Zanatta. The Risk Of The New Developmentalism.pdf

THE RISK OF THE NEW DEVELOPMENTALISM: “BRASIL MAIOR” PLAN AND BUREAUCRATIC RINGS1 Rafael A. F. Zanatta2 Abstract This working paper examines the rise of the “new developmentalism” in Brazil and the role of the last three industrial policies created by the federal government since 2004, specially the latest, which is called “Brasil Maior”. The main purpose of the paper is to analyse the risk of political alliances between private sector elites and the government in the promotion of national companies and the development of some sectors of the economy. The paper brings back the concept of “bureaucratic rings”, used by the sociologist Fernando Henrique Cardoso in the seventies to analyse Brazilian developmental State, to examine the role played by the Brazilian Development Bank today and the possibility of formation of pressure rings between the public and private sector inside the public bureaucracy.

I. INTRODUCTION On August 2, 2011, the Brazilian federal government announced its new industrial policy plan, called Plano Brasil Maior (“Greater Brazil Plan”), which consists of 35 initiatives structured under four strategic pillars for the development of Brazil – investment, innovation, foreign trade and market protection –, developed to meet the goals of President Dilma Rousseff (Workers’ Party – Partido dos Trabalhadores) to “expand the investment rate from 18.4% to 22.4% of the Gross Domestic Product (GDP), increase private sector spending in research and development (R&D) from 0.59% to 0.9% of the GDP and make Brazil’s share in world exports from 1.36% to 1.6%” until 2014. The official slogan of the industrial policy, strongly Schumpeterian, is “innovate to compete, compete to grow”. Among the plan’s measures, designed to minimize the effects of the global economic crisis and the dramatic deterioration of the international scene since 2007, it could be highlighted the tax exemption of investments and exports, the expansion and simplification of investment and exportation financing, the increased resources for 1

This working paper was written in the end of 2011 and reviewed in April 2012. My intention is to discuss it with scholars in the field before submitting to any journal. The debate about Brazilian industrial policies and the pressure of private actors inside bureaucratic sectors was proposed by Professor José Eduardo Faria during his classes at the Faculty of Law of University of São Paulo. In this sense, I’m deeply indebted to Professor Faria for providing the basic insights that helped me to develop the arguments of this paper. I also benefited from comments by André Bueno Castro (FEA/USP). Errors are exclusively mine. Readers are invited to send comments to [email protected]. 2 Master’s degree candidate at the Faculty of Law of University of São Paulo.

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Electronic copy available at: http://ssrn.com/abstract=2120002

innovation, the improvement of the regulatory framework of innovation, the stimulation of micro and small businesses, the strengthening of trade barriers, the special schemes for creating added value and technology in supply chains, and new laws regulating governmental procurement to stimulate production and innovation in the country. The goal is to prevent the process of deindustrialization that occurs due to the intensive export of commodities and exchange rate appreciation (“Dutch disease” phenomenon), and the growing number of Chinese imports of manufactured goods in the country. For some scholars, the appreciated exchange regime, caused mainly by exports to China, was harmful to the technologically more sophisticated sectors, favoring the most traditional ones and those connected to primary activities. This regime has changed the kind of specialization of the industry, causing a process of relative deindustrialization of the Brazilian economy (Araújo et al., 2012). As shown by Rhys Jenkins, Brazil has benefitted in the short term from the high prices of primary commodities (partly caused by growing Chinese demand), but has lost export markets to China in manufactures, contributing to the “primarization” of the country’s export basket (Jenkins, 2012). Influenced by the experience of the Newly Industrialized Countries (NICs) of Asia, the designers of the new Brazilian industrial policy – following the line of previous industrial policies such as Política Industrial Tecnológica de Comércio Exterior (PITCE, of 2004) and Política de Desenvolvimento Produtivo (PDP, of 2008) – aim to boost the global competitiveness of large national companies (so-called “national champions”) and high-tech companies so that they can become capable of (i) attracting physical, human and financial resources and (ii) acquiring knowledge about production processes and international technologies. The Brasil Maior Plan, in this sense, protects and creates conditions for the rise of competitive sectors most exposed to global competition, assuming that “the state’s role is vital in the formulation and implementation of strategies for industrial competitiveness” (Lozardo, 2011). To sum up, the state assumes the role of the strategic coordinator of the economy and the market, a kind of activism that differs from state interventionism of the old developmentalist model used in the 60’s. This new model of activism followed by Brazil and other emerging middle-income countries has been called “new developmentalism” (Bresser-Pereira, 2009). For some sociologists influenced by the Weberian perspective, Brazilian State fits in an ideal-type that could be called “New Developmental State” (Arbix & Martin, 2010; Trubek, 2010). Despite the differences of this new developmentalism, it is impossible not to look back. For some analysts, comparing nowadays with the past, it is possible to establish some similarities between the governments of Lula (2003-10) and Dilma (2011-) with the two governments of Getúlio Vargas (1930-45 and 1951-54), periods of intense promotion of domestic industry. The connection can be made because of the active role of the state and the formulation of industrial policies, which Vargas was a pioneer by “planting the industrial seeds” in the sectors of steel, pulp and paper, oil and gas (which culminated in the creation of Petrobrás in 1953). As argued by Mansueto Almeida, economist at IPEA (Instituto de Pesquisa Econômica Aplicada, a public think-

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tank focused on economic research), “Getúlio Vargas created the foundations of industry, that later on would ensure Juscelino Kubitschek could bring large [multinational] companies such as carmakers”. Not only that. During the second Vargas government it was created the Brazilian Development Bank, BNDE (Banco Nacional de Desenvolvimento Econômico), a public company that was born with the task of drawing up analysis of funding to projects and acting as the governmental arm in implementing policies considered fundamental to the advancement of industrialization. The development bank was founded in 1952 (Law 1.628) and in 1982 changed its name to BNDES (Banco Nacional de Desenvolvimento Econômico e Social), same period that was created the company BNDES Participações S.A. (BNDESPar), focused on capitalization of Brazilian firms through private equity. It is true that the definition of an industrial policy – which can be understood more broadly as the creation, implementation, coordination and strategic control of instruments to expand the productive capacity of industry and trade, to insure sustainable competitive conditions domestically and externally – is not a phenomenon limited to the governments of Getúlio, Lula and Dilma. Kubitschek’s Plano de Metas, the first and second National Development Plan (Plano Nacional de Desenvolvimento Econômico I e II) formulated by the military government (Dalhman & Frischtak, 1993) and the National Development Plan of the New Republic (Plano Nacional de Desenvolvimento da Nova República) created by José Sarney are clear examples of this type of strategic planning combined with state activism and the use of law for developmental purposes. In fact, over the last century, the use of industrial policies has been the rule in Brazil. The exception is evident in the government of President Fernando Henrique Cardoso (1995-2002), which was guided by the neoliberal and monetary orthodoxy and the use of horizontal policies rather than vertical. These horizontal policies were typically based on tax rebates for expenditures related to technological development or direct support of research and development activities. The argument used by Cardoso’s government was that the dangers involved in discrimination of some economic agents to the detriment of others (“picking winners”) were avoided. It is famous the phrase used by the minister of finance of Cardoso’s government, Pedro Malan, that “the best industrial policy is not to have industrial policy”. This economic view was aligned with international financial institutions and the World Trade Organization. Cardoso’s administration was linked to this orthodox view that was against selective industrial policies. As shown by Yves Dezalay and Bryant Garth, Pedro Malan worked for the World Bank and was part of a group of economists that was very related to U.S. economics and Washington-based financial organizations: “In 1991, he helped to negotiate a large IMF loan, in exchange for which Brazil had to make a commitment to control inflation and to privatization and economic liberalization policies. Malan than moved to the position of chairman of the Central Bank before Fernando Henrique Cardoso’s election in 1995. Cardoso made Malan minister of finance” (Dezalay & Garth, 2002, p. 102). In response to the debt crisis of the 1980’s, the logic in the last

