External Liberalization, Stabilization, and the Labor Market in Brazil

Abstract

The process of external liberalization in Brazil must be seen as the result of the exhaustion of the heterodox stabilization plans of the 1980s and the lost decade that followed the 1982 debt crisis. The debt crisis led to a revision of the conventional wisdom on development that culminated in the so-called Washington Consensus (Williamson, 1990). According to this view, inwardoriented strategies produced tremendous inefficiencies associated with excessive state intervention, leading to lower rates of growth and increasing inequality. The successful experience of East Asian countries led many (e.g., World Bank, 1993; Edwards, 1995) to conclude that outward-oriented development strategies were conducive to rapid and sustainable development. Brazil, however, was a late convert to the liberalization, deregulation, and privatization creed of the Washington Consensus. Although trade and capital-account liberalization started in the early 1990s under the Collor administration, it was only after the Real Plan of July 1994 that Brazil clearly adopted the set of policies promoted by Washington. The reasons for its late move toward external liberalization may have to do with the success of the industrialization experience in Brazil and the existence of a broad coalition in defense of the domestic industrial sector. It took a decade of high inflation and stagnation to create the conditions for liberalization. In this article I will discuss the causes and the characteristics of the Brazilian liberalization experience, describe the process of trade liberalization, and examine the effects of the liberalization on employment and wages.