The giant factory town that might be a giant mistake

So city and state governments are stepping in.

“We think we are standing what can be the future of energy and Denver.”

On the Sunday Story, climate solutions on the local level. Listen now on the Up First Podcasts on the MPR app. A couple hundred years ago, some countries suddenly got rich quick.

They started growing at rates never before seen in history.

Countries like England, Germany, the United States. What these countries had in common were smoke stacks. Were steam engines and factories. They had all industrialized. And for a long time, a lot of other countries thought,

"Okay, that is how you get rich. There's the blueprint." Some of them went to two extraordinary lengths to follow that blueprint.

“A couple of months ago, plant money producer, Luis Guy O'Neigh, went to get a better look”

at what one of those countries tried. We started down a dark jungle path. Do you like snakes? I don't love them, but I don't love them either. I like dogs.

There were no dogs in the rainforest, but our destination was a big steel observation tower. And after climbing 10 flights of stairs, we reached the top. Where we saw rainforest stretching all the way to the horizon. Except, I hear it, I hear buses, just to the south, through the streets.

There was this right line running through the jungle. So on one side, we have the vast Amazon forest. And then on the other side, it's a bustling with populist. Everything turned into squares and right angles and dark roads and white concrete highrises.

We were looking at the city of Menouse, one of the biggest cities in Brazil, over two million

people live here. That is like San Francisco, Seattle, and Boston combined. The city is a manufacturing powerhouse, nearly every TV that is sold in Brazil. Every microwave, every motorcycle is built right here, right in the middle of the Amazon rainforest.

And that is because 60 years ago, the military dictators of Brazil embarked on an ambitious economic experiment to get Menouse to grow as quickly as possible at nearly any cost. It was part of a bigger plan to get Brazil to grow as quickly as possible. By following that blueprint by industrializing and for a long time, this worked until it didn't. Hello and welcome to Planet Money, I'm Jeff Guao.

Once upon a time, many economists believe that poor countries could very quickly catch up to rich countries simply by following in their footsteps by building schools and roads and factories, lots and lots of factories. Nowadays, economists are a lot less optimistic, and if you ask them why, a lot of them will point to Brazil.

“Today on the show, how do poor countries become rich countries?”

And what went wrong with that original blueprint? On NPR's wildcard podcast, musician Noah Kahn says he's learned to live with depression. I think depression anxiety gives you sneaky superpowers in a lot of ways like the power of understanding and attempted sympathizing, being able to talk about my flaws, about having to be like this terrible taboo thing.

Watch or listen to that wildcard conversation on the NPR app or on YouTube at NPR wildcard. When you first get to Menouse, the city looks like an economic success store. There's the old town center with cobblestone streets from when this was a big rubber town. Now they're stores selling cell phones and soccer cleats. 80% discount, the outlet.

There are high-rise office buildings and gated communities. And then you cross the little bridge and all of a sudden you are in the industrial zone. There are rows of corrugated tin workshops, shipping containers, stacked behind barbed wire, smells like fried fish and diesel. Hundreds of companies from all of the world have set up factories here.

Our Uber driver Claudio told us he's always driving foreigners around.

Some of the companies have set up these huge walled campuses here. There's also Honda, the MW, World Pool, Yamaha, Boxcon.

and computer monitors.

“The story of how all this arrived in the Amazon goes back to the 1960s.”

When Brazil's military dictatorship was following what most countries thought was the blueprint for

getting rich industrialization, manufacturing. And they wanted to bring manufacturing to the Amazon as well. So in 1967 they turned menouse into this special economic zone where companies could get a lot of tax breaks. It's called the Free Zone, the Zona Franca of Menouse. The Zona Franca is run by this government agency.

Their headquarters are in a swooping concrete, modernist building at the edge of town. And the lobby there is a wall with 27 framed portraits showing every past head of the Zona Franca. Including the one we were about to meet. Basco Surviva talked to us in his office with his colleague interpreting.

“Told us he actually grew up in Menouse. He watched all the factories coming.”

Got some of his first jobs in those factories.

What kind of products were you making? That's the product of the company. Basco said all those factories came to Menouse for one big reason. The tax breaks, those tax incentives for the Free Zone. They brought thousands and thousands of new opportunities to Menouse.

Over the next decade, the population doubled. From the point of view of the residents, the Zona Franca has been a huge success. It took a fading rubber town in one of the poorest parts of Brazil and gave it a whole new economy.

And Basco is like the number one hype man for the Zona Franca.

It changed his life. It changed his family's life. And he's seen it change so many other people's lives. I don't know. It's all in color. Feliz. Feliz, I'm a part of me. My vision of the Fanaca N'Acei can be worked on. He's so happy to be a part of it because he saw the Menouse returns on like born to get started.

