Opinion – Marcos Lisboa: The old policy of the colonels strengthens patrimonialism in the economy

Economic indicators show signs of relief after the severe recession that began under Dilma Rousseff’s government and two years of pandemic. Employment and production resumed growth. High inflation contributed to the adjustment of public accounts, but to a large extent this improvement stems from the reforms initiated in 2016.

It was no small work. There was a reform of labor legislation, Social Security, regulation of the sanitation sector, governance of state-owned companies, among others.

As is often the case in our history, however, this improvement in the economy was followed by new measures to capture public policy by interest groups. This is the Brazilian dilemma: it is enough for the scenario to clear up for the old patrimonialism to kick in.

We are contracting new structural problems, only this time it will be more difficult to correct the distortions. Small politics got tired of being a supporting player and decided to steer the ship.

The Eletrobras capitalization law was flooded with amendments to transfer resources to various activities, including the construction of thermoelectric plants in the center-west and north of the country, where there is no gas and energy, forcing the installation of an expensive network of gas pipelines, which will encumber the consumer’s account.

The denomination “cartels” is usually associated with the collusion of large companies. In Brazil, however, even organized groups of small service providers are successful in winning official favors. The account of these benefits is paid by the rest of society.

Aid was granted to taxi drivers and truck drivers. The events sector is exempt from federal taxes for five years. New exemptions advance in Congress to favor sectors of companies or categories of professionals.

This situation is aggravated by the rules of our tax system, with rates and calculation bases that vary by type of product, size or location of the company, in the midst of many special tax regimes.

These rules change the relative prices and profitability of production processes. Companies are induced to choose outdated technologies or to adopt inefficient business structures due to distortions caused by the tax structure. The private gains of companies are offset by lower productivity and growth in the country.

Value added taxation (VAT), on the other hand, does not affect the relative profitability of investment or production projects. For this reason, VAT has spread as a way of taxing consumption in other countries in the last 50 years.

Instead of reducing distortions in the tax system, Congress has chosen to expand special rules and exemptions. This encourages cartelization in the private sector, as it is the way to ensure that its voice is heard in Brasília’s offices.

This process is not new. Employer unions, such as Federations and Confederations of Industry, Commerce and Services, receive resources from the S System, which is financed by payroll taxes. In this way, private sector lobbies are funded by resources from the rest of society.

During the FHC administration and the Temer administration, reforms were adopted that reduced the distribution of benefits to organized groups. The subsidized credit granted by BNDES, for example, was reduced with the end of the TJLP.

In recent years, however, the granting of privileges to organized groups has resumed with vigor and everything indicates that it is here to stay. The Executive was colluding with the capture of the conduction of public management by Congress, which took over the patrimonialist agenda.

In which other country do parties have almost R$ 5 billion in public funds to finance their electoral campaigns? The amendments of parliamentarians reach almost R$ 40 billion per year. Not to mention the profusion of laws that distribute benefits to server corporations and private sector lobbies.

The next president will have a difficult negotiation with Congress if he wants to govern. Budget control was fragmented among parliamentarians. Why would they give up the power acquired in recent years? What does the president have to offer in return?

Democracy is strengthened with the contradictory, the possibility of alternation in power and electoral competition. The amendments by parliamentarians and the electoral fund, however, guarantee privileged treatment to allies in the party summits. The others, due to restrictions on private financing of campaigns, are left to look at ships.

The same is true of the market economy. Companies must be profitable because they have better management methods or they innovate, repeatedly, successfully. The best companies grow, while the others close their doors. This difficult process of creative destruction contributes to increased productivity and economic growth.

In the country of the old colonels and the new cartels, however, businessmen survive because they obtain privileges in the congressmen’s offices in Brasília.

The Planalto Palace dwindled and was an accomplice in this transfer of power to Congress. The president rants a lot, but sends little. To keep up appearances, he invites his friends to the September 7 parade.