Brazil: A focus on political and economic crisis

A Focus on the Brazilian Crisis. The first in  series of four articles on the current economic and political crisis in Brazil, by Prof. Cláudio Gonçalves Couto and Prof. Fernando Luiz Abrucio of FGV-EAESP, Brazil
Not exactly a relaxing time for Brazil

The first in  series of four articles on the current economic and political crisis in Brazil, by Professors Cláudio Gonçalves Couto and Fernando Luiz Abrucio, FGV-EAESP, Brazil

Brazil: A focus on political and economic crisis by Cláudio Gonçalves Couto and Fernando Luiz Abrucio. Edited by Tom Gamble.

Economic and Political Crisis in Brazil: Where did the sunshine go?

It may be a surprise for one who visited Brazil few years ago to figure out what is going on right now in the country. By 2010 Brazil seemed to be a stable political system, an optimistic society and a rising economy. Only five years after that Brazilians are experiencing what could be their deepest crisis in 50 years. What happened?

The previous positive scenery was the consequence of a relatively long period of institutional improvements. In terms of the political arena, this meant the consolidation of a truly competitive democracy after the end of the military regime in 1985. Despite the rampant fragmentation of political parties, Brazil has managed to build a well-structured electoral regime with clean elections. Former presidents were successful in their attempts to reshape the country through relevant policy innovations both with regards to the economy and social policies.

A key factor for such a success was the presidential capacity to frame and manage multiparty coalitions in the Congress in order to provide political support for governmental agendas ­– what many analysts called the “coalitional presidential system”.

Brazil and Crisis: The price of happiness

If such a system was effective in enabling presidents to fulfill their agendas, it was not exactly an efficient one. The price that had to be paid to obtain such support was the control of sectors of the administration by party leaders and congressmen who appointed their trustees to relevant positions both in the direct and indirect administration – that is, to positions with capacity to make decisions in governmental departments, agencies and public companies.

The Brazilian coalitional presidential system could work relatively well if various conditions were present, the first being a president capable of managing the coalition, something that concomitantly requires the attainment of congressmen’s demands and the imposition of some limits for patronage. If the president is unable to establish such a fragile and contradictory balance, the likely outcomes are either retreat or pillage.

Both Fernando Henrique Cardoso and Lula da Silva were skillful politicians, who could manage their coalitions without facing severe challenges in these regards. Dilma Rousseff, on the other hand, does not present the same political skills. Unlike her predecessors she is not strictly speaking a politician; she is actually a hybrid of militant and backstage bureaucrat – one who simultaneously has rigid ideological convictions and strong concerns for controlling almost every minute detail of ordinary governmental activities. More than a political leader, President Rousseff is an authoritarian bureaucratic boss.

As a consequence, the incumbent president is not capable of bargaining successfully with Congress, making timely decisions or delegating political authority to her aides. Instead of that, she puts stress and strain on congressmen and likewise her assistants by making necessary decisions only when it is too late for them. As a consequence, the Brazilian administration has become paralyzed and the political costs of every initiative have risen considerably.

Political Crisis: Shadows on the landscape

However, the leadership problem affects not only the Executive branch, but also Congress. The rising costs of the electoral campaigns transformed the profile of politicians who were able to be elected. Increasingly, the traditional members of the national legislature, who were known for their capacity to enunciate convincing speeches, bargain policies and, last but not least, bring the pork barrel home, were replaced by individuals who were either mass communicators or skillful campaign fund raisers with little worry over how these funds were raised.

As a consequence, the Congress – at most the House – became a place for backbenchers with little concern or capacity to formulate national policy. That is, when the presidency becomes weak, the Legislature is unable to fill the vacuum.

Such a landscape of crisis in Brazil makes it easier for corruption to evolve. In effect, if the president needs to build majoritarian coalitions in the Congress to rule the country, but the majority of congressmen is constituted of individuals requiring large amounts of money to be elected, one could quickly figure out what the consequences would be. Not surprisingly, the corruption and bribery scandals that emerged recently and which affect the image of the Federal Administration involve politicians and parties that are members of the governmental coalition.

Recent polls show that corruption has become the most important national preoccupation for Brazilians today, notwithstanding the huge economic crisis that already affects citizens’ income and the level of employment. If, on the one hand, these scandals are a consequence of the illegal schemes for campaign financing, on the other hand – and paradoxically – they are a consequence of institutional improvements in regards to some State agencies including the Federal Police, prosecutors, and the courts.

Brazil and Crisis: Putting the pressure on

All these organizations are stronger today than they used to be until twenty years ago. The Federal Police has much more personnel, equipment, training and expertise. Prosecutors and the courts have more legal instruments to investigate and punish white-collar criminals. Besides that, an international network of institutions works together to elucidate cases of money-laundering, and information provided by such a network has been especially useful for Brazilian authorities investigating money laundering. Actually, the most important investigation in the current landscape (the Operação Lava-Jato, or “Pressure Wash Operation”) started with the operations of an illegal exchange dealer.

Curiously, the impeachment of President Dilma Rousseff is formally founded not in problems related to the bribery scandal that involved members or her coalition but is actually justified by the misuse of the state-owned banks to finance public policies, something that is illegal according to the Fiscal Responsibility Act. There are serious doubts concerning the appropriateness of an impeachment to punish such a transgression, since previous cases of punishment did not impeach chiefs of the Executive, but made them ineligible.

As a matter of fact, what has created the conditions for the impeachment of President Rousseff is the combination of several facts that do not have much to do with the formal grounds for her impeachment, that is: (1) the refusal of her opponents to accept her electoral victory in 2014; (2) the general perception that the president is unable to solve the huge political and economic problems created by herself; and (3) the weakening of her government and her party by a sequence of corruption scandals.

People power and Brazil’s future

A Focus on the Brazilian Crisis. The first in  series of four articles on the current economic and political crisis in Brazil, by Prof. Cláudio Gonçalves Couto and Prof. Fernando Luiz Abrucio of FGV-EAESP, Brazil
Will it shine again?

All these elements put together brought thousands of people to the streets, claiming for the deposition of the president. What initially was a claim from relatively small sectors of the Brazilian far-right became a widespread demand for her to step down. As a consequence, congressional support eroded and the president is now no longer able to recover it.

At the present time, even if she is not impeached, it is difficult to believe that she will have the capacity to run the country for the next two years. And, if she is impeached, there will always remain the perception that her deposal was not exactly what could be deemed as a due process, but actually a kind of white coup.

Finally, it is necessary to consider what could happen if Rousseff’s Vice-President, Michel Temer from the PMDB, takes her place. In the short run one could think that he would dispose of better conditions to run the country via the establishment of new grounds for congressional coalition.

However, these conditions would substantially rely on what occurs during the next steps of the Jet Wash Operation. Many members of his party are involved in the main issues that emerged from these investigations. Indeed, the PMDB is not exactly a solution for this crisis, but for Brazil and crisis – its main source.

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The Council on Business & Society (The CoBS), visionary in its conception and purpose, was created in 2011, and is dedicated to promoting responsible leadership and tackling issues at the crossroads of business and society including sustainability, diversity, ethical leadership and the place responsible business has to play in contributing to the common good.  

Member schools are all “Triple Crown” accredited AACSB, EQUIS and AMBA and leaders in their respective countries.

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- Europe: ESSEC Business School, France; IE Business School, Spain; Trinity Business School, Ireland; Warwick Business School, United Kingdom.
- Africa: Stellenbosch Business School, South Africa; ESSEC Africa, Morocco. 
- South America: FGV-EAESP, Brazil.

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