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The Industrialization of Brazil (until 1960)


Korean Minjok Leadership Academy
International Program
Nam, Hyunwoo
Term Paper, AP European History Class, July 2008



Table of Contents
I. Definitions
II. The industrialisation in Brazil
II.1 The background of the industrialisation in Brazil
II.2 The economic policy of Brazil to overcome the crisis and proceed to industrialisation
II.3 What field had Brazil mainly emphasised upon when developing ?
II.3.1 Heavy industry
II.3.2 Transportation
II.3.3 Others
III. Positive effects of the industrialisation in Brazil
III.1 Economic Effects
III.2 Technological development and benefits
III.3 Improvement in public welfare
IV. Failures and the limitations of the industrialisation in Brazil
IV.1 International (world economy, a lot of other destructions of natural environment)
IV.2 Regional disparities in development and inequalities
IV.3 Damaged nature
IV.4 Developmental disparities among industries
V. Conclusion
Notes
Bibliography



I. Introduction
            Throughout the human history, historians have categorised the time horizon by certain criteria. The agricultural revolution, for example, had helped our ancestors to carry on living a better life indeed; therefore a new lifestyle after the agricultural revolution is categorised in a certain sector. From this example, we are able to notice that a certain event or revolution can create a new sector in human history.
            The Oxford Encyclopaedia of World History 1998 (1) defines industrialisation as 'the process of change from a basic agrarian economy to an industrialised one' which is similar to the agricultural revolution since it also created a new sector in human history. As a result, the lifestyles of humans after the industrialisation are recorded in a new, different sector. It means that industrialisation actually had played a crucial role in human history which awakens us to perceive industrialisation as a noticeable historic event.
            This paper is about the industrialisation and Brazil as it is stated in the title. Brazil, characterised as one of the largest countries which has the great amount of potential of being a much more powerful country in the near future has a very important relationship with industrialisation.
            In order to acknowledge the importance and the possible effects of the industrialisation in Brazil, I categorised this topic into several parts: the process of the industrialisation in Brazil, and the positive effects and failures made by the industrialisation in Brazil.

II. The Industrialization in Brazil

II.1 The Background of the Industrialization in Brazil
            To talk about the starting point of the industrialisation in Brazil, we should trace back the history of Brazil to the colonial periods. During the colonial periods of Brazil (1500-1815) governed by the Portuguese, there were many attempts to embark on industrialisation, but they had failed to achieve their goals due to the restrictions of the Portuguese policy. It is because of the economic principle of the Portuguese in those periods called 'Mercantilism'. The Portuguese did not want the industrialised Brazilian industries to damage their domestic industries. Hence, no industries were able to take root in Brazil in order to protect the Portuguese products which were in sale in the Brazilian territory. (2)
            Efforts were also made during the Empire of Brazil (1822-1889). During the reign of Dom Pedro II, Brazilian businessmen like Irineu Evangelista de Souza, Visconde de Maua, and foreign groups invested in railroads, shipyards and banks. Also textile, clothing, food products, beverages, and tobacco industries experienced appreciable but irregular expansion. Unfortunately, Brazilian foreign policy favoured agriculture, which meant that foreign competition would discourage continued investments in the industrialization process. (3) As a result, the first efforts turned out to be unsuccessful.
            What happened after the termination of the Empire of Brazil was no different. The manufacturing growth of the period did not generate significant structural transformation (5), which implies that the industrialisation in Brazil practically was not able to change the whole Brazilian economy even at the period right after the Brazilian Empire.
            The full-scale industrialisation in Brazil started in the process of overcoming the economic crisis: the damage the Brazilian economy, which mostly had concentrated on coffee production, experienced during the 1930s. It was because of the drastic decline of coffee price in the world economy. Both the unit price and the quantity of Latin American exports dropped, with the result that their total value for the years 1930-34 was 48 percent below what it had been for 1925-29. (5) Excess capacity of coffee production, and the Great Depression together aggravated the situation of Brazil's national economy, which consumed almost a decade for the Brazilian government to resolve. Brazilians were desperate in finding an economic solution to this problem.

