The technological trap of deindustrialization – 12/14/2023 – André Roncaglia

The accelerated and premature deindustrialization of the Brazilian economy over the last 40 years is the side effect of a political project: the intentional construction of our commodity exporting power.

Due to the list of government subsidies and incentives for agribusiness and the mineral sector, we have built comparative advantages that are also coercive, as they deprive the industry of valuable resources for innovation, expansion and diversification of its production matrix.

Understanding this process and suggesting ways to overcome it is the objective of the book “Industrialization and Deindustrialization in Brazil: theories, evidence and policy implications”, to be launched in the next few days by the publisher Appris. Organized by Eliane Araújo (UEM) and Carmem Feijó (UFF), two renowned researchers in the field of development, the 470-page compendium has a provocative preface by Luiz Carlos Bresser-Pereira, contributions from more than 20 experts and updates the debate on the role of industry in Brazilian economic development.

The theoretical, historical and empirical perspectives adopted highlight how the positive effects of industrialization – and the negative effects of deindustrialization – tend to be reinforced in the dynamic context of global value chains.

Our deindustrialization resulted from the regressive insertion (agro-export) in a globalized world, from the commercial and financial openings in the 1990s. The “macroeconomy of deindustrialization” aggravates this condition by stifling productive investments (private and public) with high real interest rates, a rate exchange rate trend, disproportionate taxation of industry and a rigid commitment to fiscal austerity. No industrial policy thrives under such conditions.

A symptom of this appears in the analysis of BNDES disbursements in highly complex activities, which fell from 32% (2004-2008) to 24% (2015-20). At the regional level, disbursements in activities without comparative advantage and with complexity above the average for each region were extremely low and fell over time, falling from 20% to a tiny 11%, between the two periods. This pattern of BNDES disbursements probably reflects the country’s productive deterioration.

By dissecting deindustrialization into sectoral and regional analyses, the studies illustrate how productive sectors and value chains have specialized in activities with low added value, generating low-productivity and low-paying jobs.

This is the Lula government’s biggest challenge: recovering our industry with the adoption of environmentally sustainable, technologically competitive and sophisticated production processes.

Fortunately, we will not start from scratch. Brazil has immense environmental assets and a robust institutional structure, with public and development banks and academic research centers with international recognition, which must be mobilized for the reindustrialization project. The government needs to accelerate the approval of the BNDES development letter of credit (LCD) and invest energy in carrying out the missions presented by the National Council for Industrial Development (CNDI).

We were already the economy that industrialized most quickly between the post-war period and the end of the 1970s. Re-starting this process requires understanding our capabilities and challenges.

The book organized by Eliane Araújo and Carmem Feijó is a good starting point.

In the midst of profound geopolitical changes, doing nothing means losing positions in the concert of nations. There is no time to lose!

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