Economic Development in Southern Brazil
by Donald L. Adolphson, PhD, and Romanna Remor, MPA
THE RICHES OF A KINGDOM OR NATION DO NOT CONSIST SO MUCH IN THE FULNESS OF ITS TREASURY AS IN THE FERTILITY OF ITS SOIL AND THE INDUSTRY OF ITS PEOPLE.
Many communities are recognizing that economic growth, as currently practiced, has many perils. Well-intended efforts to stimulate economic growth and to create jobs in the community, often result in unforeseen costs that may diminish or negate the good created by the jobs. This is a preliminary report on an early phase of a larger project to put decision-making tools in practicing managers’ hands that will help them understand the long run ecologic consequences as well as the short run consequences of economic development strategies and policies.
We believe the key to doing this is contained in President Brigham Young’s quote [at left], where he identifies three distinct types of capital: financial capital (fulness of the treasury), human capital (industriousness of the people), and natural capital (fertility of the soil). President Young also recognized the primacy of human and natural capital over financial capital as the key to prosperity.
The long-term project is analytical and prescriptive in nature, developing tools for decision makers to understand clearly the tradeoffs between economic and ecologic costs. These tools are based on systems ecologist Howard T. Odum’s work, who developed a comprehensive framework for valuing natural capital in terms of the energy required to make a product. His framework is called Energy Memory Analysis, or emergy analysis for short. Odum’s emergy analysis gives decision makers better tools for understanding hidden costs and thusopens the possibility to learn by foresight and analysis rather than by painful trial and error.
The initial phase described hereafter is basically descriptive, comparing the economic development strategies of two cities in southern Brazil. The first city, Curitiba, understood intuitively how to incorporate the value of human and natural capital into decision-making and economic development strategy. We highlight the strategies of Curitiba by comparing it to another city, Criciúma, that has many similarities to Curitiba, but adopted very different economic development practices and has had a very different resulting experience than Curitiba.
INITIAL PROJECT BACKGROUND
This project was conceived while reading the book Natural Capitalism: Creating the Second Industrial Revolution by Paul Hawken, Amory Lovins, and Hunter Lovins. The book’s focus is on creating profitable and sustainable businesses that strengthen the base of human and natural capital. One chapter is devoted to a description of these concepts applied at a community rather than an organizational level. The community used in the example was Curitiba, Brazil. Last summer, Adolphson, along with his wife, Judith, a part-time faculty member in BYU’s MBA program, traveled to Brazil to get a firsthand look at Curitiba.
In Brazil, they joined BYU MPA student, Romanna Remor, who was completing an internship for the mayor of Florianópolis, a city not far from Curitiba. Through Remor’s connections, the trio met with government officials, city economic development directors, and city planners. These meetings included an extensive interview with Jaime Lerner, currently governor of Paraná and former three-time Curitiba mayor and the visionary who inspired the innovative and highly successful economic development strategy practiced by Curitiba for the past three decades.
While in Curitiba, Remor was called by her political party’s leaders to accept the nomination for mayor of Criciúma, her hometown of 200,000 citizens. Remor, only twenty-five years old at the time, had never run for political office, but accepted the challenge and finished a strong third in the election. Her platform to put conscience in the political process and create economic development was modeled after Curitiba’s.
The contrast between Criciúma and Curitiba was striking. The cities have similar geographical, cultural, and natural resources. However, their economic development policies over the past four decades have been very different— the results have also been very different. The sharp contrast in the tale of these two cities is an entrée to understanding the general economic development principles that can be adopted by other communities in developing and developed countries that are struggling with problems associated with rapid urban growth.
One difficulty in thinking about economic development strategy is that it is very hard to see the long-term consequences at the time the strategy is set in place. It is much easier to see long-term effects with hindsight than with foresight. Fortunately, Curitiba and Criciúma have provided us with three decades of hindsight with which to view the long-term consequences of the two cities’ economic development strategies.
TYPES OF CAPITAL
In order to comprehend the differences in the two development strategies, it is necessary to recognize the different types of capital that define community prosperity. For our purposes, a three-way classification is useful: financial capital, human capital, and natural capital.
The familiar example of an orchard illustrates each one. Financial capital is used to buy such things as land, equipment, and seeds. Human capital in the form of agricultural knowledge and willing hands is added. An additional important yet subtler form of human capital is the social structure, culture, and set of beliefs that motivate the volunteer workers. The trees are one form of natural capital, a product of nature. The more basic forms of natural capital are the soil, sun, rain, and other services of nature that make it possible to grow trees that bear fruit.
