The recolonization of Brazilian peripheral capitalism


By Valerio Arcary*

The economic depression has already resulted in yet another lost decade. The Bolsonaro government benefits from broad majority support in the ruling class. This support is based on an economic-social strategy. Paulo Guedes' project is a subaltern repositioning of Brazilian capitalism in the world market. The name for this reinsertion, a close alignment with the Trump administration, and a reliance on foreign investment to get out of the depression is recolonization. The recolonization is a historical regression in the place of Brazil in the world market and, also, in the international system of States.

She obeys a plan and rests on a bet. The plan is that growth above 3% per year, driven by the attraction of massive increases in foreign investment, would be enough to contain the social malaise resulting from the increase in social inequality. The bet is that domestic market demand will rise when the level of exports jumps, an Asian solution to the “trap of stagnation in middle-income countries”.

But recolonization requires an uplift in the already deteriorated conditions of super-exploitation of labor. We cannot know whether or not this social counterrevolution can be carried out in the context of the liberal-democratic regime erected since the end of the dictatorship. It is possible that it will only be possible by imposing a historic defeat on the working class.

A historic defeat nullifies the ability to resist for many years, the interval of a generation, as occurred after 1964 by the military dictatorship. This is the greatest of all dangers. Therefore, it would be dramatic if the Brazilian left accepted that the horizon of the fight against Bolsonaro should be 2022.

Rivers do not always flow towards the sea. Respect for the limits of alternation by the electoral calendar can be fatal. Because the Bolsonaro government is not a right-wing government. The Bolsonarist wing is neo-fascist and intends to impose a historic defeat on workers' organizations and popular social movements.

External dependence has varying degrees     

The gigantism of the Brazilian GDP cannot overshadow us. We must understand that Brazil is still a peripheral country across the board. But, as an expression of uneven and combined development, the Brazilian economy still has the largest industrial park in the world south of the equator. Its multinationals are the most powerful on the continent. However, the depression of the last six years unequivocally signals that a process of economic recolonization is underway.

There is a hierarchy in degrees of external dependency. Since the end of World War II, Brazil has been a privileged semi-colony and a regional sub-metropolis. This is the peculiarity of the Brazilian hybrid.

Brazilian capitalism has always been and remains a major importer of capital.[I] Its place in the world market has also always been that of a country that exports primary products and imports manufactured goods, which incorporate more technology. Historically, it has suffered transfer of wealth due to terms of trade disadvantages. The Brazilian trade balance only has a favorable reverse profile in relations with its neighbors in Mercosur. Nevertheless, it preserved a position of a regional sub-metropolis, therefore also a platform for the export of capital to Peru, Bolivia and Paraguay.

The clear historical pattern of dependence of the Brazilian economy is expressed in the irreplaceable need for access to foreign investment in order not to fall into stagnation. The danger of stagnation and, therefore, economic decay has historically translated into a social crisis, which has always been a prelude to a political crisis.

This association with the capitals of imperialist countries manifested itself in the chronic trend towards a current account deficit whenever economic growth accelerates, imports increase and domestic consumption rises. This is how external vulnerability manifests itself in the economic field, in a chronic way.

External vulnerability is the Achilles heel of Brazilian capitalism

The growing external deficit, which then precipitates the need for adjustment, has always been one of the side effects of the growth phases. Adjustments were milder or more abrupt. We can verify, empirically, this alternation of accelerations and decelerations, considering the last cycle: the GDP growth rate evolved from 1,3% in 2001, to 6,0% in 2007, and 7,6% in 2010, or a average close to 4% in the years of the Lula government. But it dropped to 0,2% in 2014 and 3,8% less in 2015, with a similar drop likely in 2016.

This external vulnerability imposed, time and time again, a foot on the brake: an adjustment caused by the fragility of current transactions, therefore, the danger of a sharp devaluation of the national currency. Which partially explains the cycles of inflationary pressure, also chronic, like the last one, which culminated in 2015 with the rate above 10%. The nominal budget deficit, therefore the primary deficit plus the rollover of interest on the domestic debt, as a proportion of GDP, evolved from 4,8% in 2001 to 2,7% in 2004, 2,4% in 2007, 6,1 % in 2014 and 10,3% in 2015.

