The brazilian economy today towards a new socio economic model

Notes on Contributors Niemeyer Almeida Filho holds a Bachelor’s in Economics 1979 and Master’s in Economics from the University of Brasilia 1985, and a PhD in Economic Theory from the

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The Brazilian Economy Today

Towards a New Socio-Economic Model?

Lauro Mattei 2015

Remaining chapters © Contributors 2015

Foreword © Diego Sánchez-Ancochea 2015

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First published 2015 by

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Library of Congress Cataloging-in-Publication Data

The Brazilian economy today : towards a new socio-economic model? /

Anthony W Pereira, Lauro Mattei

pages cm

Includes bibliographical references

1 Economic development – Brazil 2 Brazil – Economic conditions –

1985– 3 Brazil – Economic policy – 2003– I Pereira, Anthony W.,

editor II Mattei, Lauro, editor

HC187.B87234 2015

330.981—dc23 2015026460

Softcover reprint of the hardcover 1st edition 2015 978-1-137-54980-8

ISBN 978-1-349-57424-7 ISBN 978-1-137-54981-5 (eBook)

DOI 10.1007/978-1-137-54981-5

Contents

Lauro Mattei and Anthony W Pereira

Part II Crisis in the Global Economic Order

Alex Callinicos

3 The Brazilian Economy after the Global Crisis: An Assessment

Luiz Fernando de Paula, André de Melo Modenesi, and

Manoel Carlos C Pires

Part III The Brazilian Economy Today:

Situation and Challenges

4 The Economic Policies and Performance of Brazil’s Leftist

Fernando Ferrari Filho

5 Brazil after the Great Recession: Searching for a Coherent

Part IV The Brazilian Social Situation Today

7 Structural Changes in Brazil: Improvements and Limits 137

Vanessa Petrelli Corrêa, Claudio Hamilton dos Santos, and

Niemeyer Almeida Filho

8 Development Patterns, Labor Market, and Social Protection: The Brazilian Experience between the Liberal Decade (1990s)

José Celso Cardoso Júnior and Cláudia Satie Hamasaki

Rosa Maria Marques

3.7 Selic rate (left: % per annum) and CPI monthly inflation

(right: % last 12 months) – Jan/2008–Mar/2013 56 3.8 Top three private banks’ liquid position – Brazil:

3.9 Exchange rate (real/dollar) – Jan/1999–Jan/2013 60 3.10 Trade balance (US$ million) – Jan/2001–Jan/2013 62 3.11 Profitability of exports and real effective exchange rate

3.12 Coefficient of manufacturing imports – I/2007–IV/2012 63 3.13 Primary fiscal balance as share of GDP (in months) 66 5.1 Brazil’s gross domestic product: growth and share of

5.2 Merchandise exports in selected economies, 1980–2010 102 5.3 Productivity and investment in selected economies,

5.6 Business cycles synchronization between Brazil and its

7.1 Brazil: metropolitan unemployment (percentage of

7.2 Brazil: trade balance – monthly data, accumulated in

7.3 Growth rates of volume indices: household

consumption and gross fixed capital formation (GFCF) 151 7.4 Evolution of GFCF (accumulated over four quarters) as

8.1 Evolution and composition of total employment

according to the agglutination of occupational categories between the structured and unstructured nuclei of the

8.2 Evolution of the aggregated social security coverage rates

8.3 Evolution of the functional distribution of income,

participation of the wage labor income (with and

without a job contract) + salaries of military and

civil servants, in the GDP, and total income of the

8.4 Evolution of the personal distribution of the

8.5 Percentage of poor people, with transfers and without

social security transfers, Brazil: 1992–2012 175

List of Tables and Box

Tables

3.1 Average spreads on loans to individuals and working

3.2 Estimation of exports’ functions to Brazil 64 3.3 Selected indicators of public indebtedness 69 4.1 Brazilian macroeconomic indicators, 2003–2012 78 5.1 Main policies and outcomes – Brazil, 1995–2011 95 5.2 Brazil’s technological intensity of exports and imports,

5.3 First-stage estimates (determinants of bilateral total trade) 110 5.4 Brazil: effects of trade intensity on business cycles

7.1 Brazil: annual growth rates of the GDP volume

7.2 Brazil: Gini Index (personal income inequality) and

GDP (per capita) (US$ million, 2013 prices) 139 7.3 Brazil: wage share in the GDP (2003–2011) – wage

share in factor income (%; fourth quarter = Q4) 139 7.4 Composition of Brazilian exports

7.5 Composition of Brazilian imports (in %): durable

consumer goods (DG); nondurable consumer goods

(NDG); capital goods (CG); intermediate goods (IG);

fuels and lubricants (FG) – monthly data: December 144 7.6 Brazilian growth rate (GDP) and demand’s

7.7 Evolution of the tax load as percentage of the GDP and

7.8 Welfare and social security public transfers (ST) 148 7.9 Welfare and social security public transfers (ST) –

7.10 Brazil: annual growth rates (in %) – family consumption, loans to individuals, minimum wage, and social

8.1 General definitions: the structured and unstructured

Foreword

According to the international press, in recent years Brazil has moved from “taking off” to “blowing it.” 1 In the 2000s, the country became the best example of Latin America’s success in promoting growth with equity By 2014, however, Brazil had entered into a recession, social discontent was rampant, and corruption widespread

This prevalent narrative is not particularly illuminating It hides the structural problems of Brazil’s “neo-developmental” model, while also forgetting how much the country has changed in recent years This book is a nice antidote to simplistic perspectives, considering with detail recent achievements, but also the many ways in which Brazil has failed

to catch up

Like the rest of Latin America, between 2003 and 2009, Brazil grew rapidly thanks to the commodity boom Formal employment and minimum wages expanded and new social programs enhanced the redis-tributive capacity of the state As a result, the Gini coefficient decreased steadily, and a new middle class with higher consumption capacity consolidated These distributional gains should not be overlooked: more Brazilians have access to social programs and benefit from stable jobs today than ever before

Yet the model’s dependence on commodities is hugely problematic The share of primary exports in total increased from 42 percent in

2000 to 64 percent in 2010, while manufacturing imports from China expanded simultaneously As Arestis et al and Cardoso Junior and Satie Hanasaki warn in their contributions to this volume, deindustrialization has intensified and, as a result, securing productivity growth and well-paid, skilled jobs over the long run has become difficult

Brazil’s regressive structural change is not simply the result of a lack

of active state intervention Contrary to the experience in neighboring countries, under Lula and Rousseff, Brazil modified its intellectual prop-erty regime, expanded the role of development banking, implemented sectoral policies, and deepened the domestic market New incentives were adopted to promote strategic sectors such as semiconductors, phar-maceutical and chemical products, software, and capital goods

So why were these policies more successful? Global conditions did not help: the combination of high commodity prices and growing

capital inflows led to the overvaluation of the real Competing with China – which benefits from lower real wages and higher productivity –

is increasingly difficult Yet this volume also highlights some internal shortcomings

First, Brazil’s development policy has been inconsistent, mixing sectoral interventions with an orthodox macroeconomic stand For Bresser-Pereira, for example, the use of high interest rates and a strong exchange rate to secure low inflation – and guarantee support from financial markets, one should add – has only consolidated a “macroeco-nomics of stagnation.”

