Brazil’s challenge is productivity, says Schüler
Brazil has some very clear challenges. The first is productivity. With the exception of agribusiness, Brazilian productivity has been stagnant for more than three decades. The analysis is by political scientist Fernando Schüler. Professor at Insper and PhD in Philosophy and Master in Political Science from the Federal University of Rio Grande do Sul (Ufrgs), Schüler assesses that the country also needs to deepen reforms and continue improving regulation, as was done in the area of basic sanitation and cabotage, in addition to offering legal security for investments.
The political scientist points out that the federal government has already been signaling that it should deal with the fiscal issue predominantly from the revenue side. According to Schüler, the reinstatement of taxes on gasoline, and the announcement of taxation on oil exports express this.
The political scientist comments that there is no space, in Brasília, for retreats in strategic themes such as labor and social security reform, regulatory agencies, or the autonomy of the Central Bank.
In this interview to Jornal do Comércio, Schüler says that the country also needs to modernize the public sector and improve education. He also says that there is ample room for a positive agenda, in the social area and in structuring reforms.
Jornal do Comércio – What are the main challenges facing the Lula government in this third term?
Fernando Schuler – Regardless of who is in government, Brazil has some very clear challenges. The first is productivity. With the exception of agribusiness, our productivity has been stagnant for more than three decades. There was an improvement in some economic indicators, in the last period, the country closed 2022 with an unemployment rate of 7.9%, the best since the great crisis of 2015/16, the GDP (Gross Domestic Product) grew by close to 3% , but there is everything to do. The agenda is known. It is necessary to deepen the reforms, continue to improve regulation, as was done in the area of basic sanitation and cabotage, provide legal security for investments, modernize the public sector, and improve education. The country occupies the last positions in Pisa (International Student Assessment Program), of the Organization for Economic Cooperation and Development (OECD), every three years, in public education, and needs a revolution in this area.
JC – How will the relationship between the Executive and Congress be?
Schuler – Already during the transition, (President Luiz Inácio) Lula (da Silva, PT) forged a strategic alliance with Arthur Lira (PP) and the centrão, which resulted in the approval of the PEC (Proposed Amendment to the Constitution) of the Transition and the own election to succession in the Chamber. So I don’t see any problems in this field. Congress is historically pro-government, with rates around 75%, with the exception of periods of crisis surrounding the two impeachment processes in our recent history. Lula has political experience, runs a coalition government, and will have the support of Congress. I don’t think there is room, in Brasilia, for retreats in strategic themes such as labor reform, social security, regulatory agencies, or Central Bank autonomy. But there is ample room for a positive agenda, in the social area and in structuring reforms.
JC – Are the fight against inflation and tax reform issues that should be prioritized?
Schuler – The government has already been signaling that it should deal with the fiscal issue predominantly from the revenue side. The reinstatement of taxes on gasoline, and the announcement of taxation on oil exports express this. Furthermore, the government has already made it clear that it will not go ahead with the administrative reform, and is not focused on an active policy of privatization or structural cuts in public spending. As for tax reform, I think it will be the government’s biggest priority in Congress. The migration to the IVA model, the unification of the IPI, Pis-Cofins, ICMS and ISS, in the new IBS, the end of cumulativeness, the creation of a kind of “negative tax”, for the poorest, and a review of tax exemptions. It’s no small thing. It is legitimate for the different sectors of the economy to organize and defend their positions. It also makes no sense to exempt some sectors, to the detriment of others, without a clear rationale. So there’s a lot of work ahead. If this is done in the first year of government, it will be a huge achievement.
JC – Lula’s election resulted in the resumption of Brazil’s leading role abroad. What should the federal government take advantage of in this relationship with international leaders?
Schuler – Lula has prestige and connections at the international level, which is an asset for the government. But protagonism is something that needs to be built. I think that the country should focus on moving forward in joining the OECD and in the trade agreement with the European Union. It is essential that the country be seen as an economy open to investment, with stability and fiscal responsibility. And it would be a huge mistake to go back to taxing the export sector, as Argentina recently did in part. Furthermore, Brazil is still a very closed economy, and it should gradually reverse this. This requires something very simple: modernize regulation, opening up the market to competition. This is what was done in the area of cabotage, railways and sanitation. This is what needs to be done. It is no coincidence that the most competitive sectors of our economy, such as agribusiness, have relatively low taxation and are more integrated into global production chains. I think the government is aware of that, and that’s where Lula’s prestige can help.
JC – Could the political alliances of the Lula government harm the third PT administration?
Schuler – In coalition presidentialism, typical of our political model, one does not govern without alliances. Tax reform will not be carried out without alliances, nor the approval of the new fiscal framework. The problem does not lie in the alliances, but in the content of the agenda. In the Brazilian model, the Executive is the prince. It is he who ultimately drives the agenda. The central question is to know exactly what will be prioritized by the government.
JC – Did you imagine that we could have such a sharp polarization between the left and the right in Brazil?
