Motivation and performance - what behavioural scientists say

about theories of motivation and to get an intellectual sense of what they mean.

It is quite another to see how such theories can be applied in practice by managers and supervisors. So let us not only look at the spotlessly clean intellectual walls of the behavioural psychologists but also at how their ideas can be applied in.

Motivation and Commitment

Motivation is about what makes people tick, what makes people act or behave in particular way. On a basic level, people are motivated towards a desired outcome, such as congratulations from their manager for a job well done, or are motivated to avoid an undesired outcome, such as a rollicking from the boss for work being late.

We are not machines.

Our motives for behaving the way we do are many and varied. Whether you stay behind at work to finish a report for your manager will depend on a whole complex of variables:  your predication as to what will happen if you don’t finish the report today; what your mental state is at the time-exhausted or fired with enthusiasm; what arrangements have you made at home for being late, and so on and so on.

Many times a day, consciously or unconsciously, we are making decisions-calculations-as to where to invest our energy.  Some of the factors which affect this calculation lie outside the individual – they are extrinsic. In the above example, where you need to stay back at work to finish a report for your manager, the extrinsic factors are, the pressure from the manager to finish the report, and the arrangements you have made at home. Other factors lie within the individual –they are intrinsic –such as how you feel about the pressure from your manager and the arrangement you have made at home, and how you view   yourself as an employee and as a family member.

Of course, extrinsic and intrinsic factors are not clearly separated from one another there is a complex interplay between them.

The important point is that extrinsic factors affect the way people feel about themselves. How an individual reacts to his or her manager will be in part a function of the trust and mutual respect built up between them.

As a manager, you have some control over the extrinsic factors which affect your employees. Over time, these will influence the way your employees’ respond to you. Your history of communication with them and resultant actions taken will contribute to their commitment, or otherwise, towards you. In their calculations-taken consciously or unconsciously many times a day – they will err on your side or not, at least partly as a result of how they have been treated by you in the past.

Since most of us in the business of generating commitment – of getting people opt in rather than opt out when they do their calculations – we need to begin to understand motivation and the factors affecting it. Let’s see what the psychologists and management theorists have to say.

The ideas of Abraham Maslow, a humanistic psychologist, have had a considerable influence on management thinking since the late 1940s. Like Carl Rogers, another humanistic thinker, Maslow had a positive view of human nature, a belief in the individual’s potential for personal growth –what they called self-actualisation.

One of Mallow’s great contributions was his Hierarchy of Needs, which sees people as having a set of needs which they are motivated to satisfy. These form a hierarchy which can be displayed visually as a pyramid.

Maslow suggested that needs only motivate people when they are unsatisfied.  When applied to his hierarchy lower-order needs (basic physical needs, comfort, safety and security) have to be satisfied before higher-order needs (self-esteem and personal growth) assert themselves.

How does this apply in practice?  If your stomach is protesting loudly that you need food, then you are likely to find reading this article a real struggle. Your lower-order physiological needs are asserting themselves. If you are hungry, your needs for self-development temporarily takes a back seat.

OK, but how does this apply to your workplace?  If you make sure your workforce is getting its basic physical and safety needs met (reasonable working conditions, job security, etc.) what will this mean?

Will this mean that employees will now be ready and willing to work with colleagues to meet corporate objectives? Clearly, life is not as simple as this.  Applying Maslow’s Model, employees are likely to work towards company goals only where these are in harmony with their own personal goals. 

Also, following the hierarchy to its logical conclusion, once a certain set of needs are met, the next level will be achieved. Employees will never be satisfied until they have scaled the heights of the hierarchy.

Various researchers have followed up on Maslow’s ideas as they apply in the workplace. Fred Herzberg’s two-factor theory is based on looking at the main factors which result in either satisfying or dissatisfying experiences at work. The assumption is that if the individual is satisfied in their work, that this will mean good performance, or, at the very least, a willingness to stay on the job.

Factors leading to dissatisfaction were found to do with conditions pf work – company policy and administration, technical supervision, salary, interpersonal relations and physical working conditions. Herzberg called these the hygiene or maintenance factors. These are a necessary minimum for a healthy workplace – they make people come into work and stay there, but they don’t necessarily encourage people to be productive.  It is the other factors, the ‘satisfiers’ or ‘motivators’ – achievement, recognition, the work itself, responsibility, advancement – that encourage people to work harder.  Interpreted in Maslow’s terms, hygiene factors allow us to satisfy our basic needs and avoid pain, while motivators reflect people’s need for esteem and self-fulfillment.

The link between motivation and performance seem to be an obvious one. If individuals are highly motivated, they ill perform better.  In turn, better performance may well lead to a sense of achievement and result in greater motivation.

Thus the relationship between motivation and performance cab be a mutually reinforcing one.

This, however, begs a number of questions to do with perception, ability and stress.

Yes, motivated individuals may do more work, but this will need to be carefully managed if they aren’t going to spend most of their energy on aspects of work they find stimulating, which may be of little or no benefit to the company.

Yes, motivated employees may be more productive, provided they have the requisite skills to do the job and the perception to realize whether they have or not.  It is just as important to take steps to improve ability by means of good selection and training as it is to pay attention to motivation.

Lastly, motivation implies pressure – to move forward, to do more- but too much pressure, in other words too much stress, can be harmful in both the short and the long term. Of course, the answer is balance. In the short-term, we need sufficient pressure to concentrate well and do the job quickly and efficiently, but not so much that panic starts to intrude an concentration becomes difficult. In the medium to long term, we must avoid working to exhaustion.

Accounting Principles: Income Statement & Balance Sheet

Basic Financial Statements
The basic financial statements include the balance sheet (B/S), the income
statement (I/S) and the statement of cash flows (SofF).

Balance Sheet
The B/S contains information expressed at a moment in time about resources
(assets) that are owned or controlled by the firm. Assets have probable future
economic value usually through use or sale, are controlled by the firm and are
related to a prior transaction. The B/S also contains information about the
firm’s obligations (liabilities). Liabilities involve probable future economic
sacrifices, are unavoidable and are related to a prior transaction. The last part
of the B/S is owners’ equity representing the aggregate investment by owners.
Owners’ equity is often called ‘net assets’ because it equals assets less
liabilities.

The basic accounting equation is Assets = Liabilities + Owners’ Equity
The ‘asset’ side of the equation provides information about the assets controlled
by the entity. The ‘liability’ portion of the equation primarily represents
external claims on the resources of the entity. Owners’ equity represents the
internal claims of the owners on the resources of the entity.
The basic accounting equation could be rewritten as Assets – Liabilities = Owners’ Equity.
This makes it clear that owners’ equity and ‘net assets’ are the same.

Income Statement
The income statement (I/S) basically contains information about revenues,
expenses and net income as that information has been accumulated for a
stated period of time. Net income occurs when revenues exceed expenses. A
net loss occurs when expenses exceed revenues.
Revenues generally must be earned. Revenues are ‘good’ things. If I could
show you how to increase your revenues, you would likely be eager to learn how
to accomplish this ☺. Later, I will refine this basic definition of revenues.
Expenses typically result from using up resources in the process of earning
revenues. If I could show you how to reduce your expenses, you would likely be
eager to learn more about what might be involved ☺. Later, I will refine this
basic definition of expenses.
Net income is what remains of the revenues after covering the expenses. Net
income is a ‘good’ thing and generally more is better than less. Would you
rather have more or less income, if all other things were equal? [You knew the
answer to that question at a ‘tender’ age.☺]

Statement of Cash Flows
The statement of cash flows (SofF) provides information about the firm’s cash
flows from three basic sources: operating, investing and financing activities.
Sof$F information is prepared on a different basis than the I/S and the B/S,
and often provides savvy financial statement users with a convenient summary
of the cash flow activity.

Who Are Financial Statement Users?

