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The Vicious Circle of Debt and Depression

It is a Class War

By ISMAEL HOSSEIN-ZADEH | May 15, 2010

Never before has so much debt been imposed on so many people by so few financial operatives—operatives who work from Wall Street, the largest casino in history, and a handful of its junior counterparts around the world, especially Europe.

External sovereign debt, as well as occasional default on such debt, is not unprecedented [1]. What is rather unique in the case of the current global sovereign debt is that it is largely private debt billed as public debt; that is, debt that was accumulated by financial speculators and, then, offloaded onto governments to be paid by taxpayers as national debt. Having thus bailed out the insolvent banksters, many governments have now become insolvent or nearly insolvent themselves, and are asking the public to skimp on their bread and butter in order to service the debt that is not their responsibility.

After transferring trillions of dollars of bad debt or toxic assets from the books of financial speculators to those of governments, global financial moguls, their representatives in the State apparatus and corporate media are now blaming social spending (in effect, the people) as responsible for debt and deficit!

President Obama’s recent motto of “fiscal responsibility” and his frequent grumbles about “out of control government spending” are reflections of this insidious strategy of blaming victims for the crimes of perpetrators. They also reflect the fact that the powerful financial interests that received trillions of taxpayers’ dollars, which saved them from bankruptcy, are now dictating debt-collecting strategies through which governments can recoup those dollars from taxpayers. In effect, governments and multilateral institutions such as the IMF are acting as bailiffs or tax collectors on behalf of banksters and other financial wizards.

Not only is this unfair (it is, indeed, tantamount to robbery, and therefore criminal), it is also recessionary as it can increase unemployment and undermine economic growth. It is reminiscent of President Herbert Hoover’s notorious economic policy of cutting spending during a recession, a contractionary fiscal policy that is bound to worsen the recession. It is, indeed, a recipe for a vicious circle of debt and depression: as spending is cut to pay debt, the economy and (therefore) tax revenues will shrink, which would then increase debt and deficit, and call for more spending cuts!

Spending on national infrastructure, both physical (such as roads and schools) and social infrastructure (such as health and education) is key to the long-term socioeconomic developments. Cutting public spending to pay for the sins of Wall Street gamblers is bound to undermine the long-term health of a society in terms of productivity enhancement and sustained growth.

But the powerful financial interests and their debt collectors seem to be more interested in collecting debt claims than investing in economic recovery, job creation or long-term socioeconomic development. Like most debt-collecting agencies, the IMF and the states serving as banksters’ bailiffs through their austerity programs may shed a few crocodile tears in sympathy with the victims’ of their belt-tightening policies; but, again like any other debt-collecting agents, they seem to be saying: “sorry for the loss of your job or your house, but debt must be collected—regardless”!

A most outrageous aspect of the debt burden that is placed on the taxpayers’ shoulders since 2008 is that most of the underlying debt claims are fictitious and illegitimate: they are largely due to manipulated asset price bubbles, dubious or illegal financial speculations, and scandalous conversion of financial gamblers’ losses into public liability.

As noted earlier, onerous austerity measures to force the public to pay the largely fraudulent external debt is not new. Benignly calling such oppressive measures “Structural Adjustment Programs,” the International Monetary Fund and the World Bank have for decades imposed them on many less developed countries to collect debt on behalf of international financial titans.

To “help” the indebted nations craft debt-servicing arrangements with external creditors, the IMF  imposed severe conditions on the way they managed their economies—just as it is now imposing (in collaboration with the European and American bankers) those austerity policies on the debtor nations in Europe. The primary purpose of such restrictive conditions is to divert or transfer national resources from domestic use to external creditors. These include not only belt-tightening measures to cut social spending and/or raise taxes, but also selling-off public enterprises, national industries, and future tax revenues.

Calling such fire-sale privatization deals “briberization,” the ex-World Bank chief economist Joseph Stiglitz revealed (in an interview with the renowned investigative reporter Greg Palast) how finance ministers and other bureaucratic authorities in the debtor countries often carried out the Bank’s demand to sell off their electricity, water, transportation and communication companies in return for some apparently irresistible sweetener. “You could see their eyes widen” at the prospect of 10% commissions paid to Swiss bank accounts for simply shaving a few billions off the sale price of national assets [2].