Second, for all the positive changes in Brazil ’s sociopolitical system, including the electoral success of the Partido dos Trabalhadores (PT), the emergence of the new middle class and the growing support for redistribution, the power of the elite remains unchallenged According

to Medeiros, Ferreira de Souza, and Avila Castro (2014), between 2006 and 2012, the income share of the top 1 percent was stable at around

25 percent, while that of the 0.1 percent was above 10 percent – one of the highest in the world High-level executives receive a higher salary

in São Paolo than in London or New York (Elliott Novacich, 2011) The Brazilian wealthy are becoming a rentier class that benefits from high interest rates in the debt they own – as the editors argue in the Introduction Jointly with foreign financial investors, the Brazilian elite has pushed for orthodox policies that guarantee the stability of their investments, even if harming long-term growth prospects simultane-ously (Campello, 2015)

How can Brazil confront these problems while building on recent achievements? Given deteriorating global conditions and growing social discontent, answering this question is as urgent as it is hard Brazil needs

to reform the state and deepen democracy Relations between the public and private sector must become more transparent, and the state should

be able to impose more conditions on capital The power and influence

of the financial sector must decrease, at the same time that social ments must become stronger and more successful at promoting new policies and influencing debates

In the economic arena, the development model needs to be more coherent and redistributive Macroeconomic policy should support sectoral interventions, preventing the overvaluation of the exchange rate and maintaining interest rates as low as possible Industrial policy should combine carrots and sticks and build more interactions with other policy realms such as education and the promotion of competi-tion Social policy reforms could be more focused on promoting equal

services and benefits for all This may require less spending in some areas (pensions for high income groups), more spending in others (public hospitals and primary and secondary schools), and better spending in all cases

The challenge is immense, but the country’s strengths are also cant We must overcome dominant discourses based on short-term eval-uations and focus on long-term opportunities to overcome structural bottlenecks This volume provides many ideas on how to do precisely that

Diego Sánchez-Ancochea University of Oxford

Medeiros, M., Souza, P H G F., Castro, F A (2014), O Topo da Distribuição

de Renda no Brasil: primeiras estimativas com dados tributários e comparação com pesquisas domiciliares, 2006–2012 SSRN, http://Social Science Research Network.com/abstract=2479685 , accessed on 25 January 2015

Notes on Contributors

Niemeyer Almeida Filho holds a Bachelor’s in Economics (1979) and

Master’s in Economics from the University of Brasilia (1985), and a PhD in Economic Theory from the University of Campinas (1994) He conducted post-doctoral research in the Department of Economics at the University of São Paulo (2009) He was a visiting researcher at the Food and Agriculture Organization at Latin America and Carribean in Santiago in 2008 He is a professor at the Institute of Economics, Federal University of Uberlandia, and permanent member of the Post Graduate Program in Economics and in International Relations at the same insti-tute He has taught undergraduate and postgraduate courses in the field

of economic development since 1996 He acts as a consultant to National Institute of Study and Research He is leading the CNPq research group

on development and public policy, focusing on the areas of ment and dependency, Brazilian development, and policy and food security in Latin America He is President of the Brazilian Society for Political Economy and Vice President for Brazil of the World Association for Political Economy (WAPE)

develop-Philip Arestis is Professor and Director of Research at the Cambridge

Centre for Economics and Public Policy, Department of Land Economy, University of Cambridge, UK; Professor of Economics, Department of Applied Economics V, Universidad del País Vasco, Spain; Distinguished Adjunct Professor of Economics, Department of Economics, University

of Utah, US; research associate, Levy Economics Institute, New York, US; visiting professor, Leeds Business School, University of Leeds, UK; and professorial research associate, Department of Finance and Management Studies, School of Oriental and African Studies (SOAS), University of London, UK He was awarded the British Hispanic Foundation’s Queen Victoria Eugenia Award (2009–2010) and was also awarded the “homage” prize for his contribution to the spread of Keynesian economics in Brazil by the Brazilian Keynesian Association (AKB, 15 August 2013) He served as Chief Academic Adviser to the UK Government Economic Service (GES) on Professional Developments

in Economics (2005–2013) He has written widely in academic nals, and he is, and has been, on the editorial board of a number of economics journals

jour-Luiz Carlos Bresser-Pereira is Emeritus Professor of the Getulio Vargas

Foundation, where he has taught and conducted research since 1959

He has been the editor of the Brazilian Journal of Political Economy since

1981 He holds a PhD in Economics from the University of São Paulo (1972) He is Doctor Honoris Causa at the University of Buenos Aires, and he is the 2012 James Street Scholar, awarded by the Association for Evolutionary Economics He was Finance Minister (1987) and Minister

of Federal Administration (1995–1998) of Brazil He is the author of

numerous books in English, including The Theory of Inertial Inflation (1987); Democracy and Public Management Reform (2004); Globalization

and Competition (2010); and Developmental Macroeconomics (2014) Some

of his papers are “Citizenship and res publica: the emergence of

repub-lican rights” (2002); “The two methods and the hard core of economics” (2009); “The global financial crisis, neoclassical economics, and the neoliberal years of capitalism” (2010); “The value of the exchange rate and the Dutch disease” (2013); and “Inequality and the phases of capi-talism” (2014) His current research is on new developmentalism and developmental macroeconomics

Alex Callinicos is Professor of European Studies in the Department of

European & International Studies, King’s College London, University of

London His most important works include: Deciphering Capital: Marx’s

Capital and Its Destiny (2014); Bonfire of Illusions: The Twin Crises of the Liberal World (2010); Imperialism and Global Political Economy (2009); The Resources of Critique (2006); The New Mandarins of American Power: The Bush Administration’s Plans for the World (2003); An Anti-Capitalist Manifesto (2003); Against the Third Way: An Anti-Capitalist Critique

(2001); Equality (2000); Social Theory: A Historical Introduction (1999);

Theories and Narratives: Reflections on the Philosophy of History (1995); Race and Class (1993); The Revenge of History: Marxism and the East European Revolutions (1991); Trotskyism (1990); Against Postmodernism: A Marxist Critique (1989); South Africa between Reform and Revolution (1988); The Changing Working Class: Essays on Class Structure Today (1987, with Chris

Harman); Making History: Agency, Structure, and Change in Social Theory (1987); The Great Strike: The Miners’ Strike of 1984–5 and Its Lessons (1985, with Mike Simons); The Revolutionary Ideas of Karl Marx (1983); Marxism

and Philosophy (1983); Is There a Future for Marxism? (1982); Southern Africa after Zimbabwe (1981); Southern Africa after Soweto (1977) (with

John Rogers); and Althusser’s Marxism (1976).

José Celso Cardoso Júnior graduated from the School of Economics,

Business and Accounting, University of São Paulo (FEA/USP) with a

Bachelor’s in Economics He holds a Master’s in Economic Theory and a PhD in Development (with specialization in social economy and labor) at the Institute of Economics, State University of Campinas (IE/UNICAMP) Since 1996, he has served as a technician of planning and research at the Institute for Applied Economic Research (IPEA) Prior to his current post,

he has worked as Adjunct Director of Studies and Social Policies (DISOC/IPEA), Director of Studies and State Policies of Institutions and Democracy (DIEST/IPEA), Director of Planning, Monitoring and Assessment at the Pluri Annual Plan 2012–2015, as well as in the Secretariat for Planning and Strategic Investments (SPI) of Brazil’s Ministry of Planning, Budget and Management (MPOG)

Vanessa Petrelli Corrêa is a professor at the Federal University of

Uberlândia, Brazil She was coordinator of the Master’s and doctoral programs in Economics at UFU Corrêa holds a PhD in Economics from the University of Campinas, Brazil (1996), a Master’s in Economics from the University of Brasília (1986), and graduated with a degree in Economics from the Federal University of Paraná, Brazil (1982) She was Secretary of Agriculture for the Uberlândia municipal government She was also Chairman and Director of Macroeconomics for the Institute for Applied Economic Research (IPEA) Vanessa is the author of numerous articles, chapters, and studies on financial flows, financial fragility and vulnerability, peripheral development, banking, regional credit markets, crises in peripheral countries, financial regulation, and economic policy

