The Profit Powerhouses of Brazil: Key Business Sectors

 Brazilian policymakers were super excited about embracing the outward-oriented adjustment and completely changed the relative price incentives to favor tradable goods. So cool! Production, for example, did not compensate for the industry's loss of markets and competitiveness as a result of the collapse of domestic investment. Despite the domestic industrial recession and devalued exchange rates, exports were relatively strong, boosting a few traditional industries such as farming and manufacturing, as well as some interesting investments in paper, steel, and electronics.

That is, the export game was all over the place depending on what was going on in the domestic market, and it was terrible at encouraging industrial investment.

Yo, the reason they cut public investments was because there was a lot of external debt on public enterprises, and they were all about the neoliberal vibe, you know? For example, government investments completely crowd out private investments, so when the former declines, the latter increases. How do you feel? Even though this creed says one thing, the ridiculously strict rules on public investments in the 1980s resulted in a significant drop in private investment (Table 31). In the Brazilian institutional setting, it comes as no surprise that public investments have always been focused on sectors that complement the private sector, such as electricity, petroleum, telecom, and transportation. OMG, as shown in Figure 15 above, public infrastructure investments as a percentage of GDP fell dramatically during the adjustment period. SMH. Needless to say, these investment cuts had an impact not only on short-term industrial output but also on competitiveness, and thus on the long-term prospects for domestic industry. Many years ago, Nicholas Kaldor (1967) believed that growth boosted productivity and vice versa. Overall, external markets played a significant role in the economic recovery in 1984, with exports accounting for 27% of manufacturing output (see Figure 16 below). Nonetheless, the utilization of capacity in manufacturing sectors increased only slightly in that year, from 73% to 74%,97, and thus provided a very weak vibe for investment. OMG, Table 30 and Figure 16 completely demonstrate that in the 1980s, external markets were just okay and were sometimes used instead of the domestic market.

Needless to say, these investment cuts had an impact not only on short-term industrial output but also on competitiveness, and thus on the long-term prospects for domestic industry.

Many years ago, Nicholas Kaldor (1967) believed that growth boosted productivity and vice versa. Manufacturing output is extremely important because it is all about growth. It's like spreading those increasing returns to other sectors, boosting productivity and growth across the economy, you know? In addition, Kaldor commented: "Yo, the causation be running from mad demand for manufactured stuff, especially investments, to like, increased productivity and overall economic growth." In Brazil, the entire situation with external debt was a total mess, you know? It was like an endless cycle of decline, which is the polar opposite of the Kaldorian cumulative process, man. OMG, Table 32 is legit in showing how manufacturing output plummeted in the 1980s, particularly following the external debt crisis. It was a complete mess, fam.95 The lack of public and private investment has had a significant impact on capital goods output. OMG, the industry's long-term competitiveness plummeted because worker productivity growth in manufacturing in the 1980s was four times lower than in the 1970s. So not lit, family. Much of this poor productivity performance can be attributed to reduced public investments in education and training, as well as infrastructure.96 OMG, Brazil's public investments were so exciting! They were not just supporting private investments; when they were reduced, private investments also decreased. In addition, they contributed to increased manufacturing productivity by providing low-cost goods and a stable market for industrial development and productivity. It was like, completely awesome!

The reasons why the burden of adjustment fell on public enterprises are, like, pretty obvious.

First, the economic crisis completely ruined the cash flow that public enterprises could use to fund their projects. Second, the government controlled the price policies of public enterprises, adjusting them below inflation to, essentially, stop inflation. As a result, public enterprises' cash flows were also reduced as their relative prices fell, you know? Third, the overall vibe of withdrawing from international financial markets in the 1980s not only completely killed funding for new investments, but the lack of resources from dealing with external debt also made it extremely difficult to repay old debts from the 1970s. To flex on those ancient debts, with no cap to keep them going, public enterprises simply tapped into their reserves for investments. It's clear that the demand-reduction strategy was all about cutting investments, with public investment taking the biggest hit. OMG, Table 31 is legitimate proof that public enterprise investments were, like, a complete flop in the 1980s. It's like a decline fest every year. SMH. OMG, as in 1989, public enterprises' investments were only half of what they were in 1981. So lame! Anyway, public administration saw its investments cut in the 1980s. Overall, public investments plummeted from 6.6% of GDP in 1980 to 4.4% in 1984, eventually reaching rock bottom in 1989. OMG, it's no surprise that the only time public investments recovered was when the government flexed its muscles with the IMF and international creditors and eased external restrictions. However, these periods were extremely brief because the recovery of investments was equivalent to putting our trade surpluses at risk by bringing in more imports and/or shifting exports to local markets, you know?