Residents of the Brazilian city of Porto Alegre call the governor's palace 'Little Versailles,' and it is easy to see why. The entry hall to this Roman-columned building features crystal chandeliers, a 40-foot-high ceiling and gold-leafed Beaux Arts chairs and sofas.
The resident of Little Versailles looks completely out of place amid the opulence. Olivio Dutra is the 59-year-old governor of Rio Grande do Sul. Dutra, who calls himself a 'Marxist Christian,' belongs to the radical fringe of the leftist Workers' Party. This son of itinerant farmworkers named his son Espartaco after the escaped Roman slave Spartacus, who was crucified for leading a rebellion. 'I see people as the driving force of history, not as the pawns of history and not as marketplace goods,' he said, during an interview in his office.
Ironically, this 'Marxist Christian' will be an honored dignitary in Gravatai this month when General Motors dedicates its new 'Blue Macaw' assembly plant. Dutra, who opposes subsidies for multinational corporations, wanted to trim deals his predecessor made with General Motors and Ford. Yet GM's Latin American head, Dick Nerod, cultivated Dutra and kept the deal largely intact. Nerod's counterpart, Ford Motor Co.'s Martin Inglis, balked - and moved 'Project Amazon' elsewhere.
The story of Olivio Dutra is a textbook case of the political perils of economic development. Brazilian states engaged in a frantic bidding war when automakers sought locations for assembly plants. In both the United States and Western Europe, local governments typically bid against each other. And when the stakes are this high, deals sometimes fall apart.
It is no mystery why Ford and GM decided to build plants in Rio Grande do Sul. The region offered a skilled labor force, modest wages, a fast-growing industrial sector, good ports and proximity to Argentina, a major market. Perhaps most important, Governor Antonio Britto offered generous subsidies to automakers. But Rio Grande do Sul was a stronghold of the leftist Workers' Party, which had emerged as Brazil's major opposition party.
As one of the founders of the Workers' Party in 1979, Dutra was a follower of Luiz Inacio Lula da Silva - called Lula - a charismatic former lathe operator. The party developed a reputation for honesty in a corrupt political system. And Dutra fit the mold. Although he had been elected mayor of Porto Alegre in 1988, he had not used his political office to enrich himself.
After two unsuccessful runs for the governorship, he finally won in 1998. Dutra quickly found that he had no money to fund his priorities: health care and education. Fully 81 percent of the state's revenues was needed to pay the salaries of civil servants. But public employees supported the Workers Party, so he was reluctant to lay off state workers. Moreover, Dutra believed state subsidies should flow to small businesses, not international corporations. General Motors' Blue Macaw plant was already mostly complete, so that left Ford, which had not built its own assembly plant.
Sitting in his office with a reporter, Dutra states his case for trimming subsidies. Speaking in a formal, controlled manner, he says his predecessor made deals with the car companies that the state could not afford. 'If I'd agreed to continue heavily financing Ford, I would have been left with almost nothing to finance small and medium-sized industries, which generate far more jobs,' Dutra said. During a recent downturn of the region's leather and footwear industry, 32,000 workers lost their jobs. Government subsidies might have saved some of those jobs, Dutra said.
But Renan Proenca, president of the Federation of Industries of Rio Grande do Sul, said Dutra ignored the supplier jobs that the automakers would attract to the area. For example, GM and its suppliers estimate they will employ 3,000 workers. The Britto government had estimated that the project would generate an additional 4,500 indirect jobs. 'Instead of putting value on all these indirect jobs,' said Proenca, 'Dutra simply viewed the subsidies to Ford and GM in political terms, as being against his principles.'
Shortly after taking office in January of 1999, Dutra told both automakers that they would have to renegotiate their deals. He also made a string of speeches across the state, advocating 'no money for those who don't need it.' These speeches limited Dutra's freedom to compromise, and they attracted the attention of other states, which saw a chance to attract Ford.
