The Economy of Brazil

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• Language: English
• Publisher: University of California Press
• Release date: Jul 28, 2023
• ISBN: 9780520325906

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THE ECONOMY OF BRAZIL

BRAZIL: STATES AND REGIONS

SOURCE: Map by James A. Bier from the Library Guide for Brazilian Studies (University of Pittsburgh Book Centers, 1964), page 5. Reproduced and corrected with the permission of the author, William Vernon Jackson.

KEY TO REGIONS: 1. North a. Northeast 3. East 4. South 5. Center-South

THE ECONOMY OF

Edited by HOWARD S. ELLIS Foreword by LINCOLN GORDON

UNIVERSITY OF CALIFORNIA PRESS Berkeley and Los Angeles / 1969

University of California Press Berkeley and Los Angeles, California

University of California Press, Ltd.

London, England

Copyright © 1969 by

The Regents of the University of California

Library of Congress Catalog Card Number: 69-16737

Designed by James Mennick

Printed in the United States of America

Contents 1

1. Imports by Major Categories, 1948-1961 4

2. Formation of Fixed Capital, 1947-1959 5

3. Foreign Investments Under Instruction

4. Financing at Cost of Exchange Rate 10

5. Difference Between Market Rate and Cost

of Exchange Rate (Plus Surtaxes) 10

6. Subsidy to Industry 11

7. Long-Term Liabilities 12

8. Short-Term Liabilities 13

9. Cost of Living (State of Guanabara) 14

10. Means of Payment 15

11. Government Receipts, Expenditures, and Cash Deficit (Percent of GNP) 16

12. Minimum Wage (State of Guanabara) 17

13. Government Expenditure (Percent of GNP) 20

14. Tax Receipts (Percent of GNP) 22

15. Government Expenditures (Percent of GNP) 23

16. Fixed-Capital Formation 24

17. Bank Loans to the Private Sector 24

1. Industry’s Share in Production and Employment 37

2. Increase in Labor Productivity, 1950-1960 38

3. Evolution of the Structure of Brazilian Industry, 1939-1964 42

4. Total Output by Major Type of Product 43

5. Structure of Imports and Domestic Production of Industrial Products, by use 45

6. Growth of Industrial Production 49

7. Imports as Percent of Total Supply of Manufactured Goods 50

8. Direct Foreign Private Investment 51

9. Annual Rate of Inflation 52 A-i. Actual and Predicted Industrial Structure 62 A-2. Actual and Predicted Sectoral Growth,

