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THE HIDDEN WELFARE STATE IN BRAZIL1 (DRAFT – do not quote without permission)

Sonia Fleury2

Abstract Recently, Latin American countries had to face the challenges of achieving social inclusion and economic redistribution as well as consolidating democratic institutions. The author analyses the process of building up a new pattern of welfare state in Brazil, starting from an elitist social insurance model to the challenges of designing a universal institutional social security model in 1988. New governance prototypical arrangements were built in order to respond to the emergent demands of decentralization and social participation. The financial constraints reduce the scope of the national government to implement inclusive policies. In this scenario, the stronger players -- be they national and under national government, corporative professionals or international companies -- are responsible for a redesign of the welfare model that is far from the one established legally by the Constitution. Introduction

During the last two decades, Brazil has been building a welfare system (WS) based on the principle of extending social rights to all citizen trough universal social policies -- a principle that is enshrined in the Social Security concept of the Federal Constitution of 1988. This represented a rupture with the previous existent social protection model, which was based on stratified social insurance for formal workers and charity or some kind of benefits for the poor, who were excluded from the other system.

The struggle for a new comprehensive social protection model had an original component of social mobilization in favor of expanding social rights as part of the transition to a democratic process. The singularity of having a social policy project designed by social movements and its strong association with the transformation of the state and society in a democracy has added some important characteristics to the Brazilian WS. The outstanding features are the combination of a highly decentralized and hierarchically organized network of services with a decision-making process that incorporate the federative or participatory arenas. The existence of political spheres for

1 Paper presented at the IPSA Seminar Whatever happened to North-South, Panel “Development and

Welfare Regime”- USP, São Paulo, 16/02/2011

2 Professor at the Brazilian School of Public Administration and Business – EBAPE/Getulio Vargas

Foundation. Sonia.fleury@fgv.br

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negotiation and instruments for consensus-building were important innovations in the intergovernmental relationships, and in the relationships between the state and social actors.

Most of the studies on WS took their conclusions from comparing the European and North American experiences. This literature has pointed out some conditions associated with the emergence and consolidation of the WS. A few studies have demonstrated the characteristics of the social protection models which were prevalent in Latin American countries during the last century. Others have shown how these models were reformed in the last quarter of that century, engendering new models of social policies. The continuity between the old and the new models is the persistence, to a certain degree, of the main features of the social protection policies in the region, namely stratified inclusion through centralized social systems associated with the exclusion of part of the population. Poverty and inequality are the result of a social system that is far from being a mechanism of distribution and actually ends up as an instrument of unfairness.

The importance of studying the Brazilian experience of building up an egalitarian WS is not only to observe the path dependence impact of the former institutional social protection model, but also to consider the absence of the most important requirements signaled by the WS studies as part of the successful experiences. This article reviews the literature on the WS and compares it to the Brazilian experience in order to stress precisely this discrepancy. It shows that the statecraft of the institutional framework of social policies occurred during the 90’s and had to cope with dreadfully restrictive economic constraints. The resistance of social actors to the dismantlement of the WS project was not strong enough to avoid important changes, although keeping the constitutional prescriptions. Moreover, important interest groups and social actors gathered around specific social policies, in a way that impeded their planned integration and is responsible for the disaggregation of the components of the Social Security unity. As the analysis of the way the economic constraints impacted the construction of WS as well as the study of the institutional process demonstrate, the absence of important requirements for the successful construction of a WS in the Brazilian context have led to the occurrence of a hidden welfare state.

Welfare Systems Theory and the Latin American Experience

Starting with Titmuss’ (1958) classical Welfare System (WS) typology we can found a confluence of criteria encompassing both the relationship between market and public sector and the degree of redistribution through social protection policies. Combining these two dimensions he could differentiate between three well-know models of social policies: the residual model, the industrial achievement performance model, and the institutional-redistributive model. While the first one is determined by the market dynamics and less redistributive, the second one is restrictive and conditioned by the worker location in the market place, whereas the last one is organized as a public system with universal coverage. In this last case one can find the more institutionalized, inclusive and redistributive situation. This typology is based on the extension of social rights and on the double movement of expanding state structures and policies on the one hand, and redistributing resources according necessities on the other hand.

Marshall (1967) emphasizes the core role of citizenship in the welfare but follows the same pattern in his classical article on social classes and citizenship, identifying three kinds of rights as components of citizenship – civil, political and social

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– each of them with its own path and institutional structure. Instead, Esping-Andersen (1990) shed new light on social rights, which were reconceptualized in terms of their capacity for “de-commodification”, meaning the capacity to take social reproduction far away from the merchandise circulation. He understands the role of WS regarding social stratification as a two-fold process. On one hand, WS is identified with the policies of social-amelioration and wealth redistribution that corrects inequalities, but, on the other hand, social stratification is an outcome of the WS, because social stratification is shaped by the nexus of state and market in the distribution system. He also stresses the importance of institutionalization when he analzses the consequences of the WS crisis in the three different regimes: the liberal welfare regime; the corporatist-state regime, and the social democratic regime. He concludes that the political and institutional mechanisms of interest representation and consensus building, especially in the social-democratic arrangement, have a strong impact on the employment and preservation of social rights (Esping-Andersen, 1995:77).

The WS is, then, considered a peculiar articulation of distributive conflicts, especially the conflict between the market logic and the principles of political allocation, centered on the institutional arrangements of social policies in each society. But Wilensky’s (1975:27) conclusion is that the WS is the most persistent structural tendency in the development of societies, in spite of differences in ideological and political regimes associated with the economic development and the social modernization process. Differently from this ahistorical perspective, other authors have highlighted the determinants of the universal systems of social protection. The starting point is considered to be the industrialization process (Rimlinger, 1971) and the emergence of the insecurity issue. The break of the traditional communitarian bonds of solidarity and their replacement with class organization and identities, as well as the development of civil service and state administrative structures, are considered as lying at the roots of the WS development.

