The New Brazil

I attended a  launching of a book “The New Brazil” at the Wilson Center’s Brazil Institute yesterday.  Riordan Roett, the author, is a professor at the Paul H. Nitze School of Advanced International Studies at Johns Hopkins University & director of the Western Hemisphere Studies and Latin American Studies Programs.  He claimed that he had been studying Brazil for more than fifty years and seemed to be telling the truth. The book’s main emphasis is on the last sixteen years during the Presidencies of Fernando Henrique Cardoso and Luiz Inácio Lula da Silva.

The discussion at the meeting centered on what or who should get credit for Brazil’s remarkable success since the middle of the 1990s.  Like most success, it is the result of good decisions and good luck and it is hard to tell where one leaves off.  The most obvious place to start is with government policy.  Many other things about Brazil remained the same, so the change in policy was probably a major factor.  The big change in direction came with the “Plano Real”.  Fernando Henrique Cardoso, as Finance Minister, led the team that created the plan and then as president brought it to maturity. I won’t go into details about the plan, since I have not yet studied the details, but in general is stabilized the currency and created economic stability. It took many of the economic decisions out of the hands of politicians and privatized many state enterprises.  And it opened the Brazilian economy to foreign investment and trade by lowing tariffs and making it generally easier to do business.

When I lived in Brazil twenty-five years ago, we talked a lot about the fact that the Brazilian people were very enterprising but that obsessive rules and government interference kept the country from achieving its potential.  Extensive parallel markets developed, which drained much of the energy out of the official enterprises.

The Plano Real seemed to work and Brazil has leapt forward.  Of course, there are also aspects of good fortune.  One of the biggest factors working in Brazil’s favor has been the rise of China.  Brazil remains primarily a producer of primary products, agricultural products, minerals etc.  The rise of China, and to a lesser extent other Asian economies, vastly increased the demand for products that Brazil could profitably produce.   (My one good investment (which unfortunately I have to sell before going to Brazil to avoid the appearance of conflict of interest) was in the stock of a Brazilian company called Vale do Rio Doce, or just Vale (pronounced VaLay).  Vale is a mining company, mostly iron ore.  I bought the stock in 2003 and I only wish I had bought more.  The Economist just published an article about it.  It is one of those world class Brazilian firms that were quickly able to take advantage of opening markets.)

Another piece of good luck, for Brazil if not others, was the rising price of oil, which made profitable their investments in ethanol produced from sugarcane.  Now Brazil has also discovered vast reserves of oil and gas off the Atlantic coast in a formation called pre-salt. To help finance exploration and exploitation, the Brazilian oil firm, Petrobas recently floated a $67 billion stock share offer, the largest in history.  These developments will make Brazil energy independent and maybe even an oil exporter.  The Brazilians already produce most of their electricity from renewable hydropower.  They have developed ways to produce hydropower w/o the extensive ecological damage associated with previous large water projects.  Of course, no energy source is worry frees and there is still controversy, but manageable.

There is some bad news, of course.  Brazilian infrastructure is poor.  This already impacts prosperity and will do it more in the future.  The price of sugar, for example, spiked a couple weeks ago because of backlogs at the Brazilian port of Santos.   Brazil is the world’s second leading producer of soybeans (behind us).  Infrastructure is what keeps them from becoming #1. They can grow soybeans in the grasslands of the cerrado, but they often cannot ship them to market.  Many of the connecting roads and even some important highways are poorly maintained and sometimes not properly paved at all.   Brazil will need to invest heavily in improvements and it will have the incentive and money to do it, which will be a great opportunity for construction firms.

Human infrastructure is also a weakness.  Brazil has excellent public universities and produces great engineers, doctors and lawyers.  But the level down is very bad and there is a big gap.  Many people remain functionally illiterate and significant numbers are just illiterate, period.  The lack of basic education in the work force makes it difficult to devolve decision making and innovation to the workers on the shop floor, as is required by many modern processes.  

Again to interject a personal note, I remember when Mariza was born in Brazil.  The doctors were great, as good as anything we could expect in the U.S., but the quality quickly fell off and you had to be very careful with the nursing staff and especially with the aids.  I had some dental work done in Porto Alegre.   The dentist was great, but his assistant was less well trained. He was putting a cap on one of my teeth and had exposed the nerve. As he stepped away for a minute, he told his assistant to keep the area on the tooth clean.  She alternatively squirted water and compressed air onto the raw nerve until I begged her to stop and wait until he got back for the final cleaning squirt.

Brazil’s educational system is very uneven and counter intuitive to an American. The best universities are public.  They are tuition-free and open to all through a highly competitive test.  But the only way to properly prepare for that test is to go through private grade schools and HS, since the public schools at the lower level are generally bad.   In America, our top universities (Harvard, Yale, & Stanford) are often private and smart rich people want to go there.  Private universities in Brazil are not on top and poorer Brazilians are more common in them.  It is a little odd that those who could afford to pay get to take advantage of the public universities while the private ones are the ones that serve the others.

Professor Roett thinks that the educational system will soon improve, as people will demand it.  The Brazilian middle class has grown significantly during the boom times. For the time being, they are happy that they can afford new refrigerators and nicer apartments.  But there is a Maslow principle at work here.  As their material needs are better satisfied, they will start to want more intangible, such as better education for their children.  Beyond that, the more developed economy is demanding higher level skills.

Somebody asked the question about evangelicals.  Brazil has traditionally been a casually Catholic country, but you cannot help noticing the vast numbers of evangelical protestant churches, often in storefronts or other general buildings.  The evangelicals also exhibit a lot of energy and a strong work ethic. Brazil is actually exporting evangelical missionaries to Spanish speaking America and Africa.  Evangelicals could play a pivotal role in Brazil’s presidential election at the end of the month.  This is the first time they have been recognized as a political force.

Anyway, I am enjoying learning and relearning about Brazil.  My Portuguese starts in November and I will be able to devote even more time to learning about my once and future post.