Japan and Brazil: A Case Study in Global Interdependence

Brooke Ellis

July 1, 1998

At the close of years of historical domination by other powers, Japan and Brazil have become players of great importance on the world scene. Japan, the first Asian country to industrialize at the end of the 19th century, developed from the defeated militaristic state it once was into an economically powerful, but anti-militaristic tiger. The rest of Asia soon followed in its stead and Japan is now the leader of the pack. Brazil too has gained greater strength and influence, although in a slightly different sense. "Although Brazil is no tiger, it is a whale"(Moffett, A10). In today’s economically interdependent world, this whale, swimming in the other side of the ocean is still affected by Asia’s rise and fall, especially Japan’s. The Japanese-Brazilian nexus is a dramatic example of the vulnerabilities and advantages produced by global economic interdependence.

Brazil’s history, economic, political and cultural, has created its future. Brazil is the largest country in South America. Although rich in resources, Brazil was unable to tap into its true economic potential until recent times. This is mainly because the country suffered under the hands of military dictatorships or oligarchies composed of rich land owners until the year 1985. With the election of Fernando Henrique Cardoso in 1995, Brazil may have begun to see the light at the end of the tunnel. Currently, Brazil has a political structure much like that of the U.S. The government is divided into three branches: executive, judicial, and legislative. Brazil has a multiparty system with three or four main parties and numerous smaller parties. Multiparty systems normally create stability in a regime; this works only when the system has true division between parties. According to Nilson Moraes, a businessman in Brazil, "there is no visible change between the parties. Peo
ple change but nothing else really does." Often, when parties actually come to power, they realize that their plans, no matter how good, are not always feasible in reality. Democratic government made economic stability and growth possible.

Economically, Brazil came into the 1990’s with "declining real growth, runaway inflation and an unserviceable foreign debt of $122 billion"( Brazil Facts, 5). Much like the phenomenon that occurred in Japan with the change in governmental system, when Fernando Henrique Cardoso entered the scene in 1992, things began to turn around. Cardoso was and is encouraging "initiatives to redress fiscal problems, privatize state enterprises, and liberalize trade and investment policies"(Brazil Facts, 5). In 1994, Cardoso instituted a new currency called the real. "By linking its real to the dollar, cutting subsidies, and launching a huge privatization program," the country started on a track to success (Sookdeo, 84). So far, this currency seems to be stable and has not succumbed to the continual devaluation of previous Brazilian currencies. In fact, in 1996, inflation was reduced to 1% per month, down from the 600% which plagued much of the
80’s (Sookdeo 84). As of November of 1997, the real exchanged at a rate of 0.95(real)=$1U.S dollar (Heinrichs, 132). Furthermore, economic investment from other countries has continued to pour into the country. In 1996, more than $9 billion was invested in the Brazilian economy by foreigners. Cardoso has pushed various bills through congress which not only force the end of various monopolies such as those in the petroleum and telecommunications industry, but also reverse previous restriction on foreign control of national resources and industries. In order to continue such economic success, however, the president must find a way to deal with the presently inefficient tax structure without further burdening the people of Brazil. If Cardoso cannot find a way to level the unequal income distribution, the "rise of Brazil" will be stopped in its tracks.

Japan: History, Economics, and Politics

Japan might well serve as a model for Brazil. Brazil’s history, like Japan’s, brought about the success that now exists. Much of Japan’s economic success came about as a result of the restructuring of government which was forced upon Japan by the United States at the close of World War II. The Americans were successful in creating a democracy in Japan and in fact it became the "first Asian country to introduce a parliamentary system" (Shelley, 28). The modern Japanese government consists of a cabinet headed by a premier, along with a legislative body called a diet. Even today, Japan has an emperor. Although he has no real power, he embodies the history of Japan. In fact, "the imperial family of Japan descends from an unbroken lineage of nearly two thousand years" (Shelley, 27).

