Letter IEDI n. 1175—Actions for the industrial revitalization of Brazil
Today's Letter IEDI resumes the discussion of contemporary industrial development strategies and addresses, on this occasion, the case of economies that have been prematurely registering a sharp decline of the industry in their productive structures, as is the case in Brazil.
Currently, the task of revitalizing the industry has become more complex, due to the global transformations we are witnessing, with the intensification of technological competition, geopolitical disputes, climate change and the effects of the pandemic; however, it has not become more difficult, since opportunities are also opening up.
To discuss the topic, this Letter IEDI addresses the study carried out by André Nassif (UFF) and Paulo Morceiro (University of Johannesburg) entitled “Industrial policy for prematurely deindustrialized economies after the Covid-19 pandemic crisis: Integrating economic, social and environmental goals with policy proposals for Brazil,” which was presented at the 25th Forum for Macroeconomics and Macroeconomic Policy in Berlin.
Thus, the IEDI continues a series of analyzes with ideas and suggestions for a new industrial strategy for Brazil, as in Letter n. 1174 “Criteria and Missions for a Brazilian Industrial Strategy,” recently released, but also in previous works such as Letters IEDI n. 797 “Industry 4.0: Challenges and Opportunities for Brazil,” n. 1075 “Green Transition: opportunities and challenges for Brazil,” n. 1149 “An agenda to put Brazil back on the path of Development,” n. 1153 “For the development of Brazil: the view of the industry” and n. 1157 “More and better global integration: an indispensable agenda for Brazil,” among other publications.
The study by Nassif and Morceiro discusses how deindustrialization is a phenomenon that affects countries in different ways, implying different challenges for each of them. In Brazil, for example, it mainly affects segments of greater technological intensity, as discussed in Letters IEDI n. 920 and n. 929. The authors also suggest paths for policies that foster the modernization and revitalization of Brazilian industry, so that we can resume a process of sustainable development.
Like the IEDI in many of its publications, the authors argue that the industry remains the “engine of economic growth” and will continue to play a relevant role in the performance of developing economies, notably due to its role in technological progress and in helping to decarbonize productive systems.
In Brazil, as well as in many other economies, GDP growth is intrinsically related to the performance of the manufacturing industry. In the period of industrialization, 1950–1980, the high rates of economic growth in the country were accompanied by a significant expansion of labor productivity but, since then, our premature deindustrialization process vis-à-vis the international experience has been reflected in a phase of economic stagnation.
Revitalizing the Brazilian industry also boosts the generation of tech and green jobs. Nassif and Morceiro, based on the use of intersectoral economic impact modeling, estimated the effect of a final demand increase of US$10 million on the Brazilian economy.
For the economy as a whole, the average sectoral impact is 538 additional jobs, of which 7.31% would be green and 0.74% would be tech jobs. In manufacturing, these proportions would be 8.93% and 0.67%, respectively, but the authors emphasize that with the exception of natural resource-based and work-intensive segments, the impact is much more significant.
In the scale-intensive industry, 10.7% of additional jobs would be green and 0.85% would be technological. This part of the industry, which includes the automotive sector, is an important axis for environmental sustainability through the electric car paradigm. In specialized-supplier manufacturing, which includes machinery and equipment, the fraction of additional green jobs is 16.9% and that of tech employment is 1.7%.
In the subgroup of science-based manufacturing, due to the nature of its activity, the increase in demand would generate a proportionally high impact on technology, of 1.3%, but also on green jobs, with 9.5% of additional jobs.
In line with the UN Sustainable Development Goals (SDGs), the authors of the study propose six axes for a mission-oriented industrial strategy in Brazil. They are:
• Mission 1: following the UN SDG 9, to promote inclusive and sustainable industrialization, not only restoring the technological state of industrial branches that have lost competitiveness in recent decades, but also revitalizing them through innovation, incorporation of clean technologies and integration with new IT services. It is in this sense that the term reindustrialization is advocated by Nassif and Morceiro.
