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Declining hegemony and assertive industrialization: U.S.-Brazil conflicts in the computer industry

Published online by Cambridge University Press:  22 May 2009

Peter B. Evans
Peter B. Evans
Affiliation:
Professor at the Graduate School of International Relations and Pacific Studies, University of California, San Diego, and Professor of Latin American Studies and Sociology at the University of New Mexico, Albuquerque.
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Abstract

Alternative explanations for the formation of U.S. foreign economic policy are explored using the acrimonious but inconclusive conflict between the United States and its largest South American ally over Brazil's restrictive policies toward the computer industry. After comparing a post-dependency/bargaining perspective, the theory of hegemonic stability, and Stephen Krasner's structural conflict model, the article argues that systemic perspectives on foreign economic policy must be complemented by an account of the interaction between the effects of international position and the dynamics of domestic politics. The resulting politicized state-centric approach, which integrates interest-based politics and ideologically defined state aims, is proposed as a means of more fully understanding the dilemmas of a declining hegemon.

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Articles
Information
International Organization , Volume 43 , Issue 2 , Spring 1989 , pp. 207 - 238
Copyright
Copyright © The IO Foundation 1989

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References

1. White House press release of President Reagan's radio address of 7 September 1985.

2. Hirschman, Albert, “The Political Economy of Latin American Development: Seven Exercises in Retrospection,” Latin American Research Review 22 (Summer 1987), pp. 7–35Google Scholar.

3. For reviews of the history of the policy through the passage of this law, see Helena, Silvia, “A indústria de computadores: Evoluçāo das deçisões governamentais,” Revista de Administraçāo Pública 14 (10–12 1980), pp. 73–109Google Scholar; and Tigre, Paulo, Technology and Competition in the Brazilian Computer Industry (New York: St. Martin's Press, 1983)Google Scholar. See also Adler, Emanuel, “Ideological ‘Guerrillas’ and the Quest for Technological Autonomy: Brazil's Domestic Computer Industry,” International Organization 40 (Summer 1986), pp. 673–705CrossRefGoogle Scholar; Adler, Emanuel, The Power of Ideology: The Quest for Technological Autonomy in Argentina and Brazil (Berkeley: University of California Press, 1987)Google Scholar; Evans, Peter, “State, Capital and the Transformation of Dependence: The Case of Brazilian Computers,” World Development 14 (08 1986), pp. 791–808CrossRefGoogle Scholar; and Cline, William, Informatics and Development: Trade and Industrial Policy in Argentina, Mexico and Brazil (Washington, D.C.: Economics International, 1987)Google Scholar(financed by IBM).

4. The term “assertive” is adopted from Joseph Grieco's characterization of countries like Brazil as “‘assertive’ upper tier developing countries.” Grieco does not, however, define assertiveness in neomercantilist terms. See Grieco, Joseph, Between Dependency and Autonomy: India's Experience with the International Computer Industry (Berkeley: University of California Press, 1984)Google Scholar.

5. Estimates are from the U.S. Department of Commerce, U.S. Industrial Outlook, 1986 (Washington, D.C.: GPO, 1987), Section 28, p. 28–7)Google Scholar. The report probably overestimated Brazil's growth rate (as it did China's), but by 1986 local estimates put the Brazilian market at $3.2 billion (Informática Hoje, 31 03 1987, p. 20)Google Scholar, making it the eighth largest in the world (discounting the exaggerated projection for China).

6. See Grieco, Between Dependency and Autonomy.

7. See Adler, Power of Ideology.

8. There was talk, for example, of creating “market reserve” policies in biotechnology.

9. See footnote 3.

10. Cited in Frank, A. G., Capitalism and Underdevelopment in Latin America: Historical Studies of Chile and Brazil (New York: Monthly Review Press, 1967), pp. 161–62Google Scholar.

