SÃO PAULO, Brazil — A vast rolling prairie, bright green except for hints of morning mist in the hollows, unfolds as my Varig flight heads southward over Brazil’s Minas Gerais state. It is a familiar and comfortable landscape, one that could pass for the Flint Hills of Kansas in springtime.
But it is not springtime in Brazil. I arrive in late February, near the end of the Brazilian summer. At summer’s end the Flint Hills would be seared brown. Here in Brazil the grass grows lushly all year, as do the cattle that graze the inviting emerald carpet.
São Paulo comes into view after the plane crosses a range of hills. Sprawling across a broad valley 2,500 feet above the sea, the city appears from the air to be a cross between New York and Los Angeles. Gleaming white apartment towers and straight, multilane expressways remind me of home. This is a Western Hemisphere town, a place with plenty of elbow room.
That’s the image from the air. Reality, however, is often better seen on the ground. On the ground the vast differences in human and economic condition quickly obscure any physical similarities between North and South America. A brief stay here is enough to teach that while much of the developing world holds great economic promise for the next century, achieving that promise is anything but a sure thing.
Teeming slums mark the perimeter of the city. An occasional squatter’s shack sprouts on the highway median strip. More squatters huddle beneath nearly every overpass between the airport and downtown. Those apartment towers that gleamed from a mile above now seem ragged and run down, as do the office buildings clustered along the slopes of a ravine in the central city.
Its obvious poverty notwithstanding, São Paulo (pronounced SAN POW-loh) is a busy metropolis of 18 million people. The highways leading downtown are jammed with morning rush-hour traffic. True, nearly all the cars are old, tiny and without air conditioning in the tropical heat, but the owners at least can afford to own and drive them. Shining subways deliver still more workers to their jobs.
As we approach my hotel I notice long lines snaking around the block in front of a closed doorway. My host informs me that the crowd is waiting for unemployment and other government benefits to be disbursed later that morning.
Thus I am introduced to the realities of a growing Third World economy, circa 1997. The potential is enormous and the recent progress is encouraging, but these folks have a long, long way to go before their economy and society resemble those of the post-industrialized world. The potential risks of economic failure here are as palpable as the potential rewards of success.
Contrast With Hungary
Two years ago I visited Hungary. There a reasonably well-educated, well-fed and small population seeks to shake off a half-century of Communist misrule to catch up to the West. Here, a vastly larger but much less literate and healthy population is trying to overcome exploitation that lasted nearly ten times as long.
The Brazilians are making progress. Inflation in 1994 was 2,668%. It was 12% in 1996, and is expected to be around 7% in 1997. The country has just weathered a banking crisis, the real is holding its value against the dollar, and the stock market advanced around 25% in the first months of this year.
São Paulo does not feel like a place that is just getting on its feet after a long spell of hard times. This huge metropolis feels like a frontier town, standing on the edge of a mostly untapped expanse that stretches from the Tropic of Capricorn to the Equator.
My hosts are in the paper business. The eucalyptus trees they plant here will grow to a height of 80 feet in seven years. A eucalyptus can be cut for pulp in just five years, compared to a typical 10 to 15 years for the pines we grow in the southeastern U.S. The country’s eastern longitude, two time zones ahead of New York, brings it competitively close to customers in Europe and the Middle East, and it has an outright advantage in reaching many emerging markets. When you are in downtown São Paulo you are closer to Cape Town than to Cape Canaveral.
The story is the same in commodity after commodity, from citrus to livestock to minerals. Brazil’s abundant resources and equable climate give the country enormous natural wealth, even excluding the less-accessible and more fragile Amazonian rain forests. With all this natural wealth, then, why is Brazil such a poor country?
I found one answer in the São Paulo telephone book. Browsing through it, I was stunned to find listings for hundreds of private schools of every stripe: parochial, Montessori, foreign-language and many types I had never heard of. There were easily more private schools than one could find in a New York City phone book.
The reason, of course, is the abysmal state of Brazil’s public education. Here the mandatory age for starting school is 7 years old, and most children complete their education around age 14. Of course, many of the children in those awful slums are lucky if they see a school for even that long.
Early In, Early Out
The effects of the limited schooling spill over into every aspect of the country’s social and economic policies. Industrial companies typically pay more in payroll and other taxes than they pay in direct wages. (In the U.S. these indirect payroll costs are usually 50% to 70% of direct wages.) The law requires that women be allowed to retire after 30 years of work, men after 35 years. Since most have entered the work force around age 15, this means many people are retired at ages 45 to 50. The early retirement age is designed to create job openings for the never-ending flood of new, young workers.
Large companies must invest heavily in worker training to make up for the weak public education, but they then lose their trained workers just when the workers gain the maturity and experience to be most productive. Through the high taxes and enforced turnover, lack of education imposes costs throughout the Brazilian economy that offset many of the country’s natural economic advantages.
Economic and political mismanagement also have taken a heavy toll. The wealthy elite keeps as much capital as possible outside the country, guarding against not only a revival of hyperinflation but also the strict exchange controls that prevailed until recently. This capital flight, in turn, eviscerates a national income tax that is based on the reported annual increase in one’s net worth. With the country deprived of tax revenue as well as private capital, the money to improve public health and education for the poor is chronically lacking, so the cycle continues.
American business and political leaders often think of China as a proxy for the entire developing world, the way the Standard & Poor’s 500 Index has come to represent “the stock market” for investors. While China of course warrants close attention, it does not make sense to let preoccupation with China and the rest of Asia blind us to progress and opportunities that exist much closer to home.
Brazil and her Southern Cone sisters are well into a democratization process that the rulers in Beijing continue to resist tooth and nail. They are making good progress at liberalizing their economies and have begun to improve their judiciaries. Moreover, they are our hemispheric neighbors. If they thrive, it can only be good for the entire neighborhood.
