Author: Antonio Delfim Netto

Source: Valor Econômico - São Paulo / SP - BRAZIL - 27/07/2010

The Competitiveness and Technology Department (Decomtec) of the Federation of Industries of the State of São Paulo has just published an excellent, well-informed and ingenious report: “Bureaucracy: Economic Costs and Combat Proposals”. Right now, on the eve of the electoral process, it should be carefully analyzed by all candidates for the Presidency of the Republic.

Such a thorny and controversial subject is always subject to methodological criticism and impressionistic analysis. It is worthwhile, however, to pay attention to the objective and quantitative effort of the work, due to its importance for the maintenance of a GDP growth rate in the next years of the order of 5% to 6% with lower internal (inflation) and external tensions ( competitiveness of exports).

We all intuit, and the work proves, that excess bureaucracy is one of the biggest obstacles to economic growth and business expansion in Brazil. It implies losses for citizens, as the costs, manifested in the exaggerated and often inefficient processes of controls and requirements, reduce the benefits generated by the goods and services offered. The effects of high bureaucracy occur across the economy, impacting both the efficiency of the private sector and the quality of public institutions, as shown below:

 

1) In the index, released by the World Bank, which measures the ease of doing business, Brazil ranks 129th out of 183 countries (2010);

2) Governance indicators (which measure, in general, the quality of institutions and the business environment), are indirectly related to the country's bureaucracy. In Brazil, the high bureaucracy puts a negative pressure on the government's effectiveness, the control of corruption and the quality of the regulatory structure, hampering the development of the private market; and

3) Countries with higher levels of bureaucracy tend to be less attractive to productive investments, lower GDP per capita, worse level of education and larger size of the informal economy, which undermines the country's competitiveness.

The work estimates the economic cost of bureaucracy, comparing the level of ours with the average of a basket of selected countries. The conclusions are as follows:

1) If Brazil reduced its bureaucracy index by 0,3 points, reaching a level equal to the average (of selected countries) of 0,27, the country's per capita product would pass to US $ 9.147, that is, an increase of almost 17% on the average for the period 1990-2008 (equivalent to 1,45% per year). This corresponds to an average annual cost of bureaucracy estimated at R $ 46,3 billion, equivalent to 1,47% of GDP (2009 values); and

2) The annual economic cost of the bureaucracy of R $ 46,3 billion represented:

a) 10,1% of private investment (GFCF) (2009);

b) Almost 300% of private R&D spending (2008);

c) 2,8% of the net sales revenue of the manufacturing industry (2007);

d) 2,3% of final household consumption (2009).

The scenario observed in Brazil is one of immense bureaucratic excess that implies an extremely high cost, hampering the increase in per capita income, growth and the country's competitiveness. In this sense, the need to reduce bureaucracy in Brazil is urgent. Such measures include:

1) Simplify and unify procedures and regulations, establishing clearer and more objective rules, reducing redundant barriers and cross-controls; and

2) Intensify the use of electronic means to improve access to information, increase the availability, accessibility and speed of services.

The process of reducing bureaucracy must be permanent, have a wide reach and facilitate the relationship of the State with citizens and companies. The effort must take place in the three spheres of public administration and in the legislative, judicial and tax systems, in order to increase the efficiency of the public sector, unlocking the country's economic development. Unfortunately, that is not what has happened. The “bureaucracy index” perceived in Brazil as measured by the Institute for Management Development (IMD) has evolved negatively, as seen in the graph below, where smaller numbers correspond to more bureaucracy.

The work ends with some practical and interesting suggestions in the same style as the great ex-minister of bureaucracy Hélio Beltrão. No "revolution"! Persistent and stimulating improvement in the margin. Unfortunately, everything that was done in the 70/80 years of the last century has been carefully deconstructed since then. It is time to take the problem seriously again.

Antonio Delfim Netto is professor emeritus at FEA-USP, former Minister of Finance, Agriculture and Planning and writes on Tuesdays