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Following the Yellow BRIC Road
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Luis Inacio “Lula” da Silva was re-elected president of Brazil on Sunday with almost 62% of the votes. Just like the first round three weeks ago, this was an entirely electronic election. More than 125 million Brazilian voters encountered virtually no glitches. Less than three hours after polling closed at 5pm on Sunday, all results were known – and uncontested – in the presidential as well as in state-governor elections.

No dodgy Diebold machines. No Florida 2000. No Ohio 2004. Mid-term American voters in Arizona, Colorado, Connecticut, Florida,
Indiana, Maryland, New York state, Ohio, Pennsylvania and Washington state – where scandals may possibly occur on November 7 – would kill for this kind of transparency.

In the early 2000s, a group of Goldman Sachs economists came up with the fuzzy concept of BRIC, which grouped Brazil, Russia, India and China as the great emerging economic powers of the 21st century – the main actors of a major geo-economic shift.

Apart from this, there are not exactly a lot of similarities within BRIC. China is already the factory of the world. Russia is what may be dubbed the Gazprom nation. India strives to become a key supplier of services. And Brazil, in the absence of a national project, still does not know exactly what it wants; certainly not just a role of key supplier of raw materials.

True, the Brazilian economy may overtake Italy’s in 2025, France’s in 2031 and Britain’s in 2036. The question is how. And especially how to integrate the vast masses excluded from the banquet.

Former Brazilian president Fernando Henrique Cardoso (1995-2003), a star sociologist converted to neo-liberalism, does not believe in an abyss between rich and poor in Brazil, but in a division between a “modern” and an “archaic” country. Voters declared this to be positively silly.

With more than 58 million votes, Lula – a true political myth, former working-class hero turned president – won his re-election because Brazilians of all classes consider social inequality the key national problem. With Lula, for the first time a Brazilian government has done something in practice to reduce this inequality, which is imprinted in the country’s history and social structure. Brazil harbors one of the more arrogant, rapacious and prejudiced elites in the world, arguably worse than in India, Pakistan, Turkey, Egypt or South Africa.

Lula – not British Prime Minister Tony Blair – may have offered an embryonic, political “Third Way” to the bulk of the developing world. It’s a mix of neo-liberalism with attentive social policies. Under the framework of a strict monetary and budgetary policy, the first Lula government has managed to raise the minimum wage by 25% and extend the flagship, state-sponsored family-allowance program to 12 million poor families who are committed to sending their children to school.

Brazil cut its budget deficit and its dependence on foreign capital and got rid of currency devaluations and recession. The problem is that the country’s economy grew only by an average of 2.8% for these past four years, a pittance compared with the other BRIC nations.

So Lula’s crucial task is to create the conditions for the Brazilian economy’s serious growth. As Brazil is a federal state, this implies somewhat painful compromises with state governors (but now 60% of them are Lula allies). Brazil essentially needs an agrarian reform, to cut with Indian-style bureaucracy and inefficiency, to invest heavily in education and to increase productivity. And to better fight against poverty and exclusion, Brazil must also reform its pension system and lower interest rates – the highest in the world.

China and Russia have already found their respective development models. China’s approach has been particularly seductive to Africa – while at the same time the Chinese offensive in Africa is regarded by many as a new form of imperialism. Russia has met with widespread suspicion because of internal violence and corruption.

As two of the world’s largest and more dynamic democracies, it may be more enlightening for the rest of the developing world to see how India and Brazil are grappling with the long and winding yellow BRIC road.

Brazil has an inflation trauma – it lasted more than two decades. That explains why the main focus in Brazil, unlike India, is not growth, but to tame inflation. The task at hand in India is even more staggering than in Brazil: in India, more than 300 million people subsist on less than US$1 a day. That’s way more than the total Brazilian population of 186 million. India has managed to grow its economy at an annual average of 6% while keeping inflation under control, at 5% a year. If India follows this track it will have managed to reduce poverty significantly by 2030.

Compared with Brazil, India has better and longer-term-oriented planning. The Manmohan Singh government’s support base in parliament is even slimmer than Lula’s Workers’ Party in Brazil. But matters of national interest seem to move at a brisker pace – such as the approval of a straightforward measure allowing foreign investment in infrastructure and the construction business. Unlike Brazil, government bureaucracy in India does not interfere with essential issues. Lula has promised this will change.

India invests more in research – in more than 250 universities. Instead of exporting manufactured goods, like Brazil, India exports services, especially in technology. Another key Indian advantage is the globalized spirit of many of its leading corporations, such as Mittal, Tata, Infosys and pharmaceutical giant Dr Reddy’s. Unlike Brazil, India knows very well how to sell itself, in English, in the global market. Brazil’s global image may be as good as India’s – because of music, soccer, fashion – but not as good in business matters. Any global investor is attracted to India’s skilled workforce, which is relentlessly advertised as a “competitive advantage”. Not accidentally, one of India’s mantras is “fastest-growing free-market democracy”.

But in fact both India and Brazil are still very hard to do business with. On a global business-friendly list, Brazil ranks 121st and India 134th. In India it takes 35 days to open a company; in Brazil it takes 152. The global average is 16.1 days.

ORDER IT NOW

Brazilian companies pay 71.7% of their profits in taxes; Indian companies pay even more, 81.1%. The global average is 47.8%. According to World Bank research, for Brazilians the main problems to doing business are high taxes and economic instability, while for Indians they are corruption and the cost of energy.

In India, if you make more than $2,000 a year, you’re considered middle-class; that would be about $3,600 a year in Brazil. In Brazil there is still not a concerted effort to offer really popular products to the lower middle classes and the poor. That’s not the case in India, where, for instance, Tata is investing in the production of a popular car that will sell for only $2,000.

Brazil is also much more expensive than India for local business. Corporate financing in India costs about 14% a year. In Brazil it’s 60%. Personal credit in India costs about 26% a year. In Brazil it’s 90%. Micro-loans have already benefited 32 million people in India, to the tune of $1.5 billion. In Brazil the figure is close, $1.2 billion, but only 3 million people have benefited. The vast informal economy represents 23.1% of India’s gross domestic product (GDP), and 39.8% of Brazil’s.

Brazil holds a few comparative advantages. India’s public debt is larger than Brazil’s – 79.5% of GDP, compared with 51.5%. And unlike India faced with Pakistan and China, Brazil has no border problems. So defense spending is higher in India (4% of GDP) than in Brazil (only 1.5%). Brazil is the de facto leader of the G20 – the group of countries that fights in the World Trade Organization against agricultural subsidies by the US and the European Union. Were subsidies to decrease by the next decade, that would be a major boost for Brazil’s powerful agribusiness sector.

Lula promised that Brazil’s economy would grow by 5% in 2007. It’s still not enough, as 8% is still not enough for India. The fact is the developing world remains ready for a Third Way – a more equitable system solving that elusive equation of solid economic growth coupled with social conscience.

(Republished from Asia Times by permission of author or representative)
 
• Category: Foreign Policy • Tags: Brazil, BRICs 
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