II.2 The Economic Policy of Brazil to Overcome the Crisis and Proceed to Industrialisation
            Since Brazil was not the only country who suffered from the international economic crisis, many other Latin American nations also had to find a solution. To find a solution to this problem, in the late 1940s one of the region¡¯s leading economists, Raul Prebisch, issued a trenchant critique of liberal doctrines. His arguments provided the intellectual foundation for the policies of import-substitution industrialisation (ISI) (6) that prevailed from that time into the 1980s. (7) Import-substitution industrialisation (ISI) is a trade and economic policy based on the premise that a country should attempt to reduce its foreign dependency through the local production of industrialized products (8).
            Latin American leaders had two choices in responding to this global economic crisis. The first one was to strengthen the linkages with the already industrialised and developed nations to secure and protect a steady share of the market. And the other was to embark on industrialisation. The goal of embarking on industrialisation was to achieve greater economic independence and to create jobs for the working classes. Brazil selected the second choice which led the country to industrialise. The Brazilians realised that Brazil could no longer rely solely on exports of primary goods and that it was necessary to promote economic diversification. And hence, full-scale industrialisation was able to take place in Brazil. And this new economic policy the Brazilians had selected led the nation to be successful in industrialisation.

II.3 What Field had Brazil mainly Emphasised upon when developing?
            There was a vigorous development in heavy industries (steel, metallurgy, petrochemicals, chemicals, etc) that produce manufactured products, spearheaded by large state-owned companies (Companhia Vale do Rio Doce, Petrobras, Siderbras, etc). Considerable progress has also been made in more advanced sectors: in the aircraft and aerospace industries, telecommunications, electronics, and the production of machinery and other capital equipment. (9)

II.3.1 Heavy Industry
            To elaborate on this topic, the main focus of the industrialisation in Brazil was on the heavy industries as I mentioned right before. These include iron mills, textiles and clothing manufacture, food processing, furniture making, tanning, and leather goods. (10) From the statistics regarding the output of iron ore in Brazil from the year of 1911 to 1960 (11) presented in 'International Historical Statistics', we can easily notice that the amount of iron ore mined had increased as time flew. Also from the table regarding the output of natural gas from the year of 1929 to 1960 (12) presented in the same source, it is proven that natural gas was only able to be gained after 1942 and Brazil¡¯s mining began to upsurge from the early 1950s. Moreover, the table regarding the output of crude petroleum in Brazil with timeline starting from the year of 1915 to 1959 (13) presented in the same source, also shows the increase in production of crude petroleum throughout the years.
            One thing we should focus on is that all these charts have something in common: output of every mining industry is skyrocketing as time flows. It means that the Brazilian government paid great attention to these heavy industries, which practically lead Brazil to become one of the greatest heavy industry countries throughout the world.

II.3.2 Transportation
            Transportation is also essential for a country to industrialise. Without a soundly constructed transportation system throughout the territory, it is impossible to convey manufactured products as well as raw materials.
            Throughout much of the Brazilian history the nation¡¯s different regions remained isolated from one another, but this changed dramatically after World War II, first with the growth of air transport and, two decades later, with the extension of a modern road network. (14) Brazilians actually were the pioneers in this field. They also have been arguing that the first men to fly are not the Wright Brothers, but a Brazilian named Alberto Santos-Dumont. Anyway every capital and important city in Brazil has a major airport, and most of the smaller cities are served by jet aircraft. Few locations are without at least a dirt landing space. (15) These excellent air services which were maintained to all parts of Brazil had created the foundation for the industrialisation to precipitate.

II.3.3 Others
            The industries stated above were able to grow in much larger extent compared to other industries which failed to gain governmental support. However, there are other fields of industries which also succeeded despite not enough support. Telecommunication, electronics, and the production of other machineries, and other capital equipments improved during the industrialisation period of Brazil as well.

III. Benefits Gained by the Industrialisation in Brazil

III.1 Economic Benefits
            In short, Brazil has become one of the major industrialised countries, supporting every conceivable variety of industrial activity. As industrialisation had taken place in Brazil, domestic manufacturing sector grew enormously during the 1930s and 1940s. Import-substituting industrialisation strategy did work out indeed.
            Domestic manufactures replaced imported nondurable consumer goods (clothing, shoes, etc) and with the construction of the huge steel plant at Volta Redonda, the first steps were taken toward replacing goods made from semi-finished products. Much of the existing industrial base, however, was created in the 30 years between 1950 and 1980, during which there was an astonishing spurt of growth producing a 7% annual average increase in GDP (corresponding to 4.3% per inhabitant). In this period Brazil succeeded in replacing imported durable consumer goods as well, beginning with automobiles; toward the end of the 1950s, almost all the major world manufacturers decided to begin automobile production entirely inside Brazil, in the urban agglomeration around Sao Paulo. (16) Since 1967 Brazilian industry has contributed a greater amount to the gross national product than has agriculture. (17)
            The table from the ¡®International Historical Statistics¡¯ presenting the indices of industrial production in Brazil starting from the year of 1935 and ending at the year of 1959 (18) indicates the great development of Brazilian economy throughout the period on which industrialisation was being held; manufacturing and mining both increased dramatically.

