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‘Neoliberalism and Democracy in Argentina and Brazil

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‘Neoliberalism and Democracy in Argentina and Brazil

CHAPTER 1
Neoliberalism, Democracy and Economic Policy in Latin America
Alfredo Saad-Filho
Department of Development Studies
SOAS, University of London
as59@soas.ac.uk
Francesca Iannini
Department of Development Studies
SOAS, University of London
Elizabeth Jean Molinari
Department of Development Studies
SOAS, University of London
Abstract
This chapter reviews the economic, social and political changes associated with
the transition from import-substituting industrialisation (ISI) to neoliberalism in
Argentina and Brazil. It shows that, despite the significant differences in the
economic performance of their ISI regimes, and the distinct social compositions
and political forms associated with that system of accumulation, the transitions to
neoliberalism in Argentina and Brazil have commonalities across several levels.
This chapter explores three of these levels: the role of inflation stabilisation, the
relationship between the democratic transition and the economic transition to
neoliberalism, and the tensions and displacements which currently limit the new
liberal system of accumulation in both countries.
Keywords: Latin America, Brazil, Argentina, Democracy, Neoliberalism.
JEL Classification: O11, O54.
1. Introduction 1
The political economy of Latin America has changed significantly in the last
generation. Three important changes are especially evident. Firstly, the political
system of a growing number of countries has become remarkably open as well as
generally stable for over twenty years. In the past, most countries were relatively
1
closed as well as being politically unstable, undergoing sharp swings between
relatively pluralistic and socially inclusive phases and harsh authoritarian rule.
Secondly, their economies have been transformed. Between the early thirties and
the mid- to late seventies, several Latin American countries significantly
expanded their manufacturing capacity through a strategy of import-substituting
industrialisation (ISI). Today, however, most countries have become relatively
low-growth economies firmly tied to the neoliberal world order, and a significant
degree of deindustrialisation has been observed in the recent past. Most
institutions associated with ISI have been dismantled, and their social structures
and occupational patterns have been, correspondingly, transformed in a neoliberal
direction. Thirdly, Latin America was, for several decades, typically a high
inflation region. Today, high inflation has been eliminated almost everywhere.
These systemic shifts have been explained in different ways. Mainstream
economists usually claim that ISI is an intrinsically inefficient accumulation
strategy, which was imposed by populist administrations currying favour with
minority constituencies at the expense of the general good (and at the expense of
faster long-term growth; see Bresser-Pereira, 1991 and Dornbusch and Edwards,
1991). ‘Populist’ developmental states ran large fiscal deficits due to excessive
welfare expenditures, ill-considered subsidy schemes, corruption, unrealistic
wages in the public sector and the reckless expansion of deficit-prone state-owned
enterprises (SOEs). Neoliberal economic reforms were essential, and they were
implemented when the political circumstances permitted. This interpretation sees
no relationship between the political transition to democracy and the economic
transition to neoliberalism. The former is understood to depend on the balance of
forces in society, and the latter on the (belated) realisation that ‘There Is No
Alternative’ to neoliberalism. Finally, these economists claim that the
disappointing economic performance of most Latin American countries in the
recent period has been due primarily to remaining economic rigidities (especially
in the labour market), regulatory uncertainty, and external turbulence. In contrast,
structuralist economists and dependentistas generally argue that poor economic
performance, under both ISI and neoliberalism, is due primarily to the
inefficiency of market processes in these countries, distributive conflicts and
2
external transfers, especially following the debt crisis (see, for example, Fanelli,
2003 and Palma, 1998). More recently, trade and capital account liberalisation are
also considered to have contributed to the drainage of domestic resources, and
added to the fragility of the balance of payments in both countries.
This chapter offers an alternative interpretation of the recent changes in the
political economy of Latin America through a close examination of the cases of
Argentina and Brazil. This interpretation is based on the relationship between the
economic transition from ISI to neoliberalism, and the political transition from
military rule to democracy in both countries. The chapter has six sections. This
introduction is the first. The second briefly surveys the period of rapid growth
under ISI in Argentina and Brazil and its exhaustion in the early eighties. The
third reviews the economic and political strategies of the military regimes in both
countries, and their processes of transitions to democracy. The fourth examines
the political economy of the democratic regimes in Argentina and Brazil. The fifth
considers the relationship between inflation stabilisation and the neoliberal
transition. The sixth concludes this chapter with a brief examination of the
limitations and potential fragilities of the new liberal consensus (the hegemonic
combination between neoliberal economic policies with political democracy) in
Argentina and Brazil.
2. The Political Economy of Rapid Growth
ISI is an accumulation strategy that focuses on the expansion of the share of
manufacturing industry in GDP, with a view to using captive domestic markets
and the available resources to replace imports, generate employment, internalise
new (‘modern’) technologies and cultural values, and alleviate structural pressures
on the balance of payments (see Bruton, 1998 and Hirschman, 1968).
Urbanisation and manufacturing sector development through ISI are, to some
extent, the spontaneous outcome of rising incomes and economic diversification
under primary export-led growth. A tight balance of payments constraint (usually
under a fixed exchange rate regime) can accelerate moves towards ISI, for
3
example, through the reduction of import capacity because of declining terms of
trade, crop failures or the unavailability of imports as a result of foreign wars.
Alternatively, ISI can also be stimulated by the imposition of tariff barriers by
local governments, with a view to insulating the domestic market to favour local
producers (which may be either national or foreign-based). Although the two
world wars and the 1929 crisis played an important role in the success of ISI in
Latin America, adverse external shocks are insufficient conditions for
manufacturing growth. For example, these shocks can provide incentives for the
expansion of output only when spare manufacturing capacity is already available.
Such outcomes depend on a preceding period of export growth (or, alternatively,
foreign loans or foreign investment). Sizable domestic markets also create
incentives for the domestic production of manufactured goods, a factor that
explains why ISI was normally more successful in large economies than in small
ones.
Experience shows that a successful process of ISI entails not only activist trade
policies but also extensive government direction in the allocation of resources,
along with other modalities of intervention in the markets for inputs and labour
power, and the provision of finance and infrastructure. Incentives are normally
required by transnational companies, domestic firms and SOEs to produce
manufactured goods locally, and the effects of any incentives is best achieved
when supported by expansionary macroeconomic policies. The deployment of
these interventionist policies was normally part of a deliberate strategy to
diversify the economy and reduce its vulnerability to external shocks, which were
perceived to represent an inherent weakness of the primary-export led model (see
Thorp, 1992).
The development of domestic manufacturing capacity under ISI generally follows
a sequence of increasingly complex economic activities (see tables 1 and 2 and
figure 1). Domestic manufacturing production usually starts from the
internalisation of the production of non-durable consumer goods (cigarettes,
beverages, cotton textiles, shoes, petrol, kerosene, and so on). The expansion of
these industries is often followed by the production of consumer durables (e.g.,
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household appliances and automobile assembly), as well as intermediate goods
(auto parts, simple chemical and pharmaceutical products, cement, and so on). In
Argentina and Brazil, the process of import substitution went further, to include
the production of basic inputs and capital goods (steel, industrial machinery and
electric motors, heavy and chemical industries, and large infrastructural projects).
In Brazil, domestic production eventually included technologically complex
goods like electronic machinery, turbines for hydroelectric dams, shipbuilding and
aircraft design and assembly. In both countries, under mature ISI, a
‘macroeconomic division of labour’ was established in which domestic capital
tended to produce non-durable consumer goods and capital goods, while
transnational companies normally produced durable consumer goods. State-owned
enterprises provided subsidised infrastructure and basic goods and services, and
state-owned banks supplied long-term credit for industrial development.
<TABLES 1, 2>
<FIGURE 1>
Politically, ISI in Argentina and Brazil was essentially based on a corporatist and
populist model institutionalised, respectively, by General Juan D. Perón and
Getúlio D. Vargas. Although their policies were often heavily authoritarian, these
administrations also contributed to the enlargement and institutionalisation of the
civil and political rights of the working class, and transformed the industrial
workers, in particular, into a political as well as economic agent. In Argentina,
Perón’s perception of the potentially revolutionary character of the working class,
coupled with its importance within the Peronist alliance, led to the 1949 reform of
the Constitution, which was overtly inspired by the distributive ideal of ‘social
justice’. These reforms introduced relatively sophisticated social policies and a
welfare state in the country, aiming to co-opt the urban working class to support
the accumulation strategy sponsored by the Argentine state (Weisman, 1987).
Similarly in Brazil, Vargas governed as a dictator after 1938. During this period
he reformed labour law (closely following Mussolini’s Carta del Lavoro),
supported the organisation of hundreds of trade unions, and introduced a
5
rudimentary form of social provision for the urban workers and civil servants
(Skidmore, 1973).
The uneasy coexistence between populism, nationalism and statism under ISI was
primarily due to the intense conflicts of interest within the elite (for example,
between agrarian and urban interests, between manufacturing capital and finance,
and so on), and between the elite and other social groups, especially the
marginalised but increasingly militant workers, and the urban middle classes.
Stripped of their rich complexity, these conflicts essentially centred around the
extent to which resources should be transferred away from the primary export
sector, and where they should be allocated – for example, towards urban industry,
infrastructure or welfare provision (and, within these alternatives, which sub-
sectors, regions or groups should benefit most).
