Why Did Brazil Never Make It?

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2:07David McWilliams: To understand the economy, you have to understand human nature. This podcast is powered by Acast.

2:20How are you doing there? I hope you are enjoying the World Cup. This podcast is going to be part of our World Cup series. The series that we are bringing you dispatches from the World Cup, largely based on countries that we find interesting, economies that we find interesting,

2:40David McWilliams: political, geopolitical, geostrategic backdrops, and of course, economic history that we find interesting. And today we are going to do, for many people, the big one in football. The country that is most romanticized, the country that has a grip on people's imaginations, the country that has delivered generation after generation of extraordinary talented players. The country where the expression the beautiful game comes from. And that, of course, is... John is on the cook of Cucurcabana as we speak. Brazil! That country is, of course, Brazil. We are going to look at Brazil. This podcast will have been recorded before the Brazilian-Scottish game, so we don't know the result of that.

3:25Obviously, we would have loved the Scots to do a job in Brazil, but... I saw Brazil's first game, and they are not up to par at all. No, and without your man, Vinny Jr., they look like a pretty average team, And I think a lot of Brazilians, particularly the Brazilians who are living and working here, if you talk to them in bars or cafes, they'll say, like, this is not a great Brazilian team. But, you know, not a great Brazilian team doesn't mean they're going to lose, you know. Well, that's true, because they do tend to grow into tournaments. But it was really interesting watching the selection of or the naming of the Brazilian squad.

4:02It was live on TV, you know, and there was loads of cheers every time they mentioned a name. but when they mentioned Neymar, the place went ballistic. But Neymar is what, 38 or whatever age he is. Like he's the grandfather on the team and he's injured. He's not even going to be playing. Well, he's kind of like the mascot of the team as well. Typically a mascot is the junior partner, right? So usually a kid, but as you say, Neymar is kind of over the hill when it comes to extraordinary footballers.

4:35David McWilliams: But, you know, do not say never, John, because in football, the strangest things can happen. And as for the Tartan army, they have had such a laugh. And it was an inspired decision putting them in Boston. I actually spoke to a doggy publican over the weekend who just looked at me and he lamented. And he said, wouldn't it be amazing owning an Irish pub in Boston this weekend? He just said, he was looking at his bottom line and he was thinking, what crack we would have. with the tartan army. They've obviously, as you said, all fair, John said all fair, they've kind of taken over from the paddies as the team that you want to support that isn't your team.

5:16Yeah, yeah, absolutely. And by the way, just when you say extraordinary things happen in the World Cup, Cape Verde, or Cape Verde. Yes, yes, indeed. A shout out to Keiko Lopez. He the man. Shout out to, yes, yeah, yeah, Cape Verde, a very, very small volcanic series of islands off the west coast of Africa. Now, interesting, John, you mentioned Cape Verde,

5:42David McWilliams: and Cape Verde is going to be a launching pad for this particular podcast because part of this podcast is going to be talking about the economic impact historically of slavery in Brazil. And Cape Verde was the biggest slave-holding pen for the Portuguese empire. So it has a dark, dark history. So the slaves were taken from West Africa. They were shipped to Cape Verde. And from Cape Verde, they were shipped across to Brazil. So there's a dark and difficult history of Cape Verde, which we will talk about as well in the context of this Brazilian podcast, because Cape Verde is actually the junction between Brazil and Portugal.

6:32and the Portuguese Empire and Brazil, which was the Portuguese Empire's biggest overseas territory for many, many years. So let us, John, talk about Brazil, not least because Ireland is full of Brazilians. I'm sure some of them listen to this podcast. No doubt. In the last 10 years, one of the languages you can hear most in Dublin, if you're not used to it, is Portuguese. And because Portuguese tends to go,

6:58David McWilliams: it sounds almost like an Eastern European Slavic language. when you hear it first. That was my Portuguese. Yeah, I love it. Amigo. Caralho, amigo. So where do you want to start here? Well, first of all, let's get a sense of Brazil. Brazil has a population of 205 million people. It is the largest country in Latin America by a country mile. It has a real GDP per capita, just to give you a sense, of about$10 ,500. $1 ,500. It is growing very, very rapidly. Over the last three years, it's been growing about 3%. It is a country with a slowing debt GDP ratio, about 75 % of GDP. And its overall GDP is 2.1 trillion, making it the second largest economy in the Americas, larger than Canada, John.

