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Brazil's New Middle Class Boils Over With Discontent

Wednesday, 3 Jul 2013 | 1:10 PM ET
Demonstrators argue with police during a protest near Mineirão stadium in Belo Horizonte.
Nelson Almeida | Getty Images
Demonstrators argue with police during a protest near Mineirão stadium in Belo Horizonte.

André Tamandaré isn't supposed to be so angry.

Over the past decade, the 33-year-old high-school dropout has moved into his own house, got a steady job and earned enough with his longtime girlfriend, Rosimeire de Souza, to lead their two kids into Brazil's fast-rising middle class.

Now a public health worker in a sprawling suburb east of Rio de Janeiro, Tamandaré is the kind of citizen that Brazil's government thought was fulfilled. Instead, he is one of the more than a million people across Latin America's biggest country who have hit the streets in a wave of mass protests.

Brazilians are railing against poor public schools, hospitals and transportation. They are protesting soaring prices, crime and corruption. They are lambasting a political class so self-satisfied that it failed to see, much less address, the mounting discontent that led to the protests.

The concerns reflect growing unease among Brazil's nearly 200 million people that the country's long-promised leap into the developed world has fallen short once again.

"All you need to do is walk around a little to see how undeveloped we still are," Tamandaré said, smoking a cigarette on a plastic stool next to his small square kitchen table. "Take a bus, go to the health clinic—it's all shabby, slow, dangerous and infuriating."

The demonstrations, sparked by protests against a rise in public transport fares, at first drew mostly educated young people from Brazil's traditional middle class—a minority that historically has had more in common with a wealthy elite than the nearly 100 million Brazilians who until recently formed the ranks of the poor.

The demonstrations took off when Brazil's "new" middle class joined the fray.

"This is the discontent of people for whom having enough rice and beans on the table no longer comes as a surprise," said Rodrigo Dutra, a documentary filmmaker in Duque de Caxias, another working-class Rio suburb, who is studying the differences between these protests and rioting that followed a 1962 food shortage.

Much has been made in recent years about Brazil's emerging middle class—most of all by the leftist Workers' Party, in power since 2003.

Booming commodity exports, a consumer binge and ambitious social welfare programs fueled a decade of steady economic growth that lifted 35 million Brazilians out of poverty. But now, as the economy cools, many among the new middle class say their much-vaunted ascent leaves a lot to be desired.

"It's all relative," says Dione Brandão, a teacher, after a recent march along Avenida Atlântica, a promenade in Rio's Copacabana neighborhood. "What good is more consumer spending when security and education are worse?"

A Middling Middle

Approval ratings are plunging for President Dilma Rousseff, who until recently enjoyed some of the highest poll numbers of any elected leader worldwide. Since the protests began, her public-support level has sunk 27 percentage points, settling at 30 percent of those surveyed by the pollster Datafolha.

Middle-class Brazilians are expressing some of the same frustrations fueling unrest in Turkey, Egypt and elsewhere. The demands vary by country but reflect a common struggle by the governments of many developing nations to meet rising expectations.

The very idea of middle class in Brazil is different from that of North America or Western Europe.

No tree-lined suburbs and Volvos for the newly empowered here.

(Read More: Brazil Protesters Struggle to Define Next Steps)

Instead, the term is used broadly to include almost anyone able to pay rent, put food on the table and perhaps pay a monthly installment on the refrigerator, microwave or television that Brazil's government often touts as a sign of their emergence. The so-called Classe C, the bottom rung of Brazil's middle class, earns as little as 1730 reais a month (about $790) and, unlike the much-smaller upper-middle class, relies largely on public transportation, health services and schools.

The problem is that, for all its success, Brazil invests far less in public services than any other major economy.

When democracy followed a two-decade military dictatorship, Brazil's 1988 constitution enshrined European-style pensions and other social benefits, despite economic limitations.

"We adopted a model that transfers a lot of public wealth to individuals and leaves very little for public investment," says Samuel Pessoa, an economist at the Fundação Getulio Vargas, a business school and research institute.

