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This week, I wanted to write about the Amazon Rubber Boom and the subsequent rise of the Brazilian economy.
Welcome to the Global Capitalist - A newsletter on emerging and frontier markets viewed through the lens of history and culture.
Hey everyone, welcome back. This week, I’m going to focus entirely on the Brazilian economy. We will start with the Amazon Rubber Boom of the late 19th century then round it out with some of the more current issues plaguing the second largest economy in the Americas.
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Last Week Briefing:
The Public Investment Fund (PIF) of the Saudi Royal Kingdom has reportedly been in talks regarding the media rights of the Bundesliga, the popular German soccer league. This is shortly after the al-Saud family’s failed bid for Newcastle United, a football club in the English Premiere League.
Anti-China Protests have broke out across India following the deadly battle on the Chinese-Indian-Pakistani border two weeks back. Protesters demand that Indian citizens purchase Indian-made goods in favor of Chinese-made goods. Some protesters went as far as to burn Chinese goods to demonstrate their anger.
Remember the postponed Polish election? The first round of the Polish elections took place this past Sunday, June 28th, paving the way for the second round runoff election between incumbent President Andrzej Duda of the Law and Justice Party and Rafal Trzaskowski of the Civic Platform Party.
Amazon Rubber Boom
I’d assume you all know the story of the European “discovery” of America:
The Americas were stumbled upon by European explorers in the 15th century as they sought a quicker trade route to India. Instead, what they found was a collection of (relatively) unsophisticated, decentralized tribes endowed with abundant natural resources — specifically, cotton, sugarcane and gold. Over the next several hundred years, thousands of Europeans would migrate into the Americas with the aspiration of striking it big in these newly “discovered” markets. Keep in mind: These traders were not mining gold or harvesting sugar themselves. Rather, the settlers were beneficiaries of the lucrative African slave trade, as native Amerindian tribes-people frequently revolted against nudging European control. It is estimated nearly five million slaves were imported to Brazil from 1500 until they would halt the African slave trade in the 1850’s. Note: They only banned the trade of slavery. It wouldn’t be up until 1888 when Brazil would be the last country in the western hemisphere to abolish slavery.
By the mid 19th century, the Industrial Revolution had consumed Europe and transformed the U.S. economy. Meanwhile, newly-independent Brazil relied heavily upon their massive coffee industry. The nascent Brazilian textile industry would emerge amid a halt in American cotton production during the American Civil War. As a consequence, Brazilian agriculture producers reallocated their capital away from the pedestrian coffee trade to the more profitable manufacturing industry. The gradual freedom from agriculture positioned the country to abolish slavery without completely wrecking its coffee industry. At its peak in 1825, it was estimated that 56% percent of the population was an African slave. Unfortunately, little progress was actually made in tackling the issue of slavery as poor government control and plutocratic resistance objected many of the proposed reforms. As a slave, the path to freedom was often clunky, misleading, and failed to instill basic, fundamental rights.
Amidst the euphoria of the Industrial Revolution, Europeans noticed the utility of rubber products in everyday life. South American colonists specifically noticed indigenous people using rubber to waterproof their footwear or clothing while European academics stumbled across its use as an eraser. Not to mention, Charles Goodyear, the namesake of Goodyear Tires, had discovered a new method of synthesizing rubber called “vulcanizing” in which the material could be used for widespread industrial activity. As a consequence, demand for the commodity skyrocketed, sending prices soaring. Fortunately for Brazilian entrepreneurs, the Amazonian region of the country was known for its lush population of rubber trees. However, the Amazonian region of the country was occupied by the (you guessed it…) the Amazonian tribespeople. Keep in mind: Brazilian entrepreneurs at this time are predominantly wealthy, multi-generational Portuguese immigrants with a clear organizational edge over the indigenous people. The native Amazonian people would be completely overwhelmed and exploited by the incoming migration of opportunistic businessmen.
Manaus, Brazil — A port city known for its prevalence during the Amazon Rubber Boom
In the 1870’s, Brazil saw an unprecedented influx of immigrants as people of all backgrounds sought to participate in the booming Brazilian rubber market. Italian and Spanish immigrants sought job opportunities in rubber plants while British and Portuguese entrepreneurs collected capital from hungry investors. The mania washed over not just Brazil, but countries such as Peru and Ecuador. Remote villages seemingly became major metropolitan hubs overnight. Trains traversed the continent as demand for mass transit and transport met increased technological capabilities born from the Industrial Revolution. At the peak of the boom, rubber output comprised 80% of total Brazilian economic output. Amidst the madness, Amazonian tribes were displaced and thousands of people were killed in pursuit of the rubber tree. While no metric is completely accurate, it is estimated that 90% of the indigenous Amazonian people were killed or displaced. What’s more, the boom created a culture of gilded opulence in port cities such as Manaus, as the emergence of the steamboat expedited transport for luxury goods across the globe. Manaus, as a matter of fact, was known to be one of the “gaudiest places in the world”, with urban luxuries such as public markets and an opera house. Rubber Barons, as they would come to be known, would find out the hard way that the price of rubber is not immune to the laws of gravity.