It was widely accepted that, in order to achieve developmental objectives
(synthesised in the goal of industrialisation), extensive state intervention was
required at several levels. Economic interventionism was supported, and not
infrequently disguised, by a nationalist ideology according to which the ‘nation as
a whole’ would progress only through industrialisation. In this developmentalist
discourse, lack of industrialisation was associated with backwardness and the
political and economic power of the traditional landed elites, to be overcome
through state action towards economic ‘progress’. The relationship between
nationalism, statism and developmentalism tended to become especially
pronounced when private capital lacked the capacity or interest to invest in
strategic areas such as oil, steel, electricity generation or transport links. In cases
such as these, provision would often depend on extensive state intervention, either
through the nationalisation of the industry and its development through a state
monopoly, or through the offer of subsidies or other incentives for private capital
to address these supply constraints. The resolution of the conflicts of interest
associated with the expansion of production in these key areas was never
unproblematic. Contradictory popular demands, state initiatives and sectoral
pressures were played out in the media, in educational and research institutions, in
state institutions and on the streets, sometimes violently, and the outcomes were
6
contingent on timing, circumstances and the constellation of forces mobilised on
each side.2
The precise form of the relationship between nationalism, mass pressures and
state economic interventionism depended to a large extent on the social and
political relationships within the elite. They include, especially, the degree of elite
consensus around developmentalist policy strategies and the capacity and interest
of the state to impose developmental outcomes without the mobilisation of the
urban masses, particularly the emerging middle and working classes. Strong
political currents took shape in this period in close association with the interests at
stake in the process of industrialisation. In Argentina, the Justicialist (Peronist)
party was formed in 1945, and it remained closely associated at least in political
mythology with ISI until the late eighties. In Brazil, Vargas founded two political
parties in 1945 as part of his effort to build a wide support base for his
developmentalist policies: the Brazilian Labour Party (a left-wing organisation
based primarily on the organised workers) and the Social Democratic Party (a
centre-left party with extensive links to the landed elite and the urban middle
classes).
The intense conflicts around state ideology and priorities during this period, and
around the form of implementation of the state’s developmental goals, made
resource allocation through fiscal policy a highly complex and contentious issue.
The frequent conflation between economic and political objectives (for example,
economic growth or the consolidation of political support for narrow interest
groups), and between short-term and long-term initiatives (e.g., social welfare or
infrastructure provision) made the choice of state priorities very difficult, thus
fuelling social conflicts and inflation. The growing paralysis of the state
institutions, rising levels of social strife, the radicalisation of the political parties
associated with Perón and Vargas (which was partly a reflection of the growing
influence of the far left), and the deterioration of the macroeconomic indicators in
both countries contributed to the collapse of democracy in Argentina in 1966 and,
more dramatically, in 1976, and in Brazil after 1964. In both countries, these
military coups were a response to a hegemonic impasse (O’Donnell, 1982), which
7
appeared as a ‘a static equilibrium … [in which] no group, neither the
conservatives nor the progressives, has the strength for victory, and [in which] the
conservative group needs a master’ (Gramsci, 1971:451). Military intervention cut
through the existing social divisions, and imposed national solutions which
differed greatly in character.
3. From Militarism to Democracy
This section shows that the collapse of militarism in Argentina and Brazil was
triggered by its loss of legitimacy, owing to a combination of two factors. On the
one hand, a profound economic crisis, which the military regimes were unable to
address. Indicators of the crisis included the accumulation of foreign (and
domestic public) debt, the stagnation of incomes and economic growth, the rise of
working class struggles and, especially, high inflation, which synthesised the
underlying economic tensions. On the other hand, a deep political crisis brought
about by the rise of a democratic mass movement which could not be repressed.
Political contestation to military rule encompassed a wide range of modalities of
mass struggle, among them criticisms of widespread corruption, economic
mismanagement and lack of democracy and accountability in the political system,
trade union activity, and mass mobilisation for economic and political democracy.
At this stage, a significant change took place within the elites in both countries:3
for the first time since, at least, the late twenties, a consensus developed around
political democracy.4 This elite consensus was the outcome of external pressures
as well as domestic developments, and it facilitated the democratic transition in
Argentina and Brazil because it defused the potential conflicts that may have
arisen around the change of political regime.
3.1 The Bumpy Argentine Road to New Liberalism…
The military coup of March 1976 unleashed in Argentina a wide-ranging Proceso
de Reorganización Nacional (process of national reorganisation). The Proceso
included an attempt to eliminate the radical left through the targeted killing of
thousands of militants, to dismantle the organised working class, and to reform
8
society in order to transform the country into a bastion of ‘Western Christian
values’. The economic programme of the dictatorship was inspired by
monetarism, which seemed to offer a tool for dismantling ISI and for introducing
a new system of accumulation based on primary exports and services, supported
by closer integration with the world economy through financial, trade and capital
account liberalisation.5 It was expected that the ‘market’ would operate as the
main disciplining mechanism in the economic sphere (supported by military
power where necessary) against both inefficient entrepreneurs and the
‘undisciplined’ working class which had been created under ISI (see Smith, 1989
and Schvarzer, 1981). The privatisation programme for example, afforded
contractors a wide variety of benefits such as markets, tax advantages, guaranteed
payments and easy credit from the state-owned Banco de la Nación, creating
powerful (foreign and local) interests which, years later, would play a central role
in the promotion and implementation of neoliberal policies.
After six year of military rule, the junta’s objective of rapid growth with
macroeconomic stability resulted, instead, in a deep economic and financial crisis,
accelerating inflation and profound economic uncertainty (Díaz-Alejandro, 1985;
see figure 1 and table 3). This outcome was exacerbated by the asymmetric impact
of the recession across the economy. Whilst the liberalisation of markets caused a
26 per cent decline in manufacturing output between 1975-80 (Smith, 1985), a
small group of large national firms, linked principally to the agrarian sector,
profited enormously by establishing oligopolistic control over large swathes of the
Argentine economy. In the meantime, after years of state terror, persecutions and
drastic declines in real wages, the working class gradually rediscovered its
political voice (Tedesco, 1999). Testament to this were the 621 strikes between
1980-81, compared to only 417 in the four preceding years (Munck, 1985:67).
<TABLE 3>
In its troubled twilight, the military government confronted a reinvigorated and
renewed civil society expressing demands not only for political democracy, but
also for an economic strategy favouring broader national interests, including
9
employment generation and the reduction of external economic vulnerability. In
an attempt to regain legitimacy by appealing to nationalistic feelings, the military
regime gambled everything on the invasion of the Falkland (Malvinas) islands in
April 1982. The ensuing defeat not only demoralised the military regime
politically; it also isolated the country from its erstwhile allies. By the end of
1982, with the external debt having reached US$ 40 billion, Argentina was on the
verge of insolvency (Smith, 1991). The transfer of power to civilians had become
inevitable, and it was completed in October 1983, when Raúl Alfonsín (leader of
the urban middle class Unión Cívica Radical) became Argentina’s new
democratically elected president.
The transition to democracy was carried out in the context of a structurally
weakened popular sector, the result of both deindustrialisation and repression,
weak political parties and powerful interest groups. One of the political
implications of the military regime’s destructive industrial policy was the terminal
decline of the industrial working class, as well as the weakening of the small and
medium enterprises, which were the other main component of the political
alliance supporting ISI. For example, approximately 30 per cent of worker-hours
were lost through unemployment across the manufacturing sector between 1976
and 1981, largely as a result of market liberalisation, the overvaluation of the
currency and the inability of domestic industry to compete with cheaper imports
(Peralta-Ramos and Weisman, 1987).
It is often claimed that the above conditions were unfavourable to the
establishment of a stable democratic regime (see, for example, Peralta-Ramos and
Waisman, 1987). However, experience has shown that this interpretation is
incorrect. It would be more accurate to argue that the structural weakening of the
working class and its urban allies supported the emerging consensus for political
democracy. The democratic transition legitimised the Argentine state, while the
elite’s political control over the transition was facilitated by the profound
disarticulation of the working class brought about by the military regime. These
developments helped to defuse the potential conflicts around the political
transition, and to secure the reproduction of the inequality and social exclusion
10
engineered by the military regime, which became its lasting legacy. In other
words, the long-term significance of the democratic transition lies in the fact that
it facilitated the reproduction of the unequal social relations imposed by the
Proceso. The election of President Alfonsín drew on the enthusiasm and
democratic expectations of the vast majority of the population, who were
encouraged by utopian assertions such as ‘con la democracia se come, se cura y
se educa’ (‘with democracy we eat, we cure and we educate’, quoted in
Mainwairing, 1995:122). Alfonsín, however, did little to challenge the social and
economic legacy of military rule.
The scope for radical social and economic transformation was severely restricted
by Alfonsín’s inheritance of an economy on the verge of collapse (see table 3 and
figures 1 and 2, and Azpiazú, 1998, Canitrot and Sigal, 1995 and Carranza, 1997).
Capital flight had reached an estimated US$ 22.4 billion, nearly half the foreign
debt stock (Dornbusch, 1989:8). Initially the government implemented
expansionary policies that seemed more in tune with a revitalised process of ISI
than with the new economic constraints facing Argentina, especially its foreign
debt commitments and depleted industrial base (see Basualdo, 2001 and Tedesco,
1999:89). These included an attempt to relaunch a national development project,
by which the government sought to resolve the economic crisis through a
concertación nacional (national consensus) including the government, business
leaders and trade unions. An effort to stabilise the rate of inflation (which
exceeded 600 per cent in 1984) through the implementation of heterodox
measures collapsed (see below), partly owing to confrontational pressure from the
Peronist trade unions. Unsurprisingly, the promised five per cent annual GDP
growth rate also failed to materialise. Instead, the economy contracted 7.2 per cent
between 1983-85. Heterodox measures were abandoned in 1987, with a
profoundly damaging effect on the government’s credibility. Between 1986 and
1988 real wages declined by 18.4 per cent in the private sector and 15.1 per cent
in the public sector (Tedesco, 1999:150). By the end of his presidency, Alfonsín
faced food riots, the distrust of the bourgeoisie and the withdrawal of support
from both the IMF and the World Bank.