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decade of the 20th century was of privatization, liberalization, macroeconomic stabilization and legal security for private investment. In today’s scenario – distinct from that one formatted by Collor and Cardoso administrations – of state activism and use of industrial policies as a means for inducing certain productive sectors and strengthening national competitiveness, a practice that began under Vargas’ government and which intensified in the military regime, it is valid to question how such policies are formulated and for what interests they serve. After all, how is the relationship between the two bureaucratic organizations linked to industrial policies, that is, the large private companies and the public bureaucracy? The purpose of this essay is to put this question with the backdrop of the Plano Brasil Maior, the latest Brazilian industrial policy, which favours certain productive sectors led by private actors. To do so, I return to the discussion of the sociologist Fernando Henrique Cardoso (also former President of Brazil) about the existence of “bureaucratic rings” in the relationship between ‘technobureaucrats’ and Brazilian businessmen, that is, “rings that cut horizontally across two basic bureaucratic structures, the public and the private” (Cardoso, 1975, p. 182), a phenomenon that explains in which way part of the bureaucracy of public companies and their leaders can be captured by the system of interests of private companies, in the same way that part of the sector controlled by private enterprise (professional bodies such as unions and associations) can ally with segments of state bureaucracy, forming a pressure ring and a peculiar arrangement of power. This paper is organized into four parts. At first I analyze the persistence of Brazilian developmentalism, that is, the importance of the state for industrialization and economic growth, despite the influx of neoliberalism in the end of the 1990’s and the attempt by Washington to impose a minimum-state model. In the second part I present some data on the resumption of industrial policy in the governments of Lula (20032010) and Dilma (2011-) and the strengthening of BNDES (National Development Bank) as an institution that induces development. In the third part I take back the discussion about “bureaucratic rings” and the interbreeding of public and private interests in the Developmental State. Finally, from the analysis of Plano Brasil Maior, I discuss the arrangement between civil order and political order and the formation of “bureaucratic rings” due to the lack of mechanisms of evaluation of goals, in particular by the BNDES, considering that it is nowadays, according to the renowned economist David Kupfer, “the main operator of Brazil’s industrial policy”.

II. THE PERSISTENCE OF BRAZILIAN DEVELOPMENTALISM Since the first government of Getúlio Vargas, began a process of late industrialization and national economic differentiation that aimed to overcome the secular economic backwardness of Brazil – which was limited to the condition of agricultural country with low income, exporter of commodities with low value-added and importer of industrialized manufactured goods – and the negative effects of the 4

coffee production collapse triggered by the crisis of 1929, responsible for the deterioration of international prices, shrinking foreign markets, sharp decrease in exports, consumption decline and unemployment. It began, in short, a period of “authoritarian modernization” (Werneck Vianna, 1995), regulation of citizenship and recognition of social rights as a strategy of obtaining political consent from the new industrial workers (Santos, 1979). The changes that happened in the 30’s, conducted under the nationalist ideology toward a “politically oriented economy” (Faoro, 2001), were intense. As part of the structuring of the Estado Novo (New State), Vargas’ government adopted mechanisms to protect sectors of the national economy, formed a new state bureaucracy to regulate the Brazilian economy and created public companies to boost industrial development. As Paulo Mattos observes in his study about the formation of the “regulatory state”, in this post- liberal period emerged federal institutions for coordination and planning of the economy, public agencies specialized in the regulation of specific sectors of the economy and public companies that channelled the productive investments needed to industrialization (Mattos, 2006, p. 141). The general aspect that characterized this process was the coordination of state investment in the public productive sector, being the private sector closely related to the state. From this relationship emerged one particular form of organization of the statebureaucracy (of patrimonial character) that internalized the traditional oligarchic power relations in Brazil. In the new industrial state led by Getúlio Vargas, the particular activity in large-scale organizations, unlike the advanced capitalist economies, became an extension of the official bureaucracy, “which depended on and whose needs are served” in Raymundo Faoro’s terms (Faoro, 2001, p. 835). The representative of bourgeois local capitalism then consolidated a relationship of subordination or alliance with technocrats who coordinated the new Brazilian state companies. Economic planning in Brazil has also assumed a stronger political character because it linked interests of organized sectors of society in the promotion of certain productive sectors through the state machine. The capitalist developmentalism driven by Vargas and Kubitschek generated numerous public positions held by people linked to the patrimonial status group (in a Weberian sense), which implied a close relationship between these new actors in the public power and the economic agents involved in the domestic industry. This relationship, as will be seen further in the third part of this paper, “intensified and sophisticated itself with the arrival of a new class to power: the military associated with technobureaucrats” (Mattos, 2006, p. 142). The industrial development project put into practice by the military after 1964 in Brazil, called by Celso Furtado as dependentist, was based on the alliance between the state, domestic private capital and international private capital. Soon after the coup, several measures were taken to attract foreign capital, such as the creation of the Central Bank and the National Monetary Council (Conselho Monetário Nacional) and the regulation of the Brazilian financial system. The goal was to integrate industrial production with the global economy, which experienced during this period the “golden

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age” of mass production and Keynesian economics. Moreover, this was the period of the rise of international capital mobility, which culminated in the end of the Bretton Woods system in 1973 (Eichengreen, 2008). The development model put into practice by the military regime was not only dependent but also associated, based on the alliance between local capital, state and multinational companies (Evans, 1979). Beside the import substitution policy put into practice since the time of Vargas, it was formed an alliance between the technocrats and multinational companies so that industrial goods could be produced in Brazil. The automobile sector was largely driven and boosted by the state through tax exemptions, tax cuts and public funding. It was widely recognized by the military leadership of the time that the state’s role was to promote economic development rapidly in order to repel the “communist threat” of elimination of private property, such as occurred in the Soviet Union and Cuba. By and large, there was an intense approximation between Brazil and the United States in the sense of an “alliance for progress” (foreign policy created by John Kennedy’s government in the early 1960’s that focused on helping the capitalist development of Latin American countries). The United States of America were concerned with the spread of “left ideologies” in Brazil, especially in the period of President João Goulart. The militaries were also against communism, so a partnership between American government (and companies) and Brazilian militaries were formed to boost capitalism in the country just after the Coup. The price of this model of development was the “gradual growth of a new kind of oligarchy that manipulated the state for their own benefit and to advance its development scheme in association with foreign capital” (Cardoso & Faletto, 1979, p. 153). After the country had received a high amount of foreign capital to finance projects in strategic sectors (petrodollars, especially), Brazil experienced in the early years of the 1970’s its famous “economic miracle”, with extraordinary high rate of growth of its gross domestic product. The model of industrial development coordinated by the military technocracy delivered good results. The climate was extremely optimistic until 1974, when something began to change with the first signs of the international oil crisis (Fishlow, 1986). After the oil embargo of 1973, a political reaction of the Arab states to Western support for Israel in the Arab-Israeli wars, the Iranian revolution provoked serious shocks in the global economy. The rise in oil prices by the Organization of Petroleum Exporting Countries – a global cartel that largely dominates the oil production – in almost 300% impacted Brazil in two ways. First, because the country was the largest importer of oil in Latin America (in order to operate the country’s new industries coordinated by the State), and second because the country was also the biggest debtor among developing countries and was shaken by the rapid escalation of nominal and real interest rates. As Michael Piore and Charles Sabel point out, the Federal Reserve Board responded to the oil crisis by driving up real interest rates to unprecedented levels: “The Federal Reserve discount rate – the price banks pay for money when their own reserves do not cover their own needs [having to recur to

