Brazil as a Global Economic Player | Brazil: Five Centuries of Change

Brazil?s Economy in the Early Twentieth Century

At the turn of the twentieth century, Brazil lacked the infrastructure and capital to support an industrial economy. With less than 3% of the labor force working in the manufacturing industry, the industrial economy in Brazil struggled before World War I.

Following the war, however, Brazil successfully enacted an import substitution policy, a trade strategy in which a nation reduces its dependence on foreign goods, as a means of spurring industrial growth and manufactures. Despite the Great Depression in the United States and the related worldwide economic downturn during the 1930s, Brazilian industry rose at 10%, on average, during the decade and Brazilian gross domestic product (GDP) increased at around 6%. By 1939, Brazil employed 9.5% of the labor force in the manufacturing sector.

Yet, Brazil?s policy of import substitution ultimately resulted in capital-scarce industrialization. Moreover, increased taxes on the agricultural sector used to underwrite Brazil?s industrialization induced inflation and an increased reliance on intermediates and capital goods from abroad. These economic strategies caused long-term imbalances and a reliance on foreign investment, which, until the twenty-first century, remained one of Brazil?s main economic strategies to stay afloat.

The Short-lived ?Economic Miracle? of the Early 1970s

Between 1968 and 1973, while Brazil was under military rule, Presidents Artur da Costa e Silva and Emílio Médiici enacted economic polices that resulted in rapid growth. These policies centered on a commitment to domestic production of consumer goods, namely automobiles, as well as the availability of foreign capital to finance economic expansion and significant government funding for infrastructure expansion.

Rising world prices for Brazilian exports aided the boom. Economic strategies focused on profits rather than wages. Led by technocratic leaders and advisors of the military government, Brazil grew at a rate 4 to 6 times greater than that of the worldwide economy. However, this seemingly miraculous period of growth came to an end in 1973, when a sudden rise in the price of petroleum impeded further rapid industrialization and slowed economic growth tied to oil.

While a lag in growth occurred, expansion continued until further increases in oil prices in 1981 led to a decline in output. Economic policies that ignored inflation and agricultural development and neglected the educational system and massive wealth inequalities sent the country into a dark economic period in the late 1970s and 1980s characterized by spiraling inflation and slow economic growth.

Emerging from Troubled Times

Between 1982 and 1994, Brazil experienced crippling hyperinflation that was typical of Latin America during the last decades of the twentieth century. Between 1990 and 1995, for example, inflation averaged 764% a year.

Fernando Henrique Cardoso, Finance Minister in Brazil between May 1993 and April 1994 and President from 1995 to 2003, introduced the Plano Real that saved Brazil from the inflation that had plagued the nation. The main components of the plan included introducing a new currency, the Real, and keeping the currency exchange-rate pegged until 1999, when it was deemed stable enough to float. By 2006, for the first time in over 50 years, Brazil?s GDP growth was greater than its average inflation.

Following the Cardoso Presidency, President Luiz Inácio Lula da Silva, who was in office between 2003 and 2010, enacted a series of policies that continued to bolster the Brazilian economy by supporting a growth of the middle class. Lula reduced poverty in Brazil by 24% between 2003 and 2010 through a series of distributional programs, subsidized housing loans, and significant increases in the minimum wage that allowed 13 million Brazilians to escape poverty and an additional 12 million to escape severe economic deprivation.

Lula?s most notable government assistance program, known as Bolsa Família, provides small cash transfers to the female heads of household for Brazilians in the lowest economic strata, provided the children in the family are in school and receiving consistent medical checkups and healthcare. Twelve million households, nearly a quarter of the Brazilian population, receive assistance through Bolsa Família. Despite these socioeconomic advances, however, 26% of Brazilians still live in slums today and the education system offers little hope of socioeconomic advancement through schooling, given that Brazil ranks 119^th in primary education in the world.

Economic Success in the Twenty-First Century

In 2001, investment bank Goldman Sachs declared Brazil one of the future leading nations of the world and a member of the BRIC nations, a group that also includes Russia, India and China. All four are industrial nations with great potential for expansion that have experienced recent economic growth. In fact, Brazil was among the first countries to emerge from the global recession in 2009 with a growth rate of 5%, leading The Economist to publish an article entitled ?Brazil Takes Off,? which outlines Brazil?s recent economic success and growth.

Today, Brazil is the world?s sixth largest economy, surpassing the United Kingdom in 2011. PricewaterhouseCoopers, a consulting firm, predicts Brazil will be among the top five largest economies in the world by 2014 and that São Paulo will be the fifth wealthiest city in the world by 2025.

Recent privatization of state-owned industries, a focus on keeping inflation rates down, and increases in foreign trade and investment have spurred Brazil?s growth. Brazil is unique among the BRIC nations in that it is a ?complete package?: Brazil?s government is a democracy; the nation lacks significant ethnic and religious conflict; Brazil?s exports are diverse and varied; and its people are known for their welcoming, kind, and accommodating nature.

A rapidly growing middle class also has furthered Brazil?s position as an economic powerhouse. The middle class–those with household incomes between $600 and $2,590 a month–has grown from 45 million people in 1993 to over 105 million people in 2011, in large part due to economic growth and redistributive polices of the Lula government and that of his successor, Dilma Rousseff, elected the first female president of Brazil in 2011. Today the middle class, as defined above, accounts for over 46% of the country?s buying power. In 2000, there were 4.2 million small businesses with less than 100 employees. In 2010, that number had increased to 6.1 million small businesses, and the number of large businesses had doubled from 30,000 to 60,000.

Brazil as a Global Economic Player

Brazil?s international presence has increased in recent years as its economy expands beyond the nation?s borders. Between the 1990s and 2010, Brazilian foreign investment increased by $700 million a year to more than $20 billion yearly. Today, Brazil has more than $130 billion invested abroad, more than both India and South Korea.

Petrobras, Brazil?s state-owned energy corporation with a global reach, has been making large-scale investments abroad. In 2007, Brazil also discovered significant amounts of oil off of her coast that will soon make it a leading distributor and exporter of oil worldwide. Furthermore, Brazil?s JBS, a food-producer, is on the verge of becoming the world?s largest meat producer, and Friboi, also Brazilian, controls 50% of the world?s meat processing, according to the United Nations.

Brazil has begun to acquire companies and become active in industries in the United States as well. In 2008, InBev, the Belgian-Brazilian beer company, acquired Anheuser-Busch. Marfrig, another Brazilian meatpacker, acquired Keystone Foods in 2010, making it one of the leading suppliers to fast food chains such as McDonald?s and Subway. Brazil?s acquisitions are not limited to the food and beverage industries. For example, Brazilian resin producer Braskem acquired portions of Sunooco chemicals in 2010 as well.

Despite Brazil?s continued success and growth, the nation today finds itself at a critical crossroads. Brazil has never successfully sustained a democracy, low rates of inflation, and significant economic growth simultaneously for any significant period of time. Furthermore, sluggish growth productivity due to a weak infrastructure and notoriously high interest rates continue to plague the country. Violent crime, irresponsible government spending and corruption, and an education system in need of reform are reminders of how far Brazil has to go before it can truly declare itself a stable, first world nation with a strong economy. Nonetheless, given the country?s recent success and growth, it seems that Brazil?s moment has finally arrived.