This entry is the first in a short series of summaries of economic challenges that Brazil will face in the coming years. Though Brazil expects to become a developed nation on the strength of agricultural and oil exports sometime in the coming decades, there will be onstacles and difficult decisions along the way. First up: the population pyramid and retirement benefits.
First, when reading about the Brazilian economy, you may often find references to Brazil's relatively young population listed as an important asset underpinning growth potential. This claim should come with a very important "however": the population may be young, but it is aging, and fast. In the 1960s, Brazil was home to severe demographic turnaround, when a large portion of the Brazilian population decided, all at once, that two was a pretty good number of children to have. It's been speculated that the mass decision was brought about by representations of family on TV, among other theories (those interested can take a look at this National Geographic article). Whatever the case, the implications for the coming decades are pretty stark. According to IBGE census data and projections, from 2008 to 2050, it's estimate that the number of children up to 14 years old in Brazil will fall by half, and the number of elderly 65 and over will almost quadruple. Here go the numbers, which I took from an article called A agenda fiscal by the economist Antonio Delfim Netto, so I wouldn't have to crunch them myself:
Sometime in the 2030s, then, the population of 0-14 year olds will be smaller than the geriatric population in Brazil. Actually, that specific measure compares favorably with the United States, where the change should occur prior to 2030, according to census statistics. But here's a measure in which Brazil does not compare favorably - from 2008 to 2050, the population age 65 and over will go from less than 7% of the total in Brazil to 23%. In the case of the United states, the same population is projected to go from 13% in the United states in 2010 to 20% in 2030, but it will remain more or less in place through 2050, reaching that year with a smaller population 65+ than Brazil. The aging of the population thus appears to be sharper and deeper in Brazil, meaning that the "sweet spot" the country is currently in, with a small non-working age population, is going to be relatively short. And the country will almost certainly be (even) less prepared for its coming transition.
Now, social security in the United States is a thorny subject. Most serious people would say that it's unsustainable in its current form. But it also isn't impossible to find real economists that would say that the problem isn't that drastic - that if we were able to solve some other problems like health care costs, the US could support most of social security without going broke. I don't pretend to know either way. What I am pretty sure of, however, is that there isn't much debate among economists in Brazil.
I first noticed that something seemed iffy about Brazil's retirement policies a couple years ago, when my then-girlfriend complained that, if retirement policy hadn't been changed, she would have been able to retire on full salary after 25 years of work as a public school teacher, at age 45. Yes, 45. It is truly a country that doesn't think ahead that is willing to give a public employee one year of full pay to do nothing for every year she worked (I'm assuming a life expectancy of around 70 years in this case). I think it's a reasonable guess that a 45-year-old teacher is more or less at the peak of her career - she dominates her classroom material, knows how to discipline students and can give class with her eyes closed. She's efficient and productive. So let's pay her to go home and watch TV all day (or alteratively, sit in her doorway and watch people walk by all day).
Even worse is the fact that this case isn't particularly extreme. Even with recent retirement reforms, the number of years Brazilians must work has increased to 35 years for men and 30 years for women. But this is still without a minimum age (unless you haven't contributed to social security - that is, worked irregularly or not at all), which means that the average age of requests is currently 54 years for men and 52 years for women.
One way this impacts the country is cultural. The Brazilian population, in my personal experience, seems to have become fairly spoiled, with 50-year-olds already starting to curse the government (or their employers) for their tight-fistedness, while woeing their lot for still having to labor at such a ripe old age. Their German counterparts will be active in the labor market for another 17 years.
Furthermore, though other factors can be considered causes for this (for example, Brazil's history of inflation), very few people seem to save for retirement in Brazil. This is also possibly an effect of the region I live in, but my impression is that dependence on the government for retirement income is almost absolute.
More darkly, Brazil spends a preposterous sum on paying out current retirees. The current figure is about 12%, according to Brazil's Institute for Applied Economics Research (IPEA). This measure put Brazil in 14th place out of 131, countries studied, in line with the world's most developed countries. But Brazil isn't a developed country, and won't be for some time; and the aging of the population has only just begun.
Serious reforms will be necessary, since even under a situation of moderate reform, by 2050 social security would end up eating 22% of GDP (and in a situation without any reform, the figure is estimated at something like 35-40% of GDP). Certainly, reform will happen sooner or later. But at the moment, later is looking like the most likely option as current strikes and strike threats seem to indicate that it will be a serious challenge for Dilma to limit government spending in any fashion. The government has won big with expansions in welfare in the last decade as well, making more spending a winning proposition. With major sporting events coming up and investments in infrastructure necessary, one can only imagine that social security reform is not high on the agenda.
But there is also another reason to worry about Brazil's extravagant spending on pensions - it's not fair. Public sector employees are blessed with easy retirement at high wages, while the poor, which overwhelmingly work informal jobs, can only hope for minimum wage when they reach retirement age. This means that enormous amounts of government money (to a large extent levied regressively on hidden production taxes, so households pay through higher prices) are being funneled to Brazil's most comfortable citizens.
Over the next years, Brazil will need to tackle the challenge head-on, or it will only get uglier.
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