There are many groups using financial statements [FS]. All FS users are
assumed to be aware of accounting principles used to prepare FS. Just as with
so many areas in our lives, without an adequate grasp of the area we cannot
absorb our desired meaning of the information being communicated to us. For
example, assume any FS user makes a decision based on information contained
in a set of FS and the decision turns out to be wrong because the decisionmaker
misunderstood the FS. The FS user has no excuse because he/she did
not understand information that was properly reported. If the FS were not
properly prepared and were audited by an accounting firm, there may be some
legal recourse available to the user for losses traceable to the misstatement(s) in
the FS and/or the accounting firm’s failure to follow the standards of the
accounting (auditing) profession.
How many of you want to obtain a position after graduation from which you will
be promoted at least once? Upwardly mobile managers must have sufficient
accounting skills to cause proper FS to be prepared. As importantly, managers
need accounting skills to understand information contained in the FS prepared
by firms with which they do business.
Representative user groups include: lenders, investors, potential investors,
managers, employees, labor unions, customers, suppliers, competitors and
governments. User groups must identify good ways to extract valuable
information from the general-purpose FS.

Why Do We Need Accounting Standards (Rules)?

Can you imagine how entertaining football would be if each referee made up his
own rules for the game? Maybe you think that would be entertaining, but the
football teams would find it irritating. In the previous century there was a
movement toward the development of a standardized set of accounting rules
referred to as generally accepted accounting principles [GAAP]. Entities are
free to choose specific accounting methods from GAAP. Users must have some
basic knowledge of GAAP in order to understand what is meant by information
in published FS.

Within GAAP there is a continuing trend limiting the range of acceptable
choices. Originally, the range of choice was broader than at the present time.
Another trend emerged in the last two decades, reporting or disclosing fair
market value information in the FS. The movement toward fair market value
information has numerous supporters in high places and will probably
continue. Historic cost data tends to be highly reliable but lacking the
relevance of current but estimated market values. The tradeoff between
elements of relevance and reliability will continue to ‘bug’ the accounting
profession. Two important topics in this course have undergone significant
changes in recent years.
The Financial Accounting Standards Board [FASB] has been the senior private
sector accounting rule-setting body since the 1970’s. Most pronouncements
involving GAAP are traceable to continuing deliberations of FASB. The
Securities and Exchange Commission [SEC] has the ultimate legal
responsibility for the accounting rules in the country. When the SEC has felt
some improvement in GAAP has been desirable, it has demonstrated a
willingness to exercise its legal authority to set accounting standards.
Sometimes, accounting rules have resulted from actual or threatened federal
legislation. Accounting rules reflect our social, legal, political and economic
environments. Naturally, there have been considerable differences in
accounting rules across national boundaries.

Financial Statements

The basic three FS present information highly summarized information
reflecting countless transactions. Properly prepared summaries are sufficient
for mangers’ use in decision-making.
The B/S contains assets, liabilities and owners’ equity all measured at the
‘balance sheet date’. You should think of the B/S as a snapshot of the firm’s
account balances at that moment in time. When a checking account statement
summarizes all the deposits and checks that have cleared through the account
in a time period. The ending balance is a ‘snapshot’ summary of all of that
activity. The deposits and checks represent the activity during the period.

Assets
Assets are probable future economic resources that must be controlled by the
firm resulting from some previous transaction. Probable future economic
benefits may not be as certain as you think. Would a lottery ticket be an asset
before the drawing? The assets need not be owned. For example, a leased car
is an asset to its user although it is not owned.
If you sign a contract to occupy an apartment at a future date and you agree to
make future payments to the landlord, you have no asset at this time because of
the agreement. There would be no ‘past transaction’ between you and the
landlord in this case. Attorneys describe the relationship between you and the
landlord as an executory agreement.
Think of yourself as a ‘business’ instead of a person. What are some of
your assets?

Liabilities
Liabilities are probable future economic sacrifices that the firm cannot avoid
resulting from some previous transaction. The probable future economic
sacrifices do not have to be ‘sure things’. Estimated future economic sacrifices
frequently appear as liabilities.
If you signed a contract to occupy an apartment starting at a future date and to
make future payments to the landlord, you have no current basis to record a
liability as a result of the contract. There would be no ‘past transaction’ and
attorneys describe the relationship between you and your landlord as an
executory agreement.
Can you name some things that would be liabilities in your balance sheet
if you were a company instead of a person?

Owners’ Equity
Corporate owners’ equity [OE] represents the owners’ residual interest in the
firm and is the difference between assets and liabilities, or net assets.
OE has two basic parts: contributed capital and retained capital. Some
contributed capital (CC) was invested by the owners at the inception of the firm
and could have been increased subsequently by additional investments by
them. Original and subsequent investments by owners are indistinguishable
within OE. Retained capital is called retained earnings (RE) if the firm is a
corporation. For convenience, RE will be commonly used in this course. RE
represents net income that has been earned and retained. Alternatively, net
income could have been distributed to the owners in the form of dividends. [OE
can be more complex as we will see later in the course.]

Financial statements [FS] are intended to be useful in decision-making and the
relationship between CC and RE can provide insight into the firm’s success to
date. Consider two firms each having $100,000 in OE. The first has only
$1,000 of that amount as CC and the other $99,000 is RE, while the second
has 99% of the value in CC while only 1% is in RE. If both firms were founded
five years ago and neither has paid out any dividends, which would you rather
have founded? Hopefully, the answer is obvious to all. I am assuming all of us
are motivated, in part, by monetary rewards and what we can do with them.

There are several concepts that help us fit all the pieces together into a coherent
framework. The entity concept reminds us that separate entities should have
separate FS [as well as underlying accounting records] in order that users can
have a better sense of accountability regarding the economic results of each
firm. The historic cost convention is a basic building block for much of the
financial accounting model. The historic cost convention involves reporting
assets and liabilities at their original amounts. Logical variations will be
developed as we move through these topics. Accountants like to use historic
cost for assets and liabilities because these numerical values are more reliable
and easily traceable to source documents. The going concern assumption
deals with a number of issues including asset valuation. Assets and liabilities
are normally carried at their historic costs unless the accountants feel the firm
has serious problems making it unlikely it will survive for another year. When
a firm fails the going concern assumption, assets and liabilities may be revalued
reflecting their current value in the B/S. For example, a piece of land might be
revalued to fair market value if the going concern assumption has not been met.

Income Statement
The I/S contains revenues, expenses, gains and losses for the period. I/S are
dated at the end of a specified time period and summarize the period’s
transactions. I/S are like a ‘movie’ of the period while B/S are more like a
snapshot taken at the end of the period.
FS recognition means the item will appear in the appropriate FS. For example,
recognized revenues will appear in an I/S and an account receivable will appear
in the B/S.

Revenues are recognized when they have been earned and realized. When we
say that we recognize revenues that means that the revenues will appear in an
income statement. Revenues are earned when the work necessary to complete
the requirements has been performed. Later, we will examine some exceptions
to this. Revenue realization means the entity has received the cash or there is a
claim to cash.

Can you name some things that would be revenues for you, if you were a
company instead of a person?
Expenses are recognized when something has been ‘used up’ in association
with generating revenues. There often is a linkage between the revenue
recognition and recognizing expenses. Generally, we match revenues and
expenses in the same accounting period in order to state income appropriately.
The concept of income implies that inflows exceeded outflows. All we are trying
to do is to state those on a proper basis for each period. If a service firm has
recognized some revenues, the expenses incurred in generating revenues
should be simultaneously recognized in order to properly state the profit or loss
on the project.

Can you name some things that would be expenses, if you were a company
instead of a person?
Revenues and expenses are part of a firm’s main and continuing commercial
activities. Ford Motor Corporation has the biggest auto finance subsidiary in the
United States. That would be part of its primary activities as well as auto
manufacturing and sales. There are likely other activities at Ford producing
revenues and expenses since they are part of the entity’s ‘primary’ activities. I
often tell people that ‘primary activities’ are the things the entity does for a
‘living’.

