Lava Jato caused 5-7 million job losses

“Treating corruption as society’s only problem is a problem,” says Brazilian economist Luiz Gonzaga Belluzzo, who talks of the damage to the Brazilian economy caused by the Lava Jato and Carne Fraca investigations.

By Daniel Giovanaz

The Lava Jato operation paralyzed construction projects throughout Brazil, caused unemployment and contributed to the deindustrialization of the country. While the PT governments attempted to overcome the dismantling of the national economy promoted in the 1990s, the project has gone downhill in the last two years.

In an interview with Brasil de Fato, economist Luiz Gonzaga Belluzzo presents a scenario of disorientation and lack of perspectives in the economic field. The 2016 coup  represented a setback, and the reforms that are to come will not improve this scenario. “It’s as if the engine of the car starts to break down in the middle of the road, and the driver wants to do bodywork,” he says.

Professor of Economics at the State University of Campinas (Unicamp), Belluzzo also has a law degree from the University of São Paulo (USP) and is a member of the board of the Celso Furtado International Center for Development Policy.

Brasil de Fato: Lava Jato’s task force speaks of the possibility of recovering R$ 38.1 billion in agreements with individuals and legal entities. Is this enough to repair the damage done to the public coffers?

Luiz Gonzaga Belluzzo: This amount does not even come close to the damage caused to industry and the Brazilian economy. If you’re going to balance the effects on production chains, which were damaged by the Lava Jato and the Carne Fraca investigations, $R38 billion is ridiculous. These actions caused five to seven million job losses, in addition to the recession and the selling off of the Pre-Salt [offshore petroleum reserves].

Another effect of investigations like Lava Jato is that it has focused all of society’s attention on the issue of corruption, which is something really important. But, as Pope John Paul II said, we will not be able to eradicate the corruption of a society whose greatest value is money. You have to confine it, control it. The relationship between giant corporations and the state requires great vigilance. It is necessary to “surround the beast”, knowing that there is no way to kill it. Treating corruption as society’s only problem is a problem.

In the specific case of Lava Jato, couldn’t the judiciary have avoided the damages that were caused by the suspension of Petrobras’ contracts?

Individuals, specialized in their functions, are not able to understand the effects or consequences of their actions. This is a very common phenomenon in contemporary society. Judges and prosecutors are conducting, perhaps in good faith and with good intentions, a series of actions that are producing very negative effects on the lives of others.

I can not just assume that they are doing this in bad faith, neither in the Lava Jato nor the Carne Fraca investigations. But this is very similar to the prepositions of the financial market and its spokesmen, the press, who demand structural adjustments at all costs.

The two initiatives are very similar. The economy had been slowing down, but with results that were still very reasonable in terms of public deficit and public debt behavior, which is what concerns them most. In fact: the public debt was 53% of GDP. In the case of the financial market, I would not say that its intentions are so good.

Are you suggesting that Lava Jato converges with the interests of the financial market, but is not necessarily driven by them?

It is not oriented by the financial market. But the way of thinking and of analysis in both cases is guided by abstractions that do not take how the real world works into account. Nowadays, oratory is favored over observation.

In the judiciary and among economists, we have people who know nothing of what is being discussed in other fields. This is true for both fields. But it is not exactly an individual issue – it is the kind of training that is being given to professionals who specialize too much, sometimes ridiculously. The economy can not be isolated from the social and political constraints in which it is embedded, and neither can law.

If you look at the resumes of the judges, prosecutors and many economists, they all studied at some point in the United States. I know people who studied in Germany or France, and their conception is different.

Compartmentalized thinking is related to the American school. The [American] philosopher Martha Nussbaum makes a very thorough critique of the degradation of education in the United States. And it’s not just her. American college students are beginning to resent this too. And this excessive specialization also occurs in Brazil.

The media, which could have offered a broader analysis of the repercussions of Lava Jato, failed to perform this role.

All these circumstances and conditions must be taken into account to make an assessment of what is going on. And those who adopt the parameters of the Brazilian press are subject to absolutely inappropriate analytical criteria. The investigations were turned into a dispute between good and evil. This is very bad, because the modern world does not sympathize with these separations and oppositions. Even the Pope has tried to make a counterpoint. He says we can not expect to be perfect: we have to improve. And it is clear in the words of the Lava Jato task-force that they imagined that they could improve the world. It is not a bad thing to want to improve the world. On the contrary, it is a fair and good thing. The point is that in order to do this, one must take the environment in which one operates into account.

