Brazil in Global Iron and Steel Production
Sugar
Construction and Housing
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Compared to South Korea's 12.3 years, the average years of education for the Brazilian worker is very small at 5.3, or under half of South Korea, and about 80% of Brazilian workers have less than eight years of education. Even lower is the average years of education for construction, which is only four, or at least 20 percent of the national average. Many of these workers were illiterate and straight from remote rural areas. Since there was no best practice residential construction productivity in Brazil, there was no evidence about whether the average residential construction worker could be trained on the job tot achieve high productivity. One construction company compared itself with US multifamily housing construction and found it was working at 60% productivity without running into a labor skill constraint. The company had trained its workers to perform the tasks of construction at close to the best practice levels, but there were still two major penalties: the scale was too small to keep trained workers in different crafts fully utilized and heavy equipment such as cranes and elevators weren't used because they weren't economic at Brazilian wage rates. In Power of Productivity, William W. Lewis made a comparison between two similar subsidized housing projects in Sao Paulo and Houston. In both cases many of the workers were illiterate and from agricultural backgrounds, though in Houston these workers were Mexican and most didn't speak English. Still, the Mexican workers in Houston were achieving close to best practice productivity. They had been trained sufficiently to work in the more productive operational and organizational systems used in Houston.
(During this report the Brazilian construction expenditure was 84.868 billion dollars while in the US it was $576,918,476,326 according to the United Nations Statistics)
The Challenges of Brazilian Construction
Residential construction is a difficult sector of the economy: first of all, the product itself, housing, is huge. At least ten times the cost of a car, housing is by far the largest purchase of individuals, and while cars can be produced in large numbers on a single factory overseen by a few engineers and tightly managed, housing is built all over the place. While automobiles have ten thousand different parts, houses still have a lot, and while the tasks aren't so technologically complex they do require specialized tasks like carpentry, electrical, plumbing, and bricklaying. Yet the true complexity is gathering the materials and all the specialized labor at the construction site together in the correct sequence without large gaps between steps. Because real special trade companies and real mortgages don't exist in Brazil, this presents a challenge to efficiency. In Brazil, houses have a pay-as-you-go system. In this process, the owner pays for the house in steps, and once the owner saves enough money for the next step the contractor builds some more to the house, and full homes cannot be built in the beginning because there are no mortgages in Brazil meaning no one can get one. This is due to a history of hyperinflation, making loans of that length too risky for anybody and everybody, and so as a result the planning and coordination of materials and workforce deployment is impossible for a contractor.
Above it was stated that real special trade companies don't exist in Brazil. What is a special trade company? A special trade company is basically a company which a contractor hires for specialized labor necessary for the construction process. These special trade companies can move from contractor to contractor, and are more useful with custom single-family houses.
In Brazil, the special trade companies are simply a source of low-cost labor rather than of skilled craftsmen. Their labor is low-cost because special trades companies pay no social security, Medicare, or other benefits for their workers, including no paid holidays or efforts to train them. There is no objection because the companies don't have to care if they leave, as there are plenty of construction workers who have left rural areas for the city. And so, due to a huge pool of labor, there is no need to spend money on the quality of the workers which would include benefits. As a result the labor productivity in the housing construction market in Brazil is only 35% of the US level.
In principle, a formal construction company using special trades and best practice productivity could under price a company using untrained informal labor. Yet, it would take too long for the formal company and special trades to achieve such productivity for this leap of faith to be financially viable. Moreover, for single-family housing the project financing problem would also have to be solved in order for the company to reach best practice. And so this lock into low productivity, created by the lack of mortgages and informality of labor, will cause its construction expenditures to stay higher than what they could be and lower the GDP per capita as labor productivity lowers.
(During this report the Brazilian construction expenditure was 84.868 billion dollars while in the US it was $576,918,476,326 according to the United Nations Statistics)
The Challenges of Brazilian Construction
Residential construction is a difficult sector of the economy: first of all, the product itself, housing, is huge. At least ten times the cost of a car, housing is by far the largest purchase of individuals, and while cars can be produced in large numbers on a single factory overseen by a few engineers and tightly managed, housing is built all over the place. While automobiles have ten thousand different parts, houses still have a lot, and while the tasks aren't so technologically complex they do require specialized tasks like carpentry, electrical, plumbing, and bricklaying. Yet the true complexity is gathering the materials and all the specialized labor at the construction site together in the correct sequence without large gaps between steps. Because real special trade companies and real mortgages don't exist in Brazil, this presents a challenge to efficiency. In Brazil, houses have a pay-as-you-go system. In this process, the owner pays for the house in steps, and once the owner saves enough money for the next step the contractor builds some more to the house, and full homes cannot be built in the beginning because there are no mortgages in Brazil meaning no one can get one. This is due to a history of hyperinflation, making loans of that length too risky for anybody and everybody, and so as a result the planning and coordination of materials and workforce deployment is impossible for a contractor.
Above it was stated that real special trade companies don't exist in Brazil. What is a special trade company? A special trade company is basically a company which a contractor hires for specialized labor necessary for the construction process. These special trade companies can move from contractor to contractor, and are more useful with custom single-family houses.
In Brazil, the special trade companies are simply a source of low-cost labor rather than of skilled craftsmen. Their labor is low-cost because special trades companies pay no social security, Medicare, or other benefits for their workers, including no paid holidays or efforts to train them. There is no objection because the companies don't have to care if they leave, as there are plenty of construction workers who have left rural areas for the city. And so, due to a huge pool of labor, there is no need to spend money on the quality of the workers which would include benefits. As a result the labor productivity in the housing construction market in Brazil is only 35% of the US level.
In principle, a formal construction company using special trades and best practice productivity could under price a company using untrained informal labor. Yet, it would take too long for the formal company and special trades to achieve such productivity for this leap of faith to be financially viable. Moreover, for single-family housing the project financing problem would also have to be solved in order for the company to reach best practice. And so this lock into low productivity, created by the lack of mortgages and informality of labor, will cause its construction expenditures to stay higher than what they could be and lower the GDP per capita as labor productivity lowers.