Productivity: Brazil and Korea
In an article for the Economist’s “The World in 2012,” President Dilma Rousseff argues for “the Brazilian model” to be emulated by other developing countries. The essay rightly emphasizes Brazil’s record in poverty alleviation and environmental issues. At times though, Rousseff sounds off cue. For example, she writes:
We should all strive to raise wages in line with productivity, so that the recovery benefits the middle classes in rich economies and allows hundreds of millions of people to get out of poverty in developing ones. The market alone does not improve income distribution. Government action is needed.
But productivity in Brazil is woeful. Two weeks ago Greg Michener noted on his blog, Observing Brazil, that worker productivity increased 0.3 percent annually from 1995 to 2005. Despite the general wisdom that developing countries can grow faster than developed ones, Brazil’s productivity actually declined compared to America’s over this period.
Hopefully, worker productivity has increased since 2005 and the data just isn’t available. But if so, productivity is still likely to be trailing wages. Paulo Levy, a researcher at the Brazilian government’s applied economic research institute (IPEA), notes a planned minimum wage increase of 14 percent in 2012 in an article on Project Syndicate.
Fact is, absent productivity gains, Brazil’s economic growth has been powered by massive commodity exports to China over the past decade. There are legitimate achievements on which Brazil can serve as a model to the world. But Rousseff’s advice on wages is inflated, and inflationary.
Graphic from UNCTAD.