11
<FIGURE 2>
The loss of legitimacy of the Alfonsín administration compromised the stability of
democracy. Under conditions of hyperinflation and impending economic collapse,
a new consensus emerged among the Argentine elite. Workers’ struggles for
economic participation were interpreted as a visceral rejection of economic
liberalism, which was widely identified with the military regime. In this context,
Alfonsín’s hesitant economic record reinforced a growing sense that harsh
neoliberal reforms under a democratic political system were needed to
overcome the economic impasse and to reinstate capital’s hegemony and
profitability, while restoring social discipline.
3.2 … and the Smoother Brazilian Road
The defining feature of the Brazilian military regime, in power between 1964 and
1985, was its attempt to preserve social exclusion through a combination of
economic growth and varying levels of political repression. The power of the
regime declined gradually after 1974, due both to the political exhaustion of the
government’s heavy-handed approach towards dissent, and the economic
exhaustion of the regime’s ‘growth miracle’. The country’s foreign debt started
escalating rapidly after the first oil shock, inflation simultaneously rose towards
40 per cent, and it reached 100 per cent in the early years of the next decade. The
second oil shock, in 1979-80, triggered a deep economic crisis and the first GDP
contraction since 1929. The economy stopped responding to the government’s
policies, and the military regime slowly ran out of options.
Democracy in Brazil did not emerge on the ruins of the institutions left behind by
the dictatorship, as was the case in Argentina. Instead, the military commanders of
the regime, allied with the country’s conservative elites, were also the political
commanders of the transition (see Markoff and Baretta, 1990:431 and Weffort,
1989:339). The Brazilian democratic movement emerged gradually in the mid-
seventies. On the economic arena, large-scale industrial action, centred primarily
in the manufacturing poles established under ISI and in the lower ranks of the
12
civil service, extracted from the military regime higher wages and improved
economic conditions for the workers. At the same time, censorship was abolished,
the campaign for political amnesty achieved success, and the exiles returned.
Finally, in 1983-84 elite and popular organisations and political parties staged a
gigantic campaign for direct presidential elections. The campaign saw over ten
million people take to the streets across the country, with a clear set of democratic
demands that showed the desire for political reforms and extensive socio-
economic change (Alves, 1988:51).
The economic crisis of the eighties, the exhaustion of the military regime and the
growth of the democratic movement and the political left triggered a historically
significant political shift in the country. Elite concern over the potential
radicalisation of society and, especially, the escalation of demands for economic
and political democracy (or the redistribution of economic and political power)
led key political leaders to initiate negotiations with the military for a managed
transfer of power. Elite attitudes shifted towards democracy because of a
conviction, in the first instance, that the rise of the democratic movement could
not be easily contained by force, and that any attempt to do so could be severely
destabilising. In addition to this, a majority among the elite realised that, although
political democracy would dilute their political power, democracy could be
compatible with the reproduction of the elite’s economic power.6 Finally, the elite
increasingly rejected ‘excessive’ state intervention in the economy, which was
perceived to be associated with the military regime. Their desire for economic
liberalisation and in some quarters the creation of an internal mass market,
would benefit from the political re-integration of the formal sector workers, which
required a democratic transformation of society (Markoff and Baretta, 1990:429).
This strategy was successful. A constitutional amendment for the direct election
of the president was narrowly defeated in Congress in April 1984, and a national
consensus was formed in support of the moderate governor Tancredo Neves.
Neves was duly elected president by a large majority in the dictatorship’s own
electoral college. The mass demonstrations for democracy, that had been
disbanded, were briefly revived in support of Neves’s candidacy. Unfortunately
13
Tancredo Neves fell ill only hours before his inauguration, and died without
taking office. Vice-president-elect José Sarney, until recently a key supporter of
the military regime, became president of Brazil. Sarney’s administration convened
a Constituent Assembly in 1986, and direct presidential elections only took place
in 1989.
The absence in the early years of the new democracy of comprehensive economic
policies to reduce Brazil’s massive socio-economic inequalities reveals the
unwillingness of the elite consensus in charge of the ‘New Republic’ towards any
redistribution of resources that might have compromised the basic structures of
governance or altered the concentration of wealth in the country. Brazil has some
of the highest levels of inequality in the world. In 2002, it was estimated that the
income of the poorest 20 per cent of the population would have to be multiplied
by 33 to reach the income of the richest 20 per cent. By comparison, in the US it
would have to be multiplied ‘only’ by a factor of 8 (Rose, 2006:280). In the lead
up to the transition, popular organisations were conceded the opportunity to make
proposals directly to the new Constituent Assembly. Two significant economic
proposals were made concerning land reform and labour reforms to implement a
40 hour week and greater job security. The Assembly unsurprisingly rejected
these proposals (Alves:1988:50). Their rejection was a stark illustration of where
the lines were drawn for democratic accountability in the new regime.
The exclusion of significant alternative voices from meaningful participation in
the democratic settlement and the dampening of their influence upon the
democratic political institutions was achieved in two ways: directly, through
(often implicit) threats of a return of military rule should social protests become
too vociferous, and indirectly through the economic pressures generated by the
long-lasting economic crisis which, since the late seventies, had resulted in
declining growth rates and increasingly unmanageable levels of inflation (see
table 3 and figure 1).
The substance of the elite pact that hijacked the democratic movement and
sidelined the political left was very simple. In exchange for political freedom, the
14
redistribution of economic power was ruled out. This shift was supported by the
changes in the composition of the elite which had taken place since the mid-
seventies. These changes were due to the transformations of the economy brought
about both by the extended period of growth under the military, and by the
crippling crisis of the seventies and eighties. The new elite included a younger and
more outward-looking cohort of financiers and industrial leaders, and a more
entrepreneurial brand of landowners.
The political transition established the most democratic and stable regime in the
history of the Brazilian Republic. For more than twenty years there has been no
press censorship, no political parties or movements of any significance have been
declared illegal, and civil rights are formally guaranteed to a greater extent than in
many ‘old’ democracies. For the first time since the late nineteenth century the
military no longer systematically interfere in the political sphere, while the
political influence of the Catholic Church has been drastically curtailed.7 Finally,
right-wing ideology has been utterly demoralised, and no influential organisation
claims to be either ‘conservative’ or on the ‘right’ (however right-wing their
policies and practices may be). The stability of democracy can be explained not
only by domestic political developments. It is also owes to the fact that the greater
political legitimacy of the democratic state can make it less permeable to popular
pressure, and reduce the influence of the majority over state policy (see section 4).
The democratic transition satisfied most of the ‘political’ demands of the left, but
only by disconnecting them from the ‘economic’ demands of the majority. Civil
rights, free elections and political pluralism were achieved, but economic
redistribution, the nationalisation of strategically important firms and the non-
payment of the foreign debt, for example, that were an inseparable part of the
programme of the left, were never seriously considered by the centrist coalition in
power. Matters would become even worse in the late eighties, as the Brazilian
elite gradually convinced itself that only a neoliberal economic strategy would
permit the recovery of growth, the reproduction of the existing patterns of
inequality, and the preservation of democracy (Saad-Filho and Morais, 2002). The
Brazilian left was derailed by the democratic transition. Rather than continuing to
15
lead mass campaigns for the radical transformation of the economy and society,
the left was compelled to submit to the electoral calendar and operate within the
‘bourgeois’ institutions that it had previously denounced. Implementation of left-
wing policies now required a democratic mandate that could be obtained only if
the left-wing parties submitted themselves to the conventional logic of campaign
finance, coalition-building, piecemeal reforms, endless negotiations with a myriad
of interest groups and the imperatives of ‘efficiency’ and ‘delivery’ in local
government. These limitations have tempered the left’s enthusiasm for direct
action and confrontations against the state.
4. The Political Economy of Democracy
The minimalist (formal or procedural) definition of democracy associated with
Schumpeter (1976) and Dahl (1971) is typified in the political regime that took
shape in both Argentina and Brazil. Procedural democracy includes the protection
of basic civil and political rights (freedoms of speech, of the press and of political
organisation, the franchise for a large section of the population, and so on), free
elections for the legislature and the executive, civilian government and civilian
control over the armed forces. Whilst the political freedoms granted were
unquestionably significant, the democratic ‘wave’ (Huntingdon, 1993:3) that
swept across Latin America during the eighties did not significantly transform the
region’s social and economic structures (Borón, 2006).
The scope of democracy has been limited to the political sphere, and identified
with elementary civil rights and unfree competition in the political market, where
government positions can, essentially, be purchased with cash. In Argentina and
Brazil, citizens are regularly bombarded with propaganda and crude spin-
doctoring, invited to cast their votes, and then go home. They are not supposed to
influence policy-making or participate in policy implementation other than
through compliance with the decisions of their elected representatives. This
political arrangement – dubbed ‘democracy lite’ (see Markoff 1997) – has greatly
limited citizen input into the formulation and implementation of economic policy.
This is clearly demonstrated by the recent election, in both countries, of
16
politicians professing a critique of neoliberalism but who, in government,
replicate (with minor variations) the economic policies which they had previously
vowed to abandon – Carlos Menem and Néstor Kirchner in Argentina, and Luís
Inácio Lula da Silva in Brazil are clear examples.
The relationship between political democracy and neoliberal economic policies in
Argentina and Brazil is both functional and historical. As a political form,
procedural democracy can be associated with any system of accumulation. Put
differently, in the abstract political democracy has no intrinsic economic content
and, therefore, no class content either, and democratic regimes can be associated
with a wide variety of political coalitions. In this sense, political democracy is
similar to nationalism, which also lacks a necessary correspondence with other
political or economic forms.
