In Defense of Dependence Theory: a case study of Brazilian capital under Bolsonaro’s rule. (Part I)
In 2018, Brazil saw the culmination of a six years long political-economic crisis that ousted from power the centre-left government of the Workers’ Party.
In 2018, Brazil saw the culmination of a six years long political-economic crisis that ousted from power the center-left government of the Workers’ Party. In the same year, 104,838,753 Brazilians had proven to vote in the second round for the presidency, where 55,13% of them elected the former army captain Jair Bolsonaro to occupy the office for the next four years. Brazil's late President represents an extreme shift in the country's politics since its Constitutional Congress of 1988 has selected continuously centrist candidates that attempted to align the desires of regional elites with the necessity to pursue wealth distribution and welfare at a minimal level. This four-part article will be argued that, under the appointed Minister of Finance Paulo Guedes, the Brazilian State has dramatically shifted its path from a tradition of “social harmony and equalization of interests” towards a new model that resembles the First Republic of 1899-1930. The current political discourse defends an ultra-radical neoliberal direction that aims a direct attack against workers’ rights and labor laws. To counter the present arguments, I will rescue the Theorist of Dependency, Ruy Mauro Marini, and the heterodox “neo-developmentalist” Luiz Carlos Bresser-Pereira.
“Not Today Satan, by Cesar Costa”
The year 2013 is currently known in Brazilian academia as the historical moment of the Journeys of June social movement’s emergence. The Journeys were a wave of demonstrations accompanied by state repression that, spreading like wildfire throughout the country, shifted Brazil’s recent history and has yet to be fully grasped by scholarly social sciences. According to Rubens da Silva Ferreira, the wave of discontent has a lot more to do with the weaving of information and (dis)information that arose from the students’ protests against the rising bus’ fares in Porto Alegre and São Paulo, two of the biggest cities in the country (Ferreira, 2016). The widespread sense among scholars, intellectuals, and journalists is that this unrest gave the center and far-right discursive leverage to contest the electoral hegemony on which the Workers’ Party has been relying since President Lula’s last mandate in 2006-2010. Coupling the rise in discontent against the socially negotiated neoliberal reforms, one can argue that taking on account Luiz Carlos Bresser-Pereira “class coalitions” in the conformation of Brazil’s state-society cycles, the Workers’ Party pro-labor character imposed a break in class alliances that eventually directed the national elites to the far-right spectrum (Singer, 2012). Singer’s interpretation holds a Gramscian concept of “passive revolution” as the causa principalis of a conservative reform that brought socio-economic progress without breaking with its racist past. But then, how to explain the 2013 social convulsions? Why then, workers and students went to the streets and uprose against the formatting of paced and negotiated privatization of services? Without real structural changes that could enable the bottom of the society to engage without the mediation of the state, the reforms would eventually fall short and, in my understanding, the limits of the lulista model appeared when the needs and urges of the recently included parcel of the society clashed with an ultra-conservative “rentista” elite (financial capitalists).
I believe it is important to rescue some distinct reading of Brazilian reality, mainly in the periods of 1970-1990 and 2013-2018. This period is key to understand the specificity of the current Brazilian Crisis (I will refer to this particular time-lapse by this category) that is less related to the 2008 systemic collapse of global capital and keener to “palace disputes” between different sects of the elite in Brasilia. The manipulation of the public sphere of debate by the “rentista” elites opened the country to a new conservative wave that the very same group was not expecting nor prepared to control. The populist far-right alliance with ultra-neoliberals reinserts the Brazilian Crisis within a broader and international landscape of the emptying of representative democracy, social media countering mainstream media through fake news, and the rise of fascist discourses.
The role of neoliberal think tanks and the “super-minister” Paulo Guedes in the demise of institutional economics in the country has yet to be interpreted under the light of social sciences and academic study in the years to come. However, the last 6 years of Brazilian history give leverage to a theoretical debate in the direction of an initial and exploratory approximation: the shift from socially negotiated neoliberalism to the current “authoritarian” one (although the better term would be “non-negotiated"). Guedes’s agenda for the Ministry of Finances will help me use them as counterpoints to be used in my comparison with Ruy Mauro Marini’s political-economic critique of the early days of democratic Brazil in the last couple of years of the 1980s and Bresser-Pereira echoes of the past in contemporary Brazil by its role in introducing the country to “neoliberal realism”.
Washington Consensus and the Brazilian Chicago Boy
In his classical article, Latin America since the 1990s: Rising from the Sickbed? (2004), the former President of the Central Bank of Brazil, Armínio Fraga, brings a diagnostic of the regional economic performance at the end of several pink tide governments of Latin America. Fraga’s voice is important. His role during Cardoso’s presidency and also Lula’s mandate allows access to the views of a policy-maker and a neoliberal academy of importance. The poor performance of Latin American countries in the 1980s and 1990s opened their governments with a package of economic reforms called “Washington Consensus”. The core arguments of Fraga are to defend the packages that brought “economic freedom” and deregulation that he helped implement between 1998 and 2004. His adversaries, according to him, are the pro import substitution industrialization. Fraga’s defense against ISI and SOEs is that deregulation brought better “economic performance”.
