US-Brazil Economic Strategies for the Future

Following the recent elections there is a window of opportunity for reforms that will shape Brazil’s development over the next decades. “The Brazil of the Future: Towards Productivity, Inclusion, and Sustainability” takes a long-term perspective on Brazil’s development, exploring how prudent actions today can generate opportunities for a more prosperous, inclusive, and sustainable society over the next 20 years. The report aims to stimulate public debate about a virtuous cycle for 2042, illustrated by four alternative future scenarios.

While Brazil has come a long way over recent decades, its current social contract has come under strain, undermining the country’s potential. 

Social contracts are defined as “dynamic agreements between state and society on their mutual roles and responsibilities”, and they determine what each group contributes to and receives from the state. When the social contract is strained, the room for reforms is limited as there is no agreement on what citizens are willing to contribute and what they expect to receive in return. Indicators of social cohesion are low in Brazil, falling significantly from the “golden years” in the 2000s.  Overly discounting the future is a poor foundation for investments, both at the individual and broader society level. A strong social contract is critical to build a better future.

For Brazil to succeed in building on the achievement of the past and tackle the challenges of the future, it needs to enter a virtuous cycle of productivity, inclusion, and sustainability. 

There are still many distortions in Brazil’s economy undermining productivity. Unlocking economic potential will generate aspirations, the desire to plan and the propensity to save and to invest to acquire the necessary skills for the future. Better education, especially for the underserved poor, will both promote economic growth while improving access to better jobs. Opening markets will provide new opportunities for smaller firms and lower prices for all. There is a virtuous cycle between productivity and inclusion, which also includes sustainability. A more productive economy uses fewer resources. In the case of Brazil this implies less deforestation, the country’s leading contribution to climate change. Less deforestation, in turn, is a critical foundation for Brazil to safeguard its economy which critically depends on the ecosystem services provided by the country’s forests, especially the Amazon rainforest.

Today’s decisions will shape Brazil’s path to 2042- and can help to create this virtuous cycle. 

The report provides a conceptual framework to restore Brazil’s virtuous cycle of productivity, inclusion, and sustainability. Brazil’s recent performance is marked by low growth, high inequality, and environmental degradation. Brazil’s present is shaped by the country’s historic legacy (generating “many Brazils”) and it will be altered by megatrends that will majorly shape the future for Brazilians; these include climate change, technological change, and demographics. To create a virtuous cycle and build a prosperous future, bending the arc of history while turning megatrends into opportunities, Brazilians will need to make proactive choices. With a stronger social contract at the core, society needs to embrace reforms to promote social and economic inclusion, savings, investment, human capital, productivity and sustainability. These areas form part of a mutually reinforcing ecosystem that will promote economic growth and jobs, foster environmental sustainability, and generate the public resources underpinning the role of the state in providing critical public services.

How to create a virtuous cycle? 

History and megatrends will determine the future unless Brazilians make deliberate choices to change the path of history and seize opportunities from megatrends while minimizing the risks. Preparing for megatrends implies embracing technological change, tackling climate change, and adapting to demographic change. To further promote inclusive, sustainable growth, there are at least six critical areas for reform: (i) raising productivity in the private sector to boost growth in an environmentally sustainable way; (ii) preparing Brazil’s education system for closing the gap between skills and jobs; (iii) strengthening the relevance and sustainability of social protection systems for future challenges; (iv) reshaping today’s limited fiscal policy space in line with long term priorities; (v) improving access to infrastructure services; and (vi) building a more equitable and efficient tax system. Reforms can only be undertaken if they are sufficiently supported by Brazilian society. This requires strengthening Brazil’s social contract to provide the required trust that the reforms will benefit everyone over the long term.

With the right reforms Brazil can become an economic powerhouse that offers opportunities for all. A more inclusive social contract can facilitate critical reforms. 

By reforming public education and providing Brazil’s children access to more and better education, the gains of technological change could be shared widely. Social protection reforms could lead to better protection of those in need at much lower fiscal costs. A more efficient and progressive tax system could help raise the needed revenues to invest more in Brazil’s future, while reducing inequality. Changing labor taxes could help reduce current incentives for employers to rely on more precarious forms of employment. Natural resources, such as forests, could become a sustainable foundation of prosperity and Brazil can once again become a leader in fighting climate change. All this would sustainably generate economic growth and the revenue needed to finance progress in a fiscally sustainable way. Brazil could become a major exporter of green commodities and manufactured goods, benefiting from the high demand for green production across the world. Its innovative green-energy matrix together with low land-use emissions would make it highly productive and competitive on international markets. And Brazilians would become active players and innovators in international business and global supply chains, opening new possibilities for growth across the economy.


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