Brazzil
June 1999
EconomyMaking Do
New official statistics show that the subterranean economy in Brazil employs one in every four Brazilians. Some experts think that the situation is so desperate that only a federal program modeled after Franklin Delano Roosevelt's New Deal created to combat the Great Depression would work right now. The 12.87 million people employed by the informal economy equal the total number of workers in the public and industry sectors combined. Furthermore, this crisis has increased the amount of working children. In Rio alone, there are 1.5 million youngsters between the ages of 10 and 17 who work.
Francesco Neves
For 20 years Carioca Jorge Nunes was a bus driver. Even working as much as 10 hours a day, he never made more than $250 a month, too little to maintain his wife and raise a family of four children. Then, in 1994, he lost his job and for two years, Nunes tried in vain to get a new one, but his efforts proved fruitless due to his "old age" of 46 years. It was during this time of despair that Nunes was able, in November 1996, to get himself a minivan and start working independently transporting passengers. Today, he is making around $800 a month.
Nunes's story was used by Rio's daily Jornal do Brasil to illustrate the booming times of the informal economy in Brazil. In Jornal do Brasil, the former bus driver declared: "My life has improved a lot since I started working for myself. I remodeled my house and I am even paying for private school for my son. I am my own boss and I know my obligation: to treat my clients and my car well."
There are millions of Jorge Nunes in Brazil today, however, not too many of them live happily ever after. They are men and women who for one reason or another could not get a regular job or had a job that paid too little, and, therefore, decided to go their own way. A newly-released IBGE's (Instituto Brasileiro de Geografia e Estatística—Brazilian Institute of Geography and Statistics) study entitled Economia Informal Urbana (Urban Informal Economy) shows that the informal sector represents 8 percent of the GDP (Gross Domestic Product), which are the goods and services generated in the country.
While modest in the formation of the GDP, the subterranean economy employs one in every four Brazilians. The data was collected in October 1997, but it is still believed to be a fair representation of the informal economy situation, which economists believe has become a bit larger since then. In October 1997, 9.47 million informal businesses generated $7.15 billion, $2.9 billion of which were profit. According to Ângela Jorge, chief of the IBGE's Deren (Departamento de Emprego e Rendimentos—Employment and Earnings Department), the institute's work despite being two years old is still a faithful portrait of the informal sector. "What might have happened is an increase in the number of ventures causing the sector to expand, not a change in the most significant characteristics of such economy."
The new information, which uses the International Labor Organization parameters for informality, dispels previous estimates in which the informal world was shown as big or at least half as big as the official GDP of around $700 billion a year. According to IBGE's president, Sérgio Besserman Vianna, the activities included does not necessarily mean irregular and then he jokingly added: "We did not include criminal activities such as embezzlement, prostitution and drug trafficking since we did not have the means to study this."
The study, which is believed to be the first not only in Brazil but also in the whole world by its scope and amplitude, has interviewed 50,000 families in 753 urban municipalities in every one of the 27 states of the union. Among the findings was the discovery that half of the 12 million informal workers are younger than 25, with 67% of them between the ages of 18 and 39. Almost half of them (45 percent) never finished elementary school.
Half a million of these employees (4 percent of the total) work for nothing, because most of the time they are at the service of a relative. The majority of them (67 percent) are self-employed while 10 percent work for a legitimate company, but get paid under the table. Twelve percent, on the other hand, offer up to five jobs in their informal company. The 12.87 million people employed by the informal economy equals the total number of workers in the public and industry sectors combined.
When we add to this number of informal workers those who work as maids or other domestic jobs, we find out that 32 percent of Brazilians living in urban surroundings do not have a so-called real job. Domestic work is a chapter apart in the Brazilian labor landscape. A residue from slavery times, domestic workers—only 6.84 percent of them are men—live in that limbo of coziness that often makes the employee a member of the family on one hand, depriving her (or him) of a just salary and benefits on the other. According to the IBGE, there are almost 5 million domestic workers in Brazil.
Very few of them, however, are taking advantage of the ten-year-old legislation for the sector that contemplates among other things, a 30-day annual vacation, paid maternity leave, and the so-called 13th salary once a year. The law, however, says nothing about overtime, social security payments and raises. In São Paulo and Rio de Janeiro, salaries for domestic workers can be as high as the salary for teachers. In these big cities, baby sitters make in average $400 a month; a cook, $350; and a maid, $180. A house cleaner gets an average of $22 per day. In other large cities, however, like Brasília (Brazil's capital) and Salvador (capital of Bahia state), these salaries are cut in half and it is not that uncommon those who work in exchange for a roof over their head, clothes and food. Sixty five percent of all domestic workers make minimum wage, which is only $72 a month.
