Economic ideas with a mixed/tropical flair
Brazilian economic policy prescriptions tend toward a pragmatic design. Some countries can be seen as more consistently market oriented, others embrace an active role for the state across the economy.
Brazil is less rigid; it often chooses a third way that tries to maximize market returns but with a firm hand of government. Hybrid ideas and policies feature regularly in economic strategies. In taming inflation in the 1980s∕1990s, both orthodox and heterodox economic tools were employed — sometimes in the same package. The military regimes (1964—83) employed orthodox macroeconomic tools but embraced state intervention for developmental, nationalist ends. In the face of a collapse in investment, a financial crisis and a balance of payments crunch, the inflation stabilization plan implemented by Finance Minister Luiz Carlos Bresser-Pereira in 1987 attacked both aggregate demand and also froze prices — strong doses of monetarist and heterodox approaches (Bresser-Pereira, 1990). Brazilian policy blazes a third way.Bresser's work gives a flavor of the distinctive Brazilian approach. He was born in 1934, and received his doctorate from The Getulio Vargas Institute in Sao Paulo in 1972, where he advanced (when not active in government) through the ranks to honored emeritus. His pragmatic blend of understanding markets as situated within states has led him to advocate a hybrid paradigm known as social developmentalism (Bresser-Pereira, 2013). As Bresser explained, develop- mentalism is a form of social organization of capitalism wherein the state plays a moderate but strategic role in regulating markets and coordinating the economic system. It first appeared historically under the name of mercantilism, which was also the era that gave birth to capitalism; it appeared for the second time in the thirty “golden years” of capitalism (1946—73).
It is associated with structuralist development economics and with Keynesian macroeconomics. As Bresser's approach suggests, Brazilians seem to have an ability to function under a high degree of ambiguity. Unlike more rigid neo-liberal strategies employed in Chile, or the more “purist” socialist revolution in Venezuela, Brazilian programs to promote growth borrow from a flexible toolbox of economic ideas that responds pragmatically to changing internal and external conditions.As the multifaceted nature of the Brazilian economy intersects with domestic interest groups and international opportunities, it is not surprising to observe frequent shifts in policy orientation. For example, the construction firm Odebrecht is a major player in Africa and Latin America. The formerly state-owned but now privately managed Embraer has soared to the third spot among aircraft manufacturers. Like these more modern Brazilian multilatinas, the orientation of the Brazilian economy historically shifted in response to tensions at home and opportunities abroad. Favorable conditions in the external market inflated the prospects of the commodity lottery in the country's early period. Gold drew prospectors to colonial cities such as Ouro Preto; the coffee economy was integrally woven with both Brazil's insertion into the global economy, as well as its darker association with the transatlantic slave trade (Skidmore, 2010).
In response to the contraction of global markets post-World War One and the Great Depression, a policy of import-substitution industrialization (ISI) took hold. Brazil turned inward during this period to develop its industrial and technological backbone. ISI employed a toolbox of protectionist trade policies with active state engagement in the productive sector. High tariff walls were set to protect infant domestic industries. Somewhat paradoxically, these protective measures also encouraged foreign companies to establish subsidiaries to access the large internal market.
During this period multinationals such as General Motors and Ford invested in large production bases in Brazil. As described in the work of Tom Trebat, state owned enterprises were established in the bedrock industries to promote investment in complementary infrastructure such as electricity or telecommunications (Trebat, 1983). Private capital was partnered with state financing through the national development bank BNDES. The expanding role for the state placed economists as protagonists in policy circles. As agencies were created in the service of industrialization, they served as on the job training for a cadre of engineers, lawyers, and other technocrats put in the service of economic policy-making (Loureiro, 2009, 100—41).The foundations of ISI in Brazil were partly orchestrated conceptually and in practice by Celso Furtado (1920—2004). A PhD in economics from the Sorbonne, in his seminal book The Economic Formation of Brazil of 1959 (translated into English as The Economic Growth of Brazil in 1963), Furtado outlined the basic elements of structuralist economic thought for the region. Consistent with the work of Argentine Raul Prebisch and A.O. Hirschman, Furtado advocated the application of state resources to unleash domestic industrialization. Planning was seen as critical in order to overcome ongoing underdevelopment and to promote structural transformation (Furtado, 2011). The automobile cluster in the greater Sao Paulo area was, among others, a targeted investment to break the bottlenecks on the road towards broader industrialization. The aircraft producer Embraer was founded during this time, adjacent to the Air Force's ITA or Aerospace Technical Institute. Lead by the indefatigable retired Coronel Ozires Silva, its launch as a state firm assembling Piper aircraft in Brazil quickly outpaced the US partner to develop a family of aircraft particularly well-suited for the tropical environment.
Furtado rejected the dominant monetarist model that privileged the market as an engine of growth.
Rather than a staged progression of exiting feudal agriculture and entering labor-intensive capitalist development, he identified that states could harness technology to leapfrog to strategies driven by heavy industry. In counterpoint to existing approaches, he explained economic underdevelopment as the full utilization of available capital without the complete absorption of the available workforce. The heterodox twist — this time on a Marxian rejection of center country control — was partnering with multinational capital for its control of technology in the service of autonomous development in the periphery. With a cost/price structure determined exogenously by powerful center countries, industrial development exacted a delicate management of expensive imported technology originally designed for European or US markets. Beyond technology, Furtado cautioned that the industrial center dominated demand patterns were often inconsistent with the needs of developing countries. Underdevelopment in countries like Brazil was thus not simply a temporary stage on the road to oncoming developed status, but an economic trap from which it was difficult to exit.However, in keeping with his Brazilian origins, Furtado's approach to understanding the nature of underdevelopment was often more moderate and pragmatic than writing of other structuralist/dependency theorists from Latin America; it therefore found great policy acceptance. Furtado also wrote more wide-ranging works in economic theory such as The Myth of Economic Development (1974), which argued that it was a myth to think that economic development, and all its individual benefits, would some day reach everyone in the world through the magic of the Western capitalistic model of development. As an early harbinger of the modern environmental movement, he warned that natural resource or space limitations would not allow all people in the world to reach the highest standard of living. Foreshadowing the miles-long pileups in cities like Sao Paulo, he suggested that if everyone on the planet owned a car, then gridlock would ensue in many cities.
But Furtado's work on development was not unanimously accepted, even within Brazil, and Brazilian government policies were by no means straightforward applications of his ideas. Thus, in addition to the mix of state and multinational capital, Brazil employed a range of macrotools to meet its industrialization objectives. Under the guidance of Roberto de Oliveira Campos (1917—2001) as Minister of Planning in the staunch pro-market anti-communist military government of Castello Branco, institutions such as the central bank, the workers' pension fund and the national housing bank were formed to aid market maturation (Espinoza, 2002). Although developmentalists gained sway with the expansion of state enterprises, monetarist economists, largely centered in the conservative FGV (Getulio Vargas Foundation) mounted an orthodox counter-attack advocating caution in monetary policy (Loureiro, 2009, 111—13). With scarce foreign exchange, the central bank had kept the Brazilian currency persistently overvalued to allow for the import of critical intermediate components to industrialize. With relatively abundant global liquidity, the pragmatic combination of structuralist state intervention with conservative macro-strategies gave rise to the so-called Brazilian miracle, managed in part by Antonio Delfim Netto (b. 1928), an economist who was Minister of Finance between 1969—74.