The difference between the conventional approach practiced by Criciúma and the innovative approach taken by Curitiba can be understood by considering the different ways in which they treated financial, human, and natural capital. Figure 1 represents the differences between conventional and natural capitalism. The conventional view, driven by tradition and sophisticated tools for measuring financial capital, treats financial capital as the primary measure of wealth, including natural and human capital only to the extent that they have a market value. The alternate view highlights natural and human capital as the foundation for building a strong and lasting economy.
Let’s consider how these different mind-sets play out in the two cities’ economic development. We will see that it is easier to destroy human and natural capital than it is to preserve and build it, but that investments of time, money, energy, and creativity in human and natural capital can be very high return, low risk investments.
BRIEF CITY BACKGROUNDS
Both Curitiba and Criciúma experienced explosive urban growth, nearly tripling in the three decades from 1940. Curitiba is the larger of the two with a population of 1.5 million compared to 200,000 for Criciúma. Both also began to experience the same effects of rapid urban growth, such as congestion, pollution, crime, and disease.
Criciúma was coming from an affluent era of economic abundance brought about by the enormous demand—especially during World War II. Its one natural resource turned into the city’s economic anchor: mineral coal. People from all neighboring towns were crowding out the city with the hope of getting a small slice of the incredible wealth streaming from “black gold” extraction, as the coal became known among them. With demand for coal booming at home and abroad as a result of the skyrocketing oil prices in the early 70s, Criciúma appeared to be on the right track to economic growth and prosperity.
On the other hand, Curitiba was coming out of the 60s characterized as a third sector economy, concentrating a significant part of its activities on the public sector. The few industries, then, were a few brick factories, coffee processing toasters, timber, cold storage plants for meat products, and absolutely nothing else. As a result, the city started to experience problems such as congestion, pollution, unemployment and other problems resulting from a growing population ethnically diverse but with no common identity that could tie them together and to the collective space they shared and lived on.
Curitiba briefly considered conventional approaches, including widening the city’s main streets to add more lanes and offering tax breaks to anyone who promised jobs. Resistance to both practices was unexpectedly fierce. Curitiba decided to take the less-traveled road for their own sake. Thus grew in strength the idea of an integrated, global planning that could address the changing city needs with a broader, long-term perspective. Criciúma, on the other hand, followed the conventional course, moving as its expansion guided, but with no sense of their future.
The two cities are compared and contrasted with the four economic development facets: the planning process, transportation planning, organizational and institutional structures, and attracting businesses.
Curitiba recognized the desirability of developing an integrated planning process to guide its economic development strategy. There were three primary transformations addressed by the plan once they were recognized as equally crucial to city development: the physical, economic, and cultural transformations. No action should be taken and no policy implemented if they were not compatible with the great Curitiba envisioned in the plan. They were, in fact, considering the environmental, economic, and human related transformations.
When the Director Plan draft was finished, public hearings were held in order to discuss the plan with community organizations. That was a crucial moment, for by evoking community feedback and inputs in the process, there arose that certain magic that turns apparently simple ideas into catalysts of feelings— creating an identity for the people in relation to space and time, a driving force that would ever after permeate life in Curitiba and the relationship between those that govern and those that are governed.
Community inclusion in the process was significant because people developed proper expectations about the public officials’ role in creating public value and their own share of responsibility in the process. Public officials’ awareness of the need to involve community in Curitiba’s development created an ethos of co-responsibility. That, in turn, resulted in program and policy continuity for years to come. Even though elected public officials were out of office every so many years, Curitiba’s citizens now had a clear idea of their expectations of, and duty to, government—they wouldn’t settle for less. According to Governor Lerner (Adolphsons’ interview, 2000), “It wasn’t just me. We had a team. And we made a decision early to stay with this. Each of us through our professional training would have more lucrative opportunities come along. We have kept the commitment.” This continuity and commitment is a unique and vital aspect for the human capital base built by Curitiba’s leaders.
Meanwhile, people came to Criciúma as the local economic boom was still ruling. In fact, the economic, political, and cultural life revolved almost exclusively around coal extraction, processing, and commerce. The interest for the city, whose diverse ethnicity was similar to Curitiba’s, was very utilitarian in nature—based solely on the riches derived from coal mining activity. All other non-financial considerations were neglected, or subordinated, to the financial ones.
Neither the mine owners nor the city’s public officials thought that they should invest in the workforce. All they needed were people who would go down to the darkness of the mines and handle heavy tools. However, neglecting the city’s human capital brought serious consequences to its development, resulting in a huge mass of sick, unemployed people who didn’t know how, and didn’t have the physical conditions, to do anything else when they lost their jobs as mines ran out of coal.
