Folha de São Paulo (Brazil), February 1, 2012
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Last week Brazil hit another record low unemployment rate, at 4.7 percent. Even if we seasonally adjust the data, it is still a record low at 5.5 percent of the labor force. This is a positive achievement and partly reflects the fact that Brazil’s economy has performed much better under Lula and Dilma than during the Cardoso years. Per capita GDP grew only about 3.2 percent for the eight years of the Cardoso administration, whereas it has grown about 28 percent since the Workers’ Party took office in 2003.
However, there are other trends that should be matters of concern. Since 2002, out of 5.1 million jobs created, 493,000 – or 9.7 percent -- were in industry. More than 1.6 million, or 32 percent, of the jobs were in business services and finance. This trend has been accelerating rapidly over the last few years, so that in the past two years only 35,000 jobs were created in industry, as compared with 497,000 in business services/finance. In the most recent quarter, 90 percent of the new jobs were created in the business services/finance sector – a sector that accounts for 16.9 percent of employment.
This is not a good trend for Brazil’s future. While some expansion of the financial sector contributes to the economy – for example, the expansion of credit – there is also a lot of waste. Some of it, such as derivatives trading that contributes to the overvaluation of the currency, is actually harmful. An overvalued currency is one of the main policies that has hurt Brazil’s industry and manufacturing, by making imports artificially cheap, and increasing the price of Brazilian exports to other countries. Brazil’s central bank has contributed considerably to this problem, by keeping interest rates at overly high levels.
The business press and U.S. foreign policy establishment are enthusiastic about current economic policy in Brazil because it provides opportunities for foreign investors to make money. It is worth comparing Brazil’s recent economic progress with that of Argentina, a country that is treated quite badly by the business press. Argentina has been mostly cut off from international lending since its default in 2002 and has received very little foreign direct investment as compared with Brazil. Brazil’s income or GDP per person was close to that of Argentina’s in 2002, at the bottom of Argentina’s recession. But Argentina has grown so much faster than Brazil since then that the average Argentine now has about 40 percent more real income than the average Brazilian. And since income is distributed more unequally in Brazil than in Argentina, the gap between the two countries is much wider for the poor and the majority of Brazilians.
Of course Brazil is still doing much better than in the 1990s or 1980s, but it is still a long way from its potential. To reach that potential it will need an industrial and development strategy that moves the economy toward higher value-added areas of production. Many people associate faster growth with more environmental destruction. But in fact Brazil could grow much faster with less environmental damage if it had an industrial policy, as compared to its increasing reliance on primary products that, for example, contribute greatly to deforestation.