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Neoliberalism, Democracy and Economic Policy in Brazil

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Abstract

The presidential election of Luiz Inácio Lula da Silva, the leader of the Brazilian Workers’ Party (Partido dos Trabalhadores, PT) in 2002 was considered by many commentators to have been an important victory for the Brazilian working class.1 Lula’s election was also claimed to have been one of the most important achievements of the international left in this generation, and evidence of the decline of neoliberalism in Latin America. However, Lula’s administration has bitterly disappointed many of his supporters in Brazil and abroad, and it has accelerated the fragmentation of the Brazilian left. Several high profile petistas subsequently abandoned the party, and scores of members have expressed their dissatisfaction with the alleged ethical and political degeneration of the PT. In their view, the PT has pursued the same neoliberal macroeconomic policies that it previously scorned, and that characterized the administration led by the ex-Marxist sociologist Fernando Henrique Cardoso.
CHAPTER 2: NEOLIBERALISM, DEMOCRACY AND ECONOMIC POLICY
IN BRAZIL
Alfredo Saad-Filho
Department of Development Studies
SOAS, University of London
1. Introduction
The presidential election of Luís Inácio Lula da Silva, the leader of the Brazilian
Workers’ Party (Partido dos Trabalhadores, PT) in 2002 was considered by many
commentators to be an important victory for the Brazilian working class.1 Lula’s
election was also claimed to have been one of the most important achievements of the
international left in the last generation, and evidence of the decline of neoliberalism in
Latin America. However, Lula’s administration has bitterly disappointed many of his
supporters in Brazil and abroad, and it has accelerated the fragmentation of the
Brazilian left. Several high profile petistas subsequently abandoned the party, and
scores of members have expressed their dissatisfaction with the alleged ethical and
political degeneration of the PT. In their view, the PT has pursued the same neoliberal
macroeconomic policies that it previously scorned, and that characterised the
administration led by the ex-Marxist sociologist Fernando Henrique Cardoso.
Although Cardoso’s and Lula’s neoliberalism may have helped to preserve price and
exchange rate stability and to reduce Brazil’s country risk indices, they have been
blamed for the country’s disappointing economic performance and for the
insufficiently rapid improvement of the social and welfare indicators in Brazil. For
example, the real wages of the low paid workers have either declined or grown only
modestly during the last decade, unemployment and underemployment have remained
stubbornly high, the government’s attempts to redistribute land have failed,
manufacturing output growth has been disappointing for many years, and Lula’s
electoral promise of ‘ten million new jobs’ disappeared rapidly from his presidential
discourse.
This chapter reviews the transformation of the most important political party of the
Brazilian left, and one of the largest left-wing parties in the world, into the new
darling of the IMF.2 The chapter is divided into five sections. This introduction is the
1
first. The second reviews the reasons for the rapid rise of the Brazilian Workers’
Party, and the third examines why the PT gradually shifted towards the mainstream.
The fourth describes the election of Lula, in 2002, the ‘losers’ alliance’ supporting his
successful presidential bid, and it explains the continuity of neoliberalism under his
administration.3 The last section summarises the argument, and concludes that the PT
is no longer a credible left-wing political force.
2. The Irresistible Rise of the PT
In order to explain the rapid growth and the ensuing political changes in the Workers’
Party, it is important to contextualise the trajectory of the party through a brief review
of the three cycles of the Brazilian left in recent decades.4
The first cycle began in the early years of the twentieth century, and lasted until 1935.
It was initially led by anarchist workers based in Rio de Janeiro and São Paulo and,
later, by the Communist Party of Brazil (PCB), founded in 1922. This period came to
an end when the PCB and other left factions were crushed by the dictatorship of
Getúlio Vargas (1930-45) following a failed uprising, in 1935. The second cycle
started in the early forties, as the PCB gradually reconstituted itself. The party’s
growth during this period was based on the mass movement against nazi-fascism and
for Brazilian participation in the Second World War on the side of the Allies. This
campaign was eventually successful, in spite of the early sympathy of the Vargas
regime towards the Axis. In the early forties the PCB had been virtually destroyed,
and most of its leaders were languishing in jail. By the end of the war, the party had
become a strongly disciplined organisation with hundreds of thousands of members,
and the PCB polled almost ten per cent of the votes in the 1945 presidential elections.
In addition to the strongly pro-Soviet PCB, the political forces of the left also
included the populist Brazilian Labour Party (PTB), the independent Brazilian
Socialist Party (PSB), sections of the Social Democratic Party (PSD), and several
smaller organisations.
The cold war reached Brazil relatively early, and the PCB was proscribed in 1947.
Despite this setback, and the inevitable membership decline, the party’s influence
continued to be felt among many trade unions and student organisations. A few PCB
2
militants were elected to Congress and to city councils through other organisations,
and the PCB forged stable alliances with the PTB, the PSB and the PSD. These
alliances with ‘bourgeois’ organisations were highly prized by the PCB for both
tactical and strategic reasons. The PCB claimed – alongside its sister organisations in
other developing countries – that Brazil was a semi-feudal country dominated by an
alliance between agrarian and imperialist interests. In order to challenge this alliance,
the working class (led by the PCB) should join a coalition with the peasantry, the
urban middle classes and the national bourgeoisie. This coalition would eventually
lead the Brazilian popular-democratic revolution. In the meantime, the PCB
demanded a national development strategy based on the expansion of manufacturing
capacity through import-substituting industrialisation and extensive public sector
intervention in the economy. Industrial development would not only support the
growth of the local productive forces but also help to emancipate Brazil from the
clutches of Western imperialism.5
In spite of the growth of the party, the PCB’s national democratic strategy was
comprehensively defeated in 1964. The domestic bourgeoisie and the majority of the
middle classes shunned the reformist administration of President João Goulart, which
was strongly supported by the PCB. Goulart was overthrown in April by a military
coup promoted by landed and financial interests, and supported by the US
government and by many social groups that the PCB was hoping to lead, especially
the industrial bourgeoisie. The radicalised workers, peasants and students were left
isolated. Although the military coup did not immediately eliminate the scope for all
forms of left political activity, most left organisations, trade unions and student
associations were destroyed, and the radical factions were firmly throttled. The coup
brought to an end this cycle of the Brazilian left. The strategic failure of the PCB and
the long-term reflux of the left led to the fragmentation of the Communist Party.
