The military regime that came to power in 1964 set a new economic course for Brazil. Originally, the military had hoped to follow up economic stabilization with an ambitious program to rationalize production and encourage large-scale capitalist development by attracting private domestic and foreign investors to advanced consumer durable and capital goods industries. The problem with what was initially a liberal economic plan was that the domestic private sector was too weak and capital-poor to take the initiative to lead this development, and foreign capital needed to be prodded to assist in developing Brazil. For the military to fulfill its economic project, it needed to find some means to compensate for the deficiencies of the private sector. The solution it settled on was a more expansive role for the state.

The Brazilian state, like other states of late developing countries in Latin America and the Third World, had intervened extensively in the economy at least since the Great Depression in order to stimulate industrial development. After the regime change in 1964, however, the state's interventionist role grew more active and pervasive and its nature changed from that typical of a state in a late developing capitalist society to one that has been called “state capitalist” (Baer, Newfarmer, and Trebat, 1976). The state organized and controlled investment, launched major new lines of industries, and steadily increased its domination over the private sector of the economy. It also provided capital for joint ventures with foreign enterprises and negotiated foreign investment on reasonably favorable terms for Brazil.