The End of Neo-Developmentalism:
The Brazilian Experience between 2003
and 2014
Prof.LedaMariaPaulani
EconomicsDepartment–UniversityofSãoPaulo(USP)
Presenta?onpreparedfortheSpecialPlenaryIIPPE-SEP-SEPLAinthe
6thAnnualConferenceinPoli?calEconomy
IIPPE-UniversityofLeeds,UK–9/112015
The Concept of Developmentalism
•  Todiscussthemeaningoftheterm“Neo-developmentalism”itis
worthstar?ngwiththeconceptofDevelopmentalismitself.
•  Inmypointofview,Fonseca(2014)offersthebestdefini?onwehave
ofthisterm.
•  Hefirstinves?gatedtheoriginandtheevolu?onofthetermbetween
theauthorsandthinkerswhowereresponsibleforitsdiffusioninthe
years1940-60
•  However,consideringthatitisahistoricallydeterminedterm,healso
inves?gatedadozenofconcreteexperienceshappenedinLa?n
Americainthesameperiod.
•  Conjuga?ngthesebothwaysofresearch,heproducedthefollowing
defini?onofdevelopmentalism:
The Concept of Developmentalism
•  “WecanunderstoodforDevelopmentalismtheeconomicpolicy
deliberatelyformulatedorimplementedbygovernments(na?onalor
subna?onal)for,throughincreasedproduc?onandproduc?vity
undertheleadershipoftheindustrialsector,transformingsocietyin
ordertoachievepurposesdesirable,notablytoovercomeits
economicandsocialproblems,withintheins?tu?onalframeworkof
thecapitalistsystem.”
The Concept of Developmentalism
•  Therefore,tohavedevelopmentalismweneedtohave
simultaneouslyatleastthreeelements:
ü  1)astronginterven?onofgovernment,whichtakesprincipally
theformof
ü  2)astrongindustrialpolicyandwhichshouldfollows
ü  3)ana?onalproject
•  TheBrazilianexperiencewithDevelopmentalismwasverystrong,
havingtransformedourcountryfromalimitedeconomy,which
basicallyproducedagriculturalandprimarygoods,intoacomplex
andcompleteindustrialeconomy.
The Appering of the Concept of NeoDevelopmentalism
•  Theinterna?onalcrisisofthe1970’sandthecrisisofexternaldebt
whichfollowedithasimposeddifficult?mesinthe1980’s(high
infla?on,reducedgrowth)andopenedthespaceforthepoli?cal
victoryofthe(neo)liberalideasinthe1990’s,undertheauspicesof
theWashingtonConsensus.
•  Therefore,fromthebeginningofthe1990’sun?lthemiddleofthe
2000’stheeconomicpolicyfollowedtherulesoftheso-called
macroeconomicconsensuswith?ghtfiscalandmonetarypolicies,
hugerealinterestratesandappreciatedexchangerates.
The Appering of the Concept of NeoDevelopmentalism
•  InthetwolastyearsofthefirsttermofLula,thingschangedaligle,
par?cularlybecauseofabigprogramofpublicinvestmentsin
infrastructuresectors(PAC)andastrongprograminpopularhousing
construc?on(“MyHouse,myLife”Program).
•  Fromthismomentonwards,webegantohearthetermNeoDevelopmentalismtorefertothischangeintheeconomicpolicy.The
prefix"Neo"wasintroducedbecauseoftheconsciousnessofthe
analystsconcerningthefactthatDevelopmentalismisahistorically
determinedconcept.
