Why Countries Transition? The Case of Brazil, 1964–2016

Abstract

Economic and political development are contextual. Nevertheless, there are some general elements in the process of institutional persistence and change. We present a framework that goes beyond the standard institutional analysis and adds the concepts of beliefs, leadership, and windows of opportunities in a dynamic process of change. Beliefs of the dominant network may lead countries to choose institutions that do not promote growth and prosperity, even in cases where those in power seek to pursue the common good. Leadership during windows of opportunity helps to determine when, how, and why beliefs change over time. Although each of these concepts alone is not novel in the literature, our major contribution is the evolutionary dynamic. To illustrate the framework, we flesh out the dynamics with a case study of Brazil from 1964 to 2016.

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Notes

  1. 1.

    This is the central theme in Acemoglu and Robinson (2012) and North et al. (2009).

  2. 2.

    For scholarly books for the primarily academic audience, see in particular Acemoglu and Robinson (2006); Eggertsson (2005); Greif (2006); North (2005), and North et al. (2009). For a recent, excellent contribution reaching the general audience, see Acemoglu and Robinson (2012).

  3. 3.

    Eggertsson (2005) and Greif (2006) come closest. They both recognize all four concepts, but within a different, less explicit, framework.

  4. 4.

    We chose 1964 as our starting point because it is the beginning of the military rule, which lasted 20 years.

  5. 5.

    Greif (2006) labels acting on your belief of how others will a “behavioral” belief.

  6. 6.

    The term “dominant network” is taken from Wallis (unpublished book manuscript).

  7. 7.

    This is true even when beliefs are pessimistic about what can be achieved. If the beliefs lead to expectations of poor outcomes and these do in fact materialize, there is no feedback to adjust beliefs.

  8. 8.

    We are pessimistic on the role of media to influence fundamental changes in beliefs and institutions. Witness the recent uprisings in Egypt, with seemingly little fundamental changes.

  9. 9.

    The term “elite” tends to suggest a small unified group, but in many cases the elite will be composed of a very diversified set of groups articulated in complex ways. We thus prefer the term “dominant coalition.”

  10. 10.

    Fitness landscapes were originally used to understand biological evolution. In that case, the vertical axis measures the ability of the genotype to replicate in that population, as the individuals with fitter design, given the environment, would have greater success at reproducing. In our case, there is the assumption that institutions that work well for a society, given its beliefs, will be replicated.

  11. 11.

    For a richer treatment of what determines the shape of the landscapes and also their movement over time, see Alston and Mueller (2015); Kauffman (1995), and Richter and Engelbrecht (2014).

  12. 12.

    The graphs help to clarify the distinction between beliefs and preferences or ideology. Preferences are represented by the “real” (lower) landscape, whereas beliefs are represented by the upper landscape. In some instances, beliefs and preferences may be similar, but this is not always the case. Ideology refers to a predilection to be in a given region of the base of the graph. Preferences and ideology can be taken as primitive, while beliefs arise from a perception of cause and effect and how the world works.

  13. 13.

    The landscape that maps between institutions and outcomes can change over time as technologies, social relations, and even preferences change. We will not address this issue here. The change of beliefs over time (incremental and punctuated) will be addressed in the framework presented below.

  14. 14.

    Jones and Olken (2005) show evidence that individual leaders matter for economic growth and policy outcomes. Bertrand and Scholar (2003) demonstrate the impact of CEO’s style on company performance. This conclusion is corroborated by Bloom and Van Reenen (2007), which shows differences in management practices across and within countries, and provides evidence suggesting that these are likely to be quite important for firm performance. Acemoglu and Jackson (2015) argue that leaders help solve collective-action problems and coordinate beliefs and behavior.

  15. 15.

    We thank Avner Greif and Barry Weingast for comments during discussions on leadership.

  16. 16.

    Higgs (1987) argues that the growth of government in the United States was caused during crises when ideologies were fragile and people wanted government leaders to act. Our notion is similar, but our windows of opportunity can be during good times as well as bad times. They happen whenever outcomes do not match expectations.

  17. 17.

    Our concept of window of opportunity is similar to critical junctures in Acemoglu and Robinson (2012). Yet, we see them taking place when there is a disjuncture between beliefs and outcomes, whereas Acemoglu and Robinson define them as periods of social and political disequilibrium, when there is a shock that disrupts the existing balance.

  18. 18.

