Brazil is today in the grip of a terrifying far-right regime, as Jair Bolsonaro’s government embarks on rolling back decades of advances for workers, women, and LGBT people. His election campaign was notable for the often-violent mobilization of paramilitary forces and the organized Right. Yet his success did not come from a vacuum. Bolsonaro’s rise to power was just the latest low point in a political crisis including the judicial coup against Dilma Rousseff’s center-left Workers’ Party (PT) government and the damaging imposition of austerity on the Brazilian economy by Dilma herself as well as interim president Michel Temer.
Indeed, the economic turmoil of recent years already marked the undoing of many of the advances made by the PT in power, while also highlighting its contradictions of that party. This is highlighted in a new book, Economy for the Few: The Social Impact of Fiscal Policy in Brazil. Here, economists Esther Dweck, Ana Luíza Matos de Oliveira, and Pedro Rossi show that austerity, presented in Brazil as a “technical necessity representing the only option,” was in fact a “deliberate policy choice.” Its consequences were disastrous.
Jacobin’s Giacomo Gabbuti and David Broder spoke to the authors about the economic conditions for Bolsanaro’s rise, the advances made by the PT (and their limits), and the lessons for the Latin American left.
First, a prologue. A recent Jacobin issue “celebrated” a decade since the financial crash; here in Italy, we speak of a “thirty-year crisis.” But your work shows that another crisis that began in 2014 was the worst in Brazilian history. How come Brazil wasn’t affected by the global downturn of 2008? Does this owe to 2003–2010 PT president Lula’s economic policies, which you call “social developmentalism”? Did his successor Dilma’s presidency already mark a change of course?
During the Lula Government (2003–2010), Brazil combined economic growth, income distribution, and poverty reduction. A favorable international scenario and the increase in the commodity prices influenced this distributive process, but, fundamentally, it was an economic growth mainly driven by an increase in domestic demand, through a combination of social policies and public investments.
Social policies, increasing both social transfers and wages, powered by the increase of minimum wage (which saw 63 percent real growth from 2002 to 2011), boosted demand as lower-income Brazilians were included in the consumer market. On top of that, from 2007 onward, the PT government implemented a program to increase public investments in social and economic infrastructure and in 2009 started a program to construct housing for the poorest. Public investment went from less than 3 percent of GDP to more than 5 percent.
In certain terms, this was a similar experience to post-World War II Europe: an increase in consumption of durable goods, a democratization in access to personal credit towards consumption, and an increase in scale for private and public investments.
The 2008–9 crisis did affect Brazil, just as it affected other countries around the world, but the instruments that were already in place acted as effective countercyclical policies (that is, the automatic increase in social spending compensated for the crisis-era fall in investment and consumption), and the recovery was very fast. Indeed, Brazil’s GDP fell 0.2 percent in 2009 but recovered in the following year, growing by 7.5 percent. However, the changing international scenario added additional challenges to Dilma’s term of office. From 2011 on, there were many new factors at play such as the slowdown in international trade, the currency war, and the world’s excess capacity (that is, the insufficiency of post-crisis global demand to absorb all production), the austerity policies in US and Europe, and the subsequent changes in commodity prices (some of which, from sugar cane to coffee, still account for a sizable part of Brazilian exports).
There was a sharp drop in government revenues, preventing the increase in public investments, and after taking over from Lula, in her first term (2011–14) Dilma’s government decided to undertake supply-side policies. Although these policies were not very successful in boosting growth through public investment, by 2014 the unemployment rate had reached the lowest levels in recent Brazilian history and transfers had still a strong effect in reducing inequality. The main change occurred in Dilma’s second term from 2015 on, when her government adopted strong austerity measures, cutting social spending in a context in which economic growth was already slowing.
In 2016, however, Brazil entered into what you defined as the “age of austerity.” You give a definition of austerity as “a politics of economic adjustment based on the reduction of public expenditure, and of the State’s role in its functions of stimulating economic development and promoting social welfare.” What do you see as the main logic behind austerity? And how did austerity unfold in Brazil, with what consequences for workers?
Austerity suits many different interest groups in the Brazilian society, some of which have always argued that the 1988 Federal Constitution guarantees too many social rights or that there was excessive government intervention in the economy, such as increasing the minimum wage or undertaking development policies using public banks.
The Federal Constitution was inspired by the experience of the welfare state in Europe. It aimed to answer the social demands that the civilian-military dictatorship (1964–1985) had thwarted, by guaranteeing social rights. For example, this Constitution stipulates education as a social right, for the first time in Brazilian history.
