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Interconnectedness in Brazil
by Fernando Nogueira da Costa
As we analyze the transformations of Brazilian socio-economic reality over the past few decades, one of the central points is the transition of Brazil from a predominantly rural economy to an urban society with 87% of the population residing in cities. This process, driven by factors of repulsion, such as the lack of effective land reform, and attraction, such as industrialization, resulted in a large contingent of the population seeking survival strategies in precarious and low-productivity urban services.
The traditional classification of economic sectors into primary, secondary, and tertiary is becoming increasingly limited to describe the complexity of contemporary economy. The rise of the service sector, also driven by deindustrialization and the new international division of labor, highlights the need to revise outdated concepts to understand the dynamics of productive chains and value generation.
The growing demand for urban services, such as commerce, health, education, and transportation, contributes to the expansion of the tertiary sector in the Brazilian economy. The accelerated and disordered urbanization has resulted in social inequality, urban violence, and infrastructure deficits in the peripheries of large cities.
In the absence of the State, the faith and organized crime emerge as ordering forces. They offer solutions and management models for marginalized populations.
The Pentecostal evangelical churches, in particular, have experienced significant growth, occupying a space left by the left, previously through Liberation Theology, and articulating themselves politically to defend their interests. The discourse of Prosperity Theology, allied with social support and entrepreneurial opportunities, attracts an increasing number of faithful, mainly in the peripheries.
Prosperity Theology, on the other hand, is a neo-Pentecostal theological doctrine that holds that material abundance is God’s desire for his followers, and that faith, positive discourse, and, of course, donations to pastors and/or temples will always increase the material wealth of the believer.
Organized crime, on the other hand, consolidates itself as a significant economic actor, controlling territories and implementing “business models” globally, such as drug trafficking. From a hierarchical structure and rigid internal rules, organizations like the PCC seek “order and predictability” in a context of violence and disgovernment, avoiding the mutual killing of gang members among young marginalized individuals.
It is necessary to understand Brazilian politics to comprehend the complexity of the economy. The “presidentialism of coalition” characterized by party alliances and negotiations for governability directly influences the formulation and implementation of public policies in areas such as agriculture, industry, and infrastructure.
Alongside the “Bible bench,” the growing influence of agribusiness in politics, for example, illustrates the power of interest groups, including the “beef bench,” in defining agendas and allocating public resources. The “gun bench,” composed of politicians linked to security forces, gains space in a context of increasing violence and “free armament” discourse.
In this sociopolitical context, there are several important sectoral interconnections in the Brazilian economy. One of the main ones is between agricultural production and industrial transformation. Brazil has consolidated itself as a global agricultural power, with a focus on soybean, corn, beef, and chicken production. This agricultural production, in turn, drives demand for industrial inputs, such as agricultural machinery, and food processing.
Additionally, the extractive industry, with a focus on oil and iron ore production, plays a fundamental role in Brazil’s trade surplus. The revenues generated by the export of these primary products provide resources for importing goods to meet the economy’s needs, including fertilizers for agricultural export. The import of machines and equipment is part of investments in other sectors, such as the automotive industry.
The growing importance of bioeconomy in Brazil has the potential to generate new sectoral interconnections. The country has a significant biodiversity and expertise in tropical agriculture, opening up opportunities for the development of new products and technologies in the area of biofuels, biomaterials, and biopharmaceuticals.
Another important aspect is the increasing financialization of the Brazilian economy, with the flow of global foreign direct investment (FDI) linking different sectors, including agribusiness and the extractive industry. The role of subsidized rural credit and the growing participation of foreign companies in Brazilian agribusiness is another key to understanding. Not to mention the accumulation of financial reserves.
Although Brazil has a trade surplus of almost $100 billion, it is not enough to cover the deficit in the services account of the balance of payments. This deficit is driven mainly by:
1. Remittances of profits and interest: multinational companies operating in Brazil send profits and pay interest on intercompany loans – carry trade where they internalize low-interest capital to gain from high-interest rates –, to their motherships abroad, using the trade surplus to exit dollars.
2. Royalties from patents: Brazil’s dependence on foreign technologies, in sectors such as the automotive and pharmaceutical industries, among others, results in payments of royalties from patents to multinational companies, requiring a larger trade surplus to exit dollars from the country.
In this international chain, Brazil sells primary and industrial products abroad, generating a trade surplus. The profits generated by multinational companies operating in these sectors, together with interest payments and royalties, are repatriated to their motherships abroad, resulting in a deficit in the services account. The deficit in the current account is covered by Foreign Direct Investment (FDI), in a kind of “vicious circle” denationalizing the country within the current international division of labor.
The flows of global FDI include three components:
- Capital social (equity capital): the purchase, by a foreign direct investor, of shares in a company in another country.
- Intercompany loans: short-term or long-term loans between a company’s mother and affiliate.
- Retained earnings: the retained earnings of affiliates abroad by multinational companies, including the proportion of the foreign investor’s direct participation in the company’s capital.
China is an example of a country with a developmental state, if not socialist, at least state-capitalist, capable of planning a market economy in the long term and overcoming this cycle. China, before the reforms in the late 1970s, dependent on importing industrial goods, implemented a policy focused on attracting multinational companies with a commitment to technology transfer.
This strategy, combined with investments in infrastructure and qualified labor, allowed it to become a global industrial power, capable of competing in terms of costs and technology in international trade. Due to a lack of education, science, and technology, as well as geographical distance (and transportation costs), Brazil is farther from the Global Value Chains.
The Brazilian economy is characterized by complex and dynamic sectoral interconnections, with a focus on the agricultural, extractive, and service sectors. It is necessary to understand these interconnections to formulate strategic public policies for the country’s development.
To do so, it requires a transdisciplinary and critical analysis, highlighting the interdependence between economic, social, and political factors. The accelerated urbanization, the rise of the service sector, the influence of faith and organized crime, and the complexity of Brazilian politics are also fundamental elements to understand the prospects for the country’s future.
Fernando Nogueira da Costa – Professor Titular do IE-UNICAMP. Works (Almost) Complete in digital books for download at http://fernandonogueiracosta.wordpress.com/. Email: [email protected].
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