He also highlights that productivity is growing very little despite the increase in the Human Capital Index, with more educated and experienced workers. “It’s striking that education has made the biggest contribution [to productivity] since 1995.
After that, come the hours worked, together with the stock of capital in use. If it weren’t for education, with all its problems, the result would have been much worse,” says Veloso.
In his opinion, besides the low investment in the purchase of modern machinery and equipment, the main obstacle to productivity is the business environment. It’s as if the improvement in the quality of the workforce in recent years has been wasted in an “economic quagmire” where companies operate.
“Despite the reforms of recent years, many distortions have remained, and others have been created. The whole issue of subsidized credit, exceptions in the tax regime, local content policies, all of this goes against the Total Factor Productivity.
Distortions in the economy end up having such a negative effect that they more than offset the gains from the reforms. The period 2010-2023 was tragic,” he states.
This has led Brazil to increasingly move away from U.S. levels. In the 1980s, a Brazilian worker achieved 46% of an American’s productivity, today he produces a quarter (25.6%). It’s the same level as seven decades ago, according to data from the Conference Board.
This means that a Brazilian worker takes an hour to produce the same product or service that an American produces in 15 minutes.
For Naercio Menezes, a professor at Insper and the Faculty of Economics and Administration at USP, the main measure of the well-being of Brazilians, GDP per capita (the size of the economy divided by the population), will increasingly depend on productivity growth to evolve.
This is because there will be fewer people working in the future.Between 1981 and 2008, with the increasing participation of women in the labor market and a higher number of adults working in relation to children and elderly people who do not work (the so-called demographic dependency ratio).
“But this process has been reversed since the end of the past decade, which means that the percentage of people working will decrease in the future, causing GDP per capita to increasingly depend on productivity,” he says.
According to Veloso’s calculations, the years 2002-2010, when productivity grew by 2.2% per year, were the best since 1995.
The period was marked by the boom in commodity prices, which brought more dollars to Brazil, allowing for increased importation of better machinery and equipment.
They were also years when Brazil maintained public accounts in surplus, leading to a predictable macroeconomic environment, with more investments by companies in machinery and labor, making Brazil more productive.
In the current government of Lula (PT), which is expected to have recurring fiscal deficits, this is not expected to happen.Today, the investment rate in the country is equivalent to 16.9% as a proportion of GDP.
Just to maintain the current level of machinery and infrastructure conditions, without deterioration, this rate should exceed 20%. In highly productive South Korea, it reached 31.7% of GDP in 2023.
According to Menezes, between 2003 and 2013, GDP per capita grew by 32%, the biggest increase in recent years, with a significant increase in productivity.
“But, from 2013 until now, GDP per capita, productivity, and hours worked are at the same level. With this, Brazilian productivity has grown only 20% over the past 40 years, compared to 65% in the United States,” he says.
For Fabio Giambiagi, an economist at BNDES and co-organizer of the recently launched “The Productivity Challenge.
“There is a reluctance to the idea of competition between people, companies, and countries,” he says. “When there are problems in the labor market, barriers are put in place to protect workers. When foreign products are taking over the market, there are protectionist pressures.
And so on,” he says. According to the Brazilian Foreign Trade Association, the country’s participation in international trade today is the same as in the 1980s: 1%.
During this time, the volume of foreign trade as a percentage of GDP has increased, but more so for other countries.”We will only solve this with a clear signal that we are moving towards a more competitive world. Not an absolute wild laissez-faire. By shifting overnight to a zero-tariff environment.
But we have to signal that if the State plays a role in protecting the less-prepared worker, the company has to prepare itself, and this protection must be temporary,” says Giambiagi.Typically, companies more exposed to international competition tend to be more productive.
Just like firms that employ formalized labor, which are usually more organized and efficient. However, in Brazil, out of 100.2 million workers, 38.9 million are in the informal sector —another impediment to productivity.Like Menezes, Giambiagi points out that due to the aging population and a decrease in the fertility rate, Brazil will have the same number of working-age people in the next 20 years as today.
“This means the following: that all, and I’m not saying most, all of the GDP growth in the next 20 to 25 years will have to come from productivity,” he states.
Looking back, Brazil significantly increased productivity only during the years when the population was growing and migrating from rural to urban areas, between the 1950s and 1980s, when a worker replaced, for example, a hoe with a machine, becoming much more productive.
According to José Ronaldo de Castro Souza Jr., also co-organizer of “The Productivity Challenge,” the gains in the 1970s happened because the country was transitioning from rural to urban and industrializing. “We achieved rapid gains, which is normal, because we had a very low capital stock and little production.
By industrializing and urbanizing, the gains were quick,” he says.”The problem is that we industrialized inwardly, with import substitution, instead of encouraging exports, like South Korea.
This caused Brazil’s industries to not focus on international competitiveness, instead being based on protectionism, state intervention, and market reservation.
There was no scale gain.”Souza Jr. states that under current conditions, Brazil should “focus on the regulatory environment in the infrastructure sector, avoiding sudden and undiscussed changes” that impact private sector participation in projects.
In his opinion, investments in infrastructure (roads, ports, airports, railways) would be a relatively easy way to achieve productivity gains in the short term.For Menezes, from Insper, in the medium and long terms, the focus should be on the quality of education.
“Around 30% of the population aged 15 to 64 are functionally illiterate, and only 12% are able to interpret more complex texts, tables, and graphs.
These percentages have remained stable in the past 20 years, despite increased schooling,” citing data from the Ação Educativa and Paulo Montenegro Institutes.
