Too Rich, Too Poor

Too Rich,
Too Poor

In a list of 150 countries classified by the he Gini index—an
used internationally to measure income distribution—Brazil appears
as number 148 in a list of 150 countries. And the country is losing its
battle to reduce this blatant inequality.
By Rodolfo Espinoza

A personal jet costs a minimum of $9 million. You need to be more than just a little
rich to join the club of those who own one. While the number one fleet of these jets is in
the United States and the number two is in Mexico, Brazil in a close third place. A
Brazilian worker who makes minimum wage ($84 a month) would need to work 8,928 years
saving every penny before being able to get his own private plane. And if things continue
getting worse, as in recent years, such a worker will have to work a few centuries more
and not less to get his impossible jet.

The latest numbers by IPEA (Instituto de Pesquisa Econômica Aplicada—Institute of
Applied Economic Research), an organ of the Planning Ministry, show that contrary to what
the official discourse says the situation of the Brazilian poor has become grimmer since
the introduction of the Plano Real—a federal program introduced on July 1,
1994—designed to strengthen Brazilian currency and eliminate a decades-old endemic

Times were better during the mid-nineties and until October 1997 when Brazil was
affected by the economic crises in Russia and Asia. The President had an approval rate of
60 percent and per capita home income was growing 5.4 percent a year. In 1997 the
percentage of Brazilians below the poverty line had fallen from 33.4 percent to 25.5
percent. But then the world crisis came and on January 13, 1999, the real, the Brazilian
currency, was devalued and unemployment started to increase.

A just-released IPEA study called "Inequality and Poverty in Brazil: Portrait of
an Unacceptable Stability" reveals that present degree of inequality in the contry,
based on data from 1998, can only be compared to the worst years—those at the end of
the 70s. According to the IBGE (Instituto Brasileiro de Geografia e
Estatística—Brazilian Institute of Geography and Statistics), the top 1 percent of
Brazilians, with 14 percent of the nation’s wealth, has more money than the poorer 50

Nothing new in such disparity as the study notes, "It’s unbelievable the stability
of the intense inequality of income that accompanies the Brazilian through so many
decades." Says Ricardo Henriques, one of the study’s authors, "Of course it is
important to grow, but even if things get better, the inequality will continue as soon as
the impact of the growth stops."

The IPEA researchers criticize those who defend the idea that you cannot have social
justice without economic growth, and believe that only a program to redistribute income
would work in face of the immense gap between the rich and the poor. According to their
estimate, the government would need to apply $16.5 billion a year to help 50 million poor
Brazilians—almost one third of its 160 million people population.

The Gini index in Brazil, which uses IBGE information, is 0.60. Such indicator is used
internationally to measure income distribution. The index goes from 0 to 1 and the closest
to 1 a country is, the worse is the income distribution there. Brazil appears as number
148 in a list of 150 countries, losing only to Swaziland (0.61) and Sierra Leone (0.63).
And still more downbeat statistics: 30.5 percent of Brazilians aged 15 or older are
functionally illiterate who went four years or less to school.

Another tragic side effect of the poverty and lack of educational opportunities is that
more than 50 percent of the girls without schooling between the ages of 15 and 19 are
already mothers. Indexes from the Health Ministry show that this phenomenon is more acute
in the North and the Northeast regions. According to experts, it’s not lack of information
but lack of perspective what makes young girls become mothers so early in life. Most of
these pregnancies are desired since these young mothers believe that’s the only way for
them to improve their life status.

"The Brazilian government does not have a specific policy for youngsters,"
said Lucimar Coser from the Health Ministry’s youth program. "All we have now are
fragmented programs." There are plans to start such a program, which would involve
several sectors including health, culture, and education. Precocious motherhood is a
growing problem in Brazil."

IBGE data also show that the biggest concentration of unemployed is among the very
young. Almost 50 percent of those unemployed are youngsters who are 24 years old or

Too Much and Too Little

According to the World Bank, income concentration in Brazil has created five types of
social groups in the country: the indigent (24 million people); the poor (30 million); the
almost poor (60 million); the middle class (50 million); and the rich (2 million). Brazil
possesses a private wealth of $1.1 trillion, 53 percent of which is controlled by the
rich. In reality, the average income of the richer is 150 times bigger than the average
income of the poorest Brazilians.

Commenting this situation Reinaldo Gonçalves, economist of Universidade Federal do Rio
de Janeiro (UFRJ) told Rio daily Jornal do Brasil: "There’s no evidence that
the same occurs in other countries. In the United States, the Bill Gates control 26
percent of the wealth, half of what the richest Brazilians control."

Another sign of the growing poverty in Brazil is the increase in the informal job
market. This growth of informal workers—and this includes from the street vendor to
workers in small companies—became more pronounced starting in the early 90s.
According to a recent IBGE study on employment, in the period going from May 1999 to May
2000, there was an increase of 11.5 percent in the number of workers holding a job without
a contract. The study was conducted in six big cities: Rio de Janeiro, São Paulo, Belo
Horizonte, Porto Alegre, Salvador and Recife.

