The Brasília Consensus: Looking for a Second Wind

By Lourdes Casanova and Julian Kassum

This article examines Brazil’s hybrid development model, which combines macroeconomic orthodoxy with certain features of state capitalism, as well as pro-active social inclusion policies. Lourdes Casanova and Julian Kassum identify and analyse the five pillars of the Brasilia Consensus: macroeconomic stability, social programs, domestic demand, state-led industry development and political consensus.

Speaking of a “Brasília Consensus” may seem incongruous just a year after mass protests swept Brazil for the first time in decades in 20131 and took everybody by surprise. Brazil’s President Dilma Rousseff, who enjoyed personal approval ratings of over 70% just before the demonstrations started, saw her popularity take a hit before slowly recovering. Still, she seems to remain the favourite for the upcoming presidential elections of October 2014.

Clearly, the protests were never about overthrowing the government or demanding a radical change of political course. Despite its shortcomings, the country’s hybrid policy model, which mixes market-oriented reforms with state-led industrial development and progressive social policies, has produced the intended results of inclusive growth, with quasi-full employment and the incorporation of 35 million more Brazilians within the middle class.

What the protests have shown, however, is that there is still a lot to be done. The country continues to suffer from years of underinvestment in health, education and infrastructure. In this backdrop, Brazil now faces ambiguity – can the “Brasília Consensus” deliver solutions to its current challenges? Or does the model need reformation or replacement?

The Brasília Consensus

The Brasília Consensus is a term coined to describe the democratic model of state-led socio-economic development employed by Brazilian leaders since the post economic liberalisation era of the 1990s. It can be described as a mid-path between the pro-market reforms advocated by the “Washington Consensus” and the radical set of socialist measures adopted by some of Brazil’s Latin American neighbors. It rests on the five pillars of macroeconomic stability: social programs, domestic demand, state-led industry development and political consensus. Some countries, like Chile, place great emphasis on macroeconomic stability and fiscal responsibility; Venezuela champions social programs; Argentina has undertaken measures to boost domestic consumption and social protection; and China pursues macroeconomic stability and state-led industry development. The essence of the Brazilian way lies in deploying all the pillars simultaneously, seeing them as mutually reinforcing and not exclusive.

Tying Economic Growth to Social Inclusion

Brazil has a patchy record in terms of growth, with growth levels being low but the country managed to secure high growth rates (until 2010), and at the same time cut poverty and reduce income disparities. In its 2013 economic survey of Brazil, the Organisation for Economic Co-operation and Development (OECD) notes that “Brazil reached the Millennium Development Goal (MDG) of reducing extreme poverty by 2015 to one quarter of its 1990 level in 2007, eight years ahead of schedule” (OECD, 2013).2 Other large developing countries have also made great strides in poverty alleviation over the last 20 years. However, while China and India’s economic boom was accompanied by a rise of inequality in both countries, Brazil’s score on the Gini index (which measures the rate of inequality) fell from 0.61 in 1990 to a historic low of 0.53 in 2010. Further, the consumption boom in cars, television sets, refrigerators and mobile phones demonstrate a deep change in the country’s social stratification.

Brazil is moving in the right direction, and Brazil already performs better than the average of BRICS countries in the composite index, as well as in all of its component indicators.

This change resonates beyond material aspects as well. According to the United Nations Development Program data, life expectancy rose from 66.3 years in 1990 to 73.8 years in 2012. On average, Brazilians spent 7.2 years at school in 2012, up from 3.8 years in 1990. Overall, Brazil’s Human Development Index climbed from 0.669 in 2000 to 0.730 in 2012. However, much remains to be done for Brazil to move to the developed-country status. But Brazil is moving in the right direction, and already performs better than the average of BRICS countries in the composite index, as well as in all of its component indicators.