The Amazon Rubber Boom would have its Icarus moment in the 1910’s when Southeast Asia, specifically Malaysia, began to grow their own rubber trees with seeds smuggled over from British entrepreneurs. This new threat to Brazil’s rubber hegemony flooded the global market with supply, sinking the price of rubber. The rubber industry’s dwindling prospects catalyzed an era of capital flight, as the opportunistic money suddenly moved onto the next investment fad. Unemployment spiked and economic stagnation gripped the Brazilian economy. In real economic terms, per capita income has yet to return to the boom levels of the late 19th century.
First Things First: Who was the first emperor of Brazil? Can you guess what his full name is? Answer at the bottom.
Terra do Brasil
As the world’s fifth largest country by area, Brazil is gifted with one of the world’s most diverse ecosystems, ranging from beautiful, picture-esque beaches to dense, lush jungles. The variety of Brazil’s environment has been integral in propelling its economy to one of the most dynamic in the world. Brazil is the second largest economy in the Americas, placing them ahead of Mexico but just behind the juggernaut U.S. economy. Brazil has struggled in recent years as veiled progressive policies coupled with rampant government corruption sent the Brazilian economy into a decade of stagnation. In 2018, Jair Bolsonaro was elected as president of Brazil following an uproarious populist campaign. Bolsonaro, frequently dubbed “Trump of the Tropics” was adamant on reigniting the Brazilian economy and tackling Brazil’s unfettered corruption. Bolsonaro’s popularity stems from an exhaustive, scandalous episode from the incumbent Worker’s Party. Shortly following the 2014 presidential election, the newly-elected Worker’s Party had been caught in the crossfire of a devastating corruption scandals. President-elect Dilma Rousseff was accused of embezzling government funds in exchange for corporate favors and hush payments. Rousseff would eventually get impeached in May of 2016, ushering in interim President Michel Temer. Supporters of Rousseff and the Worker’s Party claimed this exercise was effectively a legislative coup d’etat. Former president (and political darling of Brazil) Luiz Inácio Lula da Silva, or Lula was also entrenched in the same scandal and sentenced to twelve years in prison. Federal prosecutors labeled this enormous investigation “Operation Car Wash” (in Portuguese, Lava Jato). The scandal would come to be known as one of the biggest scandals in the history of the modern world, given the names and organizations involved in the scandal.
Operation Car Wash
The Worker’s Party had already been struggling to distance themselves from allegations of corruption dating all the way back to Rousseff’s first term. Between 2011-12, over ten different members of Rousseff’s cabinet were discharged over criminal activity. While this wasn’t really anything new, Brazilian GDP grew a pedestrian 1% in 2012, a steep gap from the 7.5% growth just a year earlier. The Brazilian government haphazardly tried to drown out the scandals with massive infrastructure investments paired with a dovish monetary policy. These newly announced projects, however, did not attempt to remedy Brazil’s aging and ineffective infrastructure. Instead, Rousseff had committed enormous sums of capital for projects pertinent to the 2014 FIFA World Cup and the 2016 Summer Olympic Games. Protests erupted across Brazil as the economically struggling middle class watched, in real time, their government elect to serve special interests (FIFA, IOC, etc.) over the needs of the Brazilian people. Unfortunately, most of the structures erected only for the World Cup or Olympics are obsolete and abandoned now.
In 2014, prosecutors would find that the Worker’s Party brokered illegal agreements with major Brazilian corporations. These agreements detailed plans in which companies would pay members of Rousseff’s administration in exchange for favorable contracts with Petrobras, the Brazilian state-owned oil giant. Prominent politicians would often inflate the size of these contracts, taking a small cut of the deal, or completely fabricate projects with the objective of siphoning funds into their own pockets. Rousseff, who had been the chairwoman of Petrobras’ Board of Directors from 2003-10, relentlessly asserted her innocence and in a fiery string of interviews. She reportedly said, “I will not pay for somebody else’s crap,” to a group of her advisors amidst the heat of the scandal. An investigative audit later found that over $2B was paid out in bribes while the company was forced to write down $17B worth of over-inflated assets. By 2015, over one-hundred politicians, executives, and co-conspirators were formally accused by federal prosecutors. Notable bribery recipients include Glencore, the British commodities trader, Pedro Pablo Kuczynski, the former president of Peru, and the re-election campaign of Nicolas Maduro, the Venezuelan dictator.
Anti-Rousseff & Anti-Lula Protests in Brazil — 2013
When Rousseff was finally impeached, a federal court issued a political suspension, effectively banning her from seeking re-election. The interim president, Michel Temer, was also caught in his own campaign finance scandal and risked a similar fate to Rousseff. The ruling party was suddenly without a candidate, until Lula, the beloved predecessor to Rousseff, launched a presidential campaign from his prison cell. At one point, Lula held an 18% polling lead over his next closest competitor, Jair Bolsonaro. It wouldn’t be until September 2018 where a federal court finally disqualified Lula from running for public office. Bolsonaro would ultimately secure his presidential victory in October of 2018 by a 10% margin.
