Brazil at a Crossroads: Searching for a Coherent Developmental Strategy

Ever since the late 1990s conventional economic wisdom has been challenged by the increasing instability of the financial markets and the emergence of new economic powers that have not been strictly following the so-called Washington Consensus, particularly China and India. In this context, the global financial crisis, which began in August 2007, and induced the ‘Great Recession’ (GR), has substantially altered the dynamic process of the international economy. Governments of advanced and emerging countries have responded to the GR with massive fiscal and monetary stimulus, by rescuing financial and non-financial corporations and by reintroducing a more hands on approach to deal with the economic problems. Brazil is not an exception. Alongside the countercyclical policies aimed at smoothing the negative impacts of the external environment, the central government has been trying to implement more active developmental policies. In this context, this paper analyzes the Brazilian economy in terms of its recent performance, considering the major transformations of the global order posed by the global financial crisis and, moreover, by China´s rise. We argue that Brazil has to face at least three interconnected major issues: firstly, it must re-orient its macroeconomic policy in line with the new global environment of higher financial instability and less buoyant markets; secondly, it has to establish a new development strategy to cope with the challenges posed by China´s rise as a global power; and, thirdly, this development strategy must inform the government´s other policies, including macroeconomic policies, in order to avoid the lack of coherence and strength that have characterized previous efforts to push the Brazilian economy on a sustainable path of economic growth. We proceed as follows: after this short introduction we review some historical and theoretical aspects of macroeconomic management from a developmentalist perspective. We then analyze the Brazilian economic performance and the policy efforts to overcome the impact of the GR and to sustain the dynamism of the economy. We also take a fresh look at the empirical evidence concerning the regressive pattern of structural changes in Brazil. Our evidence and analysis suggest that development policies will only deliver consistent and positive results if the previous flaws of the policy framework, inherited from the neoliberal period, are reversed.