The primacy of the market

Image: Ricardo Kobayaski


Today we live in a historic moment in which the Brazilian State is the direct expression of the interests of national and foreign businessmen

The reduction of the role of the Brazilian State in the economy, through the sale of public assets and the privatization of its companies, has been heralded by the Bolsonaro government as the path to nirvana for economic growth and social development. Since the beginning of this government until February 2020, assets worth BRL 134,9 billion have already been sold.

Of this total, only Petrobras was responsible for R$ 70,3 billion due to the privatization of its subsidiary companies (BR Distribuidora, TAG, Liquigás, Belém Bioenergia, among others) and the sale of oil and gas production fields (Enchova and Pampo; Tartaruga Verde, Pargo, among others).

The Bolsonaro government intends to go much further in the privatization process with the sale of Correios, Eletrobras and subsidiaries of Caixa, Banco do Brasil and Petrobras, which intends to sell eight of its refineries (RNEST, RLAM, REPAR, REFAP, REGAP , REMAN, LUBNOR and SIX), about 50% of its refining park.

For the economic team of the Bolsonaro government, as well as for most economists at brokerage houses and large banks, the sale of state assets would increase market competition, attract private investment, reduce public debt and eliminate corruption. All of this would supposedly increase economic efficiency by providing consumers with better quality products and services at lower prices.

This argument defended today by the Bolsonaro government is the same one adopted in the 1980s and 1990s, in central countries and in Brazil, to justify the reduction of the role of the State in economic activity. That period was marked by the triumphalism of neoliberal ideology and practices. It was assumed that the State would be by definition inefficient in relation to the market, with regard to the role of planner and producer. With this, the State should adopt the role of regulator of private economic activity (Regulatory State), seeking to create competitive markets and stimulate and introduce competition.

The privatization program in the United Kingdom in the 1980s and 1990s, led by Prime Minister Margaret Thatcher, was the paradigmatic case, which served as a model for several countries. Including the Brazilian privatizations of the 1990s (of telecommunications, mining, steel, etc.) and the creation of regulatory agencies, such as: the National Electric Energy Agency (Aneel), in 1996; the National Telecommunications Agency (Anatel), in 1997; and the National Agency of Petroleum, Natural Gas and Biofuels (ANP), from 1998.

The market wave, in line with the “Washington Consensus”, as stated by Jean Hansen and Jacques Perceboais in the book Electric transition(s) of 2017, swept away the previous paradigm based on (1) the direct role of the State (producer and planner) and (2) the need for vertical integration, under State control, in economic sectors characterized by natural monopoly and/or the production of goods that plays a strategic role (electricity, production and distribution of oil and its derivatives, etc.).

With the primacy of the market, the central question of the State turned to regulation, which should be temporary, as the regulator would create the conditions for the flourishing of a competitive market, as stated by Stevan Thomas in an article called “A perspective on the rise and fall of the energy regulator in Britain”, published in 2016. In this article, he analyzes the limits of UK regulation with regard to the initially proposed objectives.

Regardless of any empirical evidence regarding the greater economic efficiency of the market in relation to the State, privatization programs were adopted. The issue of energy security was supposed to be resolved by the market. And consumers would be empowered to choose their suppliers at a cheaper price. Some might even believe that in the past, due to the annus mirabilis 1989 and the idea of ​​the “end of history”. But since history has no end, in fact, this rhetoric was used to advance in the reduction of the State due to ideological issues and, above all, to create spaces for accumulation for the private sector.

After more than thirty years of this debate and the impacts of privatizations, it is no longer possible to believe that privatization and the action of regulators will provide lower prices. Nor much less than in the current context of energy transition, marked by uncertainties (technological, costs, financing, etc.), the regulatory State would be capable of directing the market towards the path of transition. The article by Stevan Thomas and the book by Jean Hansen and Jacques Perceboais make this very evident, even showing that regulatory agencies in the United Kingdom and France have lost space for a more direct action by the State, through discretionary policies.

If even in the United Kingdom, the cradle of neoliberal practices, privatizations and regulation have lost legitimacy due to their low effectiveness, what would be the reason that has led the Bolsonaro government and Brazilian market economists to continue defending the same rhetoric of forty years ago?

Let's look at the case of the sale of Petrobras' refineries. The discourse is that these privatizations (i) would increase competition/competition in the fuel market, as they would enable the entry of new agents in refining; (ii) expand investments; and (iii) would provide consumers with a drop in oil product prices.

Regulatory bodies (ANP and Cade, Administrative Council for Economic Defense), as well as the Ministry of Mines and Energy (MME), start from the idea that a lower concentration of the national refining market structure will necessarily provide a reduction in prices, with based on empirical studies of the US derivatives market[1].

Recent study on the European refining market[2] concluded that “dividing the industry into smaller players to encourage more competition can lead to higher prices for consumers”, as large companies can be more efficient than small ones due to the refining industry's economies of scale.

In addition, it is necessary to take into account the specificities of the Brazilian refining market structure, given that Petrobras' refineries (and logistical infrastructure) were located with the objective of minimizing the investment cost, avoiding redundant expenses. As a result, most of the refineries' relevant markets are regional and, yes, they can be considered a natural monopoly. This was evident in a study coordinated by PUC-Rio (named Competitiveness in the gasoline and diesel market in Brazil: a new era?) which pointed to the high probability of establishing a regional monopoly by the privatized refineries.

In this sense, these privatized refineries will tend to establish monopoly prices. As a result, prices for the final consumer tend to increase. To contain this, the ANP would have to have established clear regulatory frameworks. However, the regulator does not have the slightest idea of ​​the effects of the privatization of refineries on consumer prices and on supply coordination.

This is evidenced by this speech, published on June 24 in the Market, by the deputy superintendent of Supply Inspection at the ANP, Patrícia Huguenin Baran: “The entire regulatory framework was built on a structure in which Petrobras had a predominant role. Now what we have is the challenge of a new scenario that breaks this structure”. She follows: “So, the structure is given, but the context is different. It's really a bit bogged down. You want to get to a point, but you haven't made the path yet”.

This is an example of what is happening in the oil and gas sector, but it can be generalized to other sectors, such as electricity (eletrobras privatization proposal). There is no discussion about the economic and social impacts of privatizations, not even an attempt by regulators to build regulatory frameworks to create competitive markets, as there was in the 1990s.

The market solves everything (low prices, quality, security of supply, investments), it doesn't even need regulation! In fact, this is the current rhetoric that legitimizes a privatization process that is associated with the generation of new spaces for the expansion of national and international private capital. A true booty in which public assets are squandered with the aim of increasing the profitability of financial and non-financial companies in the short term, without this providing increased well-being for consumers and citizens.

Today we live in a historic moment in which the Brazilian State is the direct expression of the interests of national and foreign businessmen. The public and the private were merged in the worst possible way, in which the interests of business lobbies dominate the entire political and state scene. This is structural corruption.

*Eduardo Costa Pinto He is a professor at the Institute of Economics at UFRJ.

Originally published in the newspaper Le Monde diplomatiwhich [



[1] Cade, Technical Note No. 37/2018/DEE/CADE on the Fuel sector, 2018.

[2] ZIRGULIS, A. & PETRUCIONIS, L. & HUETTINGER, M. The Impact of Oil Refinery Market Power on Retail Fuel Prices in the European Union. ekonomika Vol. 95(3), 2016.


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