Two Concepts of Neo-Developmentalism
•  Inparallelwiththecon?nuityofLula'sgovernment(hissecondterm
begunin2007)andpar?cularlybecauseoftheinterna?onalcrisisof
2007/2008andthediscussionaboutthenecessityofgovernment
interven?ontoreduceitsconsequencesfortheBrazilianeconomy,
thetermNeo-Developmentalismgainedtwonewprefixestoreferto
twodifferentsetsofeconomicpolicy:
Ø New-Developmentalism;and
Ø Social-Developmentalism
Two Concepts of Neo-Developmentalism
New-Developmentalism
Social-Developmentalism
Orienta5on
Morepro-Market(someconfidenceinthevirtuesof
theMarket)
Lesspro-Market(lessconfidenceinthevirtuesofthe
Market)
Thedynamicelementof
aggregatedemand
Externalmarketandprivateinvestments
Domes?cmarketreinforcedbythedistribu?onal
policiesandpublicinvestments
RoleoftheState
Strongroleinmanagingthefundamentalpricesof
Strongroleinmakingdistribu?onalpoliciesandinthe
economytos?mulatethelocalindustry(exchangerate, improvementofpublicpoliciesandpublicservices
interestrate,wages)
Monetarypolicy
Slightmonetarypolicyandreducedinterestrate
Slightmonetarypolicyandreducedinterestrate
Fiscalpolicy
Tightfiscalpolicy(rigidcontrolofpublicexpenditure)
Responsiblefiscalpolicybutpossibilityoflessrigid
controlinbenefitofan?-cyclicalpolicies
Exchangeratepolicy
Devaluatedexchangerate
Devaluatedexchangeratebutpossibilityof
maintenanceofaexchangeratenotsomuch
devaluatedtopreservetherealwages
Employmentandwage
policies
Prioritytotheimprovementofthejobswithincreasing
intheproduc?vityoftheworkandpossibilityof
reduc?onofrealwagesifnecessarytonotprejudice
industry
Policieslookingforthefullemploymentandthe
maintenanceandincreasinginrealwages,par?cularly
theminimumwage
Neo-Developmentalism?
•  Consideringtheelementsthatneedtobepresenttoexist
developmentalismnooneofthesetwogroupsofpoliciescouldbe
calleddevelopmentalist.
•  Inthenewdevelopmentalism,despitethestrongemphasisinthe
industrialsector,thereissomuchconfidenceinmarketandinprivate
sector(weakgovernmentalinterven?on,reducedpublicinvestments)
anditlacksana?onalproject.
•  Inthesocialdevelopmentalism,despitethestrongemphasisin
governmentalinterven?on,thereisliglepreoccupa?onwithindustry
anditlacksana?onalproject.
Developmentalism inside a
Financial RegulaKon of the Economy ?
•  Anyway,inmypointofview,itisdifficulttocall“newdevelopmentalist”orsocial
developmentalistthegroupofpoliciesimplementedinBrasilfrom2005onwards.
•  Sincethebeginningofthe1990’s,thecountrywasbeenpreparedtointegratethe
financializedglobaleconomyinaac?veandnomoreinapassiveway.Un?lthis
moment,ithadbeenvic?mizedbythefinancializa?on,sufferingtheconsequences
ofthebrutaleleva?onoftheinterna?onalinterestrateswhichgeneratedthehuge
debtcrisisofthe1980's.
•  Accep?ngtheparametersoftheWashingtonConsensusandadop?ngtheneoliberal
policies,par?cularlythoseconcerningtothecompletefinancialopennessofthe
economyandtheconcessionoftaxbenefitstofinancialgainsandcombiningthis
withthehigherrealinterestratesintheworlditputitselfasaplamormof
interna?onalfinancialvaloriza?onandbecamean“EmergentFinancialPower”.
Developmentalism inside a
Financial RegulaKon of the Economy ?
•  Thissitua?ongeneratedanewformofDependencywhichnowisconcernedtothe
absorp?onofgreatamountsofexternalsavingsandnomoretothepricerela?ons,
asithappenedinthe?mesofthedeteriora?onofthetermsoftrade.
•  ThepoliciesadoptedbyPT(Workers’Party)infederalgovernmentdidn’tchanged
anythinginthisins?tu?onalenvironment,whichwassketchedtobenefitfinancial
sectorandac?vi?esandtoputthemintheeffec?vecommandoftheeconomy
(cons?tu?ngafinanceledregimeofaccumula?on).Inthebeginningofthefirst
termofLula(2003)theywereevendeepened.