André Moreira Cunha completed his post-doctoral fellowship in

Economics at the University of Cambridge, Department of Land Economy, Cambridge, UK (2011–2012) He holds a PhD in Economics, Universidade de Campinas, SP, Brazil (2002); a Master’s in Economics, Universidade de Campinas (1995); and a Bachelor’s in Economics, Universidade Federal do Rio Grande do Sul, RS, Brazil (1992) He is Associate Professor of Economics at the Universidade Federal do Rio Grande do Sul since 2003, where he chaired the Graduate Program in Economics from 2010 to 2011 He was a research fellow in Economics at CNPq 2005, a visiting scholar at Leiden University, Netherlands (2006), assistant professor at Unisinos, Brazil (1995–2003), and economist at the Bank for the Regional Development of the Extreme South, Brazil (1999–2003)

Julimar da Silva Bichara is Professor of Economic Policy and

Development Economics in the Department of Structural and

Development Economics, Universidad Autónoma de Madrid, Spain

He holds a Master’s in Economics from the Universidade de São Paulo, Brazil He has been a visiting researcher in the Latin American Centre, University of Oxford; University of Illinois at Urbana–Champaign; and Fundação João Pinheiro

Manoel Carlos C Pires is Chief Economist at Brazil’s Ministry of

Planning He is also a researcher at the Institute for Applied Economic Research (IPEA) where he studies macroeconomics and fiscal policy Between 2008 and 2014, he worked on fiscal policy and development issues in the Economic Policy Secretariat and Executive Secretariat, both

at the Ministry of Finance The National Treasury honored him with several awards for his studies on macroeconomic policy coordination, debt sustainability, and monetary policy He is the author of numerous

papers in academic journals such as Journal of Economic Studies, Journal of

Applied Economics, Cepal Review and Applied Economic Letters He holds a

PhD in Economics from Brasilia University and a Master’s in Economics from the Federal University of Rio de Janeiro (UFRJ)

André de Melo Modenesi is an associate professor at the Institute of

Economics of the Federal University of Rio de Janeiro (IE/UFRJ) He is Deputy Executive Secretary of the Brazilian Association of Postgraduate Programs in Economics (ANPEC) and was Director of the Brazilian Keynesian Association (AKB) during 2012–2014 He holds a PhD in Economics (UFRJ, 2008), a Master’s in Economics (Federal Fluminense University, 2002), and Bachelor’s in Economics (Catholic University of Rio de Janeiro) and in Social Sciences (Rio de Janeiro State University)

In 2007, he was a visiting scholar at the University of Illinois in Urbana–Champaign (UIUC) He is a researcher at the National Council for Scientific and Technological Development, Brazil, (CNPq) begin-ning his post in 2010 He was a visiting researcher at the Institute for Applied Economic Research (IPEA), during 2007–2009 and 2012–2013

He is the author of a textbook, Regimes Monetários: Teoria e a Experiência

do Real (Monetary Regimes: Theory and the Brazilian Experience of the Real Plan), winner of the Economic Culture Prize, sponsored by the Jornal do Comercio and Caixa RS (2005).

Luiz Fernando de Paula is Professor of Economics at the State

University of Rio de Janeiro, and a researcher at the National Council for Scientific and Technological Development (CNPq), both in Brazil

He was Chairman of the Brazilian Keynesian Association (AKB) from

2009 to 2013 He was a visiting research fellow at St Antony’s College

(2000–2001) and at the Centre for Brazilian Studies (2006), University

of Oxford He is the author of numerous book chapters and papers for

academic journals, including Cambridge Journal of Economics, Journal of

Post Keynesian Economics, ECLAC Review, International Review of Applied Economics, Brazilian Journal of Political Economy, and Investigacion Económica He is also the co-editor of Monetary Union in South America

(with Prof Arestis, 2003); and Financial Liberalization and Economic

Performance in Emerging Countries (Palgrave Macmillan, 2008) He is also

the author of Financial Liberalization and Economic Performance: Brazil at

the Crossroads (2011) His research interests are in the areas of

macroeco-nomic policy, monetary ecomacroeco-nomics, banking, international financial flows, and post-Keynesian economics

Claudio Hamilton dos Santos is Director of Macroeconomics at the

Institute for Applied Economic Research (IPEA) of the Brazilian ment He holds a PhD in Economics from the New School for Social Research, US, in 2003 and a Bachelor’s and Master’s in Economics from the Federal University of Rio de Janeiro (UFRJ) in 1993 and 1997, respec-tively He served as Coordinator of Public Finance for IPEA between 2008 and 2012 He is the author of numerous articles, chapters, and studies

govern-on macroecgovern-onomics theory, applied macroecgovern-onometrics, public finance, and national macroeconomic statistics

Fernando Ferrari Filho completed his post-doctoral program in

Economics at the University of Tennessee and University of Cambridge and holds a PhD in Economics from the Universidade de São Paulo He

is Professor of Economics at Universidade Federal do Rio Grande do Sul, and a research fellow in Economics at CNPq He was a visiting scholar, Department of Economics, University of Illinois; Fleming Visiting Fellow

in Economics, Centre for Brazilian Studies, University of Oxford; and Glynn Visiting International Scholar, The Williams School of Commerce, Economics, and Politics, Washington and Lee University Filho is co-ed-itor and author of several books and author and co-author of articles published in Brazilian and international journals His research focuses

on post-Keynesian theory, macroeconomics (stabilization and growth), monetary and exchange rate policies, and financial and currency crises

Cláudia Satie Hamasaki holds a Master’s in Economic Sciences at

the School of Economics, Business and Accounting at the University

of São Paulo (FEA/USP), and a PhD from the Postgraduate Program on Economics (PIMES) at the Federal University of Pernambuco (UFPE/PIMES) She was a researcher in the Department of Economic Sciences at

the UFPE from 1998 to 2003, and a professor at the Catholic University

of Pernambuco from 1998 to 2005 Since 2006, she has served as an adjunct professor in the Department of Economics at Universidade Presbiteriana Mackenzie and Facamp (Faculdades de Campinas), teaching about public economics, welfare, and labor economics

Rosa Maria Marques holds a Bachelor’s in Economics from the Federal

University of Rio Grande do Sul (1974), a Master’s in Economics from the Catholic University of São Paulo (1985), and a PhD from the Getúlio Vargas Foundation, SP (1996) She conducted post-doctoral studies at the Faculte de Sciences Economiques from Université Pierre Mendes France, Grenoble, and at the Universidad de Buenos Aires She is a professor at the Pontifical Catholic University of São Paulo She was President of the Brazilian Society of Political Economy and a member of the Budget and Finance Committee of the National Health Council She has experi-ence in economics, with an emphasis on the labor market, government policies, and contemporary economics, especially with regard to the following topics: social policy, health financing, labor, social security and social protection She is President of the Brazilian Association of Health Economics since December 2012

Lauro Mattei completed his post-doctoral program in Socioeconomic

Development at the University of Oxford He holds a PhD in Economics from Universidade de Campinas, Brazil, and a Master’s in Public Policy from the University of Texas, US He was a visiting researcher at the Brazil Institute, King’s College London Since 2000, he has been a Professor of Economics at Universidade Federal de Santa Catarina Mattei is co-ed-itor and author of several books and author and co-author of articles published in Brazilian and international journals He is Director of the Brazilian Keynesian Association (AKB), Director of the Brazilian Political Economy Society (SEP), and Director of the Brazilian Society of Rural Sociology and Economics (SOBER) His research focuses on macroeco-nomics theory, economic development, labor economics, rural develop-ment, and social policies

