the brazilian challenge

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By LUIZ CARLOS BRESSER-PEREIRA*

The crisis of neoliberalism and the new developmentalist alternative

four crises

Since 2013, Brazil has faced a triple crisis – political, economic and moral – to which, in 2020, the Covid-19 pandemic was added. The economic crisis is the oldest, because the Brazilian economy has suffered from semi-stagnation or near-stagnation since 1980 [1]. Since then, our growth rate has been 0,8% per capita against 1,7% per capita in rich countries and 3% in developing countries. That is, we are lagging behind for a long time.

To crown this situation of semi-stagnation, we had in the short term, in 2014, an internal financial crisis, defined by the bankruptcy of companies after six years in which the Real remained strongly overvalued, by a severe recession between 2014 and 2016, and by an anemic recovery of the economy until the outbreak of the Covid-19 crisis in early 2020. Since 2014, the crisis has gone from being almost stagnant to becoming a decline in per capita income and an increase in poverty and inequality.

The political crisis was added to the economic crisis, which began with the popular demonstrations of 2013. The political crisis was a middle-class reaction to the clear preference for the poor and workers in the PT governments (2003-2016). The poor population had some advantage thanks to the Real Plan and later thanks to the PT's policy regarding the minimum wage and social policy. At the other extreme of the social structure, the very rich became even richer because they were able to capture public assets through very high interest rates paid on the public debt.

In between, the middle class was left out, squeezed between the rich and the poor. The moral crisis, which began with the “Mensalão” scandal, is not only expressed in the corruption that took hold of the major political parties, but also in the corruption of the Brazilian economic elites who, in exchange for reforms that reduce wages, supported the election of an extreme right-wing president without any condition to govern Brazil.

The political crisis originated in the upper middle class, which felt harmed by the nearly 14 years of government by a center-left party – something that had never happened before in Brazil.

After the democratic transition, the State's social expenditure, which was around 12% of GDP, rose to 22%. The total tax burden, which was around 22% of GDP, went to 34%, with a significant increase in social expenses, but also in the portion related to interest (from 5% to 6% of GDP), which constituted a huge subsidy to rentier capitalists. The middle class, which was squeezed between rich and poor, realized that it pays taxes, but does not benefit from expenses in the social area, does not benefit from what the State spends on health through the SUS, which it does not use, and with what the State spends on primary and secondary education (it only uses public higher education). Suddenly, this middle class, which had been progressive during the democratic transition, took a sharp turn to the right in 2013.

The political crisis worsened with the impeachment of Dilma Rousseff, with the adoption of a radically neoliberal policy by the Temer government (which previously had never been neoliberal), and with the election of an extreme right candidate, who was ultimately the only beneficiary of the political crisis. . A government that, 18 months after taking office, is in full crisis, but its levels of popularity and support among the neoliberal elite continue to increase. I do not believe, however, that he will manage to finish his mandate: either he will be impeached, or he will be impeached by the Federal Supreme Court. In both cases, it will be necessary to obtain approval by Congress, which at the moment is not yet possible, but soon the deputies and senators will realize that continuing to support a government like this will make its re-election very difficult and those who still continue to support it will withdraw your support.

The fourth crisis is that of Covid-19, which the government has been facing in an unacceptable way. Its refusal to lead the necessary process of confinement and social distancing is generating an explosion in the number of dead, configuring itself as a case of genocide.

Liberalism or developmentalism

This is the fourfold crisis that Brazilians are suffering today. Faced with it, neither the right nor the left know what to do. They alternated in power, but failed to lead Brazil to resume economic development. To understand this, it is necessary to understand that, on the economic level, the capitalist State essentially has two alternatives, either it is developmentalist or it is liberal.

In 2017, I wrote a work in which I tried to show that there are two ways of organizing capitalism: liberal or developmental. Economic liberalism means the State intervening as little as possible in the economy, guaranteeing only property and contracts and keeping its fiscal account balanced; the market would take care of the rest… It is an intrinsically inefficient way of organizing capitalism. The alternative to this is developmentalism, an economic policy regime in which the state intervenes moderately in the economy and is geared toward autonomy and national interest.

In fact, until 2017, in a work on the two forms of capitalism, I proposed the use of the word developmentalism to indicate the type of capitalism alternative to economic liberalism, I still did not have a term to name it. [2]. A word with that meaning does not exist in dictionaries, neither in Portuguese, nor in English, French or German. Socialism is not an alternative to liberalism, socialism is an alternative to capitalism. But this word is very necessary.

