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How the Megarich Soak Brazil

Mac Margolis writes about Latin America for Bloomberg View. He was a reporter for Newsweek and is the author of “The Last New World: The Conquest of the Amazon Frontier.”
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When Alex Cuadros arrived in Brazil as a young reporter in 2010, there was much to marvel. Here was Latin America's biggest underachieving nation finally shrugging off decades of torpor, ready to claim its rightful share of glory that had for so long dangled just beyond reach.

"Brazil threw away the 20th century," then-president Luiz Inacio Lula da Silva said, as he stood on a Petrobras drill ship to celebrate the discovery of a fabulous cache of deep-sea oil. "The 21st century will be Brazil's and Latin America's."

It takes a level head and a sharp eye to resist that kind of Kool-Aid. Lord knows many of us Brazil watchers didn't. Fortunately, Cuadros has both qualities, and his book, "Brazillionaires," is the result: an incisive and entertaining romp through the follies of Brazilian wealth, power and hubris.

For those familiar with Brazil's manic swings between effervescent self-confidence and national funk, much of this tale will be familiar. Cuadros retells the Brazil story by following its money. Assigned by his employer at the time, Bloomberg, to write about billionaires, he tracked the country's fortunes through its highest rollers -- especially the mega-rich who talked up individual enterprise, yet still fed at the public trough.

Cuadros follows the meteoric rise of Rio de Janeiro businessman Eike Batista from an obscure miner to the world’s eighth-richest tycoon. Then he traces his equally dazzling downfall to the status of “negative billionaire,” as Bloomberg dubbed Batista when his debts outweighed his assets.

The narrative is offered as Brazil writ small, and in the passages between Batista's drama, a whole nation emerges, crests and then crashes amid scandal.

Cuadros's acumen as a business reporter led him beyond press releases and road shows to earnings statements, stock market reports and occasionally court documents, the better to peer behind the doors of some of Latin America's fanciest corner offices.

He looks behind the headlines to find Brazil's ailment, and his search takes him to 1936. That year historian Sergio Buarque de Holanda published "The Roots of Brazil," a seminal work that turns on the notion of "the cordial man." Cordiality, in Buarque's definition, had nothing to do with Brazil's storied bonhomie. Instead, it refers to a culture of fealty and favors, in which personal relationships trumped meritocracy and the law. In this sense, cordiality was a kind of lubricant for mobility. It eased Brazilians through official hoops, to the front of the line, through side doors and straight to the plum job.

Cordiality was the building block of another of Buarque's key ideas: "patrimonialism," the unwritten rule by which Brazilians treated elected office as a fast-pass to private wealth and power.

This is the clubby arrangement upon which many Brazilian fortunes were built. Revolt against such habits sent millions of Brazilians into the streets in 2013, just as Brazil was grooming to host the World Cup, a curtain raiser to this summer's Olympic Games.

Ironically, Eike Batista had anticipated the shifting mood by proposing a new way of doing business. He talked of meritocracy, of slashing red tape and ending inefficiency. He launched his companies -- in energy, mining and shipping -- through public stock offerings, and dug into his own pocket to convince investors to open their wallets. This was something new.

Cuadros looked beneath the shiny surface, however, and found Brazil's typical "cordial" man. As Eike rose, he had no qualms about taking tax-payer subsidized loans from Brazil's huge official lender, the BNDES. He also courted friends in Brasilia, starting with President Lula and then his successor, Dilma Rousseff, who saw in Batista a national champion who would put Brazil's name in lights.

Batista was an irresistible target for journalists. A rare peacock in a country of closet moguls, he wore pink ties, flaunted his money, parked a grand Mercedes-Benz in his living room, tweeted to his million-plus followers and told Charlie Rose he was gunning to become the world's richest man.

And yet Cuadros is no more sparing of Brazil's more discreet billionaires. He even takes down Jorge Paulo Lemann, the publicity-shy merger mogul who quietly took over Budweiser, Heinz and Burger King to become Brazil's new richest man as Batista's fortunes were sinking. Although often billed as the "anti-Eike," Cuadros portrays Lemann as not averse to pulling strings and leaning on power when the opportunity arose, and scolds him for skimping on philanthropy.

Cuadros is clearly not a Brazil basher, and as the book unfolds his larger quarrel seems to be with capitalism itself and "the new rootless class of global billionaires." The "main genius" of U.S. business icons Bill Gates, Steve Jobs and Mark Zuckerberg, Cuadros writes, "was to build teams, marshal resources and mass-market the innovations of others." It's a fair criticism, but one that misses a larger point about Brazil.

Since colonial times, Brazil had a vibrant class of entrepreneurs: small operators who, deprived of official favor or finance, made their own way. Big land barons -- the mega-rich of their day -- may have marshaled slave labor and sold sugar and coffee far across the oceans, but they did not own the economy. Instead, Brazil was run by merchants and traders who bartered and sold their wares, banking on IOUs backed by little more than their good word.

Their enterprise represented 86 percent of Brazil's colonial economy in 1800. More than 200 years later, this is still the case, writes the historian Jorge Caldeira. His conclusion: Brazilian history is a story of risk takers. It still is, though they get much less media attention than the ones with flashy ties and sweetheart loans.

It’s one of the occupational hazards of journalism that an assignment can define a worldview. Through no fault of Cuadros's, his book ends one scandal too soon: the massive political corruption at the state oil company Petrobras and its remarkable effect on Brazil, which continues to unfold.

Batista is battling corruption charges of his own, including allegations of insider trading, and more recently of paying a bribe to a lawmaker. Yet, for all his loose talk and promiscuous contacts with politicians, Batista was not one of the self-described "VIP club" of contractors who conspired with political parties to bilk Petrobras out of billions of dollars. Maybe the ultimate insult to Batista was that his spectacular story has been upstaged by another.

"Brazillionaires" is a tale bookended by Brazil's Icarus-like striving and flameout. But something new is happening. For the first time in memory, representatives of Brazil's nearly untouchable class of cordial men -- multibillionaires included -- are being brought to justice in a massive corruption crackdown. Cuadros mentions this only as his story ends. Maybe that's a topic for another book.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Mac Margolis at mmargolis14@bloomberg.net

To contact the editor responsible for this story:
Susan Warren at susanwarren@bloomberg.net