Understanding Brazilian Agriculture through Dissipative Inclusion

1. Understanding Brazilian Agriculture through Dissipative Inclusion Bernardo Mueller – University of Brasilia

2. Brazil has an uncanny knack to not do what we expect it to do.

3. Outline of the talk: • Three ‘amazing’ examples from Brazilian agriculture. • Is it some kind of exceptionalism? • Or is something missing from our understanding of the Brazilian development process. • Dissipative Inclusion.

4. Example 1 – Agricultural production • Situation in the 1980s - early 1990s: • Low productivity • Inefficiencies, technological backwardness • Excessive concentration • Conflicts • Poor infrastructure • Dysfunctional government policies • Proposed solutions: • Land reform • More credit, more policies • Infrastructure • etc.

10. Em Discussão: Revista de Audiências do Senado, Ano 2 No. 9, dez. 2009

11. Where did this come from? • Obvious in retrospect? • Brazilian exceptionalism? • Or maybe something is missing from our understanding.

12. Example 2 – Land Reform • Land Reform was tried in: • 1946 Constitution; • Early1960s; • Authoritarian period 1964-1985; • Redemocratization 1985 - after… • and systematically failed. • Explanation: Political economy – Landowners too powerful. Bancadaruralista, UDR, Judiciary, Congress.

15. And despite all this redistribution … • Not really land reform. • Not related to the productivity revolution. • Sales and abandonment. • High cost. • Environmental trade-off.

16. Where did this come from? • Can this process and these outcomes be understood by the standard political economy model? • Does the rise of the MST explain everything? • Or maybe something is missing from our understanding.

17. The Political Economy of Land Reform in Brazil Land Reform Policy in Brazil: The Informational Role of the Landless Peasants' Movement Lee J. Alston and Bernardo Mueller (2012)

18. Example 3 – Deforestation http://www.shepherdsofgaia.com/2011_09_01_archive.html

19. Example 3 – Deforestation

20. Example 3 – Deforestation

21. From Eco-Catastrophe to Zero Clearing: why is deforestation in the Neotropics declining? • Susanna Hecht – London School of Economics – Oct. 17, 2013: “No one would have bet ... I would not have bet in the year 2000 that the deforestation rate would decline after 2004 by 84%.”

22. Once again there seems to be something missing from our understanding ...

25. environmentalism transparency federalism free press NGOs markets independent public prosecutors international organizations competitive elections

26. Beliefs, Leadership, and CriticalTransitions: Brazil 1964-2014Lee J. AlstonUniversity of Colorado and NBERMarcus MeloFederal University of PernambucoBernardo MuellerUniversity of BrasiliaCarlos PereiraFGV – Rio de Janeiro

27. Brazil: Beliefs, Leadershipand Development 1960-2014

28. Belief: Sustainable Social Inclusion

29. Changes in the Social Contract in Brazil Fonte: Federal social spending data for 1995 to 2009 from Ipea (2011). Data for 1980, 1985 and 1990 calculated using estimates of total (federal, state and municipal social spending) and estimates of % federal in Ipea (2009: 42-44). Using the estimates in Ipea (2009) to calculate the spending for 1995 and 2005 matches closely the data in Ipea (2011) so the numbers for 1980-1990 seem to be reasonably comparable. Gini data from Ipeadatahttp://www.ipeadata.gov.br/.

30. Changes in Social Class Structure in Brazil Fonte: Neri (2012) using data from PNAD/IBGE. The definition of each class relates to people in a family with per capita monthly income equal to (in Reais of July 2011) : Class E – 0 to 1085; Class D – 1085 to 1734; Class C - 1734 to 7475; Class B – 7475 to 9745; Class A – 9745 and above.

31. Evolution of the Minimum Wage

32. Dissipative Inclusion • Dissipative Inclusion: Characteristics of development under the belief in fiscally sustainable social inclusion. • What emerges from Dissipative Inclusion? • Inclusion • Distortions, inefficiencies, rent dissipation

33. Examples of Dissipative Inclusion • Inclusion • Dissipation • Example Land Reform 900 thousand families received land. 87 million hectares redistributed. Credit. Education. 18 thousand rural conflicts. 1,200 deaths. Insecurity of property rights. No rental market. Deforestation. Human strife.

34. Examples of Dissipative Inclusion • Inclusion • Dissipation • Example Biased labor legislation. Protects workers from exploitation. Gives workers greater bargaining power. Reduces hiring. Makes labor markets inflexible. Promotes informality. Reduces investment.

35. Examples of Dissipative Inclusion • Inclusion • Dissipation • Example Affirmative action in universities Access to education. Social ladder. Impacts on educational quality. Undermine merit. Resentment.

36. Examples of Dissipative Inclusion • Inclusion • Dissipation • Example Participatory institutions: councils (education, environment, water basins, etc), participatory budget, etc Gives stakeholders a voice in matters that affect their lives. Reveals preferences. Gridlock and indecisiveness. Transaction costs. Capture.

37. What are the consequences of Dissipative Inclusion? • Dissipation – Loud, messy and conspicuous. Brazilian GDP per capita Growth Relative to the Rest of the World 1985 Source: Data for 1950-2007 from Heston, Summers and Aten (2009), constant 2005 prices (RGRGDPCH). Data for 2008-2010 from IMF (2010).

38. What are the consequences of Dissipative Inclusion? • Inclusion – Silent, bears fruit in the long term. • But who says that inclusion is the key to development and economic growth?

39. Who says inclusion is the key to development? • North, Wallis and Weingast (2009); Acemoglu and Robinson (2012, 2006); Lindert (2011); Bénabou (2002); Akerlof (2013); Landes (1998); Easterly and Rebelo (1993); Sala-i-Martin (1996); Saint Paul and Verdier (1996); Aghion and Bolton (1997); Perotti (1995); Galor(2011); Galor et al. (2009); Engerman and Sokoloff (2000); Alesina (1994); Bouginon (2004); Clarke (1995); among many others.

40. But does this inclusion and development narrative apply to Brazil?