Governing State Capitalism: The Case of Brazil

Chinese State Capitalism and Institutional Change: Domestic and Global Implications Benjamin Liebman & Curtis J. Milhaupt eds. Oxford University Press (Forthcoming)

FGV Direito SP Research Paper Series n. 112

21 Pages Posted: 11 Sep 2014 Last revised: 30 Dec 2014

See all articles by Mariana Pargendler

Mariana Pargendler

Fundação Getulio Vargas Law School at São Paulo; New York University School of Law; European Corporate Governance Institute

Date Written: December 1, 2014

Abstract

Brazil is a main exemplar of contemporary pursuit of state capitalism by a Western economy. Major state-owned enterprises (SOEs) have survived the prior wave of privatizations, but they are by no means the only avenue for state influence over corporate governance in Brazil. As scholars have recently highlighted, the state increasingly acts as a minority, rather than majority, investor in Brazil as elsewhere. The particular variety of state capitalism prevailing in Brazil today reflects a combination of governmental control of traditional SOEs with the conspicuous exercise of shareholder activism by state-controlled institutional investors (SCIIs).

This chapter provides a picture of the various instruments for state influence in Brazilian corporate governance, and examines the role of law in enabling and constraining this evolving variety of state capitalism. Despite their economic significance, the role of legal institutions in the governance of state capitalism has only recently begun to receive scholarly attention. With a few notable exceptions, case studies have focused primarily on transition and Asian economies. The influential OECD Guidelines on Corporate Governance of State-Owned Enterprises are, as their name suggests, prescriptive rather than descriptive in nature.

Our analytical framework posits that state capitalism entails a significant degree of governmental discretion in guiding economic activity. Consequently, the governance of state capitalism calls for a particularly intricate balance. On the one hand, the very choice for government ownership is premised on the benefits of discretionary state action; otherwise, arm’s-length regulation and subsidies could arguably achieve similar results in curing market failures or promoting developmental objectives. On the other hand, excessive state discretion raises the specter of abuse and cronyism, and, if taken to an extreme, may not only undermine performance but also pose a threat to the rule of law itself.

The analysis that follows examines how the legal conformation of state capitalism in Brazil strikes this balance.

Keywords: State capitalism, discretion, corporate governance, legal institutions

JEL Classification: G32, G38, K22, L32

Suggested Citation

Pargendler, Mariana, Governing State Capitalism: The Case of Brazil (December 1, 2014). Chinese State Capitalism and Institutional Change: Domestic and Global Implications Benjamin Liebman & Curtis J. Milhaupt eds. Oxford University Press (Forthcoming); FGV Direito SP Research Paper Series n. 112. Available at SSRN: https://ssrn.com/abstract=2493402

Mariana Pargendler (Contact Author)

Fundação Getulio Vargas Law School at São Paulo ( email )

R. Rocha, 233, Bela Vista
São Paulo, 01330-000
Brazil

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

European Corporate Governance Institute ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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