Opinion – Marcos Mendes: Subsidies and protection for companies, again

A broad package was approved in the US with measures to stimulate local industry, with subsidies for semiconductor manufacturing and the production and consumption of clean energy generation equipment.

Biden endorsed the trade protection measures adopted by Trump, including the abandonment of the Trans-Pacific Partnership. The supporters of the “subsidy with commercial protection” formula were quick to point out the example as the right path for Brazil. The homeland of liberalism would be surrendering to the need for government induction of growth.

It so happens that the US per capita income is more than four times higher than ours, so they have much more fiscal resources to pay for an expensive and risky policy.

Furthermore, policies that involve close relationships between bureaucrats and private interests require good governance and transparency. The US Department of Commerce is “a little bit” more serious and effective than a centralized ministry.

With our low human capital, it makes no sense to subsidize companies before investing in people. US students ranked 13th in the latest Pisa reading test. We embittered the 63rd position. Where are we going to find qualified workers to work in the modern factories that we intend to subsidize?

Another question to ask is whether the US is choosing the right path. Anne Krueger, former chief economist at the World Bank, argues in an article in Valor Econômico that “no country that has built high protectionist walls has managed to achieve satisfactory economic growth in a significant period of time. (…) the US now follows suit. kind of policy that has long failed in many countries”.

Instead of signaling a new model of development, the US may simply be making a wrong choice, resulting from political polarization and the intensification of populism.

Charles Jones and Paul Romer, in a synthesis of growth theory, showed that a central source of prosperity is in new ideas, which generate new products and markets. Expanding commerce is essential for new ideas to reach more people. Restricting it prevents the dissemination and application of new production methods and technologies.

It is curious that in Brazil people argue in favor of incentive and protection policies as if they had never been tried here. But since 1940-50 it’s what we do most. Import substitution never died. And it went wrong: we didn’t become rich, we stagnate, and now we’re impoverished.

Even more impressive is the reemergence of the formula just a few years after we emerged from yet another failed experiment. In the book “Para Não Esquecer: Policies Públicas que Empobrecem o Brasil”, which I organize, several authors show the resounding failure of recent policies such as: demand for local content, creation of sovereign wealth fund, credit subsidies, aggressive antidumping actions, innovation in automobile industry, state production of integrated circuits, use of Petrobras as an investor in infrastructure and intervention in the energy market to reduce production costs.

We even got ahead of the USA, encouraging the creation of a semiconductor factory. Unitec never produced anything, it went bankrupt and turned a R$ 200 million credit and a R$ 300 million shareholding from BNDES into dust.

The failure of these initiatives, measurable by the collapse of both total factor productivity and GDP per capita, did not come from implementation details. But because it embodies the view that a centralized entity can, through subsidies and investments in chosen sectors, allocate capital more effectively than private agents, who have more information and internalize all the benefits and costs of their decisions.

If we want to do something for the national industry, how about the consumption tax reform, which currently punishes the sector? Add to that fiscal balance, in order to have lower interest rates, access to imported inputs and machinery, and effective improvements in technical education.