Boosting Investment and Growth: The Role of Social Pacts in the Brazilian Automotive Industry

Abstract

The article examines why the automotive industry invested over US$20 billion in Brazil in the second half of the 1990s, focusing on how political economy factors influenced investment decisions. It is argued that, in a context of economic and policy uncertainty, when the state creates appropriate institutional mechanisms to communicate effectively with business and build a consensus for reform, in the process it also reduces investment risks. The argument is illustrated with the example of the Sectoral Chamber of the Automotive Industry (1991–95), and shows the impact of social concertation in neo-corporatist institutions on foreign direct investment.

Notes

¹ Given that 80% of FDI was directed at the service sector privatizations in these years (utilities, telecom and state banks), the automotive industry's share of total FDI inflows appears low at an average of 4.67% per annum in the period 1996–2001 (SOBEET, 2002).

² The promise found its institutional embodiment in the Council for Economic and Social Development or Development Council, which included representatives from all sections of society—business people, government officials, labour unions, church organizations and a variety of civic associations—who were expected to advise the president on his reform agenda.

³ Article 23 of Law 8178/91 was added to the original bill by Deputy Aloizio Mercadante (PT-SP), and was the unique item in the legislation.

⁴ See Schmitter (1971, 1974), Diniz & Boschi (1978), Diniz (1993), Boschi (1991), Cardoso (1975), Cawson (1986), Cohen (1989), Evans (1979, 1995), Mericle (1977), O'Donnell (1977), Collier & Collier (1977) and Payne (1993) for excellent analyses of corporatism and corporatist institutions in general and in Brazil.

⁵ The Development Council goes beyond this sector-based neo-corporatism in that it envisions an all-encompassing macro-corporatist structure that formulates opinions about and proposes solutions to the main policy issues of the day.

⁶ In the early months of 1995, imports shot up to 30% of car sales, whereas these had typically constituted only 3–4% of car sales.

⁷ The material presented in this section with respect to the three accords and their impact on production, sales, etc. is mainly based on Anderson (1999), but also on Arbix (1996) and Diniz (1993).

⁸ Some members of the government were actively hostile to the sectoral chamber—Gustavo Franco was the most outspoken critic—mainly because their neo-liberal preferences were incompatible with what they saw as the remnants of corporatist institutions.

⁹ This point emphasizes the difference between neo-corporatism at the macro level and meso-corporatism. The latter is particularly prone to capture by vested interests and rent-seeking coalitions, thus reducing the scope for a genuine shift from state corporatism to more modern neo-corporatist institutions in the mould of Japanese and European neo-corporatism.

Additional information

Notes on contributors

Mahrukh Doctor

The author would like to thank the Economic and Social Research Council of the United Kingdom for funding her research in the Brazilian automotive industry (ESRC Research Grant R000223594; Project Title: Business, the State and Economic Reform: the Automotive Industry in Brazil) as well as acknowledge the support of the International Motor Vehicle Programme (IMVP) at the Massachusetts Institute of Technology (Boston) and Wharton School at the University of Pennsylvania (Philadelphia).