Volume 43, Number 171,
October-December 2012
Structural Limits on Economic Development:
Brazil (1950-2005)
Bibiana Medialdea
PRODUCTIVE WEAKNESS AND
LIMITED ACCUMULATION CAPACITY ( ...continuation )

In the first place, when the conditions of capital stock are examined, two simultaneous facts become clear: their supply is modest and their technical composition demonstrates minimal presence of machinery and other productive equipment. Capital stock experienced strong growth during the time period 1950-1980, but the growth rate later notably decelerates. Even so, in the interval 1950-2003, the stock grew at an average annual rate of close to 6%.15 But this stock also includes the construction of residential housing, public infrastructure, as well as buildings, assemblies and installations of all kinds. Looking only at machinery stock, the facts reveal an unquestionable reality: between 1950-2003, the stock barely grew at an annual average of 2.5%, and in the last three decades, it did not even reach an annual rate of 1%. In this way, and unlike what characterizes developed countries, stock in machinery and equipment in Brazil always makes up a marginal part of the total capital stock. Even in the best moments, it only reached 31%, while in recent years, it makes up only 18-19%.

As a result, the supply of directly productive capital has a minority and decreasing position in the total stock, whose magnitude is modest. This precariousness affects productivity in two ways. It limits growth of the working-capital ratio and puts a brake on the drop of the capital-product ratio, because the economy’s capacity to incorporate and spread technical progress is extremely limited. The combination of both components causes working productivity to increase slowly. In this way, even though it is based on an undeniably low level, even during the most dynamic decades of working productivity, it was unable to increase at a decent rate: a variety of estimates situate this rate below an annual rate of 4% between 1950 and 1980. Later, its behavior goes from being disappointing to directly catastrophic, nearing 0.2% annually.16

This tragic result makes clear that reduced efficiency is part of the nucleus of elements that limits the productive capacity of the Brazilian economy. This result is even more important when its evolution is compared with that of developed countries. In 1950, the gdp per hour worked in Brazil was only 42% of what it was in France and 32% of what it was in Holland, although it was much closer to levels in Greece, Portugal and Spain, between 85% and 95% (Maddison, 2002). And the passage of time only deepened these differences in an exaggerated manner. Even between 1950 and 1980, when Brazilian productivity was at the peak of growth, the distance between Brazil and European countries widened. And its later evolution is even worse: in 2005, Brazilian productivity was approximately 20% of what it was in France and Holland, and between 30% and 40% of levels in Greece, Portugal and Spain.

THE CHRONIC INSUFFICIENCY OF DEMAND
Weak Investment

The three main productive weaknesses indicated in the previous section are closely related to the volume and composition of investment in the country.

Similar to the analysis of productive dynamics, analyzing the evolution of investment allows us to distinguish between two time periods. The first is during the decades of 1950-1980, when there was strong growth in production backed by a rapid increase in gross fixed capital formation (gfcf), which saw an annual growth rate of 9.4%, and within this, investment in machinery. However, as we have already indicated with other variables, we must consider that Brazil began this time period with negligible levels of investment, so its intense growth does not imply that in absolute terms its investment is quite modest. We will prove this later on.

15 The growth data on capital stock that we refer to in this section was calculated based on estimates from Annex 1 of Feu (2004). A homogenous series for 1950-2005 is not available.

16 Between 1950 and 1980, Maddison (2002) estimates that working productivity grew at 3.7% annual and Bonelli estimated 3.9%. The results from the former are 0.18% annual between 1981 and 2005 and the results from the latter are 0.24% annual for 1981-2000. Although there are methodological discrepancies for the 1990s, even the most optimistic versions are quite moderate. Rocha (2007) estimates 3.4% for 1980-2001.

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PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 49, Number 194 July-September 2018 is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
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