Labor's bankrupt strategy.

Photographer: NELSON ALMEIDA/AFP/Getty Images

Brazil Strikes Out on Labor Reform

Mac Margolis writes about Latin America for Bloomberg View. He was a reporter for Newsweek and is the author of “The Last New World: The Conquest of the Amazon Frontier.”
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Brazilian bank workers are in a funk. Inflation is eating away at their salaries, even as banks are still making pretty good money in the face of Brazil’s recession. So on Sept. 6, tellers, clerks and other bank employees did what union bosses told them to do: They walked off the job.

On Oct. 4, employees rejected a 7 percent raise (they were demanding double that) and voted to continue the strike. Although my local branch in Rio de Janeiro hasn’t missed a beat, those suffering most from the strike are -- ironically, for a movement that champions the common folk -- pensioners and low income earners, who must queue up to pay their bills and draw their benefits.

Given that a strike hits banking almost every year, this scene is somewhat familiar. But Brazilian banking has changed. After years of dealing with inflation, Brazilian banks have turned to technology to outrun prices and expedite credit. Some 54 percent of banking transactions took place online last year, while those using mobile banking technology spiked 138 percent from 2014 to 2015. All of this has helped to undermine the strike.

And yet even as banking has modernized, labor relations have stagnated. That might sound odd for a country that put a former steelworker in the presidency for two straight terms, and whose blue-collar Workers’ Party helped reboot Brazilian democracy. But now Luiz Inacio Lula da Silva is out of power and his party is out of favor. With Brazil still facing recession and low productivity, organized labor has lost its mojo.

Sure, the number of Brazilian trade unions has grown -- from around 7,700 in 2001 to 10,813 in 2014. So have work stoppages, which increased nearly fourfold from 2001 to 2013, the last year for which statistics are available. But the number of unionized workers fell by half during the same period, from 19 million to around 8 million, and 45 percent of all walkouts in 2013 were staged by fractional groups of 200 workers or less.

The reason for this paradox is a perverse set of incentives encoded in Brazil’s stilted labor code. President Getulio Vargas, the populist autocrat who governed for 18 years between 1930 and 1954, wanted to industrialize without indulging the messy shop-floor conflicts symptomatic of capitalist democracies. His muse was Benito Mussolini, and like the Duce’s Carta del Lavoro, Vargas’s Consolidated Labor Law assigned a top-heavy state to micromanage the workplace, refereeing everything from severance disputes to contracts.

Bank workers are not the worst offenders; thanks to a gentleman’s agreement, they usually thrash out their grievances directly with their bosses, albeit only after prolonged strikes that serve mostly to broadcast partisan political gripes. (“Down with Temer,” is the cri du jour, directed at austerity-minded President Michel Temer.) Everyone else takes their workplace quarrels straight to the courts.  As a result, Brazil’s labor tribunals are expected to field a staggering 3 million grievances this year.

Yes, workers are free to band together, but only the Ministry of Justice can determine which unions get a cut of the national labor tax, a honey pot the government keeps filled by garnishing one day of wages per year from all Brazilian employees. “Unions aren’t competing for members anymore, simply a slice of the union tax,” Almir Pazzianotto, a former labor minister, told me.

Given the prize -- about $1.2 billion a year, according to the Labor Ministry -- it’s no wonder unions keep multiplying. “In Brazil, two of the most lucrative business are founding churches and founding trade unions,” said University of Sao Paulo professor Helio Zylberstajn, a scholar of labor relations.

With 12 million Brazilians out of work and economic competitiveness tanking, overhauling the 1940s-era labor code would seem urgent. As it stands, Brazilians have little flexibility to negotiate their wages directly with their bosses, adjust working hours or vacation time. Outsourcing is a dirty word, a bias that economist Jose Marcio Camargo of Catholic University in Rio notes could explain why Brazil has no smartphone industry, which thrives on a global supply chain.  

And yet labor reform has slipped off Temer’s agenda. True, Brazil has other emergencies to tend. The loss-making social security system is bleeding public coffers and robbing future pensioners. A bill to cap public spending would be a small revolution.

While a complete overhaul may be unrealistic, lawmakers could tweak the current labor code in important ways. A start would be to let workers and bosses come to their own agreements, an initiative that Zylberstajn argued could preempt pointless work stoppages, unclog the courts and alleviate the legal uncertainty that daunts investors and confounds labor and management. That won’t magically create jobs, but it could ease Brazil’s labor pains and help this submerging market rejoin the world economy’s competitive game.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Mac Margolis at mmargolis14@bloomberg.net

To contact the editor responsible for this story:
James Gibney at jgibney5@bloomberg.net