Why Nations Fail: The Origins of Power, Prosperity, and Poverty

Countries need inclusive economic and political institutions to break out of the cycle of poverty. Foreign aid can typically do little in this respect, and certainly not with the way that it is currently organized. Recognizing the roots of world inequality and poverty is important precisely so that we do not pin our hopes on false promises. As those roots lie in institutions, foreign aid, within the framework of given institutions in recipient nations, will do little to spur sustained growth. Second, since the development of inclusive economic and political institutions is key, using the existing flows of foreign aid at least in part to facilitate such development would beuseful. As we saw, conditionality is not the answer here, as it requires existing rulers to make concessions. Instead, perhaps structuring foreign aid so that its use and administration bring groups and leaders otherwise excluded from power into the decision-making process and empowering a broad segment of population might be a better prospect.
E MPOWERMENT
    May 12, 1978, seemed as if it were going to be a normal day at the Scânia truck factory in the city of São Bernardo in the Brazilian state of São Paulo. But the workers were restless. Strikes had been banned in Brazil since 1964, when the military overthrew the democratic government of President João Goulart. But news had just broken that the government had been fixing the national inflation figures so that the rise in the cost of living had been underestimated. As the 7:00 a.m. shift began, workers put down their tools. At 8:00 a.m., Gilson Menezes, a union organizer working at the plant, called the union. The president of the São Bernardo Metalworkers was a thirty-three-year-old activist called Luiz Inácio Lula da Silva (“Lula”). By noon Lula was at the factory. When the company asked him to persuade the employees to go back to work, he refused.
    The Scânia strike was the first in a wave of strikes that swept across Brazil. On the face of it these were about wages, but as Lula later noted,
    I think we can’t separate economic and political factors.… The … struggle was over wages, but in struggling for wages, the working class won a political victory.
    The resurgence of the Brazilian labor movement was just part of a much broader social reaction to a decade and a half of military rule. The left-wing intellectual Fernando Henrique Cardoso, like Lula destined to become president of Brazil after the re-creation of democracy, argued in 1973 that democracy would be created in Brazil by themany social groups that opposed the military coming together. He said that what was needed was a “reactivation of civil society … the professional associations, the trade unions, the churches, the student organizations, the study groups and the debating circles, the social movements”—in other words, a broad coalition with the aim of re-creating democracy and changing Brazilian society.
    The Scânia factory heralded the formation of this coalition. By late 1978, Lula was floating the idea of creating a new political party, the Workers’ Party. This was to be the party not just of trade unionists, however. Lula insisted that it should be a party for all wage earners and the poor in general. Here the attempts of union leaders to organize a political platform began to coalesce with the many social movements that were springing up. On August 18, 1979, a meeting was held in São Paulo to discuss the formation of the Workers’ Party, which brought together former opposition politicians, union leaders, students, intellectuals, and people representing one hundred diverse social movements that had begun to organize in the 1970s across Brazil. The Workers’ Party, launched at the São Judas Tadeo restaurant in São Bernardo in October 1979, would come to represent all these diverse groups.
    The party quickly began to benefit from the political opening that the military was reluctantly organizing. In the local elections of 1982, it ran candidates for the first time, and won two races for mayor. Throughout the 1980s, as democracy was gradually re-created in Brazil, the Workers’ Party began to take over more and more local governments. By 1988 it controlled the governments in thirty-six municipalities, including large cities such as São Paulo and Porto Alegre. In 1989, in the first free presidential elections since the military coup, Lula won 16 percent of the vote in the first round as the