And now he leads it. For certain, the experience and certainty of development is what has happened. And Menouse was just one example of Brazil's original mission at the time, which was to use the power of the government to follow that blueprint to quickly kickstart industrialization and economic development.

This approach has a name, a communist call it developmentalism. Back in the '60s and '70s, other countries with authoritarian governments were trying this too, like South Korea and Singapore and Taiwan. They were like, bam, we're going to put a school here. Bam, we're going to put some roads there. Bam, bam, bam, bam, bam, bam, bam, bam, bam.

We're going to put a bunch of factories here there and everywhere. And the dream was that those factories that came for the tax breaks would stick around. And eventually, start to level up to make more advanced products. So eventually, they wouldn't need so many tax breaks. But in Menouse, that hasn't quite happened.

Bosco told us that, still today, the companies in Menouse depend heavily on government subsidies,

“the tax breaks, without the incentives, what would happen to Menouse?”

Say you didn't think you was looking at the city. Manga, call it now. Call it to delay, call it to delay. Well, we would be broken. And one way to understand why Menouse still can't live without its subsidies is to look at what comes into the city versus what goes out.

Because what you want for economic growth is for the factories to import low-tech components, and turn them into high-tech components. After our meeting with Bosco, we headed to the port to look at the reality. When we got their security, we saw this huge floating pier with more than a dozen red and orange cranes. The guy in charge of all of this is Johnny Fidelis Santos.

they were standing in his office, looking at hundreds of shipping containers stacked in the yard.

“Yeah, these high-tech electronic components, they get unloaded here in the terminal,”

and whisked to the local factories in Menouse in the zone of Franca. Where the workers are mostly just assembling all this stuff. Assembling them into TVs and air conditioners and notebook computers. So on the surface, Menouse is a tremendous economic success story. It's what a lot of countries dream of, a magnet for foreign investment, a manufacturing hub filled with high-tech companies,

creating jobs for hundreds of thousands of workers. But underneath all of that,

a lot of the manufacturing is not actually very advanced or globally competitive.

Now in recent decades, the government has been trying to upgrade the factories here. Basko's agency has negotiated these complicated deals, where if companies want to qualify for the tax breaks, they have to do some of the higher-tech work here in Brazil. Take TVs, for instance. These days in the zone of Franca, workers are soldering components onto circuit boards. They are making the power supplies. But when we went to see these TVs on the shelves of the department stores,

“I want to say the TVs are the TVs. Even the sales people knew that the most important components,”

the actual fancy OLED or LCD panels. Those are from somewhere else. Those are mostly coming over on the container ships from Asia. He says they are assembled here to be sold in Brazil, in the US. So despite all the government's efforts, the factories in Menouse, they've had a hard time leveling up and creating better jobs. And you could say, maybe this is just a Menouse problem, that it's not a good idea to try to manufacture stuff in

the Amazon. But this problem is not isolated to Menouse. It's happening all over Brazil. Starting in the 1980s, Brazil's strategy of rapid industrialization kind of hit a wall. Brazil went from one of the fastest growing countries in the world to one of the slowest. And you could also say that maybe this is just a Brazil problem. But in fact, a lot of countries

“that rapidly grew and industrialized in recent decades. Countries that achieved what the World Bank”

calls middle-income status. They have also found that their economies just aren't growing like they used to. These middle-income countries seem stuck. The name for this phenomenon is the middle-income trap. It was coined by two economists at the World Bank. One of them was Homi Karras. Even though neither of us are golfers, we kind of thought of the middle-income trap as a with a golfing analogy. Oh, which is in trap. There are these sand traps. And if you're not a very good golfer

and you go into one of these sand traps, it takes you a lot of time to actually get your way out Yeah, it could be pretty hard. Homi, who now works at the Brookings Institution, the Think Tank in DC, has basically spent his entire career studying, if and when and how poor countries can become richer. Well, I come originally from a developing

country, so that would always be one of my interests. Homi was born in Pakistan. And by the time

he got to grad school at Harvard in the 1970s, economists were talking about this kind of utopian sounding idea. It was a theory called Convergence, which said that in the long run, if they made the right decisions, poor parts of the world should be able to catch up to the richer parts of the world, or at least get pretty close because there's a blueprint in front of you. Yeah, step one, build roads and schools and infrastructure. Step two, industrialize, you know,

get workers out of the fields and into factories where they would start out by making simple stuff. Like t-shirts, the essence of the low-income country strategy is to take advantage of low wages. By having low wages, you can be very competitive. And from there, once you've built up that manufacturing base, steps three, four, five, eleven, twenty-two, is you start upgrading those factories. Teaching workers more and more advanced skills. The economy grows, people start earning more money,

and you know, like this was the blueprint for countries. And then as they developed even further, they would move into services like banking and finance and insurance. Because as an economy gets richer, more people need those things. The United States and the UK and Germany all follow this path, where more and more people went from farms to factories to eventually where some were enjoying,

had managed to accomplish just those first couple steps. They built a manufacturing base.

