An approach to “rethinking the state in Brazil”

Ricardo Bielschowsky and Gabriel Squeff

INCT Project, March 2018

(work in progress, preliminar draft of power point presentation)

Preliminary remarks

• Work in progress (initial stage) • The following slide is Burlamaqui’s chart summarizing major elements

and their interconnections with a comprehensive analytical framework

Domestic Policy Space

State Capacities and Governance Structures

Macro & Finance Technology, Industry and

productive chains Sustainability Social Policy

Financial Reg & Dev Monet & fiscal policies Employment policies Tax reform Fin struc & long term fin Fin innovation for dev

Global Finance Global Corporations Global lobbies

Knowledge creation & diffusion Technology & ind policies Competition policies Agribusiness policies Infrastructure renewal Forging global productive chains Creative destruction management (Robots, AI, etc.)

Building a social safety net Health Education Income policies (Income versus Jobs) Reversing inequality Social security Social justice

Environmental policies Sustainable energy policies ”Land & soil management” ”Water management”

Political coalitions in power Strategic priorities: Forging the Agenda Foreign & nat security policies Int cooperation/ treaties Policy implementation

RETHINKING THE STATE : STRUCTURES, MAJOR AREAS & THEMES

L. Burlamaqui

social movements/ civil society

Dynamics of the Global Economy

Global Political Coalitions/Power of

Capital

Intern Org & int treaties Global trilemmas (Ec & Pol) Global Finance Global Corporations

.

A very similar approach 1) Phocus on policy implementation 2) Matrix format

.

Effect of Global and Regional trends on

domestic policy space

Political coalitions/

social movements

State Capacities and

Governance Structures

Domestic policy implementation

Macro & Finance

Technology, Industry and productive

chains Social Policy Sustainability

.

Or, adding “ideologies and theories” ...

.

Political coalitions/

social movements

State Capacities and

Governance Structures

Domestic policy implementation

Macro & Finance

Technology, Industry and productive

chains Social Policy Sustainability

Ideologies/ theories

Effect of Global and Regional trends on

domestic policy space

Matrix approach: factors conditioning domestic policy implementation Effect of

Global and Regional trends on domestic policy space

Ideologies/ theories

Power: Dispute & coalitions between classes/ interest groups, etc.

State capacities and their control and use by governments & agents

Dim

ensi

ons o

f dev

elop

men

t

Macro/ finance

Productive Social

Sustainability

.

Or just ...

Factors conditioning domestic policy implementation Effect of Global

and Regional trends on domestic policy space

Ideologies/ theories

National dispute & coalitions between classes/ interest groups State capacities and their control and use by governments & agents

Dim

ensi

ons o

f dev

elop

men

t

Macro/ finance

Productive Social

Sustainability

.

An exercise on the Brazilian case (filling in the “cells” in the table)

Brazilian development and factors conditioning domestic policy implementation Stylized

trends

Effect of Global and Regional trends on domestic policy space

Ideologies/ theories

Dispute & coalitions between classes/ interest groups state capacities and their control and use by governments & agents

Dim

ensi

ons o

f dev

elop

men

t

Macro/ finance

Productive

Social

Sustainability

Brazilian development

Stylized trends 1980-2017

Dim

ensi

ons o

f dev

elom

ent

Macro/ finance Slow & unstable growth, some price instability (balance of payments exposure to volatile and free international capital flows and to productive fragilities)

Productive Lack of productive diversification, slow growth of production and exports of the manufacturing sector, scarce innovation, low productivity increase

Social

Resilience of structural heterogeneity. Bad evolution in 1980/1994, improvements in 1994-2003 (due to price stability) and especially in 2004-2014 (higher employment, wages and social policies – not without flaws), followed by drawbacks in 2015-17

Sustainability Dammage to nature due to absortion of global patterns of production/consumption, and to forms of use of natural resources and of urbanization (attenuated by the energy matrix)

Brazilian development and factors conditioning domestic policy implementation Effect of Global and Regional trends on domestic policy

space (hypotheses)

Dim

ensi

ons o

f dev

elom

ent

Macro/ finance Large pressures stemming from low and unstable world growth, from short term capital flows and high interest rates spreads, from global lobbies and corporations, etc.

Productive/ Social

Large pressures stemming from productive globalization/ relocation in Asia, and technological revolution gap: • Productive effects: Pressure due to increasing structural

backwardness (technological gap) and decreasing competitiveness • Social effects: pressure stemming from Asian labor conditions on

domestic wages and quality of employment

Sustainability Global patterns of consumption and production: negative effects on local sustainability

Brazilian development and factors conditioning domestic policy implementation

Ideologies/ theories (hypotheses)

Dim

ensi

ons o

f dev

elom

ent

Macro/ finance

“Fiscal dominance” and Central Bank independency (hiding balance of payments fragilities and cost inflation)... for the sake of global and local finance dominance and of high interest rates (rentism); current “fiscal histeria” in order to justify conservative reforms protecting rentism

Productive Neoliberal prevalence in the 1988-2003 period, intermezzo semi-developmentalist in 2003-2014, new neoliberal upsurge in 2015-2018

Social Strengthening of 1988 progressive Constitution, drawback in 2015/18

Sustainability Fragility of environmentalism

Brazilian development and factors conditioning domestic policy implementation Dispute & coalitions between classes/ interest

groups state capacities and their control by governments & agents (hypotheses)

Dim

ensi

ons o

f dev

elom

ent

Macro/ finance

Central Bank/ Treasury: “captured”/ “trapped” by the financial system/ rentists. Inadequate monetary policy instruments. Exchange rate “populism”. Fiscal austerity/ high interest rates. Currently: support to fiscal and labor conservative reforms.