• Mission 2: also in line with SDG 9, to foster innovation, technical progress and the creation of dynamic comparative advantages. Innovation disseminates technical progress, sustains productivity growth in dynamic terms and boosts employment (in the source sector and in sectors benefiting from adoption/diffusion). A mission in this sense, the authors argue, implies fostering patenting and improving the indicators of innovative efforts.
• Mission 3: in accordance with SDG 8, to boost the generation and formalization of employment and the reduction of social inequalities. For the authors, it is also necessary to guide development in the most backward regions of the country, where the degree of informality is more significant.
• Mission 4: according to SDGs 6 and 9, to increase investment in infrastructure by making it resilient and sustainable, which includes the availability and sustainable management of water and sanitation throughout the country. This type of investment, the authors recall, generates a high long-term social return, since 16% of the Brazilian population do not have access to treated water, 47% do not have access to a sewage system and the rail transport network per km is low for a continental country.
• Mission 5: following SDG 5, to integrate Brazilian activities with digital technologies, through a mission focused on the incorporation of digital technologies with the potential to revitalize most of manufacturing and assist in promoting a more decarbonized economy. Given the potential negative (even if transient) effects on employment, Nassif and Morceiro argue that the digitalization of the economy must be accompanied by investments in education, training and qualification of the workforce, which will involve coordination between the State and the private sector.
• Mission 6: in line with SDGs 12, 13 and 15, decarbonization, reduction in CO2 emissions, protection of forests and climate change should integrate a specific mission. This should include new competitive parameters for all sectors of the economy, in order to establish product traceability indices and energy efficiency labels, for example. According to the authors, these guidelines have the potential to affect all sectors of the Brazilian economy, especially industrial activities, sophisticated services and those subsectors related to infrastructure. Special attention could also be devoted to the industrialization of more backward regions, especially in more populated areas of the North and Northeast regions to combat inequality.
Nassif and Morceiro also emphasize that the State should explore the synergies between the different missions when designing industrial strategies so as to maximize their results. For example, investing in innovation (mission 2) to produce wind turbines (missions 1 and 6) and their main components (missions 1 and 5) and installing them in the Northeast of the country (missions 3 and 4).
The authors also identify fronts of action involving different sectors and institutions that could be mobilized in the aforementioned missions. Among them, the following can be mentioned:
• Pharmaceutical and health complex. The authors recall that Brazil has key actors in the health innovation system, such as public research institutes (Fiocruz and Butantan), national pharmaceutical companies and subsidiaries of transnational corporations, and great state purchasing power through the public health system (SUS). Based on its biodiversity, Brazil could become a world reference in tropical diseases and biotechnological pharmaceuticals and the aging of the population would allow the expansion of labor-intensive activities. This complex would articulate missions 1, 2 and 3 suggested by the authors.
• Specific actions for market niches with significant potential for generating technological jobs and dynamic comparative advantages. The authors mention the following examples: chemical inputs, such as fertilizers and pesticides, since Brazil is an agricultural power but almost entirely dependent on the import of these implements; and aerospace industry, given the competencies of Embraer and ITA. Missions 1, 2 and 4 could be tackled.
• Software and information services. Currently, information services invest in R&D as much as the more technologically sophisticated branches of manufacturing and play a key role in the development of digital economy technologies, which can revitalize Brazilian manufacturing. Nassif and Morceiro point out that information services act across the board and contribute to increasing productivity throughout the economy. Missions 1, 2 and 5 would guide actions in this area.
• Resilient and sustainable infrastructure. Several sectors can be integrated, such as: capital goods on demand linked to social and physical infrastructure; telecommunications equipment; chemical inputs and plastic products associated with the expansion of basic sanitation; power generation, transmission and distribution equipment, including photovoltaic panels and wind turbines. Missions 1, 2, 3, 4, 5 and 6 would be integrated in this front of action.