Brazil's Second Chance: En Route toward the First World

by Lincoln Gordon

Overview

Brazil is currently in a critical phase of a decades-long transformation from a patrimonial society--based on the cultivation and export of sugar and coffee--to a modernized industrial and service economy with effective democratic governance. It is the world's fifth largest nation-state in area and population, and ranks eighth in total economic output. Since World War II, Brazil has been a leader in international trade governance and negotiation, playing an important part in development of the GATT and the WTO. Currently, the country is a major factor in negotiations toward a hemispherewide Free Trade Area of the Americas (FTAA). However, Brazil's political record in the past half century has been erratic and it has struggled with high inflation and balance-of-payment deficits. In this major new work, a former American ambassador to Brazil examines the social, political, and economic history of the country since the 1930s and discusses whether Brazil is now ready to assume a place as an important participant among First World nations.

Product Details

ISBN-13:	9780815798545
Publisher:	Brookings Institution Press
Publication date:	05/13/2004
Sold by:	Barnes & Noble
Format:	eBook
Pages:	243
File size:	2 MB

About the Author

Lincoln Gordon is a guest scholar in Foreign Policy Studies at the Brookings Institution. He served as U.S. ambassador to Brazil from 1961-66 and as assistant secretary of state for Inter-American Affairs from 1966-68. A former president of Johns Hopkins University, he is the author of several books, including Eroding Empire: Western Relations with Eastern Europe (Brookings, 1987).

Read an Excerpt

Chapter One

The Goal: Genuine First World Status

Brazil is the world's fifth largest nation-state in both area and population and ninth in total economic output. It accounts for more than one-third of Latin America's total population and production. Its economy in 1998 outranked that of all but the United States, Japan, China, and the four leading countries of Europe. Among America's export destinations in the Western Hemisphere, it is surpassed only by Canada and Mexico. It has the world's eighth largest share of American direct foreign investments, far exceeding those in any other Latin American country. In recent years, it has also been a major destination for portfolio investment.

     In the entire half century since World War II, Brazil has been a leader in international trade governance and negotiation, playing an important part in the development of the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO). At a regional level, it is the major partner in Mercosur, which includes Argentina, Uruguay, and Paraguay, and has negotiated special trading arrangements with Chile and the Andean group. Mercosur has had unexpected success in expanding trade, investment, and infrastructure cooperation between former political rivals Brazil and Argentina and has given Brazil additional weight in negotiations toward a hemisphere-wide Free Trade Area of the Americas (FTAA). It has also opened discussions with the European Union on the possibility of region-to-region trade preferences.

    In addition to economic issues, Brazil has takenanactive part in regional and global international affairs, following a tradition begun under its constitutional monarchy (1822-89). Alone in Latin America, it has a well-educated and highly professional diplomatic corps, fluent in English, French, and Spanish and well versed in international politics and economics. It was the only Latin American country to participate actively in World War II, providing air bases on the northeastern hump and a full army division (under American command) in the difficult Italian campaign of 1944-45. For a brief period in the early 1960s, and again in the late 1970s, there were experiments in "independent" foreign policy and third world leadership, with a strongly anti-American flavor, but since the collapse of the Soviet Union, Brazil has returned to its older tradition, seeking collaboration with the United States while avoiding automatic concurrence or subservience. Brazil took the lead in 1998 in resolving a long-standing border conflict between Peru and Ecuador and has been an active and constructive participant in United Nations activities in peacekeeping, arms control (including nonproliferation of weapons of mass destruction), and environmental and human rights protection. It is unlikely, however, that Brazil will fulfill its ambition for a permanent place on the UN Security Council.

    Brazil is currently in a critical phase of a decades-long transformation from a patrimonial society based mainly on the cultivation and export of sugar and coffee to a modernized industrial and service economy with effective democratic governance. Its political record since World War II has been erratic. That record includes one presidential suicide (Vargas, 1954); one unexpected resignation (Quadros, 1961); one removal by coup d'état (Goulart, 1964); twenty-one years of authoritarian military government (1964-85) under five army generals, one of whom became disabled by a stroke (Costa e Silva, 1969); one president-elect stricken by fatal illness on the eve of his inauguration (Tancredo Neves, 1985); and one elected president constitutionally impeached for corruption (Fernando Collor, 1992). Since 1950, only two civilian presidents have completed full terms: Juscelino Kubitschek (1956-61) and Fernando Henrique Cardoso (1995-98), who was reelected in 1998 to a second four-year term (1999-2002). The transition from military back to civilian governance was gradual, spread over a decade (1975-85), but relatively peaceful and consensual, with an amnesty law avoiding the recriminations commonly experienced in more abrupt political transitions.

