Brazil's dream to become a major world economy seemed to be within reach. Its golden decade from 2002 to 2012 made the country the seventh largest economy in the world and the second biggest emerging market after China. Memories of the previous golden years from 1964 to 1980, when the economy had grown at an average of 10 percent, made many Brazilians believe that good times had returned. The old demons of hyperinflation, high interest rates and political turmoil had been vanquished. Under the leadership of President Lula da Silva, the country reconciled with itself, business leaders joined the charismatic left wing president, something which would have been unthinkable before; and they told the world Brazil was taking off and was about to create its own version of the American dream, the Brazil dream.
In the post global financial crisis period, Brazil's economic model, what we call the 'Brasilia consensus' in my recent co-authored (with Julian Kassum) book The Political Economy of an Emerging Power: In Search of the Brazil Dream, was seen as an example for other emerging markets. This was attractive as many perceived China's economic miracle difficult to replicate, but felt that Brazil's economic model was more familiar and easier to implement. Brazil's own model of growth combined economic discipline, a Brazilian version of state capitalism with innovative forms of welfare. The 'Brasilia consensus,' as described in our book, comprised the following five pillars:
Macroeconomic stability with the commitment to the orthodoxy imposed by the so-called 'Washington consensus' with fiscal discipline, inflation targeting and free-floating exchange rates
Social inclusion with conditional cash transfer programs such as the world renown Bolsa Familia and Brasil Sem Miseria aimed at eradicating extreme poverty, ProUni to increase the percentage of university graduates and Minha casa, Minha vida to provide social housing for those in shantytowns
Increasing domestic demand by formalizing informal workers and increasing minimum wage above inflation to about $300
State-led industrial development where Brazilian government moved ahead to sustain the local industry with local content rules, some import barriers. National champions in key industries were promoted through subsidized loans from the Brazilian Development Bank, BNDES. BNDES and public pension funds became main shareholders of key companies like Petrobras and the mining giant Vale. Two...