budgeting,” which was a mechanism for bringing ordinary
citizens into the formulation of the spending priorities of the
city. It created a system that has become a world model for
local government accountability and responsiveness, and it
went along with huge improvements in public service
provision and the quality of life in the city. The successful
governance structure of the party at the local level mapped
into greater political mobilization and success at the
national level. Though Lula was defeated by Fernando
Henrique Cardoso in the presidential elections of 1994 and
1998, he was elected president of Brazil in 2002. The
Workers’ Party has been in power ever since.
The formation of a broad coalition in Brazil as a result of
the coming together of diverse social movements and
organized labor has had a remarkable impact on the
Brazilian economy. Since 1990 economic growth has been
rapid, with the proportion of the population in poverty falling
from 45 percent to 30 percent in 2006. Inequality, which
rose rapidly under the military, has fallen sharply,
particularly after the Workers’ Party took power, and there
has been a huge expansion of education, with the average
years of schooling of the population increasing from six in
1995 to eight in 2006. Brazil has now become part of the
BRIC nations (Brazil, Russia, India, and China), the first
Latin American country actually to have weight in
international diplomatic circles.
T HE RISE OF B RAZIL since the 1970s was not engineered by
economists of international institutions instructing Brazilian
policymakers on how to design better policies or avoid
market failures. It was not achieved with injections of
foreign aid. It was not the natural outcome of modernization.
Rather, it was the consequence of diverse groups of
people courageously building inclusive institutions.
Eventually these led to more inclusive economic
institutions. But the Brazilian transformation, like that of
England in the seventeenth century, began with the creation
of inclusive political institutions. But how can society build
inclusive political institutions?
History, as we have seen, is littered with examples of
reform movements that succumbed to the iron law of