The exchange rate suffered a sharp devaluation, going from R$2,20 per US$1,00 in mid-2014 to levels close to R$3,50/US$1,00 in mid-2016, and has already reached R$4,30 in 3 ; and inflation measured by the IPCA reached 2019% in December 10,67, the highest since 2015. In recent years, this process has become more acute: the current account balance moved from a surplus position between 2002 and 2003 to a deficit of 2007 % in 4,4. The GDP contraction from 2014 to 2014 was approximately 2016%, a vertiginous catastrophe[ii].

The external dependence is financial, commercial and technological productive

Our economic dependence has three dimensions: financial, commercial, and productive-technological. The historical trajectory of oscillations in the trend of deficits in current transactions, and the upward trend in net external liabilities are two indicators of Brazil's dependent insertion as a semi-colony. The chart below illustrates, in decennial historical series, in a forceful way.


Current account balance – 1947-2015

(in % of GDP)[iii]

Brazilian capitalism is a dependent economy because, we repeat, we are capital importers. Trade balance balances, a positive result of exports over imports, were almost always insufficient to cover the deficit in the balance of payments and current accounts, depending on foreign investment to avoid currency devaluation, with consequent inflationary pressures.

It stems from an insufficient accumulation of capital because the savings rate was and remains relatively low: in the last seventy years it has almost always been below 20% of GDP. It was 15,7% of GDP in 2001, 20,7% in 2007, 21,1% in 2010, 18,9% in 2014 and 16,8% in 2015. The internal savings rate is close to 16%, but the investment rate hovered around 20% in the past decade.

The difference is dependence on foreign savings, which will be expressed as a current account deficit. Anyway, we must also consider that there is a significant mass of hidden Brazilian capital deposited in tax havens, which reveals the insecurity of the Brazilian bourgeoisie[iv]. It has preventively maintained, for decades, a hoard abroad. Another curious indicator is the number of Brazilians who own property in Florida: on a scale of hundreds of thousands[v].

Comparatively, for example, China maintains a qualitatively superior domestic savings, above 35% of GDP.[vi] Paradoxically, however, the volume of credit as a percentage of GDP increased from 25,8% in 2001 to 34,7% in 2004, 44,1% in 2007, 61,9% in 2014 reaching 63,7% in 2015, which means that access to foreign savings did not increase the country's ability to generate more production and exports, but increased consumption, exponentially increasing the indebtedness of families and companies.

The most recent commercial vulnerability has diminished due to the devaluation of the real. The current account deficit in 2015 fell to US$36,5 billion. But if the devaluation of the exchange rate causes a drop in the average salary, expressed in dollars, reducing production costs and increasing the competitiveness of exports, it also means a lowering of the price of national assets.
It's not just the work that gets cheaper. Everything is relatively cheaper: land, real estate, the value of companies.

The productive-real vulnerability can be considered by comparing, for example, the stock of foreign direct investment [FDI] as a proportion of GDP. Foreign direct investments totaled US$54,9 billion in January-October 2016, a value practically equal to that of the same period in 2015, which means an annual average of US$65 billion, with an upward bias, or something a little above 3 % of GDP. [vii]

The export of goods is around US$200 billion or 10% of GDP: in 2001 it was 10,4%, rose to 11,5% in 2007, fell to 9,1% in 2010 and rose to 10,7% in 2015. Services exports fluctuated between 1,5% and 1,9% of GDP in the same period. What corresponds to the historical average and seems, proportionally, a small volume, when compared to countries in similar stage of historical social development.

A necessary measure is that, being a continental country, and with a large domestic market, it is predictable that the Brazilian economy is, comparatively, more inward-oriented than its neighbors. But this factor has relative weight. 

The pace of export growth has been weak over the last ten years, well below the historical average; and growth in this period was due exclusively to basic products, with stagnation in exports of higher added value manufactured products. The increase in the trade balance to 10,7% of GDP in 2015 was caused only by the reduction in GDP in dollars – the value of exports, in fact, decreased by 15% in the year.

