THE GLOBALIZATION CASE 2001

MARCOS DUTRA THUNDERBIRD A.G.S.I.M.

Although I have made a fortune in the financial markets, I now fear that the untrammeled intensification of laissez-faire capitalism and the spread of market values into all areas of life is endangering our open and democratic society. The main enemy of the open society, I believe, is no longer the communist but the capitalist threat.

--George Soros, Atlantic Monthly, Feb 1997

Daniel Lini was excited. As he drove to his favorite restaurant, facing the usual overwhelming traffic of Sao Paulo, his mind was working without rest. So many things had happened this last month!

It was not every day that you are invited to participate in such an important meeting as the Conference on Emerging Markets at the Davos World Economic Forum annual meeting in the Swiss mountains. He was supposed to talk about the models his consulting firm had developed to help foreign companies to invest in developing countries, and his audience would be top industrialists, politicians and scientists from the entire globe. This would be the recognition of years of effort and hard work, trying to build strong relationships between Brazilian government officials and representatives from multinational companies. Daniel was also glad because his old friend, Andre Veloso, whom he had not seen for a long time, had called and invited him to lunch. He certainly would have much to talk about.

Much of Daniels beliefs came from the two years he spent in the US taking his MBA in an important school in the United States. At the time, he was one of the few Brazilians ever to go to an American school. There he met people from all over the world and knew firsthand about the experiences of other countries and the different solutions they found for accelerating their growth. As a native Brazilian, he would unconsciously compare their progress with what he knew about Brazilian history.

Daniel spent much of his time wondering why countries that had so much in common like Brazil and the US had so much different performances in the economic and social realms.  Both countries were large, with vast natural resources, good population and not many cultural or religious problems. In the explanations he studied, there was much prejudice against Latin Americans, and he knew that it was a powerful force. He even remembered a story about a car manufacturer before the Second World War that said it would be impossible to build car engines in the country because of the warm weather. Other people just thought that Latin Americans were lazy or not disciplined enough to endure the demands of modern business. But Daniel knew better, he knew that Brazilians were just as industrious and hard workers as Americans, and that the answer should lie somewhere else.

After studying classic leftist theories like the theory of dependence and structuralism, he found some answers to the causes of underdevelopment, but not much about new directions and perspectives on what to do to help the current situation. If the country had been exploited in the past, what could it do about it now? It was clear that no country could survive if it chose to be isolated from the rest of world. The pace of change now was so quick that it would be impossible for any country to develop internally all the technologies it would need to improve its economy.

Daniel held the belief that much of problems his country was facing were a consequence of a natural lack of confidence in itself. Historic factors contributed a lot for this, because when you have a hierarchical society like the early Brazilian one, the perspective of change is minimal, and people, especially the poor, just give up before even taking the challenge. But things had changed, Daniel thought, it was time for the country to believe in its immense potential and face without fear the competition of other nations.

With this spirit, Daniel found a job in the Brazilian subsidiary of an important multinational consulting firm. During the many years he spent there, he got to know in a very intimate way the many obstacles a company had to face to start operating in the country. Things had improved a lot in the last 20 years, but in some regions there was a lack of skilled workers, suppliers and infrastructure. But the Brazilian workers he met were motivated and quick to learn new techniques and work models. 

Daniel came to believe that foreign investment and international trade were key factors in the process of development of any nation. He could hardly recognize some of the regions in Brazil from what he had seen some years ago. Sao Paulo was now bigger than any US city. Some small cities in the country were exporting jet planes and computers. Biotechnology was creating a new reality in the immense agriculture fields in the Western Central states. The Internet was connecting most of the people he knew and it seemed that everybody has a cellular phone now. Daniel was convinced that the multinational companies had had an important role in the development the country had experienced in the last decades. Things were better in many sectors; many Brazilians had the opportunity to be in contact with modern management techniques and productivity as a whole increased a lot.  How could anyone be against more foreign investment?

Daniel was proud of the work he had done in helping some of those companies to start operating in the country. He was actually so enthusiastic about this work that even though he was a senior partner in his company, he decided to leave and start his own consulting firm, specializing in market intelligence and training for newcomers in the Brazilian market.

The company was doing very well, since the last federal administrations worked hard to bring more foreign money to the country. The international investors needed the expertise and advise of someone like him, in order to spend wisely the money. Daniel believed that the coming FTAA, the common market of the Americas, would be a huge step towards the total integration of Brazil in a globalized world, and another factor of attraction for US based companies to invest in Brazil, while Brazilian companies would also have access to the huge American market.

The opportunity to make the presentation in Davos would be an excellent opportunity to make clear to an international audience how attractive the Brazilian market was and to create some important business contacts.

While immersed in his thoughts, Daniel hardly noticed when he arrived at the restaurant. Leaving the car with a valet, soon he found himself hugging Andre. He was not very different from the guy he remembered, a little less hair, but time had been good to him.

Daniel warmed up the conversation: It is great to see you, Andre. I miss the fun time we spent together working in those impossible projects. Im glad you called me this week, because I am a little more relaxed after preparing a huge presentation. How is it going? Ive heard that you are still involved with that NGO, working with the poor people in the North.

It is true, but I have done so many things Andre replied. After the usual exchange of information about family, some gossip about old acquaintances and small talk about the food, Andre became more serious: You see, Daniel, it is great to see you. Its not often that I come to Sao Paulo and it is really hard to find you here, so I am very glad to meet you after all this time. But I also have an issue I would like to discuss with you.

Daniel stared attentively, as Andre continued: Since I left the consulting firm where we worked to join the NGO, my life has changed a lot. It is true that I dont make the money I used to make, but I get a lot of satisfaction with my work. I also have learned a lot about my country and what really works when it comes to improve the life conditions of people.

