Posted on 25-10-2002

Who Owns Democracy?
By JEFFREY W. RUBIN, NYT, 23 Oct02

The potential contradiction between democracy and markets is nowhere more
apparent than in Brazil this month. A leftist candidate, Luiz Inácio Lula
da Silva, known as Lula, won 46 percent of the vote in the first round of
Brazil's presidential elections on Oct. 6, twice the share of the next
contender, centrist José Serra. Current polls show Mr. da Silva poised to
win the runoff elections on Oct. 27.

This would change the political map of Latin America, where no leftist
party with both high ambitions and democratic credentials has had a chance
at national power in more than a decade.

If Brazilians choose Mr. da Silva, they may find some innovative ways to
escape the inequality and poverty that have characterized Latin America in
the 20th century — that is, if global markets do not so prejudge Mr. da
Silva as to void Brazilians' democratic choice. The disruptive potential of
markets has been apparent throughout the presidential campaign. As soon as
Mr. da Silva surged in the polls last spring and foreign observers realized
that his Workers' Party might govern Brazil, international banks warned
investors to beware. Immediately, Brazil's currency — the real — began a
precipitous decline. Central bank efforts to bolster the real by increasing
bank reserve requirements and raising already high interest rates do not
appear to be helping. The reason for the decline in the real has been clear
all along: uncertainty about Brazil's political and economic future.

This uncertainty is quite rational. While Mr. da Silva has toned down his
past radicalism and promised to abide by Brazil's financial commitments, he
has also continued to advocate relieving the poverty and misery suffered by
more than half of Brazil's 170 million people. This requires innovative
policy regarding wages, profit rates, land distribution, education, social
welfare policies and taxation.

Twenty years ago, Latin American military dictatorships gave way to
democracies, accompanied by vigorous social movements and great hope for
electoral competition and the rule of law. At the same time, neoliberal
economic reforms — encouraged by the World Bank and the International
Monetary Fund and supported by the new generation of Latin American leaders
— did away with subsidies, social welfare policies and state-owned
enterprises, freeing market forces domestically and encouraging foreign
investment.

The assumption was that democracy and markets would lead to prosperity in
some sort of automatic, if gradual, way. What resulted was big increases in
productivity and efficiency and credible processes of administrative
decentralization, especially in emerging markets like Brazil and Mexico.
However, little changed in the distribution of wealth or the persistence of
poverty. Great prosperity and the benefits of modernity and globalization
continued to coexist with misery and exclusion. Now even the gains are
being rolled back.

At the same time, Latin American democracies have functioned with
impressive continuity despite the challenges of guerrilla movements,
economic crises and coup attempts. Democratic institutions have taken root
in Latin America, in both political practice and popular imagination. But
if democracy is to persist, one question must be answered: Will democracy
better people's lives?

Supporters of unrestricted free trade believe that democratic citizens must
endure dire poverty and wait for market-generated wealth to improve income
levels. In contrast, Brazilians are deciding, democratically, in the course
of a long and much debated political campaign, that they would like to
modify some basic arrangements.

This means asking tough questions. Should land be more equally distributed,
in order to strengthen competition and nourish rural communities? Should
urban tax rates be high enough to provide sewer systems in all
neighborhoods? Would policies that strengthen small farmers rather than
agribusiness be able to produce abundant, healthy crops and keep rural
people employed? How would education and small business employment be
affected if public universities sent faculty out to urban neighborhoods and
rural towns to teach courses that respond to local needs? What are the
links between basic health-care services for women, gender equality and a
more creative civil society?

In other words, how can the gains of economic liberalization be combined
with innovative policies that preserve many market incentives but bring
about fairer results?

In addressing this question, the private sector may have to rethink some of
its assumptions, just as the left has modified its past stances. For
example, Brazilian businessmen may come to believe, as their counterparts
in much of Europe did over the past 50 years, that it is in their personal
interest to live in a society without extreme misery and violence, and in
their corporate interest to have a healthy and well-educated work force. In
this light, high profits might rationally be traded for wage increases or
after-school computer training programs in shantytowns. Indeed, groups of
prominent Brazilian businessmen are already making such proposals in
Brazil's major cities.

Mr. da Silva's Workers' Party has a 20-year record of putting new ideas
into practice. For example, cities and states governed by the party have
instituted participatory budgeting programs in which people in
neighborhoods decide how parts of municipal budgets should be spent. Local
governments run by the Workers' Party have assembled reformist, multiparty
coalitions that have improved schools and health care — in small towns and
big cities alike — while promoting private sector growth.

If domestic and international investors run from Brazil in the face of a
victory by Mr. da Silva, it will be impossible to expand these innovative
policies or implement new ones. And if the very existence of debate about a
society's economic bargains leads investors to strangle the economy, then
change will be impossible, and democracy will have been defeated.

In that case, we would have to revise commonly held views about
international support for democracy and recognize a different truth: the
international community supports democracy in developing countries so long
as it doesn't do much more than efficiently administer the status quo.

Individuals, businesses and foreign governments need to invest in Brazil
precisely because its people are willing to take some risks. By shaking
things up, Brazilians might find ways to alleviate some of the worst
problems of contemporary societies. This is supposed to be one of the
attractions of democracy, after all: its creativity.

Jeffrey W. Rubin is professor of history at Boston University and and
research associate at the Institute for the Study of Economic Culture. He
recently completed a year of research in Brazil on democracy and innovation.