III.2 Technological Development and Benefits
            Through industrialisation, many industries in Brazil experienced technological development thanks to imported technologies. Automobile industry can be a perfect example.
            In 1949, Volkswagen carried out a survey in the Latin American Market, which indicated that Brazil was the best location for the establishment of its first plant outside Germany. In 1953, the company started to assembly the first Beetles, with parts imported from Germany, which signals the start of the ¡®Volkswagen do Brasil (Volkswagen do Brasil is a subsidiary arm of Volkswagen group located in Brazil)¡¯. From 1953 to 1957, Volkswagen do Brasil produced 2,820 vehicles (2,268 beetles and 552 Kombis). In 1956, Volkswagen do Brasil decided to build a plant in Sao Paulo and in the next year the company produced the first Kombis in Brazil, with 50% of its parts manufactured in the country. In 1959, the company started producing the Beetle, which rapidly became a market success. Then, Volkswagen do Brasil began to develop local suppliers and in 1961 both Beetle and Kombi used 95% of national parts. (19)
            As the information of the Volkswagen case shows us, automobile industry in Brazil surely was a very successful industry as well. As a result, by 1960 Brazil was making all its own cars, trucks, buses, jeeps, and tractors, although a few components for these vehicles still had to be imported (20). The imported technologies from advanced countries allowed Brazil to learn them and develop its own industrial economy.

III.3 Improvement in Public Welfare
            The industrialisation also improved public welfare. When the Brazilian economy was only consisted of coffee industry, there were no various occupations. However, as industrialisation had embarked on, innumerable vacant jobs were newly created, which had an effect on lessening unemployment. Also there was a marked increase in money wages in industry. The table from 'International Historical Statistics' presenting 'money wages in industry from 1937 to 1959' (21) shows that wages had risen dramatically as the process of industrialisation was reaching its goal. From this great increase of money wages in industry, we can easily presume that public welfare also had been improved thanks to industrialisation.
            Based on these positive effects of the Brazilian economy, Brazil was able to become the leading industrial nation of Latin America. Brazil definitely relished the success of its industrialisation.

IV. Failures, Side-Effects, and Limitations of the Industrialisation in Brazil

IV.1 Imposing Excessive Tariffs upon Imported Goods which Lead to Severe Problems
            However, even this successful industrialisation in Brazil had its failures and limitations. First, in response to the generally falling import prices, Latin American republics, including Brazil, had to raise implicit average tariff rates and increase the variance of tariff rates. By 1913 the ratio of duties collected to the value of imports in Latin America was at least as great as that found in Australia (16.5 percent), Canada (17.1 percent), or the United States (17.7 percent), and in Brazil (39.7 percent), it was considerably higher. (22) By raising tariffs Brazilian economy was successful in protecting its national industry. However, exorbitant imposition of tariffs upon the imported goods had its side-effects; these kinds of taxes tended to foster regional monopolies, which in turn undermined the chances of full-capacity utilisation and exploitation of economies of scale. (23)

IV.2 Regional Disparities in Development and Inequalities
            When Brazil was in the progress of industrialisation, there was something the Brazilian government had neglected; it did not count on regional disparities, a social problem that could have been prevented through early prediction.
            Since 1930, industrial output replaced coffee in the Brazilian production spectrum becoming the engine of growth in Sao Paulo and throughout the country. That same year saw the birth, under the presidency of Getulio Vargas, of the "Estado Novo," the economically interventionist social government that, in Brazil, was essentially a state that accumulated centralised power at the expense of local and regional autonomy. The fundamental regional imbalance between the Nordeste ? Brazil¡¯s quintessential "problem region" ? and all the other regions is clearly reflected by its income index and by almost any other indicator of economic well-being. Life expectancy, for example, which is an average of 66 years for Brazil as a whole, drops from a maximum of 67 years in the Sul to 52 in the Nordeste. Brazil also ranks first in the world in terms of the unequal distribution of its wealth; the average income of the richest 5% of Brazil¡¯s population is 50 times greater than that of its poorest 20%. These social and regional inequalities reflect the strong concentration of ownership of the means of production. (24)

