UBI: The Global Antipoverty Experiment

by Tenzin Chomphel
Editor in Chief

The back and forth of the best way to resolve extreme poverty, wealth inequality, and just taxation, may often appear endless to most. While global poverty is lowering at a rate of roughly sixty-eight million people per year, that still leaves an unacceptably high level of poverty around the world. Domestically, the United States experiences an estimated thirty-eight million still in poverty, and inequality has additionally been on the rise, with the bottom ninety percent of households accounting for less than a quarter of the total wealth.

Continue reading “UBI: The Global Antipoverty Experiment”


By Ariana Criste
Staff Writer

As Rio De Janeiro rushes to prepare itself for the upcoming 2016 Summer Olympics, they are taking questionable measures to mold itself for the international eye. Politicians and business leaders in Rio problematize the “favelas,” the urban slums that the public views as being centers for poverty, drug activity and gang problems. Pacification and eviction have been the primary strategies for controlling the favela “problem.” Growing police presence in the area has created a noticeable drop in homicide rates, but some argue that this drop in the areas measured is just pushing criminal activity outside of the scope of the pacification efforts.

Police pacification units (UPP) have been deployed to an increasing amount of favela neighborhoods. With this rise in police presence, the homicide rate in the occupied areas has dropped by what some scholars estimate to be 65 percent. With homicide as the measure of success for the program, the drop in homicide in the favelas has led to almost a 30 percent drop in homicide within the state of Rio de Janeiro in general. While this is a significant decrease, homicide should not be the only measure of UPP deployment success. It is also likely that the drop in homicide may be attributable to a displacement of the activity itself, as other regions have experienced increases in their homicide rates. Even still, Rio is under fire for its lack of commitment to addressing the underlying social problems of the neighborhoods that the police presence is occupying.

The deep poverty and lack of opportunities have created an environment that can breed violence and criminal activity. In November 2011, Nem of Rocinha was arrested and detained by the Rio police force. Nem was the head of the drug trade in the Rocinha favela that is situated near Leblon, São Conrado and Gávea, the wealthiest areas of the state. In an area that the capital had long ignored or even outright abandoned, Nem was viewed by residents as bringing order to the neighborhood. Written into the business expenses of the expansive cocaine trade were social benefits for the neighborhood that the drug trade took place within. Compared to many trafficking empires, the empire that Nem created was relatively free of the bloodshed typically associated with the drug trade, and the commanding officer for the investigation that would eventually capture him spoke of how he “wasn’t a man of violence.” In the absence of the order of states and state association, these favelas are run by the criminals and gangsters who fill this political void. In the Antares favela, the Red Commando, one of Rio’s oldest criminal gangs, controls the security and culture. Like Nem of Rocinha, the Commando pumps money into the public works and even hosts social events. What started as a prison group association, climbed the ladder in seriousness of crimes until it reached hegemonic command over the drug trade and the people of Antares. In exchange for social assistance and community events, the Red Commando reigns relatively conflict-free over the culture and commerce of the area. This is not uncommon for the communities within the favelas, which have real economic and social grievances with the state.

Since the capture of Nem, community mistrust against the pacification efforts directed at Rocinha have grown. This is not unsubstantiated, however, as violence has been carried out by the police presence against the favela community. The murder of an innocent bricklayer by the Rocinha favela police force in July 2013 pushed the favela close to a total revolt. In 2013 alone, the number of reported police killings was 2,212. This does not include killings in states that choose to not report. Conservative leaders within Brazil have created political identities based on this state-led violence. As a leader for an institution tracking police issues explained, “There are parts of the middle class that accept killings by the police as a legitimate practice.” Cases of police violence perpetrated against children of these favelas have cycled through national political discourse and still little change in policy has been implemented. This is not far from the norm as many have accepted violence against civilians as a norm in the mission to clean up the favelas.

Police violence is not the only concern of the residents of the favelas, however. Favela neighborhoods are being leveled as the government gears up for the Olympics. Residents were offered money to relocate, as Rio searches for prime real estate for the new Olympic infrastructure it is building. Residents who have chosen to stay in the favelas are cut off from water and electricity. As poor people have been relegated to the peripheries of Brazilian society, poverty has become more problematized. Some are hopeful that, despite the civil and human rights issues that have characterized the planning stage for the Olympics, it will serve as a platform for the world to see the issues of intense urban poverty that countries such as Brazil are experiencing. As international eyes turn towards Brazil, they argue, they will also turn to the income inequality and issues of the favelas.

Image by João Lima


By Evan Carlo
Staff Writer

Once hailed as “an extraordinary triumph for Brazil’s achievement,” the Brazilian energy giant Petrobras is now caught in a corruption scandal that could lead to the very top of the country’s political establishment. For months corruption investigators have dug into Petrobras’ records and discovered illegally diverted funds going out of the company and into the pockets of politicians and party activists. Given that the Brazilian government owns 51 percent of the company’s stock, Petrobras essentially operates as a state-owned enterprise. The government uses Petrobras’ revenue and profits to aid in the country’s social development by requiring the company to invest part of its business in local development. Because of this, many Brazilian citizens are angry over the fact that public funds are being used to enrich the political and economic elite.

