Although Argentine, the economist Raul Prebisch has
had a huge influence on Brazilian economics, and indirectly on its political
system. His essential belief was that
less developed countries were in a structurally disadvantaged position vis-à-vis
developed ones because of the lower value added of their exports. The proposed remedy was import substitution
and economic integration (don’t import engine blocks from the US or Germany,
build up plants locally to manufacture them for regional markets).
This policy choice carried with it an increased role
for governments in setting priorities, promoting “national champions”, protecting
these from “unfair” foreign competition via loans at subsidized rates and high import duties. Import substitution failed[1]
but bloated bureaucracies and intrusive politicians survived.
Over the years, governments and bureaucrats found
themselves at the command of powerful economic levers, capable of making or
breaking companies, extending huge loans at well below market rates to a happy
few, and calling on favors from these grateful recipients.
The commodity boom of the 2000-2008 period proved a
bonanza for Brasil. It also coincided
with the arrival to power of the PT which, more than any party, believed in
income redistribution, government intervention and patronage while being wary
of foreign investment and the free markets ethos. So much money! So much power! So much temptation!
The results, by now, are not pretty. The Petrobras scandal revealed widespread corruption,
“institutionalized” corruption as one witness characterized it. Corruption has also been uncovered in the electric utilities sector; other sectors are reported to
be next.
In fairness, Raul Prebisch is not the only one to
blame. History is another factor when
power is concentrated, either at the seat of central government, or in vast
countries, in the hands of governors far removed from the capital. In such systems, there are few checks and
balances and temptation is rampant.
As Mae West once said, “I generally resist
temptation, unless I can’t resist it.” The
solution to Brazil’s governance problems is simple, although its implementation
won’t be easy: REDUCE TEMPTATION by reducing government role in the
economy. Besides Petrobras, the federal government
controls the largest long term lenders as well as key infrastructure sectors. Via BNDES loans and equity investments, it exerts a huge influence
on the largest privately held industries and utilities.
Perhaps because it is in a tight financial
situation, Brazil is initiating some welcome changes. Finance minister Levy has already announced
that BNDES should return to its original mission and stop subsidizing large
companies which can easily tap the financial markets.
The board of directors of Petrobras will soon replace political
appointees with private sector candidates.
A relaxation of local content legislation seems inevitable[2]. So is the requirement that Petrobras lead all
new offshore exploitation projects and own at least 30%. The PT will likely fight tooth and nails
against privatizations (the ultimate solution to reducing temptation) and these may have to wait until a new government is elected.
It will be a tough road. Indeed, the continuous stream of revelations,
the extent to which politicians and prominent companies exchanged bribes, and
the sheer magnitude of the money which was wrongfully appropriated may trigger such
revulsion that peaceful progress is by no means assured.
Still, the alternative is economically and
politically much worse. As Mae West also
said, “between two evils, I always pick the one I never tried before.”
