BRAZIL-Real Plan & Lava-Jato reinforce each other

Neither appeals to the kleptocrats

I have hypothesized with some clients and colleagues that Lava-Jato is the equivalent in the judicial branch of the Real Plan in the economy and each reinforces the other.

The Real Plan, through its effects on inflation and the creation of independent regulatory agencies opened the door to the eventual decentralization of central government control over the economy and greater autonomy to the private sector. 

By bringing an additional 40-million-member “new middle class” it also created the conditions for the development of sustainable economic growth based on the expansion of private consumption and private sector investment.

The consolidation of the Real Plan was followed by the investigations of the mensalão vote-buying scandal in 2005 that now appears to have begat the Petrobrás financial scandal two years ago. Lava-Jato opened the door to attacking systematic and endemic corruption in the political system that would require better governance in the public and private sectors as corrupt relations between the two were unmasked and perpetrators punished with jail sentences.

The combined effects of the two plans have threatened both the “traditional” and the “neo” kleptocrats that I have referred to in my regular posts on this blog.

This might serve to explain why the 40 million members of the “new middle class” have not found any significant representation with either group of kleptocrats and have had to resort to street protests to register their demands.

Both groups of kleptocrats, while fighting each other for exclusive access to the rents of society would like nothing better than for the governance principles implicit in the combined effects of the Real Plan and Lava-Jato to just go away.

It seems to me that the only way that can happen is if the ascension of the new middle class can be reversed in order to reduce the pressure for more honesty in government. 

The cohort of 40 million members of the “new middle class” arose from the lower strata of the income pyramid and depends on an efficient and honest public sector to provide education, public sanitation, public security, public health services, and efficient government. That is totally inconsistent with the wasteful and confiscatory effects of kleptocracy.

If there is any light at the end of the long dark tunnel Brazil is now traversing, it is that the public continues to support Lava-Jato (90% approval) and the mechanisms of the Real Plan still exist albeit populated and controlled by the “neo-kleptocrats”.

Even if the PT takes to the streets following an impeachment and the “traditional” kleptocrats assume power, the forward inertia of the two programs will continue to “clean up” the system. The attitude of the public-at-large is not partisan. It is the equivalent of “a plague on all your houses, we want efficient, de-centralized and honest government, freedom to make our own choices and we will not rest until we get it.”

Any attempt to dilute or eliminate Lava-Jato will meet with public opposition that will make itself manifest in elections. This happened in early-20^th-century US politics (and is happening again this year) and led to the growth of a large and prosperous middle class in the 50s. It is a continuous process in any open democratic society and is likely to be so in Brazil following the current crisis.

I suggest that the current crisis is simply the first (admittedly traumatic) step toward a more decentralized private sector-oriented and open access society. As I wrote in my recent two-part report, what is at work is an irreversible Zeitgeist.

It won’t be comfortable or easy, but I don’t believe it can be stopped. Meanwhile, Brazil reverts once again to being “a country of the future”!