Deindustrialization in Brazil

Image: Elyeser Szturm

By Wilson Cano*

Underdevelopment does not represent a stage or an accident along the way, but a process that begins with the insertion in the international capitalist market in the XNUMXth century and, from this process, Brazil has not yet freed itself..


In order to make a more rigorous reflection on the issue of deindustrialization, it is necessary to preliminarily remember the concepts of economic development and underdevelopment, as well as the meaning of industrialization in such processes.

Development is the result of a long process of economic growth, with a high increase in average productivity, without which the surplus does not grow enough to accelerate the investment rate and diversify the productive structure and employment. This process intensifies industrialization and urbanization to progressively transform the country's social and political structures.1. In addition, society's habits and customs will also change and modernize.

When a country develops, it shows some basic economic indicators that are close to those already obtained by other developed countries: a high level of per capita income and a sharp decrease in the participation of the agricultural sector in the Gross Domestic Product (GDP) and in employment. Therefore, it now boasts less than 10%, due to the more than proportional increase obtained by the industry and services sectors.

The decrease is only relative, since the growth of other sectors and urbanization forces agriculture to grow, diversify and modernize, reducing the difference in its results in relation to those of other sectors, thus providing greater economic structural homogeneity and Social. If industrialization does not advance and diversify, agricultural modernization will be hampered or will depend on large imports of modern inputs and capital goods.

For this to happen, industrialization has to advance and grow more than other sectors, increase productivity, change its structure – in the sense of implementing the compartments of capital and intermediate goods, thus contributing to the diversification of the export basket and , if possible, to improve the external accounts. There is, in history, no country that has developed without generalized industrialization and a strong and active role of the National State.

When it reaches its maturity and becomes more complete, the manufacturing industry shows a diversified structure, in which capital goods make up between 30% and 40% of its product2. It is this remarkable expansion and transformation that intensifies urbanization, inducing and demanding enormous growth and diversification of services of all kinds: commerce, transport, finance, health, education and others.

Upon reaching this high standard, the productive and employment structure began to move towards expanding, modernizing and diversifying services even more, more than agriculture and the manufacturing industry, with the relative weight of industry falling, losing position for the services. This is how deindustrialization should be understood in a positive or normal sense.4.

Very different is the situation that can occur in an underdeveloped country. Underdevelopment, as Furtado (2000) showed, does not represent a stage of development or a “lower degree of development”. It is a process that began with the insertion of Brazil in the international capitalist market in the 1979th century, from which capitalist relations of production arise that are internalized here, maintaining, however, a promiscuous coexistence with old and predominant pre-capitalist Brazilian relations, without, however, extinguishing most of them. Then, according to Pinto (XNUMX), a perverse accumulation dynamics takes place, incapable of promoting economic and social homogenization, maintaining economic and social features of this process such as structural heterogeneity, the weakness of external accounts, long-term financing, taxation and inflation. latent.

Many underdeveloped countries have also implemented industrialization processes in their territories. Few, however, managed to surpass, in any way, the production of non-durable consumer goods and the simple industrial processing of primary products. Even in Latin America, only Argentina, Mexico and Brazil managed to install a significant industrial park and, of these, only Brazil advanced in the partial assembly of the capital goods sector. At the end of the 1970s, these countries had a manufacturing industry whose product represented around 23% of the GDP, in this case, in Mexico, around 25% in Argentina and 33% in Brazil.5.

With the disastrous effects, however, of the lost decade of the 1980s and those arising from the establishment of neoliberal policies from 1990 onwards, the drop in the participation of the manufacturing industry in GDP for Latin America as a whole was serious. In 1980, there were participations, that is, around 24% (Argentina and Mexico) and 33% (Brazil). Data between 2008 and 2010 regress to approximately 19% in Mexico and Argentina and the most acute, in Brazil, to 14,6% in 20116.

The deindustrialization of Brazil

Let's see, briefly, the main facts that are causing premature and harmful deindustrialization, giving it a regressive sense of economic progress:

1. One of the main causes has been the prevailing exchange rate policy, established after the Real Plan. With the liberalizing reforms and the stabilization policy, the overvalued exchange rate plays, until today, the role of anchoring prices, in which it receives due “logistic” support from the practice of absurdly high real interest rates and the fiscal anchor. This produces part of the payment of interest on the public debt7. The result of the insane trilogy was the growing loss of international competitiveness of the national industry vis-à-vis other countries.