Curitiba’s transportation planning exemplifies the innovative approach used in responding to many challenges. Recognizing the problems caused by downtown traffic congestion, they made a commitment to reduce traffic in the downtown area and resisted the temptation to knock down the turn-of-the-century buildings that lined the downtown in order to widen the city’s main streets and add more lanes.
Instead, they addressed the issue by turning the space between the two squares into a pedestrian mall, an emblem of the drive for a human-scale city. As for the rest of the traffic system, they carefully replotted its flow not only to make the downtown function without cars on its main streets, but to also direct growth throughout the city. And instead of buying up buildings and tearing them down to widen streets, planners “stared at maps long enough to see that existing streets would do just fine”— as long as they were considered in groups of three parallel avenues. Traffic on the first avenue would flow one way—into town. The middle street would be devoted to buses (this was indeed justified as will be noted). A block over, motorists headed out of town. And more important, such changes were all integrated into the city Director Plan. Once the planners had designated five “structural areas” leading away from city-center, they started to tinker with zoning. Along their main routes, high-density buildings were permitted. Farther from the main roads, density decreased.
They considered a subway, which was an attractive option in many respects, but was too costly—they had also made a commitment not to spend money they didn’t have. Not satisfied to have a second rate city, they asked how could inner city traffic be reduced with the resources they had. The answer—old buses.
They responded to this challenge by first designing the best system they could with existing buses. They did this through careful route design and fare structure. With increasing ridership, they were justified in investing more money to bus system development. They recognized that one subway advantage is riders can exit and enter quickly because tickets are purchased off the subway and there are no stairs. To achieve these same advantages without a subway, they designed modernistic bus stations, where tickets could be purchased, that were raised to the level of the bus floor. So successful was this design that Curitiba lent New York several of its leading tubes and special buses, causing “looks of bewilderment” at the “space age pod” donated by the Third World to the “Mecca of World Finance,” according to the Daily News. Curitiba also attracted a Volvo plant that provided quality employment for citizens and a strong connection to the community for one of its corporate citizens. The quality is high and the cost is less than that of Criciúma, which serves approximately 10 percent more riders.
Maybe, a simple—but sound— answer to that puzzle is the fact that when making their transportation system, they used all the resources (such as intelligence, discerning abilities, creativity, and good will) available from their rich human capital source.
Criciúma’s urban planning, or lack of it, illustrates exactly the opposite approach: an over-dependence on financial resources in handling the city’s problems—an approach quite common in capitalism’s conventional model. If transportation plans are not integrated into global planning, any changes in the transportation or traffic systems need to fit the whole program for the city. Otherwise, individual attempts have to be periodically made by different public officials every time a new term starts in order to plug the leaks. Most of the time one effort ends up causing some other problem in the long run.
This was the case in Criciúma. Each city administration that would take office would also change the city’s traffic system here and there as an attempt to improve traffic flow in the most critical points. What came to happen over and over again was that one administration would end up adding more pieces to the already chaotic puzzle that constituted city traffic flow. Streets were closed, re-opened to traffic, turned into one-way lanes and then back to two-way streets, turned into a pedestrian mall, and then something else. No one had any idea where they wanted to get, not even the administrators themselves. The public transportation system was finally reformed in the first half of the 90s, but the cost was high and quality of services inadequate.
The contrast in transportation planning between Curitiba and Criciúma points to the dangers of an over reliance of financial resources, while neglecting human ingenuity. If traffic engineers had been consulted when the first signs of trouble appeared, not only the traffic problems would have been solved, but the city would also have preserved significant financial capital.
ORGANIZATIONS AND INSTITUTIONS
Brazil’s political institutions have a history filled with inefficiency and corruption which has hindered change, reform, and community participation. The creation of public value is simply neglected and forgotten. In the midst of this scenario, Curitiba radically reformed and successfully implemented rather revolutionary programs, creating public value in the truest, most real sense this term might ever have. Why? Because they put effort into building their social institutions. How? They first identified, organized, and mobilized the city’s political and social institutions.
Before pouring sums of money into programs and projects and departments and divisions in the city, public officials recognized the need to reform them all. All institutions were evaluated; those able to justify their existence were to be reshaped in ways that increased their value to the public in both the short and long run. Many shifted focus from mere operational management to stimulating innovation. Thus, the conventional orientation downward (toward organization control) was replaced by an outward (toward results) and upward approach (toward renegotiated policy mandates).
