Carnaval Is Over

The end of the Brazilian miracle.

When she strides into the White House on Monday, Brazilian President Dilma Rousseff will carry with her one thing sure to draw the envy of her American counterpart Barack Obama -- a whopping 77 percent approval rating. Sitting pretty as a BRIC, at the top of the world, the darling of international investors, preparing to host the 2014 World Cup and the 2016 Olympic Games, Brazil is caught up in a national adrenaline rush comparable -- stereotypically, perhaps -- to what Carnaval dancers feel when they march amid the cheers into Rio de Janeiro's Sambadrome.

The euphoria was evident at most recent edition of the World Economic Forum's confab in Davos, where Brazilian taxpayers bankrolled the official Saturday night soirée. Davos often features country-specific sessions, and Brazil got one again this year. The chief conclusion seemed to be that officials should not let the economy overheat. Emerging from the panel, a veteran foreign correspondent remarked, "The Brazilians are so self-congratulatory. It seems as if they have solved everything." There was more than a tinge of irony in his voice, perhaps because he had covered the "Brazilian miracle" of the late 1960s and 1970s. Featuring double-digit average annual growth for one five-year stretch, the "miracle" sparked over-borrowing and devolved into a "lost decade" of hyperinflation and stagnation following the 1982 Latin American debt crisis.

Applying consistently sensible macroeconomic fiscal and social welfare policies since it beat hyperinflation in the mid-1990s, Brazil has grown steadily, if not spectacularly. It has successfully weathered the current global downturn, and finally started to reduce its legendary poverty gap, engendering a relevant middle class for the first time in history: standing at 95 million, the middle class finally represents over half the population. Maybe it really is time to bury the old joke: "Brazil is the country of the future - and always will be." Perhaps it is time for the Austrian writer Stefan Zweig, best known in Brazil as the author of a 1941 book Brazil: A Land of the Future, to finally receive kudos as a prophet.

So Brazilians are pleased with themselves. And they are not alone. Gringos are flocking to Brazil like '49ers to California. The number of foreign residents jumped by more than 50 percent last year, from just under a million to about 1.5 million, according to a report in the Washington Post. "Now people sell Brazil to us," the first president of the Brazilian Securities and Exchange Commission, Roberto Teixeira da Costa, told me during a recent conversation. Now a member of the board of several leading Brazilian corporations, Teixeira da Costa summed it up like this: "Since the rest of the world is so messed up, people think that Brazil is the savior. We used to be the problem. Now we are the solution."

Along with fellow BRICs China and India, Brazil is expected to help keep the global economy afloat until everyone else gets their act together. Banco Santander, the biggest lender among Spanish banks, makes more money today in Brazil than in any of the other three dozen countries in which it operates: one-quarter of its earnings come from the Latin American giant. General Electric recently projected revenue increases of 25 percent all told in Latin America through 2016, expecting the region to outperform Asia; executives predicted that Brazil, Mexico, and Peru would lead the way. Foreign direct investment (FDI) in Brazil set a record for the second straight year, hitting $66.7 billion, up from $48.5 billion the year before.

Yet this gold-rush mentality seems to be blinding policymakers and investors alike. Some astute Brazilians characterize their country's national psyche as bipolar. Everyone knows about the upside of Carnaval, samba, soccer, and the beaches. But few understand the downside. Brazilians claim to have their own special kind of melancholy, defined by a word, "saudades," that they say is untranslatable. Brazil's most venerated composer, the late Bossa Nova icon Tom Jobim, and his partner Vinicius de Moraes once wrote a song entitled Happiness with a refrain that notes, "Sadness never ends/Happiness does." As does Carnaval, quoting the song's lyrics, "it all ends on (Ash) Wednesday." With the Brazilian economy, a Wednesday morning wake up call may have been sounded by the recently announced 2.7 percent growth figure for 2011, sharply down from 7.5 percent in 2010 and lagging well behind most other emerging markets. Indeed, Santander blamed lower than expected profits during the last quarter of 2011 on troubles in Britain and Brazil.

