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Business News/ Opinion / How World Cup economics could give Brazil a boost
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How World Cup economics could give Brazil a boost

The reforms Brazil needs require voter confidence and political capital; a World Cup victory could provide some of both

The Arena Pantanal stadium, one of the venues of the 2014 World Cup, in Cuiaba on Wednesday.April 23, 2014. Photo: ReutersPremium
The Arena Pantanal stadium, one of the venues of the 2014 World Cup, in Cuiaba on Wednesday.April 23, 2014. Photo: Reuters

For hundreds of millions of people across the planet, soccer is the sport that matters most, and the World Cup, contested every four years, is the greatest sporting event, bar none. Yes, there’s the Olympics, if you insist—but that isn’t a single contest yielding a single champion, so it doesn’t count. Let’s not bother to pretend otherwise. This is the World Cup, it starts in less than two months, and nothing else comes close.

This year’s host is Brazil, which raises an interesting question for a soccer obsessive with a sideline in economic analysis such as myself. World Cup wins are such momentous events that they’ve been known to give economies a fillip—especially when the host country wins. Brazil can plausibly claim to be the world’s most successful footballing nation, and it has a pretty good chance of winning its sixth title this year. It also has a troubled economy, capable of being lifted by another great victory— or emotionally crushed if it does badly.

Brazil’s highs and lows

Something is certainly needed to put the buzz back in the B of the BRIC nations. Brazil can’t count on the commodity-induced burst of the past decade. President Dilma Rousseff faces re-election in October and isn’t as popular as she used to be. In terms of policy, there’s a lot to do: Brazil’s businesses need to be freed up; the public sector has to stop crowding out enterprise. Private investment is sorely needed to get Brazil growing by the 4-5% a year it’s capable of—but reforms like that require voter confidence and political capital. A World Cup victory could provide some of both.

Granted, the connection between World Cup triumph and economic success isn’t, let’s say, wholly reliable. The event itself never fails to be wonderful, but the wider ramifications aren’t predictable.

I’ve visited the host country for some part of each World Cup competition since 1994, when it was held in the US, and I’ll go to Brazil this year. Among other things, it’s a moment for host countries to showcase their attractions to global investors. Such impressions can be lasting. I recall the whole of Seoul painted red for South Korea’s unexpected semifinal appearance in 2002; the mad celebrations on the Champs Elysees when France won the cup in 1998; and especially the seeming emergence of a vibrant new outward-looking Germany in 2006.

In 2002, there was plenty of talk of the economic boost the contest would give South Korea. After the fact, I didn’t see much sign of it. France’s victory in 1998 was supposed to be the harbinger of an economic resurgence. It didn’t happen. Germany has been a relative economic success since hosting the contest in 2006, but the putative cultural shift to a more international outlook, commensurate with its economic strength, didn’t happen, either. (Ask Germany’s demand-starved trading partners in the European Union how much German attitudes have changed.) There was great excitement at South Africa’s economic prospects, too, when it hosted the contest in 2010. Today, there’s probably more interest in sub-Saharan Africa as a region than in South Africa itself.

Aside from Brazil, the favourites this time are Argentina, Germany and Spain, in that order. Uruguay has a good team, too, and should do well. (It’s worth remembering that every World Cup held in Latin America has been won by a Latin American nation.) The Netherlands are a perpetual dark horse contender, and this time Belgium has a fine team as well and could spring a surprise.

Of the four main favourites, Argentina and Spain probably need a win even more than Brazil does, if longing for economic recovery is the test. Trouble is, I could see a win for Argentina backfiring in this regard: Its third World Cup title might be greeted by the country’s political elite as an opportunity to persist with the country’s unorthodox approach to policy, which has put the country back on the slippery slope of persistent economic decline. Visiting Argentina lately, you can’t help but notice how far the country has fallen, especially compared with, say, Chile. Argentina’s government doesn’t need political capital so much as a jolt to a new path.

Spain won the competition in South Africa four years ago—and therefore knows only too well that success in soccer doesn’t always herald economic revival. Yet, four years on, there are signs it’s finally emerging from its doldrums. I’m starting to think Spain’s economy might surprise investors in the next couple of years. I also have a hunch that the country’s period of pre-eminence in the sport might be coming to an end. Given the choice, I suppose the country would choose economic success over a World Cup victory, though it might need to think about it.

As I mentioned, a European team has never won the competition in Latin America, but Germany looks to be in a strong position to break that losing streak. I think they have the best chance. Maybe this time, if it happens, Germany will be spiritually enlarged by the experience—and will resolve to carry more of the burden of economic and political leadership in Europe. Once every four years, you’re allowed to dream. Bloomberg

Jim O’Neill, former chairman of Goldman Sachs Asset Management, is a Bloomberg View columnist.

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Updated: 24 Apr 2014, 03:56 PM IST
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