Nevertheless, the same demand for social protection has received different responses according to the previous institutional, political and economic environment. Flora and Alber (1981) identify the emergence of the universal model of social protection as dependent on the strength of a homogeneous working class and its allies in the fighting for social rights, as well as on the capacity of each society to institutionalize this conflict through democratic procedures.

The WS and the competitive political party system are seen by Offe (1984) as the main features to promote the coexistence of capitalism and democracy in its virtuous cycle, since they transform the political competition in merchandise and the private economy in a political matter. At the end of this cycle both were regarded as inflexible obstacles for renewing the capitalist economy.

In this sense, the WS is responsible for forging new bonds in complex societies and also for creating a new institutional pattern of redistributive conflict resolution, launching the basis for social cohesion and integration. The issue of social integration through WS protection is also the focus of Castel’s (1995) study on the fundamental bonds in a labor based society. Lately, the loss of affiliation links is been responsible for the crises of sociability, the rise of insecurity, the sprout of negative individualism, and the predominance of social insertion policies.

In my previous work (Fleury, 1994) I considered the existence of a cluster of variables -- from the ideological, political and institutional to the managerial and financial ones -- that could characterize three different patterns of social protection, namely social assistance, social insurance and social security. These patterns are quite similar to other typologies, although I call the attention to two important issues. Firstly,

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I stress the need to consider the constellation of variables clustered in each pattern in a very broad way, in order to go from the traditional ideological and political clusters to the identification of actuarial and managerial variables occurring close together. I found a strong relation between the political variable and the administrative and financial structure that are encompassed in the same pattern. Secondly, I established a connection between the social protection patterns and the citizenship status that results from it. This contribution adds a new element to how we think about the relationship between democracy and WS, far from the mere institutionalization of the social rights and competitive political parties. The point here is understanding the consequences of each pattern of social protection in shaping different modalities of citizenship -- all of them compatible with democratic regimes, but dissimilar in terms of their capacity to create a more egualitarian public sphere.

The different social protection models can be summarized as follows1: In the assistance model, actions are of an emergency nature and are directed to

the most vulnerable groups of the poor. Inspired by a charitable and re-educational perspective, they are organized based on association between voluntary work and public policies and are structured in a pulverized and discontinuous manner, thus generating organizations and programs that are often superimposed. Although they permit access to certain goods and services, they do not make up a social rights relationship, as they are compensatory measures that have a stigmatizing effect. For this reason, I call this type of relationship inverted citizenship, where the individual has to prove that he/she failed in the market in order to be the object of social protection.

In the social security model, the social protection of the occupational groups establishes a contractual rights relationship, where the benefits are dependent on past contributions and on the individuals’ affiliation to those occupational categories that are authorized to operate security insurance. The highly fragmented organization of the security insurance expresses the conception of the benefits as different privileges for each category, as the result of their capacity to pressure the government. Since social rights are dependent on the insertion of individuals in the productive structure, Santos (1979) called the relationship, regulated by working conditions, a regulated citizenship.

In the social security model there is an attempt to break with the notions of coverage restricted to sectors inserted in the formal market and to loosen the connection between contributions and benefits, thus generating more compassionate and redistributive mechanisms. The benefits start being granted based on needs, based on the principles of social justice, which requires coverage to be extended universally and to be integrated in governmental structures. In this last case social protection generates social rights included in the status of a universal citizenship.

To summarize, the development of the WS has been associated with an array of elements related to the progress of the capitalist economy, as well as with the transformation of societies as a consequence of urbanization and industrialization processes that imposed a new division-of-labor and led to more complex social relationships. The WS is also part of the state-building process, and this expansion is a component of the democratization of power and wealth in a mass society, with the emergence of new collective actors and political organizations. The WS is considered a new arrangement for consensus building and to convey conflicts to the redistributive arena, where they can have a negotiated solution. Different patterns of social protection were identified according to whether the main aim of inclusion was centered on the poor and other vulnerable groups, the labor fractions of the work force, or the citizens. The inclusion of social rights as part of the status of citizenship represented the most

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paradoxical solution for the distributive conflict in a class economy, since it had generated a public sphere not primarily subordinated to the process of accumulation, an anti-value mechanism (Oliveira, 1988). Nonetheless, it contributed to the creation of a more cohesive society, based on social principles of solidarity, in which social inclusion was widespread. During the crisis of the capitalist economy since the 70’s, the institutional mechanisms of social protection were accused of impeding the renovation of the productive relationships in order to increase competition and productivity.

Comparative studies on social protection development in Latin America grouped the countries according to different criteria. Mesa-Lago (1978), studying the retirement and pension systems, adopts the timing of social policies emergence as the main explicative factor that permits grouping the countries in the region. According to the emergence of the social protection system, he categorizes them as the pioneers, the intermediate and the delayed countries. The pioneers are those countries that have started the welfare policies in the beginning of the XX century, as part of the industrialization process addressing the pressure of interest groups in defense of labor protection. By contrast, the intermediate group of countries started social protection’s measures around the middle of the century, influenced by the international wave of social democrat European regimes. The delayed countries in turn only initiated a few policies around the 70`s and present a poor coverage of privileged groups. Although the historical trajectory is important because it can indicate the degree of maturity achieved by a pension system, as well as give a hint about its coverage, it is not sufficient to classify all the countries. Out of the three groups mentioned above, only the pioneers can be considered sociologically consistent, since this group encompasses countries with a similar pattern of economical and political development. The stress in this classification is on the trajectory of the social protection institutionalization, and it finds the main feature of the Latin-American model to be its stratification. Even the more inclusive old systems keep different conditions and benefits, according to the bargain power of each group covered.

