Navigating the Future of US-Brazil Economic Ties

Brazil has come a long way in recent decades, but its existing social compact has eroded, limiting the country's potential. Social contracts are defined as "dynamic agreements between the state and society on their mutual roles and responsibilities" that specify what each group contributes to and receives from the state. When the social compact is emphasized, there is limited room for reform since citizens cannot agree on what they are ready to contribute and what they demand in exchange.

What will Brazil do to honor its 220th anniversary in 2042? Following the recent elections, there is a possibility of reforms that may shape Brazil's development in future decades. "The Brazil of the Future: Towards Productivity, Inclusion, and Sustainability" investigates Brazil's long-term development and how prudent decisions now may pave the way for a more prosperous, inclusive, and sustainable society in the following 20 years. The report's purpose is to initiate public discussion about a virtuous cycle for 2042, as represented by three potential future scenarios. Indicators of social cohesion in Brazil are weak, having fallen drastically since the "golden years" of the 2000s. Overdiscounting the future is a bad foundation for investment, both individually and societally. A strong social contract is required to ensure a brighter future.

Brazil celebrates its 200th anniversary in 2022.

To build on past accomplishments and handle future concerns, Brazil must join a virtuous circle of production, inclusiveness, and sustainability. There are still several biases in the Brazilian economy that reduce productivity. Unlocking economic potential will instill hope, a desire to prepare, and a motivation to save and invest in order to acquire the necessary skills for the future. Better education, particularly for the underserved poor, will stimulate economic growth while also expanding access to better jobs. Opening markets will provide new opportunities for small firms while cutting prices for all. Productivity and inclusion create a virtuous cycle that embraces sustainability. A highly productive economy requires less resources. In the case of Brazil, this means less deforestation, which is the country's biggest contributor to climate change. Reduced deforestation is critical for Brazil's economy, which is strongly reliant on the ecosystem services provided by the country's forests, particularly the Amazon rainforest.

Today's decisions will shape Brazil's path to 2042, potentially contributing to the formation of this virtuous cycle.

The study suggests a conceptual framework for reestablishing Brazil's virtuous cycle of production, inclusion, and sustainability. Brazil's recent performance has been marked by slow development, high inequality, and environmental degradation. Brazil's present is shaped by the country's historical past ("many Brazils"), and it will be influenced by megatrends such as climate change, technological innovation, and demographics. Brazilians must take proactive steps to create a virtuous cycle and build a prosperous future, bending the arc of history and translating megatrends into opportunities. A stronger social contract serves as the foundation for society's acceptance of reforms that promote social and economic inclusion, savings, investment, human capital, productivity, and sustainability. These regions are part of a self-reinforcing ecosystem that will stimulate economic growth and job creation, promote environmental sustainability, and generate public resources to support the state's role in providing critical public services.

How do you start a virtuous cycle? History and megatrends will determine the future unless Brazilians take deliberate action to change the course of history and capitalize on megatrend opportunities while limiting risks. Preparing for megatrends requires embracing technology advancement, combatting climate change, and adjusting to population changes. To promote more fair, sustainable growth, there are at least six major areas for reform: (i) increasing private-sector productivity to boost growth in an environmentally sustainable way; (ii) preparing Brazil's education system to close the gap between skills and jobs; (iii) strengthening the relevance and sustainability of social protection systems for future challenges; (iv) reshaping today's limited fiscal policy space to align with long-term priorities; (v) improving access to infrastructure services; and (vi) building a more equitable and efficient Reforms may only be accomplished if they are universally approved by the Brazilian people. This involves strengthening Brazil's social contract in order to foster trust in the reforms' long-term benefits to all.

With the right changes, Brazil can become an economic powerhouse that creates opportunities for everyone.

A more inclusive social contract has the potential to drive significant reforms. The advantages of technological advancement may be widely spread by strengthening public education and providing Brazil's students with more and better education. Social protection measures could result in better protection for individuals in need while incurring much fewer fiscal expenditures. A more effective and fair tax structure might help produce the revenues needed to invest in Brazil's future, all while reducing inequality. Changing labor taxes may assist to reduce current incentives for businesses to adopt more precarious forms of employment. Natural resources, such as forests, have the ability to provide a long-term foundation for growth, allowing Brazil to once again lead the fight against climate change. All of this would give long-term economic growth and the cash needed to support advancement while remaining financially prudent. Brazil has the potential to become a major exporter of green commodities and manufactured goods, capitalizing on worldwide demand for eco-friendly production. Its breakthrough green energy matrix, paired with low land-use emissions, would make it highly productive and competitive in global markets. Brazilians would become active participants and innovators in international trade and global supply networks, creating new chances for growth throughout the economy.