Schuler – This is a common situation today in large democracies. In part, it is the result of the mass migration of public debate to the digital medium. Politics was taken over by the so-called “culture wars”. The same happens in the United States. Clearly, this comes at a cost. Generating basic consensus is very difficult. For a moment, it was imagined that fiscal responsibility and reforms were basically consensual in the country. They are not. Less than seven years ago we approved the new tax regime, and we are already changing it. The same goes for the State-owned Law, and many other public policies, such as the autonomy of the Central Bank. We should think about long-term State policies, but this is not the current reality in the country.
JC – Why is it so difficult in Brazil to emerge new political leaders like Fernando Henrique Cardoso, Mário Covas, Pedro Simon, Leonel Brizola and Lula?
Schuler – All these leaders gained prominence and established themselves in the Brazilian political world, at a very special moment in the country, which was the transition to democracy in the 1980s. others. Brizola, and Tancredo himself, was already a national leader in the period before the coup. In current times, the cost of entry for new leadership is very high in our political world. There is a lot of money, in election campaigns, captured by party elites, and politics in the digital age is wild. I talk to a lot of good people from the market, academia, society and many tell me: it’s crazy to risk a reputation in a conflicted and unethical universe, such as politics. There is also the phenomenon of the “blackout of pens”, people’s fear of taking public positions and suffering all kinds of lawsuits, sometimes due to bureaucratic procedures beyond their control, when not simply empty denouncements. Finally, the system protects itself, and tends to alienate many talented and expressive people who could make a great contribution. Despite all this, there are new leaderships emerging, in different parties. On the left, there are former governors Rui Costa (PT) and Wellington Dias (PT); on the right, governors Tarcísio Freitas (REP) and Romeu Zema (Novo). There is Eduardo Leite and Raquel Lyra (PSDB). Despite everything, politics renews itself.
JC – Do you consider that issues such as the pandemic and the Amazon issue were factors that resulted in the loss of the election by former president Jair Bolsonaro?
Schuler – I think there are many questions. Without going into the merits, the surveys, in general, revealed disapproval, in the range of 60%, with variations over the period, of the way the government managed the pandemic. So it’s reasonable to imagine that this played a role. In general, there was a clash between two projects for the country. I would say: two radically different projects, whether in the economic agenda, or in terms of roots, histories and values. Lula won. I like to cultivate a pluralistic view of politics. It is somewhat arbitrary to choose this or that factor and imagine that exactly that made the difference, for one side or the other. Bolsonaro bought a strong wear with sectors of functionalism, depending on the proposed administrative reform. How much did it weigh? Possibly it gained support with the drastic reduction in fuel prices, in the government’s final stretch. How much did it weigh? A lot of people liked the gun release policy, some didn’t. We are a divided society. Did interference from the Electoral Court affect the result? There will be time to do this analysis with more distance. Would the PT have won the elections with any other candidate other than Lula? I find it very difficult to isolate this or that factor, and explain a victory or a defeat from there. The fact is that Lula knew how to create the image of a broader alliance, he made, in practice, an alliance with the political center, and he won the elections. It is a merit of those who won, before anything else. It is a majority choice of society. That’s how democracy is.
JC – Leite emerges as a name from PSDB to Planalto in 2026?
Schuler – Undoubtedly. He is a second-term governor, with national visibility, leadership within the party. The big question is whether Brazil will continue to be driven by the same polarization that has been guiding the country since at least 2018. There is the unknown about Bolsonaro’s future, and about the reconfiguration of the so-called “new right” in the country. The first major task of the PSDB is its own refoundation as a party. What is its identity, in what it differs from the two dominant poles in current Brazilian politics. The party voted more than 80% of the time with the government, in the Bolsonaro administration. In essential themes, such as the autonomy of the Central Bank, sanitation and reforms. Perhaps what the PSDB lacks is greater programmatic clarity. It is on this level that Eduardo Leite can make a huge contribution. In his first term, he managed to carry out difficult reforms, push forward privatizations and new models of Public-Private Partnerships. The question is to transform this into a systematic agenda, and communicate this to the country.
JC – For the 2026 election, which candidates do you believe will be able to run in the presidential election?
Schuler – It’s still too early. If Bolsonaro does not run, the path is open for Romeu Zema or Tarcísio Freitas, in the liberal or conservative field. At the political center, Eduardo Leite is today the main promise. On the left, there is the unknown about a new Lula candidacy. There is a lot missing for all these definitions. Obviously, and depending on the performance of the economy, Fernando Haddad appears as a natural leader to succeed Lula, in the PT.
JC – When in Brazil will we have greater representation of blacks and women in the Legislative? Is it possible to have a black president one day?
Schuler – This is an essential issue for the country. Political representation is a result of the way society is organized. In Brazil, there is a real educational and social apartheid. If we really want an inclusive society, we must give freedom so that black children and young people, and I would say with lower income, in general, can study in the best schools, under conditions similar to their peers with higher income. Without this being done, we will continue to cultivate a gap that is both educational and economic, and which ends up being reflected in the configuration of power. The point is that I don’t see the courage or willingness of our ruling elite, of all parties, to embrace this agenda. We are an accommodating society, in this matter, and this should change.