The very poor and very wealthy
Dolly Parton used to have a song entitled, “A coat of many colors”. It was about a coat her mother made for her because they were too poor to buy a coat. The coat was made from scraps around the house. By the end of the song, Parton was wealthy, but her favorite possession was “the coat my Moma made for me”.
Brazil has abject poverty. You see it when you are driving through the streets of Sao Paulo. During the day kids disappear in and out of rundown buildings. Street after street there sit’s dilapidated buildings. At night, you see people huddled around fires made in front of the buildings they call home. There is no electricity for many of them. Only a couple kilometers away is Sao Caetano do Sul, the richest city in all of Brazil.
Outside the city, there are shacks built on top of each other with no streets in between them. If there were a fire every house would burn before a fire truck could save it. Surely, sadly, some of the people would as well. Why are there no streets to the naked eye? The consensus was that because those people would never own a car. My friend, John McElroy, host of Autoline Detroit used to live in Sao Paulo as a child. He remembers the favelas on the sides of the hills on the outskirts of town. McElroy told me that the people that live there live without any basic infrastructure, such as trash collection, water, sewage, electricity, or mail. They usually have a commune spigot that they can get water from and some of them tap the electricity lines and have one light in the middle of the room. The minimum wage in Brazil is $150 per month; there are almost 1 million people documented as unemployed, those are the documented ones.
There are two distinct classes in Brazil; very poor and very wealthy. The rich people live in the city, but many of them have Estancias outside the city. The dichotomy is obvious on the outskirts of town as well. There are very few cars on the privately held highways; it is expensive to own a car and there are tolls every couple kilometers. You will see people biking to work or hitchhiking home from work in the evenings.
This is not a new problem to the Brazilian people, it is just the first time I have been exposed to it. I have always thought of Brazil as the ethanol country of the world. In a white paper entitled, “Bioethanol, The Way Forward” by Oswaldo Lucon, Olimpio de Melo Alvares Jr. and Suani Teixeira Coelho, “oil import savings amounted to US$52.1 billion (January 2003 US$) from 1975 to 2002 (Goldenberg et al., 2003). Certainly, with that amount of savings and the money staying in the country from ethanol, there shouldn’t be this much abject poverty, but there is. Currently, the effect that ethanol is having on Brazil’s economy is a good one. But in 1989, when sugar prices were really high, sugar cane producers decided to produce sugar, not ethanol. The price of ethanol rose because the supply was so low, and people started converting their cars to gasoline.
The fall of gasoline prices in the 1990s also meant the fall of alcohol only vehicle sales. By the end of the year 2002 alcohol, only vehicle sales were about 5 percent. If there was no way to turn the tide, Brazil would soon have to start importing gasoline which would increase its trade deficit. There would be no reason to produce all this alcohol gas if no one owned a vehicle that could use it. And the sales numbers told the story, according to AssociaÃ§Ã£o Nacional dos Fabricantes de VeÃculos Automotores (ANFAVEA – the National Association of Automobile Manufacturers of Brazil) in the mid-80s only about 4 percent of vehicle sales were gasoline. by the late-90s 99 percent of vehicle sales were gasoline. The economy would suffer even more than it was and is if Brazil became dependent on imported oil again. But General Motors was working behind the scenes.
It doesn’t take much time to realize that Jose Carlos da S. Pinheiro Neto, General Motors do Brasil, Vice President is passionate about his job. Jose (Joe-say, not Ho-say like in Spanish) Pinheiro Neto (the third), has worked with General Motors do Brazil for 35 years. General Motors and Bosch created flex-fuel vehicles and showed them to Brazil. Pinheiro knew that this vehicle was needed; it would allow the customer to choose the fuel that fit their needs. Pinheiro is Brazilian, he speaks Portuguese, he used to be in Government Affairs for General Motors do Brasil. And he is a lawyer. With all that it still took almost 5 years to work a deal with the government to get flex-fuel vehicles into Brazil and a tax incentive in place. Currently, 30 percent of the car’s price is taxes. There are incentives for anything above the 1.0-liter vehicles.
Pinheiro said it was the incentives that made the flex-fuel vehicle a viable option for the automobile manufacturers, but for the government, it was the jobs. Brazil has serious infrastructure problems that are acknowledged by everyone in Brazil, from Pinheiro to the Deputy Secretary of Environment for Sao Paulo, Suani Teixeira Coelho. There is a pain in Pinheiro’s face when he talks about the jobs needed in Brazil. It is the reason he was able to go to the government. Sure, he is Brazilian, he speaks Portuguese, he knows all the government officials, and he is a lawyer. But he is convincing even now. In 2002 the details were worked out and flex-fuel vehicles became an instant success. According to Associação Nacional dos Fabricantes de Veículos Automotores (ANFAVEA – the National Association of Automobile Manufacturers of Brazil) in the first eleven months of 2005 vehicle sales were 44 percent gasoline, 2 percent alcohol and 54 percent flex-fuel.
According to Pinheiro, General Motors do Brazil has hired 2,000 workers because of flex-fuel vehicles. At the Costa Pinto sugar cane factory that produces sugar, ethanol, alcohol, and electricity, the average worker makes about $300 a month. At the General Motors plant, according to Renato Luti, General Motors do Brasil, the average plant worker makes $800 a month. When people are this poor, they have nothing to lose and it does no one any good to allow this to continue. It is only the hope for a better day tomorrow, the hope that they can be a part of the working class that contributes to society. Brazil still has infrastructure problems, and according to Deputy Secretary Suani Teixeira Coelho, they have serious pension problems for the elderly. But they paid off their IMF debt this year, and their sales of ethanol are back on the rise.
According to McElroy the saying in Brazil is, “Brazil is the country of the future and always will be”. Political unrest has kept this saying prevalent, but according to the IMF Managing Director Rodrigo de Rato, “the excellent track record of policy management by the Brazilian authorities has provided the basis for the consolidation of market confidence, the sustained improvement of macroeconomic performance, and an improvement in the profile of domestic as well as external debt.”
Brazil continues to sew all the pieces of its coat together. They can’t finish that coat without sewing all the pieces together.