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Economic Sciences

The genome of the Brazilian economy

Project creates database to analyze and forecast results of Brazil's insertion into globalization

The neoliberal euphoria of the 80’s and 90’s is not making any more dogmas. In the course of the decade, the dictates of the new capitalism produced real, palpable effects. They can be “read” both in the historical figures and in the macro and microeconomic indicators, and in the real images of the poor. In Brazil, after more than one decade of a process of global inclusion that stabilized the economy, but which left an enormous trail of losses, it is now possible to draw the DNA of internationalization. Those contrary to this model can now defend themselves against being simplistically labeled as “neofools.”

The thematic project Liberalization, stability and growth: a balance and perspectives of the Brazilian experience in the Nineties, carried out by economists from the State University of Campinas (Unicamp), is almost a genome of the Brazilian economy. Coordinated by economist Luiz Gonzaga de Mello Belluzzo and withsub-coordination by Ricardo de Medeiros Carneiro, the project, financed by FAPESP, will result, when concluded, in a database capable of feeding medium and short term analyses and forecasts about the results of Brazil’s inclusion in the global market. The project is also mobilizing specialists from inside and outside the universities to analyze this period.

According to Belluzzo, the “outsiders” are fulfilling the role of preventing “the reiteration of the hypotheses of the group themselves”, that is to say, they play a critical role regarding the conclusions of the researchers. This guarantees scientific honesty in the treatment of the data collected by the project team, although this is not a vaccine against the misuse of this data by other agents. “In economics, you can twist the facts until they tell you what you want to hear. This is ideological, but it is scientific dishonesty as well”, he says.

In the final stage of testing, the database now has roughly 7,500 sets of economic data, 220 publications and 41 institutions. In future, it will be made available for the whole of Unicamp’s academic community. The work of drawing up the hypotheses and the very conception of the database, as well as the seminars that took place between the team and invited professors, have now resulted in a very advanced work of diagnosing the Brazilian economy over the last decade. Furthermore, it is providing support for discussion on alternative proposals for an economic model, which is another of the university’s roles.

The project for diagnosing the Brazilian economy has its origin in a paper done by Belluzzo and by Maria da Conceição Tavares for the United Nations Organization’s Economic Commission for Latin America and the Caribbean (Cepal) and for the Institute of Applied Economic Research (Ipea), entitled Development in Brazil: recalling an old theme, and Carneiro’s thesis for a lectureship, both very precise on the Brazilian process of integration.

Of the hypotheses put forward in the two works that originated this project, the team succeeded in proving several of them. Studies carried out on the database covering ten years found a complete distortion of the exchange rate and interest rates. The sub-project that is studying the theme of employment and wages reached the conclusion that the approval of the proposal to make the labor laws more flexible, will, in fact, merely institutionalize an informality in the labor market that, in practice, has already taken place. The follow-up of corporate mergers and takeovers in the course of the period of the inclusion in the global economy shows, according to Belluzzo, that Brazil followed the world-wide tendency ipsis litteris, imposing an accelerated denationalization of the Brazilian economy.

Then in their work for Cepal, Belluzzo and Conceição have stitched together the points of strangulation in the Brazilian model for international insertion – without, however, accepting their criticisms as pure and simple opposition to the globalization project. “It is not a rejection of insertion, which is inevitable, but of the way that it has been done”, says Belluzzo. “Globalization is a locus for opportunity, and, at the same time, for blockages – the results depend on how you decide your inclusion in the global process.” The examples that the structural problems originating from the way Brazil was included could have been avoided are China and India.

“At the time we wrote this study, the fact that these two countries had got it right was not yet so clear. Today, the World Bank praises them, saying they handled inclusion correctly.” Belluzzo and Conceição regard as definitive the change that has taken place in the patterns of competition and in the strategies for locating transnational companies and the predominance of more volatile capital coming into the peripheral market. They also rejected as an anachronism the developmental model of the 50’s and 60’s, with its imports substitution. But their findings showed the losses deriving from the entry of a defenseless Brazil into this new level of the international economy.

Belluzzo agrees that the full acceptance of the free market and of the unconditional opening up, for example, may have produced the effect of a great gain in competitiveness for some Brazilian companies. But the figures show that, from the point of view of the Brazilian industrial profile, there has been “a relative regression”, that is to say, compared with the headway made by the other countries, Brazil has advanced less.

Likewise, the conviction at the heart of the Washington Consensus that floating exchange rates guarantee greater stability than fixed rates have made the economy more subject to jitters, besides the effect they have on prices. A very small movement in the rates can leave exporters from the peripheral countries between profit and loss. “This is a particularly serious problem for those who dived in headfirst in the glorious stage of globalization”, Belluzzo notes.