The IMF/World Bank/WTO “structural adjustment programs” also include neoliberal policies of “capital-market liberalization.” In theory, capital market deregulation is supposed to lead to the inflow and investment of foreign capital, thereby bringing about industrialization, job creation and economic expansion. In practice, however, financial liberalization often leads to more capital outflow (or capital flight) than inflow. To the extent that there is an inflow of capital it is not so much productive or industrial capital as it is unproductive or speculative capital (also known as “hot money”): massive amounts of capital that is constantly in transit across international borders in pursuit of real estate, currency, or interest rate speculation.

To attract foreign capital to the relatively vulnerable markets of debtor nations, the IMF frequently recommends drastic increases in interest rate. Higher interest rates are, however, both anti-developmental and detrimental to the goal of debt servicing. Higher interest rates tend to destroy property values, divert financial resources away from productive investment, and increase the burden of debt servicing.

For example, in the Philippines, which in 1980 adopted the IMF’s Structural Adjustment Program, “Interest payments as a percentage of total government expenditures went from 7 percent in 1980 to 28 percent in 1994. Capital expenditures, on the other hand, plunged from 26 percent to 16 percent.” By contrast, “the Philippines’ Southeast Asian neighbors ignored the IMF’s prescriptions. They limited debt servicing while ramping up government capital expenditures in support of growth. Not surprisingly, they grew by 6 to 10 percent from 1985 to 1995. . .while the Philippines barely grew and gained the reputation of a depressed market that repelled investors” [3].

A major condition of the IMF/World Bank/WTO’s “restructuring program” is trade liberalization. Free trade has always been the bible of the economically strong, self-righteously preached to the weak. It enables the strong to use their market power for economic gains, thereby perpetuating an international division of labor in which the technologically advanced countries would specialize in the production and export of high-tech, high-value added products while less developed countries would be condemned to the supply of less- or un-processed products. It is not surprising, then, that such a lop-sided policy of trade liberalization is sometimes called “free trade imperialism.”

Taking advantage of the so-called Third World debt crisis, the IMF, World Bank and WTO imposed free trade and other “adjustment programs” on 70 developing countries in the course of the 1980s and 1990s. “Because of this trade liberalization,” points out Walden Bello, member of the Philippines House of Representatives and president of the Freedom from Debt Coalition, “gains in economic growth and poverty reduction posted by developing countries in the 1960s and 1970s had disappeared by the 1980s and 1990s. In practically all structurally adjusted countries, trade liberalization wiped out huge swathes of industry, and countries enjoying a surplus in agricultural trade became deficit countries.” Bello further points out, “The number of poor increased in Latin America and the Caribbean, Central and Eastern Europe, the Arab states, and sub-Saharan Africa.” By contrast, in China and East Asia, where the neoliberal free trade and other Structural Adjustment Programs were rejected, significant economic development and considerable poverty reduction took place [3].

The attitude of the international financial parasites and their collection agencies such as the IMF regarding the disastrous consequences of their “restructuring” conditions is instructive.

An IMF official was quoted as acknowledging that the Fund’s austerity packages have often led to debt-collection without economic growth. But he added: “the Fund is a firefighter not a carpenter, and you cannot expect the firefighter to rebuild the house as well as put out the fire.” Obviously, what the “firefighter” tries to save from burning are external debt claims, not the economies or livelihoods of the indebted.

Another component of the IMF/World Bank’s “adjustment program” to service external debt is called elimination of “price distortions,” or establishment of “market-based pricing.” These are fancy, obfuscationist terms for raising prices on essential needs such as food, water and utilities. They also include elimination of subsidies on healthcare, education, transportation, housing, and the like; as well as curtailment of wages and benefits for the working class. In essence, these are roundabout ways of taxing the poor to pay the rich, the creditors.

