Deindustrialization divides the country


Correio Braziliense - 28/12/2010

By André Franco Montoro Filho

The issues related to a possible process of deindustrialization of the Brazilian economy and the need for public policies to protect national industry have a much broader popular dimension than is usually recognized. This amplitude is clear when analyzing, from the perspective of the industrialization stage, the map of the distribution of votes between the federal states of the second round of the last presidential elections.

There was a point in the speeches of the candidates for the Presidency of the Republic that most analysts did not emphasize, but that, in my opinion, the population privileged, which is the appreciation of the real against the dollar and the risk that this exchange rate appreciation will lead to a deindustrialization of the Brazilian economy. It is the danger of premature destruction of traditional industrial sectors, in line with the well-known Dutch disease. With a highly valued exchange rate, the national industry would not be able to compete with imported products, be they American or Chinese. This concern, despite not having political party color, was evident in Serra's speech, but not in Dilma's. In fact, it is shared by economists from different backgrounds, including participants from the federal government, but especially those linked to Unicamp, FGV / SP and Fiesp such as Bresser Pereira, Luciano Coutinho, Guido Mantega and others.

Looking at the map of the distribution of votes between states, it appears that Serra won exactly in the most industrialized countries (São Paulo and states in the South Region), where the valued exchange rate is a major threat to the survival of the local industry, and in exporting states in the Midwest.

For its part, if the appreciated exchange rate is a problem for some, it generates benefits for others, because the appreciation of the exchange rate increases the Brazilian real wage. The purchasing power in relation to goods that are quoted, directly or indirectly, in dollars, increases. These goods are, in reais, cheaper, which stimulates consumption. Somehow, Dilma and her patron, President Lula, identified with this increase in wages and the consequent increase in consumption. The vote distribution map shows Dilma's victory in Rio de Janeiro, Minas Gerais and the states of the North and Northeast. These are states in which the threat of deindustrialization is less present, but the benefits of the strong real for increased consumption are clearly perceived and enjoyed by the population.

And the future? Will we continue to worsen this division or are there ways, if not to resolve, at least to mitigate this dichotomy? First of all, it should be noted that pressures for the dollar's devaluation are global, affecting almost all countries, and are expected to remain in the coming years. Second, the double and contradictory effect of this devaluation, that is, the increase in real wages and the loss of competitiveness in domestic industrial production are part of the nature of the process.

Without having the illusion of resolving the inevitable conflict between more and less industrialized states, there are public policies that can act to increase the competitiveness of national production without threatening wage gains and increasing consumption in less industrialized regions. With these policies, it becomes possible, at least, to reduce the negative effects of the dollar's devaluation on the domestic industry. Among these policies, surprising as it may seem, the fight against bureaucracy stands out.

In fact, the Doing Business 2011 report, recently published by the World Bank, informs that it has become even more difficult to do (honest) business in Brazil. It also indicates that Brazil is a world leader in demanding administrative procedures and bureaucratic acts. And this bureaucracy is especially perverse when it comes to paying taxes and starting (and closing) companies. These difficulties, many of them unnecessary, in addition to adding high expenses for companies located in Brazil, decrease their agility and reduce their competitiveness. In order to face the negative impact of the devaluation of the dollar, the fight against bureaucracy may prove to be a creative response to defend the national industry. Debureaucratization has a great advantage over other possible protectionist measures: it does not generate financial costs for the government.

André Franco Montoro Filho - Ph. D in economics from Yale University is a full professor at FEA / USP and president of the Brazilian Institute of Competitive Ethics (Etco)