Why Brazil Won't Take Off

Today the FT has a story on Brazil's growth pains that starts with Corinthians, the second most popular Brazilian team, fielding a Chinese player to help it sales in China

The player in question, Chen Zhizhao, neatly summarizes why Brazil still has a long way to go if the country really wants to take off:

“In China, not much people [are] interested in football. The children are studying too much.”

Given the current state of Brazilian education, awful at all levels, there is no way the country can ever compete in human capital-intensive industries. All that is left is being good as a primary goods exporter. Even at that, we also need to get serious about infrastructure.

I wish I could be more optimistic about my own country...

Some ramblings on Brazil - Part I - Recent Past

Hello everyone. 

Happy Holidays! I'm currently in Rio enjoying the break under 30-degree weather (well, it's actually raining at the moment) rather than semi-freezing in London (to be honest the weather has been great this year).

As I take a break from meeting family & friends, eating good food, and preparing classes for my upcoming course at Cambridge, I sat down and started thinking a little about the current economic situation of Brazil and my humble predictions for the near future and I thought that this would make an interesting post to share. I'll start with a quick overview of the recent past. On the next post, I will talk more about some of the economic bottlenecks and my view on what is going to happen. I hope it is not too long! 

My biggest concern is that Brazil is quickly approaching a ceiling given its current structure. I'm very skeptical about whether the country can sustain 4-5% growth or not and I am seriously worried that the burst of the current bubble is just around the corner. Anyway, here is my take on the near past:

Following years of bad macroeconomic policies in the early 90s, the Brazilian Social Democrats party (the PSDB) finally put the house in order and pushed through some needed economic reforms (breaking up inefficient state monopolies, budgetary expenditure checks and balances, etc.). These reforms are really what made the "growth miracle" seen under former president Lula's Workers party (the PT) possible, riding the good international climate and the benefits of the sudden emergence of a large set of consumers enjoying better economic conditions. The country had given up so many growth opportunities before sorting out its inflation problem that a huge pent-up potential was unleashed after the Real plan, the privatization of major companies, and the improvement of the international situation after the late 90s financial crises.

To Lula's merit and contrary to many people's opinions (including mine), he didn't messed up with the economy and carried on the same sensible policies implemented by the PSDB. His party was strongly against the Real stabilization plan, the fiscal responsibility law, and the banking reforms (to mention just a few), which are now touted as the ones that enabled Brazil to withstand the nasty effects of the crisis. I'm not even going to talk about the large corruption schemes that have taken place after Lula stepped into power. What makes me the saddest is that he could have achieved so much more and squandered the opportunity to implement structural change at a time when the global climate was very favorable.

Unfortunately, if you look at the reforms that Brazil desperately needs to shift up a gear, nothing has really happened in the past 10 years. Labor, pension and tax law reforms are major bottlenecks of growth and will stifle any chance of sustainable long term growth beyond 3-4% a year. All of these changes need constitutional reforms that are very difficult to pass through parliament, specially under Brazil's crazy multi-party political system. Lula decided not to fight to push them through, opting to making minor changes through regular legislation, and even those were mostly a waste. His successor, Dilma Roussef, appears to be following the same path as well.

Nonetheless, here we are: Brazil is the current darling of markets. Dozens of large companies are trying to enter the country, the expansion of consumer credit is booming, and it will host the 2014 World Cup and 2016 Summer Olympic Games.

Things look great, but now what? Stay tuned for the next post!

Airton Senna

Yesterday I watched the Senna documentary on TV. I loved it and hope it gets an Oscar nomination (and wins the prize of course!). 

Senna was one of my childhood heroes and probably Brazil's most beloved sporting hero (maybe even more than Pelé). In my family, just like many others in Brazil, it was a tradition to watch the F1 gran-prix on Sundays. The European races would usually start around 11am-12 and my uncles and cousins would come to my house and watch the race while preparing Sunday lunch. There so many good memories of Senna, Nelson Piquet and their battles against Prost, Mansell and others. Great times for F1!

Senna's death is similar to JFK's death for Americans, in the sense that every Brazilian remembers what they were doing upon hearing the news. I was watching the race live and remember my mother crying and everyone being really sad when we realized what had happened. 

In a country lacking role models it is very emotional to revisit Senna's trajectory all over again. In the documentary they ask Senna about his best sporting memory and he mentions his first kart races in Europe, when it wasn't about the money or the politics, just pure driving. 

It is sad but I guess this is how many things work nowadays. Maybe I'm getting old and sentimental but I feel that things were more about emotions and getting things done rather than today. Now it is all about money, internal politics, and people feeling entitled for everything without willing to put in the hard work needed to get things. 

Anyway, I hope you all watch the movie. (Americans will need subtitles to truly enjoy it.)

Brazil Definitely Needs Something Like This

I read this post on Andrew Gelman's blog  that is really cool.

Ipaidabribe.com is a not-for-profit website in India asks for people to anonymously reportany bribes they had to pay when dealing with the government. This is a cool way to guide anti-corruption efforts and see which part of the government should be better controlled.

Here is an example of what they have:

http://www.stat.columbia.edu/~cook/movabletype/archives/2011/01/bribing_statist.html

The Economist - Christmas Issue III - Barbecues

My apologies to my vegetarian friends, but who doesn't like a good barbecue? The last article that I enjoyed reading is about the American barbecue culture.

I guess that in Brazil, Argentina, and Uruguay we have a similar love for a good barbecue but use much less seasoning than in the US. Here a good barbecue goes with "farofa" made out of yucca (or manioc) flour (difficult to explain its taste unless you have tried it, but think about sand that tastes deliciously).

Food is such a strong way to make people bond... Traveling around Italy, France , and Spain just chasing their regional cuisine is an amazing experience and one of the joys of living in Europe.

Still a long way

Lots of student and non-Brasilian friends ask me about the Brazilian economy and its recent emergence as an economics power house. I usually tell them that we have gone a long way, but still have a million problems to solve.

This graph below (from the FT's Beyond BRIC's blog shows the composition of Brazilian exports since 2002 split between primary and manufactured goods. Much of the increase in primary goods can be explained by the commodity price boom (both in prices and Chinese demand).

This is all fine in simple monetary terms, but if Brazil ever wants to be at the frontier of development we serious need to begin developed higher value-added products (and research). Otherwise we will be the granary of the world (with good caipirinhas and samba) and that's about it.