Price Friction
That price difference in cars is emblematic of technology prices in general. In a (to me, misguided) attempt to protect domestic industry, Brazil places stiff import tariffs on just about everything. I guess it worked for automobiles, since Fiat, VW, and Chevrolet manufacture vehicles in Brazil (although, I’m sure, with substantial overseas content). But how does that make sense for an iPad? There are no domestic manufacturers, nor are there likely to be. So you find an iPad (3G/32gig, US$729 in the U.S. Apple Store) for sale for US$1683, or a 130% markup!
Oddly enough, even with these ferocious tariffs, Apple seems to be doing nicely in Brazil. I found a store selling the 8gig iPhone 3G (not 3GS!) for US$873… and they were everywhere. We went to a dinner with eight other people, and I think six of them had iPhones.
Online, I find that import tariffs run 60% to 75% of the original value of the product. Anecdotally, I believe that China’s import tariffs average 2%.
My amateur opinion? The Brazilian tariffs are unreasonably greedy. If they cut them in half, you’d see more than a doubling of imports, and the government would make more money. Of course, I’m sure they have armies of economists in Brasilia to tell me I’m wrong. In the meantime, people cut corners and find ways around the system, which is a layer of completely non-productive friction.
(Example: two friends of ours in São Paulo found it cheaper to fly to Miami to buy a bunch of consumer electronics items — and bring them home as baggage — than to pay the domestically-inflated prices. I guess the airline appreciated their business, but it’s silly economics.)
More Friction
Friction appears to be a way of life in dealing with business and with government in Brazil. There are the obvious frictional losses of any Third World country: graft, corruption, special “fees.” Brazil has a long and sordid history of such problems. It’s a lot better now, but still shocking to an American who thinks Chicago and Washington DC are corrupt. Pure as the driven snow by comparison.
But there are more subtle sources of friction. You need documents and permits and papers for everything… yes, the United States is headed this way, but Brazil got there decades ago. We found one enormous building (an entire city block) in downtown São Paulo which is just for citizens to regularize their various documents. Cissa had to update her tax ID. She got run around from office to office, and finally instructed to pay a particular fee (less than five dollars), then to then come back two days later to the same window!
In both São Paulo and Brasilia, we saw hundreds of people sitting and waiting for their numbers to be called. This is a not-so-subtle tax — taking the time and energy of the population, and converting it into government jobs for the tyrannical clerks.
A friend said it takes over thirty days to form a corporation… something you can do online in minutes in the United States. Again, this is a drag on creativity and productivity. And you can’t just skip steps and come back to fix it later. “What is not explicitly permitted is forbidden”… and people act that way.
Government is the worst offender, but business interests have their own friction. I’ve set up lots of contracts in the United States, for anything from personal services to corporate mergers. My underlying mindset is always that both parties want a successful outcome, but you have to put in certain protections in case something goes wrong.
Friends tell me that, when preparing contracts in Brazil, the assumption is that the other party will explicitly try to take advantage of you, and an antagonistic attitude underlies every clause and every comma. That’s anecdotal but, if true, that’s another source of friction that doesn’t add anything productive to the economy.