2. Another reason stems from the unregulated openness that Brazil has gone through and has been going through since 1989, still under the Sarney government, when there was a first attack on the protection we had on imports. Such an attack was greatly expanded during the Collor government, in 1990. The third was carried out during the Fernando Henrique Cardoso government, starting in 1994. This deregulation was maintained and remains so today. Trade liberalization with the drop in tariffs and other protectionist mechanisms for national industry complemented the harmful effect of the overvalued exchange rate, drastically reducing the degree of protection against international competition.

3. Third reason: the high interest rate in the country makes the capitalist entrepreneur – both in the view of Marx and Keynes – compare it with the rate of profit, with the expectation of accumulating capital. With the exception of the rare or illicit sectors for which the profit rate is exorbitant, we can see that, in finance, these gains have been very high. The profit rate of the modern industrial economy is relatively contained and, when it is confronted with an interest rate such as the official one (Selic) in Brazil, today, just over 8%,8 national businessmen pay attention to this phenomenon and only invest as a last resort, if forced to invest. Otherwise, it breaks and closes. Under such conditions, investment is strongly inhibited, which leaves the industry vulnerable. An industry that does not invest ages, becomes, in part, obsolete, does not grow, has enormous difficulties in assimilating technical progress on a daily basis. In short, it loses productivity, new opportunities and competitiveness, becoming a strong obstacle to the country's economic development.

4. Fourth reason: foreign direct investment. It is true that such flow has grown in absolute numbers in recent years, a fact celebrated by many economists. They, however, have a serious defect when they talk about investment because they think only in the global sense, in terms of volume and participation in GDP. Investment, however, is such an important variable in the economy that economists should be more careful. An investment rate needs to be structurally analyzed. First, portfolio investment, private securities and public debt are deducted from the total flow of foreign capital, generally and predominantly of a speculative nature.

The historical series of the Integrated Development Environment (IDE) in Brazil, made by the Central Bank, shows unequivocal data: in the 1980s, the participation of the manufacturing industry in the total FDI was around 75%; this figure drops to around 60% in 1990 and fluctuates between 30% and 40% from 2001 onwards. At the same time, the share of services rises and, with them, that of financial activities. What is more serious, however, is that the annual average of FDI in the industry, which was around US$ 17 billion in the 1980s, rises to US$ 25 between 1990 and 1995, but drops sharply from then on to US$ 8,5 billion between 1996 and 2010.

As for internal investment, similar facts are also observed, with a predominance of allocation in services, especially in the financial sector, construction, real estate, agriculture and mining, with a smaller share in the manufacturing industry.

This is understandable, as the productivity and competitiveness of the Brazilian industry were contained and, in many cases, fell and was well perceived by the capital. At the same time, there was a shift of predominantly American and Asian FDI to China in search of cheap labor, a devalued exchange rate and high competitiveness. For this reason, he largely moved to China in order to produce cheaper, abandoning or reducing his presence in former areas where he had had great expression, such as the North-Mexican border. The harmful internal effects of this fact were: (a) loss of competitiveness of Brazilian industrial exports (“manufactured products”) and, still, displacement of part of them, by the product of China, in traditional markets such as the USA; (b) high increase in imports of these products, both final consumer or capital goods, as well as industrial inputs of all kinds, especially chemicals and electronics, harmfully affecting many productive chains of Brazilian industry; (c) the two previous effects profoundly affected the sector's productive investments, making them more specific, opportunistic and fragmented.

5. The fifth reason that economists are even more worried is that since 2007, the world economy has slowed down. It can be noted, especially from the economic policy of the United States and the European Union, that a period of long crisis may eventually be experienced in most developed economies, as indeed several institutions and critical economists have predicted.9..These economies, especially the US, plus China – which lost part of the markets it disputed – are developing aggressive policies in the international market for manufactured products, obtaining high growth rates for these exports and recovering part of the lost ground.

After a period of crisis and recession, which lasted until 2003, the GDP growth rate rose, thanks to three specific facts. The first and most important was the growth in household consumption, stimulated by the increase in consumer credit.10, due to the strong increase in the real minimum wage and other social policies, such as Bolsa Família.

