Front Page Titles (by Subject) Brazilian Liberalism & State Protectionism - Literature of Liberty, Autumn 1981, vol. 4, No. 3
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Brazilian “Liberalism” & State Protectionism - Leonard P. Liggio, Literature of Liberty, Autumn 1981, vol. 4, No. 3 
Literature of Liberty: A Review of Contemporary Liberal Thought was published first by the Cato Institute (1978-1979) and later by the Institute for Humane Studies (1980-1982) under the editorial direction of Leonard P. Liggio.
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Brazilian “Liberalism” & State Protectionism
“State Interventionism in a Liberal Regime, 1889–1930.” Hispanic American Historical Review 60, no. 4(November 1980): 593–616.
One of the strange paradoxes in Latin America's history is the influence that liberalism enjoyed in that area of the world between independence and the Great Depression. Historians have very frequently assumed that, while liberal ideas had their noble aspects, they were ill-suited to Latin America's hierarchical, tradition-bound social structure and, thus, probably destined for failure. Few historians, however, have examined liberalism's economic performance.
Prof. Topik's article examines the economic policies of one of the most long-lived liberal regimes in Latin America, Brazil's First Republic (1889–1930). The article studies the actual activities of the government in the economic sector and then poses two questions: 1) Did the economic policies themselves conform to the essence of liberalism? and 2) If so, were they adequately suited to the Brazilian context?
Prevailing historiography has characterized the regime established in 1889 as noninterventionist, decentralized, and favorable to foreign investment. Supposedly, the activist, developmentalist state emerged only after the 1930 revolution and the rise to power of Getulio Vargas.
Prof. Topik contends that the federal government in the 1889 to 1930 period was considerably stronger and more economically active than has generally been recognized. Its activities, which gradually increased in intensity, may be grouped roughly into four categories: centralization, regulation, incentives to private enterprise, and direct state ownership. These interventions were generally pursued with the aim of preserving the liberal superstructure of the economy. They usually represented accommodations to the severely underdeveloped economy of the country (e.g., an acute credit shortage) or to substantial changes in the world market such as the shortages of strategic materials during World War I.
In the area of regulation, the federal government of Brazil acquired the right to control most of the railroads in the country. Concession agreements ceded to the government the right to set rates, determine routes, and decide the type of equipment to be used—all matters of vital national interest. As a result, the Ministry of Transportation and Public Works maintained low rail rates and established routes in unprofitable areas over the loud objections of railway companies. Similar controls prevailed in the area of shipping. The Constitution of 1891, for example, enjoined foreign freighters from participating in the coastal trade. Domestic shipping became the monopoly of Brazilian lines. An 1897 law also forbade foreign ships from fishing in Brazilian waters, though this only came to be enforced in the 1920s. Also of public importance, utilities eventually came under state regulation.
In addition to controls on the “public” sector of the economy, the government effectively encouraged private enterprise through grants of incentives and concessions. The state was particularly energetic in expanding the transportation infrastructure and encouraging agriculture. At its height in 1898, fully one-third of all federal spending went to railway subsidies. Subsidies to maritime companies cost the treasury an average of more than US $1,5000,000 a year between 1980 and 1930, reaching almost US $4,000,000 by the end of the period. A series of ad hoc measures to drive up the price of coffee absorbed about US $133,000,000 of federal funds (mostly borrowed from abroad), while the state of Sao Paolo spent $136,000,000 to protect the crop.
The republican framers of the 1891 constitution sincerely intended to remove the impediments to development which, they believed, the imperial state had erected. However, they were not dogmatically bound to a foreign model of liberalism and reluctantly allowed concessions to the necessities of an underdeveloped country and an increasingly complex world economy. Nonetheless, Brazil's ruling class maintained what it believed was the essence of liberalism, sacrificing some of its form to preserve its basic content. Relatively limited state interference and the inviolability of private property encouraged foreign investment in Brazil. At the same time, Brazilian “liberals” mobilized national capital to build the export infrastructure and to finance international commerce.