Economic Growth, Inequality and Crony Capitalism: The Case of Brazil

This book explores why Brazil has a costly business environment and argues that the collusion between political actors, bureaucrats, and business insiders is the root cause. It provides insights into crony capitalism and inequality and suggests that reforms may underestimate the challenge.

Format: Paperback / softback
Length: 222 pages
Publication date: 29 April 2022
Publisher: Taylor & Francis Ltd

Researchers in international development have long argued that the high costs of doing business harm prosperity in developing countries, a claim that invites the question of why governments impose these costs and why societies fail to enact reforms reducing them. This book seeks to answer the question by looking at the case of Brazil, a large and highly unequal economy riddled with state-imposed transaction costs. By delving into the political dynamics underlying a costly business environment, this book provides the reader with novel insights into crony capitalism and inequality. It argues that the root cause of a costly business environment is the collusion between political actors, bureaucrats, and business insiders. Politicians and bureaucrats relish their discretion over rules and policies as a power resource, since they can increase or decrease the costs of doing business faced by firms and sectors. Business insiders collude with government agents to access the loopholes that decrease the cost of doing business, thus gaining a competitive edge over outsiders. This gives the insiders weaker preferences for reforms that could decrease the overall cost of doing business. By pursuing their self-interest, these actors create a low-level equilibrium that perpetuates crony capitalism and inequality to the detriment of overall prosperity. The book makes its case with a sophisticated combination of formal modeling, quantitative analyses, and in-depth case studies of tax policy and of the pharmaceutical and agricultural sectors in Brazil. Observers have declared the need for reforms that improve the business environment in developing countries for a long time. However, the findings presented in this book suggest they might have underestimated the challenge ahead.

Introduction:
The high costs of doing business have long been a topic of debate among researchers in international development. While some argue that these costs are necessary for promoting economic growth and creating jobs, others contend that they hinder prosperity in developing countries. This book seeks to explore the relationship between the high costs of doing business and prosperity in developing countries, with a particular focus on the case of Brazil.

The Costs of Doing Business:
The high costs of doing business in Brazil are well-documented. According to the World Bank, Brazil ranks 120th out of 189 countries in the Ease of Doing Business Index, which measures the regulatory environment, infrastructure, and other factors that affect business operations. The country's complex tax system, cumbersome bureaucracy, and inefficient regulatory processes are among the factors that contribute to these high costs.

The Impact on Prosperity:
The high costs of doing business in Brazil have significant implications for the country's prosperity. According to the World Bank, Brazil's economy grew at an average annual rate of 2.2% between 2003 and 2012, which is below the average growth rate of other Latin American countries. The country's high unemployment rate, particularly among young people, is also a consequence of the costly business environment.

The Question of Why:
The question of why governments impose these costs and why societies fail to enact reforms reducing them is central to this book. One reason for the high costs of doing business is the collusion between political actors, bureaucrats, and business insiders. Politicians and bureaucrats enjoy their discretion over rules and policies, which they can use to increase or decrease the costs of doing business faced by firms and sectors. Business insiders, on the other hand, collude with government agents to access loopholes that decrease the cost of doing business, gaining a competitive edge over outsiders.

The Root Cause of a Costly Business Environment:
The root cause of a costly business environment is the collusion between political actors, bureaucrats, and business insiders. This collusion is driven by the desire of these actors to protect their interests and maintain their power. Politicians and bureaucrats use their discretion over rules and policies to favor their supporters and punish their opponents. Business insiders, in turn, collude with government agents to access loopholes that decrease the cost of doing business, gaining a competitive edge over outsiders.

The Low-Level Equilibrium:
By pursuing their self-interest, these actors create a low-level equilibrium that perpetuates crony capitalism and inequality. This equilibrium is characterized by a lack of competition and innovation, as firms and sectors are unable to compete on a level playing field. The high costs of doing business also lead to a lack of investment, as firms are reluctant to invest in new projects due to the high risks involved.

The Need for Reform:
The findings presented in this book suggest that observers may have underestimated the challenge ahead in improving the business environment in developing countries. The book makes its case with a sophisticated combination of formal modeling, quantitative analyses, and in-depth case studies of tax policy and of the pharmaceutical and agricultural sectors in Brazil. The book argues that the root cause of a costly business environment is the collusion between political actors, bureaucrats, and business insiders, and that the only way to break this equilibrium is through reform.

Conclusion:
In conclusion, the high costs of doing business in Brazil have significant implications for the country's prosperity. The collusion between political actors, bureaucrats, and business insiders is the root cause of this costly business environment. By pursuing their self-interest, these actors create a low-level equilibrium that perpetuates crony capitalism and inequality. The only way to break this equilibrium is through reform, which will require a commitment from all stakeholders to promote competition, innovation, and investment.

Dimension: 234 x 156 (mm)
ISBN-13: 9780367517021