The World Economy by the OECD Development Centre
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The Portuguese in Brazil

When the Portuguese arrived in Brazil in 1500, their situation as colonialists was very different from that of Spain in Mexico and Peru. They did not find an advanced civilisation with hoards of precious metals for plunder, or a social discipline and organisation geared to provide steady tribute which they could appropriate. Brazilian Indians were mainly hunter–gatherers, though some were moving towards agriculture using slash–and–burn techniques to cultivate manioc. Their technology and resources meant that they were thin on the ground. They had no towns, no domestic animals. They were stone age men and women, hunting game and fish, naked, illiterate and innumerate.

In the first century of settlement, it became clear that it was difficult to use Indians as slave labour. They were not docile, had high mortality when exposed to Western diseases, could run away and hide rather easily. So Portugal turned to imported African slaves for manual labour. The ultimate fate of Brazilian Indians was rather like that of North American Indians. They were pushed beyond the fringe of colonial society. The main difference was greater miscegenation with the white invaders and with black slaves in Brazil.

A much bigger proportion of Portuguese gains from Brazil came from development of commodity exports and commercial profit than those of Spain from its colonies. In the sixteenth and seventeenth centuries official revenue from Brazil was small — about 3 per cent of Portuguese public revenue in 1588 and 5 per cent in 1619 (see Bethell, 1984, Vol. I, p. 286). In the sixteenth century, economic activity was concentrated on a small population of settlers engaged in a highly profitable export– oriented sugar industry in the Northeast. The techniques for this industry, including negro slavery, had been previously developed in Madeira and São Tomé. Cattle ranching in the dry backlands area (the sertão) provided food for those working in sugar production.

Brazilian sugar exports peaked in the 1650s. Earnings fell thereafter because of lower prices and competition from the rapidly growing output in the Caribbean (see Table 2–4).

The setback in sugar caused large parts of the Northeast to lapse into a subsistence economy. In the 1690s, the discovery of gold, and in the 1720s diamonds further south in Minas Gerais, opened new opportunities. During the eighteenth century, there was considerable immigration from Europe, and internal migration from the Northeast to Minas, to engage in gold and diamond development. The eighteenth century prosperity in Minas is obvious even today from the number of elaborate buildings and churches in Ouro Preto which was the centre of mining activity. As Minas Gerais is very barren, the food and transport needs of the mining area stimulated food production in neighbouring provinces to the South and in the Northeast, and mule–breeding in Rio Grande do Sul. The gold industry was at its peak around 1750, with production around 15 tons a year, but as the best deposits were exhausted, output and exports declined. In the first half of the eighteenth century profit remittances from gold averaged 5.23 million milreis (£1.4 million) a year, of which the identifiable royal revenues were around 18 per cent (Alden, 1973, p. 331). Total Brazilian gold shipments over the whole of the eighteenth century were between 800 and 850 tons (see Morineau, 1985).

In the second half of the eighteenth century, Portuguese finances were in desperate straits. Metropolitan revenues from Brazil were squeezed by the decline in gold production. Income from Asia had collapsed and Portugal had to bear the costs of reconstructing Lisbon after the 1755 earthquake. To meet this problem, the Portuguese prime minister, Pombal, expelled the Jesuits from Brazil (1759), confiscated their vast properties, and sold them to wealthy landowners and merchants for the benefit of the crown. Most of the property of other religious orders was taken over a few years later.

When gold production collapsed, Brazil turned back to agricultural exports. At independence in 1822, the three main exports were cotton, sugar and coffee. Coffee production started at the beginning of the nineteenth century after the slave revolt cut output in Haiti. Coffee was grown in the Southeast, whereas sugar and cotton were typical Northeast products.

At the end of the colonial period, half the population were slaves. They were worked to death after a few years of service, and fed on a crude diet of beans and jerked beef. A privileged fraction of the white population enjoyed high incomes but the rest of the population (free blacks, mulattos, Indians and large numbers of the whites) were poor. Landownership was concentrated on slave owners, thus a very unequal distribution of property buttressed a highly unequal distribution of income. There was substantial regional inequality. The poorest area was the Northeast. Minas Gerais had also passed its peak. The most prosperous area was around the new capital, Rio de Janeiro.

Independence came to Brazil very smoothly by Latin American standards. In 1808, the Portuguese Queen and the Regent fled to Rio to escape the French invasion of the motherland. They brought about 10 000 of the mainland establishment with them — the aristocracy, bureaucracy, and some of the military who set up government and court in Rio and Petropolis running Brazil and Portugal as a joint kingdom (both parts by then being about equal in terms of population). After the Napoleonic wars, the two countries split without too much enmity. Brazil became independent with an Emperor who was the son of the Portuguese monarch.

With independence, Brazil ceased remitting official tribute to Portugal, but the large imperial ruling establishment meant a higher internal tax burden. The British, the new protectors of Brazil, took out their growing commercial profits. However, independence meant that the country could create its own banking system, print paper money, indulge in mild inflation and borrow on the international capital market.

There was an intermittent inflow of foreign capital from the 1820s onwards, mostly in the form of direct loans to the government or the proceeds from sales of Brazilian government bonds abroad. There were 17 foreign loans in the Imperial period. There was no default on this debt, and Brazil remained in good standing with its British bankers who supplied all the funds. There were changes in commercial policy which came with independence. Until 1808, Brazilian ports were open only to British or Portuguese ships, and mercantilist restrictions prevented production of manufactured items. These barriers were lifted in 1808, but the United Kingdom retained special extra–territorial rights and tariff preferences until 1827. The preferences were then abolished, but Brazil was obliged to limit tariffs to 15 per cent ad valorem until 1844. This was a serious fiscal constraint on a government with all the trappings of a monarchy to support, and without the political clout to impose land or income taxation. It encouraged the trend towards inflationary finance and a depreciating paper currency. In 1844, when Brazil regained its customs autonomy the general tariff level was raised to 30 per cent for manufactured goods, but duties on raw materials and machinery were lifted.

