BRAZIL - THE MAP OF THE PUBLIC SECTOR’S WEIGHT IN MUNICIPAL GDP EXPOSES A STRUCTURAL REALITY OF BRAZIL.

THE CHART, BASED ON OFFICIAL IBGE DATA FOR 2021, SHOWS THE SHARE OF THE PUBLIC SECTOR, PUBLIC ADMINISTRATION, DEFENSE, EDUCATION, HEALTH, AND SOCIAL SECURITY, IN THE GDP OF BRAZILIAN MUNICIPALITIES. THE DARKER THE AREA, THE GREATER THE LOCAL ECONOMY’S DEPENDENCE ON PUBLIC MONEY, REACHING IN SOME CASES UP TO 80% OF MUNICIPAL GDP.

STARTING FROM THE PREMISE THAT MANY STATES AND MUNICIPALITIES IN BRAZIL EXIST BASICALLY TO MOVE PUBLIC MONEY, THE MAP FUNCTIONS AS AN X-RAY OF A COUNTRY WHERE THE STATE NOT ONLY COMPLEMENTS THE ECONOMY, BUT REPLACES IT. ACROSS LARGE PORTIONS OF THE NATIONAL TERRITORY, ESPECIALLY IN THE NORTH AND NORTHEAST, PRIVATE ECONOMIC ACTIVITY IS UNABLE TO SUSTAIN THE LOCAL STRUCTURE, MAKING CIVIL SERVANT SALARIES, PENSIONS, SOCIAL BENEFITS, AND ADMINISTRATIVE SPENDING THE MAIN DRIVERS OF INCOME CIRCULATION.

THIS IS NOT A CASE OF “FRAUD” IN THE DATA. THE NUMBERS ARE OFFICIAL AND ACCURATE. WHAT EXISTS IS AN UNCOMFORTABLE POLITICAL AND ECONOMIC INTERPRETATION: THERE ARE REGIONS WHERE GDP DOES NOT REFLECT PRODUCTION, INNOVATION, OR COMPETITIVENESS, BUT RATHER THE CONTINUOUS TRANSFER OF STATE RESOURCES. IN SMALL MUNICIPALITIES, WITH LOW POPULATION DENSITY AND LITTLE INDUSTRIAL OR PRIVATE SERVICES ACTIVITY, A CITY HALL, A PUBLIC HOSPITAL, AND A STATE SCHOOL ARE ENOUGH TO DOMINATE THE LOCAL ECONOMIC STRUCTURE.

IN PRACTICE, THIS MEANS THAT THE ECONOMIC CYCLE DEPENDS ON THE PUBLIC BUDGET. IF THE GOVERNMENT DELAYS PAYMENTS, CUTS TRANSFERS, OR ENTERS A FISCAL CRISIS, THE LOCAL ECONOMY SIMPLY STOPS. SHOPS CLOSE, SERVICES DISAPPEAR, AND UNEMPLOYMENT RISES, BECAUSE THERE IS NO ROBUST PRIVATE SECTOR CAPABLE OF ABSORBING THE SHOCK.

THIS MODEL CREATES A LONG-TERM STRUCTURAL PROBLEM. STATES AND MUNICIPALITIES DEVELOP INCENTIVES TO DEFEND THE EXPANSION OF PUBLIC SPENDING, NOT FOR EFFICIENCY OR WELL DESIGNED SOCIAL POLICY, BUT FOR ECONOMIC SURVIVAL. ANY DISCUSSION ABOUT SPENDING CUTS, ADMINISTRATIVE REFORM, OR REDUCING THE SIZE OF THE STATE IS LOCALLY PERCEIVED AS AN EXISTENTIAL THREAT.

MOREOVER, DEPENDENCE ON THE PUBLIC SECTOR DISTORTS POLITICS. POLITICAL POWER COMES TO REVOLVE AROUND WHO CONTROLS THE BUDGET, POSITIONS, AND TRANSFERS. THE STATE BECOMES THE MAIN EMPLOYER, INVESTOR, AND CLIENT, WHICH REDUCES COMPETITION, DISCOURAGES ENTREPRENEURSHIP, AND CREATES A LOW-PRODUCTIVITY ECONOMY.

THE MAP, THEREFORE, DOES NOT PROVE AN IRREGULARITY, BUT CONFIRMS AN UNCOMFORTABLE TRUTH: IN A LARGE PART OF BRAZIL, THE STATE IS NOT A MEANS TO DEVELOPMENT, IT IS THE END ITSELF. THESE ARE REGIONS THAT DO NOT GENERATE WEALTH AUTONOMOUSLY, BUT SURVIVE ON THE CONTINUOUS RECYCLING OF PUBLIC RESOURCES.

UNTIL THIS IS ADDRESSED WITH POLICIES THAT STIMULATE REAL PRIVATE ACTIVITY, PRODUCTIVITY GAINS, AND SUSTAINABLE ECONOMIC INTEGRATION, THESE STATES AND MUNICIPALITIES WILL CONTINUE TO EXIST MORE AS ADMINISTRATIVE UNITS THAN AS FUNCTIONING ECONOMIES. THE IBGE MAP IS NOT AN ACCUSATION. IT IS A DIAGNOSIS.