Where such belt-tightening measures have made living conditions for the people intolerable, they have triggered what has come to be known as “the IMF riots.” The IMF riots are “painfully predictable. When a nation is, ‘down and out, [the IMF] takes advantage and squeezes the last pound of blood out of them. They turn up the heat until, finally, the whole cauldron blows up,’ as when the IMF eliminated food and fuel subsidies for the poor in Indonesia in 1998. Indonesia exploded into riots. . . ” [2]. Other examples of the IMF riots include the Bolivian riots over the rise in water prices and the riots in Ecuador over the rise in cooking gas prices. As the IMF/World Bank riots create an insecure or uncertain economic environment, they often lead to a vicious circle of capital flight, deindustrialization, unemployment, and socio-economic disintegration.

Only when the riots have tended to lead to revolutions, the parasitic mega banks and their debt-collecting bailiffs, the IMF and/or the World Bank, have been forced to accept less onerous debt-servicing conditions, or even debt repudiation. The Argentine people deserve credit for having set a good example of this kind of debt restructuring.

In late 2001 and early 2002, they took to the streets to protest the escalated austerity measures imposed on them at the behest of the IMF and the World Bank. “Political demonstrations and the looting of grocery stores quickly spread across the country. . . . The government declared a state of siege, but police often stood by and watched the looting ‘with their hands behind their backs.’ There was little the government could do. Within a day after the demonstrations began, principal economic minister Domingo Cavallo had resigned; a few days later, President Fernando de la Rua stepped down. . . . In the wake of the resignations, a hastily assembled interim government immediately defaulted on $155 billion of Argentina’s foreign debt, the largest debt default in history” [4].

Argentina also freed its currency (peso) from the US dollar (it had been pegged to dollar in 1991). After defaulting on its external debt and dropping its currency peg to the dollar, Argentina has enjoyed a most robust economic growth in the world. Debt re-structuring a la Argentina, that is, debt repudiation, is what today’s debt-strapped nations in Europe and elsewhere need to do to free themselves from the shackles of debt peonage.

Having subjected many nations in the less-developed countries of the South to their notorious austerity measures, international knights of finance are now busy applying those impoverishing measures to the more developed countries of the North, especially those of Europe. For example, the Greek government has in recent months announced a series of wage and benefit cuts for public workers, a three-year freeze on pensions and a second increase this year in sales taxes, as well as in the price of fuel, alcohol and tobacco in return for a bailout plan promised by the IMF and the European Central Bank.

Debt collectors’ austerity requirements in a number of East European countries (such as Latvia and Lithuania) have been even more draconian. Thomas Landon Jr. of The New York Times recently reported that, threatened with bankruptcy, “Lithuania cut public spending by 30 percent — including slashing public sector wages 20 to 30 percent and reducing pensions by as much as 11 percent. . . . And the government didn’t stop there. It raised taxes on a wide variety of goods, like pharmaceutical products and alcohol. Corporate taxes rose to 20 percent, from 15 percent. The value-added tax rose to 21 percent, from 18 percent” (April 1, 2010).

As these oppressive measures led to the transfer of nine percent of gross domestic product (euphemistically called “national savings”) from domestic needs to debt collectors, they also further aggravated the economic crisis: “Unemployment jumped to a high of 14 percent, from single digits — and an already wobbly economy shrank 15 percent last year” [Ibid.].

In Latvia, another victim of the predatory global finance, the recessionary consequences of creditor-imposed austerity measures have been even more devastating: “Latvia has experienced the worst two-year economic downturn on record, losing more than 25% of GDP. It is projected to shrink further during the first half of this year. . . . With 22% unemployment . . . and cuts to education funding that will cause long-term damage, the social costs of this trajectory are also high” [5].

While the debt crises of the weaker European economies such as Greece, Latvia, Lithuania, Spain, Portugal and Ireland have reached critical stages of sustainability, the relatively stronger economies of Germany, France, and UK are also in danger of debt and deficit crises. Indeed, according to a recent IMF estimate, even in the more advanced economies of Europe the debt-to-GDP ratio will soon rise to an average of 100% [6].