Nouriel Roubini, the economist who famously predicted the collapse of the U.S. housing market and the ensuing 2008 global recession, visited Brazil in February, precisely during the jubilant Carnaval period. He came away anything but euphoric: "A sober reality check suggests that Brazil could disappoint in many ways in the next few years unless significant structural reforms are undertaken." Predicting a muted future, he added that "this low potential growth leaves Brazil vulnerable to a boom and bust cycle as it quickly reaches its speed limit."

While other factors like the growing middle class clearly play a role, Brazil's recent growth has come largely thanks to its ability to pump minerals and agricultural products into China. Between 2000 and 2010, China's take of Brazilian exports jumped from 3 percent to 16 percent. The cash that floods back, along with FDI and portfolio capital, has put pressure on Brazil's currency, the real. Brazilian interest rates, held high to combat inflation in lieu of more politically complicated tax and public administration reforms, attract foreign investors even in the face of capital controls. Near-zero interest rates in the United States and troubles in the eurozone exacerbate this by as cash abandons low-return regions in search of better opportunities.

As a result, the real is overvalued by 35 percent as compared to the U.S. dollar, according to the Economist's Big Mac index. Brazil could already be suffering from the so-called Dutch disease as its overvalued currency makes the country's exports more expensive abroad and imports relatively cheaper for Brazilian consumers. This may be leading to nascent deindustrialization: domestic consumer goods manufacturing fell by almost 2 percent in 2011 even as retail sales boomed because of growing demand.

The Brazilian government blames the overvalued real on what Finance Minister Guido Mantega calls a "currency war" -- an influx of speculative capital searching for returns in Brazil. Officials have applied piecemeal measures to curb the flow, such as tweaking a tax on overseas loans in March -- extending the application of a 6 percent tax to maturities of up to three years instead of the previous two years.

In response to cries from local industry, officials have gradually applied a series of protectionist measures that have ruffled feathers from Japan to Mexico. "Brazil continues to improvise in its industrial and trade policies," complained economic columnist Míriam Letão in the Rio de Janeiro daily newspaper O Globo. "Attempting to find a way out of the slight drop into the red in the trade balance, and for the lean numbers for industrial output in 2011, all the government could do was to repeat a kneejerk reaction: protectionism and favors for lobbies and special interests."

As in Luis Buñuel's film The Exterminating Angel, where dinner guests inexplicably fail to leave as the night wears on despite the lack of physical barriers, the solutions to Brazil's problems seem obvious but remain unimplemented. Most economists blame the country's problems on what they call the "Brazil Cost," a hodgepodge of problems that make it more expensive to do business in Brazil than most anywhere else. Brazil rings in at 126th (of 183) on the World Bank's index on the ease of doing business, coming in right behind Bangladesh, Uganda, Swaziland, and Bosnia and Herzegovina.

Their prescription for change generally calls for the following: simplifying the tax structure, reforming public administration and social security to improve efficiency and reduce outlays, overhauling labor regulations to make it cheaper to employ workers, and investing in infrastructure. In addition, fiscal reform would give policymakers an extra anti-inflation tool, perhaps allowing them to more quickly lower interest rates, stimulating the economy while helping stem the tide of speculative capital.

The agenda for lowering the Brazil Cost is admittedly ambitious, but the country has made little if any progress on any front. Infrastructure would seem vital in preparation for 2014 World Cup and 2016 Olympics, but investments have lagged enough to have engendered a diplomatic snafu. An official from the international soccer federation FIFA recently suggested that organizers needed "a kick up the backside" because they were behind on preparations. The otherwise euphoric Brazilians were not amused.

Perhaps Brazil is living in its own little vacuum. This certainly could be said of its economic policies. Though he was wildly popular, Rousseff's predecessor Luiz Inácio Lula da Silva's greatest contribution to economic policy was to follow the physician's adage to "first do no harm." As O Globo put it in a wrap-up special as he left office, "President Lula ends his eight year mandate with popularity never before obtained by a president of this country despite a contradictory legacy. We did not have advances or improvements in education, health, public security, basic sanitation, infrastructure and reforms." According to Rutgers sociologist Ted Goertzel, author of biographies of both Lula and his predecessor Fernando Henrique Cardoso, "Lula chose to go into retirement with popularity ratings in the 80s rather than use his popularity to pressure for controversial reforms."