¹949—¹9⁶4 62

A-3. Actual Value Added 72

A-4. Predicted Value Added 73

1. Brazilian Production of Iron and Steel 84

2. Growth Rates of Steel and Steel Products 85

3. Apparent Steel Consumption and Gross Domestic Product for Selected Countries 87

4. Production and Consumption of Flat Products 88

5. Sectoral Use of Steel Products, 1964 88

6. Blast Furnace Productivity 93

7. Cost Estimates, Brazilian and other Latin American Iron and Steel Firms 95

9. Brazilian Steel Prices Estimates 98 10. Brazilian Steel Price Estimates, October-

November 1965 98

1. Agricultural Properties by Area, 1965 105

2. Land Use by Area, 1965 108

3. Usable Area by Size and Use 109

4. Agricultural Investment, 1965 111

5. Agricultural Labor Force I12

6. Landowning Labor Force 114

7. Agricultural Properties by Region, 1965 116

8. Land Use by Region, 1965 1I7

9. Agricultural Investment by Region, 1965 119

10. Agrarian Structure of Brazil 120

11. Technical Coefficients of Brazilian Agricultural Production, 1962 121

12. Deviations of Technical Coefficients of Production by State, 1962 122

13. Production Elasticities in Brazilian Agriculture, 1962 124

14. Production Elasticities for Crops by State,

1962 125

15. Production Elasticities for Livestock by State, 1962 126

2. General Wholesale Price Index 137

3. Loans and Financing to the Private Sector 139

4. Commercial Banks, Demand and Time Deposits 142

5. Operations of the Credit and Finance Companies 148

6. Debenture Issues 150

7. Annual S.N. Average of Stock Prices 157

8. Readjustable Obligations in Circulation 154

1. Treasury Receipts and Expenditures 165

2. Value of Subscriptions to Treasury Obligations 166

3. Financing of Industry and Commerce 167

4. Commercial Bank Deposits 168

5. Interest Rates, 1965 169

6. Evolution of Corporate Finances 171

x. Tax Receipts, Federal Government 182

2. Federal Government Subsidies in

Transport Industry 185

3. Consolidated Budget, Federal Government 186

4. Operations of the Monetary Authorities,

1964- 1965 197

5. Operations of the Monetary Authorities,

1965- 1966 198

6. Annual Increases in Money and Prices 198

County Road Network 222

3. Commodities Transported by Rail,

Highway, and Coastal Shipping 223

4. Farm Price in Assembly Markets Serving

Sao Paulo 224

5. Effective Exchange Rates Including Tariffs 229

6. Index of Apparent Consumption of Fertilizers 231

7. Costs and Returns from Greater Use of Fertilizer Per Hectare 235

8. Ratio of Net Benefits to Subsidies Paid, 1954-1963 237

of Brazil 240

2. Purchases of Agricultural Products Under

the Minimum Price Program 244

3. Wholesale Prices of Agricultural Products Deflated by the General Price Index,

Both Excluding Coffee 245

4. Minimum Prices and Prices Paid to Farmers 246

5. Real Minimum Prices for 1965-1966 Harvest Implied by the Promise of Readjustment for Inflation 247

6. Minimum Prices and Lagged Market Prices as Predictors of Current Market Prices —

Sao Paulo 251

7. Supply-Response Function for Rice —

Sao Paulo 256

the World 278

3. Brazilian Trade with LAFTA Region 279

4. Participation of Manufacturers in Total Brazilian Exports to LAFTA and OLA Regions and to the World 280

5. Composition of Brazil’s Manufactured Exports to LAFTA and OLA Regions

and to the World 281

1. Regression Results 291

2. Results for Perfect Substitutes 297

3. Hypothetical Yearly Growth Rates of Imports 299

A-i. Tariff and Final Effective Exchange Rates

A-2. Price Index of Imported Goods 309

A-3. Relative Prices 310

A-4. Value and Indices of Value of Imports 311

A-5. Imports By Major Categories 313

1. Public Investments in Transportation, 1961-1965 346

2. Operating Revenues, Expenditures, and Deficit of the RFFSA 359

3. Rate Structure, Selected Important Commodities, RFFSA Railroads 361

4. Vehicle Costs, Road Costs, and User Contributions 366

5. Financial Performance of Loide, Costeira, and Consolidated Private Dry-Cargo Sector 1963 368

6. Estimated Volume of Main Types of Intercity Traffic, 1963 373

1. Parameter Estimates for Consumption Function 385

2. Brazil: Input-Output Table, 1959 388

3. Relative Importance of Imports in

Total Supply 396

4. Investment Distribution Coefficients 397

5. Input-Output Elasticities 398

6. Capital-Output Elasticities 399

7. Sectoral Growth Rates,

Second-Round Estimates 400

1. Gross Fixed Capital Formation,

1947-1964 32

Appendix: Ax. Food, Beverages, and Tobacco 63

A2. Textiles 63

A3. Rubber Products 64

A4. Chemicals 64

A5. Non-Metallic Mineral Products 65

A6. Basic Metals 65

A7. Metal Products 65

A8. Consumer Goods and Producer Goods 66

Ag. All Manufacturing Industry 66

1. Lorenz Curve Showing Concentration of Agricultural Land Ownership, 1965 106

1. Annual Index of Prices, Rio de Janeiro

Stock Exchange 153

1. Import Demand and Supply for a

Substitutable Commodity 287

1. Distribution of Proportions Between Input-Output Coefficients in igsg and

Contents 1

Foreword

The Contributors

Preface

Commonly Abbreviated Names of Brazilian Government Agencies, Other Public Organizations, etc.

Part I

CHAPTER 1 The Chief Characteristics of the Postwar Economic Development of Brazil Eugenio Gudin

Part II

CHAPTER 2 Industrialization: Past Success and Future Problems Joel Bergsman and Arthur Candal

CHAPTER 3 Steel and the Brazilian Economy Werner Baer

CHAPTER 4 The Principal Characteristics of the Agrarian Structure and Agricultural Production in Brazil Julian Chacel

Part III

CHAPTER 5 Inflation and the Money and Capital Markets of Brazil Mario Henrique Simonsen

CHAPTER 6 Financial Recuperation for Economic Expansion Octávio de Gouveia Bulhöes

CHAPTER 7 Corrective Inflation in Brazil, 1964-1966 Howard S. Ellis

CHAPTER 8 Brazilian Agricultural Policy, 1950-1967 Gordon W. Smith

CHAPTER 9 Brazil’s Participation in LAFTA, 1962-1965 Donald W. Baerresen

CHAPTER 10 Import Demand and Import Substitution in Brazil Samuel A. Morley

Part IV

CHAPTER 11 A Retrospect Over Brazilian Development Plans Roberto de Oliveira Campos

CHAPTER 12 Public Investment Allocation and Pricing Policy for Transportation Alan Abouchât

CHAPTER 13 An Intersectoral Consistency Model for Economic Planning in Brazil Willy van Rijckeghem

Indexes

Foreword

This volume presents a series of penetrating essays on Brazil’s economic development during the postwar period by a group of exceptionally well-informed Brazilian and American authors. It reaches more deeply into key aspects of a transitional economy than much of the literature on developing countries which deals only with broad macro-economic aggregates. The Brazilian authors include professional economists who have been at the center of national policy formation and execution, as well as some of the best trained representatives of the younger generation. On the American side, all the contributors have had the benefit of intimate contact with the complexities of Brazilian economic fife.

