The Economist & Brasil: A Love Story

The Economist holds an unusual position in the Brazilian media landscape, it is frequently featured on front pages of major conservative dailies and has a formal partnership with lone-voice centre-left weekly Carta Capital for reprints in Portuguese. It is hard to imagine the New York Times or Guardian paying the slightest bit of attention to Brazilian equivalent, Exame. The Economist for all of its history and readership is still the niche Libertarian pamphlet, few readers will agree with its position across the board, especially in the United States were an odd mixture of (classical) economic liberalism and deep social conservatism has obsessed the right for decades. In the United Kingdom its social liberalism sits well, but ideological position on privatization as an article of faith will excite few when discussing the National Health Service.  But here is were the problem starts; the heart of The Economist’s editorial ideological position is Classical Liberalism and unfortunately for the reader that means The Economist starts with a position prior to analysis, anything that fails to fits in with this is either ignored or square pegged into a round hole. “that works fine in practice, but how does it work in theory”. 

The Economist’s approach to economic questions is a blind allegiance to a very specific form of economic theory bereft of historical context or acknowledgment of a nation’s stage of development, and one which ignores reality in favour of tidy theory. In any other field the idea that a single set of theories could be applied to actors and events regardless of history or context would be laughable, yet in free market economics this seems to be the case. Much like hard left groups like the Socialist Workers Party, The Economist fosters a fanciful idea of “natural” economics, that the “invisible hand” is a quasi-biological metaphor for human interactions. This parallels Marxist ideas that history and economics is much like an evolutionary process. But good economic theory is a flexible tool serving society, not a rigid ideological position. The fundamental difference between looking at human culture as it is versus how you wish it to be.

It may seems shocking to some to equate The Economist with The Socialist Worker, but in many ways they are two sides of the same coin. Much as unreconstructed Trotskyites see the failure of the Soviet Union being along the lines of “not being Communist enough” The Economist seems to see market failure as “not being capitalist enough”. A case in point is framing the 2008 Financial Crisis as the fault of Regulators and Politicians because, of course, bankers and hedge fund managers are only following their rational self interest. The idea that it was regulation not deregulation that was the cause of 2008 is post rationalisation at it’s worst. Which brings us to Brasil and The Economist.

In 2009 The Economist ran with its ‘Brazil Takes Off’ cover: Christ the Redeemer blasting off into the skies above Rio de Janeiro. In 2013 it ran the same cover with the Christ statue plummeting to the ground with the headline ‘Has Brazil blown it?’. The reality was never that good, or that bad. Economist covers and stories often appear on Globo news as evidence of foreign opinion in support of their position & they provide plausible soundbites for those with no understanding of economics.

It should be noted here that much of the reason Brasil managed to pass 2008 without a full blown meltdown – what would have happened historically – was “over regulation” of the banking sector that requires high reserve levels and discourages exotic practices. Ironically The Economist itself wrote as much on Brasil’s banking sector in a 2009 article. It was also interesting that in the same article a fast and sharp reduction in interest rates was offered as a solution to the economic problems Brasil faced, as the developed world stared into the abyss. Now in 2015 we see the result of this failed policy as the bill for 2008 arrived with interest. Thanks for the advice…

The fundamental failure over three decades of policies broadly in-line with The Economist’s ideological position has resulted in soaring inequality not seen since before WWII in the old first world, especially in the United States and the United Kingdom. New Zealand – 1980s poster boy for Liberal economic reform – recently won the not so salubrious title of being the number one country with growth repressed by massive increases in inequality. The Economist’s singular solution to all economic problems – of low regulation, the sale of publicly owned assets and trickle down wealth – has failed on every matrix other than ticking ideological boxes. It is astonishing that 30 years after Reagan and Thatcher began their quest to systematically destroy the New Deal and Post War social compacts that positions like that of The Economist aren’t a laughing stock among intelligent people. And yet in and outside of Brasil – country who’s number one problem is inequality – this magazine is taken seriously.

To be clear, there is much good in The Economist, especially its cultural reporting and support for social liberalism. The Economist is open and honest in their opinions, but editorial honesty is not the same as being right.