Several radical organisations emerged in the mid-sixties, mostly inspired by
Trotskyism, Maoism, foquismo, and other fashionable left ideologies. Some of these
organisations sponsored armed struggles against the dictatorship, especially after the
regime adopted a state terrorist strategy in December 1968. The military regime
eliminated these movements relatively rapidly, and the left’s improvised guerrilla
operations were mostly dismantled without great difficulty.6
3
Mass resistance against the dictatorship re-emerged only gradually, in the mid-
seventies. The defeat of the organised working class and the guerrilla movements had
removed the rationale for state terrorism, and the legitimacy of the regime was badly
shaken by its inability to address the economic impact of the first oil shock, in 1973-
74. The rate of inflation – an important symbol of the regime’s economic
‘competence’ – rose for the first time since 1964, as it doubled to 40 per cent after the
oil shock. Brazil’s foreign debt increased rapidly, while the country’s GDP growth
rate fell. Finally, to the regime’s embarrassment, census data showed that the
concentration of income and wealth was increasing, and that the benefits of growth
were systematically bypassing the majority of the population. It had become difficult
to justify the denial of civil liberties in the name of ‘public safety’ or ‘rapid economic
growth’. In 1974, industrial capitalists expressed their dissatisfaction with the alleged
heavy-handedness of the state’s intervention in the economy. Later that year, the
regime’s political party, ARENA (National Renewal Alliance) was trounced in the
Congressional elections. The regime could not ignore these alarming developments.
The ruling military circles decided to embark in a slow, limited and tightly controlled
process of political liberalisation, leading to the transfer of power to reliable civilians
in the distant future. This should be the keystone of a constitutional settlement
securing the political ‘achievements’ of the Armed Forces and their role preserving
‘national security’.
This strategy was largely successful. The military held on to power for another
decade, protected themselves effectively against legal challenges due to the regime’s
human rights abuses, transferred power to moderate civilians, and they have
maintained a determining influence on corporate affairs. In spite of these
achievements, the military were unable to control the process of liberalisation
completely for two reasons. First, the Brazilian macroeconomic indicators continued
to deteriorate steadily until the mid-eighties. The economy was gripped by a severe
crisis after the second oil shock, in 1979-80, and the crisis worsened after the
international debt crisis, in 1982-83. These difficulties reduced significantly the
regime’s ability to deliver welfare improvements to its core constituency, the urban
upper and middle classes and the large and medium landowners. The regime
eventually alienated most of its supporters through a combination of erratic
policymaking, managerial incompetence and corruption. Second, and most
4
importantly for the purposes of this chapter, the dictatorship was challenged by the
emergence of a new generation of left-wing mass movements which bypassed the
only legal opposition party, MDB (Brazilian Democratic Movement).
In the mid-seventies, the remnants of several left-wing organisations banded together
with progressive Catholic groups, leftist intellectuals and young activists to demand
the restoration of democracy, respect for human rights and political amnesty, as well
as democratic economic policy changes.7 Petitions were followed by small
demonstrations, which were sometimes ignored and often repressed. These protests
grew slowly but steadily, especially after the gradual removal of press censorship in
the mid- to late seventies. In 1977, the university students burst back into the political
scene with a wave of strikes and demonstrations demanding resources for higher
education and, principally, political freedom. Their offensive was crushed and, in this
narrow sense, the students were defeated. However, the harshness of the repression
against middle-class youngsters demanding democracy and better education increased
the regime’s isolation and fuelled the growth of the left among the urban middle and
working classes. The military could no longer present themselves as the paternalistic
rulers of an immature nation. It was obvious that they ruled by force alone, and did so
incompetently. These political developments were followed by the explosive rise of a
new trade union movement, born in the key industries nurtured by the military
regime’s strategy of import-substituting industrialisation – the metal, mechanical, auto
and household goods industries in the São Paulo industrial belt.
In May 1978, three hundred thousand workers unexpectedly went on strike in three
hundred factories, demanding a substantial pay increase. Although the strike was
declared illegal and repression was both prompt and violent, the military were unable
to bend the workers. Eventually, the regime sponsored negotiations between the
workers and their employers. To the surprise of most observers, the strike brought
significant economic gains for the workers. It also signalled to the country that
resistance was both possible and potentially rewarding, and that the regime was
vulnerable to mass action led by the working class. The success of the strike pushed
the São Paulo metalworkers to the forefront of the Brazilian working class, and their
charismatic trade union leader, Lula, became a political leader that had to be reckoned
with.