Curitiba adopted a matrix organizational model that integrated all projects among relevant departments and allowed for joint responsibility across departmental boundaries. Some thought this could never work, but Mayor Cassio Taniguchi, who had twenty-five years of experience with the Curitiban experiment, concluded that it could work for them. The benefit is that it encourages integrated solutions to city challenges. It also requires a high degree of open communication and trust between departments and good management direction to see that all relevant departments are involved from the project’s inception. These ingredients matched very well with Curitiba’s human capital built over a quarter of a century through open, transparent, and effective government.
In Criciúma, public officials understood that public institutions’ main objective, at best, was perfecting their organizations’ operations in their already existing roles if that meant creating or enhancing real public value, instead of searching for innovations that could result in changing those very same roles. In other words, social capital—as human and natural capital— was not an important issue.
As a result, policies, projects, programs, and management itself were often unsuccessful in Criciúma. For, according to Mark Moore in Creating Public Value, success on the public sector depends on the conception and execution of those policies, projects, and programs. However, if they were ill conceived in the first place, as an isolated measure, and not integrated into global planning for the city, their conception becomes a bad influence in the execution phase. Both conception and execution create a public waste of money as they turn out to be incompatible to many other policies, projects, and programs already in place. The final “product” is anything but the creation of public value.
That explains the difficulties that the city and its dwellers are currently facing. The city has at least $90 million in debt, unemployment, increasing crime and violence rates, pollution, poor sewage and water systems, deficient public illumination, chaotic traffic, growing poverty rates, severe complaints about the local public health system, among other things.
Criciúma—as every other city in Brazil—wanted to develop, grow. Unfortunately, they didn’t learn soon enough the painful lesson that relying solely on one commodity or economic activity left them vulnerable to depletion of nonrenewable resources or shifts in the global market. In Criciúma, both things happened. First, coal became economically unviable as the foreign, cheaper, and higher quality coal started entering the Brazilian market. In addition, fuel oil use increased, being cheaper than coal and transported easier. Many industries that used coal made the transition to oil, to the despair of the “Criciúmenses.”
The federal government made some effort to attenuate the crisis by passing a bill that established 20 percent of all coal purchased must be national, but this may have aggravated the problem even further by masking it. For without this paternalistic measure, Criciúma might have learned earlier that all towns based on the interaction of non-renewable resources must eventually find another basis for their economy.
Failure to anticipate such left Criciúma with tons of coal residue piled up in open air. The black sulfuric acid and brimstone mounts polluted soil, water, and air with one of the highest incidences of acid rain. The river that cuts across the city, Rio Mae Luzia, became an unsuitable water supply for the city and its surroundings because of its toxicity. Green areas became rare, and, to this day, the color that best characterizes the city is a blackened gray. The coal mining activity stained not only the mining workers’ lungs, but also the trees, the streets, the buildings, the water, the air, and the city’s history for years to come.
As the 70s approached, some movement began toward the need to diversify and develop industry. Two industrial districts were developed but they were never integrated into a city global development plan and they failed to reflect the immense economic, human, and natural capital potential.
Interestingly enough, Curitiba’s vector of development was also as an industrial city, but a successful one. The industrial city was one of the most important of the Director Plan’s goals, which had been carefully thought through, discussed with the community, and, after the idea had been integrated into the city, implemented. Only then were industries brought in. It’s important to point out that the concern for the city’s natural capital was always present in the industrial project’s planning and execution.
The industry recruiting process was, according to many observers, the key to their success. They didn’t sell out the city, its air, resources, and land in order to attract industries. Instead of offering huge tax breaks or loosening up environmental and other regulations, their recruiting strategy was quite the opposite. Among other things, they enacted a series of regulations and requirements, such as stiff laws on air and water pollution and green area conservation.
“What we’ve found is that regulations attract good industries, the kind we want,” said Oswaldo Alves (Yes!, summer 1999, Bill McKibben, p. 24–28), a member of the team that turned CIC into reality—a good one. They attracted those industries in a rather interesting way, by sending letters business executives’ wives in Brazil and abroad. The letters lauded good schools, community life, safety, parks, traffic, and all the other good things the city would offer to their families. In simple terms, they used quality of life as a bait to attract the kind of industries that would enhance their environment and community values, thus bringing along with them real net benefits. And because the industries valued those elements as well, they became coresponsible to keep it that way. It was an implicit agreement between the new industries and the community and environment.
The “magic” that operated in the process was quite simple. City officials understood that responsible companies would be confident about moving to a place where community values and goals were clearly stated and where local government and business collaborated to achieve those goals. These businesses wouldn’t mind firm local rules if they were clearly stated and fairly enforced. And if they minded, they were not a good fit for Curitiba.