The scandal kicked off when authorities arrested Paulo Roberto Costa, Petrobras’ chief of refining from 2004 to 2012, in March of last year on money laundering charges. He confessed that construction companies in his division won contracts by diverting over $3.7 billion dollars to slush funds for politicians, making this the largest corruption scandal in Brazil’s history. His testimony led the indiction of over 30 people, many of whom were members of the ruling Worker’s Party. Recently, the scandal reached new heights with the April 14 arrest of the party’s treasurer Joao Vaccari. Authorities charged him with handling $200 million of funds that were obtained from engineering and construction firms that over-charged Petrobras for their services and used their inflated profits to bribe the company and political officials to accept these contracts.

Given President Dilma Rousseff’s status as head of the Worker’s Party and her former role chairing Petrobras’ board of directors during its years under investigation, she has become increasingly connected to the scandal. President Rousseff has repeatedly denied involvement but that has not stopped calls for her impeachment and declines in her approval ratings. Politically this scandal may bring down her presidency and cost the Worker’s Party and its coalition many seats. But a new ruling coalition will unlikely change the political and economic structure that allowed and incentivized corruption.

This is a problem that we see time and time again in developing countries that operate under an extractive economic system. Political economists Daren Acemoglu and James Robinson extensively developed the idea of extractive economies. An economy is extractive when the ruling political elite exploits whatever economic rents they can from their existing economy to maintain their hold on to their power. This contrasts with an inclusive economic system that diversifies the economy and promotes inclusive growth from other sectors. In an inclusive economy, corruption is less widespread since the rule of law and property rights are strongly enforced. Policy examples of extractive economics include: monopolizing industries, excluding entry into the market, using political power to give an advantage to favored industries over new startups, corruption, the alignment of private and public interests, and more. The point of an extractive economic system is to keep political and economic elites in power and extract excess rents from the population. This system is easier to establish in commodity-based economies that focus mainly on extracting and exporting a basic commodity, which is exactly what is happening in the case of Petrobras.

Now it is a little unfair to call Brazil an extractive economy. Brazil, unlike say Russia or Kuwait, does not fully depend on the petroleum industry for its economic survival. Even in the areas of corruption and the rule of law, Brazil ranks higher than many Latin American countries on The World Bank’s Governance Indicators. Since the democratization of Brazil in the 1970s, the Worker’s Party has tried to develop an inclusive political and economic system to reduce inequality and oligarchy. While conditions in Brazil have improved since the 1970s, Brazil problems with income inequality and corruption persist.

The scandal with Petrobras demonstrates that aspects of the Brazilian economy still operate under an extractive system. Petrobras controls enough of the economy and suffers from enough corruption and inefficiencies to pose an economic threat. Economist Samuel Pessoa estimated that Petrobras and its various subcontractors are responsible for a tenth of Brazil’s economic output. Another study by the FGV Business School predicts that the scandal will cause Petrobras and its subcontractors to decrease spending and investment by $30 billion. The world economy is already beginning to slow down due to slower growth in East Asian and European countries. This poses a severe risk to Brazil, which operates mainly as a commodity exports economy. A slowdown in the petroleum industry combined with exogenous shocks can throw Brazil into a recession.

Even when Petrobras and the Worker’s Party try to pursue inclusive policies by using Petrobras to develop impoverished regions, it is executed in a way that makes Petrobras inefficient. Petrobras has a domestic content requirement to contract a certain percent of the goods and services from local businesses. This prevents Petrobras from contracting more experienced and efficient international companies, raising the cost of business. In addition, the government subsidizes fuel consumption through Petrobras by keeping prices artificially low. These two effects keep costs too high and prices too low for Petrobras to remain profitable. Therefore Petrobras is unable to finance its operations and expand its business without going into debt. Petrobras is now one of the most in debt businesses in the world because of how the government crafts their business strategy. The culmination of these policies turned one of the most promising companies in the world to an economic basket case.

The Brazilian government needs to loosen control over Petrobras and allow it to operate more as a private business. The Worker’s Party can create inclusive economic policies through the government and public policy instead of through a state-owned business. These policies not only make Petrobras inefficient but also incentivize corruption. If Petrobras operates more as a private business there will be a disincentive to accept inflated contracts in exchange for bribes since it must make a profit. Having the government divest more from Petrobras will keep the government out of the decision-making process at Petrobras, preventing private and public interests from aligning.

By allowing more competition in the bidding for Petrobras contracts, the Worker’s Party can fight corruption while still developing a more inclusive economic system. If they don’t reform Petrobras, corruption will continue and the emerging economy will suffer for it. The high debt and economic inefficiencies of Petrobras are preventing it from fully exploiting Brazil’s promising off-shore oil reserves that are estimated to hold 50 billion barrels of oil. With the scandal forcing Petrobras to cut back on investment spending, the company is unable to procure the equipment and skilled labor necessary to develop these oil sources. Because Petrobras is a large part of the economy, if it doesn’t recover quickly from the scandal it can weigh down Brazil’s already weak economic growth. Without these reforms, Brazil’s economy will stagnate for the foreseeable years to come.

Image by Agência Brasil