Any discussion over reductions in inequality outside of the Classical Liberal Economic framework is dismissed.  Minimum wage increases, regarded as “artificial interference” don’t count. Essentially any social progress outside of the Washington Consensus or market fundamentalist parameters isn’t ideologically correct and therefore not real. Minimum wages are a case point, despite clearly helping the poorest in society they are seen as distortions of a free market meaning that any success in reducing poverty or stabilising lives is off the matrix by which “success” is judged. Often abstract indices like GDP, productivity and “free” trade are how we are expected to judge “success”, whereas inequality is not. The begs the age old question: are theories there to serve society or does society serve theory?

The historical blindspot The Economist has is astonishing. The United States and United Kingdom, are today both the most vocal proponents of “Free Trade” yet both embraced the concept only once they were at a competitive advantage. The United States only moved from strict protectionism after World War II when its industry had clear efficiency and volume to either out compete or swamp competitors. The United Kingdom may have a longer history of “Free” trade but again this must me looked at in the context of it as a colonial power. The basic premise of colonialism is that the central coloniser produces industrial goods from the raw materials produced in the colonial periphery then exporting them back to the colonised with added value. Often industrial production in colonised country is limited with draconian laws. Brasil was a prime example of this; anyone reading Eduardo Galeano’s Open Veins of Latin America will find the chapters on Brasil more shocking than most. In terms of the British Empire, Portugal was effectively a Client State for much of the 19th Century, both European Portugal and Brasil were subsumed into Britain’s “Informal Empire”

As discussed in Blaming the Victim Brasil’s current protectionist industrial polices do result in higher costs and lower efficiency, but without these Import Substitution Industrialisation polices in place there would be no one to buy any imported products in the first place. This could not run further from The Economist’s editorial position, instead of facing the reality of economic development as a process not a tidy theory, Brasil is “wrong” even when in the areas that actually have significance to day to day life, like wage growth and inequality. Brasil and other colonial countries need to protect internal markets to build an industrial base, formalising work and reducing poverty to create consumers. The idea that this “distorts markets” only exists when the fantastical idea that markets are “natural” is the starting point of discussion.

Over the past 20 years Brasil has been highly successful building a stable working and middle class and allowing an internal market to grow. Brasil is also the only major emerging economy were inequality has decreased as the country’s per capita income increased. It is telling that the countries that have followed the ideas The Economist proposed namely the United States, United Kingdom & New Zealand have all seen systemic increases in income inequality to the point were it has dragged on growth and is beginning to threaten social stability. Inequality is even now a major topic at that bastion of Keynesian thought The World Economic Forum. What Brasil has achieved could only have been achieve via industrial and trade policies completely at odds with the Friedmans and Greenspans of the economic world. It should be made clear that none of this should be construed as an accusation of a deliberate attempt to mislead its readers, simply a misguided and overly ridge adherence to an out dated ideology that has clearly failed to produce the results that are beneficial to a broad sector of society. It seems odd and even quaint that post the great ideological battles of the 20th Century to be clinging to singular solutions to economic and societal  problems.

The Economist’s current coverage is the epitome of the problems Brasil Wire discussed in Echoes in the Echo Chamber, a narrow and unrepresentative view of the country filtered through local fixers drawn from Brazil’s upper and upper middle classes living in the Bairros Nobres of São Paulo & Rio de Janeiro. Post-election the Economist published The Cashmere Revolution, which proposes that “barons and financiers are not known for taking to the streets” which displayed a historic ignorance towards the marches which were the precursors to the 1964 Military Coup. The coverage culminated in the bizarre and offensive blog post “If GDP Voted not People.” which with entitled condescension belittled the plight of millions of poor and low income Brazilians struggling to improve their lives and tells us that, at least for this correspondent, democracy is less important than ideological purity.

