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Kimberly Dudeck

Comprehensive Chapter Review

Chapter 11: Brazils Guided Capitalism
For several years now, Brazil has been in distress over the gradual decline of its
manufacturing industry, due to competition from China. Back in 1985, manufactured
products made up 55 percent of Brazils exports, but accounted for only 36 percent in
2011 (217). In reality, the decrease in manufactured products was partly a result of the
recent success seen in commodity sectors. The Real Plan had also done some damage on
manufacturing industries. The constant increase of interest rates put in place to support
the strength of the real caused the demand of manufactured products to significantly
decrease. Lastly, the exchange rates for imported goods was much more expensive in
Brazil, which made it impossible to compete with countries like China. A careful study
of imports of Chinese manufactured goods showed that these had largely displaced
imports from elsewhere rather than Brazilian production (218). According to Luciano
Coutinho, the founder of a private lending company known as BNDES, the country of
Brazil was in dire need of more large, locally owned corporations. These firms would
benefit the country by acting as foundations of modernization. The purpose of the
BNDES was to offer long-term funding for infrastructure projects of large industrial
development (218). The process of lending from this company required almost no
interest rate, something commercial banks could not partake in. The overall result of
private-sector investments would boost the productivity and competitiveness of the

Many Brazilian critics accused the government of supporting capitalism since

they showed no reaction to BNDES practices. In some aspects, this statement was true. In
order for productivity to rise in Brazil, small businesses and entrepreneurs needed big
investments from the government so that they could expand overseas. Instead, Dilma
Rouseff agreed to allow foreign investments into the country in order to fund the projects.
As a result, there has been a substantial rise in the amount of multinationals in Brazil seen
in the last decade. Another scheme business owners used to gain capital was to invest in
companies located in the United States and parts of Europe. In 2006, for the first time,
outward investment by Brazilian firms outstripped inward foreign direct investment
(234). One man, by the name of Jorge Paulo Lemann, became the richest man in the
world when he decided to buy out Burger King in 2010, and then Heinz in 2013. Due to
the success of so many entrepreneurs, Brazil loosened the restrictions on international
expansion allowing companies to earn a profit more easily. Brazils total market
capitalization increased from an average of $341 billion in 2004 to $1.2 trillion by
2012 (234). In accordance with Brazils transition to a new form of government, the
country had finally become prosperous and will soon be engulfed in private-equity and
venture-capital funds, which will attract foreign financial giants (234).
Following the devaluation of the real in 2013, the federal government decided to
handle the situation by promoting innovation and competition across the country. Since
the number of entrepreneurs in Brazil continued to rise over the next few years, there had
been many concerns about the creation of oligopolies among the larger corporations in
the country. In order to manage the impending situation, Congress approved a law in
2012 endowing Brazil with a modern competition authority (235), which would aim to

prevent a state of limited competition. According to Fernando Reinach, The culture of

innovation has finally arrived in Brazil (236). The decision to convert the country to a
unique form of capitalism was the best idea Brazil has ever had. It not only allowed
businesses to expand, but it turned over so much profit for the struggling country of
Brazil. They had finally reached a secure financial standpoint.