The American Spectator : Brazil Tutors the Big Dogs

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Brazil Tutors the Big Dogs

By George H. Wittman on 7.17.09 @ 6:07AM

Obama's sophomore socialists have a lot to learn from President Lula's Reaganomic policies.

There is a host of statistics that hail the amazing vitality of Brazil's economy. Perhaps the most impressive, however, is the fact that Brazil has leaped over Canada as the number two in hemispheric national GDP. In fact, this vast and dynamic state now is estimated to be producing nearly 60% of the entire South American economy.

Brazil has achieved its dominating status by running counter to the contemporary industrialized world trend; by privatizing major industries such as telecommunications, mining, petroleum, transportation, etc. This all has been accomplished under both its earlier center-conservative president, Fernando Henrique Cardoso, and then surprisingly continued under the left-wing unionist, and current president, Luiz Inacio Lula da Silva. It's a lesson President Barack Obama and his single-minded, simplistic-thinking, big government economic advisers would do well to learn.

During the recent year of stress on the world economy, Brazil substantially reduced reserve requirements of its private banks (the amount of their deposits they have to place in the central bank). The government then made temporary reductions in sales taxes on big ticket vehicle and household items. The result of this startling free enterprise (dare we say Reaganeconomia) action has been characterized by the Financial Times as having "returned sales to pre-crisis levels."

While the Obama sophomore socialists are playing with a second stimulus package, Brazil's government has chosen to extend its tax cuts for several more months during the third quarter of the year as well as totally exempting certain key capital goods. And this has occurred under the pragmatic leadership of a man representing the political left wing of his country.

The popular government of Lula da Silva has just announced plans to attack a vexing problem that none of its predecessors were able to do. It has taken steps to reduce the cost of labor for all private industry while not cutting employee salaries. Back in the 1930s Benito Mussolini's Italian government introduced the concept of having private employers pay a portion equal to a percentage of workers' gross salaries into national welfare funds. Brazil became enamored of this device.

Brazil has faithfully followed this antiquated example to the tune of 25.5% on top of all salaries. The result has been to depress workers' salaries while at the same time adding to Brazil's high labor costs. Competition on world markets has suffered and exports seriously impacted. The expectation is that with the new reduction in employer taxation Brazil will now be able to compete vigorously in world markets of food and industrial commodities as well as petroleum products and financial services. It has been speculated that the additional revenue gained through increased corporate profits will more than replace the loss of the surcharge calculate on workers' salaries.

One of the more exciting prospects for Brazilian industry exists in the potential sale of its "flex" automobiles. Brazil manufactures 90% of all cars sold domestically. Not only is the price of the vehicle attractive, but the driver can choose to use either ethanol or gasoline -- or a combination -- upon arriving at the pump. That Brazil, itself, produces all of its required ethanol and petroleum keeps the price well within the automobile owner's pocket book range.

Unfortunately this rose garden also has its share of thorns. To begin with, the highly popular flex car has limited export attraction as few countries can match Brazil's alternative fuel production capacity. Sales of the flex vehicle are highly dependent on continued government subsidies through tax breaks. Adding to the problem of automobile transport growth is the truly decrepit state of Brazil's roads -- to say nothing of the Wild West driving habits of its citizens.

Graft and a well-organized bribery culture tend to add substantially to the cost of doing business in the otherwise energetic economy. One thing that vexes all businessmen, both Brazilian and foreign, is the continuing danger of violent crime, and, most particularly, kidnapping for profit. As a result, the insurance business thrives on K&R (Kidnapping and Ransom) policies -- a lamentable but lucrative business.

Nonetheless, Brazil has done exceptionally well in these parlous times; and done so using to the fullest all possible methods to encourage free enterprise. At the same time Brazil has been imaginative and yet exceedingly self-controlled in its federal financial subsidies. The administration in Washington can learn a great deal from the success of this dynamic South American giant -- if it will remember that the United States economy was built by private enterprise and not by government!

topics:
Global Financial Crisis, Economic Freedom, South America

About the Author

George H. Wittman writes a weekly column on international affairs for The American Spectator online. He was the founding chairman of the National Institute for Public Policy.