The second, despite the restrictive fiscal policy, decisions were taken to expand public financing for investment (public and private) and the third stems from the great expansion generated by the export sector, despite the fact that imports, from 2005 onwards , grew more than exports. It was these factors that allowed for a greater advance in income and employment, expanding consumer demand and investment.

The strong increase in exports was due to the international boom between 2004 and 2008, with a sharp increase in the prices of raw materials and physical demand, mainly generated by the Chinese economy. Furthermore, with the greater territorial extension of the crisis that began in 20072008-1990, average GDP growth fell and the average rate approaches the critical trajectory of the 3s, when it was XNUMX%.

The investment rate, strongly depressed since the 1980s, fell even further until 2005, recovering a small part of the lost ground, rising in 2008 to 16,9% and around 19% in 2010 and 2011. It has already fallen again and even with this rise, Brazil has not recovered the necessary level reached in the 1970s, around 25% of GDP.

There is another consequence of this scenario: the loss of relative position of underdeveloped countries in world industrial production. Whether or not China is included in this list, the data show that Brazil is losing ground sharply on the international scene. Indeed, Brazil's share in the production of the world manufacturing industry, which was 2,8% in 1980, drops to 2% in 1990 and reaches 1,7% in 201011.

It is also known, with regard to industry growth rates, that the sector of capital goods and durable consumer goods had been showing, since 2002, a sharp growth, but, in fact, it was the segment of durable consumer goods that drove the demand.

Even though the data and facts presented above show this abnormality in the economic process, acceptance until recently was not peaceful and, not infrequently, several economists do not believe that these losses have been so accentuated. The Institute of Studies for Industrial Development (IEDI) 2011 reaffirmed on December 23, 2011 its critical view, warning that in 2011 there was a serious worsening of the industrial crisis12.

The worsening of the industrial crisis

In 2012, the average growth rate of the manufacturing industry in the January-June period was -4%. It became the most serious fall in the sectors of capital goods (-12,5%) and durable consumer goods (-9,4%), with the sectors of intermediate goods (-2,5%) and non-durable consumption (-0,3%) smaller falls. In order to reinforce these criticisms, it is important to add some other data that reveal a little more the weakness to which the manufacturing industry was subjected, namely:

1. The ratio VTI (value of industrial transformation) / VBP (value of industrial production). It should be clarified that this ratio was around 0,55 in the period of high inflation (between 1988 and 1994), but could partly mean a higher markup as a defense mechanism for companies. With the start of the Real Plan, it dropped to 0,52 in 1995. It was around 47 in 1996, then dropped until 2004 and 2005 (around 41,1), showing a slight recovery and stability in 2006- 2008 (around 42,3) and rose in 2009 (43,4) and in 2010 (44,1), paradoxically, in a period of crisis.

Very likely, however, that this is due to the following facts: (a) conjunctural change in the productive structure fundamentally caused by the performance of more oligopolistic sectors that have high power of setting markups; (b) due to the fact that the intensification of industrial imports, in the recent period, lowered prices and costs of inputs and imported capital goods not passed on to buyers of products manufactured with such goods; (c) this intensification of imports certainly altered production chains, replacing more expensive and less profitable products; (d) the strong rise in export prices of several semi-manufactured industrial products after 2003-2004; (e) by the reduction of financial and tax costs arising from the countercyclical policies practiced recently.

2. The production structure of the Manufacturing Industry, according to the criterion of use of goods. As only the manufacturing industry is being analyzed here, the data and classification used and published by the Brazilian Institute of Geography and Statistics (IBGE) cannot be used in this item, as this includes the mineral extractive industry in its estimates. Thus, a methodology is used that classifies the sectors of the manufacturing industry as predominantly producers of: i) non-durable consumer goods; ii) intermediate goods; and iii) durable and capital consumer goods, this being the most technologically complex sector13.

