[Vision2020] The Nation, 6/30/08

[nickgier at adelphia.net]

Greetings:

I have just received this issue of the Nation and will most likely use some of its articles as a basis for yet another column on economic inequality.  This problem will not be solved by GOP "trickle down," which has been a total disaster.

Between the 1960s and the 1990s, the percentage of Americans moving from the lowest quarter to the highest quarter dropped from 22 to 10 percent. A recent OECD study on the mobility between generations in rich countries found that an American child born in the lowest fifth of the income scale had only a 7 percent chance of climbing to the top one fifth. 

A full 40 percent of Americans will remain at the bottom fifth, while only 25 percent of Danes do or 30 percent of those in the UK. The Danes do this by giving $800 a month and free tuition to all university students who keep up their grades and spending 20 times more on job training programs than we do.  I have to recalculate that college stipend figure because the dollar keeps dropping against the Danish crown.  The Bush administration has done nothing to stop the decline of the dollar.

The strongest economies in the world today are not free market ones, but "mixed" economies.  In Europe it is called the "Third Way" and, as I have noted on several occasions, 7 of the 10 most competitive economies in the world are European welfare states with high personal taxation, comprehensive social programs, centralized, professionalized educational systems, and strong unions.  A strong currency is also a sign of the strong economy and the Euro has doubled its value since I traveled in Italy in 2000.

Below I've appended a article on Brazil, the rising economic tiger in 
South America.  A combination of generous government family stipends and incentives and loans for starting new businesses has be a great success.  This public/private synergy is the secret of the Third Way between capitalism and socialism.

Last night I saw, for a second time, a PBS program about the settlement of Australia with a focus on the "Floating Brothel," whose 258 enterprising women saved the penal colony from near disaster.  One girl, awaiting the noose for what amounted to juvenile delinquency, was put on the ship at the least minute and became one of the founding mothers (by 1852, over 300 descendants) of Australia.  This story and many more put to lie to any fatalistic notions that the "haves" will always succeed and the "have nots" will always fail.  The Brazilian government has given its "have nots" a chance to succeed and they have run with it.

Nick Gier

July 31, 2008, The New York Times
Strong Economy Propels Brazil to World Stage
By ALEXEI BARRIONUEVO

FORTALEZA, Brazil — Desperate to escape her hand-to-mouth existence in one of Brazil’s poorest regions, Maria Benedita Sousa used a small loan five years ago to buy two sewing machines and start her own business making women’s underwear.

Today Ms. Sousa, a mother of three who started out working in a jeans factory making minimum wage, employs 25 people in a modest two-room factory that produces 55,000 pairs of cotton underwear a month. She bought and renovated a house for her family and is now thinking of buying a second car. Her daughter, who is studying to be a pharmacist, could be the first family member to finish college.

“You can’t imagine the happiness I am feeling,” Ms. Sousa, 43, said from the floor of her business, Big Mateus, named after a son. “I am someone who came from the countryside to the city. I battled and battled, and today my children are studying, with one in college and two others in school. It’s a gift from God.”

Today her country is lifting itself up in much the same way. Brazil, South America’s largest economy, is finally poised to realize its long-anticipated potential as a global player, economists say, as the country rides its biggest economic expansion in three decades.

That growth is being felt in nearly all parts of the economy, creating a new class of super rich even as people like Ms. Sousa lift themselves into an expanding middle class.

It has also given Brazil new swagger, providing it, for instance, with greater leverage to push for a tougher bargain with the United States and Europe in global trade talks. After seven years, those negotiations finally broke down this week over demands by India and China for safeguards for their farmers, a clear sign of the rising clout of these emerging economies.

Despite investor fears about the leftist bent of President Luiz Inácio Lula da Silva when he was elected to lead Brazil in 2002, he has demonstrated a light touch when it comes to economic stewardship, avoiding the populist impulses of leaders in Venezuela and Bolivia.

Instead, he has fueled Brazil’s growth through a deft combination of respect for financial markets and targeted social programs, which are lifting millions out of poverty, said David Fleischer, a political analyst and emeritus professor at the University of Brasília. Ms. Sousa is one such beneficiary.

Long famous for its unequal distribution of wealth, Brazil has shrunk its income gap by six percentage points since 2001, more than any other country in South America this decade, said Francisco Ferreira, a lead economist at the World Bank.

While the top 10 percent of Brazil’s earners saw their cumulative income rise by 7 percent from 2001 to 2006, the bottom 10 percent shot up by 58 percent, according to Marcelo Côrtes Neri, the director of the Center for Social Policies at the Getulio Vargas Foundation in Rio de Janeiro.

But Brazil is also outspending most of its neighbors on social programs, and overall public spending continues to be nearly four times as high as what Mexico spends as a percentage of its gross national product, Mr. Ferreira said.

The momentum of its economic expansion is expected to last. As the United States and parts of Europe struggle with recession and the fallout from housing crises, Brazil’s economy shows few of the vulnerabilities of other emerging powers.

It has greatly diversified its industrial base, has huge potential to expand a booming agricultural sector into virgin fields and holds a tremendous pool of untapped natural resources. New oil discoveries will thrust Brazil into the ranks of the global oil powers within the next decade.

Yet while exports of commodities like oil and agricultural goods have driven much of its recent growth, Brazil is less and less dependent on them, economists say, having the advantage of a huge domestic market — 185 million people — that has grown wealthier with the success of people like Ms. Sousa.

