Untangling industrial policy: ideas and coordination between state and business by Flavio Gaitán Moisés Balestro

Author:Flavio Gaitán Moisés Balestro [Moisés Balestro, Flavio Gaitán]
Language: eng
Format: azw3
Publisher: Verbena Editora
Published: 0101-01-01T00:00:00+00:00

Table 1: The 20 biggest companies of Brazil, by turnover, 2013.

Source: Valor, 2013a, b; Company websites.

Since the mid-1990s, the number of firms in which the state engages directly or indirectly (through pension funds and other ‘intermediate firms’) increased steadily (Musacchio & Lazzarini, 2014: 98). In all firms where the state is involved through these measures, it controls more than 10% of total equity. Still, the state does not necessarily remain a passive shareholder. BNDES and pension funds indeed use their shareholdings to prevent major company decisions that are not in line with state preferences (Schneider, 2013: 172). In particular, it can prevent decisions about ownership restructuration and corporate finance that would counter the long-term objectives of the state.

In this new form of state capitalism, the state is interested in constant growth and competitiveness. However, its strategic goals are different from usual shareholders: the state keeps a long-term position in a company and therefore, maximizing equity prices is not its first objective. Still, it cannot ignore the preferences and pressures from financial markets as a whole. Investments have to be sound, and high leverage through external credit helps to boost further industrialization and job creation. Here, the second pillar of a state-led finance strategy comes into play: the ‘traditional’ role as a lender for development.

The state as lender

Developing economies always have tried to support the industrial sector employing preferential lending – if fiscal conditions permit. Very often, however, state bank lending has been ‘not enough’ to boost industrial development. Nevertheless, it can alter the incentive structure for firms in order to influence the options for different kinds of non-bank funding. The Brazilian development bank BNDES played a central role: it was responsible for almost three-quarters of all Brazilian long-term credit (BNDES, 2012). It lended approximately 7.5% of Brazilian GDP and disbursed four times as many loans than the World Bank (Lazzarini et al., 2012: 32). BNDES and other public institutions increased their loan volume massively (by 50% between September 2008 and January 2010) in order to compensate for the decrease in private credit supply in the wake of the global financial crisis (Arnold, 2011: 20-1). According to the OECD, it does not seem to crowd out private banks because “it is doubtful that private long-term financial markets would have developed much more fully in the absence of BNDES in the past” (Arnold, 2011: 22). BNDES was able to subsidize long-term credits mainly through two sources of funding heavily. First, it receives contributions from the national treasury for specific industrial policy purposes. Second, it received 40% of the revenues from the Fundo de Amparo ao Trabalhador (Workers Assistance Fund, FAT), as mandated in article 239 of the Federal Constitution until 2017. The FAT, in turn, has been funded through the collection of a small tax on the revenues of private companies, non-profit institutions, and public administration entities. This is a very stable source of funding (BNDES, 2014). Between 70 and 80% of BNDES loans go to large enterprises (BNDES, 2012: 35).

There is a long debate about the proper role of BNDES and development banks in general.

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.