Sector i, where strong exporting segments are present and which had greatly reduced its weight between 1939 and 1980, to 33,9% of the Industrial Transformation Value (VTI), once again had a growing share, reaching 35,2% in 2009. sector ii, with a strong export presence, had a significant increase in its share between 1939 and 1980, when it reached 41%, reaching 43,6% in 2009, which is normal in a progressive industrialization trajectory. Sector III had the highest growth rates between 1939 and 1980, when it started to participate with 25,1% of the VTI. Its subsequent trajectory, however, is downward, reaching 24% in 1996, 21,6% in 2003 and 21,2% in 2009. This movement of the structure undoubtedly shows a regressive trend from 1980 to today, with the return the predominance of non-durable goods and semi-industrialized export sectors.

This methodology, however, causes a large part of sector iii to contain a greater fraction of durable consumer goods than of capital goods, given methodological problems and statistical secrecy of the IBGE, notably when we operate at more than three digits in the subgroups of activities. A small and partial exercise was carried out with the Industrial Censuses of 1970 and 1980 and the Annual Industrial Survey of the IBGE referring to the years 1996, 2003 and 2009, removing, from sector iii, items that are predominantly intended more for consumption than for consumption. productive investment. The items withdrawn were passenger vehicles (cars and utility vehicles), auto parts, household appliances and sound and image equipment (it is not possible, at three digits, to exclude cell phones).

After deducting the VTIs of these four segments, the remaining production, from sector iii, is closer to capital goods, although it still contains an important residue of durable consumer goods and intermediate goods. The new data would become: 15,6% in 1970; 19,9% ​​in 1980; 14,1% in 1996; 10,0% in 2003 and 11% in 2009. The industrial regression is shown here, more transparently. iii) Problems with the new external commercial insertion

After the successive trade deficits of the 1990s, which were only reversed after the exchange rate crisis of 1999, thanks to the expansion of primary exports, we had average surpluses of US$ 42 billion in 2004-2007. The expansion of imports of industrial products, however, reduced that average, in 2008-2011, to around US$ 25 billion.

The export (Cx) and import (Cm) percentage coefficients of the manufacturing industry, calculated by the Foreign Trade Foundation (FUNCEX), grew with the opening of trade with Cx, going from 12,7 in 1985 to 16,8 in 2004 The Cm, however, jumped from 3,9 to 10,9 and between 1995 and 2000 reached higher levels (from 12 to 14) surpassing the Cx. Some sectors showed huge increases in their Cm between 1985 and 2004, such as electrical material (from 8 to 26), electronic equipment (from 12 to 85), pharmacy and perfumery (from 4 to 35)14.

According to the new series – from 1996 to 2008 –, Funcex presents Cx that rises from 12,1 to 16,8 and, for imports, discloses the Cpm (import penetration coefficients)15, which go from 13,7 to 17,5 numbers which, since they started in 1996, when imports had already grown vigorously in absolute and relative terms, underestimate part of the changes that occurred during the opening period. Even so, examining the coefficients of the 22 segments disclosed for the manufacturing industry, it is worth saying that the Cpm increases by 20, of which the most notable cases were Chemicals (18 to 25), Rubber (9 to 15), Metallurgy Basic (9 to 14), Electric Machines and Appliances (21 to 32), Other Transport Equipment (from 28 to 31) and Medical and Hospital Equipment (49 to 60).

The issue becomes more transparent when analyzing the net result of trade in manufacturing industry products. After the 1999 crisis, it was possible to revert, from 2003 onwards, the deficit of manufactured goods. In 2003-2006, there was an average annual surplus of US$ 5 billion, which is converted into successive deficits from 2007 (-US$ 9,3), into – US$ 38 billion in the 2008-2009 average –, US$ 76,7 .2010 in 95,8 and reaches US$ 2011 in XNUMX, where is this deficit located? As investment in industry has contracted, the high technology sectors are heavily represented in this number and constitute more than half of the aforementioned deficit, seconded by medium-high technology and the deficit was only not greater thanks to the expansion of exports of products of low tech.

Even in the low-technology sector, however, it is surprising to find that the textile and traditional clothing segment, surplus sectors, had, in 2010 and 2011, deficits of approximately US$ 1 billion.

Brazil's business with China

The exuberant annual growth of the Chinese economy greatly expanded its external demand in a generalized way. The new international division of labor, high productivity and a devalued exchange rate meant, however, that trade relations with Latin America took on the classic form of a center-periphery relationship, with the Chinese export basket consisting essentially of manufactured goods and its import list, of primary products, contrary to the commercial structure it practices with the rest of Asia, the EU and the USA.

