The Order of Capital

Artist: Kate Raath


Note to the Brazilian edition, recently launched

It's a real achievement to see The Order of Capital published in Portuguese. After all, even though it narrates something that took place in Europe a century ago, following a line that revisits and reviews the foundations of the economy in order to relate the effects of austerity economic policies at the beginning of the 20th century to the rise of fascism, in this book There are analytical elements that can contribute to understanding the nature and logic of austerity in Brazil today.

Although it focuses on class relations in European contexts in which austerity was used as a political instrument to crush demands for economic democracy, it brings this dynamic to understanding how class relations were forged in countries whose history is one of slavery and colonialism. . Understanding class relations in 19th century Europe serves to calibrate how the austerity discourse is accompanied by an argumentative agenda that cancels the class aspect of the policies adopted, as if they affected everyone equally.

The events that occurred between Western Europe and the global North at the beginning of the last century reverberated in the center-periphery axis and guided how subordinates would guide their own politics. Economists from the global South sought validation in the economic strands that spread austerity and would take on the neoliberal contours we witness today.

Another key that history teaches us is the inseparability of fiscal and monetary austerity, through the budgetary commitment to the constant increase in interest rates, directly affecting the world of work. The scarcity of credit due to the rentier policy of high interest rates means that workers are impacted on two fronts: on the one hand, by the reduction in employment and, consequently, by the subjection to precarious work; on the other, due to a low salary policy that compresses purchasing power among the countless needs to be satisfied in the vacuum left by the absence of public service.

For no other reason, one of the first recent measures in the implementation of austerity in Brazil consisted of eliminating labor laws.

Privatizations to attract investors in the infamous public-private partnerships, accompanied by market deregulation, also play a fundamental role in the dynamics of austerity. Much of the speech revolves around justifying the reduction in public spending by committing the budget to the payment of interest and debt amortization. This idea, although mistaken, allowed, as we will see, the maximum authority at the Central Bank to become immune to the interest rate policy suggested by the head of the Executive.

After the promulgation of complementary Law no. 179, of 2019, the budgetary needs of the President of the Republic are completely irrelevant to the President of the Central Bank, since his mandate is endowed with guarantees requiring a difficult dismissal process, dependent on the absolute majority of the Senate. The deepening of austerity achieved through various stratagems during the mandate of former president Jair Bolsonaro, under the guise of granting full autonomy to the Central Bank, removed from political power the alliances, so important to the construction of a harmonious and consistent budgetary program, with the essential social policies of a late modern country.

Given the current scenario, it is worth highlighting that Brazil already has the highest real interest rate in the world, surpassing countries that are suffering from inflation, such as Argentina. At the same time, the commitment of Brazilian GDP to public debt is lower than that of developed countries, making the argument that the country should reduce spending, that the country spends uncontrollably, unfeasible.

While Italy, the central object of study in this work, presents a relationship between GDP and public debt that exceeds 150%, Brazil's proportion is less than 80%. Countries like Japan and Greece exceed 200%, and the United States reaches 120%. Therefore, the argument that Brazil has no alternatives other than implementing austerity policies does not hold water. The nodal point of the national budget lies in the sum allocated to the payment of interest on the public debt, which is unjustifiable and propagates the social ills from which the country suffers.

The year 2022 ended with the approval of a transition amendment by the then future Lula government, the constitutional amendment no. 126, which expanded the public budget to allow current expenses of around 145 billion to not be limited to the spending ceiling. The amendment also established another spending ceiling, which would be called “new fiscal framework”. The goals established by the new rules proved to be timid, if not cowardly, especially in abolishing the harmful spending ceiling established by constitutional amendment no.o. 95/2016, preventing the country from austerity that ignores the political faction that occupies power. The austerity regime, despite not achieving the desired economic stabilization results, does not fail to achieve its true aim: to ensure that the triad of fiscal policies, monetary policies and the erosion of the working class's ability to react to them silence dissent.

Furthermore, as it forms part of the global South, Brazil is more susceptible to pressure from internal and global elites. Therefore, the imposition of austerity measures by the International Monetary Fund (IMF) to grant international loans was no coincidence. The IMF's interference in directly affecting matters related to the country's sovereignty culminated in the approval of the fiscal responsibility law in 2000, as part of an agenda of “recommendations” that would ensure debt payment. However, in addition to establishing guarantees for this payment, the real intention was to dictate how politics should be guided, without the ruler in power.