The democratic transitions in Argentina and Brazil were exemplars in this respect.
The class content of these transitions was initially heavily contested. The early
mobilisations for democracy had a strongly left-wing flavour, and brought
together demands for political as well as economic democracy. However, when
the transition was eventually accomplished it had acquired a centrist character
with strong elite influence being preserved in the public administration.
Eventually, with the neoliberal transition the influence of the poor majority on the
political system declined even further, and demands for economic democracy
(rather than simply public welfare programmes) retreated from every dimension
of public discourse.
This transformation in the social content of democracy is symptomatic of a
political transition which, in both countries, was the product of contradictory
pressures: on the one hand, for political freedom and the democratisation of
economic power and, on the other hand, for the renewal of elite domination. In
Argentina and Brazil, the democratic transition was successful because of the
mass mobilisation against the dictatorship, but it was completed through a
strategic deal in which political freedom was exchanged for the continuing
17
concentration of economic power, and military repression was replaced by new
modes of political hegemony.
This strategic shift was grounded on domestic contingencies, but it was also due
to the realisation by the elite, in Argentina and Brazil, that dictatorships are
fundamentally unreliable. They can successfully deploy extreme brutality in order
to exterminate revolutionary movements and keep the country aligned with the
West, but dictatorships also control the institutional tools permitting the
mobilisation, by non-market means, of vast resources for their own ends. These
can include corruption or otherwise undesirable goals, as well as developmental
objectives. In the case of the latter, even though state-led developmental strategies
often fail dramatically, they can also succeed, as was shown by the examples of
China, Taiwan, South Korea and the Soviet Union (in spite of the significant
differences between these cases). Furthermore, little can be done institutionally to
rein in or counterbalance the preferences of the top layers of the regime.
Dictatorships also tend to face large and cohesive opposition movements, often
unified as a condition of survival, and which can become dangerously attached to
a left-wing agenda. These opposition movements tend to harbour a ‘grand’
alternative vision for society, including political democracy and the redistribution
of income and wealth. Political resistance and the potential growth of the
opposition can limit the ability of the dictatorships to impose the repression
required in order to implement neoliberal economic policies, unless the regime
uses terrorist methods, as was the case in Argentina, Chile and Uruguay in the
seventies. In contrast, political democracy is convenient for the elite because the
elaboration and implementation of economic policy in democratic societies
requires a degree of consensus that stimulates (and requires) accommodation and
political compromises, and which fosters the growth (and, frequently, the
simultaneous fragmentation) of centrist political forces. For these reasons
democratic societies tend to be politically fractured even when the political arena
is dominated by large centrist parties – which often are little more than unwieldy
coalitions or political fronts. These political formations are normally unable to
offer consistent alternatives to the influence of the moneyed interests over the
18
state. At the same time, resistance against neoliberal policies in democratic
societies also tends to be fragmented, because all social movements tend to be
fractured. In other words, democracy favours the multiplication of sectoral interest
groups, with narrow horizons and no ‘grand’ vision for the society.
Finally, elite groups in both countries acknowledged that the rise of the
democratic movement could not be contained by force. Instead, it was preferable
to accommodate it in order to preserve the stability of the power relations in
society; otherwise the political crisis could degenerate into a crisis of economic
and social relations, in which the reproduction of the elite could be thrown into
question. The elites in Argentina and Brazil became gradually convinced that,
although democracy would inevitably disperse their political power by admitting
new actors and pressure groups into the political scene, it would also encourage
the continuing concentration of economic power. Democracy thus became an
appealing political system to those in power only when they were confident that
the interests they considered vital could be insulated from democratic
accountability. This is because a democratic state would be able to implement
policies in the interests of the economically powerful minority with little risk of
loss of legitimacy. The paradox of democracy in Argentina and Brazil consists
precisely in this: the enhanced legitimacy of the democratic regime, due to its
inclusionary political rights, permits the deployment of repressive forces
(institutional, political and military) that can ignore the interests of the majority
and impose exclusionary economic policies more easily than most dictatorships.
In these circumstances, the democratic state tends to become hostile towards the
majority, precisely when conventional political theory indicates that it should be
more responsive to pressures from below. In fact, after several decades of
attempting to subvert democratic governments and shore up dictatorships across
the globe, the US government and most local elites in poorer countries have
realised that democratic states can follow diktats from Washington and impose
policies inimical to economic democracy and the general populace more easily
and reliably than most dictatorships.8
19
The disjuncture between political and economic democracy is predicated on the
separation between the economic and political spheres in capitalist societies
(Wood, 1981). This separation allows the allocation of economic resources to be
controlled not through the jurisdiction of the state, but by the forces of
competition. Given this basic separation, the universal civil and political rights
granted under liberal democracy cannot be considered, in and of themselves, as
tools of empowerment that can transform society, since civic equality does not
directly affect class inequality. This separation permits the relocation of issues
that are at the heart of the substantive interpretation of democracy which is shared
by the majority – such as material welfare and distribution of resources – from the
political to the economic sphere. This can lead to elections in which voting is
restricted to inconsequential matters, which often hinge on irrelevant personality
differences or pointless ‘scandals’ which are pumped up by the press with tedious
regularity. Furthermore, the traditional notions of individual rights and freedoms
drawing on Adam Smith’s invisible hand and von Hayek’s theories of social
organisation atomise society by disempowering and undermining the institutions
geared to the protection of collective goods and rights. The market becomes,
according to the orthodoxy, deeply intertwined with the idea of democracy, the
achievement of human freedom and the efficient allocation of resources
(Friedman, 1962). The subordination of democratic values to the imperatives of
accumulation is, therefore, constitutive of the hegemonic notion of liberal
democracy, while the potential breadth of democracy in Argentina and Brazil has
been drastically limited by the exclusionary social relations in these countries
(Borón, 2006:32).
Since a large number of collective institutions, such as trade unions, state-owned
enterprises and developmental state agencies were set up under ISI, their
disarticulation or extinction was not only part of a ‘democratic’ celebration of the
virtues of individualism, but a process of regeneration of elite hegemony through
‘freeing’ the market from the remnants of the old system of accumulation. The
restoration of formal institutions of democracy such as competitive elections
and citizens’ political rights was evidently an important achievement for the
popular sectors. However, the construction of neoliberalism in Argentina and
20
Brazil would have been impossible without a hegemonic discourse that reduced
democracy to a mere formality, and turned it into a political regime that aims at
‘freeing’ society of politics by attacking the perceived hyper-politicisation of the
‘state-centered matrix’ built under ISI. The latter is blamed for the old, inefficient
and inflation-prone system displaced by new liberalism (see Cavarozzi, 1994:128
and Galafassi, 2004).
5. Inflation Stabilisation and the Neoliberal Transition
In Argentina and Brazil, the transition towards neoliberalism was completed
under the guise of orthodox inflation stabilisation programmes. Ostensibly in
order to eliminate high inflation, these stabilisation programmes imposed a set of
long-run policy changes that dismantled the remnants of ISI and completed the
economic transition to neoliberalism. It soon became clear that democratic
regimes were able to impose unpopular economic policies which, in many cases,
were beyond the political capability of the preceding military regimes. This
modality of economic transition was the outcome of a new elite consensus which
gradually emerged in the mid- and late-eighties, around the necessity of neoliberal
economic policies in order to improve economic performance, stabilise the
democratic regime, and secure the compatibility between political democracy and
the continuing reproduction of social inequality. This consensus captured the state
by democratic means through the presidential elections of Carlos Menem and
Fernando Collor, in 1989.
21
5.1 The Slide towards Hyperinflation
The Latin American crisis of the early eighties was triggered by the combination
between the slowdown in the international economy which accompanied the
disintegration of the Bretton Woods System, and the intrinsic limitations of ISI in
the region. The onset of the crisis was postponed by the rapid accumulation of
foreign debt, which was facilitated by the new international financial architecture
emerging since the mid-sixties. The crisis finally erupted when the US imposed
punitively high interest rates on borrowers around the world, as part of its own
neoliberal transition (see Campbell, 2005, Duménil and Lévy, 2005, Harvey,
2005, 2006 and Panitch and Gindin, 2004, 2005).
The effects of the debt crisis in Latin America were nothing short of devastating.
In 1972, the total foreign debt of the region was US$31.3 billion, and it exceeded
33 per cent of GDP only in Nicaragua, Peru and Bolivia.9 In the late eighties, the
debt reached US$430 billion, and it exceeded 33 per cent of GDP in every single
country in the region. The growth of the debt stock and higher international
interest rates inflated interest payments from around 1 per cent of GDP, in 1972,
to an average of 5.4 per cent of GDP in 1983. The Latin American foreign debt
reached US$750 billion at the turn of the millennium, and interest payments still
exceed 2.5 per cent of GDP almost everywhere. In almost every country in the
region, economic growth stalled, wages plummeted and inflation skyrocketed in
the wake of the debt crisis.
The debt crisis was closely associated with rising inflation. Among the causes of
inflation were deep distributive conflicts which reflected both the limitations of
ISI (see section 2) and pressures emerging from recent international
developments. In particular, rising transfers amid the debt crisis led to lower (and
occasionally negative) GDP growth rates, and reduced the scope for
accommodating the conflicting income demands of different social groups. A
second important factor was the nationalisation of the private foreign debt that
occurred across the region. In order to service this debt, governments needed to
22
purchase large quantities of hard currency from the private sector. These
purchases were partly monetised (and potentially directly inflationary) and partly
sterilised (which increased the costs of servicing the domestic public debt, in
parallel with the growth of the external debt service). The ensuing fiscal crises
triggered another round of inflation or, alternatively, reinforced the depressive
tendencies of the economy. Finally, in this unstable environment, domestic firms
tended to increase their degree of indexation, linking prices either to the dollar
(especially in Argentina) or to the rate of inflation or the value of public sector
bonds (in Brazil). Indexation makes inflation rigid downwards for three reasons.