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loans of the monetary authority] – rose more than 7 percentage points during this period, from 5.5 percent in 1977 to 13.4 percent in 1981” (Piore & Sabel, 1984, p. 179). Despite the crisis scenario - “of the international monetary system, energy and essential raw material crisis, epidemic inflation crisis, foreign trade crisis, the deteriorating balance of payment, crisis of confidence in the stability of the future and the fear of social unrests and outbreaks of irrational and destructive violence” as announced by General Ernersto Geisel -, in December 1974 the military government announced the Second National Development Plan (II Plano Nacional de Desenvolvimento), which aimed at a new stage of industrial development and the process of import substitution. The plan, however, was prepared independently of the new international situation. The II NDP (1975-1979) provoked enormous debate and controversy at the time. Its central proposal of forcing a new direction to the development of Brazil by prioritizing the power capacity and the production of basic inputs and capital goods represented a major shift in the previous model that was operated in the period of the “miracle” (1968-1973), whose priority laid in durable goods. In a period of profound economic recession, Geisel bet on mega projects in various regions of the country as a way to legitimize the military regime, which depended on the good performance of the economy to maintain an authoritarian political regime. The “second oil shock” of 1979, however, prevented the development model imposed by the military technocracy, which depended on the “petrodollars”. When the elevation of the international interest rates and the consequent debt crisis put an end to these loan sources, countries like Brazil began increasingly rampant issue of currency, setting in motion or exacerbating inflationary processes already underway (Lora, 2007). The low export earnings and the elevation of the interest rates in the United States (which in 1981 reached 19.9% and 27.5% in 1982), in addition to increasing foreign debt, also brought large deficits in the balance of payments that could not be financed through new loans as banks had suspended credit lines for developing countries. “Within this framework, it did not take long for several Latin American countries to announce that they could not fulfil their commitments to external debt, starting with the Mexico in August 1982 with a debt of $ 86 billion. It began the debt crisis in Latin America” (Santos, 2006, p. 93). The year of 1979 is also a banner one for the decline of nationalist developmentalism. In that year General João Batista Figueiredo assumed the command of the country and appointed the former minister of finance Antônio Delfim Netto (1967-1974) to occupy the position of the minister of planning and budget following the resignation of Mário Henrique Simonsen. In 1980, after unsuccessful attempts to recreate the miracle of the past, Delfim completely abandoned the heterodox initiatives and opted for orthodox austerity, following the global economic recession. In 1982, Brazil signed a stabilization program with the International Monetary Fund and produced a series of letters of intentions declaring its commitment to austere monetary policies to overcome the debt crisis. It began, finally, the period of adjustment of the

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Brazilian economy to monetary standards of Washington and the emerging of neoliberal orthodoxy, while the deterioration of the economy accelerated the transition to a civilian government and democratization. In general, given the international situation, the 1980’s signalled the decline of developmentalism and the rise of the neoliberal paradigm in the international context of transition from the industrial society to information society. An liberalizing inflection significantly reduced the role of the state, mitigating its function of implementer of plans and programs of action. Its role as the driver and planner of the economy, in short, was questioned by the orthodox diagnosis that it was “struck by a financial fiscal crisis, and colonized by private interests, swollen by political hiring and numb by inefficiencies whose cost far exceeded any benefits” (Coutinho, 2011, p. 8). With the end of the military rule and the transition to a civil government (or “the transition from bureaucratic authoritarianism to representative democracy” as José Eduardo Faria points out), Brazil still had one last protectionist breath with José Sarney, in the New Republic, which sought to expand the capacity production of the country by imposing tariff and non-tariff barriers and incentives in order to reduce the cost of investment and production. In 1988, Sarney updated tariffs, eliminated some taxes on imports and removed part of the special arrangements (regimes especiais). In the same year, through the New Industrial Policy (Nova Política Industrial), using a set of legal texts, it was consolidated, revised and simplified the entire legal apparatus of industrial policy, defining a new framework of incentives for industrial development, including regarding technology, exports and regional development. The measures, however, had no effect at all. The Brazilian economy was stagnant and the population, especially the poorest, suffered from high rates of inflation that reached an annual average of 300%, as opposed to an average of 40% of the 60’s and 70’s. In the late 80’s, the International Monetary Fund began to press Brazil, more vigorously, to adopt a tight fiscal policy so that the external debt was honoured, guaranteeing payment to the lender. After the victory of Fernando Collor de Mello in 1990, the country began the process of compliance with the guidelines outlined by the international institutions based in the United States, embodied in what John Williamson called “Washington Consensus”: fiscal discipline, change in priorities for public expenditure, tax reform, financial system liberalization, competitive exchange rate, trade liberalization, liberalization of the entry of foreign direct investment, privatization of state enterprises, deregulation (in the sense of abolishing barriers to entry and exit) and protection of property rights. After the fall of the Berlin Wall, in the beginning of the 1990’s, the world went through a period of false “end of history” and hegemony of the liberal model advocated by the advanced capitalist countries, especially the United States of America. Following this historic moment, appeared in the literature a new economic paradigm, neoliberalism, highly associated with the economic globalization intensified by the conservative governments of Reagan (USA) and Thatcher (UK) – subsequently conducted by Clinton and Blair. In the synthesis of Peter Evans, the rise of the neoliberal paradigm also led to the emergence of the figure of “state as problem” rather