Of course, the United States is also burdened by a mountain of debt that is fast approaching the size of its gross domestic product (of nearly $13.5 trillion). A major difference between the United States and other indebted nations is that the US is not as much at the mercy of its creditors or the IMF as are other debtor nations. Therefore, it can reasonably be argued that, on the basis of national or public interests, it could embark on an expansive fiscal policy, that is, a more aggressive stimulus package, that would take advantage of the power of “government as the employer of last resort,” more or less as FDR did, thereby creating jobs, incomes and economic growth. This would also add to government’s tax collection and reduce its debt and deficit.

Judging by the record, as well the budgetary projections, of the Obama administration and the lobby-infested Congress, however, such an expansionary fiscal policy seems very unlikely. Not only has the bulk of the government’s anti-recession assistance been devoted to the rescue of the Wall Street gamblers, but also the relatively small stimulus spending has largely been funneled into the pockets of the private/financial sector—through wasteful and ineffectual programs such as “cash for clunkers,” tax credit for new homebuyers, tax incentives for employers to hire, and the like. This stands in sharp contrast to what FDR did in the earlier years of the Great Depression: creating jobs and incomes directly and immediately by the government itself.

Not only is the administration’s feeble stimulus package soon coming to an end, but the government also recently imposed a three-year spending freeze on all public outlays except for military spending and the so-called entitlements. As their tax revenues, along with their traditional shares of federal assistance, are dwindling many states (especially California, Florida, New York, Arizona, Nevada and New Jersey) are facing serious financial difficulties. And as they curtail or shut down essential services at the libraries, museums, parks, schools, art centers, and hospitals, and give pink slips to their employees, the recessionary conditions are bound to exacerbate.

The wrenching economic hardship in the debt-ridden countries is not so much due to insufficient or lack of resources as it is the result of the lopsided and cruel distribution of those resources. It is increasingly becoming clear that the working majority around the world face a common enemy: an unproductive financial oligarchy that, like parasites, sucks the economic blood out of the working people, simply by trading and/or betting on claims of ownership.

Rectification of this unsavory situation poses stark alternatives: either the powerful financial interests, using the state power, succeed in collecting their debt claims by impoverishing the public; or the public will get tired of the vicious cycle of debt and depression, and will rise in protest—akin to the “IMF riots” in Argentina—to repudiate the largely fictitious and illegitimate debt. This is of course a class war. The real question is when the working people and other victims of the unjust debt burden will grasp the gravity of this challenge, and rise to the critical task of breaking free from the shackles of debt and depression.

While repudiation may cleanse the current toxic debt off the economies of the indebted societies, it would not prevent its recurrence in the future. To fend off such recurrences, it is also necessary to nationalize the banks and other financial intermediaries. It only stands to reason that national savings be placed under democratically controlled public management – not unelected, profit-driven private banks.

Ismael Hossein-zadeh, author of the recently published The Political Economy of U.S. Militarism (Palgrave-Macmillan 2007), teaches economics at Drake University, Des Moines, Iowa.

Notes.

[1] For a comprehensive account of the history of sovereign debt crises and/or defaults see, for example, Carmen M. Reinhart and Kenneth S. Rogoff, This Time is Different: Eight Centuries of Financial Folly. Princeton, NJ: Princeton University Press, 2009.

[2] Greg Palast, “The Globalizer Who Came In From the Cold,” gregpalast.com, October 10, 2001.

[3] Walden Bello, “The Poverty Trip – Is Corruption the Cause,” Counter Punch, April 30 – May 2, 2010.

[4] Arthur McEwan, “Economic Debacle in Argentina—The IMF Strikes Again,” Dollars & Sense, March-April 2002.

[5] Mark Weisbrot, “Baltic Countries Show What Greece May Look Forward to If It Follows EC/IMF Advice,” The Guardian Unlimited, April 28, 2010.

[6] Nouriel Roubini, “The Debt Death Trap,” Project Syndicate, April 16, 2010.

