Was Brazil’s recent growth acceleration the world’s most overrated boom?

As soon as international financial markets felt reassured in 2003 by the surprisingly neoliberal orientation of President Lula’s government, the ‘spot-the-new-Latin-tiger’ financial brigade became dazzled by Brazil — they just couldn’t have enough of it. So much so, that they had little difficulty in turning a blind eye to the obvious fact that (except for several commodities, finance, and a small number of other activities) Brazil’s economic performance since the beginning of neo-liberal reforms (c.1990) had been remarkably poor. This not only contrasted with its own performance pre-1980, but also with what was happening in Asia. I shall argue that the weakness of the new neo-liberal paradigm is rooted as much in its intrinsic flaws as in the particular way it was implemented. As in the rest of Latin America, Brazil’s economic reforms were undertaken primarily as a result of its perceived economic weaknesses — i.e., there was an attitude of ‘throwing in the towel’ vis-à-vis the previous state-led import substituting industrialisation strategy, because most politicians and economists interpreted the 1982 debt crisis as conclusive evidence that it had led the region into a cul-de-sac. As Hirschman has argued, policy-making has a strong component of ‘path-dependency’; as a result, people often stick with policies after they have achieved their aims, and those policies have become counterproductive. This leads to such frustration and disappointment with existing policies and institutions that is not uncommon to lead to a ‘rebound effect’. An extreme example of this phenomenon is post-1982 Latin America, where the core of the discourse that followed ended up simply emphasising the need to reverse as many aspects of the previous development strategy as possible. This helps to explain the peculiar set of priorities, the rigidity and the messianic attitude with which the reforms were implemented in Brazil, as well as their poor outcome. As the then President of Brazil’s Central Bank explained at the time, their main task was “...to undo forty years of stupidity.” With this ‘reverse-gear’ attitude, this experiment in economic reform almost inevitably ended up as an exercise in ‘not-very-creativedestruction’ — especially vis-à-vis its manufacturing industry. Something very different happened in Asia, where economic reforms were often intended (rightly or wrongly) as a more targeted and pragmatic mechanism to overcome specific economic and financial constraints. Instead of implementing reforms as a mechanism to reverse existing industrialisation strategies, in Asia they were put into practice in order to continue and strengthen ambitious processes of industrialisation. Although the Brazilian economy has been unable to deliver sustainable productivity-growth since the beginning of economic reforms (just a few short growth-dashes), Brazilian-style neo-liberal capitalism became unrivalled when it came to offering world-class commodities, an abundance of precarious (mostly service) jobs, stylish retail, extremely lucrative finance, and the ‘purity of beliefs.’