First, it means that firms and workers have adopted simple pricing rules which
perpetuate past inflation by simply projecting it into the future. Second, in order to
protect their profits firms often increased their mark up when inflation was rising,
or was expected to rise. Third, indexation made the economy prone to step-wise
increases in inflation after adverse supply shocks (Amadeo, 1994).
The acceleration of inflation created a tendency for the reduction of the intervals
between price and wage increases. This had a clearly regressive distributive
effect, because some agents were better able to protect their real income than
others. Moreover, it has been abundantly shown in the literature that the shorter
the adjustment period the higher the rate of inertial inflation, the more rigid it
becomes, and the more sensitive it is to adverse shocks. In the early and mid-
eighties, the Argentine and Brazilian economies became increasingly disorganised
as inflation steadily rose. This disorganisation introduced substantial uncertainty
into economic calculation which, in all likelihood, contributed to the decline in the
savings and investment rates in both economies (see below).
Inertial inflation sharply increased the cost of contractionary monetary and fiscal
policies, because higher interest rates or lower government expenditures tended to
have little effect on firms’ pricing strategies or workers’ wage demands. Attempts
at inflation stabilisation during this period went through three stages. First,
orthodox monetary policies (in Argentina, this phase lasted between 1982 and
mid-1985 and, in Brazil, between 1981 and early 1986). However, these
contractionary policies could lead to higher prices rather than lower, if firms tried
23
to maintain their gross profits in spite of their declining sales and higher financial
costs. Second, the ‘heterodox shocks’ (in Argentina, between 1985-87 and, in
Brazil, between 1986-87). By the mid-eighties, it was generally accepted in
Argentina and Brazil that conventional fiscal and monetary policies were
ineffective against inertial inflation, and that disinflation would require the co-
ordinated de-indexation of prices and wages (see Dornbusch 1993 and Dornbusch
and Simonsen, 1993). Most economists realised that, in a highly indexed
economy, demand restrictions would be of limited value to control inflation.
Furthermore, when inflation stabilises at the three-digit level, demand control
cannot eliminate inflation without considerable costs in terms of higher
unemployment, lost output, and political conflict. Since it was difficult to reduce
inflation gradually, the obvious alternative was to look for a strategy of rapid
transition to a low-inflation regime, in which de-indexation would necessarily
play a prominent role (Saad-Filho and Mollo, 2002).
This strategy, as it evolved in Argentina and Brazil, included three key elements:
an unanticipated freeze of prices and wages at their average real level for the
previous period, e.g., one year, the abolition of indexation through a compulsory
change in the existing contracts, and a currency change, to eliminate the surplus
zeroes in the devalued money and, more importantly, to validate the changes in
contracts being imposed by the government.
The heterodox shocks were initially highly successful . This is hardly surprising,
since inflation will necessarily tend to zero as long as the price and wage freeze
can be sustained. However, it was impossible to devise a strategy to exit the price
freeze in an orderly manner, and to sustain the low inflation regime over time.
This was largely for two reasons. Firstly, the imposition of a sudden price freeze
transforms short term imbalances in relative prices, which are created daily by
inflation, into permanent differences. The freeze prevents the correction of the
short term imbalances in the relative price system (for example, between those
prices frozen at their peak in dollar terms, if they had been raised the day before
the shock, and those frozen at the bottom, if they were due to change the day after
the shock). While tolerable for a limited period, these imbalances led, over time,
24
to the withdrawal from the market of artificially cheap products. Some of these
products would be reintroduced later at higher prices, under new names or with
cosmetic changes entitling them to be called ‘new’, in which case they would be
exempt from the freeze. The price freeze was also unsustainable in the case of
seasonal goods, especially agricultural products and meat, in which case supply
oscillations can trigger substantial fluctuations in prices.10 In addition to this,
import difficulties because of trade restrictions or the scarcity of hard currency
helped the companies operating in the domestic market to bypass the price
ceilings imposed by the government. The heterodox shocks, and the continuing
disputes for income under these circumstances, led to arbitrary shifts in economic
returns, the breakdown of supply chains, bankruptcies, illegal trading, economic
disorganisation and, eventually, the collapse of the stabilisation programmes.
The second reason for the instability of the heterodox shocks is related to the
relative ease with which wages can be frozen at their average real level. All that is
required for this is a willing accountant armed with a nominal wage series and a
table of price indices. Yet the same strategy was not feasible for the market price
of commodities. In the end, wages were frozen at their average, while prices were
frozen at their peak, leading to workers’ complaints that real wages were being
compressed in the transition to the new regime. Consequently, real wages in
Argentina and Brazil tended to decline between the mid-eighties and the mid-
nineties both because of inflation, and because of the heterodox stabilisation
programmes. At a deeper level, however, the failure of the heterodox shocks was
due to their inability to address the causes of inflation (primarily distributive
conflicts, external shocks and inconsistent monetary and fiscal policies) while
focusing, instead, on its propagation mechanism (indexation) (Saad-Filho and
Mollo, 2002).
The failure of the heterodox programmes in both countries contributed to the
disorganisation of relative prices, increased inflationary expectations and, at the
same time, reduced the social tolerance to high inflation in Argentina and Brazil.
The failure of these programmes also sharpened the tensions associated with high
inflation, especially the distributive conflicts involving key worker categories,
25
employers and the state. In Argentina, these conflicts triggered a process of
hyperinflation, and the extensive dollarisation of the economy. In Brazil, conflicts
were less pronounced, inflation increased more slowly, and the government
followed an effective policy of permanently high interest rates and high liquidity
of central bank and Treasury securities. They provided a liquid store of value (in
effect, a parallel currency) which contained the flight from currency into
commodities (hyperinflation) or into other reserve assets (dollarisation). However,
this was an unreliable policy strategy against potentially runaway inflation, and it
had sharply negative distributive implications.
5.2 Inflation Stabilisation and the Neoliberal Transition
The intensity and persistence of high inflation and the economic crisis in
Argentina and Brazil made it relatively easy to accept that the system of
accumulation based on ISI had collapsed, and should be replaced by
neoliberalism. This viewpoint was stridently promoted by the US government, the
IMF, the World Bank and by important sections of the local elites.
The combination between external pressures and domestic tensions, including the
economic crisis and the failure of the heterodox stabilisation programmes, eroded
the influence of the (then dominant) structuralist school and reinforced the notion
that the so-called ‘national project’ centred on ISI was exhausted beyond repair.
This claim was doubly misleading. On the one hand, ISI was socially unfair,
intrinsically limited and structurally fragile (as was shown in section 2), but the
crisis of the eighties was only partly due to its shortcomings: it was also partly
imposed from external developments. On the other hand, neoliberalism has been
unable either to address most failings of ISI, or to match the growth performance
of the previous period.
Argentine inflation approached 5,000 per cent in mid-1989. At this stage, it
ceased to be primarily an expression of a distributive conflict between forces of
equal strength. Instead, it became a mechanism through which the country’s
economic elite sought to impose their control over economic resources and the
26
political system (see Acuña and Smith, 1994 and Bonnet, 2006). The
hyperinflation had a drastic effect on the distribution of income. Although
inequality had increased steadily since the mid-seventies, the hyperinflation
triggered a significant transfer of income from labour to capital, with large
increases in poverty and inequality. Indeed, while sections of the elite were
speculating on the foreign exchange market, real wages were depreciating by the
hour (falling 37 per cent below their 1980 level by the end of the decade, see
Altimir, Beccaria and Gonzalez Rosada, 2002). Looting became widespread, even
under strong repression. The lasting consequence of hyperinflation was the
submission of a traumatised working class, which accepted, or even welcomed,
neoliberal reforms which imposed new mechanisms of social subordination under
the guise of inflation stabilisation measures.
Argentina’s economic situation obviously required significant policy changes,
which gave president Menem the legitimacy required for a volte-face on his
electoral promises of a salariazo (massive increase in salaries) and a productive
revolution. However, crucial to Menem’s ability to introduce neoliberal economic
policies through an inflation stabilisation programme was not only the legitimacy
conferred by democracy, but also his Peronist party’s historical ties with the
organised working class and the popular sector. Labour-based parties can have a
comparative advantage in implementing policies that might result in the
deterioration of the living conditions of their own constituencies because, as
representatives of the popular sector, they enjoy their trust (Murillo, 2000).
It was not until the 1991 convertibility plan that the full extent of neoliberal
reforms, and the consequent reconfiguration of class relations, were imposed in
Argentina. The plan included a legally binding exchange rate of 1:1 between the
peso and the US dollar, free convertibility between these currencies, extensive
deregulation of the economy, fiscal reforms, trade liberalisation, flexibilisation of
the labour market, centralisation of the pension contributions with the state
(instead of the trade unions), and the profound reform of the pension system. The
convertibility plan signalled not only the adoption of orthodox stabilisation
measures, but the deepening of market-oriented reforms originally attempted by
27
the military regime, of which minister of the economy Domingo Cavallo was a
member.11 Crucially, in the context of a new mode of insertion in the world
economy, convertibility meant that the state lost the ability to use exchange rates
in order to rectify imbalances between domestic and world prices through
competitive devaluations. This implied that Argentina’s competitiveness on the
world market, which heavily influences the profitability of investment and the
level and composition of the foreign capital inflows, became dependent primarily
on changes in nominal wages and labour productivity. Convertibility created a
continuous downward pressure on wages and a simultaneous pressure for the
intensification of labour, which was supported by the labour market reforms and
the rising unemployment rate in the country.