5
The third cycle of the Brazilian left emerged gradually during this period (its origins
can be backdated to the MDB victory in the 1974 elections). This cycle was based on
the alliance between two wings of the left movement: the ‘political’ (mostly middle-
class) and the ‘trade-unionist’ (working class) wings. This coalition included Lula’s
metalworkers union and, soon, other influential trade unions in the manufacturing and
service sectors. It also included the liberation theology sector of the Catholic Church,
many student organisations, a large assortment of urban and rural social movements
and NGOs, prestigious intellectuals, clandestine left parties, and a wide range of
progressive organisations, from small newspapers to theatre groups. The idea of
founding a new political party coalesced rapidly around this group. In late 1978
discussions had already started concerning the foundation of a Workers’ Party,
untainted by the traditional features of the Brazilian left: populism, corruption,
clientelism and Stalinism. The PT was eventually launched in 1980, under the
leadership of Lula. The party included several groups, from Trotskyite political
parties to loosely organised tendencies, as well as intellectuals and Catholic activists.
The PT had four distinguishing features in its early stages. First, it was a mass
democratic party, where tendencies and groups were not only permitted, but even
encouraged to thrive. Second, it was an independent party of the working class, that
was controlled and staffed by workers and a few trusted intellectuals, and that tried to
maximise the autonomy of the workers’ movement vis-à-vis traditional political
processes and organisations. The PT shunned alliances with ‘bourgeois’ parties and
even other left-wing organisations. In order to increase its visibility, the PT fielded
candidates wherever possible, even if this led to the fragmentation of the democratic
opposition. Third, the PT was a centralised party, with a strong (but not
overpowering) national executive deciding the political line and demanding adherence
to its decisions. Finally, the PT became the hub of an alliance of social movements
including, among others, the largest trade union confederation in Brazil (Central
Única dos Trabalhadores, CUT, founded in 1983) and the landless peasants’
movement (Movimento dos Trabalhadores Rurais Sem Terra, MST, founded in
1984).
6
The strategy and the mode of organisation of the PT corresponded to the opportunities
offered by the crumbling military dictatorship, and the needs and the composition of
the Brazilian working class. The party grew extraordinarily rapidly, reaching 800,000
members in less than ten years. CUT represented up to twenty million workers, and
the PT made significant inroads into the student movement (although the latter was
dominated by the PCdoB8). In 1985, the military regime yielded power to a broad
democratic coalition, which the PT refused to join. At that point, the PT had already
become the most important left party in the country. The PT would grow further in the
next few years, when it would consolidate its hegemony in the Brazilian left. Since
the early nineties, most left organisations in Brazil have been either affiliated to the
PT or controlled by PT militants, and most left parties are either satellites of the PT,
and can no longer carry out independent political activity to any significant extent or,
alternatively, they have been expelled from the PT and define themselves in
opposition to the Workers’ Party (especially two Trotskyite organisations, the Unified
Socialist Workers Party, PSTU, and the Workers’ Platform Party, PCO).
These successes of the PT were reflected in the party’s outstanding performance at the
ballot box (see tables 1 and 2), culminating with Lula’s presidential election in 2002,
and re-election in 2006. However, these achievements were not unproblematic, and
the PT’s accomplishments are closely linked to its political degeneration. Taken
together, these processes help to explain Lula’s election and the character and
performance of his administration.
<TABLE 1>
<TABLE 2>
3. The Undoing of the PT
The rapid growth of the PT was based on two supporting platforms. First, the party’s
increasingly popular demand for a socialist democracy – a democratic regime
incorporating but not limited to the procedural (formal) democracy associated with
Schumpeter and Dahl. Procedural democracy typically includes the protection of
minimum civil and political rights, clean competitive elections for the legislature and
the executive, civilian government and civilian control of the armed forces. The PT
7
wanted this, but it demanded more: it wanted to transcend the limitations of
‘bourgeois’ democracy and deliver effective power and immediate economic
improvements to the vast majority of the population. Second, the PT promoted the
specific interests of the social groups closely associated with the party: the metal and
bank workers, low-ranking civil servants, teachers and other members of the
organised working class employed in the formal sector of the economy.
Unfortunately for the PT, both platforms collapsed between the mid-eighties and the
mid-nineties. The response of the PT to their collapse helps to explain its continuing
electoral successes, and the limitations of the Lula government.
The achievement of political democracy, in 1985, radically transformed the terrain in
which the PT had initially developed. It was relatively easy for the PT to offer a
progressive alternative to a decrepit dictatorship that was increasingly powerless to
discipline the populace, but that remained wedded to an anachronistic right-wing
rhetoric that sounded pathetic to a growing parcel of the population. The continuing
concentration of income and wealth, the evidence of corruption, the military’s
attachment to the legal apparatus of repression, and the regime’s economic ineptitude
and abysmal track record providing social and welfare services offered easy targets
for the opposition.
The restoration of democracy changed everything. Pluralism diluted political power
and removed many of the visible targets that were previously available to the PT and
the left. In a democratic state, the locus of political debates shifted to the rarefied
domain of parliamentary politics. Mass demonstrations became less effective, partly
because they were no longer illegal, and partly because the ballot box presumably
offered a constitutional avenue for policy debate. In a democracy undergoing a period
of economic crisis, many state officials could plausibly claim that, although they
shared the concerns of the majority, they were unable to help because of financial
constraints.