When other events occur outside the primary recurring commercial activities,
we report them as gains or losses in the I/S. Revenues and gains increase
income. Revenues are recurring while gains are not. If a consulting firm
performs work on a consulting contract for a client, revenues are recognized. If
the same consulting firm sells a piece of equipment that had been used in the
business, the consulting firm would recognize a gain if the equipment is sold
for more than its cost when new. Gains make net income larger. [Selling used
equipment would not be part of the consulting firm’s primary commercial
activities.] Can you name assets on which you might have a gain?
Conversely, if the consulting firm had sold land for less than the price paid for
the land when buying it, the consulting firm would recognize a loss for the
difference. Losses make net income smaller. [Land would not be part of a
consulting firm’s primary commercial activities.] Can you name assets on which
you might have a loss?

Net income is the excess of the ‘good guys’ [revenues and gains) over the ‘bad
guys’ (expenses and losses). Revenues and expenses are recurring and related
to the entity’s primary activities, while gains and losses and non-recurring and
not related to the entity’s primary activities. Gains and losses are peripheral to
the entity’s recurring commercial activities.

Question to ponder: if you could choose a gain of $500,000 or a revenue of
$500,000, what would be your choice?
The most important point in forming an answer to this question is the reasons
why you selected your preference. Gains are not recurring but revenues are.
Gains have no associated expenses while revenues do have expenses associated
with them. In the short-term the gain seems more attractive. In the long term
and if expenses are relatively small in comparison with the revenues earned,
the revenues seem to have the stronger hand.
Operating items fit in the main part of the income statement. Non-operating
items are largely incidental or immaterial to the income statement as a whole.
Gains and loss are considered non-operating items.

Statement of Cash Flows
The component elements of the balance sheet and the income statement reflect
economic events rather than cash flow events. Because of the potential
importance of cash flow information in addition to knowing the impacts of
economic events, one of the major financial statements is the statement of cash
flows. When we view a statue, it is desirable to see the work from several
angles to appreciate the artist’s creation. Thus, when we try to understand the
broader condition of a firm we should appreciate that seeing the firm through a
cash flow lens might provide valuable insights in addition to the economic
events lens. [If I were only being paid half my salary from the university and
the rest was building up an Account Receivable, there would be a serious
impact on my lifestyle.]

Cash flows come in three categories: operating, investing and financing.
Operating cash flows are created in the firm’s normal, recurring commercial
activity. Cash flows from sales activities are operating cash flows regardless of
when the revenue is earned. The cash might have been earned [revenue] in an
earlier period but would be a cash flow only when collected. Similarly, a cash
outflow for salaries would be an operating cash outflow when paid. The cash
for salary might be paid out in the current year but might have been earned by
the employee in an earlier year. Total operating cash flow will tell us if the
firm’s regular activities are currently generating positive or negative cash flows.
Unless the firm is new, a firm should be producing positive operating cash flows
from its operations. Occasionally, a firm might experience unusual business
conditions and its cash flows from operating activities would be negative for a
while.

If you were a company instead of a student, what would be some of your
operating cash flows?
Investing cash flows result from purchases or sales of items that are not
consumed in regular recurring commercial activities. If a financial consulting
firm purchased investments with temporary surplus cash, we would treat the

cash paid out as an investing use of cash. Buying or selling property, plant and
equipment is an investing activity. Most of the time, buying and selling an
investment is treated as an investing cash flow. If you were to make a loan to a
friend, you would treat it as an investing activity. [I am assuming that you are
not a bank. ☺] Net investing cash outflows might indicate the firm is
expanding if the biggest investing cash outflows are for purchases of property,
plant and equipment.
If you were a company instead of a student, what would be some of your
investing cash flows?

Financing cash flows are cash transactions between the entity and its debtholders
or owners. Transactions with debt-holders refer only to the principal
amounts borrowed or repaid. [Interest portion is treated as part of operating
activities.] Financing activities with owners include issuing equity securities
paying dividends to them. Buying or selling treasury shares are financing cash
flows, too. [When a corporation buys back shares from shareholders, these
shares become ‘treasury shares’ until sold or retired by the corporation.]
Helpful Hint:
In general, all cash flows tied to dividends and interest are operating cash flows,
except for dividends paid to shareholders [financing activities].

Overview of Financial Statements and the Balance Sheet

The balance sheet equation governs most accounting relationships.
Assets = Liabilities + OE

OE includes the effects of revenues, expenses, gains and losses. As the sum of
all of these I/S elements, net income is known as the ‘bottom line.’ Net Income
flows into Retained Earnings (RE) and becomes part of OE. Because of this
connection between the ’bottom line’ and RE, the I/S becomes part of the B/S.

