Brazilian economic analyst Carlos Góes on human and economic development in his country

A fruitful discussion

Brazil has always had striking idiosyncrasies. In the 1980s, they were so vivid that pundits commonly referred to the South American giant as “the country of jabuticabas.”

Jabuticaba, Brazilian grapes, are small, delicious berries that allegedly cannot be found in any other country. Whenever there was a problem that couldn’t be explained through mainstream political science or economics, TV analysts all concurred: like jabuticabas, our quagmires are fruits that cannot be found elsewhere.

Things seem to be changing, albeit slowly. Last month, the United Nations Development Programme released the Atlas of Human Development in Brazil. Brazil’s progress over the last twenty years is clearly depicted by the data. Brazilians moved from low human development to medium-high human development in meager twenty years.

More important than labels, however, are the actual human consequences of these changes.  Now, virtually every eligible young person is in school, rather than working. Life expectancy increased by almost seven years (more than 1/10 of an average lifespan) since 1990. The Brazilian João Doe is now almost 40 percent richer, in real terms, than his parents’ generation.

The fruit is sweet…

The numbers are encouraging and, as they use census data, there is a high degree of granularity in the analysis. The Atlas measures the HDI for each of Brazil’s 5,570 municipalities (the equivalent to “counties” in the US). The graph below illustrates the changes. As the curves slid to the right over time, municipalities became more developed. In a similar fashion, as they grew taller, with narrower tails, municipalities became less unequal.

In a nutshell, Brazil became a better place to live – people are more educated, live longer, and are wealthier – and the staggering regional inequalities that incentivized people to move from the poorer Northeast to big Southern cities have dwindled.

“What caused these changes?” – you are probably asking. As everything in complex social phenomena, there are many causal explanations: a massive expansion in primary education, favorable demographic change, and well-crafted market-oriented social policies played big roles.

But if I had to point to one single structural effect, I would underscore that, despite being at loggerheads on many issues, the two rival parties who have held control over Brazilian politics in the last two decades both sustained a framework of macroeconomic stability.

In fact, disinflation alone lifted nearly 10 million people out of poverty in two years at the beginning of this process. What is more, inflation damages social mobility and disproportionally hurts the poor, while the upper strata of society can hedge against losses in capital markets. With inflation at single digit levels, the Brazilian economy ceased to be an exotic fruit. People could save, make plans, invest, and take risks.

Equally important, successive administrations could finally rely on textbook economics and carry out monetary and fiscal policies in a reasonable fashion. And with that, it was easier for politicians and bureaucrats to design public policy, allocate resources, and prioritize on what they felt was important.

This has been the case with the expansion of basic education and the establishment of programs that transferred cash to the very poor – both of which are policy elements that had positive effects on human development in Brazil.

…but there is still a long way to go.         

Understanding how human development changes in Brazil is more important than speculating on whether the country will emerge as an economic superpower. While macro-aggregates are essential to paint a broader picture (as well as to sell newspapers and keep economists in their jobs), reality happens under the microscope.

It is about people. And their lives improved a lot over the last two decades: But just glancing at the map below gives a perspective on how much further things can improve:

A good way to put things into perspective is to compare Brazil with other Latin American countries (namely, Argentina, Colombia, Chile, Mexico, and Peru – which alongside Brazil form what the IMF calls the “LA6”). Brazil has largely outperformed its peers on the education component of the HDI and has performed above the average in respect to health as well. By contrast, it has lagged behind when it comes to income.

To use rock-star economist Amartya Sen’s terminology, Brazil has done well in support-led development, while it has room to improve its growth-led development. The relationship between these two elements is important, as they more often than not complement each other.

While market-oriented social programs like Brazil’s bolsa famíliahave proven themselves efficient and cheap in helping to alleviate extreme poverty, they cannot by themselves improve the conditions that help to increase productivity and income in the future.

Ideally, one hopes that social safety nets are designed as temporary support. They should prevent people from falling into extreme poverty until they manage to re-enter the labor market and be able to help themselves. Growth-led development is, hence, indispensible to achieving development at large.

When isolating how income per head changed in the LA6 countries over the period, there are two outliers: Chile and Peru. Granting the many structural differences between those countries and Brazil, it is noticeable (but not surprising) that both Chile and Peru have opted for policy mixes that include more trade openness, less paperwork for businesses, more flexible labor markets, and a lower tax burden.

This generates a contrast with Brazil, a country whose overall environment is one of business unfriendliness.

While Chile (37th) and Peru (43th) stand tall in the World Bank’s Doing Business ranking (which tries to measure how business friendly a country is), Brazil (130th) still has a lot of room for improvement.  If an entrepreneur has a new idea, it would take her 8 days to start a new business in Chile. In Brazil, it would take 119 days for the same entrepreneur with the same idea to start the same business.

Brazilian companies spend an astonishing 2,600 hours a year filing tax related paperwork. In Peru, it’s just 293 hours. Such a contrast is persistent across the board (double check the data yourself!).

Macroeconomic stability and good public policies explain the human development improvements of the last two decades, but income growth underperformed during the same period. Disentangling the lack of business friendliness and subpar income growth must include better policy mixes reached through structural reforms, the need for which is deemed consensual in Brazil, but that never move forward in Congress.

To make this picture change, we need to get rid of the remaining jabuticabas.

…I’ll take em!

Carlos Góes, originally from Brazil, is an economic analyst who lives in Washington, DC, where he works in the multilateral sector. Nothing in this article should be interpreted as reflecting the opinion of his employer.

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