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A History of Insider Capitalism in Brazil
The current article takes a long-term view of the history of capitalism in Brazil, focusing primarily on how the configuration of the government-firm relations changed in the post-World War II period as a consequence of the need for stable and cheap financing. The paper explains how the Brazilian government has established an implicit contract with entrepreneurs in which they help the government with developmental objectives and in exchange they get protections and subsidized credit from the national development bank, BNDES. I call this setup “Insider Capitalism” because it has allowed large Brazilian business groups to enjoy above normal returns for long periods of time. I show that return on assets in protected sectors has not only high for a long period of time in Brazil, but that it has been high even when comparing the performance of Brazilian firms to those of the largest firms in the United States in the same sectors. The article ends by showing how the model of long-term financing that propelled the initial industrialization of Brazil was very different. Before 1930 Brazilian firms used stock and bond issues to finance the bulk of their expansion. I conclude by discussing some of the possible welfare implications of Insider Capitalism.
State, Banks, and Foreign Finance in Brazil, 1964-82
Between the Banking Reform of 1964 and the debt crisis of 1982, when substantial amounts of capital entered into Brazil, the Brazilian banking system increasingly internationalized. Through its access and participation in the Euromarkets, the domestic banking sector took an active role as channel for cross-border capital flows and the transmission of foreign liquidity to final borrowers in Brazil. Indeed, the large Federal bank and monetary authority Banco do Brasil along with big state and private commercial banks became central actors in the external indebtedness process of the country. This article explores the mechanisms used by Brazilian banks in international financial intermediation and the consequence it entailed for the monetary and banking system in wake of the international debt crisis of 1982. The analysis sheds new lights on the political economy of bank internationalization and the monetary governance structure of the post-reform period.