Along with this change in government, came a change in the economy. General MacArthur, chief of U.S. occupation forces in Japan, helped to convert the country from a war-torn wasteland to a prosperous, though somewhat conformist, liberal trading nation. Throughout the years Japan has continued to grow. It shifted from the production of light industries in the 1950’s to heavy industries, chemicals, automobiles and electronics in the 1960’s. By the 1990’s, Japan’s gross national product (GNP) of $3 trillion was the second largest in the world after that of the U.S. (Infopedia). For its size, Japan has numerous resources. Japan now ranks as one of the top producers of timber in the world. It exports large amounts of wheat and barley. In fact, "Japanese farms are among the most productive in the world" (Infopedia). Fishing is another of Japan’s important industries. It has one of the world’s largest fleets and is among the few remaining whaling countries in the world
. The efficiency, commitment, and discipline of Japanese workers has allowed the country to create more and better goods. Like the Brazilians, since "the Japanese are quick to pick up good ideas, take them apart, improve on them, then market them," the economy has successfully overtaken the world in marketing technologically new products (Shelley, 34). Once Japan gained stability, it began to create a ripple effect throughout the world. The greater it becomes, the deeper its influence.

Japan has a significant impact on Brazil at three distinct levels: through the Brazilians of Japanese ancestry, through the effects of the present recession in Japan, and through third party players such as the International Monetary Fund (IMF) and the United Nations (UN). First, Brazil has the largest number of Japanese living in the same area of any country but Japan. Many live in a section of Sao Paulo called Liberadade, which has come to symbolize "the Japanese district" (Brazil-Information on the City of Sao Paulo, 1). Most of the Japanese who originally came to Brazil were farmers (Brazil-Overview, 1). The Japanese have been immigrating to the country for nearly 80 years. Since 1907, Japan’s Imperial Immigration Company has been authorized to transfer a certain number of emigrants to Brazil each year. Since this date, Japanese have come in steady streams to the country. Although immigration was interrupted by World War II, it has since resumed. By thi
s time, "approximately 260,000 immigrants . . . had arrived in Brazil"(Museu Historico da Imigracao Japonesa no Brasil, 1). Although many Japanese are farmers, others are involved in commerce or industry. It is believed that "800,000 people compose the Japanese community in Brazil, which is already in its 4th generation"(Museu Historico da Imigracao Japonesa no Brasil, 1). In the past few years there have even been two Japanese State Ministers in the Brazilian Government. As the years go on, the Japanese become a more integral part of the society.

Culturally and economically, the Japanese have affected Brazil. "The descendants of the immigrants perform all kinds of activities within the cultural and economic sectors" (Museu Historico da Imigracao Japonesa no Brasil, 1). The role that Japanese played in the agricultural sector was invaluable. They allowed Brazil to increase production and to accomplish things otherwise thought impossible. According to Nilson and Solange Moraes, this is because "the Brazilians know if you give the Japanese a job, even the most boring job in the world, they will do it without complaining." The Brazilians would be more likely to voice their opinion regarding the job, complaining if they thought the job was boring. There are presently Japanese working in all sectors of the economy, even in high managerial positions. "There is little difference in the way that they are treated. The Brazilians have accepted them into the general culture of the society," says N
ilson Moraes.

Culturally the Japanese are very different from the Brazilians. Some people suspect that it is the combination of these two cultures which has allowed the Brazilian economy to become more prosperous. This can be seen most easily in Sao Paulo, where the concentration of Japanese live. Although the percentage of Japanese-Brazilians is still low compared to the rest of the Brazilian population, they are slowly leaving their mark on society. Many Brazilian businesses are beginning to adopt customs that seem very "un-Brazilian" in order to compete in the world society. Brazilians tend to think of Japanese as "strict, competitive, hardworking, and stable." This is very different from the way Brazilians tend to characterize themselves: "liberal, risk-takers, challenge seekers." Although Brazilian managers, including Nilson and Solange Moraes, tend to be more free or liberal in running companies, they now realize that in order to be successful they must
adopt some of the more strict mannerisms of the Japanese. With the combination of Brazilian willingness to take risks and meet challenges, and the Japanese competitive, strict hardworking attitude, Brazil may now have the capabilities to compete in the world. Japan’s prior success has influenced Brazil’s rise to power in Latin America. Their cultures exist at opposite ends of the spectrum, but their economies are experiencing similar triumphs and fears.

