Thursday, August 04, 2011

What Brazil Can Teach America

August 4, 2011, 10:00 a.m.

America, There Is Another Way

Things aren't looking really good for America right now. And, frankly, I don't see a way out.

Our answers are obvious. What appears to be even more obvious is that we're apparently not going to choose any of them.

If we can't learn from our mistakes, or from others' success, at least it may be psychologically palliative to know about, and watch, other countries' progress and know that darkness is not covering the entire world.

As I have written here repeatedly, it seems so obvious that in an economy 70% driven by consumer spending it does little good to ask CEOs to build more plant and hire more workers when consumers aren't prepared to buy what's already stored in warehouses. With true un- and under-employment running closer to 20% than 9%, and some population sectors (e.g., black, male, high school dropouts) running over 50%, even those with jobs fear they may lose them, and those with job security are still shaky about their financial future (e.g., galloping inflation; global depression).

What we should have done three years ago was apply a lesson from the New Deal depression recovery: make the federal government the employer of last resort (e.g., WPA and CCC). That would have put money in the pockets of those who would have spent it, and helped restore the confidence of the rest of us as well. Gradually, as they spent, and the rest of us followed, it would have become rational for CEOs to increase production -- and hiring, moving the employed from federal to private payrolls.

Of course, now that the trillions have been given to Goldman Sachs' and other executives among the over-privileged employed, those who fear that we really can't go on spending billions and trillions on additional "stimulus" programs have a point.

That's why I don't see a way out -- especially given the financial problems confronting Greece, Spain and Italy, among others, as well. It's now impacting even China, since the rest of us have less with which to buy even China's production.

Many of our public officials have proven themselves to be either ignorant, incompetent, or venal. Clearly they can't either govern or be governed. (One is reminded of the adage "Lead, follow, or get out of the way" -- given that none of those options seem acceptable to them.) They seem prepared to see American fall further rather than "compromise" an emotionally held ideological mantra. See, e.g., "When Obstruction Becomes Treason," July 30, 2011.

So while we sit and wait for the final boot to fall, I find some satisfaction in Brazil, and its example that there is another way.

Here are some relevant fair use excerpts from a segment on last Sunday's [July 31, 2011] CBS' "60 Minutes" program -- "Brazil: The World's Next Economic Superpower?" -- followed by some comments from me.
While most of the world is consumed with debt and unemployment, Brazil is trying to figure out how to manage an economic boom. As we first reported last December, it was the last country to enter the Great Recession, the first to leave it, and is now poised to overtake France and Britain as the world's fifth largest economy. . . .

Brazilian tycoons like Eike Batista, who has . . . a net worth of $27 billion . . . said, "GDP-wise, we are bigger than all the other countries [in South America] together. . . .."

With most of the world's economies stagnant, Brazil's grew at 7 percent last year, three times faster than America. It is a huge country, slightly larger than the continental U.S., with vast expanses of arable farmland, an abundance of natural resources, and 14 percent of the world's fresh water.

Eighty percent of its electricity comes from hydropower, it has the most sophisticated bio fuels industry in the world, and for its size, the world's greenest economy. Brazil is already the largest producer of iron ore in the world, and the world's leading exporter of beef, chicken, orange juice, sugar, coffee and tobacco -- much of it bound for China, which has replaced the U.S. as Brazil's leading trade partner. . . .

Batista, who has interests in mining, transportation, oil and gas, is building a huge super-port complex north of Rio with Chinese investment. The complex will accommodate the world's largest tankers and speed delivery of iron ore and other resources to Asia.

But it's not just commodities that are driving the Brazilian boom. The country has a substantial manufacturing base and a large auto industry. Aviation giant Embraer is the world's third-largest aircraft manufacturer, behind Boeing and Airbus and a main supplier of regional jets to the U.S. market. . . .

"We have to create more engineers," he told Kroft. "In my oil company, I'm importing Americans to weld our platforms, just to give you an, an idea."

"To weld the platforms?" Kroft asked.

"Yes," Batista said. "There's a lack of welders. We are walking into a phase of almost full employment. Already we have created this year 1.5 million jobs. It's unbelievable." . . .

President Luiz InĂ¡cio Lula da Silva walked into the president's office. . . .

