A Critical Look At a World Famous Welfare Program


Hailed by The Economist as a “much admired and emulated anti-poverty program”, the signature legislation of Brazil’s last president Lula da Silva was the Bolsa Família (Family Allowance) program. Aimed at alleviating the misery of the poorest segments of the population, the program provides financial aid to families and free education for children whose parents cannot afford to send them to school. The largest conditional cash transfer in the developing world comes with strings attached, though.

The eleven million families receiving the financial aid – on average $35 per month – commit to keeping their children in school, adhering to the government’s vaccination schedule, and taking them for regular health checkups. In a country plagued by persistent inequality and poverty widely blamed on an unjust system, the popularity of a program of direct wealth transfers to the least privileged should be no surprise. Still, might the superlatives expressed by the likes of The Economist have been a little overdone?

At first glance the numbers seem impressive; extreme poverty has been halved from nearly 10 percent to just over 4 percent, income inequality has fallen, and about one fourth of the population has benefited from the program. In addition, the initiative has been touted for its decentralized nature and target accuracy in reaching those in the most dire of circumstances. As Henry Hazlitt might have pointed out, however, there is more than meets the eye.

The National Congress in Brasília

It does not take a genius to understand that since the government has no money to spend it has to fund its operations through taxation, the printing press, or by going into debt. In the long term, therefore, the Bolsa Família program cannot be said to contribute to real wealth creation. Worse yet, regardless of the preferred means of funding itself these government programs necessarily extract wealth from the private sector, thereby making society poorer in the long run. Any consumption whose origin is found in the artificial creation of illusory wealth only contributes to a reduction in living standards due to the absence of an increase in general productivity. Sooner or later the market corrects the unsustainable boom, and it’s back to square one.

The irony of government intervention, as famously pointed out by Ludwig von Mises in his critique of interventionism, is the invariable snowball effect of piling on new interventions aimed at solving the problems created by previous ones. History tells us this endless game of government whack-a-mole invariably leads to an economic and humanitarian catastrophe. But in the case of Brazil there is plenty more reason for skepticism besides the objections raised from a more academic standpoint..

The aforementioned fundamental problems are compounded by the fact that would-be contributors to real growth such as a good education system are still lacking. After all, boosting school attendance rates is one thing, creating an environment in which students can get a good education is another. In its Human Capital Report of last year the World Economic Forum ranked the Brazilian education system as among the 35 worst in the world, trailing such nations as Surinam and Botswana while just barely ahead of Bhutan and Kenya. Steady increases in government spending in the last decade have entirely failed to achieve a competitive education system even compared to other, poorer Latin-American nations.

Perhaps a cynic would call Lula’s program and his successor Dilma Rousseff’s support thereof a classical example of vote-buying through government handouts. That might not be so far off.

The Self-Regulating Power of the Market


A common objection to a libertarian society is the “without the government corporations would rule the planet” argument. The theory goes something like this: having few or no laws would give business free reign to run roughshod over our rights since the people have no recourse if they are violated. By extension the idea of limited (let alone no) government is quickly dismissed as a utopian illusion thought up by naïve dreamers who think corporations are run solely by selfless do-gooders.

Fortunately those that have taken a more than slight interest in the message of liberty know better. The majority of libertarians are not corporate apologists but rather critical thinkers who understand that while no system is perfect, centralizing power into the hands of a relative few is least likely to genuinely protect people’s rights. Besides, while government can – and routinely does – secure your compliance with the threat of “legitimate” violence, a business that fails to live up to its promises can either step up its game or watch while its customers take their business to a competitor.

Libertarian theory basically holds that built-in market mechanisms reward good business practices and penalize bad ones, thereby removing any need for government intervention. After all, a free market has no barriers to entry that would stop an entrepreneur from filling the void left by competitors. In many cases however, one does not need to go that far at all. Since reputation is key to the survival of any business the free flow of information protects customers from mistreatment. In this information age that has become truer than ever.

