Your World Today: Brazil’s economic journey a growing success
by Timothy J.A. Passmore
Mar 29, 2013 | 720 views | 0 0 comments | 4 4 recommendations | email to a friend | print
If you bought an iPhone in Brazil sometime in the last decade, chances are it wasn’t made by Apple. That is because Brazilian company IGB has been selling an Android-based smartphone under the iPhone name after securing a trademark for the title in 2000.

A settlement between the two companies is in the works and Apple will likely pay out large sums to sell its own model in Brazil. Yet, the dispute sheds light on the turbulent, and at times peculiar, economic development Brazil has taken in recent decades.

The 1970s was a critical time for economically developing nations. In an attempt to close the gap with the United States and others, newly industrializing countries experimented with methods of development that brought both huge success and great failure.

A number of East Asian countries employed “export-led growth,” whereby the government took a leading role in establishing and fostering a particular sector of industry that would meet a global demand. The purpose was to ultimately make exports far exceed imports. As a result, nations like the Asian Tigers (Taiwan, Singapore, Hong Kong and South Korea) saw booming growth, and evidence of the success of this strategy is evidenced by such countries holding dominant global market shares in the areas of technology and car manufacturing.

Other countries took a different path. A number of Latin American nations opted for the process of “import substitution.” In essence, these countries sought to minimize imports from other countries and instead create the goods themselves, boosting domestic industry and with it the economy. As one of those countries, Brazil imposed bans or high tariffs on all technological imports, believing it could replicate such products and keep the profits at home.

The initial years of import substitution saw steady growth for those employing the system: around 2.8 percent between 1950 and 1980. Yet, this method did not address the growing bubble of inefficiency that would inevitably burst and leave Brazil and others playing catchup.

As the government poured more and more funds into domestic industry, national debts increased. Furthermore, the narrow field of designers and manufacturers decreased innovation and competition, leading to inferior products that were gradually falling further and further behind those of the outside world. The guarantee of government funding, and hence a reduced reliance on company profits, further heightened the inefficiency of the system.

When Brazil’s national debt finally reached an uncontrollable level, it was forced to seek rescue from the International Monetary Fund. As this was replicated across the continent, the global economy was shaken amid what became known as the Latin American Debt Crisis.

Yet worse lay ahead for Brazil. As a condition of the IMF’s assistance, as is almost always the case, Brazil had to implement structural adjustment; in this case, meaning it must employ more liberalized economic practices. Subsequently, the Brazilian market was exposed to the foreign imports that had for so long been absent, and the domestic industries, particularly in the technology field, realized just how far behind they really were. Shielding themselves from global competition and innovation led to what has become known as the “Lost Decade,” leaving Brazil and other surrounding countries with a great deal of ground to make up.

Within this context, the recent iPhone case makes a little more sense. Remnants of the import substitution era continue to hamper external competition, particularly where protection of patents and intellectual property continue to be low.

Despite that, much has changed for Brazil in the last 20 years. It is now the world’s sixth-largest economy by GDP according to the World Bank, and in recent years has experienced GDP growth as high as 7.5 percent (2010). Its external debt stands at only 15 percent of its GDP, compared with 106 percent in the U.S., and it has received much international praise for its increasing move toward competitiveness.

Further solidifying Brazil’s economic status this week was a currency exchange agreement with China worth $30 billion, which will safeguard against future economic crises. Additionally, Brazil will host not only the soccer World Cup next year, but also the Olympic games in 2016. These ventures have not been without their problems, but indicate a positive direction for Brazil.

Non-Apple iPhones on Brazil’s streets show that that country has a way to go, and there are no guarantees of economic success in the future. But if recent years are anything to go by, it certainly appears Brazil will only have a more prominent role in the conversation in coming years.