“As though we were a bunch of idiots who don’t know how to do things”

The WSJ had a recent article called “Hope Fades in Brazil for a World Cup Economic Boost.”  It was the sub-title that really caught my eye though. It reads “Amid Unfinished or Canceled Infrastructure Projects, Hopes Wane That Soccer Tournament Spending Could Spur Long-Term Growth.”  Given the grim experience of history, it surprises me that governments (or anyone) truly believe that these types of events will bring about long term economic growth.

It does make for a good news story though.  Here are some of my favorite quotes from the article:

1. “In Fortaleza, another poor northeastern city hosting six games, builders finished the Castelão stadium for $230 million. But fans arriving at Fortaleza’s airport will find a giant tent rather than a new planned terminal. Federal prosecutors are looking into whether corruption played a role in the failure of the $78 million terminal expansion project.”  Hmm, I wonder…

2. “The signature project was to be a $16 billion bullet train between Rio and São Paulo. Brazil put the São Paulo-Rio rail project out to bid in 2010, and then-President da Silva used the bidding ceremony to rebut critics of Brazil’s preparations. “They are already pressuring us: Where are the airports? Where is the subway? As though we were a bunch of idiots who don’t know how to do things,” Mr. da Silva said.”

Yikes, better for politicians not to ask questions like that.  So, was Lula right to cast aspersion on the doubters?

“But that 2010 bidding round was canceled. Potential rail builders balked on concerns that government-set limits on fare prices meant the train might not be profitable. Firms also feared cost overruns since Brazil’s legal system makes it easy for a single lawsuit to shut down a project. Brazil tried and failed to come up with terms that made sense. Bid rounds were announced and canceled three more times before the government shelved the project in 2013.”

3. My favorite politician quote though goes to Ms. Rousseff, who has on TV defending the government’s decisions.  Here is one of the least convincing defenses I’ve heard in a long while:

“The legacy of the Cup is ours. No one who comes here will leave with an airport, urban mobility projects, or stadiums, in their luggage,” Ms. Rousseff told hotel and tourism workers in Brasília.

That should quiet the protesters!

BRICs are preemies!

In the UK, the percent of the labor force in manufacturing peaked at 45% in 1912. In the US it peaked at 26% or so in the 1950s. In both countries it is now below 10%. Germany peaked around 40% in 1970.

As Dani Rodrik pointed out last year, this path is the historical path to rich country status. Get out of agriculture and into low level manufacturing. Become urbanized, get your kids in school, raise human capital, raise the level of sophistication of your manufactured goods, continue to raise human capital, start innovating and de-industrializing.

Brazil, India & China are not on this path. Their level of industrialization peaked at a fairly low percentage of employment (no more than 15%) and their deindustrialization started when they were much poorer than the countries in my opening graf (they were only around 1/2 to 1/3 as rich).

(all of the above is basically from Rodrik’s excellent piece)

So, the BRICs are definitely preemies! Two interesting questions are (1) why? and (2) can they overcome this and make to the rich country club?

For (1) I’d point to increased globalization and increased automation. Value added in manufacturing does not follow this inverted U pattern, but it’s the mass jobs in manufacturing that seem to have led to the rise of the middle class and the investment in children that raised human capital. Can you think of other reasons?

For (2), I hate to say this, but I don’t think so. China and India have over a billion people, and for the life of me, I don’t see where they are ever going to find good jobs for all of them (I know, babies and grannies don’t work)!

In a country like the US I can see how low labor force participation could coexist with good living standards and happiness for “all”, in the sense that there will be enough $$ to cover everyone. But I don’t see how the semi-singularity of the rise of the machines is going to be a picnic for India or China. In an increasingly winner-take-all global economy, being competent at something is going to get you your ass kicked. India and China are not really the best at anything and unlikely to produce as much surplus with their global “winners” as the US or Germany or even South Korea.