Prelude
Brazil falls within the category of the fast expanding economies in the world falling under the new block of countries famously known as BRIC. These countries include Brazil, Russia, India and China. Thus, their first initials form the name BRIC. Based on the nominal gross domestic product, it is the seventh largest in the world while it is ranked with based on the buying power parity.
This economy of Brazil takes the form of an inward-oriented economy model and a free market. Brazil’s economy is the largest in the South America continent having attained a growth rate above 5%. Based on these achievements, the paper recognizes the pertinence of understanding the economic history of Brazil, the economic philosophies that have inspired its growth, significant economic events and the economic policies that it has implemented to attain its current economic position on world platform.
The Economic History
The process of economic development on Brazil has been a result of the interaction of a number of interdependent variables. These variables can be categorized in five groups namely the economic structure, the social structure, the knowledge base, the personality of the citizens and the national beliefs and values (General Books Llc 13).
Even though these factors are somehow arbitrary, I believe this classification will help the comprehension of the economic growth history of Brazil. The economic structure entails the entire system of human and the non-human resource utilization, the capital accumulation process, and work organization “to ensure proper distribution of goods and services” (General Books Llc 13).
Knowledge base is to a certain extent part of the economic structure since it deal with technological knowledge applied for production in brazil, like the new environmentally friendly or green technology (Willumsen, and Fonseca 46). The social structure is the formal and informal institutions that the people create to attain their economic and non-economic objectives.
The beliefs and national values are the aspects that Brazilians consider true or false, virtuous or evil, fair or unfair based on the objective they want to attain for or against them (General Books Llc 13). Personality of citizens is the characteristic that make people, for instance being strongly success oriented workers.
Having clarified that, Brazil economic history has seen many changes that have developed over time. Since the discovery of Brazil in the 1500s, and until 1930s, Brazilian economy has been more dependent on agricultural production and export of this produce (General Books Llc 21). The recent economic reforms of 2000s encouraged free trade thus exploiting other commercial options.
After independence from the colonial rule, Brazil nursed a long-lasting impact on the economy of Brazil (Baer 121). This nearly stopped the wheels of development as the country was at its lowest state ever. By 1930, the Brazilian government had to undertake some fundamental decisions aimed at changing Brazil into a semi industrial economy (Willumsen, and Fonseca 46). In essence, the small industries like the textile industry and fruit-production begun to grow tremendously fast during this time (General Books Llc 21).
The 1930 economic and social revolution was an extensive process that saw a change from coffee farmers’ oligarchy to broadminded trade. The massive depression period caused serious scarcity of the foreign exchange. This opened up opportunities for investment in the manufacturing industries since the larger exportation of coffee had created some savings (Willumsen, and Fonseca 48).
Brazilian economy then begun to stabilize following the abolition of the slave trade and any form of slavery. Upon the establishment of a republican regime, Brazil’s development path experienced some reinforcement, which saw a sheer new phase of development emerge in the Latin nation.
The Second World War was a considerable force behind the fast industrialization in Brazil (Willumsen, and Fonseca 49). Brazil worked exceptionally hard during that period to substitute most of its importation of manufactured consumer products. Automobile and some luxury products were the only consumer products that were not substitutes. Back to the economic history of Brazil, the 1950s and the 1970s saw the emergence of the fast industrialization process in Brazil.
This process led to the creation of numerous industries including steel, automobile, petrochemical, and communication and information and a number of other crucial infrastructure projects (General Books Llc 24). Until 1974’s, Brazil had managed to have one of the highest Gross Domestic Products in the world at a rate of 7.4%.
However, around the same time, Brazil became absorbed in excessive liquidity from banks in the United States, Europe and Japan (Willumsen, and Fonseca 26). In the period between 1970s and 1980s, Brazil managed to hit an impressive high GDP of 8.5 percent. In 1980, Brazil had increased its per capita income to 2,000 US dollars.
In the early 1980s, Brazil completed initiating some economic adjustments because of the high interest rate that the world market experienced. Still, its economic output was able to maintain a steady growth (Willumsen, and Fonseca 26). In the 1990s, Brazil undertook a number of economic reforms to ensure that it survives the turbulent economic environment.
Among these economic reforms was privatization of companies, trade liberalization, tax reforms, imposing stringent fiscal policies, deregulation of businesses, restructuring or the legal structures to attract foreigners to invest (General Books Llc 35). The fertilizer and the steel industries privatization was the highest.
Because of the adoption of trade reforms like liberalization and tax reviews, Brazil became an open economy. All the quantitative restrictions on imports were waived, with Asia, ALADI, North America and Middle East absorbing most of the exports (Willumsen, and Fonseca 26).
Economic Philosophies
Brazilian economy grew extremely fast from 1945; three periods clearly stand out. The 1945 to 1979 period when the economic growth rate was 7 percent average per year (Willumsen, and Fonseca 26). This was higher than the world’s average growth rate. The 1980 to 2002 period the growth rate dropped to 2.4 percent average per year, far much below world’s average.
Finally, there is the period from 2004 through 2008 to 2011. This period saw the country’s average growth rate increased to 4 percent per year still below the world’s average. However, Brazil has been on the course to sustainable economic growth.
The philosophies that have guided this growth rely on the principles of free trade, political democracy, and freedom of worship, international peace, and cultural diversity (General Books Llc 45). The current global financial crisis has tested the Brazilian economic philosophies especially the philosophy that inflation was normal and neutral as long as there was no biasness on demand and supply of goods and services.