'Dutra's politicizing the issue not only created a difficult negotiating climate, but also allowed other states to politically interfere in those negotiations by offering Ford a better deal,' said Glauco Arbix, an auto industry expert who is writing a book on the incentives that Brazilian states have offered automakers. Arbix is a professor of sociology at the University of Sao Paulo.
Because GM's plant was well under way, Dutra had little room to negotiate big subsidy cuts. The state had given much of its aid to GM, which already had spent the money. On the other hand, GM could not walk away from the project because it was nearly finished.
So the automaker began to cultivate Dutra's support. They gave him a tour of the plant and emphasized the jobs it would create. Four months after Dutra took office, GM agreed to pay back $34 million, provided Dutra used it to complete infrastructure at the plant. This refund was a minor concession, Arbix noted. 'Because GM had gotten all its up-front financing from Britto, it wasn't much different from the original deal Britto cut with GM. It didn't save the state a lot of money. It was simply a way for GM to avoid a lot of negative publicity and a way for Dutra to save face.'
Perhaps this is why GM do Brasil Vice President Jose Carlos Pinheiro Neto graciously described Dutra as 'serious and professional' in those negotiations and someone 'we feel we can work with.'
Ford was a different story. Dutra wanted to make major cuts in Ford's subsidy. But Ford had not begun construction, so it had more room to maneuver. Dutra claims he offered Ford an attractive deal, and that Ford did not try to negotiate. In a move that surprised Dutra, Ford rejected the deal. The automaker announced it would set up its plant in Bahia, which had been courting the carmaker.
A company spokesman declined to comment on its blowup with Dutra. However, an informed source contradicts Dutra's assertion that Ford had ever received a counterproposal. Ford was left for several months, wondering if the Dutra administration would honor the agreement, the source asserted. In repeated meetings, Dutra and his aides lectured Ford officials, the source said, while neither accepting the agreement nor offering an alternative.
Finally, Ford asked for an answer, saying the project was sliding behind schedule. After getting another lecture, the automaker withdrew. Ford probably would have considered making minor concessions similar to GM's, the source said. Despite the company's public posture that it has not been hurt by moving to Bahia, 'it was a real pain in the neck. It cost time and money.'
The subsidy offered by Dutra's predecessor was comparable to deals offered elsewhere in Brazil and in other nations. It was 'only part of the package,' but Ford needed to get the same breaks as its competitors. 'If you're going to be competitive, you need to match your competitors.' The idea that there was a bidding war was 'overplayed completely,' the source said.
Maybe, but Bahia's offer was generous. The rural state had relatively little industrial activity, but it had managed to convince Hyundai to build a plant in the region. Hyundai eventually backed out, leaving behind a site with roads and sewers. The site was ready for Ford. Moreover, Bahia received crucial support from Brazilian President Fernando Henrique Cardoso - Dutra's political enemy. Though Bahia offered Ford highly favorable financing, the federal government sealed the deal. With Cardoso's blessing, the government offered federal tax exemptions, something no other carmaker here has ever been given.
No more diatribes
Since Ford's flight, Dutra has ended his diatribes against big business. And he does not oppose other foreign carmakers coming to his state, he says, 'as long as their coming represents the least cost possible for public coffers.' He now says subsidies might make sense in some cases.
Such a posture shows that Dutra has matured since taking office, said Proenca of the manufacturers' association. 'If Dutra had to renegotiate a contract with Ford now, he'd do so in a less adamant, more flexible manner. He has learned that governing means having to make compromises. That doesn't mean he's become very pro-business. It means that he's become more subtle in how he deals with business.'
Dutra has paid a price for losing the Ford plant. While he remains moderately popular, a pro-Dutra candidate lost to a moderate opponent in a recent local election. But Dutra says he does not regret his stand. 'I have no regrets that Ford moved elsewhere,' he said. 'We did everything we could to get Ford to stay here. Ford simply refused to recognize the new government and its financial problems.'
You can e-mail correspondent Michael Kepp at [email protected]