Screen Shot 2015-06-03 at 09.19.45One would think that democracy and rule of law would be the touch stone, not the “might is right” implied by attacking Brasil’s largest social group that may not consider themselves temporarily embarrassed millionaires. This infotainment sends a clear signal, poor people matter less than the rich and in the historical context of Brasil this is even more thoughtless. Brasil is a country that has spent much of its 500 year history as a story of the powerful exploiting the poor, there is still a strong undercurrent of colonial class and race structures that continue to permeate into the wider culture. This was no better expressed than the flurry of racist and classist fury at Brasil’s poorer North East that voted in larger numbers for a party that supports their self interest. It should be assumed that writer was simply naive, especially considering the magazine has had a difficult time with the racial politics of slavery for some time and a significant portion of those “less worthy” votes are from the descendants of very recently enslaved Afro-Brazilians.

This outdated concept of a Reporter descending the airplane steps and simply “reporting what s/he sees” with no background or understanding in the 21st Century is insulting to both readers and the country being reported on. And if we are to judge traditional newspapers’ collapse it may be safe to say this style of paternalistic journalism is on the wrong side of history.

Lead-up to the election was rather surreal with The Economist not only favouring Aécio Neves but giving him their enthusiastic public endorsement. The Economist is obviously free to endorse candidates as it sees fit and there are many reasons to be critical of the Workers’ Party, but in the case of Neves something felt very wrong. Like many in the foreign – and local – media the magazine seemed to know more about Neves’ policy platform than he did. In Brasil parties are notorious for releasing little to no concrete policy manifestos in the lead up to elections and within a certain amount of reason; the post election coalition structure of governing the country is such that often these would be more an educated guess than stone tablets. Much of any election promises are framed as ” I will build X number of X” mostly things like schools, hospitals and kilometres of roads. Neves’ single “big announcement” of the campaign was naming his Finance Chief as former President of the Central Bank of Brasil, Armínio Fraga. Although Fraga’s ideas are broadly in step with The Economist’s ideology this was hardly a reason to be as enthusiastic as the magazine seemed to be. At no stage did Neves even mention a policy shift towards solid changes in Brasil’s highly protected industrial base, changing Brasil’s progressive labour laws or breaking the power of unions.

It seemed as if “Aécio Neves The Economist candidate” and “Aécio Neves the Person” were different people. The Economist frequently used the example of his governorship of Minas Gerais as justification for endorsement, at one stage leading up to the vote former Brasil bureau chief excitedly called Neves “incredibly successful” managing his home state as governor. Almost immediately after the election it became clear to the new state governor that the state had a shortfall of R$7.2bn. Post election audits have shown only 26% of schools with adequate resources, a R$1.5bn hole in the health budget and a 52,3% increase in homicides in Minas during Neves’ 2002 to 2012 tenure as State governor.

To their credit they mentioned the many problems of Neves’ party colleague Fernando Henrique Cardoso’s (FHC) second term; mass unemployment, the 1998 currency crisis and stagnated wages. But bizarrely the sole metric we are expected to swallow is “low inflation” when actually during FHC’s second mandate average inflation was higher than today’s “red hot inflation”. The second misrepresentation made is that the PSDB are the party that “tamed inflation” when in reality the Plan Real was implemented in 1994 during the mandate of Itamar Franco, Fernando Henrique Cardoso was a member of a large team of academics and economists that designed the scheme, and as a former Marxist sociologist his role was not that of key economic advisor but salesman.

There has been criticism of the scheme as well, Brasil’s relentless inflation targeting of around 5% has resulted in the world’s highest interest rates, an attempt by Rousseff to push them down – egged on by The Economist – is a significant contributor to the 2015 recession. Over the longer term it may have been better for Brasil to target inflation at a higher bracket of around 10-15% and allow lower interest rates. Brasil’s sky-high interest rates have created one of the most profitable banking sectors in the world but at the same time suppressed private lending. The result ironically means that Brazilian companies rely on subsidised loans from government banks to raise capital, hardly something The Economist supports. The Economist describes Brasil’s main development bank BNDES as “a symbol of a credit market that is not working properly“, of course because Brasil’s overly aggressive inflation targeting means traditional private capital is too expensive.

Brazilians have plenty of their own newspapers and journalists who have a far more nuanced understanding of the country and should stop bending the knee to a paper whose interest in Brasil has always been more about promoting it’s own agenda & ideology than the wellbeing of the country and its people.


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