    Shocks can be both internal and external. They can also be exogenous or endogenous. Exogenous shocks arise unexpectedly and cause outcomes to deviate from what was expected by the beliefs. Endogenous shocks arise because beliefs are mistaken about the effect of institutions on outcomes, which eventually leads to outcomes that do not match expectations, leading to a revision of beliefs. This can take place smoothly, but often comes about through a shock that prompts a window of opportunity. In practice, though, it is difficult to disentangle the origins of the shocks, as there are complex interactions of new exogenous events with endogenous reactions to those events and their consequences, which in turn can aggravate or mitigate the vulnerability to new exogenous events.

  19. 19.

    The more traditional approach to development has been to explain the lack of growth and prosperity by identifying missing ingredients, such as savings, technology, economies of scale, human capital, social capital, or institutions. Political economy approaches attribute the backwardness to interest groups and elites that block necessary reforms due to the difficulty of establishing credible side-payments to compensate economic and political losers. Our framework shares many of these same elements, that is, institutions and a dominant coalition, but beliefs are given a central role and the concepts are tied together in an explicit dynamic.

  20. 20.

    The GDP differences become even starker if one considers only the years after 1967.

  21. 21.

    Precursors to these beliefs can be found as far back as the 1930s when President Vargas enacted pro-labor legislation. Its origin is as a counterpoint to the country’s historic legacy of inequality. Many on the left, including the intellectual elites and the union leadership, always held this belief, but these groups never had power. Now the belief became shared by the business elites.

  22. 22.

    Here we refer to “true” constitutions rather than the numerous sham constitutions that are window dressing but are not statements of guiding beliefs.

  23. 23.

    Increasingly over time, Brazil tied the hands of politicians by making a “law” a constitutional amendment. In addition, after the constitution, many parts had to be excised as constraining the ability of the government to meet its fiscal target.

  24. 24.

    Brazil authorized very strong powers to the executive branch relative to most presidential systems. The executive in Chile has similarly very strong powers of agenda control.

  25. 25.

    Today, elections in Brazil are widely recognized as fair and well run, with a competent Electoral Tribunal in charge and, since 2000, 100 % computerized voting, which increases the speed of the process and reduces the possibility of fraud (Kinzo 2004; Sadek 1995). The fact that the Electoral Tribunal has removed from office since 2000 more than 460 mayors and vice-mayors and five governors shows that there are still abuses of electoral practice. More importantly, it shows that contrary to previous periods in Brazilian history, effective enforcement mechanisms have started to evolve that dissuade those practices.

  26. 26.

    Germany today still holds this belief.

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Acknowledgments

This paper relies heavily on our book, Brazil in Transition: Beliefs, Leadership, and Institutional Change, published in 2016 by Princeton University Press, and Lee Alston’s 2015 William S. Vickrey Distinguished Address presented at the 80th International Atlantic Economic Conference in Boston, 8-11 October 2015. The title of the paper is a play on Why Nations Fail by Acemoglu and Robinson (2012). We differ by stressing the roles of context, beliefs, and leadership for successful transitions to open economic and political orders. We benefitted greatly from lengthy discussions and correspondence with Thráinn Eggertsson, Avner Greif, Douglass North, James Robinson, John Wallis, and Barry Weingast. For comments on earlier drafts, we thank Eric Alston, Andy Baker, Robert Bates, Eric Brousseau, David Brown, Murat Iyigun, Richard Jessor, Joseph Jupille, Thomas Mayer, Joel Mokyr, Aldo Musacchio, Tomas Nonnenmacher, Joaquim Oliveira, Samuel Pessoa, Jerome Sgard, Ken Shepsle, Steven Webb, and the participants at the following seminars and conferences: the Institutions Program workshop at the University of Colorado; a seminar at the Getulio Vargas Foundation; the conference honoring Douglass North’s 90th birthday; the Economic History Association Annual Meeting (Boston); and the workshop on Legal Order, the State, and Economic Development in Florence, Italy. We also thank the Rockefeller Foundation for a visiting residency in Bellagio where we launched our project.

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Alston, L.J., Melo, M.A., Mueller, B. et al. Why Countries Transition? The Case of Brazil, 1964–2016. Atl Econ J 44, 197–224 (2016). https://doi.org/10.1007/s11293-016-9498-2

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Keywords

  • Beliefs
  • Leadership
  • Institutions
  • Windows of opportunity
  • Brazil
  • Development

JEL

  • O10
  • O43
  • O57
  • N10
  • D83