Published January 14, 2005
The road to hell
The Great Depression wiped out the demand for coffee, Brazil’s major export. In 1930, Getulio Vargas seized power in a military coup, and democracy was only restored in 1954. In 1961, Brazil’s President Goulart tried to raise the minimum wage of labourers. This led to another coup in 1964 by the military. As a result of this, Brazil seemed like a poster boy for market capitalism as the World Bank offered loans, the US increased aid and foreign investment and GNP improved rapidly. The “Brazilian miracle” aimed to get rid of poverty by increasing the national pie. However, the pie was unevenly distributed. Within three years, real wages had been reduced by 25 percent.
In the peak growth year of 1975, expenditures by the Ministry of Health were lower than in 1965 and the World Bank reported that 68% of the population had less than the minimum calorie intake necessary. At most, 5% of the population had benefited immensely from the Brazilian Miracle. 4 out of 5 people had been left outside it all together. By 1990, when the generals withdrew, Brazil had the third worst education system in the world, clocking in after Guinea-Bissau and Bangladesh. The unequal income distribution remains a major problem. As for the country, which is the world’s 5th most populous, and has the world’s 8th largest economy, becoming one of the leading powers of the world, we’re still waiting.
The road less travelled
Compare this to Finland. It achieved independence in 1917, and three decades of Civil War, massacres of communists, culture clashes between Finnish and Swedish speakers, depression and finally a devastating war with the Soviet Union followed. At the end of the war it had to cede territory and pay reparations to the Soviet Union. It also had to be very mindful of Soviet interests in its foreign policy, but was largely left to conduct its internal affairs on its own. It chose the path of social democracy, with regulated financial markets and an all inclusive welfare system.
When the Soviet Union collapsed, one of Finland’s largest trading partners with huge unpaid debts, Finland went through one of the worst recessions of any Western country. Half a million jobs disappeared, and the government cut its spending by 20%. Two sectors, however, were spared; education, and research and development. By the late 90s, unemployment had been halved, Nokia was the 2nd largest manufacturer of mobile phones, and Finland was rated 5th in the world in terms of quality of life by a UN survey. Around 83% of the workforce belongs to unions which have been strong ever since World War II, whereas the labour movement in Brazil was crushed in the mid 1960s. Finland’s GDP is more than three times as high as Brazil’s, and more evenly distributed.
Although we may take it for granted today that Finland is a richer country than Brazil, it might not have been quite as evident that things would turn out that way in 1929.