Guest Post: Brian Finn from Brazil

23Jun10

Ricardo´s Theory of Comparative Advantage and Brazilian Television

The only countries that don’t have a massive number of American television shows being shown around the clock in original English or in the dubbed native language are those countries that simply don’t trade with the United States – e.g. North Korea, Iran. If you have historically had good relations and relatively free trade with the United States, then chances are your television channels will be dominated by American programs.

Brazil has generally had good relations with the US. Ergo its television channels are filled with American television shows. Probably the person who could best explain the absolute dominance of American television in Brazil and around the world is David Ricardo, an English economist who died several centuries ago. His theory of Comparative Advantages in a nutshell suggests that countries should focus on what they are relatively good at it. The term of note is relatively. One country can more efficiently produce two products than another country like televisions shows and baseballs. However, if country A is much better at producing television shows than country B but only slightly better at producing baseballs than country B, then country A should specialize in television shows and let country B take the baseball market. If you were to repeat this exercise several times with different countries, you can end up with a situation where Country A´s relative strength in television production always wins out. Hence, Country A produces most of the world´s television.

Why did America end up being Country A? Well, Hollywood for all its faults, is a well oiled and beautiful run machine and has certain economies of scale that will be impossible for other countries to duplicate. It took years to build up the studio system with its accompanying phalanx of agencies, casting and production companies and network of stars. Building up an entertainment industry is not the same thing as building up a manufacturing industry.

It will always be possible for countries or for anyone for the matter to produce a great movie. Movies are one off things and don´t necessarily require the same economies of scale to be produced. They can also earn back their money in a short period of time. Television is a different matter. Big television show productions are more costly and rely on longer time horizon revenue streams. If you are going to commit to producing The Pacific you have to believe that that miniseries will earn your money back over decades rather than weeks.

America having the best television production means that countries like Brazil don´t devote much in the way to creating productions like Mad Men. They instead buy the syndication rights to Mad Men. However, not all television stations can buy the syndication rights to hit American television shows. If you can’t buy the syndication rights and you don’t have the money to create an expensive show like Mad Men then what else can you do to draw viewers. Again Ricardo has the answer. You look to your comparative advantages. One thing Brazil has a comparative advantage in are lots of very attractive females who are comfortable in bikinis.

While one half of the television channels in Brazil are showing American shows like Mad Men, the other half are showing variety shows and talk shows that make great on camera use of attractive, half naked woman. Chicks in bikinis are all over Brazilian television. You´ll be watching the Brazilian version of Dr. Phil, featuring a pop psychologist giving serious life advice to drug addicts and his guests will be brought on stage by three girls wearing bikinis. You´ll be watching their version of the Late Show and some rock star will be getting interviewed and there will be chicks in bikinis gyrating in the background. It is as if all Brazilian television producers live and die by the mantra of “when in doubt, put a hot girl with fake breasts on camera.”

The tactic works beautifully. You will sit there dumbfounded and watch variety show after variety show and not understand anything anyway is saying but be continuously amazed at how good looking the girls are that they put on camera. The girls will do things like get into water balloon fights or have kissing contests with homeless people. It makes no sense but it is profoundly entertaining. It could be the case that the Brazilians are unto something. Maybe, someday Brazilian talk shows will overwhelm American television content as countries decide they would rather watch girls in bikinis juggling soccer balls than watch Jack Bauer blow up a terrorist complex for the tenth time.

Brazilian Elite

The Brazilian elite for the most part don´t flash their money. The ones I have encountered reminded me more of old WASPY New England aristocrats then new money Hollywood or Wall Street millionaires. I had come here under the impression that it was normal for Latin American oligarchs to drive $100,000 cars and spend thousands of dollars at clubs. Wealthy Brazilians may do this but they do it discreetly. A wealthy Brazilian might drive a car that cost a $100,000 but more than half that price tag is from the cost of bullet proofing the car. The car itself would have a humble or unrecognizable brand, certainly not a Mercedes or Porsche. The clubs might be ridiculous on the inside but they do their best to hide themselves from the outside world.

