Lula governments 10 years later (I) - the financialization process

Image: Hamilton Grimaldi


Balance of the financialization process during the governments of Luis Inácio Lula da Silva

Almost 10 years ago, the first cycle of the Workers' Party in the Presidency of the Republic came to an end. With the temporal distance and the knowledge of what happened, it is necessary to take stock of the period 2003-2010, which was not possible at that time. After the 2016 coup, and, above all, its dramatic unfolding from 2019 onwards, part of the criticism of PT governments became relatively extemporaneous, or at least had to be relativized and contextualized. The return of a neoliberal coalition to the center of the State (and of the “power bloc”, to use a term by Nicos Poulantzas), as it happened, made clear the pressures suffered by the PT governments and, therefore, the limits of its action towards a more popular government.

In this sense, this first article – of two – deals with some aspects of financialization in the Lula years, a theme I researched in my doctorate[I] (whose project was conceived in 2014, when we were still in the first Dilma government and the discussion about the Lula period was alive). The criticisms raised, especially with regard to financialization, although they do not lose their raison d'être, must be understood in the context set out above, which does not invalidate the hypothesis that, if there had been a firmer confrontation of financial interests on the part of the government when it was at its peak, perhaps the directions of Brazilian politics had been different.

Financialization, a global and heterogeneous process

The international literature shows that financialization is associated with a deep and persistent “crisis of over-accumulation of capital” (a term coined by Marx that, roughly speaking, means the growing difficulty of obtaining profits) that led to the emergence of a new “ regime of capital accumulation”, to use the concept of the French School of Regulation (very used in this debate), that is, to a change in the mechanisms, processes and circuits through which accumulation occurs. The post-World War II Fordist-Keynesian regime gave way, little by little, to the flexible and financialized regime from the 1970s onwards, when neoliberalism also emerged and spread across the globe. In general, this is a regime of predominance of financial logic, rentier and “short-termist” (and therefore also of the financial fraction of the capitalist class), under a different international monetary system (end of Bretton Woods and the gold standard ), marked by low economic growth, income concentration, increase in credit and fictitious capital (stocks, debt securities, derivatives, etc.), acceleration of capital centralization and rising public debt of countries. The financialization of companies that accompanies it, far from meaning a loss of importance in “production” or the creation of value in the financial sphere (which is impossible), implies greater pressure on industrial capital (since that is where the value “supplies” the financial sphere is generated). The famous “productive restructurings” were one of the responses to this, leading to outsourcing, relocation and increased unemployment and job insecurity.

For the purposes of this article, it must therefore be emphasized that financialization is a process that has gone global. One of the main theorists of this phenomenon, François Chesnais, speaks of “financial globalization” already in his first writings on the subject, in the 1990s[ii]. Thus, the increase in financial transactions and fictitious capital in circulation, the predominance of the financial fraction of the capitalist class, the financialization of the activities of industrial (and commercial) companies, the centralization of capital, the increase in social inequality, among other elements, they are usually present in financialized economies and become fundamental characteristics of contemporary capitalism after the 1970s. This means that we are facing a broad phenomenon, which goes beyond national borders and government mandates.

On the other hand, it is a heterogeneous process (as is capitalism itself), not occurring with the same intensity or assuming the same characteristics in all countries or regions, and being influenced by political decisions. It is for this reason that the opening chapters of my thesis discuss precisely the concept of financialization, as well as presenting a brief overview of how it was installed in Latin America, before moving on to the analysis of the Brazilian case. It is not difficult to imagine that the financialization process on the periphery of capitalism occurs in a different way than in the center, especially with regard to the relations of exploitation and domination of some countries over others (imperialism). As David Harvey already observed in the new imperialism[iii], financialization put in place fundamental mechanisms for the occurrence of “accumulation by dispossession” and, thus, for transfers of wealth from subordinate countries to dominant ones.

Financialization in Brazil

An interesting aspect of financialization in Brazil is that it started in the 1980s, due to the scenario of very high inflation and high external debt. Banks and financial institutions earned "inflationary gains" through operations "overnight” with the public debt, and increased its prominence over the State (reducing its autonomy in defining economic policies), as well as rentier behavior flourished and productive investment fell sharply. However, the country was not yet integrated into financial globalization, which would only occur in the 1990s, with the rapid and profound trade and financial opening dictated by the neoliberal playbook. Furthermore, from 1980 to 1994, Brazil's financialization index (calculated by Lavinas, Bruno and Araújo[iv]) was relatively low, only 2, that is, for each monetary unit invested in productive activities, two were allocated to financial assets.

