International financial subordination and domestic political economy: Maximising policy space for development in Brazil

Abstract

International Financial Subordination (IFS) places major external constraints to developmentalist policy space in Global South countries and shapes their domestic political economy. An analysis of the relatively successful neodevelopmentalist period of 2002-2014 in Brazil, when some external constraints to development were loosened during the commodity boom, reveals that the very factors that advanced the interests of the dominant social bloc and drove growth contributions also diminished policy space. Because of this misalignment, the neodevelopmentalist government missed opportunities for policy space expansion, and its existing attempts were thwarted. Developmentalist literature has argued that in Latin America, developmentalist policies are opposed by some sectors of the domestic capitalist class, rendering favourable and stable coalitions unfeasible. An examination of the relationship between dominant social blocs and growth regimes however reveals that the interests of households, poor as well as upper-middle class, also need to be addressed to achieve sustainable development. The Brazilian experience shows the importance of structural power: Governments that seek to implement developmentalist projects should confront domestic interests that thwart ambitions to counter IFS and strengthen like minded groups such as industrial capital, industry trade unions, and poor peasants.