7:58Wow. So it's in really good shape then, generally. Not in really good shape. Not in really good shape. The history of Brazil is the history of stop-start economics. So one of the mottos of Brazil, John, was Brazil, the country of the future. And lots of Brazilians would say, well, that's all very well if you live in the future, but what about now? Why don't we make it now? Because it has all the natural resources in the world. It's got all the agriculture. It's all the land. It's got rainforests. It's got tropical, subtropical. It's got even Mediterranean-type climate in the south, which is very, very good for agriculture.

8:35It has a huge amount of commodities. It has a huge amount of natural resources. And yet, and yet, and yet, and yet, it has stumbled.

8:46David McWilliams: And every time Brazil appears to be just on the cusp of something, something tends to go wrong economically. So that's what we're going to talk about is the innate fragility of a country that should be absolutely going gangbusters. Now, anecdotally, anybody who's done business in Brazil will tell you Brazilian management are incredibly educated, really, really adaptive. They make do. They make great decisions on the hoof. Lots and lots of people I know who've done business there say it's absolutely simple to do business there. But they have, for many, many years, John, been regarded as one of these emerging markets that's characterized by currency crises, inflation crises, capital account crises, debt crises, and they can't quite shake that just yet.

9:38Why is that? Why do all these crises keep cropping up? What's going on there?

9:43David McWilliams: Well, the main problem is for all these Latin American countries is that because they have defaulted so many times, capital leaves the country at the slightest hint of a change in politics. and the capital that leaves the country tends to be the capital of the very, very wealthy locals. You know, a kind of a shorthand is always that, oh, it's foreign capital moving in and out, but actually what happens is it's locals. Like, let's look at the big idea here, right? Yeah. Agriculture is a massive employer. It is about 7 % of GDP. The biggest exporter of coffee, of sugar cane, of soya beef, and now of beef and poultry in the world.

10:36One of the biggest ones. And it's a massive threat to Irish farmers, which is why Irish farmers and European farmers have been up against all these Mercusor deals, which gives the Brazilians and the Argentinians free access into the European Union because their farms are just so much bigger. Their quality of soil is so much better. And most importantly, their wages are so much lower.

10:59David McWilliams: So their input costs are so much lower. But also the standards of beef production are lower though as well. and there's a high use of antibiotics and it's less regulated than it is here. I think so. I think you're absolutely right. I think it's more akin to North American agriculture than European agriculture. And constantly the food chain is a completely different creature. The dilemma for Brazil, it suffers from a lack of R &D investment. It probably invests about 1 % of GDP in research and development as opposed to 2.5 % in the OECD in general. And ultimately what this leads to is a higher rate of interest than should otherwise be the case.

11:37David McWilliams: Rate of interest in Brazil is about 15%. And that means, yeah, so that means that, you know, you're going to have always this dragon capital. But the main problem in Brazil is inequality. John, it is one of the world's most unequal countries. So, for example, there's a massive inequality between black and whites in Brazil, and there's a massive inequality within Brazil where there's a very, very small, very, very wealthy top end of the population, and then a huge, huge disenfranchised mass at the end. But the positives are, let's do the positives. It's a massive renewable energy source for the world, right?

12:1788 % of Brazil's energy comes from hydro, solar, or wind. And it's very, very cheap. So that's really important. It has huge untapped mineral resources, second largest world reserves of graphite, the third largest world reserve of rare earths and significant reserves of copper, of nickel, and of lithium. So this is a huge... Jason, that sounds like they're primed for a US invasion then. And interesting, they have a very big army as well. They have a very, very big army. Right. And they are a massive startup hub in Latin America. There's the most active startup tech infrastructure in Latin America.