The B/S is usually shown as a classified balance sheet. Within the
subdivisions, current assets and non-current assets, we will discuss several
important account names expanding your ‘vocabulary’ of important accounting
terms. Within these categories, accounts are presented in descending order of
liquidity. Current assets usually consist of Cash or other assets converting to
cash within one year or the firm’s operating cycle, whichever is longer. Current
assets also include accounts intended for consumption within one year.
Sometimes, immaterial assets are shown as current assets, too. For example,
Prepaid Rent.
Cash is a current asset if it is unrestricted and intended for use as needed.
Cash would include currency and checking account balances. If management
had agreed in a contract to some restrictions on the use of Cash or if
management intended to restrict Cash for some future use, restricted amounts
would be shown as non-current assets.
Cash equivalents are not Cash but are treated is if they were. Cash equivalents
must have maturity dates of three months or less when purchased. Thus, cash
equivalents must be debt securities. Investments in money market securities
are cash equivalents. While not Cash, cash equivalents are ‘close enough’ to
Cash to be treated as Cash for financial statement purposes. [If a firm
purchased a debt security maturing in six months, the security would not be a
cash equivalent when purchased. If the firm prepared a B/S four months after
buying the debt security, would the debt security be a cash equivalent? No.
The cash equivalent requirements have to be met when buying the security.]
Accounts receivable are current assets containing uncollected amounts that
have been earned by the entity. Accounts receivable [AR] occur when firms
provide goods and/or services to customers agreeing to be paid later. In some
business this is a routine occurrence. Revenue must be recognized when
earned and realized. Realization means the seller has the cash or a claim to
cash. The claim to cash is most commonly called an AR if it arose in the course
of ordinary business by providing goods or services to customers. If a
receivable is created in a lending transaction accountants are likely to call it a
Note Receivable [NR]. [The basic difference between a NR and an AR depends
upon the nature of the transaction. If the transaction was a normal trade
arrangement, the receivable would most likely be an AR. Lending arrangements
are usually documented by a written agreement.
Prepaid items are usually current assets because they are intended for
consumption within one year or are immaterial. Common examples include
Prepaid Insurance, Office Supplies, Prepaid Rent and Prepaid Salaries. Assume
the firm pays an employee for one year’s salary in advance on August 31 of Year
1. At the end of Year 1, if a classified B/S must be prepared, how much of the
Prepaid Salary will appear as a current asset? [Answer: 8/12 of the amount
paid to the employee. 4/12 of the year’s salary has been used up becoming an
expense, while the remainder of the year’s salary continues to be an asset.]
Short-term investments are made for a many business reasons and these will
be developed later. For now, we will take a look at the basic motives for holding
investments in other firms. A firm might have temporary surplus cash and
wish to make investments for the purpose of earning some interest, dividends
or price appreciation until the cash might needed later. These investments
might be classified as a current or non-current assets as discussed earlier.
Typical investments include certificates of deposit, debt securities [original
maturity exceeding three months], or equity securities such as shares of stock
in another entity.
Non-current assets include all other assets controlled or owned by the firm.
Non-current investments might be made for a variety of reasons including
strengthening business relationships.
Property, Plant and Equipment [PPE] represents a broad range of assets to be
used over several accounting periods in the firm’s operations including land,
buildings and equipment. PPE collectively comprise a major portion of the
assets owned or controlled by a firm. These assets are ‘used’ instead of ‘used
up’ in the firm’s operating activities. The costs of these assets are not expensed
in one year (if at all). Rather, depreciation expenses stem from the use of these
assets. Suppose you buy a sound system paying $3,000 thinking you will use
it for the rest of your student days (assume three years). Further, you estimate
that the sound system will be worth $900 to you when you sell it or trade it in
when you graduate. While using the sound system you will experience a
decline in value of $2,100 [$3,000 - $900]. The depreciation method we’ll use
for now is the ‘straight-line’ method because $700 of the total expense will be
recognized in each year over the three-year life. The other half of depreciation is
the account in which we ‘accumulate’ depreciation taken on the sound system.
This account is called Accumulated Depreciation and when subtracted from the
cost of PPE leaves us with the book value [also known as carrying value].
PPE at cost - Acc. Depr = PPE at book value
Intangible assets are non-current assets including assets lacking physical
substance. Important intangible assets include copyrights, patents, leasehold
improvements, goodwill and trademarks. These assets usually benefit the firm
over several years and the costs of these assets are spread over that term.
Total liabilities are broken down into current liabilities and non-current
liabilities depending upon when the liabilities will be paid or stop being
economic obligations. Within these categories, the accounts are presented in
descending order of liquidity with some immaterial exceptions.
Current liabilities include accounts payable [AP] and other accrued
liabilities such as salaries payable, interest payable and rent payable. These
liabilities may result from buying on account something that will be used in the
operations of the firm. The supplier might offer credit terms giving a stated
period of time before the payment is due. Accrued liabilities result from having
‘used up’ something in operations prior to paying for it. Identify a liability you
could create by using something up before you pay for it. [If you use a credit
card to pay for something you consume right away, you are left with an
‘accrued liability.’ In general, when things are ‘used up’ before they are paid
for, the consumer has an accrued liability.]
Still another source of current liabilities occurs when customers/clients pay a
firm in advance for goods/services to be delivered/performed later. These are
called unearned revenues.
Another current liability results when reclassifying part of a long-term liability
as a current liability to show that part of the total liability due within one year.
[Later in this course we will refine this understanding.] A Note Payable [NP]
could have a due date in less than one year and be shown in a classified
balance sheet as a current liability. FS users normally interpret current
liabilities as requiring the use of current assets or to be otherwise settled within
one year. If a firm has received assets from a customer prior to providing
services to that customer, the liability to the customer is commonly called
Unearned Revenues or a Deferred Revenues. This liability will be settled by
performing services.
Examples of non-current liabilities include NP, deferred income tax liabilities,
some lease obligations and other debt arrangements requiring payments in
future accounting periods.
OE is usually broken down into two major components: contributed capital
[CC] and Retained Earnings [RE]. CC reflects investments by owners and
involved no revenues when the investment occurred. CC can be capital stock
and preferred stock if the firm is a corporation. RE generally represent income
earned by the firm and not paid out in the form of dividends. Later this
semester, we will see that there are other things that impact OE.
When a firm has positive Net Income, this amount will increase RE in a
procedure to be explained in Topic three.

Accrual Basis of Accounting
The accrual basis is based on economic events rather than being governed by
cash transactions. Accrual revenues are recognized when they have been
earned and realized. Accrual expenses are recognized when resources have
been consumed or ‘used up’. The cash basis is controlled by cash transactions.
Cash revenues occur when payments are received and cash expenses are
recognized when making payments. The cash basis overlooks the possibility of
consumption without making current payment and the process of earning
without current receipt of cash.

Evaluate these statements are establish for yourself whether they are consistent
with the cash basis or accrual basis of accounting.
Hey, Dad, I’ve found a great way to cut my expenses while I am at school. I put
everything I can on the credit card you gave me.
I worked all day yesterday at my part-time job but earned nothing. Payday is
next week.
Fridays are the only day when it is worth it to show up at my part-time job
because that’s payday. The other days I earn nothing.
Yesterday was a great day at my part-time job selling advertising. I sold several
big items and will collect the commissions next month.
I had a lot of expenses yesterday. I paid for the first and last months on my
new apartment and paid the security deposit.
[My answers are: cash basis, cash basis, cash basis, accrual basis and cash
basis.]
If a salaried person works for a month, the person will have earned some Salary
Revenue and need not have been paid yet. With accrual accounting earning
revenues and paydays are different economic events. Alternatively, suppose a
new employee started working for an employer and was granted a cash advance
to help with moving costs [prepayment] to help the employee relocate to the new
city. The employee would treat the cash advance as an asset (cash) and as a
liability. The main point of this example is that the employee would recognize a
liability and because the value has not yet been earned. By receiving the cash
advance, the employee should be thinking about his/her obligation (liability) to
provide services for the employer. Later, the employee will not be paid for all
services rendered to the employer and this will repay to obligation (liability).
B/S and I/S are prepared using the accrual basis of accounting. I believe that
you cannot fully understand how the accrual basis works without also
understanding the cash basis.

Income Statements
In this lecture we will first cover the income statement and the accounts used
to report the results of operations. Until this point, we have emphasized the
B/S impacts resulting from I/S accounts. The I/S shows the matching of
revenues and expenses for the purpose of determining income [gains and losses
are also reported in the I/S]. I/S and B/S are prepared using the accrual
basis.
A multiple-step I/S for a firm that might sell services might have these
important components:
The Merle Consulting Company
Income Statement
For the Year Ended December 31, Year 1
Sales Revenue $19,000
Operating Expenses:
Salaries 6,000
Occupancy 5,500
Depreciation 1,500
Utilities ___600
Operating Expenses $13,600
Operating Income $5,400
Other Revenue (Expense)
Interest Revenue 20
Interest Expense (120)
Gain on Sale of PPE 300
Loss on Sale of Land __(100)
Other Revenue net __$100
Income Before Tax Expense $5,500
Income Tax Expense __1,400
Net Income _$4,100
The I/S contains revenues, expenses, gains and losses for an accounting
period. Revenues and expenses come from the firm’s primary line(s) of business
and recur. Gains are losses are peripheral to the entity’s primary line(s) of
business and are not recurring. The same gain or loss cannot occur again.
Similar gains and losses may occur from time to time. A consulting firm is not
in the real estate business and the sale of land would cause likely cause a gain
or loss unless it was sold for exactly the same price that had been paid to buy
it. Likewise, the sale of PPE by a consulting firm would likely cause a gain or
loss because sales of PPE would not be part of the firm’s on-going activity.

