We frequently hear about Brazil’s emergence as an economic power, but Alvaro Vargas Llosa takes a look at the full picture, which includes a huge (and still growing) bureaucracy, cronyism, corruption, and debt, where the government consumes 40% of the nation’s wealth,
the government of former President Luiz Inacio Lula da Silva, who deserves part of the credit for these developments, failed to streamline a labyrinthine political system riddled with cronyism whose federal, state and local structures overlap. And he succumbed to the superstition that economic power comes from the top-down promotion of industrial champions. As Mansueto Almeida shows in his book “The New Developmentalist State and the Lula Government,” billions of dollars were channeled to certain producers of meat, cellulose, iron ore, oil, etc. The Brazilian Development Bank (BNDES) was the main instrument. It even funded international acquisitions. Meat producers JBS and Marfrig received abundant help.
Inevitably, the model produced mediocre results and corruption. The Caixa Economica Federal, another mammoth financial instrument of the state, bought or subsidized banks and construction companies. Beneficiaries such as Banco Panamericano ended up involved in fraud cases. Others, such as Frigorifico Independencia, where BNDES “invested,” became insolvent. The jury is still out on what the increase of the government’s stake in the oil monopoly Petrobras will bring.
The result has been threefold. First, a colossal fiscal bill. The new president, Dilma Rousseff, has announced $50 billion in cuts (ironically, in order to boost her electoral chances last year, Lula raised discretionary transfers to state and local governments by 51 percent). Second, old-economy commodity industries have dwarfed services. Third, since the government dictated the nature of economic expansion, companies neglected to invest in research and development. According to the World Organization of Intellectual Property, Brazilian applications for patents fell by 20 percent last year compared to a 50 percent increase in China and 20 percent in South Korea.
President Dilma Rousseff
says she wants more fiscal discipline, less industrial champions and more innovation and services in the private economy.
The questions are whether Dilma, Lula, and their party agree to a government that intervenes less and allows private enterprise and ownership to grow and flourish.