Economic Failures

The Brazilian Miracle ended due to two primary factors: the 1973 oil crisis and the state’s centralized planning – issues of respective immediate and looming concern. The first issue, the oil crisis, was outside of Brazilian control. Because the United States aided Israel in the Arab-Isreali War, OPEC (Arab) nations limited oil exports to the U.S. and its allies – drastically raising oil prices across the Americas. Given the United States was the self-proclaimed protector of Latin America, dissociation with the U.S. would have been challenging, not to mention the economic entanglement resulting from American-Brazilian joint ventures. Nevertheless, Brazil relied on foreign oil, importing over 80% of the fuel required for industrial development. With skyrocketing prices and limited supply, the economy that previously had grown 10% annually was declining – a precarious signal to investors.

By the end of 1974, economic growth had flatlined from its 14.6% annual growth (rate) peak a year prior. The nation had run its coffers dry to import oil, yet high import costs turned industrial production into price-prohibitive activity. The gears of industry ceased turning, dropping export capacity, and cutting off a stream of returning capital. While blame for this sudden loss of prosperity shifted among many individuals and organizations, an ultimate consensus emerged – the fault laid with the technocrats.

In Goulart’s day, technocrats were men, numbering in the thousands, who served as de facto representatives for their respective industries or academic professions. Following the 1964 coup and subsequent purge of public offices, these men assumed control of state-owned companies (ending in -bras) to construct a modernized Brazilian state based on central planning. Oddly, Brazil’s centralized planning initiative bore similarity to U.S.S.R. policy despite the nation’s economic inclination toward Western markets. As Brazil mirrored Soviet policy, it also reflected the faults of the Soviet bureaucracy – mainly the corruption bred amongst the regime’s top brass (i.e. the technocrats). In a system requiring all resources committed to industrialization, technocrats siphoned off crucial public funds for personal gain – handsomely paying sycophants to keep the scheme operational. Another subset of technocrats overspent on the aforementioned pharaonic projects, increasing the scope of construction to mask misappropriated funds – thereby ensuring the given bridge or power plant remained an incomplete money sink. This mismanagement plagued the military regime, yet it remained overlooked for years as the technocrats were drunk on their newfound wealth assembled from their wasteful constructions and related activities. 

The poster boy for this technocratic waste was the (central) planning minister, Antonio Delfim Netto – known for his cake (or pie) model. Held as the centerpiece for Brazilian industrialization, the model illustrated that the economy, represented by cake, must be baked larger before it is hearty enough to be divided equally amongst the classes. While the economic cake baked fully, only the smallest slices were distributed to the lowest classes – leaving the majority with the elite. However, this is not to say the poor saw no benefit – arguably, the smallest slice still provided the greatest proportional benefit regarding their quality of life. Nevertheless, the masses recognized the unequal distribution, and sentiment turned against Netto. Said distribution was enabled due to the centralized nature of the Brazilian state, leaving all decisions with the powerful few – a select group that sought ever more wealth. 

Left with the smallest slice, the underserved relied on factory wages to survive. However, following the 1973 oil crisis, this reliance shattered due to wage indexation and the rotatividade system. First was wage indexation, the practice of adjusting wages to match inflation. While indexation is an explored practice, the Brazilian implementation was a disaster as the regime received disputed statistics. For example, in June 1973, the cost of living – a statistic subject to inflation change – soared to a staggering 33.82%. However, the state received data suggesting the cost of living had only risen to 20% and adjusted wages according to the incorrect, reported amount. The decreased value of the Brazilian cruzeiro resulting from insufficient adjustments increased import costs, particularly on oil imports, exasperating the oil crisis and thereby increasing inflation. This inflation would subsequently be misreported, leading to faulty indexation and feeding back into the cyclical problem. The second factor was the rotatividade system, a scheme in which companies self-declared bankruptcy, enabling them to fire their promoted workforce to hire lower-cost laborers. The practice denied poor Brazilians upward social mobility, leaving many in generational poverty. Despite the urbanized groups seeking factory work, the rotatividade system flushed so many through the system that labor shortages emerged in certain regions. 

It is for the issues stemming from the technocrat’s central planning, whether that be wage indexation or wasted state funds, that the oil crisis was so devastating to the economy – ending the Brazilian Miracle. A select group of technocrats was even forward with this assertion. Carlos Geraldo Langoni, the central bank minister, stated the course he helped shape was “socially perverse and economically inefficient”. The United States, which conspired with the generals to overthrow Goulart, was apologetic on behalf of the technocrats. In addition, the U.S. also incurred a $200 billion budget deficit, a damper on the U.S.-tied Brazilian economy. The Brazilian finance minister partially acknowledged the reality of this deficit, stating: “We are a victim of factors in the outside world […] The main one at the moment, he said, is the American budget deficit and high-interest rates.” Whatever the intended effect of this finger-pointing, the Brazilian people held the technocrats responsible for the economic downturn. Perhaps the general sentiment could best be characterized by a contemporary street joke: “There’s a drought in the northeast, and there’s flooding in the south […] so the technocrats decided that, on average, everything is fine.” 

The long-term effects of the Brazilian Miracle’s fallout intertwine with the economic growth of Mexico. In the ten years following the collapse (1983), Brazil’s economic prospects slipped further from the initial dreams of a “second Japan”. The nation was $90 billion in debt, taking loans from the International Monetary Fund (IMF) to pay off old IMF loans from the oil crisis. In addition, Brazil was still reeling from the 1979 oil crisis, spiking inflation to 127% and leaving 20% of Brazilians unemployed. As the economy bottomed out, investors turned their focus to Mexico. Since 1982, Mexico had been successfully paying off its own $90 billion IMF loan and was forging a healthier relationship with one of Brazil’s key export nations, the United States. With economic stability, Mexican maquiladoras became the primary Latin American manufacturing resource for the American market, leaving the Brazilians to trail for the subsequent decades.