Mises Wire

What's Next for Brazil's "New Right"?

Mises Wire Jorge Carrasco

For the first time in more than two decades, Brazil has a right-wing politician as the head of state. But Bolsonaro's victory signifies more than just a devastating defeat of the Worker’s Party (PT) — the victorious party in the last four presidential elections. It represents the arrival to power of the Brazilian "new right" (labeled by some as "far-right"), which they themselves describe as: "liberal" on the economy and socially conservative.

With his anti-establishment and anti-corruption rhetoric, the ex-military candidate Bolsonaro captured the dissatisfaction of the voters with the PT, the party of the ex-president Lula da Silva, who is imprisoned for corruption and money laundering. After 14 years in power, the Worker’s Party (PT) left behind a country morally, socially, and economically in crisis. Years of PT rule led to the biggest corruption scheme in the history of Latin America (known as Petrolão); an endemic economic crisis which drastically slowed the country’s development and left an unemployment rate of 13%; and one of the nation’s worst values crises in decades.

This is the biggest turning-point in Brazilian politics since the end of the dictatorship and the re-democratization of the nation in 1985. The Congress experienced a turnover of 54%, and specialists consider that this will be the most conservative Congress in almost 30 years. An example of this is the quick growth of the representation of the PSL (the party with which Bolsonaro is affiliated) in the Chamber of Deputies. The party went from a couple of elected representatives at the beginning of this campaign to 52, becoming the second largest parliamentary bench, after the Worker’s Party, who has 56 deputies.

This perception is reinforced by the return of the military to the center of politics, which causes fear in many citizens who still remember the dark times of the military regime, characterized by censorship, repression, tortures, and extrajudicial murders to dissidents and journalists. These were positions that, according to supporters, "were necessary to prevent the country from becoming a communist dictatorship." Bolsonaro, an admirer of the regime (1964–1985), was a captain in the reserves; his vice-president was a general of the Army Reserve, Hamilton Mourão. And the future government will possibly have several other officers of the Armed Forces in its ranks.

For the political scientist Eliezer Rizzo de Oliveira, there is a high risk that partisan politics will return to the "military quarters." According to Oliveira, "There is a difference between a government containing members of the military, and a military government. But we have a new situation, which is the emergence of a charismatic leadership (under Bolsonaro)."

Many citizens have the expectation that the new president will solve the economic crisis, but at the same time, others believe that the country will suffer a huge a decline in civil liberties.

Economic Policy

One of the elements to define the position of this next government is its positions on the economy. Bolsonaro supposedly converted to "classical liberalism" on the eve of the electoral campaign, despite having held nationalist positions (associated with the left) in economic matters throughout his career as a federal deputy. But now he promises to "take the State off the producers' neck."

"I made a commitment to reduce the number of ministries, extinguish and privatize a large part of the state ministries that exist today," Bolsonaro said on Twitter in September. In economic matters, Bolsonaro has always been a nationalist, having supported several statist measures (sometimes associating himself with the left) throughout his career as a federal deputy. But now, he promises to pass reforms to the nation’s economy in favor of more private property and free markets. Admitting that he personally does not understand anything about economics, Bolsonaro brought to his team Paulo Guedes, a self-defined classical liberal who defends the privatization of most of the currently state-owned companies at a pace never seen before. He is also one of the founders of the investment bank Pactual and has a history of accurate performance in the financial market. Brazil today has 151 state-owned companies, which together had a loss of R$ 19.1 billion in 2016 and a projected loss of R$ 15 billion last year.

But there is still a doubt whether Bolsonaro's "conversion" is genuine and whether his government will genuinely be for economic freedom. He said he will not sell the "strategic" public companies like Petrobras, Eletrobras, Caixa Econômica, and Banco do Brasil. Although they would be of enormous symbolic power, privatizations would not necessarily be decisive for the success or failure of management. A government can "privatize" everything without really changing anything, although private companies are better than public companies in general. Guedes is also trying to convince Bolonaro to endorse the approval of the Central Bank's autonomy to resolve doubts about its functioning.

Autonomy doesn't make a Central Bank any better, of course, but it could reduce the need to minutely dissect the president-elect's every statement about exchange controls and printing money. With more autonomy, the Central Bank, at least in theory, could become less susceptible to political moves by the sitting government.

Taxes and Regulations

In order to become more competitive, Brazil will have to deal with numerous regulations that reduce innovation. Namely, a complex and unjust tax system, and bad infrastructure make the entrepreneur's life more difficult in Brazil. On one front, the reduction of that cost could come with a broad tax reform, which not only simplifies the payment of taxes but makes its burden more similar to that of advanced countries. In the yearning to pay their bills, government after government have been relying on the collection of taxes on consumption and labor. According to the Organisation for Economic Co-operation and Development (OECD) data for 2014, Brazil taxes goods and services at an average of 16.28% of the product. This is well above most developed countries, where this type of tax is equivalent to 10% to 12%. In the United States, it is 4.5%.

Bolsonaro has stated he plans to make reforms to labor regulations, although he has not gone into detail as to what those changes would be. What we do know is that he plans to establish a "green and yellow" work permit, voluntary for new workers. The work permit would create a separate legal and regulatory track for workers. According to Bolsonaro's campaign documents: "Thus, any young person entering the labor market will be able to choose between an employment contract based on the traditional work permit (a blue document, the so-called CLT) — maintaining the current legal system — or a green and yellow work permit (where the individual contract prevails over the CLT, while maintaining all constitutional rights)."

Among some other plans of Bolsonaro: he supports the rapid processing of new law enforcement guidelines. This includes: a facilitation of the legalization of weapons for private carry, and the end of "temporary release" often granted to prisoners. It also supports the reduction of the age of the majority in prisons, but it is unlikely that this issue will move fast.

One of the major novelties that Bolsonaro's government will bring (and that worries a large part of the population), tends to be the introduction of moral conservatism in public policies, in a reaction to the "progressive" agenda associated with the left. This sort of moral conservatism has not had a government favorable to it since the re-democratization. Bolsonaro managed to take advantage of popular sentiments favoring rejection of the "progressivism" of the left — associated with guidelines such as the defense of the right to abortion, the promotion of minorities, the expansion of the rights of homosexuals, and what is now called "gender ideology."

Given the serious problems facing Brazil and the concerted opposition he will face from the PT and its various allies, though Bolsonaro’s job will be far from easy. He is tasked with restoring confidence and prosperity to a deeply divided nation — only time will tell if his new-found support for liberal economics can co-exist with his deeply authoritarian instincts.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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