Business and politics in contemporary Brazil: Toward a new "spirit" in the interaction between the state and the market? Wagner Pralon Mancuso University of São Paulo, Brazil (pralon@usp.br) Prepared for the International Conference “Max Weber and the new spirit of capitalism: self-regulation and corporate governance in a global economy” Max Weber Institute of Sociology Heidelberg University, Germany December 12-14, 2014

1. Two scandals Petrobrás scandal (happened under PT’s leftist governments) http://www.economist.com/blogs/americasview/2014/09/scandal-brazil - Parts that are involved in this scandal: (i) The largest state-owned company in the country (Petrobrás, oil sector). (ii) The largest private companies of the construction sector in the country. (iii) Political parties. - What has been shown so far? (i) Private companies formed a cartel to distribute among themselves several contracts with Petrobrás. (ii) These contracts were overpriced. (iii) Companies bribed Petrobrás' executives who were nominated by political parties of the governing coalition. (iv) Companies gave money to political parties – either according to the law or through slush funds ("caixa dois").

1.2 São Paulo's Subway and Train services scandal (happened under PSDB’s centrist governments) http://www.euronews.com/2014/03/21/germanys-siemens-and-frances-alstom-in-brazil-corruption-probe/ - Parts that are involved in this scandal: (i) State-owned companies of the state of São Paulo (Metrô and CPTM, transportation sector). (ii) Big international companies (Siemens, Alstom, CAF, Daimler-Chrysler, Bombardier, Mitsui, TTrans). - What has been shown so far? (i) The international companies formed a cartel to distribute among themselves several contracts with Metrô and CPTM. (ii) These contracts were overpriced. (iii) Companies bribed executives of the state-owned companies, who were nominated by political parties of the governing coalition.

2. Central questions: (i) What do the recent scandals reveal about the "spirit" of the interaction between state and market in Brazil? (ii) What are the roots of the problem in the Brazilian case? (iii) Which institutional measures have been discussed to improve the quality of the relationship between business and politics in Brazil ?

3. General background: (i) As it happens in all capitalist and democratic countries, also in Brazil government decisions affect business interests, and lead the business community to develop political actions, in order to exert influence on governmental decisions. (ii) Some of these political actions are legitimately used, for example, to: - Share information with government personnel; - Promote certain viewpoints during decision-making processes; Request for redress of grievances. (iii) However, some of these political actions can also be a risk for important democratic values, such as equality among citizens, integrity of public servants etc.

4. How does Brazilian business promote its interests before government? 4.1 During the electoral process: i) How does it work? - Private companies are the main source of electoral financing in Brazil. - Private companies give money for electoral campaigns either legally or illegally (naturally, it is extremely difficult to estimate and study illegal electoral financing by companies). According to Brazilian law (Law No. 9.504/1997), private companies can legally donate up to 2% of their gross sales revenue in the year before the electoral year. - Why do companies finance electoral campaigns? (i) To support their preferred candidates (ideological motivation); (ii) To get closer to the candidates with better chance of victory (pragmatism); (iii) To recompense for benefits received in the past (for example: contracts, tax benefits, subsidized loans, laws that are favorable to the companies etc.); (iv) To seek for the same kinds of benefits in the future.

ii) What do we know about consequences ii) What do we know about consequences? Empirical literature (including my own studies) has shown that: - Few large companies are responsible for most of the electoral donations; - Few candidates and parties receive most of the companies' electoral donations; - Better-financed candidates have better chance of electoral victory. - Empirical evidence on quid-pro-quo arrangements is less abundant, but exists.

iii) What has been proposed to change this iii) What has been proposed to change this? Brazilian Supreme Federal Court is currently considering the constitutionality of the electoral financing system. The case was brought to the Court by the Federal Council of the Brazilian Bar Association. The case asks for: (i) the banishment of business campaign donations, and (ii) the establishment of contribution limits for individuals and candidates. The Court did not announce a final decision yet, but a majority of the justices have already voted in favor of the change. It is not clear how the National Congress would react to such a change. Will the Congress: - Abide by the Court's decision? - Change the Constitution in order to allow business donations? - Design an entirely new system (for example, with elections funded solely with public funds)?

4. 2. Between elections: By government invitation: i) How does it work 4.2. Between elections: By government invitation: i) How does it work? During the process of formulation, implementation and evaluation of public policies, all three branches of government may invite businesspeople to participate in one or more of the following mechanisms: - Public consultations; - Public hearings; - Councils, committees and conferences. ii) What do we know about consequences? Yet there are very few studies on the dynamics and results of these participatory mechanisms.

By own initiative: i) How does it work? Businesspeople lobby the three branches of government all along the process of formulation, implementation and evaluation of public policies. Depending on the subject under consideration, these lobbying efforts can be carried out by companies (either through in-house lobbyists or hiring a lobbying firm) or by business associations. Business lobbying efforts may provide the government with an useful source of information. - However, as we have seen while discussing the scandals, they also may result in: crimes against public administration; imbalance of political power; and privileges for special interests (for example, see my articles on tax benefits for Brazilian companies).

ii) What do we know about consequences ii) What do we know about consequences? Empirical literature (including my own studies) has shown that business lobbying has been very successful in promoting its interests either before the Legislative or the Executive branches of the government. iii) What has been proposed to deal with this issue? - National Congress has been considering – for two and a half decades (!) – the approval of a lobbying regulation law. - This idea gains momentum whenever a major political scandal erupts, but it loses strength as the scandal loses media attention.

- Potential benefits of lobbying regulation: (i) More information to the public about business lobbying efforts; (ii) More information to the public about business contacts with public officials; (iii) More transparency and legitimacy to decision-making processes; (iv) Favoring the organization of countervailing powers. - But lobbying regulation has its own limits: (i) What about informal lobbying practices? (ii) How to use available information on business lobbying efforts? (iii) How to level the playing field?

5. To sum up, Brazil is walking at a slow march toward renewing the "spirit" of the interaction between business and politics. Besides the measures already discussed (reform of the electoral financing system and lobbying regulation), other measures have also been adopted, with mixed results: (i) Adoption by companies of voluntary codes of conduct; (ii) Self-regulation by professional lobbying associations (e.g.: ABERJE, ABRIG); (iii) Improvement of internal control mechanisms (e.g. Controllership); (iv) Improvement of external control mechanisms (e.g. Audit Offices at national, state and local levels; Federal Police; Prosecution Services);

(v) Improvement of social control mechanisms (e. g (v) Improvement of social control mechanisms (e.g. approval of the Law of Access to Public Information; strengthening of participatory mechanisms, etc.); (vi) Approval of the New "Clean Company" Anticorruption Law (Law 12.486/2013), that imposes liability on companies that practice corrupt acts; (vii) Improvement of rules for government spending; (viii) Professionalization of public service.