Brasil will not end, of course, but Lula’s style of reform will. And this will happen in a way that we don’t yet comprehend. – Sérgio Baierle
Sérgio Baierle, 61, was a legendary activist during the heady days of the Olivio Dutra PT mayoral administration in Porto Alegre during the 1990s, when it became one of the world’s most innovative city governments. He is an independent researcher, former Assessor from the Porto Alegre based NGO Cidade, one of the World’s leading experts on participatory urban policies and a former analyst of the Brazilian Central Bank. I’ve known and worked with him for nearly a decade and recently caught up with him to ask for his explanation of the current political-economic context in Brasil.
Brasil underwent a transformation during the first period of PT rule that was sparked off by ten years of solid growth. What’s happened since then?
First of all I do not think it is possible to say that Brasil had 10 years of solid growth after Lula’s election. By any indicator that you use, you will see that the government had its highs and lows. If you look at the GDP you will see there were highs and lows, although it established an average growth level that was higher than the 8 years under Fernando Henrique Cardoso. Furthermore, the process of de-industrialization that was carried over from previous administrations accentuated (above all in transformation industries). Industry’s participation in the GDP fell from 21.6% in 1985 to 10.9% in 2014 (IBGE/FIESP- Bonelli and Pessoa methodology). Agribusiness and the extractive industries (like mining and petroleum) transformed into nearly the only alternatives for growth. The Lula differential can be explained, on the one hand by the commodities boom that was led by China which opened a margin for a group of investments that attempted to overcome logistical bottlenecks (roads, railways, ports, airports, urban mobility, etc), ensure self-sufficiency in petroleum (through offshore pre-sal reserves) and project the country internationally (through the World Cup and Olympics). On the other hand Lula’s differential was the strong emphasis on social programs geared towards poverty reduction and increasing the internal consumption market by stimulating demand. This was done by combining programs like the Bolsa Familia cash-conditional transfers, Brasil without Misery, which was based on productive integration, and the extension of retirement pensions to autonomous workers who never had formal sector jobs and who were previously excluded. This was strengthened by annual minimum salary increases above inflation levels and financial inclusion policies such as expansion of collateral based credit, greater access to the financial system for poorer citizens and subsidized credit for home-ownership through the Minha Casa Minha Vida Program.
What elements of Brazil’s economic strategy were carried over from the previous administration?
Lula and Dilma maintained Fernando Henrique Cardoso’s macroeconomic tripod: strict inflation goals, primary surplus and a floating exchange rate (semi-floating to be precise). Therefore, the banking and financial sectors’ hegemony remained in place throughout the economic conjecture, with monetary stability serving as the base for exchange rate valorization that made industrial rebuilding nonviable and with profit fluctuations remaining at the level of the 1980s (the so-called “lost decade”), notwithstanding the increase in internal demand (for more on profit rates see Michael Roberts blog article “The Carnaval is over”.) It is no coincidence that the current clamor from the business sector is over the wage squeeze, reforming retirement pensions and reduction of social benefits and subsidies.
Reinforcing the power of the hegemonic sector, Brasil remained dependent on foreign investment through the insertion of speculative capital that benefited from the modernization and integration with the great world financial centers. This is what China only recently allowed -the financial liberalization that caused trillions of dollars in capital flight. Brasil proudly facilitated this process during the Cardoso government.
Totalling the foreign currency generated with commodities exports and external investments, Brasil generated a huge accumulation of dollar reserves (transforming Brasil into the third largest financier of the American public debt trailing only China and Japan).
Despite the exchange reserves guaranteeing a certain protective cushion during the crises (USA and Europe in 2007-2008; and China now in 2016), there is a high cost in carrying this reserve volume considering the enormous differential in interest rates practiced in Brasil (always in the running for highest interest rates on the planet) and those paid by the US FEDs re-numeration of American public debt bonds, which were practically negative until recently.
Give an example of a factor that contributed to the current slowdown?
From 2010-2012, the favourable winds that had been coming from Asia began to progressively weaken. The first pressure came from the financial sector, worried about the Brazilian Central Bank lowering the SELIC rate and the advance of public banks (Banco do Brasil and Caixa Economica Federal) into the credit market. In 2012 the Central bank gave in and raised the Selic rate preventatively fearing capital flight in case the FED raised its rates, which didn’t end up happening. This sign of weakness was passed on to the market. Between 2013 and 2014, Dilma’s government decided to put all of its cards into maintaining high demand and returned to programs designed to increase private investments. In addition to increasing the Growth Acceleration Plan (PAC), the government decided to bail out large economic groups like the auto industry, for example, with substitution of worker contributions to the pension fund at the value of 20% of their salaries, with a new contribution based on companies gross incomes (with variable percentages between 1.5% and 2.5% according to Federal law 12.546 of 14.12.2011). In exchange for the subsidies the companies promised to maintain their current employment levels. This measure put the pension fund income at risk, further increasing the need of compensatory allocations from the government. Since most of the large companies finance their working capital and investments outside of the banking sector with it’s absurd interest rates, they sought out financing subsidised by the BNDES (Brazilian National Social and Economic Development Bank). With a progressive elevation of the SELIC rate since 2014 the government increased funding to the BNDES to subsidise this public investment bank’s lower interest rates.