In 1990, the share of industrial products in total exports from Brazil (80,5%) and Mexico (98,4%) was high, while primary products were low. In 2000, that share began to fall, strongly in Brazil (32,1%) and still moderate in Mexico (96%). In 2008, they dropped even further, that is, to 22,5% for Brazil and 72,3% for Mexico. Furthermore, Chinese exports to the US displaced a large part of Mexican, Central American and Brazilian industrial exports, greatly worsening foreign insertion.

In the neoliberal order, however, one cannot complain about this, about “free trade”. The regression is more serious when sectors are analyzed by technological intensity: participation in the Brazilian agenda falls in all categories. In Mexico, the phenomenon also occurs, but the medium and high technology categories still maintain expressive shares much higher than the tiny shares in Brazil, making it clear that the results of trade with China show a more regressive situation, even in terms of Latin America.

On the other hand, it becomes difficult for Brazil to pressure and negotiate with China on this structure and on the “invasion” of Chinese products, given that after 2009, China has been responsible for about 60% of our total trade balance. .

Reprimarization of our export agenda

In the structure of the export basket in recent years, according to industrialization levels: basic, semi-industrialized and manufactured products, it can be noted that, in the case of manufactured products, their presence of just over 60% in 2000, becomes only 36,7% in 2011. Even in the semi-manufactured segment, it is observed that the curve is also descending. There are still those who do not accept the idea that we may be going through a process of deindustrialization.

These data are uncontested: they signify a strong regression and reprimarization of the export basket. The phenomenon also reached Latin America, as shown by ECLAC data: between 1980 and 2000, the share of manufactured goods in the region's total rose from 17,6% to 58,2%, falling in 2010 to 47,1%. If we remove the data from Mexico, those figures change to 19,3% and 30,6%, respectively, dropping to 25,3%.

The structure of the import tariff

In the general framework of the structure of total imports in terms of capital goods, durable consumer goods, non-durable consumer goods and intermediate goods (excluding fuels and lubricants), it can be observed that while total imports grew 4,8 times between 2002 and 2011, those of capital goods and intermediate goods grew a little less (4,1 and 4,3 times, respectively), but those of non-durable consumption multiplied by 4,7 and those of durable consumption grew by 9,6 times.

The real “avalanche” of imports, mainly regarding durable consumer goods, was due to the cheap dollar and poorly negotiated trade liberalization. This increase in imports has been, in part, breaking or weakening links in several production chains and, thus, eliminating companies and production lines of several companies. At the same time, the phenomenon highly inhibits normal investment and typical innovative investment, or even that which complements production chains.

It has to be understood that eliminating a company is relatively easy under such circumstances. Destroying a national industrial leader, a dynamic industrial entrepreneur, as has happened to many, is also easy. The difficult thing is to create or try to recreate such companies and their respective leaderships. Create and recreate expressive and large national companies such as the Mindlin group [Metal Leve, from the auto parts sector] or others, such as Kasinski, which previously produced parts and exported them to the North American and European markets to become simple motorcycle assemblers in the Manaus Free Trade Zone and, finally, selling the new companies to foreign capital. Still, which is also very serious, large national textile companies, such as Hering, which before had their main activity in industrial production and, now, have regressed to a predominantly commercial activity,

Macroeconomic policy and the balance of payments

The external accounts summarize the direct and indirect effects of this perverse macroeconomic policy, which are not limited to imports and exports, as the cheap exchange rate stimulates spending on various types of services. Net spending on services (tourism, movie rentals, engineering services, international transportation services, financial services, etc.) jumped from US$8,3 billion in 2005 to US$37,9 billion in 2011.

The cheap exchange rate and low investment opportunities generate even worse effects on the income account, causing reinvestments to decrease and increase remittances of profits and dividends. The numbers are also frightening: its deficit, which in 2005 totaled US$ 26 billion, jumps in 2010 and 2011, respectively, to US$ 39,6 billion and US$ 47,3 billion. Thus, services and income added up in 2011: US$ 85,2 billion. As is known, the algebraic sum of the services balance and the income balance with the trade balance indicates (approximately)16 the balance in current transactions, which would reach the end of 2011, around -US$ 53 billion.

