The Brazilian Economic Model

SUAPE, Brazil - As Britain experiments with austerity, China struggles with state capitalism and the United States fights a political civil war over debt vs. spending, Brazil's leaders are increasingly governing from the economic center.

This sprawling, $18-billion port and industrial complex in northeastern Brazil - the largest shipyard in the southern hemisphere - is one example. State-run companies are the dominant economic engines in a 50-square-mile venture that employs 40,000 workers and includes a heavy oil refinery and a petrochemical plant.

But the container port has been privatized, is run by a Filipino company and the local government has used generous tax breaks to convince European and American multinationals, from Fiat to Pepsi, to build factories. Together, state and private sector investment has made Pernambuco state one of the fastest growing areas in Brazil.

Fabiana Maria da Conceição, a 33-year-old mother of two who lives in a favela in the state capital, hailed the growth when I visited last month. She told me she was quitting her job as a maid to become a sales clerk in a new 476-store shopping mall, doubling her salary.

“We get access to electronics, TVs, microwaves,” she said, referring to the area's poor. “We are in the consumer market.”

Much of the credit goes to two centrist politicians, according to analysts. Eduardo Campos, the technocratic local governor, and Dilma Rousseff, Brazil's increasingly centrist president. Both are left-leaning economists who are trying to mix liberal and conservative economic approaches.

Mr. Campos, a 47-year-old scion of a local political dynasty, is widely seen as a rising political star in Brazil and a leading presidential contender. A demanding manager, he is both a pro-free-market technocrat and an old-style Brazilian political boss. He tries to use public-private partnerships to address social problems like security and education.

Ms. Rousseff, a former Marxist guerrilla and the successor of former president Luiz Inácio Lula da Silva, has adopted a series of surprisingly centrist economic positions.

In February, she allowed two private companies to build and run new airport terminals in São Paolo and Brasília, abruptly bringing an end to decades of state control. The move was an unprecedented step for Brazil's governing Workers' Party, a center-left political movement that normally tightly guards the state's role in the economy.

In August, Ms. Rousseff unveiled a $66-billion infrastructure initiative that granted licenses to private companies to fund, build and operate badly needed roads and railways. In September, she extended a sweeping payroll tax cut that will cost $14.6 billion over the next four years. She has also championed pro-business reforms designed to drive down interest rates and energy costs.

At the same time, Ms. Rousseff has expanded Mr. Lula's left leaning “ bolsa familia,” or “family allowance” program - where poor families receive a stipend in exchange for vaccinating their children and sending them to school. The initiative has played a key role in reducing the poverty rate in Brazil by 40 percent and cutting extreme poverty - defined as families struggling to obtain enough food - by 52 percent since 2003, according to Pablo Fajnzylber, the World Bank's lead economist in Brazil.

Ms. Rousseff has vowed to eliminate extreme poverty and has enacted one of the most sweeping affirmative action programs in the Western hemisphere in public universities.

The bold moves are needed. Because of the global economic downturn, growth in Brazil has stalled. After a decade of 4 percent annual growth that moved 35 million Brazilians into the country's middle class, GDP growth dropped to 2.7 percent in 2011. In the first half of this year, Brazil's economy grew at an anemic .6 percent, the lowest of any BRIC nation.

Ms. Rousseff, though, enjoys a 60 percent approval rating. The reason is simple: jobs. While unemployment rates in the United States and parts of Europe remain stubbornly high, the unemployment rate in Brazil last month was 5.4 percent, far below the historic high of 13 percent in 2003.

Brazil's challenges remain enormous. If it hopes to revive its economy, Ms. Rousseff must convince a deeply fractured federal legislature to enact sweeping tax, regulatory and education reforms that will allow Brazil to move beyond a commodity- and consumer-driven economy. There are plenty of skeptics, as Simon Romero reported.

Ms. Rousseff and Mr. Campos have their flaws but they should be applauded for breaking free of blindly ideological approaches to economic growth. In too many countries, politicians present voters with a stark choice between sweeping austerity or state largesse.

Europeans and Americans are not used to looking to Latin America for economic guidance. Pernam buco suggests they should.

David Rohde is a columnist for Reuters, former reporter for The New York Times and two-time winner of the Pulitzer Prize. His forthcoming book, “Beyond War: Reimagining American Influence in a New Middle East” will be published in March 2013.