Can the productive Brazil survive?

• 39 inoperative federal government ministries...
 
• Tens of absurd taxes...

• Hundreds of unnecessary bureaucratic institutions and offices...

• Thousands of irrational norms...

• 20 thousand political positions “of trust”...

• 6,28 million public officers...

• 3 thousand (of the 5.5 thousand ) Brazilian municipalities without financial autonomy...

Where all this will lead us?

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A slight example of what Brazilian bureaucracy is capable of:

In July, the Union’s Official Gazette published the nomination of a public officer of the Ministry of Micro and Small Businesses to serve as: “coordinator of General-Coordination of Registration Services of the Department of Business Registry and Integration of the Secretary of Rationalization and Simplification.”   Truly, there are no limits to ridiculousness. 

In a recent article, Maílson da Nobrega, ex-Ministry of Finance, recalled, with reason, the need to reduce gigantic transactions costs related to the labor, taxes and the environmental areas.

In a very didactic manner, he mentioned economists Ronald Coase and Douglas North, as well as John Wallis (1991 and 1993 Nobel Prize winners), mainly for their virtuous contributions stating that: when heavy, such costs strongly inhibit economic growth.

These economists investigated and demonstrated that transaction costs represent more than 50% of the American GDP (imagine in Brazil!). Therefore, building institutions to reduce transaction costs is essential to gain productivity and expand the economy (something that no politician seems to know).

Transaction costs transcend bureaucracy.

In the past decades, the Brazilian tax system very likely turned into the greatest cause of an increase in transaction costs. The taxation madhouse created by irresponsible policies and bureaucrats greedy for power has no comparative in any other country.  The process of filling out documents, writing up books and reporting information – even digitally – generates, beside their own costs, an enormous expenditure in various other instances, such as in legal suits. This also leads to legal insecurity, which in turn directly affects the will for investments.

When it comes to labor, our anachronic legislation regulates almost everything. This originated in the archaic idea that workers are incapable of defending themselves and therefore needs protection from the State. After the second half of the twentieth century this is a shameful excuse to keep a huge legal/bureaucratic apparatus at the expenses of the taxpayers. Besides wasting time and resources, this genuine Brazilian pearl, greatly incentives litigation and usurpation. The result? We have over 3 million labor lawsuits/year, against 1 thousand in Japan. This generates further transaction costs and insecurities that, besides not stimulating employment opportunities, leads to wicked and corrupt consequences in the national economy and in the companies competitiveness. Such consequences turn out to be much worse than lawsuit bureaucracy itself.  

A third issue relates to environmental licenses. According to CNI (National Industry Association), licenses, whether granted to a gas station or to a hydroelectric power plant, are subject to a myriad of 30 thousand norms, most of them very confusing, overlapping, and lacking of any rationality. It is a kafkian process, whose practical objective is far from protecting the environment. More truly, it is a process that creates difficulties to be able to sell easy ways out.

To deal with these three areas, companies and individuals, in Brazil, spend a great amount of resources with lawyers, accountants and technical evaluations. These are transaction costs that consumes huge amount of time and money that could be better used if invested in productive activities. They would generate more jobs and more taxes, since they would increase efficiency and competitiveness. If the Brazilian productive society is able to surpass these carcinogen parasites – created and maintained by the State, it will be as discovering an unexplored rich mine when it comes to gains in productivity

Note: Almir Pazzianotto, Everardo Maciel and Maílson da Nóbrega, are widely recognized names in the Brazilian political and economic scenario. They have, in the past years, written excellent and rational articles, each in their own professional area. The question that still remains is: why then, when these important citizens held government offices, did they not apply such rationality or propose the changes they preach about today?

v  Rafael Jordão M. Vecchiatti, economist. Coordinator of “Movimento Brasil Eficiente”, director of ABIMAQ (Brazilian National Machinery Association) and Member of FIESP Board of Economists.