Anthony W Pereira is a professor and Director of the Brazil Institute at

King’s College, London He obtained his Bachelor of Arts from Sussex University, UK, in 1982 and his Master’s and PhD from Harvard University

in 1986 and 1991, respectively He has held positions at the New School, the Fletcher School of Law and Diplomacy, Tulane University, and the University of East Anglia In 2005, he was a visiting professor at the Federal University of Pernambuco (UFPE) His most recent book is

Ditadura e Repressão (2010), a Portuguese version of Political (In)justice: Authoritarianism and the Rule of Law in Brazil, Chile and Argentina (2005)

He has also published two other books, The End of the Peasantry (1997), and an edited volume with Diane Davis: Irregular Armed Forces and Their

Role in Politics and State Formation (2003) Pereira is working on a book

about the Brazilian state He has written articles for CNN International, the BBC, The Conversation, and other news publications, and he comments on radio and television for outlets such as the BBC, CNBC, and Bloomberg TV He teaches about Brazilian development, democracy, and human rights at King’s In addition to his academic activity, he is also a member of the Council of the Brazilian Chamber of Commerce for Great Britain

Part I

Introduction

After several decades of stagnation since the beginning of the ty-first century, the Brazilian economy has made important changes (ECLAC, 1950; Edwards, 2009 Panizza, 2009) There has been a new growth cycle that directed government action to combat social inequali-ties and resume the construction of a new pattern of development, but without changing the structural conditions of a peripheral economic system (Sicsú, Oreiro and Paula, 2003) This growth cycle was relatively high between 2003 and 2010, when the country had an annual growth rate of 2.5 percent compared to less than one percent in the previous decade (Weisbrot, Johnston & Lefebvre, 2014) However, due to the global economic crisis, since 2011 the Brazilian economy has been stag-nant, with very low GDP growth rates (Bacen, 2014)

This new cycle of growth has been supported by some economic policy instruments that enabled Brazil to have a greater participation

in global trade, while initially easing the effects of the current crisis that have impacted, particularly after 2008, the entire global economic system, (IPEA, 2009; IPEA, 2010) However, this phase was ending just

as this book was being written The problems caused directly and rectly by the crisis were starting to have major effects on significant social strata, leading to the establishment of social rebellions across the country during June 2013, and the protests that occurred in March and April 2015

This process of social upheaval that is currently underway calls into question the myth that had been promulgated since 2003 that Brazil

1

Dilemmas of Brazilian Economic Development in the Twenty-First Century

Lauro Mattei and Anthony W Pereira

had a new phase of development, with emphasis on two key factors that were being overcome: the poverty of a large sector of the population and

an extreme dependence on international capital This wave of optimism that prevailed until recently, for many years actually hid weaknesses and contradictions of the Brazilian model of economic development – many

of which will be analyzed in this book

The process of economic stabilization

The last two decades of the twentieth century were marked in Brazil

by deep economic and social crises With the end of military rule, the country had failed to maintain the growth trajectory of the post-war period when it implemented an industrial development model based on the import substitution process (Ocampo and Ros, 2011)

The constant crisis of external debt and the domestic inflation led,

in the 1980s, to the adoption of various economic plans – programs that quickly lost their effectiveness (Freitas, 2012) Only since July 1994, with the implementation of the “Plano Real,” has the economy been stabilized This was managed through the adoption of a set of struc-tural adjustment policies that were anchored on four pillars: banking and financial deregulation; trade liberalization, with the opening of the economy to goods and services from abroad; stabilizing prices via a fixed exchange rate policy; and reducing state participation in the economy through a large-scale program of privatization of state enterprises After more than two decades, it is possible to analyze the 1990s with greater clarity and consistency regarding Brazil’s economic and polit-ical choices Seeking to confront the serious crisis affecting the country since the early 1980s, a set of macroeconomic policies were adopted in order to stabilize the economy and restore growth To a large extent, it can be stated that these policies were strongly influenced by political ideas emanating from the industrialized countries and consolidated

in the so-called “Washington Consensus.” In general, this consensus determined that the best strategy for coping with crisis in the peripheral countries would be to deregulate their economies in order to attract new foreign investment and allow the free mobility of capital (Porzecanski and Gallagher, 2007; Correa, 2002)

In addition, economic liberalization was defined as essential This resulted in expansion of international trade and the programs to privatize state enterprises as the means to tackle the fiscal problems of national states Thus, it was believed that trade liberalization, financial deregulation, and privatization of state enterprises would automatically

take economic systems to levels of growth higher than those shown in the decade of crisis

It was with the Plano Real of 1994 that Brazil adopted this strategy The economic plan’s main goal was to tackle the inflationary process and ensure macroeconomic stability through price stability Although this stabilization was successful, the contradictions in the economic policy put in question the choice between restoring economic growth

or resuming development of the country The path that was chosen between 1995 and 2002 (under the government of President Fernando Henrique Cardoso) was to stabilize the economy through the adop-tion of a policy of extremely high interest rates compared to those of countries in similar situations Thus, several authors (Bresser-Pereira and Nakano, 2002; Bresser-Pereira, 2012; AKB, 2013), claim that Brazil built for itself an interest rate trap that led to a perverse balance, as the economic measures became unable to stimulate the resumption of sustainable development To a great extent, this problem became worse

as Brazil sought to recover its levels of economic growth, which fell on the constant search for foreign savings

This strategy proposed by developed countries and multilateral agencies (the International Monetary Fund and the World Bank), and passively accepted by peripheral countries, was one of the main impedi-ments to the resumption of Brazilian economic development on a sustainable basis in the 1990s Thus, in the late twentieth century, Brazil neither achieved macroeconomic stability nor resumed economic devel-opment at desired levels Even in keeping the inflation under control, the macroeconomic policies adopted by the stabilization plan only proved effective in the early years of the Plano Real, as the international economic crisis of 1997–1998 provoked strong speculative movements

in various financial markets, culminating in capital flight, particularly

in developing countries

At the end of 1998, with sizeable loans from the International Monetary Fund to cover the current account deficit, Brazil was forced to alter its exchange rate policy – a fixed exchange rate model was replaced

by a floating exchange rate regime – and adopt an inflation-targeting regime and primary surplus in the fiscal sphere, as a means of warding off fears concerning the country’s ability to honor its commitments to international financial agents

Although these measures managed to keep inflation stable, they failed to promote a recovery in economic growth The last years of the twentieth century were consequently marked by economic stagnation,

a process that generated strong internal contradictions that are made

explicit in the low rate of GDP growth, a rise in unemployment, and a worsening of social conditions for a significant portion of the popula-tion It is this agenda that in a large part was restored in the first decade

of the twenty-first century

It was in this climate of economic, political and social instability, that Luiz Inácio “Lula” da Silva was elected in 2002 as the President of Brazil, seeking to adopt a new economic and social development model

to secure the resumption of growth, increase levels of job creation, fight against hunger and poverty, and improve levels of income distribution

A growth strategy based on an “international commodities boom” and the expansion of the internal market

From 2003, a new growth strategy was put in place with the tation of various policies aimed at stimulating productive investment and the generation of employment and income, while retaining the basis of macroeconomic stability of the previous period Thus, Brazil had shown since 2003 a consistent pattern of growth that not only excelled among emerging countries, but also made it a major player in the global economic order (Gonçalves, 2003; IPEA, 2010; Ferrari Filho, 2003) However, after Brazil began to suffer the effects of the subsequent global economic crisis, this growth trend was reversed Thus, it is noted that between 2011 and 2014, the average rate of GDP growth was extremely low, at around 1.5 percent, with a virtually zero rate of growth in 2014 (Bacen, 2015) All recent forecasts (IMF, World Bank and Central Bank of Brazil) show that this economic scenario will not change in 2015, and may even provide lower rates to those of the previous year