Productive

Political weakening/ accomodation of entrepreneurs in the manufacturing sector along with their “financialization”. Protection of Agribusiness and of rent-seeking. State owned banks (BNDES, Caixa, Banco do Brasil) and Petrobras in Lula and Dilma offices: active but uncoordinated/“constrained”.

Social Distributive struggle but prevalence of large economic groups. Social protection of the 1988 Constitution under attack by current reforms

Sustainability Strong legal frame but ineffective

Brazilian development and factors conditioning domestic policy implementation Stylized trends Effects of global /

regional factors Ideologies/ theories

Dispute, coalitions, state capacities (...)

Dim

ensi

ons o

f dev

elop

men

t

Macro/ finance

Slow & unstable growth, some price instability (balance of payments exposure to volatile and free international capital flows and to productive fragilities)

Large pressures stemming from low and unstable world growth, from short term capital flows and high interest rates spreads, from global lobbies and corporations, etc.

“Fiscal dominance” and Central Bank independency (hiding balance of payments fragilities and cost inflation)... for the sake of global and local finance dominance and of high interest rates (rentism); current “fiscal histeria” in order to justify conservative reforms protecting rentism

Central Bank/ Treasury: “captured”/ “trapped” by the financial system/ rentists. Inadequate monetary policy instruments. Exchange rate “populism”. Fiscal austerity/ high interest rates. Currently: support to fiscal and labor conservative reforms.

Productive

Lack of productive diversification, slow growth of production and exports of the manufacturing sector, scarce innovation, low productivity increase

Large pressures stemming from productive globalization/ relocation in Asia, and technological revolution gap: • Productive effects: Pressure

due to increasing structural backwardness (technological gap) and decreasing competitiveness

• Social effects: pressure stemming from Asian labor conditions on domestic wages and quality of employment

Neoliberal prevalence in the 1988-2003 period, intermezzo semi-developmentalist in 2003-2014, new neoliberal upsurge in 2015-2018

Political weakening/ accomodation of entrepreneurs in the manufacturing sector along with their “financialization”. Protection of Agribusiness and of rent-seeking. State owned banks (BNDES, Caixa, Banco do Brasil) and Petrobras in Lula and Dilma offices: active but uncoordinated/“constrained”.

Social

Resilience of structural heterogeneity. Bad evolution in 1980/1994, improvements in 1994-2003 (due to price stability) and especially in 2004-2014 (higher employment, wages and social policies – not without flaws), followed by drawbacks in 2015-17

Strengthening of 1988 progressive Constitution, drawback in 2015/18

Distributive struggle but prevalence of large economic groups. Social protection of the 1988 Constitution under attack by current reforms

Sustainability

Dammage to nature due to absortion of global patterns of production/consumption, and to forms of use of natural resources and of urbanization (attenuated by the energy matrix)

Global patterns of consumption and production: negative effects on local sustainability Fragility of environmentalism Strong legal frame but ineffective

.

One can of course read the table line by line, instead of doing it on a column by column basis...

Brazilian development and factors conditioning domestic policy implementation Stylized trends Effects of global/

regional factors Ideologies/ theories

Dispute, coalitions, state capacities (...)

Dim

ensi

ons o

f dev

elop

men

t

Macro/ finance

Slow & unstable growth, some price instability (balance of payments exposure to volatile and free international capital flows and to productive fragilities)

Large pressures stemming from low and unstable world growth, from short term capital flows and high interest rates spreads, from global lobbies and corporations, etc.

“Fiscal dominance” and Central Bank independency (hiding balance of payments fragilities and cost inflation)... for the sake of global and local finance dominance and of high interest rates (rentism); current “fiscal histeria” in order to justify conservative reforms protecting rentism

Central Bank/ Treasury: “captured”/ “trapped” by the financial system/ rentists. Inadequate monetary policy instruments. Exchange rate “populism”. Fiscal austerity/ high interest rates. Currently: support to fiscal and labor conservative reforms.

.

A final remark

It may be helpful to “rethinking the state” to have some kind of benchmark for a desired “policy space for a strategy of progressive development” Suggestion: it may be defined as the space required by classic post-war social-democracy in macro/finance, productive, and social dimensions (duely expanded to include environment sustainability policies)

A final remark

POLICY SPACE AND STRATEGIES OF PROGRESSIVE SOCIAL-DEMOCRAT DEVELOPMENT PROJECTS

DEVELOPMENT

PRODUCTIVE/SUSTAINABILITY DIMENSIONS : SUPPORT TO TECHNICAL PROGRESS/INFRASTRUCUTURE/ETC.

SOCIAL DIMENSION:

WELFARE STATE

MACRO/FINANCE DIMENSION:

FULL EMPLOYMENT & PRICE STABILITY

2 1

3

POLICY SPACE AND STRATEGIES OF PROGRESSIVE SOCIAL-DEMOCRAT DEVELOPMENT PROJECTS

DEVELOPMENT

Productive policy space : Permanent increase of productivity by fixed investment and innovation (environmentally sustainable)

Social policy space Universal access to

public social secutity and to

public goods and services, financed

by progressive taxation; right to social assistance

Macroeconomic policy space

Full-employment, price stability,

increasing wages according to

productivity gains, strong trade-unions

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3

An approach to “rethinking the state in Brazil”

Ricardo Bielschowsky and Gabriel Squeff

INCT Project, Brasilia Seminar, March 2018

(work in progress, preliminar draft of power point presentation)