People, Productivity, and Policy: Product Growth Perspective in the Medium and Long Run in Brazil

July 18, 2016

In spite of the attention received by the short-term crisis, Brazil faces a more serious problem, namely a long-term lack of growth or even perspectives of growth. The crucial indicator is labor productivity, which has averaged 0.7 percent growth per year since 1980. Even during the commodity boom, labor productivity grew by only 0.8 percent per year. There are various ways to make labor productivity grow again: (i) increase investment, (ii) improve human capital, and (iii) improve economic institutions. Though Brazilian savings and investment are among the lowest in Latin America, there are limits to their growth. In education, Brazil has been doing reasonably well, but this has been the case during the last twenty low productivity growth years. Neither human nor physical capital is likely to improve productivity growth significantly on its own. On the other hand, the institutional mixture of state capitalism and economic nationalism that Brazil depends on today, though functioning well up to 1980, has shackled Brazilian productivity since 1980. If Brazil reforms its economic institutions and puts an end to state capitalism and economic nationalism, its labor productivity will grow again at high rates.

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