The frequency of labor strikes since the end of military rule in Brazil in 1985 is considered one of the major costs of doing business in the country for outside investors. Combined, the current stoppages involve between 300,000 and 500,000 workers, whose demands range from basic salary increases to career path restructuring, bigger bonuses, better benefits, and pensions for retired workers.
As public employees, the workers' demands (if met entirely) would directly increase government spending by an estimated 92 billion reais (roughly $46 billion), or approximately 4.5 percent of Brazil's annual federal budget. In the wake of hyperinflation in the 1980s and 1990s, fiscal discipline has been the driving philosophy of Brazilian budgetary policy. Maintaining sufficient tax levels, reserves and budget surpluses has not only boosted foreign investor confidence but also enabled the government to finance much-needed domestic infrastructure investments and other projects.
The stoppages come at a difficult time for the government. With economic growth slowing from 7.53 percent in 2010 to 2.73 percent in 2011, Brasilia has tried to cut taxes on beleaguered economic sectors in order to maintain their competitiveness. Considering Brazil's historical tendency toward inflation whenever government spending increased dramatically, the government is not in a position where it could comfortably meet the strikers' full demands. Consequently, the Rousseff administration has been adamantly resisting increasing salaries or benefits for the workers, refusing numerous times to meet with union representatives and threatening to deduct missed workdays from strikers' salaries.
However, the worker demands are not simply a matter of economic policy for Brasilia. The strike also presents a political challenge. All striking federal workers are affiliated with the Unified Workers' Central (known by its Portuguese acronym CUT), the largest trade union federation in Brazil. Roughly two-thirds of the country's unions and 40 percent of union workers are represented by the federation, making it one of Brazil's strongest labor organizations. It also has close ties to Rousseff's Workers' Party, since both organizations emerged as powerful political forces after the end of military rule. Their relationship is close enough that the CUT has been described as the "labor arm of the Workers' Party." The party does not control the federation, but the organizations share a strong political and ideological alliance, particularly factions within each that subscribe to more radical leftist ideologies.
The CUT has threatened to call a general strike and direct all its affiliated members to join if the Rousseff administration refuses to negotiate or back off its threat to dock striking workers' pay. Considering the economic ramifications of such a sizable work stoppage, the government will try to avoid provoking the federation. Brasilia will also be mindful of the close ties between the left-wing members of the ruling party and federation members. Splits between moderates and leftists have had direct political consequences in the past, such as in 2004 when discontented members of the party and the CUT broke away to form a new party.
Feeling pressure from the strikers, the CUT and the Workers' Party itself, the Rousseff administration will likely make minor concessions to the workers. The government will also likely attempt to court individual unions in order to slow the movement's overall momentum. (To some extent, it already has tried this tactic by offering to meet some of the university workers' demands, although those offers have thus far been rejected.) The government could thereby reduce pressure and minimize additional spending ahead of the Aug. 31 deadline for voting on the 2013 annual budget law, after which new increases will not be allowed.
Although this particular strike is unlikely to cripple the government, it highlights the strength of Brazilian unions in constraining government actions and controlling the labor market. Labor unions relate directly to the ability of the Brazilian economy to grow because they contribute to the country's high operating costs for foreign investors and Brazilian businesses alike. Labor dynamics, among other issues such as infrastructure and an inefficient bureaucracy, contribute to Brazil's overall tendency toward slower growth, which is hindering the country's gradual rise as a regional power.