As a consultant, I remember we shared a view on using technology and better business practices to improve the productivity of work in Brazil and advance living conditions.  I still think that this is valid, but I have serious doubts that the model that the country has been using to develop the economy will work in the long run.

Do you remember when I told you we were having success developing a network of small clothing manufacturers in Ceara? We started a lending program we called micro-credit, which allowed people of low social condition to buy their own sewing machines and also some raw materials. We helped them to organize themselves in a cooperative that provided the bargaining power to contact potential buyers in the South.  It worked very well during the first years. Until the big company came.

It was a Korean clothing factory that worked with large orders to the US and Europe, with products that sell in those huge discount stores. They were looking for low wage employees, and our region was one of the most interesting for them. A large young population, excellent weather, abundant electricity. The government helped them with tax breaks, even though they never gave us any kind of help when we started.

Soon the factory was working at full load and many people from the region joined, even though they paid minimum wage. That could be welcome news, if they didnt start targeting the cooperatives clients in the South. They promised us that they would focus entirely on exportation, but since they had some overcapacity, their logical next step was to look for the same market we were selling to. Because their machines were more sophisticated, they could afford lower prices, and soon they put many of the small entrepreneurs out of business. Some were hired by the factory, but they lost their independence and started making a miserable salary.

Daniel interrupted for a moment: It is a sad story, but usually those companies bring some progress with them.

I used to think so, Andre continued, but after this story I started to pay more attention to what was happening to other Brazilian companies after the country totally opened the door for foreign investments. Did you notice how many traditional local companies have been sold to foreigners in the last years? Well, I did some research and found out that foreign companies performed 70% of the companies acquisitions in the last year. Some of the acquired firms were in the market for more than 60 years!

Maybe they failed to modernize their operations and became obsolete, Daniel said.

Not at all! Andre replied. It was a problem of financial distress.  Companies in Brazil need to work with a 15%, 16% interest rate, while multinationals can easily get much more favorable rates abroad. They also have access to a developed stock market, where they can raise lots of money for their takeovers. With the opening of the borders, the local companies faced the competition of much lower priced products and just didnt have the funds to invest in productivity and get more economies of scale. Their only option was to sell.

Daniel was starting to get uncomfortable: I understand that there may be some problems when a new foreign company comes and starts competing with a local industry, but some other times they come just to introduce a totally new business. That couldnt hurt.

That seems to be true, if you dont evaluate who is gaining in the end. Andre said. I will give you an example. This big international hotels and resorts company decided to invest in a small beach town in Alagoas. The place was basically a fishing village, but the beach is gorgeous. At first, people were afraid that the new installations could hurt their way of life, but opposition soon ended when they promised lots of jobs for people in the construction site. It was the first time many of them had seen so much money. Some even quit fishing. However, after the buildings were ready, there was no job for anyone in the village. The resort required at least a high school diploma and preferably fluency in English, which was too much for the locals, so most of the employees came from the capital. As a result, people started selling their houses for the newcomers and decided to try their luck in the big city. They are probably living in slums now, because there are no jobs in Maceio. The village will never be the same, and their way of life is totally lost.  If you see the press releases, they will talk about how much money was invested in the place, but they never will address the social issues they created. They say that the new economy is coming to Brazil, but what kind of job can you find in this society if you have never seen a computer. I know things in the South are different, but Brazil is a large country with much disparity. Some regions will just break under this globalized, free market. We dont have a social safety net for those who are unemployed, and you know how efficient the multinational corporations are in laying off people when they buy a privatized company. We cant let a small elite of globalized executives with their laptops and cell phones determine that a big part of Brazilians will be left behind economically, loosing their cultural identity in the process. 

But cant the government do anything to help? Daniel asked.

They could, if they had the money and the freedom to act. Unfortunately, the pressure to bring foreign money is so great, that authorities have to give the multinationals all kind of incentives to attract them. Tax breaks, building new roads, electricity lines, etc. At the same time, many people dont have sewage systems in their houses. Where will the money for education and health assistance come from? But I think that the worse problem is the restrain that the government is facing; they are not able to look for any other solution. This is basically the end of democracy as we thought we knew. People cant have a say if their opinion contradicts the status quo, they are not free to experiment and use politics as a way to improve their lives and the society.

Andre, I dont know if I agree with what you are saying, but Id like to know why you are telling me all these things.

You see Daniel, I appreciate very much your love for this country and I know very well how intelligent and capable you are. There is a problem coming that you must be aware of. The negotiations for the implementation of FTAA, the free trade area of the Americas, are well under way. This is an agreement created and led by the US to guarantee that no government I the continent might intervene in the commercial interests of US multinationals. Some of the effects are clear for me: increase in the prices of medicines, food and transport, privatization of public schools and hospitals, an end to our laws on labor and environment protection. These are all necessary actions to give competitiveness to the country. Foreign companies that think they were damaged by local laws would be able to sue the governments for their losses, ruining forever our sovereignty.   And I am sure you are aware of the terrible pollution and environmental problems in the Mexican region where they build the maquiladoras after NAFTA was signed. The same thing will happen here. Thousands of small and medium firms will go bankrupt when the flood of imported goods arrives in the market.

 But there is something we can do. I arranged with some friends a meeting with important leaders of the Congress and the External Relations Ministry. They asked me to develop a report and make a presentation next month, before they travel to the next meeting where they will define dates for implementation of FTAA. I have most of the material and many contacts we could use, but I need the help of a bright guy like you to finish this on time. I also have a budget to pay for you precious time. Daniel, I ask you as Brazilian citizen, this is an opportunity for us to influence the history of our country that maybe we will never see again. Help me to do this job!