The English economist John Williamson (1990; 2003) formatted 10 fiscal policy recommendations that, according to Fraga, were the main drivers of social equity and development for Latin America at the beginning of the 2000s. The recommendations were an issue towards basic healthcare and education, and the other 9 related to liberalization and opening borders to trade and capital. For Fraga, “Brazil recovered well following the forced depreciation of its currency, the real, by promoting significant fiscal adjustment and reform and by adopting an inflation-targeting framework for the conduct of monetary policy” (2004, p.97). His argument appears to endorse the general idea in Brazilian media that Lula profited from structural fiscal reforms implemented in the previous center-right government of the Brazilian Social-Democratic Party. The emplacement of Lula of what we can call, “paced liberalization”, hoped to achieve at the same time, the captivation of the labor force through fundamental access to health and education. This policy would help stabilize the problems of stagflation - a prepared and well-fed population to unleash a fresh period of productivity growth.
Jair Bolsonaro’s election imposed on Brazil a deepening of neoliberal ideology that has never been quite fully embraced by previous governments and detours from the Workers’ Party direction. This is when I agree with the now “superminister” Paulo Guedes, that indeed Bolsonaro represents a real neoliberal (Guedes prefers liberal) imposition rather than implementation. Guedes, a fund manager with a Ph.D. from Chicago has in his curriculum vitae the experience of working for Pinochet’s Chile during the de-regulatory process of the 1970s and has now been appointed by Bolsonaro to take over not only the finances office but also: trade, labor, industry, and development. The problem to analyze Guedes’s directives resides in the lack of published scholarly papers of his own (not even his dissertation from the University of Chicago was published). In April 2019, Guedes spoke at the Brookings Institution in Washington in “The latest on Brazil’s economic reforms: A conversation with Economy Minister Paulo Guedes” keynote speech. This speech will allow us to touch on the core views that are perpetuated by Guedes and his Think Tank group Instituto Millenium for the future of Brazil.
For the fund manager now turned into Minister Pension Reform is the Rosetta stone to open Brazil’s economic underperformance to a new age of prosperity and raise the nation as one of the most dynamic and competitive markets. First, he addresses what is already in my opinion the quality of Brazilian institutions. He argues that Brazil possesses the dynamics of an open society that kept building its democratic [Karl Popper] structures after 10 years (sic) of the Military Regime in the 1970s. In his view, the social-democratic character of center-left and center-right governments that seek to establish welfare above economic growth was a necessary evil for a fledgling democracy. His problem however is in what he considers “the mistakes of the past” and the opposite direction of the Brazilian dictatorship in comparison with the Chilean one. The focus of the military on establishing SOEs and investing in Infrastructure lagged Brazil behind its neighbors. We went, according to him, from a “Hobbesian state machine into Rousseau's ‘will of the people machine’”. Thus, the general direction of leftists and rightists in the 1990s and 2000s was to invest in human capital, promote livable conditions to qualify both the administration and the employees to engage in a more qualified manner in the production and management of the State. This is about improving the economic dynamism of society as a whole.
That imposes a problem in his view: the expenditures of the State skyrocketed in an already debt sunken economy. Hyper-inflations promoted by State interventionism (or dirigiste) led to big recessions. The Workers’ Party period was one of broader and uncontrolled expansion of the public debt (Fraga’s reading is distinct from Guedes on this matter). To counter the corruption scandals and economic mismanagement, Paulo Guedes sees the Impeachment of Dilma Roussef in 2016 as a clear sign that the judiciary in power brought Brazil to the “Rule of Law”. We lived in the transition from a far-right (dictatorship) to the center-left alliance (for Guedes the PSDB or Brazilian Social-Democratic Party is leftist) to what he now names as being a “center-right” coalition for liberal democracy and economy.
Defending Bolsonaro as a liberal, honest (maybe without manners, but honest [sic]) and stating that “we are a vibrant democracy”. Guedes reveals that he believes in the old motto of “Institutions are getting perfected”. The current government represents a new transition period that will overcome the politico-economic problem inherited after 40 years of a dirigiste economy. Nevertheless, if our economy is centralized, how can we explain the interest rates despite the high inflation rate?
The graphic above (graph. 1) displays the historical series from the last years of the FHC presidency (when Brazil faced the backlash from the 1997 Asian Financial Crisis) up to last year’s (2018) collection. The economic inequality between workers and financial institutions is displayed in the data and is used to defeat partially one of Paulo Guedes’ arguments. Brazil can have strong labor laws and an economy that is heavily dependent on the domestic sector but no one can state that in terms of finances and privileges for “investments”. The government has not been favoring the sector during the last four administrations.
