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Brazilian Federalism Centralization vs. Decentralization Class 14, September 25, 2012.

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Presentation on theme: "Brazilian Federalism Centralization vs. Decentralization Class 14, September 25, 2012."— Presentation transcript:

1 Brazilian Federalism Centralization vs. Decentralization Class 14, September 25, 2012


3 Colonial Period (1500-1822): Portugal, that colonized Brazil, faced huge difficulties to have political and territorial control (more than 8,5 million km 2 ). Portugal was obliged to divide the colony in small areas (capitanias hereditárias) administrated by a noble who represents the Crown. This system had great influence in Brazil. Informal pacts with regional political leaders,coroneis

4 Monarchy (1822- 1889) Independence from Portugal (Pedro I), first kingdom Pedro II (Regency Periods) –Parliamentarism –Separatism and revolts against the central government – 1835-1840 (Farrapos-South; Cabanagem-North; Sabinada-Northeast; Balaiada-North) 1840 Pedro II became legally an adult and the second Emperor

5 First Federalist Republic (1889- 1930): The demand for a federal system was a natural consequence. The most developed provinces (SP, MG, RS) want more influence and power over the central regime. Política dos Governadores = The federalism used to work as a way to decrease the power of the central government. The modernizing elite also had a negative view of the emerging Brazilian federalism.

6 1930 revolution - 1937: The oligarchic federalism was weakened by Getúlio Vargas. The autonomy of the sates was reduced by state interventions replacing governors. However, some states continued to have some indirect influence (revolt of São Paulo in 1932). The regional deputes among state elites made the life of Getulio Vargas easier (The auto-coup of 1937).

7 Estado Novo (1937-1945): The central government improved its power that state flags were burned symbolizing the end of the states

8 Democratic Republic (1945- 1964) The federalism was reestablished. However, with a new competitive party. The governorship was democratically disputed. The great source of conflict among elite groups.

9 The Authoritarian regime (1964- 1985): The Congress was not closed as during the Estado Novo nor imposed state interventions (bionic governors) Governors started to be elected indirectly by state assemblies. The direct and free elections to governors (1982 e 1986) occurred before than the direct elections to president. This aspect helped to strengthen the power of state governors during the new republic.

10 Transition to democracy and constituent assembly (1985-1989): The governors influence was really strong. O ICM, state tax, was collected at the sate level. The influence of the national executive as almost null (Sarney). Fiscal crises. The state debts were negotiated with generous contracts The governors had control of the state banks. The governors had strong influences over the career of legislators: gubernatorial coattails effect

11 Cardosos administration (Recentralization of the game) 1995-2002 : Fiscal Responsibility Law Social contributions – new tax (CPMF) Emergency founds that translated in more flexibility for the national government The state banks were privatized The Real plan worked as a shock.

12 Is Brazil a case of public policy success? The pessimism of the policy reform literature A dual picture: I.National level: reform laggard, policy inertia, fragmentation II.Sub-national level (municipal): loci of political innovation (participatory budgeting etc) However most of the municipal innovations are part of national level strategies (sectoral councils, fundef, bolsa escola etc) These are second generation reforms and this all the more paradoxical

13 Puzzle Which questions explain Cardosos success in implementing 2 nd generation reforms (institutional and social policy)? Highly acclaimed programs such as bolsa escola (US 1.5 bi, 27 million people), Fundef, Family health programs (PSF and ACS), Fund for Fighting Poverty And this in a context of severe fiscal constraints

14 Current explanations Based on two assumptions Second generation reforms are typically difficult to pass because: low costs of non-reform, no sense of urgency they involve complex tasks and long term realignments of incentives(Graham 2000); have no direct models to follow (Nelson 2000); require the cooperation of many actors (veto players) (Gridle 2001; 2004)

15 Current explanations (cont.) Brazils fragmented political system hinders the approval and implementation of reforms (Ames 2001; Samuels 2002) Multiparty presidentialism Open list proportional representation/large district magnitude Weak party discipline Robust Federalism and subnational veto players

16 hypotheses Presidents had the incentives and the capability to implement reforms Incentives : electoral incentives to improving social indicators and poverty alleviation Capability: Strong presidents, decree authority; agenda powers; line item veto, discretionary execution of budget; appointments powers... but had to reconcile these preferences with political demands from coalition partners (coalition management) fiscal constraints (sustainability of Real Plan) Difficulties claimed in the literature were exaggerated Incorrect characterization of post 1988 Brazil

17 Cardosos strategy in the social sectors i.Making comprehensive changes in the Constitution in other to revamp Brazilian federalism ii.Flexibilization of the federal budget (FSE; FEF and DRU) and increasing taxation (increase of 9% of GDP) without sharing with the states (contribuições sociais) ii.Hardwiring sub national spending iii.Insulating key core social policy bureaucracies from political logrolls