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than “state as solution”: “in order to escape the deleterious effects of state action, the state’s sphere should be reduced to the minimum, and bureaucratic control should be replaced by market mechanisms wherever possible” (Evans, 1992, p. 144). For almost the entire decade of the 90’s, some politicians and academics shared the belief that liberalization and market integration in the global economy would mean economic growth and wealth distribution by market mechanisms. In the name of efficiency, protectionism was abandoned and the economy of developing countries was opened to private investors. In Brazil, President Fernando Collor de Mello introduced on 12 Abril 1990 the National Privatization Program (Programa Nacional de Desestatização, created by Law 8.031/1990). Not only was the government planning to privatize large state-owned enterprises (SOEs), but the privatization process was viewed as being an integral part of a programme that was meant to modernize the Brazilian economy though a general market liberalization process: “By mid-1993, 20 companies had been privatized and 21 others were on privatization list. Most SOEs on that list were in the petrochemical, steel and fertilizer sectors” (Baer, 2003, p. 223). Fernando Henrique Cardoso also adopted the neoliberal model of development (or regulation), characterized by the privatization of state enterprises (considered inefficient), creation of regulatory agencies, restructuring of the securities market to foster foreign investment, management reform of the state, macroeconomic stabilization (especially with the well succeeded Real Plan), promotion of competitiveness (including the expansion of the spheres of action of the Board of Economic Defence – Conselho Administrativo de Defesa Econômica), import of rules of private law, intellectual property law and corporate law, among other measures. Thus, following the dominant paradigm, the legal system came to be described not as a market builder (that would not otherwise exist), action plans formulator and implementer of public policy, but as a market failure fixer and vector of promotion of economic efficiency. Between 1995 and 2002, period of Cardoso’s government, industrial policies were mainly discarded – except for the policy to promote science, technology and information (ST&I) – following the guidance of minister of Finance, Pedro Malan (former executive director of the World Bank), of maintaining a horizontal policy. BNDES, the main financial vehicle for industrial policy in Brazil continued to be active, but based on new objectives, such as financing the processes of privatization and investment in private infrastructure with the aim of establishing industrial parks for multinational companies in Brazil. As Diogo Coutinho and Paulo Mattos notes, “The main institutional consequence of the Cardoso administration privatization program was the change of the state’s role in planning the development of sectors in the Brazilian economy. The state action was conceived, mainly, as a subsidiary form of public investments and regulatory tasks that should be accomplished in order to attract private investments and correct market failures. A competitive private market economy should be stimulated with minimal state intervention. On the one hand, introduction of competition in rendering public services (mainly in the telecommunications sector) and the exposure of Brazil’s recently privatized companies (such as Embraer and Vale) to

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international market competition, resulted in the modernization of private infrastructure and better corporate governance practices of former state-owned companies. Moreover, foreign direct investments in Brazil increased during the Cardoso administration, and several multinational companies established industrial parks in the country” (Coutinho & Mattos, 2008, p. 15). Regarding the economy, hyperinflation was controlled, but the intensification of the process of trade liberalization, privatization and deregulation of the financial system led to more dependence on external economic conditions, something that became dramatic with the 1999 crisis (the “Brazilian Exchange Rate Crisis”), which followed the “Mexican crisis”, the “Asian Tigers crisis” and the “Russian crisis”, all characterized by intense capital flight. In a scenario of fear, investors that previously displayed confidence in Brazil’s economy suddenly lost faith in the government’s ability to maintain the Real’s crawling peg and duly pay its external debt. The Central Bank could not prevent the currency from drastically depreciating and the market lost confidence in the country. In only one month (January, 1999), the Real depreciated 66% against the U.S. dollar. This depreciation led to higher prices of import products, which stimulated the inflation, and financial losses for companies that made contracts with the currency in dollars. Above all, the Brazilian government lost its capacity to easily sell public bonds and attract foreign investment. Such a scenario of economic weakness, caused by the maintenance of orthodox policies designed in large by Western technical centres, resulted in increased popularity of an (old) left candidate, Luiz Inácio Lula da Silva (Workers’ Party), which won elections and took over Presidency in 2003. Lula, assisted by a group of Keynesian economists of the University of Campinas (Unicamp) and other leading developmentalist scholars such as Celso Furtado, returned to developmentalism and the use of industrial policies, inspired by the example of successful late industrializing countries of East Asia (the “rise of the rest”, in Alice Amsden terms). In fact, “the Lula government sought to create the institutional basis for the articulation of a return to industrial policy development to determinant sectors of the economy” (Mattos, 2006, p. 152). As Lula wrote during his campaign in 2002, in his “Letter to the Brazilian People” (Carta ao Povo Brasileiro), “the Brazilian people want to change for real. Rejects all forms of continuity, whether assumed or masked. The people want to follow the path of reducing our external vulnerability by joint effort to export more and to create a large domestic market for mass consumption. Want to open the path to match the increase in economic activity with consistent and creative social policies. The path of structural reforms that actually democratize and modernize the country, making it fairer, more efficient and, at the same time, more competitive in the international market (...) There is another possible path. It is the path of economic growth with stability and social responsibility. The changes that are necessary will be made democratically, within the institutional frameworks. Let’s reorganize the public accounts and keep them under control. But above all, let’s make a commitment to production, employment and social justice”. After 2002, the Workers’ Party in Brazil

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initiated the “developmental turn” within the institutional framework of democracy and rule of law. The next part analyzes in depth the “new developmentalism” adopted by the governments of Lula and Dilma, notwithstanding the maintenance of an economic team, particularly in the Central Bank, aligned to the interests of international economic agents and committed to the maintenance of the macroeconomic pillars, inflation targeting and tight monetary policy to control the inflation rate. As the economist João Sicsú (2005) remarks, this “new developmentalism” has various origins, including the view of Keynes and Keynesian contemporary economists, such as Joseph Stiglitz and Paul Davidson, of complementarity between state and market and the ECLAC (United Nations Economic Commission for Latin America and the Caribbean) neo-structuralist view that, taking as a starting point that Latin American industrialization was not enough to solve the problems of social inequality in the region, advocates the adoption of a strategy of “changing production patterns with social equity” to enable sustainable economic growth compatible with better income distribution. This view advocates for a strong state that encourages the flourishing of a strong market. Bearing this in mind, the central object of analysis in this section is the industrial policy initiated in 2004 and strengthened in 2011.

III. INDUSTRIAL POLICY WITH LULA AND DILMA As stated by Glauco Arbix and Scott Martin, the Brazilian state under the Lula government has been far more proactive than in the 90’s. Industrial policies are back to the national agenda and the idea of having a national development project picked up steam. The liberalization of economy was paved with further state intervention, in a new economic and social environment that differs from the old dirigiste developmental states of the 70’s. Given this framework, five changes (which cannot be ignored) appear more prominent: (i) the coercive capacity of the military-developmentalist state has been weakened by democratization; (ii) Brazil can now progress economically and socially with the benefit of low inflation; (iii) it was abandoned the various governmental efforts to steer private companies and industries; (iv) although some state owned banks have been privatized, the deregulation of financial markets did not dismantle the backbone of Brazilian banking, which is still supported by statecontrolled banks (Banco do Brasil, Caixa Econômica Federal, Banco Nacional de Desenvolvimento Econômico e Social), including the monetary authority (Banco Central do Brasil); (v) the stabilization of the macroeconomic model generated the increased capacity of taxation, spending and investment (Arbix & Martin, 2010, p. 1314). Besides, the resurgence of industrial policy is not a phenomenon unique to the Brazilian context “post-Lula”, but fits a general overview of Latin America. According to Mansueto Almeida (2009, p. 18), in this new century, leaders of Latin America have adopted policies to promote competitiveness of four distinct groups: (i) sectoral 11

