Organizational Size and the Logic of Economic Development: An Analysis of Brazilian Personal Services

Texas A&M Research Foundation, College Station TX

Investigators

Abstract

SES- 0111456 Samuel Cohn Texas A&M University This project is an analysis of the social and political determinants of economic development in Brazil. Current sociological writing on economic development is mis-specified because it fails to account for differences between the determinants of growth for small and large firms. Small firms represent the vast majority of employment in third world nations but receive very little scholarly attention. It is hypothesized that the relationship between state intervention and the growth of microenterprise does not follow traditional models because a) small firms have little influence on national governments and b) governments set policies based on the priority of large firms - producing effects on small firms that are unplanned but consequential. The project considers state-year level variation in employment in three Brazilian industries: restaurants, barber/beauty shops and hotels. All three industries involve personal service; however, restaurants and barber/shops have very low average firm size, while hotels are large and subject to chain and multinational ownership. Data from the Brazilian census has already been collected and analyzed to develop an econometric model of employment in these sectors. This model allows for the statistical control of economic factors such as market size, and the estimation of the role of key costs such as rent, taxes and wages. The residuals from the econometric model have been used to identify a set of states with unusually high or low levels of service sector activity net of market factors. National Science Foundation funds will be used to support a year of fieldwork to allow for qualitative investigation of the cases selected in this manner. The principal investigator will perform a sustained contrast of three northeastern states. One, Sergipe, has an extraordinarily high level of employment n barber/beauty shops, and has maintained this level since 1940. One, Bahia, saw a resurgence of service sector activity in the 1970's. The third, Alagoas, is average in all respects. The study will also do smaller analyses of residual employment in other states. These include a) contrasting high and low levels of service employment in two artificially-created "planned" capitols, Campo Grande and Brasilia, b) the slow decline of services in both of Brazil's major metropoli (Sdo Paulo and Rio de Janeiro), and c) the marked decline in residual service employment in otherwise prosperous Rio Grande do Sul. Interviews of businessmen and policy makers will be combined with relevant documentary and archival sources. The methodology of the qualitative fieldwork will resemble that standard sociological works on Brazilian economic development such as those of Peter Evans. However, this study can link those findings to econometric results from a time-series cross-section analysis providing more rigorous tests of the impacts of the phenomena observed in the field. The quantitative and qualitative analysis tests theories drawn from neoclassical economics, the orthodox state-led development literature, political economy, the new network-based economic sociology, the informal economy literature and the ethnic enclave literature. A goal of the project however is to go beyond these theories and produce a new decision-theory-like account that emphasizes the unanticipated developmental consequences of policies designed for other purposes.