The postwar decades have been a period of dramatic change in the Brazilian economy, marked by rapid industrialization, urbanization, inflation sometimes approaching monetary chaos, and a kaleidoscopic overlay of shifting political forces. The old cliché of the sleeping giant, with an ever- receding potential for a never-realized future, has totally disappeared. These have been years of early adolescence in Brazil’s struggle for economic maturity, and the imbalances and growing pains of adolescence are still much in evidence. There remain immense challenges in the needs for institutional modernization in agriculture and education, the efficient diversification of export products and markets, and the simulation of investment and job creation to match the heavy pressures of demographic growth and migration to the cities.

Nevertheless, the Brazilian economy is clearly in motion, even though its destiny remains uncertain. These essays should help both professional economists and the wider public to understand some of the processes and problems being faced in deciding that destiny.

LINCOLN GORDON

President, The Johns Hopkins University,

U.S. Ambassador to Brazil, 1961-1966

The Contributors

Alan Abouchar, b. 1932, New York, New York. Transport Advisor, Brazil Development Assistance Program, University of California, Rio de Janeiro, 1965-1968; Berkeley, since 1968. DEGREES: Bachelor of Arts, Economics, New York University, 1954. Master of Arts, Economics, New York University, 1960. Master of Arts, Statistics, University of California, Berkeley, 1963. Doctor of Philosophy, Economics, University of California, Berkeley, 1966. EARLIER POSITIONS: Research Associate, The Brookings Institution,

1963- 1.965. Free lance translator (Russian), U.S. Department of Commerce, 1961-1963. AUTHOR: The Transport Sector in Brazil (Rio de Janeiro, EPEA, 1967), mimeographed. Rationality in the Prewar Soviet Cement Industry, Soviet Studies, 1967. Inflation and Transport Policy in Brazil, Economic Development and Cultural Change, 1968. Comercio e Transporte na ALALC, Revista Brasileira de Economia, 1967. Distància de Transporte, Custos Operacionais, e Tarifas de Carga nas Fer- rovias Brasileiras, Revista Brasileira de Transportes, third quarter, 1966.

Werner Baer, b. 1931, Germany. Associate Professor, Vanderbilt University, since 1965. DEGREES: Bachelor of Arts, Queens College, 1953. Master of Arts, Harvard University,

1955. Doctor of Philosophy, Harvard University, 1958. EARLIER POSITIONS: Instructor, Harvard University, 1958—1961. Assistant Professor, Yale University, 1961-1965. Visiting Ford Foundation Professor, University of Sao Paulo,

1964- 1968. Ford Foundation Economics Advisor in Brazil, 1965- . AUTHOR: The Puerto Rican Economy and United States Economic Fluctuations, 1962. With Issac Kersten- etsky: Inflation and Growth in Latin America, 1964. Industrialization and Economic Development in Brazil, 1965. Journal articles on trade and development.

Donald W. Baerresen, b. 1928, Los Angeles, California. Associate Research Economist, Brazil Development Assistance Program, University of California, Rio de Janeiro,

1965- 1967; Berkeley, 1967-1968. DEGREES: Bachelor of Arts, University of California, Los Angeles, 1950. University of California exchange student in Colombia, 1959. Master of Arts, University of California, Los Angeles, 1961. Doctor of Philosophy, University of California, Los Angeles, 1963. EARLIER POSITIONS: Research Associate, The Brookings Institution, Washington, D.C., 1963-1964. Economist, Organization of American States, 1964-1965. AUTHOR: Co-author: Latin American Trade Patterns (Washington, D.C.: The Brookings Institution, 1965). An Analysis of Tax Policy of the Ecuadorean Central Government (Washington, D.C.: Organization of American States, May 1968). "A Method for Planning Economic Integration for Specific Industries," Journal of Common Market Studies, September 1967. HONORS: Earhart Research Fellowship, Santiago, Chile, 1961-1962. Ford Foundation Doctoral Fellowship (2 years).