ReclameAquiHere in Brazil a good example is a website and mobile application called ReclameAqui (“complain here”). Dissatisfied customers use such websites to post their grievances about a product, service or poor customer service and businesses can respond promptly on the same platform. While there are many ways for a customer to express his or her discontent ReclameAqui has gained particular popularity, enabling people to post complaints in a matter of mere minutes with a few clicks.

The specific information required filters out many false complaints and any that might slip through can be pointed out by businesses in their response on the website. Legitimate complaints often result in the customer receiving a call from a customer service representative who takes care of things over the phone. New businesses are constantly listed on the site as requested by users. Other free features include a listing of the overall best companies, daily, weekly, and monthly rankings, and a tool to compare two or more firms – all based on customer feedback.

The website is full of success stories written by happy ReclameAqui users and serves as a great resource for consumers at any and every stage of the purchasing process including post-purchase. A friend who bought an e-reader six months ago used the site to see if anyone else had experienced the problem she was dealing with. When she found out the bookstore answered positively to almost all issues she listed hers and was promptly invited to pick up a new one in the store.

The claim that the market regulates itself is not just wishful thinking on the part of libertarians. Nor does it say that all businesses are run by morally upstanding people or that every single employee always puts the customer first. But examples like these show that the consumer can bring forces to bear that a business ignores only at its own peril. And so long as the strong arm of government does not impede or block competition, success in business depends on staying in the good graces of the consumer.

Constitutionally Protected Corporatism


The seventh and current Brazilian Constitution dates back to 1988, when it was written from scratch by a Constitutional Congress elected two years earlier. It contains a whopping 250 articles making it about as thick as the Bible. As its length might indicate it was not exactly written in the traditional sense, for the purpose of outlining what government can and cannot do to ensure the rights of the people.

Drafted after a period of military dictatorship with a constitution that severely restricted the rights of the people while expanding government power, the current one is also known as the Citizen Constitution. Did the Constitutional Congress in the late eighties feel the need to allay people’s fear of having their rights stripped away anew? Perhaps, but entrusting the very same institution that trampled all over the rights of the people with a litany of new powers does not seem to make logical sense. Couple this flawed logic with collectivist egalitarian rhetoric and what results is not exactly a recipe for freedom.

OLYMPUS DIGITAL CAMERAMany classical liberals and libertarians understand the inherent contradiction in constitutionally protecting positive rights; that protecting someone’s “right” to force a doctor to provide healthcare services inevitably ends up violating the doctor’s rights. Yet much less thought seems to be given to the practical implications, not to mention how it warps the general perceptions of capitalism. Whether one calls it corporatism, crony capitalism, or state capitalism, it certainly is anything but capitalism. Yet it is written right into the “law of the land” and few seem to take notice.

The constitutionally guaranteed “right to healthcare” apparently includes – among other things – free drugs for those suffering from hypertension, diabetes and asthma, as can be seen advertised in and around pharmacies here. While perhaps seemingly laudable at first glance, the true beneficiary of this constitutional provision is the pharmaceutical industry. After all, only their drugs are provided for free. This gives them not only a government-granted competitive advantage, but also an infinite revenue stream complete with heavily inflated prices. In that light it is no surprise that there are other reasons to believe the Brazilian government has a very cozy relationship with the pharmaceutical lobby.

Contrary to popular belief the average Brazilian, who might be thought of as the main beneficiary of a constitutionally guaranteed “right to healthcare”, is not at all helped by the situation. After all, since government has no money of its own to finance this system of cronyism, funding has to come from taxation, borrowing, or the printing press. While the former is not generally the preferred method for obvious reasons, the other two options are at least as detrimental to the people’s civil liberties and financial well-being. Brazilian inflation figures since the adoption of the current constitution serve as an indication of how the government likes to keep the scheme going.

In short, the constitutional provisions on healthcare and subsequent laws amount to nothing less than a giant handout to the pharmaceutical industry. Imagine running a business whose only customer consists of uninterested bureaucrats who don’t care how much you overcharge and whose end users have no clue how badly they are getting ripped off by the system. How easy it is to make a killing when the government is holding your hand!

It would serve Brazilian liberals well to emphasize this point when debating their detractors who claim to oppose corporate power.

Private Security in Brazil


Walking down the street here in Brazil one can spot many signs on homes and businesses warning criminals that the property is protected by company X. For a free market proponent like myself this was a particularly interesting observation which prompted me to do some research.

One problem many Brazilians complain about is corruption. Transparency International’s Corruption Perceptions Index has Brazil consistently hovering around 70th place in the world in recent years. Considering that any score below 50 indicates a serious corruption problem, Brazil’s public sector corruption level is given the thumbs down with a score of 42.

It should be no surprise, therefore, that over 60 percent of Brazilians distrust the police. The problem is particularly serious in the state of Rio de Janeiro, where extortion by police is the most common. While a 2012 crackdown resulted in the arrests of 63 Rio police officers, the Mensalão (Big Monthly Payment) scandal exemplifies the pervasiveness of corruption in many if not all layers of government. In 2010 an industry trade association in the state of São Paolo estimated the average annual cost of corruption as roughly between $32 billion and $53 billion.

While the Mensalão scandal had a big impact on then-president Lula’s administration, for most Brazilians corrupt police comes at a much greater cost. According to Human Rights Watch “police officers in Rio de Janeiro and São Paolo routinely resort to lethal force”, killing more than a thousand people every year in those two cities alone. Since 2003 more than 11,000 residents of Brazil’s two major cities have lost their lives at the hands of police. Though police reports often claim the victim(s) resisted arrest, Human Rights Watch reports that forensic evidence contradicted the official version of events in many cases.

Such abuse of power is pervasive and in many cases practiced with impunity, as those in the judicial system who seek to hold the police accountable face threats of violence. Police officers are rarely even suspended for a killing, even if in (highly) questionable circumstances. The two policemen charged last March with the murder of a 38-year-old mother of four had reportedly been responsible for dozens of on-duty killings since 2000. All layers of the Brazilian police force have been fraught with accusations of human rights abuses, torture, and summary executions.

Brazil Private SecurityThe corrupt and violent nature and subsequent distrust of the police, among other reasons, have led to a thriving private security industry. Starting out as neighborhood watches the industry is now composed of thousands of firms, the vast majority of them being small businesses. Many a police officer is known to work for these businesses in his spare time. Ironically, while the Ministry of Justice is said to be doing a poor job of ensuring only licensed private firms are allowed to compete with the police, a large chunk of the demand for these firms’ services actually stems from the public sector. Banks are the second largest customer, followed by other private companies and industries.

Despite a drop in homicides, Brazil remains one of the most crime-ridden countries in the world with the fourth largest prison population, leaving little to brag about. Though it is impossible to dissect how the presence of private security firms impacts these statistics, there are some positive indicators. Government statistics reveal that cases of security firms losing their licenses are almost unheard of. Given the pervasiveness of corruption in Brazilian government this does not necessarily indicate an entirely clean track record, but the fact remains private industry has a much better reputation than the police itself.

Although the current system is far from perfect, especially since it is almost impossible for any Brazilian government worker to lose his job, there is at least some semblance of competition. Compared to the situation in my native country of The Netherlands, where even value transport vans drive around unarmed and virtually unprotected, that is a major step forward. The case of Brazil shows that just like with so many products and services, private enterprise when given the chance will fill any void left by government incompetence.

How Technology is Freeing the Market in Brazil


In times of seemingly unending government intervention in every aspect of our lives, some find it hard to be optimistic about our chances of achieving liberty. At the same time, however, we are fortunate enough to live in an era in which innovative new technologies are chipping away at said intervention. And these technologies run on devices so small they fit in our pockets! I am sure we can all attest to this development, and one example recently caught my attention.