The unusual accumulation over the last thirteen years of a large volume of international reserves, US$ 373.108 million, which corresponds to 24 months of imports, an increase from 6,4% to 20,8% of GDP between 2001 and 2015 – covering almost 30 % of total gross external liabilities, and more than 100% of external debt −, operated as a kind of cushion against possible external financing shocks. Nevertheless, the substantial and qualitative accumulation of reserves was possible due to the favorable variation in the price of commodities, an atypical phenomenon, which reversed the historical dynamics, and only happened before during the two world wars.

There was also an improvement in the external financing profile, with a preponderance of resources coming in in the form of direct investments, and a low proportion of short-term debt. But this dynamic is contradictory to the strong pressure from the world market against the countercyclical policies of the 2011/2013 period that were at the root of the increase in the public debt ratio as a proportion of GDP.

The government's gross debt, an indicator of public debt, has grown rapidly in recent years – between 2013 and 2016, it jumped from 51,3% to 72,5% of the Gross Domestic Product (GDP).[viii] The Brazilian federal public debt, which includes the government's internal and external debt, reached BRL 3,04 trillion. It is the first time that the debt exceeds the level of R$ 3 trillion.[ix] This accelerated evolution of the public debt produced serious divisions in the Brazilian bourgeoisie, under the pressure of the world market. It was one of the factors that explain the displacement of growing fractions of the ruling class towards a frontal opposition to the Dilma government, culminating in the legal parliamentary maneuver of impeachment.

The participation of foreign investors in the domestic public debt fell again in September 2016. Non-resident investors held 14,97% of the total domestic debt (R$437 billion), against 15,67% (R$443 billion) in August. As a result, foreigners remain in fourth place among the main holders of domestic public debt in September, behind pension funds (24,26%, or R$708 billion) – which remain in the lead -, financial institutions (24,14 % of the total, or BRL 704 billion), and investment funds (21,4% of the total, or BRL 625 billion).

However, there is an inconclusive controversy about the denationalization of the Brazilian economy. It seems to have intensified, at least quantitatively.[X] The available data, even when considering different indicators, do not authorize the conclusion that it would have been qualitative. But quantitatively, the strong presence of foreign capital remained very high. [xi].

Deindustrialization is an equally controversial topic. But, contrary to denationalization, it seems clear that the average growth of around 4% between 2004 and 2010, the years of Lula's two terms, did not reverse the tendency inherited from the nineties of reprimarization [xii]. Because, although there has been an expansion and modernization of the services sector, and an expansion and industrialization of agriculture, it seems reasonable to conclude that deindustrialization has advanced since the XNUMXs, a regressive dynamic that has not been interrupted in the last decade.[1]

In summary, the comparative decennial evolution indicates that in the nineties there was a worsening of economic dependence, but, in the last decade, a relatively less vulnerable exposure to world market pressures. At the same time, it allows us to conclude that the ongoing reforms such as the public spending ceiling PEC, which freezes the state budget, regardless of GDP variations, signal a strategy to increase the semi-colonization of the Brazilian economy. In conclusion, a new consensus was established within the ruling class.

The years in which a “honeymoon” predominated with the policies of the class collaboration governments led by the PT, rocked by the growth phase of the world economy driven by the “Asian impulse”, are behind us. Tensions seriously worsened after June 2013, and took a leap in quality from 2015, with the pressure of the fury of middle-class layers mobilized in the streets with the music of the Lava-Jato orchestra.

The reorientation of the Dilma Rousseff government, after the 2014 elections, naming Joaquim Levy as prime minister, was insufficient and late, and did not convince the ruling class. The policy of prioritizing association with North American imperialism to favor the indispensable changes for the increase of foreign investment won.

The impeachment of Dilma Rousseff and the inauguration of Temer paved the way for structural reforms, starting with an unparalleled fiscal adjustment in history. Lula's arrest paved the way for Bolsonaro's election. And Bolsonaro paves the way for a regressive recolonization.

