Brazil's Key Resource Potential Lies In Education

Human capital key obstacle to productivity growth says OECD.

Brazil's economic future depends vitally on improved education to achieve "enormous" productivity gains, a leading institute said on Nov. 24. "The shortage of human capital is the single most important obstacle to productivity growth," the Organization for Economic Cooperation and Development (OECD) said in a survey of the Brazilian economy. Poor education indicators were more a problem of educational quality rather than of funding.

Brazil has a recent history of boom and bust, and the OECD said the potential for growth without overheating was now "rather low" at about 3% - 3.5% per year. In the OECD area of leading industrialized countries, potential growth was about 2.5% but was expected to rise to 3% - 3.5%. Brazil had to pursue reforms to do about five points better, implying growth of 8%, to catch up in the next quarter of a century, the report said.

The OECD also found that "the reduction of trade barriers seems to have played a crucial role in boosting productivity", and a big privatization program had also helped. The economy had grown by 2.3% last year after 4.9% growth in 2004 and 0.5% growth in 2003.

Praising recent reforms in Brazil for stabilizing inflation, strengthening the currency and reducing debt, the OECD said that "prospects are good for a broad-based recovery." But the report highlighted three areas where vigorous action was needed:

  • The "overarching" challenge was to "continue to reduce the public debt overhang" while improving public finances by spending controls instead of mainly by tax increases so far. Pension reform was particularly important.
  • A "key policy challenge is to boost innovation in the business sector" because, although innovation performance was improving fast, it was too low and driven mainly by the state and universities.
  • The quality of education had to be improved because while funding was up to OECD levels it was not feeding through fast enough into qualification of the workforce.
    • Education was one way of reducing a high and damaging undeclared labor market, the report stressed, citing one calculation that undeclared labor accounted for 37% of the workforce in 1999. And it urged the creation of a "national skills certification system."

      The so-called "Brazilian miracle" in the 1960s and 1970s had boosted gross domestic product by about 7.5% per year, but the driving policies had been unsustainable and growth fell to about 2.5% from 1980 to 2005, with spurts followed by slumps.

      Copyright Agence France-Presse, 2006

    TAGS: The Economy
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