The Third World is changing
beyond recognition
By
Jonathan
Power
TFF
Associate since 1991
Comments directly to
JonatPower@aol.com
August 6, 2007
LONDON - The economic landscape of our world is changing so rapidly that today’s children will live in a word we will barely recognize. Most of us grew up thinking of an industrialised world centred on Europe and North America. Out there somewhere was a poverty stricken, very backward “Third World”. But even Africa now seems to be on the cusp of a great leap forward.
We know that by mid century China could be the world’s largest economy, India the third largest and Brazil the sixth. And of these three Brazil might well be the richest per head and with the best distribution of income throughout society, more akin to the developed world than the Third World.
Of course no one can read the future with exactitude. There may be war, revolution, climatic upheavals or just plain economic mismanagement. India with its more secure and viable institutions of governance could pull ahead of the more dictatorial yet more anarchic China. Brazil may not find it is able to put its badly run house sufficiently in order and resume being the fastest growing economy in the world, as it once was.
In all three countries success, in the present developed world’s eyes, will only count if wealth is reasonably well distributed and the harsh poverty of the bottom of the income pile is visibly ameliorated. At the moment of the three only Brazil, thanks to the policies of the newly re-elected Luis Inácio “Lula” da Silva and his immediate predecessor, Fernando Henrique Cardoso, is both improving the lot of the very poor and making for a better income distribution. In China and India inequality appears to be worsening, although there has been a sharp drop in the numbers living under the poverty line.
Many economists argue that a degree of rising inequality is the necessary price that has to be paid for fast growth. But this is a fallacy. Several East Asian economies, including South Korea and Taiwan, have shown that with the right mix of policies high growth, declining poverty and an improved income distribution go together. Vinod Thomas, the former representative of the World Bank in Brazil, is convinced from the evidence of a significant number of studies that its inequality is a break on speedier growth. One of the advantages of Brazil’s Bolsa Familia program, one of the largest cash transfer programs in the world, is that it is not just lifting people out of the worst of poverty it is improving the distribution of income - and it is doing that in an artful way, by only making payments to those families that send their children to school. Thus the educational levels are now improving in Brazil and enhancing the future earning prospects of families. This should work over time to enhance economic growth.
Brazil, in effect, is running its successful macro economic stabilization plan and its improved social programnes in tandem. They call this the “Brasilia consensus”- a snipe at the “Washington consensus”, a movement among powerful, mainly American, economists in the 1980s and 1990s, to sell Latin America on the notion of economic stabilization and liberalized markets, leaving social progress for later, a lobby that caused a lot of harm in much of Latin America, but was perhaps understandable in the light of the 1980s debt crisis and populist plans to improve income distribution in a fiscally irresponsible way.
Brazil’s macro economic progress under Lula has been significant, and is reaping rewards. Over the past five years the spread between the interest rates on Brazilian debt and U.S. Treasury debt has narrowed sharply. Domestic rates are dramatically down. The value of the Brazilian currency has risen strongly. Public debt has stabilized in relation to national income.
For Brazil to go forward faster and further a re-elected Lula needs to go for “quality growth”. This means placing a single-minded focus on the quality of education. It means opening up university education. At the moment it is one of the most regressive in the world with grants aimed overwhelmingly at middle class students. Brazil must also radically reform its tax, pension and social security systems. It must improve the regulatory framework for energy and infrastructure and improve the lethargic attitudes of public services. Not least, it must continue to work actively at reducing income inequalities - Latin America has the worst income distribution in the world and Brazil is the worst in Latin America.
Lastly, Brazil has to stop the continuing rape of the Amazon, a part of the country that is the size of Western Europe. If its forest could be protected instead of being destroyed at an extraordinary pace as a consequence of the country’s rapid growth of agribusiness exports, especially soya, the resulting absorption of carbon could produce a large marketable return for the country over the coming years.
If all this is done, and macro economic policies are sustained and even strengthened, it won’t be too long before Brazil will achieve investment grade rating. Then it can begin about thinking of giving India and China a run for their money. Brazil, come mid century, may well be regarded as the Third World’s most important success story. But the others, including much of Africa, may well not be far behind. Today nearly everyone seems to know what they have to do.
Copyright © 2007 Jonathan
Power
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Jonathan Power can be
reached by phone +44 7785 351172
and e-mail: JonatPower@aol.com
Jonathan
Power
2007 Book
Conundrums
of Humanity
The Quest for Global Justice
“Conundrums
of Humanity” poses eleven questions for our future progress, ranging
from “Can we diminish War?” to “How far and fast can
we push forward the frontiers of Human Rights?” to “Will
China dominate the century?”
The answers to these questions, the author believes, growing out of
his long experience as a foreign correspondent and columnist for the
International Herald Tribune, are largely positive ones, despite the
hurdles yet to be overcome. Martinus Nijhoff Publishers, London, 2007.
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