PETRAS ESSAYS IN ENGLISH

September 8, 2002

Brazil: Neo-Liberalism, crises and electoral politics

James Petras

Introduction

Brazil is the ninth biggest economy in the world, geographically almost as large as the USA with nearly 200 million people and in the deepest economic crises in 70 years. Like South Korea, Brazil is an industrialized country with 75% of the people living in cities. Brazil has the ignominious distinction of having the worst income and land inequalities in the world. Today its unemployment and underemployment rate is nearly 50% and its economy is in deep crises its per capita income has declined for five of the last six years. To understand the political economy of the contemporary crises it is useful to briefly survey recent Brazilian history, then examine the neo-liberal regression of the past 8 years as a context for discussing the current crises, the Presidential elections of 2002, the right turn of the Workers Party and the perspectives for the workers and peasant movement.

Historical Survey

In 1930 the liberal export strategy collapsed, as the demand for agricultural products (coffee, rubber, etc.) declined precipitously. Beginning in the mid- 1930s Brazil under President Vargas embarked on a nationalist-statist- industrialization strategy similar to South Korea's in the 1960s. Between 1940- 1980 Brazil's GNP grew between 6% and 9% each decade. Protectionism and direct state investment led to a diversified industrial sector (textiles, steel, etc.) and the growth of a significant working class. The urban working class was organized in corporatist state controlled trade unions in competition with the class based trade unions. The government provided social welfare and protective labor legislation on the one hand and repressive measures against class based trade unions. In the early 1960s, the alliance between populist labor, the national bourgeois and the state went into crises: labor unions demanded greater independence and wages, peasants occupied land, and the Marxist left was gaining influence.

The military backed by Washington overthrew the elected government in 1964 and the military ruled with an iron fist until 1985.

The new economic strategy of the military was essentially based on an alliance between the state, the multi-nationals and the Brazilian big bourgeoisie. The shift was from producing for the domestic market to exports; labor's share of national income declined even as the size of the working class increased. State enterprises were 50% of the 100 largest enterprises in Brazil. By the end of the 1970s rapid growth of the automobile and metal industries created a "new working class" which began to organize independently of the state under the influence of several Marxist and leftist catholic worker organizations. In the 1980s the export model de- accelerated, the workers formed an independent union the CUT - and class- based party, the Workers Party (WP). The WP was a broad coalition of movements from the urban slums, landless rural workers, petit bourgeois professionals and the CUT. In 1989 the WP came within 2% of winning the Presidential elections. By the early 1990s, the economic model based on state capital and the MNC was in crisis: hyperinflation of over 1000%, rising debt payments and relative economic stagnation led to a shift to the right and the election in 1994 of Cardoso, an ex-Marxist sociologist. In summary, Brazil went through 4 phases: 1. liberalism until 1930 crises; 2. national-statism 1935-64; 3. state-MNC export strategy 1965-94; 4. neo-liberalism 1995-2002.

President Cardoso and the Neo-liberal Failure 1995-2002

President Cardoso's eight year Presidency witnessed a reversal of 50 years of progress: he privatized the most profitable and successful state industries and banks; he opened Brazil's markets to cheap, subsidized food and information technologies, displacing millions of peasants and undermining local industry; he borrowed heavily from foreign banks mortgaging future export earnings and he deregulated the economy leading to ecological devastation of the Amazon rain forest. The IMF, World Bank, and private banks of the US, Japan and the European Union lent the Cardoso regime tens of billions of dollars and called Cardoso a model reformer. Within the country however the response from the workers, peasants and universities was hostile.

Under neo-liberalism Brazil's per capita GNP has been growing at 1%; its GNP in dollar terms has declined from $705 billion in 1995 to $504.8 billion in 2001. Brazil's growth rate in the 1990s is the lowest in the 20th century. Brazil's free market has led to a negative trade balance throughout the past 8 years and after interest payments and profit remittances of a negative cumulative current account balance of $182 billion between 1995- 2002. The foreign debt has grown from $148.3 billion to $228.6 billion in 2001 and fast approaching $250 billion in 2002. While Cardoso has been borrowing heavily overseas and paying exorbitant interest rates, he has slashed public spending. In 1995 the regime spent 20.3% of its tax revenues on education, in 2000 it spent 8.9%; in 1995 it spent 9.2% on higher education in 2000, 4.2%. In contrast in 1995 it paid 24.9% of revenues in interest payments for public debt, in 2000 it paid lenders 55.1%.

The response from the left opposition is mixed. The MST landless workers movement occupied thousands of uncultivated plantations and settled over 150,000 families, and was in constant mobilization. The CUT, the trade union confederation, heavily bureaucratized and dependent on government subsidies, made radical criticism of the neo-liberal policies, but was not willing to mobilize the working class to confront Cardoso. They preferred to adapt to the regime's offensive and receive "compensation" for mass firings. Worst of all the Workers Party which began as a coalition of grassroots movements which combined direct action and electoral politics evolved into a bureaucratic party controlled by middle class professionals and trade union bureaucrats and is completely oriented to electoral campaigns and the privileges of government office-holding.

