Brazil: What Could Go Wrong?

Amigos, leiam este interessantíssimo post do influente 'The American Interests'. Notem as novas articulações em torno da visão do Brasil feitas pelos estadunidenses!

postado por Walter Russell Mead no blog 'The American Interests' em 21/04/2011

I’ve been blogging enthusiastically about Brazil and the potential for a new kind of relationship between the two most populous and dynamic republics in the western hemisphere. And I’d add a little more: for young Americans wondering what country and language they can study that will give them an edge in life, let me suggest Brazil and Portuguese.

That’s partly because of Brazil’s enormous potential – and it’s also because Brazil is an undervalued stock in the US academy. Most US “Latin Americanists” concentrate on Spanish and Spanish America. There are good reasons for that, but it leads to a distorted US picture of the hemisphere. Except for Mexico and a couple of others, the Spanish speaking countries of the hemisphere are minnows: Brazil is a whale. One single Brazilian state alone, Sao Paulo, has a GDP bigger than any Spanish republic except for Mexico. Becoming fluent in Portuguese and investing time in getting to know Brazil is likely to pay off much, much better for young Americans than the study of Spanish. Let your classmates study Spanish and spend their summers in Nicaragua; learn Portuguese, go to Brazil, and learn what the future looks like.

Still, I am not quite ready to believe that Brazil’s path to a shining future is risk free. Brazil has enjoyed prosperous moments in the past; it is still possible that Brazil could fall short once again – and the promising new turn in US-Brazilian relations could also sour.

So what could go wrong for Brazil?

One thing already has. Brazil’s current boom is structurally similar to its past waves of prosperity. Going back for hundreds of years, Brazil’s fortunes have been tied to commodity markets. The country was originally named for a small (and now rare) tree that produced a red dye; when the dye boom faded, the colony’s momentum faded. Later booms reflected mineral deposits (one Brazilian state is named Minas Gerais, literally, “General Mines”), sugar plantations, rubber and coffee production.

In the 19th century Brazil, like the United States, was a commodity producer tied to the British market. Britain was the leading investor in both the US and Brazil, and Britain ate up the lion’s share of their exports. But there was a difference: the United States did some things that Brazil did not. We established manufacturing and financial sectors in our economy that could ultimately rival Great Britain in those fields, and we became a producer of new technologies and world-class companies.

19th century Brazil never managed to build those additional dimensions of a strong market economy. In a sense, all of Brazil continued to develop like the American South: a commodity exporting economy based on slavery (not abolished until the 1880s) and peonage. And like the Confederacy, Brazilians long favored a decentralized form of government in which states largely ignored the central government in Rio. Decentralization spared Brazil some of the bitter social conflicts that shook countries like Mexico and Argentina in the first century of independence, but there was nobody like Alexander Hamilton, Henry Clay and Daniel Webster with the power and the will to turn Brazil into a cutting edge economic power.

That left the country perilously exposed to the ups and downs of commodity markets. Its large size, fertility and abundance of natural resources meant that Brazil had a lot of commodities it could produce; during boom times (like the rubber boom when planters build an opera house in Manaus deep in the Amazon), the country was so rich and received so much investment that everyone assumed that Brazil, at last, was on a road to the future. Time after time Brazil discovered a new magic crop or magic product: the brazil tree, gold, jewels, sugar, cotton, rubber, cocoa, coffee. Time after time Brazil boomed.

Then the busts would inevitably come and Brazil’s economy would plunge into crisis. Perhaps it was overproduction as too many investors rushed to take advantage of the latest boom. Perhaps it was cyclical as financial bubbles collapsed in Europe and North America, shrinking demand for Brazilian exports. Perhaps it was something more insidious, like the century-long fall in the prices of commodities compared to those of finished industrial goods, a trend that gradually undermined Brazil’s place in the world economy.

This history of boom and bust cycles is how Brazil earned the cruelest of all descriptions — the famous remark that “Brazil is the country of the future, and always will be.” Perhaps.

