The root of the constitutional coup in Brazil lay in Lula and Rousseff’s attempt to marry inclusive democracy with the exclusionary logic of neoliberalism, finds Orlando Hill

Alfredo Saad-Filho and Lecio Morais, Brazil: Neoliberalism versus Democracy (Pluto Press), 237pp.

‘The history of all hitherto existing society is the history of class struggles,’ wrote Marx and Engels in the first pages of the Communist Manifesto. Saad-Filho and Morais use this Marxist understanding of history to gain an insight into Brazil’s political transition from dictatorship to democracy, and the economic transition from an import-substituting industrialisation policy (ISI) to neoliberalism.

The most refreshing aspect of this book is that the authors move away from a simplistic view of seeing political conflict in Latin America through the perspective of an anti-imperialistic struggle in which the domestic ruling class are simple marionettes controlled by Yankee imperialism, to a much more insightful one which enables the reader to understand the patterns and systemic contradictions in contemporary Brazil. In the tradition set by Marx in The Eighteenth Brumaire of Louis Bonaparte, Saad-Filho and Morais examine Brazil’s recent history from the viewpoint of the internal contradictions in the class struggle imposed by the constraints in the accumulation of capital. 

In Capital, Marx outlines these constraints in his famous formula of circuit of capital M-C <^MP_LP …P… C’-M’. Money (M) is used to buy means of production (MP) and labour power (LP) which are then used in the production (P) of a commodity with added value (C’) which is finally returned to the market to be exchanged for money with added value (M’). The formula suggests various bottlenecks in the accumulation of capital: the strength and organisation of labour; access to credit; the state of the balance of payments; the supply chain and the institutional setting, i.e., the property structure, the competitiveness of markets and the role of the state.

How these constraints translate to specific economies will depend on the system of accumulation (SoA) adopted by a country. The SoA is how capitalism manifests itself in a given conjuncture and is ‘determined by the class relations encapsulated in the mode of extraction, accumulation and distribution of (surplus) value and institutional structure and processes through which those relations reproduce themselves’ (p.5). Due to their specificities in terms of time and place SoAs will intrinsically vary. As a country shifts from one SoA to another, there is be a re-alignment in the composition and hegemony of fractions of the ruling class.

Through the shifts between the varieties of SoAs, the Brazilian state, like all nation states under capitalism, has played two conflicting roles: a conservative and a transformative one. In the former one it seeks to ‘preserve the existing patterns of inequality… regardless of economic performance’ (p.6). The ruling class will sacrifice economic growth (accumulation of capital) to secure its privileges. In its transformative role, the state uses public policies to drive the expansion of capital through and across SoAs.

Since its independence in 1822, Brazil has gone through three SoAs. The first was a primary export-led growth which began with a centralised, authoritarian and exclusionary Empire followed by a decentralised, but also an authoritarian and exclusionary republic (Republica Velha) which was overthrown in 1930. The second, an import-substitute industrialisation process, went from 1930 to the 1980s and saw transitions through a range of political forms, from populist and military dictatorships to a brief period of tumultuous formal democracy. After a long transition the third, a neoliberal economic system, was fully implemented.

The transition from military dictatorship to democracy in Brazil in the early 1980s occurred at the time when economies across the globe were going through neoliberal reforms. These were seen as necessary ‘to control inflation, improve economic efficiency and accelerate productivity growth’ (p.55). The perception was that the import-substitution industrialisation process was outdated under the technological revolution trigged by the advancements in the fields of information and communication and could no longer guarantee the accumulation of capital.

In Brazil, the introduction of neoliberalism under President Fernando Collor in 1990 came in the disguise of an inflation stabilisation programme. It also developed at a much slower pace if compared to other countries in Latin America, Africa and Eastern Europe. This was due to a strong mass movement that emerged during the democratic transition. The transition to neoliberalism was only completed in 1999 with the introduction of a new macroeconomic framework targeting inflation by giving operational independence to the Central Bank; guaranteeing free capital flows with a floating exchange rate, and constraining government expenditure at all levels of government. This is referred to in the book as the neoliberal policy tripod. The result was low growth and the denationalisation of the productive and financial sectors.

Contrary to the narrative that has been presented and defended, even by activists on the left, the PT (Workers Party) governments did not represent a rupture or an alternative to neoliberalism, but a lighter version. In his determination to win the 2002 presidential elections, Lula issued a ‘Letter to the Brazilian People’ stating that his government would continue the economic policies of the previous administration. Lula used the triangulation strategy, pioneered by Bill Clinton and Tony Blair, to attract the support of a fraction of the bourgeoisie by promising to maintain stability and governability.

Lula won the 2002 presidential election with the support of what the authors refer to as an alliance of losers: a loose coalition of social groups which had seen losses under neoliberalism. In this alliance were the trade unions and segments of the informal working class, but also the internal bourgeoise. The Brazilian bourgeoise can be divided into two main fractions: the internal bourgeoise and the internationalised bourgeoise.

The internal bourgeoise depend on the domestic market for accumulation which explains their contradictory relationship with neoliberalism and social policy. Some sort of welfare state and a rising minimum wage can strengthen a domestic market. That is why this fraction opposes the wholesale liberalisation of capital flow and trade, while at the same time for ideological reasons they demand ‘fiscal responsibility’, privatisation and a flexible labour market. They need state support to be able to compete globally, but at the same weaken it by imposing restraints on fiscal policy. This is the group in the alliance that held the hegemony in the PT governments.

