By Cecilia Lara (Universidad de la República, Montevideo) and Svante Prado (University of Gothenburg)
This blog post is based upon the authors’ article, ‘From boom to gloom: Brazilian labour productivity in manufacturing relative to the United States, 1912–2019,’ in the Economic History Review.
Brazil has struggled to catch up to the productivity levels of the rich countries during the twentieth and twenty-first centuries. The record of GDP per capita levels shows that this struggle to achieve income convergence has come to naught. In 2018, according to research from Bolt and van Zanden, the average income per capita in Brazil was only about a quarter of the level in the US.
We investigate what the manufacturing industry can tell us about this situation. For two reasons, we regard manufacturing as a promising candidate to yield insights into the gloomy Brazilian GDP per capita record relative to the developed countries.
First, since the 1950s, scholars like Hirschman and Kaldor have supported the idea that the manufacturing industry holds the key to sustainable modern economic growth, owing to the dynamic properties of manufacturing which can generate spillovers to other sectors. The importance of manufacturing also resonates in newer growth theories, insofar as increasing returns to scale, externalities, and learning by doing are essential features of industrialization.
Second, a greater dependence on manufacturing distinguishes Brazil from most other Latin American countries. In the mid-1970s, the share of manufacturing in gross domestic product (GDP) was 17 per cent for Latin America; for Brazil, however, it was about 30 per cent, rivalled only by Mexico. The Brazilian manufacturing industry also has a long legacy, beginning with textile production in the late-nineteenth century.
In the post-Second World War decades, Brazil’s manufacturing industry took centre stage in state-led efforts to usher in a rapid transformation of the Brazilian economy. This process is known as import substitution industrialization. Besides being relatively large and having a long legacy, the Brazilian manufacturing sector also came to include at least one company – Embraer, in aerospace – operating at the cutting edge of new production technologies.
Examining comparative levels of labour productivity in manufacturing for Brazil relative to the US from 1912 to 2019, we show that manufacturing has failed to propel income convergence. Our study reveals one major upswing and one major downswing in comparative productivity levels. The upswing gathered pace leading up to 1950 and accelerated in two brief episodes in the late 1950s and during the 1970s, in the heyday of import substitution industrialization. At its peak in the early 1980s, the Brazilian productivity level in manufacturing was half that of the United States and was only rivalled by other developed countries.
However, two and a half decades of extraordinary decline, from the mid-1980s until early 2010s, cut the Brazilian/US productivity ratio by half. This downswing resulted in levels close to those in the 1910s, when Brazilian productivity levels in manufacturing ranged from 10 to 15 per cent of the US level. The Brazilian convergence experience had come full circle.
Historical contingencies shaping the trajectory of productivity must be brought into the picture to understand this convergence failure. The features of import substitution industrialization played an important role in the upswing, and the debt crises of the early 1980s, arguably following upon that mode of state-led development, were detrimental to the development of industrial capabilities in the following decades.
Beside the issue of industrial policies specific to Brazil, the boom-and-bust pattern also speaks to the convergence debate. One strand of scholarship, following Broadberry, argues that productivity levels in manufacturing tend to remain stable across countries, and that economy-wide convergence takes place through structural transformations. Another strand maintains, following Rodrik, that productivity levels of less-developed countries tend to approach those of developed countries unconditionally, and that deindustrialization thwarts economy-wide convergence.
The Brazilian experience shows that the comparative level of productivity in a less-developed country that suffers from an abysmal productivity gap relative to leading countries is inclined to change in tandem with industrialization and technological development. The manufacturing industry is the locus and propelling engine of properties that spill over to growth in the aggregate. In this respect, our results challenge previous studies that downplay the importance of manufacturing in overall income convergence.
However, the volatility in the productivity pattern also reveals that catching up in manufacturing does not occur unconditionally, as some recent contributions have suggested. Deindustrialization may not be the foremost convergence obstacle for less-developed countries in recent decades. Our result shows that the most problematic feature of Brazilian manufacturing is lagging behind in comparative productivity.
To contact the authors: