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.
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.