Income Statement Continued
Interest Revenue is earned over time as a result of having invested or lent
money to another and where there is an interest rate involved. Interest is
calculated based on a familiar relationship: Principal x Rate x Time.
Other Revenues can include any amounts earned by the firm from various
activities other than the primary activities. These might include dividend
revenue, interest revenue and royalty revenue among others. When presented
as Other Revenues, a user would interpret the components as peripheral to the
firm’s main line of activities. If any of these might be individually significant, it
could be reported as a separate line item in the ‘other revenue’ area or be
included in the total for ‘other revenues’ and the specific dollar amount shown
in the footnotes to the I/S.
Cost of Goods Sold (CGS) is the expense that occurs when tangible
merchandise is sold to customers. It summarizes the merchant’s costs of
buying or building the inventory that is sold to the customer. The spread
between CGS and Sales Revenue expresses the seller’s ability to sell the product
in the competitive marketplace. The spread between CGS and Sales Revenue is
called Gross Margin [Gross Profit].
Selling, General and Administrative Expense is a collection of expenses that
might include Depreciation Expense (on administrative facilities), Salaries
Expense, Rent Expense, Selling Expense, Research and Development Expense,
Bad Debts Expense among others. Sometimes, these expenses are grouped
together in published FS. Management of a firm will have access to all of these
in whatever level of detail is desirable.
Interest Expense is the ‘economic rent’ charged for borrowing from other
entities. Interest is the cost of postponing payments and is an expense to the
borrower. [Principal x Rate x Time]
Income Tax Expense represents income taxes determined using financial
accounting (FA) rules and not according to tax accounting (TA) rules. The
extensive differences between FA and TA rules create complexity. FA goals
strive to deliver information useful in decision-making. TA goals center on
governments’ need to generate tax revenues to the governments. If differences
between TA and FA rules are temporary, there are future tax consequences
when they reverse. Alternatively, some differences between TA and FA never
reverse and have no future ax consequences as a result. Income Tax Expense
in the income statement [FA] is made up of two sub-components: current tax
expense and deferred tax expense. The deferred tax expense results from
presently recognizing the future effects that result when the temporary
differences reverse. Current tax expense aggregates all of the income taxes that
are currently payable to the various governmental entities.
Comprehensive Income consists of net income adjusted for all of the items
affecting OE other than transactions with owners. In one accounting topic in
this course we will examine a situation where proper accounting treatment
requires adjustments to OE but does not having an effect on net income. The
changes in OE are added to or subtracted from net income to arrive at
comprehensive income (unless they resulted from transactions with the
owners). Comprehensive income is a relatively new concept in FA and is a
required disclosure associated with I/S. All of the adjustments to net income in
arriving at comprehensive income flow into a special owners’ equity section
account, Accumulated Other Comprehensive Income. Just as net income flows
into Retained Earnings, these adjustments flow into Accumulated other
Comprehensive Income.
Earnings Per Share (EPS) is a widely watched measure of financial
performance. EPS results from dividing the net income available to common
shareholders by the weighted average number of common shares outstanding
for the period. More simply, EPS is income available to common shareholders
scaled by the number of common shares outstanding so financial statement
users can make easier comparisons between firms. EPS data are required
disclosures for publicly traded firms.
Sometimes we find it sufficient to think in terms of total assets. Other times,
we will want to think in terms of specific assets. For this latter purpose,
knowledge of specific accounts titles will help us communicate better. In
general, we should have a separate account for each different thing we wish to
monitor. Different assets, liabilities, OE, revenues, expenses, gains, and losses
will provide more useful information to FS users when kept in separate
accounts.

The Accounting Cycle

Accounting is based upon the double-entry system. This permits FS to contain
the assets controlled and to have summary information regarding the sources of
those assets. Consider this simple (smart?) example: A firm has $1,000,000 in
cash. What are possible sources of that money?
Do you think that knowledge of the money’s source adds much valuable
information to anyone interested in the firm’s FS? The same example extends
to our personal lives. If a person you are seriously dating has $1,000,000 in
currency, would you have an interest in knowing something about where the
currency came from? FS users usually will not be able to trace the $1,000,000
to a specific source, but will have information enabling informed judgments
about its origins. This simple (smart?) example illustrates the power of doubleentry
accounting. People have unsuccessfully tried to improve upon it.

Let’s revisit our ‘old’ friend, the basic accounting equation:
Assets = Liabilities + OE

We have recently seen that it is desirable to keep information about different
assets and liabilities in separate accounts for ease of understanding what we
have. For example, we would keep our credit card liabilities separate from any
liability we might have for a student loan or a car loan. The concept of an
account is merely a ‘place’ to keep information about something that is of
interest to management of the firm. For example, would it make sense to keep
Salaries Expense in a different account than Rent Expense? [Yes.] Managers
have an interest in monitoring many expenses as they attempt to better manage
the firm and hold appropriate people accountable.
Conceptually, accounts are shown in the form of a ‘T’. What’s really important
for us at this point is that there is a ‘right side’ and a ‘left side’. A ‘T’ account
does that for us quite nicely.

Pacioli, an Italian monk in the late 1400’s, is given credit for creating the
accounting system we still use today: the double entry system. In the
aggregate, the double entry system of accounting allows us to track what we
have and where it came from. Pacioli arbitrarily decided assets show
balances on the left. Alternatively, liabilities and OE accounts would show
balances on the right. This causes the basic accounting equation and the ‘left’
and the ‘right’ balances to be simultaneously in balance. As we work through
some exercises in this topic and later in the course, when the balances on the
‘left’ do not equal the balances on the ‘right’, you’ll have a signal that something
has been recorded on the ‘wrong’ side. These two expressions must simultaneously balance.

Brazil – United States relations

This article is missing citations or needs footnotes. Please help add inline citations to guard against copyright violations and factual inaccuracies. (November 2007)

Brazil – United States relations

Brazil	United States

Christ the Redeemer and the Statue of Liberty, iconic symbols of Brazil and the United States, respectively.

The Brazil–United States relations have a long history. Though never openly confrontational towards each other, relations between the two countries have been mostly cool and distant with brief periods of cooperation.

Contents [hide] 1 Country comparison 2 History 2.1 Early history 2.2 Cold War 2.2.1 U.S. government support for the coup 2.2.2 U.S. government relations with the military government 2.3 End of Cold War; return to democracy in Brazil 3 Current issues 4 Diplomatic missions 5 See also 6 References 7 Further reading 8 External links

[edit] Country comparison

	Brazil	United States
Population	190,098,152	311,887,000
Area	8,514,877 km² (3,287,597 sq mi)	9,850,476 km2 (3,803,290 sq mi)
Population Density	22/km² (57/sq mi)	31/km² (80/sq mi)
Capital	Brasília	Washington, D.C.
Largest City	São Paulo – 11,037,593 (19,889,559 Metro)	New York City – 8,363,710 (19,006,798 Metro)
Government	Federal presidential constitutional republic	Federal presidential constitutional republic
Official languages	Portuguese	English (de facto)
Main religions	74% Roman Catholicism, 15.4% Protestant, 7.4% non-Religious, 1.3% Kardecist spiritism, 1.7% Other religions, 0.1% Afro-Brazilian religions	75% Christianity, 20% non-Religious, 2% Judaism, 1% Buddhism, 1% Islam
GDP (nominal)	US$2.182 trillion ($11,480 per capita)	US$14.441 trillion ($47,440 per capita)
Brazilian Americans	177,000 American born people live in Brazil	351,914 Brazilian born people live in the USA
Military expenditures	$27.1 billion (SIPRI 2010) [1]	$663.7 billion (SIPRI 2010) [2]

[edit] History

[edit] Early history

Following the transfer of the Portuguese royal court to Rio de Janeiro and the subsequent opening of the ports to foreign ships, the United States was, in 1808, the first country to establish a consulate in Brazil. It was also the first nation to recognize Brazilian independence from Portugal in 1824, two years after its proclamation. Recognizing the independence of countries of the Americas from their European metropolies was a policy of the United States, which hoped to undermine European influence in the region to extend its own.^{[citation needed]} During the 19th century and the first half of the 20th century, interaction between the two was limited to multilateral fora, such as the Conference of American States. At the first Pan-American Conference, many countries of the Americas, the U.S. and Brazil included, discussed a series of regional integration projects. Those ranged from military to economic integration. The United States planned to create a Pan-American, anti-European economic bloc, a customs union. It meant to suspend external tariffs applied to inter-American trade but not to European-American trade. The bloc would have adopted a single currency, the U.S. dollar. At the military stage, the U.S. also pushed to create a Pan-American army. Its intention would be to "protect" the whole of the Americas from European interventionism. Actually, the army would be made up of U.S. military only.^{[citation needed]} The sole contribution that would be made by the rest of the countries was economic, that is, they would have to pay tributes to fund the hypothetical army's maintenance. In South America, both Brazil and Argentina opposed those plans. As both had deep trade ties with Europe, they would have been the most negatively affected by such a closed economic bloc. The military integration plan was also rebutted. In response to their opposition the U.S. retaliated against both countries. Brazilian latex exports to the U.S. began to be highly tariffed.

