Brazil Is the New America: How Brazil Offers Upward Mobility in a Collapsing World (7 page)

26
“‘Dismal' prospects: 1 in 2 Americans are now poor or low income,”
U.S. News
, December 15, 2011,
http://usnews.msnbc.msn.com/_news/2011/12/15/9461848-dismal-prospects-1-in-2-americans-are-now-poor-or-low-income
.

27
Richard Fry, D'Vera Cohn, Gretchen Livingston, and Paul Taylor, “The Rising Age Gap in Economic Well-Being,” Pew Social & Demographic Trends, November 7, 2011,
www.pewsocialtrends.org/2011/11/07/the-rising-age-gap-in-economic-well-being
.

28
In this book, a debtist system (sometimes referred to herein as debtism) is defined as a corrupt version of “capitalism” based upon fiat money and political favoritism in which the greater part of the purchasing power is funneled into the hands of a well connected few, led by bankers and their best customers.

29
“Transcript: Weiss Global Forum, Part 1,” Money and Markets, August 24, 2009,
www.moneyandmarkets.com/transcript-the-weiss-global-forum-part-1-35161
.

30
“Richard Jackson at the UNITAR/UNFPA Workshop,” CSIS, March 31, 2005,
http://csis.org/press/csis-in-the-news/richard-jackson-unitarunfpa-workshop
.

31
Daniel A. Arnold,
The Great Bust Ahead: The Greatest Depression in American and UK History is Just Several Short Years Away
(Vorago-US, 2002).

We are from America and we want to be Americans.

—from the “Manifesto of the Republican Party of Brazil,” 1871

Among the family of nations, Brazil is not a sibling of the United States. Canada would be. Brazil is more like a first cousin with a strong family resemblance. Or, if you prefer, you could see Brazil as a half sibling, with a Portuguese rather than an English father. Both the United States and Brazil are the modern incarnations of New World economies. They are gigantic countries; among the top five on a world scale, richly endowed with natural resources and peopled by a diverse array of immigrants from across the globe.

Like only the United States and China, Brazil is a geographically large country that also is among the top five in population with roughly 203,000,000 inhabitants as of July 2011.

Brazil has more inhabitants of African descent than any country but Nigeria; more persons of Italian ancestry than any country other than Italy; more Japanese than anywhere but Japan. Brazil also is home to 10 million persons of Arab descent, more than any country outside the Middle East. And Brazil hosts the second-largest population of German ancestry outside of Germany. These ethnic groups are so thoroughly mixed together that in most cases it is impossible to discern a clear line where one stops and another begins.

The original name of the Brazilian Republic (until 1967) was “The Republic of the United States of Brazil,” a designation that reflects the long-standing ambition of Brazilians to emulate the success of the United States in South America. Indeed, the first Republican flag of Brazil was an obvious design knockoff of the Stars and Stripes with 21 white stars in a blue field, cut out against a striped background, but with 13 green and yellow rather than red and white stripes. Five of the states of Brazil have flags with stars in a square or rectangular field, with horizontal stripes. Piani's flag has 13 green and yellow stripes; that of São Paulo, 13 black and white stripes.

Even though Brazil was discovered in 1500 and Portuguese settlement began in the century before the first English colonists set out for Jamestown in 1607, Brazil seems somehow a younger country than the United States. I would argue that it is because even a casual observer of Brazil can see that only a bare fraction of its potential has yet been realized. By contrast, the United States seems to have been fully developed and is now distinctly arcing on the downside of its life trajectory. As hedge fund superstar Ray Dalio puts it, “the U.S. is trading more like a country in decline.”
1
If Brazil were a half sibling of the United States it would be a junior or younger member of the family. Brazil is certainly much less developed than the United States and, at this point in history, more promising.

To grasp Brazil's potential for the future, it is important to understand why its development was stunted while the United States rapidly became the world's richest country. In exploring this issue, I turn to some of the analytical tools that I developed in three earlier books in collaboration with Lord William Rees-Mogg.

In
Blood in the Streets, The Great Reckoning: Protect Yourself in the Coming Depression
, and
The Sovereign Individual
, Lord Rees-Mogg and I looked to what we called megapolitics or the specific characteristics of the state of nature that determine the boundary conditions of human action. Among the principal factors we examined that have played an informing role in determining the political and economic destiny of countries is topography.

In this perspective, one of the more misleading metaphors for understanding the world in the twenty-first century is to think of it as flat. To the contrary, it is textured and contoured. And the economic potential of every country going forward is informed by its past, by its debt levels, its legacy energy systems, and natural endowments. While the world may be less differentiated, with fewer nooks and crannies where information technology is concerned, it is still dominated by its physical contours. The metatruth is revealed by the very choice of “flat” as descriptive of information technology. It hints at the importance of topography in the very attempt to discount its continued predominance.

The lay of the land played a much bigger role in the history of nations before technology reached its current state. And it seems likely to play a bigger role again now that the preconditions for robust growth have eroded. We're not accustomed to thinking in these terms, but for most of history the advantages and disadvantages conveyed by topography helped determine the economic destiny of peoples and even the prevailing form of government.

Among the developments Lord Rees-Mogg and I sought to explain was the impact of topography in facilitating the profitable farming of the hinterlands of Greek city-states. A complex topography of undulating inlets facilitated the prosperity of yeoman farmers by enabling a great many of them to locate within 20 miles of the sea where they could prosper. Yeoman farmers made high profits growing olives for oil and grapes for wine and then shipping them by sea to a wide market throughout the Mediterranean. At a time when transportation costs for moving goods 75 miles overland exceeded the costs for shipping cargoes by sea across the full expanse of the Mediterranean, a complex shoreline that permitted more small holders to farm close to the sea had far-reaching implications. Greek farmers, more than other people who enjoyed the climatic conditions suitable to growing grapes and olives, were able to afford the weapons needed to become militarily, and thus politically formidable.

