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The middle income trap. Pay very attention to this concept.
It is one of the main challenges of the global economy.
Countries that have reached the level of emergent countries, but has difficults to reach the level of high income.
According to the World Bank, in 1960, 101 countries have reached the level of middle income. But in 2008, only 13 of them have evolved to the level of high income.
About it, I'll talk now to the vice president of the World Bank, Otaviano Canuto, who talks from Washington,DC, USA.
How are you, Otaviano?
I'm fine. It's a pleasure to be here.
The pleasure is ours.
Otaviano, how can we differ the countries' income? How can we know what is low, middle and high incomes?
We can do it knowing the level of income per person.
Knowing the level of incomes for each habitant in the country
Of course that this middle income could have big difference.
The point you've told is very important. Only a few countries were succesful, and countries with special characteristics.
One of these situations were about a small country with a million of habitants, with great natural resources. And another five situations were city-states.
But, what we see is that the transition of income is a common process.
In all situations this have occurred, there is a process of displacement of manpower from unprofitable activities to manufacturing activities and services that not require qualification.
We can contrast that with foreign technology.
The challenge of a big part of the habitants to move to high income occupations is that they should have a bigger participation in technology areas, inovation areas, sectors that involve human participation. Considering this, the challenge is always bigger.
Otaviano, currently, which countries in the world face the middle income trap?
All countries called emergent.
The caution of the transition from median to high income is an issue very discussed in Asia, China, Thailand. Piecemeal, this discussion is in Latin America too. It is a concern of all countries succesful in the transition from low to middle income.
Okay. How countries which reach the high income level can make this sustainable? Recently, we had a financial crisis in those countries. How countries can make this sustainable reaching the high income level?
High income countries with difficulties face difficult situations because the main fundamentals for a successful transition weren't there.
It's the situation of European countries' benefits for an Union in the Europe's economy.
For an unsustainable reduction in the interest rate and in the increase of incomes without a bigger productivity.
Crisis is a return of fundamentals. It doesn't mean that it will return to middle income levels, but the experience shows that the this transitions should pass by the increase of productivity and acquisition of human capital.
Well, Otaviano, I'm sorry for the interruption. What about the situation in Brazil? It is an emergent country, with middle income. What do we need to reach the high income?
Look, Brazil is a peculiar case. Not all of the factors for a good transition have been explored.
One of the simplest pillars for the transition from middle income to high income haven't been explored which are the renewal of basic infrastructure, a potential source of growth.
In the same way, a better qualification for population that has low income is another good source of growth for the country, even taking some time.
The fact is that the scarcity of skilled labor in so many sectors reveals how much Brazil has to gain in terms of growth.
The simple process of growth based on people coming from rural area to the urban area already peaked. 33 00:06:42,000 --> 00:06:43,000 What about infrastructure in Brazil?
The transition of middle to high income, that is a great part of the population being occupied in activities that I've mentioned needs not only the renewal of the basic infrastructure, but the quicker advancement to the advanced infrastructure
An infrastructure of telecomunications that allows a free circulation of ideas, and a polymerization of innovative capacity as a whole.
Otaviano, how do you see the government interferences in different sectors?
Nowadays, the future is in Public-Private Partnerships. Every action will be succesful only if the private sector act in the direction of government desires.
There mustn't have no antagonism and at the same time, should be a clear division of responsabilities and risks.
So, an interference doesn't mean that is good or bad. It depends on the quality of an interference.
If the interference encourages the private sector to take risks and make the necessary investments.
Do you think that it has been good in Brazil?
You can say that, like every experience in the World, you have attempts and mistakes.
A few things work, other things don't. The important thing is to keep a process of evaluation of policies to understand what works and change it. This process is typical of our country.
Okay, Otaviano. A failure of the emergent countries to reach the high income level could cause consequences to the global economy? How do you see it?
Yes. The advanced economies are in a chronic crisis, even the good signals of the USA aren't enough to show that the American economy is out of the crisis. Japan and Europe as well
My friend and I wrote in a book a few years ago in which we discuss that the global economy depends more and more from the emergent countries to grow. In special, the middle income countries.
So, this dependence of the middle income countries, the success or not of these countries to reach high income levels will determine in a large measure. The global economy will settle in low or high growth based in those results.
Otaviano Canuto, always welcome here on La Presse's website. Thanks for this interview.
Talking from BM&FBOVESPA's Studios in Sao Paulo, Brazil. I'm Luciene Miranda.