The legitimacy of Rousseff’s impeachment is still a highly contentious topic today. Supporters of the Workers Party virulently abide by the theory that her impeachment was the consequence of a legislative coup d’etat. Interim President Temer had implied that Rousseff's removal was the workings of a coup in a live, televised interview. Not to mention, the motives of Brazil’s Supreme Court were suddenly brought into question as leaked reports show Sérgio Moro, the judge presiding over the case, purposefully targeting Lula to ensure his imprisonment. The damage, however, was already done. Petrobras’ market cap was quickly cut in half from 2011 to 2012 as the company tried to find it’s footing and international investors sought reparations. Today, Brazilian GDP has declined 8.5% since 2010 levels. Today, Petrobras trades at a $50B market cap, a near 80% contraction from its ten-year high in 2011.
Deforestation in the Amazon rainforest
The Bolsonaro Era
Jair Bolsonaro is a wizard of our new political climate. Capitalizing upon the viral nature of social media, Bolsonaro’s posts on Facebook and Twitter frequently rile up his base and generate controversy across the political spectrum. What’s more, Bolsonaro easily weaponized the unrest of the common man. Consider the Brazilian trucker strike in 2018: The Brazilian government, who had previously placed a price ceiling on the price of petroleum, allowed the price to float in accordance to international oil prices. Brazilian truckers virtually shut down the nation’s economy in protest, blockading major roads and highways following the subsequent spike in the price of oil. The suspension of Brazil’s supply chain warranted emphasis on the struggling Brazilian laborer, playing into the hands of the Bolsonaro zeitgeist. You see, it was not the wealthy elites who were mainly affected by the trucker strike. Rather, it was the Brazilian middle class, and they knew that the Brazilian elite who had the power to fix this ailment.
The success of the Bolsonaro campaign can be attributed to Bolsonaro’s populist rhetoric paired with his animosity towards Brazil’s elites of who he claimed sought to maintain the status quo. Not to mention, his agenda on crime and commerce made him an instant star among the disenfranchised middle class. A militant ex-army captain, Bolsonaro was notably hawkish when it came to domestic crime. He reportedly said, “A cop who does not kill is not a cop” in the context of his tough crime agenda. His controversial affinity for military dictatorships, however, did not appear to phase the Brazilian electorate. Rather, voters were simply exhausted of the perpetual violence plaguing the country. In 2017, Brazil saw over sixty-thousand homicides, nearly twice the amount seen in the U.S. that year and a 3% increase from the year prior. Bolsonaro was also a champion of de-regulation, frequently lamenting the socialist legacy of the Worker’s Party. Bolsonaro prioritized the nation’s agribusiness industry and lifted long-held restrictions on where Amazonian farmers could “slash-and-burn” new farmland. His decision was notoriously amplified as a nationwide drought exacerbated the tactics used by Brazilian farmers, igniting blistering wildfires in the world’s largest rainforest. Bolsonaro’s negligence was equally highlighted on social media by prominent climate activists such as Leonardo DiCaprio and Madonna. These high-profile opponents of Bolsonaro has drawn a spotlight on his questionable methods of governance, begging the question as to whether or not he is an improvement over the corruption of the past.
Lately, Brazil is one of several countries who is still struggling to corral the spread of COVID-19 in their home country. As I write this, over one-million cases have been reported and nearly 60,000 people have reportedly died from coronavirus in Brazil. Early on, Bolsonaro downplayed the severity of the virus, lauding the strength of his people and reciting tropes such as “God is Brazilian — the cure is right there.” Bolsonaro, however, cannot not talk his economy back into gear. Brazilian tourist traffic vanished, wounding the nation’s tourism industry. In addition, the plummeting price of oil disrupted a five-year government divestiture plan, in which some of their state-owned oil assets would be sold for a lofty $2.5B. Monetarily speaking, foreign investors are losing confidence in the Brazilian social experiment. The Brazilian Real has capitulated over one-third relative to the U.S. Dollar since the beginning of the year. The IMF postulates that Brazil will contract nearly 10% in 2020 amidst the damage from the coronavirus. Bolsonaro, for the first time, will have to play “wartime president” as his honeymoon period is long over. The stock market bump from his election has mostly disappeared. A president who’s jokingly said, “I don’t understand much about the economy” will have to quickly learn how to kickstart the crown jewel of South America once again.
Let’s Get Tropical: Copacabana Beach, located among the southern beaches of Rio de Janiero, is notoriously known for hosting the largest concert ever in 1994. Who played? How many people attended this concert? Answer below.
Meme of the Week
Countries Britain hasn’t invaded vs. Countries Britain has invaded
** Don’t worry, this is NOT a video from TikTok. Your security is safe! **
Dom Pedro, or Pedro I of Brazil, is known as the first emperor of Brazil and “The Liberator”. Dom Pedro’s full name is Pedro de Alcântara Francisco António João Carlos Xavier de Paula Miguel Rafael Joaquim José Gonzaga Pascoal Cipriano Serafim.
In 1994, Rod Stewart played in front of a crowd of 4.2 million people at Copacabana Beach. The Guinness Book of World Records pegs this as the largest concert attendance ever. The concert was free to attend, hence the absurd volume of attendees.