Wednesday, June 9, 2010

Why is Brazil flying high?

A few days ago I wrote an aside asking why, given all the attention to what India and China are doing development-wise, we’ve been ignoring Brazil. Or rather, acknowledging Brazil’s explosive growth but not providing a good explanation. Let’s confirm the acknowledgement—from Bloomberg:
Offering a lower estimate, Brazilian Budget Minister Paulo Bernardo said today that the economy may grow 6 percent this year, while the government aims for a sustainable 5 percent growth rate. In an e-mailed statement, Finance Minister Guido Mantega said growth may reach 6.5 percent by year-end.

Inflation quickened to a 12-month high of 5.26 percent last month and may reach 5.64 percent this year, according to a central bank survey of about 100 economists published June 7. The government targets inflation of 4.5 percent.

Across the nation, companies are struggling to keep up with demand that’s been rising as unemployment hovers near a record low 6.8 percent, salaries rise and the 30 million Brazilians who have left poverty since President Luiz Inacio Lula da Silva took office in 2003 increase spending. Retail sales rose 15.7 percent in March from a year earlier, the highest on record.

And from the New York Times (weirdly enough, in a piece about fashion photographers searching for the next Brazilian supermodel):
…over the past decade, the income of black Brazilians rose by about 40 percent, more than double the rate of whites, as Brazil’s booming economy helped trim the inequality gap and create a more powerful black consumer class, said Marcelo Neri, an economist in Rio de Janeiro.

I’d say this all looks good. Yes, there’s inflation, but we know how to deal with inflation. Nothing to get too exercised about. My question is, how did this happen? We know how China’s done it—it’s become the workshop for the world—and we know how India has done it—through IT and other technological stuff. But I have no idea how Brazil has done it. The closest I’ve seen to an explanation comes from Grant Wahl’s fine piece on why Brazil doesn’t like the 2010 edition of its national team:
There's no avoiding the change that is afoot in the land of caipirinhas and capoeira. Police have embarked on a campaign to take back Rio's poor favelas from violent druglords. Construction cranes have popped up everywhere, and even the outstretched arms of Rio's iconic Christ statue are hidden behind scaffolding these days. A recent cover of The Economist shows an illustration of that statue launching like the space shuttle from Corcovado and proclaims BRAZIL TAKES OFF. Fueled by mass-scale ethanol production and the discovery of new deep-sea oil fields, Brazil is expected to pass Britain and France sometime within the next 15 years to become the world's fifth-largest economy. Goldman Sachs included the South American giant in its prediction of four economies—along with Russia, India and China—that will dominate the 21st century. When the country won the rights to host the 2014 World Cup and Rio was granted the 2016 Olympics, the first Games in South America, it was a symbolic confirmation that Brazil now has a place at the adult table in global affairs.
But this scarcely seems to answer the question (not that I’m criticizing Wahl—it’s neither his job nor the intent of his essay to explain why Brazil has taken off): ethanol has been produced for decades now, and at any rate doesn’t seem to explain broad-based prosperity as described by the statistics above. The same for the oil discoveries: you don’t employ and pay an entire nation in broad-based prosperity with those kind of commodities, generally speaking (perhaps the only exception I can think of is Norway, which was an egalitarian nation before discovering oil. Indeed, Brazil’s history of inequality and elites would seem to augur more for exacerbating those trends more than ameliorating them.) So I come back to the idea that I don’t know, but I’d like to know.

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