Civil society, government and entrepreneurs, together, must lead changes to make Brazil efficient, less unequal, safe for investors, and internationally competitive.
If Brazil cannot throw off the bonds of the ‘extractive’, inefficient state that make it today one of the most closed and protectionist economies in the world, it will continue to be the world champion of inequality, continually bogged down in economic stagnation.
The great question we will have to answer as a nation is: “What type of state do we want to be after the crisis?
The chart below shows the state we have chosen to be so far. The term for this type of state – coined by two Harvard MIT Professors, Acemoglu and Robinson in their book “Why Nations Fail” – is “extractive”: a state that impoverishes a nation and prevents economic growth, to preserve an elite.
In our case, this means a state that drains almost 40% of GDP from the productive sector to pay the costs of the non-productive sector, and has created protectionist barriers and one of the most closed economies in the world, to benefit an elite that lives at the state’s expense.
If we insist on preservation of an extractive state in Brazil, we will remain bogged down in widespread poverty, inequality, and low economic growth.
Brazil’s extractive state
Our history has been the saga of a state which: suffocates entrepreneurship; creates silos of feudal privilege to benefit sector interests and state corporatism; erects walls of protectionism to bar external competition; and harms the real entrepreneurs – who struggle in the market without the help of the government or any state subsidy.
With this disastrous path, the Brazilian state has impoverished the nation, created the country’s greatest-ever contingent of unemployed; increased income inequality; and put investors to flight.
Yes: in Brazil, the state helps to increase social inequality, by creating a ‘caste’ of privileged government employees, business owners and professionals addicted to government privileges, benefits and subsidies. And it finances these luxuries in the public and private sectors by taxing entrepreneurs, workers and the poorest citizens.
The result is today’s Brazilian state – which punishes the productive sector, reduces the competitiveness of the market, and benefits the non-productive sector: public and private corporatism.
In 1970, South Korea had one-third of Brazil’s per capita income. Today that ratio is three times. The main difference between the two countries is the role of the state. In South Korea the state is pro-market: it encourages companies to innovate, export and become competitive in the global markets.
In Brazil, the state sees capitalism as a necessary evil: it creates bureaucratic, regulatory and tax difficulties that discourage entrepreneurship, limit competition and transform business leaders into people dependent on favours from the state. We have become one of most closed and protectionist economies in the world – we are the world’s eighth largest economy, but we export less than the small island of Taiwan.
Resumption of economic growth, job creation and attraction of investment will depend on pressure, exerted now, by civil society; Congress committing to approval of reforms; and the judiciary freeing the environment for business by speeding court procedures, and ensuring legal security for entrepreneurs, workers and investors. If Brazil cannot throw off the bonds of its inefficient, interventionist and anti-market state, it will continue to be bogged down by economic stagnation and record unemployment, and continue to be the world champion in inequality.