11. See, for example, Adler, “Ideological ‘Guerrillas'”; Adler, Power of Ideology; Becker, David, The New Bourgeoisie and the Limits of Dependency: Mining, Class and Power in ‘Revolutionary’ Peru (Princeton, N.J.: Princeton University Press, 1983);CrossRefGoogle ScholarBennett, Douglas and Sharpe, Kenneth, Transnational Corporations Versus the State: The Political Economy of the Mexican Auto Industry (Princeton, N.J.: Princeton University Press, 1985)CrossRefGoogle Scholar; Biersteker, Thomas, Multinationals, the State and Control of the Nigerian Economy (Princeton, N.J.: Princeton University Press, 1987)CrossRefGoogle Scholar; Gereffi, Gary, The Pharmaceutical Industry and Dependency in the Third World (Princeton, N.J.: Princeton University Press, 1983)CrossRefGoogle Scholar; Grieco, Between Dependency and Autonomy; and the studies in Newfarmer, Richard, ed., Profits, Progress and Poverty—Case Studies of International Industries: Latin America (Notre Dame, lnd.: University of Notre Dame Press, 1985)Google Scholar. These authors vary substantially in the degree to which they see themselves as continuing or superseding the dependency tradition. Some (for example, Gereffi) see themselves as pursuing an “historical structural” or Cardosian approach, while others (for example, Grieco and Becker) see themselves as superseding it. There are, nonetheless, strong commonalities among all of these authors in terms of both substance and method.

12. This was the case in Mexico's conflicts with pharmaceutical TNCs, as described by Gereffi in The Pharmaceutical Industry.

13. This was the case with the Peruvian state and the copper mine companies, as described by Becker in The New Bourgeoisie. See also my description of the Brazilian petrochemical industry in the following works: Dependent Development: The Alliance of Multinational, State and Local Capital in Brazil (Princeton, N.J.: Princeton University Press, 1979)Google Scholar; “A Generalized Linkage Approach to Recent Industrial Development in Brazil: The Case of the Petrochemical Industry 1967–1979,” in Foxley, Alexandra, O'Donnell, Guillermo, and McPherson, Michael, eds., Development, Democracy and the Art of Trespassing: Essays in Honor of Albert Hirschman (Notre Dame, lnd.: Notre Dame University Press, 1986), pp. 7–27Google Scholar; and “Collectivizing Capitalist Accumulation: The Social Base of the Development of Brazil's Petrochemical Complexes,” in Bruneau, T. C. and Faucher, P., eds., Authoritarian Capitalism: The Contemporary Economic and Political Development of Brazil (Boulder, Colo.: Westview Press, 1981), pp. 85–125Google Scholar.

14. An example was the bargain struck by the Mexican state and the U.S. auto companies in 1977, as described by Bennett and Sharpe in Transnational Corporations Versus the State.

15. Krasner, Stephen, Defending the National Interest: Raw Materials Investments and U.S. Foreign Policy (Princeton, N.J.: Princeton University Press, 1978), pp. 330–31Google Scholar.

16. See Kindleberger, Charles P., The World in Depression 1929–1939 (Berkeley: University of California Press, 1973)Google Scholar.

17. See Keohane, Robert, After Hegemony: Cooperation and Discord in the World Political Economy (Princeton, N.J.: Princeton University Press, 1984)Google Scholar; Gilpin, Robert, War and Change in World Politics (New York: Cambridge University Press, 1981)CrossRefGoogle Scholar; Stein, Arthur, “The Hegemon's Dilemma: Great Britain, the United States, and the International Economic Order,” International Organization 38 (Spring 1984), pp. 355–86CrossRefGoogle Scholar; Russett, Bruce, “The Mysterious Case of Vanishing Hegemony; Or, Is Mark Twain Really Dead?” International Organization 39 (Winter 1985), pp. 207–31CrossRefGoogle Scholar; Snidal, Duncan, “The Limits of Hegemonic Stability Theory,” International Organization 39 (Autumn 1985), pp. 579–614CrossRefGoogle Scholar; Conybeare, John, Trade Wars (New York: Columbia University Press, 1987)Google Scholar; Strange, Susan, “The Persistent Myth of Lost Hegemony,” International Organization 41 (Autumn 1987), pp. 551–74CrossRefGoogle Scholar; and Hall, John A., “American Interests and International Political Economy,” States and Social Structures Newsletter 7 (Spring 1988), pp. 1–5Google Scholar.