Japan also influences Brazil through economic events. The Asian market economies are currently experiencing major economic recessions, bank failures, and unemployment. Japan’s GDP has been steadily plummeting over the course of the last several months. It is the belief of economists that this downward spiral was created by four important factors: "exchange rate misalignment, weak financial institutions, export slowdown, and moral hazard" (Noland, 1-2). In the late 1980’s the Japanese Yen began a rapid appreciation against other currencies. As the currency appreciated, Japanese companies moved production offshore. This created large amounts of capital outflows. This significant economic outflow triggered instability among the Japanese financial institutions. This occurred because Japanese banks tend to have "more institutionally concentrated financial systems than developed countries and these institutions themselves tend to hold less diversified [investment
] portfolios than their counterparts in developed countries"(Noland, 2). Countries can sustain such outflows only if economic growth continues at a high rate. As export prices declined, the Japanese export industry began to slow. This "slowdown in export revenue led to expectations of reduced corporate profits and to a decline in equity prices" (Noland, 2). This spurred many investors to look for offshore investments in order to obtain higher returns. In turn, this caused the exchange rate to depreciate. Moral hazard occurred due to a string of bad loans to places such as Mexico: "investors would not exercise due diligence since they would expect to be bailed out in the case of default" (Noland, 2). These problems triggered the current economic crisis. Japan’s GDP has dropped to half of what is was at the beginning of the 1990’s. Taxes have shot up, and foreign investment has dwindled. Even domestic growth has been stunted as "Asia’s capitalist
class-one engine for economic growth has seen much of its paper wealth vanish" (Samuelson, 44). The Japanese economy "is stagnant and its banks are weak" (Samuelson, 44). The combination of these problems along with the devaluation of the Yen by nearly 30% against the dollar, has undermined confidence in Japan’s economy. While wages are currently unstable, and unemployment is beginning to rise, many wonder whether Asia’s stability was merely a growth spurt and not a lasting phenomenon.

This crisis has had a domino effect in countries such as Brazil. Like Japan, Brazil was a country struggling to take its economic place in the world. However, the Asian crisis has nearly stopped growth in its tracks. "The fiscal and monetary squeeze, [caused by devaluation of the Yen and reduced exports] has slowed Brazil’s economy" (Can Brazil Hold the Line?, 35). Many companies have been forced to lay off workers. As the currency in Japan lost its value, "markets around the world were bombarded with cheap goods from Asia" (Antonio Martins). This causes them to lower their prices in order to compete which in turn lowers the revenue of a country and eventually affects employment rates. Companies attempted to alter prices to stabilize the economy but it was too late, the effect had already taken root. According to Anthony Martins, a Brazilian businessman, this "caused interest rates to rise, employment rates to fall, and the real to be devaluat
ed." President Fernando Henrique Cardoso was forced to raise taxes by nearly a billion dollars overall (Brazil Near the Edge, 20). Inflation shot up by 15-20% percent. This created hardships for Brazilians who had become accustomed to living with low inflation rates over the last year. Furthermore, it endangered Cardoso’s popularity and undermined his free-market reforms. Japanese investment in Brazil declined drastically. Since "Japanese investment accounts for about 37% percent of the investment in Brazil, in one way or another, this created lasting effects" (Antonio Martins). Furthermore, Japanese banks and Brazilian banks owned by the Japanese began to feel the ripples of instability due to decreased investment.

Although the immediate future looks grim, it is not hopeless. Asian turbulence has caused the Brazilians to take a slightly different view on things. They are currently voting to pass a bill which will allow "the government to sack workers and to cap wages"(Can Brazil hold the line?, 35). Because of Brazilian culture, this is not likely to have been possible without such a pressing danger; the crisis spurred the government into action.

It rammed interest rates up to 40% above inflation, pushed Congress into backing an $18 million dollar package of tax rises and spending cuts; and began fresh efforts to win approval for the constitutional reforms essential for lasting fiscal stability (Can Brazil Hold the Line?, 35).