When he was elected eight years ago on his fourth try, Lula was a firebrand labor leader with socialist tendencies. Some predicted another Hugo Chavez.

But he left office at the end of last year with an 87 percent approval rating and much of the credit for turning the country around. . . .

Lula [said], "Look, every once in awhile I joke that a metal worker with a socialist background had to become president of Brazil to make capitalism work here. . . .."

He added, "If you look at the banks' balance sheets for this year, you will see that the banks have never made so much money in Brazil as they have during my government. The big companies have never sold as many cars as they have during my government, but the workers have also made money."

So how has he managed to do that?

Lula told Kroft he has "found out something amazing."

"The success of an elected official is in the art of doing what is obvious," Lula said. "It is what everyone knows needs to be done but some insist on doing differently."

One thing obvious to Lula was the social and economic chasm separating Brazil's rich and poor. He gave the poor families a monthly stipend of $115, just for sending their children to school and taking them to doctors.

The infusion of cash helped lift 21 million people out of poverty and into the lower middle class, creating an untapped market for first-time buyers of refrigerators and cars.

But he was also far friendlier to business than anyone expected. Lula encouraged growth and development, and maintained conservative fiscal policies and tight banking regulations that left Brazil unscathed by the world financial crisis. . . .

[E]conomists from Goldman Sachs no less are predicting that Brazil - along with Russia, China and India - will dominate the world economy in the 21st century.

If it happens, Brazil would be a different kind of superpower, one that would rather make love not war. It has no nuclear arsenal, and aside from contributing a small number of troops to the allied cause in 1944, Brazil hasn't fought a war since 1870.

"Why fight?" Batista asked. "With all the pleasures, beach and sun. War? Forget it. Soccer? Let's watch a soccer game. Let's go to the beach. Let's drink a beer."
So what lessons does Brazil offer America? Here are a few from my perspective.

How can we explain why Brazil is enjoying an "economic boom" and was "the last country to enter the Great Recession, the first to leave it, and is now poised to overtake France and Britain as the world's fifth largest economy" -- and we were not?

Why was it that Brazil's economy "grew at 7 percent last year, three times faster than America"?

Environmental initiatives. Did you notice the line that, "Eighty percent of its electricity comes from hydropower, it has the most sophisticated bio fuels industry in the world, and for its size, the world's greenest economy"? Our public officials, responsive to the campaign contributions, lobbying and other pressures from special interests, such as the oil industry, have failed to seize our opportunity to wean ourselves from fossil fuels. Brazil has figured out a way to fuel its cars with ethanol while still producing food for export.

Manufacturing base. Note that, Brazil "has a substantial manufacturing base and a large auto industry. Aviation giant Embraer is the world's third-largest aircraft manufacturer, behind Boeing and Airbus and a main supplier of regional jets to the U.S. market. . . ." We've largely abandoned our manufacturing, and the jobs it provided, letting American corporations profit by outsourcing and building plants overseas. As a result, Brazil has "created this year 1.5 million jobs" and is "walking into a phase of almost full employment." Meanwhile our government, while turning its back on the obvious solution of creating federal jobs for the unemployed, is bemoaning our 20% actual unemployment.

Economic recovery means supporting the poor. Some of our political leaders have as their primary mission (after making sure President Obama fails as a president and is limited to one term) the reduction or elimination of government itself, and everyone seemingly runs and hides at the mere whisper of the word "socialism." By contrast, Brazilians were not only willing to elect an confessed socialist, they -- including most of the Brazilian business community -- now give him 87% approval ratings.
"The success of an elected official is in the art of doing what is obvious," Lula said. "It is what everyone knows needs to be done but some insist on doing differently."

One thing obvious to Lula was the social and economic chasm separating Brazil's rich and poor. He gave the poor families a monthly stipend of $115, just for sending their children to school and taking them to doctors.

The infusion of cash helped lift 21 million people out of poverty and into the lower middle class, creating an untapped market for first-time buyers of refrigerators and cars.
This approach appeals to me, of course, because it demonstrates the success of precisely what I have been arguing; the solutions to our problems are available, we just need to be "doing what is obvious" that our majority "insist on dong differently."

Henry Ford, no socialist, knew that his success depended on his pricing his cars, and paying his workers, such that the workers could afford to buy the cars they were building.