So, even though it taxes people at levels similar to Switzerland, Canada and Australia, with a tax burden equal to about 34 percent of the economy, Brazil spends most of its resources on personnel costs and entitlements. Instead of improving roads, rail systems or schools, revenues go toward pensions, public-sector salaries and transfers to state and municipal governments, which use the funds for their own high expenditures of a similar sort.

Less than 5 percent of the government spending last year went toward investments, according to a recent study by Credit Suisse.

Government Gaps

As Brazil's once-booming economy is stuck in a prolonged lull, the government is being tight even with the money it does have to invest. Last year, Brazil spent less than 10 percent of the funds it had allocated for urban transport projects, according to data compiled by watchdog group Contas Abertas.

The result is poor public services. For those who rely on them, day-to-day life is a series of hassles that are a terrible grind at best, but often dangerous and even deadly.

Two hour-plus commutes aren't unusual in big cities like São Paulo or Rio—not to mention the grimy, unpredictable and overpriced trains and buses helmed by overworked drivers. In April, a bus driver arguing with an irate passenger careered off an overpass, killing nine.

When Brazilians get home, often in neighborhoods where basic trash collection and sewage are lacking, they worry about some of the worst violent crime in the world. The homicide rate in Brazil, as tallied by the United Nations, was 21 deaths per 100,000 people in 2010, compared with 4.8 in the United States and one in China. Residents sometimes look for protection not to police but to drug gangs or other criminal factions that control entire suburbs.

Kids are less truant than in the past, thanks to a welfare plan that pays parents to keep them in school, but they aren't learning a lot there. Literacy rates and test scores lag those in many other developing countries, let alone the advanced ones that Brazil hopes to join.

Those who can't afford private health insurance—which is most people—are at the mercy of public hospitals that often lack basic supplies and, increasingly, doctors, some of whom are so disgusted with the system that they limit their work to private providers. The physician shortage in public hospitals is so bad that the government wants to bring them in from Cuba.

Brazil is not about to collapse. The protests have been largely nonviolent. And Rousseff, while blindsided by the protesters, moved quickly to recognize their concerns and has vowed to increase investments. Her plummeting popularity doesn't mean certain electoral defeat, especially because the protesters don't have a unified agenda or political party.

Unemployment, meanwhile, remains near record lows, the legacy of a decade that by most accounts was remarkable.

Is Brazil 'Taking Adequate Measures'?
Joaquim Levy, former secretary of the treasury and CEO of Bradesco Asset, talked about the Brazilian economy, saying that despite some concerns, strong fundamentals remain.

The Boom

Tamandaré and de Souza, the health worker and his girlfriend, were among that decade's many beneficiaries. Originally from different blue-collar Rio suburbs, the couple met in 2000.

Tamandaré still lived with his grandmother, who raised him in Niterói, a city that lies across the river-like bay that gives Rio its name. He worked sporadically as a self-taught computer and appliance repairman.

De Souza, recently divorced and with two young children, had been laid off from a job as a supermarket cashier. She and the kids moved in with Tamandaré and his grandmother and they began to live as a family.

In 2005, they moved to São Gonçalo, a nearby suburb where Tamandaré's mother, who died when he was an infant, left a two-bedroom home. The family had rented it out for years after her death, but the home was then vacant and in disrepair.

Tamandaré and de Souza could move in, find work and fix it up. "Things were changing," said de Souza, now 35. "We saw it as an opportunity."

Things were indeed changing. Ravenous demand for iron ore, soybeans and other commodity exports to China and other fast-growing markets boosted tax revenues and spurred growth in knock-on sectors of Brazil's economy. Former President Luiz Inácio Lula da Silva, Rousseff's predecessor and political godfather, doubled down on fiscal policies, including a balanced budget, that his centrist predecessor had adopted to stabilize public finances.

Greater stability encouraged investment by private companies and gave Lula breathing room to expand programs that reduced hunger and extreme poverty. Prodded by the government, state lenders opened the credit taps, and long-suppressed consumer demand took off.

(Read More: Brazil Grapples With Biggest Protest in Two Decades)

In São Gonçalo, de Souza and her sons handed out flyers advertising Tamandaré's repair work. He drew more clients, and De Souza began selling lingerie.