While the formal market was able to create 62,000 new job positions in that period, the
informal one gave work to 491,000 people. These latest numbers show that the informal
market for jobs has grown by an annual average of 5.19 percent in the last three years.

Economist Márcio Pochmann from Unicamp (Universidade de Campinas) predicts that in
eight years the number of jobs in Brazil will be split in half between those working with
a contract with all social benefits and those in an informal job. Today, 27.8 percent of
workers have informal jobs. The service and commerce sectors are the main ones hiring
without a contract.

Some Reason to Cheer

For the technical director of DIEESE (Departamento Intersindical de Estatísticas e
Estudos Sócio-Econômicos—Interunion Department for Statistics and Socio-Economic
Studies), Sérgio Mendonça, the positive impact of the real was very short-lived:
"At the start of the plan, with the fall of inflation and bigger acquisitive power by
the population, there was a relative economic growth. Starting in 1997, however, there was
a recession, and at the same time an increase in the number of poor."

Mendonça points as well that inequality in society is brought not only by the
concentration of income on the top, but also by a very competitive job market, which
excludes those less qualified and requires constant training by employees.

Ana Sabóia, IBGE’s chief of the Division of Social Indicators, concurs with Mendonça.
In an interview with Jornal do Brasil she said, "Social inequality continues
to harm Brazilians even though we can notice a better life standard, according to our
social indicators."

Not everything got worse though. Child mortality, for example, fell to 35 children for
every 1000 born alive in 1999. Six years ago there were 41 deaths for the same group of
1000 kids. Basic sanitation, however, continues to be a problem for 30 percent of poor
Brazilians who don’t have access to public sewer.

A report about health conditions in the world released on June 20 by the World Health
Organization (WHO) shows Brazil in 125th place among 191 countries. The
situation in Brazil is comparable to that in Vietnam, Nepal and Cambodia. The study, in
which France came in first place, the United States in 37th and Sierra Leon in
last, does not only measure the amount of medical facilities that a country has but also
the way patients are treated.

According to Julio Frenk, WHO’s executive-director, Brazil lost many points due to the
way poor people are treated by the health services and to the unfair manner the health
systems are financed. The report concluded that Brazilians have to pay too much for health
care. This means, says the study, that a great number of families in Brazil spend more
than they can on medical assistance.

The Health Ministry responded promptly and indignantly to the report stating that WHO
used incomplete and outdated data for their study. The government noted for example that
the information about child mortality is from an IBGE study from 1996 that used a very
small sample. The Ministry also criticized WHO for consulting only 33 experts, including
government officials and private researchers.

"The data about fairness in financing health treatment," said a note from the
Health Ministry, "are clearly exaggerated and distorted, so much so that Djibouti
appears in third place while Cuba, one of the most egalitarian countries in the world
appears in 25th place. Due to that, Brazil, which stands in 78th
place for performance in health, drops to 125th place in the final ranking
behind such nations as Senegal, Nicaragua, Bosnia, Iraq, and Pakistan."

Health Minister, José Serra, was less critical of the report and used the release of
the study to exonerate his cabinet from the shortcomings of the government’s health
policy. Serra noted that Brazil’s unfavorable position was not surprising and pointed that
the causes for that were mainly income disparity. He also complained about the money
reserved on the federal budget for his ministry and about budget cuts in the area of basic

According to WHO, the poor are the ones who suffer the most under the Brazilian federal
health system. There are 120 million Brazilians without private health insurance and 35
million of them are below the poverty line. The majority of Brazilians are under the care
of the federal program SUS (Sistema Único de Saúde—Unified Health System), which
consumes $11.3 billion a year and is administered jointly by the Union, states and
municipalities. The remaining 40 million Brazilians are in the better hands of a private
system that expends $9.5 billion a year.

Inequality for All

"Health was never a priority in this country," says former Health minister,
doctor Jamil Haddad. Haddad should know. He left his cabinet after a dramatic pleading to
get more resource without success. To what José Aristodemo Pinotti, a professor at
Faculdade de Medicina da Universidade de São Paulo (São Paulo University Medical
College) added in a interview to Jornal do Brasil: "There’s so much
incompetence in managing the Brazilian public health. Countries that spend the same as
Brazil like Mexico and Chile have half the mortality for pregnant women."

In Brazil expenditures on health represent 3.17 percent of the GDP (Gross Domestic
Product), according to data from 1996—from the latest numbers that are available.
Compare this with the US, which spends 13.7 percent of its GDP and is the leader in
expenditure in the health sector even though 40 million Americans are not covered by any
private or public health plan.

After the release by IBGE, in April, of another study about social differences, the
president of that institution, Sérgio Besserman Vianna declared: "Inequality is the
most distinctive trace of the Brazilian society under whatever angle you analyze it:
income, region, race or sex." In that study, called Synthesis of Social Indicators
and based in 1998 data, it was revealed that 19.6 percent of the 45.2 million Brazilian
families are poor, since they have a per capita income of less than half minimum wage

That report also revealed that the head of the household in 16.7 percent of the
Brazilian families is a single woman with children. Another revelation was that 40 percent
of the population at the bottom of the economic ladder earn a monthly average wage of
$69.50 while the top 10 percent have an average monthly income of $1,376.