The democratic transition satisfied most of the ‘political’ demands of the left, but only
by disconnecting them from the ‘economic’ demands of the majority. Civil rights, free
elections and political pluralism were achieved, but economic redistribution, the
8
nationalisation of strategically important firms and the non-payment of the foreign
debt, for example, that were inseparable parts of the left’s programme, were never
seriously considered by the centrist coalition in power. Matters would become even
worse in the late eighties, as the Brazilian elite gradually convinced itself that only a
neoliberal economic strategy would permit the recovery of growth, the reproduction
of the existing patterns of inequality and the preservation of democracy.9
The PT and the left were badly wrong-footed by the democratic transition. Rather
than leading legal (and, presumably, more successful) mass campaigns for the radical
transformation of the economy and the society, the PT was compelled to submit to the
electoral calendar and to operate ever more strictly within the ‘bourgeois’ framework
that it had previously denounced. Since the state institutions had been validated by
their democratic veneer, the implementation of PT policies now required a democratic
mandate that, although feasible, could be obtained only if the party submitted to the
conventional logic of campaign finance, coalition-building, piecemeal reforms,
endless negotiations with a myriad of interest groups and the imperatives of
‘efficiency’ and ‘delivery’ in local government. These limitations tempered the PT’s
enthusiasm for direct action and for confrontations against the state. They also
increased the weight of the bureaucracy and the parliamentary party within the PT.
The party showed growing signs of a split between ‘moderates’, attempting to
implement a social democratic programme by parliamentary means, and ‘radicals’,
seeking to transcend the conventional parameters of political activity in order to build
socialism. While the former found it difficult to garner mass enthusiasm for their
preferred strategy, the latter could not lead an electorally successful alliance at
national level.
The PT radicals were increasingly marginalised, especially after Lula’s narrow defeat
in the 1989 presidential elections. After that traumatic episode, Lula and the party
leadership accepted that, in order to win elections and govern effectively, the PT
would need allies in the political centre, even if this required the dilution of the
party’s principles, political horse-trading, and accommodation with the corrupt
practices that dominate Brazilian politics. This was a very slippery slope. In order to
win elections and lead viable administrations, the PT had to accommodate lobbyists
and venal politicians, condone the robbery of public assets, and engage in political
9
practices that the party would have found repulsive only a few years ago. It will be
shown below that, today, there is little to distinguish the PT from the other
mainstream political parties.
The PT was hit hard not only by the dismantling of its political platform and identity,
but also by the decomposition of its sources of class support. The neoliberal policies
imposed by successive Brazilian administrations since the late eighties hit particularly
hard the sectors that were the backbone of the PT, that provided the bulk of its votes,
and that were affiliated to the most active trade unions:10 the industrial working class,
the middle and lower-ranking civil servants, and other formal sector workers. One-
third of all manufacturing jobs in Brazil were lost during the nineties. Unemployment
and informal employment doubled, and manufacturing industry was radically
restructured.11 The state withdrew partially or completely from several strategic
sectors, especially steel, telecommunications, electricity generation, transport and
finance. The private manufacturing and financial sectors were restructured and largely
denationalised. The trade union laws were tightened up, and the civil service was
mutilated by a succession of ‘reforms’ that reduced the government’s capacity to
regulate the market and implement targeted industrial policies. They also challenged
the civil servants’ ability to demand economic improvements from the government.
CUT lost ground to ‘pragmatic’ unions wedded to neoliberalism, and the trade union
leaders linked to the PT have split between a majority seeking short-term economic
gains for their members through an accommodation with neoliberalism, and a
dwindling minority that continues to demand strategic economic policy changes. The
students’ organisations have become irrelevant under the combined weight of the
rapid expansion of the private university sector, where mobilisation is more difficult,
and the adverse economic circumstances affecting students and new graduates.
The PT was forced to reconstitute its sources of support under these unfavourable
circumstances. In line with its mainstream political strategy, described above, the
party leadership decided in the nineties to appeal to a broader and more centrist
constituency, even at the expense of its commitment to achieve immediate social
transformations. The PT increasingly presented itself as an ‘ethical’, ‘innovative’ and
‘responsible’ party, rather than as a party of the radical non-communist left, as was
the case previously. This shift built upon, and supported, the PT’s experiences of
10
municipal administration. In spite of significant failures in the eighties, especially in
Fortaleza and São Paulo, a new generation of PT mayors achieved important
successes in such middle-sized cities as Santos, Ribeirão Preto and Santo André (in
São Paulo state), Governador Valadares (Minas Gerais) and Vitória da Conquista
(Bahia) and, most famously, in the largest city of Southern Brazil, Porto Alegre (the
state capital of Rio Grande do Sul). In these cities, PT mayors successfully introduced
new priorities for their city administrations, as well as more democratic and
accountable political practices. The best-known and most significant example of these
practices is the participatory budget.12
The participatory budget was originally developed in Porto Alegre, and it later spread
to other cities and – less successfully – to states governed by the PT. This is a robustly
democratic budgetary process, that is highly resistant against traditional forms of
corruption. In the participatory budgets sponsored by the PT part of the available
investment funds were allocated through a system of public meetings starting at the
neighbourhood level and completed, in stages, at the level of the municipality or state.
Although the outcome must be incorporated into the budget law and approved by the
local council or state assembly, the political weight of the participatory process
renders this share of the budget virtually immune to traditional political bargaining.
In spite of their virtues, participatory budget processes have achieved mixed results.
Differences in population size, resource availability, political culture, tradition of
independent mass organisation and the local correlation of forces have played
important roles in the outcome of these experiences. Moreover, there seem to be
limits to the type of project that can be successfully funded by participatory budgets.
Experience shows that it is difficult to discuss large infrastructure projects at the local
level, while smaller initiatives (the expansion of the water or sewerage networks,
street paving priorities, and so on) can be addressed efficiently. Finally, the
relationship between the PT and the local mass organisations is also important. When
they are close the participatory budget process tends to be more successful than when
there is political friction and point-scoring between opposing parties at the local level.
These limitations have played an important role in the failure of the experiences of
participatory budgeting at state level, where the competing projects tend to be larger
and political divisions are more significant.