Lately, the UN organism for Latin America – CEPAL - has worked with a comparative classification based on the countries’ public social expenditure. The spans go from up to US$ 200; US$ 200 to US$ 400 and above US$ 400. Filgueira and Filgueira (2002) made a criticism on this categorization because the amount of public social expenditure say nothing about how much this spending impacts on people’s life, what can only be grasped from social indices. Combining these two dimensions -- the amount of public social expenditure and the social indices – for several countries, they divide these countries into three groups: 1) those that spend more in social policies and have better social results; 2) those that although spending a large amount in social policies have a poor coverage, concentrating the resources in the same privileged groups while the rest of the population is excluded from the social benefits; 3) those that have a poor and concentrated spending and cover exclusively some administrative and military elites. They reaffirm Mesa-Lagos’s conclusion on the Latin-American pattern of social benefits stratification, even in the almost universalistic systems in the region. What they add is the combination of this stratification characteristic with the social exclusion degree of each group. They found, until the 70´s, three different groups: a group of Stratified Universalism; a group of Dual System and a group of Excluding System.

More recently, other authors have produced new analyses of social protection models in Latin America, considering the impact of the process of globalization and market-oriented reforms upon their earlier social protection system. Katzman´s work (2002), reviewed by Filgueira and Luna (2009) try to answer the question about whether the countries’ historical legacy in terms of social structures and welfare regimes mark

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different paths and differential capacities to resist and adapt to this new context. The general conclusion, affirm Filgueira and Luna (2009:475) “is that the welfare matrixes and their level of development were unable to counteract these deteriorating labor market through basic protection, investment and human capital, and redistribution”, although the analysis the path dependency seems to be present in other points.

Analyzing the proliferation of health care reforms in the region after the 70´s, I found the fragile institutionalization of social rights in a context of economic changes and the existence of massive urban demands as responsible for the transformation of the region in a social laboratory, where many different reforms were designed and implemented (Fleury, 2001). These reform efforts – in health care and in social security systems -- have been part of the changing context brought about by the democratization of the region’s political systems, the updating of its economic productive models, and the redesigning of the state’s role, all of which have served as means to addressing the fiscal crisis and creating the conditions necessary for positioning the regional economies more advantageously into the increasingly integrated and competitive global production process.

Additionally, in most countries of the region trade unions are losing their earlier control over the social security system since government have introduced market mechanisms in order to increase provider competition, generating a complex web of relations among financers and providers, public and private agencies.

I found a first type as the market-oriented reform, based in the Chilean experience. Chile’s design generated a dual model of health care and pensions systems, with the segregation of the poor in the public sector and the compulsory affiliation of those who can afford it in an insurance market company. The Colombian reform tried to avoid the inequalities of the Chilean market-oriented model, through the combination of both private and public resources, shaping a pluralistic model based on managerial competition regulated by the public authority. In this model, the core is placed in the regulated competitive insurance market, since a package of benefits is guaranteed either by the individual’s own contribution or through the collective contribution to a solidarity fund. In the last case, the package of benefits is lower than in the first case, and the inclusion depends on the amount of resources yearly available. This complex network of public and private interests with different logics was unable to overcome the constraints of this design, based on the limited salary contribution and in a saving-oriented logic proper to the insurance companies. The third model was based in the Brazilian experience of creating a public universal system of integral social protection addressing the demands for a more democratic, equitable, decentralized and participatory system of social policies.

A crucial variable to explain the differences among the three models – dual, plural or universal – considered in terms of their proposals, contents, instruments and supportive coalitions seems to have been the timing of the reform with respect to two main macro processes: 1) the economic crisis with the ensuing macro-structural adjustment and 2) the transition to democracy and the outburst of a new political fabric and social demands.

Latin American societies are assuming a new profile, with a more pluralistic and comprehensive system of social protection. Instead of an outright denial of membership to some groups, there is a movement for stratifying the population in accordance with the purchasing power of each group. Nonetheless, the possibility of designing a universal system, as it was done in Brazil, goes in the opposite direction of this general trend. This singularity can only be explained based on the close relationship established between the social movement in favor of the country’s democratization on the one hand,

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and the strong demand for a new design of the social protection institutional framework on the other hand. All of this has occurred in a context of lower perception of the economic constraints, which would quickly become a reality, imposing restrictive measures of economic adjustment to cope with high inflation rates and the growing public fiscal debt. It is worthwhile to observe the difficulties involved in the implementation of this comprehensive WS model in such an adverse context. Trajectory of Social Protection

Brazilian social policies were developed over an 80-year period, creating a type of social protection model that was only changed with the Federal Constitution of 1988. Up to 1988, the Brazilian social protection system combined a model of social insurance in the welfare area, including attention to health for the formal workers, with an assistance model for the population without formal labor ties. Both systems were organized and consolidated between the 1930s and 1940s, as part of the more general process of construction of the modern, interventionist and centralizing state, after the revolution of 1930. The construction of the nation state is a never-ending process, in which power relationships in the institutionalization of the administrative apparatus are constantly being drawn – be it in the implementation of the economic project, or in the reproduction of the workforce and incorporation of the political demands of subordinate groups. The choice of a certain social policy format, crystallized in the combination of distinct models for different worker segments, indicates the place that each occupies in a certain correlation of forces, as well as the internationally preponderating trends.

In the period of populist democracy (1946-1963), the expansion of the social security system was part of a political game of exchange of benefits at the discretion of governors, benefiting in different ways the groups of workers that have the greatest bargaining power. This phenomenon became known as the “mass privileges” and is appointed to be one of the causes of the financial and administrative crisis in the social security system.

The change in the social protection systems, policies and mechanisms after the bureaucratic-authoritarian regime that was installed in 1964 follows takes four master lines: 1) the centralization and concentration of power in the hands of the technocracy, with workers removed from the political game and the administration of social policies; 2) the increase of coverage, incorporating precariously some previously excluded groups such as domestic, rural and autonomous workers; 3) the creation social contributions as a mechanism to fund social programs; 4) the privatization of social services (university and secondary education and hospital care became business).

