Lessons from Rio's 2016 Games

August 12, 2016

 
 
 
 
 
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The last week, we've been watching the Rio Olympics. It's been exciting watching Simone Biles reset the bar for what's achievable in gymnastics and our very own Michael Phelps teaching the South Africans how you're supposed to behave in public. What does the Rio Olympics tell us, though?

 

About how to manage a country and an economy. Hi, my name's Paul Carroll, the CEO and founder of Efficient Wealth Management, a boutique wealth management firm based here in The Woodlands, Texas.

There's been a bit of a debate going on. Should a developing country even be hosting the Olympics? I think that it's the wrong debate. The more interesting debate is why is Brazil still a developing country? Brazil's the fifth-largest country in terms of area and population. It's extraordinarily resource-rich. Until 2010, it was one of the fastest-growing economies in the world due to economic reforms that were sound and well thought out. In 2010, a woman named Dilma Rousseff was elected. She was elected on a populist plank, and that has not ended well for her. She is now, in 2016, facing impeachment and criminal charges, but is this about Dilma or is this really about what happens when institutions fail, when people fail to understand the fragility of the institutions and the rule of law and the sanctity of the contract?

We've learned a lot from the observations of the last six years. You just have to turn on the TV and you can see that, sadly, Brazil's a bit of a basket case economically and politically. It's one of the most violent and dangerous countries in the world. What do we learn from this sad lesson? We're learning the markets are important. Incentives and disincentives work. Trade is necessary for growth. The rule of law, contract law, criminal law, and the sanctity of contracts only have failure if the legal system is functional, and Brazil's legal system is completely dysfunctional. If you sue someone for breach of contract, you're looking at 10 years or more before the final end of the lawsuit.

Corruption destroys a country. Institutions are far more fragile than most people realize even when things are going well. Populist policies in Brazil have brought the country to its knees and to somewhat of a global embarrassment in the Rio Olympics. Regardless of whether or not we're talking right-wing or left-wing populism, populism has set Brazil back decades on the road to progress in just six short years. A more extreme example of pandering to populism can be found only in Venezuela. One really must be ideologically blindfolded to not see what a mess that country's become.

I, too, have been enjoying watching the Rio Olympics, but it's with a tinge of sadness —to see such a potentially great country really in such a mess — and it's something that we need to think about as we make our political choices and we make laws going forward. The rule of law, the sanctity of the contract, markets, trade. These things are important to your future and my future. We wish you the best of investing success. Thank you.


"More with less." The Economist. 
http://www.economist.com/news/americas/21704826-more-less. (Accessed August 12, 2016).

 

"Brazil." Wikipedia. https://en.wikipedia.org/wiki/Brazil. (Accessed August 12, 2016). 

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