Economic nationalism: the way to go for Brazil?
Posted by By Angelica Mari at 20 June, at 13 : 19 PM Print
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.
Complacency
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
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Jonny, 11 months ago
I sometimes wonder at the tenets taken by economists. Is competition really that useful?
So, for example, I looked at this article, featuring statements made by Garelli this week, with some interest:
“”I have never seen a world economy that is so desynchronised.”"
http://blogs.orange-business.com/enterprising-business/2012/06/leading-economist-stephane-garelli-at-obl12-i-have-never-seen-a-world-economy-that-is-so-desynchroni.html?utm_source=twitterfeed&utm_medium=twitter&goback=%2Egde_4115632_member_128001596
Garrett, 10 months ago
One aspect that is being entirely overlooked are resources – not human resources, but resources to which to build…
GE may be bringing its appliances manufacturing back from China to Louisville, Kentucky but trade unions are not known to pay US$60 a month, which was the average rate in China (this rate is a couple of years old). It used to be cheaper to build the parts in China and then build the product here. Even some furniture companies would build the frames here, ship them to China, have it upholstered there, then ship it back to the USA, only to ship it BACK to China to sell as an import (DOH!).
The cost of shipping the materials is never taken into account with the economic protection strategies — mostly because there is rarely a politician nor academia that has owned a business and needed to meet the obligations of payroll perhaps?
When Ford first tried to sell cars in Brasil, it was too expensive to manufacture and ship for the people of Brazil to afford to buy the cars. So, Ford shipped a huge inventory of parts to Brazil, taught the Brazilians how to build them using that inventory, then helped them build their own plants to create their own inventory, The infrastructure of the towns affected grew as Ford grew.
Under nationalism, Ford would not have been possible — it still took 15 years of Fords being made here before Brasil formed the Ford do Brasil and still another 40-45 years before Fords were almost entirely built by Brazilian parts (even 30 years after FdB started, 50% of the car parts were from the USA).
The Achilles heel of nationalism is now you are competing with your own limitations of resources – meaning you can’t resort to resources outside your own country in order to compete with other countries. No matter what country I have been in, my experience has been people will buy quality where they can — and limitations on quality ALWAYS results in black markets.
So then what? Making black marketing illegal never stopped the black market, it only drove the prices up, which then created the same items as status items. Eventually, the insanity stops, competition returns, and the prices plummet.
Nationalism, on paper, is an inverse to protectionism — but ignoring the quality of the products can never be ignored, yet it is never taken into account with these strategies. Meanwhile, the people go on with their lives while academia and politicians keep doing the same things over again from the lack of knowing their own history…