18 Responding to shocks: the constitution of 1988 as a shock The President could not use his institutional prerogatives (agenda powers, etc) A weak president (vice-president took over) and powerful governors elected in 1982 (before the president) Presidents internalize fiscal considerations The consequences: prevalence of subnational interests expansion of social rights and entitlements led to increased expanding Constitutional rigidity

19 Constitutional amendments An intensive reformist effort in Cardosos first year of office (Cardosos constitutional big bang). Cardoso submitted in 1995 half of the amendments proposed in his two terms of office and over a third of those submitted for the whole post-1988 period. Annual amendment rate of 3.3 during 1988-2004.


21 Revamping federalism Nearly half (42%) of the constitutional amendments passed since 1988 refer directly to aspects of Brazilian federalism Half of the amendments proposed by Cardoso involved federalism (48.5%) and about ¼ to social policy and rights. Of the total amendments pertaining to federalism more than half (53%) are also related to social policy or social rights.


23 Cardosos strategy i.Making comprehensive changes in the Constitution in other to revamp Brazilian federalism ii.Flexibilizing the federal budget (FSE; FEF and DRU) and increasing taxation (increase of 9% of GDP) without sharing with the states (contribuições sociais) ii.Hardwiring subnational spending iii.Insulating key core social policy bureaucracies from political logrolls

24 Figure 3 – Evolution of Earmarking of Budgetary Revenues, 1979-2003. Budgetary revenue


26 Hardwiring subnational spending How to expand social spending and at the same time constrain it? controlling subnational agency losses: fiscal responsability law and Administ crime law fundef health care constitutional amendment a new appointment pattern (economists as ministers and key managers). blindagem - shielding

27 Lulas government: more continuity than rupture Strong policy continuity in fiscal/ monetary policy Credibility costs and macroeconomic management Sharp increase in primary surplus Continuation of reform agenda Aproval of social security reform Tax reform: stalemate Judicial reform

28 More continuity than change Social policy initiatives Fome Zero as policy fiasco but strong mobilization mechanism Bolsa familia: policy continuity

29 The current crisis and policy paralysis Weakening of the executive? The same institutional framework in place Elite conspiration? Economic elites are key to the current coalition Towards an institutional explanation: Mismatch between party representation and cabinet positions The highest disproportionality of all of the 20 cabinets after 1988

30 partyNumber of ministries %Number of deputies % PT21609118 PMDB267815 PSB13204 PPS13204 PC DO B2692 PV1361 PL13438 PTB135110 NO PARTY 514_ TOTAL35100318

31 fundef What triggered reform? Low costs of non-reform – crises do not play a role Honey moon effect Cardosos big bang – packaging The costs of reform were distributed across different (also unclear) cleavage lines : Inter-municipal: large, urban versus smaller and rural municipalities, Inter-state: rich versus poor states, Intra-state: states with large school networks versus (non-unionized teachers, school directors,

32 Who benefitted from Fundef? rural and small municipalities in states with small state networks (eg. Municipios in Ceará, Rio, Rio Grande do Sul) Poor states receiving equalization funds (Paraiba) States with large networks (São Paulo, Paraná). Teachers, school directors, municipal secretaries for education.

33 Losers States with small school networks (Ceara, Maranhao) Municipalities in states with large networks (São Paulo) Who opposed fundef : Unions (on ideological grounds)... But federalism diffused the representation of teachers interests: no federal unions

34 Approval and sustainability: Support important for sustainability not to introduce and pass reforms 1 year in Congress: procedural hurdles Reform by stealth? Technicalities Concessions: university reform clause deleted Federalization of teachers´ strikes

35 Credibility issues Constitutional protection: intertemporal rigidity Compensation to losers? Short term pay hikes for teachers (SP and PR) Program for building schools E.g Apeosp union in São Paulo

36 Table 3. Minimum per capita spending with Fundef yearMinimum value (R$)Annual growth Inflatio n rate (IPCA) Numbe r of states receivin g equaliz ation funds 1 st to 4 th grade 5th to 8th grade 1st to 8th grade 1997 300,00-- 1998 315,005,01,657 1999 315,0008,948 2000333,00349,65 7.95,975 2001363,00381,15 9,07,674 2002418,00438,90 15.112,54 accumula ted 42,1

37 Table.4 Equalization funds from the Federal Govt. YearBudget allocation (in millions of reais) (A) Execute d (B) % B/A% B/total fundef 1998-486.6-3.22 1999685.3579.984.64.43 2000682.6485.471.13.99 2001675.4391.558.02.77 2002663.9431.365.02.32 2003657.5394.960.1- average67.8

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