11
The success of several local and state administrations led by the PT and the party’s
‘incorruptible’ image gradually moved to the forefront, at the expense of the PT’s
demands for social change. In the nineties, the PT increasingly presented itself as the
only party untainted by corruption, and the PT was widely admired for its managerial
capacity at local level. This political shift paid enormous dividends in the short run,
and it helped to enhance the party’s electoral appeal to an entirely new constituency:
the moderate middle class, the informal sector workers, and many industrial
capitalists.
The PT repositioned itself incrementally. In the early nineties, Lula and party
president (and, later, cabinet office minister) José Dirceu drew up a two-pronged
strategy to isolate the party’s left wing. On the one hand, leftists were gradually
removed from positions of influence in the party, PT candidates refusing to establish
local alliances with mainstream political forces were sidelined, and increasingly
moderate resolutions were passed by the party conferences. For example, in 1999, the
PT congress approved a ‘Programme for the Brazilian Democratic Revolution’,
stating that social and democratic reforms could be achieved in Brazil only by a broad
coalition. The party congress also gave Lula carte blanche to establish any political
alliances that may be needed to support his presidential election in 2002.13 On the
other hand, Lula set up the Instituto Cidadania (Citizenship Institute) in the early
nineties, and staffed it with hand-picked loyalists in order to develop public policies
outside the gaze of the PT. At the turn of the millennium, the PT leadership felt that
the party was finally ready to govern the country.
4. The 2002 Elections and the Reproduction of Neoliberalism in Brazil
The exhaustion of the majority (including a significant part of the Brazilian elite) with
president Cardoso’s neoliberal policies was evident long before the 2002 elections.14
It was widely believed that the government was unable to overcome Brazil’s chronic
economic stagnation, the administration was highly unpopular, and many journalists
and commentators claimed that the social tensions in the country were becoming
unbearable. The neoliberal camp fractured. No candidate was willing to defend the
12
government’s record, and many Cardoso’s supporters deserted his candidate, José
Serra.
Lula rapidly acquired a commanding lead in the opinion polls. However, his leftist
roots, the traditional association of the PT with radical political and economic
demands and the party’s strong links with large mass organisations, especially CUT
and the MST, indicated that his administration might reject neoliberalism and seek a
left-social democratic alternative. For example, many petistas argued that, in order to
reduce the leverage of financial capital over economic policy-making in Brazil, it was
necessary to default or, at least, reschedule the payment of the domestic public debt
and the country’s external debt.
Early in 2002, several financial institutions expressed their concerns by refusing to
purchase federal securities maturing after 31 December (the last day of Cardoso’s
presidency). The timing was especially sensitive because the domestic public debt
was equivalent to 44 per cent of GDP, and most of the outstanding bills would mature
in less than 240 days. The weekly open market auctions became largely fruitless, as
the brokers demanded increasing interest rates to roll over the government debt. If
these rates were not forthcoming, the brokers liquidated their positions and shifted
funds to the dollar market, devaluing the Real. At the same time, their international
partners downgraded Brazilian bonds and foreign debt certificates, allegedly because
of ‘lack of policy credibility’. This pretext led the foreign banks to start recalling their
short-term loans and commercial credit lines, half of which were lost in a matter of
weeks. The dollar climbed steadily from R$1.95 in January to R$2.75 in October
(domestic inflation was only 4 per cent during that period).
The unfolding crisis had immediate political repercussions. The media stridently
demanded that ‘all’ presidential candidates (i.e., Lula, the only candidate that
mattered) must vouch for the continuity of Cardoso’s neoliberal policies in order to
‘calm the markets’. The Finance Minister and the President of the Central Bank later
demanded on television that the presidential candidates must explain their economic
programmes to ‘the markets’. Lula’s poll leadership was shrinking rapidly, and he
decided to counter-attack in order to secure the support of the centre. Lula issued a
Letter to the People of Brazil (June 22, 2002), stating that his government would
13
respect contracts (i.e., service the domestic and foreign debts on schedule), and
implicitly agreeing to enforce the IMF programme negotiated by the Cardoso
administration.15 This letter was sufficient to secure Lula’s leadership in the polls and,
later, to open to the PT the doors of financial institutions and conservative
governments around the world. It also offered the opportunity to broaden Lula’s
coalition further towards the centre-right. Assisted by one of Brazil’s best-known
advertising agencies, Lula sailed to a tranquil victory.
This episode shows that capital movements can cause significant economic instability
and inflict lasting damage to important segments of the Brazilian economy. The ever-
present possibility of similar events taking place in the future (in the absence of
controls on international capital flows) induced the PT to accept the temporary
economic tutelage of the IMF, and to abdicate from considering significant economic
policy changes during Lula’s administration. After the Letter, Lula’s platform openly
contradicted the historical demands of the PT.
Lula’s surrender to neoliberalism was motivated not only by the policy preferences of
the PT leadership; it also responded to the demands of his coalition. Lula’s
presidential bid in 2002 was supported by an alliance of losers: a coalition of groups
having in common only the experience of losses under neoliberalism. This alliance
was structured around four such groups. First, the unionised urban and rural working
class, including skilled and semi-skilled manual and office workers, the lower ranks
of the civil service, and sections of the professional middle class. It was showed above
that these groups are the backbone of the Brazilian left, and that they have lost out
heavily under neoliberalism.
Second, Lula was supported by large segments of the unorganised and unskilled
working class, especially the informal and unemployed workers of the metropolitan
peripheries. Some of these groups had been reluctant to engage with the PT
previously, partly for ideological reasons (especially their attachment to clientelist and
populist political practices) and partly because of the scarcity of channels connecting
them to the party (in contrast, multiple and overlapping channels linked the PT to the
formal sector workers, including the trade unions, social movements and the Catholic
church). In 2002, these numerically large but relatively unorganised groups were
14
attracted to Lula by their rejection of neoliberalism and by Lula’s alliance with
several evangelical churches, in whose flock these workers are disproportionately
represented.
