The transition from “emerging” economic power to “actual” economic power is a lot more difficult than many pundits and prognosticators understand. Many developing countries are bedeviled by entrenched interests whose deadlock on policy-making prevents these countries from realizing their full potential. Brazil’s unsustainable and deeply unjust pension system is an example. The New York Times:
An exploding pension crisis here in Brazil, Latin America’s biggest country, is wreaking havoc on its public finances, intensifying a political struggle over the economy that already has the president fighting for survival.Brazilians retire at an average age of 54, and some public servants, military officials and politicians manage to collect multiple pensions totaling well over $100,000 year. Then, once they die, loopholes enable their spouses or daughters to go on collecting the pensions for the rest of their lives, too.The phenomenon is so common in Brazil’s vast public bureaucracy that some scholars call it the “Viagra effect” — retired civil servants, many in their 60s or 70s, wed to much younger women who are entitled to the full pensions for decades after their spouses are gone.
Breaking this pension system and replacing it with something sustainable would require something like a revolution in Brazilian politics—and Brazil is not a revolutionary country. And the pension system is only one piece of a system, entrenched over decades, in which vested interests have paralyzed policy making and blighted development prospects for South America’s largest and most important country. The political parties are creatures of this system, by and large, and political struggles consist of battles between coalitions of vested interests over slices of the pie. Real reform is off the table.India, China, South Africa and many other developing countries are hamstrung by similarly destructive and similarly entrenched deadlocks. It’s a classic political arrangement: band together to form a coalition that extracts resources from the state. Over time, society becomes addicted to the subsidies, and as people build their lives and companies build their business models around patterns of state patronage and subsidy, the structure becomes progressively more dysfunctional and less easy to reform.These invisible barriers to success, often deeply rooted in the culture and history of a particular society, will play a growing role in determining which countries prosper in the 21st century. Societies that succeed in reforming, trimming and where possible abolishing these destructive patterns will be the ones best positioned to take advantage of the opportunities before us. The others will moan about their ‘bad luck’, flirt with various ‘alternative models’ that never seem to get anywhere, and generally flounder in a morass of frustrated ambition and discontent.