Russia vs Brazil, A Macroeconomic Comparison

Macroeconomic objectives as we know them in theory were not all born on any given day in history. Instead, through various paradigm shifts, trial and errors of economic systems and policies, as well as an entire era of industrialisation and hardships of development that occurred as a result of it, brought about the notion of ‘desired’ macroeconomic indicators as we know them today. I refer to full employment, steadily (and by a small year on year percentage) rising inflation, and healthy economic growth.

These are to be brought about by responsible fiscal policies (taxation, government spending) and well thought out (‘market aware’) monetary policy (central bank’s setting of the interest rates). 1 Since Adam Smith’s Wealth of Nations (1776), there was an entire movement/paradigm that advocated market mechanisms and free trade. This was driven in Britain, some parts of Western Europe, and certainly in the USA, by the protestant work ethic.

Profit was no longer a taboo in the 19th century. This is arguably what led to such a strong wave of industrialisation in these countries. However, amongst other reasons, the mistreatment of employees by firms, and harsh working conditions, as well as a widening gap between the rich and the poor (specifically the employer and the employee) gave rise socialist ideologies and the famous ‘labour theory of income.

‘ The former Soviet Union (Russia today) implemented such an economic system for decades, until the latter part of the 20th century, and still has echoes of the system today (transition to a free market economy is proving more difficult than previously thought). On the other side of the Atlantic, at the time, free market economic ideologies and the notion of the ‘invisible hand’ were flourishing, and it was probably the most free a market that any economy had been in all history.

Much speculation and over valuation led to the stock market crash of 1929, leading to the Great Depression. John Maynard Keynes, the prominent British economist, drew up many explanations for the phenomenon, and advocated his notion that although implementing the market mechanism is best practice, there needs to be some degree of state regulation and involvement to make sure that there is a fair and healthy platform where the agents of the market mechanism can act upon. Then the Bretton Woods system led to the formation of the United Nations, and the rest is history.

2 These are the foundations of how macroeconomic thought evolved into what we know today. The purpose of this paper is to compare Russia’s macroeconomic objectives to Brazil’s ones. It is worth mentioning that such a comparison can take a long time, and therefore for purposes of such a paper, will have to be brief. Russia’s economy is very different to Brazil’s. Firstly, Russia used to be a communist/socialist state. This meant that its economy was entirely run by the state and therefore centrally planned.

There was no market mechanism at play whatsoever, since socialist ideology believes that this can only led to more inequality and ultimately revolution anyway. Brazil’s economy, although under socialist influence in some years in the 20th century, has remained mainly free market. Secondly, in terms of land size, and population (as well as growth rates), the countries are very different. Russia has enormous land size, and access to endless resources (oil, gas, uranium and so on).

Brazil on the other hand, although the largest country in South America, does not have as many ‘fuels’ as Russia does. It has access to large supplies of timber (Amazon), coal, and not much more. Brazil was also not at one stage a ‘super-power. ‘ So by this very nature, the comparison of these two countries is rather strange. There are, however, some similarities. Both countries underwent irresponsible, and at times, short sighted and stubborn policies (both monetary and fiscal, in Brazil’s case).