Social Developmentalism as a Growth Model in Times of Financialization

Abstract

This chapter systematizes the data on the recent evolution of the Brazilian economy from the turn of the century through 2015—the point at which its trajectory was interrupted by a variety of crises, toppling a growth strategy that was proving successful. The crucial, and paradoxical, role reserved for consumer credit in this strategy is addressed. Moreover, it contextualizes the way that finance-dominated capitalism is reshaping market societies and social protection schemes and how it hampers redistribution through the privatization of public provision and growing debt.

Appendices

Annex 1

Structural Break Test

The one-step forecast test helps to detect periods in which the estimated equation is “less successful.” The vertical axis on the right reproduces the recursive residuals and standard errors displayed by the recursive residual option. The vertical axis to the left shows the probability values for the sample points at which the hypothesis of stability for the parameters would be rejected at levels of 5, 10, or 15 percent. The points with p-values below 0.05 correspond to the points at which recursive residuals fall outside the limit of standard error.

Graph—Structural break test

Annex 2

Behavior of general default rates (2004–2015) (100 = April 2010) (Source: SERASA 2016)

Annex 3

The financialization rate (FR) has been defined as the ratio between the total stock of non-monetary financial assets (FA) and the total stock of fixed productive capital (K). FR = FA/K

• 1. Economic interpretation

  The growth of the FA/K ratio shows the speed at which fixed productive assets are replaced by financial assets, in keeping with studies on processes of financialization in contemporary economies. It may also be read as expressing the substitution of productive savings (earmarked for gross fixed capital formation) with financial savings (unproductive, as they are applied to transfers of ownership of existing assets without creating new assets)

• 2. Laying out the variables that make up the financialization rate

  FA is calculated by obtaining the difference between the money supply (M4) and mode of payment (M), as provided by the Brazilian Central Bank, to arrive at the stock of non-monetary financial assets.

  K was obtained through a perpetual inventory system that allows for the accumulation of the gross fixed capital formation flows drawn up by the IBGE, so as to approximate Brazil’s fixed capital stock. Since this variable includes residential constructions, the calculation only considers the value corresponding to the volume of machinery, equipment, and infrastructure (non-residential constructions), which refers to the fixed productive capital stock. The series for the period 1970–1998 were obtained from Marquetti (2003), and those from 1999 onwards came from IPEA DATA. They were later compared to the official series put out by the IBGE in the publication “Estatísticas do Século XX.” The sources were evidently compatible in that stochastic properties were quite similar with only varying levels.

  Both variables are taken at constant prices, deflating FA via FGV’s IGP-DI and K with the respective gross fixed capital formation deflators.

  M4 − M1 = special remunerated deposits + savings deposits + securities issued by depository institutions + fixed-income fund quotas + repo operations registered in the Selic system + high-liquidity bonds

  The most important element of this definition is that it captures the weight of the domestic public debt within the process of the financialization of the Brazilian economy, as it includes fixed-income funds and bonds.

  Of course, other definitions might be used to include other sorts of financial assets. Even so, the expansion of this series from 1995 to 2015 is indicative of a surprisingly strong positive correlation with the growth of the domestic public debt and the official Selic interest rate, while the growth of the fixed productive capital stock (K) remained negligible over the period, and hence incompatible with the country’s socio-economic development needs.