Looking Up

They soon were clearing 1,000 reais a month, equivalent to about two minimum-wage salaries at the time. Tamandaré enclosed their small patio, and the family used store credit to buy kitchen cabinets, a refrigerator and a 29-inch television.

The boys entered local schools, where they receive got to class for less than five hours a day. "It's not ideal," de Souza says, "but we can't afford a private school."

Eager for more stability, de Souza took a job in 2008 as a health agent for the municipal government. In theory, the job consisted of visiting poor families with known health problems and making sure they were getting the right medical attention.

In practice, she had few resources to do the job well. She had so many families on her roster that she was rarely able to call on all of them.

Because of a change in the contract that outsourced the health agents, she was laid off in 2011. Tamandaré, applying when the posts were restaffed, landed the same job.

He continued repair work on the side and de Souza found a position as a salesperson in a bed, bath and kitchenware shop in Niterói. Though the distance is just six miles, because of the sclerotic highway between the two cities, the ride takes 90 minutes. The bus, already full when it arrives from a nearby town, is just as full when she ends her eight-hour shift.

"I stand on the bus, I stand at work, and then I stand on the way home," she said. "I am worn out by the time I get home."

More Protests Break Out in Brazil
Protesters in Brazil demand an end to corruption and social inequity, and Turkish Prime Minister Tayyip Erdogan defends tactics used by police to break up clashes with protesters in Istanbul, reports CNBC's Michelle Caruso-Cabrera.

Exhausted

Brazil's boom is also exhausted. Demand for raw materials from China has slowed. And domestic consumers are carrying more debt than at any time since the central bank began measuring household credit. Growing defaults last year led banks to cut back on lending.

After average yearly economic growth of more than 4 percent during Lula's two terms, average growth through the end of Rousseff's term isn't expected to exceed much more than 2 percent. Inflation has crept back up to an annual pace of 6.5 percent.

The slowdown muddles the message for a government accustomed to telling its citizens and the world that Brazil has finally made it.

As recently as April, Rousseff was pledging that per-capita income would double by 2022, despite economists' assertion that would require average annual growth of at least 6 percent until then. Two marquee events in Brazil, the 2014 World Cup and the 2016 Olympics, are now lightning rods for criticism because of the more than $25 billion needed to host them.

Frustration in São Gonçalo, with a population of 1 million, has begun to spill into the street. Its reputation as a hardworking commuter town has begun to change to that of the next hideout for drug gangs and other criminals pushed toward the suburbs because of a pre-Olympic police crackdown in Rio's slums.

In February, de Souza was mugged at gunpoint.

Along Rua Doutor Feliciano Sodré, a bustling street lined with retail, banks and lunch counters, storefronts are now boarded up because vandals broke windows during a recent protest. At a bus stop, commuters step away from the curb as cars approach to evade the splash from a puddle of overflowing sewage.

Inside a large appliance and furniture store, manager Vander Oliveira said sales, which had ballooned, are now flat. "You look toward the horizon and what you see are problems," he said, eyeing a lunchtime showroom with more salespeople than customers.

(Read More: After Turkey, Brazil Hit by Widespread Protests)

Tamandaré and de Souza together now earn more than 2,000 reais per month, about three times the minimum wage. Despite their link to the local health service, they use about a fifth of their earnings to pay for private insurance.

"I see how bad it is," said Tamandaré, who keeps photos of the run-down local clinic on his cellphone. For instance, the faucet in one of the bathrooms is simply a sawed-off extension of the water pipe.

At the clinic one recent afternoon, patients, friends and family members waited outside an overflowing emergency room foyer. A bucket sat strategically under a hole in the ceiling above the few who had managed to score chairs.

Wellington Nascimento, a 38-year-old off-duty security guard, waited with his daughter for a friend who fell and possibly broke her nose.

Nascimento recalled a visit last year, when he came to the clinic with a fever, stomach pain and repeated vomiting. He never saw a doctor and left after eight hours.

"We could be here all day," he said.

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