To close this deficit, macroeconomic policy maintains a deregulated economy and real interest rates at a surprisingly high level, with the obvious objective of attracting foreign capital, which, with the voluptuousness of high interest rates, enters in greater quantities than necessary. Therefore, the origin of the accumulation of reserves becomes a more financial strategy than a commercial one.

Having covered the deficits over all these years, after 1999, there was no more exchange rate crisis and there was still an accumulation of US$ 350 billion in international reserves. Several analysts look at these numbers and claim that the country's external vulnerability is over. The US$ 350 billion in international reserves, however, are very expensive for everyone, as they are basically invested in US government bonds whose interest rate is close to zero. However, in order to accumulate this reserve, the government has to issue public debt securities, to which they pay interest that until 2011 reached approximately 11% per year and was equivalent to about 5% of GDP, in a great drain on public revenue and spending. .

The disincentive to domestic investment and the cheap dollar strongly encourage the outflow of Brazilian capital. Until 2001, the total invested abroad was US$ 68,6 billion, which grew rapidly, reaching US$ 274 billion in 6, of which 2010% were invested in notorious tax havens17. Of the total stock, FDI amounted to US$ 189,2 billion, of which only 8,4% was allocated to the manufacturing industry, 36,6% to agriculture and mining and 55% to services, of which 65% to financial services. As can be seen, the allocation of investment in the productive sectors is very similar to that of investment in Brazil. In all, Brazilian capital would have created around 200 jobs abroad.

The most paradoxical thing, however, is that, for this, a good part of these investments have been financed by public resources (generally subsidized), mainly from the National Bank for Economic and Social Development (BNDES). Investments abroad are being financed, when it is here that jobs should be created, industry modernized, eradicating illiteracy and hunger, putting an end to potholes in the roads, promoting housing policies for the poor, putting an end to rural endemics, which are a barbarity.

Data show that, if reserves are discounted from External Liabilities, Net Liabilities increase from US$ 298 billion in 2004 to US$ 887 billion in 2010. Still, it is necessary to consider that a large part of foreign investment today consists of securities in portfolio that are more easily mobilized and likely to escape faster.

As they outweigh the reserves, the vulnerability still remains. It is clear that reserves are important and strategic, but not enough to avoid or escape from an international crisis that causes large capital flight.

Would it be possible to revert this situation of deindustrialization?

Previous crises have shown that there is no way to be liberal in depression. If the “safe” is empty, without money, how can one be liberal? On the contrary, in such circumstances, it is necessary to intervene with public affairs, there is no less bitter medicine.

The consolidation of the national company is an expensive and very important investment, the best examples of which, before China, come from Germany, Japan and South Korea. In such cases, the international circumstances were different, as the threat of socialism was very strong and conditioned part of the American reactions to state intervention policies in the economy of these countries.

There was a drastic intervention in German and Japanese society and economy. The biggest and most radical were land reform and capital reform. When Japan opens up, industrializes and recovers from the defeat of the war and when South Korea is supported by the US, then both “open” their markets. Such countries not only had extremely favorable international circumstances for their companies to become stronger and more aggressive and to be victorious on the international scene, but also had State policies aimed at this, that is, protectionist, directed towards industrialization, financing industrial activity.

South Korea even banned the domestic consumption of color television, directing its production to export. There were, rightly or wrongly, domestic macroeconomic policies and industrial policies, as well as international circumstances, allowing their large companies to grow and achieve extraordinary performance on the international stage. Above all, there was a National State and, not infrequently, a statesman who knew how to conduct this process.

Would it be possible, today, to reverse this situation of deindustrialization in Brazil? For this, the formulation of a new industrial policy, although necessary, would not be enough. In "my" judgment and that of some economists, no specific policy (sectoral, regional, industrial, agricultural, foreign trade or other) will be successful if the macroeconomic policy does not give it the necessary political and economic support, that is, the macroeconomic policy has to be consistent with industrial policy. Otherwise, with the current interest rate, the current exchange rate policy, the level of openness of the economy and the lack of control over the capital account of the balance of payments, there is no industrial policy that can reverse the situation analyzed above.