18. Since we are concerned here with a trade case, we will focus on the hegemon's role with respect to trade. Obviously, the hegemon's financial role is equally important and its security role, especially for the “realists,” even more so. Nonetheless, for this case, trade is the key issue.

19. See footnote 17, especially Snidal, “Limits of Hegemonic Stability”; Russett, “The Mysterious Case”; Conybeare, Trade Wars; and Strange, “The Persistent Myth.”

20. For an interesting analysis of this historical sequence, see Stein, “The Hegemon's Dilemma.”

21. Some (for example, Russett in “The Mysterious Case” and Strange in “The Persistent Myth”) would argue that the United States is still the hegemon, and in terms of political and military pre-eminence, this is clearly the case. Nor can it be denied that the U.S. economy remains the world's largest. Nonetheless, competitive superiority in manufactured goods has been a key facet of the economic side of hegemony for both Britain and the United States, and the U.S. decline in this facet is hard to deny.

22. There are, of course, other derivations from realist models which make less benign predictions regarding the behavior of hegemons toward the Third World. In Trade Wars, Conybeare argues that hegemons are much more likely to engage in “predatory” behavior in relation to small nations. In Ruggie, John Gerard, “International Regimes, Transactions, and Change: Embedded Liberalism in the Postwar Economic Order,” International Organization 36 (Spring 1982), pp. 379–415CrossRefGoogle Scholar, and The Antimonies of Interdependence (New York: Columbia University Press, 1983)Google Scholar, chap. 9, Ruggie argues that liberal assumptions have not been extended to Third World countries. Neither of these authors, however, focuses on the kind of “defense of fair trade” actions that are involved in the Section 301 case.

23. Krasner, Stephen, Structural Conflict: The Third World Against Global Liberalism (Berkeley: University of California Press, 1985)Google Scholar.

24. It should be noted that even though Krasner's own contrast between the global distribution of authoritatively allocated airline traffic and that of market-allocated shipping tonnage suggests that Third World countries may benefit from authoritative allocation (see Krasner, , Structural Conflict, pp. 197 and 216)Google Scholar, Krasner does not see the preferences of Third World countries as motivated by the desire to accelerate economic development. This position, which implies a rejection of the idea of assertive industrialization, further separates him from the post-dependency/bargaining school.

25. One other obvious candidate that has not been dealt with here is a world systems approach, which combines a highly systemic approach with a focus on the interests of international capital. See especially Chase-Dunn, Christopher, “International Economic Policy in a Declining Core State,” in Avery, William P. and Rapkin, David P., eds., America in a Changing World Political Economy (New York: Longman, 1982), pp. 77–96Google Scholar.

26. See, for example, the conclusion of Haggard, Stephan and Simmons, Beth A. in “Theories of International Regimes,” International Organization 41 (Summer 1987), pp. 491–517CrossRefGoogle Scholar. See also the articles in International Organization 42 (Winter 1988)Google Scholar, the special issue entitled “The State and American Foreign Economic Policy,” edited by G. John Ikenberry, David A. Lake, and Michael Mastanduno.

27. See U.S. Code 19, 2411 (annotated).

28. White House press release of President Reagan's radio address of 7 September 1985.

29. Federal Register, vol. 50, no. 179, 16 09 1985, pp. 37608–9Google Scholar(Docket no. 301–49): ”Initiation of Investigation Under Section 301; Brazil's Informatics Policy.”

