Introduction

A major impediment to the study of public enterprise performance in Latin America has been the lack of central data files. The creation of SEST – the federal budgetary authority – in 1979, was the beginning of a major step forward in resolving this problem in the case of Brazil, but no comparable data collection point existed during the time period covered by this study. Consequently, one of the most important tasks for the researcher is to marshal comparable data on numerous public enterprises in different economic sectors. The purpose of this appendix is to describe briefly the attempts made to surmount this difficulty in the case of Brazilian public enterprises from 1965 to 1979.

First, the most important sources of data on public enterprise performance are described. Second, the methods for classifying the bulk of raw financial data underlying this study are set forth. Third, the methods used to derive a number of the more important variables used in this study are described.

Sources of data on public enterprise performance, 1965–79

The principal sources of data used in this study included: (1) annual reports of public firms, holding companies, ministries, and ministerial bodies; (2) data files of the Centro de Estudos Fiscais, Fundac,ao Getulio Vargas; (3) miscellaneous publications and internal documents of individual enterprises or similar works relating to particular industries in which public enterprises are dominant; (4) annual surveys of the financial condition of enterprises; (5) interviews with government officials and directors of public firms; (6) newspaper files, primarily those of O Estado de São Paulo; and (7) reports of the Secretary for the Control of State Enterprises (SEST).

“State capitalism” in Brazil refers to the important decisionmaking role of the public sector in a supposedly free-market economy. The economic role of the Brazilian state can be broken down into two broad categories of functions: the state as a regulator of economic activity and the state as a direct participant in economic activity. The first category would include the classic allocative, stabilizing, and distributive functions of the state implemented through a variety of traditional tools: monetary, credit, and fiscal policies, trade and exchange rate policies, price controls, and so on. As a direct participant in the economy, the Brazilian state is also important as an owner of banks and enterprises. The state as regulator and the state as entrepreneur: Both of these separate, but interrelated roles of the Brazilian public sector grew in importance over the last twenty years. This book is concerned with a particular facet of state capitalism in Brazil, the nonfinancial public enterprises. But we would miss much of the subject's true importance in contemporary Brazil without at least some initial understanding of the broader role of the state as regulator and as an owner of financial institutions. The origins and major outlines of that broader role are the topics of this chapter.

Historical antecedents

Until the gold boom of the eighteenth century, the Brazilian colony was thought by the Portuguese to be of little commercial value.

How should one look upon the role of the state in the economies in Latin America? The answer will certainly influence the criteria for success or for failure used in an evaluation of state-enterprise performance. My premise is that cultural traditions in Brazil and in many countries of Latin America support a much more activist economic role for the state in Latin America than in the Western market economies. An important concern in Latin America has been that an increased scope of free-market forces will lead to undesirable results when, as is the case so frequently, the starting point is one of tremendous inequalities in the distribution of income, wealth, and education between various social groups. In Latin America, privileged domestic elites have traditionally monopolized these economic advantages, so one fear has been that these same elites would benefit disproportionately from a capitalist economic system that placed maximum emphasis on the selfish pursuit of material benefits by individuals. A parallel fear has been that a free-market system operating in the global economy would, for analogous reasons, work to concentrate wealth and resources in the hands of a relatively small number of already wealthy nations while working to ensure the permanent impoverishment of more backward economies and societies simply because more developed countries are richer and more technologically advanced from the beginning.

Understanding this basic mistrust of the market system helps the observer realize the reasons for the many forms of Latin American government intervention in both the domestic economy and the external trade sector.