Social security tax relief measures, for example, on payroll and IPI, recently used for some sectors (clothing, footwear, furniture and clothing, civil construction, vehicles, also for the production of software) had positive effects on demand in times of economic downturn. At the present time, they are being renewed and extended to various industrial sectors. However, they are mainly restricted to demand and less to investment, except in the case of residential construction.

Now, the government has just launched a private and public investment plan for transport logistics, timely, necessary and commendable with important resources in terms of the sector, but very limited in general terms, equivalent to only about 0,4% per year of GDP over the next five years. This plan also expands the investment capacity of state governments, whose investments, however, are proportionally very small in the country's total capital formation18.

For entrepreneurs in these segments, these are good measures, because they reduce their costs, cushioning losses or increasing profits. They are, however, very insufficient, in view of the country's not only conjunctural but also structural needs. One cannot forget the productivity differentials with similar products from China and the USA and, furthermore, the exchange rate gap of around 30%.

So, it would be necessary to do much more than what is being done and proposed, for these entrepreneurs to face competition and restructure the industry. Subsidies and public investments, however, are always limited, not only by the “obligation” of restricted fiscal behavior but also by the fact that Brazil joined the World Trade Organization (WTO) in 1994 and subscribed to the Uruguay Round (GATT) . Thus, the government is always “hands tied”. The WTO even admits some temporary measures, but these subsidies may become unacceptable to it.

It is necessary to remember that, at this moment, we are going through not just another crisis, but the continuation of a very long crisis that dates back to the end of the 1970s. It is a disastrous cumulative process, which not only destroyed development institutions, but it weakened the State itself, in addition to distorting the path of the productive and progressive business community.

This is the central question of the Brazilian crisis, but it is not touched upon. None of the governments that went through and goes through a long period tried anything. For this fact, one has to face serious internal and external political and economic adversities. Brazil entered the so-called globalization, signing treaties and assuming international commitments that it should not have done. China declared itself as a market economy, but did not open the capital account. India did the same thing, as did Russia. Not opening the capital account means maintaining control over the entry and exit of international and national capital over profit remittances and investment flows. More than that, it means having an advanced degree of sovereignty in managing its exchange rate, fiscal and monetary policy, which is not available here.

In Brazil, there is industrial policy. There are important actions by various public bodies, such as the BNDES. There are, however, more mistakes than successes. There are successes in attempts to merge and solve structural problems of large national companies, including to try to strengthen them in the future in terms of international presence. At the same time, there is no macroeconomic and industrial strategy that is sustainable and feasible in order to face deindustrialization, as pointed out by Cano and Gonçalves (2010).

Economists need to learn that economics goes beyond the theoretical assumptions that neoclassicals are so fond of. The economy is politics! Economics as a science is very limited. Economy is the result of social decisions made by men who have power. Whether businessmen make decisions to invest or not, to buy or sell, whether the State adopts and tries to enforce certain economic goals and objectives. These decision-making processes are always conflicting. They are always faced with diverse or even contradictory interests.

There is no point in thinking about Economics only through a technical prism of formulating a certain recipe when the problem is political. If governments, after 1990, “sold their souls to the devil”, that is, to the financial system; we need to break that deal. It is, however, a very complicated attitude, because when you make a deal with the devil, he will demand the soul, after taking the liver, the pancreas. In any case, the current international political horizons are at least imprecise and unpredictable. There is, therefore, in “my” judgment, an open window for reflection on the future.

The US government is democratic, but economic policy continues to be controlled by republicans. In Europe, the picture is exactly the same. The most reactionary right is at the forefront of managing the administration of these problems and the crisis. There is a good interview with Professor Maria da Conceição Tavares on the Carta Maior website 19 in which she draws attention to the differences in relation to the 1929 crisis.

At that time, the winner was Franklin D. Roosevelt and, through the New Deal, it was possible, in addition to taking measures for the economy, to start looking a little more at the poor and, from there, policies of welfare state in the western world. It is necessary to pay attention to the crucial difference between the structures of power before and after the 1929 crisis and the current structures of power, conservative and reactionary and, still, deflationary, that is, judging by the consummate attitudes and declared intentions up to now, they tend to to deepen the crisis. In Brazil, to manage the crisis of 1929 and its subsequent period, a revolution was necessary, the Revolution of 1930. Here, there was a statesman, Getúlio Vargas, who anticipated those measures. Mexico had Cárdenas and both intelligently knew how to lead their countries.