30. According to data provided by Brazil's Special Informatics Secretariat (SEI), total revenues of local and foreign-owned computer firms operating in Brazil rose from $830 million in 1979 to $2.3 billion in 1985.

31. See Bergsman, Joel, Brazil: Industrialization and Trade Policies (New York: Oxford University Press, 1970), p. 34Google Scholar.

32. According to figures from the U.S. Department of Commerce, Brazil exported almost $700 million worth of “motor vehicles and parts” to the United States in 1985Google Scholar, making them Brazil's fourth largest export.

33. See Adler, “Ideological ‘Guerrillas’”; and Evans, “State, Capital and the Transformation of Dependence.”

34. U.S. Code 19, 2411 (annotated), p. 68 [e (3)].

35. Office of USTR, “Section 301 Table of Cases,” 10 1986Google Scholar.

36. The membership of CBEMA consisted of about 35 of the largest computer manufacturers in 1985. The AEA, an organization with a much broader base, had about 3,000 members involved in all branches of electronics, including computers. See AEA Annual Report, 1985.

37. Letter from Vico E. Henriques, president of CBEMA, to USTR Section 301 Committee, October 1985 (available in USTR Section 301 Public Use File).

38. Letter from William Krist, director of international affairs of the AEA, to USTR Section 301 Committee, 11 October 1985 (available in USTR Section 301 Public Use File).

39. See Adler, “Ideological ‘Guerrillas’”; and Evans, “State, Capital and the Transformation of Dependence.”

40. See Evans, “State, Capital and the Transformation of Dependence,” Table 4.

41. See Tigre, , Technology and Competition, p. 135Google Scholar; and Ramamurti, Ravi, “Brazil's Computer Strategy,” Harvard Business School Case no. 0–485–148 (Boston: HARBUS, 1985), pp. 10–11Google Scholar.

42. “Comments on behalf of ABICOMP” to the USTR (Docket 301–49) in the matter of the Government of Brazil's Informatics Policy, filed by Santarelli, Choate, Smith, Kraut, and Carroccio (Counsel for ABICOMP), 11 October 1985, pp. 22–27.

43. It is true that Brazil had not in fact filed with GATT for an infant-industry exemption and that if it had filed, it would have had to specify the period of “infancy” and the limits of the industry in a way that was acceptable to GATT; but it is also true that the U.S. officials did not see official filing with GATT as a solution to the problem.

44. As a private group, ABICOMP could not appropriately raise the national security issue, but it is generally agreed that if the Brazilian government had chosen to file such a brief, it could have done so.

45. See U.S. Code 19, 1862; see also “The Effect of Imports on the National Security,” Office of Industrial Resource Administration, U.S. Department of Commerce, 07 1984Google Scholar.

46. Auerbach, Stuart, “U.S. May Halt Sale of Firm to Japanese,” Washington Post, 8 11 1986, pp. Al and A9. See alsoGoogle ScholarTharp, Mike, “Uncertainty on Fairchild-Fujitsu Plan Grows as Justice Agency Begins Review,” Wall Street Journal, 17 11 1986, p. 40Google Scholar. It should, of course, be noted that the issue was not simply one of foreign control. Since Fairchild was already owned by Schlumberger, a French company, the issue was foreign control by an ascendant rival.

47. Russett, “The Mysterious Case.”

48. Gilpin, Robert, The Political Economy of International Relations (Princeton, N.J.: Princeton University Press, 1987), p. 73CrossRefGoogle Scholar.

49. President José Sarney, speech delivered at the sanctioning ceremony of the First Plan for Informatics and Automation, Planalto Palace, 17 April 1986.

50. Editorial, , The New York Times, 15 09 1986, p. A14Google Scholar.

51. Cited in “Brazil's Crisis: U.S. Must Lend a Hope, a Hand,” Los Angeles Times, 24 May 1987, p. V6.

52. See Federal Register, vol. 50, no. 128, p. 27518, 3 07 1985Google Scholar, for the official report of the International Trade Commission's original decision.

