This post is a summary of the book published in September 2017 with the incomplete title above at https://read.oecd-ilibrary.org/development/no-sympathy-for-the-devil_26b78724-en#page2. The second was published at https://www.periodicos.unimontes.br/index.php/economiaepoliticaspublicas/article/view/4063/3973
The middle-income trap, whereby GDP growth slows down once a country approaches an intermediate level of development, is particularly persistent in Latin America. Latin American countries have been unable to reduce significantly the income gap with advanced economies and reach high-income status. The few regional exceptions are Chile and Uruguay. This paper joins a crucial debate on development and policy prioritisation. What is holding back some countries which have been middle-income since the 1950s: weak productivity, high inequality, bad governance? A challenging aspect of growth in emerging markets has been the lack of progress in productivity. The economic literature links the prevalence of growth slowdowns to the difficult of adjusting the economy to the sources of growth that become more important after reaching middle-income levels. Growth in low-income countries arises essentially through labour reallocation from low- to high-productivity activities. On the other hand, arriving at middle-income levels usually requires new engines of economic growth. Economies that are successful in transitioning to these activities have a set of requirements: large pool of skilled labour, favourables rates of investment, a system of national innovation and a macroeconomic and institutional environment conducive to entrepreneurial activity, that are not easy to achieve, much less to co-ordinate. The empirical literature on development coined in the mid-2000s the term "middle-income trap", as developing economies struggle to adjust to new sources of growth after reaching middle-income levels. This "trap" represents a challenging scenario for Latin America. Our results show that countries interested in reaching the high-income range should focus on the following areas: governance (rule of law and political stability), education (quality of secondary education and tertiary education attainment), investment, capabilities, finance (liquidity in the stock market and domestic credit) and taxation. A country falls into the middle-income trap by raising its per capita income ( and their labor costs) without, however, increasing proportionally its productivity. When it reaches this stage, production costs become high to compete with low-income countries in markets of intensive hand labor. On the other hand, it does not organize its supply side based on productivity gains, higher added value and higher technological content to compete with more developed countries. Squeezed between these two poles, the economy in question is threatened by stagnation or regression in its level of industrialization. For a poor country to reach the middle-income level is relatively easier than jumping on the stage of middle-income to high-income. To achieve a higher level of income this country should incorporate new skills in its work force, which requires a higher level of qualification, better infrastructure and social cohesion around a national development project. Looking at the experience of countries that have fallen into the trap of middle-income, it appears that Latin America is the region in which this phenomenon manifests itself most dramatically. The lack of competitiveness of the Brazilian economy is not the work of a government, it is a reflection of the structural problems. The poor quality of Brazilian education, it is not only related to lack of investment, which does not cease to be true, but a culture that was created in the midst of unsophisticated production processes, such as large-scale tropical agriculture. Brazil has a percentage well below the OECD average in terms of the amount of people with higher education. The absence of Brazilian companies in segments of greater technological complexity. It is clear that more effort in science and tech education can mean an improvement in the levels of productivity of a country. However, when the effort of management training does not occur simultaneously to a planned development process, the economy tends to waste their human resources. Spending on R&D in Brazil are only 1% of GDP, against 4.4% in Israel, 3.7% in South Korea, 3.6% in Japan and 2.7% in the U.S.A. By now, only 12% of the population between 25 and 34 have a university degree, compared with 63% in Korea, 56% in Japan and 40% in the U.S.A. The percentage of engineers in the total of graduates is only 4%, compared to 23% in Korea. Most public schools in Brazil are poorly equipped and require investments to receive students on a full-time basis. Only 0.6% has science lab and 15% have library and I.T. classroom. Another problem that hampers the competitiveness of Brazilian enterprises is the tax system. The Brazilian tax system is one of the most complicated in the world. A company in Brazil spends on average 2.600 hours per year with tax red tape, against 243 in India and 318 in China. It is not easy to a country become a rich nation. It is difficult to overcome the middle-income trap without great efforts. We can change the future but it is impossible to get rid of the past. To make matters worse the national elites have never had a clear project of independent development of the country, behaving almost always as minority partners from outside interests. To overcome the middle-income trap is necessary a strong industry that produces manufactured innovative products with higher added value, demand better educated workers, and creates better jobs in the industry.
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