Charting new directions: - Alfred Herrhausen Gesellschaft

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12Charting new directions: Brazil’s role in a multi-polar worldPathways to sustainable growthThe current financial crisis seems to have dealt aserious blow to the American neoliberal growthmodel, which encouraged conspicuous levels ofconsumption and allowed for high levels of debt. EastAsian growth strategies, based on export-led growth,high savings and low levels of domestic consumptionare also under pressure. And, as the global economybegins to recover, there are still no clear pathways tosustainable growth.In Brazil, the previous President, Luiz Inácio Lula daSilva, continued the market-oriented policies of hispredecessor, Fernando Henrique Cardoso, includingfiscal discipline and a floating exchange rate, in orderto maintain macroeconomic stability. But thesepolicies were combined with a developmentalistapproach to social policy and strategic interventionsin the economy through a raft of industrial policies.This led to the resilience of the Brazilian economyin the face of the financial crisis, but significant risksand dilemmas remain.At the macroeconomic level, there is the dilemmaof how to maintain public spending in a way that isconsistent with fiscal stability. As Nelson Barbosaargues, this may be possible by bringing moreeconomic activity into the formal sector with theresultant benefits for public revenues. There isalso concern about how to encourage growth andinvestment in a manner that does not accelerateinflation. And, therefore, the interest rate, whichis amongst the highest in the world, is a highlycontentious issue in Brazil with many advocating ahigh interest rate to keep inflation levels low whileothers argue for a lowering of the interest rate inorder to make credit for investment more easilyavailable.Many are optimistic that Brazil may be able toovercome these dilemmas by harnessing its naturalresources. The recent discoveries of oil and gas offthe coast of Brazil present the country with a valuableopportunity and it has the potential to utilise theseenergy resources for its economic development,as Mauricio Tolmasquim and Amilcar Guerreiroadvocate. Brazil’s rich commodity base is a hugeadvantage, but there are also risks associated withexcessive reliance on primary products. As Yao Yangpoints out, a resource curse hangs over commodityrich countries, where improved terms of trade forthe export of commodities (in particular currencyappreciation) often reduce the competitiveness ofthese countries in manufactured goods.Indeed, there is debate in Brazil about whether toemphasise commodity production or manufacturingas the path to economic growth. However, such astark choice may not be necessary and there couldbe synergies between the two sectors if the Braziliangovernment is strategic in its choices, such asutilising profits from commodity exports to financethe diversification and development of the rest of theeconomy and create jobs. In addition, as Glauco Arbixargues, innovation will be increasingly significant inhelping spur economic growth across each of thesesectors. However, if the Brazilian economy is toenhance growth and achieve innovation, a numberof complex and difficult structural changes will benecessary, including further tax and financial reformsto facilitate financing and the growth of small- andmedium-sized businesses, and broad infrastructuralimprovements.Internal tensions and social cohesionThe changes associated with globalisation have puta strain on the social fabric of countries, with risingindividualism in metropolitan areas, while exposingdeep divisions between regions, rural and urbanareas, socioeconomic groups and ethnicities. AsWilliam Galston and Niraja Gopal explore in theircontributions, this is as true in advanced industrialisedcountries such as the United States as it is in thedeveloping world, where huge income disparitiescontinue to widen.In this context, Brazil’s recent experience can beconsidered a success story. Through a combinationof orthodox macroeconomic policies and anIntroduction: Reclaiming the future | Alfredo Cabral, Elena Jurado and Priya Shankar
Charting new directions: Brazil’s role in a multi-polar world 13unprecedented expansion of social spending, Brazilachieved remarkable reductions in income inequalityand extreme poverty. As Jorge Abrahão de Castropoints out, the Lula administration’s hybrid economicand social policies transformed public spending intoa core element in the country’s growth strategy,creating new consumption markets rather than onlyassisting the destitute. Despite the frictions whichare set to mark the political cycle, described in thisvolume by André Singer, the cross-partisan consensusaround programmes like Bolsa Família suggest longterm continuity in income transfer.However, persistent social and regional tensionsand inequalities remain. Even though growth isbeginning to spread to other regions, the state ofSão Paulo continues to account for one-third of GDP.Meanwhile, income disparities are significantly higherthan in other emerging economies, including Indiaand China. And the country faces further dilemmasin addressing public security and racial inequality.If Brazil is to consolidate its social achievements, itwill need to complement its use of income transferswith policies aimed at strengthening universalpublic services, but this presents considerablechallenges. There is no agreement on the size andscope of government interventions, or on the kindof taxation that will provide the funding for additionalpublic spending. Moreover, even if the fundingcan be obtained, it is not clear that redistributivepolicies will be sufficient to correct the country’sentrenched inequalities. As Daniel Vargas warns inhis contribution, if Brazil is to achieve a truly cohesivesociety, it will need to make more fundamentalchanges to its national model.Seeking autonomy in anage of interdependenceThe capacity to shape international norms is aprerequisite for successful national development.The demands for reform of global governanceadvanced by the emerging economies over the lastdecade should be understood in this light. WithinBrazil, there are voices calling for greater autonomyin international negotiations. Under the banner of”sovereign international insertion“, there is a growingbelief that, as a big state, Brazil should have thecapacity to participate in international affairs on thebasis of its own national strategic considerations.Brazil has led calls for reform of the votingstructures of the Bretton Woods institutions andplayed an assertive role in negotiations within theWTO. It fostered closer links with the global south,particularly with other Latin American countries andAfrica. Indeed, as Rubens Barbosa points out in hiscontribution, the prioritisation of south-south relationshas given Brazil a new diplomatic soft power, whichit has used effectively to promote its interests in avariety of international forums.And yet, as Riordan Roett suggests, Brazil has notbeen radically revisionist. It has pursued reformsin a conciliatory manner, trying where possible toseek consensus with all the major powers ratherthan unilaterally disrupt the status quo. Over thelast few years, Brazil maintained amicable relationswith the United States, paid its IMF debt andplayed a cooperative role within the United Nationsframework. So far, this conciliatory approach hasserved Brazil well. However, in order to enhance itscapacity to institutionalise change, Brazil may needa more audacious approach and will be faced withdifficult choices.This will include a balancing of its regional andglobal pursuits. So far, Brazil’s efforts at regionalintegration have met with considerable success butthere are tensions, as Brazil’s growing internationalpresence arouses concern among its neighbours.As Marcel Biato proposes in his contribution, thetask before Brazil is to continue deepening regionalintegration beyond its current emphasis on trade.This will help create the united regional front Brazilrequires to have a greater voice in the rest of theworld.In order to further these aims, Brazil will need towork on improving its homefront as Charles KupchanIntroduction: Reclaiming the future | Alfredo Cabral, Elena Jurado and Priya Shankar
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