Joel Bergsman, b. 1936, Wilkes-Barre, Pennsylvania. Visiting Associate Research Economist, Brazil Development Assistance Program, University of California, Rio de Janeiro,

1966- 1967; Berkeley, 1967-1969. DEGREES: Bachelor of Electrical Engineering, Cornell University, 1959, Master of Business Administration, Stanford University, 1961. Doctor of Philosophy, Stanford University, 1963. EARLIER POSITION: USAID, Washington, Office of Program Coordination, 1963-1965. AUTHOR: Electric Power Systems Planning Using Linear Programming, IEEE Transactions on Military Electronics, April 1964. With Alan S. Manne: An Almost Consistent Model for India’s Fourth and Fifth Plans, The Economic Weekly, November 20, 1965. Reprinted in Irma Adelman and Erik Thorbecke (eds.); The Theory and Design of Economic Development (Baltimore: Johns Hopkins Press, 1966).

Octavio Gouveia de Bulhöes, b. 1906, Rio de Janeiro. Professor, National Faculty of Economic Sciences, Rio de Janeiro. DEGREES: Bachelor of Legal and Social Sciences, Rio de Janeiro, Doctor of Legal and Social Sciences, Rio de Janeiro. Courses in Economics, American University, Washington, D.C. EARLIER POSITIONS: Chief, Section of Economic and Financial Studies, Ministry of Finance, 1939-1951- Representative of Brazil in Conferences on Monetary Stabilization, 1943; and delegate to Breton Woods Conference, 1944. Alternate Executive Director, International Monetary Fund, 1946. President, Joint Brazilian-American Commission (Abbink Commission), 1948. President, National Economic Council, 1954. Interim Minister of Finance, 1954. Director of SUMOC, 1961. Minister of Finance, 1964. AUTHOR: Marginal Comment on a Report, in Portuguese (Rio de Janeiro: 1950). Economics and Political Economy, in Portuguese (Rio de Janeiro: 1960).

Arthur Candal, b. 1935, Porto Alegre, Brazil. Senior staff member, IPEA, Ministry of Planning, Rio de Janeiro, DEGREES: Bachelor of Law and Social Sciences, University of Rio Grande do Sul, Brazil, 1958. Diploma, Latin American Institute, Santiago de Chile, 1963. Diploma, National Economic Planning, Warsaw, 1964. EARLIER POSITIONS: Senior staff member, Office of Administration and Planning, Rio Grande do Sul, 1963-1965. Project Evaluation Expert, ECLA, TAO, FAO; La Paz, 1966.

Julian M. Chacel, b. 1928, Rio de Janeiro. Director General, Institute Brasileiro de Economia, Fundaçâo Getulio Vargas. Member of the Economic Council, Confederaçâo National da Industria. Assistant Professor, Federal University, Rio de Janeiro, DEGREES: Bachelor of Economic Science, Rio de Janeiro, 1949. University Doctorate, Faculty of Law, Paris, 1951. EARLIER POSITIONS: Chief of Centers of IBRE: National Accounts, 1956-1958, Agricultural Studies, 1960-1963. Brazilian delegate to the VII, VIII and IX Latin American Regional Conference of FAO, and to the XIII World Conference, AUTHOR: Implicaçôes Eco- nômicas de Reforma Agrària, Instituto Interamericano de Ciéncias Agrícolas, 1963. Contribution to the Programa de Agào Económica do Govèrno, 1964-1966. Projegòes de Oferta e Demanda de Produtos Agrícolas para Brasil, 1967. Various articles in Revista Brasileira de Economia, HONORS: Eisenhower Fellow, 1958. Visiting Scholar, Columbia University, 1964.

Howard S. Ellis, b. 1898, Denver, Colorado. Flood Professor of Economics, Emeritus, University of California, Berkeley. Chief of Party, Brazil Development Assistance Program, University of California, Rio de Janeiro, 1965-1967. DEGREES: Bachelor of Arts, University of Iowa, 1920. Master of Arts, University of Michigan, 1922. Doctor of Philosophy, Harvard University, 1929. Doctor of Laws, University of Michigan, 1951; University of California, 1968. EARLIER POSITIONS: Instructor to Professor, University of Michigan, 1920-1938. Flood Professor, University of California, Berkeley, 1938-1965. Visiting Professor, Columbia University, 1944-1945, 1949-1950; Tokyo, 1951; Bombay, 1958- 3.959; Center of Economic Research, Athens, 1963. Assistant Director of Research and Statistics, Board of Governors, Federal Reserve System, Washington, D.C., 1943-1945. Economic Policy Committee, U.S. Chamber of Commerce, 1945-3.946. AUTHOR: German Monetary Theory (Cambridge, Mass.: Harvard University Press, 1934). Exchange Control in Central Europe (Cambridge, Mass.: Harvard University Press, 1941). Industrial Capital in Greek Development (Athens: Center of Economic Research, 1964). A Survey of Contemporary Economics (Philadelphia: Blak- iston, 1948) [Editor]. With N. S. Buchanan: Approaches to Economic Development (New York: Twentieth Century Fund, 1955). Economic Development for Latin America (New York: Macmillan, 1961). Spanish edition (Mexico, D.F.: Fondo de Cultura, 1960), HONORS: American Economic Association: President 1949. International Economic Association: President, 1953-1965; honorary President,

1957-.

