What kind of an economy does Brazil’s government want? The answer is not at all clear, as Joe Leahy reports in Tuesday’s FT.
Brazil has rejected the Washington Consensus and seems unwilling to embrace 21st Century Socialism (although former president Luiz Inácio Lula da Silva said on Friday that another election victory for his Venezuelan colleague Hugo Chávez would be a victory for “every leftist militant, every democrat and every Latin American”).
But has Brazil found a Third Way? Or does it risk seeking after something that does not exist?
Tony Blair, inventor of the Third Way, says Brazil is an example of his invention in action. Many in Brasília like this idea (without having much sympathy for Blair) as it allows them to reject the reforms promoted by the Washington Consensus, indulge their taste for state intervention in the economy, and still claim the moral high ground of fiscal responsibility.
But there is a danger to this view. It sets policy-makers against the tax, labour and other reforms that were at the top of a list of priorities written on a piece of paper and held up in congress by Fernando Henrique Cardoso, the father of Brazil’s recent prosperity, after he was elected president in 1994. (That list included fiscal responsibility, put into law, to Brazil’s lasting benefit, during FHC’s two terms in office.)
The global financial crisis has made it easy for politicians in Lula’s Workers’ Party – in opposition under FHC and in power ever since – to reject “neoliberal” reform out of hand. In its place, they have employed an increasingly arcane structure whose pillars are currency war, industrial policy (picking winners and subsidising them), “local-contentism”, and a public sector that does not provide Brazilians with services but does offer them, if only they can joint its ranks, the dream of a guaranteed job for life followed by early retirement on full pay.
In throwing out the Washington Consensus, policy-makers risk throwing out Brazil’s future growth. Less waste in the public sector, a fairer, more streamlined tax system and a more flexible labour environment really would free up more money to invest in better public services and a more productive, competitive private sector. With better education, better infrastructure and the ability to compete, Brazil’s enormous human and natural wealth could really come into their own.
But that is one route Brasília seems determined not to follow.