Good News from Bad News for Brazil

Last Friday was a memorable day for Brazilian democracy.

Luiz Inácio “Lula” da Silva, former president, was taken in by the Brazilian federal police for three hours of questioning as part of the Lava Jato investigation. Operation Car Wash (Operação Lava Jato) has been in the works since March 2014 and is the biggest corruption and money laundering investigation Brazil has ever seen. After a series of smaller investigations into criminal organizations run by black-market money dealers, the Brazilian Government Agency for Law Enforcement and Prosecution of Crimes (Ministério Público Federal) found proof of a massive corruption scheme that involved the Brazilian national oil company Petrobras. The scheme, which lasted more than ten years, implicated contractors, Petrobras employees, financial operations, and politicians from pretty much every party in the country. And the numbers are astounding: the corrupt dealings add up to more than $20 billion worth of government contracts across several sectors.

Not surprisingly, this investigation has had a serious and lasting impact on the Brazilian economy: shares of Petrobras fell precipitously and Moody’s Investors Services downgraded the company to Ba3 from Ba2 (translation: not good); soaring unemployment as a result of a sweep of layoffs in the auto, oil and construction sectors has also spread to other businesses that relied on those industries. And as the bad news made its way around the world, $98 billion in lawsuits were filed in the U.S. by shareholders who claimed losses due to mismanagement.

But that’s not what makes the day a decisive one for democracy.

What happened to Lula is important for two reasons. Firstly, it was a symbolic showing that powerful political elites cannot escape justice, even the most seemingly untouchable ones. But secondly, and most importantly, it is becoming increasingly clear that populism-branded politics has had its time of glory in Brazil.

The Latin American brand of populism

Say the word populism today in Latin America and the names of Venezuela’s Hugo Chávez, Bolivia’s Evo Morales and Ecuador’s Rafael Correa, and Brazil’s Lula and Dilma are likely to pop up. These leaders are what political scientists call neo-populists—their brand of governing rests on the claim that they govern in the name of the “people,” albeit a single and homogeneous people. This, of course, is an oversimplification of what populism has looked like in Latin America over the years. But suffice it to say that Latin America has been a point of reference for the rest of the world for what populist leaders look like, what sort of policies they are likely to adopt, and what effects those policies have on the countries’ economies. Before you had Le Pen and Orban and Sanders and Trump, we had Néstor Kirchner and Getulio Vargas.

Populism’s success in Latin America has hinged on leaders’ ability to mobilize those who were previously politically unorganized by responding to the social demands of the poor. This focus on radical anti-poverty programs and their success in helping millions of people rise out of poverty has led to record-high numbers of people who now define themselves as “middle class,” with Brazil’s growth of over 40 percent the region’s highest.

Lula’s rise

This does not mean that the ascent was so easy for Lula. It took him three attempts to finally make it the presidency in Brazil. At political rallies, Lula’s bushy beard and Che Guevara t-shirts didn’t help him win people’s approval. Some wondered if his longtime friendship with Fidel Castro was a sign that he was too much of a socialist, and thus unfit for the presidency.

But things changed.

When unequal income distribution and widespread poverty peaked, when total public debt rose from 30% to 55.5% of GDP, and when the stark contrast between the rich and the poor could no longer be ignored, Brazilians thought it was time to give Lula a chance. Lula became president in 2003.

Lula’s governing agenda was heavily focused on social programs. Bolsa Família (Family Allowance), a poverty-fighting effort was by far Lula’s greatest legacy: If a family could prove that it lived in extreme poverty or moderate poverty (earning less than 100 reais per person), it was eligible for payments (direct cash transfers). This was pretty revolutionary, and it worked incredibly well, challenging the idea that cash transfers would make people dependent on welfare. Millions of Brazilians rose out of poverty. People were buying more refrigerators, televisions, microwaves… some for the very first time.

The problem? Populist policies tend to have negative consequences, too.

The fall of Brazilian populism

The literature doesn’t lie: Populism leads to institutional underdevelopment. Populism expands a leader’s power to dangerous levels, rendering spending discretionary. Countries that go through periods of populism have weakened civic institutions. And while populism might be successful in addressing the needs of those who have been marginalized or particularly hurt by economic downturns, its solutions tend to be temporary and, consequently, they do not lead to a real transformation of social structures.

The picture of the Brazilian economy today is a result of the lack of regard to factors such as inflation, deficit finance, and balance of payments equilibrium, coupled with widespread political corruption. Lula’s foundation for an excessive interventionist model, with high regulation of the economy and expansion of the state, and current president Dilma Rousseff’s following through of the model, wasn’t going to last forever. Add to that the undermining of some of the basic premises of what it means for a country to be a democracy (accountability, rule of law, separation of powers and judicial independence), and you have Brazil’s current crumbling economy, which is only aggravated by corruption scandal after corruption scandal.

This has made Brazilians reassess the state of their democracy. They took to the streets. They pressured for a laser-focused investigation into Petrobras and any and every politician that might have been involved in the money-laundering scheme. “Good enough” was replaced by “we deserve better.”

So what does this all mean?

Populism is an aging phenomenon in Brazil. There is a deep political divide between those who were for populist policies and those who are now being confronted with the reality that the leadership style they supported has been accused of corruption, and those who no longer see populism as a viable option. The multiclass support that Lula, Dilma, and their Workers’ Party had initially enjoyed is gone.

And this is fine. Actually, it is better than fine. This is good news.

That’s because change is on its way. The ability to be politically discerning is a sign—surely, it is a sign—of a more mature civic society. As Brazilians have (finally!) grown increasingly suspicious of politics and skeptical of righteous promises of salvation, and as politics takes the center spot in the media, important conversations have started about what Brazilians expect their representatives to be like. The current chaos is also forcing people to ask, What model of government truly represents what Brazil and its people stand for? It is clear that what Lula and Dilma have offered is no longer enough or attractive. But what is?

They don’t know yet. And that’s fine. Learning what works—truly and sustainably works—for Brazil is going to be a long and painful process. But so, too, will it be a necessary and important one.

In addition, significant improvements in accountability are already taking place. Lula’s coercive questioning is an example of that. If six months ago you asked any Brazilian whether or not he or she thought that there was any chance Lula would even be included in Operation Car Wash’s investigations, you’d get a resounding “no.” Whether Lula is guilty or innocent remains to be seen. But what is truly transformative is that a member of the political elite could not evade justice.

Dilma, too, is under investigation for her role as Petrobras’ Chairwoman and for alleged irregularities in her re-election campaign. As are a growing list of other politicians, government contractors, and government agencies.

So yes, things are bad. Some might even argue that they are going to get worse. But, as many chanted on the streets of Brazil, “the giant has woken up”. Now, we wait for more memorable days for democracy.