promotion policies (which represent the continuation of the policies adopted during the period of import substitution), (ii) neo-Schumpeterian sectoral policies (creation of more technology-intense sectors such as software production, information and communication technologies), (iii) regulatory policies (development of a regulatory environment that facilitates increased public investment and private sectors as energy and telecommunications), and (iv) policies for the promotion of local productive arrangements (promoting small and medium enterprises in clusters). According to the analysis of Almeida, the team organized in 2003 by the Lula government to draft a new industrial policy has adopted a neo-Schumpeterian policy focused on innovation. In 2004 it was launched the Industrial, Technological and Foreign Trade Policy (Política Industrial, Tecnológica e de Comércio Exterior – PITCE), which consisted of an action plan for the federal government that aimed to increase production efficiency, innovation capacity of enterprises and the expansion of Brazilian exports. The PITCE, in short, acted in three axes: horizontal lines of action (innovation and technology development, foreign insertion/exports, industrial modernization, institutional environment), promotion of strategic sectors (software, semiconductor, capital goods, drugs and medicines) and activities directed to future (biotechnology, nanotechnology and renewable energy). To coordinate and implement this new industrial policy it was created, within the Ministry of Development, Industry and Foreign Trade (Ministério do Desenvolvimento, Indústria e Comércio Exterior – MDIC) – the Brazilian Agency of Industrial Development (Agência Brasileira de Desenvolvimento Industrial – ABDI), inspired other agencies like Sebrae (Serviço Brasileiro de Apoio às Micro e Pequenas Empresas) and Apex (Agência Brasileira de Promoção de Exportações e Investimentos). Besides the creation of ABDI through the Law 11.080/2004, some innovative legislation emerged such as the “Innovation Act” (Lei de Inovação, Law 10.973/2004), the “Information Act” (Lei de Informática, Law 11.077/2004) and the “Good Act” (Lei do Bem, Law 11.196/2005). The “Innovation Act” promotes private-public cooperation among private firms and universities to do joint research and allows researchers in public universities to benefit from successful innovation in these joint research projects. The “Good Act” stimulates R&D by providing tax exemptions for companies that hire university researchers and spend money on the development of innovative methods and products. The PITCE ran into problems of coordination and lack of detailed plans for an ambitious transformation of the Brazilian economy to the standards of Silicon Valley. This industrial policy, in Mansueto Almeida’s opinion, faced the dilemma between what one wants (a country with a productive structure specialized in high technology products, with exports of goods and services of high added value) and what one already is (a country with a diversified production structure, with competitive advantages in the production of agricultural products, minerals and steel). This “shock of realism” led to the formulation of a broader and more pragmatic industrial policy. The Productive Development Policy (Política de Desenvolvimento Produtivo – PDP) announced in 2008 established a set of broader goals that could be easily

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monitored, of which four could be highlighted: (i) increasing the investment rate of the Brazilian economy from 17.6% of GDP (R$ 450 billion) in 2007 to 21% of GDP (R$ 620 billion) in 2010, (ii) increasing the private expenditure on R&D from 0.51% of GDP (R$ 11.5 billion) in 2005 to 0.65% of GDP (R$ 18.2 billion) in 2010, (iii) increasing the participation of Brazilian exports in world exports of 1.18% (R$ 160 billion) in 2007 to 1.25% (R$ 208.8 billion) in 2010, and (iv) growth of micro and small enterprises (MSEs) that export by 10% compared to the number of MSEs exporters in 2006 (11,792 firms). Despite the differences of industrial policies, both PICTE as the PDP are seen as “tools designed to promote industrial efficiency horizontally” (Schapiro, 2011). They represent the effort of the federal government of stimulating innovation and global competitiveness. The state, accordingly, acts actively to promote the private sector and not to command it. The greatest example of this shift in perspective in relation to the old developmentalism has been the performance of BNDES, which experienced a process of institutional learning that resulted in new tools for the financing of innovative enterprises – the disbursement for innovative programs jumped from only R$ 12.775 in 2000 to the incredible amount of R$ 1.372.028 in 2010 (Schapiro, 2012) – and legal capacity to finance innovation. Such tools do not involve only the old pattern of direct financing (loan), but include legal innovations to regulate the participation of the National Bank in investment funds of venture capital. Besides the financing programs to innovation (such as Capital Inovador and Inovação da Produção), the National Bank of Development (BNDES) has specific programs to support innovation (Profarma, Prosoft, Proplástico, Proaeronáutica, Proengenharia and PROTVD) – which include arrangements for support though funding, participation in the company through subscription of securities or participation in the project results –, non-reimbursable funds (FUNTEC) and investment funds as CRIATEC, a investment fund of venture capital that invests in innovative emerging companies (seed capital) that are not offered on stock exchanges. BNDES’ investment, in this case, occurs through buying shares of the company, aimed at future sales of the share (BNDES, 2011). This operation occurs through the bank’s investment subsidiary, BNDESPar (BNDES Participações S.A.). Despite electing innovation as a strategic priority for the industrial policy Política de Desenvolvimento Produtivo, the BNDES has given greater importance to the creation of “national champions” in low-tech sectors, which contradicts the industrial policy officially published. Mansueto Almeida notes that “eight of the ten largest BNDES’ direct applications in industry sectors in 2008 were in low and medium-low technology, with a clear predominance of loans to promote the internationalization of food companies” (Almeida, 2009, p. 25). The great examples of the creation of Brazilian multinational corporations with the support of BNDES are Grupo Bertin, Grupo JBS/Friboi and Brasil Foods (union of Sadia and Perdigão). Based on the Schumpeterian vision of industrial policy and its emphasis on developing technology-intensive sectors, it is clear that the performance of the Brazilian Development Bank in recent years has been inconsistent with the definition of industrial

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policy, since these companies favoured with the disbursement of public funds are large companies of international operations that could potentially lead low-tech sectors such as food production. In summary, Brazil has adopted an industrial policy that facilitates the creation of leading companies and the more sovereign insertion of Brazilian companies in the global market. However, this policy can cause at least two adverse effects: “(i) leads to the consolidation of the current productive structure, not helping new investment in more technology-intensive sectors, and (ii) increases the concentration of production chains, replicating, in the domestic market, the same logic of global competition from multinationals” (Almeida, 2009, p. 34). On the other hand, the historical experience of developing countries like South Korea, Taiwan and China have shown that state intervention to create national champions brought positive economic results, despite the risk of centralization and the creation of circles of political influence among the top entrepreneurs to obtain benefits to the productive sectors. In a way, it is possible that the heterodox literature produced by Alice Amsden, Robert Wade, Ha-Joon Chang and Peter Evans, authors responsible for telling the success story of the emerging industrial powers in East Asia, has influenced the economists in charge of the BNDES and those responsible for preparing the industrial policy of the Lula government. In many official texts produced by former BNDES president Guido Mantega (now the Minister of Finance in Dilma’s government) one can read references to those authors, which shows the influence of the heterodox literature over Brazilian economists linked to the ruling Workers’ Party. For economists like Mantega or Luciano Coutinho, the President of BNDES nowadays, the state has a crucial role in promoting economic change and development. The second industrial policy (Programa de Desenvolvimento Produtivo) did not achieve its goals. The investment rate of the Brazilian economy did not grow from 17.6 percent of GDP in 2007 to 21% percent in 2010, especially because the government implemented it during the financial crisis after 2008: “Despite countercyclical stimulus policies, GDP contracted 0.2 percent and the investment rate declined from 18.7 percent in 2008 to 16.7 percent in 2009 before boucing back to 18.4 percent in 2010” (Almeida & Schneider, 2012, p. 15). Unlike its predecessor which was implemented in a period of growth in the rate of investment and industrial production, the Workers’ Party announced a different industrial policy, Plano Brasil Maior, adopted during an adverse situation for the industry, in which the industry was losing share of GDP and of exports, at the same time imports of manufactured products was growing (from 2002 to 2011, the share of commodities increased from 28% to 48% of total exports while the share of manufactured goods declined from 55% to 37%). With the latest industrial policy, Plano Brasil Maior, the expansion of markets became a strategic objective, consisting of (i) export diversification and promotion of internationalization of Brazilian companies, (ii) increase in national participation in the technology markets, goods and services for energy, and (iii) increased access to goods and services for the population. Beside the internationalization and diversification of exports, are also structural dimensions of the plan the strengthening of productive