Third, several prominent capitalists also supported Lula, especially among the
traditional manufacturing elite of the Southeast. They were disappointed by the failure
of the neoliberal growth strategy associated with president Cardoso. Many were also
exhausted by the prolonged stagnation of the Brazilian economy, the onslaught of
transnational firms and the pressure of competing imports, especially after the hasty
liberalisation of imports in the early nineties. Finally, some magnates were concerned
with the destructive social implications of neoliberalism, especially the perceived
deterioration of the distribution of income and wealth and its presumed security
implications: violent crime, random shootings, kidnappings, the growing power of
drug-trafficking gangs, and so on. These capitalists hoped that Lula would combine
economic ‘responsibility’ with an aggressive strategy to tackle Brazil’s ingrained
social problems. Their preferred economic strategy was both nationalist and
expansionary. It was based on the reduction of the debt burden of productive capital,
the minimisation of exchange rate volatility, the rationalisation of the tax system, the
expansion of state procurement and marginal income distribution. Typically, Globo, a
historically right-wing and heavily indebted media empire, ditched the official
presidential candidate relatively early, and supported Lula hoping that his ‘nationalist’
administration would help the corporation to avoid bankruptcy.
Fourth, several right-wing oligarchs, landowners and influential politicians from the
poorest regions of Brazil also supported Lula. This unexpected development was not
due to pressure from below; rather, it was the outcome of a shrewd political
calculation. Since the early nineties, these oligarchs and their protégés had been
squeezed out of their influential positions in Brasília by the encroachment of a new
cohort of upper- and middle-managers of state institutions appointed by the financial
interests associated with neoliberalism. In contrast with the previous generation of
lawyers, engineers and talentless political appointees coming from the poorest
regions, these new managers were economists, financiers and professional managers
carefully trained in the neoliberal arts in the best Brazilian and international
universities. The traditional oligarchy had also been starved of development funds by
15
the fiscal austerity measures imposed since 1990, which had eroded their political
clout. Finally, they felt betrayed by a ‘dirty tricks’ campaign allegedly inspired by
president Cardoso and his party’s candidate, José Serra. By switching their support to
the PT, the oligarchs aimed to defeat the neoliberal interests associated with Cardoso.
They also anticipated that Lula would depend heavily on their support in Congress
and in the State Assemblies, and that the PT would be sensitive to the plight of the
poor regions – both of which would maximise the oligarchs’ political power and
influence.
Two important groups resisted Lula’s advances, in spite of the PT’s effort to broaden
the coalition as much as possible. Unsurprisingly, most of the elite refused to support
Lula, although their resistance was much less vociferous in 2002 (and, to a lesser
extent, in 2006) than in previous elections. The other reluctant group was the urban
middle class. This group is relatively small, internally divided and ideologically
unstable, but it is also highly influential politically because of its privileged access to
the media and the organised social movements, and its ideological influence over the
working class. Although the middle class includes a significant left-wing
constituency, important segments remain attached to clientelistic politics, landowner
interests and right-wing ideology. This group suffered badly under neoliberalism.
‘Good jobs’ in the private and public sectors have contracted drastically, higher
education no longer guarantees sufficient income to satisfy their aspirations, and
young adults are frequently unable to emulate the social and economic achievements
of their parents. This group as a whole strongly desired expansionary economic
policies; however, many were reluctant to abandon the neoliberal-globalist ideology
that they had assimilated only recently, and they were also frightened by the ‘radical’
image of the PT. Under intense pressure from all sides, the urban middle class
splintered across the political spectrum.
The analysis in this section indicates that the Lula administration is structurally
limited in three important ways. First, Lula was originally elected by an unstable
coalition of incompatible social forces supporting an expansionary economic
programme. Beyond this, the ‘losers’ had only a very limited range of short-term
objectives in common, and their alliance could offer consistent support to the
government. Second, the PT leadership felt that the party had to submit to the power
16
of domestic and international finance because of the threat of a financial, balance of
payments and exchange rate crisis in Brazil. In doing this, the PT surrendered to the
interests that it had attempted to defeat for more than two decades. Finally, the losers’
alliance and the forces supporting the Lula administration in Congress and at local
level never supported a decisive policy shift away from neoliberalism. The disparity
between Lula’s impressive victories, the distribution of seats in Congress in 2002 and
2006, and the left’s lack of influence upon the judiciary shows that radical changes
are not unambiguously popular, and they may be unenforceable. In sum, although
Lula’s two presidential elections created the expectation of change, especially among
his leftist supporters, the president never had a mandate for radical change, and he
was never even committed to specific outcomes or processes of change.
The first Lula administration showed that the PT can impose neoliberal policies more
consistently and successfully than any other government, however right-wing or
ideologically committed to the neoliberal interests. This helps to explain the re-
election of Lula in 2006, and the ambiguities surrounding his second mandate. It
seems that neoliberalism has achieved the perfect coup: after the corrupt maverick
(Fernando Collor) and the aristocratic ex-Marxist sociologist (F.H. Cardoso), it is now
the turn of the former trade union leader to impose the policies favoured by the
financial interests and the neoliberal elite in Brazil.
