On a visit to the Brazilian city of Belo Horizonte a few years ago, I was struck by the mass of humanity hawking wares on municipal sidewalks. One Saturday, a Brazilian friend and I found ourselves in the thick of things as the workday ended. Hundreds of street vendors were closing up their stands and pushing them home. The drudgery of their lives was apparent. I said something about their plight to my companion. He sighed quietly, shook his head and only said, "The state is a predator."

What he meant, of course, was that the great unwashed in the streets were victims of an over-regulated economy that had driven them underground and sentenced them to a day-to-day struggle for economic survival. Their numbers are multiplied many times over in larger cities like Sao Paulo and Rio de Janeiro.

The contrast between the primitive existence of Brazil's many "informals" and the industrialized democracy they live in is worth considering as Brazil's presidential campaign draws to a close and voters prepare to go to the polls on Sunday. Conventional wisdom holds that most Brazilians favor leftist Workers Party candidate Luiz Inacio da Silva -- or "Lula" as he is popularly known -- because they reject free markets. We're told that's what Brazil has had under the eight years of Social Democratic Party (PSDB) President Fernando Henrique Cardoso.

The claim is so silly as to border on stupidity. Sure, the Lula vote is in good part a referendum on Mr. Cardoso's record. That's why the candidate his party backs, Jose Serra, is faring so poorly in the polls. But it's hardly a vote against economic liberty. Quite to the contrary, the thriving black market reflects a society that hungers for the economic freedom and opportunity that is denied. The vote against Mr. Serra appears to be more an expression of frustration and a hope that Lula, being a legendary man of the people, might cut the pie more in their favor in the coming years

What is discouraging is that no matter who wins, there is a low probability that the lumbering Brazilian state -- protectionist and economically oppressive -- might be reined in any time soon.

It may seem that looking at the elections through the prism of the working class is an unimportant distraction. After all, headline concerns about the country these days focus on Wall Street worries about the country's ballooning public-sector debt, high interest rates and the possibility of a default. Talk about the elections often comes down to a discussion about the need to cut government spending, create an operating surplus (that is, a fiscal surplus excluding debt service) and thereby resurrect investor confidence. Other pundits fret about Lula's leftist roots, including friendships with Fidel Castro and Venezuelan President Hugo Chavez. He is also a member in the Sao Paulo Foro, which is a club of communists that include Colombian guerrillas.

Yet it is the great majority of Brazilians, still economically disenfranchised after almost a decade of so-called reform, that is driving the politics of this election. There can be no understanding of what appears to be a leftward shift in preferences without understanding how Mr. Cardoso failed this majority.

The main downfall of the Cardoso government seems to have been with the pace of change. It has had a top-of-the-line economic team but has only inched along a trend line toward less intervention. It deserves credit for liberalizing prices, instituting a more sound banking system and selling off some state enterprises. Yet the implementation of market economics fell far short of what was needed. The government's role in the economy remains pervasive and perverse. Most egregiously, it failed to defend the value of the currency

In the 2002 Heritage Foundation/Wall Street Journal Index of Economic Freedom Brazil ranks 79th out of 161 countries and qualifies as a "Mostly Unfree" country. The index scores Brazilian trade policy at four (with five being the most protectionist policy) and it says Brazil has a "high level" of black-market activity. Such a report card does not support the contention that Mr. Cardoso implemented a free-market economy.

The sluggishness of reform stemmed partly from the belief in gradualism, that change should be carried out slowly. But the pace also lagged because Mr. Cardoso, who is no economic liberal, never had the vision -- a la Ronald Reagan or Margaret Thatcher -- to drive change. Without a committed leader, it's not surprising that bureaucratic inertia won out. Brazilians suffered a massive loss of wealth through devaluation and saw scant progress on deregulation, tax cuts or open markets. Now Lula's siren song beckons.

Fears that Lula will radically change Brazil's economic structure in favor of militant property confiscation and bank nationalization are probably unwarranted. Even many who oppose him say they don't expect him to try to destroy the country's finances

But that doesn't mean that his government is unlikely to do damage. Government debt levels are manageable but there is little room for error. Unless he comes to office with a bold plan to deal with bloated payrolls, civil-servant entitlements and constitutionally mandated transfers, he will not be able to reassure markets. Without an uptick in investor sentiment, the only thing the central bank could do to support the Brazilian real is contract money supply in response to reduced demand for the currency. The Lula we've seen so far is not likely to do this. If he doesn't, the real will weaken further and the chances for a default will rise, not to mention the inflationary consequences.

It's also is hard to imagine economic liberalization. Lula's "shift" away from the far left translates largely into pragmatic alliances with the country's leading industrialists. But that doesn't presage a break for the poor. Quite the contrary, look for a further increase in protectionism and more subsidies for the powerful

If Lula doesn't earn 50% of the vote on Sunday, he will go to a runoff on Oct. 27. If he faces Mr. Serra then, he could be upset. But that would offer only limited comfort to Brazil's lower- and middle-income voters. No candidate has any plan to free them from their economic shackles.

Source: The Wall Street Journal