So I decided to use the term developmentalism to mean this alternative. Why developmentalism? This is a name that emerged around the 1950s. The first time I saw it was in Charles Tilly, a great American political scientist who studied the emergence of the nation-state. But who made this expression famous was Chalmer Johnson in 1982 in a book about Japan [3]. We here in Brazil have been using it since the 1960s. There is an excellent paper by Pedro Cezar Dutra Fonseca who addresses developmentalism as a historical phenomenon.[4] In his research, the first social scientist he found using the term developmentalism was Hélio Jaguaribe, in a text from 1962, and the second person was myself, in 1963, in an article I published about the industrial entrepreneur and the capitalist revolution [5].

I have always been a left-of-center developmentalist. Initially a “classic developmentalist”, as Celso Furtado and Inácio Rangel were in Brazil, and in the 1990s, after studying the thought of Norberto Bobbio, I was attracted by the idea of ​​liberal socialism. From 2000, however, it became clear to me that liberalism would not be able to serve as a guide for Brazil's development and that developmentalism needed to be renewed. So I started to put into practice a project that I had considered for a long time: building a new theoretical system – the New Developmental Theory – which today is already a reality.

If we think of a theoretical framework in which we adopt progressive/conservative and developmental/liberal criteria, the person or political regime can be developmental progressive, as happened in the Golden Age of Capitalism, or it can be developmental conservative, as Alexander Hamilton and Bismarck were. When one is liberal, the person or the political regime is necessarily conservative. A liberal progressive is a contradiction in terms since, in the first half of the XNUMXth century, liberals became dominant in the UK and France. In the United States it is possible to make this confusion, because in its colloquial language liberal means progressive, but I never use the word liberal in that sense.

I have a definition of opposition between progressives and conservatives. A person is on the left when he is willing to risk order in the name of equality, in the name of social justice. This does not mean that the left is against order. No, that's not it. Order is the condition of everything; if the person is a revolutionary, he breaks the order and founds a new order. Without order there is no State. But if you're willing to risk that order in the name of equality, you're on the left. When a person defends a strike, when he criticizes capitalism, he is endangering order and, therefore, he is leftist. The right fundamentally prioritizes order before anything else.

It is correct to say that Brazil's fundamental problem is inequality, but there will be no way to combat it without economic growth. If there is no economic growth, progressive government will fail. The Lula government did not fail because it acted responsibly on an economic level, except in relation to the exchange rate (which allowed it to appreciate brutally), and because it benefited from a favorable scenario of commodity prices exported by us. The State needs to seek to reduce inequality, but not at the expense of development. That is why New Developmentalism advocates social developmentalism. I want to reduce inequalities, but I know that for there to be economic development it is necessary for the exchange rate to be competitive and the profit rate satisfactory to motivate companies to invest.

Developmentalism in central countries

Progress is an illuminist thesis of the XNUMXth century, founded on the idea of ​​reason, of the exercise of knowledge. It is rational progress, with society developing through reason. In the XNUMXth century, the idea of ​​progress was transmuted into the idea of ​​development and, from the second half of the same century, into that of “human development”. [6].

In this line of thought, what were, then, the political objectives that modern capitalist societies, from the XNUMXth century onwards, mainly, defined for themselves? There was, previously, a goal, which was the concern for order. With the French Revolution came a second goal, individual liberty. With the Industrial Revolution, a third, economic nationalism, that is, developmentalism. In the second half of the XNUMXth century, a fourth objective emerges: social justice and its ideology, socialism. Finally, in the last quarter of the twentieth century, a fifth objective: the protection of the environment, environmentalism. Therefore, five major objectives and their respective ideologies: order and conservatism, individual freedom and liberalism, economic development and economic nationalism or developmentalism, social justice and the ideology of socialism,[7] and the protection of the environment and the ideology of environmentalism.

To better understand what happened to the Brazilian economy, it is important not to ignore the neoliberal turn that occurred in central capitalism from the late 1970s onwards. The economy of rich countries was liberal until 1929. crash of the New York Stock Exchange and with it the Great Depression of the 1930s. The central countries then changed their economic regime to a developmental one – and this greatly facilitated the adoption of developmentalism in Latin America.

Developmentalism is already present in the New Deal from Roosevelt. We could even quote Hitler and Mussolini, but these were governments so bad that it's better to leave them out. In the post-Second World War we had a developmentalism like that of Roosevelt, democratic and social democratic in Europe. It was the second great developmentalism in the history of capitalism. The first had been mercantilism – when the capitalist revolutions took place in England, France and Belgium.

