Thursday, February 14, 2013

How unwieldy is your bureaucracy?

The economic reporting on the New York Times is not always very sharp, to say the least. If you read Dean Baker's Beat the Press you should know. Their reporting on Latin America is not much better, I should add. So it's no surprise that their reporting on the economies of the region is weak and a bit biased. Simon Romero tells us recently that in Brazil's "once-booming economy stalls, ... [and] 'super salaries, as they have become known here, are feeding newfound resentment over inequality in the nation’s unwieldy bureaucracies." The piece is on the high wages of some public sector workers in Brazil.

Note that Brazil's economy has not boomed since the early 1980s. Yes it grew fast right after the 2009 recession (7.5% in 2010) because of expansionary fiscal policy, but the reversal of the fiscal stimulus has led to less than 1% growth last year. Between 2003 and 2011 average growth rate was 3.9% (3.6% between 2003 and 2012), good but not a booming economy by any means. But that's fine, the confusion about Brazil's performance is quite common, in fact.

So how large is the public sector bureaucracy in Brazil? According to ILO's LABORSTA total government employment in 2009 was around 10.2 million workers, for a population of slightly less than 200 million. So close to 5.1% of the population. In the US, according to the same source, approximately 22.5 million workers out of a population of close to 310 millions in 2010 were in the public sector. In other words, around 7.2% of the population are public sector employees. And remember that in the US that would be only the civilian public sector employees. If you add the military, which is much larger in the US than in Brazil, then the Brazilian bureaucracy is not that unwieldy. Not particularly large or complex.

But yes the article shows that some workers make huge amounts of money. But is that the norm? Using again the same data source, for the year 2002 (the last one in the series) the ratio of public administration to financial sector wages in Brazil was 0.5, while the comparable number for high income countries would be closer to 0.8 (see this IMF paper for more comparisons). In other words, public sector workers in Brazil on average make less than comparable workers in developed countries. Put clearly, the public sector is not large and its workers are not overpaid.

Don't get me wrong inequality is a problem in Brazil, and corruption, if there is any (which is what the piece suggests), and lack of transparency should also be combatted. But the idea that inequality in Brazil is caused by the high wages of a few public employees, or that this is what is behind the poor economic performance in Brazil is a joke.

The roots of inequality in Brazil run deep (even though inequality fell in the last few years), and if anything is associated with real wages that are too low, public and private sector alike. Median wages have increased only slowly, while minimum wages have grown at a more healthy speed during the Workers' Party administrations. Growth has stalled because fiscal and monetary policy have been tight, even if the latter has loosened a bit in the last year and half. It is time for the reporters at the 'Grey Lady' to stop demonizing the public sector as the cause of all problems. Reagan was wrong, government sometimes is the solution not the problem.

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