Note should also taken that the growth of the Brazilian economy, especially between 2003 and 2008, was made possible by a favorable international environment, especially with the expansion of the global demand for commodities and the consequent increase in their prices, combined with a recovery of the domestic market, boosted by demands for durable consumer goods, especially in light of a liberal credit policy thanks to the abundance of international liquidity

The strategy based on internal consumption

The strong expansion of both productive and consumer credit, larly through sizeable loans from the public banks – which accounted for more than 50 percent of the total available credit – helped boost economic activities In terms of employment performance, between

particu-2003 and 2010, more than 14 million formal jobs were generated,

which contributed decisively to reducing the precariousness of the labor market, with the reduction of the informal labor sector But it is necessary to note that the vast majority of these new jobs were low-paying, and that more than two-thirds of the economically active popu-lation earned the equivalent of less than three minimum wages (IBGE,

2009 and 2011) In addition, during the first decade of the century, Brazilians still worked an average of 44 hours per week and labor turn-over increased On the other hand, between 2003 and 2010 there was a policy to increase the minimum wage, which led to its rise by 60 percent compared to the last decade of the twentieth century (Carneiro, 2006; Ferraz, Crocco and Elias, 2003; Sicsú and Castelar, 2009; Sader, 2013; Cardoso Junior, 2009)

Thus, the per capita income that had been static for more than two decades, grew at an average rate of 2.8 percent per year during the period between 2003 and 2011 These indicators led to positive effects on the concentration of income This narrowed the historical gap between the average income of the richest ten percent compared to the poorest ten percent from 53 times in 2002 to 39 times in 2010 (IPEA, 2009; IPEA 2010) The result, according to the government, was that some

20 million Brazilians have been pulled out of poverty and have become part of the middle class (Neri, 2012; Pochmann, 2012)

Alongside these economic changes, social policies (such as those relating to social security and income transfer) adopted by governments

in the 2003–2011 period were decisive in keeping the consumer market buoyant, as more than 13 million families have been financial benefici-aries However, it is noteworthy that these factors did not significantly alter the consumption pattern in view of the socio-economic disparities still present in Brazilian society (Hall, 2013; Campello and Nery, 2013 and 2014; Leão and Pinzani, 2013; Soares, 2013)

In some ways, 2003 to 2011 could be considered the period of pro-poor growth in Brazil In this period, Brazilian per capita income increased by

40 percent, from US$155 (£118 at the rate of exchange of R$4.66 per pound prevailing in April 2015) per month to a little more than US$155 (£165), while the Gini coefficient fell by 9.2 percent, from 0576 to 0523 (Campello and Neri 2014: 29) The incomes of the bottom decile rose much faster than the incomes of the top decile The poverty rate fell from 37.13 percent of the population in 2003 to 21.42 percent in 2009 (Montero, 2014: 133) In absolute terms, from 2001 to 2007, the popula-tion living in extreme poverty (with monthly per capita income below US$20, or roughly £15) fell by 11 million people, while the number of people living in poverty (with monthly per capita income below US$42,

or about £32) declined by 13 million (Barros et al 2010: 137) From

2003 to 2011, the number of people in the so-called “class C” – the marketing category consisting of those with a monthly family income between US$282 [£214] and US$1,130 [£855] – rose from 65.8 million

to 105.4 million, becoming the majority of the Brazilian population Commentators began to point to the emergence of Brazil’s “new middle class.” Some hailed this new middle class as the harbinger of a major transformation of Brazil, while others argued that this so-called new middle class was actually the “new working class” (Chaui 2013; Neri 2012; Pereira 2010; Pochmann 2012; Souza and Lamounier 2010)

In this period, there was certainly a major expansion of federal spending in the social arena A recent study revealed that social spending showed the following behavior: between 1995 and 2002 (under President Fernando Henrique Cardoso) such spending increased from 11.24 percent of GDP to 12.92 percent of GDP, while between

2003 and 2010 such spending increased from 12.92 percent of GDP to 15.54 percent of GDP; this means that there was a percentage increase over both periods totalling approximately 173 percent In absolute terms, the federal government spent R$638.5 billion on social programs

in the year 2010 alone (IPEA, 2012) 1

Also according to IPEA (2012), two areas had significant growth in the levels of social spending by the federal government: education and social assistance Education spending under President Fernando Henrique Cardoso (1995–2002) fell from 0.95 percent of GDP to 0.76 percent of GDP – a decrease in comparison with the expansion of Brazil’s GDP During the government of President Lula (2003–2010), education spending increased from 0.71 percent (2003) of GDP to 1.11 percent of GDP (2010) In strictly monetary terms, the education budget rose from R$19.9 billion (2002) to R$45.5 billion (2010) Spending on social assist-ance under President Cardoso increased Under President Lula, social assistance expenditure increased from 0.66 percent of GDP (2003) to 1.07 percent of GDP (2010) In strictly monetary terms, the Lula admin-istration was spending more than R$44 billion on social assistance This information reveals the political priority given to social spending

in the first decade of the twenty-first century To a large extent, this expansion of financial resources in the social sphere is strongly related to the increase in the provision of social services, the various cash transfer programs, and the process of boosting the minimum wage

Even considering the importance of increasing public spending in the social sphere, there is a great contradiction Allegrini (2013: 17) shows that despite recent progressive changes in government transfers, some

43 percent of tax revenues are used to fund the public pension system About 15 percent of tax revenue, or five percent of GDP (some R$220 billion), goes toward interest on the public debt According to the econ-omist Marcio Pochmann, much of these earnings go to Brazil’s 20,000 richest families Thus, though governments have claimed as a political priority social care, this discrepancy reveals that, in practice, govern-ments effectively ensure the profitability of financial capital

The most visible result of this contradiction is demonstrated in two spheres: first, despite the expansion of formal jobs, a significant portion

of the workforce (nearly 40 percent) is underemployed, living with a monthly income of the minimum wage (Cardoso Junior, 2009) Second, there is still a cohort of more than 30 million people in Brazil who are living in poverty – the equivalent of the total population of several Latin American countries – making the Brazilian concept of the “middle class” somewhat debatable

Finally, it should be mentioned that the subordination strategy of the Brazilian economy to the global capitalist accumulation logic has led

to its reconfiguration in the international division of labor, demanding deindustrialization, with low competitiveness of Brazilian products in global markets Thus, the exploitation of natural resources, involving the production of commodities, has become much more important in terms of Brazil’s international trade, as we shall see in the following section

The strategy based on commodity exports

In the early twenty-first century, Brazil has been closely tied to the national trade of commodities, based on the intensive use of its natural resources, both agricultural and mineral Brazil has strengthened its posi-tion as a major world exporter, but with little competitiveness when it comes to international integration, particularly in the industrial sphere (Amitrano, 2006; Carneiro, 2008)

This phenomenon, known as the insourcing of Brazilian exports, is not only due to the good performance of prices of some commodities in the world market driven by rising Chinese demand; it is also due to the lack of and/or low competitiveness of industrial products produced in Brazil compared to those of international competitors

The reduction of the export of Brazilian products with higher added value is a recent phenomenon that reveals a structural change in the country’s economy In the 1990s, primary products accounted for less than 37 percent of total exports In the 2010s, such exports accounted for 51 percent of sales Thus, the market share of Brazilian commodities

rose to 4.66 percent of total world exports of these products (Mattos and Jaime, 2011)