* Valerio Arcary is a retired full professor at the Federal Institute of São Paulo

[1] Caesar Benjamin. The deindustrialization of Brazil. “In 1986, industry accounted for 36% of our GDP. Today it represents 14%, a percentage similar to that of the first half of the 1940s(…) Here, deindustrialization is precocious, as it occurs in the context of a slowdown in growth and before we reach high per capita income. We have not generated a thriving, knowledge-intensive service economy. To absorb the labor that the industry no longer employs, low-productivity services are expanded, often inserted in the informal economy, and offering low wages”. – Consultation 19/12/2016.

[I] Brazil was the country that received the third largest volume of Foreign Direct Investment (FDI) in 2012 among peripheral economies, a total of US$ 65 billion, behind only China (US$ 120 billion) and Hong Kong (US$ $72 billion). This large volume of FDI in Brazil covered the current account deficit in the same year, which reached US$ 54,2 billion, equivalent to 2,4% of GDP (Gross Domestic Product). This volume of FDI, around US$60 billion, was stable during the two years before and after. – Consultation on 19/12/2016.

[ii] IPEA Context Letter: Technical Note Reassessing the external vulnerability of the Brazilian economy, indicators and simulations. July/September 2016.

Consultation on 12/12/2016.

[iii] Fernando José da SP Ribeiro in IPEA Context Letter: Technical Note Reassessing the external vulnerability of the Brazilian economy, indicators and simulations. July/September 2016. – IBIDem.

[iv] It is not known what is the volume of assets held by Brazilians in tax havens (offshore). It is speculated that they could exceed the astounding US$500 billion, something of impressive dimensions, corresponding to 25% of GDP. In the first amnesty, US$50 billion was paid in taxes and returned. A second round was announced for 2017. The bulk of Brazilian capital abroad does not control productive activities. – Consultation on 19/12/2016.

[v] “Brazilians spent US$ 1 billion buying real estate in Florida between July 2010 and June this year, according to the National Association of US Realtors. The volume of resources was the same as in the previous 12 months, but involved a much larger number of acquisitions, due to the fall in real estate prices in the United States in the last year. The volume of transactions grew 30% in the period, going from 5,7 thousand purchase contracts to 7,4 thousand. – Consultation on 19/12/2016.

[vi] Interview with Martin Wolff. “The biggest economic challenge that Brazil faces is to increase the national savings rate, today below 20% of the Gross Domestic Product, to above 30% (…) If impoverished China could achieve a national savings rate of around 35 % of GDP, then Brazil can surely do it too. – Consultation on 19/12/2016.

[vii] – Consultation 12/12/2016.

[viii] – Consultation 12/12/2016

[ix] – Consultation 12/12/2016.

[X] According to DIEESE technicians, in 2004 and 2012, 1.296 companies were transferred to the control of foreign companies. A particularly serious aspect is the issue of remittances by multinationals abroad. Profit remittances to the headquarters of transnationals (many of them state-owned) reached 410 billion dollars between 2003 and 2012. – Consultation on 19/12/2016.

[xi] Reinaldo Goncalves. National-developmentalism in reverse. Published in 2011. “Denationalization is evident in the case of the 50 largest companies that constitute the “central nucleus” of capitalism in Brazil. In this group there are 26 foreign companies. The share of the sales of these 26 foreign companies in the total value of sales of the 50 companies in the central core is 40,0% in 2002, 38,4% in 2005-06 and 41,9% in 2009-10 (Table 4, col. 7). The increase between 2003 and 2010 is due to the decrease in the relative participation of state-owned companies, since national private companies maintain their participation (25%) relatively stable in the period under analysis. Furthermore, the share of sales by the 26 foreign companies in the central nucleus in the total value of sales by the 500 largest companies increases from 17,6% in 2002 to 20,3% in 2010”.

[xii] Reinaldo Goncalves. National-developmentalism in reverse. “The share of the manufacturing industry in Brazil's GDP drops from 18% in 2002 to 16% in 2010 (IEDI, 2011). The average annual real GDP growth rate is 4,0% over the period 2003-10. In this period, the real growth rate of the added value of mining is 5,5%, of agriculture is 3,2% and of the manufacturing industry is 2,7%.” – Consultation on 19/12/2016.

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