May 15, 2010 Posted by aletho | Economics, Supremacism, Social Darwinism | Leave a comment

Lula’s Legacy: The Two Brazils

By James Petras | 04.14.2010

President Lula Da Silva announces the purchase of $4.4 billion dollars in new warplanes the same day that mudslides in Rio de Janeiro bury over 230 people living in precarious shanty slums neglected by the government housing authorities .While there is a total absence of a drainage system in the favelas, Lula spent billions on roads and ports for exporters but nothing for resident slum safety. Brazil is widely included as a newly emerging world power, along with China, Russia and India, the so called BRIC countries, and yet nearly forty percent of its population, lives on or below the poverty line, at or below the minimum wage of $200 dollars a month for a family of four.

Brazil’s attraction for many of its financial promoters is found in the size of its population of 210 million, the effective consumer market of over 100 million, and its agro-mineral resources: Brazil is one of the world’s biggest exporters of chicken, beef, soya, iron ore, cotton and ethanol.

Two other factors have recommended the Lula regime to both the right and left. The Right is pleased with Brazil’s stock market, financial sector and foreign owned banks (over 50%) which have gained and transferred over 150 billion in profits to overseas investors over the past 8 years of Lula’s rule. The ‘Left’ is enthusiastic about Lula’s independent foreign policy: his opposition to the US boycott of Cuba and exclusion from the Organization of American States; his economic relations with Iran despite pressure from Washington; his refusal to condemn Venezuelan President Chavez; and the fact that China has replaced the US as Brazil’s foremost trading partner as of 2010. Moreover, many defenders and apologists for Lula cite his “poverty program” which provides a $40 a month subsidy to 10 million destitute families , which has reduced poverty. The Lula Left forget the fact that the regime has failed to provide meaningful employment with adequate pay for the poverty subsidy recipients and has broken promises to carry out an agrarian reform for the 20 million landless rural workers. In other words, Lula’s supporters cite the regime’s policy of diversifying markets for Brazilian agro-mineral exporters and his multi-billion dollar electoral patronage subsidies to the poor as evidence of Lula’s “progressive” credentials.

Two other elements enter into the positive image of Lula: his working class, trade union origins and his continued high popularity ratings (according to recent polls over 60%). The “working class” background is over 20 years past: Lula has not worked in a factory for over 25 years.He has been a middle class political functionary of his party since the mid 1980’s. Moreover, Lula’s working class origins have no relevance to his current political and social commitments and appointments, which are tied to big business strategists and neo-liberal central bankers and economic ministers. What needs to be acknowledged is that Lula is a master at the politics of conservative populism: Lula excels in creating an emotional bond with the poor, through his face to face encounters and mass media imagery as “a man of the people”, even as he upholds a social hierarchy with the greatest inequalities in South America. No conservative neo-liberal leader in the US or EU can combine the façade of “populism” and the content of neo-liberal orthodoxy with the same success.

Myths and Reality of a Brazil as an “Emerging World Power”

Given the enduring mass poverty and social inequalities in land and wealth no perceptive observer can claim that Brazil’s new status as an emerging world power is due to Lula’s social policies. The entire basis for projecting Brazil onto the world stage is based on its economic performance. A brief but close examination of the empirical realties, raises profound doubts about Brazil’s performance and Lula’s claims of achieving the status of a world power. Between 2003-2009 Brazil’s GDP grew by a mere 3.4% and only 2% percapita, below the average for Latin America by at least 1%. If we compare Brazil’s performance in relation to the other BRIC countries, especially China and India, Brazil’s GDP grew at less than 40% of their rate of growth. Locating Brazil in the same league as China and India seems to be highly misleading. Moreover, while most of the growth of the other newly emerging powers is based on diversified industrial exports (China) and high tech information services (India), Brazil still depends on the dynamic expansion of agro-mineral exports.