Eugenio Gudin, b. 1886, Rio de Janeiro. Professor Emeritus, University of Brazil, Rio de Janeiro. President of the Brazilian Society of Political Economy. President of the Brazilian Economic Institute, Getúlio Vargas Institute, Rio de Janeiro, 1946-. DEGREES: Degree in Civil Engineering, University of Brazil, 1905. Doctor Honoris Causa: Dijon, 1957, Bahia, 1957. EARLIER POSITIONS: Delegate to Breton Woods International Monetary Conference, 1944. Brazilian Governor of the IMF and IBRD, 1951-1955- Minister of Finance, Government of Brazil, 1954-1955. Member of the Council (1956) and Vice President (1959); International Economic Association, AUTHOR: Capitalism and its Evolution (Portuguese), 1935. Principles of Monetary Economics (Portuguese), 2 volumes, 1943. Collected Essays (Portuguese), 1944. Inflation, Credit, and Economic Development (Portuguese), 1956. Analysis of Brazilian Problems, 1958-1964 (Portuguese), 1965. HONORS: Officer of the French Legion of Honor, 1952. Peruvian Order of Merit, 1955. Correspondent, Institute de France, 1961. Grand Cross of the Brazilian National Order of Merit

(1967)-

Samuel A. Morley, b. 1934, Aberdeen, Washington. Assistant Research Economist, Brazil Development Assistance Program, University of California, Rio de Janeiro, 1965—1967; Project Coordinator, Berkeley, 1967-1968. DEGREES: Bachelor of Arts, Yale University, 1956. Doctor of Philosophy, University of California, Berkeley, 1965. EARLIER POSITIONS: Research Assistant, University of California, Berkeley, 1962. Teaching Assistant, University of California, Berkeley, 1962-1963. AUTHOR: The Determinants of the Demand for Imports in Brazil, article to be submitted to the Review of Economics and Statistics, HONORS: Magna Cum Laude, Yale University, 1956. National Science Foundation Fellow, 1963-1965.

Roberto de Oliviera Campos, b. 1917, Cuiaba, Brazil. President, INVESTIBANCO (Banco de Investimento e Desenvolvi- mento, S.A.), since 1967. President, CICYP (Conselho Interamericano de Comercio e Producao). DEGREES: Bachelor’s Degree, Catholic Seminaries of Guaxape and Belo Horizonte, 1934. Master of Arts, George Washington University, Graduate studies, Columbia University, EARLIER POSITIONS: Professor of Money and Banking and Business Cycles at the School of Economics, University of Brasil, 1956-1961. Economic Counsellor of the Brazil-United States Economic Development Commission, 1951-1953. Director, General Manager and President of the National Economic Development Bank, 1952-1959. Secretary General of the National Development Council, 1956-1959. Roving Ambassador for financial negotiations in Western Europe, 1961. Ambassador of Brazil to the United States, 1961-1963. Minister for Planning and Coordination, 1964-1967. Member of the Inter-American Committee for the Alliance for Progress, representing Brazil, Ecuador and Haiti, 1964-1967. AUTHOR: Inflation and Balanced Growth, pp. 82-103, in Economic Development for Latin America, ed., H. S. Ellis (London: Macmillan, 1961). Portuguese edition (Mexico, D.F.: Fondo de Cultura, 1960). ‘Two Views on Inflation in Latin America," in Latin American Issues, ed., A. O. Hirschman (New York: Twentieth Century Fund, 1961). Reflections on Latin American Development (Austin, Texas: University of Texas Press, 1967). Numerous articles in Brazilian daily papers. Numerous contributions to APEC, 1963-1968. HONORS: Honorary LL.D., New York University.