Brazil’s current wave of prosperity isn’t exactly a replay of one of the old time commodity booms. It is more broadly based, for one thing. Brazilian production of soybeans, sugar ethanol, and minerals for export to China like iron ore, manganese, niobium (used in making steel) and copper is booming at a time when world prices for all these goods are high. With a more diversified base in different commodities than in the past, Brazil is less vulnerable to a sudden devastating crash in the price of one crop.

And for another, Brazil is also producing some sophisticated products. Embraer, for example, is a leading aircraft manufacturer and its regional jets are selling extremely well. Brazilian scientists are making more of a contribution to its agricultural sector and Brazil is doing more processing of its commodities than before. Half a dozen Brazilian companies are significant multinational players and a new generation of ambitious and talented Brazilian business leaders are looking to the world stage.

All this is true, and it is clear that whatever is happening, Brazil is not simply repeating past mistakes. But there are some significant obstacles that still get in its way, and it is a little bit too early to say that Brazil’s long quest for advanced country status has quite reached its end.

What worries some Brazilians is that Brazilian manufacturers aren’t making any headway against the Chinese. Brazil’s relationship with China is like its old relationship with Britain: it exports raw materials and imports finished goods. A recent Financial Times story by Samantha Pierson and Joe Leahy lays it out in some detail.

This isn’t just a problem of national pride. Although public education is improving, slowly, for the foreseeable future the Brazilian workforce is going to have a lot of semi-skilled workers with an 8th grade education or less. Without a strong manufacturing sector, it is hard to see how millions of young Brazilians can find decently paid and reasonably secure jobs.

Part of Brazil’s competitiveness problem comes from the currency wars. China keeps its currency tied to the dollar; Brazil’s real is soaring against the greenback because of the hot commodity market — and because foreign investors want a piece of the skyrocketing Brazilian stock market. Over time, hopefully, the real will find a more realistic level.

But that is the easy part. There is a deeper issue. The classic way to make a stable middle class society in the modern world has involved what some observers call “Fordism”: a mix of mass production that puts a large labor force to work in modern industry, mass consumption based on consumer finance (home mortgages, credit cards), and various forms of government intervention and regulation. This is what most people instinctively mean when they talk about a “middle class society”.

Early industrializers like Britain, Germany, the US and France put the basics of the system in place as much as a century ago. After World War II more European countries climbed on board; in the last generation much of East Asia has joined them.

This is what Brazil hopes to do; it is the logical endpoint of the policies the country has followed from the Collor de Mello era back in 1990-92. But can that really happen anymore? Chinese and East Asian competition makes it desperately hard for countries like Brazil to follow the old trail of export-oriented manufacturing to middle class prosperity. Looking at the EU, North America and Japan today it seems clear that the modern middle class society faces big problems in the lands where it first arose. The problems with the blue social model that I’ve been writing about aren’t just problems for the American Rustbelt; they are problems for developing countries like Brazil that see the blue social model as a goal.

The Brazilian left’s cautious and in some cases unenthusiastic embrace of capitalism is all about results. Under both Cardoso and Lula, pro-market policies led to more jobs and better pay for many Brazilians, and provided the government with the resources to improve schools and inaugurate a modest welfare program. As long as pro-market policies hold out the hope of continuing progress for the poor and the lower middle class, Brazil’s left will have strong incentives to stay the current course. But if that progress slows down, all bets are off.

Meanwhile there are other, nearer-term problems that could get in Brazil’s way. One is that the recent boom is bringing back some bad habits. Brazil, like the US, is a federal republic: individual states have a lot of autonomy. Additionally, as in the US, there are wide gaps in wealth and development between the richest states. In Brazil, it is all upside down from a US point of view: the South is industrial and urban while the North is agricultural and in some places backward. Slavery left deeper wounds in the more heavily Afro-Brazilian North, and many of the northern states are run by small numbers of wealthy families. Because smaller and less populated states are significantly over-represented in both houses of the Brazilian congress (unlike in the US where the effects in the House are minor and only the Senate can be dominated by small states), the sometimes sleazy political culture of favor-swapping is disproportionately strong in Brazil. Getting laws through congress requires a lot of unsavory backroom dealing and compromise.

