Over the past five years, per capita income has increased by 1.7% per year in Brazil. The main driver of this increase was the fall in unemployment. In October, it fell to 5.4%, the lowest level in the historic series that began in 2012. But it is impossible for unemployment to continue to fall indefinitely without generating inflationary pressures. The current economic situation reveals both the limits of policies to stimulate consumption and Brazil’s chronic difficulty in dealing with its greatest shortcoming: unproductivity.
In Brazil, competition is low and that is a problem. The average size of companies is much smaller than in Chile or China. Old companies are not bigger than startups and their productivity does not increase. This all comes from an economy that allows the incompetent to survive, which is why it is operating below capacity. “More productive companies do not grow and companies with low productivity remain in the market,” explains Fernando Veloso, research director at the Institute of Mobility and Social Development (IMDS). It is not surprising that productivity per hour worked is growing at a snail’s pace. From 1981 to 2024, it increased by 0.5% per year. Over the last five years, the situation has worsened: growth has fallen to 0.3%, according to the Régis Bonelli Productivity Observatory. The improvement is mainly due to agro-industry. In the industrial sector, the value generated per hour worked has fallen by 23% in 30 years. In addition to the backwardness of an industry protected by subsidies and trade barriers, informality – which employs four out of ten Brazilians – promotes low productivity.
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An unproductive economy cannot produce wealth in the proportion needed to combat poverty and inequality. The remedies are known, but expensive. The most obvious is to give work to more people. Unfortunately, Brazil can no longer count on the demographic dividend, a period in which the working-age population exceeds that of children and the elderly. As the country ages, alternatives must be found. Education is the most sustainable answer. If we are still a country where professions that do not generate wealth proliferate, such as cleaning staff, building doormen, bus drivers or even elevator operators, it is because we do not have a well-educated population prepared for productive work. It is true that there have been improvements, but it is a challenge that can only be overcome in the long term – and we do not have time to wait.
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Another solution, defended by Veloso and other authors in the study “Brazil’s International Commercial Integration”, is economic openness. Removing trade barriers would bring immediate benefits: it would expand access to imported machinery and inputs, increase competition and crack down on informality. In exposed sectors, unproductive informal businesses would give way to those that have a chance of winning new customers abroad.
This is why the negotiations between Brazil and the United States to reduce Donald Trump’s tariffs are so relevant. Opening the Brazilian market to American products could unblock negotiations and, at the same time, increase competition here. Another contribution could come from the approval of the Mercosur-European Union agreement, expected this month. It is encouraging that a PT administration – generally inclined to protectionist dogmas – finally appears to have discovered the benefits of free trade, crucial to combating poverty and inequality.
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