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Pepe Escobar

Pepe Escobar

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Is Brazil the New United States?

Posted: 09/29/10 10:57 AM ET

SAO PAULO -- Brazil is the country the whole world loves to love. Brazil is a (joyful) riddle wrapped in an (chaotic) enigma, with the added complexity that the riddle and the enigma are ritualistically juggling with a football, dancing a samba, ogling a sensual mulata, watching a telenovela and sipping a lethal caipirinha -- all at the same time.

The distinctive cultural trace of Brazil is anthropophagy -- from culture to technology, the legacy of a former, lazy European monarchy in a tropical country where the aborigines, after banqueting over the odd whitey, were merrily exterminated while Europeans and black slaves copulated freely, with no Catholic guilt involved (there's no sin below the Equator). If this sounds like the plot of a carnival parade, that's because it is.

De Gaulle once quipped that Brazil "is not a serious country". Multi-ethnic, multicultural Brazilians, addicted to tolerance but most of the time drenched in complacency, preferred to believe -- and joke about -- the eternal promise of "the country of the future" (as novelist Stefan Zweig coined it over 70 years ago).

Now Brazil is on a roll -- and profiting from global goodwill has become a crucial element of Brazil's re-turbocharged soft power. It don't mean a thing if it ain't got that Brazilian swing. The country is the "B" in Goldman Sachs-coined BRIC -- the new, emerging global powers; less inscrutable and misunderstood than China, less authoritarian than Russia, less shambolic than India (and with no religious problems). And let's face it; much more fun. A new, two-fold national narrative has taken over; Brazil will become "the 5th power" -- that is, the 5th largest global economy (bye bye Britain and France). And the New American Dream is made in Brazil.

Surfing USA, remixed

No wonder Anglo-American elites of the North tend to fry their brains confronted with so much tropical ebullience. At the G-20 in London US President Barack Obama could not contain himself. "I love this guy," he said of Brazil's President Lula, "he's the most popular politician on earth." Time magazine recently named Lula as "the most influential person in the world." The Economist, never a fan of hyperbole, is convinced Brazil will become the 5th power by 2025.

But was the London Independent hyperbolic when it blared, "the world's most powerful woman will start coming into her own next weekend"? On Sunday, Dilma Roussef, 63, Lula's former Chief of Staff, may indeed become the next Brazilian President even without a run-off on October 31. She may indeed become more powerful than Angela Merkel or Hillary Clinton - but Brazilians would quip, what about Madonna and Angelina Jolie?

The Financial Times, for its part, preferred to buy lunch last Friday in Sao Paulo to former President (1995-2002) Fernando Henrique Cardoso, colloquially known as FHC. It may have been a matter of the wrong President at the wrong (overrated) restaurant. Never one to shy away from self-promotion, FHC the peacock, multiple honorary PhD sociologist grumbled, "I did the reforms. Lula surfed the wave."

FHC's key reform was to crush hyperinflation by launching the "real" -- the new Brazilian currency -- plan in the mid-1990s; but it's telling how he still refuses to give Lula credit for responsible fiscal management and for fighting exclusion (but not corruption), and lifting up to 30 million Brazilians out of poverty. Welcome to Brazilian idiosincrasy; a new poll by the Pew Global Attitudes Project reveals that 79% of Brazilians see political corruption as a "major problem", even while 75% approve of Lula's government, and no less than 80% take Lula personally to the skies.

But even enjoying this stratospheric 80% approval rate Obama can only dream about, Lula is not God; in 8 years in office, he couldn't push a crucial tax reform through an inept, corruption-corroded Congress. And without it, the New American Dream -- essentially concerning a newly empowered lower-middle class consuming homes, cars, TVs and computers like there's no tomorrow -- can't rally take off. As much as the current Brazilian boom -- essentially fueled by the non-stop sale of commodities to China -- cannot be sustainable forever.

Lula -- issued from a very poor family in the poor northeast, and a former metalworker -- rattled the nerves of the old-style Brazilian sub-imperialist comprador elite to an extent that is hard to fathom abroad. Historian Jose Honorio Rodrigues has pointed out how these elites have always been "alienated, anti-progressive, anti-nation and anti-contemporary". And they "have never reconciled with the people." The recent, vicious Brazilian corporate media anti-Lula drive can be explained as a war against poor people that are finally emancipating themselves and following a path whose trailblazer was Lula himself. Who said class struggle was dead? One just has to visit Brazil -- still the most unequal society in supremely unequal Latin America.

