By BRUNO MACHADO*
Any macroeconomic arrangement that deviates from neoliberalism generates a strong reaction from the financial market, which withdraws investments from Brazil, causing a devaluation of the real in dollars
The dynamics of capitalism as center-periphery, where the periphery provides cheap labor and commodities while the center provides skilled labor and manufactured goods, it has been transforming along with the financialization of capitalism. Although the capitalist system has been in evident decline since at least the 1980s, its instruments for maintaining the status quo of the global economy have become more sophisticated. With the dependence on the dollar to maintain monetary stability in peripheral countries, the high destructive power of US economic sanctions and military interventions are only triggered in cases of emergency by the White House.
The price of the dollar in reais depends fundamentally on the result of the entry and exit of dollars from the country through trade (exports and imports) as well as through financial means (public debt, stock exchange, direct investment). The market's view of the Brazilian government's actions directly reflects the volume of dollars that enter or leave the country through financial means. Thus, the major decision-makers in the financial market exercise great power over the country's fiscal and monetary policy. This often means that the federal government provides more explanations of its policies to the financial market than to the people who elected it.
Therefore, any macroeconomic arrangement that deviates from neoliberalism generates a strong reaction from the financial market, which withdraws investments from Brazil, causing the real to depreciate in dollar terms. In this way, any government of a country with a financial market that is not very regulated by the State and with a floating exchange rate with little interference from the Central Bank – as is the case in Brazil – is held hostage by this market discipline. Since the interests of the financial market are profitability of investments and monetary stability (low inflation and a strong currency), these interests will not always converge with the interests of the country. In the case of Brazil, which is peripheral, there will never be such a convergence of interests with regard to the industrial and technological development of the country.
The fear of uncontrolled inflation caused by a strong and rapid devaluation of the currency puts the government in check, since it needs to maintain popularity in order to be governable, and high inflation erodes the popularity of any government if the economy is not growing well above average, with repercussions on the increase in labor income that compensates for the damage caused by this high inflation. Therefore, a project for the country's economic development, which would necessarily involve an attempt to catching up technological, would have to be based on a macroeconomic model different from the neoliberal one, and this would create great challenges for the stability of an economy held hostage by the world of financial speculation.
In the last century, countries that made the transition from periphery to center, such as South Korea, were invited to do so by the central countries of the time (especially the USA and Japan) and received financial contributions in dollars that helped with monetary stability in the face of an ever turbulent process of catching up technological.
The economic development process of lagging countries involves great risk, since investments in emerging industries are high-risk, which puts public finances at risk. Thus, the national economic elite is generally against this movement and uses its political and economic power to maintain the backward economic structure, which is usually sufficiently profitable for a small portion of the population. Furthermore, the Brazilian economic elite linked to the banking sector and agribusiness does not want to run the risk of losing its political power to new sectors of a new economic production structure.
Within the current geopolitical conditions, even if Brazil were to begin a process of catching up economically viable technology, with a functional and stable macroeconomic arrangement associated with an effective industrial policy, the financial market will cause a destabilization in the economy with the withdrawal of dollars from the country, since the national and international elite would never embark on this project.
With the dollar at R$10 and inflation at 20%, for example, any developmentalist government would have great difficulty maintaining its popularity and not being overthrown, especially with all the pressure that the economic elite would be putting on to overthrow the government, with the help of the ever-present North American imperialism and our reactionary Brazilian Armed Forces.
In the last century, in a less financial and more industrial capitalism, this process would have led to less instability, since it is easier for the State to increase its control over industry and agribusiness than over the financial market, which is much more flexible and internationalized. A Brazilian neo-developmentalism will need to deal with the blackmail of the financial market much more than Getúlio Vargas did in his developmental governments of the last century.
In the medium term, with the possible change in the geopolitical structure due to China's economic rise and Russia's military rise, there may be a window of opportunity for peripheral countries to develop. Either by adopting a double-dealing international policy, like Getúlio Vargas in the Cold War (which enabled the creation of Petrobrás, Vale and CSN), or by joining BRICS more intensely and seeking support from China for Brazilian development, through investments in dollars (as the US and Japan did in South Korea) and technology transfer in trade agreements.
Despite the predictable difficulty of monetary stability that a Brazilian attempt to catching up technological development would cause a structural change in Brazil's export profile (increasing the added value of exported products and moving up the global production chain) would lead to an increase in the volume of our exports in dollars. This could offset the outflow of dollars via the financial route, contributing to the country's monetary stability during the period of technological development.
*Bruno Machado is an engineer.
the earth is round there is thanks to our readers and supporters.
Help us keep this idea going.
CONTRIBUTE