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Shalin Patel The Carolina Microfinance Initiative
The Decline of Income Inequality in Brazil Introduction Brazil has made much progress in its development since the 1990’s. Its income inequality measured by the GINI index has steadily declined, while its GNI per capita has grown significantly. Growth in South Africa has been similar to Brazil’s, but inequality has not dropped as drastically. This paper aims to find some possible causes of declining inequality by examining the data and political programs of Brazil and comparing them to South Africa. Since the end of apartheid in 1994 South Africa has used a policy known as Black Economic Empowerment, while Brazil has recently started using “Bolsa Familia”. BBE is a racially oriented program that attempts to transfer more assets into the hands of blacks. It is more subjective because it requires government involvement and decision making in economic transactions. Bolsa Familia is a conditional cash transfer program that provides mothers with stipends for taking their children out of labor and putting them into school. The policies of the countries accompanied by their economic growth may be a cause of their different outcomes. Data Collection The data for GINI coefficients, GNI per capita, and quintiles of income in Brazil was all compiled using the World Bank database from the years 2001-2007. The education statistics on Brazil including youth economic activity featured in the second chart were compiled using the UN database from the years 2001-2007. Data regarding GINI in South Africa was scarce and was only found for the years 1994 and 2005 from the CIA.
2 GNI per capita and primary school enrollment data for South Africa was found on the World Bank database. Some of the numbers had to be approximated. The economic activity rate in 2005 was the average of the rate in 2004 and 2006. The primary school enrollment statistic on South Africa in 1994 was an approximation that was based on the trend in 1991 through 1998, the actual statistic was not available. Methods The purpose of this study is to compare the GINI differences between South Africa and Brazil and find possible reasons for disparities. The GNI per capita was plotted for each country from 2001-2007. A third variable was used that measured education enrollment or youth economic activity rates and plotted against GINI. The charts include GINI, GNI per capita, and income quintile information for Brazil, as well as information about education enrollment and expenditure. Data & Analysis Brazil Inequality and Growth Chart- Chart 1
YEAR
GINI 2001 2002 2003 2004 2005 2006 2007
3rd 20% 10.8 11 11.1 11.3 11.4
58.7 58.2 57.6 57 56.4 55.8 55
2nd 20% 5.8 5.9 6.1 6.3 6.5
GNI per capita, PPP (current international $) 6,940 7,160 7,320 7,880 8,300 8,840 9,520
lowest 20% 2.5 2.4 2.6 2.6 2.9
highest 10% 46.3 45.2 45.2 44.6 44.4 43.9 43
Lowest 10% 0.9 0.9 1 0.9 1.1
highest 20% 62 61.2 61 60.4 60 59.5 58.7
4rth 20% 18.9 19.4 19.2 19.4 19.3 19.4 19.6
3 11.5
6.7
3
1.1
11.8
6.9
3
1.1
Since 2001 Brazil’s inequality has lowered significantly and it’s GNI per capita has steadily grown. The change in income distribution reflects this. The highest 20% has steadily seen its proportion of income decrease while the 4rth, 3rd, and 2nd quintiles had a rise in income proportion. The rise in the lowest 20% was not as significant, suggesting an inefficiency that may be disabling their income growth. The percentage changes are not drastic and may be a result of Bolsa Familia cash transfers. As a result of Bolsa Familia education levels in Brazil may equalize, leading to accelerating decreases in inequality over the long-term. Brazil Education Chart- Chart 2
YEAR 2001 2002 2003 2004 2005 2006 2007
Public expenditure on education as % of GDP 3.884893929 3.778199974 N/A 4.007756751 4.526295106 5.052253546 N/A
UpperSecondary education enrollment 9385384 9584585 9072942 9897114 9793988 N/A 9073330
Economic Activity Rate (ages 10-14) 12.8 12.7 11.5 11.1 N/A 10.8 10.1
Brazil’s education expenditures have risen steadily since 2001. In addition to this since GDP is rising in Brazil the rate of change in percentage is actually an understatement to the amount of actual increased expenditures. Upper-Secondary education enrollment is; however, ambiguous and has fluctuated significantly; it reached
4 its highest point in 2004. Youth economic activity rates have steadily lowered suggesting a reduction in child labor, perhaps as a result of the Bolsa Familia incentives.