Growth and stagnation characterized Lula’s eight years in office, depending on prices and demand for agro-mineral commodities. During the years of the commodity boom (2004 – 2008) Brazil grew by 4.5%; during the downturn in commodity prices (2003 and 2009) Brazil stagnated at less than 1%. In other words, Lula’s “free market policies” had less to do with Brazils’ economic performance than world market demand for commodities. Despite Lula’s claims that Brazil would avoid the impact of the world crises of 2008 -2010 because it was “delinked” from the imperial centers, in fact beginning in October 2008 and continuing through to January of 2010 Brazil entered into a recession with zero growth in 2009. Its recovery in 2010 is largely the result of the revival and explosion in commodity demand, led by China, and the sharp rise in prices of key export commodities such as iron ore which has doubled in price since the beginning of 2010.

Brazil’s economic performance under Lula appears favorable only in comparison to the disastrous results achieved under the previous ultra neo-liberal Cardoso regime which grew at a snail’s pace of less than 3%. What is most significant, however, is the strategic socio-economic and political continuities between the Cardoso and Lula regimes. Cardoso devastated the public sector, by privatizing and denationalizing, at ridiculously low prices, the most lucrative enterprises. The most glaring example was the sell off of one of the richest iron mines in the world Vale del Doce for less than a billion dollars, a firm which is now valued at over $20 billion dollars and with yearly profits exceeding $3 billion dollars. Lula has retained and even expanded Cardoso’s most dubious privatizations – including the banks, mines, oil and telecommunication companies which were acquired at below market prices.

Even before his first election victory in 2002 Lula signed an orthodox International Monetary Fund Agreement to retain a 4% budget surplus, to pursue an orthodox fiscal policy restraining social spending reducing public pensions and holding down wages. Lula was more successful than Cardoso in enforcing these orthodox monetary policies because of his influence over the major trade union confederation (CUT) leaders, who he co-opted via appointments to the Labor Ministry. In other words, Lula harnessed populist rhetoric to fiscal conservatism, symbolic labor appointments with economic policy czars with long-standing ties to major financial centers.

Lula received the enthusiastic endorsement of all the major financial newspapers for his switch from advocate of working class social reforms to staunch ally of the BOVESPA (Brazilian stock exchange). His policies of accumulating over $200 billion in foreign reserves, of prioritizing the paying down foreign debts instead of increasing social spending for education health and housing affecting 100 million Brazilians, won lasting praise among all orthodox economic experts. The “stability” of the economy was bought at the expense of the instability in the lives of the working class and the rural poor. Unemployment under Lula never went below 10%; the ‘informal sector’ remained at over 30%; four million rural families remained landless; the Amazon rain forest annually lost over 2 million hectareas per year, encouraged by Lula’s push to promote agro-business exports. Indian territorial reserves were violated, land was occupied, scores were killed, while federal and state agencies focused on prosecuting rural movements occupying uncultivated latifundios owned by business speculators. Lula’s policy of financing agro-business exporters was successful – cultivated lands expanded, revenues increased geometrically and wealth grew – for the owners, investors and stock owners. But at a tremendous cost: over 2 million rural workers were forced to migrate to slums and marginal employment, becoming easy recruits for the drug gangs which control the favelas of Rio and Sao Paolo. Millions of family farmers were forced to borrow at high interest rates and to compete with subsidized food imports, driving hundreds of thousands into bankruptcy and making Brazil a food deficit country.

Lula, during and immediately after his election, solemnly promised the powerful 350,000 member Landless Rural Workers Movement (MST) that he would carry out an agrarian reform settling 100,000 families a year with housing, credits and technical assistance. During his eight years in office, Lula broke his pledge every year, settling less than 40,000 families while under-financing the new and established co-operatives driving over one-third into bankruptcy. The MST in turn because of its “critical support” of Lula, lost the political initiative even as it continued its policy of occupying farms to secure land reform. After a brief period of tolerance, the government turned the military police against the Movement, arresting its leaders and criminalizing its activities. After a major corruption scandal affecting Lula’s top advisers and leaders in Parliament (2005 – 2006), he turned to the traditional rightist parties and established politicians including ex-President Sarney to promote his neo-liberal economic agenda. Lula’s new coalition with the traditional right was based on a common program of promoting big agricultural interests and guaranteeing their security against the land occupation strategy of the agrarian reformers in the MST. The result was an increasing concentration of landownership (1% of landholders own over 50% of the fertile lands) and an increasing number of movement leaders and activists awaiting trials and serving time in jail.