City governments here in Brazil still have a heavy hand in the taxicab industry, restricting competition by only allowing a pre-determined number of drivers to operate with a license and designated vehicle in a given area. Whether one qualifies for a license depends largely on experience, tilting the playing field in favor of older drivers. Though this is partly mitigated by the sublicensing of younger drivers, the average age in the profession is relatively high.

In order to pool the risk of accidents and other calamities – among other reasons – virtually all drives are united in a co-operative to which they pay a R$700 (350 USD) monthly membership fee. Besides auto insurance the co-ops operate call centers which people can call when in need of a cab. In short, the only major change the industry has seen in many years has been of a temporary nature: the issuance of thousands of extra licenses by local governments for the 2014 World Cup.

Yet clients and drivers alike are finding that overregulation does not represent immunization from changing times. While Uber has not yet made inroads into Brazil beyond Rio de Janeiro, other free applications for mobile devices have caused a mini-revolution in the previously bogged down industry. Known by such names at 99Taxi and Taxijá (já meaning something like “right now”), the apps use GPS technology to find one’s location on the map and indicate the nearest cabs.

With the click of a button a customer can call one of them, select the preferred method of payment, and monitor the car’s approach in real time. Free messages allow the driver and passenger to communicate even before pick-up. After the ride customers can rate the driver, thereby further increasing competition as well as providing valuable information for other potential customers.

Since many people use the apps for the same purposes such as commuting or to travel to and from nightlife hotspots on the weekends, the apps allow saving one’s favorite addresses to save even more time. As such, “cutting out the middleman” with the use of these apps has facilitated a better customer experience not only by foregoing the need for time-consuming calls to the co-ops but also by connecting customers and drivers regardless of location. Long waits on the phone are a thing of the past and the fact that drivers and customers now know each other’s names has led to increased safety, and can also be of great help in finding any possession one might have lost.

Electronic vouchers enable a faster and easier order and payment process for businesses and their employees by allowing biweekly payments by bank voucher and eliminating paper receipts. As is the case with private individuals, receipts can even be sent via email, further increasing transparency for all parties. Considering how businesses save time and money that can be put to more productive use, the apps could even be said to be creating jobs!

Despite lobbying attempts by the co-ops to get the government to stop the apps, the genie is out of the bottle. The applications have been in use for some time now and considering the ever increasing use of mobile devices, the trend will only continue. Given the aforementioned benefits many Brazilians are much better off for it.

Is Brazil Sitting On a World Cup Bubble?


Just hours before the opening ceremony of the World Cup last Thursday, protesters clashed with police in the streets of Sao Paolo and Rio de Janeiro. Striking airport workers and teachers also made the headlines, seemingly confirming the concerns many Brazilians have about civil unrest during the tournament.

Now that the spotlight is on Brazil for an entire month, different groups of disgruntled citizens are expected to attempt to garner international attention for their cause. The first protests were largely sparked by the billions of taxpayer money that have been spent on stadiums and infrastructure in a country that has yet to join the ranks of the 100 wealthiest nations in the world.

In order to be able to claim that the stadiums were financed by private construction firms, Brasilia lent money to them at astonishingly low interest rates less than half the going rates. Coupled with the fact that politicians are notorious for their cozy relationships with the construction sector, it is no surprise that no self-respecting Brazilian believed these claims. An Audit Court report released last May found $275 million in alleged price-gouging for the Brasilia stadium alone.

Brazil_Bubble

Prime example of a white elephant: Arena da Amazônia in Manaus

Just like four years ago in South Africa, the stadiums have become known as “white elephants” for their huge cost before, and uselessness after the tournament. The city of Brasilia has no major professional team to use the stadium after the World Cup, while the $270 million Arena da Amazônia in Manaus is so remote construction materials had to be shipped up the Amazon River as no trucks could reach the place. Naturally no team would even consider playing their home games there, yet Brazilian politicians decided to have their cronies build a stadium there.

Needless to say, the surge in government spending in the last months and years has artificially and temporarily boosted the economy. As those who understand Austrian Business Cycle Theory know, however, the subsequent market correction is inevitable. Regardless of the outcome of the Copa this correction, and the government’s response to it, will have a much greater impact on the lives of Brazilians.

