In their 2003 book “Saving Capitalism From Capitalists,” Raghuram Rajan and Luigi Zingales wrote that “relationship” capitalism would have to eventually make way for arms-length capitalism as economies matured. In Brazil, that turning point has yet to arrive. In economics, the expression “Brazil-like capitalism” denotes cronyism and distortions. Dealing with a confusing tax system and a fairly ineffective state, organized lobbies battle to protect their own—mostly at the government’s expense.
One such drain—Brazil’s enormous range of subsidies—could be closed, however. Economy Minister Paulo Guedes has defended time and time again that businesses learn how to stand up on their own two feet, without knocking at the government’s door for handouts. The first step is by exposing how simply handing money to specific sectors of the economy and creating market reserves for national companies is by no means an effective way of fostering innovation.