The China Temptation
Meanwhile, in the World Bank’s 2012 Ease of Doing Business Index, Brazil ranks 126th, behind all but six Latin American and Caribbean nations (Honduras, Ecuador, Bolivia, Suriname, Haiti, and Venezuela). For that matter, it ranks well behind China (91st), both overall and in the category of paying business taxes (where Brazil ranks 150th and China 122nd).
The notorious “Brazil cost” — that is, the cost of doing business in South America’s largest country — reflects a policy environment urgently in need of improvement. To that end, President Rousseff should champion structural reforms aimed at making the Brazilian tax and regulatory systems more efficient and more supportive of entrepreneurship, job creation, and private investment. (Since 1988, the total tax burden has increased from 22 percent of the economy to 36 percent, with the tax code simultaneously becoming more and more Byzantine.) Rousseff should also push for the education reforms necessary to cultivate a more skilled workforce that can compete in a globalized economy. (In the 2009 Program for International Student Assessment test, which graded the performance of students in 65 different countries and school systems, Brazilian pupils finished 53rd in reading and science, and 57th in math.)
Admittedly, fixing Brazil’s infrastructure problems will require more effective government spending. But that does not mean Brazil should seek to emulate China. Quite the opposite, actually. The China model has produced wasteful spending and capital misallocation on a truly massive scale. Does Brazil really want ghost towns, ghost airports, and trains to nowhere?
Beijing’s economic strategy has also fostered rampant corruption, which is not surprising, given its reliance on state-owned enterprises. (China ranks below Brazil in the Transparency International Corruption Perceptions Index.) And it has created “pretty much the biggest emerging market property bubble ever” (in the words of MoneyWeek editor Merryn Somerset Webb), a bubble that may already be in the process of bursting.
Communist officials have responded to the recent Chinese economic slowdown by rolling out a new wave of government stimulus policies, including more gigantic infrastructure projects. While these stimulus measures “will succeed in keeping high single-digit growth going for a time,” writes Berkeley economist Barry Eichengreen, “they will do so by aggravating the economy’s imbalances and storing up problems for the future. This is not good news for those of us concerned with China’s longer run prospects.”
Such concerns are apparently shared by many of China’s wealthiest citizens. According to a newly published report cited by The Economist, more than 16 percent of all Chinese with personal wealth above $1.6 million “have already emigrated, or handed in immigration papers for another country,” and another 44 percent “intend to do so soon.” In addition, more than 85 percent “are planning to send their children abroad for their education, and one-third own assets overseas.”
Simply put, state-led capitalism is not a long-term solution for China’s economic problems, and it’s certainly not a long-term solution for Brazil’s problems. Let’s hope anxious Brazilian officials understand that.
(You can read this article in Spanish here.)
Okay, just exactly who should Brazil emulate? The US, with our less than stellar growth rate of under 2%? They certainly shouldn’t use the Eurozone as a model! Who does that leave? Regardless of their obviously slowing economy, and their other problems, China’s economy is still expected to grow at a respectable 7% for the foreseeable future.
Chile is clearly suggested.
I was going to post this separately, but your comment caused me to post this here.
“The China model has produced wasteful spending and capital misallocation on a truly massive scale.” This is why they shouldn’t, their growth is not real. And it shouldn’t say “produced” it should say “is”.
It is impossible to escape economic realities. The State will never make good economic decisions. It’s the old “The widget cost me a dollar and I’m selling them for 99 cents. I hope I’ll make it up in volume”. Because China has no accountability it’s a big shell game, with debt being shifted around, factory misuse, they can’t raise profit margins because all the factories will move. I.e., I just bought a $19 box fan . . . Made In The USA.
China is growing faster than the well-to-do industrialized countries because it is poorer than they are. Poor countries have further to go, they can grow fast even with mediocre institutions as long as they are not bad.
Brazil needs to emulate a successful country whose income level is not far below its own. Chile might work. China does not qualify.
Who should Brazil follow? How about the U.S. circa 1985? That’s pretty much the same country the U.S. should follow, btw.
I know at least two local industry owners who invested in Brazil, but found manufacturing there to be far too bound up in state interference to be efficient. One of them is a political leftist with an MBA from Duke, who, the longer he spends in charge of the company his conservative father built, the more conservative he has become.
Heck, another four years of Obama and my acquaintance will be voting a straight Republican ticket!
I heard Rush Limbaugh relate a story about the famous liberal George McGovern. Apparently he opened a bed and breakfast and then went out of business. Why? Government regulations choked his business, some of which he was responsible for!
I notice a problem with BRICs (Brazil,Russia,India,China). They are all the rage up until problems occur. They are boom, and then bust, badly. China has a lot of problems that they have hidden okay by kicking the can down the road like Japan did during the 80s. Guess what? The can finally kicked back and Japan is still paying the cost of that kick. Now it is starting to kick the BRICs now and they are not doing too good.neither are we, but how much of that is because of zero or the can kicking us for being idiots remains to be seen after nov 6.
Brazil has had 7 (including current version, as of 1988) Constitutions. Not a one of them resulted in a satisfactory, viable system of governance. Coupled with these governing failures, are its economic failures. These economic disruptions, follow on the footsteps of its Constitutional Failures, every time.
Recently, a once strong, unified Brazilian Catholic Church was a refuge for 90% of Brazilians (practicing and non-practicing). With the Catholic Church’s succumbing to Gramscian revolutionary theories, this refuge has become a mere shadow of what it once was and represented.
Education, has always been a festering sore in Brazil’s “socio-political” daily expression. It harbored every leftist party, organizer and radical thinker worthy of their marxist/leninst stripes.
Brazil’s 60′s military revolution was aimed at ridding the country of this cancer – once and for all. These marxist fled like rats, only to form little “cells” around the country. Laterm these commies got rid of the dictatorship in 1980-84 and now have their idols Lula and Dilma firmly elected and enconced in Brazils – heart and soul, Brasilia.
Yes, Brazil has followed both Cuban and Chinese forms of governance…with predictable results, abject failure and chaos. Upcoming Olympics and World Cup are going to be “verrry interresting.”
Left, is a tattered Judicial system a handmaiden to constant revolutions, endemic corruption and out-and-out greed and corruption by far left, marxism/leninism.
Current cabal of Brazilian marxists, with “Central Committee Party President” -Dilma Rouseff has signed treaties with every left leaning regime of the 197 memebers represented in the United Nations…most importantly, China.
See, corrupt, greed and power politicos in Brazil will not allow Brazilians liberty and freedom. The napleonic Code is pervasive, with a twist, not only is a person guilty (having to prove their innocence) but the weight of red tape, twisted laws and absurd regulations inhibit any sane understanding of a citizen’s rights and justice. Because a Brazilian has no rights therefore hasn’t any access to any justice.
Good insight into a country few of us understand.
Chinese is successful not because they have a fixed model. It’s because they are pragmatic. They learned from everybody regardless ideology. This is the key to China’s success.
“It doesn’t matter whether it’s a white cat or a black; a cat catches mice is a good cat.”” – Chinese way.
No country is perfection, so as China. But the pragmatic way which Chinese deal their issues is impressive. All country should learn from them.
as the author suggests, we’ll soon see.
Brazilians are addicted to massive bureaucracy
They cannot even tax their own citizens due to simple disorganization
Crime is endemic
Incompetence is endemic
Corruption is endemic
Expanding a population is not the same as productivity
Recent years have been an expansion based on fluff
They are still a Third World country
2 Reais to the dollar, 3.5 a decade ago
A backpacker’s hotel was 4 dollars a night for an American in 1988
Today it is at least 10 times that
Bubble burst