A triangle of success and prosperity

A triangle of success and prosperity
Published: 17 January 2012 (1186 Views)
The global financial crisis wreaked havoc across the globe, but two countries avoided the worst of global meltdown, partly thanks to their strong links with China. In fact, when US Federal Reserve Chairman Ben Bernanke talked about the "green shoots" of recovery he might have been better advised to talk about the "bamboo shoots" emanating from China's fiscal stimulus package that ensured that things didn't get any worse globally, especially regionally.

The two countries that benefited the most from China - Brazil and Australia - will play an important role in China's economic development in the 21st century. Brazil and Australia both are large but diverse countries in the southern hemisphere.

Australia was settled as a colony for convicts in a great public-private-sector partnership, but it ultimately became three societies, the jailed, their jailors and the dispossessed indigenous population.

Somehow, despite these humble beginning and tensions, the society did get on thanks to great natural resources, wheat, wool and a gold rush or two. Eventually, free settlers from the old world joined the jailed and the jailors and over time outnumbered them.

The country was successful also because of great national leadership by Bob Hawke, a trade union leader, who had been to Oxford as a Rhodes Scholar, and who as prime minister led a government that decided to change the habits of a century. The Australian dollar was floated, tariffs reduced, trade unions and employers reconciled and the nation embraced its neighbours to the north in an economic partnership.

China played an important role in this development. Hawke developed close links with China and is still well known in the People's Republic of China. It was his Labour Party predecessor as prime minister, Gough Whitlam, who first visited China, even before former US secretary of state Henry Kissinger and former US president Richard Nixon. Both sides of politics have formed strong ties with China and have been "hugging the panda" ever since

The other country, Brazil, wasn't settled in the same way as Australia, but under the burden of slavery. Brazil, too, is vast but very different from Australia geographically. It also had its issues with indigenous people, it too relied on immigration for its human capital and it too has huge natural resources that the world wants. It had issues with its neighbours but for the most part avoided conflict and, according to local economists and historians, this made it relatively parochial and mainly focused on internal issues except for a quick trip next door for a tango lesson.

Brazil also had economic issues to contend with, whose impacts were being felt even as recently as a decade ago. For much of its recent economic history, it didn't have double-digit inflation and unemployment to contend with, but it had worse problems such as hyperinflation, labor market dislocation and mass poverty. Its financial system was not so much antiquated as dysfunctional. It had problems not only with its exchange rate, interest rates and debt burdens and strikes, but also widespread social unrest that was undermining its democratic stability.

But Brazil also had a trade union leader, Luiz Inacio Lula da Silva. He hadn't been to Oxford but was from the poor northeast of the country, had been jailed for his trade union activities and ran for president three times before being elected. He reformed the country's economy while maintaining strong social justice programs (many of which were started by his predecessor who was a well-known professor of sociology before becoming president).

As a result, Brazil is now economically well positioned to deliver resources to the rest of the world to generate prosperity and raise the living standards of its people. And its difficulties, especially those of the 1970s and 1980s, seem to be a distant past.

People's perception of Brazil is changing, which is not surprising given the country's solid rate of economic growth (7.5 percent in 2010, post-global financial crisis, with an anticipated follow-up of 4.5 percent in 2011 if inflation risks are contained), accommodating fiscal and monetary policy, impressive export growth (again thanks to China) and importantly strong increases in education retention and reductions in absolute poverty.

Brazilian economists have told me that more than 33 million people have been lifted out of poverty. In fact, I was told by one of my Rio de Janeiro hostesses that the Brazilian exchange rate is so strong "that even my maid is taking her holidays in Buenos Aires to do some shopping".

Are Brazil and Australia rivals for China's hand? Not really. There is plenty of room for both to prosper from China's economic development and, over time, Brazilian and Australian companies will collaborate to maximize their spheres of influence. Both will be big suppliers of China's energy needs and work with it in agricultural and clean energy fields. Brazil, as a major manufacturer, will do more with China in industrial supply chains, and Australia will focus more on construction, infrastructure, architectural and professional services to help develop second- and third-tier Chinese cities.

Besides, Australia's strong ties with China in education will attract more collaboration from Brazil. Of course, Brazil will be in the spotlight for the 2014 Football World Cup and the 2016 Olympic Games in Rio, which will help it to attract global attention and investment.

In short, both the great southern countries, full of surf, sun and sand, will play an important role in China's economic future.

The author is the J.W. Nevile fellow and adjutant professor in International Business Strategy at the Australian School of Business, University of New South Wales, Sydney, Australia, and has the books, The Airport Economist and The Airport Economist Goes to Rio, to his credit.

- China Daily

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