Introduction

It is the best of times and the worst of times to be writing about businessstate relations in Brazil. As I complete this volume in May 2016, the level of political and economic uncertainty is great, but the urgent need to understand the conditions and institutions that shape interaction between business and state actors has never been more important. Meanwhile, the issues of structural reform and the need to boost Brazil’s competitiveness to support the next phase of the country’s growth and development are among the top priorities of Brazilian business and lie at the heart of the policy agenda. This volume directly addresses the above issues. Its theoretical and analytical focus is on two main areas, business-state relations and institutional change, which are relevant to understanding the prospects for a positive evolution of the Brazilian political economy. Its empirical focus is on the port sector, specifically business efforts to modernise ports to help boost competitiveness. Lessons from the empirical analysis provide theoretical insights to better understand efforts at policy reform and institutional modernisation in Brazil. This introduction briefly discusses the background to the research project and outlines the structure of this volume. My research discusses a period of twenty-five years (1990-2015) bracketed by two presidential impeachment processes. It investigates an exceptionally interesting policy process, rich in terms of empirical detail and analytical contributions, exhibiting as many twists and turns as a samba dancer in a carnival parade. Readers might recall that even at the height of Brazil’s rise and economic success story in the first decade of the twentyfirst century, the spotlight of critical international attention on Brazil was often in the area of logistics infrastructure – mainly due to its negative impact on the competitiveness of Brazilian exports. Unsurprisingly, international competitiveness rankings place Brazil in a rather unflattering light. For example, the World Economic Forum’s 2014-2015 Global Competitiveness Report and the World Bank’s 2016 Doing Business Index rank Brazil at 57/144 and 116/189 respectively. The infrastructure related components of the rankings are even lower (e.g. seventy-sixth in the infrastructure pillar of the first report mentioned above). Neither infrastructure concerns nor their negative impact on competitiveness are new. They came to the fore in the early 1990s, when Brazil

adopted a series of liberalising economic reforms. These reforms had partly been brought on by the exhaustion of the state-led import substitution industrialisation model and partly were a response to the pressures on business and the state to adjust their actions to intensified competition in the international economy. Market opening reforms exposed the woeful condition of logistics infrastructure and inadequate investment in Brazilian ports, roads, railways and airports. Over twenty years later, in the 2010s, the reform outcomes still colour Brazil’s prospects for development, especially with respect to the availability and quality of logistics infrastructure and its impact on competitiveness. To this day, images of deteriorating port infrastructure visually represent the bottlenecks to Brazilian growth, competitiveness and development. Upgrading logistics infrastructure, including ports, airports, rail and road transportation, has been one of the top priorities on the policy agenda of all recent governments. Unsurprisingly, infrastructure featured strongly in the Growth Acceleration Pact (PAC) – phases I and II launched in 2007 and 2011 respectively – as well as in the sectoral credit allocations made by the National Economic and Social Development Bank (BNDES). Notwithstanding the significant resources earmarked for logistics infrastructure, improvements have been marginal and insufficient. The exposure of gross corruption in the state-controlled oil company, Petrobras, in 2014, which led to the imprisonment of a number of top company executives, removal of legislators from Congress, and eventually to the impeachment process against President Rousseff in 2016, raised the issue of whether Brazilian business has no other option than particularistic (and outright corrupt) means of interacting with the state? My research has long argued that where there is a will there is a way for effective, law-abiding and development-enhancing interest intermediation in Brazil. Business can (and has) managed to articulate its interests and organise collectively to lobby for its policy preferences, although it has not necessarily always achieved its desired policy outputs and outcomes. Moreover, the subject of this volume is not just timely with respect to the particular sector it discusses, but also because it focuses on the issue at the heart of Brazil’s current economic and political crisis – the nature of business-state relations. The lobby for port reform is of broader relevance to understanding the longer-term outcomes of market-oriented institutional reforms on national competitiveness and the urgency of improving infrastructure to boost prospects for growth and development. The lessons from the interaction of the key actors in the port policymaking triangle (business, labour and the state) provide valuable insights into the reform process, which remain valid for understanding the prospects for economic progress and institutional modernisation. My research has three main aims: (1) to examine to what extent business lobbying achieved its goals of increasing efficiency and reducing costs of Brazilian ports, and thus boosting competitiveness; (2) to understand how the nature of business-state relations impacts the design and implementation of policy reforms that foster institutional modernisation; and (3)