Although Americans always talk about their economic liberalism, until 1980 the USA was a developmental country. Until 1939, they had high tariffs protecting their economy. They needed this to neutralize their Dutch disease, which they had no concept of, as it also happened here in Brazil, but they knew that without tariffs their industry would not be competitive. In the 1950s, the US sent a mission to Brazil to teach us economic planning. The US has always ruled and continues to rule the World Bank, which, alongside ECLAC, was, until 1980, the main nest of development economists. The system in the US was not liberal, but developmental.

Post-war developmentalism had a macroeconomic theory to support it, Keynesianism. Keynes was a developmentalist. My concept of developmentalism is, of course, broad. Therefore, I can say that capitalism is liberal or developmental. From the 1940s, “really existing” developmentalism began to have a theory of economic development, “development economics”, which was called Latin American structuralism, and which I prefer to call classical developmental theory. Rosenstein-Rodan, Arthur Lewis, Ragnar Nurkse, Celso Furtado, Albert Hirschman, Raul Prebisch, Hans Singer, Ignácio Rangel (as well as Keynes and Kalecki, who founded macroeconomic theory) were classical developmental economists.

Between 1930 and 1980, Brazil was developmentalist, relying on the theoretical thinking of these classic developmentalist economists. But the classic developmental theory entered a crisis in the 1970s, with the dominance of the dependency theory initially established by André Gunder Frank. This theory rejects a fundamental component of developmentalism: the developmental class coalition; the idea that, in order to promote economic development, there generally needs to be a basic political agreement (regardless of specific conflicts) between a relatively national industrial bourgeoisie, the public bureaucracy and workers, more specifically urban workers.

Coalitions of this type were found all over the world, including in the period of mercantilism, where the absolute state was a coalition of the monarch and his court with the great merchants, against the feudal lords. After mercantilism, coalitions formed in opposition to liberals, who are against state intervention in the economy. The crisis of classical developmental theory deepened in the 1980s, with the neoliberal turn in rich countries, at the same time that neoclassical economic theory returned to be dominant in universities, after the Keynesian intermezzo.

Pitfalls of liberalization

Economic liberalism is incompatible with the development of the country. In Brazil we need to maintain a competitive exchange rate, but there are usually two things that prevent this: the first is an unneutralized “Dutch disease”, which becomes a big problem when commodities increase in price; the second is the mistaken policy of trying to grow with “foreign savings”, that is, with foreign debt, because, to attract capital, the government raises the interest rate and this keeps the exchange rate appreciated in the long term.

In a very brief analysis, Brazil formed its nation-state and carried out its national and industrial revolution, that is, its capitalist revolution, between 1930 and 1980. Until 1930, it was a semi-colony of the American, British and French informal empires. With Getúlio, the national and industrial revolution begins. In 1980, the Brazilian capitalist revolution could already be considered complete. In 1985, with universal suffrage and the departure of the military, Brazil finally had a democratic regime.

Upon completing its democratic transition, Brazil had a large industry, exporting manufactured goods, a large bourgeois middle class and a large technobureaucratic middle class. It was a victorious country. However, at that moment, it was in a very big crisis since 1980, the external debt crisis, an exchange rate crisis, which hit the countries that believed they could grow with external debt and current account deficit. Added to this crisis was high inflation, which immediately became inertial because the military regime indexed the economy from 1964 onwards and Brazilian society began to do the same, informally, with its prices and wages. A crisis that happened especially in Latin America and Africa, little in Asia, and that stopped Brazilian growth.

In this period from 1930 to 1990, Brazil's economic policy regime was developmental; Brazilian capitalism was developmental; the Brazilian State was developmentalist. From 1990 onwards, Brazil adopted a liberal economic policy regime and the Brazilian economy entered a quasi-stagnation regime. What happened? Liberal orthodoxy talks about the lack of liberalizing reforms and the so-called “middle income trap”, which would explain why Latin American countries have barely grown since 1980. Once an average income level is reached, growth would stop unless reforms and more reforms are carried out. We did, and the economic situation only got worse.

In fact, this middle-income trap doesn't exist; what happened was the trap of liberalization. Semi-stagnation did not happen with the countries of East Asia. In Latin America, countries did not stop growing because they reached a certain level of income, but they stopped growing because, faced with the great external debt crisis and the high inertial inflation that occurred in that decade, they started to adopt neoliberal reforms that dismantled the policies that, pragmatically and intuitively, neutralized their Dutch disease (tariffs on the import of manufactured goods), and because, as soon as the external debt crisis of the 1980s was overcome, they returned with more vigor to trying to grow with external debt.

