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Political Feuds & Privatization

Maggie Thatcher believed in privatization to make Britain stronger in the 1980s. She privatized 40 UK state-owned businesses employing more than 600,000 workers.

The objectives of privatization were to make the privatized firms more efficient, increase labor productivity and proper regulation of the industries, and increase share ownership in society. During the 80s and early 90s this occurred in England. However, not everyone was behind the scheme.

Privatization has been associated with higher productivity and labour does seem to have lost out in terms of income shares, though to a lesser degree in terms of employment and wage relativities. There is no evidence that continued state regulation has caused firms to behave differently from other privatized companies.

The positive impact results in increasing the foreign investment, better functional operation of companies, and higher gross development of products. Negative impact of liberalisation and privatization results in the division of the area and people in higher and lower sectors. Many countries around the world have followed suit as early as the 90s.

The negative effects of privatization are: One significant inconvenience to perceive is the chances for bribery and corruption that accompany privatization. Expanding the bridge between the rich and poor people. Business models are imposed by private organizations.

Jair Bolsonaro’s government had managed to raise BRL 304.2 billion (USA 58.84 billion) with privatizations and divestments of state-owned companies. BRL 110.1 billion (USA 21.3 billion) was raised in 2019, in the 1st year of management. Another BRL 59.7 billion in 2020. Then another BRL 57.8 billion in 2022. And another BRL 76.6 billion in 2022, data obtained by Poder360.

The figure shows that the team of the Minister of Economy, Paulo Guedes, managed to fulfill 30% of what was promised in the 2018 election, which was to raise R$ 1 trillion in privatizations. In addition to the R$ 304.2 billion collected by the government, the new owners of the companies are committed to investing in these companies.

The only company sold with congressional approval was Eletrobras, Latin America's largest energy company. It took a lot of political articulation. The idea of ​​taking control of the company out of the State's hand had been under debate since 2016, still under Michel Temer's government.

While there was resistance from Congress, the Guedes team carried out silent privatizations, without much public debate or through discussions with the Legislature. The strategy used to reduce the influence of the State in the economy was to dispose of shares held by Petrobras, Banco do Brasil, BNDES Par and Caixa Par.

Additional information which could open your mind regarding the Bolsonaro government which has left BRL 255.2 billion (USD 49 billon) in unpaid expenses for the year. Called balances payable, amounts are transferred from one year to another and end up competing with new expenses.

Furthermore, the Bolsonaro government spent BRL 794.9 billion (USD 153.75 billion) from 2019 to 2022 above budget. According to Bolsonaro, Paulo Guedes has done a great job and the economy was going well in Brazil. If that were true then why would so many foreign analysts and journalists have a different opinion?

Take for example the French Le Monde which criticizes his efforts and says his mastermind tactics failed. According to Guedes in the American Reuters article, cash handouts to poor families ahead of the presidential elections in October because the war in Ukraine had generated extraordinary inflationary effects.

Cash handouts were taken from the extra budget withdrawals mentioned above in my report, and leading up to the elections Guedes made it clear that Bolsonaro’s government had reduced inflation, so which one is it?

To set the record straight there was a BRL 116 billion (USD 22.43 billion) deficit in Mr. Bolsonaro’s first year in office even though Mr. Guedes had stated that it was “feasible” to zero out the primary deficit still in 2019. That was before the pandemic, so an interesting tidbit of information to clarify anyone’s doubts as to the economic genius.

Whichever way you look at it, there are pros and cons in every walk of life. ‘Thatcher defeats Bolsonaro’ was an interesting article I think every Brazilian needs to think about. Fortunately, enough for the majority, their prayers were answered!

Take care!

Prof. Carl Boniface

Ask yourself the following questions and discuss with your group:

1 – By increasing foreign investment in privatization does it cause a positive impact as far as results are concerned? What benefits does it bring? What disadvantages are there, if any?

2 – Was it correct that the Guedes team carried out silent privatizations, without much public debate or through discussions with the Legislature.

*For constructive ideas to support your reasoning, read "Has privatization failed in the UK?"

Vocabulary builder:

Feuds (n) = disputes, arguments, arguments, rows, disagreements, strife

Divestments (n) = the action or process of selling off subsidiary business interests or investments.

Feasible (adj) = viable, achievable, practicable, possible, reasonable, realistic, likely, sufficient, (ant) impossible

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