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The Economic Impact of More Trade Agreements

Economics / Economic Theory Sep 26, 2010 - 04:26 AM GMT

By: Pravda


Mauro Dias Lourenço writes:In the second half of the twentieth century, Brazil was one of the countries that grew fastest on the planet, especially until 1979, which includes the period of the so-called "economic miracle," from 1967 to 1973. The fact that the phenomenon coincided mostly with the period of military dictatorship (1964-1985) does not mean that resulted from an authoritarian regime in which the State has stimulated the development.

Had the country remained within the institutional mold, which had been followed since 1945, to be sure, growth would have been the same. Or even greater, as you can see looking at the years (1956-1960). It was a trend coming from the Vargas Era (1930-1945).

Why, then, has the country stopped growing or was reduced to an insignificant growth in the last 30 years? One explanation arises when one makes a comparison with China. By coincidence, by the year 1979, China corresponded to the opposite of Brazil in terms of economic growth. At that time, anyone who looked down upon the two countries, probably would bet all the chips on Brazil as the nation with the most promising future.

What went wrong? An explanation that springs from history is that, despite being ruled by an iron communist regime, China has managed to close a bilateral agreement with the U.S. that allowed it to export to that country without tax or tariff barriers. Brazil, which appeared as the most suitable partner for this type of agreement, not only because it always automatically aligns its positions with that of Washington, but preferred to remain equidistant, wedded to the idea that the state as a promoter of growth would be sufficient to put it on the path of development.

While it remained protected by the state-leviathan, Brazilian foreign trade remained stifled and with no future. It took until 1990, hence the epithet that historians have given to the 80 years as a "lost decade." Without any other way, the rulers at the time were left with no other option but to dismantle the state, beginning with the process of privatization of defective state enterprises that historically have functioned as having sinecure jobs and currency exchange in the game of political parties.

Strictly speaking, of the processes of privatization that began in the '90s, the only one that has not shown tangible results are the railroads. And fault does not fall on the enterprises, but the governments that were unable to administer the funds raised through privatization. According to the data of the National Association of Railway Transport (ANTF), where from 1994 to 1997 there was a loss of $2.2 billion to the state between 1997, and in 2009 $11 billion was raised from taxes and leases.

But the investments by the government in the FHC and Lula in that sector were ridiculous: in the same period, the federal government invested only $1.1 billion, while the concessionaires applied R $21 billion in recovery of the mesh, adoption of new technologies, professional training and acquisition of rolling stock.

Recently, the idea of a state-leviathan prevailed again, depending on the need to use the state as a sinecure office. And the result is that the state machine has grown again with the hiring of thousands of employees and the allotment of 37 ministries with unprepared politicians, beyond the machinery of government, which makes the management mediocre. Not to mention the creation of the "Bag Famíly," which has stimulated the growth of informal work. The bill, of course, ends up being paid by civil society, one that works and collects taxes.

What to do? If the idea is to increasingly swell the wasteful state more than it is, there is a way out. That is to do what the current government has not done, sign trade agreements with nations or representative blocks that stimulate the domestic economy. Remember the example of China 30 years ago.

(*) Mauro Lourenço Dias is a professor of graduate studies in Transport and Logistics at the Department of Civil Engineering, State University of Campinas (UNICAMP). Site: E-mail:

Translated from the Portuguese version by:

Lisa Karpova

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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