to consider why institutional change is typically slow and incremental in Brazil. It focuses on one high-profile, but specific, instance from which valuable broader conclusions can be drawn that address all the research aims. It analyses the life cycle of a single law, the Port Modernisation Law (Law 8630/1993). This law was introduced as a bill in 1991 and received presidential approval in 1993. It explicitly targeted augmenting Brazil’s competitiveness via creation of efficient and low-cost ports. Although business lobbying achieved the desired policy decision, it did not lead to the expected policy outcome. This was because many aspects of the legislation were not implemented, notwithstanding the efforts of successive governments and continued pressure from pro-reform business. The law was finally replaced in 2013. Effectively, the government decided to take a second swing at reform – it sought to consolidate gains, iron out remaining problems, and push for institutionalisation of reforms introduced twenty years earlier. In following the origin and demise of Law 8630/1993, the research closely analyses the path to institutional change in a context of strong opposition from vested interests in both the state and civil society. The difficulty in implementing Law 8630/1993 throws the spotlight on the barriers to reform and deeper challenges to open business lobbying in Brazil. The research shows how business created an uncharacteristically strong level of consensus to overcome the standard problems of collective action, but also how difficult it was to maintain its collective purpose, which jeopardised the prospects for full implementation. Given the policy and institutional context, the outcome was actually reasonably predictable, as will be demonstrated in this volume. The research’s analytical framework uses insights from corporatist theory and policy network analysis to understand how business-state relations can evolve to support effective reform processes and institutional modernisation. It also considers how theories of incremental institutional change contribute to explaining how institutional transformation occurs in Brazil. In other words, theory provides some insights into how to surmount barriers to policy reform and institutional modernisation. In more specific terms, the research project examined whether business lobbying achieved its main objectives with respect to port reform, i.e. reducing port costs, increasing cargo-handling efficiency, and modernising port infrastructure. The business lobby for port reform, known as Ação Empresarial Integrada (Integrated Business Action; AEI), focused on two core issues: (1) ending the exclusive right of port daily-hire labour unions to nominate work-teams for on-board cargo-handling, the so-called union monopoly (similar to the National Dock Labour Scheme in British ports, which the Thatcher government abolished in 1989); and (2) allowing privately operated ports to invest in port infrastructure and to handle nonproprietary cargo. However, the impact of business demands went beyond changing labour hiring practices and allowing private sector operation of ports, because port reform had wide-ranging implications for international competitiveness of business, the evolution of corporatist institutions, the

changing role of the state in the economy (privatisation, deregulation, reduced intervention, etc.), and even the distribution of power between federal and subnational levels (ports fell under national jurisdiction, but local demands for devolving managerial autonomy to subnational authorities became increasingly vocal). Using the port reform story as the empirical backdrop, the analysis focuses on two themes: the evolving nature of business-state relations and the prospects for meaningful institutional change in Brazil. The formulation and implementation of port reform legislation, which generated heated discussion among state and societal actors, provides an excellent case study of the legacies of corporatism in Brazil. This volume explores problems related to adapting corporatist institutions to a democratic and increasingly open market economy, where business influence depends on its capacity to organise collective action. More specifically, it analyses (1) the obstacles that need to be confronted when building consensus after corporatist compartmentalisation; (2) the policy distortions that arise from the legacy of a declining corporatism; (3) the prospects for developing open, independent and constructive business interaction with state actors; and (4) the scope for the emergence of pluralist policy communities in Brazil. In addition, the analysis examines why the business lobby managed to push through favourable legislation, but was unable to ensure full implementation and institutionalisation of the new legal-regulatory regime. It demonstrates why it is easier to organise collective action when interests operate at an aggregate level, than it is to maintain consensus when organised interests experience the specific impacts of policy implementation. It considers how the current context shapes prospects for future business lobbying success. Finally, it shows why policy cannot be deduced solely through the filter of interests, because pre-existing institutions and state capacity also shape policy outcomes. These latter factors matter most in times of intense policy reform, because they provide stability in an otherwise dynamic and uncertain environment.