The Five Pillars of the Brasília Consensus

Government policies have played a big role in these major accomplishments. The winning blend of economic and social policies, which together we believe form the Brasília Consensus, rests on five key pillars:

1. Macroeconomic Stability – Brazil is committed to a conservative fiscal and monetary policy marked with:

• Fiscal discipline in terms of primary budget surplus. The government of President Lula exceeded expectations by increasing its target from 3.75% to 4.25% of Gross Domestic Product (GDP).

• Expanding foreign exchange reserves from US$376 billion in 2004 to over US$376 billion in mid-2013.

• 1A Central Bank inflation targeting regime in the context of free-floating exchange rates with capital controls. The inflation rate was 5.59% in January 2014, meeting the target of 4.5% with a tolerance interval of (+/-) 2%, laid down since 2005.

2. Social Programs – Social Programs, the so-called “Conditional Cash Transfers” (CCT) to the poor have been central to the government’s policies.

• Under the label of Bolsa Família (Family Grant), government has been running initiatives such as Bolsa Escola, for boosting school attendance, Bolsa Alimentação for maternal nutrition and Auxílio-Gás, a cooking gas subsidy, as well as the newly created food entitlement scheme, Cartão-Alimentação. Social programs cover 48 million people, which is a quarter of Brazil’s population.

• Brasil Sem Miséria (Brazil Without Misery), President Dilma Rousseff’s new program launched in 2011, extends Bolsa Família to 800,000 families, improving access to basic services for the poor and helps them enter the job market through professional training.

3. Domestic Demand – Brazil’s success in poverty alleviation is often attributed to its social programs alone. However, according to the Brazilian Institute of Applied Economic Research (known by the Brazilian acronym IPEA),3 Bolsa Família accounts for only 8% of total poverty reduction and for between 16% and 21% of the total decline in inequality since 2001. 4

• Pierre Salama, a French economist, explains that the main contributory factors have been economic growth coupled with an overall improvement in employment conditions through regular salary hikes and increased job creation in the formal sector.5

• Another key factor has been the expansion of credit, a strategy that was actively fostered by the government through the public banking system, fueling domestic demand and fighting poverty. According to the OECD (2013), the ratio of credit to GDP doubled over the last eight years and reached 54% of GDP, with 28% of outstanding credit consisting of consumer loans, including car loans.

4. State-Led Industrial Development – Brazil has a long history of state intervention in the economy.

• In spite of the economic liberalisation in 1990s, Brazil is far from embracing open trade. World Bank figures show that the country’s merchandise trade-to-GDP ratio was 21.1% in 2012, compared to 47% in China and 94.5% in South Korea.

• Government promotes local industry through different measures like imposing stiff import tariffs, encouraging foreign manufacturers to produce locally and employing local content rules to protect its automotive and energy industries.

5. Political Consensus – The cement of the Brasília Consensus – what makes the four previous pillars stand together – is political consensus. This took the form of a pragmatic coalition of interests among various segments of Brazilian society. In particular, Brazilian manufacturers, banks and retailers were among the direct beneficiaries of the consumption-led, credit-fueled economic model championed by the government and supported by trade unions.6

Brazil , an Ambiguous Member of the State Capitalist Camp

The idea of promoting endogenous growth remains deeply engrained in the mindset of Brazilian policymakers and is a legacy of the strategy of import-substitution industrialisation, which it championed between 1950 and 1970. State support for industry goes, in fact, much further than the imposition of trade barriers and local content requirements. Brazilian policies in this area reflect a larger trend, which has grown popular among many emerging market countries and which is often referred to as “state capitalism”. Aldo Musacchio,an Associate Professor at Harvard Business School, defines state capitalism as “a system in which governments, whether democratic or autocratic, exercise a widespread influence on the economy, through either direct ownership or various subsidies.”7 Classic examples are China and Russia. Most big Chinese companies report to the Communist Party in one form or another. In Russia, the Kremlin has established control over the country’s oligarchs and placed former KGB officials at key posts of government-run corporations.

