As the global financial system continues to face the consequences of irresponsible banking practices, and amid the afterglow of Lula da Silva's presidency, a study of Brazilian government-owned banks could hardly be more timely. That the book also serves as a reminder of the continued importance of government ownership of financial systems in our supposedly neoliberal system only increases its importance.
Those looking to Kurt von Mettenheim for a rallying cry to renationalise the commanding heights of the economy will be disappointed: his conclusions are careful and balanced. The critics of government banks, he argues, ‘fail to consider how government banks may succeed, as banks, as agents of public policy and as essential parts of political and social economies’ (p. 15, my italics). The book demonstrates well the competitive advantages and contributions to policy implementation of the three banks considered as case studies. Given the historical evidence presented, however, the author's caution is clearly justified, even if the most significant problems arose under the monarchy and the military. Despite the caution, the case for the more recent role of the government banks as counter-cyclical lenders and contributors to government policies is strong, as is the analysis of efficiency and capital adequacy in line with private and foreign banks in Brazil. A partial exception is the lower efficiency of one of the case-study banks, Caixa Econômica Federal (Federal Savings Bank, ‘Caixa’ for short). Von Mettenheim argues that government-owned banks must succeed first as banks, before exploiting their competitive advantages and assisting government policy, but if they do succeed, they allow governments to do more for less.
The study makes three main contributions. First, as already noted, the continued importance of government-owned banks is significant for a comparative political economy which, in its analysis of the developed world, has largely moved on from considering three potential financial systems to debates around the bank-based and market-based dichotomy. Similarly, that the Banco Nacional de Desenvolvimento Econômica e Social (National Economic and Social Development Bank, BNDES) has total assets over half those of the World Bank is a compelling refutation of international political economy's prioritisation of the international financial institutions (IFIs). In focusing in his (necessarily brief) comparative comments on the developed world, however, and in particular in not making the comparison with the other so-called BRIC countries, the author perhaps underplays his contribution to comparative political economy. The book has much to say about the nature of the accommodation of government-directed development models to freer financial markets. Such comparison with other systems with substantial government ownership would also move the framework for analysis away from the bank-based/market-based dichotomy that von Mettenheim chooses, and from the slightly uncomfortable claim (at least to me) that ‘if banks perform adequately as banks, it is not a sl[e]ight of hand to insert the adjective “government” in front of banks or bank-centred financial systems’ (p. 17). The discomfort is particularly acute in the case of the savings bank, Caixa, when the government/private ownership of savings banks elsewhere is somewhat glossed over. Private but mutually owned British savings banks were not ‘privatized’ in the 1990s (p. 178), for example, but demutualised. The interesting question, which the book provides considerable evidence to help answer, thereby becomes not whether a mixture of government banks and markets is welfare-enhancing (p. 15), but whether a mixture of government banks, private banks and markets might be welfare-enhancing.
The second main contribution lies in the significant detail presented in two areas. First is the nature of the federal banks' involvement in policy, particularly the involvement of both Banco do Brasil and Caixa in inclusion initiatives, but also in counter-cyclical lending, including in the interbank market. The role of the Caixa as an ‘internal IMF’, imposing conditionality on state borrowers, is especially interesting evidence of the federal banks' actual and potential policy role. Second, the historical perspective presents a rich narrative of the relationship between government and the federal banks. In line with the balanced approach throughout, this is far from a story of unalloyed harmony, with periods of resistance to government policy. Such tensions, von Mettenheim makes clear, run very much to the present day, with the sacking of the Banco do Brasil president by Lula for refusing to reduce the interest rates on loans (p. 90). The contrast both with the seemingly more compliant Chinese state-owned banks in the recent financial crisis and with the difficulties of some governments – for example, the United Kingdom's – in using even majority shareholding to influence bank policy represents a fruitful area for further research.
It is in these questions for further research that the book makes its third major contribution. As already highlighted, careful comparison with the other BRIC countries is one obvious area. A second lies in the nature and origins of competitive advantage and both the extent to which it can be replicable, a key question for the generalisability of the book's conclusions, and the extent to which it ultimately relies on government ownership. The answer to the latter question may well vary across the three case studies presented here. BNDES's role as a long-term lender in a financial market with a notoriously short-term focus would appear heavily dependent on government ownership, in particular in financing of lending. In the case of Banco do Brasil and Caixa, it is possibly less clear-cut. Von Mettenheim is careful to highlight the institutional foundations of their competitive advantage, and these include, in both cases, their size and reach through large branch networks. This may or may not be the result of government ownership. A further interesting question is the influence of a stock market listing, as in the case of Banco do Brasil, when the government remains the dominant shareholder.
Overall, this is an important book which highlights an area of financial systems that has received, in recent years, less attention than it should. The title, Federal Banking in Brazil, will maybe not result in attention from less regionally focused political economists. That would be a pity.
