Marcos Troyjo
The timid expansion of
Brazil’s GDP in the past 12 months at under 1 per cent deals a hard blow to the
notion that its policy makers had devised an economic model uniting high growth
with social inclusion. This sweet dream is over. It is wrong to assume that the
set of policies Brazil has put in place in the past few years to boost its
economy and upgrade its social data are pillars of a new development model.
What does exist in Brazil,
stretching back beyond current President Dilma Roussef and her predecessor Luiz
Inácio Lula da Silva (2003-2012), is a cyclical attempt to promote growth that
constitutes a “pattern”. It is based on the appetite of Brazil’s domestic
market for high levels of consumption. The pattern has indeed been accompanied
in the past 10 years by income distribution mechanisms that lifted the lives of
millions. They are however targeted at poverty alleviation – not increasing
productivity – and therefore are not engines for sustained development over
time. This pattern made Brazil fall in love with the present. It is time to end
this affair. We have to go back to being the “country of the future”.
Economic “models” and
“patterns” are quite different things. The former are strategic and dynamic in
nature. They include a plan, a well-structured vision of the future. The latter
are tactical and recurrent – they react to changes in the global economy. Models
are about development. Patterns are about growth.
In policy-making quarters,
many seem to feel it is possible for Brazil to keep expanding its economy at
impressive rates by fostering domestic consumption. Brazil has already applied
such mechanisms in the past. Although the economy does respond positively to
one or another stimulus, there are many constraints for such a growth pattern
to become a development model. Brazil has low levels of savings and investment,
outdated labour and tax legislation and infrastructure bottlenecks. It lags
behind its competitors in education, science and technology.
Brazil has to choose a
development model and adopt it wholeheartedly. Brazilian authorities cannot
fool themselves. It is useless to quixotically gear up against ‘currency wars’,
build walls to restrain the ‘financial tsunami’ and denounce the ‘monetary
protectionism’ practiced by advanced economies. If truth be told, a more stable
scenario in Europe and a larger availability of capital worldwide are essential
to Brazil’s ambitions of growth. Brazil only saves about 16 per cent of its GDP
and thus depends heavily on financial flows as well as robust foreign direct
investment.
Interest payments, pensions,
public sector wages, government inefficiencies and Kafkaesque business
regulations keep Brazil from pursuing a development road paved by science,
technology, innovation, start-up capital and entrepreneurial spirit. The
country has a hard time putting together a priority list and sacrificing for
it. But Brazil presents clear potential for the old economy of commodities to
build new competencies in tech-intensive sectors.
This would necessarily involve
the many areas in which Brazil has comparative advantages, such as
agribusiness, mining, deep-water oil and biofuels. These should be the bases
for a new economic platform to generate surpluses and service the construction
of new competitive advantages in nanotechnology, bioengineering, biotechnology,
high value chemicals, new materials and robotics. These are the vehicles that
could drive Brazil to the forefront of emerging markets.
The current reinterpretation
of import substitution policies in Brazil is a good example of the difference
between a development model and a growth pattern. Nearly all experiences in
industrial development around the world have resorted to some sort of import
substitution. This is almost a necessary stopover to local capacity building.
Import substitution however cannot be seen as an ever-lasting golden rule. It
is only to be applied at an infant-industry level so as to enable a particular
sector of the economy to compete internationally.
Building a development model
requires at least three ingredients. Political will, capital availability and a
good diagnosis of what the world is today. Brazilian politicians have always
been criticized for lacking the political will for change.
But it would be unfair to
think of someone like President Rousseff as deprived of the will to build a
shortcut to development and thus propel Brazil towards a much higher
socio-economic status. She is eager to make a difference. President Rousseff is
increasingly aware of the importance of innovation and of how crucial it is to
reposition Brazil competitively in the realm of the so-called “knowledge economy”.
Nonetheless, contemporary
Brazil continues to confuse the growth pattern brought about by specific
incentives for consumption and industry protection with a model that allows for
productivity gains and sustained economic development. Brazil should worry
instead about the gap between its huge potential and its low capacity to
compete globally. Over the past 25 years, Brazil’s productivity grew at just
0.2 per cent a year, while the annual change in China was 4 per cent.
Brazil must raise domestic savings
and investment as a percentage of GDP and direct more resources to education,
science and technology – the indispensable tools to fight crises and promote
sustained prosperity. Embarking on a serious effort to enact much-needed
structural reforms will free Brazil from the current microeconomic
straitjackets. They would be the best stimulus the Brazilian government could
offer all those willing to help the country develop its potential to the
fullest.
Marcos Troyjo is director of the BRICLab at Columbia University,
where he teaches international affairs, Financial Times, December 17, 2012
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