The Brazilian Economy’s Double Disease

The Brazilian economy is stuck in a so-called middle-income trap—growth that stalled long before Brazil caught up with the living standards of the highly industrialized countries. After exhibiting a stellar performance in the decades before the 1980s, the economy has since been unable to sustain growth for long periods. The predicament can be summarized using a medical analogy: Brazil has been suffering from both productivity anemia and public sector bloat. On the one hand, it hasn’t enjoyed the sort of productivity growth expected of economies at this stage of development— the harvesting of easy efficiency gains ranging from improved business organization to rapid diffusion of imported technology. On the other hand, the appetite for expanding public spending has become increasingly incompatible with limited productivity gains, particularly since the spending has not delivered on the accompanying hopes for socioeconomic mobility.