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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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).