12:58that's in Sao Paulo, one of the biggest cities in the world. Of course, it's a member of BRICS, as you know, John, but it's a friend of both the East and the West. It's a country that has hosted the G20, the B20, the BRICS, the COP30 summit. So it's got a huge, what you would call soft power. You know, it's a country that's liked around the world as well. It's very important. 44 % of its trade is done with the industrialized countries and 30 % of its trade is done with what you would call the old third world countries. And that, in a nutshell, John, is Brazil. It has got, you know, enormous potential.

13:36Yes, yeah. It has everything there. And yet, tens of thousands of young Brazilians are here in Ireland. Yet, yeah. The vast majority of those Brazilians have Italian passports. Italian passport? How come? Why is that? Okay, because of a policy called

13:58David McWilliams: Now, what is branquimento, John? I love your accent. That's my Portuguese, that's bonito, aninho accent. That is because of this quite, quite controversial policy called branquimento. Branquimento was instilled in the early part of the last century. Branquimento in Portuguese means whitening. So it was the whitening of the population. So this is fascinating. This gets into the whole issue of slavery, John. Brazil was the last country in the world to outlaw slavery. When it outlaws slavery, the government in Brazil, which were all white, thought, okay, what we've got to do now to prevent this country becoming a black majority country, which it already is, but prevent the country becoming a black country, a black rule country.

14:54We are going to have an immigration policy called Brancamento, which means whitening.

15:01David McWilliams: And what this did is it encouraged white settlers from Europe, largely Spain, Portugal, but particularly Italy, to actually come to Brazil where they would be given free land. And this is exactly what we're talking about. But this was the beginning of the 20th century. So basically what you have in Italy, you have two massive shocks to the Italian economy that happened in the early part of the 19th century, over and above wars and all that sort of stuff, which the Italians were getting involved in, particularly the First World War. But before the First World War, there were two particularly nasty environmental shocks that the Italians suffered.

15:48David McWilliams: One was a blight to the vineyards, to the vines, and the other one was a blight to the olives. So the mainstay of Italian rural agriculture had been olive oil and wine. And in the late 19th century and early 20th century, all European vineyards suffered a blight, suffered a virus. And a huge amount of the existing stock of vineyards had to be ripped up. So those farmers needed somewhere to go. So in Ireland, we had the famine in the 1850s. That was the catalyst for a huge migration of people because Irish people said, look, we've got to leave this country. There's nothing here for us, right? About 40 years later, you have something very similar happens around the Mediterranean basin.

16:46And that's when you see the first great migrations of Greeks, Croats, Serbs, Italians, and Spaniards, but particularly Italian, Serbs, Croats, and Greeks, to Australia, to America, and of course to Latin America. So they come in their tens of thousands. They are being pushed out in their tens of thousands, but they are being dragged in in their tens of thousands and in their millions by this policy of whitening, which was basically a way in which the white government in Brazil, which had taken over from the Portuguese king, wanted to make sure that they had a middle class or a lower middle class or an artisan class of white workers.

17:33And that, John, gets us into one of the most fascinating, fascinating stories of Brazil, which is the story of slavery. This was also the time when a lot of the Italians, which you spoke about before, went to Argentina. Exactly the same time. Yeah. And the difference is the Italians give out passports into perpetuity. It means that the Italian footprint around the world is much greater in terms of the

18:02David McWilliams: amount of people with Italian descent who can come back to Italy. And of course, as we're all in the EU, if you can come back to Italy, you can come back to Ireland. So that is why you get so many Brazilians here, because they have Italian passports. And the reason the Italians went, John, was a countervailing strategy after the end of slavery. So again, slavery is a huge part of the Brazilian story. Yeah. So let me ask you about that. You know, as a huge part of the Brazilian story, how come or how different was slavery in Brazil compared to the rest of the Americas? Well, just to give you a sense of how many slaves arrived from Cape Verde, interesting, we started that, to Brazil.

18:49So when we discuss slavery, we tend to think about slavery in the United States, African-American experience.