Tariffs were not mere protectionism; most of them consisted only of modalities to neutralize the “Dutch disease”. In addition, financial openness facilitated the rise in interest rates, with the idea of ​​attracting capital, which had a deleterious effect on the economies of Latin American countries. This did not happen with Asian countries. They didn't have Dutch disease, they didn't want to grow with foreign savings, except for South Korea in the 1970s, but then the Korean economy grew very quickly, opportunities for profitable investment increased a lot, and the marginal propensity to save and invest increased, so that the foreign capital that financed the deficit was not used for consumption, but for investment.

The neoliberal turn

In the 1970s, the Golden Age of capitalism entered a crisis. The end of dollar convertibility in 1971 and the first oil shock in 1973 were the two events that marked this change. The growth rate of all countries has dropped and so has the profit rate. Competition then arose from developing countries exporting manufactured goods. It was the Asian Tigers, Brazil and Mexico. This, of course, greatly upset the Empire.

The reaction to all this took place with the resumption of power by liberal economists and the neoliberal right. In 1979 and 1980, the “neoliberal turn” took place, marked by the election of Ronald Reagan in the USA and the rise of Margareth Thatcher in the United Kingdom. Brazil entered this regime ten years later. At that time, Brazil was experiencing a foreign debt crisis and high inflation, which made it very fragile. In 1990, with the election of Fernando Collor, Brazil finally submitted to the neoliberal turn. It carried out its commercial and financial opening.

Fernando Henrique Cardoso deepened this “neoliberal turn” by promoting the privatization of monopoly public utility companies and by adopting the policy of “currency fluctuation” [8], with inflation targets. That's not necessarily liberal, but it helped too.

When Lula came to power in 2003, he found this neoliberal policy regime with a mass privatization program, commercial and financial opening. But nothing has changed; neoliberalism was victorious around the world and there was no support for change. The economic policy regime remained liberal. Lula placed a conservative president in the Central Bank and, in the Ministry of Finance, he placed Antônio Palocci who chose two radical liberal economists, Marcos Lisboa and Joaquim Levy, as his secretaries. Nevertheless, the Lula government ended well, with high popularity, as it benefited from a large increase in the prices of commodities exported by Brazil.

However, he bequeathed to Dilma Rousseff a much appreciated exchange rate, which is at the origin of today's Great Brazilian Crisis. In 2011, Dilma tried to change the economic policy regime from liberal to developmentalist, but was incompetent and did not work. Then he withdrew. She was re-elected, but at the same time, the middle class took a huge swing to the right and that plunged it into a deep recession. This facilitated the impeachment coup and the resumption of power by the neoliberals. We were then in the midst of the Great Brazilian Crisis. This only got worse with the election of Jair Bolsonaro. There has been no growth since the impeachment because liberalism in Latin American countries is unfeasible. Countries with this level of development do not support this liberalism, even more so if they have Dutch disease. Countries like Switzerland, very rich, can be more liberal; are already so rich that economic development is no longer important to their population. This is not the case in Brazil.

The Crisis of Neoliberalism

Neoliberalism entered into crisis in 2008. The collapse of the financial system that year sealed the failure of neoliberalism. The deregulation of the financial system that neoliberalism fiercely defended has failed. In 2016, the political crisis of neoliberalism and neoclassical orthodoxy began with the election of Donald Trump and the decision of the United Kingdom to carry out the Brexit. Neoliberalism is dying out in the North, replaced by a right-wing populism as bad or worse than neoliberalism. It is not, however, dying in Brazil, not, at least, for Minister Paulo Guedes; not for the financial system; not for the economic and political elites who, by associating themselves with an economic policy regime incapable of promoting economic development, demonstrate a profound backwardness.

Neoliberalism is a form of organizing capitalism as radical as its opposite, the statism that occurred in the Soviet Union. Either the coordination of capitalism occurs in an extreme way, leaving only room for the market institution; or it is extreme in another way, it is just the State. The alternative to economic liberalism and statism is developmentalism. Which, of course, does not guarantee economic development. Developmentalism will only succeed if it is reasonably well governed. The liberal form also demands good government, but the developmental form demands even more, because economic savings decisions are more important in it, and the decisions taken need to be reasonably correct.

A problem for the Brazilian left, which, by the way, is also a problem for the left in Europe, is the lack of a proposal in the economic area. Liberals don't need positive proposals; for them it is enough to leave everything to the market. In the case of developmentalists, the problem is greater because they need to know which economic policy to adopt, which sectors should remain within the scope of the market, which ones require planning, how to manage macroeconomic prices that the market is incapable of coordinating in an efficient way. satisfactory. The New Developmentalist Theory aims to give the center-left an updated economic theory, which starts from the great competition that exists today between nation-states and has as its objective economic development with stability, reduction of inequality, and the fight against global warming.  [9].