IV.3 Damaged nature
            Because industrialisation and preserving nature are in a trade-off relationship, one has to be sacrificed if the other is satisfied. At this point, Brazil regarded industrialisation to have the priority over preserving nature. Therefore, it was obvious that industrialisation in Brazil would lead the country to damaging its natural environment. However, this situation has grown to be worse since the natural surroundings in Brazil (actually the biggest in the world) are actually very essential not only for the Brazilians, but also for the total population in the world, in that damaging the world¡¯s largest forest could possibly lead to severe crises, such as global warming.
            Industrial sectors such as iron and steel, among others, signed protocols to reduce natural forest consumption. However, attempts to reduce natural forest consumption have not been seen successful. Nowadays, 110 steel and iron industries are located in the Minas Gerais state and their energy demand is mostly supplied by the remainder natural forests. Currently, only 25% of their energy is provided by cultivated trees. Moreover, it should be pointed out that as law enforcement has became more effective in Minas Gerais, other native forest from the Bahia and Goias states started to be deforested in order to fulfil the charcoal demand. (25)
            Blairo Maggi, the governor of the state of Mato Grosso, Brazil, said in an interview, in 2005
            "Less than 15 percent of Brazil¡¯s Amazon basin has been opened up for economic activities.... Both Europe and the United States grew by taking advantage of their natural resources ... and I think it is unacceptable interference, when they come and tell us what we should do. Brazil has its own environmental legislation, one of the most rigorous in the world, and yet we¡¯re treated as if we¡¯re bandits" (26)
            These occasions I illustrated actually occurred after 1960, but since these show the Brazilian government¡¯s attitude towards industrialisation and preserving nature in an overall point of view, I thought it would be relevant in discussing this problem; the Brazilian government was and is too much in favour of industrialisation.

IV.4 Developmental Disparities among Industries
            Furthermore, what prevented the industrialisation in Brazil to be flawless was that there were some developmental disparities among industries. Since the Brazilian government solely concentrated on increasing the output of heavy industries, there were missing parts which did not practically receive enough governmental support to industrialise properly. Steel mill industry, for instance, gained a lot of governmental support as well as encouragement whilst other industries did not. For this reason, some experts assess that so many flaws lie on the industrialisation in Brazil; only a few selected industries were able to be developed properly with enough governmental support.

V Conclusion
            The term 'BRICs' indicates the four countries which will possibly lead the global economy in the near future; it is the abridged name of Brazil, Russia, India, and China. These nations have many things in common. They all have vast amount of territories, profuse natural resources, and innumerable population (this may not fit to all the 4 countries, but it applies to India, China, and Brazil at least). Because of these perfect conditions to be a future leader of the world economy, Brazil is believed to become the leading country, in terms of economic wealth and prosperity, not only of Latin America, but also of the world. For this reason, I believe that Brazil's industrialisation can definitely be the first step for Brazil to move towards its ultimate goal: leading the world economy.
            The industrialisation in Brazil surely had precipitated various industries in its economy in many ways. By developing heavy industries, such as steel, metallurgy, petrochemicals, chemicals, etc that produce manufactured products, and also developing such industries as transportations, Brazil was able to relish the success gained through industrialisation. In that Brazil is considered to be the leader of world¡¯s economy in the near future, this industrialisation which took place in Brazil has profound meanings to us. It declares that the day when Brazil will lead the world economy is not far away.
            However, to reach this ideal aim Brazilian government must overcome the failures, side-effects, and limitations. High tariff rates seem to be non-problematic nowadays, but points such as damaged nature and disparities of development among industries and regions should be resolved. Without solving these flaws it will hinder Brazil to attain its ambitious goal.
            My overall evaluation concerning the Brazilian industrialisation is somewhat positive. Successful development and hauling the nation to be the leader of Latin American economy definitely justifies Brazil to be praised, despite some drawbacks which can be considered minor compared to the positive consequences.


