The multiple risks of low growth

This combination has corrosive effects that go well beyond the statistics and help to explain why the country is slipping precisely in areas that should be driving forces of the future, such as the technological and energy transition, and why spaces are occupied by organized crime within the formal economy itself, precisely in sectors weakened by a lack of dynamism.

Prolonged low growth stifles a country’s ability to make technological progress. Innovation requires continued investment, scale, venture financing and predictability. The one who warns against the risks of persistence of this paradoxical situation is the economist José Roberto Mendonça de Barros.

In an environment where businesses are struggling to survive, the horizon is short and capital is scarce. Investing in research, digitalization or new processes is becoming the exception and not the rule. The result is an economy that modernizes in fits and starts, unable to compete with more sophisticated global chains or create technological champions outside of very specific niches.

The same goes for industry. Without constant growth, it loses density, production chains weaken and the emphasis on added value gives way to survival based on low costs and tax advantages. The Lula government has been talking about reindustrialization since coming to power, but the truth is that little progress has been made in this direction.

The energy transition, which should be an avenue of opportunity for a country with a clean matrix and renewable potential, is also struggling to advance beyond the government’s plans. Above all, he comes up against the contradictions of politics, hesitating to abandon the old developmentalism which makes us widen our eyes when a new frontier of oil extraction appears like the equatorial margin.

Another aspect that, combined with this modest growth, helps explain the economy’s vulnerability to organized crime is a set of tax incentives that persist without leading to significant results. Minister Fernando Haddad made the right diagnosis when he wanted to combat this set of exemptions and ineffective incentives which are perpetuated on the basis of powerful lobbies.

Many of the sectors favored by these policies are precisely those infiltrated by criminal factions: transport, logistics, fuels, waste, construction and services are high on the list. Criminal organizations thrive precisely where there is healthy competition, weak control and opaque structures. Illicit capital appears as a “solution” for undercapitalized businesses, distorting prices and eliminating law-abiding competitors.

The perpetuation of poorly calibrated tax advantages contributes decisively to this situation. Incentives that are not evaluated, do not have a clear end date and do not require real compensation, function as guaranteed income for sectors that are not very dynamic, which do not innovate and do not generate the promised chains. By artificially reducing costs and increasing opacity, these regimes create ideal environments for money laundering and the capture of money by interests that are anything but productive. More serious: by draining public resources, these profits reduce the State’s capacity to invest precisely in areas that could unlock growth: technical education, infrastructure, science, energy transition. The vicious circle closes.