Arminio Fraga: Not learning from your mistakes is expensive

A characteristic of humans is to learn from their experiences, identifying complex cause and effect relationships and eventually not repeating mistakes. Outdoor sewage is a source of disease. Lying devalues ​​the word. Smoking kills. Fiscal irresponsibility is bad for the vast majority of people.

Why is it that in many situations collective learning is surprisingly slow or even non-existent? Worse yet, why are good experiences forgotten and reversed, and bad experiences repeated, all at great cost?

In Brazil, we have relevant examples in the field of economics and politics, some historical, others more recent. The neglect of inflation and public spending, the result of short-termism and populism, certainly did not contribute to the well-being of the population. The lack of focus on education and other investments of a social nature, such as health and sanitation, has left us with immense inequalities, lack of social mobility and low growth.

More recently, nostalgia for the “miracle” of 1950-80 was dissociated from its sad end in the long decade of 1981-93 and was revived from 2007 under a new version, which had the same end as the previous one, this time in record and without even having produced growth. What stood out was an unprecedented lack of fiscal control, protectionism, regressive and inefficient subsidies and the increase in public credit. In our days, non-learning also appears in the lack of priorities for public spending, a chronic mistake.

Brazil clearly needs a new development strategy. The book “Gambling on Development” by Stefan Dercon, a researcher affiliated with the University of Oxford in England, lists characteristics of successful countries. I comment below the main points, in view of the Brazilian case:

macroeconomic stability

The BC gained independence and is doing well, relatively better even than in some mature economies. The fiscal regime, on the other hand, is in tatters, victim of the assassinations of the Fiscal Responsibility Law and the spending cap. It is essential to rebuild as soon as possible a new fiscal framework that offers a modicum of confidence in the future.

Investment in infrastructure, education and health

In order to grow in a sustainable and inclusive way, it will be necessary to increase the investment rate of the country as a whole, with a special focus on these areas. The shortfalls are well known. Budget priority for public investment as well as clear rules and predictability for private investment are lacking. The promising review of the sanitation legal framework gives an idea of ​​the potential to be explored.

Prudent management of natural resources

The author has in mind the use of non-recurring tax revenues from this area. In our case, it applies above all to the oil sector. Let Rio de Janeiro say so. But more important is the preservation of the Amazon and other biomes. We have in our hands an extraordinary opportunity to migrate to a sustainable and green development model, the face of Brazil.

A reasonable business environment

From the complexity of the tax system to the bureaucracy associated with opening and closing businesses, it is not easy to undertake and invest in Brazil. There have been recent advances such as labor reform and the Economic Freedom Act, which promise good results. But there is still much to do.

The central role of the market economy

The market economy needs to be supported by an appropriate legal framework. There is no case in an advanced economy where property rights and contractual security do not function properly.

Opening

The most recent cases of accelerated development (in Asia and Europe) suggest that integration into the international economy is a necessary condition. Brazil is quite open to foreign investment (in both directions), but lacks greater openness to trade in goods and services. The benefits in terms of productivity and competition would be remarkable.

State quality

There is no case of economic and social success without a State that fulfills its mission well. In particular, capture by interest groups, an important and long-standing challenge here, must be avoided.

Programs to reduce poverty

Indispensable and urgent, for all good reasons. In Brazil, they must be expanded and improved, also aiming at social mobility.

Summarizing Dercon: successful countries have a good idea of ​​what works (and what doesn’t), learn from successes and mistakes, and act on what they learn. To this end, they rely on an effective State, supported by a pact of the elites, broadly understood, by a long-term strategy in favor of development. We are far from it.

During the Cardoso government and Lula’s first term, the conditions for a prolonged development cycle were promising. Subsequently, the economy opted for a demonstrably failed path. Since then, there have been progress and setbacks, but, in general, going beyond the economy, there has not been a course correction, quite the contrary.

In the current electoral climate, there is still no convincing indication that the necessary conditions will be met to face the country’s immense challenges, which in fact grow with each passing day.