In the mid-1970s the struggle for the democratization of policies takes on new characteristics and strategies. Whereas before it was confined to universities, clandestine parties and social movements, now it begins to be located at the center of the state itself. At first, based on innovative experiences developed by the opposition town governments elected in 1974; secondly, in the interior of the central organs responsible for social policies, seeking to take advantage of the financial crisis to introduce transformative elements in the social policies model; in third place, there is a strengthening of the technical capacities of political parties and parliaments, who start making the social matters part of their platforms for constructing a democratic society.

Rescuing the social debt becomes the central theme of the democracy agenda, drawing towards it movements of diverse natures. This process intensifies in the 1980s with the rise of a rich emerging social fabric based on the union of the new syndicalism and the social urban movements, the construction of a new opposition party front, and

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the organization of reformist movements capable of forming institutional reorganization projects in different sectors, such as the Sanitary Movement.

All this democratic effervescence was channeled to the National Constituent Assembly works, which began in 1987. The construction of a democratic institutional order supposed a rearrangement of social policies in response to society’s demands for greater social inclusion and equality. Projected for the social policies system as a whole, this demand for inclusion and reduction of inequalities acquired the concrete connotations of affirmation of social rights as a part of citizenship.

The Federal Constitution of 1988 represents a profound transformation in the Brazilian social protection model, consolidating, in greater law, the pressures that had already been felt for more than a decade. A new period is inaugurated, where the model of social security starts to structure the organization and format of Brazilian social protection, in search of the universal citizenship.

The Constitution of 1988 advanced in relation to the previous legal formulations by guaranteeing a set of social rights, expressed in the Social Order Chapter, innovating by declaring the Social Security model “an integrated set of initiatives by the Public Powers and society, destined to ensure rights related to health, social security and social assistance” (Title VIII, Chapter II, Section I, art. 194). The inclusion of social insurance, health care and social assistance as parts of Social Security introduces the notion of universal social rights as part of the condition of citizenship, where before they had been restricted to the population of workers included in the social insurance.

This new arrangement innovated in separating, for the first time, the social order from the economic one, which gives to the former the same status and priorities usually given to the economic principles. The primacy given to social rights became evident with this autonomy and with the prescription of exclusive contributions for funding social policies joined in the unique social security budget, created apart from the fiscal national budget. These resources would be managed by the Social Security Council, integrated by the three ministries and representatives of the users.

The new constitutional social policy model is characterized by the universality of coverage, the recognition of social rights, the affirmation of the duty of the state, the subordination of private practices to regulation based on the public relevance of actions and services in these areas, with a publicist perspective of government/society co-management and a decentralized organizational arrangement.

The originality of Brazilian Social Security lies in its strong State reform component, in redrawing the relationships between the federal entities and instituting concrete forms of participation and social control, with mechanisms for articulation and agreement between the three levels of government. The reshaped federalism addresses the main responsibility in the delivery of social policies to the local authority. The organization of the social protection systems should adopt the format of a decentralized, integrated network, with a single political command and a financing fund in each sphere of government, regionalized and arranged in a hierarchy, with deliberative instances that would guarantee the equal participation of organized society in each sphere of government.

From Rhetoric to Reality During the 90s Brazil has experienced a hard period of economic crisis with

hyperinflation and a great amount of debt accumulation, having to launch many different policies and instrument to cope with this stressing situation, but that only started to succeed after the middle of the decade. At the same time, the government had

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to deal with the social pressure to implement the important transformations requested in the new Constitutional frame. In other words, there were two concurrent movements going in opposite directions: one expressed by the macro economic adjustment measures and the other by demands for assuring social rights and institutionalize the new WS design.

As many of the constitutional prescriptions required a new infra-constitutional legal frame, the government postponed at the most its approval, up to the point where it could not ignore social pressures anymore. As the social rights conquests varied greatly in each sector – social insurance, health care and social welfare – according to the political coalition’s power and capacities, each of the social security parts had a different institutional path. Nonetheless, they had to face the same context and restrictions, thus enabling an analysis of the general trends as well as the specificities in each case.

Considering the reviewed literature regarding the WS development in Europe, one can affirm that the creation of the Brazilian WS at the end of the 20th century does not fulfill the critical conditions pointed out as required for it. This challenge stresses the importance of studying this experience, pointing out its limitations but also its innovations. This analysis will focus on two themes related to WS accomplishment: the economic constraints and the institutional statecraft process.

1) Economic Constraints One of the basic assumptions underlying the development of the WS in European

countries is the synergetic influence of the economic growth and the social inclusion through redistributive policies. The Keynesian model implies a strong presence of public policies in order to balance supply and demand in an affluent economic cycle. Even the residual policies in liberal countries count on the expansion of the market and the economic growth to take care of the bulk of the social demands. Nevertheless, the moment of WS building in Brazil has to face an extremely adverse economic situation.

During the 90’s the economic situation of the country moved from a turbulent scenario of crisis characterized by high inflation and elevated debt to a semi-stagnated scenario, with inflation under control but still increasing fiscal debt due to the maintenance of mammoth interest rates. Therefore the GDP index varied in the first years from negative scores or zero to a recovering of 4% annual rate from the middle of the decade on. Without a sustainable economic growth and impeded to count on public investments, the rates of unemployment in metropolitan areas raise from 7% to 13,9% during 1995-2003, and the informality achieved more than 45% of the working force (IPEA, Radar Social, 2005). The minimum wage had a similar performance, hobbling during the first years and presenting a steady purchase value retaken along the second part of the decade. The consequences of this poor performance are immediately felt in the social insurance coverage, lowering from 66,6% of the working force in 1992 to 61,7% in 2002, considered the turning point where the curve started an ascendant movement, achieving 65.9% of coverage in 2008 (Schwarzer, 2009 :75). Only in the five last years, (2005-2010) the labor market grew sufficiently to achieve the lowest unemployment rate in many decades, around 6% per year.

