The economic growth of Brazil is cause for celebration not envy

Great news – we’ve been overtaken by the Brazilians. According to the latest estimates, Brazil’s economy is now the sixth largest in the world, edging ahead of the UK. From now on, unless Britain grows as fast as Brazil, we will fall further behind. Over the next ten years we are also likely to be overtaken by India and Russia.

The British ship belongs to a slower convoy; in 2010, three of the world’s six biggest economies were European (the Germans, the French and ourselves) but all three are likely to drop out of the top six by 2020.

There are several ways we could react to this news, some of them more positive than others. One reaction is to call for an end to foreign aid for countries that are richer than us. This is understandable, but it is ethically and economically debatable (the average Brazilian is still a lot poorer than the average Brit, and foreign aid can be a legitimate and effective way to support British interests).

Other reactions, which I’ve mentioned before in these columns, could be wary scepticism about the reliability of long-range forecasting, or worries about the geopolitical and environmental challenges involved.

But the most constructive reaction is surely to recognise the fact that the world economy is not a collection of independent “silos”, still less a zero sum game in which your gain is my loss, but a massive and intricately interconnected system where growth and prosperity in one area can benefit everyone.

From this perspective it is brilliant news that the living standards of billions of people are improving rapidly, not just because it makes their lives better but because it gives us more chances to sell them things and increases the supply of things that we want to buy. And from a narrower, professional angle, fund managers and investors have a much longer list of investment opportunities, which will generate returns for clients for decades to come.

Let’s see how all this works in practice in the case of a country like Brazil. Although generously endowed with natural resources and an abundant supply of labour, Brazil had suffered for generations from incompetent autocratic rule and gross financial indiscipline.

The real catalyst for change came when a newly-elected left wing president, Luiz Inácio da Silva, put through a package of reforms that combined tough budgets, the early repayment of IMF debt and stronger social security protection. These policies worked; life got better for most people, helping create a cross-party consensus for change.

How has this benefited Britain? In 1990, UK exports to Brazil were less than £600 million; in 2010 the figure was £3.2 billion. That’s enough to employ many tens of thousands of British manufacturing workers.

We sell them medicines and cars; they sell us foodstuffs, raw materials and aircraft. Brazil is one of the few countries where the British share of the import market has actually increased over the past ten years. We still run a deficit in traded goods with Brazil but that is partially offset by a surplus in services – Brazilian tourists spend more over here than we do over there, and those unpopular bankers in the City are actually quite good at selling their services across the world.

British companies like BG, in partnership with national champion Petrobras, are heavily involved with the development of Brazil’s offshore oil and gas reserves. This complex and hugely expensive undertaking will add millions of barrels to the world’s energy supplies.

Thanks to its natural riches, Brazil has always sustained a minority of the extremely wealthy amidst general poverty, but the most exciting development of recent years is not the emergence of 30 billionaires (Britain has 33) or 137,000 millionaires (a number growing by about 20 each day), but the spread of comfort and prosperity among the population at large.

In the past decade, some eight million new jobs have been created and 27 million Brazilians have escaped from poverty; and while it is still one of the world’s more unequal societies, it is much less so than it was 20 years ago.

This broadening out of the benefits of growth and trade is one of the strongest reasons for optimism about the world’s economic outlook.

It is human nature to look enviously over the fence at the neighbour’s smart new car; we should rather see it as a respectable, hard-working family moving into the scruffiest house on the street and making radical improvements. Who wouldn’t want neighbours like that?

l Gareth Howlett is fund manager director at Brooks Macdonald