A liberal democracy can survive for a while on institutional strength and widespread agreement. As long as most people are generally satisfied with how things are going (or have made peace with the status quo), it is easy to imagine that something like a social contract will keep things on track. Hamish MacAuley makes a persuasive case that many Canadians came of age politically between the collapse of the Berlin Wall and the 2008 financial crisis, when consensus was widespread and politics seemed optional, thus many chose to stay out. We abandoned democratic governing habits during prosperous times. Instead, we played politics. In response, McGill's Jacob T. Levy advocates for political action that rejects the status quo while also refusing to burn it all down or take our ball and go home. We should participate in politics, even if it is unsatisfying. When the foundations of our democratic structure or the rights of vulnerable people are jeopardized, it makes sense to delegate aut
OMG, this summary of Brazil's neoliberal reforms and policies is lit AF. It's giving me a complete vibe, you know? OMG, just like in the 1990s, the Brazilian economy was all about being hyper-connected globally. It was all about commerce, ownership vibes, and how the economy generated cash flow. In the 1990s, the government completely abandoned a slew of methods - including money and laws - that they used to control and steer economic investments when the state was in charge. In the 1990s, Brazil was all about the market, with an outward-oriented economy that neoliberal economists claim is the key to development, ya know?
Raising Great Expectations
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For example, in a world with a wide open capital account, strict macroeconomic austerity rules are absolutely necessary to maintain foreign investor confidence. So, basically, the idea is to flex some rules so that the government cannot dictate economic investment. Instead, let the market vibes handle it and demand that the government commit to macroeconomic austerity. No cap. Check out Figure 22 below for the channels that were supposed to help the reforms bring about market-driven economic growth. Taking advantage of the PROER's benefits, four banks were transferred to domestic banks before the first troubled bank was transferred to a foreign institution. The lightbulb moment came in April 1997, when HSBC acquired the assets of Bamerindus, Brazil's seventh largest bank in terms of assets, increasing foreign institutional involvement to approximately 13% of total banking assets. Table 41 depicts the excessive participation of foreign institutions in the Brazilian banking system as a result of the government's favoritism. Foreign banks completely flexed and entered the Brazilian banking scene by acquiring some state-owned banks, including the insane privatization of Banespa, the fourth largest bank, to Santander, a Spanish bank, in 2000. Is it lit?
The privatization of state-owned banks was the biggest flex in attracting foreign institutions to the domestic banking system, thanks to all the mergers and acquisitions hyped up by the PROER.
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So, basically, the government said, "Yo, let's restructure the financial system," and ended up replacing public ownership with private ownership, primarily to help those foreign banks. The political power wielded by the OG domestic incumbent banks has largely determined the manner in which this increase in foreign bank participation occurred, namely by flexing on state-owned banks. OMG, during the Collor administration, they tried this wild price stabilization strategy of freezing prices and wages. And, if you had more than $1,500 in your bank account or savings, they even froze all of your cash for 18 months. Like, what even?! Despite adopting extremely strict money and money policies, which resulted in a 1.2% surplus in the public money budget (compared to a 7% deficit in 1989) and a 4% GDP drop in 1990, inflation did not even fall to double digits. OMG, the exchange rates were so volatile because of the external debt payments. And there was a massive corruption scandal and political crisis that completely derailed the Collor administration. It sparked unprecedented financial speculation and inflation. OMG, in 1994, Brazil was all like, "Let's launch this price stabilization thingy," and they were all about getting that cash flow and putting pressure on imports to stop and lower inflation. So lit, right? Everything is covered in the second chapter of this study, fam. That is, growth would now be based on efficiency gains resulting from better resource allocation and fueled by increased market competition at undistorted market prices, you know?
This program, the Real Plan, was all about family de-indexing prices and wages, which were tried and failed in the 1980s.
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This time, however, the program established a lit anchor for forming price expectations by semi-fixing the exchange rate in relation to the dollar,131 which was eased and made hella credible as the economy was flooded with foreign capital. It was also lit by the World Bank, which praised Brazilian price stabilization and liberalization reforms in an early report, calling "the new exchange regime... a useful tool in the stabilization effort" (World Bank 1994, p.73). They set some insanely tough financial targets and promised to reduce government spending to demonstrate their support for the austerity package. For example, as more foreign competition entered the market, firms' market power to flex their markups was reduced. The government was all, "Yo, let's reduce tariffs and make things easier." Yo, the post office be dropping mad imports in '94 and the prices be gettin' hella low, fam.1-3-2 With no cap, the Real Plan had a significant impact on inflation. It fell from a staggering 42% in April 1994 to only 0.6% in December 1994 (according to the general price index). It was exciting! Inflation fell steadily over the following years, from 15.0% in 1995 to 9.2% in 1996, 7.1% in 1997, and 1.8% in 1998. In contrast to the 1980s, when devaluation caused mad inflation, our currency's devaluation during the 1999 and 2002 crises did not appear to cause inflation to skyrocket.
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