From the literature on WS one can draw another requirement for building a redistributive WS which is the existence of a fair and progressive tax system. So far, in the Brazilian case, all the governments failed to promote a major revamping of the tax system. The result is that while the poorest parcel of the population, encompassing

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families that earn up to two minimum wages, spend 48,8% of their revenue with taxes, those families that receive more than 30 minimum wages spend only 26,3% with taxes (IPEA, 2009). In 2008 the total burden of taxation raises to 36,2% of the GDP and continues to expand, mostly due to the increase of contributions upon consumption, that represents 59% of the total collected in 2007 (Salvador, 2008), instead of direct taxation on revenue and wealth. The government’s possibilities to invest in infrastructure and social services were restricted by the mandatory production of primary surplus in order to balance a currency jeopardized by the huge public debt, since the debt load grew together with the search for public saving. In spite of the recovery of economic growth and the reduction of the public debt as part of the GDP in the last five years, the threat of rising inflation still keeps the interest rate as one of highest in the world, in a perverse cycle that feeds the satanic wheel of public debt in turn.

It is worthwhile to look deeply into the links of these economic features to the WS building to understand the limits and modifications imposed in the welfare statecraft process. These economic constraints affect the implementation of the WS by and large in terms of its funding and financing resources and structures, generating the deterioration of some services and hindering the achievement of universal access. Moreover, it concurs to create a permanent instability of social protection matters.

While the federal Constitution prescribes the creation of earmarking contributions to fund the Social Security (SS) budget, integrating the three policies included in this concept, their course were quite different. Initially, all the contributions should join the same unified social security budget. But since there was a scarcity of resources to implement the three branches of policies, there was an illegal specialization, with each contribution been designated to support the expenses of a specific social policy. Considering that the three areas of social policy vary greatly in responsiveness and bargaining power, the solution was reserving the bulk of the SS budget resources to social insurance, contractually responsible for paying pensions. This situation was further legalized through an amendment (EC no. 20) that considered the resources paid as proportion of salaries as exclusive for funding social insurance expenses. The other two policies bunches were practically underfunded from the beginning. Consequently there was a movement to create new sources to fund them, which succeeded in building a new fund for poverty amelioration (Fundo de Combate à Pobreza) and a tax on financial transaction to fulfill the health sector needs (CPMF). This tax lasted up to 2009 but, as it was not earmarked, the resources were distributed in many other policies, and the health sector continued to be underfunded.

The dispute for resources inside the social security had other consequences such as the incapacity to keep the requirement of exclusivity of the social contributions to fund SS. Weakened and incapable to join forces to defend the SS budget, the three ministries involved lost the control over these financial resources. Ironically named Emergency Social Fund, since 1994 with the launch of the adjustment plan (Plano Real), the government de-earmarked funds mandated to SS Budget by 20% (nowadays it is named DRU- Desvinculação das Receitas da União). Using this mechanism and also with the constant increase of the contributions, the national government not only elevated the tax burden but also escaped from its constitutional responsibility to share the resources with the sub-national governments, responsible for social policies delivery. Formally the SS budget is isolated from the fiscal budget, but in fact, the financial manipulations blur these limits.

Since the limits were liquefied there is a claim for more transparency in the SS budget management because the national government is blamed to use these resources

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inappropriately and to refuse to accomplish its duties concerning the funding of social security non-contributive benefits (Fagnani, 2008). The cloudiness of the SS budget is increased with the uncountable subsidies and tax deductible policies applied as part of the industrial and commercial incentives. Their impact on the social security balance should be counted as the government contribution instead of being considered as a deficit of the system – an argument brought up by critics of public finances, especially represented by ANFIP (Associação Nacional dos Fiscais da Previdência Social). This point has generated a continuous debate about whether the social security budget had a deficit or a surplus in the last years. The frequent threat of fund shortage to support the pensions system has been used to classify as unbidden the non-contributive benefit for special groups, like rural workers’ pensions. Additionally, this issue generates a permanent atmosphere of imbalance and financial crisis, with strong pressure on retrograding benefits and coverage and the maintenance of profound social insecurity.

The peak of this debate occurred during 2009, when the government sent to Congress a comprehensive tax reform project which would have eliminated the social earmarked contributions and merged them into a wide VAT. This proposal was strongly opposed by the social security supports, but is still menacing the SS financial basis.

The analysis of the impact of the economic constraints on social security policies comes to different passionate conclusions. On one hand, we can find the defenders of a continuity of social policies alongside the 90’s and the next decade, in spite of the strong restrictions imposed in the first decade by the fiscal adjustment agenda. They conclude that the macroeconomic adjustment agenda did not counteract the social protection agenda and had to accept a complex institutionalism of the social protection system. Moreover, both agenda converge to give real gains to the poorest as the result of the inflation control (Costa, 2009, Pereira, 2009) and the cash transferences. On the other hand, we can find those authors who argue that there is a profound incompatibility between the macroeconomic adjustment and the social protection system statecraft. These opposition divides the period into two phases, first from the transition to democracy in the late 70’ up to the 90’s, and second during the 90´s up to the middle of the next decade. The first phase was characterized by setting the institutional, legal and financial basis of SS system. The second one by a constant movement of counter-reforming the constitutional paradigm of social protection towards a neoliberal one, with the oppositions: the social security versus social insurance; universalism versus targeting; government-sponsored offer versus privatization; employment rights versus flexible labor relations (Fagnani, 2009:712).

I assume that there has been a resistance to the government orientation during the 90’s, which actually threatened to retrograde in the social rights conquests. The resistance was however insufficient to avoid the introduction of a hidden institutionalism in the SS system. As a result we witnessed the introduction of elements of target policies and of market interest into the universal project and the adaptation of the previous design to the financial contingences.

2) Institutional Statecraft

The strength of supporters of the universal social protection system, crystallized in the Social Security paradigm, was based in the fact that, differently from all other countries in the region, this reform proposal was designed by social movements, clustered around specific social policies but articulated in the general mobilization for transition to democracy.

