Who made the best of the now-busted boom? You'll never guess
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.
DOUG SAUNDERS
dsaunders@globeandmail.com
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January 17, 2009
LONDON -- It was 15 years ago that we all stepped out of the last major global recession and found ourselves on a moving walkway that took us through a decade and a half of economic growth, easy credit and high employment.
I think it's safe to say that we've reached the end of that particular conveyor belt, seeing as we're all lying in a motionless heap on the floor, bodies and junk piling up around us.
Before we start picking ourselves off the ground, there is one reasonable question to ask: Who won?
I know that sounds like that bumper sticker from the venal years of the 1990s, "Whoever dies with the most stuff wins." But for countries and societies as a whole, that's not a bad philosophy.
What I mean is this: 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?
On the other hand, who sprayed it all over the room uselessly, like one of those infamous London champagne parties? And who pumped themselves up proudly, like a water balloon, then suddenly popped, leaving nothing but a floppy bit of colourful rubber?
Poor little Iceland gets the water-balloon prize. When you pay no attention to the activities of your banks and let them become bigger than your entire national economy, it's not going to end well. Post-boom Iceland finds itself back where it was 15 years ago - one of the best places on Earth, but minus the hyper-wealth. Easy come, easy go.
Britain, at the centre of it all, should have been a winner. But then it got greedy, making a fetish of its completely hands-off approach to business, hoping the profits mysteriously generated in the process would bankroll a great society, no questions asked.
As a result, it is now experiencing a financial collapse of vast proportions, a time-reversal back to the dreary 1970s for both industry and government.
What were the Brits left with? A few things: A recent report from the Organization for Economic Co-operation and Development says the boom years reduced both inequality and poverty in Britain. But it still does worse on those measures than most other European countries, which should not be the case for such a rich country. What a waste.
If the free-market party animals wound up all wet, they're not as badly off as the countries that went the other way, nationalizing their economies and staying out of the global financial system. Those nations simply failed to catch anything in their bucket.
Russia and Iran actually saw their societies decline sharply as oil revenues soared, and Venezuelan leader Hugo Chavez was forced this week into the ultimate humiliation of turning to the U.S. oil companies for help: He wasted the boom years in noisy ideology and his people have gained nothing.
On the other hand, Canada should have done much better too: Our economy grew dramatically, fuelled by a new resource boom, and our banks stayed on a short leash, so none failed.
But for the most part, we were among the champagne-sprayers. Our wealth fund, which shamefully lies in provincial hands, is needlessly tiny. And a decade of lacklustre government spending by both parties has robbed us of the chance to become a world leader: Our measures of equality and poverty are no better than they were at the beginning.
When I survey the globe for a winner, 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.
It happens to be the formula that won the boom. If we had all followed it, this would be a happier moment for everyone. Better luck next time. |