Mario Henrique Simonsen, b. 1935, State of Guanabara, Brazil. Professor in the Analytical Economics course, Conselho National de Economia, since 1959. Professor and consultant in the Instituto Brasileiro de Economia, Fundagäo Getuilo Vargas, since 1959 and 1961, respectively; and Director of die School of Postgraduate Studies, the same, since 1965. DEGREES: Degree of Civil Engineering, University of Brazil, 1957. Degree of Economist, University of Rio de Janeiro, 1963. EARLIER POSITIONS: Technical consultant, Economic Department of the National Confederation of Industry, 1961-65. Director of CREDISAN, 1962—63. Consultant of CONSULTEC, since 1960, AUTHOR: Notes on the Controversy between Monetarists and Structuralists (presented to the 1963 Conference on Inflation and Growth, Rio de Janeiro) in Inflation in Latin America (New Haven: Yale University Press, 1964). The Experience of Inflation in Brazil (Rio de Janeiro: Instituto de Pesquisa e Estudos Sociais, 1964). The Brazilian Capital Market (Rio de Janeiro: Escritorio de Pesquisa Apli- cada, 1965). Micro-economic Theory, Vol. I and II (Rio de Janeiro: Fundagao Getulio Vargas, 1968). Numerous articles in newspapers and journals.

Gordon W. Smith, b. 1934, Pittsfield, Illinois. Assistant Research Economist, Brazil Development Assistance Program, University of California, Rio de Janeiro, 1965-1967; Berkeley, 1967-1968. DEGREES: Bachelor of Arts, Washington University, St. Louis, Missouri, 1956. Doctor of Philosophy, Harvard University, 1966. EARLIER POSITIONS: Research Assistant, Washington University, 1958-1959. Research Assistant, Harvard University, 1959. Teaching Fellow, Harvard University, 1959-1961. AUTHOR: Marketing and Economic Development: A Brazilian Case Study (Rio de Janeiro: Funda§ao Getulio Vargas, 1968). Agri- cultura e O Plano Trienal, Revista Brasileira de Economia, December 1962. HONORS: Phi Beta Kappa, Arnold J. Lien prize, Washington University, 1956. Earhart Fellow in Economics, 1959-1960. Bliss Fellow in Latin American Studies, Harvard University, 1961-1965.

Willy van Rijckeghem, b. 1935, Ghent, Belgium. Visiting Associate Research Economist, Brazil Development Assistance Program, University of California, Rio de Janeiro, 1965—1967. DEGREES: Bachelor of Economics, University of Ghent,

1956. Master of Economics, University of Ghent, 1958. Doctor of Economics, University of Ghent, 1961. EARLIER POSITIONS: Research Fellow, Centre National de la Recherche Scientifique, Paris, 1961. Visiting Research Associate, University of Oslo, 1963. Visiting Assocate Professor, University of North Carolina, 1963-1964. Research Director, University of Ghent, 1964. Advisor, Consejo Nacional de Desarrollo, Buenos Aires, Harvard University Development Advisory Service Project, 1964-1965. AUTHOR: De meting van het publiciteitseffekt (Ghent, 1961). With G. Maynard: Stabilization Policy in an Inflationary Economy: The Argentine Case, Development Policy, Theory and Practice, ed., G. Papanek (Cambridge, Mass.: Harvard University Press, 1968). Articles in Cahiers Econo- miques de Bruxelles, Weltwirtschaftliches Archiv, Southern Economic Journal, Applied Statistics, Econometrica. Review of Economics and Statistics, HONORS: Honorary Fellow, Belgian American Educational Foundation, 1964. Prize of Vereniging voor Economie, 1967 (Belgium).

Preface

Howard S. Ellis

The present volume was occasioned by the presence in Rio de Janeiro over the period 1965-1967 of a group of predominantly young economists who constituted a mission of the United States Agency for International Development and the University of California at Berkeley. The main purposes of the mission were to assist an agency of the government of Brazil, the Office (now Institute) of Applied Economic Research, in the gathering and analysis of economic facts for the use of the Ministry of Planning and Economic Coordination and in formulating the Ten Year Economic Plan. The aspirations, frustrations, and accomplishments of this vast and many-hued country in its pursuit of development stirred the imagination of these scholars. This book of essays is the outcome of a desire on their part and on the part of the cooperating Brazilian economists to set down some of the results of their experience and studies for the possible benefit of the economic progress and welfare of the country, the largest and in some crucial respects the most richly endowed of Latin America.

Being fully cognizant of the limits upon knowledge of a country’s economy, on the part of foreigners, and of the number of facets which any one person or any half-dozen persons could treat authoritatively, the members of the California group resolved to enlist the help of Brazilian economists. This recruiting venture proved to be most successful, the cooperating Brazilians ranging from a young economist, who collaborated in the writing of one essay, to a former Minister of Finance, the acknowledged dean of the economic profession in Brazil, if not very probably of Latin America. Included in this company is a former Brazilian ambassador to the United States who was Minister of Planning and Economic Coordination

1964- 1967; an eminent professor, Minister of Finance during those same years, which figure so largely in the essays; and two other economists, variously distinguished, but having in common their high positions in the leading economic research institution of Brazil. Still another is an American economist, not improperly thought of also as Brazilian through several years’ residence in that country, author of books and articles pertaining to its economic development.

