Antonio Barros de Castro "Brazil in Transition" April 23, 2003

Professor Antonio Barros de Castro discusses the long-term causes of Brazil's present economic circumstances with his audience at the Center on April 23.

Brazil: An Economy in Transition
Gisele Henriques, Department of Public Policy and International and Area Studies

Over the years Brazil’s economy has been praised for both its remarkable performance and its disastrous stagnation. According to Professor Barros de Castro, the volatility of this economy in transition makes it a perfect candidate for collapse. In his presentation at the Center for Latin American Studies on April 23, 2003, he surveyed Brazil’s economic history and offered an interesting liaison between the past and the present, suggesting that tipping the equilibrium between economic success and disaster is one of the most important challenges for the Lula administration.

From the mid 1930’s to the early 1980’s Brazil followed a state-led economic approach. The heavy hand of government in economic planning established a sense of continuity, which according to Barros de Castro remains one of Brazil’s most persistent traits. During the years of import substitution policies, Brazil experienced higher growth rates than ever before. In the 1970’s, a time known as the golden decade, Brazilian industry tripled in size. This investment in industry, the result of years of import substitution industrialization, sought to prepare the Brazilian economy for growth. Nothing seemed to be holding Brazil back from becoming an economic powerhouse. But stagnation set in and hopes for economic stability and security dwindled.

In response to the stagnation of the 1980’s, analysts recommended structural reforms and the opening of the economy. The expectation was that through reform, Brazil would find its specialization and with that tap into the world market and grow from trade. But that elusive dream did not materialize. Instead of specializing, like Chile and Mexico, Brazilian industry kept up its previous diversified production. In addition, industry, although successful in production, was falling behind in marketing. Brazil was capable of producing quality goods cheaply, but unable to sell the goods internationally because it lacked efficient marketing capabilities. According to Barros de Castro, if marketing had been improved, Brazil’s ability to produce could have powered its growth. Instead, Brazil’s hopes for export-led growth diminished. Without being able to export, the economy succumbed to augmenting foreign debt, large deficits and high interest rates. The economy seemed to be coming to a halt, and Brazil became the perfect candidate for collapse.

In painting this dim picture, Barros de Castro was trying to emphasize that there were no certainties for the economy, and as a result, Brazil was both ready to grow and ready to collapse. It was ready to grow because it had laid the foundation by investing in industry during the years of import substitution industrialization. But for many economists, signals of the collapse were on the horizon as the economy was not performing up to its potential and exports were sluggish.

The economic volatility marking the last 22 years reached its climax on the eve of the recent presidential election. The two candidates, Luiz Inácio (Lula) da Silva of the Worker’s Party and his opponent Jose Serra, were complete opposites ideologically. Lula da Silva, a working class union leader, spoke of economic justice for the poor, while Serra promised to follow the strict economic policies of the outgoing president, Fernando Henrique Cardoso. The international markets were tense; the Brazilian economy after having lived through years of uncertainty was sitting on the fence between growth and collapse. For many economists, including Barros de Castro, Serra was the candidate for growth. He among others feared that Lula’s government would experiment too much and send the economy into collapse. As the masses hoped, the analysts speculated.

In order to win, Lula had to renounce some of his parties’ radical ideas. He had room to maneuver in social, international and industrial policy, but not in economic policy. He chose to keep the economic policies of his predecessor intact, surprising his critics, including Barros de Castro. “I, myself was happily mistaken,” he said. The union leader turned president never forgot the importance of consolidating a base of support by reconciling differences among stakeholders.

Lula, the eternal mediator, has moved on to a greater challenge. The president has been trying to build majority support in congress and is pushing forward reforms, like that of social security, which not even Serra could have passed. In addition, he is using his base of working class and grass-roots leadership to legitimize his work in social policy. To Barros de Castro, it is precisely social policy that needs to be reformed, and he thinks that the Worker’s Party, along with Lula, is the best candidate for the job.

Most development scholars agree that economic growth alone is insufficient for poverty alleviation. The distribution of wealth must be addressed in order to ensure that the millions of Brazilians living in poverty get access to the benefits of a stable and growing economy. In the 1970’s, 70 percent of the population was living in poverty. By the 1980’s that number had decreased to 33 percent and continues to decline today. However, Brazil still has the most unequal distribution of income in Latin America. For Barros de Castro, the redistribution of wealth is the single greatest challenge to Brazil. “There is nothing more difficult than redistributing income,” he said. “In the age of globalization, capital flies.” Therefore, instruments for redistribution must be developed that do not disturb the markets. In surveying the options for tackling this important issue, Barros de Castro proposed: increasing the purchasing power of the poor, developing an equitable social policy and agrarian reform. He claimed the option of agrarian reform would not have nationwide reverberations but rather regional ones because issues of land reform are concentrated in particular states. He also stressed that if pursued, this option should not disturb the flourishing agribusiness sector. He chose to emphasize the remaining options as the most prudent course of action for redistribution. He claimed that by increasing the purchasing power of the poor and reforming social policy, the economy could support redistribution that does not challenge the power of the rich or perturb the interests of the market. But, in providing the poor with the ability to consume, are we truly improving their quality of life and combating inequality? As long as the tangled web of inequality and poverty continues to be woven, Brazil will remain sitting on the fence between success and failure. It is precisely this conflict of interest that Lula must effectively mediate.

Georges Lamazière, the Consul General of Brazil in San Francisco, chats with Professor Barros de Castro after the event. In the background is Professor Jose Luis Passos, who moderated the event.