The 4th edition of the International

Conference on Public Policy (ICPP4)

Montreal - June, 2019

Panel T03-P03 Session 1

Explaining Democratic Backsliding: How Policy Dynamics
Structure Politics in Hidden Ways

From Hope to Disaster: Neodevelopmentalism and

Institutional Crisis in Brazilian Recent Experience

Kleber Chagas Cerqueira

Universidade de Brasília-UnB (University of Brasilia-Brazil)
kleberch@unb.br

Jackson De Toni
Agência Brasileira de Desenvolvimento Industrial-ABDI (Brazilian Industrial Development Agency)1
jackson.detoni@gmail.com
 The purpose

To discuss the recent trajectory of

neodevelopmentalist governments in Brazil,
highlighting the connection between its
development policy model and the economic
and political crisis that led to Dilma
Rousseff’s impeachment.

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 The big question:

Why, after promoting the highest levels of

inequality reduction ever seen in Brazilian
history, the developmental experience resulted
in a profound economic and political crisis,
culminated in the process of interruption the
presidential mandate in 2016?

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An overview on Brazilian historical inequality

Source: ipeadata.gov.br. Estimated data to 1991, 1994 and 2000.

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 However, things began to change in
Brazil from begin of the current century,
with Lula’s government (2003-2010).

5
 Income Inequaluty - Gini Index
0.660

Constitution 1988 Gov FHC

0.640

Gov Lula
0.620

0.600

0.580

0.560

0.540

0.520

0.500

0.480

0.460

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 Why?

What can explain such a new situation

in terms of inequality and of welfare
outcomes?

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 Why?
Since there was no remarkable changes
in the major economic policies (such as
monetary or exchange) and nor substantial
shift in country’s institutional framework,
we are strongly led to suppose that the
causal factors stay in other distributive
social policies. 10
 Our Hypothesis:
►the minimum wage promotion policy,
and;
►the cash transfers program (Bolsa
Família).
►the expansion of poor people credit
(micro credit)

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An explicitly redistributive policy at the core of
the new development model:
The model of domestic mass consumer market

Wage
Increases

Increasing Increase in
Productivity demand

Increase
in
Investment

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Other significant outcomes of the model
(Contrary to traditionally expected)

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Other significant outcomes of the model
(Contrary to traditionally expected)

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 But

Lula was benefited by commodities

boom, which started to stop after 2008
financial crisis.

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Dilma Rousseff (2011-2014 - 1st Term)
 Mundial instability: financial crisis;
 Deterioration of trade balance;
 Priority to neutralize the internal instability
generated by the global context:
 Expansion of the social and anti-cyclical policies of Lula
(Public investments, popular housing program);
 Expansion of fiscal spending;
 Administration of (intervention) the exchange rate;
 Fight against private bank interest rates.
=
“The new economic matrix” 17
 Economic Effects:
 Increase in inflation (labor cost of
services);
 Increase in unemployment;
 Explosion of public debt;
 Interventions in sectors such as
energy impact the expectations of
hegemonic economic agents that have
reduced investment levels.
Inflation
Unemployment
Deterioration of trade balance
 And Political Problems
2013 massive protests overturned
Dilma's popularity;
2014 elections: economic stagnation,
corruption scandal and high political
polarization;
Rupture of developmentalist coalition.
 Limits and contradictions of
developmentalist model
► Growing disarticulation of government initiative;
► Thepolicy of public banks did not dialogue with
the strategy of technological innovation =>
dependence on the commodity cycle;
► Macroeconomic policy neutralized the objectives
of industrial policy, particularly monetary and
exchange rate policies;
► Theinternational crisis of 2008, the end of the
commodity cycle, turned worse a picture that
was already bad.
Limits, contradictions and high risk bets
► When Dilma assumes in 2011 we see the combination of the
exhaustion of the domestic cycle with the increase of the external crisis
► But economic policymakers continued to focus on supply policies:
 1. extending the credit subsidy and selective deregulation (“Fiesp agenda" and
"entrepreneurial scholarship“;

 2. the control of administered prices (defined by government);

 3. the forced reduction of interest rates and heavy tax relief.

