Brazil’s development

Given my own view that freer trade is necessary to promote peace and prosperity between competing nations, Brazil provides an important national policy example to Australia (and the world) in social and environmental terms.

After all, Brazil (with its population of more than 190 million) is now the world’s tenth largest economic country in nominal terms (9th in purchasing power parity terms), and represents the fifth largest area with many of the world’s most important forests and ecosystems.

In many aspects, Brazil has done well in recent years. Brazil received an IMF rescue package of $US30 billion in mid-2002, after adopting a floating currency in January 1999, which was repaid by 2005.

Brazil has benefited from a global boom in commodity prices (particularly from beef and soybeans), logging, fishing, and the manufacturing of automobiles, steel, petrochemicals, computers, and even aircraft. Unemployment was 8 per cent in 2008.

In agricultural terms, Brazil is a rival to Australia, despite greater potential being offered by a growing world population and rising incomes in China and India alone. In 2004, though Brazil had its problems associated with foot and mouth disease, it was noted that Brazil’s beef production costs were 15 per cent lower than Australia. There was concern that South Asian markets could open further to Brazil at the expense of Australia and New Zealand.

And in September 2008, the Rabobank Group noted that Brazil was set to challenge New Zealand, the European Union and Australia as the major exporters of dairy products.

Already, the World Trade Organization (WTO) indicates that Brazil has increased its share of world agricultural exports from 2.8 to 4.3 per cent between 2000 and 2007 while Australia’s share declined from 3 to 2 per cent. By 2009, Brazil was the world’s largest exporter of beef, coffee, sugar, soy and grain and the world’s second biggest exporter of poultry and pork.

With funding for basic research coming mostly from government sources, Brazil has also developed major technological centres and the most advanced space program in Latin America.

Better economic times also led Brazil to develop a four-year plan from 2007 to spend US$300 billion to modernise roads, power plants and ports.

And after its experience with military governments (1964-1985) which allowed 1 per cent of the population to control 95 per cent of the wealth, Brazil’s democratic governments have achieved important social goals. The percentage of Brazilians living on less than one dollar a day has declined from 9.5 to 4.2 per cent between 1992 and 2005. Malnutrition in children under five years fell from 13 to 7 per cent between 1996 and 2006. And Brazil’s literacy rate reached 88 per cent of the population by 2003 with the youth literacy rate (ages 15-19) being 93.2 per cent.

Brazil’s Ministry of Health has also provided condoms while giving HIV-AIDS patients free antiretroviral drugs which are either manufactured as low-cost as generics, produced and sold without patent, or purchased at a lower price from foreign pharmaceutical companies.

But Brazil provides a national example that indicates to nations like Australia that it is determined to improve its economic well-being with minimal regard for the concerns of Westerners, whether social or environmental.

Brazil, with a per capita GDP in purchasing power parity terms of $US10,300 in 2008 compared to $US37,500 for Australia, continues to develop its economic well-being with higher levels of income inequality with its richest 10 per cent having 51 times the income of its poorest 10 per cent compared to 12.5 for Australia and 4.5 for Japan. The World Bank’s Gini index (2007), which rates nations with a value of 0 representing absolute equality and 100 absolute inequality, gave Brazil a score of 57 compared to 35 for Australia, and about 25-26 for Denmark, Sweden, Norway, and Japan.

A reason for immense income disparity in Brazil is explained by regional differences. The tropical northeast is the poorest region, the cooler south is the wealthiest in per capita GDP terms where many Europeans settled, while the southeast region has the greatest economic output and is the most densely populated.

Eighty per cent of Brazilians live in urban areas, many living in favelas (shantytowns) with inadequate water, sanitation, health facilities and educational opportunities. Hence, crime in Brazil (particularly in major cities) remains disturbing with the US Department of State noting that a majority of crimes are not solved.

Brazil has one of the 20 worst murder rates in the world (about 23.8 homicides per 100,000 residents with 46,660 deaths in 2006 after a figure of 51,043 in 2003). Brazil also has high rates of muggings, robberies, kidnapping (with many forced to withdraw money at ATMs), gang violence, drug trafficking, money laundering, extortion, murder for hire, fraud, computer hacking and internet fraud. And incidents of piracy occur, with the most dangerous incidents occurring around the Amazon river mouth; along with slavery, with 4,133 freed in 2005 from 183 farms by Brazilian swat-style teams.

