Brazil's
New Options for Development:
Leap Frog Technologies, Plus Jobs
in Eco-Efficient Infrastructure
By
Hazel
Henderson
TFF Associate
www.hazelhenderson.com
March, 2004
Brasil's government headed by President Luiz Inacio
"Lula" da Silva has proved to doubters in international
finance its competence in managing the economy. This
sprawling nation is self-sufficient in energy, plentiful
agricultural land and natural resources, with vast
untapped domestic markets. Its 180 million motivated
citizens boast, by the new quality-of-life statistical
measures (www.calvert-henderson.com)
one of the highest per capita income and wealth in the
world. Investors who distrusted President "Lula's"
economic team lost big. They watched Brasilian bonds and
stocks rise over the past 15 months by over 150% and the
equally stellar performance of Brasil's exports.
Now President Lula is braced to implement his promise
to develop Brasil's real economy, provide jobs to address
official unemployment figures of 13% and match its
export-led growth with similar growth of its vast
untapped domestic markets. This will entail a bold change
of emphasis - away from the now-discredited conventional
formulas for GDP-growth favored by the "Washington
Consensus" (the IMF, the World Bank, the US Treasury and
their economists).
82% living in
cities
Brasil must focus on its own reality rather than the
old "one-size-fits-all," trickle-down, averaged
GDP-growth model - akin to flying over the country at
50,000 feet. On-the-ground details show a country with
now 82% of its people living in cities - still migrating
from the rural areas where two-thirds of them lived in
1950. This rapid urbanization had many causes. Mechanized
monoculture of soy, sugar cane, etc. drove many out of
agriculture into self-built favelas around cities where
they sought work and the better life portrayed in mass
media and advertising. Land was widely bought up as a
"store of value" during periods of high inflation and
distrust of depreciating currency.
Neither private sector companies nor public sector
infrastructure could absorb this growing urbanized
population's need for employment. As in most Latin
American countries, resourceful people made their own
way, built their own housing, started micro-enterprises
on the city streets, and lobbied for basic sanitation and
public services for their own neighborhoods. Peruvian
economist Hernando de Soto has documented the striving
for better lives of these "informales," the smart
entrepreneurs and homebuilders of the favelas of Peru in
The Other Path (1989). His formula for recognizing the
human and property rights of these micro entrepreneurs
and workers in this emerging "third sector" of civil
society - is now widely-accepted.
Many Latin American governments, as well as those in
Asia and lately Europe and North America now have
statisticians trying to document the enormous size
(sometimes over 50%) of these informal sectors - not
included in their official GDP and other macro economic
measures. For example, in Italy, half of the population
still relies on their roots in the informal, traditional
and agricultural sectors when jobs dry up in the official
GDP-measured sector.
The enormous
informal sector, untapped resource
Thus, the first order of business for President Lula
will be to accept the report of the October 2003
International Conference (ICONS) in Curitiba, co-hosted
by FIEP and many companies, which brought 700
statisticians from Latin America, Europe, Asia and North
America to compare their new statistical models - beyond
the conventional GDP. These capture these informal
sectors and the jobs and livelihoods they contribute,
where underserved poverty areas require basic sanitation
(showing that $1 of investment yields a saving of $4 in
reduced health costs, epidemics, etc.), statistics
readily available from the Brasilian Association for
Quality of Life, IBGE and IPEA.
The reports from ICONS (www.sustentabilidade.org.br)
also highlighted the need to unpack official unemployment
statistics such as Brasil's current 13% (and the USA's
5.6%). In Brasil, adding back in those "discouraged" job
searchers dropped from the statistics after one year
brings unemployment to 20%. The working age population is
115 million people. Documented workers in the private
sector only number around 20 million (less than one
quarter) while another 7 million are employed in public
sector services. This shows the enormous size of Brasil's
informal sector - a huge untapped resource. There are
high-leverage returns to public investment providing the
huge backlog of public services in (1) basic sanitation
(2) 6 million affordable, upgraded housing units for 20
million people and (3) catching up the lag in public
infrastructure, green space, etc. in cities due to the
rapid rural to urban migration.
All these public investments would provide basic
platforms for local development both in underserved
neighborhoods in Brasil's large cities and hundreds of
small towns. Some towns in beautiful coastal areas have
lost valuable tourist trade due to soiled beaches from
inadequate sewage treatment. Investing in such basics - a
program advocated by a broad coalition around CUT
(Central Unica de Trabalhadores - the PT group of
Brasilian unions), would not only provide millions of new
jobs, added tax revenues and a rapid multiplier effect on
local economies. It would pay off in better public
health, more children in better schools, and real
advances toward "zero hunger" and other important
sustainable development goals.
Comparing the US
and Brazil
Will Brasil move toward such broader, sustainable
development goals? A big question is whether Wall Street
and global bond markets will see this as just "adding to
Brasil's public debt" or more "Keynesianism." US
President Bush's massive economic and fiscal stimulus,
which has taken the USA from a large surplus to a $550
billion deficit since he took office, is similarly
criticized. The difference is that Mr. Bush's policies
produce few lasting public assets. His tax cuts skewed
toward corporations and wealthy investors - produced
little retail spending (since these people save and
invest). Investment tax credits are often used not to
create jobs in the USA, but to move jobs and factories to
China and India. This accounts for the current backlash
and growing support for Democrats. Furthermore, over $100
billion has been committed, so far, to the war in Iraq
and reconstruction there. While US states have deficits
of some $65 billion, over $450 billion will go to the
2004 military budget and $40 billion to Homeland
Security. Three million jobs have been lost in the USA
since 2001. New jobs are mostly in government and the
public sector, i.e., "industrial policy" and
Keynesianism.