In the same way, privatization without rules and the opening up of the economy without control have produced another structural distortion: the companies headquartered in Brazil have, generally speaking, a large deficit in their balance of trade, that is to say, they have denationalized their production. A spurt of economic growth, instead of surpluses in the Brazilian balance of trade, may increase the deficit far more.”The rates of growth over the last few years mimic a roller-coaster”, is Belluzzo’s comparison. “This is because the economy frequently encounters a severe restriction from the point of view of the balance of payments, which ends up obliging the Central Bank to handle the monetary policy in a more restrictive manner”, he explains. A cumulative movement of devaluation of the real, for example, can trigger an abrupt change in the portfolio of the economic agents.

The research carried out at Unicamp also found that Brazil’s financial instability – just as the majority of the peripheral countries of the Washington Consensus – is recorded in cycles, which are getting shorter and shorter. “A short cycle of euphoria is followed by one of retraction, and then it goes back again, and at another moment, the economy pulls the brakes again, on account of the shortsightedness that takes hold of the short term market.” The repercussions of the Argentinean crisis on Brazil, according to him, are an example of this cyclical variation, swayed by the humor of the investors.

Following the expectation of the market, responding at one moment to the expectations of the international investors, and at another to the needs of the domestic economic agents, is a risk for the two key prices of the economy, the exchange rate and the interest rate. “There is now a certain convergence of opinions that we should protect the real interest rate”, says the economist. China, for example, carried out a major devaluation of its currency in 1994 – devastating its neighboring countries – and went on to export what it could.

“The Chinese realized that a country of that size – and of the size of Brazil and India too – cannot have an economy without any control”, says the economist. The Chinese government adopted a selective control of foreign capital, which, when it comes into the country, was obliged to obey certain rules and to work in harmony with the strategy for economic growth of the local government.

In Belluzo’s opinion, it is a mistake to put globalization as the great villain of the story – but it is equally wrong to believe that the shackles of the process of Brazil’s inclusion are inexorable. “We went in with the wrong foot and we have all the conditions for going in correctly”, explains the economist, making it clear that this is a personal position.

“Going in wrong” is to accept uncritically the discourse of full liberalization of the economy. “At the end of the 80’s and beginning of the 90’s, there was a strong ideological pressure that was reflected in the pronouncements by businessmen and in the behavior of the media”, Belluzzo recalls. “There was the idea of rejecting the past for having been a fatal error: Gustavo Franco (President of the Central Bank during part of Fernando Henrique Cardoso’s Presidency) himself came out with the phrase that we were coming out of 40 years of stupidity”, he says.

Time, however, has shown that the liberalism without control in the peripheral countries that embraced the Washington Consensus at all costs was naiveness. The economies of the rich countries themselves are not so free as all that. “The world is a combination of protectionism and openness.” Belluzzo turns to the discussion over the FTAA. The United States is true to its role: they want the maximum of concessions from the other countries involved in the negotiations, and to give the minimum of them. ” Brazil, then, is struck with a moral oscillation: on the one hand, those who are against the FTAA; on the other, those who in favor”, he says.

The question, according to the economist, is not to accept the impositions of the United States or to reject the trade bloc, but to “play the game”, that is to say, to achieve the maximum of concessions from the other countries and to concede the minimum. The need for the Brazilian State to adopt an active policy for development is the natural counterbalance for the structural distortions of the current economic model.

In the study by Belluzo and Conceição Tavares, they conclude that the State should have played a more active role in the course of the process of liberalizing the economy, to create instruments for long term savings, to carry out the productive restructuring of the Brazilian company, to invest in the production of technology and to alter the structure of public expenditure, so as to reduce poverty and the bad distribution of income.

The Real Plan opted for short term foreign capital, betted on the improvement of the efficiency of public investments with privatization; in foreign investment to put the balance of trade into equilibrium; and in the opening up of trade as a challenge capable of modernizing Brazilian companies. The conclusion of the study is that there has been “a loss of Brazilian control over companies and banks” and the breakdown of the “mechanisms of governance and of a strategic coordination of the Brazilian economy.”

The two authors recognize that international conditions are not favorable for a change in the course of the Brazilian economy, but, on the other hand, do not believe in the stamina of the current model. The Real Plan produced mediocre and unstable results. They propose a “project against the current”, by preaching “a stronger, wider ranging and continuous intervention by the National State and the subnational public levels.” For them, this is the role of the State – the civil society and the social movements cannot be left with the responsibility of building a “Welfare State.”

The project
Liberalization, stability and growth (balance and perspectives of Brazilian experience in the 1990s (nº 99/02003-8); Modality Thematic project; Coordinator Luiz Gonzaga de Mello Belluzzo – Unicamp; Investment
R$ 208,808.00