American propaganda film Brazil at War (1943), praising Brazil as "a powerful new ally" and pointing out the similarities between both countries.

Brazil–U.S. interactions increased during World War II. In 1942, during the first Getúlio Vargas presidential mandate (1930–1945), Brazil made some contributions to the Allies—the United States, the Soviet Union, and the United Kingdom—against the Axis powers. It temporarily conceded the U.S. some space in Northeastern Brazil so the North American nation could launch its planes to fight the Axis in Europe and Africa (the Brazilian northeastern coastline is the easternmost point in the Americas). In 1944, Brazil also sent some contribution in troops to be commanded by the U.S. army in Europe. Vargas, who was an admirer of Benito Mussolini, was convinced in so doing by Franklin Roosevelt's promise that the South American country would be granted a permanent seat at the U.N. Security Council, a promise the U.S. was later unable to fulfill due to resistance from the Soviet Union and the U.K. Both of these countries viewed Brazil as a satellite state to the U.S.^{[citation needed]}
But relations between Vargas's Brazil and the U.S. were strained. This was due to the statist and nationalistic economic policy adopted by the Brazilian president, a policy based on an industrialization plan that was closed to foreign capital investment. As part of the plan, Petrobras, still today Brazil's most profitable enterprise, was created. The company broke foreign oil enterprises' monopoly in oil extraction in Brazilian soil.
The presidency of Eurico Gaspar Dutra (1946–51) opened a brief period of democratic rule after ousting of Getúlio Vargas. During the Dutras administration, Brazil's foreign policy was aligned closely with that of the United States. Dutra outlawed the Brazilian Communist Party (PCB) in 1947 and broke off relations with the Soviet Union. In contradiction to the economic nationalism of his predecessor, he opened the country for foreign, mostly U.S., investments. Getúlio Vargas's return to power in 1951—now in democratic fashion—however, signaled a cooling of relations and a return to economic nationalism. Vargas blamed the U.S. for his ouster in 1945 and appealed to Brazilian nationalism, a sentiment that was growing in many sectors, including the armed forces. In the new Vargas mandate the old tensions with foreign capital returned in full force—specially after he tried to implement a bill that precluded 90% of the capital produced in the country from being sent to international banks. As a result of the many scandals in his second mandate—corruption scandals, tensions with the military etc.—Vargas killed himself in 1954. He left behind a suicide letter, the Carta testamento, in which he points to media denigration and pressure from foreign banks as the blame for his depression and death. Popular reaction to the president's death, which still today is the most beloved leader of the South American nation,^{[citation needed]} led to hostile actions against the media outlets that attacked him. Media charges of Vargas as anti-American led the grieving people to also attack U.S. embassies.

[edit] Cold War

In 1956 Juscelino Kubitschek took office (1956–1961). Like Vargas, Kubitschek had a pro-industries economic policy. He named it "national developmentalism." But unlike Vargas's plan (and in spite of the policy's own name), Kubitschek's was open to investments by foreign capital. Though he strengthened relations with Latin America and Europe, Kubitschek also sought to improve ties with the United States. His economic policy attracted huge direct investments by foreign capital, much of which from the U.S. He also proposed an ambitious plan for United States development aid in Latin America, the Pan-American Operation. The outgoing administration of President Dwight Eisenhower found the plan of no interest, but the administration of President John F. Kennedy appropriated funds in 1961 for the Alliance for Progress.
Relations again cooled slightly after President Jânio Quadros took office. He ruled for only some months in 1961. Quadros was an out-and-out conservative, and his campaign had received support from UDN, Brazil's then largest right-wing party which, five years later, would morph into ARENA, the military dictatorship party. But Quadros's foreign policy—named "Independent Foreign Policy"—quickly eroded his conservative support. In an attempt to forge new trade partnerships, the Brazilian president tried to create closer ties with some Communist countries. That included Cuba. Quadros openly supported Fidel Castro during the U.S.-led Bay of Pigs invasion. He visited the Caribbean nation after the event, and when Cuban revolutionary Ernesto "Che" Guevara retributed the visit, he was decorated with Brazil's highest honor. As a result of the political instability within the country—something provoked by his breakup with the UDN and tensions with the military—Quadros resigned. At that time, his vice-president, João Goulart, was in a diplomatic mission in Communist China.
In that year, Goulart took office (1961–1964). Political instability, however, continued high—for not only Goulart kept Quadros's unusual foreign policy (which the Brazilian press slammed as "Communist infiltrated"), but he also showed a clear leftist streak in domestic affairs. He had a pro-trade unions stance and increased the minimum wage (which the fiscally austere Quadros had previously squeezed). By the end of 1963, the U.S. downgraded its relations with Brazil and reduced aid to the country. Washington's worries were that Brazil would turn into a nonaligned emerging power such as Egypt. But those worries dissipated on March 31, 1964. At that day a military coup overthrew the civil government. A U.S.-friendly military regime replaced it.

[edit] U.S. government support for the coup

Further information: Operation Brother Sam and 1964 Brazilian coup d'état

Though never admitted by the U.S. government, the U.S. secretly provided arms and other support for the military coup plotters. U.S. government documents released on 31 March 2004, the 40th anniversary of the Brazilian coup, expose the U.S. role. An audio tape released that day, for instance, showed American President Lyndon Johnson (1963–1969) instructing his aides in Brazil with these words: "I think we ought to take every step that we can, be prepared to do everything that we need to do." U.S. ambassador to Brazil, Lincoln Gordon, was perhaps the most enthusiastic pro-coup U.S. authority. Four days prior to the coup, Gordon wrote CIA agents in detailing how the U.S. should help the plotters: "If our influence is to be brought to bear to help avert a major disaster here—which might make Brazil the China of the 1960s—this is where both I and all my senior advisors believe our support should be placed." To assure the success of the coup, Gordon recommended "that measures be taken soonest to prepare for a clandestine delivery of arms of non-US origin, to be made available to Castello Branco supporters in Sao Paulo." In a subsequent cable, declassified February 2004, Gordon suggested that these weapons be "pre-positioned prior any outbreak of violence," to be used by paramilitary units and "friendly military against hostile military if necessary." To conceal the U.S. role, Gordon recommended the arms be delivered via "unmarked submarine to be off-loaded at night in isolated shore spots in state of Sao Paulo south of Santos."^[3]
In 2001, Gordon published a book—Brazil's second chance: en route toward the first world—on Brazilian history since the military coup. In it he denied his role in the affair. On Gordon's importance for the coup movement, however, James N. Green, an American Brazilianist, said in a interview with a Brazilian website: "[Gordon] changed Brazil's history, for he gave green light so the military advanced the coup in 1964. He made it clear that, if the coup was advanced, the United States was going to recognize it immediately, which was fundamental [to the plotters]."^[4] Media outlets, both in Brazil and the U.S., hailed the coup.^[5]
The U.S. immediately recognized the new interim government. At the day of the coup a United States naval task force was anchored close to the port of Vitória. The Johnson administration (and the IMF) made large loans to the new Castelo Branco government (1964–67).