•  Totrydevelopmentalistessaysinthisins?tu?onalenvironmentseemstobea
contradic?oninterms.Howtodothiswiththepair“hugerealinterestrate/
appreciatedexchangerate”andwithhigherprimaryresultsinpublicaccountswhich
prac?callywerepresentallthe?mebetween2003and2014?
Developmentalism inside a
Financial RegulaKon of the Economy ?
•  Between2005andtheinterna?onalfinancialcrisisof2008,thecountryhas
benefitedfromtheextremeeleva?onofthepricesofthecommodi?esitexports,
especiallyiron.
•  Therefore,despitetheenormousrealinterestrate,thehugeapprecia?onofthe
currencyandthecon?nuouseffortstoobtainposi?veprimaryresultsinpublic
accounts(necessarytomaintaintheagrac?onofthefinancialexternalcapital),the
externaldemandplusthemodestpublicinvestments(whichbegantobemadein
2006)couldguaranteesomeyearsofaligleeconomicgrowth.
•  Withtheeconomicgrowth,thestaterevenuesalsogrew,allowingthe
accommoda?onoftherisingdemandforpublicservicesandfortheimprovementof
thecompensatoryincomeprograms(especiallytheFamilyAllowanceProgram),
besidethecon?nuityoftherisingintherealminimumwage.
Developmentalism inside a
Financial RegulaKon of the Economy ?
•  Withtheinterna?onalcrisisandtheweaknessoftheexternaldemand,Lula’s
governmentmadethebetinthedomes?cmarket,par?cularlyindomes?c
consump?on,toworkasthedynamicelementoftheeconomy,elementwhich
wouldbecapabletoovercometheconsequencesoftheinterna?onalcrisisforthe
Brazilianeconomy.
•  ThepresidentwenttoTVandaskpeopledonotstoptoconsume(andalsothe
entrepreneursdonotstoptoinvest,buttheemphasiswasinthefirstelement).
•  Thecon?nuityoftherisinginconsump?on,becamepossiblebecauseofthe
con?nuityoftheexpansionofthecreditpolicy,whichwasbringingtothebankand
creditmarketswidepor?onsofthepopula?on,par?cularlythosefromthelower
incomestrata.
Developmentalism inside a
Financial RegulaKon of the Economy ?
•  Inparallel,immediatelyaperthecrisis,thegovernmentadoptedaselec?vesubsidiespolicy
tobenefitindustrieswithhighmul?pliers,suchaselectrichomeappliancesindustryandthe
automo?veindustry.
•  Withthesamegoal-topreventreduc?oninsalesandinduceinvestments–the
government,aliglelater,addedtothispolicyanotherone,alsoselec?ve,whichreduced
laborcharges.
•  InDilma’sfirstterm,thislaterpolicywasextendedtoprac?callyallsectors.Furthermore,
shealsoreducedtheinterestratetoitslowestlevelinthelasttwodecades,putsome
controltothecapitalflowsandamplifiedaliglebittheexigenciesofna?onalcontentin
someindustrialsectors.
•  Itisbecauseofthisgroupofini?a?vesthatthefirsttermofDilmaisbeencalledforsome
authorsasaneo-developmentalistessay.
Developmentalism inside a
Financial RegulaKon of the Economy ?
•  Butthingsdidnotgoasexpected.Todoallthiswiththeobliga?ontomaintainthe
publicexpenditureunderarigidcontrol,publicinvestmentswerereduced.Private
investments,fortheirpart,didnotappear,despitethenumerousincen?ves.The
interna?onalcrisisdeepenedandthepricesofthecommodi?esfelldown.
