Brazil Is the New America: How Brazil Offers Upward Mobility in a Collapsing World (8 page)

Without wading too deeply into the thickets of economic theory, I think it is more useful to try to understand why natural resources are more valuable at some times than at others. My argument in this book is that the factor endowments of the United States peaked in value in the past century while those of Brazil are rapidly gaining value in the post-peak oil world. Or to put it another way, Brazil may well have been endowed with more natural resources than the present-day United States for tens of millions of years. But when Europeans arrived, they found the natural resources in what became the United States far more accessible for building an early-modern economy.

Think of a simple children's toy, like a ball, that anyone could use without elaborate instruction. Once the early English settlers, who were mainly subsistence farmers, struck a truce with the Indians and learned to survive the winter, they never turned back. The colonists and immigrants who followed all had access to more or less free land, which they cultivated as yeoman farmers. At a time when Europeans were suffering with wood shortages, English settlers found an area densely covered with hardwood forests that could be readily exploited for building materials and fuel. While economic growth during the colonial period in North America was slow by later standards, progress was cumulative.

Other features of the North American mainland as encountered by the early settlers of Canada as well as what became the United States contributed to the evolution of middle-class societies. For one thing, colonies located on the northern part of the North American mainland were not stocked with “substantial populations of natives able to provide labor, nor with climates and soils that gave them a comparative advantage in the production of crops characterized by major economies of using slave labor.”
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Most of the settlers of European descent had similarly high levels of human capital. And their principal labor was invested in the production of grains and hay, crops that provided negligible scale economies to large producers in the colonial period. Consequently, as economic historian Kenneth L. Sokoloff observes, “the great majority of adult men were able to operate as independent proprietors.”
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By contrast, Brazil was complicated from the very beginning, more a Rubik's Cube than a simple tool. When the Portuguese first arrived, they found the native inhabitants of Brazil living naked in a Stone Age paradise. Unlike the native Inca, Maya, and Aztec empires that had flourished elsewhere in what became Latin America, the native tribes in Brazil had not developed complex societies. They built no cities and they left behind no storerooms of gold; nor had they established any systems of tribute and taxation that the Portuguese could take over in the way the Spanish viceroys took over the Inca Empire. The first European settlers in Brazil were starting from scratch.

Among other things, they found soils and climates well-suited to growing sugar, the most valuable crop of the early-modern period. Unlike the hay and grain produced by the yeoman farmers in North America, sugar was a crop that could not be grown in Europe. It was a highly valued commodity that justified the large and previously unprecedented intercontinental flows of labor and capital required to produce and bring it to market. Like all the New World economies, Brazil evidenced a high marginal product of labor, hence the great numbers of migrants who crossed the Atlantic from Europe and Africa. Prior to the harnessing of high BTU hydrocarbon fuels, the somatic energy provided by slaves seemed essential to the exploitation of the land and natural resources found in such abundance relative to labor.

In addition to this, sugar production entailed great economies of scale for those who could afford to acquire multitudes of slaves to farm large plantations. Under these conditions, it is not surprising that sugar became big in colonial Brazil. By 1650, sugar comprised 95 percent of Brazil's exports. At that time, northeastern Brazil was richer than the New England colonies. But within a few decades, that prosperity petered out, in part because of Portuguese policies that are interesting in light of the Douglass North thesis that an English legal tradition improved prospects for growth. While that may not have proven true over the long run, Portuguese law was evidently counterproductive during the seventeenth century.

The rapid proliferation of competition to Brazil in the seventeenth century sugar trade owed much to dysfunctional, repressive policies. Consider the victory of the General Brazil Company in the Sugar War over the Dutch West India Company in 1654. Other things being equal, the military defeat of the Dutch should have secured Brazil's position as the dominant supplier of sugar to Europe. But other things were not equal. The advantage for Brazil proved to be fleeting precisely because of Portuguese policies that contributed directly to the proliferation of competitive sugar plantations in the Caribbean, thus eclipsing the Brazilian sugar industry for centuries to come.

How did this happen?

Many of the early Brazilian sugar plantations were owned by Marranos, so-called New Christians who had formally converted to Christianity, but many of whom continued to practice Judaism in private. When the Dutch captured parts of the northeast Brazilian coast in 1630, they were unconcerned about enforcing religious orthodoxy. Consequently many New Christians returned to living openly as Jews. After the Dutch surrendered in 1654, the relapsed converts found themselves in a perilous position. Under Portuguese law, converts who returned to their old religions could be punished by death. Consequently, many Marrano planters fled, lest they be captured and turned over to the Inquisition.

Note that the Marranos in Pernambuco had good reason to fear being denounced to the Inquisition. One of the principal grievances cited by the Portuguese settlers who led the revolt against Dutch rule was a complaint that the Dutch authorities had been lax in suppressing the New Christians.

As a consequence, experienced Brazilian sugar planters migrated to the Caribbean, where they introduced sugar cultivation to practically every island with even a patch of arable land. As a result, the Caribbean, which was closer to Europe, soon eclipsed Brazil in supplying the sugar trade. That was certainly not the only example of Brazil's economic progress being derailed by heavy-handed government.

Just as the yeoman tradition of farming by independent proprietors helped inform the legal institutions of what became the United States and Canada, so the highly unequal land tenure associated with the sugar plantations in colonial Brazil gave rise to institutions, laws, and policies that tended to reinforce the advantages of the elite. As Sokoloff suggests, “government policies and other institutions tend generally to reproduce the sorts of conditions that gave rise to them. Specifically, in those societies that began with extreme inequality, elites were likely better able to establish a basic legal framework that ensured them disproportionate shares of political power.”
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Recent research in Brazil has confirmed that “municipalities originally related to the sugarcane cycle present higher land concentrations today.”
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So while the prosperity generated by the successful cultivation of sugar in Brazil in the seventeenth century may have been fleeting, the institutional impact of the extreme inequality that necessarily accompanied sugar plantation under colonial conditions was not. Today's institutions reflect the heritage of past institutions.

