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While the American Dream Is Outsourced Brazil Drives the World into the Future

Written by Ricardo C. Amaral   

Sugar Cane fields forever in BrazilNever in the history of the world have we had an economic revolution similar to the one that it is under way today. The global reallocation of economic power from the current superpower - the United States - to the new emerging powers of the future such as China, Brazil, India, Russia and the Arab Gulf countries is mind-boggling.

Brazil has a young economy in the areas of manufacturing, agriculture, and services. We can say that today Brazil's economy is comparable to a small company with a great potential for growth in the future.

In contrast, the United States (where billions of petrodollars have been parked temporarily waiting for better long-term investment opportunities) has an old and aging economy - with a very mature and declining manufacturing base that is struggling to carry the heavy load of its legacy costs, such as pension and health care obligations; these costs are related to a large number of retirees from the old American economy.

Today its service industry and the remaining manufacturing are being outsourced out of the United States at the speed of light to countries such as India and China among many other countries around the world.

We can say that today the United States economy is comparable to a very large company that is fast becoming obsolete and many of its viable and surviving parts are leaving the United States through outsourcing for better opportunities around the world including Brazil.

On a daily basis, the lifeline of the American economy is being exported overseas - including its R&D, American "know how" and with it the potential of future innovations. Everybody knows that this is going on, but still there is a major disconnect between the perception of what people think is happening and the actual speed of this process and economic revolution.

History Background

Let me give you first a history background to set the stage to show why this economic revolution is under way today, and why this couldn't have happened before our time at the speed that is happening today.

After World War II the US dollar also became an important part of many countries foreign currency reserves. Since the collapse of the Soviet Union, in theory the U.S. has a lot more competition from other countries than in the past for this pool of money available for investments on the international financial markets.

This unique situation can't continue much longer and an investor's mindset has finally started to change. There is a real possibility that in future years the competition will become very tough.

Technology Changed Everything 

Right now, we are in the middle of a historical turning point. In the last few years we had a revolution in technology, and today we can do things that were not viable only two years ago. In the late 1990's a few corporations including Global Crossing connected the entire world with fiber optics, combine that with the advances we had in broadband technology, and in Internet telephony technology, plus all the latest developments related to computer technology, storage capability, faster computers, powerful computer chips, and you have a new cheap communications system around the world like we have never seen before. 

Outsourcing has been around for a long time, but now for the first time in the history of the world, because the price of communications is so low: you can transfer huge amounts of data, and use the telephone 24/7 for a very low cost. Until recently the costs of international telephony, for talking of transferring data was very expensive and did not make economic sense to transfer overseas a lot of company operating functions.

Because of this technological revolution, only in the last year or so did it start making economic sense to outsource everything in sight. With the current technology, we can outsource probably 50 percent or more of all American jobs to a cheaper country such as India, China, Brazil and a zillion other places around the globe. 

Today the United States is not outsourcing only jobs that Americans don't want to do. The US corporations today are exporting millions of hi-tech jobs as fast as they can. At the same time, China and India are moving very fast into the future. They are investing heavily in R&D and they are developing the new state-of-art software, and the future in electronics. Today, there is something revolutionary and new regarding outsourcing; and it moves at the speed of light. 

In the meantime American workers should get used to getting jobs at the new Wal-Mart wages with almost no benefits - instead of working for the "American Dream," as in the past, in the future these workers will be working for the new American economic equivalent of the "Titanic." 

It is a very hard task for any government to create strategies for creating new jobs all the time in the economy, and no country can afford to lose the jobs that they already have. Any job is worth saving, because not everyone in the country will become a rocket scientist, or a software engineer. The country needs to create millions of new jobs every year including jobs for the semi-literate population. And job creation is a very important function and a responsibility that most governments from around the world have to fight for all the time.


In recent years IBM went from being a major technology company to becoming what we can call "IBM the Outsourcing Company on Steroids" - IBM is in the position to outsource, and at a very fast rate, a large number of good paying jobs out of the United States into India and other lower cost countries around the world.

Today India is becoming so important to IBM that in June 2006 a very important meeting that traditionally has been held in New York, for the first time was held instead in India.
On June 5, 2006 The New York Times published an article "India Becoming a Crucial Cog in the Machine at IBM" - and the article said:

"BANGALORE, India - The world's biggest computer services company could not have chosen a more appropriate setting to lay out its strategy for staying on top.