18:57David McWilliams: the African American experience only, if you want to, I know it's quite distasteful, but just put the numbers on, only encompassed 3.6 % of all slaves transported across the Atlantic went to the United States. That's all. Out of the 10.6 million Africans that are estimated to have been forced on boats to the general Americas, Africans were also sent elsewhere. but 4.9 million of those 46 % of all the slaves brought out of Africa over the 300 years of slavery ended up in Brazil. So that gives you a sense of how many ended up in Brazil, twice as many as ended up in the Caribbean in those brutal plantations we spoke about last week about in Haiti.

19:44David McWilliams: So the Brazilian experience of slavery is much more ubiquitous. Many, many more millions of people are involved in this. And of course, in the beginning, the slave trade in Brazil was in a very small part in the northeast of Brazil. In effect, that bit that sticks out. And of course, they were brought to for sugar plantations, exactly the same as the Caribbean situation. But then there was an 18th century gold rush in Manaus in the southeast of Brazil, a place called Minas Geras. And there, of course, the Brazilians needed slaves to mine the gold. So you can imagine the conditions that these people mined gold in.

20:29And then, of course, in the 19th century, you get the coffee boom, and that's the hinterland around Rio de Janeiro. and therefore Rio de Janeiro becomes the world's largest slave port, even bigger than Havana. And so what you see is there's three sort of phases of slavery depending, of course, on the industries. And the other people who were enslaved, of course, in Latin America, or in Brazil, were the indigenous Indian population. And one of the great movies about that period was... always overlooked. And again, that's where our friend Casement has written great stuff about Peruvian Indians who were brutally, brutally, brutally abused during the, again, the rubber plantations of the early 20th century.

21:19So what we have is that we have these big waves of slavery. This basically dominates the daily life in Brazil. And every single sector in Brazil has slaves. So for example, half of maritime sailors in this Brazilian Navy were slaves at a certain stage. Brazil had a very, very big whale processing industry. They were slaves. Textiles, construction, almost all manual workers in Brazil were slaves. And 30 % of even skilled tradesmen were slaves in Brazil. So Mike, there was so many more slaves coming to Brazil than anywhere else in the Americas. So that surely had a massive impact on the economy.

22:08And this is a really fascinating aspect of what happened in Brazil. Does it have lessons from mass movement of people now? I'm not so sure, but let's just tell the story and then let's make some suggestions, right? So the story of Brazil is one where you get a huge amount of slaves coming to work. And that means that real wages in Brazil before slavery, which we're talking about the 16th century, right, when the Portuguese first arrived, those real wages were very, very high. And they were higher than in Europe, which was also the case before slavery in the United States.

22:48David McWilliams: Then what happens is you get all these people who are enslaved who come over. And of course, not only are they cheap, they're free, right? They are actually possessions of somebody else. So those slaves drive down dramatically the real wage in that area. So the real wages in Brazil fall substantially during the period of slavery. Now, bear in mind that Brazil is the last country to make slavery illegitimate. Oh, really? And illegal. The last country in the world. So it's 1890. It's a long, long time after the Brits and the Americans and what have you, after the Civil War in America, et cetera, right?

23:28So what happened there, and this is an interesting thing. So once labor is very, very cheap, then what you basically do if you have a problem in factories

23:38David McWilliams: or farms or whatever is you throw cheap labor at the problem, right? Now, what that does is it gets the job done, but in order to get the job done, you need more people. And if those more people are cheaper, then at the end of the day, it probably makes it worth your while as the capitalist at the top of it. But what that does is it tends to lock the country into a low-wage, low-technology cycle for generations. And that's what happened in Brazil. So basically what happens is that as real wages rise, the cost of using humans to do that job rises. So therefore, the cost of using technology to replace the humans or add to the human productivity falls.

24:20So what you find is that as real wages rise, countries and companies become even more sophisticated.