Lula's greatest achievement was probably his Reaganesque ability to make Brazilians feel good about themselves and their country and, one-upping Reagan, convincing foreigners as well: hence the World Cup and the Olympics. But that confidence has led to the kind of self-congratulatory smugness that rubbed the greybeard correspondent wrong in Davos, blinding leaders to the need to tackle the Brazil Cost. While campaigning for office in September 2010, Rousseff chided a Reuters reporter when he suggested in an interview that it might not be possible to maintain 7 percent growth without reforms. "Is Brazil growing (that quickly) now?" she asked him sharply. Since it was, the journalist had to agree. "Well, then, it's possible."

Clearly, at 2.7 percent, it's not happening now. And if Rousseff wants to regain the growth of the Lula years, she'll have to grapple with the chosen political allies of her own Workers Party (PT) -- a pork-barrel party called the PMDB with no identifiable political ideology. The PMDB technically gives the president a majority in Congress, but its members tend to drag their feet on legislation unless and until their personal backs are scratched.

That anybody cares what happens to the Brazilian economy shows how far the country has come since it tackled hyperinflation nearly two decades ago. But economic history shows that everything runs in cycles. The question is: Will Brazil's next downturn be deep and prolonged, like the "lost decade" that followed the "miracle" of the 1970s, or short and relatively painless, as in 2009 when it bounced back quickly from the global shock in 2008? Without reforms, the former option looks more likely.

Like Americans, Brazilians possess a New World optimism, remaining upbeat even through periods of mediocre growth. However, muddling through is not enough for a savior or even a new pillar of the global economy. Ash Wednesday could come sooner than expected.


Democracy Lab

Finish What You Start

Getting rid of a dictator is a great achievement. But it's only the beginning of a successful transition to democracy.

It's been a bad year for bad guys. Indeed, if anyone had predicted at the end of 2010 that in the following twelve months Mubarak of Egypt and Ben Ali of Tunis would step down and face prosecution, that Qaddafi, Kim Jong Il, and Osama Bin Laden would be dead, and that Ratko Mladic would be in jail, no one would have believed it.

Much has been written about the nonviolent revolutions driven by "People Power" youth movements in Tunisia and Egypt. Their unity, planning, and nonviolent discipline inspired half a dozen additional nonviolent movements, posing the first serious challenge to dictatorships in decades, and prompting leaders in Morocco, Jordan, and even Burma to promise reforms, launch talks with banned opposition parties, and reform constitutions. It encouraged tens of thousands of Russians to demand free and fair elections this past winter in the biggest countrywide protests since the downfall of the Soviet Union.

2011 was the year when mass nonviolent struggle proved its worth as a tool for toppling brutal and long-lasting dictatorships. Yet activist movements have not been as successful when it comes to installing and sustaining democratic forms of government.

Late last year, more than 90 percent of registered Tunisians voted in their first fair elections in almost 30 years. The same month, however, the streets of Cairo witnessed ugly scenes of sectarian violence and a military crackdown on protestors. That startling contrast should prompt us to ask why.

We can find a useful analogy in President John F. Kennedy's words from 1961, when he described the objective of the U.S. space program as "landing a man on the moon and returning him safely to the Earth."  It seems that some of these nonviolent revolutions have been limited solely to removing incumbent regimes without much thought about what was to follow. In other words, they've focused on landing a man on the moon without considering the return journey.

Removing the incumbent regime is only one component of a successful democratic revolution. Equally essential are the creation of a new democratic government and protecting it from the potential threat of a coup d'état. How do we explain the fragility or failure of some of the nonviolent revolutions after such courageous struggles to remove dictatorships? How is it that activists failed to map out a strategy for the transition to a democratic government and the means for sustaining that change?

Political transitions are difficult to understand, especially from the outside, but there are several steps that are clearly indispensible when it comes to organizing a successful nonviolent movement.

