Economic growth and happiness in Brazil

Economic Pie

Having your pie and eat it

In a recent May Day speech, PM Lee reminded us that growing the economy is the best way to boost wages. He said, “If we can grow the economy, produce more, become more prosperous, we can distribute, everybody can have a share and everybody will be better off.”

We know this, of course, as the “rising tide lifts all boats” gospel that his father and the PAP government has championed all these years.

In the blog post “Brazil isn’t growing – so why are Brazilians so happy?”, The Economist explains why, despite slowing growth in the last two years, Brazilians are happier than ever and remain very optimistic about the state of their country. The article attributes this to record low unemployment, pay rising far ahead of inflation, big hikes to the minimum wage, and an expanding social safety net.

While I don’t believe we should read too much into isolated cases in other countries, it does provide an interesting example of alleviating social problems in the absence of the oh-so-sacred economic growth.

Explaining further, The Economist writes:

To see how the distribution of growth affects incomes, imagine a country of just ten people, with one earning $1,000 a month, another earning $2,000 a month, and so on up to the tenth, who earns $10,000 a month. Between them, these ten people earn $55,000 a month. Now suppose that in a year the economy grows by a modest 1.8%, so that there is an extra $1,000 to go around each month. If the richest person captures all that growth, it will give him a 10% pay boost. But he will hardly feel it, because he is already rich, and the average pay rise across the entire population would be just 1%. But if the poorest resident got all the extra money, his income would double. That would make a huge difference to his life—and the average pay rise in our little country would be a whopping 10%, far higher than the meagre overall growth rate. In general, the more of the $1,000 that goes to those on lower incomes, the bigger the average pay rise it causes, and the more impact it has.

It should be noted that, in such a fixed income pie scenario, aggregate spending of a country also increases when the income gap is narrowed, thereby boosting growth. Using the example above, the poorest resident is more likely to spend the extra $1,000 he earned, while the same amount will likely stay in the bank if it goes to the richest resident. So this “zero sum game of higher pay for some workers and lower ones for others” that PM Lee cautioned against is not necessarily a bad thing.

There are caveats in the Brazilian case though: inequality is still high, infrastructure and education levels need to be improved, and productivity is low compared to other countries. But for now, slow growth has not affected the average Brazilian.

In fact, Singaporeans are feeling the exact opposite of what the Economist article calls “a disconnect between GDP growth and most Brazilians’ actual experience”. Despite growth over the past few years, Singaporeans are feeling poorer and worse off as a result of high inflation, stagnant wages and infrastructure squeezes, contributing to us becoming the unhappiest bunch by some survey accounts.