5. Conclusion: The End of the PT
The policies implemented by the Lula administration have closed the third cycle of
the Brazilian left since the early twentieth century. In power at the federal level, the
PT has completed its transformation into a conventional political party: it has become
indistinguishable from the parties that it previously opposed. The PT has ditched its
commitment to radical social and economic reforms; it has condoned the compression
of real wages, deindustrialisation and denationalisation; it has abdicated from the
responsibility to promote rapid economic growth based on the domestic market, and it
has sponsored corrupt political practices in Congress and at the federal level. The
trajectory of the PT as a left-wing organisation has been completed. The party has
become a mainstream political organisation, narrowly pursuing conventional
17
economic policies and promoting the short-term interests of its managers, their
wealthy supporters and the financial markets.
At this stage, the role of the PT has become destructive of what remains of the left in
Brazil – the PT government promotes neoliberalism, undermines the resistance
against it, drags its supporting organisations and political parties down the neoliberal
road, and fosters the division of the Brazilian working class. The PT is no longer a
party of the left but, essentially, an instrument of the Brazilian right, regardless of the
best intentions of the vast majority of its militants, that remain committed to left-wing
ideals. In spite of this internal tension, it is impossible to reform the PT. It has been
shown recently, in the wake of the corruption scandals that tainted the first Lula
administration, that the institutional structure of the party does not permit the defeat of
its ruling group and, more to the point, the shift of government policy. This group has
become hegemonic through ideological indoctrination, organisational control, state
power, and the promotion of the economic interests of their supporters. The most
likely outcome is that the members dissatisfied with the transformation of the PT will
gradually leave the party or abandon any attempt to participate in political life. Like
the PCB at the end of the previous cycle of the Brazilian left, the PT is likely to
survive for many years. It may dwindle as its disillusioned militants abandon ship, but
it may also grow substantially, from time to time, through serendipitous electoral
successes.
The current state of fragmentation of the left and the working class in Brazil indicate
that the current crisis of the Brazilian left defies rapid resolution. It is likely to last
many years, and it cannot be resolved simply through the creation of another political
party (as was attempted recently by the founders of the Party of Socialism and
Freedom, PSOL). Attempts to address this crisis will need to address two questions
consistently: what is the nature of the Brazilian working class under neoliberalism,
and what forms of organisation and political activity can promote its interests? These
questions cannot be answered purely academically. Responses can be found only in
practice, as the Brazilian workers struggle to discover new forms of political activity
in order express their interests in the face of a bitterly hostile political environment.
18
References
Bianchi, A. and Braga, R. (2003) Le PT au Pouvoir: La Gauche Brésilienne et le
Social-Liberalisme. Carré Rouge 26, pp.49-60.
Boito, A. (2003) A Hegemonia Neoliberal no Governo Lula. Crítica Marxista 17,
pp.10-36.
Branford, S. and Kucinski, B. (2003) Politics Transformed – Lula and the Workers’
Party in Brazil. London: Latin American Bureau.
Goldenstein, L. (1994) Repensando a Dependência. Rio de Janeiro: Paz e Terra.
Löwy, M. (2003) O Marxismo na América Latina. São Paulo: Fundação Perseu
Abramo.
Mantega, G. (1984) A Economia Política Brasileira. São Paulo and Petrópolis:
Polis/Vozes.
Mir, L. (1994) A Revolução Impossível: A Esquerda e a Luta Armada no Brasil. São
Paulo: Editora Best Seller.
Morais, L. and Saad-Filho, A. (2003) ‘Snatching Defeat from the Jaws of Victory?
Lula, the Workers’ Party and the Prospects for Change in Brazil’, Capital & Class 81,
pp.17-23.
Morais, L. and Saad-Filho, A. (2005) ‘Lula and the Continuity of Neoliberalism in
Brazil: Strategic Choice, Economic Imperative or Political Schizophrenia’, Historical
Materialism 13 (1), pp.3-32.
Morais, T. and Silva, E. (2006). Operação Araguaia. Brasília: Geração Editorial.
Oliveira, F. (2003) ‘The Duckbilled Platypus’, New Left Review 24, pp.40-57.
Pochmann, M. (1999) O Trabalho sob Fogo Cruzado: Exclusão, Desemprego e
Precarização no Final do Século. São Paulo: Contexto.
Saad-Filho, A. (2003) New Dawn or False Start in Brazil? The Political Economy of
Lula’s Election, Historical Materialism 11 (1), pp.3-21.
Saad-Filho, A. and Mollo, M.L.R. (2002) ‘Inflation and Stabilization in Brazil: A
Political Economy Analysis’, Review of Radical Political Economics 34 (2), pp.109-
135.
Saad-Filho, A. and Morais, L. (2002) ‘Neomonetarist Dreams and Realities: A
Review of the Brazilian Experience’, in P. Davidson (ed.) A Post Keynesian
Perspective on 21st Century Economic Problems, Cheltenham: Edward Elgar.
Tavares, L. (2003) O Debate sobre o Gasto Social do Governo Federal, ou “Os
Economistas da Fazenda Atacam Outra Vez”, www.lpp-
uerj.net/outrobrasil/Link_OutroBrasil/ANALISES/Laura.11.2003.pdf
Watson, M. (2002) ‘The Institutional Paradoxes of Monetary Orthodoxy: Reflections
on the Political Economy of Central Bank Independence’, Review of International
Political Economy 9 (1), pp.183-196.
19
Table 1: PT election results, 1982-2006 (number of elected candidates).
Year State
Governors
State
Deputies
Senators Federal
Deputies
Mayors Municipal
Councillors
1982 0 12 0 8 2 127
1986 0 40 0 16 - -
1988 - - - - 37 1006
1990 0 81 1 37 - -
1992 - - - - 54 1100
1994 2 92 5 50 - -
1996 - - - - 115 1895
1998 3 90 8 60 - -
2000 - - - - 174 2475
2002 3 147 14 91 - -
2004 - - - - 411 3679
2006 5 126 11 83 - -
Sources: Branford and Kucinski (2003, pp.31, 36), <www.pt.org.br> and PT national
committee (personal communication, 5 January 2007).
