PETRAS ESSAYS IN ENGLISH

Nov. 29, 2002

Epilogue

James Petras

By most economic measures the Cardoso regime was the worst in the 20-21st century. But one of the positive results of its failures was to provoke a massive shift to the left among the electorate. In the October 2002 Presidential elections, Workers Party's presidential candidate Luiz Ignacio "Lula" da Silva received a record 52 million votes or 61.4% against President Cardoso's choice Jose Serra's 38.6%. The election of Lula reflected the abysmal conditions of the Brazilian economy and the great expectations among his working class and peasant followers that his government would carry out a profound redistribution of income and land, as well as significantly improve social services, job opportunities and re-socialize strategic industries.

Though sectors of the Brazilian capitalist class did come out in support of Lula, observers estimate that over eighty percent of his vote came from the urban and rural poor expecting basic social changes and a rupture with the existing neo-liberal model.

The new Workers Party President however is far from the leftist candidate of past years. In the run-up to the elections, Lula chose as his vice president a textile magnate Alencar of the right-wing Liberal Party. He forged alliances with right-wing evangelical groups and trade unions provoking protest from progressive Catholic clergy and the left-wing Workers Confederation (CUT). Lula also signed a pact with the IMF promising to maintain debt payments, a tight fiscal policy and a 3% surplus of the budget to meet debt obligations. He also agreed to continue negotiations on the Free Trade of the Americas pact promoted by Washington, and refused to endorse an informal referendum on the issue promoted by church and social movements. What Lula promoted was essentially a centrist program of (1) lowering interest rates for business investors based on his distinction between "productive" and "speculative" capital; (2) financing poverty programs so that the poor would eat three meals a day, (3) improving public educational and health programs; (4) protecting local industries; (5) carrying out an agrarian reform program. Lula's turn toward the center-right and away from a program of structural changes is not surprising. At the most recent Party congress, over 75% of the delegates were mostly middle class professionals, public officials etc; the other 25% included trade union officials and a sprinkling of leaders from social movements. Twenty years earlier, the Workers Party was based on factory representatives, activists from the urban slums, rural movements and "base communities" from the progressive Church. The "right turn" of Lula is not merely a reflection of a tactical move to win electoral support , but reflects the internal structural change in the composition of the Workers Party. Secondly the internal structures of the Party have changed dramatically. In its earlier years the Workers Party was directly linked to the social movements. By the early 1990's the Party evolved into an electoral machine, separate from the movements and tied to the institutional structures and its elected officials at the local, state and national level. With this shift, the mass popular base had less and less influence on the Party program and elected officials, who increasingly evolved into conventional bourgeois politicians, many of whom privatized public services and developed alliances with business elites. Lula's programatic shift was preceded by the right-wing drift of many Workers Party governors, mayors and other local legislators. The most striking example is Antonio Palocci, one of Lula's principle electoral strategist and first Cabinet appointment (Minister of Economy). As mayor of Ribeirao Preto, a city in Sao Paulo State, Palocci privatized the municipal telephone and water companies and allied himself with the sugar barons, arch enemies of the rural laborers. Palocci's term as mayor also points to the deficiencies of his "right-turn". After 7 years in office only 17% of the city's waste water is being treated, unemployment and crime rates grew and the waiting time and lines at hospitals grew even longer.

Lula's chances of succeeding in substantially improving the living standard of the Brazilian poor, funding an agrarian reform and large scale financing to promote employment and industrial expansion are extremely dubious, given his pre-election class alliances, and economic agreements.

First his agreement with the IMF means that there will be little if any funds available, once the government sets aside 3% surplus of the budget to pay the public debt. Second, Cardoso's 23% rate of interest is based on the need to keep attracting foreign capital to prevent inflation. Lula's acceptance of the "anti-inflationary" agenda means that he will be unable to substantially decrease interest rates to stimulate local "productive" investment. Given Lula's budgetary agreements and his ties with the business elites he is unlikely to be able to respond to workers demands for higher pay or even to substantially raise the minimum wage. If Lula should respond by meeting in part popular expectations, he can expect the IMF to cut off loans. If he lowers interest rates to stimulate local investment, overseas investors are likely to withdraw pushing up the rates of inflation. While controlled inflation can be a positive policy tool, in many ways, it would put Lula on the black-list of the international financial institutions and the local privatized banks. By committing himself to the neo-liberal agenda, Lula will hardly be in a position to initiate any new programs, even those promised to his new allies among the business elite. Moreover there is the danger that the new regime will even turn toward repressive measures to contain popular demands within the boundaries imposed by the IMF and the Liberal Party. During the election campaign Lula promised to use the full force of his regime to clamp down on illegal land occupations referring to he MST's land settlement programs for the landless workers. As we described earlier Cardoso followed a similar repressive path in keeping with his pre-electoral agreements with the landlord controlled Liberal Front Party. There is no question that Lula inherits an economy in disastrous conditions: rising inflation, nearly $20 billion dollars in annual debt payments, negative external accounts, negative per capita growth, a declining currency, large scale capital flight, widening inequalities, and growing unemployment and poverty. But there are two views on the Brazilian crisis. The progressive perspective sees the crisis as an opportunity to transform the country, arguing that precisely the failure of the liberal policies and right-wing alliances requires a sharp break with the past and a left turn toward redistributing wealth to stimulate the local economy, the re- nationalization of industry and financial institutions to retain earnings for domestic investment and to generate employment, and an agrarian reform to stimulate rural consumption of industrial products and to reduce food imports.

The conservative perspective which predominates in the Lula regime is to argue that the domestic crisis requires conformity with the existing model in order to "stabilize" and to "reactivate" the economy, in order to pursue a social agenda after the crisis has been overcome. Essentially this "two-stage" approach foresees only incremental changes in the form of public spending .

In our view the conservative perspective will only perpetuate or even deepen the crises and indermine even the marginal reforms. The problem of "poverty reduction" can only be tackled by confronting the concentration of wealth which produces poverty and perpetuates inequalities. And the most effective way of challenging the flows of income upward and outward is by changing property forms and the social relations of production.

The new regime has a mandate for a social transformation from over 90% of the 52 million who voted for Lula . If the Workers' Government succumbs to the blandishments of marginal trade concessions of the Bush Administration and loans from the IMF and World Band and turns its back to the majoritarian demands for basic social changes, it will not only disillusion millions of its followers but it will postpone Brazil's development for another generation.

Three weeks following his landslide electoral victory Lula gave a clear signal of the direction his regime would take. He convoked a meeting of trade union and rural worker leaders, employers and government officials to discuss a "social pact". The main item was "labor reform" conceived as giving employers greater power to hire and fire workers, freezing wages, eliminating an employers' tax to fund social programs and trade unions, and allowing employers to negotiate contracts that override legally established worker benefits. While Lula has given priority to backing employers' demands, he has dismissed demands to immediately raise the minimum wage of $50 dollars a month. He promises to consider a raise of about 10% ($5) in the middle of 2003. It is clear that far from representing his worker constituencies, Lula, like his predecessor Cardoso, gave left signals before the elections, and a right turn after the elections. The two major trade unions the CUT (the United Workers Confederation) and the Union Force (Forza Sindical) and the Landless Rural Workers (MST) have strongly rejected Lula's proposal and affirmed their independence from his regime. How aggressively Lula pursues his pro-business agenda will determine how soon the rupture between his regime and the trade unions will occur.