In a recent article entitled "Profession: Maid," weekly newsmagazine Isto É told the story of the president of Bahia's Domestic Workers Union, Creuza Oliveira. She was only ten when she left the interior of the state to work in Salvador. For a long time, she worked for food and a very special kind of food: leftovers from her bosses children. She remembers her boss giving her lunch or dinner. "Everything is pretty clean, she would say, throwing a ladle of beans over the food." This was 30 years ago. Oliveira has no reason to believe things have changed that much since then: "In the small towns, it is very rare that maids get any salary at all."
Disparities
And where are the informal businesses? They are all over. Commerce gets the bigger chunk with 26 percent of such ventures. Then comes services, which include such jobs as hairdressers and repairmen, with 20 percent of the total. Next in line is civil construction, which absorbs 16 percent of this informal work force. The so-called transformation industry, which includes apparel makers and artisans, represents 12 percent of the informal sector. Transportation, while representing only 6.7 percent of the informal ventures, was the sector with the biggest volume of investment (an average of $7,500), four times more than the second place: technical services.
Only 23 percent of these businesses are installed in adequate locations. About 28 percent of them are conducted from their owner's residence while 27 percent use the client's home as its place of doing business. Nine percent just use the streets and other public places and another 5.5 percent use a vehicle. Sixty-six percent of them have no work permit and, consequently, also do not pay neither taxes nor fees related to their enterprises. These are non-stop businesses, with the vast majority of them (91 percent) keeping workers busy the whole year.
As in the formal job market at large, the informal one is not favorable to women. While monthly earnings average $135 in the area as a whole, this amount is only $120 for women. Compare this to $140 for men, who hold 64 percent of all informal jobs. Sixty-six percent of all owners are also male who make an average of $310 a month. The majority of informal workers (66 percent) have been doing this for more than three years and are neither looking for nor interested in a regular job. With their low educational level, they would be making less than two minimum wages ($144) anyway.
The image conveyed by the IBGE is a mirror of Brazil's larger picture, showing the same economic disparities between the different regions of the country. Almost half of the informal businesses (46 percent) are in the rich Southeast, where the average monthly profit is $435. In the Northeast, on the other hand, where profits are the lowest, this average is $181. Profits are almost six times bigger in the South where they average $958.
For 10% of those with an informal occupation, this job is just a way to complement their earnings from working in a regular job. In some cases, they can even make more in their own business, but prefer to keep their jobs as a way to feel more stable as well as to secure pension and health benefits.
A study released in the last week of June by Rio's Municipal Secretariat of Work show that self-employed people were the ones most favored from 1994 to 1997, following the introduction of the Real Plan. Their average monthly earnings grew from $163 in June 1994 when the Real Plan started to $241 in 1997. This amount fell to $215 in the first quarter of this year. Among the reasons were the devaluation of the real and the stagnation of the informal sector that is not being able to absorb all the new unemployed. The informal sector, however, is the one that grew the most between 1991 and 1998. While self-employed people represented 26.2 percent of all workers in the Greater Rio in 1998, this number has increased by 4.3 percent since then.
Commenting on the recent fall of the real in Jornal do Brasil, economist Marcelo Néri from the IPEA (Instituto de Pesquisa Econômica Aplicada—Institute of Applied Economic Research) said, "We have here a pro-industry and not pro-services fact, and this does not generate jobs in Rio." To what André Urani, another expert, added: "The creation of the real Plan gave us conditions to think about the economic future of the country. In order to achieve a reversal in the situation brought about by these five years of real, we need to define what kind of growth we are looking for: one that includes or one that excludes people."
50,000 in Line
Brazil has 6.6 million—one third of the population living in the state of São Paulo alone—unemployed people right now. For some experts the situation is so desperate that the only solution would be to immediately start a federal program modeled after Franklin Delano Roosevelt's New Deal, created in 1933 to grant relief to a US wrecked by the Great Depression. "No one can be against state intervention and the creation of job fronts in a time like this," Universidade de São Paulo's economy professor Hélio Zylberstajn, told O Estado de S. Paulo.
He even suggested that governmental relief programs should be in a constant standby waiting to be adopted as soon as the economic conditions deteriorate and unemployment gets out of hand: "This is the time to promote the worker and not to diminish him and stigmatize him as someone incapable and not qualified for the new job market. It's time to use unemployment to teach a new occupation and to invest in the worker's dignity."