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Based on the Sanitary Reform, I pointed out the three components of this process as part of building up the democratic state. The construction and materialization of the reform project takes place through three processes which, although simultaneous, have distinct rhythms -- differences that generate new tensions and some complementarities. These are the processes of subjectivation, constitutionalization and institutionalization. Subjectivation relates to the construction of political subjects, constitutionalization deals with guaranteeing social rights, and institutionalization deals with the institutional apparatus building – including the knowledge and practices – that implement health policy (Fleury, 2009).

Although the coalition formed t-o support the Sanitary Reform has changed along its institutionalization -- from the academic and professional hegemony to local managers and union workers -- the component of permanently refreshing of the political subject has been crucial do keep the project based in the same original principles. Concerning the other social policies one can also observe efforts to join forces and construct political actors, either before or as a consequence of the policy institutionalization. The union of retired workers was decisive in defense of comprehensive benefits and also in order to avoid the plans to privatize social insurance, sprout in the region by the international multilateral agencies. Lately, the presence of social insurance fiscal attorneys gathered in one important association – ANFIP - became the key factor in the diffusion of alternative information about the financial situation of the SS system. In the case of social assistance, the formation of a critical mass of professionals and its crescent power at its central management is the more recent product of this policy institutionalization.

The fragmentation of this process into three different trajectories confirms the lack, at the beginning, of a unified movement in defense of the general Social Security constructions. This important concept was developed during the works of the National Constituent Assembly, but was not rooted in any social movement. It had a technical support, but this was not enough to gather the social actors around it. On the contrary, the most mobilized group, the health sector, felt suspicious about this proposal and identified in it the intent to create a mega ministry encompassing all the three sectors. The articulation in favor of the SS is also a product of its own institutional process and has gained some projection after two decades of its constitutionalization.

The mandatory precept expresses in the Constitution is that Social Security is an integrated set of initiatives concerning the assurance of social rights related to health, social security and social assistance. The crystallization of this guideline was prearranged with the creation of the SS Budget and the SS Council. These two mechanisms of planning and integrating policies did not work properly. The budget became a formal accounting instrument instead of a common integrated plan of resource allocation. The National SS Council was called off in 1999, after some years of ineffective coordination and integration of the three sectors. Each of them had a different institutional trajectory, clearly path dependent on their previous history and formal legacy. Sposati (2009: 176) highlights the diversity among the three sectors according to different variables, such as: the criteria of inclusion; the nature of the rights – labor, social and human -; the relation with the market and philanthropy; the management experience and its degree of institutionalization in all levels of government. One can also add the important difference of the social coalition formed around each politic arena with discretion to veto or to introduce new policies.

The institutional fragmentation inside SS has many consequences. The abandonment of the integration principle compromises the other constitutional principles of integrality and universalism. Recent results from a survey with the

13

beneficiaries of non-contributive pensions demonstrated that they use the increase in family revenue to buy more food and also medicine (Lobato, 2007). It’s a clear example of the disintegration of social policies, with the government targeting the poor and transferring continuous cash benefits to people who use them to acquire goods and services that are part of their social rights.

The existence of distributive conflicts among the SS sectors and the incapacity of the established mechanisms to coordinate a consensus building process had a strong impact on the statecraft of the Unified Health System (SUS). In 1993 the health care services of the social insurance were transferred to Health Ministry in order to create the Health Unified System, but the resources to fund them did not come along. Although it was determined that 30% of the SS Budget should be assigned to Health Ministry during the first five years after the CF 88, this legal prescription was ignored. The consequence was the bankrupcy of the Health Ministry that had to take loans for regular expenses (Santos, 2008). As a consequence, the demand for a new source to fund the health system gained visibility and the congress approved a tax on financial transaction (CPMF) with this aim. Not being an earmarked tax, the resources were allocated by the national government to other expenses, and only 1/3 was assigned to the Health Ministry, until this tax was extinct in 2009. Since the year 2000 a new law (EC. 29) defines the responsibilities of each level of government to fund the health care system, but the national duties are still vague. The result is that the relative participation of national government in funding the health sector is decreasing, while the state level ignores their mandatory contribution and the burden is directed to the local authorities. In 1980 the participation of each government level in the public social expenditure was 65% for the national, 23,6% for the estates and 10,6% for the municipalities, while in 2005 the national level decrease its participation to 61,9%, the states to 21,8% and the municipalities participation rises to 16,3% (IPEA, 2009 ).

Since the municipalities are responsible for the health care delivery, the strain is put on their shoulders. Pressure is put on local governments either by the participatory mechanisms, denunciations of the mass media or, more recently, through judicial decisions in guarantee of the right to the consumption of some expensive health services and merchandises.

One can analyze that the sanitary movement was strong enough to keep the original design of the SUS as a public universal and integral system, but could not avoid the growth of a powerful market inside the health care field. Differently from the complementary sector that enclose private services linked to the SUS as providers of public goods, the business of health insurance and health services were considered capable of substituting the SUS. With the financial crisis of the public health sector there was a deterioration of the public facilities, followed by the contention of wages and investments. The inclusion of the whole population as beneficiary of the public health sector was accomplished despite its extremely difficult financial situation. This contradiction led the middle class to escape from the public system by contracting either private voluntary or corporate health insurance. Although the coverage of the business insurance does not go beyond 30% of the population, all the pressure groups, like trade unions, push for this market solution, and more popular plans were launched recently to attend the demand of the lower middle class. The national government itself gives a private insurance affiliation to the civil servants and considers the expenses of consumers with pensions and health insurances as tax deductible. All this policies strengthen the health care market and contribute to debilitating the public sector.