Lula’s legacy is essentially an “economically sound and stable market for investors” according to all orthodox economic experts. Brazil was rewarded by being awarded the site for the forthcoming Olympics. But given the severity of poverty and the dynamic growth of drug trafficking and armed organized gangs, Lula’s projections of nearly 50,000 soldiers to protect the spectators reveals the underside of his dream of an emerging world power.

Lula’s Political Legacy

Lula’s political legacy is on display in this year’s presidential elections, in which he must step down after two terms in office. In contrast to the past, there is now in place a modified two party system in which a variety of smaller groups coalesce around Lula’s Workers Party (PT) and Jose Serra’s Brazilian Social Democratic Party (PSDB). Neither party is what its label proclaims: over 80% of the delegates at the PT nominating convention were professionals, lawyers, functionaries and business people with a sprinkling of trade union bureaucrats and co-opted “movement” officials. There is nothing “socialist” about the party of Cardoso which privatized the jewels of the economy. The competition of the two parties is over who best represents the agro-mineral, banking and industrial elite of Sao Paolo and as a corollary who will receive the bulk of their financial contributions. Lula was eminently successful in securing tens of millions of dollars in contributions from the economic elite for his services on their behalf. In fact most of the really wealthy contribute to both major parties. Lula’s legacy is that he has de-radicalized Brazilian politics, leading to a consensus over the centrality of free markets, free trade and state promoted big business as the bases of economic policy. Beyond that Lula has enshrined the principle of poverty subsidies in place of social structural changes as the centerpiece of social policy.

Brazil: The Presidential Election 2010

The best analysis of the forthcoming Brazilian presidential elections (October 3) is found in the response of the stock market, credit agencies and investors: they envision no major changes on the horizon, continued support for orthodox fiscal policies, greater state promotion of private national and foreign investment and most important, social stability. The so-called “Workers” Party under Lula’s unchallenged authoritarian control, nominated Dilma Rousseff, his former ‘chief of staff’ as their candidate. The opposition rightwing PSDB nominated Sao Paulo State Governor Jose Serra, a former leftist who once contributed an essay to a book I edited back in 1972, titled “Dependence or Revolution”. One of the political ironies is that over the past two decades former Marxists, trade union leaders, even guerrilla activists have played a leadership and vanguard role in steering Brazil toward deeper integration into the world market, replacing socialist internationalism by embracing capitalist globalization.

To the extent that differences exist between Rousseff and Serra they revolve around issues of foreign policy, the role of public-private enterprise associations and the size and scope of public sector spending. Rousseff, promises to continue Lula’s promotion of billion dollar trade and investment agreements with all countries including Iran, Venezuela and Bolivia, regardless of US opposition. Serra, who is ideologically closer to Washington’s agenda, may reduce or limit these economic ties to accommodate the Obama regime. In other words, the Workers Party is a party with a greater commitment to independent market based global expansion than Serra’s more dogmatic ideologically influenced foreign economic policy. Officials in Washington have informed me that, the Obama regime will adopt a public posture of ‘neutrality’, since both candidates have affirmed friendly ties with Washington. Unofficially, I was told (off the record) that the Obama Administration prefers Serra because he is likely to side with Washington’s policy against Iran and be more outspokenly critical of President Chavez. However given the large scale engagement of Sao Paolo business interests in both countries, it remains to be seen how far Serra (if he is elected) would actually go in prejudicing Brazilian investors to satisfy US military driven empire building. Rousseff is likely to promote large scale public-private joint ventures to exploit multi-billion dollar off-shore oil and gas exploitation; Serra is more likely to promote exclusively private-foreign capital ownership and exploitation. Rousseff’s election campaign will receive big financial contributions from a long list of agro-mineral corporations, traders and national industrial manufacturers and construction contractors who received lucrative government contracts and subsidies and credit. Serra will be financially favored by the multi-national banks, rightwing landowners associations and the leaders of the Sao Paolo industrial elite. The trade union confederations and social movements will back Rousseff, either because of recent favorable wage agreements or because the PT is seen as the “lesser evil”. The Chamber of Commerce and some leading business associations and middle class “civic groups” will back Serra especially in the greater Sao Paolo region. While on the surface these political and social differences between the candidates appear to give some credibility to the idea of a ‘left-right polarization’ in reality the differences disappear when we examine closely the make-up of the political parties within the coalition backing the Rousseff. Four of the five major parties are on the conservative end of the political spectrum: the Brazilian Democratic Movement Party (PMDB), the Brazilian Republican Party (PRB), the Democratic Labour Party (PDT) and the Republic Party(RP). If Rousseff should be elected these four rightwing coalition partners will obtain the majority of ministries, leadership position in the Congress and ensure that the Rousseff regime does not trespass the boundries of orthodox neo-liberal fiscal policies.