In São Paulo, embattled mayor Celso Pitta was just following this advice when he decided to attack unemployment through the use of job fronts. In the last week of June, Pitta signed contracts for six months with 6,500 people who were unemployed. All of them will receive a monthly salary of $75, a basic basket of food and transportation passes. During this period, they will also have to take one or more of the 40 different job-related courses for which there is demand, like sewing or working with computers. Other courses offered are telephone repair, gardening, and construction work. The project, which is costing $8.4 million, is called Program of Job Incentive and Professional Requalifying. If everything works as planned, 3,500 of the recently unemployed will join the program starting in August.
To illustrate how bad the unemployment situation is, close to 50,000 people applied for the openings even though they were told beforehand of the requirements they should fulfil before even being considered. They had to be unemployed for, at least, one year, have lived in São Paulo for a minimum of two years, and not to have studied beyond the eighth grade. Those with children had priority. This did not prevent people with college degrees from trying to get a chance to sweep streets or do other kinds of menial jobs.
The state of São Paulo will also be offering 150,000 jobs to face the rampant unemployment in the state. In São Paulo, the unemployed today need an average of 18 months to get a new job, two months more than in 1998. Even those with unemployment insurance are not getting adequate relief since this insurance lasts only for five months.
According to some experts, the national program of public work will only be effective if it is capable of absorbing close to 1 million unemployed people. In an interview with O Estado, Unicamp's (University of Campinas) economist Márcio Pochman proposed urgent and dramatic measures by the government, including the creation of public restaurants, bathhouses, and health clinics, as well as massive investment in infra-structure to offer jobs. He said, "If we want to discuss job fronts, we have to think about absorbing at least 600,000 to 800,000 people, otherwise the programs will not have the effect of combating the negative cycle of the economy and employment."
Child Work
Together with unemployment, the employment of children has also increased in the country. Among the most common activities for children who work are paperboys, counter attendants, office boys, and domestic helpers. The practice is prohibited by law through the Federal Child and Adolescent Statute, but it is believed that in Rio alone there are 1.5 million youngsters between the ages of 10 and 17 who work.
A study conducted by Universidade Federal do Rio de Janeiro with employers, parents, teachers and the children themselves shows that the idea of children working is universally accepted. Close to 90% of these children's parents believe that working is an educational activity for their children and that the job does not interfere with school. Even teachers (67% of those interviewed) see work for children as something positive. Besides, more than half of these youngsters say that they consider their bosses as a second father, somebody who listens to them and gives them advice.
"Sure I am in favor of eradicating child work, but let's not be hypocrites," said one of the authors of the study, researcher Alda Judith Mazzoti, in an interview with Jornal do Brasil. "The majority of the youngsters come from poor families, which are not able to support themselves. For them, a paying occupation is, besides being a factor of independence, a way to avoid criminality. What kind of childhood do these slum children have? Their parents work the whole day and they are left home at the mercy of drug traffickers, violence and a lost bullet. I am in favor of ending child labor, but you cannot do this overnight."
Another indicator of the unemployment crisis is the steep surge in hocking at the state savings bank Caixa Econômica Federal, the only institution allowed to offer these loans in Brazil. The Caixa pawning practice was created by Emperor Dom Pedro II in 1861 under the name of Monte de Socorro (Help Mountain) and was used even by slaves who utilized it to buy their own freedom.
Pawning had increased by more than 60% from $2.8 million in December 1998 to $4.5 million in March. Everyday, around 4,000 Brazilians take their possessions to pawn in one of Caixa's branches spread all over the country. The most common object for hocking is the wedding ring, with the fanciest ones guaranteeing as much as $1700 in loans. For this kind of loan, Caixa charges an annual interest of 45%—a rate considered low in Brazil—to amounts of up to $170. For larger sums, the rates jump to 54%.
"We cannot continue to have programs that distribute basic food baskets indefinitely, because this is shameful," said President Fernando Henrique Cardoso. "We need to create more jobs and working conditions conducive to a positive environment, so people can have access to a standard of living that does not drive them to receive a basic food basket. We have to offer more dignity to the human condition, so people can live without assistance. Either Brazil participates as more dynamic society in the world being molded into the next century or we will be condemned to irrelevancy, poverty, misery and exclusion."
The presidential talk happened early July during the launching of a federal plan called Active Community Program, which intends to promote economic autonomy among the poorest Brazilian cities. While bemoaning state paternalism on one hand, Cardoso and his team were celebrating the fact earlier this year that the union distributed, in 1998, 30 million basic food baskets to the poor at a cost of $217 million.
The President hailed the Active Community Program as a step in the right direction. This effort intends to make government, businesses and national and foreign NGOs (Non Governmental Organizations) join forces. The residents from the poor localities themselves helped by federal technicians will be offered the opportunity to create their own projects to develop their region using the available resources in the area. The government's announced goals are to include 1000 cities in the program by the end of the year 2000. Initially, the plan will reach only 133 cities—five in every one of the 27 states—all situated in rural areas with less than 50,000 inhabitants.