Just as we have seen with the expansion of the Brazilian economy, it will likely take some time for the bubble to deflate. Besides, with the presidential elections just around the corner, the incumbent Dilma administration will not shy away from injecting more stimulus into the economy if need be. Still, the government’s role in the economy will have to shrink considerably if the country is to see more steady economic growth in the future.

Though last decade saw some rapid economic growth the expansion has slowed down considerably in recent years, averaging only about 2.5 percent. At the same time, inflation has been hovering around 6 percent. But monetary policy is not the only area where government intervention is hampering the economy; according to the World Bank’s Ease of Doing Business Index setting up a new business in Brazil currently takes a whopping 107 days and 13 procedures. Another ranking that puts the country squarely in the bottom half of the world is public spending as a percentage of GDP, which is well above 20 percent in Brazil. This is in large part due to astronomical spending on pensions for government workers where the country ranks second in the world.

If the Workers’ Party’s Dilma Rousseff is reelected in October there is little hope for such change, however. Just last month she bypassed Congress and signed a decree granting state powers to social movements designated as part of “civil society” by a special committee. While the election procedures for the committee remain unspecified, it certainly represents a political tool to favor some groups and viewpoints over others. In the months leading up to the elections, that could prove to be very useful for Dilma and the Workers’ Party.

The Rise of Liberty in Brazil


This is the second part of my report on the recent activities of the Language of Liberty Institute in southern Brazil, where the philosophy of liberty is taking hold in the minds of young people:

For the first weekend seminar the Brazil Liberty Team returned to Porto Alegre where we were joined by Roberto Rachewsky of the Millennium Institute, Diogo Costa of Ibmec and University of Iceland professor Hannes Gissurarson. The event was hosted by Instituto de Estudos em Gestão Empresarial (IEGE) and organized by Clube Miss Rand, a student group started as late as last January that already attracts more than 40 liberty enthusiasts to their weekly meetings.

With topics ranging from the importance of language to education and economic freedom, and from the drug war to entrepreneurship and how modern technology can advance the cause of liberty, the presentations were very well received. They also stimulated lively discussions with all attendees after the speeches and during the breaks. The seminar brought together a truly international team of speakers from different backgrounds, so that everyone in the audience likely could identify with at least one of them and their passions. We hope to be back again!

The last weekend of May brought the expanded Brazil Liberty Team to Curitiba, capital and largest city of the state of Paraná. The seventh largest city of Brazil, Curitiba is home to 1.8 million people and over 3 million in the wider metropolitan area. In 2009 Reader’s Digest named Curitiba the best city to live in Brazil. The city’s modern transportation system, buildings and shopping streets give it quite a European feel.

The seminar was organized in collaboration with the local student group Grupo de Estudos Liberalismo e Democracia (GELD), which started last September with Saturday morning meetings and just four people in attendance, yet now has some forty members and continues to grow. Diogo Costa was not with us for this event but the audience was treated to his Ibmec colleague Adriano Gianturco’s insights about how innovation and entrepreneurship can counter government failures. After all, for all the talk about market failures, how come no one ever brings up government failures?

For the Liberty Seminar the beautiful city of Curitiba was a new addition to the schedule. And despite the upcoming exams the turnout was a little higher than in other cities, with about seventy people in total in attendance. After the seminar came to a close on Saturday, we were once again invited to a typical Brazilian churrasco (barbeque) to end our time in this wonderful country in style.

It has been a very uplifting and inspiring experience to witness the growth of the Brazilian liberty movement firsthand over the last two weeks. Although many are worried about this month’s World Cup – not to mention the aftermath – there is plenty of reason for optimism for our fellow liberty lovers in the land of futebol and samba! Our special thanks go out to Gabriela, Language of Liberty Institute representative in Brazil, for flawlessly coordinating five different events throughout the countryside and across state borders!

Curitiba