This context is necessary to understand the fragility of Lula’s style of developmentalism and dramatize the issues currently at stake. While the logistical investments were only partially completed- there are still a series of public works under construction without resources to finish them – the social programs, aimed at the poorest among the poor delivered fantastic statistical results but, as a mobilisation factor, successfully hit the level above – inappropriately called ‘the new middle class’.
According to the FAO, Brasil reduced extreme poverty by 75% between 2001 and 2012, with total poverty reduced by 65%. But Brasil still has 8.4% of its population living in extreme poverty (that is 16 million people living on less than $2/day).
The great popular actor in this success story can be found in the so called “fighting class” (see Jessé de Souza: Os Batalhadores Brasileiros) which marked its entrance into the mass consumer market as over-exploited autonomous workers working in informal networks, markets, family businesses, pentecostal churches, distance learning courses, etc. They are the workers who bet on a continual improvement of their lives and that express themselves in the new civilized standards that were achieved in Brasil. Are these real future possibilities or cruel optimism when that that we most strive for is what actually blocks us, such as the structural limits imposed by the absolutism of the market and democracy?
How did Lula’s approach differ from that of his predecessors?
Lula’s developmentalism, inspired by trade unionism and Keynesianism, tried to reunite in one dream the resuscitation of the nationalist bourgeois of the 20th Century; the base level labor reforms of the 1950s and 1960s; and a new Brazilian miracle with great public investments reminiscent of the military dictatorship policies of the 1970s. This was financed by the export sector (agribusiness and minerals) and financially captured by the ultra modern and internationally integrated banking sector. The bitter awakening of this clunky platypus reveals a very moderate reformism that is socially and politically demobilizing, immediately threatened by the possibility of an enormous social regression whose symptoms are already being seen in the rapid increase in unemployment and heavy debt hanging over millions of families as cosigned credit transforms into a modern return to debt slavery, as well as the current tendency of collapsing social policies, retirement pensions and public security.
During the 1980s the Partido dos Trabalhadores (PT) began its ascension to political power through progressive proposals and popular participation in public policy management (participatory budgeting, people’s management councils, municipal people’s congresses, etc). At that moment it had to deal with very concrete problems that were directly relevant to the needs of the poor and working classes, such as land tenure, sanitation, urban mobility, the popular economy, human rights, local management of public health facilities, education and social assistance. During the Lula government this entire process ended up being reduced to the corporative articulation and hierarchies of national people’s conferences. Without trying to minimise the importance of all of the union and social movement mobilisation involved with these conferences, today it is possible to say that they ended up being almost entirely put on the back burner during the formation of federal public policies, with rare and very occasional exceptions.
It is not surprising, therefore, that the first big recent social protests arose in the large cities over issues related to the use of public space (Defesa de Alegria in Porto Alegre) and urban mobility (the 20 cents fare hike protests).
The appropriation of investments in housing and infrastructure from the PAC (growth acceleration program) by big businessmen and real estate companies, which was obvious after Lula rifled the Ministry of the Cities off to his allied base in Congress, triggered an intense process of gentrification and real estate speculation with the reproduction, mutatis mutandis, of what happened with the BNH during the military dictatorship. Contrary to the goal of social inclusion, the end of the division between the formal and informal city, cohabitation among different classes and sectors, what happened was an increase in evictions that forced the population to the urban periphery forming pockets of extreme poverty along with the prohibition of individual survival and income strategies like street vending, street artists and unauthorised parties and public manifestations.
Can you explain how highly publicised corruption scandals like Lava Jato are affecting the Brazilian political economy?
The Mexican drama of judicial and punitive anti corruption fighting caused a much greater problem than that which it proposed to remedy.
First of all because corruption is not caused by individual failure, even if it results in it. Even 200 Judge Moro’s wouldn’t resolve it. Corruption essentially occurs as a form of economic survival within sectors that have low levels of competitiveness or that operate with profit margins insufficient to pay the employed capital. Secondly there is no justice, just administration of justice by all of the powers that act politically, including the judiciary. In this sense the truth of the facts is a product produced during the mediation between business, the media and public institutions. The infinite prolongation of the Lava Jato investigation, for example, has two politically important effects: 1) maintain the government on the ropes, eternally hostage to the new and daily dramatized episodes; and 2) curiously blocking the government to go for the knockout, which would require a restructuring of the forces of the left and right. Since all of the big parties are now in an implied opposing situation, the fact is that it enforces the status quo. On the long term, the effect of this false war could be a civil war of the type that nobody remembers anymore. To the contrary of what it appears, the increasing actions by the judiciary as a substitute for a moderating power, previously exercised by the emperor and afterward the military, will not strengthen the state. In the crisis capitalism in which we live, the destructuralisation of the the state and the consequent barbarity is already underway in the peripheries, where they earlier dreamed of springtimes.
What will happen to Brazil in the near future?
Brasil will not end, of course, but Lula’s style of reform will. And this will happen in a way that we don’t yet comprehend.
As Anna Muylaert, director of “Qeu horas ela volta”, said during the 2016 World Social Forum in Porto Alegre, “Brasil is at that moment in which Jessica falls into the pool and Dona Barbara is there yelling: get out of there! Get out of there! But it seems that there is no way back!”