Randy McDonald (rfmcdpei) wrote,
Randy McDonald

[LINK] "Crashonomics: the secret formula"

The Globe and Mail's Doug Saunders asks a question: "Once the global economy's spigot of cash was turned off, which countries, if any, wound up with their people floating higher, with perhaps a few drops left in the bucket for the dark years?"

His answer?

I can think of only one country that managed to take full advantage of the boom years, building strong companies and lucrative exports, and used the money to build a much better and fairer society while accumulating rainy-day cash reserves.

This balancing act proved impossible for most rich countries, so it's all the more impressive that it was accomplished by a place known for great poverty.

Brazil didn't do it by accident. President Luiz Inácio Lula da Silva used the latter half of the boom years to build on a trick pioneered by his predecessor, economist Fernando Henrique Cardoso: Rather than viewing the high-spending social state and the free-market, free-trade capitalist state as polar opposites and swinging between the two competing models as if on a pendulum, unite them into a single force and let them reinforce one another.

Mr. da Silva's supporters called it "social capitalism," and it remained unpopular with both socialists and capitalists through much of the boom. Today, in a crisis that has defied the orthodoxies of conservatism, socialism and liberalism alike, nobody's laughing at Lula.

During the boom, Brazil managed to pay off all its debts to the International Monetary Fund and to operate its finances on a constant-surplus basis, accumulating more than $200-billion (U.S.) in foreign reserves to get through the bad times.

It pursued an inflation-fighting monetary policy, reformed its government and won an investment-grade bond rating--extraordinary for a country that at the beginning of the boom was deeply impoverished and had just emerged from decades of military dictatorship.

Meanwhile, Brazil also spent heavily on its people, creating the developing world's first universal social program--it offers a maximum of $100 a month to the poorest families, so long as they fulfill conditions such as sending their children to school and having them vaccinated.

It costs only 2.5 per cent of government spending, but its results are striking: Infant mortality was cut almost in half, to fewer than 22 deaths per thousand from 39 a decade ago. Childhood malnutrition fell to 7 per cent from 13 per cent.

Such programs are a generation ahead of China and India, where they ought to be emulated. And China and India, for all their gains, remain reliant on peasant agriculture, while Brazil has been turning farming into a high-employment business.

And while Brazil is now having a slowdown (though not a recession--it'll have 2-to-4-per-cent growth), it won't need to cut social spending or go into deep debt.

Tags: brazil, economics, globalization, links

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