Study finds that neoliberal reforms contributed to near stagnation of Brazilian economy
The neoliberal reforms implemented by Brazil and other Latin American countries from the 1980s onward resulted in the near stagnation of their domestic economies, which persists to this day. In an article published in the Brazilian Journal of Political Economy, FGV EAESP researcher Luiz Carlos Bresser-Pereira explains that low growth occurred in conjunction with deindustrialization. Between 1980 and 2018, the industrial sector’s share of Brazil’s gross domestic product fell from around 26% to just 11%.
According to the author, national economic development is linked to growing per capita income. In the industrialization process, productivity gains occur through the redeployment of labor to high value-added activities, which demand specialized, better-educated and better-paid workers. Thus, deindustrialization entails a reduction in per capita growth, as it causes the transfer of labor to less sophisticated jobs.
The author argues that Brazil and other Latin American countries fell into the “liberalization trap.” Neoliberal reforms have caused Brazil to remain practically stagnant since 1990, through measures such as the privatization of monopolistic activities. According to Bresser-Pereira, once such companies are no longer public property, the market is unable to regulate them and this results in a lower quality of services provided to the population and higher prices. In this process, only the rentier class benefits, the author stresses.
As the study shows, between 1991 and 2019, annual per capita economic growth was 5% in East Asia excluding China but only 1.5% in Latin America. Brazil’s result was even lower: 1.2%. In comparison, from 1961 to 1980, when both regions experienced public policies to stimulate industrialization, the difference in growth between East Asia and Latin America was significantly smaller: 5.2% versus 4.6%.
New developmentalism theory criticizes the reduction in the state implemented by neoliberalism in developing countries such as Brazil. In this system, the author explains, growth policy is related to external indebtedness. If countries do not make high value-added goods, they are dependent on commodity exports. According to new developmentalism, “Current account deficits weaken a country’s currency. Thus, deindustrialization is related to a reduction in per capita growth, as it causes a transfer of labor to less valuable jobs, undermines the competitiveness of good companies and discourages or even prevents private investment.”