Year 2002: Financial Collapse, Elections and Anti-ALCA

The year 2002 is the year of the near financial collapse of the Brazilian neo-liberal model. Debt payments of 30 billion, capital flight of $20 billion, and interest rates of 18% to 20% have driven Cardoso's neo-liberal economy to the verge of economic collapse in the same manner as Argentina. Only a $30 billion loan from the IMF temporarily staved off Brazil's bankruptcy. The real, Brazil's currency has devalued over 40% since January 2002. The economy is totally stagnant with predicted growth between 0 and 1 percent. Brazil's net public debt as a share of GDP is 60%. With only $15 billion in foreign capital flowing in and external financing requirements of $50 billion, few public firms left to sell off and external credit lines for exporters drying up, it is clear to everyone including financiers, that the Brazilian neo-liberal economy is heading for a crash.

In addition to the deep structural problems, foreign and domestic investors are withdrawing their capital from Brazil because of their lack of confidence in the leading candidates in the Presidential elections. The pro-government candidate Jose Serra is in third place with 15% support (Sept. 1, 2002) far behind the labor front candidate Ciro Gomes with 25% and Lula da Silva of the WP with 35%.

In reality the electoral fears of investors is not warranted as both Left candidates have accepted neo-liberal programs. Ciro Gomes supposedly a center-Left candidate for the Workers Front has endorsed the latest IMF adjustment program (August 2002), supports the US-sponsored Free Trade Area of the Americas (ALCA in Spanish) and promises to maintain the privatized enterprises and meet foreign debt payments. He has appointed a disciple of Milton Friedman the free market guru, as his principle economic adviser. Lula has selected a big textile capitalist who is an enemy of the trade unions as his vice presidential candidate, formed an alliance with the right-wing Liberal Party, embraced the IMF agreement and ALCA and opposes MST land occupations. He has allied himself with the right-wing Pentecostal church and has frequently met with US embassy officials and bankers guaranteeing them continuity in economic policy. It is clear that there is nothing progressive in Lula's program. He has renounced every social democratic and anti-imperialist demand. Lula and the leadership clique of the PT and their electoral machine are more interested in obtaining government positions and serving the banks, than benefiting the people.

The fear of investors is not directed at Lula but of his mass supporters who Lula might not be able to control after he takes office. They fear he might not be sufficiently repressive to contain popular demands. More significantly foreign investors fear that Lula will not be able to implement his promises to the IMF austerity program because of mass pressure. Foreign investment bankers know that Brazilian capitalism is collapsing and that is the objective preoccupation; and they know that only a hard right-wing regime will be able to savage living standards to meet external debt payments. Hence they are not 100% confident in Lula, even through programmatically he is today a liberal politician.

The evolution of the WP in Brazil is typical of many former ex-Leftist parties. They start with internal democracy and grass roots direct action, then they move to combining electoral and grass roots organization; as they gain political office they become divorced from the people's struggle, even as they continue to mouth the earlier Leftist slogans; as the party becomes institutionalized it develops financial needs for its electoral campaigns hence, it uses public funds and receives donations from business interests. In the final phase the party openly embraces business interests, suppresses internal democracy and offers empty platitudes to the masses. The leaders become respectable guests of the US embassy, engage in friendly dialogues with bankers and promise a "million jobs" for the poor and unemployed.

2002: The Opposition

The major mobilization of the Left in 2002 is not the electoral campaign but the referendum against ALCA. The main forces engaged in this campaign is the MST, the progressive catholic bishops, dissident trade union activists, the United Socialist Workers Party (PSTU) and thousands of progressive movement and NGO activists. They hope to get 10 million voters to support the referendum despite the opposition of all the mass media, all the major electoral parties and presidential candidates. The anti-ALCA campaign is a nationwide organizing effort at anti-imperialist education and opposition to a common market in which the US would clearly dominate all trade and investment, destroying public services, local producers, especially in agriculture and industry.

The ex-Maoist Communist Party of Brazil is against the ALCA referendum but they are absent from the struggle. Their main activity is supporting Lula's electoral campaign.

The CUT is critical of Lula because he has developed working relations with its rival the reactionary trade union (Fuerza Sindical) and because he has an alliance with the anti-trade union Liberal Party. But the leadership still actively supports Lula as the "lesser evil" or as a "workers" candidate. Many trade union activists and militants are either abstaining and some are supporting the PSTU, a Trotskyist party with a radical Left program. The MST leaders have sharply criticized Lula as have many catholic activists yet some of the MST leaders will vote for Lula, while many rank and file activists will abstain, vote for the PSTU or more likely continue to engage in the politics of direct action including land occupations.

Conclusion

Brazil is an example in which there is an apparent paradox: as the economic crises deepens and the neo-liberal model collapses, the established Left parties and trade unions move to the right, hoping to replace the current discredited bourgeois rulers as the political managers of the capitalist class. It is possible, or even likely, that one of the Left candidates (Lula or Gomes) will win the elections. In which case they will face the task of confronting a collapsing economy, tied to their commitments to the IMF thus guaranteeing failure, instability and rising social discontent. The popular movement can build on the momentum of the anti-ALCA campaign and organize independent mass organizations to go beyond the referendum. The discrediting of the PT administrating an IMF package in an economy in crises, opens the door to great opportunities for a new political coalition of workers, peasants, students, progressive church people, bankrupt businessmen and unemployed to engage in extra-parliamentary action. The crises of a Left regime administrating a bankrupt liberal model is also an opportunity for nationalist military officers to seize power. The IMF, World Bank, the US and the EU and Japan will be active pressuring Lula to repress discontent and meet the debt payments despite mass unemployment. The post-electoral period will soon become a time of deepening polarization and economic collapse. The results of elections of 2002 will not resolve any of Brazil's major problems. The answer lies in the successful mobilization and organization of independent class organization in taking state power.