    The Constitution of 1988, drafted by an assembly composed of elected members of Congress (deputies and senators) and containing 245 articles and 70 "transitional provisions," reflected a populist reaction against the military regime. It gave constitutional protection not only for vital civil rights and liberties but also for social and economic privileges for a large array of special interest groups. Together with political party and electoral mechanics, which greatly overweight parochial interests and give undue strength to states and municipalities at the expense of the central government, it created high hurdles for economic and social reforms essential to full modernization.

    Notwithstanding these gyrations, Brazil has made great strides toward first world status since the 1950s. Income per capita is about on a par with Central Europe's and roughly 30 percent of Western Europe's. Urbanization, industrialization, and modern services have displaced traditional agriculture as the dominant modes of life. Adult literacy has risen from 49 percent in 1950 to 84 percent in 1997, and average life expectancy from fifty to sixty-seven years. The most striking shortfall in the modernization process is the continuing gross inequality in income distribution, a pattern that contrasts sharply with the modernizing economies of East Asia. The remedies lie mainly in an overdue but ongoing reform of the educational structure and in a resumption of sustained economic growth.

    In macroeconomic terms, Brazil's hallmark over the decades has been high inflation. The inflation rate per year averaged 34 percent in the 1970s, 428 percent in the 1980s, and almost 1,400 percent in the five years 1990-94, before being tamed by the ingenious Real Plan, which elevated Fernando Henrique Cardoso to the presidency in the 1994 election. In the following five years, the average inflation rate came down to 8.4 percent, but at the cost of a somewhat overvalued real. Growing deficits in the current balance of payments, together with financial crises in Asia and Russia, led to a run on international reserves and a substantial devaluation of the real in early 1999. A US$41.5 billion international aid package, backed by the International Monetary Fund (IMF), the U.S. Treasury, and other first world governments, warded off the threat of default on foreign obligations and a major economic setback. The new millennium opened in more promising macroeconomic conditions, but the government still faced difficult legislative battles for advancing badly needed economic and political reforms. The political climate was becoming more tense in preparation for mayoral elections in October 2000 and national and state elections in 2002 for president and vice president, deputies and senators, governors and members of state legislatures. The outcome may determine for many years whether Brazil can achieve full first world status and realize its potential for constructive worldwide influence or will relapse back into another "lost decade" like the 1980s and early 1990s.

Brazilian Aspirations

In Brazil's nearly two centuries of independent statehood, elite opinion has always envisaged a future of grandeza (greatness) on the world stage. The national anthem somewhat naively foresees greatness as a necessary consequence of the country's huge size. This mind-set was fostered by the decades of political stability under the monarchies of Pedro I (1822-31) and Pedro II (1831-89), with their titled aristocracy, European-style royal institutions, and simulacrum of parliamentary government, albeit with a very limited franchise. Alongside the dominant patrimonial owners of sugar and coffee estates, based until 1888 on slave labor, there developed urban professional elites, often European-educated, who pressed for modernization on European or North American lines. Younger military officers became prominent in these groups, which played major roles in the antislavery movement, the overthrow of the imperial regime in 1889, and the drafting of a republican constitution in 1891. Although that constitution was patterned in form on the American model, in practice it weakened central government power and gave effective control to the coffee and cattle landowners of the two leading states, São Paulo and Minas Gerais. The stage was set for increasing tensions between a backward-looking oligarchical system and the modernizing professionals, both civilian and military. In the 1920s armed violence broke out in several states, often involving the state militia. In 1930 the modernizing forces joined in a Liberal Alliance to overthrow the Old Republic by coup d'état and install in the presidency Getúlio Vargas, the governor of Rio Grande do Sul. Vargas was to dominate Brazilian politics for the next twenty-four years.

    In this turbulent era, significant changes took place in economic and social structures, gradually expanding manufacturing industry in textiles, shoes, and processed foodstuffs, especially in the growing metropolitan region of São Paulo. World War I had intensified these trends by cutting off traditional European sources of supply. In the depression years, manufacturing investment was also promoted by the government's policy of price support for coffee through purchases of huge quantities to keep the surpluses off the world market and enable the coffee barons to invest in industry. This anticipatory Keynesianism helped Brazil weather the depression better than many more advanced countries and fueled the Vargas administration's ambitions for economic expansion.

    On the political side, fascist and communist movements became significant actors in Brazil, but Vargas warded off clumsy efforts at coups d'état from both left and right and centralized political power in his own hands. He appointed mayors in the bigger cities and "interventors" in place of elected governors. In 1937 he assumed dictatorial power, promulgating by decree an authoritarian constitution for the so-called New State (Estado Novo), which included Italian fascist-style organization of labor unions and business associations on corporative lines.