1. Have a clear vision of tomorrow

First and foremost, movements must have a vision of what they want to achieve. They need to answer the question: "At the end of this struggle, what will be different, and who will benefit?" There are many facets to this: How will the executive branch be constrained? How will the judicial system be protected from corruption? What rights will the people insist have unequivocal protection?  A clear picture of this kind can serve not only as a guide in the struggle against an oppressor, but also as a useful blueprint for building a new democratic government.

Some of the success stories are illustrative. In South Africa, pro-democracy reformers defined the principles for a future society early on. In 1955, the African National Congress (ANC) sent tens of thousands of volunteers to cover the countryside to collect "freedom demands." The result of this massive public campaign was the famous "Freedom Charter," which called for the end of the apartheid government and equality for all citizens. This undoubtedly helped to establish clear principles for the struggle that resulted in the establishment of today's South African democracy.

Then there's the case of Serbia after the nonviolent Bulldozer Revolution of October 2000 and the ousting of Slobodan Milosevic. The movement's leading forces, which included the Democratic Opposition of Serbia, the nonviolent youth movement Otpor, and various civil society groups, also had a clear "vision of tomorrow." They defined it in a 1998 manifesto that outlined the need for free and fair elections, media freedom, freedom of speech, good relations with neighbors Croatia and Bosnia, and a roadmap to EU membership. Today, after facing many challenges (including the 2003 assassination of its first democratic prime minister, Zoran Djindjic), Serbia continues to follow these original goals.

2. Maintain unity

The three principles of unity, planning, and nonviolent discipline are the keys to success in nonviolent struggles against autocratic regimes. The strategists of the civil rights movement in the U.S. built on the unity of black and white activists. Harvey Milk's campaign for sexual minority rights focused on an alliance of "gay" and "straight." In 2000, it was 18 Serbian opposition parties that joined together in support of a single presidential candidate, Vojislav Kostunica, against the dictatorial Milosevic. Unity was a key component of success in all of these cases.

There are many examples where these alliances were abandoned and old divisions returned, sometimes in a matter of weeks or months after people "left the street." In Ukraine, two leading politicians in the Orange Revolution of 2004 (which peacefully removed the old Soviet-style leadership), Viktor Yushchenko and Yulia Timoshenko, clashed within the newly elected coalition. In 2010, both Yushchenko and Timoshenko lost the presidency to Viktor Yanukovich, their original opponent in the Orange Revolution. Likewise, Egypt saw religious violence against Coptic Christians despite the victory over Mubarak's 30-year rule. The lesson to be learned is that building a movement based on fighting a common enemy means that defeating that enemy eliminates the movement's raison d'être and diminishes its capacity to rebuild the system. Keep your eye on the prize: the "vision for tomorrow."

3. Don't assume "game over" once the "bad guy" is defeated

Many nonviolent campaigns failed because they didn't go far enough: removing the "bad guys" as an obstacle to change is only one, albeit important, step in a larger process. To ensure success, the public must understand that the struggle does not end when a tyrant is defeated and removed from power; it ends only when a democratic government is in place and able to defend itself from a coup.

Recent experience offers examples of what can happen when democratic revolutions fail to anticipate the challenges ahead. During the Cedar Revolution of February 2005, Lebanese youth united and mobilized various elements of Lebanese society. They succeeded in kicking out occupying Syrian troops and forcing the resignation of pro-Syrian government officials after decades of bloody civil war -- all without firing a single bullet. Nevertheless, this peaceful revolution was followed by a political crisis and renewed sectarian violence, ending with the establishment of the Hezbollah-dominated government that continues to rule today.

In February of this year, the democratically elected president of the Maldives, Mohamed Nasheed Anni, was deposed in what appears to have been a coup staged by the military and police. That turn of events of threatened to negate a remarkably successful transition that began in 2008,  when a nonviolent movement removed the country's long-time military leader and paved the way for the new president's election -- perhaps the most remarkable shift toward democracy in the Muslim world of the past decade.  Cases like these should serve as cautionary tales for pro-democracy activists.

