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Brazil, the Global (Financial) Crisis and Innovation

José E CassiolatoRedeSist - www.redesist.ie.ufrj.br

International Seminar on Innovation and Development under Globalization:

BRICS Experience

Trivandrum, 19-21 August 2009

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Structure

• 1 – A financial crisis?• 2- Impacts on Brazil• 3 – What next

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A financial crisis?

• Financial crisis, recession, depression …• A crisis in the capitalist system • or a crisis of the capitalist system?

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Present economic crisis as a crisis of an accumulation regime which is intensive in the use of oil and other minerals in the mass production and consumption of autos and other consumer durables

• Crisis as an expression in a specific historical context of the internally created limits (“internal barriers”) that capital runs up against• these barriers manifest themselves in an

interconnected manner• by the fall in the rate of profit and • in periodic crises of massive overproduction

• Great disagreement on the measurement of the rate of profit

• The rate of investment (nearest approximation to the accumulation of physical capital) provides an expression of capitalists’ propensity to accumulate in real capital and so gives an indication of the way they view the profitability of such investment

• Capital devises ways to offset the fall in the rate of profit and also to defer the moment commodities (goods) become impossible to sell and overproduction is manifest

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• Main mechanisms used by “advanced economies” for offsetting fall in profit and deferring overproduction :• High foreign investment in “emerging

economies”, notably China• Strong increase in the rate of exploitation from

the 1980s onwards

•extension of the working year (in the USA in manufacturing nearly two weeks more in 2002 than in 1982).

•Containment and fall of real wages• Massive accumulation in financial services• Massive recourse to debt

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Share of wages on GDP

1975 2006

EU - 15 69.9% 57.8%

Japan 76% 60%

USA 65.9%* 60.9%**

Source: Sarfati 2008; Notes: * - 1970; ** - 2005

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US GDP Dow Jones

US – The diverging growth of NYSE and GDP

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USA - Profits and net investment as % of GDP 1960-2006Finance as a crisis deferring mechanism

USA - Profits of the financial sector as a % of total profits (5-year moving average)

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• Finance as a crisis deferring mechanism • Personal debt (consumer & mortgage) to offset

the fall of workers’ wages in a context of low levels of domestic investment

• Creation of the so-called “wealth effect” from trading of fictitious capital (shares & bonds)

• Accumulation of fictitious capital produces nothing in itself, but it can spur some sectors until the financial crisis breaks out

• investment in offices and buildings• expenditure from financial salaries &

bonuses

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Global savings, investment and current account

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The crisis in Brazil

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IT DID NOT AFFECT MOST PEOPLE ...Brazil – Gini Index – 6 main metropolitan areasMarch 2002 – June 2009

Crisis

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Brazil – Poverty Rate (%) – 6 main metropolitan areas March 2002 to June 2009March 2002

June 2009

June 08

June 09

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The importance of public nstituionsBrazil – Share of Public Banks in Financial System

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Exports to China are helping a lot

• 1st half of 2009 exports to China overtook exports to USA• Exports to China:

• US$ 10.4 Jan-July 2009 against US$ 16.4 – whole 2008• But mostly basic goods …

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1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Basic Semi-manufactured Manufactured

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But ...Fiscal Stimulus Programmes (% of GDP)

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Brazil – What next …

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Brazil - Specialization

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Revealed comparative advantage1967 – 2006

Billions of GDP – PPA 2005

Source : CEPII,

en millièmes du PIB courant

Autres produits agricoles 9,7 Pétrole brut -5,2Minerais de fer 2,9 Gaz naturel -2,2Prod. agric. non comestibles 2,2 Matériel de télécommunication -1,6Sucre 2,1 Fournitures électriques -1,1Conserves végétales 1,3 Moteurs -1,0Minerais non ferreux 0,9 Chimie organique de base -0,9Fer et acier 0,9 Métallurgie non ferreuse -0,8Aliments pour animaux 0,7 Quincaillerie -0,8Produits de toilette 0,6 Produits raffinés du pétrole -0,8Cuirs 0,5 Aéronautique et espace -0,8

en millièmes du PIB courant

Minerais de fer 8,5 Aéronautique et espace -3,5Autres produits agricoles 7,9 Pétrole brut -3,5Fer et acier 4,8 Matériel de télécommunication -2,6Viandes et poissons 4,5 Engrais -2,6Sucre 4,5 Composants électroniques -2,5Cuirs 2,2 Produits pharmaceutiques -2,5Papier 1,6 Matériel informatique -2,5Aliments pour animaux 1,5 Gaz naturel -2,0Véhicules utilitaires 1,3 Produits raffinés du pétrole -1,9Automobiles particulières 1,1 Machines spécialisées -1,9

1967Points forts Points faibles

2006Points forts Points faibles

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• Well positioned for a “sustainable” techno-economic paradigm• Good S&T capabilities• Natural resources and endowments (water, clean energies,

etc)• Possibility of deepening inclusion of marginalized segments

of society• But with problems, e.g

• External• Geo-political: how to re-specialize western economies

and what will they “offer” to developing countries????• Internal

• Difficulties in finding political consensus towards a national long term project (the blind colonized elite, etc.)

• Financial capital is not dead !!!• The role of TNCs