Privatization, regulation and income distribution in Brazil

Abstract

Deep inequality in the distribution of income and wealth has been surprisingly persistent throughout Brazil’s five centuries of history. Whether the state’s presence in the economy was pronounced or minimal, its rulers, military or civilian, its economy relatively open or closed to foreign trade and investment, the degree of inequality has hardly changed. Many arguments have been made for this persistence, among them the political power of elites, the low levels of investment in education, and economic dependency. The economic turmoil of the 1980s included the debt crisis early in the decade, price increases verging on hyperinflation, a series of failed stabilization plans, and the fiscal exhaustion of the state. The stage was thus set in the 1990s for a profound rethinking about the way in which Brazil should run its economic affairs. This was reinforced by events outside Brazil, among them the much publicized privatization programs of the U.K and Chile and the disintegration of the socialist economic systems of the U.S.S.R. and Eastern Europe. One of the consequences of this sea change in thinking was much more support for market-oriented policies. Prominent among these policies was the privatization of state-owned enterprises. Our purpose in this paper is to examine the potential impacts of this policy change on economic equity. Concern with equity was rarely the focus of the reforms of the past decade, which were largely driven by fiscal exhaustion and were justified as a way of improving economic efficiency. As important as efficiency and fiscal balance may be, however, we must also ask how privatization might affect the depth and persistence of economic inequality in Brazil. The potential links between privatization and equity are complex and ambiguous, but