What remains of the Left, is a fragmented assortment of micro parties with a strong presence in public sector trade unions (teachers, health workers) and some influence among the social movements. If the various groups united they might gather a respectable vote, but because of sectarian and opportunistic practices that is unlikely. Ciro Gomes, a former member of Lula’s cabinet is a likely candidate for the Socialist Party. But that is likely a mere a pretext to negotiate electoral support in the second round in exchange for a cabinet post if Rousseff is elected. Marina Silva, Lula’s former Environment Minister is a candidate for the Green Party, a party allied with the rightwing PSDB, PMDB as well as the PT whenever it is opportune: Silva will likely trade her voters to whichever party offers her a post. The two other explicitly “Marxist” parties, the United Socialist Workers Party (PSTU) and the Socialism and Freedom Party (PSOL), which tentatively agreed to present a common candidate have yet to resolve differences about acceptable coalition partners: the PSOL looks to the Green Party, the PSTU threatens to abandon the alliance.

Conclusion

Brazilian politics have moved a long way to the right over the past decade: the PT is now an openly pro-business party, whose fiscal policies are identical to the IMF recipes. The once militant trade confederation, the CUT, is now little more than an adjunct of the Ministry of Labor, well rewarded with economic subsidies but incapable of putting workers in the streets. Even the mass based rural landless workers (MST) which still retains its organizational autonomy feels weakened and isolated in the face of the PTs right turn. On the other hand, agro-export elites are thriving, investment bankers and overseas multi-nationals are pouring over $30 billion a year into Brazil; one of the worlds “safest emerging world powers”. Leftist leaders like Fidel Castro and Hugo Chavez praise Brazil’s “progressive” foreign policy even as Lula signs defense pacts with Obama for joint training and military exercises. No doubt Lula has gained greater international recognition for Brazil and will finish office with the greatest popularity ratings of any President in recent history. Yet with a cost of living comparable to that of Barcelona, over 30%, of Brazilian wage workers still receive a minimum wage of $200 dollars a month; the public school teachers in Sao Paolo receive between $436 – $505 dollars a month. One has only to visit the millions dwelling in the slums surrounding Sao Paolo, Rio and the other major cities to realize that there are two Brazils: the mass media publicized Brazil of the BRIC, the banker’s ‘emerging world power’, the Brazil of free elections and free markets, and then there is the “other Brazil” of forty million impoverished slum dwellers, twenty million landless rural workers, tens of thousands of dispossessed (Amazon) Indians, thousands of unpaid ‘slave laborers’ living in debt peonage, the millions of public school teachers, working two, three or more jobs up to 13 hours a day to earn a decent living. Lula’s presidency may have raised Brazil’s international stature and gained him the status of a ‘global statesman’ but most workers, peasants and Afro-Brazilians still work and live under Third World conditions.

April 14, 2010 Posted by aletho | Economics, Supremacism, Social Darwinism | Leave a comment