During the last two decades, the position of the business health sector changed from a total opposition to a closer and profitable relation to the SUS. As a powerful

14

pressure group, the private insurance sector resists strict regulation and tries to control the managers’ board of the regulatory agency. They are also benefited by the possibilities of sending the privately insured people to get public treatment in the SUS, and use legal instruments to escape the duty of reimbursing their expenses. Many other flows of patients, financial resources, professionals, and technologies were developed in the last two decades linking in different ways public and private services. Powerful interests groups are now involved in a complex arena that encompasses the Legislative, the Executive and the Judiciary. Several demands for improvement of the SUS – for more financial resources for the SUS, for an increase of its procedure rates, for broadening tax exemptions, and for more credit and amnesty for private establishments and providers -- are channelized to these arenas, reshaping the SUS’s original design.

The proposal of a public national health system was the most radical decommodification project in the Brazilian social policies design. Nonetheless, the previous dependence on private health care facilities, established since the military government, concurred to invalidate this proposal. The public sector, despite being underfunded, is nevertheless responsible for the preventive care and surveillance for all and delivers services for more than 70% of the population (achieving 90% in the poorest regions). However, problem of access and low quality are responsible for an unambiguous popular preference for the private insurance and service sectors. Preference for the private sector is explained by the desire to avoid long waiting periods for treatments that are characteristic of the SUS, but also by the fact that acquiring private insurance is generally associated with prosperity (i.e. it is a sign of ascendant social mobility).

There is no doubt that the most impressive impact of the social policies design after the Constitution of 1988 was in the reshaping of the state apparatus and its relations with society. The creation of the SUS was followed by a similar system for social assistance policies - SUAS, based on the same principles of assuring social rights through a public national network with different and articulated levels of government. Although the stimulus for decentralizing was top-down, it provided a guideline in the direction of strengthening local governance by increasing local administrative skills. Furthermore, the design of the decentralization process included original elements, namely the existence of participatory mechanism in each administrative level. In this sense it requires a twofold movement, from the central administrative level to the local levels and from the state to the society. The intersection of these two lines gives place to a new model of local governance, with the existence of important mechanisms of consensus building, social control and policy formation (see diagram in annex I).

The main mechanism for decision making and consensus building among the three levels of government with concurrent competences concerning social policies is the Tri-Partite or Bi-Partite Commission, encompassing state governments, or only the two sub national levels. This innovation is being considered a major advance in the federalism design in the country, since there was not an effective channel to deal with the inherent conflicts concerning concurrent competences in many subjects. The existence of this arena permits negotiating the policies and to pact the establishment of norms and parameters for resources allocation.

The participatory mechanisms that include both health authorities and population are two: the Councils and the Conferences. The Councils exist in each level of the system and are mechanisms of social control and budget approval, evaluating executive proposals and performance. The Conferences, on the other hand, are called periodically to discuss a set of subjects in order to convey different interests to a common platform and form the polity. Many experts discuss whether the Councils effectively have

15

capacity to control the government, and the conclusion is less clear-cut than one might desire, due to the great diversity inside the country and the unequal distribution of resources among the participants. Studies proved that participation in the Councils is a resource to insert the councilor in important power networks and also an arena to challenge the control by organized groups, like the political parties and unions members (Côrtes, 2009).

In spite of all the limitations there is no doubt about the democratic component of the participatory mechanisms and the enlargement they are promoting in the public sphere, so far restrict to the traditional elite. The construction of some dialogic mechanisms imposes the recognition of popular actors and demands, and might permit a renovation of the political elites. The development of the WS was ever related to the changes from a liberal capitalism to a neo-corporatist form of relations among collective actors under the state regulation. The singularity of late developing societies like Brazil is the composition of the civil society, where the few trade unions have to share the participatory space with social movements and other civil organizations. Besides the heterogeneous composition of civil society, another peculiarity is related to the introduction of mechanisms of participatory democracy. While in a traditional conception participation is limited to the electoral process and redistributive policies, in the Brazilian case a great emphasis is given to the construction of co-management instances, where state and society contribute to the policy-making process and the monitoring of policy implementation. Far from a deliberative democracy where the decisions are mandatory, even though there is an empowering process in progress as part of this statecraft blueprint.

The institutionalization of the social assistance policies starting from the Constitution of 1988 represented a turning point in this field, since it was the first time that this kind of protection and services were consider as part of the social rights. The construction of a new and compatible institution was not a straightforward process. Initially, there was a clear governmental refusal to materialize this constitutional prescription and to create the SUAS – Unified Social Assistance System, in the same participatory and decentralized basis of the SUS. Only after strong pressure from civil society and professional organizations the government passed in 1993the social assistance law (LOAS), the first step in the institutionalization process. But during this first decade and even afterwards the public agenda concerning social assistance has changed from the constitutional universal system with rights guarantee to a target model to fight poverty. The constitutional model is represented by its most important program, namely the Continuous Cash Benefits (BPC - Benefício de Prestação Continuada), whichcovers the elderly or handicapped persons in poverty. The target model is represented by the Family Grant Program (Bolsa Família), which offers conditional cash transference to the poorest families. For Lobato (2009:722) the permanence of these hybrids is deemed to jeopardize the fairness and the citizenship model proposed in the 1988 Constitution.

The assigned duality has a peak expressed by the existence of two Ministries for social assistance during a short period after being unified. The priority given to the target model goes beyond this double organization, because it also involves the debate about the role of the sate in social protection. During the 90’s the predominance of the position in favor of the minimum state assigned the implementation of the conditional transfers program to the NGO partners. The priority to fight poverty through cash transfer benefits was well established since then, although the role of the state in leading this program was strengthened in recent years. This permitted to move forward in the institutionalization process, either in the central or in the local levels, and the SUAS left

16

its former characteristic of being a copy of the SUS. It was truly developed in a peculiar blueprint, completely matched to the needs of its proper field.

In spite of the convergence in social assistance policies, some differences still persist, for example, concerning to the means-test criteria in both programs: while for the BPC the criterion of inclusion is the per capita family revenue under ¼ of the minimum wage, for the Bolsa Familia it is under ½ minimum wages per capita. Other important difference between the two lines of social assistance programs is the fact that some benefits are automatically conceded as part of the citizenship conditions while others are submitted to conditional requirements. Whereas the former are institutionalized as citizens’ rights, the latter are associated to government’s priorities, giving space for populist links between political leaders and the masses.

