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Brazil, the Global (Financial) Crisis and Innovation

Brazil, the Global (Financial) Crisis and Innovation. José E Cassiolato RedeSist - www.redesist.ie.ufrj.br International Seminar on Innovation and Development under Globalization: BRICS Experience Trivandrum, 19-21 August 2009. Structure. 1 – A financial crisis? 2- Impacts on Brazil

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Brazil, the Global (Financial) Crisis and Innovation

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  1. Brazil, the Global (Financial) Crisis and Innovation José E Cassiolato RedeSist - www.redesist.ie.ufrj.br International Seminar on Innovation and Development under Globalization: BRICS Experience Trivandrum, 19-21 August 2009

  2. Structure • 1 – A financial crisis? • 2- Impacts on Brazil • 3 – What next

  3. A financial crisis? • Financial crisis, recession, depression … • A crisis in the capitalist system • or a crisis of the capitalist system?

  4. Present economic crisis as a crisis of an accumulation regime which is intensive in the use of oil and other minerals in the mass production and consumption of autos and other consumer durables • Crisis as an expression in a specific historical context of the internally created limits (“internal barriers”) that capital runs up against • these barriers manifest themselves in an interconnected manner • by the fall in the rate of profit and • in periodic crises of massive overproduction • Great disagreement on the measurement of the rate of profit • The rate of investment (nearest approximation to the accumulation of physical capital) provides an expression of capitalists’ propensity to accumulate in real capital and so gives an indication of the way they view the profitability of such investment • Capital devises ways to offset the fall in the rate of profit and also to defer the moment commodities (goods) become impossible to sell and overproduction is manifest

  5. Main mechanisms used by “advanced economies” for offsetting fall in profit and deferring overproduction : • High foreign investment in “emerging economies”, notably China • Strong increase in the rate of exploitation from the 1980s onwards • extension of the working year (in the USA in manufacturing nearly two weeks more in 2002 than in 1982). • Containment and fall of real wages • Massive accumulation in financial services • Massive recourse to debt

  6. Share of wages on GDP Source: Sarfati 2008; Notes: * - 1970; ** - 2005 US – The diverging growth of NYSE and GDP

  7. Finance as a crisis deferring mechanism USA - Profits and net investment as % of GDP 1960-2006 USA - Profits of the financial sector as a % of total profits (5-year moving average)

  8. Finance as a crisis deferring mechanism • Personal debt (consumer & mortgage) to offset the fall of workers’ wages in a context of low levels of domestic investment • Creation of the so-called “wealth effect” from trading of fictitious capital (shares & bonds) • Accumulation of fictitious capital produces nothing in itself, but it can spur some sectors until the financial crisis breaks out • investment in offices and buildings • expenditure from financial salaries & bonuses

  9. Global savings, investment and current account

  10. The crisis in Brazil

  11. IT DID NOT AFFECT MOST PEOPLE ... Brazil – Gini Index – 6 main metropolitan areas March 2002 – June 2009 Crisis

  12. Brazil – Poverty Rate (%) – 6 main metropolitan areas March 2002 to June 2009 March 2002 June 2009 June 08 June 09

  13. The importance of public nstituions Brazil – Share of Public Banks in Financial System

  14. Exports to China are helping a lot • 1st half of 2009 exports to China overtook exports to USA • Exports to China: • US$ 10.4 Jan-July 2009 against US$ 16.4 – whole 2008 • But mostly basic goods …

  15. But ...Fiscal Stimulus Programmes (% of GDP)

  16. Brazil – What next …

  17. Brazil - Specialization Revealed comparative advantage 1967 – 2006 Billions of GDP – PPA 2005 Source : CEPII, 17

  18. Well positioned for a “sustainable” techno-economic paradigm • Good S&T capabilities • Natural resources and endowments (water, clean energies, etc) • Possibility of deepening inclusion of marginalized segments of society • But with problems, e.g • External • Geo-political: how to re-specialize western economies and what will they “offer” to developing countries???? • Internal • Difficulties in finding political consensus towards a national long term project (the blind colonized elite, etc.) • Financial capital is not dead !!! • The role of TNCs

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