The Brazilian government’s measures such as the recent temporary tax breaks for car manufacturers and home appliances to maintain economic growth may signal the start of a new form of economic policy, according to specialists.
Brazil’s upbeat economic performance slowed in the first quarter of this year, with GDP falling 0.35% in March, after activity contracted in January and February, according to the central bank. Meanwhile, finance minister Guido Mantega said GDP growth this year will be higher than the 2.7% expansion in 2011, but economists are sceptical.
One of the key reasons for that decline is the so-called Brazil cost. The local currency, the real, continues to rise and China, though not a lot cheaper, remains a strong competitor. And as Brazil starts to lose ground in various industries, it resorts to protectionists measures, such as threatening to end a decade-long auto trade pact by limiting auto exports with Mexico.
According to Stéphane Garelli, a professor at the University of Lausanne and a former managing director at the World Economic Forum, the Brazilian approach is dead: in a post-recession world, countries will begin to shift to a different type model to protect their own economies.
“We are no longer going to see protectionism, but economic nationalism. That means countries are going to support their own national champions and channel as much business to them as they can. They are not going to just protect their territories, that’s not the name of the game,” said Garelli at a event hosted by telecoms firm Orange Business Services in Rome, Italy.
“The name of the game is to have national products in order to survive,” added Garelli.
To prove his point, the academic cited the recently created ministry for productive recovery led by Arnaud Montebourg. However, it has been almost unfeasible for large countries to become developed economies without a strong industry.
“General Electric is bringing its appliances manufacturing back from China to Louisville, Kentucky. And Kentucky can be just as good as China provided the right conditions are in place – good deals with trade unions, for example,” said Garelli.
Governments should focus on creating and promoting national champions, but the private sector should foster innovation. However, according to Garelli, organisations seem unable to identify market trends and react to them accordingly. How can that issue be addressed?
“One of the ways [to resolve that problem] is to have a department dedicated to spotting market changes and new launches. [That department should] not be part of the overall organisation where you don’t have P&L requirements and pressure all the time: it should be a division where you have entrepreneurs thinking about new ideas all the time,” said Garelli.
“I think companies like Nokia, RIM and HP are unfortunately became they became the victims of their own success. People don’t change until there is a crisis – how do you make them change before that?”
Garelli added that he faces issues related to change in the “real world”: he is also the chairman of Swiss newspaper Le Temps, where the dilemmas around the migration from print to digital are a constant worry.
“Paper sales are going down and people buying papers is becoming quickly a thing of the past, the world is changing. So reacting to that quickly is crucial.”
Photo by Frederic Poirot licensed under Creative Commons