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Topic 1: How state of health/education and inequality affect each other and Brazil’s business prospects
Topic 2: How inequality, rule of law and environmental degradation affects each other and Brazil’s business prospects
Topic 3: State of trade, a sign of promise?
We chose Brazil because it is a key developing country in the world with an unsure political and economic future. Another reason we chose Brazil is that most of the disrupters discussed in the reading are relevant to Brazil’s development. The three most important disrupters are inequality, rule of law and the state of public health and education. Inequality is important because they have among the highest Gini coefficients in the world. This inequality brings unrest, violence and threats to growth in Brazil. The rule of law in Brazil is important because the government and law enforcement agencies don’t have a solid handle on the rampant and widespread crime, which was widely discussed leading up to the Olympics. From the drug cartels to bribery in business, the rule of law is struggling to maintain stability in Brazil. Lastly the state of public health and education is another important disruptive force. The inequality, discussed previously is causing unsafe living conditions in favelas with a lack of affordable healthcare for the lower-class in Brazil. The lack of universal public education is continuing to keep the poor uneducated and not giving them the opportunity to compete with the upper-class. We also plan to discuss state capitalism, terrorism, environmental degradation and the state of trade in our presentation since they also pertain to conducting business in Brazil.
a) Makes it not worth it for companies
a) Revenue goes to politicians to foster an environment of non-competition
b) Taxes continue to rise rapidly and government workers see bribery and corruption as only alternative to financially survive
c) Example: Construction companies overbid for Petrobras contracts and Petrobras gives cash to campaigns/politicians and politicians give favoritism to these construction companies
(1) This was named operation car wash
d) Operation Mensalao gave public funds to congressmen to vote for specific things
a) Businesses extremely reluctant to do that due to FCPA
a) Thuggery, cartels, violent and deadly crime often go without punishment resulting in companies not wanting to put employees at that risk
(1) Not only white collar government workers but also cops work with gangs out of fear and financial motive
b) The failure of the rule of law ties the lower class with other disruptive forces such as inequality and the inability to move social classes, and the state of health and education
a) Most of these metrics are also trending downwards
II. State of Public Health and Education
A. Brazil’s prosperity and strong economy are determined by their public health institutions and policies which will helped improve and increase their life expectancy.
B. Current State of Public Health.
C. education system is accordingly plagued by many deficiencies and social and regional disparities.
III. Environmental Degradation
A. Overview of main environmental issues
1.) Air Pollution- Due to rapid urbanization and industrial development in cities- Population boom lead to quick expansion of cities and little attention was paid to the environment- New initiatives are being started to reduce this
2.) Acid Rain- Affects pH levels in soil and water: Limits the number of types of plants and animals that can survive in an area
3.) Land Degradation and Water Pollution- Due to mining activities
4.) Wetland Degradation and Severe Oil Spills
5.) Waste Disposal- 161,000 tons of solid waste produced each day - 2/3 disposed of in landfills- Soil around landfills becomes toxic and unable to sustain life- Solutions: - New focus on recycling - Major campaign to educate citizens on use and disposal of various items
6.) Endangered Species- Due to hunting, destruction of habitat, and introduction of foreign species- Huge reduction of fauna as a result- Hundreds of species in danger of extinction
7.) Deforestation of the Amazon Basin- Large amounts of trees are being cut down for timber, development, and agriculture
B. How this affects those wishing to do business in Brazil
1.) There are two extremes
- A lot of resources will be required to improve current state of the environment
- Sustainability is becoming a bigger focus in the economic environment
- The Brazilian Environment and Renewable Natural Resources Institute
- federal agency that creates most regulations for things like
- “Other agencies are required to take IBAMA regulations into
account when examining applications for incentives and financing of investment projects.” (PwC)