Brazil’s high rate of crime is hardly helped by high levels of police brutality and corruption: a 2008 report by Philip Alston (United Nations) estimated that police are responsible for 20 per cent of killings in Brazil.

Brazil is also hindered by inefficient public services, and education and health services which do little to alleviate the immense inequality that exists. For instance, the quality of state education remains a cause for concern with public education teachers still underpaid, often working in poor conditions, and having little access to training. Hence, Brazilian education still produces low levels of efficiency for 15-year-old students (particularly in public schools) with its 2003 Program for International Student Assessment score for reading, mathematics, problem solving and science well behind Australia (380 to 526). Further, illiteracy is still about 27 per cent in the northeast.

Other possible obstacles to social progress in Brazil may include a media dominated by a small number of large private companies (often family-owned). Community radio stations are difficult to establish because of a long and bureaucratic process to secure a licence and because stations get closed down by government agents.

Also there is a culture of violence against women, with one incident estimated to occur every 15 seconds despite low levels of reporting to police.

Two thirds of Brazil’s population population still do not have access to the internet, despite improving telephones and internet use.

Privileged elites, income disparity, and freer trade are also contributing to Brazil’s forestry destruction: a major concern given that Brazil lost about 150,000 square kilometres of forest (an area larger than Greece) between May 2000 and August 2006, and over 600,000 square kilometres of Amazon rainforest since 1970.

With less than 3 per cent of the population controlling two thirds of the land available for production, cattle-ranching remains a leading cause of deforestation in the Amazon.

Forestry affects the poor north region most in an area covering 45 per cent of Brazil and including most of the Amazon rainforest and many indigenous tribes. It is also a major cause of violent conflicts between large landowners, poor colonists, and indigenous groups. The Pastoral Land Commission, a non governmental group, has reported that the number of conflicts over land among peasants, farmers, and land speculators rose to 1,801 in 2004 after being 1,690 in 2003 and 925 in 2002.

Further, with about 4.8 million rural families landless, many poor farmers typically clear land to grow crops like bananas, palms, and maize, and move on to clear new forest after a few years when the land becomes less productive. What is left is often infertile, used for small-scale cattle grazing, or left for waste.
 
Brazil’s forests may also face greater pressure as soya and sugar cane are utilised as biofuels with Brazil now the world’s largest producer and consumer of ethanol. Brazil is set to export even higher levels of soybeans after developing a new variety that is said to flourish in a rainforest climate.

So what does the Brazilian policy mix indicate?

There could be severe environmental problems ahead if Brazil’s quest to make a profit is taken into account. The planet is under great pressure with forest areas being cleared to grow food for an expanding human population.

Although freer trade does encourage peace and prosperity between nations, the initial advantage held by the richest nations in per capita resource terms does suggest that poorer nations may be willing to exploit their people and resources to acquire new levels of wealth which may or may not be dispersed fairly. Such income inequality is a matter for Brazil.

If Westerners want to preserve Brazil’s forests, they may have to compensate Brazil rather than merely buying its products. After all, the rich OECD nations accept a considerable proportion of Brazil’s exports in order to maintain their higher standard of living. In 2007, 16 per cent of exports went to the US, 5.6 per cent to the Netherlands, and 4.6 per cent to Germany, although China received 6.8 per cent.

There are other important points to be learned from the Brazilian policy experience.

First, Australia must do what it takes to preserve a high level of economic activity. This may include promoting renewable energy industries, but also ensuring that taxation levels and labour market flexibility maintain national economic competitiveness. If not, then nations like Brazil (along with China and India) are ready to exploit any new opportunities which will only increase as their own domestic economies expand in terms of consumption policies.

Second, Australia must continue efforts to ensure that wealth generated is distributed fairy and evenly in a way that balances compassion and competitiveness. In other words, any social welfare may need to be streamlined and better targeted with more for the poor and less for others as income rises.

So for those who focus on the destruction of Brazil’s forests, or note Australia’s supposed unequal society, please pay greater attention to the competitiveness of the international economy and remember what we need to do to maintain our way of life. It is going to get a lot harder for Australia to fulfill its economic, social and environmental needs, but we only have to look to Brazil to observe how lucky we still are.

As long as freer trade remains the dominant paradigm influencing international governance, and economic growth with its growing variety of goods and services prevails, economic competition will remain the definitive policy game.