Before assuming his first term, in 2003, Lula delivered a letter of commitments to “reassure the market”, promising to maintain the “stability” of his predecessor Fernando Henrique Cardoso. In 2023, returning to the Presidency after the period of upheaval that the country went through, Lula committed to “putting the poor in the budget”; however, to date, continuity prevails in relation to Michel Temer and Jair Bolsonaro. A deeper look into the country's political history reveals that the period of military dictatorship and changes in power did little to alter the way in which capital is extracted from the working class. In an allusion to the former Finance Minister of the “economic miracle”, Delfim Neto, it would be necessary to “make the cake grow and then divide it” – but the moment of division never reaches the disadvantaged of the system.

Austerity does not consist of a bitter medicine administered to stop “unrestrained spending” and “resume growth”, jargons that are already as well-known as they are worn out. Austerity is not a policy error to undo the “aggrandizement of the State” and provide “less State, more market”. The lens through which the economist sees market variables distorts the way reality operates, glimpsing the aggregate (the national unit) despite social well-being and presenting class distinctions with marked myopia.

As is well evidenced, the common definition of austerity as a cut in spending and increase in taxes masks the choice of allocation of resources, which are abundant for financing wars and paying interest on public debt, but negligible for expanding social spending. In Brazil, the cuts were significant in sectors that did not support further flattening. The minimum wage lacks a real increase compared to inflation, pension reforms began to establish stricter criteria for granting benefits, and privatizations have made the price of public services more expensive over the years.

The austerity that is taking place in developed countries continues to admit a high GDP commitment to public debt, but it follows the precept of eliminating social benefits, conditioning them on the recruitment of low-paid work, cutting spending on health, education and housing and the elimination of taxation on the richest, transferring the burden to the poorest through regressive taxation of consumption and services. Capital emerges even more privileged from the austerity equations, commodifying social benefits as a bargain to the detriment of society.

In the Brazilian case, high interest rates please international speculators, eager for substantial returns in a country that does not invest and, therefore, never frees itself from the situation of dependence. At the same time, by choosing to be incorporated as a legal entity, the capital has the unprecedented benefit – apart from in Estonia and Latvia – of no income tax being levied on profits and dividends.

Fiscal austerity, inseparable from monetary austerity, works alongside the imposition of an artificial increase in interest rates under the argument of containing inflation, thus compromising the public budget with the payment of unjustifiable interest. The value of the salary – another relevant factor –, despite what one might think, has a direct correlation with the austerity policy.

There is an inversely proportional relationship between the privatization of public services and the stability of remuneration from this sector. This phenomenon occurs in parallel with the revocation of labor, social security and assistance protections and the suppression of public benefits, weakening the bargaining power of unions and workers. The scarcer the resources available to satisfy one's own subsistence needs, the more susceptible the worker will be to being subject to oppressive work relationships. Not coincidentally, austerity policies in Brazil are accompanied by precarious labor relations and a widespread inability to mobilize unions and politically demand labor rights and, more broadly, social rights.

The current political context is quite unfavorable to the realization of social and economic rights for the most vulnerable groups in Brazilian society. Since impeachment of President Dilma Rousseff – under the false accusation of violating budgetary laws, the so-called “fiscal pedals”, indispensable to reconcile spending with the lack of revenue in the face of the economic crisis that devastated the country, measures that were nothing more than instruments to the execution of unpostponable public expenses – the scenario of undoing the social state gained momentum with the rupture of the social pact through the forged constitutional amendment no. 95/2016, result of the approval of the “PEC of death”. This reform raised the status constitutional a state of affairs that subverts the primacies established in the Constitution itself.

As if that were not enough, the “expansionist austerity” of the then minister Paulo Guedes deepened the process of social impoverishment, accompanied by labor pension reforms and an unbridled search for the privatization of sectors belonging to public authorities. This program proved, from the beginning, to be a failure, because, as soon as the covid-19 pandemic interrupted the functioning of the economy, it became impossible to maintain the workforce, hostage to the domestic environment, without any alternative to mitigate the crisis. The pandemic exposed the fragility of the system in dealing with the exceptional, and some of the measures to contain essential expenses needed to be relaxed to face the approval of emergency aid, which would be in effect provisionally and, therefore, transformed a then right into a faculty for those who exercises power.

* Clara E. Mattei is a professor in the Department of Economics at The New School for Social Research.


Clara E. Mattei. The order of capital: how economists invented austerity and paved the way for fascism. Translation: Heci Regina Candiani. São Paulo, Boitempo, 2023, 488 pages. []

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