Figure 1: GINI index vs. Youth Economic Activity14 12
58
10
GINI coefficient
57
8
56 6
55
4
54
2
53
0 2001 2002 2003 2004 2005 2006 2007
Youth economic activity rate
59
GINI Brazil Brazil Youth Econ Activity
Year
The steady decline in inequality is accompanied by a decline in youth economic activity in Brazil. This may be a result of both growth and the Bolsa Familia initiative. Figure 2 in the appendix shows how closely South Africa and Brazil have been growing since 2001; their GNI per capita are nearly equal. This suggests that another variable is likely to be the cause of differing inequality change. Figure 3 shows the drastic increase in inequality since apartheid in South Africa and also a decrease in the percentage of students enrolled
5 in primary education. Due to the scarcity of information on South Africa there are only two years of data for this figure, but it still shows a significant change. This suggests that South Africa’s policy may not be long-term oriented and possibly ineffective in reducing inequality. Further Analysis The Bolsa Escola, later re-named Bolsa Familia, started in 1995 and was implemented at the municipal level (Gleww, Kassouf 2008). In 2001 Bolsa Familia went federal and its benefits were expanded. By 2007 11 million families were using it. Participation in the program increased to 90.8% in 2005 (Gleww, Kassouf 2008). This may explain the peak of upper-secondary education enrollment rates in Chart 2. The program helped families making a monthly income per capita of up to 60 dollars and children up to the age of 15. The stipend amount was between 7 and 47 dollars, which could be a significant amount for these families. The study by Gleww and Kassouf showed an increase in school enrollment across all levels of about 7.4% and a decrease in dropout rates of .7%. The Bolsa Familia program may explain the decreasing inequality and also the lower level of child labor in Brazil. It is unique because although it does not do anything drastic to narrow inequality it invests in the future of children so they can narrow this gap themselves. The program replaces the wages that could have been earned through child labor through stipends. This gives parents an incentive to actually enroll their children in schools rather than make them support the family. South Africa’s situation is much worst than Brazil’s. Although the GNI per capita is rising, inequality is as well, and less people are enrolling in school. The BEE policy meant to narrow inequality between whites and blacks is based on an affirmative action
6 system allowing blacks to integrate easier into all levels of the economy (Andreasson 2006). The African National Congress has been criticized for “predatory liberalism” or trying to make things fair to the point where it becomes excessive (Andreasson 2006). Businessmen have been concerned with how BEE is implemented. Many of the transactions influenced by BEE have benefited already wealthy blacks in South Africa rather than the poorest; this may be bringing some blacks up to the elite levels rather than most blacks up to affluent levels, which may be the cause of increased inequality since 1994. Andreasson argues that emphasis on black private ownership is necessary rather than promotions to high-level corporate positions. Blacks owned less than 4% of JSE securities at the end of the 1990’s; the lack of ownership may be the main problem but policy has not been effective at increasing it (Andreasson 2006). Blacks who are promoted to elite positions as a result of BEE policy no longer felt responsible for bridging the gap for other blacks, rather they argued that they needed to run their businesses. There is a clear difference in the policy emphasis of both governments. Brazil is not actually attempting to immediately and drastically reduces inequality. Rather, it has opted for a realistic method of cash transfer and then creates incentives to invest in the long-term. The cash-transfer has not only alleviated poverty but may have also decreased rates of inequality in the short-term. On the surface, Bolsa Familia is a much less corruptible and fair policy governed by a rigid system of conditions. Black Economic Empowerment on the other hand has created some tension between businesses and ANC leadership. Its subjectivity may have resulted in favoritism rather than actual economic upheaval and narrowing inequality gaps. BEE tries to immediately and drastically reduce
7 inequality but the result has been the opposite, suggesting the ineffectiveness of approaches that give small groups so much decision making power. Conclusion Looking at the data, GNI growth is probably not the cause of differing rates of inequality. Rather, it likely has to do with policy incentives that the government creates. It is difficult to suggest a variable that actually is the direct cause of changing inequality rates because policy affects several variables. For instance, Bolsa Familia has put cash in the hands of poor families, marginally increased rate of school enrollment, and decreased child labor. All of these variable have been associated with inequality decline. It is difficult to find variables that are affected by BEE because it does not rely on a systematic method. However, by looking at education rates it is likely that South Africa’s policy has neglected to improve education enrollment and as Andreasson suggests has not actually increased levels of ownership by blacks.
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Works Cited Andreasson, Stefan. "The African national congress and its critics: ‘predatory liberalism’, black empowerment and intra-alliance tensions in postapartheid South Africa." Democratization 13.2 (2006): 303-322. Academic Search Premier. EBSCO. Web. 5 Oct. 2010. Glewwe, P., Kassouf, A. L. (2008) “The Impact of the Bolsa Escola/Familia Conditional Cash Transfer Program on Enrollment, Grade Promotion and Drop out Rates in Brazil,” Mimeo, University of Minnesota.
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Appendix Figure 2:
GNI per Capita vs. year 10,000 9,000
GNI per capita
8,000 7,000 6,000 5,000 4,000
Brazil
3,000
South Africa
2,000 1,000 0 2001 2002 2003 2004 2005 2006 2007 Year
Figure 3:
10
66 65 64 63 62 61 60 59 58 57 56
100 98 96 94 92 90 88 86 84 82 1994
2005 Year
percentage enrolled in primary education
GINI coefficient
GINI vs. Primary Enrollment
GINI primary education enrollment