The crisis gave strength to the critics of the 1988 Constitution. Invoking the need to get back to balanced budgets in order to return to growth, in austerity they found a key instrument for breaking down the state’s social role. In 2015, the government combined a monetary policy shock (a sudden reduction in the supply of money by the central bank), with an increase in interest rates and a reduction in the role of public banks; a liberalization in the foreign exchange market which devalued the Brazilian currency by more than 50 percent one year; and a shock in administered prices (especially regarding crucial items such as residential electricity and fuel).
The result was massive inflation — above 10 percent in that year alone. This was complemented by drastic cuts in government spending, which affected investments and social spending. All these elements contributed to the worst economic crises in Brazilian history, marked by declining GDP.
Austerity and other neoliberal measures pushed Brazil into an economic crisis, which is still felt by the Brazilian workers. For example, while unemployment had reached its bottom level of 4.3 percent in 2014, this figure rose to 6.9 percent in 2015 and kept growing ever since. The most recent data shows that Brazil has 12.7 million unemployed and 27.5 million unemployed. GDP fell by 3.5 percent in 2015 and 3.3 percent again in 2016.
The economic crisis then led to a fall in support for the Dilma government and prepared the way for the coup d’état in 2016. The Temer government followed and constitutionalized austerity with Constitutional Amendment 95/2016, which bans govern primary expenditures (that is, government spending on goods and services, not including interest on debt or similar items) to grow in real terms for the next 20 years, therefore reducing public expenditures and the size of the state relative to GDP.
If the Dilma government saw austerity in terms of “adjustments”, under Temer it became a structural and permanent measure. And austerity also has an effect in increasing inequality, which is one of Brazil’s biggest social problems. As we show in our book, government spending like cash transfers, the general social security system, and social policies such as health and education have an effect in decreasing inequality. So, reducing social spending in those areas will aggravate social inequality not only in terms of income, but in several other aspects of inequality such as gender, race, region, and access to social services.
Interviewed for Jacobin by Andrea Califano, PT candidate Marcio Pochmann spoke of the need to look beyond Brazil’s “Atlantic” relations, focusing instead both on both “internal,” Latin-American economic integration and indeed outreach to east Asia — an approach robustly rejected by Jair Bolsonaro. What does the contest between the Chinese and American poles, and indeed Brazil’s own regional role, imply for its domestic economic model?
Latin America is one of the least integrated regions in the world. But, even so, if we consider Brazilian export patterns to Latin American countries, they are much higher tech than its exports to other regions. Among all Brazilian exports, other Latin American countries are the leading destination for manufactured goods.
During Lula’s and Dilma’s terms there was an attempt to increase regional integration, with initiatives such as the MERCOSUR, the Union of South American Nations (UNASUR), and the Community of Latin American and Caribbean States (CELAC). The political dimension of integration has become increasingly important and given South American countries the opportunity to respond in a coordinated way to the challenges of the twenty-first century.
These initiatives thus represent a bid to replace the old international division of labor. Latin American countries cannot limit their role to that of suppliers of basic inputs (e.g., raw materials) for production carried out abroad. The increase in the sophistication and diversification is necessary for the expansion of productivity and, therefore, the income and well-being of its population. However, since the 2008–9 crisis, as international trade slowed, there was an increase in competition and many countries adopted more protectionist trade policies. In Latin America, bilateral trade with China has come to replace previous intraregional trade.
This led to an attempt to strengthen internal Latin American economic integration and other South-South integration with African and East Asian countries. However, the Bolsonaro government abandoned this, and instead wants to adopt a unilateral openness to trade in order to increase Brazil’s integration in the world economy. In the international context explained above, this tends to increase Brazilian imports, accelerating a premature deindustrialization process and Brazil might even lose its role as a primary goods exporter as China and US set out a new trade agreement.
Even if we consider Bolsonaro, Salvini, Trump, and other leaders as part of a common and coherent wave of “right-wing populism,” they have very different approaches to austerity. Some European movements (at least rhetorically) opposed the austerity imposed by the EU, and Trump showed little concern for fiscal discipline when he cut taxes for the rich. In Latin America, however, the “new” right proposes fairly old neoliberal policies, worryingly similar to those imported into the continent by Pinochet. How would you explain this difference?
This is a very good question. The Brazilian far right has particularities. In Bolsonaro’s current rhetoric there are no contradictions with the policies supported by the financial sector. The president’s discourse completely embraces neoliberalism. This is connected to the fact that Bolsonaro was boosted by important interest groups which would only support an austerity or neoliberal agenda and not a Keynesian or “developmentalist” one.
In Bolsonaro’s discourse, there is almost no mentions of job creation or economic recovery, such as Trump does with his promises of protectionist measures to bring back US manufacturing jobs lost under the pressure of globalization.