The New Developmental Theory has been constructed by a group of heterodox economists originating from Classical Developmentalism and Post-Keynesian Economic Theory. Today, it has a political economy, an analysis of capitalist development supported by Marx and the classic developmentalists, and the macroeconomics of development that originates in Keynes, but it is from the beginning an open macroeconomics, which sees the national economy within the framework of world capitalism. ; it is also a dynamic macroeconomics from the beginning because it is not a simple macroeconomics, but a developmental macroeconomics.

Central Banks exist to control inflation and interest rates. But they also need to take care of exchange control, wages, and the guarantee of a positive rate of profit. I often joke saying that the Workers' Party (PT) tried to develop a new concept of capitalism – a non-profit capitalism… Lula did what he could to have a new developmental agreement with the business community. But, by allowing the exchange rate to appreciate brutally, it did not guarantee industrial companies a satisfactory rate of profit from 2011 onwards. by former President Dilma Rousseff, for her arrogant interventionism. The State needs to guarantee the business community that there is a reasonable rate of profit. Without it there is no capitalism. The PT wanted capitalism, defended capitalism, but allowed the Real to appreciate enormously and affect the profit rate of companies.

the brazilian challenge

How does economic development relate to the other objectives? They are not exclusive. They have contradictions, it is true, but they are not incompatible. However, they all depend on economic development. This is a priority. Economic development is necessary to combat inequality.

One of the mistakes made by the PT was that it failed to achieve the desired economic development. The emergence of the extreme right in Brazil, which was “in the closet”, was in part a response to the priority given to its priority for the poor. The PT may have made many mistakes, but it has always been faithful to the poorest. That commitment of the PT is important, but economic growth cannot be neglected.

The capitalist revolution is linked to the formation of the nation-state. What is the fundamental logic, then, of the nation-state? The nation-state is the type of organization of society proper to capitalism, just as the Empire is the type of social organization proper to slavery. Ernest Gellner distinguishes between literate agrarian societies and industrial societies. According to him, the fundamental legitimacy of the nation-state rests on economic development.

Political freedom and democracy, like social justice, are not inherent in the capitalist system. They are achievements of the popular classes that ended up being accepted by the bourgeois elites because they do not prevent capitalist accumulation.

* Luiz Carlos Bresser-Pereira He is Professor Emeritus at the Getúlio Vargas Foundation (FGV-SP). Author, among other books, of The political construction of Brazil (Publisher 34).

Notes

[1] See Bresser-Pereira, “40 years of deindustrialization”, Economist's Journal, May 2019.

[2] Bresser-Pereira. ”The two forms of capitalism: devopmentalism and economic liberalism”, Brazilian Journal of Political Economy 37 (4), October 2017: 680-703.

[3] Chalmers Johnson. MITI and the Japanese Miracle, Stanford: Stanford University Press, 1982.

[4] Pedro Cezar Dutra Fonseca, “Developmentalism: the construction of the concept”, in André Bojikian Calixtre, André Martins Biancarelli and Marcos Antonio Macedo Cintra, (eds.), Present and Future of Brazilian Development, Rio de Janeiro: IPEA, 2014: 29-78.

[5] “The Industrial Entrepreneur and the Brazilian Revolution”, In: Revista de Administração de Empresas 2(8):11-27, July 1963.

[6] See Bresser-Pereira, “Development, progress and economic growth”. New Moon, 2014, n.93: 33-60.

[7] Here, socialism must be understood as an ideology and not as a mode of production.

[8] Since 1964 the Brazilian exchange rate has been based on mini devaluations. Every month the Central Bank changed the exchange rate according to the inflation rate. At times this mechanism suffered problems. When I took over the Ministry of Finance in 1987, Brazil was coming out of the collapse of the Cruzado Plan. The first thing I did was do a 10% depreciation. It was a fixed exchange rate system with mini devaluations. This is an indexation of the exchange rate.

[9] Two recommended readings for anyone wanting to get started in new developmental theory: Bresser-Pereira, “From Classical Developmentalism and Post-Keynesian Macroeconomics to New Developmentalism”, Brazilian Journal of Political Economy 39(20) April: 211-235; and Bresser-Pereira, “New Developmentalism: development macroeconomics for middle-income countries”, Cambridge Journal of Economics, 44: 629–646.

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