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Brazilian Economic Development in Historical Perspective

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Brazilian Economic Development in Historical Perspective GOVERNMENT, MARKET AND DEVELOPMENT: BRAZILIAN ECONOMIC DEVELOPMENT IN HISTORICAL PERSPECTIVE FABIANO ABRANCHES SILVA DALTO Thesis submitted in partial fulfilment of the requirements of the University of Hertfordshire for the degree of Doctor of Philosophy The programme of research has been carried out in the Department of Statistics, Economics, Accounting & Management Science, Business School, University of Hertfordshire November 2007 1 2 Abstract In the last 30 years the World has been swept by neoliberal doctrine. Under neoliberal conceptions, freedom of the market mechanism has precedence in the process of development. Neoliberalism has had a major impact on the mindset of policymakers, on government strategies for development and on economic performance. This thesis is about the economic consequences of neoliberalism in Brazil. It approaches the problem from a historical perspective. By examining government economic strategies in Brazil from the 1930s through the 1970s it undermines a central neoliberal argument that government interventions in the economy are either inimical or irrelevant to economic development. While government failures did occur indeed, in the Brazilian case it is shown that the government performed a crucial role in this period in building key institutions that guided market forces towards industrial transformation. Since the mid-1970s, Brazil has been a laboratory for neoliberal economic policymaking. Restrictive macroeconomic policies alongside liberalised markets have been the cornerstones of policymaking. The second line of argument developed here is that neoliberalism has since constrained economic development in Brazil. During this period the country has been through several financial crises and has experienced low economic growth and unprecedented unemployment. Compared with the previous period of government-led development, neoliberal policies and institutions fall far behind in terms of overall economic performance. Thirdly, it is argued that under neoliberalism government policy and institutions in Brazil have been directed to satisfy rentiers’ interests at the expense of a socially acceptable economic development. Finally, this thesis calls for the reinstatement of discussion over the government’s role as an agent of a democratic, economic and social transformation. This is a discussion that has been obstructed by neoliberal doctrine for too long. 3 4 To my beloved girls Cristiane and Helena 5 6 Contents List of Tables ....................................................................................................................... 9 List of Figures ................................................................................................................... 11 Acknowledgements ............................................................................................................ 13 1. Introduction ................................................................................................................... 15 2. Towards a Historically and Institutionally Grounded Perspective in Development Economics ......................................................................................................................... 21 Introduction....................................................................................................................... 21 The Problem of Government Intervention in the Unfettered Market Perspective............ 23 Historical and Cross-Sectional Evidence.......................................................................... 28 Theoretical Limitations of the Neoliberal Approach ........................................................ 39 Elements of an Alternative Approach............................................................................... 42 3. The Changing Character of the State and of the Economy ........................................... 61 Introduction....................................................................................................................... 61 The Political Economy of the Brazilian Primary-Export Economy.................................. 62 The Emergence of the Brazilian Developmental State ..................................................... 68 Assessment of the Limits of the Economic Transformation in Brazil.............................. 77 Final Remarks ................................................................................................................... 80 4. Rupture with Continuity: The Double Character of the Military Economic Reforms .. 81 Introduction....................................................................................................................... 81 Transforming the Brazilian Model.................................................................................... 82 The “Economic Miracle” and the Model of Accumulation .............................................. 96 The Political Economy of the Stabilisation Policy ........................................................... 98 The Growth of State Entrepreneurship ........................................................................... 102 The Government as a Financier ...................................................................................... 106 The Political Economy of Foreign Capital and External Debt ....................................... 111 Final Remarks ................................................................................................................. 116 5. The Reemergence of Economic Liberalism ................................................................. 119 Introduction..................................................................................................................... 119 The Strategy of 1974....................................................................................................... 121 The Government’s Objectives Change in 1976 .............................................................. 124 The Road Towards the External Debt Crisis................................................................... 131 The Road to Public Financial Fragility........................................................................... 137 External Shocks and Economic Turmoil ........................................................................ 140 Final Remarks ................................................................................................................. 146 7 6. Weathering the External Debt Crisis: The Neoliberal Way ....................................... 149 Introduction..................................................................................................................... 149 External Debt and the Political Economy of the Adjustment ......................................... 151 The Brazilian External Debt Negotiation and the Problem of the Net Financial Transfers.......................................................................................................................... 155 Domestic Effects of the Adjustment Policies on Growth ............................................... 164 Financial Instability and Fragility Resulting from the Adjustment Policies................... 169 Public Financial Fragility................................................................................................ 174 The “Securitisation” of the Wealth of the Non-Financial Sector.................................... 177 “Financialisation” in the Financial System..................................................................... 181 Final Remarks ................................................................................................................. 185 7. The Economic Consequences of the Neoliberal Reforms in the 1990s ....................... 189 Introduction..................................................................................................................... 189 Neoliberal Structural Reforms ........................................................................................ 191 Raising Great Expectations............................................................................................. 202 Economic Growth under Market-Oriented Reforms: the second lost decade ................ 204 Finance Interests and the State Financial Fragility......................................................... 213 The State’s Loss of Political Autonomy ......................................................................... 221 Final Remarks ................................................................................................................. 226 8. Summary and Conclusions .......................................................................................... 229 References ....................................................................................................................... 237 8 List of Tables Table 1 Target Plan Sectors’ Expansion: Planned and Realised – 1957-1961 .................... 74 Table 2 Target Plan: Foreign Capital by Sector (US$ Million)........................................... 75 Table 3 Productivity of Workers in Agriculture and Manufacturing................................... 77 Table 4 Brazil Indicators of Income Distribution ................................................................ 78 Table 5 Federal Government Tax Revenues by Type of Tax (% of Total Federal Revenues) ...................................................................................................................................... 84 Table 6 Main Credit Lines for
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