Brazil should invest in productivity to reduce poverty

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To identify the main problems faced by Brazil and introduce the challenges facing the country’s development, the World Bank conducted a diagnosis that analyzed the scenario of the last 15 years. Entitled “Retaking the Path to Inclusion, Growth and Sustainability,” the document was published by the institution on May 24, 2016 at the Steffi and Max Perlman Auditorium at Insper.

Note that the report focuses on the poor population, which corresponds to 40% of Brazilians, and aims to shed light on the main problems facing the country. The World Bank is available to provide data to leaders impartially without offering any recommendations or solutions which, in its opinion, is the responsibility of the government.

Brazilian scenario

“If Brazil wishes to reduce poverty and promote equality, it should pay attention to three aspects revealed by the diagnostic,” explained Roland Clarke, a public sector specialist at the World Bank, who released the report at the event.

The first aspect is that the country needs to create new jobs and increase its productivity; compared to developed countries and a few emerging economies, Brazilian workers produce little.

The second aspect is that Brazil should provide public resources to those who really need them – the poorest 40%, as mentioned above – since a sizeable amount is spent on a segment of society that does not have pressing social needs.

Lastly, one must aware that the nation has tremendous potential in a green growth strategy, which promotes economic growth and development of the country while preserving natural resources so that they will continue to be provided to the population.

Apart from these three factors, the report pointed out that the country also needs to focus on five challenges to achieve better development. These are:

1) increase market competition by opening up its economy;
2) repair the distortions in the financial sector, especially interventions from public banks;
3) organize the unsustainable fiscal scenario, which causes a worrisome growth in public debt;
4) face governability problems and political fragmentation that make it impossible to improve the business environment;
5) reduce the deficiencies in the management of Brazil’s natural resources and the low resilience to climate risks.

“By analyzing the last 15 years we could identify many problems. However, we also saw some development in Brazil. It has evolved and went through a good period compared to other Latin American countries. Actually, Brazil is relatively well and only falls behind in two areas: sanitation and violence,” said Clarke. The problem is that, compared to the rest of the world, the Brazilian scenario is not that favorable.

Global scale

In terms of productivity growth, Brazil has one of the lowest rates in the world. Between 2000 and 2013, aggregate GDP per worker grew 1.3% per year. This level is low and places the country behind Colombia, Thailand and Turkey. There also exists disparity between productivity and job offers. For example, while productivity grew 105.6% in agriculture, job offers decreased 19.6%. In the industrial sector, job offers increased 50.8%. Productivity dropped 5.5%.

Another controversial factor is the Brazilian public sector. Although it plays an important role in the country’s economy (approximately 40% of GDP spending), it is not as efficient as it should be. “Brazil has a public sector similar to that of richer economies, but it doesn’t have the same quality and efficiency of services,” Clarke pointed out. “The issue is not that Brazil doesn’t have strong support. The problem is that we have institutions that do not meet the demands properly.”

Still on the issue of public spending, it is necessary to improve efficiency in distribution. According to data collected by the World Bank in 2014, Brazil, a country with a young population, allocates 28.9% to social security. Health receives 13.9% and education 12.9% (excluding higher education). Nevertheless, it is common knowledge that the services provided in these areas leave much to be desired. The remaining 44.3% is distributed among other primary expenses, such as security, transportation, labor, etc.

Note that when compared to other countries around the world, Brazil earns the title of one of the most violent and unequal nations on the planet. That is because 26.5 out of 100,000 people are victims of intentional homicide. Inequality covers 52% of the population. The country is behind only Colombia and South Africa in these two aspects.

Under discussion

After the report was presented, Insper organized a debate on the problems pointed out in the document. Apart from Roland Clarke, Martin Raiser, the Country Director of World Bank for Brazil, Marcos Lisboa, CEO of Insper, and Ricardo Paes de Barros, Full Professor of the Ayrton Senna Institute Chair at Insper, also participated in the debate.

The mediator was Paula Miraglia, Executive Director of the newspaper Nexo. Each participant had 10 minutes to expound their point of view, after which questions were taken from the audience.

While raising the issue of violence in the country, Lisboa pointed out that the problem was worse in the past and that it is possible to reverse it. “My generation saw a Brazil where two out of six youth from Rio de Janeiro were dead before they turned 20. It’s still a very violent country, but it used to be worse,” he revealed.

As for the report, Paes de Barros mentioned that it did not cover a very sensitive, but important issue: the privatization of state-run companies and public services. “Having services produced by the private sector doesn’t mean that they have to be paid. In the Netherlands, all schools are private, though no one pays for education,” he commented. “It would be much better if, instead of taking care of 200,000 teachers, the Education Department of the State of São Paulo could regulate a system in which various private institutions would jointly have 200,000 teachers.

Lastly, Raiser pointed out the productivity issues. He said that there will be growth only if the issue is intrinsically linked to a sustainable reduction in poverty. “Brazil has made numerous of efforts to increase investments in productivity, but hasn‘t been successful.  A more in-depth analysis of this scenario was required. And this is what we have tried to deliver,” he said.

Read the complete report prepared by the World Bank at: http://goo.gl/E5mzbS.

Watch the full video of the event:

 

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