For the case in point of Brazil, The Economist reports that state-controlled firms (such as Petrobras, Eletrobras, or Banco do Brasil) make up 38% of the value of the stock market in Brazil, compared with 80% in China and 62% in Russia.8 The hand of the Brazilian state also reaches the corporate sector through more indirect forms like Brazil’s National Development Bank (BNDES), and the pension funds of employees of state-owned firms, including Banco do Brasil, Petrobras and the Caixa Econômica Federal. However, the US political scientist Ian Bremmer, President of the Eurasia Group, contends that while Brazil has begun to flirt with limited forms of state-managed capitalism, it remains essentially a market economy.

BNDES and Public Pension Funds, the Visible Hand of the State

BNDES, founded in 1952, plays a crucial role as a financing agent and investment partner for the country’s corporate sector. By the end of 2012, BNDES held BRL715 billion (about US$350 billion) in total assets in companies, which made it about the same size as the World Bank. Initially focused on infrastructure and heavy industry, it first expanded to energy and agribusiness, and is now present in virtually all sectors of the economy. It is the main provider of long-term financing in Brazil and is crucial given that interest rates, which averaged 16.27% from 1999 to 2012, have been a recurring obstacle for Brazilian companies looking to expand.

The Brazilian government also used BNDES as a key instrument in its counter-cyclical policies during the Global Financial Crisis. Credit from public institutions (including BNDES) rose by 50% between September 2008 and January 2010.

In addition to its lending activities, BNDES also directly participates in company equity through its investment arm BNDESPar. At the end of 2012, the oil and gas sector represented 30.6% of BNDESPar’s portfolio, followed by mining (22.8%), electricity (12.6%) and food (7.1%). Through financial support, it facilitated the merger of domestic firms leading to the emergence of the so-called “national champions.” Additionally, companies with loans or equity from BNDES benefited from improved credit ratings and therefore greater access to international capital markets.

BNDES has been criticised for providing subsidised loans to big companies. The bank is responsible for more than 70% of long-term credit in the country. In spite of that, the final cost benefit analysis shows that BNDES actually created a net fiscal gain and had a rather small effect on the private financial market of Brazil.

Apart from BNDES, government indirectly supports the domestic private sector through the three largest pension funds of state owned enterprises. Previ is the pension plan for the Brazilian public bank, Banco do Brasil. With US$82 billion in assets, it has the largest pension fund in Latin America and was ranked 27th worldwide in 2012. Petros is the pension plan for Petrobras and with US$29 billion in assets is Brazil’s second largest, and Funcef is the pension plan for the Brazilian public savings and loans bank Caixa Econômica Federal, and with US$23 billion of assets is the third biggest in the country. Equity accounts for a large share of their total investments. As a result, many large Brazilian companies find Previ, Petros and Funcef among their shareholders.

The Bigger Brazil Plan

High levels of taxation (notably payroll taxes), inflation and tariffs on imported inputs have been a drag on the competitiveness of the Brazilian industry. Besides the Programa de Aceleração do Crescimento (PAC, Growth Acceleration Program) launched in 2007 and now in its second phase, the government has reacted by launching a new industrial policy called Plano Brasil Maior (the Bigger Brazil Plan) in August 2011. It aims at implementing tax breaks for labour intensive sectors, electricity subsidies, benefits for the automotive industry, a “Buy Brazilian” policy in public procurement, export promotion while protecting domestic markets and a financial push to encourage R&D. However, some in business circles think the plan is failing to address the structural challenges faced by the Brazilian industry, such as high interest rates, high energy prices, lack of adequate infrastructure, a burdensome tax system, and poor regulatory practice.

Is the Brasília Consensus Broken?

The outbreak of massive protests in June 2013 made evident a growing sense of frustration among a majority (according to some accounts about 75% of Brazil’s population supported the protests) of Brazilians over the lack of progress in certain critical areas. Due to police mishandling of a peaceful protest, the movement soon expanded to other Brazilian cities with its target shifting to a wider set of domestic issues like affordable transport services, improvement in public education and health systems, high taxes, inflation, corruption and finally the billions of dollars spent on hosting the 2014 FIFA World Cup.

