. Attacking income distribution, on the other hand, requires attention to the entire population. Most of the relevant debate in Brazil and abroad has been over eliminating poverty, not reducing income inequality.1 Politicians (such as the leaders of the Fernando Henrique Cardoso government) claim credit for attacking the former but seldom discuss the latter.

Because income distribution involves a relationship, not absolute levels of deprivation, moreover, it is more difficult to dramatize. The World Bank's recent project to give voice, literally, to the poor in the emerging economies is a case in point. The informants in these two volumes lament the immediate circumstances of their lives (unresponsive bureaucrats, arbitrary police, nonexistent safe water supply, and so on), not their plight as compared to the well-to-do (Narayan 2000). Clearly, a relationship status is more difficult to communicate than an absolute status.

My topic here is the factors that increase or reduce income inequality.

WHAT DO THE DATA TELL US?

Attempts to measure the trend in income inequality must use data from 1960 as the starting point, because that was the first year in which a Brazilian census collected data on income distribution. From 1960 on, every census has shown a highly uneven distribution of income by any one of numerous measures, such as the GINI coefficient, the Lorenz curve, or the simple comparison of income share by decile. Furthermore, comparisons up to 1990 show that over that 30-year period, the degree of inequality at best remained stable. The GINI index, for example, remained at 0.63 between 1970 and 1990 (up from slightly less inequality at 0.59 in 1960). During the Cardoso presidency there was a modest improvement, from 0.605 in 1993 to 0.572 in 1999. This was probably the result of the sharp drop in inflation produced by the 1994 Piano Real corrected the normally regressive effect of inflation (Lahoz 2002).

The degree of regional income inequality, especially between the Northeast and the Southeast, has also remained high. The Northeast's per capita income was only 46 percent of the national per capita income average in 1997 (Baer 2001, 325). Despite frequent discussion of data that place Brazil at or next to the bottom of international comparisons on income distribution, relatively little improvement has been achieved.

WHY DOES INCOME DISTRIBUTION MATTER?

Seen in its political context, income distribution is a matter of simple economic justice. It is a question of how the monetary rewards are allocated in the society in question. In short, it is a moral issue, reflecting how a society values its members in relation to one another. (Many observers take this further and believe that highly skewed income distributions lead to social conflict. Such a causal link has certainly proved very weak for Brazil.) At the moment, with the government of Luis Inacio Lula da Suva, all eyes in Brazil are understandably on the exchange rate, the state of foreign exchange reserves, and the inflow of foreign capital. All are indicators of the crisis in Brazil's relations with the world economy. The fear is a possible Brazilian default. In this climate, concern with income distribution is necessarily relegated to the back burner.

We need to remember, also, that monetary income is not the only relevant measure of relative welfare in the Brazilian society. Trends in such indicators as literacy, child mortality, life expectancy, and availability of electricity and safe water-some of which have been measured since before 1900-are, because they all show steady improvement, a sharp contrast to income distribution trends. The result is that the Historical Living Standard Index, the main components of which are health, education, and housing, shows Brazil's inequality improving over the last half-century (Thorp 1998, 300). This improvement has gone on during all varieties of political regimes, from democratic to authoritarian. It reminds us that monetary income has its limitations as a measure of welfare.