Although these measures seem harsh, if the government does not take some austerity measures, growth, and eventually even stability, will become impossible. Even though government actions have led to a "very painful economic slowdown," without these measures the country would probably spiral out of control under the affect of the problems plaguing Asia (Moffett, A1). Plans are also in the works to replace "state sales taxes with a value added tax" and to reform pensions (Can Brazil Hold the Line?, 35). As of late, stock markets have perked up a bit and citizens are beginning to accept the economic changes. Economists believe both Brazil and Japan will eventually recover. However, "Brazilians like to muddle through. A straight line would be against our [Brazilians’] culture. We like to samba" (Moffett, A10).

Brazil has also been influenced by Japan, on both an economic and humanitarian plateau, through various third parties such as the International Monetary Fund (IMF), the Official Development Assistance (ODA) or the World Health Organization (WHO) to name a few. Japan’s contribution to organizations such as these "plays an important role in fostering friendly relations with developing countries and improving the climate for diplomatic activities . . . it plays a significant role in its diplomacy" (Ministry of Foreign Affairs, Japan 88). Japan and Brazil not only have held the Japan-Brazil treaty of Amity for more than 100 years but also foreign Ministerial talks have been held annually between Japan and the Rio Group countries (Ecuador, Brazil and Bolivia) in order to increase friendly relations among the countries (Foreign Affairs Ministry, Japan 120-121).

In a humanitarian light, Japan is involved in organizations such as Basic Human Needs (BHN) which works in Latin American countries such as Brazil to make sure people have the necessities of life. They also contribute to the United Nation Commission on Sustainable Development (CSD) working in Rio de Janeiro to implement the Rio Declaration to spur economic development. The Japanese work with the World Health Organization (WHO) in developing countries to educate people about the HIV virus and to help search for a cure. This organization believes that "AIDS hinders the economic development of many developing countries" (Ministry of Foreign Affairs, Japan 93).

ODA is one of the major organizations which Japan uses to help Brazil and other Latin American countries. Japan has been the top doner for at least four out of the last eight years. Through this fund, Japan "plays an important role in the economic and social development of almost every one of the world’s developing countries" (Ministry of Foreign Affairs, Japan 87). Japan is also involved in the IMF. The IMF was initially set up to help governments through short-term problems. It makes money available to needy countries at low interest rates with long periods of time for repayment. This has allowed various developing countries to stabilize themselves in times of drastic currency devaluation. The rich countries pay into the fund and the poorer countries are allowed to use the money if they agree to follow certain rules. (Giesgrabar, 78-79). Governments must "reduce inflation and budget deficits by raising interest rates, restricting credit, increasing taxes an
d lowering expenditures" (Giesgraber, 78). These practices are all anti-growth, but pro-stability- a hard pill for a country such a Brazil to swallow. Countries must also, "remove restrictions on money-and preferably, on goods and services-entering and leaving the country and must devalue the currency" (Giesgraber, 78). Japan has poured thousands and thousands of dollars into the IMF over the last several years. In fiscal 1997, it contributed a little over $8 million (5% of the total amount of the fund) to the IMF. Thus, indirectly, Japanese money is flowing into Brazil through yet another channel. This has an influence on the economy in two distinct ways. It helps the government to stabilize the current economic crisis. However, the forced austerity measures hurt the growing economy. "True patriots [can] think how the markets would react to that [IMF loans], and recognize recourse to the IMF as an unhappy necessity" (Brazil Near the Edge, 20).

One would never think that two countries as far apart and as different culturally could be so tied together by economics. Nevertheless, "global interdependence works both ways. . .for ill as well as good"(Samuelson, 44). Currently even "Tokyo is still not committing to any significant fiscal stimulus…as its economy plummets"(Smick, 16). As a result, it has lost its ability to have a positive impact on the world. The relationship between Japan and Brazil is an important window into the next century, when economic, political and environmental interdependence will shape all people’s lives more than ever.

Brooke Ellis is a junior from Marion, Ohio double majoring in International Studies and Spanish. This summer she interned for the State Department, Bureau of Inter American Affairs in Hermosillo, Mexico.

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