Economy

Opinion – Samuel Pessôa: The Brazilian economy did not learn to grow after 1980

by

The graph below shows the evolution of the Brazilian per capita product, at 2010 prices, from 1900 to 2021. The data were obtained from the Ipea (Institute of Applied Economic Research), Ipeadata. The graph’s scale is logarithmic to base 2. The logarithmic scale transforms any variable whose growth rate is constant into straight lines.

There are clearly two structural breaks in the growth of the Brazilian economy. The first in 1918, and the second in 1980. In the 62 years between 1918 and 1980, we grew 978%, or 3.9% a year. In the 41 years between 1980 and 2021, we grew 34%, or 0.7% a year. The economy unlearned to grow after 1980.

The strong growth from 1918 to 1980 was simultaneous with the process of urbanization and industrialization. Additionally, after World War I, there was a long process of closing down the world economy. Trade and capital mobility were reduced. Our import substitution strategy was consistent with what was happening in the global economy.

In any case, the period of strong growth left a bad legacy in the social area, especially in terms of schooling at the basic levels of the population. In the 1950s, approximately seven out of ten children aged seven to 14 were out of school. In 1980, the illiteracy rate of the population aged 15 and over was 25%.

We know that 1980 is the beginning of the period known as the lost decade. The second round of rising international oil prices, in 1979, associated with the rise in American interest rates by the then president of the US central bank, Paul Volcker, to reduce inflation, which reached 14.5% in May 1980, produced deep and prolonged external crisis in Latin America.

After the long crisis, we have not been able to find the path of growth again. See two main reasons. One internal and one external.

First, redemocratization brought to the center of the formulation of public policies the issue of investment in the social area: we made basic education universal, we advanced in secondary education, we built a very comprehensive social protection network for a middle-income country, and poverty among the old has practically been eliminated.

The costs were the reduction of public investment and the increase in the tax burden. According to the Ibre Fiscal Policy Observatory, public investment, including state-owned companies, was 5.8% of GDP for the period from 1947 to 1980 and 4% in the subsequent period. According to the IBGE, the tax burden was 25% at the turn of the 1970s to the 1980s and 34% in the 2000s, an increase of nine percentage points. Higher tax burden and lower infrastructure investment hamper growth.

The external reason was the change in the way of organizing production. Since 1970 and with great intensity since 1990, there has been strong growth in trade in goods in process. The production of manufactured goods was broken down into several stages, and each stage was carried out in different countries.

The result is that since 1990 there has been a fall in the net value exported as a proportion of gross exports. The content of imported inputs of exported goods has risen sharply. This fact is well documented in the work of Robert Johnson, a professor at the University of Notre Dame in Indiana, USA.

The world has changed and we have not been able to update our insertion in the global economy.

economic growtheconomyGDPINVESTMENTSleaf

You May Also Like

Recommended for you