IU professor’s book: Brazil may be making ‘critical transition’

The world’s attention is focused on Brazil with the start of the Rio Olympic Games. And according to Indiana University economic historian Lee Alston, the country is worth watching – and not just for the world-class athletic competitions taking place there this summer.

In the new book “Brazil in Transition: Beliefs, Leadership and Institutional Change,” Alston and his co-authors argue that Brazil has the potential to make a critical transition to become one of the relatively few nations with a strong, sustainable economy and a stable system of governance. They attribute this to Brazil’s embrace of “fiscally sound social inclusion” and a resulting change in institutions.

Lee Alston

Lee Alston

“Very few countries make that transition,” Alston said. “If we look at the countries that were wealthy and successful in 2000, they are pretty much the same countries as in 1900.”

Alston is Ostrom Chair and professor of economics and law at IU Bloomington, where he directs the Ostrom Workshop. Co-authors of “Brazil in Transition” are Marcus André Melo of the Federal University of Pernambuco in Brazil, Bernardo Mueller of the University of Brasilia and Carlos Pereira of the Brazilian School of Administration at the Getúlio Vargas Foundation in Rio de Janeiro.

The question of why nations so rarely manage to break into the exclusive club of successful and sustainable states has long challenged political scientists, economists and other scholars. Alston and his co-authors address the question with a new way of thinking about the process of national development, focusing on the role of beliefs, institutions, leadership and windows of opportunity.

They apply their framework to the example of Brazil, following its history for the past 50 years as it transitioned from a military dictatorship through a populist system plagued by hyperinflation to its current state: a stable nation that may have the resilience to withstand political and economic shocks.

It’s significant that this transition has been accomplished by Brazil, one of the world’s largest nations with a population of over 200 million, Alston said.

“Brazil is half of South America,” he said. “It’s the same size as the continental U.S. By GDP, it’s the world’s fifth or sixth largest country. We think of China and India, but Brazil is right up there.”

A military junta ruled Brazil from 1964 to 1984, pursuing a “developmentalist” approach of top-down management and centralized planning. After civilian rule was restored, there followed nearly a decade of chaotic, populist governance when inflation reached 10,000 percent.

Alston and his co-authors attribute Brazil’s turnaround to the leadership of Fernando Henrique Cardoso and his economic team. Cardoso was appointed finance minister in 1993 and elected president in 1994 and 1998. Cardoso implemented economic and monetary reforms that tamed inflation and that remained in place through the successive two terms of the populist President Luiz Inácio Lula da Silva.

brazil_in_transition_coverKey to the approach was the belief, which came to be widely shared in Brazil, that the nation’s assets should be shared with all levels of society but the economy should be tempered by sound fiscal and monetary policies.

“The media gave Lula a lot of credit when, we argue, Cardoso did the heavy lifting. Importantly though, Lula sustained fiscally sound social inclusion and, because he inherited a sound fiscal economy, he expanded social programs while still running budget surpluses,” Alston said.

It’s clear that Brazil’s path to sustainability hasn’t been without some bumps. The nation’s economy grew strongly in the early 2000s on the crest of exports and energy production. But with the collapse of world commodity prices in recent years, the growth reversed.

Despite Brazil’s current economic, political and social problems, its institutions are holding up, Alston said. There is a sense that “no one is above the rule of law.” Although much of Congress appears corrupt, the institutions upholding checks and balances are doing their job: for example, the judiciary, the accounting office and the federal police. Added to this are the new policies embarked upon by acting President Michel Temer. Brazil is signaling to the world that it is returning to fiscal orthodoxy. It is no longer papering over the problems, Alston said.

“They’re telling the truth, and outside money is flooding in,” he said. “Foreign direct investment this year in Brazil is way up. The outside world sees Brazil right now as a stable place in which they can invest.”

Poverty and economic inequality, while problematic, have declined from historic levels, Alston said. And Brazil has a large middle class that has embraced the belief in fiscally sound social inclusion and does not want economic stability to slip away.

At the same time, corruption scandals and political intrigue are buffeting Brazil. The current president, Dilma Rousseff, has been impeached for alleged financial misconduct and is facing a Senate trial that could permanently remove her from office. Lula, the popular former president, has been charged with obstruction of justice in connection with a scandal involving the Petrobras oil company.

But Alston said it’s significant that Brazilian officials are following the rule of law in a time of great conflict. Rousseff’s critics are pursuing the constitutional process of impeachment – she hasn’t been removed by a coup. And powerful business and political figures are facing the prospect of prison time.

“Is corruption good? Well, of course not,” Alston said. “But has it always been there? Yes, and now they’re starting to do something about it. I would argue that Brazil is approaching a situation where no one is above the rule of law.

“And that’s significant, because there aren’t many countries where that’s true.”

What Brazil really needs now, he said, is to win the gold medal in soccer in the Olympics. Spirits would soar.

 

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