State Reform: an agenda for the next presidential term

/ Insper auditorium

"Administrative reform is a social imperative, because in Brazil 39% of GDP is in the hands of the State, a percentage close to that of European countries, but the quality of services such as education and health, which are essential to guarantee equality of opportunity, is not tolerable ."

Ana Carla Abrão Costa, economist and consultant, was Secretary of the Treasury of the State of Goiás

"While it is essential to tackle the fiscal issue, the slogan 'The State needs to spend less' is worn out. It is urgent to place the improvement of the quality of public services at the center of the political debate."

Regina Silva Pacheco, administrator and urbanist, is a professor at FGV

"Instead of asking citizens if they are in favor of privatizations, we should suggest that they choose to spend billions to bail out a state-owned company or invest the same amount in the SUS (Unified Health System)."

Elena Landau, an economist and lawyer, was director of the BNDES and president of the Board of Eletrobras

Only with a broad administrative reform that reduces privileges and increases the productivity of the civil service will it be possible to improve the quality of essential public services such as education, health and security. It would guarantee a greater equality of opportunity for all Brazilians.

"The swollen and dysfunctional public machine we have today is captured by very diverse interests, and is detached from the real needs of the population. There also is no public manager, however honest and well-intentioned, who can make Brazil work”, said the economist Ana Carla Abrão Costa, former Secretary of the Treasury of the State of Goiás (from 2015 to 2016), at this seminar held by the Fernando Henrique Cardoso Foundation and Insper.

"By creating a single regime for the civil service, with stability, the 1988 Constitution reaffirmed the belief in the role of the State as a (exclusive) provider of public services to the population. However, we have reached the limit of how much government can spend in relation to GDP, without that having resulted in a substantial improvement in quality (in the services rendered)", said Regina Silva Pacheco, Deputy Secretary of Government of the Municipality of São Paulo. "We need a comprehensive plan to illuminate and oxygenate the organization of the State,centered on the quality of public services."

"The Brazilian State takes away a third of our income and gives us back what? Very little. It is essential to improve State management to increase citizenship and equal opportunities", said the economist and lawyer Elena Landau, former director of the BNDES (National Bank for Economic Development). 

'There is no HR in the public sector.' 

According to Abrão Costa, current president of the Fiscal Management Council of the City of São Paulo, and partner of the consulting firm Oliver Wyman, "human resource policies that seek greater efficiency are taboo in the public sector." The State, at various levels, needs not only to hone in on the management of civil service, but also to rescue its capacity for medium- and long-term planning. Then implement a culture of constant evaluation of public policies. "A large part of the Brazilian economy is in the hands of or dependent on the State. So if there is not a significant improvement in the productivity of the public sector, even if the private sector does its part, we will not be able to overcome the current economic difficulties and start growing again”, she said.

During her presentation, the speaker showed the table above. It compares the total of public spending in relation to GDP (Gross Domestic Product) among several countries. In Brazil, the State (Union, states, and municipalities, Executive, Legislative and Judiciary) spends 39% of all that the country produces, which is a percentage close to that of developed countries in Europe and Canada. However, such a volume of public spending does not reflect on the satisfaction of the population with the services provided, as the table below shows.

According to OECD comparative data, the level of social satisfaction in Brazil on health is only 31 points (out of a total of 100), which is last place among the 13 countries included in the table. Public education totaled 48 points; the police, 45; and the judicial system, 42. See the full presentation in the Related Contents section on the right of this page.

Disregard of the Fiscal Responsibility Law

As if that were not enough, the number of active federal civil servants increased by 28% from 2003 to 2016. In addition, expenses with personnel and social charges increased by 56%. The same lack-of-control situation is repeated in most states and municipalities. "The Fiscal Responsibility Law determines that governments cannot spend more than 60% of their revenue on staff, but it has become obsolete, as most spend more than 70% (staff costs are classified under other headings to circumvent the law). The consequence is that there are no resources left to offer good working conditions to civil servants or to invest in infrastructure, intelligence, and technology”, said Abrão Costa.

According to the former secretary, the reform of the public management model in Brazil does not depend exclusively on a broad constitutional revision, which requires two-thirds of the votes in Congress. Much can be done by revising specific laws, of infra-constitutional or local character, and by modernizing practices and processes.

