Marilucia Marques could be a poster child for the new Latin American middle class. Black, poor and raised by a single mother in a Rio favela, the young Brazilian lifted herself out of the slum thanks to hard study and a rare opportunity for higher education. She is now a teacher, earning six times more than her mother — who worked as a maid all her life — and is the first member of her family to be able to afford foreign travel, as well as concerts, theater and the cinema.
From a global perspective, she is exactly what the world economy is looking for: A driver of growth, an example of millennium development goal success and an indication that Latin America may be shedding a reputation for social inequality and financial instability.
In one sense, her path out of poverty is emblematic. Marques is one of more than 300 million people in emerging economies who have moved out of destitution as the global balance of power and income has shifted since the turn of the millennium. However, moves like hers are coming at very different speeds in different countries.
Among the sharpest contrast is that between the first and last of the so-called BRICs — Brazil and China — which have been hit in varying degrees by the global economic downturn and responded in very disparate ways.
This year Brazil’s GDP growth will barely creep above 1 percent — better than Britain and many countries in Europe, but a far cry from the heady 7.5 percent expansion it racked up in 2010 and well below the 3.1 percent average expected this year in Latin America.
China too has decelerated to the lowest pace in three years. Its most recent growth rate of 7.4 percent is well down on the double-digit average of the past three decades, but still sizzlingly fast compared with most nations.
Yet public contentment and perceptions of living standards appear not to have followed the same path.
According to happiness indexes and gauges of consumer sentiment, Brazil has maintained a strong feel-good factor, while many in China feel worse off.
Inequality is part of the reason. The nominally capitalist and communist nations are moving in opposite directions from those that might be expected from their ideological labels.
China’s wealth gap has widened more than any other Asian economy, according to the IMF. By contrast, in Brazil the Gini coefficient — the main measure of inequality — has gone down significantly in the past 10 years and is now at a record low; unemployment is at its mildest in a decade and minimum incomes have been steadily on the rise.
Unlike in the past, this has not been achieved at the expense of fiscal prudence. Interest rates are near record lows, inflation is stable, foreign reserves high and government debt is at a relatively benign level.
However, economic growth is now also overly reliant on consumer credit, which has increased the spending power of the population but increased household debt. According to the IMF, 23 percent of Brazil’s household income now goes on servicing debt — a higher rate than anywhere in the Americas. Economists are warning that Brazil needs to shift from consumption-driven growth to investment.
Although the overall level of credit in Brazil is relatively low at roughly half of the country’s GDP, the trend has been sharply upwards, having doubled in the past seven years.
And, almost criminally, while the real interest rates are near a record low of about 2 percent, consumer credit deals for shop purchases can be more than 100 percent a year, usually aimed at shoppers who did not previously have access to such deals.
As this model starts to slow, Gustavo Franco, a former president of Brazil’s central bank and founder of Rio Bravo Investments, believes Brazil’s growth model is at a turning point because government stimulus and household credit are no longer effective drivers of growth.
“For the last few years there has been warnings on the low investment rate and on the fact that growth based on leveraged consumption would eventually find limits. It appears that these limits are being reached,” he said in an e-mail reply to reporters.
While Chinese growth is based on high private savings and public investment, Brazil’s economy has recently centered on debt and consumption. Despite concerns about sustainability, he says this is a reason why there is more of a “feel-good” factor in Brazil. Despite the slower level of growth, he says Brazil ranks No. 1 in the world for expectations of future happiness.
For those expectations to be realized, he says the government must now promote investment, which accounts for just 18.5 percent of GDP compared with 40 percent in China.
Brazilian President Dilma Rousseff seems to be listening. In the past week, she has hinted at a splurge in infrastructure investment on an almost Chinese scale. Over the next three years, Brazil will invest US$31 billion in public ports — 10 times the amount spent over the previous decade — and build 800 new airports.
“Figures in Brazil are big,” she said in unveiling the plan to provide an airport to all cities with more than 100,000 inhabitants. “It is also a necessity for the country’s growth.”
However, poor transport infrastructure is not the only obstacle to lasting prosperity.
Belying the stereotypes of China’s communist authoritarianism and Brazil’s happy-go-lucky ethos, the rank corruption and staggering paperwork make living, working and setting up offices in Rio de Janeiro far more expensive and time-consuming than in Beijing. Add in higher property prices, tax rates and wage costs and it is not hard to see why Brazil scores horrendously in global competitiveness surveys.
In the Confederation of Industry’s latest study Brazil was second bottom, after Argentina, among 14 rivals. China was fourth, India sixth and South Africa eight.
Brazil still boasts fundamental advantages that should ensure steady growth. Its population is young — with an average age of 29 — and stable compared with China’s aging society and one-child policy. It has far greater ecological wealth — though its forests are declining, while China is planting billions of trees. It is also one of the world’s biggest producers of iron ore, timber, beef and soya beans.
It is here that you find the greatest contrast and closest link with China, which is now the global commodity consumer of last resort and Brazil’s biggest customer accounting for 17 percent of exports. These two vast nations have developed a complementary but unequal relationship with one another.
China buys raw materials, which profits a few big Brazilian suppliers such as Vale. However, it then exports back cheap manufactured goods, such as shoes and textiles, that undercut Brazilian rivals in both home and regional markets. As more than one commentator has pointed out, the trend is almost towards deindustrialization.
Until that changes, Brazil’s efforts to boost consumption will simply create greater demand for foreign goods and poverty reduction will remain fragile.
Jose Afonso Mazzon, an economics lecturer at the University of Sao Paulo, said increases in the minimum wage, welfare programs and increased access to credit had pushed up the spending power of those just above the poverty line. However, this has yet to translate into solid structural gains for the economy. As a result, he said Brazil is unlikely to reach the government’s 3.5 percent growth target next year unless GDP picks up in the leading economies.
“Europe and the US haven’t seen much change. India and China are the only countries that have been growing, but more slowly than a few years ago. So, I don’t see an optimistic scenario for 2013. I think it will be a little bit better than 2012, but not 3.5 percent. I doubt GDP will even reach 3 percent,” he says.
Millions of people have no income at all. Many others remain trapped in poverty or debt.
However, further action is needed: 8.5 percent of Brazil’s population lives on less than 70 reals a month, equivalent to US$1.50 a day. Education and health standards are woeful. The steep narrow alleys and breeze-block homes of the favelas of Rio are as crowded as ever.
Marques is no longer among them, but for her this is the result of a lucky break — a university bursary arranged through a family member — rather than government policy or a global trend.
“I am an exception inside an incoherent and unfair system,” she says.