Brazil-US Relations: Common Ideas, Little Dialogue

It is unfortunate that Brazilian-American relations have become strained in recent years. This sense of frustration is further enhanced by the fact that the two largest countries in the Americas have very similar agendas when it comes to tackling inequality and income disparity. President Obama's proposals towards "middle-class economics" and the recently released Economic Report of the President for 2015 highlight just how close the two countries are in their thinking about these issues and on how to make economic policies work more equitably for everyone. And yet, rather than coming together, the distance between the two countries has widened.

President Dilma Rousseff's newly reelected government has vowed to rebalance Brazil's economy - plagued by fiscal disarray and mounting inflation - in a way that preserves the legacy of the PT (Brazil's Workers' Party) achieved over last twelve years: the impressive social inclusion that has raised millions from the lowest ranks of the income distribution to the middle class. Aided by the macroeconomic stabilization of the 1990s and the unprecedented favorable external conditions that dominated the economic landscape between 2004 and 2010, the PT governments have set in motion their own version of "middle-class economics." Remarkable social mobility took hold, and many were able to raise their overall quality of life as a result of targeted cash transfer programs such as "Bolsa-Família," as well as specific programs aimed at allowing working mothers to remain in the marketplace and programs to help small and medium entrepreneurs tap into credit markets, among many other initiatives.

The unequivocal social inclusion seen over the last decade is now threatened by rising inflation and a stalling economy. Lack of growth is starting to take a toll on labor markets, raising the specter of unemployment and wage stagnation. A recent opinion poll conducted by Instituto Datafolha, a major Brazilian pollster, has revealed that a majority of the population now expects that prices will keep on rising, that jobs will become more difficult to find, and that wages will fall as a result of inflation and lackluster economic activity. To restore growth and the prospects for continuing social inclusion, the government has outlined an ambitious adjustment program and has announced plans to reduce bureaucracy, paving the way for greater private sector investment in major areas, such as infrastructure.

However, despite the substantial shift on how the economy should be managed so as not to jeopardize the process of social inclusion - a sharp reversal from the distortionary interventionism of the last four years - there has been little to no recognition of the importance of trade and constructive reengagement with major trading partners such as the US. Concrete steps in this direction, steps that could restore growth in a more timely manner, further bringing in much-needed innovation to Brazil's productive sectors and training for its workers, have been largely ignored. While the Brazilian manufacturing sector flounders in isolationism, lack of competitiveness, and too little involvement in global supply chains, an opportunity to bridge two models of "middle-class economics" is being missed. Naturally, the US has turned to Asia and Europe, regions with which its relations are more mature, for new trade agreements that could do much to reduce the income disparity that has plagued the American economy over the last several years.

It is time for Brazil to set ideology aside and recognize the common ground that unites the two countries. It is time to use the shared theme of middle-class economics" to bring both countries to the negotiating table. Constructive engagement is, after all, a powerful instrument against the specter of growing income inequality.