Brazil — The Real 20/80 Society

Is globalization bringing new life to Rio de Janeiro’s shantytowns?

December 23, 2001

Is globalization bringing new life to Rio de Janeiro's shantytowns?

According to statistical tables published by the World Bank, only Sierra Leone, with its population of five million, has a more unequal distribution of incomes than this largest country in Latin America, with a population of 161 million.

True, tables of this kind are to be taken with a grain of salt. Many countries do not report any comparable figures at all. And in countries like Brazil, with a large informal sector, economic statistics are indeed of dubious reliability.

But no one seriously disputes the fact that Brazil has enormous disparities in living standards between the rich minority and the poor majority, and that those differences are greater than in most other countries.

And yet, in many ways, Rio is a world turned upside down. The poor live in first-class locations, on the mountainsides, and enjoy what may be the loveliest view in the world — high above the city, the beaches, the sea. Meantime, the city’s wealthy huddle in the center of town — with little to gaze upon but congested streets and the facades of buildings across the way.

Not that the slums are idyllic. Walking between the buildings, many of which are three or four stories high, through a maze of narrow lanes, can be claustrophobic — like being trapped in a human anthill. But then there’s that mountain air and panoramic view.

Such disparities are far from the whole story, however. Rio de Janeiro has been described as a bit of Paris surrounded by a chunk of Ethiopia. But without romanticizing poverty and gangster rule, it’s clear that life in a well-established slum like Rocinha is not quite as bad as all that. In the past few years, the slum has been refrigerated, telephonized, globalized.

It is here in Rocinha — not the sleepy business districts of Rio, frequented by the élites — that Brazil’s progress in recent years is most visible. The favelas, or shantytowns, are dynamic, hopping. Viewed from above, Rocinha is a forest of small-dish aerials.

In the small shops lining the main street, you can buy refrigerators from Asia and mobile phones from Finland. You can pay for your new shoes with Mastercard or Visa. Dentists and lawyers have opened up practices on new premises.

Through the open windows of these shantytown dwellings, what you see is not necessarily appalling poverty. You’re just as likely to spot a neat living room complete with television, VCR and computer.

In 1999, the New York Times reported that Rocinha had more than 2,000 shops and companies, five banks and credit institutions, three daily newspapers, even its own home page on the Internet (http://www.rocinha.com.br). Plus a McDonald’s has set up shop. When the golden arches come to town, you know you’re going global.

During Fernando Henrique Cardoso’s time as finance minister and then president, Brazil has broken with chronic hyper-inflation — and opened its market to foreign competition.

These economic reforms have struck hard at those who benefited from protectionism — and who resent the loss of their privileges. Many of those have to cope with a loss of middle class status.

In contrast, the reforms have brought at least a modicum of growing prosperity for the poorest Brazilians.

To see how these changes worked their way through Brazil’s society, let us first look at Norberto Albrecht, a taxi driver in Rio.

His grandparents came to Brazil from Germany in 1922. He has two daughters, aged 10 and 14.

Albrecht hates his new job. For 20 years, he worked in a comfortable middle class job as a quality controller in a plastics factory. Two years ago, he was put out of work.

“The politicians opened up the borders to imports and we were put out of business by the South Koreans,” he recalls morosely. “Brazil was a better place 10 or 20 years ago. I didn’t like the military dictatorship, but life was better. My quality of life has deteriorated. In those days, I worked an eight-hour day. Now, I have to work 15 hours a day for the same amount of money.”

Albrecht blames the decline in his fortunes on the politicians. “Politics,” he sighs. “Someone ought to bomb the Congress. Then we could start all over again.”

“We of the middle class are having a difficult time at present,” says Fernando de Albuquerque, a business consultant who studied at Stanford. “My money goes to the poor. Ten years ago, I had twice the purchasing power I have now. The poor are taking money away from the middle class. Their purchasing power has improved, but the economy hasn’t grown.”

Ten years ago, before the economy was opened up, life in Brazil was doubtless better for Albrecht and Albuquerque than it is today. But for the inhabitants of Rocinha and Rio’s 600 other favelas, things have improved dramatically — economically, socially, medically.

Brazil learned to live with high inflation for decade after decade. As recently 1993, the annual inflation rate was a whopping 2,500 percent — a national record. The result was a torrential transfer of real wealth from the poorest to the richest.

The rich were able to guard against inflation investing money abroad or in Brazilian banks, where interest rates were index-adjusted. But the poor did not even have bank books.

The nation’s frantic destruction of capital meant the frantic destruction of their capital. In Rio, people learned to cope with 3 percent inflation per day. For the poorest, this meant that the money they earned one day lost 30 percent of its value within ten days.

That is one important reason why globalization in Brazil is indeed resulting in a 20/80 society, but not as normally understood: the prosperous 20 percent are now worse off, while the poorest 80 percent are better off — as improbable as that may sound.

But, during the 1990s, nearly 20 million Brazilians entered the lower middle class. Many of them have been able to buy mobile phones and PCs as well as TV sets and fridges. And, of course, they have been able to fill those fridges with food and drink.

Compare that to the 1980s, when one in five Brazilians went hungry every day. So, despite individual hardships, perhaps it is not so tragic for Brazil as a whole if workers in the steel industry — and other skilled professions — find they must struggle to adapt to the new, more competitive, more global economy.

Adapted from “The Race to the Top” by Tomas Larsson. Copyright © 2001 by the Cato Institute. Used by permission of the Cato Institute.