Table 2: Brazilian presidential elections, number of votes and percentage of votes
received, 1989-2006.
Year Winner
(votes, %)
Runner-Up
(votes, %)
1989
(1st round)
Fernando Collor
(20.6m, 30.5%)
Lula
(11.6m, 17.2%)
1989
(2nd round)
Fernando Collor
(35.0m, 53.0%)
Lula
(31.0m, 47.0%)
1994 Fernando Henrique Cardoso
(34.4m, 54.3%)
Lula
(17.1m, 27.0%)
1998 Fernando Henrique Cardoso
(35.9m, 53.0%)
Lula
(21.5m, 31.7%)
2002
(1st round)
Lula
(39.4m, 46.4%)
José Serra
(19.7m, 23.2%)
2002
(2nd round)
Lula
(52.8m, 61.3%)
José Serra
(33.4m, 38.7%)
2006
(1st round)
Lula
(46.7m, 48.6%)
Geraldo Alckmin
(40.0m, 41.6%)
2006
(2nd round)
Lula
(58.3m, 60.8%)
Geraldo Alckmin
(37.5m, 39.2%)
Source: Saad-Filho (2003, p.10) and www.tse.gov.br.
20
Notes:
21
1 Myself included; see, for example, Saad-Filho (2003).
2 In April 2003, IMF managing director Horst Köhler stated: ‘I am enthusiastic [about the new
Brazilian administration]; but it is better to say [that] I am deeply impressed by President Lula ...
because I do think [that] he has the credibility which often other leaders lack a bit, and the
credibility is that he is serious to work hard to combine growth-oriented policy with social equity
(sic). This is the right agenda, the right direction, the right objective for Brazil … I [also] think
[that] what the government, under the leadership of President Lula, has demonstrated in its first 100
days of government is also impressive and not just airing intention’
(http://www.imf.org/external/np/tr/2003/tr030410.htm). Later, Anne Krueger, IMF first deputy
managing director and acting chair, declared that ‘The [Brazilian] government’s sound policies
have contributed to increase international reserves, helped improve the composition of public debt,
and fostered a swing in the external current account … The conduct of fiscal and monetary policy
remains commendable … Within this fiscal framework, the government’s focus on modernizing
Brazil’s infrastructure and implementing a prudent mechanism for private-public partnerships …
should help increase growth … The conduct of monetary policy has been appropriately cautious in
light of recent uncertainties, solidifying the credibility of the monetary authorities and maintaining
inflation on a path toward the government’s goals’
(http://www.imf.org/external/np/sec/pr/2004/pr04118.htm).
3 This section does not assess in detail the performance of the Brazilian economy under the Lula
administration; this is done in the other chapters in this book.
4 These cycles were initially suggested by Cesar Benjamin (personal communication, June 2004),
but they have been adapted and modified in this chapter. For a similar interpretation, see Bianchi
and Braga (2003) and Boito (2003). The review of the history of the PT in this chapter draws
primarily on Branford and Kucinski (2003).
5 See Goldenstein (1994), Löwy (2003, part 2, V-VI) and Mantega (1984).
6 For a review of the Brazilian left during this period, see Mir (1994). The only minimally
successful guerrilla operation in the country was sponsored by the Maoist Communist Party of
Brazil (PCdoB) in the southeastern fringe of the Amazon rainforest. A few dozen guerrillas based in
the region since 1966 managed to resist against three Army incursions between 1972-74, but they
were eventually defeated (see Morais and Silva 2006).
7 Two especially important organisations were the Brazilian Movement for Amnesty (MBA), a
broad front campaigning for amnesty to all political prisoners and the right of return of Brazilians
exiled or banished for political reasons, and the Movement Cost of Living (MCV), that collected
millions of signatures in petitions demanding inflation control and real wage increases for the low
paid.
8 The PCB changed its name to Brazilian Communist Party in 1958, in order to apply
(unsuccessfully) for its legalisation. A Maoist splinter group recovered the name Communist Party
of Brazil in 1962, and adopted the acronym PCdoB. In the late sixties this party shifted towards
Enver Hoxha’s Albania. The PCdoB has been a satellite of the PT since the late eighties.
9 See Saad-Filho and Morais (2002).
10 See Saad-Filho and Mollo (2002, 2006).
11 For an assessment of the transformations in the Brazilian working class under neoliberalism, see
Pochmann (1999).
12 See Branford and Kucinski (2003, ch.4).
13 See Branford and Kucinski (2003, pp.45-52).
14 See Morais and Saad-Filho (2003, 2005), Saad-Filho (2003).
15 This letter is available in English and Portuguese at <www.pt.org.br>.
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Abstract This article outlines a political economy analysis of Brazilian high inflation and stabilization. The paper explains the distributive and monetary aspects of inflation and the gradual fragmentation of the Brazilian currency. It also reviews the most important aspects of the Real stabilization plan, the de-indexation of the economy, and its rapid “liberalization” and “internationalization.” The paper shows that, in spite of the successful reduction of inflation, the Real plan was highly vulnerable to shifts in international liquidity; partly for these reasons, it led to de-industrialization and high unemployment. In addition to this, the Real plan contributed to an increase in income inequality and the development of sharp social conflicts in Brazil. These weaknesses were the main factors responsible for the currency crisis in January 1999. © 2002 URPE. All rights reserved
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