The qualifications of the American contributors to the undertaking, one may perhaps venture to suggest, are not limited to enthusiasm and imagination, essential though these attributes be. All American participants have been special students of economic development in the academic sense; all have written articles, and some a book or books, on the subject; all have had some previous contact with Latin American problems through research and study in the field or through the literature; and several have some direct acquaintance with countries in other continents and with their economic problems. The interested reader will find biographical notes on all contributors, native and foreign, later in the book.

The title of the book indicates that it is not designed as an encyclopedia or handbook. Indeed, it represents no preconceived scheme; the participants were invited to choose a theme of lively interest to themselves. Despite this latitude it is evident, as the table of contents indicates, that there are several definite foci of interest. But, to repeat, the volume is not an encyclopedia; it does not pretend to cover the whole economy of Brazil, and the essays are not mere recitations of economic fact —however important it may be to distinguish facts from conjectures or wishes—but in most cases present a thesis or some challenging ideas concerning the meaning of the facts and their significance for policy. Thus the book does not represent any single methodology, style and organization, or economic philosophy. Such diversity is able to portray the multifaceted Brazilian economic life more richly than if all contributions had been poured from the same mold.

These characteristics are evident from the outset, in Professor Gudin’s sketch of Brazil’s recent economic history. From the perspective of his 82 years, an analytical economist as well as an active participant in the economic development of his country, he regards that development as marked chiefly by industrialization, inflation, and government paternalism, all of which have failed to bring to the average Brazilian the benefits to be expected of development.

Part II presents an array of factual information on the structure of Brazilian economy, both industrial and agricultural, but each essay embodies some challenging ideas. For industry, Dr. Bergsman points to its extraordinary growth in Brazil as a factor in gross domestic product, attributing this growth to protection against foreign competition, public investment, and investment subsidies, working through import substitution and the building-up of infrastructure. Thus Dr. Bergsman shares much common ground with Professor Gudin as to moving causes; but while Gudin decries this nexus, Bergsman finds that it gave rise to reasonably balanced growth. Both writers deplore the small degree to which industrialization improved the employment and real-wage situation.

Another generally optimistic retrospective of recent Brazilian economic history is presented in Professor Werner Baer’s inquiry into the steel industry. Over the past two decades, this industry has risen from small beginnings to a viable level of efficiency compared with foreign sources, and the indications are for a thriving future. This is the more important for Brazil, Professor Baer demonstrates, because of the strongly favorable stimuli of steel production (forward and backward linkages, in the economist’s jargon) on the rest of the economy.

Professor Chacel’s extensive statistical study of agriculture leads to the conclusion — at variance with an indictment of the latifundia for uneconomical operation which has been widespread in Latin America —that the minifundia are equally inefficient. Also at variance with another bit of orthodoxy is Chacel’s finding that agricultural production in Brazil is much more a function of expanding area under cultivation than of capital intensity.

While Parts I and II are concerned with some of the central substance of development itself, Part III looks first into some of the distortions of the economy which have resulted from inflation and growth, and, second, into certain foreign trade factors which have helped or hindered development and which may do so in the future.

First come three essays which treat the monetary, financial, and price aspects of inflation, which has been —for better or for worse —the constant companion of Brazil’s efforts toward economic progress. Professor Simonsen, reviewing the history of inflation and the character of Brazilian credit institutions, finds that the irrational and crippling maximum-interest law has been in large measure circumvented in the short-term- capital market by various devices of the banks and by the famous letras de cdmbio of the credit and finance companies. But the long-term capital market has been devastated by the risks imposed by inflation, partly rectified recently by monetary correction. The stock market suffers from numerous fundamental defects, intensified by inflation.

Professor Bulhoes confronts the same problems from the vantage point of the Ministry of Finance. He shows that the new, highly successful Treasury Obligations with monetary correction have not adversely competed with private securities. On the contrary, their effect should be beneficial on the capital markets if the proceeds of Treasury Obligations with monetary correction are not simply dissipated in increased central government expenditure. Monetary correction has been helpful in many contexts but is not a cure-all for the evils attending inflation.

The essay written by the editor presents the thesis that corrective inflation under the Castello Branco government was a success. That it could have succeeded in still greater degree can scarcely be denied, but economic policy was not directed to checking inflation alone. Much effort was also expended upon correcting price distortions over a wide range (commodity prices, utility rates, exchange rates, interest, etc.) and this involved, in some cases, raising a price faster than the average inflation. Also, much attention was given to basic institutional reforms for the long run. The leading roles in reducing inflation were played by fiscal measures and wage restraints.