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chains, development of new technological skills and business skills, chains of energy supply and the competent building in the economy of natural knowledge. According to the report of the publication of Rousseff’s Plano Brasil Maior, released in August 2011, the country unites in a unique way, in scale and diversity, advantages that today allows it to consolidate and accelerate the ongoing development: “external threats are known and require attention, as well as the challenges to overcome. However, the unprecedented combination of historical opportunities and solid foundations offers the conditions for the country to join a new level of economic and social development” (Brasil, 2011, p. 9). Amid the global financial crisis of capitalism, Brazil seeks to diversify its economy and invest in innovation to grow, and grow to compete.

IV. THE ACCOUNTABILITY DEVELOPMENTAL STATE

GAP

IN

THE

BRAZILIAN

NEW

The central issue surrounding the resumption of developmentalism and the active role of Brazilian Development Bank (BNDES) in the new industrial policy is the possible formation of “bureaucratic rings” between the public and private sector. The question that arises, therefore, is how the bureaucracy of public companies and their leaders can be picked up today by the system of interests of private companies (just like the bureaucracy of the private sector can be picked up by the system of interests of the government). In other words, how the “pressure rings” in the interior of these bureaucracies are formed? In which way Lula’s and Dilma’s government could benefit by directing public investment to some private sectors, creating new “national champions”? The state’s presence in the Brazilian’s lead economy is undeniable. Over 80% of the 30 largest Brazilian multinational companies relate to the government through direct participation of BNDESPar (investment company ruled by BNDES) or state pension funds. Therefore, it should be investigated if such funding and shares occur due to technical and meritocratic criteria, evaluated by a bureaucratic body in the Weberian sense, or if there is a network of relationships with the business elite that drive industrial policy in the interests of major national economic actors, members of the traditional elite. Moreover, how to evaluate the success of the industrial policy or the success of private enterprises encouraged by the state through the National Bank? How can the Brazilians be sure that the public money used to fund some companies are used for social purposes? It is important to re-examine here the concept of “bureaucratic rings” used by the Brazilian sociologist Fernando Henrique Cardoso to describe the arrangement of power during the post-64 military government, which kept developmentalist policies created by Vargas. For Cardoso, the articulation through rings that cut the state bureaucracy and the business bureaucracy was the scheme the military regime adopted to allow the inclusion of private interests in their midst, and to create instruments of 15

political-bureaucratic struggle within the state apparatus (Cardoso, 1975, p. 208). The central difference between the organization of “bureaucratic rings” in the regulatory state of populist orientation and the authoritarian regulatory state was a larger dissolution of any public policies legitimation by the civil society: “if in the previous period it did not exist in Brazil a legitimating force essentially democratic, as the populist policies encouraged the popular support from the state, in the political regime after 1964, especially from 1968 onwards, what happened was the exclusion of representation in general, and in particular the popular, as the legitimizing source of the state” (Mattos, 2006, p. 147). Another important difference lies in the fact that the regime after 1964 represented the setting up of an industrial development model more dependent on multinational capital. Based on the analysis of Cardoso, it appears that the industrialization of Brazil always had a bias of technocratic planning, “marked by the privileged access of private groups in the state bureaucracy” (Almeida, 2009, p. 52). And there is more. This trend, which became stronger with the military coup of 1964, remained with the restoration of democracy, when it became bigger the fragmentation of business associations and the loss of its space in the discussions of public policies. The private interests are informed by government actors through informal means and not through an official communication channel accessible to all members of the private sector. The fact is that the dome of the state bureaucracy responsible for making decisions still maintains close relations with the leaders of the Brazilian private sector interested in expanding markets. This relationship between public and private sector is not bad per se, what is important is to understand the form of this relationship and how the state bureaucracy defines public policies based on private interests. Considering that the industrial policies are back in Brazil, it is important to ask (i) what are the criteria for the creation of an industrial policy and the selection of its beneficiaries; and (ii) how to evaluate its success. Such questions have not yet been made by the academy. These questions are truly important considering the actual phase of Brazilian state activism, especially the post-2003 era, when the Workers’ Party (Partido dos Trabalhadores) won the national elections (with Luiz Inácio Lula da Silva) and ended the privatization program initiated by Collor and Cardoso. The “21st century Brazil” fits in the ideal-type of the “New Developmental State” argued by David Trubek, a new kind of developmental state, less centralized (envisions new forms of governance and law that are more experimental, participatory, flexible and revisable), but still dependent on the coordination provided by the state. There is no doubt that the Brazilian model of economic development is highly dependent on the state and its institutions such as BNDES, the Brazilian National Bank, responsible for financing national companies with low interest rates. The recent industrial policies created by the federal government empowered BNDES as the main vehicle of Brazilian development, especially after the developmentalist economist Carlos Lessa assumed the presidency of the Bank and changed the profile of the institution. Since 2003, the bank shifted its focus from helping privatization operations to the financing of Brazilian development in strategic

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sectors determined by the national industrial policy. In this sense, Mario Schapiro points out that BNDES has been a key economic player in the Brazilian economy: “since the 1950s, most of business enterprises, either privately-owned or state-owned, have relied on BNDES’ support. In recent years, partially due to the financial turbulence, the bank has increased its share even further. Amazingly, in 2010, BNDES disbursed an amount equivalent to US$ 100 billion, which is roughly three times the amount of the World Bank’s disbursement. For many years, it has been the main financial source of longterm fund raising, being more important than either the capital market of the private banks” (Schapiro, 2012, p. 3). This type of industrial policy, which depends on a specific public bureaucracy like the Brazilian Development Bank, may cause some undesirable effects. The funding policy that targets the financing of large private companies, such as has occurred in Brazil, can lead to the phenomenon described by the liberal economists Raghuram Rajan and Luigi Zingales as “relationship capitalism” (a system of managed competition enforced through a mixture of government policy and informal cartelization), which tends to protect mature and established companies and hides subsidies. In fact, as noted by Mansueto Almeida, Brazil’s industrial policy today still occurs in an environment in which: (i) there are no formal mechanisms of control of the type of reciprocity mechanism, as observed in the case of Korea’s industrial policy; (ii) the relationship between state and society (what Peter Evans calls partnership and autonomy) is still very limited; (iii) the relationship between state and business in Brazil is structured by direct communication channels between the business elite and society, with little representation of business associations, and therefore, little transparency (Almeida, 2009, p. 53). It must be recognized that bureaucrats and interest groups can simply distort public goals on behalf of private reasons. On the other hand, as argued by Mario Schapiro, it must be learned from market failure theories and developmental studies that the state might be a relevant part of successful solutions: “a key factor that can differentiate a predatory from a growth-enhancing state is the quality of its institutional design. A well-functioning institutional design may curb improper bureaucrats’ behaviour, and at the same time it can direct policy efforts to achieve promising results” (Schapiro, 2012, p. 3). The formation of bureaucratic rings can be prevented by an institutional design that promotes accountability and clear selection and evaluation criteria of industrial policy measures, something that apparently has not been considered in Brazil. As argued by Lazzarini et al., “it is important to assess not only the impact of development banks on firm-level investment and performance, but also the selection mechanism through which certain firms, but not others, get funds from such banks” (Lazzarini et al., 2011, p. 3). As Mario Schapiro notes, one can say that none of the various forms of industrial policy in Brazil has a satisfactory level of accountability required for the consolidation of democratic institutions: “on the one hand, the formulation of industrial