Brazil has continued to show resilience since 2008 to 2011. This implies fortification of Brazil’s economy on a stronger macro-economic framework in the past decades (General Books Llc 45). The decreased fiscal and external imbalances reduce the country’s susceptibility to the external shocks. International financial crises profoundly affected Brazil in 2008 and 2009’s first quarter. Regardless of this fact, the countercyclical measures operated by the government and the internal market dynamics have initiated economic recovery.
Brazil follows these policies because they protect the country from the international financial crises especially from the external turbulence causing internal currency problems (Baer 122). These improvements are attributable to the external environment caused by floating market and domestic policies (Baer 122).
The country has policies, which protect it from the negative impact of the deteriorating situation on the global scene on economic performance (Willumsen, and Fonseca 26). The macroeconomic better circumstances were a factor in the adoption of the countercyclical economic policies.
With recession in play, the year 2009 saw Brazil experience a 0.6% GDP decrease contrary to the previous years where Brazil’s recovery was. Hence, Brazil had a GDP of 7.5% in 2010 because of the crisis (Arestis, and De Paula 31). This was, in fact, one of the less affected economies in the world.
One can attribute this resilience to the famous economist John Maynard Keynes, who developed the Keynesian theory. I speculate that the Keynesian economics have been behind Brazilian growth and resilience against the tough economic times (Arestis, and De Paula 34).
Brazil has undergone transition where Keynesian policy was not enough in dealing with neoliberal inclination (Arestis, and De Paula 34). According to Keynes, for a country to deal with the fact that the outstanding blunders of the economic society are because of failed provision of employment and arbitrary as well as inequitable wealth and income distribution (Arestis, and De Paula 34).
This proposal is because the state must steer the economic policies since if left to the free market models, the problem would not be solved (Baer 124). Keynesian economic policy has enabled Brazil to manage endogenous characteristics of monetary, fiscal and exchange policies (Arestis, and De Paula 45). The role of state is paramount in restoring the macroeconomics balance and in the creation of the institutional environment, which favors inappropriate insights.
Economic Events in Brazilian Economic History
Up until the early 20th century, the Brazil was experiencing a series of cycles in its economy as every product used to have its peak at different times. In the first five years of colonial rule, timer was the principal export product. In the 16th and 17th centuries, sugarcane was the main product, it the 18th century Brazil was a leading exporter of precious stones and gem (Willumsen, and Fonseca 32).
In 19th century, coffee became a key product supporting Brazilian economy. Slave labor offered the cheapest form of the work force for production until later in 19th century (General Books Llc 51).
It was until the 1930s that Brazil had attained the modern economy standards. During this period, as already hinted in the preceding paragraphs, many industries emerged, including the textile industry, petrochemical industries and metal industries among others (Willumsen, and Fonseca 46).
Brazil built its first steel plant in Rio de Janeiro in 1940’s. In the 1950’s through to 1970’s, industrialization saw the expansion of pertinent parts of the economy like the petrochemical and automobile industries. These developments enabled Brazil to attain one of the highest Gross National Product growths in the world by 1974.
The US interests rates, skyrocketed in 1980’s, affected the international market and the better conditions of foreign indebtedness, which had existed ended. There was a considerable increase in the interest rates in the world economy forcing Brazil to institute stringent economic adjustment causing negative growth.
There was a reduction of the capacity to invest by suspension of capital inflows (General Books Llc 51). To attain monetary stabilization, Brazil introduced policy adjustment of salaries and contract as well as freezing all prices. Brazil suspended interest payment to foreign commercial debt after negotiations with creditors for the adjustments; the economy managed to survive and begun to grow again by the end of 1980’s (Baer 123).
The import substitution policy matured in 1980’s, a time when Brazil prohibited purchase of certain produced abroad and encouraged citizens to use locally manufactured ones. This opened up the country’s economy (Baer 125). In 1990’s, Brazil established some extensive economic reforms like privatization and liberalization. There was a respective abolition and reduction of state monopolies and trade barriers. Brazil became a member of world trade organization.
A major event in the 1990s was the establishment of the real plan famous known in Brazil as “Plano Real”. This saw the former finance minister Fernando Cardoso became president later on in 1994 because he had instituted this plan (Willumsen, and Fonseca 72). This plan restructured the Brazilian foreign debt and established a closely controlled monetary policy that created a strong national currency (Baer 125). Brazil encouraged foreign investments and privatized most of its government owned industries.
Conclusion
Brazil’s economic history substantially shaped its modern economy. Thus, the strength brazil has shown today economical is not only driven by the strong implementation of the macroeconomic policies highlighted above but also because of the substantive structural reforms that were introduced during industrialization, recession and the Real Plan of 1994.
Specifically, the restructuring of the banking sector and intensification of cautious regulation and monitoring of the financial sectors enabled Brazilian economy withstand the external shocks. These are internal factors and the government intent to pursue the reform agenda in other area like social security, deregulation and public finance.
The goal of doing this is to increase healthy competition, better the economic welfare, and increase domestic savings. This will create the most suitable environment for continued recovery of the domestic demand and better attainment of higher growth rate and low inflation in the 21st century.
Works Cited
Arestis, Philip, and Luiz Fernando De Paula. Financial Liberalization and Economic Performance in Emerging Countries. London: Palgrave Macmillan, 2008. Print.
Baer, Werner, The Brazilian Economy: Growth and Development. Westport, CT: Greenwood Publishing Group, 2001. Print.
General Books Llc. Economic History of Brazil: Economic History of Brazil, Economy of the Empire of Brazil, Rubber Boom, Plano Collor, Brazilian Cruzeiro. Sao Paolo: Textstream, 2010. Print.
Willumsen, Maria, and Eduardo Fonseca. The Brazilian Economy: Structure and Performance in Recent Decades. California: Lynne Rienner Publishers, 1997. Print.