Brazil Political and Business Comment - Making Money without Earning It

There are millions of people employed in similar unskilled jobs here. Whereas the cleaners are actually performing a service to society, albeit paid reluctantly by the taxpayer rather than willingly by the private consumer, there are many others who contribute nothing in terms of creating economic wealth. For an economy to achieve real growth, it needs to make products and services which people will buy. These can be low value commodity items like basic foodstuffs, minerals, steel slabs etc or high added value products like televisions, cars and computers. Brazil is a big producer and exporter of the former but not of the latter. There are a few areas where Brazil does produce and even export cars and planes but, overall, the economy is undeveloped compared with the United States and Canada, Europe and some Asian countries.

Cheap Labor on Tap

There are many historical and cultural reasons for this underdevelopment. One of the main drawbacks to economic development in Brazil is the inefficient public education system which has created a mass of poorly-educated people. When they leave school these people have little to offer potential employers apart from their manual labor. Employers can pick and choose and, in line with the harsh laws of supply and demand, can dictate salaries and conditions. Even where workers are represented by trade unions, the employers still hold the upper hand. Even then, most people are pathetically grateful to have any kind of contracted work, which gives them the status of a registered employee. The goal of millions is to become a civil servant (“foncionario publico) where little work needs to be done, a regular salary is paid and a generous pension scheme exists.

The result is that Brazil offers a huge pool of cheap, unmotivated labor, much of which is engaged in unproductive work. The domestic service industry is a good example. In Europe and the US only the rich can afford maids but nearly all middle-class and some working-class families in Brazil have maids. Nearly all private buildings have a caretaker and a team of employees who check visitors and maintain the building. This kind of service is also rare in Europe and the US. Let me give a concrete example. The building where I live houses 28 families and we have six full-time employees ranging from the head janitor (zelador), who has a rent-free apartment, to a cleaner. Virtually every family has a daily maid, although not your correspondent who is still not used to having a stranger rummaging among his things. A couple of families have nannies to look after their children. This means that 28 families are employing over 30 people to do jobs which generate no wealth whatsoever. Multiple this by the millions of middle-class families in other big cities and you see that a large part of the Brazilian workforce makes no productive contribution to the economy. (Incidentally, this comment is not intended to devalue the work these people do but to look at it in purely economic terms of production.)

If we look at more formal employment we see that there are several sectors which are equally unproductive and of dubious value. Two sectors stand out: private security and car parking. There are estimated to be more private security personnel and guards than the combined police forces in the whole country. It would be good for the client and, I suspect, bad for the security firms if a tool existed to measure their efficiency.

Discarding the Human Factor

Some years ago I interviewed the manager of one well-known security firm who told me that his company´s success had been based on its up-to-date systems and processes, not on employees in uniforms with guns on their hips. This company had been created about 20 years earlier by two young MBAs with degrees from American business schools who saw the potential of computerized information. Unlike most security firms at that time, the founders had no background in police work. This businessman and his partner have become rich by downgrading the human input and concentrating on computerized monitoring and control systems and hidden cameras.

Instead of relying on off-duty policemen or low-paid time servers with no interest in the job, the client knows his house or business is protected by sophisticated alarm systems just like a bank. Of course, this level of protection comes at a cost. Those who are unable or unwilling to pay are in unreliable hands. Many security personnel earn money for doing virtually nothing except standing around and making a presence. At the first sign of trouble, most would disappear. In many cases, security guards are in league with criminals and “inside” break-in jobs are routine.

Another highly lucrative business which is virtually useless is car parking. When you arrive at a restaurant or cinema a “manobrista” will drive your car to a parking lot (if you are lucky) or leave it just down the road, where it is at the mercy of any passing thief, and pick it up when you leave. The companies charge the client a lot and pay their employees very little. The client usually hands the driver a tip, thereby reducing the company´s costs and swelling its profits. There must be tens of thousands of manobristas in the city of São Paulo, not one of whom is doing work which adds value to the economy.