    Structural change, including urbanization and the expansion of manufacturing, was given further impetus by World War II, which also generated large export surpluses. National ambition was focused on the installation of heavy industry, starting with the government-owned National Steel Company (Companhia Siderúrgica Nacional) at Volta Redonda. Vargas hoped that active military collaboration with the United States might be rewarded by a political-economic "special relationship" after the war, with assistance for forced-pace industrialization. The seeds were thus planted for Brazil's postwar development policies, including substantial reliance on government ownership and a large component of economic nationalism. With the allied victory against fascist dictatorships, Vargas was forced out of office in 1945, but he secured a later political revival by creating two new parties in anticipation of renewed constitutional democracy. With their support, he won a three-man contest for the presidency overwhelmingly in 1950. In a wave of fervent nationalism, under the slogan "The Oil Is Ours," Congress created Petrobrás as a government-owned oil monopoly. The president elected in 1955, Juscelino Kubitschek, made "developmentalism" (desenvolvimentismo) the keynote of his campaign and his term in office. In one form or another, it has been a central theme of Brazilian national aspirations ever since.

Genuine First World Status

On the broader global stage in the 1950s, international politics were increasingly dominated by the cold war. The world's nations came to be classified in three categories, separated by degrees and types of political-economic development. The first world comprised the "industrial democracies" of Western Europe, North America, Australia, New Zealand, and Japan—in effect the core membership of the Paris-based Organization for Economic Cooperation and Development (OECD). The second world consisted of countries with centrally planned economies governed by Communist Party regimes. The collapse of the Soviet bloc in 1989, the end of the Communist Party's monopoly of power in Russia and Eastern Europe, and the weakening of central planning in China have reduced this category to North Korea and Cuba, so the term "second world" has gone out of use. In its place, the term "transitional economies" is now applied to Eastern Europe and the former Soviet republics, implying that they are all headed toward market-based economic systems and democratic polities, even though evidently not all at the same pace.

    The original meaning of "third world" was political rather than economic, signifying nonalignment with either of the cold war blocs. By a gradual transformation in the 1950s and 1960s, however, it became equivalent to "underdeveloped" or "developing" countries, with relatively low degrees of industrialization and low incomes per capita. The third world thus defined included all of Africa, Latin America, and Asia except for Japan and China. It was a huge and diverse category of about 130 units, with an enormous range of size and wealth. In United Nations debates on international economic policies, their representatives caucused together and often voted together as the "G-77."

    In the 1980s, the most advanced members of this group, marked by relatively high income levels and industrial sophistication, came to be called newly industrializing countries, or NICs. They included the four Asian "tigers" (South Korea, Taiwan, Singapore, and Hong Kong), possibly also Indonesia and Malaysia, together with Brazil, Mexico, and possibly Argentina, Chile, and Venezuela. By most measures, these NICs were much closer to the first world than to the average of their third world associates. While only Korea as yet regards itself—or is regarded by the rest of the World—as having fully completed the transition into the first world, it seems absurd to put in a single "third world" category countries as diverse as Argentina, Chile, Mexico, Malaysia, and Brazil at one end and Ethiopia, Mozambique, and Uganda at the other. The United Nations sometimes uses the terms "developed" and "developing," really meaning "rich" and "poor," but the World Bank has abandoned qualitative adjectives in favor of four categories based on per capita income levels: high income, upper middle income (which includes Brazil), lower middle income, and low income. Yet the term "third world" (or "third world conditions") persists in common usage, without any generally accepted and clear-cut definition.

    Apart from formal OECD membership, the first world is identified by three kinds of criteria: political, domestic economic, and external economic. The political criterion is easy to define, although not always easy to secure or maintain. It is a condition of stable pluralist democracy, with representative government based on free elections, competition among political parties, constitutional protection of individual and minority rights, and unconditional acceptance of electoral results.

    The domestic economic criterion is harder to describe in a single sentence. It is not a mere matter of per capita incomes, although all present members enjoy levels above $15,000 per year (at 1997 prices, using "purchasing power parity" exchange rates) and the richest approach $30,000. It includes a broad array of modern industrial and service activities, a high degree of urbanization, integration of agriculture into the money economy, access to advanced technologies, universal education for literacy and numeracy, some form of social "safety net" to prevent extreme destitution and provide access to health care, and general participation of the populations in modern institutions of trade and exchange. On the external economic side, first world members are all actively involved in the late-twentieth-century international systems of trade, finance, and investment, institutionalized in the WTO, the IMF, the World Bank, and the network of private commercial and investment banks. During the 1990s, their openness to foreign trade and investment has come to be called globalization.

