Rest in Peace: A Lament for the Neoliberal Era
by Lucas Silva, Rafael Oliveira, and Gabriel Costa
There is a notion in the financial market that privatizations could boost sectoral efficiency, spreading their effects throughout the economy. From a sectoral perspective, productivity and competitiveness gains would be induced by the pursuit of profit by private owners who acquire public companies privatized. The gains for the overall economy would be due to the increase in performance of privatized companies, which would promote efficiency gains in other sectors through productive linkages.
The same would be true for institutional reforms that establish the market as the primary determinant of investment. The adoption of neoliberalism and the reforms associated with the Washington Consensus would lead to greater economic growth. For many economists linked to the financial market, Brazil’s slow economic growth has resulted from the failure to fully implement these reforms. It is necessary to move forward with these reforms.
However, the inability of neoliberalism to provide greater economic growth can be observed in the reforms implemented since 2015, particularly those related to social security, the ceiling on public spending, and labor. The results of these reforms have been a reduced economic growth rate and increased inequality.
In the neoliberal decades, the Brazilian economy has undergone a process of “falling behind.” In 1980, a Brazilian worker, on average, produced in 2 hours and 30 minutes what a US worker took an hour to produce; in 2019, this time increased to 5 hours of work. In the 2000s, this time decreased, precisely when neoliberalism occupied a secondary space in the country.
Neoliberalism is incapable of providing higher investment and capital accumulation rates. On the contrary, privatizations have resulted in increased dividend payments and reduced productive investment. Emblematic cases are recent privatizations in the electricity sector, both in Rio Grande do Sul and São Paulo, which have resulted in a deterioration in service quality after transfer to the private sector. This phenomenon is not new, as European countries, such as Germany, have opted to re-nationalize some basic services due to the private sector’s inability to provide them adequately. Therefore, despite the persistent defense of neoliberal economists, the idea that privatization will increase productivity and service quality does not find empirical support.
The obstacle to Brazil’s growth, which explains its poor economic performance, is the reduced productive investment. The reason for this is simple and is related to the problem observed in privatizations: profit generation is for short-term dividend distribution to capital holders, which reduces productive investments and economic growth. The decline in capital profitability is another factor determining the low investment rate.
Privatization has occupied a central role in the financialization of the Brazilian economy. The other was the high interest rate on public debt. The combination of financialization of the private sector with the subjection of the public sector to convert a significant portion of tax revenue into payments to the financial oligarchy has sterilized the economy’s investment capacity.
These dilemmas become more acute as the neoliberal conceptions still prevail in the country. In the context of financialization, the primacy of the short term has been consolidated, prioritizing profit generation with monthly or quarterly horizons. In this sense, the neoliberal reforms executed in two waves in the country, the first in the 1990s and the second from 2016, have not been able to generate economic growth. Each failure of the neoliberal ideology in Brazil has led the oligarchy benefiting from neoliberalism and its ideologues to clamor for more reforms. However, the balance of neoliberalism in Brazil is clear: low economic growth, reprimarization of the economic structure, and social inequality.
The country’s main need is to unlock productive investment, which will not occur if we continue to bet on the neoliberal ideology. New institutional arrangements are necessary to combine sustainable economic growth, income distribution, and democracy. In this perspective, Brazilian society can face the challenges of the 21st century.
Lucas Silva – Professor of Economics, UFRGS
Rafael Oliveira – Professor of Economics, PUCRS
Gabriel Costa – Professor of Economics, UFRGS
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