- “Non-compliance with environment control regulations may result in the suspension of tax benefits, credit restrictions or even the closing down of operations.” (PwC)
V. Inequality A. Causes of Inequality: Inequality is typically a side effect of modern capitalismi. Benefits of market capitalism are not shared equally where governance is weak or corruptii. Success of capitalism has little effect on the standard of living of the poor communities1. Makes the richer, richer2. Increases gap between rich and pooriii. Sometimes linked to changes in governanceiv. Leads to populist movements1. In most Latin American countries, populist movements are viewed negatively because they can lead to severe and harmful government interventions a. Bureaucratic regulation of the market transactions and outcomesb. expropriation and confiscation of propertyc. abrogation of property rights 2. Populist movements often lead to investor reluctance to support and sustain capital flow, away from a sustainable free market economy3. Brazilians are in favor of populisma. Do not believe it is a threat to social and economic stabilityb. Belief that recent stability is related to the voting poor and not traditional business interests that preferred instead cheap money, closed borders, and various forms of favoritism and government protection(i) Poor are more represented in modern elections(ii) The poorest 50-60% of the population voted for Luiz Inácio Lula da Silva (iii) support from the poor continues to stabilize the macroeconomic economy in Brazil - they want low interest rates and protection (Threats to the Global Market System)B. The current state of Brazilian inequality: According to the Gini Index, Brazil is the 13th poorest country in the world (Sweig)i. Brazil is currently in a recession - recessions lead to economic slowdowns; Latin America`s largest economy shrank 3.8% last year and the IMF now forecasts it will fall another 3.3% this year (Gillespie) ii. Economic slowdowns lead to decrease in available jobs and increase in unemployment rate1. About 12 million Brazilians are now out of work, up from 8.8 million a year ago, recent government figures show. 2. Wages in Brazil declined 3% in August and the unemployment rate rose to 11.8%, up from 8.7% a year ago. (Gillespie) iii. It is more difficult to cut inequality than poverty1. Household unemployment is rising2. Inflation is making wages effective3. And while the poor are living better , access to consumer goods does not define success for the futurea. while 95% of brazilians own a TV, only 57% have access to sewage4. The income gap between the country`s top and bottom decile remains about five times as wide as in advanced economies (Corrigan)C. Problems Inequality poses for Brazili. Discourages investorsii. Decrease in standards of living1. Inequality of wealth has become inequality of opportunity in regard to education (corrigan)2. Unemployment ratesiii. GDP growth 1. mostly likely caused by the lack of decent healthcare systems and infrastructure which are considered to be prerequisites to connecting individuals to markets (corrigan)2. Corruption - make a severe impediment to an economy`s capacity to grow inclusively (corrigan)D. Barriers to Inequality Reductioni. Informality of business1. Brazil lacks the culture for enterprise - defined as the propensity to view entrepreneurial failure as a learning experience rather than embarrassment 2. Small business ownership and self-employment are important factors of fostering economic growth because many people derive their income from these areas3. Brazil lacks the culture of enterprise: among upper middle income countries, only Croatia and Bulgaria rank lowerii. Educational Systems1. System delivers poor value for money: only three other upper middle income countries rank lower in regard to the quality of education but only three spend a higher portion of GDP of education2. Failing children from less wealthy families:a. disparities in reading and math scores between children from the top and bottom income quintiles are larger than in most countries at similar income levelsb. scores poorly on a measure of how many students from socio-economically disadvantaged backgrounds manage to become top performers at school3. Poor quality of health servicesa. among upper middle income peers, only Venezuela scores lower4. infrastructure - energy, transport and communicationsa. ranks 24 out of 26 upper middle income peers5. Ineffective government activitya. scores lower that comparative countries in regard to social programs and their benefit-to-cost ratiob. only Venezuela and Argentina score lower in regard to perceptions of wasteful spendingc. high levels of corruption1. cause public to distrust politicians2. diversion of public funds 3. irregular payments in tax collection4. entrenches existing power relationships and impacts are mostly felt by ordinary citizens