However, opposition political parties, which joined the crowd, could not marshal broader support from demonstrators or public opinion either.

Towards a New Social Agreement?

As a reaction to the demonstrations, President Dilma Rousseff announced a “national pact” with state governors and mayors, promising a referendum on political reform, renewed efforts against corruption, and improvements in transportation, health and education services. However, she faces a quandary in terms of contrary demands for increased public spending and lower taxes at a time when the economy is cooling and fiscal responsibility can not be compromised in order to control inflation.

This situation is putting the Brasília Consensus to the test. First, addressing demands for better infrastructure and improved public services requires a shift in public support from consumption to investment. Second, reining in inflation requires boosting the competitiveness of the Brazilian industry, which many argue would be facilitated by less government interventionism, rather than more. And import barriers and high taxes contribute to raising the cost of life. The use of public funds to help BNDES finance the consolidation of domestic industries is also being increasingly criticised.

Which Way Ahead?

Brazil and its last three Presidents have reaped rich dividends through this democratic model of state led economic liberalisation. Thus, radical changes to this hybrid framework seem unlikely. However, the shortcomings evidenced by recent protests call for innovative tweaks to the model. Brazilian leaders have shown that their approach is fundamentally pragmatic and that they are willing to try “whatever works.” Further, not discounting the social programs, long-term structural solutions that boost growth, productivity, employment and wages are needed. Consequently, finding ways to upgrade the Brasília Consensus while staying faithful to its objective of inclusive growth has now become a necessity. This will not only help advance the country’s economic and social development, but also keep feeding the country’s soft power on the global stage by reinforcing its standing as a policy innovator and achiever.

This article is based on Chapter 2 of the book The Political Economy of an Emerging Global Power: In Search of the Brazil Dream written by Lourdes Casanova and Julian Kassum (Palgrave Macmillan. 2014.)

About the Authors

L_CasanovahrLourdes Casanova is a Senior Lecturer and Academic Director of the Emerging Markets Institute at the Johnson School of Business at Cornell University. Formerly at INSEAD, she specialises in international business with a focus on emerging markets multinationals. She has taught and directed executive programs at INSEAD for senior managers from multinationals including Telefónica, BBVA and Cemex and the Brazilian Confederation of Industries. She is author of Global Latinas: Latin America’s emerging multinationals (Palgrave Macmillan 2009), and co-author of Innovalatino, Fostering Innovation in Latin America (Ariel 2011).

JulianJulian Kassum is an independent consultant and researcher. After graduating from Sciences Po Paris, he worked as Policy Manager for the International Chamber of Commerce (ICC) and Legal Counsel for the oil and gas company Total. He also worked as a consultant for the World Economic Forum and the B20 Task Force on Anti-Corruption. Since 2013, he has served as Executive Director of ICC Argentina. He is the author of The G20: What it is, what it does. A Business Guide (2012).


1. There have been sporadic demonstrations in 2014 for various reasons like world cup spending, police violence, and displacement of people due to the building of the stadiums, etc. but nothing like 2013.

2. Organization for Economic Cooperation and Development – OECD (2013). OECD Economic Surveys Brazil: Overview. Accessed 15 December 2013. Paris: Organization for Economic Cooperation and Development.

3. Accessed October 2013.

4. Soares, S. S. D. (2012). Bolsa Família: A Summary of Its Impacts (No 137). International Policy Center for Inclusive Growth. Retrieved from on 15 October 2013.

5. Salama, P. (2010). Brésil, bilan économique, succès et limites. Problèmes d’Amérique Latine, (4), 47-61.

6. This political consensus was very clear during President Lula’s years but seems to have been broken after the demonstrations in 2013.

7. A. Musacchio, “Governments as Owners: State owned Multinationals Companies,” Journal of International Business Studies, forthcoming. With Alvaro Cuerv0-Cazurra, Kannan Ramaswamy and Andrew Inkpen.

8. The Economist. The rise of State Capitalism. 21 January 2012. Accessed by 15 October 2012.