Notes

(1)      OXFORD ENCYCLOPEDIA OF WORLD HISTORY, 1998, oxford university Inc., New York, pg.326 right-hand side column, line 20-21
(2)      http://www.ipeadata.gov.br/ipeaweb.dll/ipeadata?SessionID=798949383&Tick=1208668392781&VAR_FUNCAO=Ser_Hist%28120%29&Mod=M
(3)      WIKIPEDIA, http://en.wikipedia.org/wiki/Industry_in_Brazil
(4)      WIKIPEDIA, http://en.wikipedia.org/wiki/Industry_in_Brazil
(5)      Thomas E.Skidmore & Peter H. Smith, MODERN LATIN AMERICA, oxford, fifth edition, pg.51
(6)      Brazil¡¯s economy started producing manufactured goods that they had formerly imported from Europe and the United States. Hence the name for this type of development is ¡°import-substitution industrialisation¡± (ISI).
(7)      Thomas E. Skidmore & Peter H. Smith, MODERN LATIN AMERICA, oxford, fifth edition, pg.52
(8)      WIKIPEDIA, http://en.wikipedia.org/wiki/Import_substitution#Latin_America
(9)      WORLD GEOGRAPHICAL ENCYCLOPEDIA, The Americas, McGraw-Hill, Inc., Brazil, pg.194
(10)      COMPTON¡¯S ENCYCLOPEDIA, book B, BRAZIL, pg.421
(11)      Table from ¡°International Historical Statistics, Industry, D5 OUTPUT OF IRON ORE (in thousands of metric tons), pg. 327-328¡±
(12)      Table from ¡°International Historical Statistics, Industry, D4 OUTPUT OF NATURAL GAS (in millions of cubic metres), pg. 323¡±
(13)      Table from ¡°International Historical Statistics, Industry, D4 OUTPUT OF CRUDE PETROLEUM (in thousands of metric tons), pg. 319¡±
(14)      Britannica, MACROPEDIA Knowledge in Depth, book 15, pg.197, left-hand side column, lines 31-33
(15)      Britannica, MACROPEDIA Knowledge in Depth, book 15, pg.197, left-hand side column, lines 68-70
(16)      WORLD GEOGRAPHICAL ENCYCLOPEDIA, The Americas, McGraw-Hill, Inc., Brazil, pg.194
(17)      Britannica, MACROPEDIA knowledge in depth, book 15, Brazil, pg.195
(18)      Table from ¡°International Historical Statistics, Industry, D1 INDICES OF INDUSTRIAL PRODUCTION, pg. 309¡±
(19)      http://www.ceaee.ibmecmg.br/wp/wp6.pdf, pg.8
(20)      COMPTON¡¯S ENCYCLOPEDIA, book B, BRAZIL, pg. 421
(21)      Table from ¡°International Historical Statistics, Labour Force, B4, SOUTH AMERICA: MONEY WAGES IN INDUSTRY, pg.131¡±
(22)      Victor Bulmer-Thomas, The economic history of Latin America since independence, Cambridge Latin American Studies, 2nd edition, pg.139, lines 16-20
(23)      Victor Bulmer-Thomas, The economic history of Latin America since independence, Cambridge Latin American Studies, 2nd edition, pg.145, lines 35-38
(24)      WORLD GEOGRAPHICAL ENCYCLOPEDIA, The Americas, McGrawHill, Inc., Brazil, pg.195, left-hand side column, paragraphs 2-5
(25)      http://www.lumes.lu.se/database/Alumni/02.03/theses/achinelli_moira.pdf, pg.29
(26)      http://www.wsws.org/articles/2005/jan2005/amaz-j15.shtml


Bibliography

Note : websites quoted below were visited at the end of June 2008.
1.      OXFORD ENCYCLOPEDIA OF WORLD HISTORY, New York: Oxford University Press, 1998
2.      ¡°Industrialisation¡±, WIKIPEDIA, the Free Encyclopaedia http://en.wikipedia.org/wiki/Industrialisation
3.      Steven Kreis, The Origins of the Industrial Revolution in England, October 11, 2006
4.      ¡°Industrialisation in Brazil¡±
5.      ¡°Industry in Brazil¡±, WIKIPEDIA, the Free Encyclopaedia
6.      Thomas E.Skidmore & Peter H. Smith, MODERN LATIN AMERICA, Oxford University Press, fifth edition, October 1, 2000
7.      Article: Brazil, WORLD GEOGRAPHICAL ENCYCLOPEDIA, The Americas, McGraw-Hill Professional Publishing, April 1, 1995
8.      Article: Brazil, COMPTON¡¯S ENCYCLOPEDIA, Encyclopaedia Britannica, book B, December 30, 2004
9.      Mitchell B.R., ¡°International Historical Statistics, Palgrave Macmillan Publishing, 2003
10.      Article: Brazil, The New Encyclopaedia Britannica: Macropaedia, Chicago:?Encyclopaedia?Britannica, volume 15, 1979
11.      Victor Bulmer-Thomas, The economic history of Latin America since independence, Cambridge Latin American Studies, 2nd edition, August 1, 2003
12.      Moira Achinelli, Turaj S. Faran, LUNDS UNIVERSITET, 2002-2003, http://www.lumes.lu.se/database/Alumni/02.03/theses/achinelli_moira.pdf
13.      John Levine, http://www.wsws.org/articles/2005/jan2005/amaz-j15.shtml, 15 January 2005
14.      Sergio de Oliveira Birchal, Western European Direct Investment in Brazil in the 20th Century, 2003, http://www.ceaee.ibmecmg.br/wp/wp6.pdf
15.      ¡°Import Substitution industrialisation¡±, WIKIPEDIA, the Free Encyclopaedia http://en.wikipedia.org/wiki/Import_substitution#Latin_America

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