Tag Archives: education

Brazil’s Productivity Gap

28 Dec

“Doing more with less.” As world population heads towards 8 billion, countries and companies across the world aim to use technology, organizational techniques, and training to do more with less: increase productivity and conserve resources while sustaining a decent quality of life.

One of the key concepts here is productivity. I recently participated in a forum[1] where I had the privilege of seeing a presentation by Dr. Carlos Pio of the University of Brasília, an examination of Brazil’s economic prospects through the prism of productivity. I was struck by the importance of this metric; productivity is one of the more neglected economic indicators, a gauge for how well countries use the factors of production – land, labor and capital. Productivity is a far more accurate indicator of a country’s potential for sustained wealth-creation than GDP or even per capita income.

Brazil’s Productivity Gap

My readers will probably find it unsurprising that Brazil does relatively poorly on productivity indicators. A 2006 report by McKinsey Global Institute found that between 1995 and 2005 Brazil’s productivity grew only 0.3 percent per year, in contrast to 2.8 percent in the U.S. and 8.4 percent in China. McKinsey assigns about one third of this sluggishness to Brazil’s development curve. The remaining two-thirds has to do with “macro-economic factors” (a rather ‘catch-all’ variable), the fact that labor is cheap relative to capital, a large informal sector, complex regulation, and a weak infrastructure. But much of Brazil’s productivity gap also has to do with the country’s tariff and educational policies, and politicians would do well to pay greater heed to these factors.

High Tariffs Limit Productivity

High tariffs provide Brazilian companies with protection from international competitors, giving them weak incentives to boost productivity. High tariff barriers increase the price of imports, allowing domestic firms to make up for low productivity by raising prices to meet or just beat the inflated price of imports. Imports in the most critical sectors tend to be about double the U.S. price-tag: a car in the U.S. that sells for US$30,000 costs about US$60,000 in Brazil, or more. I am constantly amazed that consumers are willing to get plowed with these kinds of tax-takes. Unsurprisingly, it is rare that you will find most Brazilian-made consumer durables, such as electronics, being sold outside of Brazil – they simply cannot compete.

Some will say that Brazilian consumer durables, much less other sectors, cannot compete because of the inflated value of the currency. But as South Korea, Japan and other countries have shown, productivity and research and development can partly overcome the negative industrial effects of a strong currency.

Another way of looking at the protected markets of Brazil is like this: the mostly poor population of Brazil gets to buy lower quality goods at higher prices because of the country’s tariffs. Although protecting domestic industry creates employment, it effectively transfers wealth from the poor –who could be buying better quality goods for cheaper – to elites. Because the effect is to re-circulate money within the domestic economy, there is no net gain in Brazil’s wealth, merely a redistribution. We should be reminded of one of the first maxims of the Wealth of Nations: countries grow wealthy by selling things to other countries. Brazil has traditionally sold mostly primary goods to other countries, and sustained high tariff barriers appear to ensure continuity here.

Why? Because you can’t win in the manufacturing export markets if your productivity stinks. And your productivity is not going to improve unless there is revolutionary investment in research and development (R&D) and education, among other areas.

 Investment in Research and Development: a Key Indicator

In most other significant economies, such as China, Canada, the U.S. and even Spain, the private sector tends to invest more in R&D than government. Indeed, this chart on R&D prepared by Brazil’s BNDES (a poor scan, I know) illustrates that it is only Russia and Brazil who share the distinction of securing less private sector investment in R&D than public sector investment. So in terms of R&D, Brazil is out of the game in most sectors, agriculture being one of the few exceptions.

The Education Conundrum

The easy way out is to blame low productivity on education, which is what Brazil’s private sector has tended to do. In 1946, the country’s electorate was more than half illiterate, so Brazil has come a long way to have achieved an average of seven years of schooling. Nevertheless, other countries have done much better. I’ve written about the education conundrum before, so I will not idly repeat old arguments, facts and numbers. Suffice it to say that an unequal redistribution is afoot here too. The country’s federal universities are understandably dominated by Brazil’s middle and upper classes, those who are privately schooled or tutored and are thus able to get into these tuition-free cradles of the elite, universities that consume nearly a quarter of the country’s educational budget but educate less than two percent of the country’s population.

Back to Basics

Brazil continues to get a lot of hype, being one of the BRIC countries and having enjoyed an unprecedented spate of good years in the commodity markets. Agricultural productivity has gone up, and is undoubtedly the sector that has seen the most significant gains. Agriculture remains Brazil’s comparative advantage in the world markets, and rightly so; the country is blessed with millions of square kilometers of productive land. Brazil might do well to face up to facts and focus on this comparative advantage, continuing to increase productivity in this sector and, in turn, ratcheting down the tariffs on manufactured goods to increase incentives for greater competitiveness, productivity, and better value for Brazilian consumers.

 



[1]The Inter-American Dialogue, hosted by the Fundação Getúlio Vargas, 17-19 December, 2011.

Dealing with Overcrowding in Brazil’s Prisons: Innovative Legislation Passed

10 Jun

Brazilian legislators have passed an innovative law to deal with overcrowding and high recidivism in Brazil’s prisons: one day less in prison for every 12 hours spent in the classroom, reports Folha de São Paulo. As world population continues to surge past 7 billion people, prison overcrowding and repeat incarceration have become major policy problems around the world.