4. Maintain momentum

Power vacuums are transitory by their very nature. There may be many groups standing by to fill the void created by revolutions. Strong organizations have the best chances of seizing the initiative. In some cases, that institution may be one of the pillars of the previous regime (like the armed forces in Burma or Egypt). Therefore, movements that want to succeed need to start early on with developing a strategy that takes into account the capabilities of these "pillars of support" as well as demographics, infrastructure, geography, and relations with external players. Most important is ensuring the strength of opposition figures and personnel who will be able to establish working relationships with members of these powerful institutions. Such contacts are essential for preventing future power struggles between these groups.

In Egypt, the success of 19 days of "nonviolent blitzkrieg" that toppled Mubarak gave way to an interregnum dominated by the Supreme Council of Armed Forces (SCAF). The moving forces behind Mubarak's downfall last winter -- secular youth groups -- have been relegated to the margins.

It seems that these original activists of Tahrir Square failed to anticipate the challenge posed by the two most organized institutions in Egypt: the military and the Muslim Brotherhood. The growing distance between Mubarak and the military -- his primary pillar of support -- should have alerted the Tahrir organizers to plan a defense against the threat of the army usurping their revolution.

By contrast, the strategy of the Muslim Brotherhood was quite effective. Like the army, it believed it was incapable of successfully opposing President Mubarak and waited patiently for the nonviolent movement to defeat the regime. Both the Egyptian military and the Islamists are strong, disciplined, and experienced groups, ready to use any opportunity to seize power. Again, this potential threat was widely known among the population, and pro-democracy activists should have anticipated it. For both the army and the Muslim Brotherhood, the loss of momentum after the ousting of Mubarak provided an opportunity to exploit the success of the People Power movement and to re-direct it away from its original goals and towards their own.

Accordingly, the activists should have continued with direct nonviolent actions in order to keep the public mobilized and capable of demanding major transitional reforms, such as creating an interim national government, holding a referendum on a new constitution, releasing all political prisoners, holding free and fair elections, and ending censorship. By disbanding the mobilized public and leaving the political and geographical center of the revolution (Tahrir Square), the democracy movement allowed the creation of a vacuum that was immediately filled by the army and the Muslim Brotherhood. This was precisely the moment when the greatest and most durable gains could have been accomplished.

5. Don't put all your faith in new elites

One of the reasons why successful nonviolent revolutions sometimes fail during transition is the naive belief that real political change should lie in the hands of elites and charismatic individuals. The leaders of the nonviolent movement sometimes leave the scene after the dictator is gone and a new government installed, only to realize later that they ceded the field too early. Corruption and abuse of newfound power can mar the positive achievements of successful nonviolent revolutions. Nearly ten years after Georgia's 2003 Rose Revolution, which brought unprecedented reforms to the small former Soviet state, President Mikhail Saakashvili stands accused of resorting to authoritarian methods.

Democracy movements should keep newly elected governments under public pressure and accountable from day one. The case of Serbia is again instructive. Only weeks after Milosevic was defeated, hundreds of billboards appeared in the streets of Belgrade with the image of a bulldozer (the symbol of the revolution) and an accompanying message: "Behave yourself -- we are watching you." Serbia, at the time, had 4,300 registered bulldozers and about 6 million potential riders. So the message targeting the newly elected government was clear: "Don't forget that the government should answer to the people." After all, absolute power corrupts absolutely. Even if the nonviolent revolution brings a democratic government, civil society must stay vigilant and keep every future government accountable. Then democracy will come.

The events of 2011 have shown that nonviolent struggle can be an effective tool for challenging autocrats. The basic techniques of such struggle -- above all the core principles of unity, planning, and nonviolent discipline -- are now widely known to democratic activists around the world. The same strategic approach should now be applied to the problem of transition as well. No sooner have activists succeeded in achieving victory over a dictator than they find themselves confronted by persistent instability, religious conflicts, military coups, or debilitating political corruption. Yet experience shows us that such problems can be pre-empted or successfully confronted if addressed early in the planning process.

Preventing counterrevolutionary coups, installing a democratic government through free and fair elections, and building durable democratic institutions are, of course, all part of a long-term process -- one that is notably less "sexy" than confronting an unpopular dictator. Yet successful movements must have the patience, stamina, focus, and courage to keep building new societies even when the lights and cameras are gone.