WEF – TRADE: Development models or growth tactics?

Import substitution practices shielded Brazil and in general, Latin America, from the effects of the global recession. Now it’s time to rethink trade and openness.

PHOTO: ©ISTOCKPHOTO.COM/ ZIVIANI

Many around the world believed until recently that Latin America – and particularly Brazil – had devised an economic formula assembling high growth and social inclusion.

But that magic recipe doesn’t really exist. Policies put in place by Brazil in the past few years to boost its economy weren’t pillars of a new miracle. For the past 10 years, Brazil has resorted to import substitution and the appetite of its domestic market as recurrent tactical attempts to promote growth.

The Brazilian case offers a valuable example of the distance between “development models” and “growth tactics” in Latin America. The former are strategic in nature; they include a “plan,” a well-structured vision of the future. The latter are superficial – they react – to changes in the global economy. Models are about sustained development. Tactics are about punctual growth.

These differences are further enhanced by the stance countries take towards the “reglobalization” now in the making – a new phase in international relations shaped by further integration to global supply chains and increased terms of trade.

As a consequence, a “two-speed Latin America” emerges. On the one hand, the Pacific Alliance (México, Colombia, Perú and Chile) and its competitive drive. On the other, Mercosur – a platform now characterized by the old-fashioned ideological and protectionist attitude of its members.

Brazil is key to how Latin America will be reconfigured. The region´s largest economy has not gone down the path of isolation as deeply as Venezuela and Argentina. Nor, has it opted for a competitive integration with the global economy.

The current reinterpretation of import substitution policies in Brazil is a good example of the difference between a development model and growth tactics. Nearly all experiences in industrial development around the world resorted to some sort of import substitution as a stopover to local capacity-building.

But, import substitution cannot become an everlasting rule. In order to enable a particular sector of the economy to compete internationally, it is only to be applied at “infant industry” level. Fostering domestic consumption as a countercyclical tool following the Great Recession of 2008 did make the economy respond positively to stimulus. However, there are many constraints for such growth tactics to become a development model.

Low levels of savings and investment, outdated labor and tax legislations, infrastructure bottlenecks, a business environment lagging behind that of its competitors. These are some of the obstacles keeping Brazil away from a development road paved by entrepreneurship and innovation.

Brazil could definitely use the old economy to help build new competencies. This would necessarily involve sectors such as agribusiness, mining, deep-water oil, biofuels. These should generate surpluses to service the construction of new competitive advantages – in nanotechnology, biotechnology, new materials – areas that may drive Brazil to the forefront of emerging markets.

Building a development model requires three ingredients. Political will, capital availability and a good diagnosis of what the world is today. If along these three lines, Brazil manages to enact the much needed structural reforms, the country would be driven away from an autarkic approach to development. And, it would certainly edge closer to its rightful place amidst the leading economies of the 21st century.

*Marcos Troyjo teaches international affairs at Columbia University, where he directs the BRICLab, a special forum on Brazil, Russia, India and China.

 

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