That got them from low-income to what the World Bank calls middle-income, which is based on per capita national income. And in the late 80s and 90s, some of those middle-income countries broke through again. South Korea and Singapore and Taiwan officially became high-income countries. Some people called it the Asian miracle. But homie, he writes this paper. That's like um, countries like South Korea might actually be the exception to all of this. Not the rule.

There have been lots of countries that thought this is going to be their century and that they've had a history of decades of rapid economic growth that they thought would automatically translate into decades of future economic growth. But history teaches us otherwise. So you kind of, you know, just kind of a wet blanket, it sounds like. I was a bit of a wet blanket. And this wet blanket idea, the middle-income trap,

it has now become a big deal in economics. Homies co-author is actually now the chief economist at the World Bank now. And a couple years ago, the World Bank published this big,

“important report all about the middle-income trap. Literally, the title was the middle-income”

trap. And the basic gist of it is that this blueprint for going from poor to rich seems to have a big

whole right in the middle. Most economists now pretty much agree on those first couple of steps,

you know, to get countries from low to middle-income. What I would call get the basics right. That doesn't really well for a pretty long period of time. They also agree on how rich countries like the US are supposed to grow. It's through inventing stuff developing new technologies. Once you're high income, there's close to one path again to continue to push the frontier. And that path is called innovation. But for middle-income countries, there doesn't seem to be just one path.

Like South Korea went big on heavy industry and high-tech electronics, like microchips. In Poland, the economy got a big boost from joining the EU. You got a lot of investment from Western Europe and became a manufacturing hub for a lot of European supply chains. Homey says, "Middle-income countries are caught in this weird situation, where there are actually a lot of different ways to grow your economy. But you don't know which is going to be a good fit for you."

I guess it's like, what sport do you want to play? Yeah. Are you going to be a good volleyball or soccer? Yeah. Basketball? Yeah. You're unlikely to innovate the frontier, because you don't have the, let's say, the quality of universities and other kinds of things. And you can't compete in garments because you've got Bangladesh. You don't want to have low wages because the whole idea is, how do we raise wages?

“So that if people are better off? So you need to move to a different strategy.”

And what is that strategy? That's to be figured out. After the break, how does a country find its way without a blueprint? This week on Swerses and Methods, every White House has an official counterterrorism plan of strategy document, basically, but President Trump's new 2026 plan shifts focus to left-wing extremism. We're unpacking what's in the document and who influenced it this week on Swerses and Methods.

You can listen on the NPR app or wherever you get your podcasts. As a kid growing up in Brazil in the 90s,

Lyra Felix remembers this phrase that she would always hear people say.

"Brazil is the country of the future." That's always saying, "Oh, by each of the future." It's something people in Brazil have been saying for a long time, for decades and decades. "There are songs, Brazil, "by each of the future." Because it seems like we have it all, man. And of course, it becomes the joke because the future never comes." Growing up, Myara did not have it all, far from it. She was raised in a poor community in

Northeast Brazil. There was lots of chickens on the streets. I remember a very vivid afternoon.

“My sister and I are in our living room just like I think watching TV and then the neighbors”

gigantic big runs in front of us. And this is like a surreal moment." Myara says as a kid, she didn't really know she was poor. Until you get to go on the bus to the city next door and then realize that the streets are paved and there's buildings and things like that. But there was a path for her to follow to get her out of that poor neighborhood. She did well on her tests, got selected for a special public school farther from home.

where she teaches about the different paths that developing countries have followed.

And why some of those paths might not work anymore for countries like Brazil.

“I think the remarkable successes we can count in our fingers. It's Singapore, China,”

South Korea, Taiwan. That's it, man. Myara says what those countries did that worked was to manufacture stuff for wealthier countries. We experienced post-war war to this remarkable opportunity for developing countries to grow, buy, accessing rich people, demand from rich people in rich countries. And East Asia has been able to really do this brilliantly. But somehow Latin America, Africa, didn't quite manage to do that.

And okay, there are all these different theories and explanations for why a country like Brazil

couldn't quite make that path work. For one, Brazil is a tough place to do business. There's tons of government bureaucracy. The country is still struggling with a lot of crime and corruption in political turmoil, with the legacy of colonialism and slavery. Especially in countries with history like ours in Brazil and Latin America where there's so much baggage that we carry. I don't think we can ignore that baggage.

