Regional Development and Conflict Management: A Case for Brazil: Volume 8

The conflict between economic growth and balanced distribution of income is a well-known problem that has created tension, socio-economic pressure, hostility, and friction within many societies. The measures taken by many governments in order to improve the well-being of their citizens by promoting economic growth have led in many cases to satisfactory macroeconomic growth, but at the same time also to increasing socio-economic gaps and even to a relative deterioration in the well-being of significant parts of the population. Brazil is one of many examples of this phenomenon: in spite of economic growth the distribution of income has worsened for many years, and the poverty indicators are extremely high. Social conflicts nourished by this situation have been a major factor in the political upheaval leading to the election of a President from the Labor Party. Still, in spite of a clear “pro-poor” policy, poverty levels are extremely high.

Economists and development experts around the world have recognized in the last decade that economic growth alone, as measured by the change of the gross domestic product, cannot be considered the main indicator for the level of development of a country. Probably more than anything else, the problems of persistent poverty and inequality in the process of economic growth has been major concerns.

We consider the well-known and painful problem of countries, mainly in the developing world, that suffer not only from low levels of economic development, but also from high levels of inequality and poverty. They struggle to solve their development problems by implementing various policies for economic growth (investing in infrastructures and education, providing incentives for capital investments, etc.), but in many cases it seems that economic growth, even when it is achieved, does not necessarily resolve the fundamental problems of poverty and unequal income distribution (Selowsky, 1981; Cardoso & Helwege, 1992).

The State of Ceara, located in Northeastern Brazil, is one of the poorest states, with a population of about eight million inhabitants. Its gross domestic product (GDP) per capita is less than half that of Brazil as a whole: it reached R$2,666 in 1998 (equal to about US$1,400), compared with R$5,560 in Brazil as a whole (equal to about US$2,900). However, the economic policy in the last decade has led to a rapid growth in the economy of Ceara in comparison with national economy. In real terms, the GDP of Brazil has grown by 34% from 1985 to 1998, while the GDP of Ceara has grown during this same period by 58%. Preliminary data for 1999 indicate an additional growth close to 3% and a growth of 5.8% in the first 6 months of 2000 (as compared with the first 6 months of 1999). This is a much higher growth than that of the whole of Brazil, which reached 3.8% in the same period. This has led to a considerable increase of this state's share in the national GDP, from 1.5% in 1990 to 2.1% in 1998, with a continuing trend till 2000. In terms of GDP per capita, the gap between Ceara and Brazil as a whole is still very large, although it decreased considerably during this period: the GDP per capita in Ceara was only 35% of Brazilian GDP per capita in 1990, and it grew to 48% in 1998.

The macroeconomic policy that prevails in Ceara has been formulated in the “Sustainable Development Plan for Ceara, Brazil, 1995–1998” (see Governo do Estado do Ceara, 1995), and relates both to macroeconomic variables and to regional aspects. Policy measures cover five main vectors. The first one concerns the conservation of nature, specifically state forestation and reforestation, and mainly the fundamental issues of water management: irrigation, basic sanitation, maximizing supply, etc. The second vector addresses the issue of spatial reordering: measures to decrease excessive concentration including regionalized government action, promotion of interior development, redistribution of transportation, energy and communication infrastructures, geological and economic zoning, and urban development programs. The third vector relates to human resource development, and sets targets of universal basic education and education for all, promotion of health, promotion of mature political practices, participatory processes, and fighting poverty. The fourth vector relates to employment generation and economically sustainable development. Relevant strategies address each economic sector. The agricultural sector is supported through utilizing the potential of irrigable land through the development of agro-industrial activities and through the reorganization of the rural economy. Regarding the industrial sector, ventures in the interior of the state are also promoted. The sector of services is promoted through the stimulation of tourism along the coast and in the interior. The fifth and last vector relates to the development of science, technology, and innovation. This is accomplished through the increase of the existing capacity of high-level education in science and technology. Specific programs include generation, diffusion, and innovation oriented by demand, university–industry–society integration, and promotion of centers of excellence.

The trends of growth in total product in Ceara and in each economic sector are shown in Table 1. For the sake of simplicity, we call “agriculture” all crop and cattle or fishing activities; “industry” includes manufacturing, construction, and utilities; and “services” includes all kinds of services, including private and public, economic services, and social services.

The policy approach adopted by the State of Ceara relies basically on the fundamental evaluation revealed above that a major factor influencing poverty and inequality is the existence of a structural market failure in the process of economic development. This failure leads to a situation where structural changes in the economy, such as the diminution of the relative weight of agriculture, are not followed by appropriate adaptations of the society in terms of transition of the labor force to new types of employment, or in terms of urbanization and spatial restructuring. If this is actually a market failure, this implies that the “natural” free market action does not lead to an optimum in the state economy. The intervention of the State in this case is needed in order to achieve a better economic optimum. This means that the government policy that would lead to a reduction of poverty and of inequality would lead at the same time to a larger and more efficient macroeconomic growth.