Nevertheless, Brazil presents a high coverage level for elderly people (81,7%), thanks to the efforts to include them in no contributive benefits. Nonetheless, the existence of a significant parcel of workers not covered by social insurance (34,1% according to Schwarzer, 2009:73) represents an important challenge to the proposal of a universal WS.

The impact of social protection on poverty reduction is one of the most outstanding results of the social policies, associated with the economic growth and the recovery of the minimum wage’s purchase-power. These recent phenomenon have provoked the enlargement of the middle class with the upward mobility of millions of families from the lowest strata to the middle class (while the lowest stratum E had a reduction of 45.50% from 2003-2009 and the D was reduced in 11,63%, the middle strata C and B increased by 34,32% and 38,51% respectively (Neri, 2010).

The last point to consider is related to the financing of the social policies. One can observe an increase in the federal social expenditure from R$ 179,8 billion in 1995 to R$ 312 billion in 2005, a rise of 74% in 11 years. However the social expenditure performance varies in an ambivalent way among the social policies. In this period, while the social insurance expenditure grew from 44% to 51% and social assistance had an augmentation of 1% to 6%, the health participation diminished from 16% to 11% and education was reduced from 8% to 6% (Castro, 2009:111). This data reveals that the universal policies, health care and education have not been the main concern of governments in the last years. Poverty reduction and social insurance were the priorities.

The possibility to include the emergent classes into the universal systems will be the great challenge to the institutionalization of the WS in Brazil from now on. If the country fails to do so, we can expect less poverty but a persistently unequal society. Conclusion The construction of the WS in Brazil since the Federal Constitution of 1988 represents a unique experience in three different aspects: first, because it represented a movement to universalize social rights through a comprehensive public social security system -- encompassing social insurance, health and social assistance policies -- at a time when the sustainability of the WS was questioned worldwide; second, because the WS institutional building-up process had to cope with several restrictive political and economic constraints what resulted in a different arrangement regarding the constitutional blueprint; third, because, as it was designed by social movements and political actors, this system operated a transformation in the administrative processes and structures, innovating with the creation of democratic participatory mechanisms.

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This proposal represents a rupture with the previous social protection institutional framework that followed the Latin American pattern of combining the stratified inclusion of formal workers with a great degree of social exclusion for the others. Besides this institutional and political heritage, the economic and political context did not contribute to the success of this experience, since the prerequisites for a successful WS development pointed out by the literature were absent.

The analysis of this reforming process was based on the identification of three inherent components and its dynamics: the process of subjectivation, with the manufacture of the political actors and political coalitions; the process of constitutionalization, through which the social rights gained their legal framework; the process of institutionalization of social policies through the making up of the correspondent structures and mechanisms. In this paper special attention is given to the latter process and its associations and oppositions to the other two.

The stresses and contradictions occurred in the institutionalization of the WS were visible in the inobservance of many constitutional prescriptions concerning the Social Security framework and also in the transformations of its fund arrangement and budget management. Besides, the legacy of a corporative social protection model was capable of keeping the social insurance as the dominant policy, reserving the bulk of the funds for the less egalitarian policy. The different legacies of the three social security bunches in terms of knowledge and capacities, degree of institutionalization, political supporters, governmental priorities, and relations with private sector were determinants of the path followed by each one.

The advances in the institutionalization of the constitutional model could be observed in several aspects of the three policies, as the introduction of non-contributive pensions for rural workers, the cash transference programs to fight poverty, the expansion of health system in the municipalities. The most expressive transformations were in the state structure, with the introduction of new instruments of the federalist organization and other mechanisms of social control and participation.

The restrictions placed on the ful institutionalization of the constitutional guidelines open up space for the progressive introduction of other interests and structures in the original design, reshaping in practical terms the WS proposal. The result is a hybrid design with hidden mechanisms that progressively introduced new flows and articulation between public and private sectors in the social policies field. Instead of a rupture with the constitutional SS design, we can observe its piecemeal transformation in order to give rise to a combination of a public system with universal social rights coverage and a hidden mix of this proposal with a flourishing associated market of goods and services, as well as assistance social benefits without rights.

The important outcomes of the social policy investments are appearing in the ascendant mobility process in course nowadays. This phenomenon is also consequence of the recent economic growth phase. Paradoxically, the emergence of better contextual conditions to implement the WS original design is occurring in a moment where the institutionalization process has taken another route, in some aspects far away from the constitutional principles.

The inclusion of the new middle class into the universal social protections system of health care and education will be the next challenge for WS consolidation. But this represents a great challenge since it will require from the government to give priority to the universal policies, in terms of financial resources and performance-oriented management. Although the economic constraints are reduced in this new scenario, the political restriction worsened with the clustering of many interest groups around the social policy arena.

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ANNEX I

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Figura 1: SUS – Brazilian Policy Formation Process and Decision-Making Structure

Levels of Government

Consensus Building and Managerial Instruments

Health Authority

Functions Decentralization Process

Social Control Mechanism

Counselors 50%

Government 50% Society

Policy Formation Mechanism

Federal (elected)

Ministry

- Central Fund - National Policies and Programs - Target Programs

National Health Conference

States (elected) 26 + 1 DF

State Secretary

- State Fund - Regional System Coordination - Reference Services

Human resources

Health care centers and

Hospitals Financial resources

State Health

Council

State Health Conference

Municipalities (elected) 5.507

Co

nsor

tium

B

i-p

art

isa

n

Co

mm

issi

on

Tri

-pa

rtisa

n C

om

mis

sio

n

Municipal Secretary

- Municipal Funds - Municipal System Coordination Management of Delivery Network

Levels of Autonomy

A – Management

of the Local Health Care System

B – Management of the Primary Health

Care Program

Municipal Health

Council

Municipal Health Conference

National Health Council