In a country with a Gini coefficient close to 60, the goal is to draw the least amount of attention to yourself at all times. Driving an absurd car even if you could afford several of them is asking to get kidnapped. If you drive that car, it just takes one guy to notice it. If he sees where you park it, he can start casing out your house and your work place. This guy doesn’t go through all this effort to steal your car, he does it to kidnap and then ransom you.

Even beefed up security is no match for most of these gangs. One of my Brazilian friends down here who generously showed me around when I first got here mentioned a story about one of his friend´s father who had taken all the precautions of having body guards and armored vehicles etc but still managed to get kidnapped. The criminals did their due diligence on the guy and when the time was right they pulled up to him on a red light, opened fire with armor piercing bullets on the car killing all his body guards and his driver. They killed everyone but the father who they then kidnapped for several months.

In other words, Brazilian gang´s don´t screw around.

The Economics of Getting Mugged

Crime is Brazil´s Achilles Heel. It is hard not to be hyper aware of crime when you are walking around. I am living downtown in central Sao Paulo close to Votorantim´s main offices. Although the streets are filled with beautiful old colonial buildings, relics of Sao Paulo´s past as the coffee trading capital of the world, the area itself is decaying and full of liter and homeless people. I am told never to walk around the area past 6 o’clock at night. Still the thought of paying 10 reales for a cab ride of 4 blocks back to my hotel kills me so I end up walking home on most nights.

When I walk home, I walk briskly and I don´t make eye contact with anyone. I usually walk on the road so if someone does try to come at me from the sidewalk, I have time to react. A friend in my office has been mugged four times in the last year. Usually the guy will pull a knife, sometimes a gun. You just give them whatever they want and they go on their way. You hope that they are good at their job and not amateurs who might get nervous and prematurely pull a trigger.

So far nothing of the sort has happened to me. However, I did see it happen to someone else the other day. I didn’t realize at first what was happening because everyone else was walking by like nothing was going on but in short order I saw one guy approach another guy and the other guy gave him his wallet and then the guy taking the wallet scampered off. The transaction seemed as ordinary as asking your parents for allowance money. It took me a second to realize that “holy shit, that guy just got mugged.”

To be honest with you it seemed so easily and beautifully executed that I wondered why more people aren´t in the business. Assuming you choose your targets right, there is little chance that your target hurts you. The risk really comes from bystanders and cops. Now as I saw, bystanders seemed totally averse to interfering. Why risk your neck for a stranger against a guy who might be armed? As far as Brazil´s police, they are largely absent and are underpaid as it is. Why should they risk their lives or energy to chase a small time crook? Given there is little in the way of barriers and a remote chance of getting caught and sent to jail, mugging people probably seems like a good way to get by for a large swath of people.

Manuas: The Dubai of the Early 20th Century

In five days, I will be on an eight seat airplane headed to the deepest, darkest interior of the world’s largest rain forest. There are no roads to get to the place I am going to. By boat it takes two days. By plane it takes several flights. It is one of the most secluded, isolated places on the planet and it is also home to the world’s largest bauxite mine. However, before we head to this Pandora to destroy the habitat of blue aliens, we will be spending two days in Manuas, the capital of the Amazon region.

Manuas is the Dubai of the early 20th century. For a brief period of time, this completely isolated city in the middle of the Amazon, was the richest place on the planet. It had something that with the rise of automobiles everyone needed – rubber. Owning a rubber tree plantation in Manuas was like being a GoldmanSachs partner pre-IPO. You killed it. Rubber barons had the money of a dotcom billionaire combined the spending sensibilities of a rapper who had watched Scarface too many times. These barons would do things like clean their horses with champagne, import rare tigers to stage fights with Pumas. They also built an absurd grand opera house and outfitted their houses with vast domes and gilded balconies. Manuas was one of the first cities in the world to gain access to electricity.

However, over night the lights went out literally. It just took one enterprising guy to realize that he could grow these same rubber trees in Malaysia. With the rubber seeds successfully smuggled out, the Brazilian rubber plantations lost their monopoly pricing power and become like any other agricultural plantations. The city with one of the first electric grids lost their ability to maintain it and went dark. They went from absurdly rich to dismally poor in 5 years. Considering the fact that it takes most rappers and NBA stars only 3 years to make that journey, I suppose these guys held out better than one would expect.

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