These measures stimulated the creation of the cotton spinning and weaving industry. In the Imperial period, tariff revenue provided two thirds of the government’s tax receipts and their effect in protecting local industry was significant. Tariff receipts were a higher proportion of imports than those of any other country except Portugal.

In 1833, the United Kingdom abolished slavery in the West Indies and started to interfere actively with the slave trade. Between 1840 and 1851, the inflow of slaves to Brazil was 370 000, but thereafter the British Navy brought it to an end. Slavery continued for almost four more decades, but the economy was modified significantly by the ending of the trade. The immediate effect was to double the price of slaves and make it less profitable to work them to an early death. The sex and age structure of the black population began to change, making for lowered activity rates. In 1888, slavery was abolished without compensation, or any kind of resettlement help for slaves. By that time the slave population was only 7 per cent of the total compared with 13 per cent in the United States in 1860, on the eve of the US civil war.

The Emperor was deposed in 1889 by the military which established an oligarchic republic. Church and state were separated. The franchise was restricted to those with property. The Presidency generally alternated between politicians from São Paulo and Minas Gerais on a prearranged basis. The monarchy had exercised a centralised power, but now the provinces became states with a good deal of autonomy, including control over customs duties which could be levied on both foreign and interstate commerce. At the state level, power was concentrated in the hands of a small political class who favoured their cronies and relatives.

At local level, “coronelismo” (rule of the colonels) prevailed. This semi–bandit gentry built up their landholdings by means not always legal, and exercised seigneurial type power over the less prosperous citizenry.

In the initial years of the Republic, the strains involved in moving from slave to wage labour were obvious. Coffee was no longer profitable in the region around Rio, which switched to cattle raising. The competitive position of São Paulo was strengthened. Its climate and soils were better suited to coffee than the eroded valleys near Rio. It had been building a free labour force of white immigrants since the 1840s, when Senator Vergueiro introduced them to his plantation. The state government subsidised immigration (mainly of Italians) on a large scale from 1880 to 1928. In the 1920s, many of the immigrants to São Paulo were Japanese. This part of the country was further helped by the growth of rail transport and the development of the port of Santos. The average educational level of immigrants was considerably higher than that of native born Brazilians. They had twice the literacy rate and three times the level of secondary and higher education (Merrick and Graham (1979), p. 111). Their wage level made them more expensive than slaves, but their productivity was higher, and their number could be quickly expanded by immigration.

The Northeastern economy stagnated in the Republican period. There and elsewhere, the black and mulatto population generally got little of the benefits of growth in a country where they had no voting rights, access to land, education or any form of governmental help in adjusting to a wage economy.

Portuguese rule in Brazil had several lasting consequences:

a) Brazil is characterised by very wide disparities in income, wealth, education and economic opportunity. These are more extreme than in Asia, Europe or North America. The social structure still has strong echoes of the colonial period, when there was great inequality in access to landed property, and the bulk of the labour force were slaves. The continued neglect of popular education is very marked even by Latin American standards and has hampered the growth of labour productivity. Another aspect of inequality is regional. The per capita income disparity between the poorest state, Piaui, and the federal district is about 7:1. The only other countries with this degree of regional disparity are Mexico and China.

b) Inequalities of income and opportunity in Brazil are closely associated with ethnicity, but the heritage of slavery has produced less social tension than in the United States. Gilberto Freyre (1959) argued that Brazilians are more or less colour blind, and that Brazil is a social continuum from rich to poor with no sharp social antagonisms. Brazil was different from the United States mainly because Portuguese society and mores at the time of colonisation were heavily influenced by close contact with the Muslim world. Florestan Fernandes (1969) took a much more critical view of a Brazilian society that practises de facto but generally discreet social discrimination.

c) Brazil has been favoured by softer political transitions than other countries in Latin America. The Treaty of Tordesillas (1494) divided the Americas amicably between Portugal and Spain. Portugal got a slice extending 48 degrees West of the Greenwich meridian, but its present borders encompass nearly three times as much land — a situation peacefully endorsed by the Treaty of Madrid in 1750. Most of the territorial gains were made by frontiersmen. The only substantial invasion was the Dutch occupation of the Northeast (1630–54). Conflicts to preserve boundaries against French or Spanish incursions were insignificant, and the last territorial acquisition, the Acre territory, was by purchase from Bolivia. The biggest foreign war was with Paraguay (1865–70). This is in stark contrast with Mexico, which lost half its territory in wars with the United States, or to European and Asian experience of wars over boundaries.

d) Another striking feature has been the ease of Brazil’s domestic political transitions. Independence was gained with no significant struggle, the Portuguese crown prince becoming Emperor of Brazil in 1822. Slavery was abolished without a civil war in 1888. The Empire became a republic without a struggle in 1889. The Vargas dictatorship of 1930–45 began and ended with relatively little violence, and this was also true of military rule from 1964–85.

e) The combination of smooth political transitions, freedom from foreign conflicts and relative ease of social relations between ethnic groups permitted Brazil to assimilate a cosmopolitan mix of the original Portuguese settlers, the descendants of African slaves, later immigrants from Italy, Japan, Germany and the Lebanon. It is a frontier country with a high degree of self–confidence, without a chip–on–the– shoulder feeling of exploitation by powerful neighbours. It is a looser federation than many big countries and has an intellectual life which is multipolar.