Introduction

Since the 1980s, the exhaustion of Brazil's postwar economic development model became manifest in severe macroeconomic disequilibriums and the inability to maintain earlier high, sustained rates of economic growth. The stagnation of investment and weak efforts at technical innovation translated into low levels of efficiency, productivity and technological modernization.

The 1990s saw a break with the statist postwar model in favor of reduced state economic intervention and a more comprehensive liberalization of both trade and capital flows. Among the economic policies adopted to this end, trade and financial liberalization and privatization of state-owned enterprises stand out. Proponents expected these policies to eliminate bottlenecks hindering the competitiveness of Brazilian industry and to hasten the convergence of Brazil's technology, managerial practices and levels of productivity to those of the “advanced” economies.

Some scholars and policymakers saw foreign corporations as the protagonists of this process. They believed that most domestic private companies would not be able to survive or expand in a liberalizing, non-inflationary context without the subsidies they had enjoyed under the earlier model. Given the privatization process and the declining importance of state-owned companies, these analysts argued, economic modernization would be accomplished by affiliates of transnational corporations (MNCs). Under a liberalizing regime, these affiliates, mainly in the most capital and technology-intensive sectors, would have stronger incentives to invest in cost reduction and technology modernization, and to become more specialized and less vertically integrated, increasing their efficiency, productivity, and competitiveness in world markets.