Brazil can and must face the structural crisis by referring, to a large extent, to the internal market. There are almost 200 million inhabitants, a large territory and a good endowment of natural resources. This is not an attitude aimed exclusively at the domestic market, but complemented by a National Development Program that has, in addition to this vector, a specific export strategy, technological introjection and a sectoral and regionalized prioritization of infrastructure and high technology20. On the other hand, such a path cannot be focused only on growth and productivity, but should include, as a priority, sectors that meet the basic needs of the population and the country, such as popular housing, basic sanitation, education and public health, which, without a doubt, , should top the planning agenda.

*Wilson Cano (19xy- 2020) was Full Professor at the Center for Economic Development Studies at the Institute of Economics at Unicamp.

Article originally published in the magazine Economy and Society.

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  1. In the capitalist system, there may be, concomitantly, the predominance of authoritarian political regimes leading the process. Economic evolution, however, strengthens the class struggle, expands and diversifies social interests and conflicts, inducing a process of social and political change towards, at least, a formal democracy. Even this formal democracy, however, can experience adverse and hateful circumstances, such as the cases of Nazism and Fascism, against which the rest of society is opposed.
  2. On the meaning and composition of this sector in developed and underdeveloped countries, see: ECLAC (1965); Fajnzyilber (1983); Teixeira (1983) and Valderrama (1966).
  3. On the meaning and composition of this sector in developed and underdeveloped countries, see: ECLAC (1965); Fajnzyilber (1983); Teixeira (1983) and Valderrama (1966).
  4. On the role of industrialization and structural change in development, see: Furtado (2000) and UNCTAD (2003).
  5. On the issue of Latin American industrialization, see Fajnzyilber (1983).
  6. Figures calculated at current prices. The data can be found in the Anuário Estadístico de la ECLAC, several years and, for Brazil, in Ipeadata (available at: ). Data obtained on 15 Aug. 2012.
  7. The real exchange rate in recent years has always appreciated, standing, in 2011, between 20% and 28% and, in 2012, (January to June) between 20% and 25%, compared to 2005. Cf. Ipeadata, Real effective exchange rate of manufactured exports. Data obtained on 15 Aug. 2012, available at:
  8. Cf. Brazilian central bank. With the recent reduction. Throughout 2011, it remained, on average, just above 12%, falling, from the beginning of 2012, to around 9,5% and reaching just over 8% in 7/2012.
  9. See, among others, the OECD (2012) and Levy (2012) forecasts.
  10. Basically, through payroll loans supported by deductions from payroll and retirees.
  11. Cf. UN, System of National Accounts, in US$, 2005 prices. Available at: Accessed on: 27 Dec. 2011.
  12. Cf. IEDI, Letter dated 23/12/2011, obtained on 27/12/2011, in .
  13. For this methodology and data for the period 1970-2003, see Cano (2008).
  14. Coefficients obtained in 2005, on the Funcex website. These calculations were later replaced by a new series – from 1996 until today, which presents the Cx with values ​​slightly different from the previous series and, in place of the Cm, discloses the Cpm.
  15. Cpm = M/ (P-X+M), ie imports over apparent consumption.
  16. The balance is not exact, due to Errors and Omissions and other undetermined data.
  17. As the data on these investments are by country, among which only a few of them are identified as tax havens, the figure estimated in the text is certainly heavily underestimated. Several surveys over the last ten years point to figures that are between 50% and 70%. For official data see: Central Bank of Brazil; Brazilian Capitals Abroad, available at: ; data obtained on March 24, 2012.
  18. It is the logistics package announced to the press on 15/8/2012, with total investments of BRL 133 billion, BRL 80 billion for the next 5 years and the remainder for the next 25 years. Their weight as an annual proportion of GDP would be 0,4% in the former and only 0,05% in the latter.
  19. Available at: material_id=17556. Accessed on: 21 Dec. 2011. Interview granted on 17 Mar. 2011. (20) The author recently published a proposal in this sense, in which the program is relatively detailed. See Cano (2010).
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