To grow and create jobs, it must free itself

The corporatist lobby in Brazil’s Senate has just made a disastrous concession in passing the bill for financial help to the states.

Professors Carlos Ari Sundfeld and Jerson Kelman comment on the challenges of combating public-sector corporatism in Brazil, and how this will be vital in unlocking the economy in the difficult period of post-Covid recovery.

By removing a fundamental counterpart clause in the Covid-relief bill to lend R$ 120 billion to state governors, Congress has wasted another opportunity to free the Brazilian economy from the bonds of the state.

This clause would have frozen all state government employees’ salaries for 18 months; and the decision is disastrous for the country.

To be able to resume growth, Brazil needs to free itself from the state’s stranglehold. There is no way a country can resume investment and employment when it is hostage to both private and public sector corporatism.

Subsidies and favors

Today, the Brazilian state strangles economic liberty and market competition by distributing more than R$ 300 billion in subsidies and tax breaks to the private sector.

The organized corporatist interests of the business community do not like pure capitalism: they like ‘reserved markets’ (a Brazilian phrase from the ’70s); protectionist measures; and help from the government to hold back competition.

It’s not for nothing that Brazil is still, today, one of the most closed economies in the world, ranking second for this characteristic in the World Bank publication Doing Business.

 

The corporatist lobby is in both public and private sectors

The corporatist lobby of Brazil’s public sector is just as noxious as that of the private sector. In the public sector the state has created a privileged ‘caste’: its members all have lifetime job stability, generous pensions, and an average salary much higher than their equivalents in the world of business.

Brazil spends 14% of GDP, no less, paying salaries, benefits and pensions to present and past government workers.

This state corporatism is a serious brake on any modernizing agenda for the country.

Congress jettisoned the counterpart concession for states

Striking a dagger into the heart of the R$ 120 billion financial help package for the states,     the corporatist lobby has just eliminated the principal counter-concession required from state governors in the bill as originally proposed: an 18-month freeze on the salaries of government employees.

Congress’s decision to knock out this fundamental pillar of the agreement’s structure will be a disaster. It means sacrificing funds that should go to health, and social and transfer programs, merely to shore up further generosity in government employees’ salaries.In Brazil, the State lives in a separate reality from the population.

Corporatism has new young defenders …

It is also sad to see newly elected young members of Congress initially arguing for the policy, but rapidly succumbing. Congresswoman Tábata Amaral (PDT party, São Paulo state) proudly used her social media to celebrate her successful intervention in defense of state corporatism. There is a clear difference between – for example – being in favor of education, and on the other hand defending corporatism in the teaching profession. She seems not to have grasped it.

Congress has wasted one more opportunity to combat corporatism and free the economy from the bonds of the state.

The Virtù Listening Post  |  Carlos Ari Sundfeld and Jerson Kelman

On the challenges we face to combat corporatism and unlock the economy, VirtuNews invites readers:

–   to listen to the interview with Prof. Carlos Ari Sundfeld on urgent measures to guarantee legal security;

–   and to read the article by Prof. Jerson Kelman on the pressing need to tame the machine of Brazil’s public administration, to reduce the power of state corporatism.

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