    In the 1950s, the early period of active U.S. (and other first world) interest in overseas development, it was widely believed that all third world countries would in due course undergo some form of transition to modernization, either into the first world or into the second. A major component of the American political interest in assisting development, although by no means its entire raison d'être, was the very issue of choice between "free" and "communist" worlds. Walt W. Rostow's widely read and influential book, The Stages of Economic Growth (1960), was subtitled A Non-Communist Manifesto. It predicted worldwide developmental patterns essentially similar to the nineteenth- and early twentieth-century experiences of Europe, North America, and Japan. In Rostow's view, the "takeoff into sustained growth" had already taken place in Mexico and Argentina and was under way in Brazil and Venezuela as well as in China and India.

    For Simon Kuznets, on the other hand, the leading economic growth historian of that period, modernization could not be analyzed in such discrete stages and could be hampered by all kinds of political, social, and cultural constraints. The slowness of its spread was consequently not so surprising. In Latin America, Kuznets noted the delays occasioned "by a political and institutional framework that, at least until recent decades, permitted the small elites to profit from the economic advantages of their position, without embodying strong incentives and pressures for change that would spread the benefits and lay the foundation for greater modernization of the economic and social structure." Yet he had little doubt that modernization would prevail in time. American policymakers under Dwight Eisenhower, John Kennedy, and Lyndon Johnson were confident that, with appropriate international assistance, the process could not only be accelerated but also steered toward assimilation into the first world rather than the second.

The Brazilian Potential

That most Brazilians aspire to first world status, as thus defined, is scarcely in doubt. Advanced living standards for their children if not themselves, much less poverty and misery, a stable political structure providing democratic accountability and secure human rights—these are all widely shared goals, even though many Brazilians would not state them in terms of first world versus third. These goals also have an intimate and long-standing connection with Brazilian nationalism.

    In the early postwar decades, many Brazilian intellectuals would have defined greatness in socialist terms, but neither the Soviet Union nor China had much standing as models even then, and their glamour as ideals has now totally disappeared. More recently, Japan has received some attention as a country with "many qualities which other countries should imitate," but its appeal has declined with the long stagnation since 1990. For a time in the 1970s, when the oil shocks had seemed to empower third world countries in a global struggle against the first world, a group of intellectuals on the left, including some professional diplomats, argued for Brazil to assume third world leadership. After years of sterile debates in UN bodies, and especially after the collapse of the Soviet Union, this line of thought dwindled to insignificance, again leaving Europe and North America as the dominant models. When pressed to identify specific countries, however, Brazilians I have consulted generally say that first world contents should be poured into a specifically Brazilian mold.

    On the political side, the basic commitment to democratic institutions and human rights was amply demonstrated during the recent period of military rule. Popular opinion had widely welcomed the ouster of President João Goulart in 1964 as an escape from the twin dangers of social chaos or populist dictatorship but by the early 1970s had already shifted to favor a democratic restoration. Even in the most repressive years, the dominant military faction rejected the idea of permanent authoritarian rule or single-party monopoly of power. From 1975 on, as the step-by-step processes of "relaxation" (distensão), "opening" (abertura), and redemocratization proceeded, the regime was kept under constant public pressure, culminating in the mass mobilization of 1984 favoring immediate direct elections to the presidency (diretas já). The restoration of civilian control in 1985 was immensely popular in all sectors of Brazilian society. In the same vein, spokesmen for all sectors, while acknowledging that the results were far from ideal, took pride in the intensely democratic procedures through which the Constitution of 1988 was prepared. Its human rights provisions are universally praised, in contrast to the controversial economic clauses. Notwithstanding the disappointments of economic and social performance in the first decade of the "New Republic," elections with freedom to form political parties and mass voting participation helped to distract attention from immediate woes and offered a hope for better times to come.

    On the economic side, there is less consensus. Although first world levels of prosperity are widely desired, and only very small minorities believe that such levels could be achieved by Brazil in isolation from the world economy, there are deep differences on intermediate ends and on basic lines of policy. The economic record over the years has been disfigured by two great failures that are almost Brazilian hallmarks: (1) chronic inflation, verging on hyperinflation, and (2) extreme inequality in the distribution of incomes and wealth. But there is no general consensus on the remedies. These failures have been major obstacles to the achievement of genuine first world status. The efforts to overcome them, notably the Real Plan for financial stabilization introduced in 1994, are treated in later chapters.