Stella by starlight

Lula once again seems to surf on the right wave of history as the takes a formidable risk by picking as his successor an austere and until recently obscure middle class apparatchik who has never faced the ballot box. The daughter of a Bulgarian immigrant, Dilma "Iron Lady" Rousseff, or colloquially Dilma, as a kid dreamed of becoming a ballerina, a firefighter or a trapeze artist. But then the Brazilian generals smashed democracy in 1964 and installed their own tropical brand of the war on terror -- to defend what they called "national security".

It's fascinating to observe today that Lula essentially did what the Goulart government was trying to do before the military coup; to empower urban and rural workers. The comprador elites only cared about exports and an upper middle class mired in conspicuous consumption - the auto industry was the axis of the Brazilian economy at the time. The military dictatorship favored corporate -- national and international -- capitalism; those who profited immensely included Brazilian media groups, controlled by eight families.

Dilma fought against the dictatorship development "model" by joining the clandestine Palmares Armed Revolutionary Vanguard. Her codename was "Stella". Stella, like Jim Morrison, wanted to change the world, and change it now. These vanguards, in the 1960s and 1970s, used to kidnap foreign diplomats for ransom and shoot foreign - some American - torture experts training the dictatorship's death squads (hello Gen. David Petraeus; does that ring a bell?) Dilma was tortured by the secret police in Sao Paulo's then Abu Ghraib, given a 25-month sentence for "subversion", and only recovered her freedom 3 years later. She was ready to try to change the system from within.

How Brazil beat the crisis

Developmentalism will be the name of the game in a Dilma government. It's gonna be a bumpy ride - especially because Brazil's infrastructure is in shambles and education levels are still on the slightly better side of appalling. It's unclear whether Dilma will follow to the letter the mantra among luminaries of her Worker's Party (PT) - that Brazil can keep growing without foreign investment in oil and agriculture, for instance.

Dilma holds on to a key guru - her former Economics teacher Luciano Coutinho, now the head of the humongous National Bank for Economic and Social Development (BNDES). He may be Brazil's next Finance Minister. With Sao Paulo functioning as Brazil's Wall Street, no wonder the city's big bankers and financial markets, not to mention rentiers, are not amused.

The key criticism is that the Brazilian Treasury has been showering BNDES with cash, thus ballooning public debt. But this process also explains why and how Brazil won against the 2008 Wall Street-provoked global financial crisis.

When China announced it massive, nearly $600 billion stimulus package in late 2008, the economists at BNDES knew they would have to, literally, follow the money. There were no lines of credit to anybody, Brazil included. So to fight an inevitable recession approaching, a $60 billion loan from the Treasury to BNDES was designed. This was the absolute opposite of the capital market-crazy FHC years. Coutinho recently insisted to journalist Consuelo Dieguez that countries with strong public banks, such as Brazil, China, India and South Korea, were the ones who really managed to beat the crisis.

Brazil may be allowed to hold a slight grudge against the US that explains why the country did not modernize much earlier.

The steel giant CSN - still in business - was built in 1941 with full American support; the US badly needed Brazilian steel for World War II. The Brazilian government was led to believe that after the war Washington would keep investing in the country's modernization; Franklin Roosevelt, or FDR, had even organized a committee to study a development plan for Brazil, including massive financial help. But FDR died in April 1945. Harry Truman preferred to rebuild the losers in the war, Germany and Japan. The problem is the war automatically fostered protectionism. From the 1940s ahead, Brazil was an economy almost as closed as current fellow BRICs Russia and China at the time.

Yet it took only a decade for Brazil to develop a serious industrial base; starting in the early 1960s, Brazil's economy jumped from 50th in the world to 8th. GNP at the time was growing at 7% a year. That was the so-called "Brazilian miracle". The problem is the military only favored businessmen close to the regime with massive BNDES loans. After the 1973 oil shock reality set in. With no oil and no cash to pay interest on foreign debt, Brazil tanked.

Flash forward to the 1990s. In an irony noted by many a Brazilian economist, the BNDES was reborn from the ashes to run the privatization drive; instead of developing state companies, it was ordered to dismantle them. And yet once again, those who profited handsomely were very close to the government, that is, flashy FHC and his coterie.

Now BNDES is betting on commodities companies to become Brazil's national champions; cellulose, food, meatpacking, petrochemicals, oil, mining. No sign of high technology companies. An NGO study claims that mining, steelmaking, ethanol, cellulose, oil, gas, hydroelectric power and agrobusiness received almost half of the nearly $280 billion BNDES funds during the 8 years of Lula. JBS, for instance, became the world's biggest meat producer.

