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Volume 61 / Social Sciences

ECONOMICS: BRAZIL


MELISSA H. BIRCH, Associate Professor and Director, Center for International Business Education and Research, University of Kansas
RUSSELL E. SMITH, School of Business, Washburn University


THE LITERATURE REVIEWED FOR HLAS 61 provides an opportunity to reflect on Brazil's significant economic reforms of the 1990s. The policy experience of the decade is broad, reflecting the neoliberal restructuring of the developmentalist state and the redirection of its efforts from import substitution to export promotion. In his generally positive review of the economy in the 1990s, Baumann analyzes reforms in the areas of international trade, capital and financial markets, state-owned enterprises, public finances, social expenditure and pensions, investment, research and development, employment, and agriculture (item #bi2001004857#). Some argued, however, that the 1990s were a second "lost decade," like the 1980s, due to comparably low rates of economic growth (item #bi2002001475#).

The most significant policy experience was perhaps the battle against high inertial inflation symbolized by the Cruzado Plan (1986), the Collor Plan (1990), and the successful Real Plan (1994). Tejeda and Portugal analyze the experience of the stabilization plans from the mid-1980s to the mid-1990s in terms of their credibility and duration, as well as the plans' relative success in reducing inflationary inertia (item #bi2002001405#). They note that the Cruzado Plan represented a radical shift from the unsuccessful orthodox stabilization plans of the early 1980s to the five heterodox plans between 1986 and 1992, which relied principally on wage and price controls, but were marked by inconsistent coordination among all policy tools. On the other hand, the Real Plan featured consistent policy coordination without wage and price controls.

The other significant policy experience was trade liberalization. Reforms opening the previously highly protected ISI economy began with unilateral measures in 1987 and intensified with the Collor Plan in 1990. The process of opening the economy continued in 1994 in conjunction with the introduction of the Real Plan and the Mercosul (Common Market of the South) negotiations with Argentina, Paraguay, and Uruguay. Montoya assesses the impact of Mercosul on Brazil and on its trading partners using input-output analysis (item #bi2002001430#). He concludes that there are sufficient complementarities among the four economies to assure continued gains from trade. A number of case studies focusing on regional or sectoral impacts tend to support this view.

The high fixed exchange rate that was the "anchor" of the Real Plan worked against exports and encouraged imports beyond the higher levels brought on by the opening of the economy. Combined with existing programs to increase productivity, the pressure to lower costs led to increased investment, resulting both in higher productivity but also in lower employment in manufacturing, especially in the traditional industrial regions and state capitals. Manufacturing activity moved to the western and northern states and to the interior of traditional manufacturing states in search of lower wages and in response to subnational policies such as the competitive reductions of state taxes (guerra fiscal) and to other polices including BNDES policies supporting micro-, small-, and medium-sized firms (item #bi2002001673#).

Saboia reports that employment in manufacturing and mining fell from 23.4 percent between 1989 and 1997, with losses of over 40 percent in the cities of Rio de Janeiro and São Paulo and with a gain of over 45 percent in the Center-West (item #bi2001005250#). The number of establishments, a better indicator of dispersion, rose 24.4 percent, with gains above 50 percent in the states of the Northeast, North, and Center-West, a gain of 34.7 percent in the South, and a gain of only 12.6 percent in the Southeast. In one study of this trend in industrial dispersion, Suzigan et al. identified successful industrial clusters as key to explaining the new distribution of employment (item #bi2002004723#). Examining a select but diverse group to draw policy implications, the authors find that while successful industrial clusters did not result from policy initiatives (each had its own economic and organizational characteristics and history), once identified, their growth can be supported with appropriate public policies.

In spite of the accomplishments of the Brazilian economy in the 1990s, widespread poverty and a highly unequal income distribution continued. Analyses and policy recommendations at the end of the decade point to educational differentials as highly correlated with income inequality (item #bi2001006949#) and to policy measures directly targeting education (item #bi2001003632#) and inequality itself as the preferred way to address inequality and poverty. Of special interest is the work of Paes de Barros et al., who argue that the persistence of income inequality over decades is unusual for a country with Brazil's relatively high GDP per capita and contend that Brazil's problem is no longer lack of resources, but rather resource distribution (item #bi2002001677#). They propose that instead of relying only on economic growth to solve the poverty problem, a policy of redistribution be adopted in order to provide an effective solution.


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