At the end of 2011, government policymakers marked another record,

as Brazilian exports exceeded imports by more than US$30 billion However, this significant surplus continued to be dominated by two types of products: agricultural commodities and products derived from the exploitation of natural resources, especially iron ore With this, the country consolidated a dominant feature of trade relations grounded in exports of products with low technological indices (Iedi, 2005; Almeida, 2012)

An analysis of the different types of Brazilian exports according to technological concentration between 2000 and 2010, reveals a rather unfavorable scenario While products with high technological concen-tration reduced their share from 18 percent (2000) to nine percent (2010) of total exports, commodities grew in the same period from

37 percent to 51 percent Products with an average technological sity reduced their share from 18 percent to 14 percent (Ministério do Desenvolvimento, Indústria e Comércio, 2011)

This information shows the increase in the share of agricultural and mineral products in Brazilian exports Even though these products have offset the lack of competitiveness of other sectors, they do not generate sufficient employment and income to meet the demands of the popu-lation Therefore, it is necessary to rescue the central role of industry

in Brazil’s development process, which requires new investment, both public and private, in the areas of science and technology It is exactly

in this area of investment where two major problems lie: first, the growth of the Brazilian economy in recent years has shown that the small levels of investment were strongly induced by growth in domestic demand, which in itself reveals a macroeconomic fragility Second, the overall level of public investment in Brazil has historically been low by international standards, standing currently below three percent of GDP (Laplane and Satri, 2006; Barbosa, 2013)

In 2014, the share of basic raw materials increased in the Brazilian trade balance Thus, this segment accounted for 52 percent of the coun-try’s total exports Thus, more than half of the proceeds from trade concerned the commodities of natural resources, in particular products such as iron ore, meat, soybeans, coffee and sugar For many analysts (Oreiro and Feijó, 2010; Bonelli and Pessoa, 2010), this trend in the Brazilian economy that leads to the process of primary exports is associ-ated with a systemic problem of an economy related to infrastructure issues, the distorted tax burden and the overvaluation of the national

currency for long periods, which strongly increases Brazilian costs of production measured in dollars In isolation, the overvaluation of the currency is the most important factor because it makes imports too cheap and mitigates against the manufacture of goods in Brazil

The main problem of the country is deindustrialization, as described above The industrial achievements of the twentieth century will be lost, possibly regressing to a primary-export form of economy that character-ized the nineteenth century As such, the dynamism of the economy is increasingly being conditioned by the central dynamics of the economic world Meanwhile, other countries that have forged their development

by industry and technological progress can generate quality jobs and the income needed for the social development of their populations (Cano, 2012)

The world economic crisis and the uncertainties of the Brazilian socioeconomic development model

Given the crisis that affected all major economies since 2008, Brazil adopted a set of economic policy measures aimed at strengthening the internal market In particular, the country expanded the availability of credit for investment and consumption, offered incentives for produc-tive sectors, pursued an appreciation policy for the minimum wage, and expanded social policies aimed at promoting improvements in income distribution In parallel, the three basic measures were maintained from the macroeconomic stability that had existed since 1999 – i.e the infla-tion targeting policy, the floating exchange rate regime, and the policy

of primary surplus targets These measures led to varying results The authorities disclosed that Brazil would face the crisis through the adoption of countercyclical policies driven by domestic demand, but

it appears that investment rates – which are the basis for endogenous growth – were practically stationary at the level of 17 percent of GDP over the first decade of the twenty-first century This was well below the level achieved by the Brazilian economy between the 1970s and 1990s (Lopreato, 2013; Serrano and Summa, 2012)

Despite this poor indicator, Brazil managed to keep inflation rates under control, allowing an expansion of international financial flows into the country At the same time, it created a situation in which Brazil has become an international lender, creating the misleading perception that the problems of the external accounts would be definitively solved (Biancarelli, 2012) This favorable scenario for international investments also contributed to the formation of a view that Brazil now has more

relevance in the global context As proof of this prestige, Brazil was given the opportunity to host two mega sporting events – the 2014 World Cup and the 2016 Olympics

From the point of view of the overall performance of the Brazilian economy, some positive performance can be observed over that period since the global crisis This includes a reduction in the rate of unemploy-ment, the reduction of net public sector debt, the temporary devalu-ation of the currency, and – despite its upward trend from 2013 – a reduction in interest rates

But the economy’s negative factor was the marked slowdown of GDP since 2010 In considering the first two years of the crisis (2009 and 2010), it appears that Brazil’s GDP had an average growth rate of 3.8 percent per year One sees over the following four years (2011–2014)

an average growth rate of about 1.5 percent a year, which demonstrates the existence of a set of dilemmas and uncertainties regarding the macr-oeconomic strategy In addition, it should be stressed that the perform-ance of the Brazilian GDP was well below the average rates of those of most other Latin American countries in the same period (Bacen, 2010,

2011, 2012; Serrano and Summa, 2012)

With the deepening economic crisis in 2011 and 2012, especially

in the “Eurozone” countries, the Brazilian government adopted new countercyclical economic policy measures, but with different sizes and intensities to those measures adopted in 2008 when the crisis assumed

a global character Among these new measures, tax relief policies stood out, especially for industrial sectors Also agreed upon was an increase

in credit approvals from public banks, inflationary deceleration policy using interest rates, and the capital control policy, which was aimed at avoiding the negative effects from external financial flows (Costa, 2014; Baltar, 2014)

Even if Brazil’s macroeconomic policy retained the stabilization of the tripod functionality as described above, the measures that were adopted had little effect on economic activities Thus, government estimates of GDP growth for 2012 (four percent growth) did not materialize, frus-trating all expectations, as the growth rate for that year turned out to

be a mere 0.9 percent In addition to revealing production bottlenecks, this very poor GDP performance exposed the limits of economic meas-ures and challenged the country’s growth strategy based on expanding domestic demand

Several aspects help to understand what is happening, in the light of the strategy, to the Brazilian economy First, in such an unequal society

as Brazil, the level of household debt should be considered This debt ceiling had been reached in the previous years’ consumption boom – especially in the durable goods sector, which is generally more expen-sive and more selective Therefore, the policy of extending higher levels of public credit to consumers, as well as tax relief policy, had little effect on economic activities, with the entire productive sector remaining at very low levels (Biancarelli, 2012; Serrano and Summa, 2012; Baltar, 2014)

Another internal aspect is the industrial situation of Brazil, which traditionally has a low level of competitiveness when facing interna-tional competition This low competitive landscape was strongly exac-erbated by the policy of high interest rates and by the policy of the appreciation of the Brazilian currency, resulting in poor performance of the industrial sector during Dilma Rousseff’s first four years as president (2011–2014)

Finally, the continued exacerbation of the international economic crisis contributed decisively to Brazil’s economic problems, as it maintained an aura of uncertainty in the overall landscape, which helped to spread a pessimistic atmosphere in most world economies (AKB, 2013)

In this context, the last two years of the first administration of President Dilma Rousseff (2013 and 2014) were marked by a number of significant developments These included a continuous process of rising prices (especially of food), which contributed again to accelerating infla-tion; a period of strong exchange rate appreciation, which negatively affected the industrial sector as it promoted a low competitiveness of industrial products as against international competition; and continued high levels of interest rates

As well as putting into question Brazil’s development strategy based

on expanding domestic demand, this largely negative economic picture was linked to the political sphere, with a period of political crisis, including protests by various social groups, such as occurred at the beginning of 2015

Given the economic, political, and social tensions that pervaded Brazilian society at the beginning of Rousseff’s second term as president (commencing in 2015), it is inevitable that economists would look at some key questions: Had the end been reached for the successful strategy during the period of Lula’s presidential administrations (2003–2010)?