53. See The New York Times,29 August 1985, pp. Dl and D5.

54. Hearing Before the Committee on Finance, U.S. Senate, on the Nomination of Dr. Clayton Yeutter to Be U.S. Trade Representative, 99th Congress, 1st sess., 25 June 1985, pp. 43 and 46.

55. Ibid., pp. 7 and 9.

56. Ibid., pp. 49 and 80–84.

57. See footnote 42.

58. Staffing for the case was, of course, in the hands of various interagency committees and working groups that drew their membership from several departments. Nonetheless, the involvement of different departments varied substantially in its intensity as well as in its orientation.

59. The actions of SEI were overseen by the National Informatics Council (CONIN) and by the Ministry of Science and Technology, but CONIN met infrequently and dealt only with major policy issues, while the Ministry, which owed its existence at least in part to the Informatics Law, was heavily committed to defending SEI.

60. See Sarney, speech on the First Plan for Informatics and Automation.

61. The legislation, which was never actually submitted to a vote, would have also prevented U.S. companies from registering patents, exercising mineral exploration rights, and selling goods or services to the Brazilian government.

62. The law allows firms with up to 30 percent of foreign equity to be classified as “national firms,” but only if their principal source of technology is local. The issue then was whether the new firm would be relying primarily on Gerdau's previous information-processing experience and the company's own resources, as the company claimed, or whether it would be a conduit for IBM technology, as nationalist opponents to the venture claimed.

63. There were no local firms capable of producing such large disks independently, and there was no prospect of setting up such a fully integrated manufacturing operation for large disks even with foreign partners; however, some local firms aspired to set up joint ventures that would assemble and sell large disks.

64. See footnote 38.

65. See letter from S. N. Weiss, Esq., to Alan Holmer, General Counsel of the USTR, 15 August 1986 (available in USTR Section 301 Public Use File).

66. The Shultz letter and Shultz's subsequent correspondence with Sodre on the informatics issue during April 1986 were published in nformálica Hoj, no. 62, 22 07 1986, p. 4Google Scholar.

67. See accounts in Isto E, no. 493, 6 06 1986, p. 28Google Scholar; and VEJA, no. 926, 4 06 1986, p. 116Google Scholar.

68. At the next meeting in Paris on 11 August 1986, Flecha de Lima was presented with a specific list of “American objectives.” He and Yeutter also met in Rio de Janeiro in September and finally in Brussels in mid-December 1986.

69. For the full text of the confidential list of U.S. objectives, see Isto E, no. 502, 6 08 1986, p. 56Google Scholar; or lnformática Hoje, no. 65, 12 08 1986, p. 8Google Scholar.

70. The New York Times, 15 September 1986, p. A14.

71. See memo from Jon Rosenbaum and Christina Lund to Ambassador Yeutter, II April 1986 (available in USTR Section 301 Public Use File).

72. Because of its portability and the fact that it was not written for specific proprietary hardware, the UNIX operating system is considered a possible industry standard for 32-bit processors.

73. See Journal do Brasil, 13 November and 16 November 1986. What actually transpired, according to more knowledgeable industry sources, was that a letter was sent jointly by the USTR and the Department of Commerce to AT&T, and although it did not orderAT&T to do anything, it implied that Brazilian protection for software was very inadequate and that it might be unwise for AT&T to allow its source code to be licensed in such an environment. There is, however, no disagreement with the basic proposition that the U.S. action had a chilling effect on the negotiations.

74. Soon after the breakdown, Brazil's state-owned computer producer (COBRA) began a campaign to have its UNIX-like operating system, SOX, adopted as a national standard and UNIX excluded as a foreign “similar.” If this campaign is successful, Brazil will be effectively cut off from developments in what seems destined to become the most important international standard in operating systems.

