The vast majority of Brazil’s population has no recollection of the “miracle economy” years (1968–1973), when the country was a rising industrial power and the star of the developing world. After over 40 years of suppressed ambition, economic stagnation and mediocrity have become the accepted norm in Brazil. With the important exception of agroindustry, where Brazil has maintained world-class status, the country has become an unproductive service economy with poor prospects for growth.
The post-World War II evolution of Brazil’s economy can be divided into two periods. The first, from 1950 to 1980, saw Brazil—aligned with foreign and domestic capital—dominate the mass production technology paradigm. This led to rapid industrialization and the emergence of an urban middle class. During this period, the economy diversified away from commodity exports. The second period, from 1980 to the present, has been characterized by rapid deindustrialization and a return to a level of dependence on commodity exports last seen in the early 1950s.
By 1980, Brazil had largely exhausted the growth potential of mass production technologies unless capital could be reinvested to either support a growing domestic market or access export markets, neither of which occurred. Around the same time, revolutionary advances in transportation (container ships) and ICT (Information and Communication Technology) triggered the migration of Western capital to Asia, where companies sought to exploit cheap labor for outsourcing activities. Since 1980, the Asian Tigers, including China, have followed Brazil’s earlier path and fully dominated the mass production technology paradigm.
Weakened by political, economic, and financial instability, Brazil was unable to respond to the Asian threat in the 1980s. The debt crisis of the early 1980s severely discredited the industrial planning mechanisms used by the Military Regime (1964–1985), but no consensus emerged for a replacement.
As the world embraced the Washington Consensus, promoting the liberalization of capital, goods, and labor flows, Brazil rejected trade liberalization but embraced the deregulation of capital accounts. This made the economy more vulnerable to speculative “hot money” financial flows and capital flight, creating a “rentier” elite with little commitment to reinvesting profits in domestic productive assets.
The great commodity boom (2002–2012), driven by China’s aggressive infrastructure expansion, led to a surge in liquidity for Brazil’s commodity-dependent economy, along with credit expansion, currency appreciation, and increased fiscal largesse. Meanwhile, in 2005, Petrobras announced the discovery of the massive pre-salt offshore oil fields, transforming Brazil from a large oil importer into the world’s seventh-largest oil producer (as of 2024). However, the “commodity curse” hit Brazil hard after 2012, leaving both its manufacturing sector and institutions severely weakened.
Over the past forty years, Brazil has undergone a remarkable transition from a dynamic industrial economy to a low-growth, unproductive service economy. From 1950 to 1980, Brazil’s GDP grew at an impressive 7.1% per year, one of the highest rates in the world. Since then, GDP growth has slowed to a meager 2.1% per year. This transformation is evident when analyzing the contribution of factors of production—labor, capital, and total factor productivity (TFP)—to overall annual growth. The following chart, based on Conference Board data in ten-year rolling periods, highlights the collapse of TFP as the economy has deindustrialized and become dominated by low-value-added services and commodities. Simultaneously, the contributions of both capital and labor have declined sharply.
Brazil’s Opportunity in the New World Order
Because Brazil did not benefit significantly from globalization, it has little to lose from its unwinding. A more protectionist global environment, coupled with a renewed emphasis on industrial planning policies, could be advantageous for Brazil. Such a world would favor large-population countries with significant domestic markets.
Additionally, the emerging technological paradigm of AI and robotics is on the verge of eliminating the labor cost advantages that drove the outsourcing of manufacturing and IT services to Asia. A well-designed approach to industrial planning, combined with the strategic adoption of new technologies, could potentially revive Brazil’s manufacturing sector and drive a surge in productivity growth.
If Brazil could simultaneously expand its domestic market, its chances of success would greatly improve. Today, with a population of 220 million, Brazil’s market opportunity is no larger than that of the Netherlands. However, this market could easily double in size if wealth distribution were made more equitable, as seen during the Plano Cruzado of the 1980s and the commodity boom of the 2000s.
Brazil’s Considerable Headwinds
Unfortunately, the Brazilian opportunity faces considerable headwinds.
- Low-Value-Added Economy: Brazil is increasingly a low-value-added service economy highly dependent on commodities, a trend that will be difficult to reverse. A key indicator of development, the value-added content of exports (measured by MIT’s Economic Complexity Index, or ECI), highlights this decline. In 1995, Brazil ranked 24th in the world—alongside South Korea, a leader in emerging markets. By 2022, Brazil had fallen to 49th, lagging behind many emerging markets. Even in service sectors where Brazil has natural advantages, such as foreign tourism, it ranks only 40th globally—far behind Turkey, Mexico, Thailand, and the Dominican Republic.
- Declining Productivity and Investment: Falling productivity, low investment levels, and the end of Brazil’s demographic dividend have reduced potential GDP growth to below 2%. As shown in the chart above, productivity, labor quantity and investments are all heading in the wrong direction.
- Increasing Dependence on China: Brazil’s growing reliance on China—both as a buyer of its commodities and as the primary source of its manufactured imports—coupled with its geostrategic alignment with China through BRICS, is likely to create tensions with the Trump Administration, increasing risks for investors.
- Regulatory and Political Challenges: Brazil’s complex legal, regulatory, and tax systems stifle entrepreneurship, while dysfunctional politics make meaningful reform unlikely. There is no clear consensus on the need for intelligent industrial planning, and recent policy experiments have been poorly designed and wasteful.
- Chronic Deficits and Rising Debt: Persistent fiscal deficits have pushed Brazil’s gross government debt to 90% of GDP, with a trajectory toward 100% in the near future. Extremely high real interest rates set by the Central Bank exacerbate the debt burden and contribute to wealth concentration. Some form of financial repression will likely be necessary to manage debt levels, prompting investors to shift capital into dollar-denominated assets.
- Capital Flight and Brain Drain: Brazil’s highly sophisticated and cosmopolitan elite is increasingly detached from domestic issues, preferring to invest and reside in Europe and America. Brazilians are reliving Argentina’s 1980s experience, liquidating domestic assets and minimizing their exposure to local policies. Furthermore, cryptocurrency technologies are making capital flight easier than ever.
Given Brazil’s challenges, the return to a growth path that can provide better lives for its population will not be easy. Consensus and shared sacrifices are necessary to effect change, something very difficult to achieve in a highly heterogeneous and fragmented society.