Economy & Energy
Year IX -No 64:
October - November 2007
Versions in English and Portuguese available at
Text for Discussion
The Importance of Capital
Productivity to Growth
The Economy and Energy Organization and the Ministry of Science and Technology have signed in 12/26/2005 the Partnership Contract № 00017/2005 that aims at preparing the Basis for Capital Productivity Growth. It is a very relevant topic for the development of the country. The study on the subject published in this issue is part of this effort and it is infinitely modest vis-à-vis the need of improving the use of the scarcest resource to reach development: capital.
In the mentioned study the capital productivity for the 1947/2007 period is estimated and it is suggested an index that will evaluate quarterly the capital productivity in the whole economy.
In the seventies and eighties the capital productivity decreased and in the nineties it was half of its value in the seventies. This capital productivity decrease caused economic stagnation.
The good news of the study is that the situation was reverted from 2000 onward. In the last four years capital productivity grew 6.6% (1.6% annually) and this represents an increase practically equal in the GDP rate without additional investment.
Maintain and increase this productivity is the main challenge for the Brazilian growth in the next years. A return to the previous trend would mean a growth of only 2.5% annually.
Each time one hears about productivity in Brazil it is meant labor productivity that already has its industrial index. Increasing labor productivity means lower manpower (abundant input) per product.
Presently the developed countries are concerned with the total factors productivity, evaluating for several sectors the labor and capital productivities and the contribution of technology.
It is hoped that the systematic calculation of capital productivity in Brazil will permit to better understand the causes of its variation and to stimulate the Brazilian society to increase it.
In order to increase productivity it will be necessary in some cases to discard some comfortable attitudes. It will be usual for plants to work in more shifts, for ports and roads increase their utilization time, maybe it will be necessary to use more often mass transport means and perhaps reduce the number of holydays in Brazil. It will also be necessary to emphasize the rational use of energy and water as well as natural resources in general. However, the concern with capital productivity will fix rational limits in the use of these resources.
It will also be necessary to reinforce planning in order to anticipate and prevent bottleneck points. At the same time it will be necessary to have a flexible system that permits the agents to receive correct economic signals so that capital productivity will grow naturally.
In a society with high capital productivity index, investments cannot be excessive and must find the best way to use the existing ones.
Finally it should be mentioned that the most important point is that capital productivity searches for higher production (Y) with the available capital stock (K). This can be made by reducing the denominator of the Y/K fraction (rationalize investments) or increasing its numerator (aggregating value to the national product through its technological content). After a long time when the quantity was the goal and the success in exports was measured in tons, now the basic concern in Brazil is the value aggregated by technology. This concern is part of speeches of trade unions and entrepreneurial associations and has concrete technological incentives measures in the economical, agricultural and industrial policies.
However, the focal point in Brazil is still the production of commodities. It was this type of policy that conducted the country in the so called “economical miracle” in the seventies to commit its industries and capital to less sophisticated products that demand large infrastructure in production (energy-intensive, mainly electricity) and transport (large number of ports and roads). The international prices of these products had a sudden decrease in the eighties causing the decrease of capital productivity in Brazil and jeopardized its development.
Graphic Edition/Edição Gráfica:
Friday, 25 April 2008.