In my view, you could almost consider the riches of Brazil as having been sealed in a time capsule, where to a large extent they remained locked out of reach until the value of those assets escalated to be very great indeed. That time has come, or is coming, as the conditions for economic growth recede in the United States and most of the advanced temperate zone economies.

The slower pace of Brazilian development was dictated by megapolitical conditions, in particular by peculiarities of topography that long hampered growth in Brazil, but that ironically have endowed Brazil to become an economic superpower in the post-peak-oil world. Not only was Brazil held back by topography, its progress was also retarded by a largely tropical climate that for centuries seemed to limit the productivity of Brazil's farms. In Chapter 9, we will explore Brazil's role as an emerging superpower in world agriculture in more detail and why experts formerly believed that productive farming was limited to temperate climates (or, more specifically, why experts formerly believed that modern civilization depended upon farming formerly glaciated land “centering essentially about the North Atlantic basin”).
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Little wonder that the Cerrado (translated in English as “closed”) that comprises 21 percent of Brazil was long thought to be worthless for agriculture.

It has long been known, as the old Frank Sinatra song contended, “There is an awful lot of coffee in Brazil,” but only recently has it become obvious that Brazil's warm climate is actually an advantage in the production of cereals and seeds that originally evolved in temperate climates. Now that Brazilian scientists have developed varieties of grains and seeds that thrive in warm weather, and learned how to enhance the soils of the vast Brazilian savanna, the Cerrado previously thought to be unproductive, is emerging as the new breadbasket of the world. Brazil's farm exports are growing 670 percent faster than those from the United States.
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The issues associated with the introduction of temperate crops into warm weather climates aside, the crux of Brazil's longstanding growth challenge is highlighted by an hypothesis spelled out by Nicolas Rashevsky in
Looking at History through Mathematics
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In seeking to explain the more rapid development of the European West, Rashevsky looked to an important characteristic of topography—the ratio of shoreline to landmass—the very feature that helped precipitate the growth of democracy in ancient Greece. He argued that prosperity first developed in Europe because Europe has a specific shoreline almost a magnitude longer than that in China, for example. The implication of an extensive specific shoreline, as illustrated by the prosperity of smallholding farmers in ancient Greece, was that it permitted more extensive and profitable trade.

In the case of Brazil, Rashevsky's hypothesis requires amendment. His unspoken assumption is that the rivers and waters are navigable. Brazil's development was hampered not by a low ratio of specific shoreline, per se, but by a concatenation of geographic features that rendered much of the shoreline of Brazil inaccessible or ill-suited to navigation. Brazil is endowed with the world's most dense and vast river system. Other things being equal, that should have made Brazil the world's richest country. But other things were not equal. A higher proportion of Brazil's hydrological system than elsewhere is useless for transport. Due to the terrain through which Brazil's rivers flow, many areas containing ruptures and deep valleys, they have greater potential for the generation of electric energy than for navigation. As of 2008, hydroelectric power plants accounted for 85 percent Brazil's electricity, with 282 GWh of power generation.
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Of course, for the first four centuries of Brazil's existence generating electric power was beyond the technological horizon.

Chapter 10 spells out the many ways that Brazil is endowed to enjoy a competitive advantage in energy in the twenty-first century as skyrocketing demand for a diminishing supply of cheap oil undercuts the basis of prosperity in the formerly advanced economies. Brazil is one country where city lights are unlikely to fizzle and flicker out due to electricity shortages. In 1950, Brazil's electric generating capacity was only 1.9 million kilowatts, mostly based upon burning petroleum, which in those days was imported. After the first oil shock, Brazil embarked on heavy investments in hydroelectricity that by 2008 had created 81,955 MW of generating capacity, second globally, behind only China.

In addition to hydropower, Brazil also enjoys advantages in other forms of renewable energy, including biomass and ethanol production from sugar cane. Brazil is self-sufficient in oil and is poised to become a major exporter of high-priced oil as production from newly discovered fields comes online. Also important is the fact that Brazil enjoys greater benefits of solar energy than most other large economies. Brazilians employ less energy relative to GDP than the world at large. One statistical measure underscores this fact: residents of the United States spend more energy heating their homes than Brazilians do for all purposes.

While Brazil has more fresh water than any other country—itself a major advantage going forward—the waterways are not situated to facilitate transport. Among Brazil's major rivers, only the Amazon and the São Francisco flow to the sea. But the area drained by the Amazon is mostly tropical jungle—a region of low productivity. The São Francisco has its origins in Minas Gerais, an area of high productivity. But only the last 172 miles of the lower river are navigable. Brazil's most productive regions, in the southeast of the country do not have easy access to the sea through waterways.

Unlike coastal regions of the United States that are open to the sea, a high wall known as the Grand Escarpment defines most of Brazil's Atlantic Coast. (Think of the mountains looming over Rio.) This is the exposed face of another difficult topographical feature, the so-called Brazilian or Amazonian Shield, an area of one million square miles where most of the rivers flow away from the sea; either north as tributaries of the Amazon, or to the west where they eventually feed into the Paraná River system, which winds for more than 3,000 miles through the center of South America, merging first with the Paraguay River, then farther downstream with the Uruguay River (which also drains Brazil's two most southerly states Santa Catarina and Rio Grande do Sul) to form the Río de la Plata. This river, the widest in the world, reaches a maximum width of 140 miles as it flows past Buenos Aires and Montevideo into the Atlantic Ocean.