When the country is divided by regions, the Northeast is the area in which the poverty
situation is the worst with 38.2 percent of workers earning less than half a minimum wage.
In the Southeast this percentage falls to 10.8 percent. In the North there are 26 percent
in this situation. In the Midwest 15.9 percent, while 13 percent fall under this category
in the South.

Nationally, only 9.9 percent of the 45 million Brazilian families make more than five
minimum wages ($84 x 5 = $420) a month. When these numbers apply to regions, once again
the Northeast is in clear disadvantage in comparison with the richer Southeast. While 13.3
percent of those families in the Southeast make more than five minimum wages a month, this
number falls to 4.1 percent in the Northeast.

Call for Action

There have been some efforts to correct the problem or at least improve conditions for
those below the poverty line. Recently the Brazilian senate approved an amendment to the
constitution that would create the so-called Fund to Combat Poverty. The fund would invest
annually for a period of 10 years $2.2 billion in programs for the poor that would deal
with nutrition, education, housing, and health.

President Fernando Henrique Cardoso himself recognizes that inequality continues to be
a serious problem in Brazil. In response to a US document criticizing the gap between rich
and poor in Brazil, Cardoso, declared: "It’s futile to say that the income is
concentrated. Unfortunately that’s the case for 500 years."

São Paulo, the richest state of the federation, has 8.4 million people below the
poverty line, according to a report by IPEA (Instituto de Pesquisa Econômica
Aplicada—Institute of Applied Economic Research) and the IETS (Instituto de Estudos
do Trabalho e Sociedade—Institute for the Study of Work and Society). This means that
four in every ten Paulistas are poor (making less than $83 a month) and that one in
every ten can be considered an indigent (making less than $40.5 a month), according to the
indexes utilized by WHO to quantify misery. This fact becomes even grimmer when you know
that São Paulo has proportionally less poor people than any other state.

The study based on IBGE data from 1996 and 1997 shows that people from the state of Rio
de Janeiro are in worse shape yet since 35 percent of the 13.5 million Fluminenses
live below the poverty line. And in Minas Gerais more than half (51 percent) of the
population of 16.8 million is also below that line.

The state of São Paulo made its calculations and concluded that in order to eradicate
poverty it needed to spend $285 million every month, or 17 percent of the state’s budget,
in social programs. This would represent, in average, $33.5 to each of the 8.4 million
poor Paulistas.

"We cannot calculate for how long the state would have to make these money
transfers," said IPEA’s economist Marcelo Neri, one of the coordinators of the study
on poverty in São Paulo, and continued, "That would depend on public investments in
the areas of health, education and sanitation."

Despite the blight of favelas (shantytowns) in the large urban centers like São
Paulo and Rio, urbanization has been important to reduce poverty. In São Paulo city there
are 20 percent of the poor people of the state, while 26 percent of them live in the rural
area, a region with only 15 percent of the population.

In response to critics who have accused sociologist President Fernando Henrique Cardoso
of reneging on his past of political activity in favor of the poor, the government has
launched on June 28 a program to assist the poorest of Brazilians. Called IDH-12 since it
is inspired by the IBGE’s IDH (Índice de Desenvolvimento Humano—Human Development
Index), the program intends to reach communities whose IDH is 0.75 or less. The
internationally-used index, which takes in consideration education, longevity, and income,
has a scale that goes from 0 to 1.

The plan anticipates an annual budget of $2.8 billion, but it is flexible allowing for
alterations once new priorities are determined. It would create basic programs of
education, health and sanitation, that in turn generate jobs, which would make the program
self-sustainable. More than just distributing money, the plan intends to create a new
mentality in public service, trying to establish a uniform national program and to
coordinate organs from different departments that normally work separately. The plan also
calls for a watch-over system that would guarantee the money is used where it was intended

The plan seems too precise and too good to be true. According to the government data,
the program will assist 50.818.767 people from the 2091 poorest municipalities of the
country. The money would go to these selected states: Acre, Alagoas, Bahia, Ceará,
Espírito Santo, Maranhão, Minas Gerais, Pará, Paraíba, Pernambuco, Piauí, Rio Grande
do Norte, Sergipe and Tocantins.

Community counsels, which congregate local leadership, should be important in defining
priorities and deciding where to apply the resources. The government will be using a
structure created one year ago by agents of Banco do Nordeste. Called Farol de
Desenvolvimento (Development Lighthouse), they work as advisors and help the bank to find
out the wishes and complaints of the bank’s clients in 1,950 Northeast municipalities.

It’s not for lack of plans that, generation after generation, Brazil is unable to
reduce the inequality between the rich and the poor. Nothing short of a serious
intervention of the state can solve the problem, according to some experts and a study by
the IPEA, an organ of the Planning ministry. For economist Reinaldo Gonçalves from
Universidade Federal do Rio de Janeiro it’s necessary to attack the source of the problem,
impose a radical agrarian reform, and extend easy financing to the poor. Says he,
"There is no other way out but to tax heavily the wealthy, transferring their wealth
to the poor. Brazil is a rich country. It has plenty of wealth, capital and land that can
change hands."

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