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policies still lacks institutionalized forums, responsible for decision-making routines and procedures for evaluating the impacts achieved. Unlike monetary policy, there is not a regular and institutionalized procedure of formulation of industrial policy, that is, a public process that includes, for example, the formulation of proposals, public consultation, the definition of objectives, evaluation of impacts and the beginning of a new policy making process. On the other hand, unlike monetary technocracy, development banks and development agencies do not count with a clear mandate and procedures for periodic reporting and presentation of the impact assessments of their measures” (Schapiro, 2011, p. 13). My argument is that researchers from different areas should pay more attention to the question proposed by Mansueto Almeida and Ben Schneider: “How, then can the government, and society more broadly, control industrial policy and the promotion of national champions to avoid what some critics call crony capitalism? This is a major issue in the 21st century as it was with industrial policy under military rule. The problem is nor the granting of incentives, but rather how governments can ensure that incentives and subsidies are used productively and not to enrich a few at the expense of many” (Almeida & Schneider, 2012, p. 28). It is not argued in this paper that BNDES is an institution filled with corrupt agents. The themes in debate here are the accountability gap and the possibility of formation of bureaucratic rings between state and private agents. In this sense, BNDES faces undeniably relevant problems, which can weaken its institutional capacities: “the most relevant of them is the deficit of accountability and the potential flaw of developmental responsiveness that permeates its operations. This is provoked by both the slender delegation of its mission and by the lack of a consistent procedure of reasongiving and performance assessment of its achievements” (Schapiro, 2012, p. 12). Based on the work of the economist Heinz Rudolph (World Bank), Mario Schapiro brings back the idea of assigning a mandate to state-owned banks and claims that in the case of Brazil, considering the political scenario of a weak Legislative and the “coalition presidentialism” – as argued by Sérgio Abranches: “Brazil is the only country which, as well as combining proportionality, a multisystem and an imperial presidentialism, organizes the Executive based on large coalition” (Abranches, 1988, p. 22) –, the most promising accountability arrangement is to establish clearly and formally an institutional procedure of delegation within the Executive branch, based on the experience of Brazilian Monetary Council and Central Bank: “industrial policy makers might emulate some parts of this procedure in such a way that executives would have to formally announce the targets to be pursued by BNDES’ officials. These officials, in turn, would give explanations periodically on the accomplishment of their tasks. In other words, as it happens with monetary policy, the existence of a formal mandate procedure can both improve the managerial accountability inside the executive branch and also enable a fire-alarm type of control with regard to the goals and achievements of industrial policy” (Schapiro, 2012, p. 27). Shapiro develops a

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normative argument and tries to show the limits and possibilities of an institutional tool to mitigate the problems of accountability involving the Brazilian Development Bank. The issue at stake is not the absence of political support or lack of probity controls, but the increment of decision making and adjustment in evaluations of a public policy, a necessary step for Brazil to consolidate a truly democratic regime. After all, the allocation of public resources to a Bank of National Development is or is not a public policy?

V. “BRASIL MAIOR” PLAN IN THE POST-CRISIS CONTEXT: CUI BONO? The year of 2011 will be remembered as an extremely turbulent period for the advanced economies of the globe. The consequences of the biggest international economic crisis that has occurred since the 1930s, started in 2008, reached in 2011 a critical point, market by two major events that illustrate the current state of systemic risk and instability: (i) the fiscal crisis of the Euro Zone – characterized by the sovereign debt crisis in countries like Greece, Italy, Portugal and Spain, and the consequent development of austerity plans by international financial institutions in order to cut public spending, restrict social rights and strengthen the confidence of creditors – and (ii) the renegotiation of the limit of U.S. public debt, which for the first time since 1941 had the classification downgraded from “AA+” to “AAA” by the international agency Standard & Poor’s due to concerns about the budget deficit and the growing indebtedness of the country, which demonstrates the distrust of the international market and the loss of U.S. hegemony in this field. The process of recovery from the crisis in Brazil follows the trend of Latin American countries of usage of a wide range of strongly expansionary macroeconomic policies. In fact, is it possible to observe a greater capacity of government to conduct countercyclical policies, unlike the earlier restrictive policies advocated by multilateral agencies and governments of the G7, “through social policies such as enhancement of the minimum wage and credit growth, which allowed return to the country, in 2010, the accelerated growth of the economy” (Acioly & Leão, 2011, p. 9). Brazil has felt the effects of the economic crisis in a less hard way than the economic powerhouses of the West. If in 2009 there was a decrease in GDP by 0.6%, in 2010 the national economy recovered and reached the incredible growth rate of goods and services of 7.5% (GDP) compared with the previous year (agriculture increased by 6.5%, industry by 10.1% and services by 5.4%). This data was announced by Dilma Rousseff’s government (Workers’ Party) that won the election after two mandates of Luiz Inácio Lula da Silva. The Workers’ Party believes that the protection and strengthening of domestic industry, as well as the stimulation of consumption by the population (especially the poor), are ways around the scenario of instability and decline of national economies all over the world. For the economist Dani Rodrik (Harvard University), this post-crisis moment evidences the return of industrial policy. In fact, says Rodrik, industrial policy has never 19