24:28David McWilliams: The reason they become even more sophisticated is that because people are expensive, you've got to make those people better at doing stuff. So you deploy capital and technology for those people. So they learn to, you know, use the internet. They learn to use driving tractors. They learn to use machines, right? And by learning to use machines, you fuse those machines with that labor. Bob's your uncle. You can afford to pay people the higher wages they expect and still generate the productivity, which generates the profits at the end of the day. Is that kind of what's happened to America? So in America, what you have, actually, I think this might be what's happened, maybe even more interesting to Britain, right?

25:10Okay, yeah. So one of the big problems,

25:13David McWilliams: and sorry, listener, we're digressing here a bit, but one of the big problems in the UK at the moment is try to explain what they call this productivity slump in the United Kingdom. It's been falling for a long time. There's lots and lots of reasons for it. There's lots and lots of suggestions for it. People worry about the education level of the workforce, etc. But one of the major factors since Brexit you have to look at this Brazilian example and say, well, look, if there is a very large increase in immigration, so in the United Kingdom, I think the United Kingdom is taking in a population of Birmingham every year.

25:50Birmingham is the second largest city in the United Kingdom. So that's over a million people.

25:56David McWilliams: So imagine what that does. What that does is it makes those million people available to the workforce. Those million people are prepared to work for lower wages, even though they're in the UK. And the reason is they're coming from even lower wages places. So they will live, as is happening again here in Ireland, they live like five to a room, whatever. And they are having an effect of reducing the real wage, right? So that's why British wages are very stagnant at the moment. But the attendant impact of that is that employers don't necessarily have to invest in technology to increase productivity because wages are low.

26:42David McWilliams: So they can still be profitable employing these new people as long as wages remain low. This might explain why British productivity is falling. It's falling because it doesn't have to rise. And it's falling because employers don't have to increase, for example, the amount of machines, the quality of the labor, the efficiency of the labor. Why? Because it's getting a lot of this cheap labor, which, I mean, Brexit was supposed to have an impact, I think, having low immigration, but it ended up having higher immigration. And again, look at Ireland. All these things are not unique to any one country.

27:20David McWilliams: And I think the Brazilian story is a little bit interesting. I wouldn't make a huge leap of it, but it's an interesting historical fact that Brazil remained technologically a low-grade economy for generations because it had for generations these very self-sustaining low wages which were coming from slavery. And of course, even when slavery was abolished, John, you had this huge amount of poor, previously slave labor that was in the workforce. And of course, Brazil has been characterized by a huge amount of racism against black folk over the years. So it ended slavery in 1888. I said 1898, but because it specialized in products that were being made by cheap people, What happened was once slaves' wages started to rise, the Brazilians found themselves, like the people in the South of America, and the Jim Crow laws found themselves being priced out of international markets.

28:32Many American historians will argue that even though the South lost the Civil War in the United States, and even though that was supposed to usher in a period of the abandonment of slavery and usher in a period where slaves in the United States, the black slaves, the black people would have seen their wages rise and their conditions improve, what you actually you saw, John, after what they called the post-bellum world in the United States was that the position of blacks maybe even got worse with the Jim Crow laws, with the lynchings and all that, which is why you saw the mass migration of black people from the south of the states in the post-Civil War period, and which is why you have Chicago and Motown and Detroit and

29:23David McWilliams: black populations moving to the north. Ironically, even though their side won the Civil War, the dislocation in the south was so extreme, number one, and this prompted the Southerners to introduce their own Jim Crow laws, number two. It also undermined the whites in the south, all of which made the black position get worse. Of course, in Brazil, the black people couldn't go anywhere, if you think about it. There wasn't a place in the north of Brazil that had different legislation and different people. So what they did was they obviously moved into the cities as Brazil became more industrial. But what is interesting is the way in which Brazil reacted to the end of slavery was rather than embracing a black population, it said, we need to whiten up here.

30:10And that's where all the Italians and the other immigrants came. And there's another fantastic story, which is the story of Japanese immigrants into Brazil.

30:18David McWilliams: It's the largest Japanese population outside of Japan. And again, those people come over again before the Second World War, which is a fascinating story. So again, the idea was a lot of the Japanese people who came over, the idea was that Brazil needs cheap labor and it wants non-black cheap labor. And that, of course, is one of the sort of untold stories of Brazil. And of course, what you find is that for many years, Brazilian society was characterized by very, very severe desegregation of color. Not necessarily of religion, not necessarily of class, but of color. And color and class went together.