Lula policy entails, for instance, borrowing money at a 10,75% interest rate to buy oil giant Petrobras shares. These Treasury loans do not appear on the budget, increasing gross debt but not the net debt. Brazilian gross debt has already reached a staggering 63% of GDP. No wonder hordes of economists are horrified; there's a hurricane of money to lend, but few good ideas, and no sign of an industrial policy strategy. And why is that? Essentially because the country lacks a solid, well planned project for long-term development. Dilma will be smart enough to notice that China buying loads of commodities cannot drive Brazil's industrial policy.

The name of the game in the complex China-Brazil relationship is "pockets of prosperity". China is now Brazil's top trading partner, ahead of the US for the first time in 2009. China consumed almost 14% of Brazil's exports in 2009, and Brazil consumed almost 13% of Chinese imports. If you're a Brazilian soy exporter, you're a certified multi-millionaire. If you belong to the once thriving Brazilian shoe industry, you're about to go bankrupt.

Relying on China is not exactly a recipe for sustainable growth. The obvious way out for Brazil is to sell not only commodities but added-value goods; to follow the Samsung way. And here's the supreme catch; Brazil can't do it without urgently updating the decrepit infrastructure in ports, airports and highways (a 2007 study by the transport confederation found that 74% of Brazilian roads were in "terrible or bad" conditions); it needs to modernize the notoriously byzantine tax code; and it must smash the nerve-wracking bureaucracy that slows down businesses in Brazil, the so-called "Brazil cost" (the country is 129th out of 183 in terms of ease of doing business, according to a 2009 World Bank report).

Dilma has vowed to invest more than $550 billion between 2011 and 2014 to improve Brazil's agricultural export drive and to prepare for the 2014 World Cup and 2016 Olympic Games. But not much has been discussed about the tax code reform and the bureaucratic machine. The tax burden is at 34.4%, much higher than fellow BRICs and even developed countries such as Japan (17.6%) and the US (26.9%), according to a recent study by the Brookings Institution.

Last Friday, when Lula opened the Sao Paulo stock exchange, the Bovespa index jumped in market value to become the world's second biggest because of Petrobras selling a whopping $68 billion worth of shares in the biggest share issue in corporate history. Excited investors from Brazil and abroad had asked for double that amount.

The capitalization of Petrobras -- now the second biggest oil company in the world just behind Exxon - took the state participation to 48% and in fact graphically reverted the FHC years, when control of Brazil's most strategic company was broken up and pulverized. Now come the customary market doubts over efficiency and productivity at Petrobras. The company is launching a monster $224 bilion investment program for 2010 to 2014. For those like the PT staunchily defending Brazilian sovereignty, this Petrobras on steroids will be essential in the exploitation of pre-salt oil and its probable 50 billion barrels lying at the bottom of the Atlantic Ocean.

Another Brazilian giant is miner Vale, which the Boston Consulting Group says has created more value over the past decade than any other large firm in the world. Once again, thank God for China; with a market capitalization of $147 billion, Vale is now the world's second-largest miner behind BHP Billiton.

The new Kuwait

Inevitably the Brazilian boom would generate its share of megabillionnaires. Such as Jorge Paulo Lemann, Brazil's second-richest man worth $11.5 billion, who engineered the $52 billion takeover of Anheuser-Busch Cos., founded Brazil's largest investment bank and recently conducted the $3.3 billion takeover of Burger King, the biggest restaurant acquisition of the past 10 years.

But the top dog is undoubtedly EBX Group owner Eike Batista. Excited investors are placing a value of about $5 a barrel on Batista's subsidiary OGX's estimated seven billion barrels of shallow water oil reserves. No wonder China's Sinopec Group and CNOOC are about to buy into OGX assets. Just as a comparison, if someone invested $100 in OGX in September 2009, now that would be worth $180, compared with a meager $80 in Petrobras and $113 in the Bovespa stock index. OGX, a start up, has a market capitalization of about $38 billion and is not generating any revenue - yet.

Batista predicted in an already notorious interview on Charlie Rose that Brazil would be producing 5 to 6 million barrels of oil per day (bpd) by 2020, with OGX itself betting on 730,000 bpd by 2015 and 1.4 million bpd by 2019. Batista could have a net worth of $100 billion by 2020; not accidentally his dream is to become the world's top multibillionaire.