Brazil’s real plan, imposed in 1994, was also not simply an inflation stabilisation
programme. It included policies which consolidated the neoliberal transition in the
country, among them financial, trade and capital account liberalisation, the
privatisation or closure of state-owned productive and financial enterprises, fiscal
and labour market reforms, de-indexation, the overvaluation of the currency, and
the closure of several state agencies and departments.
These policies were not entirely new. For example, privatisations and trade,
capital account and financial liberalisation were introduced in the early nineties,
and the systematic reduction of state policy-making capacity started in the
eighties. The real plan was innovative only in so far as it deployed these policies
methodically, as part of an ambitious attempt to eliminate two foes of the
neoliberal order simultaneously high inflation and the relics of a presumably
exhausted process of ISI.
The new policy regime lifted real wages by fifteen per cent in dollar terms in the
mid-nineties. This wage increase, the accelerated liberalisation of imports, and the
resumption of credit transformed the possibilities of consumption. The country
was transfixed by the appearance of previously unavailable consumer goods, at
affordable prices, and available on credit. Import liberalisation and inflation
stabilisation ensured F.H. Cardoso’s presidential election in 1994, and his re-
28
election in 1998. Cardoso presented his government as the harbinger of
‘modernisation’ and the standard-bearer of the ‘new globalised economy’.
The examples of Argentina and Brazil indicate that one of the peculiarities of the
neoliberal transition in these countries is that it was often justified obliquely, by
reference to the imperatives of inflation control. The reforms were,
correspondingly, often disguised as ‘technical’ anti-inflationary measures. This
conflation was facilitated by the specific form of the collapse of the previous
system of accumulation, in which fiscal, financial and industrial crises often
surfaced through runaway inflation. The imperative of inflation stabilisation
blurred the extent and the long-term consequences of the neoliberal transition.
Unable to win the battle of ideas, and suffering from a persistent legitimacy deficit
in societies where the neoliberal reforms were rightly perceived to be intrinsically
undemocratic, the neoliberal elite consensus found it necessary to conceal its
agenda in order to impose its policy preferences more easily.
In Argentina and Brazil, financial, trade and capital account liberalisation, the
wholesale privatisation or closure of state-owned productive and financial firms,
and profound fiscal and labour market reforms along neoliberal lines were
imposed allegedly because they were essential for short-term macroeconomic
stabilisation and the resumption of economic growth. At the same time, most
remaining institutions that had provided industrial policy co-ordination under ISI
were dismantled, and regulations constraining foreign investment were
abandoned.
Five policies played key roles in inflation control as well as in the neoliberal
transition in Argentina and Brazil. First, import liberalisation. ISI requires strong
import restrictions in order to give local firms (including TNCs operating in the
country) control of the domestic market. However, firms protected from foreign
competition tend to have market power. They enjoy more freedom to raise prices,
and more flexibility to accommodate wage demands, which increases the
economy’s vulnerability to cost-push inflation. Trade liberalisation helps to
control inflation because foreign competition limits the prices that domestic firms
29
can charge. It also limits the workers’ wage demands, since pay increases could
make local firms uncompetitive. At a further remove, neoliberals claim that trade
liberalisation forces local firms to compete against ‘best practice’ foreign
producers, which should help to increase productivity across the economy.
Finally, unsuccessful local producers will close down, and their capital and labour
will presumably be deployed more productively elsewhere.
Second, exchange rate overvaluation. Overvaluation artificially reduces the local
currency price of imports, enhancing the impact of trade liberalisation on inflation
and competitivity. The combination between trade liberalisation, currency
overvaluation, high domestic interest rates and capital account liberalisation was a
fail-safe strategy to reduce inflation and lock in the neoliberal reforms
simultaneously. Cheap imports were allowed in, while high interest rates, foreign
loans, mass privatisations and TNC takeovers of domestic firms brought the
foreign capital that paid for these imports. Inflation tumbled while consumers
gorged on flashy automobiles, computers and DVDs, and happily splashed out on
artificially cheap foreign holidays. Although the combination of import
liberalisation and exchange rate overvaluation is highly effective against inflation,
and can be very popular with consumers, it can have a devastating impact on the
balance of payments and on local industry and employment.
Argentine imports shot up from US$6.8 billion to US$19.3 billion between 1990-
92, and Brazilian imports increased from US$28.0 billion to US$63.3 billion
between 1992-95. Consumer goods imports increased from US$242 million to
US$ 5.0 billion in Argentina between 1985 and 1998; during the same period,
they increased from US$606 million to US$8.2 billion in Brazil. The foreign
travel deficit increased, in that interval, from US$671 million to US$4.2 billion in
Argentina, and from US$441 million to US$5.7 billion in Brazil (see figures 3 and
4).
<FIGURES 3, 4>
30
Cheap imports harmed local industry. In Argentina and Brazil, the proportion of
manufacturing value added on GDP reached, respectively, 31 and 29 per cent in
1989. By 2001, these ratios had declined to 17 and 14 per cent. Industrial sector
employment also fell, especially in Argentina, where it declined from 33 to 25 per
cent of the labour force between 1991-96. In Brazil, more than one million
industrial jobs were lost between 1989-97. During the neoliberal era open
unemployment increased, on average, from 6 to 20 per cent of the workforce in
Argentina, and from 4 to 10 in Brazil (see figures 5 and 6; this excludes
underemployment and informal employment, which may reach 70 per cent of the
labour force in Argentina, and 50 per cent in Brazil).
<FIGURES 5, 6>
Third, domestic financial liberalisation. It was expected that the deregulation of
the financial sector would help to raise savings and the availability of funds for
investment. In fact, quite the opposite happened, and both savings and investment
rates declined. In Argentina, savings fell from 22 to 17 per cent of GDP in ten
years after 1989, while in Brazil they fell from 25 to 20 per cent of GDP in the
early years of the neoliberal reforms, and declined further, to only 15 per cent of
GDP, towards the end of the real plan. In Argentina, investment fell from over 25
per cent to less than 15 per cent of GDP and, in Brazil, it declined from 20-25 per
cent of GDP to 15-20 per cent after the reforms (see figures 7 and 8).
<FIGURES 7, 8>
Fourth, fiscal reforms (especially tax increases and expenditure cuts), in order to
address the government budget deficits that plagued both countries and were
allegedly the main cause of high inflation. These reforms were largely successful,
and led to budget balances or even primary fiscal surpluses. However, the cost of
servicing the public debt increased sharply because of the high level of the
domestic interest rates, which have squeezed non-financial expenditures from the
government budget in both countries.
31
Finally, liberalisation of the capital account of the balance of payments. This
measure was supposedly essential to attract foreign savings and modern
technology, but there was much more to it, as was shown above. Capital account
liberalisation played an essential role in financing the disequilibria created by
neoliberalism, and supporting the reorganisation of the productive base in both
countries.
The neoliberal reforms failed to resolve the shortcomings of ISI (explained in
section 2), and they created new economic problems. They did not relieve the
foreign exchange constraint, and increased the dependence of Argentina and
Brazil on volatile foreign capital inflows. In both countries, the current account of
the balance of payments was initially in equilibrium, but it later shifted to a deficit
of 4 per cent of GDP. The financial reforms reduced the availability of savings
and did nothing to improve the allocation of investment funds. Fiscal fragility
resurfaced almost immediately because of the weight of interest payments on the
government budget and the sluggishness of tax revenues due to the economic
slowdown. Finally, economic co-ordination suffered from the dismantling of
specialist state institutions, the hollowing out of the industrial chains built during
ISI and the reduction in the local content of manufacturing production. Wages and
profits declined because of competing imports, the rising share of interest in the
national income, and the difficulty in developing new competitive industries.
Structural unemployment mounted. In sum, the neoliberal reforms destabilised the
balance of payments and the productive system of both countries. Neoliberalism
discarded import substitution and promoted, instead, ‘production substitution’
financed by foreign capital.
Between, 1981-2000, Argentina’s average annual economic growth rate was only
1.6 per cent, and Brazil’s 2.1 per cent (cf. the much higher rates under ISI in
figure 1). Even considering only the nineties, long after the debt crisis, the
comparison bodes ill for neoliberalism. Argentina grew 4.5 per cent per annum
and Brazil 2.7 per cent. These economies were also rocked by severe crises:
Argentina in 1995 and 1998-2002, and Brazil in 1999.
32
5.3 The New Liberal Consensus
The new liberal consensus includes both a hegemonic political settlement
(procedural democracy) and a hegemonic set of economic policies and relations
(neoliberalism). New liberalism has become the mode of existence of capitalism
in Argentina and Brazil – a new system of accumulation – with a specific material
basis which corresponds to a particular social structure and given relationships
between domestic capital, foreign capital and the state.
It was shown in sections 3 and 4 that, in the eighties, the Argentine and Brazilian
elites became convinced that economic dynamism could be restored, while
securing the existing patterns of social and economic exclusion, only by
embracing political democracy, neoliberal economic policies and ‘globalisation’.
Achieving these outcomes required the deployment of state power to impose a
new system of accumulation. New liberalism has four defining features:
neoliberal economic policies, the microeconomic integration of domestic capital
into transnational circuits (the denationalisation of firms and their restructuring as
part of rival international value chains), the decisive role of financial interests in
the formulation of economic policy, and political democracy. These are explained
in more detail in what follows.