Brasil is a very different case: the huge
infrastructure backlog in cities could be matched with
underutilized local workforces, stimulating growth in
domestic markets. Credit unions could recycle these funds
within local communities. The small businesses of SEBRAE,
their national association, support this domestic growth
strategy. Key to success is assuring global investors
that Brasil's infrastructure development will create
valuable long-term public asset and goods. As financial
markets are beginning to adopt the new statistics of
sustainability and quality of life, they will recognize
the needed corrections in GDP national accounts.
This means creating a long-recommended asset account
to balance public investments with the long-term value of
the public infrastructure they create. These are
amortized (as in corporate balance sheets) over the life
of these assets: universities, schools, hospitals, roads,
airports - even the public investments by President
Juscelino Kubitschek that created the bustling city that
is Brasilia! When these retroactive and current asset
accounts are adopted (as "savings" in the USA since
January 1996 and by Canada in 1999) the size of the
actual public debt is cut by about half! Such "stroke of
the pen" accounting corrections contributed one third of
the US surplus during the late 1990s, and a $50 billion
surplus in Canada.
The need to educate
the Washington Consensus
Finance Minister Dr. Palocci and central banker
Henrique Meirelles have done a great job of helping to
correctly portray Brasil's enormous economy with its huge
untapped, uncounted potential assets. Now they need to
educate Wall Street and inform Washington Consensus
ideologues about Brasil's cultural, social, human and
ecological assets. While recent conventional GNP measures
by consultants Global Invest show Brasil as slipping from
the world's 12th to 15th largest economy - broader
measures of its uncounted assets would likely place
Brasil in the top ten. These and the new public
investments such as CUT proposes should, from now on, be
correctly accounted as investments - not "spending" in
the PPA - and added to GDP. The dividends from these new
assets can also be projected: more jobs, tax revenues,
local economic development, better health, education and
visible improvements in urban quality of life for 82% of
Brasil's urban dwellers.
Once financial markets grasp Brasil's new development
model they will also see that Brasil is more than a great
exporter of a full range of competitive products - from
airplanes to agricultural commodities. Brasil can also
show the world what a sustainable world trade model looks
like. SEBRAE is developing such a strategy - on which I
was asked to comment at their convention of more than
1,500 Latin American entrepreneurs in Vitoria, October
2003 (www.hazelhenderson.com).
At the heart of a sustainable world trade strategy is
still the model of comparative, not competitive,
advantage. This is widely misunderstood today. The
current Washington Consensus model of promoting
export-led growth and foreign investment has put many
developing countries into competing to export identical
products, from coffee to computer chips. This has led to
many glutted world markets, worsening terms of trade,
greater public and private debts and defaults, as in
Argentina.
Brazil's cultural,
social, human and ecological assets - and new
partners
Comparative advantage is a cooperative "niche"
strategy - thinking harder about a country's unique
assets: cultural, social, human and ecological. SEBRAE's
rethink of Brasil' "brand" in world markets lead to much
more careful analyses - and a better balance between
domestic market versus export market development.
SEBRAE's focus is practical - building on all Brasil's
real strengths: social, cultural and natural resources.
Some shifts may be simple. For example, I suggested as a
US analyst based in Florida that beyond competing with US
trade barriers and selling orange juice to Floridians
(who often have fresh oranges in their local markets and
gardens) Brasil could send us their delicious mango juice
- a delicacy we rarely see.
Lastly, Brasil can continue its focus on smart
eco-efficient investments in leapfrog technologies,
expanding partnerships with Chinese and Indian innovators
in solar, wind power, hydrogen and fuel cells. Brasil led
the world in flexible fuel vehicles (FFVs) that can run
mixes of gasoline, ethanol, and methanol - and can
mandate these and other transitional electric-gas hybrid
cars now widely favored in the USA. PETROBRAS, FIEP,
CEMIG, member companies of Instituto Ethos de Empresas e
Responsabilidade Social and those that are endorsers of
the UN Global compact are now repositioning themselves in
these growing 21st century global markets. They will take
advantage of the more efficient, cleaner, greener
technologies and investments that will provide Brasilians
jobs and prosperity over the next 20 years.
Unlike the USA, which is still backing into the future
looking through the rearview mirror, Brasil's Economic
and Social Council's "BRASIL VISION 2020" created at FDC
in Belo Horizonte October 2003, provides the roadmap to
this equitable, prosperous sustainable future.
****
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For InterPress Service
HAZEL HENDERSON, futurist, evolutionary economist, is
author of Beyond Globalization and other books. She
co-created with the Calvert group of socially-responsible
mutual funds, the Calvert-Henderson Quality of Life
Indicators (www.calvert-henderson.com).
©
Hazel Henderson & TFF, March, 2004
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