Like Lula's Brazil we, too, need to recognize, and do something about, "the social and economic chasm separating [our] rich and poor." To stimulate an economy you need to give more money to the poor, not to the rich. Brazil proves it. By lifting "million[s of] people out of poverty and into the lower middle class, [we, too, could create] an untapped market for first-time buyers of refrigerators and cars" and pull our economy out of economic malaise in short order. That it is also a humane thing to do is an added benefit for those who care about such things.

Government regulation can be our friend. One of the consequences of our "best government that money can buy" is that workers die on offshore oil rigs that pollute the Gulf, and in coal mines that have been documented as unsafe, and Wall Street is permitted to profit while bringing down the global economy.

How did Lulu deal with that phenomenon? Was he hostile to business? Not at all. "[H]e was also far friendlier to business than anyone expected. Lula encouraged growth and development . . .." However, and this is the big difference, he also "maintained conservative fiscal policies and tight banking regulations that left Brazil unscathed by the world financial crisis. . . ." When we permit special interests to buy a substitution of "self-regulation" in place of rational regulation, as we do, people die and economies collapse. Lulu knew better than to permit that to happen. Why don't we?

As a result, now even the "masters of the universe," "[E]conomists from Goldman Sachs no less are predicting that Brazil - along with Russia, China and India - will dominate the world economy in the 21st century."

The true cost of military budgets. Finally, it is no accident that Switzerland and Brazil are among the most solid economies in the world. What am I talking about? We pay a price, an enormous and debilitating price, for our insistence on being, not only the strongest military power in the world, but one that spends more than the next ten nations combined.

What does Brazil do?

"Brazil . . . would rather make love not war. It has no nuclear arsenal, and aside from contributing a small number of troops to the allied cause in 1944, Brazil hasn't fought a war since 1870. "Why fight?" Batista asked. "With all the pleasures, beach and sun. War? Forget it. Soccer? Let's watch a soccer game. Let's go to the beach. Let's drink a beer."

Some final words. You see? That's what we could have been doing. We knowingly and deliberately chose not to. We chose to borrow 40% of what we spend. We chose to maintain three ongoing wars, and a military presence in 150 countries. We chose not to create a level playing field for third parties, or provide public financing of campaigns. We chose to run from anything that might be labeled socialism. We chose not to tax ourselves, and especially not our wealthiest.

We chose to become a third world country in which the richest 1% control 90% of the wealth. We chose to watch video games, computer screens, smart phones and TV rather than march in the streets in protest.

Finding ourselves in a hole, we chose to go on digging.

Rather than sucking it up and doing what needs to be done, we're still kicking the can down the road.

It's been fun. But it's no fun anymore.

Have a nice day.

Like to watch the entire segment? Here it is:


# # #

3 comments:

Sated Cow said...

I feel you, brother. Months like the ones we've just had leave you feeling this country's no longer in the business of accomplishing anything important.

Our government has proved it no longer can function effectively. For some, that's mission accomplished. What's unfortunate is that when you paint government as the root of all evil, you blunt the tools which should be in use building the foundation upon which citizens can prosper.

A country run by corporations is not a nation that sponsors the American Dream. Rather, it is one which fosters a gimme-gimme-gimme society tainted by mistrust, disdain and misplaced righteousness.

Sated Cow said...

Stanley Greenberg's article in the Sunday NYT:

http://www.nytimes.com/2011/07/31/opinion/sunday/tuning-out-the-democrats.html?_r=1&pagewanted=all

"This distrust of government and politicians is unfolding as a full-blown crisis of legitimacy sidelines Democrats and liberalism. Just a quarter of the country is optimistic about our system of government — the lowest since polls by ABC and others began asking this question in 1974. But a crisis of government legitimacy is a crisis of liberalism. It doesn’t hurt Republicans. If government is seen as useless, what is the point of electing Democrats who aim to use government to advance some public end? "

Anonymous said...

It is unfortunate that the United States was unwilling to impose more substantial regulations on the financial sector post-financial crisis. The fact that Brazil [i]did[/i] pass additional regulations on its financial sector in light of the financial crisis, and recovered more quickly, lends a great deal of support to proponents of such regulations.