Letter IEDI n. 1149—An agenda to put Brazil back on track for development
Today's Letter IEDI presents the agenda of actions proposed by the Institute to face the obstacles and divergences in relation to the rest of the world that have been distancing us, for a long time, from a process of not only economic, but also social and environmental development.
The main axes of this agenda will be summarized in this Letter IEDI, but the complete version is found in the document “Industry and Strategy for Brazil’s Socio-Economic”, available on the Institute's website [in Portuguese] and which will be forwarded to the public authorities, academia and candidates in this year's elections, serving as a guide for dialogue between the Institute and society.
Addressing the topics presented here is urgent, especially at a time when the global economy is expected to go through a set of profound transformations—which are already underway, it is worth emphasizing—towards greater environmental and social sustainability, the digitalization of productive processes and the search for resilience of value chains.
The main global economies have already woken up to what is at stake in the coming decades and rushed to design socio-economic development policies that link the cyclical dimension of job creation and greater economic growth in the wake of the pandemic to the structural dimension of modernization of their production systems, aiming to become more sustainable, advanced and efficient. With the increase in geopolitical tensions, greater productive autonomy and across-the-board technological skills have become strategic and are now defended by important countries as a means of enhancing resilience.
The industry is among the most powerful levers for the ongoing transformations. This is because, increasingly associated with sophisticated services and other activities (including primary ones), the industry establishes around itself an ecosystem capable of introducing innovations that can revolutionize production processes, but also the consumption patterns and lifestyles of populations.
It is not by chance that the strengthening of industrial and technological competences is considered a key issue by developed countries. And this is not a recent move. It should be noted that the flourishing of broad industrial strategies around the world has been ongoing for almost a decade. Between 2008 and 2016, UNCTAD mapped 114 strategies across a hundred countries that together account for 90% of global GDP, 74% of which were adopted after 2013.
It is not about state control, nor about having a bigger or smaller State. What is important is that the public and the private sectors work together virtuously to build a path of sustainable economic growth and of improvement in the living conditions of citizens.
In Brazil, the constant need to stress the importance of the industry for research, development and innovation, for the acceleration of GDP growth, for the generation of quality jobs and for tax collection (among other fundamental attributes for socio-economic development) signals the country's backwardness in this debate.
In recent decades, we became used to see both the shrinking of Brazilian industry as a share of the country's GDP and of total exports, as well as the persistent fall in our participation in the world industry's value added and in global manufacturing trade. We are giving up one of the main engines of socio-economic development that countries have at their disposal.
This retrogression results from an accumulation of factors of different natures— macro and microeconomic, geopolitical, systemic and specific—which distorted our economic environment. It is necessary to change this path for the benefit of greater socio-economic development of our country.
Even starting from an unfavorable scenario, the Brazilian industrial sector has modern and competitive companies that follow the global trends towards digitalization and sustainability. These companies, often leaders in their production chains and better integrated into the global economy, can function as hubs for the dissemination of new technologies and new practices for the entire industrial system in the country, through their networks of employees, suppliers and customers. What we need is to create conditions for these cases to multiply.
To this end, the IEDI advocates an agenda of actions to improve the country's business environment and reduce our divergences from the standards and practices common to countries with socio-economic performance superior to ours. The task is complex and will only be successful with political coordination and a democratic and qualified debate of ideas among social agents.
For this, it is unavoidable that we respect some preconditions, all of crucial importance. The first concerns the maintenance of institutional tranquility in our country and the strengthening of legal security, without which the State becomes a great destabilizing force. The second refers to putting public accounts on a favorable path capable of creating a medium and long-term trend towards fiscal balance. Only in this way can we ensure that important variables, such as inflation and interest rates, behave adequately. It is worth emphasizing the interaction between these first two conditions, since the fiscal balance tends to be put at risk when there is a weakening of institutions.
The third condition comprises the reduction of our social inequalities. A country with low social mobility is condemned to be less competitive and less innovative. An equitable and high-quality educational system is the basis for ensuring social mobility not only materially, but also politically and intellectually. Educating Brazilians more and better is a key part of the gear of socio-economic development. And finally, the fourth condition refers to the commitment to environmental sustainability, due to its connection with the other preconditions and the legacy to future generations.
With these conditions in place, we will be able to move more assertively on the issue of competitiveness and productivity, an essential pillar of the socio-economic development agenda.
It is past time to remove the "elephant in the room" represented by the so-called “Brazil Cost” (Custo Brasil), starting with our unfair, complex and onerous tax system, which places domestic companies, whatever the sector, on an unequal footing with their international competitors.
The sources of Custo Brasil are numerous and go far beyond taxation, representing, according to the Ministry of Economy, a burden equivalent to no less than 22% of our national GDP. This is a weight that our companies carry on their shoulders and that leaves them behind in the competitive race, whether in the foreign market or in the domestic market.
Thus, the IEDI also judges as very pertinent and urgent some far-reaching initiatives such as: the continuation of the Labor Market Reform; the development of the capital market and the new role of the BNDES; the decrease in the cost of credit; adjustments in economic regulation and reduction in legal uncertainty; and encouraging investments in infrastructure, including those needed for digital transformation and sustainability.
This agenda also involves accelerating research, development and innovation in our country, making the promotion mechanisms simpler, horizontal and efficient, with an immediate revision of the Lei do Bem and continued allocation, without budget sequestration, of resources to meritorious entities such as EMBRAPII and the Institutes of Science and Technology.
This way we will be able to move forward with the modernization of the production park through comprehensive instruments and with the development and diffusion of digital and environmentally responsible technologies, enabling greater participation in international value chains of the manufacturing sectors of higher technology intensity.
In the same direction, it is necessary to deepen the competitive insertion of the Brazilian economy in the world, preferably through the greatest possible number of negotiation fronts of trade agreements, with an emphasis on three principles: gradualism, horizontality and transparency. Furthermore, it is necessary for us to take the initiative to reduce our internal barriers to trade flows.
The trade agreement between Mercosur and the European Union is a watershed on this issue and we should create the political conditions for its effective implementation as soon as possible, which could even guide the establishment of similar agreements with other prominent trading hubs in the world.
Admission to the OECD would also be relevant in the process of bringing Brazil closer to the rest of the world, as it would allow us to align standards and procedures with the main world economies that have shown more favorable socio-economic results than ours.
It is important to emphasize that, in accordance with the principles of gradualism, horizontality and transparency, the commitment to opening up our economy, regardless of its form, must be unconditional, that is, not linked to the prior achievement of success in other aspects of the development agenda.
Brazil cannot be isolated and it is mainly up to the industry to strengthen ties with the outside world. This is because it is industrial chains (longer and more complex than others) that create the bridges and, when well inserted in the world economy, import to export not only goods but also services related to their production.
By creating conditions for more robust advances in the competitiveness and productivity of our companies, Brazil's greater integration into the world economy, taking advantage of its participation in global value chains, will open the way for us to expand our exports of more sophisticated and technology-intensive goods and services.
The IEDI, as it has been doing for 33 years since its foundation in 1989, aims to accelerate the socio-economic development of our country, from the perspective of the industry. In this sense, the Institute has always sought to establish principles and to suggest actions for the constant reinvention of our industrial competences. The objective is to systematically make the industry move forward and not perpetuate past patterns.
For this, the IEDI defends, in addition to the conditions highlighted above, a forward-looking industrial strategy, with emphasis on the generation and diffusion of technological changes, with positive effects on productivity and competitiveness and with important implications for the organizational forms of companies and for the entire Brazilian production structure.