ECONOMY-BRAZIL: Decentralisation and Deindustrialisation

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Dec 2 1999 (IPS) - The Brazilian economy has undergone major changes since last decade. Industry, whose share of production has dropped, has been moving from the major urban centres to poorer areas of the country, according to a new government report released Thursday.

That tendency has led to a process of decentralisation of the economy. The weight of the two most developed and densely populated states has diminished, indicates new data provided by the Brazilian Institute of Geography and Statistics (IBGE).

While Sao Paulo continues accounting for over one-third of Gross Domestic Product (GDP) in Brazil – the world’s eighth largest economy – its share fell from 36.12 percent in 1985 to 35.48 percent in 1997. Rio de Janeiro’s share, meanwhile, shrunk from 12.7 to 11.25 percent.

It was several of the more remote states that benefited from the migration of industry. Accounting for 1.72 percent of GDP in 1985, the northeastern state of Ceará now represents 2.02 percent, while the western farming state of Mato Groso’s share of production rose from 0.69 to 1.05 percent.

The proportion of GDP of the Federal District, the small territory where the capital, Brasilia, is located, climbed from 1.27 to 2.28 percent.

That was due to a tendency accompanying the deconcentration of the economy – the growth of the services sector at the expense of agriculture and industry. While farming and industrial activity accounted for a combined 46.83 percent of GDP in 1985, that proportion plunged to 31.7 percent in 1997.

The IBGE data contradicts the much-touted scaling down of the State attributed to the government’s “neo-liberal” economic policies, by indicating that the public administration’s share of GDP grew from 9.06 to 14.89 percent.

The 12-year period studied encompassed the 1985 start of the transition from 21 years of military government, as well as the economic meltdown and rampant inflation triggered by the foreign debt crisis of the 1980s.

In 1990, the doors of the Brazilian market were thrown open, as part of a new attempt to rein in three-digit inflation, which was finally curbed with the “Plan Real” in 1994.

After losing the protection it enjoyed in a closed market, industry began to pull out of the metropolitan region of Sao Paulo – Brazil’s largest city – in search of lower labour costs and better conditions elsewhere that would allow it to remain competitive.

Incentives offered by other states and municipalities, such as tax exemptions and free infrastructure, also encouraged companies to pull up roots, in what the influential governor of the state of Sao Paulo, Mario Covas criticises as the “war” of the tax breaks.

But according to Senate president Antonio Carlos Magalhaes, who represents the northeastern state of Bahía, which used tax incentives to attract Ford to set up a plant in the region, the tax breaks offered should not be seen as a “war” but as “mechanisms to reduce poverty in poor states.”

But it is really low wages that are the main factor in the migration of industry, says Joao Saboia, a professor at the Rio de Janeiro Federal University, who studied the employment aspect of the phenomenon.

The generation of jobs in industry in the 1989 to 1997 period peaked in areas where wages are lowest – in the most “backwards” areas, according to the economist, who compared data from 155 areas in Brazil with at least 5,000 workers each.

One example is the footwear industry, concentrated in southern Brazil. Many companies pulled out and moved to the northeast, the country’s poorest region, causing a commotion in the cities where they set up shop paying workers the minimum wage – currently 71 dollars a month – and thus abruptly pushing up local wages.

Despite the trend of economic decentralisation, inequalities from region to region in Brazil remain overwhelming. Per capita income in Maranhao, a state in the impoverished northeast, stood at 1,580 reals (830 dollars at today’s exchange rate) in 1997, while the inhabitants of the Federal District earned 7.5 times that.