Real Five Years
Despite all the displeasure with the present administration and the perception that Cardoso reneged on his promises of taking care of the country's social ills, the Brazilian population continues to back the real, the new currency created five years ago, which ended a succession of disastrous economic plans incapable of stopping an inflation that at the creation of the new currency was 21.26 percent a month. The monthly inflation has fallen to 0.05 percent now. The cost of living index in Brazil dropped from 911 percent in 1994, the year before the introduction of the real, to 0.5 percent last year.
While the fifth anniversary of Plano real in June was received in the media with phrases like "we are living in a Brazil without hope" and "our economy is now being managed by nationless capitalism", a poll conducted by InformEstado—a subsidiary of media group O Estado—revealed that 55 percent of the greater São Paulo residents are in favor of the Plan even after the recent adoption of the free exchange that makes the dollar jump from $1.20 per 1 real to $1.80.
Naturally, the backing is much more lukewarm than in years past. In 1997, 71 percent of the population approved of the plan and such approval hadn't gone lower than 65% previously. Today, 16.6 percent say that they are totally in favor of the plan, while another 38.4 percent talk about being partially favorable to it. On the other hand, 14.6% declared themselves entirely against the Real Plan, while another 14.9% said to be partially against it. Almost half of the people interviewed believe that the plan worked out well. While 30 percent said that they are spending more in restaurants and leisure, 40 percent stated exactly the opposite.
At the end of June, the government was not celebrating the fifth anniversary of the real as it has done every year since the creation of the Real Plan in 1994. With 35 million Brazilians unemployed, there is hardly any reason to celebrate the date. Instead, the President got together with his economic team to discuss ways to deal with unemployment. According to the government's own admission, the economy will not grow but shrink this year. There are hopes that there will be a 2 percent growth in the year 2000. This is only wishful thinking at the moment, though.
Exploitation
ClimateManaging the Brazilian economy has been a tough act. While the US has had only two Federal Reserve chiefs in the last 20 years, Brazil had 20 Central Bank chiefs during the same period. In recent months alone, there were three of them. Gustavo Franco, who had defended the so-called foreign exchange anchor maintaining a fixed exchange rate, was replaced by Francisco Lopes, who idealized a complex model known as "endogenous diagonal band".
Lopes' passage was short-lived, however, and respected trader Armínio Fraga Neto, who was a former hedge fund manager for the billionaire George Soros and part-time teacher of International Finance at Columbia University was chosen to take his place. His main credit is to have cooled consumer demand and drawn in foreign investment by boosting interest rates to 45 percent. Since then interests rates have declined and are continuing to fall.
At the end of June, while talking in Rio to other chiefs of state during the summit between Latin America and Europe, President Fernando Henrique Cardoso drew a rosy picture of the Brazilian poor, telling about their ambitions: "We noticed that, besides wanting to master the Portuguese language, the poor people of Brazil want to learn two other languages: the Internet and English." The President cited a non-identified study in which a poor mother says: "If the IMF (International Monetary Fund) is in Brazil why shouldn't my children learn English?" As expected, Cardoso's comments were mocked by the local press who frequently accuse him of being out of touch with the poor.
While DIEESE (Departamento Intersindical de Estatísticas e Estudos Sócio-Econômicos—Interunion Department for Statistics and Socio-Economic Studies) numbers show that 1.7 million people or 20% of the Greater São Paulo population fit for work are without jobs, companies and job recruiters alike have used the excessive offer of candidates to impose absurd requirements of them. As a way to trim the number of applicants, one common requirement is that the candidates have completed high school even for menial jobs like cleaning up.
Some companies want their secretaries to be trilingual even though Portuguese is the only language they need for the job. And it's not rare that experienced sellers are also required to have their own car, cellular phone and computer. The practice has come to such extremes that there are even firms advertising for "trainees with experience".
In order to prevent people from fainting when waiting in line—something becoming more and more common everyday—to apply for a job, recruitment agencies have been offering food. The thousands of unemployed who line up everyday at the Centro de Solidariedade ao Trabalhador (Center of Solidarity to the Worker), which is maintained by workers' unions in São Paulo, are offered a mortadella sandwich.
Daily newspaper O Estado de S. Paulo cited unemployed Roni Antonino de Carvalho, while waiting in line: "I think nobody really knows how important this lunch is, what a blessing it is for people who like me have no money. When the bread with mortadella arrives, I think about that time during mass when the priest says, "blessed are those invited for the supper with the Lord".