City officials went beyond planning well for the present. We can now see how well they thought about their city’s future. As an example, they drafted a strategy for a regional development program in order to avoid an out-of-control job-seekers influx from the surrounding cities—an eventuality that would offset the very benefits they were hoping to create for the local community.
At a time when very little was known about computers and information technology, they left room for a future software park, which is soon to be a reality—once more putting Curitiba ahead of its time. Another innovation was the fact that they didn’t confine that area to industrial ghettos, where life is defined by smoke, plants, and machines. Rather, they put in streets and services, housing and schools, parks and churches—among other things—and linked the area solidly to the bus system. In fact, “integration” is a word one hears constantly from “official” Curitiba since every policy and program, from planning to implementation stages, seeks to knit together the entire city—rich, poor, and in-between—culturally, economically, and physically.
Lerner and other leaders of Curitiba’s transformation made several commitments early on that are responsible for the success. Their commitment to use financial capital sparingly was coupled with a commitment to preserve and build the human and natural capital base. They recognized that human and natural capital could leverage small amounts of financial capital to obtain good results.
We have already mentioned the transportation system. In a similar vein, the water treatment system is another excellent example. In the 1950s and 1960s, Curitiba followed a traditional flood prevention approach spending millions of dollars on channelization projects. When Lerner came to office, he changed the strategy from fighting floods to exploiting water as a gift of habitat. They used strict laws to protect sensitive riparian zones and rebuilt the river capacity to contain flood waters. This natural flood control strategy in effect leverages the money spent on flood control. The result was increasingly effective flood control with a significant reduction in financial capital.
Curitiba has also excelled in investing in its people—or human capital. The city administration has established public libraries throughout the city where citizens can have access to information, culture, and technology. Besides connected to the Internet. The Farol do Saber, designed with lighthouse towers, became a prototype in the democratization of knowledge.
THE IMPORTANCE OF HUMAN AND NATURAL CAPITAL
Human and natural capital, though not as easily measured as financial capital, can be thought of as an inheritance of additional financial capital. The inheritance accumulates interest, and if no more than the interest is spent, the base inheritance will not diminish. If more than the interest earned is spent, the base is diminished and will earn less interest. Unless spending is reduced, the base will continue in this downward spiral resulting in less income.
Following this reasoning, a wise community will do everything it can to preserve and build both its human and natural capital base. A community may draw down the human and natural capital base occasionally and replace it later, but any continual draw is not on a sustainable course— as witnessed in Criciúma. This principle is well understood by the visionary leaders who put Curitiba on its present course and misunderstood by many economic development directors throughout the world.
Systems ecologist Howard T. Odum, mentioned at the beginning, has performed some of the most significant work in the valuation of natural capital. He observes everything of real value such as food, clothing, minerals, fuels, technology, electricity, and biodiversity “has to be produced and maintained by work processes from the environment, sometimes helped by people and sometimes not” (Environmental Accounting, Odum, 1996, Wiley, p. 6).
Odum uses his knowledge of these work processes to measure the value of natural capital in terms of the energy invested in creating a product. He calls the process energy memory, or emergy analysis. In this way, Odum measures natural capital’s objective value, independent of what market participants believe the value to be. We are free to build and develop economies, ignoring natural capital’s true value, but we are not free to escape the consequences of diminishing the natural capital base, whose value we have chosen to ignore.
Emergy analysis provides decision makers with tools for estimating the value of nature’s work and people’s work that goes into any product and to do so on the same scale. This helps planners to see and avoid hidden costs before commitment to a policy. Emergy analysis has been applied to numerous important issues faced by developing regions including deforestation, energy development, water resources and international trade (Maximum Power, Hall, 1995, University of Colorado Press, p. 218).
The fundamental difference between Curitiba and Criciúma is their perceived relationship between the three types of capital: financial, human, and natural. Criciúma has followed the more traditional economic development path, focusing primarily on the more-easily-measured financial capital and only secondarily on human and natural capital’s more subtle aspects.
Curitiba was blessed with leaders who understood natural capital’s value and had the courage and foresight to act on this understanding. Can other cities replicate what Curitiba has done? The answer is not clear. Much of what they accomplished was to create a culture of innovation, participation, and co-responsibility. Without this human capital foundation, copying programs developed in Curitiba will not lead to the same success they experienced.
However, their success shows that a city can thrive and prosper by deliberately building and maintaining a strong human and natural capital base. In addition, if decision-making tools based on emergy analysis can be put into the practicing manager’s hands, natural capital’s value will be easier to see and justify. The combination of studying a working model like Curitiba and having tools to better seethe hidden cost of strategies that diminish the human and natural capital base, will help other communities to adapt Curitiba’s development strategy to their own communities.