Here are some suggested (structural and not just conjunctural) measures:

1. Redeem the pillars of the Fiscal Responsibility Law, giving greater transparency to the statistics and admitting the real extension of the expenses with personnel in the different federative units.

2. Introduce mechanisms of performance evaluation and incentives based on meritocracy in the public machine.

3. Revise civil service career plans, simplifying and homogenizing laws and processes.

4. Invest heavily in technology to save resources and gain efficiency.

5. Increase investments in server training.

Public opinion support

For Regina Silvia Pacheco, it is urgent to carry out a profound State reform so that it fulfills its function of adequately serving the population. However there is a lot of resistance on the part of civil servants  and also Justice. Hence, the importance of the reformist candidates in the October elections to build a consistent and convincing speech, capable of gaining significant support from the public opinion.

"While it is essential to tackle the fiscal issue, my impression is that the slogan 'The state needs to spend less' is worn out. There is an urgent need to make the quality improvement in public services the center of the debate during the election campaign and the main objective of the next government.”, said the president of the Scientific Council of CLAD (Centro Iberoamericano de Administración y Desarrollo) and of the Board of Directors of SP Urbanismo.

The administrator listed a few points to improve public services:

1. Diversify forms of hiring - "The PT government itself, defender of the state bureaucracy, has been forced to look for alternatives such as the Mais Médicos program";

2. Rationalize the processes of choosing managers for public agencies, valuing competence and result achievement;

3. Give these managers autonomy to conduct the organs under their responsibility, but with defined goals and permanent measurement of performance;

4. Create non-financial incentives to stimulate well done work;

5. Eliminate benefits in direct administration and in state-owned companies that are incompatible with those practiced in the private sphere.

Not afraid to privatize

Elena Landau, former chairman of Eletrobras' board, made a vehement defense of privatizations. "There is no other way out of the Brazilian State crisis: everything that can be privatized must be privatized. Trying to improve management, making marginal adjustments, all this is only palliative." she said.

"Let's take the Petrobras case. With the success of Pedro Parente’s management, some people started to defend the thesis that, with good governance, it is not necessary to privatize. Then came the truck drivers' strike, the successful management model that was put into practice was defeated by political pressures, and Parente fell. This recent experience shows that there is no guarantee of governance in the state-owned companies", she said. 

According to Landau, there are almost 146 federal state-owned companies and more than 400 nationwide (at all three levels of government), with more than 800,000 employees and R$ 1.3 trillion annual expenditures. "At BNDES, employees are entitled to 17 annual salaries, does it make sense?", asked the former director of the bank, and currently a partner in a law firm.

Landau defended two measures of impact:

1. The approval of a General Privatization Law, including the possibility of privatization of all state-owned companies - "Today the government has to seek authorization for each privatization it intends to carry out. It is a very slow, difficult and costly  process. It is time to change that logic and follow the Constitution, which determines that the State should not devote itself to activities that the private initiative can pursue."

2. Prohibition to create new state-owned enterprises - "Once a state-owned company is created, it is almost impossible to end it. From there, the costs only go up. It is high time we banned the creation of new state-owned companies."

Landau, who was also a counselor for Vale and AES, two former state-owned companies privatized a few years ago, questions an opinion poll published by Instituto Datafolha in December last year, which shows that seven out of ten Brazilians oppose the privatization of state-owned companies.

"Instead of asking people whether they are against or in favor of privatizations,it would be more instructive to ask them to choose between allocating billions of reais from taxes to bail out a deficitary state-owned company, like most are, or to invest in the SUS (Unified Health System), or in public schools. The resources are limited, and society must learn to choose”,  she said.

According to the lawyer, only a broad privatization plan and the recovery of the independence of the regulatory agencies can lead Brazil to take a productivity jump and catch up its delay in the industry 4.0. An extensive privatization program, to be well done, is not done overnight, added Landau, who then criticized the idea that the sale of public assets should be focused on short-term fiscal adjustment. 

Link to the original here.

Otávio Dias, journalist, is the content editor of the Fernando Henrique Cardoso Foundation. He was the Folha’s correspondent in London, editor of estadã and chief editor of the Brasil Post, a partnership between the Huffington Post and Grupo Abril.

Translated by Thomas Garman