75. Memorandum of 6 October 1986, “Determination Under Section 301 of the Trade Act of 1974,” Federal Register, vol. 51, no. 195, pp. 35993–4Google Scholar. The President did say that he had notified GATT of U.S. intentions to suspend application of tariff concessions, but this notification carried no necessary implication that suspension would actually occur.

76. See Gazeta Mercantil, 17 October 1986.

77. The previous primary legal basis for import restriction had been Carteira de Comércio Exterior (CACEX) Comunicado no. 41. It was replaced on 12 November 1986 by Comunicado no. 171. The specific products eliminated in the latter decree accounted for only about 5 percent of the volume of imports controlled under Comunicado no. 41 (figures are from 1985, published in Encarte no. 3, AB1COMP, December 1986). The new decree did, however, eliminate a paragraph that allowed SEI to control imports of unspecified products as long as they contained “commands or controls or other systems with digital logic of the numerical command type, programmable logical controller or similar devices.”

78. The meeting was in Brussels on 14 December 1986.

79. See White House press release of 30 December 1986 and the attached “fact sheet” on the Brazilian informatics case.

80. Press release, Office of the President, 30 June 1987.

81. Memorandum from President Reagan to USTR, 30 June 1987 (later published in the Federal Register).

82. Quoted in VEJA, 6 January 1988, p. 67.

83. See The New York Times, 13 November 1987, p. 1; and Wall Street Journal, 16 November 1987, p. 21.

84. See Data News, no. 395, 28 12 1987, pp. 1Google Scholar, 2, 6, and 7; and Gazeta Mercantil, International Weekly Edition, no. 247, 28 12 1987, p. 1Google Scholar.

85. Data News, no. 397, 25 01 1988, pp. 1 and 6Google Scholar; and Journal do Brasil, 1st caderno, 21 January 1988, p. 13.

86. Data News, no. 398, 2 08 1988, pp. 1 and 8Google Scholar.

87. On 29 February 1988, Ambassador Yeutter announced: “The U.S. will delay sanctions against Brazil pending review of the implementing regulations for Brazil's new software law.” On 17 June 1988, the administration reiterated its desire to avoid confrontation. Yeutter announced that even though he was “dubious about whether it was possible to implement the marketing provisions in Brazil's new software law in a fair, nondiscriminatory fashion,” he would “give Brazil the benefit of the doubt” and postpone any decision to retaliate until “there is a more complete track record.” See press releases, USTR, 29 February and 17 June 1988.

88. See “As 150 Maiores,” Dados e Ideias, June 1988, p. 19.

89. This politicized state-centric model has strong affinities with the institutional analysis approach proposed by Ikenberry, Lake, and Mastanduno in “The State and American Foreign Economic Policy.”

90. See Gourevitch, Peter, “The Second Image Reversed: The International Sources of Domestic Politics,” International Organization 32 (Autumn 1978), pp. 881–911CrossRefGoogle Scholar; Gourevitch, Peter, The Politics of Hard Times (Ithaca, N.Y.: Cornell University Press, 1986)Google Scholar; and Putnam, Robert, “Diplomacy and Domestic Politics: The Logic of Two-Level Games.” International Organization 42 (Summer 1988), pp. 427–60CrossRefGoogle Scholar.

91. For a version of this argument derived from a world systems perspective, see Chase-Dunn, “International Economic Policy.”

92. See Gilpin, Robert, U.S. Power and the Multinational Corporation (New York: Basic Books, 1975)CrossRefGoogle Scholar; and Evans, Peter, “Transnational Linkages and the Economic Role of the State: An Analysis of Developing and Industrialized Nations in the Post-World War II Period,” in Evans, Peter, Rueschemeyer, Dietrich, and Skocpol, Theda, eds., Bringing the State Back In (New York: Cambridge University Press, 1985), pp. 192–226CrossRefGoogle Scholar.