Or, would that growth model become unsustainable in a short period

of time?

Critical considerations

During the first decade of the twenty-first century it has become common wisdom to praise Brazil and its model of economic development, espe-cially considering its performance in difficult times and crises that have taken over all markets and affected virtually all countries The positive forecasts of world economic rankings further stimulated the debate in favor of “country power,” based on GDP performance

In fact, since 2000, Brazil has grown in real terms significantly more than the average for the Eurozone and Britain, in particular If the differ-ences were already large by 2006, from 2007 they became even greater Thus, between 2006 and 2011, Brazil grew 28 percent, while the Eurozone, which was strongly affected by the crisis, grew only 5.7 percent, and the

UK by 2.9 percent (Ministério da Fazenda, 2010 and 2012)

However, one should be cautious with these figures and should also consider other indicators that might better reflect the reality For example, to assess the true wealth of a country, GDP per capita is the most appropriate indicator For Brazil, the GDP per capita in 2011 was US$11,900, while for the United States it was US$49,000 and for the

UK it was US$36,600 Therefore, many decades will be needed for Brazil

to achieve a boost in GDP per capita to levels similar to developed countries

Consequently, it is essential to be realistic and not succumb to the jingoism that has been cultivated in Brazil in recent times One way

to do this is to try to unravel some contradictions in the current Brazilian economic model First, one must be clear that the economic policy, while able to maintain macroeconomic stability, continues to be extremely slow in addressing the historical problem of Brazilian social inequalities

There is no denying the role of social capital transfers to reduce inequalities However when one compares the dimensions of the different governmental actions one can see whom most benefits from current macroeconomic policy To help 13 million poor families, the Bolsa Família (Family Allowance) program spent about R$11 billion in

2011, while the federal government paid interest of about R$170 billion Interest rate policy has encouraged a wealthy rentier class – mostly the holders of government bonds – who are taking advantage of the current Brazilian economic and financial situation

Another apparent contradiction concerns the role of economic agents linked to the commodity boom In this case, the export-oriented rural sector is a major beneficiary, as it has greatly expanded its wealth,

including that invested in land, which is why Brazil still ranks among the countries with the highest rates of concentration of land ownership

in the world

Finally, it is important to note that the redistribution of income – which,

as discussed earlier, has in fact been happening – should not be ered to be universal, since the data used to calculate the changes only relates to labor income In Brazil, there is no official indicator for capital income, that is, there is no official monitoring of changes in the income

consid-of the capitalists in the country, but only consid-of income based on labor 2 From this it can be said that if in the past national developmentalism established a model of economic growth that had social exclusion as one of its most visible results, the current development model, although promoting certain forms of social inclusion, makes use of the intensive exploitation of natural resources (land, mineral deposits, oil reserves, native forests, water, etc.), which will certainly affect future generations, making this model unsustainable

* * * This book was compiled to reflect on the various aspects of the economy mentioned above The book is organized into four specific, but inter-linked, parts The first part is a general introduction of the topic, high-lighting some current issues and summarizing all the chapters The second part specifically discusses the global economic crisis that currently plagues many countries throughout the world The third part analyzes the Brazilian government’s reactions to this adverse international condi-tion, with emphasis on macroeconomic and countercyclical policies adopted by Brazil, especially from 2007–2008 Finally, the fourth part of the book examines Brazil’s social situation, especially after the adoption

of social policies aimed at combating poverty and social exclusion Chapter 2, by Alex Callinicos, on the global economic situation, reflects on the paradox of the reaction to the 2008–2009 financial crisis

by the governments of advanced capitalist countries The reaction was

to revitalize neoliberalism, even though the crisis had been mitigated by unprecedented state interventions in the economy While governments socialized private debt and absolved banks of responsibility of the crisis, their narratives about the need for austerity portrayed the problem as one of public sector debt and spending, rather than private sector irre-sponsibility and fraud

Callinicos, in discussing the euro crisis, reflects on the increased role

of central banks in Europe and the rise of technocrats at the expense

of democratic politics He argues that “bubble-driven privatized

Keynesianism” does not provide a viable solution to the economic lems of the Eurozone or for the global economy This is, in part, because neoliberalism tries to reduce economics to a set of natural laws that can only be understood by a cast of qualified “experts.” As an alternative, Callinicos urges that economic policymaking be subject to democratic control This call is relevant to Brazil as well as Europe, and echoes the work of others, such as the sociologist Robert Fishman Fishman writes: Democracies [ ] should generate new forms of law, regulation and social policy designed to prevent market actors from eroding the substance of democracy and to ensure that the crucial principle of democratic equality among citizens is not sacrificed to the institutions and forces unleashed by “market fundamentalism” [ ] Markets are not in principle dangerous for democracy, as long as they are under-stood – and treated politically – as being sociologically “embedded” [ ] When markets are “disembedded” from regulations and mone-tary policy instruments capable of providing elected authorities with sovereign capacities for decision making, they raise the specter of dangerously deep democratic erosion [ ] If they are embedded in adequate state policies and legal regulations, markets can help to sustain democratic agency, instead of undermining it, but the polit-ical conditions required for that outcome are themselves subject to the danger of erosion The connection between markets and democ-racy remains historically contingent (Fishman 2014: 118–119)

In Chapter 3, Luiz Fernando de Paula, André de Melo Modenesi, and Manoel Carlos C Pires compare and contrast the Brazilian govern-ments’ response to the financial crisis of 2008–2009 and the slowdown

of 2011–2012 One of their main points is that while the response to 2008–2009 was quite successful, leading to one of the fastest rebounds from the recession in the world economy, the response to 2011–2012 was not In some ways it is understandable that Brazilian policymakers would repeat in 2011–2012 what they had attempted in 2009, since the policy package in the latter year had such positive results In the 2008–

2009 crisis, the Brazilian government enacted countercyclical policies to stimulate the provision of credit to firms and individuals, increased the minimum wage, and expanded social policy The recession in 2009 was consequently quite mild Brazil was one of the Latin American countries that was most effective in using policy tools to stave off the contagion effects of the financial crisis The success of the policy can be seen in the 7.5 percent growth rate of the economy in 2010 Moreover, for the first

time in decades, an external crisis did not result in the deterioration of the fiscal situation in Brazil

The situation in 2011–2012 was different The same policy tools worked less well, because the commodities boom was over, private banks were reluctant to lend, household debt had increased, growth had slowed globally – even in China – and firms’ expectations about the future were gloomier The reduction in interest rates and the drop in the value of the Brazilian real had little impact, and growth slowed The Dilma administration’s policies were poorly coordinated, with fiscal and monetary policy not aligned

In Chapter 4, Fernando Ferrari-Filho analyzes the performance of Brazil’s PT (Partido dos Trabalhadores – Workers’ Party) governments, led by President Luiz Inácio “Lula” da Silva (2003–2010) and President Dilma Rousseff (2011–present) He contrasts the macroeconomic resil-ience, sustained job creation, income redistribution and poverty reduc-tion of the Lula administration with the sluggish growth in the first term of the Dilma Rousseff administration (2011–2014), which aver-aged around 1.5 percent per year Ferrari-Filho agrees with de Paula, Modenesi, and Pires that fiscal and monetary policy under Dilma was less well coordinated, and the international situation was somewhat less favorable, than under Lula

Chapter 5, by Philip Arestis, André Moreira Cunha, Fernando Filho, and Julimar da Silva, examines Brazil’s recent economic chal-lenges and searches for a new development strategy The authors point out that since the late 1990s, financial instability and the rise of new economic powers that do not follow the Washington Consensus have led to questioning of neoliberalism In this context, according to the authors, Brazil has three challenges: These are to adjust its macroeco-nomic policy in line with a global economic environment that is less financially stable than it used to be and mired in a period of low growth,

