End of an era?

brasilobserver - Dec 25 2015

(Leia em Português)


By Christian Laloe

The year of 2015 will go down in the history of Brazil by its profound political and economic uncertainty. Just over a year after the re-election of President Dilma Rousseff, the country experiences a political paralysis associated with an economic recession that seems to have no end. GDP is expected to shrink by 3% this year, which means two consecutive years of negative growth, which has not happened in Brazil since 1930.

Despite the uncertainty in Brazil and worldwide, I am convinced that most of the population is subconciously convinced that structural changes are happening and will continue to happen for some time. I like to characterize what we are living as “interregnum”, a vacuum period in history when we know that the “old” died and will not return, but in which the “new” has not yet emerged, leaving us with little visibility ahead.

Some periods of “interregnum” were striking, such as the death of Emperor Qin, in China, and the rise of Li Bang, between 206-202 BC, beginning the Han Dynasty, which lasted nearly 500 years. Studying the history today, those times seem normal and predictable, but they sure were less obvious and peaceful for those who lived them.

The big question that many do today is whether what will emerge will be a continuation of what we already live since the post-war period, i.e. the same society based on credit and consumption, which in a way keeps the same work organization, or if we are indeed at the end of an era (which began in the Industrial Revolution). The monetary stimulus since 2008 saw central banks of the United States, Europe, Japan, England and China, coupled with an exponential growth of technology, has led the organization of society and the means of production to be reviewed. This process is accelerated and we will know a new model very soon.

What draws my attention is that this vacuum that the world lives is manifold as there is in politics, geopolitics and the world economy.

Taking up an idea of ​​Marx (which was based on studies of David Ricardo and Adam Smith): economic infrastructure determines the superstructure, i.e. how the production system is organized determines who will be in power. Throughout the 20th century, we had pyramidal structures with large companies, well-defined heads and hierarchies. Globalization changed this, making these structures more flexible, fully horizontal.

It seems to be a very interesting phenomenon caused mainly by the technological and communications revolution that began in the 1990s. Society has been evolving much faster than traditional politics. This process leads to a lack of representativeness of the rulers. People never felt so poorly represented – most notoriously in democracies probably because of a pre-defined electoral agenda that makes the politicians to become more a professional than a representative of the collectiveness.

Looking carefully, some leaders have followed a quite clear populist script, either in Russia with a rescue speech of the Great Empire, or China’s Xi Jinping, who is considered the most popular leader since Mao. More recently, in Turkey, we had the re-election of President Erdogan, who has reversed in the last hour an adverse scenario, according to the polls. Are we witnessing an installation of populist governments in emerging countries and possibly more extreme ones in developed nations?

From the geopolitical point of view, the vacuum and uncertainty are no less worrying. It is well known what happens in the Middle East: a relentless war between Shiites and Sunnis that goes from Yemen to Turkey and that will redefine the boundaries of the region in the next 20 years – which is a direct consequence of a forced rupture of the Ottoman Empire imposed by a fight of influences of European countries in the region. These changes mean that the relationship of most countries in the region with the Western countries will pass by a very likely review.

In Brazil, we have a young democracy with some diseases of old country. We have much to do in the areas of health, education and public safety. We have a structure of bloated government with higher public spending than the country can support, as well as an aging population process. On the economic front, we are also paying for the mistakes we made in the recent past and hoping lucidity causes meet again balance the public accounts, thus resuming confidence, investment power and capacity for growth. I do not know when and how to get there, but I have a strong conviction that we will get. But how can I have such conviction?

For most accurate observers, 2015 was an extraordinary year in many aspects. The main one is that so far, over the consolidation of our democratic process, we have managed to create and preserve strong institutions that will become even more solid and established as democracy matures. This is a slow and sometimes painful process, but it is the only one that is sure and perennial. In particular, the work of prosecutors and the Federal Police is to make our South American neighbours envy. There is no sign greater than this indicating that the country is moving forward in the right direction, despite everything else.

It is very easy, in conversations with friends, to be pessimistic, to think that tomorrow will be worse than today. Who has forgotten the great famine in China between 1958 and 1961 that killed 15 million people? Today China is the second world economy. Did those who were children at the time think they would live in the great nation that China has become? The same analogy can be made about Germany and Japan.

So we need to have courage to dare, transform, rethink what is already done. The time to do it is now. Brazil already met similar or worse situations in its history and was able to restore. Such changes only depend on the will of society to evolve.


  • Christian Laloe is a financial market professional. He worked for 20 years in the international area of ​​several renowned institutions. Graduated in engineering, he monitors the work of some Think Tanks in Europe and Brazil.