Income and Growth

Growth is generally necessary, though not sufficient, for achieving development. In 2011, Brazil’s per capita income was close to $11,000, still well under a quarter of that of the United States but more than nine times greater than that of Haiti (World Bank data). Growth has been erratic, with substantial swings over time. Data for growth of gross domestic product (GDP) per capita are sometimes presented for the periods 1965–1990 when for Brazil it was 1.4%, and for 1990–2000, when it was 1.5%. This appears to suggest remarkable stability. But the former figures combine the booming years from 1967 to 1980 and Brazil’s “lost decade of development” of the 1980s. Nevertheless, performance through this period was still better than most other countries of Latin America. In 2000–2011, the average annual per capita growth rose to about 2.8% (World Bank data). But wide swings continue, with a spike close to 7% in 2010 slowing to a near standstill by the end of 2012. Brazil has had an export policy stressing incentives for manufacturing exports, as well as protections for the domestic industry, with numerous parallels with Taiwan and South Korea in their earlier formative stages (see Chapter 12). Its percentage share of manufactured exports in total exports grew dramatically, reaching 57% in 1980, although it dropped dramatically during the lost decade of the 1980s. Although the share of manufactured exports increased again, reaching a new peak of 58% in 2000, it has fallen steadily since, to 45% in 2008, and by 2011, this figure had fallen to just 34% (World Bank data). Although part of this decline reflected an increase in commodity prices, it is still a striking reversal that probably increases the vulnerability of the Brazilian economy (see Chapter 12). Brazil must decide whether to respond to its good fortune of a period of high commodity prices as a spur to action or an excuse for complacency. Brazil’s prolonged status as a highly indebted country (see Chapter 13) was a substantial drag on growth performance, as were continued problems with infrastructure. Recently, however, the Industrial, Technological, and Foreign Trade Policy (PITCE) program has been actively working to upgrade the quality and competitiveness of the Brazilian industry. High and growing taxes may have also slowed formal-sector employment growth. The overall tax burden increased from about 25% of gross national income to nearly 40% in the decade from 1993 to 2004, before leveling off (it was about 38% in 2012). Payroll taxes are high and as many as half of Brazil’s labor force now works in the informal sector, where taxes may be avoided (and labor rights and regulation circumvented). However, Ricardo Hausmann, Dani Rodrik, and Andrés Velasco argue that Brazil does not lack for productive investment ideas, nor is concern about government behavior the factor holding back investment. Using their decision tree framework to identify the most binding constraints on economic growth (see Chapter 4), Hausmann, Rodrik, and Velasco argue that Brazil has high returns to investment and is most constrained by a lack of savings to finance its productive opportunities at reasonable interest rates. In raising domestic savings, Hausmann has emphasized the importance of “creating a financially viable state that does not over-borrow, over-tax or under-invest.” Technology transfer is critical to more rapid growth, competing internationally, and beginning to catch up with advanced countries. Brazil has made notable progress. The country is viewed as being at the cutting edge of agricultural research and extension in commercially successful export crops such as citrus and soybeans. After a disastrous attempt to protect the computer industry in the 1980s was abandoned, Brazil has begun to see the expansion of the software industry, as also seen in India. But Brazil has not absorbed technology to the degree that East Asian countries have.