Ferrari-to develop a new economic strategy that responds Ferrari-to China’s rise, and

to coordinate differing policy tools in a coherent way These challenges are made all the more pressing because Brazil seems to have undergone substantial deindustrialization and “reprimarization” of its economy in recent years (According to Palma 2012, primary products from Brazil went from 24 percent of the value of all exports in 2000 to 42 percent in

2009, while high tech exports went from 12 percent to seven percent of the value of all exports in the same period See also Rodrik 2015.) While Brazil did relatively well in the developmentalist era (1950–1980), with levels of productivity growth superior to those of many other developing countries, in the more recent period of globalization,

productivity growth and levels of investment have been disappointing According to the authors, Brazil lags behind many other developing countries when it comes to infrastructure, technological capabilities, the business environment, and state services in education, health care, and housing For these authors, Brazil needs an alternative develop-ment strategy based on the heterodox tradition But this is not what it is getting in the second term of Rousseff’s administration (2015–present),

in which a return to economic orthodoxy, and the management of the Federal government’s fiscal deficit, is the hallmark of the government The analysis of Arestis, Cunha, Ferrari-Filho, and Da Silva has affini-ties with those of other scholars of economic policymaking in Brazil Morais and Saad-Filho (2012: 792–793), for example, describe economic policy under Dilma as “a hybrid economic policy framework including,

on the one hand, policies aiming primarily at a narrow concept of monetary stability which, implicitly, presumes that markets will sponta-neously tend toward an optimum equilibrium and, on the other hand, interventionist policies to foster economic growth and social equity.” This “neodevelopmental” hybridity generates tension between its two contradictory elements, and the hegemony of developmentalism is unlikely because of Brazil’s “heavy and continuing exposure to external economic developments (Morais and Saad-Filho 2012: 797) Palma (2012), for his part, complains about the undervaluation of labor, the overvaluation of exchange rates, and the high interest rates in most Latin American economies He argues that what is lacking in Brazil and other Latin American economies is a state that is capable of disciplining capital – a state capable of threatening, like its counterparts in East Asia,

to withdraw subsidies from nonperforming companies The absence of this kind of state leads to what Palma calls “subprime capitalism” in Latin America

Luiz Carlos Bresser-Pereira invokes the dilemmas of Brazilian economic policy in Chapter 6, on the Dilma administration For Bresser-Pereira, the new developmentalist approach prescribes the goals of inflation targeting

to make price stability compatible with growth, a floating exchange rate in which the rate is allowed to float around an equilibrium that allows indus-trial exports to be competitive, and a primary fiscal surplus At present, only the goal of a primary fiscal surplus is being pursued by the Dilma administration It is unlikely that Bresser-Pereira would see the decline

of the real (from R$1.97 per dollar in February 2013 to R$3.23 in March 2015) as an unalloyed blessing, because it is taking place in a period in which investor and consumer confidence is low, there is a fiscal deficit, and the country is in recession Overall, Bresser-Pereira concludes that a

serious pursuit of new developmentalist economic policies is constantly being derailed in Brazil, because the government is stuck in the trap of high interest rates and an overvalued currency Both policies are maintained in order to counter inflationary pressures, and the result is the “macroeco-nomics of stagnation.” For Bresser-Pereira, President Dilma Rousseff is not strong enough to overcome this problem This diagnosis certainly seems accurate, given the very poor growth of the Brazilian economy in 2014 (0.4 percent) and the projection for growth in 2015 (–1.7)

Bresser-Pereira, echoing many other contributors to this volume, attacks the advocates of neoliberal economic orthodoxy, for whom there is no difference for Brazil between producing potato chips and silicone chips Only in the structuralist/post-Keynesian/heterodox perspective, which Bresser-Pereira calls structuralist developmental macroeconomics, does the sectorial distribution of growth matter Bresser-Pereira expands on a crucial theme of this volume, the rela-tionship between markets and democracy, when he argues that the capitalist class in Brazil does not feel fully at ease with democracy, and periodically tries to denounce politicians and intimidate them into pandering to them, while also funding politicians’ electoral campaigns

in the expectation of advantages in the form of government contracts and/or subsidized credit from state banks While the Petrolão corrup-tion scandal has exposed these relationships and may lead to a reform

of some aspects of the political system, this tension between market actors and democracy seems deeply ingrained in Brazil, as it is in many other countries

In Chapter 7, Vanessa Petrelli Correa, Claudio Hamilton dos Santos, and Niemeyer Almeida Filho look at recent structural changes in the Brazilian economy, arguing that domestic activity has been crucial to economic growth Overall, the authors argue that recent growth has been driven primarily by favorable global economic conditions, public invest-ment in infrastructure, and redistributive social policies The authors show that welfare and social security transfers rose from 10.83 percent of GDP in 1995 to 15.65 percent of GDP in 2012, and poverty fell markedly between 2004 and 2010 However, for the authors, the loss of competi-tiveness of Brazilian manufactured exports is a serious issue Brazil needs

an explicit industrial policy that pushes Brazilian firms into new global value chains and boosts labor and total factor productivity

Chapter 8 covers the labor market The authors, José Celso Cardoso

Jr and Claudia Satie Hanasaki, argue that while the labor market riorated in the neoliberal period, with unemployment and informali-zation of work increasing, and average income levels declining, the

dete-“developmental decade” of 2003–2013 saw much better results, with the growth of formal sector employment, the rise of real average wages, and

a drop in unemployment These results should not encourage cency, however In many respects, the quality of Brazilian growth remains low For example, about 90 percent of the formal sector jobs generated between 2003 and 2013 pay two minimum salaries or less (The minimum wage in 2015 was R$788 per month, so this amounts

compla-to R$1,576, equivalent compla-to US$512 at the rate of exchange of US$1 compla-to R$3.08 or £350 at the rate of exchange of £1 to R$4.50) Similarly, in

2012, according to Cardoso Junior and Satie Hanasaki, 46.8 percent of workers were relatively “unstructured” workers – i.e., informal, self-em-ployed, or unpaid laborers For the authors, the state needs to induce a revolution in Brazil’s productive-scientific and technical bases in order

to overcome these limitations

Social policy is the focus of Chapter 9 Brazil has long been marked

by quite extreme forms of economic inequality According to the ter’s author, Maria Marques, some amelioration of this stark inequality was achieved in Brazil in recent years According to Marques, 16 percent

chap-of the fall in income inequality in 1999–2009 is attributable to Bolsa Família (Family Allowance), a conditional cash transfer that now reaches about a quarter of the population Marques worries that Bolsa Família

is a presidential program and not a right, and could be abolished by a future president (That being said, it is enormously popular politically, and could not be abolished without considerable political costs.) She believes that the transparency of the program, in which anyone can

go to the website of the bank that administers the program, the Caixa Economica Federal, and look up the names of beneficiaries, stigmatizes the poor and makes them vulnerable to those who resent paying for the program She also argues that it is too early to measure the success of Bolsa Familia In the program, the overcoming of poverty is projected

to take place with the children, not the parents, in the beneficiary lies With greater human capital obtained through school enrollment and inoculations, it is hoped that the children of Bolsa Familia recip-ient families will climb out of poverty via the labor market However, Marques points out that Bolsa Familia does nothing, in and of itself, to influence the quality of public education in Brazil, nor the structural determinants of poverty in the country

Overall, the eight substantive chapters in this book should give both newcomers and veterans to the study of the Brazilian economy something to think about The problems of contemporary economic