These days, with money pouring in and the economy booming, a lot of politicians and interest groups have their hands out. The federal treasury in Brasilia looks like a fountain of plenty, and everyone wants a nice refreshing drink. Brazil’s political culture and institutions make those pressures hard to refuse; it will be very difficult for the government to keep the stampede on the feeding trough within limits. It will be even harder to make the case for difficult and unpopular reforms that can insulate Brazil against the next, inevitable global downturn. Samba samba samba, not scrimp and save, is what Brazilians like to do when the weather is fine. It is hard to blame them, but if you don’t fix the roof when the weather is good, you will live with the consequences when it rains.

I’ve written earlier that Brazil and the United States have the opportunity to build a new kind of relationship in the 21st century — but just because you have an opportunity doesn’t mean you will take it. The chief danger for Brazil is that it will get focused on appearances rather than reality and its foreign policy will turn into a frustrating quest for the appearance of power and influence rather than a sober pursuit of the national interest.

Brazil is taking a place in the world more like a European country than a Latin American one. But will it be a power like France, tormented by the desire for grandeur and prestige and endlessly frustrated by the inevitable gap between appearance and reality? Or will it be a power like Germany, which since World War Two has cared relatively little about the marks of power while working systematically to advance its political and economic interests in its region and around the world?

At its worst, France is a kind of pointless disturber of the peace: a solution perpetually in search of a problem, its diplomacy obsessively looks for ways to get top billing for France whatever is going on. The quest for prestige is often frustrated; worse, other countries can use the naked hunger of French leaders for international notoriety and “la gloire” to manipulate French policy and extract real concessions in exchange for kind words.

A French Brazil would make its quest for a permanent seat on the UN Security Council a prominent part of its daily foreign policy. It would look for ways to insert Brazil into various global issues where its core interests were not engaged as a way of enhancing Brazil’s prestige. It would look for ways both to separate itself from its region and to dominate it, wanting to replace a perceived US domination of the entire western hemisphere with a Brazilian domination of the southern half and, like the US, use its domination of its region to launch its career as a global power. It might also work aggressively to promote its position as the head of a Lusophone (Portuguese-speaking) bloc of countries including Angola and Mozambique and on that basis seek a major role in Africa.

Alternatively, Brazil could follow German postwar policy and focus on the realities of power rather than the trimmings. Regionally, it would seek to mask its power rather than magnify it. More broadly, it would focus on its economic interests, promoting Brazilian trade and the interests of Brazilian companies in multilateral and bilateral relations. Over time, growing Brazilian economic power would bring greater prestige and give Brazil a greater say in more global issues — as it has for Germany. The aspiration for a Security Council seat would remain (as it does in Germany), but Brazil would not invest large resources in trying to resolve this issue quickly.

The French path has a kind of systemic appeal to professional diplomats and intellectual nationalists, but there is little willingness among businessmen and ordinary Brazilians to support this kind of policy long term. Businessmen want pragmatism (except for those whose businesses require protectionist policies); ordinary Brazilians often think the government should spend money at home rather than on foreign aid to Angola or UN peacekeeping missions (like the one in Haiti). More, the French path makes more sense for a declining power than a rising one.

As Brazilian society continues to democratize, power over foreign policy is likely to pass from Itamaraty Palace (the appropriately named, moated home of the Brazilian foreign ministry in Brasilia) into civil society at large. This is a typical pattern; in less democratic societies professional foreign services are largely free to make foreign policy without too much public input. The rise of interest group politics, congressional meddling, and strong and well organized business lobbies begin to put obstacles in the paths of the professional diplomats as political power and information become less concentrated in a democratizing society. Ask the State Department.

In any case, the question of whether this time is different in Brazil remains to be answered. It is still possible that the current prosperity will vanish if the China bubble implodes and there is a global downturn and a collapse in commodity prices. But overall, I am more optimistic than not. The last twenty years have seen a depth of change and breadth of progress in Brazil that is qualitatively different from anything in the past. A second great power is struggling to be born in the western hemisphere; in my view that is likely to be good news for Brazil, for its neighbors, for the United States and for the world.