Dr. Gordon Smith advances the thesis that Brazilian agricultural policy has relied excessively upon market stimuli, to the almost complete neglect of education, research, land reform, and other structural factors. He proceeds to an analysis of four parts of government policy, all expected to improve agriculture through market stimuli. First, the efforts to improve marketing through cheaper transportation and better storage facilities did raise output significantly. Second, the substantial sums for fertilizer subsidies paid off quite meagerly in direct influence on production; the increased level of output after the subsidies was largely due to a leaming-by-doing process induced by lower fertilizer prices. A third part of the program, subsidized credit for agriculture, would have yielded considerably more if it had been correlated with technological supervision. Finally, the minimum price program after 1963 was too erratic to be effective.

Part III concludes with two essays which explore some of the foreign-trade aspects of economic development. Dr. Baer- resen’s study of the participation of Brazil in the Latin American Free Trade Association comes to a favorable judgment with regard to its influence on Brazil’s economic growth. The test period, 1962-1965, yielded positive results (except for 1963) as to the relative volume of Brazil’s trade with the LAFTA region when compared with that of other Latin American countries. Also, with respect to the portion of the study devoted to commodity categories, again a favorable result emerges (except for 1963) regarding Brazil’s exports of manufactures. This augurs well for a successful changeover from exclusive reliance upon import substitution to export promotion for economic development in the future.

Since the rapid growth of the Brazilian economy in recent decades has been chiefly related to import substitution, Dr. Morley’s econometric study of import-demand functions supplies the quantitative explanation of the relations between imports and economic development. One of the more important implications of his analysis is the demonstration of the sensi tivity of imports to the growth rate of the economy. Since imports tend to grow somewhat more rapidly than output, even a considerable expansion of exports will still leave a certain margin to be covered by import substitution, for example in petroleum production and wheat. Another important finding is the low price elasticity of imports, for which he offers plausible explanations. This low elasticity, he believes, would point to the dubious efficacy of devaluations in reducing balance of payments deficits. However, Morley’s analysis does not extend to the effect of devaluation in encouraging exports.

A chief link between past and future is formed by economic planning, the subject matter of Part IV, within which the progression is from past to present to future. Ambassador Campos’ essay presents the retrospect from the vantage point of one who has been engaged in planning and the execution of plans. After delineating die ideological, technical, and institutional obstacles and objectives of planning, he reviews specific Brazilian plans from the Second World War to the present. These include the bottleneck approach of the Joint Brazil- United States Development Commission (1949-1953); the growing points line of the National Bank for Economic Development (1952); Kubitschek’s National Development Council (1.956); Goulart’s Plano Trienal (1962-1964); and the Castello Branco Program for Government Economic Action and his Ten- Year Plan (1964-1967). In his concluding section, ‘The Road Ahead," the author draws together the lessons of experience, emphasizing the human factors which condition the success of economic planning.

The present time is the focus of Dr. Abouchar’s research into the transportation situation in Brazil. In a preliminary analysis, he compares three types of economy—mature market, Soviet type, and underdeveloped market — concluding that a rate structure based upon full costs is the appropriate one. This judgment is borne out with specific reference to Brazil when the operation of this principle is compared with other conceivable pricing rules, such as average and marginal cost, and the encouragement of infant industries. Abouchar appraises the present rate structure of railroad, motor vehicle, coastal, and air transport, concluding with the benefits to be had by putting each on a basis of self-support.

Professor van Rijckeghem’s essay is marked by two distinctive features: it incorporates the first complete input-output table for the Brazilian economy, based on 1959 data; and it is unique among the essays in this book in presenting conclusions regarding the character of the Three-Year Plan for 1968-1970. The consistency model itself, which could be applied to other countries besides Brazil, includes consumption functions, product and distribution matrices, input-output elasticities, and capital-output elasticities. Applying the apparatus to Brazilian data, van Rijckeghem provides tne happy ending to the story of these essays by his conclusion that the planned acceleration of growth to 7 percent per annum seems realistically attainable.

In conclusion, the editor wishes to bespeak his obligation and thanks in several quarters. Special acknowledgment is due to Professor Gudin for his encouragement and sage advice. Professor Werner Baer played an important role in the initiation and early evolution of the volume. To Dr. Alan Abouchar belong my thanks for carrying on direct communication with writers and the publisher in Rio de Janeiro after my departure. Antecedent to the making of this book lie the support of the California project by USAID, and the wise counsel and cooperation of its officials, especially Dr. John H. Kaufmann. Warm thanks are due to various Brazilian government officials, including those of IPEA, and to Brazilian economists, including those participating as authors of essays in this volume. The views expressed in these essays are those of the individual authors and do not necessarily reflect the opinions of the IPEA or USAID. In the preparation of the manuscript, the secretaries in the Brazil Development Assistance Program in Berkeley, Mrs.