First, the neoliberal policy reforms, inspired by the (post-)Washington consensus,
dismantled the production structures established during ISI and the social
structures and patterns of employment that corresponded to them. The policy
reforms led to the privatisation of the most productive and financial SOEs, and
promoted the alliance between foreign and domestic capital at firm level and the
denationalisation of industry and infrastructure (see section 4).
Second, the transnationalisation of production and finance (‘globalisation’) which
was, to a large extent, a process of international integration at firm level that
restructured the ‘national’ systems of production at a higher level of productivity,
and integrated local elites internationally. This was achieved through import
liberalisation, the denationalisation of production and the specialisation of
33
Brazilian and (what remains of) Argentine manufacturing industry towards the
production of a narrower range of relatively unsophisticated goods. They have
eroded the manufacturing base of both countries, and made their economies
structurally more dependent on foreign trade, investment and technology.12 The
outcome has been a shift of their productive base away from the long-term
requirements of national accumulation, towards the servicing of the short-term
imperatives of global accumulation.
Third, the transfer of state capacity to allocate resources intertemporally (the
balance between investment and consumption), intersectorally (the distribution of
investment, employment and output) and internationally towards an increasingly
integrated and US-led financial sector. In doing so, new liberalism facilitated a
gigantic transfer of resources to the local rich and, globally, to the United States
(Harvey, 2005, Panitch and Gindin, 2005). The restructuring of state capacities
has left the Argentine and Brazilian states profoundly depleted in the areas of
economic planning, control and policy implementation. In contrast, state
capacities in monetary policy implementation, financial sector regulation and
security have been extended significantly. Moreover, the financial sector reforms
embedded private sector interests in the policy-making process through the
decisive role of finance in the pricing of government securities, the determination
of interest rates and the financing of the public sector. The reforms also increased
the role of the private financial institutions in the foreign exchange market and,
therefore, in the country’s relations with the rest of the world.
Through these policies and processes, the neoliberal policy reforms have
contributed to the disorganisation and increased exploitation of workers in both
countries, and to a significant shift in power away from the majority regardless
(and, to some extent, because) of the simultaneous stabilisation of democracy.
Rather than relying on military force, the new liberal consensus has disciplined
the working class through contractionary fiscal and monetary policies, higher
unemployment and labour turnover, personal debt, and the permanent threat of
inflationary or balance of payments crises should the distributive conflicts get out
of hand.
34
Fourth, at the political level, democracy has become established as the political
form of neoliberalism in Argentina and Brazil. In these countries, the neoliberal
transition and the democratic transition were mutually reinforcing and, eventually,
became mutually constituting. They were associated with a shift in the
mechanisms of social domination towards a combination of democracy and
neoliberalism, which contributed to social fragmentation and the dismantling of
the resistance movements which had emerged during the dictatorship. The
symbiosis between neoliberalism and procedural democracy operates at three
levels. First, the neoliberal economic transition was achieved through, and
validated by, democratic means (see section 4). Second, neoliberal policies
support the democratic regime because they fragment the working class through
unemployment, faster labour turnover, the repression of trade union activity, the
curtailment of the social wage and the entitlement systems that benefited the
working class, and the rise of economic insecurity. Under neoliberalism, the
repression of working class activity becomes primarily ‘economic’ rather than
‘political’ as was the case under the dictatorship. Third, democracy is the
optimum political regime for neoliberalism because it offers guarantees of
stability and predictability of the ‘rules of the game’, which makes it more easily
controlled by the moneyed interests.
35
6. Summary and Conclusions
The new liberal compact is stable in Argentina and Brazil because the economic
reforms are self-reinforcing, and they preclude the implementation of alternative
economic policies. They also disorganise the working class and other potential
sources of opposition to this system of accumulation, including the trade unions,
left social movements and political parties. Finally, neo-liberalism fosters forms
of behaviour that reproduce this system of accumulation at the economic level,
and that support the evacuation of democracy at the political level. This reduces
drastically the scope for institutional challenges to the new liberal hegemony. In
this sense, the disappointing macroeconomic performance in Argentina and Brazil
under neoliberalism is a tolerable cost for the economic elites, and it offers no
significant internal (economic) incentive for the abandonment of this system of
accumulation.
Although the neoliberal reforms have helped to address some of the shortcomings
of ISI, especially the propensity to high inflation, they have left unresolved other
deficiencies of the previous model, especially the extreme concentration of
income and wealth (which undermines the legitimacy of elite rule), the weakness
of the domestic financial system, and the insufficiencies of the national system of
innovation. Neoliberalism has also failed to create sufficient quality jobs, and
contributed decisively to the hollowing out of the manufacturing base in
Argentina and Brazil. The democratic reforms, in turn, have established the rule
of law and respect for civil rights in several areas of social life (although their
implementation remains heavily contingent on circumstances of place and time).
However, democracy has been heavily curtailed by the evacuation of meaningful
economic debate. The claim that ‘There Is No Alternative’ to neoliberalism has
become entrenched through the institutional structure of the state, and the revealed
preference of the electorate for an alternative system of accumulation in both
countries has been largely irrelevant.
Neoliberal reforms delivered short-term macroeconomic stability and growth in
Argentina and Brazil because they were ‘credible’ by definition (since they did
36
what was demanded by the moneyed interests), and credibility brings rewards in
the form of foreign capital flows and easier refinancing of the domestic public
debt. Foreign capital flows financed the growth of investment and consumption,
in a virtuous circle that lasted several years. However, the reforms destabilised the
productive system and the balance of payments in both countries. Financial
liberalisation raised interest rates and created financial fragility, and it did not
reduce the cost of loans or the availability of credit for domestic firms. High
interest rates stimulated the accumulation of foreign debt for investment and
speculation, because foreign finance was much cheaper than domestic credit.
Consequently, the debt of the private non-financial sector increased rapidly. Debt-
financed consumption and cheap imports contributed to euphoria and the
impression of the success of neoliberalism, especially in 1991-94 and 1996-98 in
Argentina, and between 1994-97 in Brazil. The foreign capital inflows supported
the overvaluation of the currency and reduced the competitivity of domestic
industry, much of which was wiped out during the nineties. The currency
overvaluation prevented the reduction of the domestic interest rates, because
foreign capital flows were needed to finance the trade deficit. However, these high
interest rates increased the cost of the domestic debt service, generated fiscal
deficits and increased the financial fragility of the private sector. Neoliberal
policies also led to wage and industrial profit compression because of competing
imports, the rising share of interest in the national income, the loss of industrial
competitivity, rising unemployment and the growing fiscal deficit.
In spite of these disappointing outcomes, the new liberal consensus is largely
immune to internal challenges. In particular, economic underperformance is
insufficient to trigger a shift in the system of accumulation, because
unemployment and bankruptcies weaken the capacity of the domestic working
class and the urban middle sectors to demand alternatives. Underperformance also
compels the domestic producers to shift their capital to more profitable ventures,
which are invariably more closely connected with the interests of finance. Only
the loss of political legitimacy can trigger a successful challenge to new
liberalism.
37
In spite of its basic stability, the neoliberal project suffers from two severe
inconsistencies which may offer scope for a political challenge. First, there is a
basic tension in new liberalism between the deployment of a politically
democratic and inclusive political system to enforce exclusionary economic
policies. These policies demand a state hostile to the majority, even though a
democratic state is supposedly responsive to majority pressure. This tension has
played an important role in the election of several left-wing governments in Latin
America and elsewhere, and it continues to exist even though success in the
implementation of alternatives has been limited. Second, the neoliberal reforms
have failed to address important shortcomings of ISI, and the combination
between the unresolved weaknesses of ISI and the flaws of neoliberalism has
entrenched the economic underperformance of Argentina and Brazil.
Transcending neoliberalism in these countries will require both economic and
political changes that can be carried out only through the construction of an
alternative system of accumulation. This project will require dismantling
systematically the material basis of neoliberalism, initially through a set of pro-
poor and democratic economic policy initiatives, which will support a shift to a
model of development that can generate more equal distributions of income,
wealth and power, and higher levels of material welfare. This is a fundamental
condition for democracy. These alternative policies should be based on a specific
set of controls on capital flows, supported by co-ordinated trade, financial and
industrial policies and the expansion of non-revenue generating social
programmes financed through a non-regressive increase in taxation and the
reallocation of government spending. These policy measures must be supported
by a politically re-articulated working class, as one of the main levers for its own
economic recomposition. The difficulty is that this virtuous circle cannot be
wished into being. Its elements cannot be addressed purely academically, or
through the organisation of another political party, or simply through alliances
between the existing political forces. The construction of a new economic, social
and political model will require mass mobilisations that are sufficiently strong not
only to demand change from governments, or even changes of government, but to
embed popular organisations within the state, while preserving their political
38
integrity, mass roots and accountability to the vast majority of the population. The
construction of this new wave of popular movements is the most important
challenge for the Argentine and Brazilian left during the next decade.
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Tables and Figures:
Table 1: Argentina: % domestic industrial output, selected sectors (1950-69).
1950-54 1955-59 1960-64 1965-69
Foodstuffs and beverages 24.6 22.5 20.4 18.8
Textiles and leather 23.4 19.9 15.2 13.4
Chemicals 13.0 14.1 15.9 17.5
Machinery and equipment 17.0 21.9 28.5 30.0
Other 22.0 21.6 20.0 20.3
Source: Katz and Kosacoff (2000, p.289).
Table 2: Brazil: Distribution of value added in manufacturing industry, 1919-59.
