Brazilian Hubris

WASHINGTON -- The Economist magazine warned Brazilians last week against too much "hubris," reminding them that they have a long way to go in becoming a major world power.

Many people study why some countries are poor and others rich. Less attention is paid to countries midway between those two stages. Observing Brazil provides clues to the "emerging nation" mindset. The country runs the risk of confusing development, which is a socioeconomic condition, with status, which is the projection and recognition of a nation's power.

Brazil seems to be making true Shakespeare's line: "There is a tide in the affairs of men, which, taken at the flood, leads on to fortune." At the present rate of growth, its gross domestic product will be, in about a decade, the fifth largest -- ahead of Britain in absolute terms. The fact that only one-quarter of that economy is dependent on foreign trade has helped shield Brazil from the present world recession. Foreign capital is excited -- Brazil received $45 billion in foreign direct investment last year, and President Luiz Inacio Lula da Silva has imposed an ill-advised 2 percent tax on the abundant foreign purchases of local bonds and stocks to hold down the currency.

The sales of multinational corporations such as Petrobras, Vale, Gerdau, Odebrecht and Grupo Votorantim are greater than Paraguay's GDP. The country is self-reliant on oil; the recently discovered offshore reserves in the Santos Basin will make it a major exporter eventually. After years of denouncing the International Monetary Fund as a meddlesome institution, Brazil is now a donor -- a "meddler" of sorts. To cap it all, it will host the soccer World Cup in 2014 and the Olympics in 2016. No wonder the president sounds giddy.

But there are two flaws. First, while Brazil's economy is becoming first class, its politics is still Third World. Second, the leaders are impatient to make their country a global power before their citizens become truly prosperous.

The first flaw manifests itself domestically in a labyrinthine tax system, rigid labor laws and long-term credit markets that are controlled by the government through BNDES, the politically driven development bank, and in periodic scandals involving the governing Labor Party and others. As a consequence, investment levels in Brazil amount to only 20 percent of GDP, well below successful countries at a similar stage of development. Brazil's mediocre politics is also apparent in the habit of letting a kind of "complex" toward the United States dictate policy: Brazil prefers to play cozy with the likes of Venezuela rather than strengthening the forces that try to pull Latin America away from socialist populism.

The second flaw -- the rush to be a global power with an economy that in per capita terms is less than one-fourth that of the United States -- is clearly seen in the National Defense Strategy, under which Brazil will purchase $20 billion worth of arms from France and sustain a program aimed at producing and exporting military technology and gear on a grand scale. The old Brazilian interest in nuclear weapons could revive. Diplomatically, Brazil is obsessed with a permanent seat at the U.N. Security Council and being a big player in multilateral bodies.

It is not uncommon for a country, once its economy takes off, to aspire to become a world power. In Brazil, the imperial vocation has traditionally been rather muted. The national hero is not a general but a diplomat -- the Baron of Rio Branco, who at the dawn of the 20th century settled Brazil's borders peacefully. Today's leaders seem to look on that legacy with a bit of contempt.

It is not clear that all of this will change after next year's elections. Lula's candidate, current chief of staff Dilma Rousseff, is trailing Sao Paulo state Gov. Jose Serra, from the party of former President Fernando Cardoso, whose reforms opened the way to today's successes. But Serra does not offer to shake things up and will face a formidable opponent -- Lula himself -- who, out of office but still in control of his party, might be tempted to engage in the demagogy that investors originally feared when he was elected in 2002.

Brazil, a bewitching country, needs to take a deep breath. Its ambition ought to be focused on reforming its political system so that prosperity can be something more than a combination of high revenue from commodities and some manufactured products, and social programs such as Bolsa Familia, a subsidy distributed to some 11 million poor families. The leaders need to tame their "hubris" before it pulls too far ahead of socioeconomic reality.