Brazil’s economy – The 50-year snooze
Brazilian workers are gloriously unproductive. For the economy to grow, they must snap out of their stupor
PECKISH revellers at Lollapalooza, a big music festival in São Paulo earlier this month, were in for a treat. In contrast to past years’ menus of reheated hamburgers, they could plump for pulled pork, barbecue ribs or corn on the cob, courtesy of BOS BBQ, a Texan eatery in the city. More surprising than the fare, however, was the pace at which BOS’s two tents dished it out. Over the course of two days the booths, each manned by six people, served 12,000 portions, or more than one every 15 seconds, boasts Blake Watkins, who runs the restaurant. Such efficiency is as welcome as it is uncommon. Neighbouring stands needed two to three minutes to serve each customer, leading to lengthy lines and rumbling stomachs.
“The moment you land in Brazil you start wasting time,” laments Mr Watkins, who moved to the country three years ago after selling a fast-food business in New York. To be sure of having at least ten temporary workers at Lollapalooza, he hired 20 (sure enough, only half of them turned up). Lu Bonometti, who opened a cookie shop 18 months ago in a posh neighbourhood of São Paulo, has commissioned four different firms to fix her shop sign. None has come. Few cultures offer a better recipe for enjoying life. But the notion of opportunity cost seems lost on most Brazilians.
Queues, traffic jams, missed deadlines and other delays have been so ubiquitous for so long that “Brazilians have become anaesthetised to them”, says Regis Bonelli of Fundação Getulio Vargas, a business school. When on April 12th the boss of the state-owned operator suggested that large chunks of the airport in Belo Horizonte that will not be refurbished in time for the football World Cup in June should simply be “veiled”, his remark elicited no more than a shrug of resignation.
Apart from a brief spurt in the 1960s and 1970s, output per worker has either slipped or stagnated over the past half century, in contrast to most other big emerging economies (see chart). Total-factor productivity, which gauges the efficiency with which both capital and labour are used, is lower now than it was in 1960. Labour productivity accounted for 40% of Brazil’s GDP growth between 1990 and 2012, compared with 91% in China and 67% in India, according to McKinsey, a consultancy. The remainder came from an expansion of the workforce as a result of favourable demography, formalisation and low unemployment. This will slow to 1% a year in the next decade, says Mr Bonelli. If the economy is to grow any faster than its current pace of 2% or so a year, Brazilians will need to become more productive.
Economists trot out familiar reasons for the performance. Brazil invests just 2.2% of its GDP in infrastructure, well below the developing-world average of 5.1%. Of the 278,000 patents granted last year by the United States patent office, just 254 went to inventors from Brazil, which accounts for 3% of the world’s output and people. Brazil’s spending on education as a share of GDP has risen to rich-world levels, but quality has not, with pupils among the worst-performing in standardised tests. Mr Watkins complains that his 18-year-old barbecuers have the skills of 14-year-old Americans.
Less obviously, many Brazilian companies are unproductive because they are badly managed. John van Reenen of the London School of Economics found that although its best firms are just as well run as top-notch American and European ones, Brazil (like China and India) has a long, fat tail of highly inefficient ones.
Preferential tax treatment for firms with turnovers of no more than 3.6m reais ($1.6m) has reeled many irregular enterprises into the formal economy. But it discourages companies from growing. And as big fish in areas like retail make efficiency gains they need fewer workers, who instead swell the shoals of less productive minnows. Many hire trusted kith or kin rather than a better-qualified stranger, to limit the risk of being robbed or sued by employees for flouting notoriously worker-friendly labour laws. The upshot is even more inefficiency.
Instead of collapsing, feeble firms plod on thanks to various forms of state protection, which shields them from competition. Protectionism weighs on productivity in other ways, too. Punitively high tariffs on imported technology—such as the whopping 80% cumulative tax slapped on foreign smartphones—make many productivity-enhancing gizmos prohibitively expensive, says José Scheinkman of Columbia University. Rather than buy cheaper and better products from abroad, firms have to pay over the odds for lower-quality local ones.
Historical evidence points to a solution, thinks Marcos Lisboa of Insper university. The period of catch-up in productivity growth began in the 1960s, following a bout of liberal reforms engendered by years of near-autarkic industrial policy. A smaller uptick in the early 2000s also followed liberalising measures, enacted a decade before to stave off hyperinflation. Success notwithstanding, both the military dictatorship of 1964-85 and the leftist Workers’ Party, which has held the presidency since 2003, soon reverted to interventionist type. Recently this has meant local-content requirements, subsidised fuel and electricity, and overweening regulation. Productivity has duly sputtered.
Mr Lisboa highlights two salutary examples from recent years. Agriculture was deregulated in 1990, allowed to consolidate and gain access to foreign machines, fertiliser and pesticides. A few years later, financial services enjoyed far-reaching institutional reforms to boost the supply of credit and bolster capital markets. Both were left in peace—and became roughly 4% more efficient each year in the decade that followed. Brazilian soyabean producers are now the envy of the world. Mr Watkins, the restaurateur, praises the banking system as something that works more quickly in Brazil than it does in the United States.
Regulation is always hard to unwind, Mr Lisboa concedes. But if Brazil is to grow beyond 2020, when the working-age population will begin to decline as a share of the total, it will have to tackle its productivity problem. Until it does so, it risks falling into an ever deeper slumber.