[edit] U.S. government relations with the military government

The new military president adopted a policy of almost total alignment with the United States. "What is good for the United States, is good for Brazil", asserted General Juracy Magalhães, the Minister of Foreign Relations of the Castello Branco administration. In accordance with this thought, Castello Branco took a series of pro-American policies in both the foreign and domestic agendas: in 1964 he cut ties with Cuba and China; in 1965 he sent troops to Santo Domingo in support for the United States occupation of the Dominican Republic; he opposed the creation, proposed by Chile, of a Latin American trade area that would exclude the U.S.; and defended the creation of an Inter-American Peace Force, a Pan-American military force that would be made up of military contingents of all countries in the Americas. The force would be headed by the Organization of American States, and its main function would be to intervene in any nation of the region where there was danger of a leftist revolution.
The role of American diplomats and businessmen in Brazilian political life was eye-catching.^{[says who?]} In forming his economic team, Castello Branco took to heart the advice that had been given to him by American officials. This, one sees in his indication for the Planning Ministry of Roberto Campos, a U.S.-educated monetarist economist. Together with the Minister of Finances Otávio Bulhões, Campos implemented reforms to both reduce inflation and make the Brazilian environment more open to foreign capital. Those included: public spending cuts, tax hikes on consumers and wage-freezing to lower inflation; massive privatizations; elimination of restriction on capital remittances to foreign banks; tax cuts to multinational profits; and the pulling out of subsidies and legislation that shielded national industries from foreign competition.
From 82% in 1963, annual inflation fell to 22.5% in 1967. In 1966, the budget deficit stood at 1.1% of GDP, from 3.2% in 1964. Therefore, if one takes into account the aims of such economic policies, then they can be thought of as effective. But they were unpopular with both the broader society and the nationalistic sectors of the military. The latter accused the economic team of being sellouts (entreguistas) bent on destroying national industries and delivering the country to U.S. multinationals. Such accusations often appeared in the Brazilian press, which went mostly uncensored during the 1964–1967 period. The public conferred to the American government an immense political clout over the Brazilian regime, an impression encapsulated in a mock-campaign commenced by a humourist, Otto Lara Resende, whose motto was: "Enough with middlemen—Lincoln Gordon for president!" Gordon himself complained that American advisors were implicated in "almost every unpopular decision concerning taxes, salaries and prices."
The social consequences of such economic plan, the PAEG, were negative. Though inflation had been reduced, it was still high for international standards. And in combination with the wage-freezing policies, it caused Brazilians' real income to fall sharply—by about 25%—from 1963 to 1967. As a consequence, malnutrition and infant mortality rose. The Brazilian industrial elite, too, began to turn on the government; not only it had been hurt by the sudden market opening, but also the monetary tightening applied under the PAEG had dried out credit and induced a recession in output.
The overall failure of such reforms; the increased opposition faced by the Castello Branco administration, even among sectors that had previously supported it; its closeness with the U.S. government; and its perceived leniency in combatting "subversive" leftists: all this led to the ascension, after Castello Branco's death, of a different set of rulers, one that would alter Brazil's political and economic path and its relations with the U.S.

Presidents Emílio Médici and Richard Nixon, in December 1971

After his death in 1967 Castello Branco was succeeded by General Artur da Costa e Silva. Costa e Silva received support from Brazilian industrialists and from the nationalist wing of the military, a more numerous sector than the castellistas, the Castello Branco supporters. It is rumoured that, even before Costa e Silva took office, he demanded from U.S. ambassador Lincoln Gordon that he leave Brazil before the general assumed the presidency. This was provoked by an alleged attempt by Gordon to persuade Costa e Silva not to alter Castello Branco's economic policies and re-establish the statist, developmentalist policies previously imposed by civilian former presidents. Gordon was replaced by Ambassador John W. Tuthill. With green light from the U.S. State Department, Tuthill put into practice Operation Topsy, a procedure intended to reduce the American personnel employed in the U.S. Ambassy in Brasília. As he explained in an article published in a 1972 edition of the Foreign Policy magazine, the "omnipresen[ce]" of the American ambassy employee in the Brazilian political scene had become a cause of irritation among the increasingly anti-American populace and the Brazilian military, which had indicated, since Costa e Silva replaced Castello Branco, that the country would follow its own strategy in political and economic matters.^[6]
On the most part the Nixon administration (1969–1973) remained positive to the Brazilian dictatorship. High growth during the Costa e Silva and Médici years excited Brazilian nationalistic hopes for a greater international role—hopes of which the U.S. was supportive, for Brazil was still considered to be one of the developing nations most sympathetic to the United States. There was, however, a cooling on both sides. On the U.S. side this was due to fears of being linked with its ally's abuses. It also distressed the U.S. the increased kidnapping risks that its ambassadors and diplomats faced in Brazilian territory during those years. The Médici tactics of suppression against leftist activists were provoked by the acts of urban socialist guerrillas that began to blossom after the 1964 coup. One of the favorite targets of such groups were U.S. diplomats.
As for the Brazilian side, the cooling had to do with many factors. One of them was the Vietnam War and the coming, but already clear, U.S. defeat, an event that would facilitate reducing co-operation with the North American nation. Other factors were:

• the intention to increase the country's profile by forging new partnerships and the insertion of new values in its foreign policy. The Brazilian government had hopes of playing a larger international role. That, the nationalists believed should accomplished by becoming a leader among developing nations. To do that, Brazil had to loosen its ties with the capitalist superpower and the developed world in general. "Third Worldism" was a trademark of the Foreign Ministry rhetoric. A greater rapproachment with Africa and the Middle East was sought. At multilateral economic fora the Brazilian diplomacy, seeking to advance its economic interests as a developing country, acted in synergy with India and the broader Non-Aligned Movement in adopting an revisionist stance towards the rich nations. Non-interventionism was inserted as a key value in Brazil's foreign policy—not only as a means of pandering to other developing nations, but also to shield Brazil itself from criticism regarding its domestic politics. As a result, it began to oppose the re-creation of the Inter-American Peace Force (which had disbanded by 1967).

• The nuclear proliferation issue. Brazil refused to sign the Nuclear Non-Proliferation Treaty (NPT). It argued that the treaty was discriminatory for it unjustifiably divided the world in two different kinds of nations: first, the countries that could be trusted to use their weapons responsibly. These were exactly the same countries that by then had already established themselves as nuclear weapon states: the United States, the Soviet Union, the United Kingdom, France, and China. And second, there was the rest of the world, the countries that would have to give up the possibility of developing nuclear technology and enriching uranium on their own. The Brazilian government wound up rejecting the NPT an infringement against sovereignty.

Geisel with Carter and First Lady Rosalynn Carter, 1978

The Geisel administration (1974–1979) marked a definite cooling of the Brazilian–American relations. As the United States began to apply high tariffs on Brazilian manufactured goods, Ernesto Geisel looked for new trade partners. These, he would seek mostly in other Third World nations (in Africa, for instance). But in contrast with Costa e Silva and Médici, Geisel commenced to reach out to Communist countries, too. In 1975, four years before the U.S., Brazil reestablished diplomatic ties with China. It promptly recognized the independence of fellow Portuguese-speaking Angola and Mozambique, two African countries whose independence from Portuguese rule had been brought about by socialist revolutions aided by Cuba and the Soviet Union. In 1975, Brazil voted in favour of Resolution 3379, a U.N. resolution sponsored by Muslim nations which equaled Zionism with racism. Only two other Latin American countries—Cuba and Mexico—had voted in favour of the bill. In supporting it at the expense of Israel, already then a major U.S. ally, Brazil's intention was to seek closer relations with oil-rich Arab nations. By then Brazil imported 80% of the oil it consumed. As such it had been greatly affected by the 1973 oil crisis, an event which had a tremendously negative impact on Brazil's current account and posed a major threat against its fast growth during the Médici years.
As the Carter administration replaced that of Gerald Ford, two other very sensitive issues—human rights and nuclear proliferation—came to the front in the relations between the U.S. government and Brazil.
In 1975 Brazil and Western Germany established an agreement of co-operation in nuclear energy for peaceful purposes. The agreement was to transfer to Brazil the whole cycle of nuclear generation and a factory of nuclear reactors. The factory would enable the independent production of nuclear reactors as soon as 1978.
The United States opposed the agreement. In March 1977, Jimmy Carter took measures against both Brazil and Germany: he pressed two American banks, the Chase Manhattan Bank and the Eximbank, to suspend all financing activities negotiated with Brazil, and halted the supply of enriched uranium to Germany. He wanted to compel both countries to either renounce the agreement or to revise it so as to give space to the introduction of comprehensive safeguards similar to those established by the NPT. He also wanted the construction of the nuclear reactor factories to be canceled.
In the early 1980s, tension in the American-Brazilian relations centered on economic questions. Retaliation for unfair trade practices loomed on the horizon and threatened Brazilian exports of steel, orange juice, commuter aircraft, shoes and textiles. When President Sarney took office in 1985, political issues, such as Brazil's arms exports to Libya and Iran, again surfaced. Brazil's foreign debt moratorium and its refusal to sign the Non-Proliferation Treaty caused the United States to put Brazil on its mandated blacklist, thereby restricting Brazil's access to certain U.S. technologies.