1919 1939 1949 1959
Consumer goods 80.2 69.7 61.9 46.6
Textiles 24.4 22 19.7 12
Clothing 7.3 4.8 4.3 3.6
Food 32.9 23.6 20.6 16.4
Other 15.6 19.3 17.3 14.6
Consumer durables 1.8 2.5 2.5 5
Intermediate goods 16.5 22.9 30.4 37.3
Metallurgy 3.8 7.6 9.4 11.8
Non-metallic minerals 2.8 4.3 6.5 6.1
Chemical 0.8 4.2 4.7 8.3
Wood 5.7 3.2 4.2 3.2
Other 3.4 3.6 5.6 7.9
Capital goods 1.5 4.9 5.2 11.1
Mechanical 0.1 1.3 2.1 3.4
Electrical 0 0.3 0.8 1
Transport equipment 1.4 3.3 2.2 6.7
Source: Abreu, Bevilacqua and Pinho (2000, p.163).
43
Table 3: Inflation, GDP deflator (% per annum).
Argentina Brazil
1970 6 17
1971 31 20
1972 64 19
1973 66 23
1974 31 35
1975 198 34
1976 438 48
1977 159 46
1978 161 41
1979 147 56
1980 91 87
1981 106 107
1982 208 105
1983 382 140
1984 607 213
1985 626 232
1986 74 145
1987 127 204
1988 388 651
1989 3,058 1,323
1990 2,077 2,509
1991 133 415
1992 12 969
1993 -1 1,997
1994 3 2,239
1995 3 78
1996 0 17
1997 0 8
1998 -2 5
1999 -2 5
2000 1 10
2001 -1 7
2002 31 10
2003 11 15
2004 9 8
Source: World Development Indicators.
44
Figure 1: Argentina and Brazil : GDP growth (% per annum).
-12
-8
-4
0
4
8
12
16
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
Source: World Develo pment Indicators.
ARG
BRA
Figure 2: Total external debt/GDP ratio (%)
0
20
40
60
80
100
120
140
160
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
Source: World Develo pment Indicators.
ARG
BRA
45
Figure 3: Argentina: Exports (X) and imports (Z) of goods and services, and current
account balance (CA) (% GDP)
-10
-5
0
5
10
15
20
25
30
1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002
Source: World Develo pment I ndicat ors
X
Z
CA
Figure 4: Brazil: Exports (X) and imports (Z) of goo ds and services, and current
account balance (CA) (% GDP).
-10
-5
0
5
10
15
20
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
Source: World Development Indicators.
X
Z
CA
46
Figure 5: Argentina: Unemployment (U, % labour force), manufacturing value added
(MVA, % GDP), employment in industry (EII, % total employment)
0
5
10
15
20
25
30
35
40
45
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
Source: Wo rld Development Indicat ors.
U
MVA
EII
Figure 6: Brazil: Unemployment (U, % labour force), manufacturing value added
(MVA, % GDP), employment in industry (EII, % total employment).
0
5
10
15
20
25
30
35
40
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
Source: World Dev elopment Indicators.
U
MVA
EII
47
Figure 7: Argentina: Current account (CA), foreign direct investment (FDI),
gross domestic savings (S) and gross domestic fixed capital formation (GFKF)
(% GDP).
-10
-5
0
5
10
15
20
25
30
35
40
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
Source: World Deve lopment Indicators.
CA
FDI
S
GFKF
Figure 8: Brazil: Current account (CA), fo reign direct investment (FDI), gross
domestic savings (S) and gross domestic fixed capital formation (GFKF) (% GDP).
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
Source: World Deve lopment Indicator s.
CA
FDI
S
GFKF
48
Endnotes:
49
1 We are grateful to Alison Ayers and Lecio Morais for her their helpful and stimulating comments to this chapter. The
usual disclaimers apply.
2 Typical examples included Perón’s nationalisation of transport and infrastructure facilities in the
immediate postwar era, and the foundation of Petrobras, the Brazilian state oil monopoly, in 1953.
3 The elite includes the large and medium-sized capitalists, especially financiers, industrial capitalists (based mainly in
the Buenos Aires-Rosario region in Argentina, and in the São Paulo-Rio de Janeiro region in Brazil), large exporters
and traders, the media, landowners and local political chiefs, their intellectual and political proxies and top civil
servants. These fractions of the elite are unrelated to the contrast between domestic and foreign capital, or the conflict
between industrial and financial interests.
4 In this chapter, ‘consensus’ refers to a substantial measure of agreement on strategic political projects among social
groups which, by virtue of their institutional power and political influence, can implement these projects through the
institutions of the state. This concept is related to the Gramscian notion of hegemony. Neither of them presumes
unanimity.
5 The system of accumulation is determined by the economic, political and institutional structures that typify the process
of capital accumulation in a specific region, during a particular historical period. This is a relatively concrete concept,
with no direct relationship with more abstract concepts such as mode of regulation (in, e.g., Aglietta, 1979).
6 Rochon and Mitchell conducted regular surveys on democratic values and desires among Brazilians between 1972 and
1982. During the democratic transition, they note that the “[m]iddle classes were more concerned with the creation of
civilian institutions, and less concerned about universal suffrage, whereas [the] working classes and [the] youth were
more concerned with universal suffrage and political change, [rather] than with civilian governmental institutions
[A]mong the Brazilian public there is a sharp distinction between support for the institutions of liberal democracy and
belief in the empowerment of the public’ (Rochon and Mitchell, 1989:316-17).
7 The political retreat of the Catholic church has been partly compensated by the growing influence of a myriad of
evangelical sects but, on the whole, overtly religious values are less influential than at any time since Brazil’s
independence in 1822.
8 ‘The ultimate goal of American foreign policy will be to use power, alone if necessary, to extend free-market
democracy around the globe’ (Lawrence J. Korb, US assistant secretary of defence, 1981-85, cited in Canadian
Dimension, Nov.-Dec. 2005:8).
9 Data in this paragraph are derived from the World Development Indicators.
10 These fluctuations can be tempered by imports or inventory sales, but these complications will be ignored here.
11 For Cavallo and Cottani (1997:17), the convertibility plan was a ‘smashing success it stopped hyperinflation
without producing a recession and without causing [a] regressive income redistribution’.
12 For example, the neoliberal reforms led to the ‘tertiarisation’ of Argentina’s economy (Basualdo, 2000:217). The
profitability of the services sector increased 33 per cent between 1991-98, largely as a result of the privatisations carried
out during this period (Schorr, 2002:18; see also Azpiazú, 1998 and Schvarzer, 1998).
... To understand the emergence of platform economies as the last stage of neoliberal governance in Latin America, it is necessary to go back to the crisis of the developmentalist model of the 1970s, a model based on the construction of a political and social framework for import substitution industrialization (Saad Filho et al., 2007). This developmentalist model was politically implemented by corporatist and populist regimes such as those of Juan Domingo Perón in Argentina and Getulio Vargas in Brazil, who, beyond their often-authoritarian tendencies, promoted the expansion and institutionalization of working-class rights, making them political and economic agents for the first time in the history of their countries. ...
... The uneasy coexistence between populism, nationalism, corporatism, and statism under Brazilian ISI was primarily due to the intense conflicts of interest within the elite, 3 especially between agrarian and urban interests and between manufacturing capital and finance, and between the elite and other social groups, especially the marginalised but increasingly militant urban workers and the emerging urban middle class (Saad-Filho, Iannini and Molinari, 2007;Skidmore, 1973). Stripped of their rich complexity, these conflicts essentially centred around the extent to which resources should be transferred away from the primary export sector, and where they should be allocated-for example, towards urban industry, infrastructure, or welfare provision (and, within these alternatives, to which sub-sectors, regions, and social groups). ...
... The uneasy coexistence between populism, nationalism, corporatism, and statism under Brazilian ISI was primarily due to the intense conflicts of interest within the elite, 3 especially between agrarian and urban interests and between manufacturing capital and finance, and between the elite and other social groups, especially the marginalised but increasingly militant urban workers and the emerging urban middle class (Saad-Filho, Iannini and Molinari, 2007;Skidmore, 1973). Stripped of their rich complexity, these conflicts essentially centred around the extent to which resources should be transferred away from the primary export sector, and where they should be allocated-for example, towards urban industry, infrastructure, or welfare provision (and, within these alternatives, to which sub-sectors, regions, and social groups). ...
Article
This paper offers a political economy analysis of the two systems of accumulation in the postwar Brazilian economy: import-substituting industrialisation (ISI) and new liberalism, and the industrial policies associated with them. The transition between these two systems of accumulation from the early 1980s to the mid-1990s is reviewed in the light of the country's key macroeconomic indicators and the political developments which have determined the choice and implementation of economic policy in each period. It is argued that, despite their signifi-cant achievements, both ISI and new liberalism were implemented unevenly and inconsistent-ly, and that their shortcomings can be analysed at two levels: internal micro-and macro-eco-nomic limitations preventing these development strategies from achieving their stated aims, and external limitations imposed by social conflicts during each period of time. The paper con-cludes, first, that industrial policies are closely associated with specific state structures, economic constraints, and political configurations which can be analysed only concretely (there can be no general theory of industrial policy, and there is no 'optimum path' of accumulation under late development). Second, each system of accumulation is limited by a distinctive set of historically specific economic and political constraints, which set limits to its potential development. Third, and precisely for these reasons, industrial policy is irreducibly political and context-specific.
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This chapter offers a political economy analysis of the two systems of accumulation in the post-war Brazilian economy, import-substituting industrialisation (ISI) and new liberalism, and the industrial policies associated with them1.The shift across systems of accumulation has been associated with significant changes in the role, structure, and policies of the Brazilianstate. Section 1 examines the case of ISI, departing from a review of conventional assessments of this system of accumulation and offering an alternative interpretation of its economic and political structures. This section also considers the limitations of ISI and the reasons for its crisis in the eighties.
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