He's also fond of repeating the mantra that, "we are today the United States of the 1950s". So foreign investment is more than welcome; "Come! It's the time to make your bets on a country with 200 million consumers and the perfect demographics for the next 10 years. This oil story is a 30-year growth story." And what's good for him is good for Brazil. Inevitably, Batista also predicted that Brazil should become the "5th power" by 2015-2020, behind Germany, Japan, China and the US.

No wonder American economists are raving. Last week, at a seminary on global governance in Brasilia, James Galbraith stressed, "social inequality in Brazil is being reduced in the last few years because the country spends less money to help the financial sector and more money to help Brazil". And he took no time to once again smash neoliberal dogma; "there can be sustainable social and economic growth side by side with a functional democratic process".

Brazil entertains high hopes of entering Standard Chartered recently coined "7% club" -- that is, countries with annual GDP growth of 7% or more for an extended period. Based on the ten years up to 2008, club members are China (9.7% average), followed by India, Vietnam, Ethiopia, Uganda and Mozambique. Several countries are not far behind from the BRICs and could hit the Top 4 before 2030. In this case Russia might "fall" -- or even Brazil. Thus the future of BRIC may be to become BRICI (with Indonesia), BRICK (with South Korea) or even BASIC (Russia replaced by South Africa, or Afrique du Sud).

University of Missouri's Michael Hudson, who's also just been to Brazil, insists the main task of the BRICs is to build an alternative for the IMF and the World Bank. And Brazil must create "its own development strategy" -- which, as we have seen, is still non-existent. Hudson ominously predicts that Washington will do everything in its power to oppose this independence -- referring to what happened to Iran in the 1950s when it wanted to control its own oil, and to Afghanistan when a secular government took over in the late 1970s.

A new social contract?

Amid so much ballyhoo, it's always healthy to find dissenting voices. Marxist historian Paulo Alves de Lima stresses how Brazil is now living the construction of a new national mythology; "It's the formulation of a project for the monopolistic capitalism created by the military dictatorship. A new ideology for the future has been born; universalization of the middle class, the end of poverty with the exploitation of pre-salt reserves, stable democracy, strength of the industrial-military complex... They are promising paradise while Obama must declare to the world that American poverty is increasing. Top universities are embracing the myth and the concept of 'superior society' - neither capitalist nor socialist, and even less defined as subordinate capitalism. Our future is to march to this new paradise".

Undoubtedly shades of FDR are everywhere. Mainstream media is obsessed with the notion that Brazil is now a middle-class society. It's true that tens of millions now can afford their own house. Their self-esteem has ballooned; and most people live "an admittedly decent material life". But wait a minute; that's Paul Krugman describing the US in the 1950s and 1960s. Is there at least a psychological parallel - like in an overwhelming feeling of optimism, the-future-is-in-your-hands style?

These new individualistic Brazilians indeed resemble the Americans of the 1950s and 1960s. Essentially their priorities are family, stability and professional success, no matter their social class and the region they come from. With poverty in Brazil falling 41% from 2003 to 2008, technically almost half of the Brazilian population is now "new middle class". But this is not the traditional American middle class. Families with a maximum per capita income of $2,500 monthly, qualified as the "C" class, make up 40% of Brazil's overall income. The "B" and "C" classes, together, make up for almost 70%. For a country always defined by inequality (3rd place in the world until recently, only behind Bolivia and Haiti, according to the UNDP, and now 11th), that's a lot.

In developing countries, the so-called "global middle class" groups around 400 million people; and 2 billion others may join them before 2030. Social mobility in Brazil is only beginning. But millions do indeed feel that Brazil today feels like the US in the 1960s in terms of job offer, rising income, and unlimited opportunities. Yet essentially this is still a very poor middle class - reflecting the extreme inequality that still prevails.

Dilma anyway inherits a unique historical conjuncture generated by Lula; for the first time ever inequality, injustice and social exclusion in Brazil actually decreased. It's imperative to know in relation to what; that happened in relation to the overwhelming inequality of the model privileged by two decades of military dictatorship. Leftist sociologist Emir Sader insists the process is only beginning, and still has to break the monopolies of financial capital, powerful landowners and the power of monopolistic media.

He could be referring to a struggle now going on all over South America. With a fearful Europe increasingly turning to the right and extreme-right and a dejected New Great Depression US at the mercy of wacko populists of the Tea Party variety, it is South America - and parts of Asia and Africa - that now seem to be on the right side of History. Mad Men celebrates the (now dying) American dream. Maybe now the time has come for the Mad Men from the tropics.


Pepe Escobar is the roving correspondent for Asia Times. He may be reached at pepeasia@yahoo.com