BRAZIL: A New Approach to Poverty – Why Are Some People Rich?

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Apr 13 2004 (IPS) - After decades of focusing on poverty in the search for ways to fight the enormous rich-poor gap in Brazil, researchers are now turning their gaze towards the wealthy.

“We must study inequality from the other extreme in order to determine its redistributive potential,” Marcelo Medeiros, of the Ministry of Planning’s Institute for Applied Economic Research (IPEA), told IPS.

Medeiros recently completed two “discussion texts” on the income sources and family structures of Brazil’s wealthier social strata. Meanwhile, a group of professors from various universities around Sao Paulo just published the book “Os ricos no Brasil” (The Rich in Brazil).

They are the first studies of their kind, centred on the economic elite, and “open new roads for the debate” on the possibilities of transferring the wealth of the richer segments of the population to the poorer, said Medeiros.

But his analysis, based on official figures form 1997 through 1999, seems to indicate there are difficulties in redistributing wealth.

The data show that work-related income represents three-quarters of what the rich take in, and just two percent comes from interest, dividends or other financial applications.

Work income in this case includes not only wages, but also independent payments to professionals and the benefits that employees and executives receive directly from their companies, and which can be confused with capital income.

Retirement and pension payments represent 18 percent of the rich segment’s income, and rent payments five percent.

This “rich segment”, according to Medeiros, includes those who earn at least 2,170 reais per month (equivalent to 1,140 dollars in the period studied), as family income per person in September 1999. It is a social group that represents just 0.9 percent of the Brazilian population of 170 million people.

For the study conducted by the Sao Paulo university experts, the wealthy are considered those whose household income surpasses 10,900 reais (equivalent to 5,600 dollars in late 2000). According to that criterion, the rich population more than doubled in two decades, from 507,600 in 1980 to 1.16 million in 2000, or from 1.8 to 2.4 percent of Brazil’s inhabitants.

The expansion of the financial market explains the rising number of the rich, because wealth no longer accumulates in the production of goods, but in the game of finances, said Marcio Pochmann, coordinator of the project “Atlas of Social Exclusion”, which forms part of the book “The Rich in Brazil”.

This is evident in the concentration of wealth in Sao Paulo, which lost many of its industries and was transformed into the financial capital of the country, says Pochmann, who currently serves as that city government’s secretary of labour.

In 1980, 37.8 percent of wealthy Brazilians lived in Sao Paulo. The proportion reached 58 percent in 2000, while other major cities saw their rich populations decline.

One of the factors behind this concentration was the closing of the stock exchanges in Rio de Janeiro and Belo Horizonte, leaving Sao Paulo with the monopoly over the capital market, said Pochmann.

Based on the conclusions, the labour official proposes a redistribution of national income through taxes, with a greater burden falling on the shoulders of the rich. But the Brazilian state is doing the opposite, he said, taxing the poor proportionately more.

Workers’ income declined from 45 to 36 percent of gross domestic product (GDP) between 1992 and 2002, while their total tax burden grew from 26 to 36 percent GDP, the expert pointed out.

His conclusions contrast with those of Medeiros, whose research found that financial earnings contributed very little to the fortunes of wealthy Brazilians.

But these are initial studies, and the income from work has yet to be itemised, said the IPEA researcher, noting that it the results “could converge in the future.”

In Medeiros’s analysis, the principal factor behind inequality in Brazil is the enormous difference in pay for work – the rich take in 14.2 percent more than the “non-rich”.

The IPEA expert also looked at the role of family structure in income distribution and concluded that, contrary to what many might think, it is not a decisive factor, though wealthy families have an average of 2.3 members, compared to 4.0 for the rest of the population.

Pochmann, for his part, also considers it important to look at the characteristics and sources of income of the wealthy, in order to define public policies aimed at reducing poverty and inequality.

In 1960, the wealthiest 10 percent of the population earned 34 times more than the poorest 10 percent. In 1990, the difference jumped to 60 times more, according to the book “Statistics of the 20th Century”, published last year by the Brazilian Institute of Geography and Statistics.

And according to the present government of Luiz Inácio Lula da Silva, some 40 million Brazilians – nearly a quarter of the population – are vulnerable to hunger.

Until now the research has been concentrated on poverty, and produced some “good diagnostics,” as well as the conclusion that economic growth is not enough to reduce inequality, said Medeiros.

Growth in and of itself, without social policies, would take too long to reduce misery in Brazil, he said.

Another focus of the analyses on poverty was related to the supposed benefits of family planning in the fight against poverty.

But family planning efforts proved inefficient and very costly, in addition to being a big interference in the lives of individuals, and ultimately produced “irrelevant results,” said the researcher.