    Suffice it here to identify some of the major lines of cleavage in attitudes toward economic policies:

1. Regional tension between the Northeast and the more advanced Center-South goes back for generations. With its poles at Recife and São Paulo, the conflict pits the economic interests of a poor, relatively overpopulated, predominantly rural, and frequently drought-stricken group of northeastern states against the interests of the south-central region, whose dynamic growth in both industry and modern agriculture now extends from southern Bahia and Minas Gerais down to the Argentine and Uruguayan frontiers.

2. Conventional left-right political tension has developed in the wake of twentieth-century urbanization and industrialization. On the extreme left are former communists and socialists still devoted to direct state management of much of the economy and far-reaching intervention in the remainder; on the far right, there are intransigent free-enterprise liberals (defining "liberal" in the European manner, sometimes called "libertarian" in the United States), opposed to all forms of governmental intervention in the economy. Short of the extremes, the center-left protects the privileges of organized labor, especially in government service marked by redundant employment, early retirement, and extravagant pensions; it opposes privatization on principle. The center-right tends to resist agrarian reform and to move slowly on educational modernization. There is a substantial array of centrist groupings in between, but this tension is a central feature of both labor relations and party politics.

3. Until recently, there was also a sharp division on the proper role of foreign private investment and multinational corporations, arraying all-out opponents against all-out supporters. Today, while there are many more advocates of centrist positions on these issues, there remains a strong residue of nationalist antiforeign sentiment.

4. Overlapping all of the above, there is a cleavage between traditionalists and modernizing reformers. In the Brazilian context, this cleavage is as fundamental as Russia's classic division into Slavophiles and Westernizers. The traditionalists are the beneficiaries of the "three C's" of Brazil's socioeconomic history: clientelism, corporativism, and the cartorial (that is, overbureaucratized) state. In the countryside, especially in the Northeast, the traditionalist attitudes go straight back to colonial Brazil's patrimonial and slavery-based society. In commerce and industry, they seek to preserve the governmental subsidies and protection from competition developed in earlier stages of twentieth-century development. The modernizers want to break those molds, encouraging domestic competition and opening the economy to foreign competition. Exemplars of each side can be found in every walk of life: agricultural landowners, industrial owners and managers, bankers and businessmen in the newer service sectors, labor unions, the Church, universities, the liberal professions, the civil service, the military officer corps, and politics.

    These multiple cleavages might seem a prescription for paralysis, giving credence to the old saw that "Brazil is the land of the future and will always be so." Against that kind of pessimism, however, must be set the record of development in the twentieth century, especially in the postwar decades. In gross magnitudes, total economic output was multiplied elevenfold between 1947 and 1980, and per capita real output by four and a half times, while the structure of the economy was radically transformed. That record gives assurance of Brazil's potential for complete transformation to first world status, whether or not the potential comes to be realized in the visible future.

    The first component in that potential is sheer size of territory and population. Size in itself is no guarantee of economic success, but it does provide real advantages: a wide array of natural resources within the national borders and a sufficient domestic market to promote industrial diversification. In the late 1990s Brazil was fifth in area, fifth in population, and ninth in economic output (table 1-1).

    In per capita incomes, Brazil ranks somewhat below Mexico and Argentina and stands at about two-fifths of Spain's level and one-third of Western Europe's. It is far above the huge countries of India, China, and Indonesia. Brazil's middling per capita levels resemble southern Europe's in the 1950s. Combined with the population of over 150 million, they constitute a substantial domestic market. In broad terms, that market scale permits efficient production of the kinds of goods typical of the world's first and second industrial revolutions, including intermediate metal products, low-cost textiles and shoes, motor vehicles, electrical and chemical products, machine tools, and most consumer durables. For today's ongoing third industrial revolution of electronics and information, however, nothing short of a global market appears able to maintain the pace of technological advance.

    A rapid rate of population growth in a large and relatively poor country can be a drag on developmental potential, absorbing much of the available capital to provide basic goods and services at a subsistence level instead of raising per capita output and income. Brazil's census counts since 1872 are shown in figure 1-1, along with the intercensus rates of annual increase. The high growth in the early twentieth century mainly reflects heavy immigration, but the peak of 3.1 percent in midcentury is typical of the demographic transition, in which public health measures reduce mortality (especially infant mortality) while high birth rates continue. Notwithstanding the achievement of quite high levels of economic growth, the population surge sets limits to improvements in health and education and aggravates the inequalities in income distribution between geographical regions and social classes. Since the mid-1960s, however, urbanization, extended education, and the spread of contraceptive practices have gradually brought the rate down to a level of 1.4 percent in the late 1990s. Birthrates remain higher in the poor Northeast than elsewhere, but those regional disparities are also beginning to close.