► Elections in 2014: legal and politics uncertainty through the electoral process
► Judicial big corruption fight operation (“Lava-Jato” - ‘the jet waster’)
focusing on Petrobras bribery scheme paralyzes investments;
► Reversal of investor expectations = investment strike?
► State investment budget (in which 85% of Petrobras) went from R $
113 billion in 2013 to R $ 56 billion in 2016
 Towards political collapse
► Dilma II (2015 - …) tightens monetary policy (increasing interest rates),
promotes a public spending cut (fiscal shock) and releases administered
prices (generating inflation and reducing the real value of wages).
► 2015: administered prices rose 18%.
► government expenditures fell by almost 3% (they grew at an average
of 3.5% per year between 2011 and 2014).
► The average exchange rate goes from 2.6 R $ / US $ in 2014 to 4.05
R $ / US $ in 2015 => "exchange shock" with impact on inflation.
► Contradictory political signs: the economic agenda defeated in the
electoral process is adopted by government (fiscal adjustment of
Joaquim Levy).
► Decrease in economic activity, with a fall in private investment,
unemployment, falling taxes and public investments.
► Fusion of the economic crisis with the political crisis - feedback.
Dilma Approval rate
 Conclusions
► Fall in GDP by almost 8% in two years (2015 - 2016): the worst recession.
► The post 2015 crisis has resulted from a complex picture that has
yet to be explained.
► The governments of Lula and Dilma (2003-2015), momently
delayed the process of deindustrialization.
► What was left out of the agenda: reform of the financial system
and of the unequal tax system, besides an industrial and technological
policy less dependent on tax exemptions.
► Errors of political and institutional strategy reinforced
misconceptions in economic policy:
 the abandonment of a state reform agenda and the federal public administration
 simultaneous isolation of the party and social base of support to the government
and of its parliamentary base
 misconceptions about the alliance policy within the Congress
 wrong image building strategy
► How to sustain the redistributive process without triggering
destructive reaction by the top of the pyramid?
THANK YOU!

28
 To explain that I applied
the policy ratchet effect on social
policies (Huber and Stephens, 2001): the
difficulty to reverse patterns of welfare
state policies since they were embedded
as institutions into society.

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 References
► HUBER, Evelyne e STEPHENS, John.
Development and crisis of the welfare.
Chicago, University of Chicago Press, 2001.
► PIERSON, Paul. “Public Policies as
Institutions”. In Shapiro et alli (Edits.)
Rethinking Political Institutions. New York,
New York University Press, 2006.

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Although reduction in poverty and in inequality
is a common fact in almost all Latin American
countries at the 1st decade of the XXI century

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The “new middle class”

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The “new middle class”

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Although it is not only a
Brazilian phenomenon…

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The need for a third critical juncture
The democratization process and the
resulting Federal Constitution (1984/1988):
• after debt crisis but before neoliberal
hegemony;
• strong labor union movements: PT, CUT,
strikes;
• strong social movements: “Diretas Já”
campaign and “popular amendments” on the
new country’s Constitution. 36
Main features of Federal Constitution
1. State economic interventionism: maintenance of
strategic SOEs (Petrobrás, Banks), state monopoly
over mineral resources, regulations on social policies;
2. Convergence to a meritocratic (weberian)
bureaucracy: requirement of public competitive
examination to civil servants’ recruitment;
3. Impulse to participation and social control: network
of public policies councils, direct public participation
in policies management, network of control agencies
(TCU, MPU);
4. Starting the building of a welfare state, through the
establishment of an universal and public coverage
and service on education and social security;
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But, why now and not before?

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 Hypothesis 1
New constellation of power (Huber,
2012): PT and developmentalist coalition:
o BNDES activism;
o Minimum wage valorization policy;
o Social assistance (“Bolsa Família”).

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 Hypothesis 2
Hidden institutional change (Hacker,
Pierson and Thelen, 2013):
Conversion: when political actors
reinterpret ambiguous rules or use the
discretion inherent in them to redirect
them toward new purposes.
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Possible examples of Conversion

BNDES promoting expansion of

employment:

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BNDES: loans to small and
medium enterprises

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BNDES: loans to small and
medium enterprises

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 100.00
150.00
200.00
250.00
300.00
350.00
400.00

0.00
50.00
1940.07
1941.12
1943.05
1944.10
1946.03
1947.08
1949.01
1950.06
1951.11
1953.04
1954.09
1956.02
1957.07
1958.12
1960.05
1961.10
1963.03
1964.08
1966.01
1967.06
1968.11
1970.04
1971.09
1973.02
1974.07
1975.12
1977.05
1978.10
1980.03
1981.08
1983.01
1984.06
1985.11
1987.04
1988.09
1990.02
1991.07
Minimum Wage - US$ Purchasing Power Parity

1992.12
1994.05
1995.10
1997.03
1998.08
2000.01
2001.06
2002.11
Examples of Conversion

2004.04
Minimum wage as economic policy:

2005.09
2007.02
2008.07
2009.12
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2011.05
2012.10