This chapter examines the context and implications of two transitions in Brazil: the political transition from a military regime (1964–1985) to democracy (1985 to the present), and the economic transition from import substitution industrialisation (ISI) (1930–1980) to neoliberalism (1990 to the present). These transitions have shaped the contemporary Brazilian political economy and the policy choices available to recent federal administrations. The chapter also reviews how neoliberal economic policies were implemented in a democracy, first under the centre-right administrations led by Fernando Henrique Cardoso (1995–1998, 1998–2002) and then under the centre-left presidencies of Luís Inácio Lula da Silva (2003–2006, 2007–2010) and Dilma Rousseff (2011–2014, 2015 to the present).

In this context, it is especially important to examine the policy shifts introduced during the second Lula administration. These shifts did not signal a decisive break with neoliberalism, but they inaugurated what became known as the ‘Lula moment’: a decade of significantly higher growth rates than had been achieved previously, and remarkable advances in employment, distribution and poverty alleviation. The chapter examines the economic and social policies underpinning the ‘Lula moment’, and reflects on the limitations of their policies, and those of neoliberal democracy, which have emerged through the political crisis of the Rousseff administration.

Following are eight sections. The first outlines the process of ISI and its limitations. The second describes the transitions from the military regime to democracy, and from ISI to neoliberalism. The next three review the first and second Lula administrations and the Rousseff administration. The sixth examines the distributional achievements under these administrations. The seventh considers the challenges now posed for the Brazilian Left, after the exhaustion of the ‘Lula moment’. The eighth section presents the main conclusions.

IMPORT SUBSTITUTION INDUSTRIALISATION

ISI is a system of accumulation based on the sequenced expansion of manufacturing industry, with the primary objective of replacing imports.1 Manufacturing expansion usually departs from the internalisation of the production of nondurable consumer goods (textiles, processed foods, beverages, tobacco products and so on). It later deepens to include the production of durable consumer goods (especially household appliances and automobile assembly), simple chemical and pharmaceutical products and non-metallic minerals (especially cement).