Also in Brazil, you had factories that mostly focused on making stuff for Brazilians, you know, like in Manauce, where the government used big tariffs to protect companies from competition, whereas in places like South Korea, the government really pressured companies to export, forcing them to compete in the global marketplace. But Myara says at this point studying what countries like South Korea did in the past, that will only get you so far.

Because of course, the world is a lot different now, especially when it comes to manufacturing. These days, a lot of economists aren't so sure about where manufacturing fits into the blueprint anymore. Manufacturing technology looks a lot different than it used to. It's higher tech and fewer people. And also, there's just a lot more competition now. It's very hard to compete on anything manufacturing with China. It's very hard nowadays. Like the global competitive world is very

“very intense. And so you need to play to your advantages. In fact, in recent years, Brazil and”

many middle-income countries around the world have gone from industrializing to de-industrializing. Before they really got a chance to get rich, some economists call this premature de-industrialization. Companies are closing down factories because they can't figure out a way to compete. But Myara says that doesn't mean that all hope is lost. Just means that countries like Brazil,

they need to find something else for people to do. The key thing is, are you doing something

more productive? And that doesn't necessarily have to be manufacturing sectors? Can we accomplish this with anything other than manufacturing? Yeah. Like in Brazil, factory workers there are less productive than they were five years ago. But Myara says there are places where the Brazilian economy has been getting more productive. One of those bright spots where Brazil is leading the world in productivity is actually agriculture. Just a more advanced kind of agriculture.

No one expected in the 80s. The Brazil would have become the world's biggest soy producer, orange producer, coffee producer. And we say that all these are just commodities, man. Like,

“I think we need to update what our understanding of technology and agriculture is.”

Yeah. In recent decades, farmers in Brazil have invested hundreds of millions of dollars researching how to grow more food on the same amount of land and make farming more sustainable. The research it takes to actually adapt seeds, adapt varieties to Brazil's, you know, local environment. All of that is like really sophisticated things. Another potential bright spot, Myara says, might be the beauty industry. Brazil has one of the biggest markets in the world for

beauty products and cosmetic surgery. There is intense competition. And that competition has driven Brazilian companies to develop, you know, new types of skincare, even new types of liposuction. And you know, even in-menouse, we ended up finding people experimenting with what might be the next big industry, it's actually in a surprising place. We were at this local company that made injection molded plastic parts. They were called 2T-plasts. When we walked through the plant,

there were rows and rows of these big white pods with Chinese lettering on it. It's like a robot arm that goes in and like takes out the finished piece. And I have to say this was kind of depressing. Watching these mostly automated machines pump out cheap plastic motorcycle bumpers and air ducts. But then, our tour guide Gabrielle Santos told us,

How many PhD material scientists work here?

“I mean, I only have PhD in the fabricate.”

Oh, so when you get to think of it, it doesn't matter. She said, "Yeah, this is actually a new direction the company is going in." Gabrielle is from and out, and she told us her team's big project is to figure out how to take

nut shells and turn them into biodegradable plastics. She showed us one of her prototypes.

So, is this made with Brazil nuts? Yes. Really?

“Yes. Made from Brazil nuts. Well, the Brazil nut shell. Yes. Wow, we can get a sound of that.”

It feels like plastic. It seems like normal plastic, but I can't eat it. And okay, they haven't perfected this plastic yet, but this is what economists

like my yara and homie are talking about. This is something that is unique to Brazil.

Something that the South Korea's and China's of the world don't yet have. Brazil, and, and now specifically, might one day, I don't know, dominate the market of

“biodegradable plastics made from plant trash from the Amazon. And then, maybe Gabrielle's”

bosses at 2D-plast will hire more PhDs. And so on and so forth. This is how an economy might eventually grow out of the middle income trap. Through thousands and thousands of little examples like this. Guess what? We have a new newsletter. It's from our sister's show The Indicator, and just like The Indicator, it is short, it is sweet, it is to the point, it's smart, it's filled with links to the big economic stories of the day plus our commentary on why they matter. In my favorite part,

there's a listener mail bag section where we get to read the emails that you send us and answer your questions. You can sign up at npr.org/indicatornewsledger. This episode of Planet Money was produced by James Sneed and Luis Gio, who is edited by Mary Ann McCune, fact checked by Sierra Vades, with some translation help from Sarah Robbins, who is engineered by Robert Rodriguez and Jimmy Keely. Outskilled Mark is our executive producer. A very, very special thanks to

Caricon and Valde Margio from NPR's Rio Bureau, and also to Otaviano Canudo and Dennis Manif. I'm Jeff Woe. This isn't PR. Thanks for listening. Hi, it's Mary the Wies Kelly. My podcast sources and methods is one of the top-rated national security shows on Apple, average rating 4.9 out of 5. We're one of the best for a reason. Correspondence around the world, veteran journalists, trusted analysis, and on the ground

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