# The Economic and Social History of Brazil Author: ## Review Brazil no longer captures the attention of investors, although it is a capitalist democracy with well developed markets. This is background reading for me, to understand the history of Brazil a bit better and how its economic and political institutions developed. Understanding the structure of the economy and how it evolved will help me understand how Brazilians, investors and politicians will be influenced to make decisions in the future. The author divides the recent history of Brazil into 4 periods: the old republic (1889-1930), the vargas period (1930-1945), the authoritarian military 'democracy' (1945-1985), and the modern democracy since then. The author follows a few threads through each period at a high level including demographics, institutions, political movements, and economic factors. The old republic was a result of the demand for greater representation among the middle class resulting in the overthrow of the monarchy. This was a mostly liberalist era with decentralized power and growth through banking reform and reinvestment of coffee profits. However the coffee elite had a heavy influence in politics and forced the government to intervene in coffee and currency markets in their favor. The next period was a 15 year leftist and populist authoritarian government led by Vargas. It re-centralized power and was very involved in the economy. This was the start of welfare policies in health, education and social security. Vargas encouraged industrialization, which continued as the country moved towards more democracy. The state was financed through bank loans and money supply expansion, creating a lot of inflation. The military 'temporarily' took over the government to fix the economy but its rein lasted 21 years. These were high growth years, but at the expense of human rights and social advancement. Further industrialization was encouraged and financed through local and international debt. This eventually led to the debt crisis. The country moved towards democracy and the elevation of human rights. neoliberal policies were enacted to fix the economy and inflation. A fixed currency created problems later on and resulted in the presidency of Lula. He continued with the neoliberal agenda but focused more on social aspects. He was a very popular president. Brazil still needs reforms in the tax and pension system, and to reform residual political arrangements from the military government years. While reading about Brazil of the late 1800s and early 1900s I couldn't help but wonder how and why it fell so far behind the United States. The comparison of these two countries would tell us what is most important for development & growth. They are large countries, endowed with abundant resources, significant migration from Europe, with slavery until the late 1800s. The main differences that I can identify are in the banking systems (fragmented and decentralized in the US, whereas Brazil had a single bank) and in the political institutions (republic in the US vs a monarchy in Brazil until 1890). I would like to understand the evolution of Brazilian banking a bit better, in order to have a more thorough comparison. The two other economic elements that really interested me were the Latin American debt crisis and the lead up to it for Brazil. What the rationale was for such a significant expansion in debt and they they tried to resolve it. Then the protracted episodes of high inflation are also quite interesting. Mainly because they are the perfect counterpoint to why deficit financing (at a certain level) can be dangerous for the long term growth of a country. Lastly the extent of private industry in education and health care is fascinating, particularly in education. I wonder how good these institutions are at reinvestment and advancement. I would only recommend this to someone who really cares about the history of Brazil. It was not a captivating read, more a chronology of events and facts. #### The old republic - Monarchy was toppled by the republican movement, driven by the demand for greater political representation by the middle classes. - Coffee was the most important industry. The coffee producer elite also had a significant political influence. The federal government was heavily dependent on the states, which held most of the power. In particular the three coffee states and the oligopoly of the coffee elites. - Abolishes slavery in the 1880s. Large demand for wage labor resulted in migration from Europe to Brazil, rivaling that to North America. - From 1800 to 1915 Brazil fell far behind the united states in per capita income (from near equal levels). Why? Maybe the strong control of the monarchy and top down institutions? - There was banking system reform in the early years of the republic which created a boom and inflation. Money was in the hands of a single bank. - Significant state intervention in coffee and currency markets, in large part to keep coffee industry competitive and profitable. - Coffee profits reinvested by entrepreneurs into other industries that were related to the coffee sector. (Railroads, Machinery, etc) #### The Vargas period - The result of a political movement to counter the elitist and oligarchic government. - An authoritarian & slightly populist regime, centralizing power with the federal government and intervening heavily in the economy. - Vargas' government became more repressive over time, until 1945. He was able to make changes without opposition because censorship (and arbitrary imprisonment) was enforced. - Government incentivized the expansion of industrialization. - Government currency intervention and World War 2 also stimulated the growth of manufacturing industries. - The start of social welfare programs such as education, health care, pensions and social security. #### Authoritarian military 'democracy' - Brazil reinstated democratic institutions after Vargas and continued on the path of industrialization and state involvment in social and economic activities. - The governments large deficit had to be financed by loans from the Bank of Brazil. (Usury laws constrained market financed debt) - Large expansion in the money supply, initiated by government debt financing, led to significant inflation. - Inflation was out of control and the military carried out a coup, initially meant to be temporary until the economy was fixed. The military dictatorship lasted for 21 years. - Political repression was common, especially towards middle class movements. But the government remained relatively popular while economic growth was high. - There was a possibility of a one party state, and it seemed highly likely at one point, but there was broad opposition to the regime. - Economic growth and industrialization was funded by large debt expansion which eventually resulted in the debt crisis. - Deficit funding created inflation. Indexing prices became common place to fight inflation but also helped to perpetuate it further. - The favellas were in part the result of imposed limits to indexing on bonds, which eroded the value of savings and reduced funds for construction of housing. - The oil shock in the late 70s early 80s, and increases in International interest rates set off the latin american debt crisis. - During this period, the modern banking and credit system was created in Latin America. - There was always a camp within the military which wanted to return to democracy. Eventually the country returned to democracy with a new constitution and a number of new political parties. #### Modern democracy - There was a movement towards elevating the importance of human rights, as a result of the complete rejection of it by the authoritarian military regime. - The new constitution is one of the most advanced in the world with respect to social and political rights, but in other ways lacks clear vision as it resulted from a clash of many interests. - Politicians in Brazil have weak loyalty towards parties and it is common for new parties to be created, or for politicians to switch. - The Cruzado plan was implemented to stop inflation, but it was unsuccessful. The Real Plan implemented years later by Cardoso was much more successful. A necessary step was to rationalize the federal budget. - Brazil also became more friendly towards neoliberal market-friendly policies (aligned with the Washington Consensus) which helped to reduce the impact of inflation. - Fixing the currency at an overvalued level was initially an important part of the Real Plan but eventually created other problems and had to be converted to a floating currency. - This currency crisis ousted the neoliberal government, instating Lula. Lula enacted more pro-welfare policies which were heavily favoured by society. He was very popular. He also continued with the neoliberal plan that was started by the previous government. - Brazil has the highest level of privatized university education and also one of the highest privatizations of health care. The education aspect is quite interesting and deserves some further reading. ## Key Ideas ## Related - [[The Economic and Social History of Brazil since 1889]] - [[Brazil]]