[edit] End of Cold War; return to democracy in Brazil

On taking office in March, 1990 President Collor sought a quick reapproachment with the United States in order to begin an aggressive policy of inserting Brazil into the world economy and placing it at the negotiating table of world powers. The Franco administration maintained an independent stance and reacted coolly to proposals by the Clinton administration for a Latin American free-trade zone.
Relations with the Cardoso government in (1995–2002) were good. Cardoso made a very successful trip to Washington and New York in 1995 and the Clinton administration was very enthusiastic regarding the passage of constitutional amendments that opened the Brazilian economy to increasing international participation.

The Bush administration came to view Brazil as a strong partner whose cooperation must be sought in order to solve regional and global problems. Issues of concern to both Brazil and the United States included counter-narcotics and terrorism, energy security, trade, environmental issues, human rights and HIV/AIDS.
The bilateral relations were considered fairly close, despite the differing political approaches of President Lula and President Bush on some issues. On June 20, 2003, President Lula made an official visit to the United States, and he and President Bush resolved "to create a closer and qualitatively stronger [bilateral] relationship." On November 6, 2005, President Bush visited Brasilia and the two leaders reaffirmed the good relations between the countries and pledged to work together to advance peace, democracy, and a successful conclusion of the Doha round of global trade talks. President Bush thanked Brazil for exercising leadership in the world and in the hemisphere, including Brazil's role in the peacekeeping force in Haiti (MINUSTAH), and worldwide efforts to control HIV/AIDS.^[7]
Brazilian and American officials signed an agreement to promote greater ethanol production and use throughout the world. The agreement was reached after President Bush's visit to Brazil on March 9, 2007 and by a visit from President Lula to Camp David on March 31, 2007.

[edit] Current issues

Presidents Lula and Obama in Washington, March 14, 2009

During their first meeting in Washington on March 14, 2009, U.S. President Barack Obama and Brazilian former President Luiz Inacio Lula da Silva discussed the economy, energy, the environment, and the custody case of a US boy taken to Brazil.^[8] "I have been a great admirer of Brazil and a great admirer of the progressive, forward-looking leadership that President Lula has shown throughout Latin America and throughout the world," Obama said after the meeting. "We have a very strong friendship between the two countries but we can always make it stronger," he added.^[9][10]
The issue of the abduction of children from the US to Brazil has been raised by US President Barack Obama, Secretary of State Hillary Clinton, the United States House of Representatives and other US officials and major media. As of December 2009, there are 66 American children that have been taken by one of their parents to live in Brazil. While Brazil should have returned every child to the US, under the Hague Convention on the Civil Aspects of International Child Abduction, it has not. Under the treaty, one parent cannot flee the legal jurisdiction where the child resides – "his habitual residence" – to shop for a more favorable court venue in another country to contest for custody.^[11][12]
Brazil has recently voiced its discontent over the U.S. position of recognizing the results of Honduran presidential election.^[13] The Brazilian position has been to not accept the election in Honduras.^[14]

[edit] Diplomatic missions

Of United States Brasília (Embassy) Rio de Janeiro (Consulate General) São Paulo (Consulate General) Recife (Consulate) Belém (Consular Agency) Fortaleza (Consular Agency) Manaus (Consular Agency) Porto Alegre (Consular Agency) Salvador (Consular Agency)

Of Brazil Washington, D.C. (Embassy) Los Angeles (Consulate-General) Boston (Consulate-General) Chicago (Consulate-General) Hartford (Consulate-General) Houston (Consulate-General) Miami (Consulate-General) New York City (Consulate-General) San Francisco (Consulate-General) Atlanta (Consulate)

Brazilian embassy in Washington, D.C. American embassy in Brasilia.

[edit] See also

• Foreign relations of Brazil
• Foreign relations of the United States
• International child abduction in Brazil

[edit] References

1. ^ National Congress of Brazil. Brazilian Federal Budget (2009) – Ministry of Defense (Ministério da Defesa).
2. ^ http://www.gpoaccess.gov/usbudget/fy10/pdf/budget/defense.pdf
3. ^ Brazil marks 40th anniversary of military coup - Declassified documents shed light on U.S. role National Security Archive. Retrieved on 2010-11-03.
4. ^ Lincoln Gordon mudou a história do Brasil, diz historiador americano
5. ^ Mark Cook, Rerun in Honduras: Coup pretext recycled from Brazil ’64. Extra! magazine, September 2009
6. ^ Leacock, Ruth (1990). Requiem for Revolution: The United States and Brazil, 1961-1969.. Kent, OH: Kent State University Press. pp. 240-241.
7. ^ Joint Statement on the Occasion of the Visit by President George W. Bush to Brazil
8. ^ "Obama, Brazil Leader Focus on Economy, Energy". Retrieved 2009-03-14.^{[dead link]}
9. ^ "Obama, Brazil’s President Focus on…". Chicago Tribune. Retrieved 2009-03-15.
10. ^ "Lula Tells Obama He has Unique Regional Clout". Retrieved 2009-03-15.^{[dead link]}
11. ^ http://www.cnn.com/2009/US/06/10/brazil.child.custody/index.html CNN, Brazil custody case returns to Brazilian appeals court,
12. ^ http://www.opencongress.org/bill/111-hr125/show House bill passed, H.Res.125 – Calling on Brazil in accordance with its obligations under the 1980 Hague Convention, March 11, 2009
13. ^ U.S. risks isolation over Honduras election: Brazil Reuters. Retrieved on 2009-12-21.
14. ^ Brazil Steadfast in Refusal Not to Recognize Honduran Election Fox News. Retrieved on 2009-12-21.

[edit] Further reading

• Joseph Smith. Brazil and the United States: Convergence and Divergence (University of Georgia Press; 2010), 256 pages

[edit] External links

• History of Brazil - U.S. Relations
• Ministry of Foreign Relations of Brazil (English)
• U.S. Department of State
• Brazilian Embassy in Washington (English)
• U.S. Embassy in Brasilia
• "U.S.-Brazil Relations". U.S. Department of State. 2005-01-09.
• "The Future of U.S.-Brazilian Relations". Woodrow Wilson Center. 2007-01-24.
• "United States – Brazil Relations". Latin American Studies. 2007-02-14.
• "U.S.-Brazil: A New Era of Bilateral Cooperation". U.S. Department of State. 2000-07-26.
• "The U.S. And Brazil". Voice of America. 2005-11-28.
• "Brazil-U.S. Economic Relations" (PDF). Center for Strategic & International Studies. 2001-04-15. Retrieved 2007-06-06.
• "Brazilian Trade Policy and the United States" (PDF). Congressional Research Service. 2006-02-03. Retrieved 2007-06-06.
• "U.S. Congressional Report on Brazil-U.S. Relations" (PDF). Congressional Research Service. 2007-02-28. Retrieved 2007-06-06.
• Aronson, Bernard (June 17, 2009). "Brazil helps kidnap American children". Wall Street Journal. Retrieved January 6, 2010.
• Marxist Brazil and the American Empire