31:02But the one bright spot, John, and this is the interesting thing, and maybe the one reason that the Brazilian football team is so romantic and holds such an extraordinarily impressive position in Brazilian society is the one area that was integrated was the football team. And the success of the football team has been regarded by many Brazilians as being essential to the integration of the various colours in Brazil. Yeah, it's amazing actually, because when you think of Brazil, you think of Brazilian football. It is the quintessential football of the world. But let's get into that. Let's get into the kind of socioeconomic element of that after a little hydration break

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34:28so mike talking about brazil and looking at its kind of very dark dark history and the story of brazil is slavery but as you were just saying the only kind of light amongst all of this is brazilian football and we know how brilliant brazilian football is and some of the top Brazilian footballers like Pele, Ronaldinho, all the others that I can't think of at the moment, were black. Yes, they were. So talk to us about Brazilian football and the story. So football arrives in Brazil in around the 1890s,

35:05David McWilliams: as it does all over the world, from British expats. It's a British export. And initially, it was an elite white sport only. And early clubs had explicit social screening, including a federation rule within Brazil that banned players who did manual labor. Now, manual labor was a disguise for color because manual labor was done by black people. So ultimately, if you say, we're one of these people who do manual labor, what you're in effect saying is we just basically want the elite playing the game. This goes back to Simon Cooper's idea of Jules Rimet. He said there last week that Jules Rimet's idea was that men should get paid for playing football and only through professionalism do you create any equality of opportunity on the football pitch because poor men have to go out for work.

35:58David McWilliams: So unless you pay them, they're not going to play football. And in Brazil, in the beginning, in the beginning, football was a white sport. Now, there was a man, a mixed race man called Arthur Friedenreich, John, who was described as the original Pele. He scored 1 ,200 goals. Can you imagine that? Scoring that over his career, right? He was mixed race. He had to straighten his hair. He had to use powder to lighten his skin to be accepted as part of the white-only policy. And he was a mixed race guy. Wow, that's incredible. This is all in the 20s and 30s. But despite this, John, you know, football became one of the only areas where black people were allowed to fully participate.

36:44David McWilliams: And the first mixed team which won the Brazilian League Championship was a team called Vasco da Gama, who still play at Rio de Janeiro, and they won in 1923, right? But even after that, race issues were always there, right? 1924, the league then changed the rules, and they banned mixed-race clubs like Vasco da Gama from competing, which is extraordinary. Wow. But slowly but surely, these things started to change, right? and in 1938, two black players were selected to play for the Brazilian team in the World Cup. And this was seen as the beginning of a change. And of course, as you say, the most famous of all Brazilian players was Pele, a black man.

37:31David McWilliams: But when he played, it was interesting that when the Brazilians got knocked out in 1950 and 1954 in the World Cup, the black players were blamed. there was an underlying sort of, well, if it wasn't for those guys, we would have won the game. Now, you can't imagine a Brazilian team without these extraordinary athletes. But what I say is the success of the Brazilian team and the success of the black players in the Brazilian team is part of the story whereby Brazil becomes to accept its color demarcations, its segregation and its inheritance of slavery. So, John, I think that the success of the Brazilian football team and the extraordinary investment of emotion and money, of course, but also national identity into the football team is, yes, a reflection of soccer.

38:30Yes, a reflection of football and sport. But it also has served over the last 40 years as black men and black players become the heroes of white young Brazilians. It also has served as a soothing balm over this race issue that has been just a historical fact of Brazil. It's not necessarily that this is orchestrated, but it's a historical fact of Brazil and again I think that when you hear the sambas going when you have the image of football on the Copacabana beach when you have Brazil playing at their best what they're actually doing is sending out a signal about the type of society they are and they want to be and that society is a much more inclusive society so against that background John let us see how far they go well against that background as well come on Scotland All right.

39:29We'll talk to you Tuesday.

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