Equally, we sought an answer in topography to the puzzle noted by Thomas Malthus about the failure of governance in Africa's native kingdoms. Malthus noted that when Europeans first penetrated deep into sub-Saharan Africa they found “many extensive and beautiful districts entirely destitute of inhabitants.” Malthus ascribed much of this population puzzle to “the insecurity of property arising from this constant exposure to plunder . . . in a country divided into a thousand petty states.”
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Why was Africa “divided into a thousand petty states”? We pointed to details of the local state of nature. The lack of economic progress in Africa's interior for thousands of years was largely due to the lay of the land and quirks of climate. In most regions, they offered few advantages to any party seeking to organize on a large scale. Each of thousands of petty states could temporarily hold its own plot of ground, but with few natural boundaries or other topographical features that conveyed an advantage in trying to monopolize force over a large scale. None of the local warlords could suppress the constant skirmishes and plundering or even halt the marauders who beset the no man's lands. No one could build much of value where his property or his life might be forfeited at any moment. The effect of the incessant wars and violence was to keep most of Africa and most Africans in destitution. In the period before Europeans arrived, as many as three out of four black African males were slaves.
3

Another element that helps explain the general lack of development throughout much of sub-Saharan Africa was the endemic infestation of sleeping sickness (human African trypanosomiasis). As Dorothy H. Crawford, Professor of Medical Microbiology and assistant principal for the Public Understanding of Medicine at the University of Edinburgh, wrote,

Sleeping sickness is always fatal without treatment. Most experts think that hunter-gatherers could not have survived long term in the tsetse fly belt of Central Africa, and that the problems caused by sleeping sickness may have been the impetus for the human migration out of Africa which preceded the colonization of Europe and Asia some 50,000–100,000 years ago.
4

No doubt, the prevalence of endemic infestation by deadly pathogens also goes some distance toward explaining the “many extensive and beautiful districts entirely destitute of inhabitants.”

By contrast, civilization evolved rapidly in another part of Africa–Egypt. There, as in the river valleys of Mesopotamia, topography combined with climate to create favorable conditions for organizing political structures on a large scale. Rainfall in the deserts surrounding the Nile floodplain was insufficient to permit crops to grow. Under such megapolitical conditions, individual farmers faced an unacceptably high cost for failing to cooperate in maintaining the political structure. Without irrigation, which could only be provided on a large scale, crops could not grow. That mattered because as Malthus noted, no one has yet figured out how humans can live without food. Since farmers could not move away and grow food independently, they tended to hang around to be oppressed by despotic governments that formed along the Nile.

Thus we found informing features of topography underlying developments as varied as the emergence of democracy in Greek city- states, the Hobbesian war of all against all in premodern, sub-Saharan Africa, and the Oriental despotism characteristic of hydraulic societies in the ancient Near East. A similar line of analysis helps explain the very different pace of development of two richly endowed “American” countries: the United States and Brazil.

Of the two, the United States developed far faster, rapidly becoming the richest country in the world, by the mid-twentieth century, while Brazil, a country of similar size (Brazil is larger than the contiguous 48 states of the United States mainland), has remained famously the country of the future.

Was Brazil stunted because it began life as a Portuguese rather than an English colony? Economic historian Douglass North is among many who have “attributed the relative success of the United States and Canada to British institutions being more conducive for growth.”
5
As something of an Anglophile myself, I am inclined to believe that the British settlement colonies did enjoy at least a marginal head start in importing institutions that tended to promote economic growth by protecting property rights. I confess that my feeling in this respect may turn on a romantic pride in being a descendent of Saer de Quincy, the Earl of Winchester, one of the authors of the Magna Carta. I would like to imagine that my forbearer made the world a better place by revolting against King John. Yet a closer look at the history of economic growth in the New World shows that a heritage of British institutions does not provide an encompassing explanation for differences in economic growth. For one thing, ”the leadership of the United States and Canada over their hemispheric neighbors”
6
did not emerge until the early nineteenth century when these North American societies begin to participate in the Industrial Revolution, realizing sustained economic growth by incorporating high BTU energy into economic processes. It is telling that when George Washington was inaugurated as the first president of the United States that Haiti was likely the richest society in the world on a per capita basis. In the preindustrial, colonial era, the most successful economies were the Caribbean sugar islands. It made little difference which colonial power presided.

Equally, looking over a longer period, the case for the superiority of British institutions is undermined by the fact that the majority of New World economies established by the British were not notably successful in realizing sustained economic growth after the Industrial Revolution. For example, Guyana, the only former British colony on the South American continent, and a neighbor sharing a long border with Brazil, enjoyed a GDP per capita of only 27 percent of the Brazilian level in 2010, according to the International Monetary Fund.
7
Having been a part of the British Empire was hardly a guarantee of growth.

Was Brazil slower to develop because Brazilians are indolent or mentally inferior to residents of the United States? I think not. No less than residents of the United States, Brazilians were keen to exploit the opportunities nature had given them. But in effect, nature's gifts, known as factor endowments in economist speak, were more complicated and more difficult to exploit in Brazil than in the United States.

Economists tend to think of factor endowments as a catchall abstraction that can be represented by a single algebraic notation in econometric models rather than seeking to analyze why and when comparative factor endowments become relatively more valuable. In many cases, economists have sought to model comparative advantage in a stylized, two-country world without pressing resource constraints. The standard Heckscher-Ohlin model (for which Bertil Ohlin won the Nobel Prize) assumes the same production function for all countries, which also implies that all firms are identical. Not so. The real world is more complicated.