gone out of fashion: “economists in love with the neoliberal Washington Consensus may have discarded it, but successful economies have always relied on public policies that promote growth by accelerating structural change” (Rodrik, 2011). The government, accordingly, plays a significant role in encouraging some particular productive sector. Following Ha-Joon Chang and Roberto Rowthorn’s argument, the state plays an entrepreneur role whose task it to provide a “vision” for the society and create new institutions required to achieve this vision (Chang & Rowthorn, 1995, p. 34). If the “entrepreneurial vision” held by the state is to be realized, the state, as the ultimate guarantor of property and other rights, has to provide necessary institutions to make it a reality. The industrial policy, following Chang’s argument, could also be seen as instrument to provide this vision. The industrial policy adopted by the plan Brasil Maior to mitigate the effects of the global crisis is characterized by (i) selective use of taxes and tariffs to prevent the serious growth in imports of industrial products and manufactured goods (especially from China and East Asia); (ii) encouraging the domestic industry (apparel, footwear, furniture and software) through the exemption of payroll taxes; (iii) regulation of Lei de Compras Governamentais (Law of Governmental Purchases, 12.349/2010), increasing the government capacity to buy national products; (iv) exemption of exports through the establishment of Reintegra (Reintegrate, a tax return to the entrepreneurship that exports industrialized goods); (v) strengthening of trade defense (anti-dumping, safeguards and countervailing measusres) and (vi) strengthening of the financing of innovation by extending the working capital of BNDES and expanding programs aimed at technological innovation in strategic sectors. Despite the initial euphoria, the launch of the plan Brasil Maior in August 2011 occurred in a dramatic period of the global and Brazilian economy. The new dynamics of global economic growth, driven by the rapid growth of developing countries (especially China), signals to the aggravation of the loss of competitiveness of manufacturing industry of Brazil, because of the effect of competition (increased availability of imported manufactured products) and the effect of relative-prices (represented by high commodity prices that increase the profitability of exports). From 2003 to July 2011, the price of manufactured exports grew 99%, less than half the growth in commodity prices. That is, regardless of the value of the exchange rate, the export of commodities became much more profitable and China became the main destination of Brazilian exports. The central problem for Brazil is the investment in public education, human capital and support to innovation. The phenomenon of deindustrialization is truly worrying – according to Luiz Carlos Bresser-Pereira (2010), in late 1940, industry accounted for 20% of the GDP in Brazil; in 1985 reached 36% and in 2008 had dropped to 16% -, but what is most shocking is the country’s inability to invest in Research & Development (R&D) to take advantage of existing productive capacity, even if focused on commodities. As argued by Mansueto Almeida and José Carlos Cavalcanti, it is important to remember two points in relation to innovation and productive structure:

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“First, countries rich in natural resources such as Australia, Canada and New Zealand invest more than Brazil in R&D, although these countries are major exporters of commodities. These countries are developed economies and the major difference in relation to Brazil and Latin America is not the composition of the productive sector, but the quality of their institutions and investment in infrastructure and education. Thus, having a productive structure dominated by commodity exports is not necessarily a curse, as many seem to believe” (Almeida & Cavalcanti, 2011). Indeed, once accepted the usual definition of deindustrialization as a process by which there is a reduction in the share of value added in industry in GDP and/or industrial employment in total employment, it is unquestionable that this process is occurring in Brazil, with greater or lesser intensity, linearly or not, since the late 1980s. For some economists (Soares et al., 2011), the appreciated real exchange rate has gained prominence and has been implicated as a major factor for the ongoing deindustrialization in the Brazilian case. What seems clear, however, is that the Brazilian industry is losing force. And this is a major concern for the national business elite. The plan Brasil Maior (Brazil’s latest industrial policy) sounds more like a hasty response to protect the domestic industry (and redemption of the “national champions”) than a long-term strategic plan focused on fostering innovation and intensive Research & Development. As highlighted by the economist David Kupfer, to encourage investment, the plan uses a battery of conventional financial and tax incentives: “besides the additional round of tax cuts, it can be highlighted the increase in sectoral coverage and the extension until December 2012 of the Programa de Sustentação do Investimento (PSI), a successful initiative adopted by BNDES as a countercyclical response to the effects of the 2008 crisis, and that seems prudent to preserve it considering the deteriorating international economic environment” (Kupfer, 2011). In fact, BNDES continues with an important role in finacing projects that bring economic benefits to the country. However, there are no clear mechanisms for beneficiary selection and evaluation methods of success of the industrial policy created by the government. One can look to Plano Brasil Maior and wonder if it was created to protect the private sector elite’s interests (especially the owners of national industries that are losing power because of Chinese manufactured goods imports) or if it is a serious public policy that aims to create a vision of the future of Brazilian economy and the institutions necessary to consolidate this vision. Above all, Brazilian society should ask: who is benefiting with the plan Brasil Maior? Despite the efforts to promote small and medium enterprise (or even seed capital companies, such as the program Criatec), BNDES still follow along with the large national companies that project themselves as leaders of low-tech sectors, but that compete internationally. With Dilma Rousseff there is not a break with the logic initiated by the Lula government of alliance with the leaders of the Brazilian industry to create national champions. The scenario becomes a paradox: instead of BNDES overcoming market failures by investing in innovative companies that does not obtain

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financing in the private banking sector, the National Development Bank provides huge amounts of credit with lower interest rates to corporate conglomerates that have conditions to obtain financing on private financial institutions. It is no coincidence that many economists of public banks show signs of dissatisfaction with the policy adopted by BNDES. One of the most accurate critics on the bank’s sprawling work has been done by the economist Fabio Giambiagi, a career employee of the BNDES and one of the organizers of the book Brasil Pós-Crise, which discusses the role of development agencies and how the economy was performing after the initial events of the 2008 crisis. Giamgiabi argues that BNDES should stop supporting companies with full access to capital markets, enhance transparency in their actions and include in its board professional advisors that represent society. This is one way to avoid the formation of bureaucratic rings within the state bureaucracy, promoting accountability and preserving the general interests of society. However, as Shapiro argues, it is not totally clear whether participatory mechanisms are reliable, considering three latent problems: (i) real extension of its democratic spaces, (ii) asymmetric representation and (iii) risk of capture (Shapiro, 2012, p. 35). The possibility of transforming the decision making process within BNDES into a more democratic process depends on a better institutional design. As Roberto Mangabeira Unger argues in his writings, in each area of social life there is now a very limited set of alternative set-ups, described in the details of the law. This restricted repertory of institutional arrangements is the fate of the contemporary societies. The role of social scientists is to enlarge these institutional arrangements through institutional imagination, combining political economy and legal analysis: to enlarge this institutional repertory we must reimagine it. And where will we find the materials in which to reimagine it? According to Unger, we will find it in the law, in legal thought (Unger, 1996). Considering the issues addressed by this paper, the academy, above all, must adopt a critical posture and question who are the beneficiaries of the current industrial policy created by Brazilian federal government (cui bono?). After the diagnosis, it is necessary to perform the central task of legal analysis, what Unger calls the institutional imagination and experimentalism. Facing the new, it is necessary to think of new institutional arrangements that promote accountability and make public officials more accountable, creating mechanisms for interaction with society. Maybe by doing so Brazil could be bigger and better.

6. CONCLUDING REMARKS This paper tries to show that the industrial policies are back in Brazil. If David Trubek is correct, Brazil fits in the ideal-type of the New Developmental State, a different kind of state activism that is more market-friendly, but heavily dependent on public institutions such as the Brazilian Development Bank (BNDES) to finance private enterprises.

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The article demonstrated that the federal government, ruled by the Workers’ Party, created three industrial policies in the last eight years: Política Industrial, Tecnológica e de Comércio Exterior (2004), Política de Desenvolvimento Produtivo (2008) and Plano Brasil Maior (2011). They are all focused on innovation, foreign trade and competitiveness of Brazilian companies. The argument of this paper, which lacks of empirical evidence, is that there is an accountability gap in the formulation and execution of such industrial policies, especially the latest one (Brasil Maior). We must deal with industrial policies in Brazil having in mind that the political scenario is different from the 1960’s. The public bureaucracy must explain why they select some industrial sectors to be benefited from an industrial policy. The relationship between the business elite and state bureaucracy must be controlled to avoid the formation of “bureaucratic rings”. It is time for a better institutional design within public companies such as BNDES. This exercise of institutional imagination (how can we design an institutional arrangement that could prevent the formation of bureaucratic rings?) should be assumed by scholars of social sciences such as economics, law and business administration.

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