The Brazilian elections were absolutely atypical, in international terms, insofar as there was no serious economic debate. Between the absurd imprisonment of Lula — the population’s favorite candidate — the collapse of the traditional right, and the knife attack on Bolsonaro, he instead rallied his base behind “recovered morality,” traditional values, and the Christian religion. Any policies in protection of specific groups, or indeed social policy in general, are viewed as state interventionism and therefore measures that will only disrupt markets and the traditional order.
After the Chilean coup of 1973, communist parties like the Italian PCI “emphasized the importance of going beyond a simple alliance of the Left able to secure a parliamentary majority.” Was the Latin American left overconfident in its ability to maintain power through electoral politics? Which role was played by the Brazilian middle classes in the rise and fall of the PT and of its coalition — and how far were PT policies themselves the result of a balancing act between different parties? How could a progressive policy have built a coalition with them?
Brazil is a very complex and diverse country. There are sectors in the Brazilian elite which are completely aligned with neoliberal policies, such as the financial sector, but there are other sectors still tied with industries and productive sectors which produce for the domestic market and need the state, public banks, and specific economic policies.
The rise of the PT government followed the crisis of a neoliberal government, which left a part of this bourgeoisie unsatisfied. The middle class at first supported the PT but withdrew support later on, following the corruption scandals inflated by mass media, which also produced a campaign against the government’s social and economic policies.
During the PT government, the middle class was squeezed by the rise of the poor, which started to dispute social space with the traditional middle class in universities, airports, and shopping malls, while the top of the pyramid maintained its privileges. The middle class, which always had access to services at a low cost — for instance, housekeepers — found it difficult to maintain the same living standards with the increase in wages.
So the middle class is indeed an important aspect in the fall of the PT governments. The experience shows that structural reforms such as land reform, urban reform, tax reform, political reform should have been done for example during Lula’s second term, when he had around 80 percent popular approval. Unfortunately, the lack of a deeper institutionalization of many social policies applied during this period allowed for a rapid reversion of those policies under his successors.
Anti-corruption rhetoric clearly helped the Right build its against public policy — especially among those Brazilians who depend less on social spending. This seems strikingly similar to events in Italy in recent decades. While Lula and 1980s Italian center-left prime minister Bettino Craxi are hardly comparable (this latter being far more personally implicated in corruption) it is notable how in the Italian case the “clean hands” scandal of the early 1990s, felling Craxi’s Socialist Party, laid the way for two decades of austerity. What could have been done by the PT to resist this agenda — and how can we do so in the years to come?
We can respond by highlighting the arguments advanced by Brazilian researchers in the paper “The war Against all: The Brazilian Crisis”. The authors show that the problems of capitalist accumulation and the tumult in the political scene became a structural crisis under the effect of the Operation Car Wash (Lava Jato) anti-corruption case.
They argue that the institutional apparatus behind Lava Jato, investigating corrupt practices in the oil firm Petrobras and other government agencies, shifted the “power center” of the Brazilian state into its own hands. However, as we show in our own book, the actual results of the PT’s social policies were the main reasons for the Right’s case against them.
In the Dilma government, as the fiscal space narrowed due to decelerating growth, distributive conflict became more acute and political choices became more difficult, since it was no longer possible to please everyone all the time. There were signs of a reaction from capital, in line with what Polish economist Michael Kalecki discussed in his 1943 essay on the “Political Aspects of Full employment.” He noted that even when economists agreed that governments could achieve full employment, there were substantial political reasons for capitalists to oppose such a policy (as indeed happened almost everywhere in the 1930s). One of these reasons, Kalecki noted, was the “political changes resulting from the maintenance of full employment” — that is, as in the Brazilian case, stronger bargaining power for workers, and a different, more equal distribution of income.
In this sense, the Lula government tried to reconcile irreconcilable interests. The enormous reduction in poverty and inequality, as captured by the Gini index, which fell from 63.3 to 51.3, was not accompanied by a reduction in the share of income accrued by the richest Brazilians (who increasingly voted against the PT). This shows that a deeper transformation can only take place through a confrontation with privileges and special interests (for instance, through a radical reform of Brazil’s regressive tax system, in which indirect taxes on consumption still amount to almost half of the tax revenues, while profits and dividends are exempt from personal income tax).
After the crisis, as profit margins were compressed, Dilma’s government took some actions against the banking-financial fraction of capital, which fed discontent among powerful groups.
The mistake of turning to austerity 2015 was not enough to maintain the support of the economic elites and also angered the workers and social movements who might otherwise have given political support to the government. After Dilma’s impeachment, the combination of anti-corruption rhetoric and opposition to “wasteful spending” could thus cohere a new power bloc.
In order to fight back against these kinds of rhetoric in the years to come, it is important to show the population the damaging consequences of the political decisions that were taken after the removal of Dilma. The idea of our book was to show exactly how these policies are affecting everyday life and are lumbering all the cost of the crisis on the workers, social movements, and deprived groups.