The discount rate since Lula’s second term has only steadily drop whereas the consumer price index (CPI) is growing despite the high levels of unemployment and already hugely surpasses the levels of 2010-2014 when the economy was considered under a superheated demand (Krugman, 2018). Further interest elements are the stable levels of indebtedness concerning the GDP. For a matter of comparison, when in 2014-2016 the Prophets of Apocalypse from the Getúlio Vargas Institute and the mainstream media were claiming that Brazil was under the peril of new hyperinflation due to the public expenditures and the fiscal advances from the national private sector to cover national expenditures for the fiscal term, the levels of indebtedness were (graph. 2):
In 2014 the above-mentioned claims stated that the mild increase from the previous year demonstrated the mismanagement of Dilma’s technocracy. However, 2014’s election represents a shift in the broader politico-ideological infrastructure of the Workers’ Party guidelines. Dilma starts privatizations (mainly in the oil sector, roads, and airports) and cuts in the State’s welfare costs in education and health. So, how can one account for this increase in State’s indebtedness while the state pays in advance and sells assets? The levels for 2018, three years after the impeachment under a liberalizing regime led the state expenditures to 87.88% according to Statista.
Guedes keeps his heels in the role of social welfare to decrease economic dynamism and the effects on the national debt. “Because of excess of public expenditures, that increased social expenditures” — he affirms — they did not dismantle the privileges nor the misapplication of funds. He believes that now Brazil has an incomplete transition of the economy from a dirigiste to a free-market one. Brazil has in the “superminister” a great open Popperian society with “Free press” (despite the total concentration of media assets in only six oligarchs) and now we need to build an economic policy without public spending control. For him it means:
“I would love to do what Ludwig Erhard did in Germany for 10 years. I would love to do what Thatcher with Reagan did. I would love to do what the Chicago Boys did in Chile. So it would be great to do with the Chicago oldies. So I’ve got a lot of Chicago oldies, guys from the old Chicago school, just to be done in that direction”.
“We need some Chicago Boys. We must shift to market-driven”. And he frightens the Brazilian workers constantly with the same motto of hyperinflation from being a symptom of public spending. That domestic financing through “private banks” controlled prices and seized resources “like in Venezuela” back in the 1990s can be repeated. These alleged expenditures (social expenditures) mean in his view that ”we build one Europe a year” just to cover the public debt. The solution? 100 billion dollars a year from fiscal coordination and “accelerated” privatizations. Real Estates that belongs to the Federal government like “embassies” can allow to cover the debt levels and free the government to do “only God know what” in Guedes dystopian Brazil of the future. Another kind of enemy for him is the wage bill in the public sector that is bigger than in the private sector. The average wages are five times higher than the private sector. Despite the truth behind the uneven payments and pensions of the public sector, his solution raises some questions. Depending on him, the human capital currently working in the public sector has a percentage of 40-50% that will soon retire in the upcoming decade. The Bolsonaro government will not replace them he says.
According to the minister, instead, they will digitize services that can be managed by extensive data or mobile applications. That means that coupling the retirement of public workers’ new admissions will not happen in the foreseeable future and the private sector will manage essential pieces of information about the state. The deflation of the public machine and his intent to reduce corporate taxes creates some policy-alignment with the US’s recent economic history: the 40 different forms of corporate taxes will collapse into one single federal tax and will be completely digitized and done by the business themselves. The withdrawal of the Brazilian state, considering its size and importance is unheard of. Even in the darkest days of Reaganomics, the United States always kept some level of welfare (it was President Bill Clinton who waged war against the social security in the country) and maintained protectionist barriers to imported goods in certain strategic sectors like agriculture and the military complex. In the case of Brazil, airspace company EMBRAER which was about partial control of the State had its civil aviation sector (the most profitable one) sold to the north-American Boeing. In the strategic field, the Alcantara Airspace base is currently in the process to be handed away to the United States, creating in Northeast Brazil a peculiar arrangement where the country holds no sovereignty whatsoever in a parcel of its territory.
 This raises a lot of theoretical questions about the democratic aspect of official appointees in Liberal democracies.
 Brazil was kept under an undemocratic and bloody dictatorship from 1964-1988 when the new constitutional congress was partially elected.
 Da Silva Lopes, I., & Thompson, T. (2014). Political Culture and the Democratization of Communications in Brazil. Latin American Perspectives,41(5), 129-140. Retrieved from http://www.jstor.org.ezaccess.libraries.psu.edu/stable/24573903
 Gallarotti, G. M. (2000). The advent of the prosperous society: The rise of the guardian state and structural change in the world economy. Review of International Political Economy, 7(1), 1-52.
To be continued…
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