"The first lesson of economics is scarcity: there is never enough of anything to fully satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics."
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This week’s Marshall’s Thoughts are written by Bai Xuantong.
In early November, Luiz Inácio Lula da Silva, a former factory worker, and Brazil's first working-class president received 50.9 percent of the vote out of 99.97 percent. The controversial figure elected in 2018, Jair Bolsonaro, received 49.10 percent of the vote.
Speaking to reporters at a São Paulo hotel, Lula vowed to bridge his country's divisions after the bitter power race that has deeply divided one of the world's largest democracies.
"We will live in a new era of peace, love, and hope," said the 77-year-old president," I will govern for 215 million Brazilians… And not just for the people who voted for me. There are not two Brazil in the world. We are one nation, one people - one great nation," he said to applause." It is in no one's interest to live in a country divided and in constant war."
A few blocks away on Paulista Avenue, one of the city's main arteries, ecstatic Lula supporters gathered to celebrate his victory and the loss of a radical right-wing president whose tenure was shadowed by nearly 700,000 deaths relating to Covid. "Our dream is coming true. We need freedom," said a delighted Joe Kallif, a 62-year-old social activist who was among the giddy crowd." Brazil was in a hazardous situation, and now we are getting our freedom back. The last four years have been terrible."
Gabriel Soares, a 19-year-old student, jumped for joy as she marked the impending victory of a leader whose social policies helped her get a college education. I feel thrilled," she said ...... In the four years of Bolsonaro, I saw my family regress, and under Lula, they will flourish," she said, a rainbow flag draped over her shoulder.
These public perceptions and statements also illustrate precisely what is happening in Brazil: the economic downturn, the very confusing management of the epidemic, the backwardness of the country's political system, and the bitter internal divisions.
If we want to understand the roots of these problems fully, we also need to start with the history of Brazil. Initially a Portuguese colony, Brazil, rich in resources, became an area that other colonial powers, such as France, wanted very much to possess. To protect this colony, Portugal established a centralized authority in Brazil. It established many governorates to facilitate management, and at the same time, distributed land to large estate owners through lucrative and exclusive state contracts; by this time, only 1.6% of the population of Brazil's estate owners occupied more than 50% of the land. Exploitation was systemic – wealthy landholders would purchase the sugarcane cultivated by their serfs, processed into sugar that the peasantry needed, and sold to them at a high price, extracting steep surplus from the rural working class.
After Napoleon began his conquest of Europe, the Portuguese government relocated to Brazil and declared Brazil and Portugal equal partners in a commonwealth. After Napoleon's defeat, the Portuguese elite in Brazil, influenced by the wartime revolutionary rhetoric, demanded Brazil's independence. Pressured by landowner interests on whom his power partially depended, Prince Pedro of Portugal, a regent in Brazil, announced an independent Brazilian Empire in 1822. Yet friction between the monarchy and landowners persisted and was brought to the fore with the abolition of slavery in 1888, which prompted landowners reeling from the loss of cheap labour to conspire with the military to install a republic on November 15, 1889.
In Republican-era Brazil, the political conflict shifted from nationalist politicians who supported industry, commerce and centralization, to republican politicians who supported a large landowner economy and federalism. Since then, the game between these two interest groups became a central theme of Brazilian politics. The term milk coffee politics or café com leite politics was coined to describe the domination of Brazilian politics under the so-called Old Republic (1889–1930) by the landed gentries of São Paulo (dominated by the coffee industry) and Minas Gerais (dominated by the dairy industry). Export subsidies and import tariff policies were heavily swayed by special interest groups with strong commercial interests.
Because economic interests differed from place to place and produced different goods, many local political parties were born in Brazil, such as the People's Party in Rio de Janeiro and the Social Democratic Party in São Paulo. Paralysis came to define Brazil’s legislative agenda, only to be broken up by military coup.
In 2003, Lula took office for the first time, coinciding with China’s entry into the WTO and demand for essential imports globally to expand its infrastructure. Through this opportunity, Lula was a key Chinese trade partner. In 2010 China was Brazil’s largest trading partner, accounting for over 15 per cent of total Brazilian exports and supplying over 14 per cent of its imports. Revenue Brazil received through exports was also used to strengthen welfare spending, broadly raising standards of living. At one point in 2012, Brazil's GDP in nominal terms surpassed that of the United Kingdom. Everything was looking up for Brazil, which hosted the Olympics and the World Cup. But as China entered a new normal of lower long-term growth, demand for raw material markets by China plummeted. The result was a collapse in Brazil’s GDP by 3.3% p.a. in 2015 and 2016, reducing tax receipts after massive fiscal expenditures on the World Cup and the Olympics.
Brazil's problems are also not just economic but social. According to data, 28 million people in Brazil live in slums, representing 16.3% of the total population, and crime rates remain high. Although Brazil spends 9% of its GDP on healthcare, it ranks last in the world in terms of healthcare efficiency, and the drop in life expectancy at the nadir of the COVID-19 pandemic rivals that of the United States.
Having again been elected president of Brazil, Lula faces a far more complex situation than he did at the beginning.
Politically, Brazil has a vast number of political parties. When either left-wing or right-wing governments come to power, they do their best to erase the political order brought by the previous party. When left-wing governments come to power, they will undoubtedly expand welfare and push to nationalize essential assets, but there will certainly be struggles and corruption in the rapid reform process. And the right-wing, when in power, will fire redundant officials, sell off state assets, and withdraw welfare, an approach that will undoubtedly also be corrupt again.
Economically, it is difficult to fundamentally reverse Brazil's decline because of strong international headwinds. Brazil continues to occupy a relatively low position in global supply chains, as a primary product exporter. Increasing the value-add of Brazilian goods has been and continues to be Brazil’s prime concern since the Second World War II.
On a deeper level, Brazil's geographical location is also a constraint to its development. Throughout the southern hemisphere, countries such as Brazil, Argentina, Chile, and Australia have pursued growth by exporting large amounts of primary resources in exchange for economic growth. This is because the world's largest market, the largest industry, and the best talent are all gathered in the northern hemisphere. The southern hemisphere's market cannot achieve a solid internal circulation, thus boosting GDP. In the long run, it will take a very long time and be very difficult to create industrialization conditions similar to those of the northern hemisphere.
This wonderful and vibrant country is facing an unprecedented crisis. Time will tell if the new president Lula will lead Brazil to a recovery like the one that started in 2003 or will exacerbate corruption and economic recession.
In Case You Missed It:
World Cup Economics: Qatar’s Record Spending is Unlikely to Pay Off: https://www.sportico.com/business/finance/2022/world-cup-economics-qatar-record-spending-1234694134
Biden expected to bring up Chinese economic practices, Taiwan and Russia’s war in Ukraine in first meeting with Xi as president: https://www.cnbc.com/2022/11/10/biden-to-discuss-economic-practices-taiwan-and-russia-with-xi-jinping.html
‘Huge regime shift’: Active managers see boost from the energy trade: https://www.cnbc.com/2022/11/13/huge-regime-shift-active-managers-see-boost-from-the-energy-trade.html
That's it from us for now!
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