The policy for spatial organization considers three levels: the first is the distribution between the rural and urban populations, the second is the distribution of the urban population between the metropolitan region and the interior, and the third is the spatial organization of the urban population in the interior.

The implementation of a new model for development with a focus on regional growth requires adaptation of the government administration to the new needs. A vital instrument for such an adaptation is the establishment of a new Secretariat in the government of Ceara, the Secretariat for Local and Regional Development (SDLR). Such a Secretariat was established by the newly elected government in 2003.

Education is probably the most important instrument for the improvement of human capital. It leads to greater productivity and therefore to higher levels of income and the diminution of poverty, an increase in employment flexibility, a greater accessibility to wider employment opportunities, the stimulation of various services and consumer products, and more. The influence of education is proven worldwide. A World Bank study (unpublished) finds that the return from education in Northeast is high, especially in the rural area. It also shows that higher levels of education increase the probability of non-farm employment. The study of the Banco do Nordeste do Brazil (1978) on rural industrialization of the Northeast found, on the basis of an econometric model, that education is a major stimulant of urban-oriented industrialization in the interior. A specific study of small agro-industrial firms in Ceara by Pinto (1994) also concludes that education and professional training is one of the most important necessities of such rural activities.

A relatively high share of employment is in food processing (about 5% of total non-farm employment), indicative of the tendency for agricultural processing activities, both in the Northeast and Southeast. Most employment, however, is not related to the agricultural sector, for example, ceramics and wooden goods that represent mainly artisan production or textiles that may be related to cotton production. However, these are mostly justified by the existence of a low-cost labor force.

Peripheral areas generally have difficulties making the structural adjustments needed to accommodate national growth, and this in turn leads to growing unemployment rates, regional economic gaps, and continuous migration to metropolitan centers. SMEs located in rural areas or small towns are expected to play an important role in the process of economic development, absorbing excess labor force from agriculture, and leading the transition to non-farm employment (Leite, 1986). In practice, however, SMEs face substantial difficulties in their attempts to integrate into the national trends of economic growth. To a certain extent this can be attributed to the fact that management may possess inadequate skills and not have information at their disposal. In other cases, management may simply lack awareness of the importance of these fields.

Before anything else, it is important to call attention to the fact indicated above that the economic growth of the CE does not lag behind the nation as a whole. Although the average GDP growth rate was on average somewhat lower in Ceara for the period from 1992 to 2005 (2.6% compared with 2.8%), the beginning of the millennium shows a more rapid growth in Ceara: between 2002 and 2005, the average growth rate of the economy in Ceara increased to 2.9% a year, while the GDP of Brazil grew at the much lower rate of 2.4% per year. This growth of the economy of the CE was accompanied by a rapid growth in exports and an improvement in the balance of payments, indicating a process of integration in the global economy. Although the growth rate of the economy of Ceara is not very high, its trend is not lower than that of the nation as a whole, and therefore we can state that if any process of diminution of poverty and inequality has happened during this period, it is important to recognize that it did not happen at the expense of a decreasing macroeconomic growth.

A process of economic growth can certainly take place with insufficient diminution of poverty and with widening gaps in income distribution. In Ceara, as in many other states in Brazil and in the world, there are problems of poverty and of inequality, besides macroeconomic growth. Although measurement and definition questions may lead to different evaluations of its volume, it is clear that rural poverty is greater than urban poverty in Ceara, and much more than the urban poverty in the Metropolitan Region of Fortaleza. This picture is typical of most states in the process of economic development, and cannot be dismissed as a result of any specific conditions in this state.

Raphael Bar-El is an economist, Professor at Ben-Gurion University of the Negev and Chair of the Department of Public Policy and Administration. His main areas of interest are: economic growth, regional development, economic cooperation in the Middle East, small towns. In the last few years, he has worked with the State Government of Ceara (Brazil) on policy measures for the alleviation of poverty through economic regional development. He was the Director of the National Economic Planning Authority, at the Ministry of Economy and Planning. He was also a member of the Joint (Jordan–Israel–US) Steering Committee for the Integrated Development of the Jordan Rift Valley (JRV). He was in charge of the Economic Development Plan within the team of the long-term Master Plan for Israel. In 1996 and 1997, he was a member of the project headed by Michael Porter on Building Regional Competitive Advantage in the Middle East. Until 1993 he was a researcher and planner, the Director of Research, and finally the Director General of the Development Study Center (DSC), Rehovot, Israel. He has acquired extensive experience in regional development research and planning, in Israeli regions, as well as in regions in the developing world.