"...In the last few years, even as the company has laid off thousands of workers in the United States and Europe, the growth in IBM's work force in India has been remarkable. From 9,000 employees in early 2004, the number has grown to 43,000 making IBM the country's largest multinational employer.
...IBM is growing not only in size by adding new hires, but also in revenue. The company's business in India grew 61 percent in the first quarter of this year, 55 percent in 2005 and 45 percent the year before."

The Multinational Corporation

Today we know that the reality is multinational corporations don't have national loyalties, they are in business to make money, and the bottom line is what matters most.

These multinational corporations have plants and businesses all over the world, and their shareholders are scattered throughout the world. The stock of many of these public companies is traded in more than one stock exchange, and a lot of foreigners are part owners of these corporations.

Some people in the United States believe that corporations have to be patriotic and have to act as good "US citizens." But that way of thinking is rapidly changing and a growing number of major American companies are planning to reincorporate in Bermuda, or in other tax heaven; a move that would save them millions of dollars in taxes.

The New American Business Strategy

To make things even worse, today, bankruptcy has become an important part of an acceptable business strategy in the United States; this new tool being used by corporations it is an easy way to eliminate liabilities and all kinds of costs, and people should not be surprised when companies such as General Motors, and Ford finally file for bankruptcy in the near future.

What is happening to the US economy today is best illustrated by the fact that some 20 years ago the largest US employer was General Motors. And workers at General Motors earned, and still earn today, a good living wage. Today, the US largest private employer is Wal-Mart. And that is what has happened to the American economy. We have gone from a General Motors economy where workers earned decent wages and benefits to a Wal-Mart economy where people earn low wages and very poor benefits.

With the current technology, we can outsource probably 50 percent of American jobs to a cheaper country such as India, China, and a zillion other places around the globe and that can be achieved under today's technology, never mind the new technologies that are being developed and will be used in the near future. Today, there is something new and revolutionary about outsourcing: it moves at the speed of light.

Why Invest in Brazil?

In 2005, the Middle East oil exporting countries harvested an estimated US$ 400 billion dollars as a current account surplus. The Bank for International Settlements in its December quarterly review found that a smaller share of the oil windfall is being invested in Western banks this time around - the BIS speculates that the petrodollars are going into hedge funds, private equity funds and regional stock markets.

Who's not sharing in the current petrodollar windfall at the same rate as in the 1970s? If you guessed the United States, you're right. The BIS noted that evidence suggests "a smaller share of investable funds has been channeled into U.S. securities in the most recent cycle. "Why don't they invest in the US?" The basic reason, surely, is that investors think they'll do better in the booming emerging markets than in a flat US equity market.

The new oil boom is here to stay in the foreseeable future, and not many people are questioning the durability of the oil boom itself. Many analysts doubt it will end soon because of the new world market demand for the product, and the new appetite for spending in Dubai. Also other Gulf states will require producers to maintain oil prices indefinitely at US$ 50 to US$ 80 a barrel or even higher.

The Financial Times published an article on January 5, 2005 that said: "Brazil's decision to pre-pay its outstanding debt to the International Monetary Fund and the governments of the Group of Seven industrial nations says a lot about the country's improving circumstances. But it also points to the more confident fashion in which emerging countries are evolving in the world economy. This presents a challenge to more traditional international economic players, such as the G7 and the IMF, in adapting to the new structural realities of the global system.

"... Brazil has chosen to use part of its foreign exchange holdings to repay all its liabilities to the IMF and members of the "Paris club" of country creditors. The decision reflects the rapid improvement in Brazil's international reserve position, driven by a large trade surplus, growing influx of foreign direct investment and high portfolio flows.

"It is also the result of prudent financial management, which consistent with the country's growing wealth now emphasizes more sophisticated asset-liability management techniques.

"Underlying Brazil's decision is its growing economic self-confidence. Sound macroeconomic management, anchored by a cautious fiscal regime and responsive monetary policy, is increasingly hard-wired into the sociopolitical framework. The need for external financial support is lessened by the country's growing ability to "self insure" - through large reserve holdings and a declining and less volatile stock of debt.

"This phenomenon is not limited to Brazil. It is also evident in a number of other emerging economies and will likely spread further. As a result, several countries will probably join the "Brics" (Brazil, Russia, India and China) in having greater influence on global economic and financial flows."

The article also said that this change will affect the investment decisions of the oil exporters - and I am sure that Brazil is at the top of their list for the investment of the Arab Gulf states current petrodollar windfall.
Another trend that is underway is: in a very short period of time China is becoming the most important business partner of Brazil. China has been quickly replacing the United States' influence in Brazil and in other South American countries such as Venezuela, Chile, and so on.

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