Statistics from a 2010 report show that there are 440,864 prisoners in Brazil’s prison system, and a total of 299,597 spots, meaning that prisons are 140,000 over capacity. The law already provides for one day less in prison for every three days of performed labor, but the new measures, introduced by legislator Cristovam Buarque(PDT-DF), will accelerate the pace at which prisoners may shorten their sentences.

Overcrowding in Brazilian Prisons

Almost a quarter of prisoners, or 97,050, are involved in programs where labor is performed in exchange for time, but only about 10 percent (44,463 prisoners) enroll in educational programs. Even though less one percent of prisoners have completed high school–1,860 prisoners–literacy rates are surprising high: a mere 6 percent of inmates are illiterate, almost half the national average for all Brazilian citizens. The recently passed law, soon to be signed by President Rousseff, may provide the needed stimulus to encourage Brazil’s 411,157 incarcerated men and 29,707 women to sign-up on to educational initiatives, which will apparently be available both in-house and by distance.

Incarceration rates in Brazil are still relatively low compared to other system. Point-in-case, U.S. prisons contain more than 5 times the number of incarcerated men than Brazil’s, at between 2.3 and 2.4 million, according to 2010 figures published by the Economist. These numbers are jarring, especially given that the total national population of the U.S. is less than twice that of Brazil. For an inside look at the U.S. prison system, see Prison Movement’s Weblog.

Access to Technology versus Manaus: Brazil’s Conflicting Goals

28 Apr

Among the thirteen pillars of President Dilma Rousseff’s mandate,  number 7 and 8 are about education and technology:

7. To guarantee education for social equality, citizenship, and development.

8. Transform Brazil into a scientific and technological power.

A goal that falls in line with both of these pillars is to make computers more accessible to kids. Brazil would be smart to follow the lead of the one laptop per child concept. Undoubtedly the most important learning tool available, a computer is a window into the  universe and a means to engage in self-learning. Self-learning is especially critical given the quality of schooling in Brazil.

With the average teacher’s salary at around US$650 dollars a month–a third less than what my wife’s secretary makes working at a construction site–teachers often lack the training or enthusiasm that fosters curiosity and a desire to learn. Computers provide an important resource for stimulating kids’ curiosity. Finally, greater access to computers may ultimately make technologists out of kids, helping government fulfill goal #8. This goal is certainly not being achieved through Brazil’s computer industry.

One laptop per child program in Paraguay

An article by The Economist in 2000, “Bungle in the Jungle,” describes Brazil’s ill-advised electronics industry. The military government established an industrial park and duty-free zone in 1967 located in Manaus, 1000 kilometers up the Amazon. The project’s motivations were all backwards; rather than technological advancement, the project was predicated on local employment, colonization of the Amazon, and securing Brazil’s borders. As a result, Brazil has what The Economist describes as a “screwdriver” industry: for the most part an assembly site for imported foreign parts. While more successful than Henry Ford’s disastrous attempt at setting up assembly-line-Utopia in the Amazon, Manaus’ industry is subsidized by government and consumers who pay higher prices for all technology.

The cheapest laptop you might find at Casas Bahia, one of Brazil’s leading retailers, is in the vicinity of R$1000 (US$635). The same computer in Canada or the US is almost half the price. What this means in practice is that the middle classes on up go abroad to buy their computers cheap, and the people who can’t afford to travel abroad– 70 percent of Brazilians–pay close to double. They could go to Manaus’ duty-free zone, but the ticket to Manaus is about as expensive as one to Miami.

Massive tariffs on technology have achieved three principal results. First, they have allowed Brazil’s uncompetitive computer industry to stay afloat, and its directors to make millions– directly and indirectly subsidized by government. Tariffs also mean that Brazilian ‘computer companies’ can afford to be uncompetitive, keeping their costs high, just as long as they are able to undercut their taxed competitors. Second, tariffs provide the government with a  tax grab. And third, in addition to costing taxpayers a pretty penny, artificially high computer prices deny millions of Brazilians access to technology and tools for learning.

One of Brazil’s electronic brands, Gradiente, had apparently not made an operational profit in 10 years as of 2007. That same year it was forced to shut its doors under half a billion reais of debt (about US$350  million), much of it owed to Brazil’s taxpayer-funded development bank, BNDES.You can bet that the directors made off like bandits at the taxpayers expense. Now they’re back. One of the original founders of Gradiente, Eugênio Staub, has put together a consortium of investors and raised $68 million reais to get gradiente back up. You would think that US$40 million wouldn’t be enough to jump-start a company that closed under mountains of debt, but magic sometimes happens in Brazil, and often on the backs of taxpayers and the poor. Point-in-case, the investors in this specious project include the pension systems of Petros (Petrobras, which is majority-owned by government), the government of the state of Amazonas, and the pension system for Caixa (FUNCEF, a federally owned bank ).

Brazil’s electronics market contradicts the Rousseff government’s current goals. If Brazil is serious about moving education and technology forward, it should open up its markets and allow everyone access to affordable technology. The other alternative is to make subsidization of the domestic computer industry transparent– a social policy, so to speak– and ensure industrial efficiency and accessible prices for the poor. Having access to technology is the first step towards fostering technological expertise and leadership.