Back to the economic effects of Lava Jato, I describe them by reversing the expression “there is evil that leads to good.” There is good that leads to evil. I do not mean to sound ironic. It is a revelation. If you do not have the patience to try understand the effects of your actions, you will surely cause evil.

In addition to crippling Petrobras state petroleum company, Lava Jato paralyzed the activities of and bankrupted private companies whose directors were accused of corruption. Do you analyze these two effects separately, or are they part of the same process of dismantling the Brazilian economy?

The process is the same. After the foreign debt crisis [of the 80s] Brazil, for understandable sociological and cultural reasons, entered another phase of capitalism. This stage is known as the neoliberal period and has lasted until now, despite its many failures.

This was a watershed. Brazil had been building its industry since the 1930s, and later in the post-war period, with Getúlio [Vargas] and Juscelino [Kubitschek], with a small interruption between 1961 and 1963. And the military [from 1964 forwards] industrialization project maintained the productive institutional pact between directed credit, public banks, state enterprises and coordination with the private sector. The “Brazilian economic miracle” rested on this until it reached the era of [Ernesto] Geisel, who committed the sin of accumulating a huge foreign debt.

And after the so-called “lost decade” of various stabilization attempts, we have seen a simplified and ideological interpretation of the hyper-inflationary period. The idea was that the economy had to be opened, without any care, maintaining Brazilian companies lethargic in the face of competition to diminish the role of the state. It seemed obvious at the time that we needed to privatize everything.

What is essential is that Fernando Henrique Cardoso’s government disrupted the previous pact and promoted the destruction of Brazilian industry. During the late 1980s, industry had a 25% share of GDP and today it is 9%. This process was not reversed under Lula.

You seem to consider the PT governments as part of the neoliberal period, which began in the 1980s. Were there at least attempts to resume the country’s industrialization project in the Lula and Dilma Rousseff governments?

When I say that PT governments were part of the neoliberal period, it is because they did not solve fundamental issues. We had a movement of expansion of the economy, due to a cycle of increasing world consumption that involved the cycle of commodities, and within that Lula did very well. He pulled the people from the bottom up. His social programs greatly improved people’s lives.

But in terms of industry, there was some hesitation. Of course, he no longer had that pact from earlier periods – it had to be rebuilt. In any case the plan for exploitation of the Pre-salt petroleum reserves was designed to play this role.

Why was China able to achieve so much higher growth rates than Brazil in this period?

China did exactly the opposite of what Brazil did at the beginning of the neoliberal period. China started the commodity cycle, in a symbiotic relationship with the United States, and made rapid progress in all industrial sectors using public banks, public enterprises, and coordination with the private sector. That’s how it built the world’s largest subway network, starting in the 1990s.

We used to say, before neoliberalism, that Brazil was a country that had this desire to build. It had a business sector that was supported by the state, many businesses were even created by the state, and it had a commitment to its businesses and national development. We dismantled all this while the Chinese were riding high and our economy stagnated.

Let’s not deceive ourselves. The average growth rate until the 1980s was 7% per year. During the Fernando Henrique period, it fell to 2.3%. In the Lula period, there was a spike [4% average, 2003-2008] due to the international positive shock, but then things returned to normal levels because of this deindustrialization.

What can be expected of the labor and pension reforms, given the need for economic recovery in the country?

Labor reform and pension reform have nothing to do with what will happen to the labor market. It is as if the engine of the car began to break down in the middle of the road and the driver decided to get some bodywork done. This is a joke! Of course the economy will oscillate, but always working downwards because it has no dynamism. Just look at the last twenty years.

Germany is developing its industry 4.0 program, as are China and the United States, to a lesser extent. What are we doing here? There is no sign that we are going to do anything like it. We are, more and more, moving towards becoming a fifth class economy. I’m sorry and I’m worried. The Brazilian economy is not only stagnant but there is no proposal for structural change.

What structural change is necessary for Brazil at the moment, from an economic and industrial point of view?

Change has to involve strengthening the state. Change cannot happen without clear initiatives by the public sector, including investments in technology and innovation, to develop the country. Italian economist Mariana Mazzucato demonstrates that the innovation system requires a great deal of resources, both human and financial, because innovation has a very high risk and the state has to mitigate that risk. The Ipad, for example, originated from an investment by the American war and space industry. Steve Jobs only came in at the end of the process.

This article originally appeared in Brasil de Fato and was translated by Brian Mier. It can be seen in its original form here.