Letter to the Editor View all comments (30) | Leave a comment

frost| 7.17.09 @ 8:07AM

(he's baaack, albeit briefly) Although Lula made some really dumb observations (sounds like Joe Biden sometimes) recently about "blue eyes," his country is more Free than ours - - fewer restrictions, prosperous (very few empty stores) and thriving, unencombered. Aside from the uneducated, classless types who can be found in slums anywhere -- they're self-sufficient in gas-oil, because they had the courage to actually DRILL FOR IT, unlike the numbnuts here in our country who just want to "wish-away" our problems. Further, the Political Correctness is in its infancy -- you can still actually smoke on the beach and in bars/restaurants! Imagine that.
There is no word in Portuguese for “understatement” – and maybe that’s a reason why Brazil is called “one of the most lovable countries in the world.” Travel author Jack Harding said: “Anyone who does not get along with (Brazilians) had better examine himself; the fault is his.” Singer/”intellectual” Caetano Veloso said in an interview: “Staying young is an idea that is present all over the world, but in Brasil, it’s an obsession.”
And a Brazilian law professor once said the most original feature of the Brazilian culture is the conviction that one can be (at once) sweet and great.” Then, said another creative genius, “If you consider the planet a living entity, Brazil is its heart; thus, Brazil’s function is to bring happiness to this earth.” There was one area of disagreement – this quote from silly French actress Catherine Deveuve: “Brazil doesn’t attract me. It’s too consistently carefree.”
We could learn a lot from their attitude(s), especially concerning race relations -- and remember, Brazil imported SIX times more black slaves than our US. Yet, they appear to have far fewer problems than we -- they seem to have handled it much better.

Tripp| 7.17.09 @ 11:13AM

That's it! If Barry gets elected again, I'm learning Portugese and movin to Rio!

Howard| 7.17.09 @ 11:26AM

Brasil still has quite a way to go. Their infrastructure is poor, corruption is rampant, and their education system is mediocre at best. However, they are advancing rapidly. And as a rule, Brasilians enjoy life with great gusto. Wonderful country, wonderful people.

frost| 7.17.09 @ 12:18PM

Tripp, may I suggest the Urca neighborhood in Rio -- in the shadow of SugarLoaf, on the water, around the bend; just like a small town, really, in a city of 9-11-million. The busses are so much fun (and the drivers so nuts; Mario Andretti to the umpteenth power) you don't want/need a car, and you're just an entertaining ride from downtown, the beaches, or the Sunday Frea-Market in Impanema. The only alternative worth mentioning, the Pacific Coast of CostaRica, Jaco' or Quepos maybe.....

Thom| 7.17.09 @ 7:21PM

George, I certainly hope a modern Nation with 6-7 times the population of Canada can match or exceed the GDP of Canada. Much of what I’ve read here bears out with my experiences from the 1970s and late 1980s but all the currency I still have from that period wouldn’t buy a pack of gum today. Every time I went there it was a difference currency or debased old one (1000 stamped after the numeric value of the currency I had from before). The Brazilians I stayed with in 1986 had three Nanny’s/Maids and I was introduced the reality of the statement “you have a maid or are a maid”. The blended racial mix of the Brazilian culture tends to hide the darker underside of the culture that is a bit more “black and white” here. I stayed with mild skin color Euro/Portuguese people who had darker skinned African/Portuguese maids and Nannies. I stayed in a million dollar villa in Impanema and visited the same “flea” market Frost refers to. The villia didn’t have a single screen or AC in it and was surrounded by a brick fence with broken glass embedded in the top rail. The Maids lived up in shanty town where mud slides killed them by the hundreds when I was there. Violent crime was off the scale and my friends there were very protective of me because I was “touristia”. The people I stayed with near SugarLoaf wanted to immigrate to Canada then because their money meant nothing there. A Brazilian I met last year in a high tech school in Northern Virginia was already living in Canada. The point of all this just to make the point that on a Per Capita basis Brazil isn’t such a hot place to live but a fun place to visit for those with the GDP living standard and deposable income of a USD based economy. The Brazilian people are a fun loving people “live for today for we may die tomorrow” kind of thing but underneath there is some dark history and ugliness that that outward appearance hides from visitors. They’ve come a long way for sure but none of my ex-pat Brazilian friends want to go back home and live there. Probably has something to do with having 6-7 times the population of Canada and only the GDP of Canada.

rdman| 7.17.09 @ 7:30PM

frost,

...or Atenas in the mountains, close to San Jose and the Jaco beach.

But Costa Rica is getting a bit crowded and pricey with all the baby-boomers escaping Socialist US.

Point is... there are still paradises in the world!!

Mike Delta| 7.17.09 @ 7:34PM

Regarding Lula's blue eye comments, please enjoy this article:

http://www.huffingtonpost.com/marilia-duffles/brazils-charmingly-un-pc_b_181746.html

rdman| 7.17.09 @ 7:36PM

frost,

Forgot to mention... Costa Ricans use the term "Pura Vida", loosely translated "The Good Life". Costa Ricans are largely responsible for the paradise that Costa Rica is... and the Ticas, Oh My!!!

air yeezy| 7.17.09 @ 10:43PM

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دردشه| 7.18.09 @ 7:34AM

Point is... there are still paradises in the world

IMKessel| 7.18.09 @ 5:12PM

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Baby Bath Robe| 5.22.10 @ 6:59AM

My boss' wife is from Brazil and they visit there several times per year. They always have nice things to say about it.

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RC Jet Builder| 1.7.12 @ 1:31PM

Great article. Despite it's age it still holds true - after all nothing brought home Brazil's rise than it overtaking my country in international ranking. The United Kingdom in now the 7th Richest Nation in the world, overtaken by Brazil very recently.

Time for the west to make space for the up-and-coming BRIC countries eh?

Thanks, AJ
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