•  Withweakenedinvestmentsandweakenedexternaldemandandwithrestricted
publicexpenditure,itlepforconsump?onthedifficultroletoleveragetheBrazilian
economyasawhole.Butconsump?onwasbasedincredit,morethaninwage
growthandtheindebtednessofhouseholdswasnearitslimit.
•  TomakeConsump?oninsteadofInvestmenttheautonomousanddynamicelement
oftheaggregateddemandand,evenworse,tobasetheConsump?onincreditisto
trytomakethemacroeconomicswheelworksonthecontrary.
Developmentalism inside a
Financial RegulaKon of the Economy ?
•  Neverthelessitwasthisabstrusearrangementthatlepintheagemptto
do,notaneo-developmentalistessay,butIwouldsay,onlyan
heterodoxessay,amidacapitalistins?tu?onalitycompletelysketched
forfinance.
•  Now,beforetheendofthestory,Iwillshowyouonlytwoslideswith
somedataabouttheconsequencesoffinancializa?onprocessforthe
structureofproduc?oninBrazilianeconomy.
Neo-Developmentalism? Some Data
De-industrializa5on-Reprimariza5on
BrazilianExportsbysector(%)-1977/2014
0.8500
0.7500
0.6500
Industrialized
products
0.5500
part.básicos
0.4500
0.3500
0.2500
agricult
mining
0.1500
1977197919811983198519871989199119931995199719992001200320052007200920112013
part.Industrializados
Neo-Developmentalism? Some Data
De-industrializa5on–ImportsSubs5tu5onontheContrary
Importcoefficientpenetra5oninmanufacturing
Brazil-1995/2014
25
20
15
10
5
0
The End of the Story: the dream is over
•  Consump?onwasnotcapabletoleveragetheeconomyaswhole.Thegrowthof
GDPwaspoorbetween2011and2013(annualaveragerateof2,1%)andnullin
2014.
•  Dilma’sgovernmenttryingtodoanan?-cyclicalpolicyinanelectoralyearloosened
aliglebitthecontrolsoverthepublicexpenditureandproduced,forthefirst?me
since2002,anega?veprimaryresultinthepublicaccounts(veryligle,butnega?ve
–0,6%ofGDP).
•  Thiswasenoughforthestrengthenoftheforcesthatsoughtachangeinthe
economicpolicy.Theconserva?veinterests,theelectoralopposi?on,theorthodox
economists(academicsandnotacademics)andthemediajoinedforcestoproduce
averystrongcampaignofeconomicterrorism.
The End of the Story: the dream is over
•  Withthiseconomicterrorismtheyintendedtoinducethevictorious
candidatetoadoptanausteritypolicyandtoputanendinthesocalled
“newmacroeconomicmatrix”.
•  Asitiswellknown,DilmaRoussefwonthepresiden?alelec?ons,but
evensotheeconomicterrorismwasverysuccessful.Sheisdoingnow
theeconomicpolicyoftheopposi?on.
•  Becauseofthecontradic?onItriedtopointedouthere,thesitua?onof
theBrazilianeconomywasnotgoodin2014,butitisnowworse.
To conclude
•  Thissadstoryremembersmeatalewrigenbyafriendofminewhoisoneofthe
mostimportantintellectualsofBrazilandwhoissaidtobethenewAdorno,Prof.
RobertoSchwarz.Hewrotethistalewhenhewasyoung,inthebeginningofthe
1970’s.
•  Inafic??ouscountry,witharevolu?onknockingthedoors,theelitetalkedabouta
proposalofanaccordthathadbeenmadebytheworkers’leader.Thefirst
noblemansaidtothesecondnobleman:“whatheisproposingisnotligle,because
itdoesnotchangeanything,butevensoitistoomuch.”
•  FormeProf.Schwartzwaspremonitory:thePTgovernmentsdidnotintendedtodo
therevolu?on,didnottrytodoadevelopmentalistpolicy,neverhadana?onal
project,didnotchangeanythinginastrongmanner,butevensotheycouldnotbe
accepted.
Thank you