Some people might say these two sectors are services which, by their nature, cannot be evaluated in monetary terms. If the presence of a security guard prevents a bank being robbed or a car being stolen, is it not making a contribution to the economy? If we got rid of these security guards and manobristas, would we not face an epidemic of crime and would people not stop going to restaurants? These are valid points but the lack of a way of measuring their performance means we have to take this value on trust. In the absence of such tools, we have to use benchmarks like insurance rates and, as any Brazilian motorist will tell you, these are high despite the tens of thousands of police and private security guards in the streets. In theory, the opposite should be the case.

Over-manning is another consequence of this vast pool of cheap labor. A flower shop in my neighborhood has a full-time employee to look after the parking area which only has room for two cars. A nearby news stand, which measures about 10 feet by three feet, has five employees, three of whom are generally on duty at the same time. You can go into a brand-new building with state-of-the-art elevators but there will still be a woman sitting on a little stool pressing the buttons for you. A pharmacy will be full of assistants, none of whom know anything about the products on sale.

Who Pays the Bill?

Many of these people earn little more than the minimum salary of R$240 (US$80) and it might seem callous to complain about them. However, en masse they add a huge burden to what is known as the “custo Brasil” i.e. the hidden costs to consumers, taxpayers, companies, visitors etc. At the end of the day all these costs are added to the bill which has to be paid by the productive sector.

Despite this, there is a whole section of society which would not even consider getting a regular job. This element operates in the unofficial sector, which is estimated at about 30%-50% of the whole economy or even higher. The black economy ranges from large-scale organized gangs smuggling cigarettes into Brazil from Paraguay and distributing them to retailers, to a boy selling football shirts outside a stadium on the day of a big match or CDs in the street. While some only scratch a living, others gain a reasonable income and a few become rich.

Street sellers, called “camelos”, play a big part in the way the economy operates. Since they have no overheads, are free of the bureaucratic tyranny which bedevils the rest of us, pay no taxes and usually deal in stolen, contraband or counterfeit goods they can charge less than shopkeepers. Poorer people flock to them especially at this time of the year to buy Christmas presents. Although they are occasionally targeted by the municipal authorities, the camelos are left to their own devices and survive in their own way.

How to Make a Good Living

Often they can earn much more than someone with a fixed job as the following example shows. A couple nights ago I got talking to a man who was walking along the street selling peanuts and garlic. He was a bit reluctant to talk at first but as it was obvious that I was not an undercover tax man or rival garlic seller he opened up. He said he had been in business for 20 years and made about R$25 a day. I am not sure if he was telling the truth but tended to believe him. The prices he quoted were high - R$1 for the peanuts and R$3 for the garlic – but, perhaps, this was because I was a foreigner. In any case, if he worked six nights a week he would earn R$600 a month. Let´s suppose his wife was also a camelo and made R$400 a month. This would give them a joint income of R$1,000. In dollar terms it is very little (US$345) but this is above the average family income in São Paulo of around R$850. None of this money will go to the tax authorities and, of course, the salesman probably has no health insurance or holidays. At the same time, he has the freedom to work whenever he wants and he operates in a highly profitable area. He refused to tell me what his margins were but I reckon he must be making a return of at least 500%.

Compare this way of life and income to that of a shop floor operator working for an American auto parts company. An unskilled worker there will earn about R$400 a month, while a semi-skilled worker will get R$600 and a skilled worker R$800. These employees have perks which the “camelo” does not have but, at the end of the day, who gets the better deal – the workers in industry, whose products are exported and bring in foreign exchange, or the outsider who does nothing for the economy and contributes nothing to society?

This shows that being a “camelo” is an attractive if not superior alternative to a productive job which requires educational qualifications and responsibility. It is often not much of a step up from being a camelo to becoming a full-time criminal or drug trafficker.

This poverty of opportunity in terms of salaries and job satisfaction is depressing for individuals and for the economy as a whole. Brazil desperately needs to grow if it is to resolve the crushing problems of social inequality and rising crime but this growth can only come from producing goods and services which bring value and create wealth. The labor market needs to be restructured to this end, but for political and cultural reasons this is unlikely to occur in the near future. The coming generation of job-seekers is still as likely to end up working as street cleaners, maids and security guards as computer programmers and entrepreneurs.