The internationalised bourgeoisie is composed of financial capital, internationally-integrated manufacturers, and the mainstream media owners (which under Brazilian law must be owned by domestic capital). This fraction rejects any form of national accumulation strategy and defends the financialisation and international integration of the economy. Their project is anchored in wholesale neoliberalism, the neoliberal tripod. They are politically represented by the (misnamed) Social Democracy Party of Brazil (PSDB). This fraction was politically dominant before Lula’s election and now after Rousseff’s impeachment under Michel Temer.

During his first term, Lula enforced a thoroughly neoliberal accumulation strategy. His first decision was to raise the primary fiscal surplus target to 4.25% of GDP, which was higher than the 3.75% agreed with the IMF. The Central Bank raised base rates from 25.0 to 26.5%. The government also pushed through Congress a public-sector pension reform and raised indirect taxes. A constitutional amendment was forced through giving operational independence to the Central Bank. The neoliberal tendencies of Lula’s first government were tempered only by the new food distribution programme Fome Zero (Zero Hunger). 

Lula’s commitment to neoliberal policies failed to achieve sustained growth in his first term while at the same time disarticulating the left who were disappointed with his embracement of neoliberalism. To strengthen his political clout, Lula sought support among the poor in the North-eastern region and the urban peripheries (who had benefited from the government’s social programmes) and reinforced his commitment to the internal bourgeoise who continued to support his administration. Lula was fortunate to ride the boom in commodity prices; a consequence of China’s economic growth. Brazil experienced a growth in exports and in 2003 achieved a surplus in its current account. This allowed the administration to fund its social programmes while keeping the internal bourgeoisie satisfied.

The social composition of the state changed as members of the social movement were integrated into the bureaucracy. The material interests of the most combative leaders of the social movement became aligned with the interests of the state and the government’s neoliberal policies. On the other hand, these changes helped distance Lula’s government from the middle class who traditionally dominated the state sector.

Lula’s second term was no longer an alliance of losers, but of winners, those who had benefitted from the first term: the internal bourgeoisie and the informal workers. The second PT government was an attempt to superimpose a neo-developmental economic policy onto the neoliberal tripod. Neo-developmentalism is based around the idea that a strong market is only possible with a strong state, and it is impossible to achieve sustained growth without a strong market. Without abandoning the neoliberal tripod, Lula introduced a series of neo-development initiatives which saw the enlargement of ports, expansion of electrification, building of popular housing and the introduction of the Bolsa Familia programme. Although the neoliberal economic team was replaced by heterodox economists, the Central Bank was still controlled by the neoliberal Henrique Meirelles and the inflation-targeting regime remained unchanged.

The developmental neoliberal policy was successful in internalising the gains from export. It proved its strength in the wake of the global economic crisis. Despite opposition from neoliberal economists and the mainstream media, the government implemented countercyclical fiscal policies which, alongside booming exports and increasing real minimum wages, reduced income inequality and improved the living conditions of the poor.

Dilma Rousseff’s election in 2014 was posed as a vote against PSDB’s neoliberal policies. However, immediately after her victory she appointed neoliberal banker Joaquim Levy as Minister of Finance, demonstrating her recognition of the need to accommodate the finance and neoliberal camp. The PT’s strategy of trying to combine neoliberalism with development could not last. Maintaining the neoliberal tripod condemned Brazil to a vicious cycle of deindustrialisation, financialisation and an overdependence on exports of primary goods. It limited the state capacity to improve infrastructure. Faster economic growth led to traffic gridlock. The expansion of health and education was perceived as offering poor-quality services. Agribusiness boomed while progress on land reform stagnated.

The PT’s contradictions led to its downfall. In its defence of economic stability, it shied away from a programme that its supporters could defend. By attracting leaders of the social movement into the state bureaucracy, it severed its links with the movement. As the government did not have a policy of reforming and democratising the media, the mainstream media also sought to annihilate the PT.

As the economy slowed down, capital reduced its investment. Dilma Rousseff, feeling isolated and incapable of summoning the social movement to put mass pressure on capital, frantically tried to win the support of an increasingly hostile bourgeoisie by shifting towards neoliberal orthodoxy. The result was a deterioration of macroeconomic indicators. The opposition became increasingly bold and could count on the judiciary to overthrow the president on a flimsy pretext.

Brazil under the PT governments offers some important lessons for socialists. The first is that the bourgeoisie (the capitalist class) is not homogenous. We see this in Britain in their attitude towards the EU and its role in the expansion of capital. However, both Remainers and Leavers are united in their wish to preserve their privileges and the existing patterns of inequality. As in Brazil, the British bourgeoisie will sacrifice economic growth to maintain these privileges. Corbyn could represent a new SoA, an alternative to neoliberalism for British capitalism, but they will undermine him for he also represents a threat to those privileges.

Transcending neoliberalism in Brazil required an overhaul in the political field. Tinkering with the system was not enough, nor will it be elsewhere. Radical reforms were needed, but they were unachievable without extra-parliament activity and mass pressure.