In fact, with a stronger currency and inflation mostly in check, Brazilians are on a spending spree that has become a prime motor for the economy, which grew 5.4 percent last year.

They are buying both Brazilian goods and a rising flood of imported products. Many businesses have relaxed credit terms to allow Brazilians to pay for refrigerators, cars and even plastic surgery over years instead of months, despite some of the highest interest rates in the world. In June the country reached 100 million credit cards issued, a 17 percent jump over last year.

At Casas Bahia, a modestly priced Brazilian furniture-store chain, the number of customers buying items on installment nearly tripled to 29.3 million from 2002 to 2007, said Sônia Mitaini, a company spokeswoman.

Other signs of new wealth abound. In Macaé, an oil boomtown near Rio de Janeiro, contractors are racing to finish new shopping malls and luxury housing to keep up with demand from oil-service firms. At a port in Angra dos Reis, a town known for its spectacular islands, some 25,000 workers have found jobs building oil platforms.

Petrobras, Brazil’s national oil company, shocked the oil world in November when it announced that its Tupi deepwater field offshore of Rio de Janeiro could hold five billion to eight billion barrels of oil. Analysts think there could be billions of barrels more in surrounding areas.

While the oil will be expensive and complicated to extract, Petrobras has said it expects to be producing up to 100,000 barrels a day from Tupi by 2010, and hopes to produce up to a million barrels a day in about a decade.

The new oil plays are setting off an investment boom in Rio de Janeiro, with an estimated $67.6 billion expected to flow into the state by 2010, according to the Rio de Janeiro State Federation of Industries, an industry group. Petrobras alone expects to invest $40.5 billion by 2012.

Some economists say a slowdown in the rest of the world’s economy, especially in Asia, which is soaking up much of Brazil’s exports of soybeans and iron ore, could crimp growth here. “But that probability is small,” said Alfredo Coutiño, the senior economist for Latin America for Moody’s Economy.com.

In fact, because Brazil’s economy has become so diversified in recent years, the country is less susceptible to a hangover from the struggling United States economy.

Brazil’s exports to the United States represent just 2.5 percent of Brazil’s gross national product, compared with 25 percent of G.N.P. for Mexican exports, according to Moody’s.

“What makes Brazil more resilient is that the rest of the world matters less,” said Don Hanna, the head of emerging market economics at Citibank.

The rest of the world certainly has helped. Soaring prices for minerals and other commodities have created a new class of super rich. The number of Brazilians with liquid fortunes exceeding $1 million grew by 19 percent last year, third behind China and India, according to a survey by Merrill Lynch and Capgemini.

At the same time, President da Silva has deepened many of the social programs begun 10 years ago under Fernando Henrique Cardoso, who as president ushered in many of the structural reforms that laid the foundations of Brazil’s stable growth today.

In Ms. Sousa’s case, for instance, she owes much of the success of her underwear business to loans she has received from the Bank of the Northeast, a government-financed bank that has awarded microloans to 330,000 people to develop businesses in this fast-growing region.

Other programs, like Bolsa Familia, give small subsidies to millions of poor Brazilians to buy food and other essentials. Bolsa Familia, which benefits 45 million people nationwide in distributing an annual budget of about $5.6 billion, has been far more effective at raising per-capita incomes than recent increases in the minimum wage, which has risen 36 percent since 2003.

The bottom-up nature of such social programs has helped expand formal and informal employment as well as the Brazilian middle class. The number of people under the poverty line — defined as those earning less than $80 a month — fell by 32 percent from 2004 to 2006, Mr. Neri said.

The programs have been particularly effective here in Brazil’s northeast, historically one of poorest parts of the country. Residents here have received more than half the $15.6 billion doled out in social programs from 2003 to 2006, according to Empresa de Pesquisa Energetica, an arm of the Energy Ministry.

People here are using that new wealth to buy items like televisions and refrigerators at a faster rate than the rest of the country. The northeast, in fact, passed the country’s south in electricity use this year for the first time, the energy agency said.

Many families have bridged the gap to the middle class by using Bolsa Familia to meet basic needs, and then applying for small loans to start businesses and escape the informal economy. That is what Maria Auxiliadora Sampaio and her husband did in Fortaleza, a coastal city of 2.4 million people. They were receiving Bolsa Familia payments of about $30 a month, which they used to support their three children. Then, two years ago, Ms. Sampaio used a microloan of about $190 to buy nail polish and kick-start her manicure business, which she runs from home.

Today she is making around $70 a day — about four minimum salaries per month, she said. With her next loan she plans to put about $140 toward a stove to sterilize nail clippers, which today she does with hot water.

The fruits of her new business have allowed the couple to retile their house and buy a television and a cellphone. This month her husband, who works at a Cachaça factory, was able to realize a dream: to buy a drum set.

He plans to use it in a band that plays forró, a traditional music in the northeast. “We always ate and paid bills, but he waited and waited,” and finally bought the set for about $780, she said.

“I feel like we are part of this group of people that are coming up in the world,” said Ms. Sampaio, 28. “When you don’t have anything, when you don’t have a profession, don’t have the means to live, you are no one, you are a mosquito. I was nothing. Today, I am in heaven.”

Mery Galanternick contributed reporting from Rio de Janeiro.