With the Real Plan (1994), fundamental changes took place. The main economic support of financialization ceased to be gains from high inflation, which was controlled, and became the public debt, as very high interest rates became one of the pillars of the economic policy practiced. As is well known, since then Brazil has had one of the highest interest rates in the world, which, added to the exchange rate appreciation policy and the liberalization of the country's capital account, transformed it into a "financial valuation platform" for international capital, according to the terms of Leda Paulani[v]. Thus, in addition to the continuous increase in public debt (and the consequences that accompany it), from 1995 to 2015, the average financialization index jumps to 7,7. With the neoliberal opening of the 1990s, therefore, many of the negative consequences of financialization mentioned in the previous section appeared or were accentuated here: unemployment, precariousness, increase in public debt, low growth (some authors speak of a lost second decade, with growth to below those of the 1980s[vi]), Etc.

As for the Lula period itself, some points can be highlighted. First, the strong increase in assets invested in investment funds and supplementary private pension funds. Alongside insurance companies, they figure as the main “new actors” in finance worldwide, the so-called institutional investors. If already in the 1990s they had been concentrating resources in their hands, in the 2000s there is a strong increase, accompanying the “tree” of the financial market. There was also a significant increase in the participation of institutional and foreign investors in the stock exchange, as well as a concentration of traded shares (decrease in the number of listed companies).

Given the maintenance of high interest rates, the process of financialization of companies also continued, with all its implications: an increase in the ownership of financial assets, distribution of dividends and resources directed to the repurchase of shares by companies, and, above all, weakness of productive investment rates. And Brazil's form of imperialist submission has changed, to the extent that, as of 2006, the remittance of profits and dividends abroad surpasses the predominant form for years: the payment of interest (eg those paid to international institutions, such as the IMF).

Banks, in turn, suffered a new round of ownership concentration and public institutions lost share in the sector (despite their importance for granting credit and minimizing the effects of crises, as in 2008). They earned substantial profits, mainly through public debt, and continued to be the main administrators of investment funds and open supplementary pension funds, in addition to acting strongly in the insurance business. In addition, although the credit supply is still low in the sector, the granting of personal credit and the banking insertion of low-income people was stimulated by the government, which led to the expansion of the financial expropriation of workers and contributed to the increase in indebtedness. (and default) of natural persons.

As Lena Lavinas and Dense Gentil point out[vii], there was also a deepening of the transfer process to the financial sector of services hitherto provided by the State in terms of social protection, revealing a gain in scale and scope of financialization.

Thus, a striking difference in relation to the previous period is that, until the beginning of the 2000s, here we had a restricted and “elite” financialization (limited to the financial accumulation of the bourgeoisie and the upper middle class), according to the typology of Joachim Becker et al.[viii], whereas, from then on, there was a high and “mass” financialization, since large contingents of workers were incorporated. If part of this picture is due to broader processes, initiated in previous decades and conditioned by the international context, it is necessary to recognize the contribution of the government, through the maintenance of an orthodox economic policy and its “financialization of the left”.[ix]: stimulation of private pensions, especially pension funds; and banking insertion and increased personal credit for low-income people.

In addition, if social policies and the good economic moment minimized some of the perverse effects of financialization, such as in relation to unemployment (in spite of the millions of jobs created being mostly of up to 1,5 minimum wages) and growth economic (although the level was still well below the average of the developmentalist period), on the other hand the public debt remained high and paying extremely high interest rates, early deindustrialization continued, Brazil continued to lose income abroad through financial means, etc.

In short, despite relevant transformations in the social area (perhaps one of the most lasting effects is the “university insertion” of the poorest), financialization continued to have important negative effects on the country. And, given that a strongly neoliberal alliance took power in the 2016 coup, it is not surprising that the correlation of forces leans even more towards financial agents (including international finance), whose effects are yet to be observed. It should be remembered that the large “productive” companies themselves are financialized, which means that they operate intensely in the financial markets (issuing or repurchasing their shares, carrying out operations with derivatives, etc.), so that their interests are closely linked to these.

Consequences that persist

The consequences of the financialization process in Brazil are wide and numerous, and some of them have already been presented. It can also be noted that financialization contributed to the country not being able to resume a pace of sustained economic growth, nor the reduction of social inequalities. In this regard, it is necessary to clarify that there was a reduction in wage inequalities during the PT governments, however, Federal Revenue data reveal that there was no deconcentration at the top of the income pyramid, as shown by studies by Marcelo Medeiros[X], from IPEA). The country remains trapped in the public debt trap and externally vulnerable, therefore at the mercy of the volatility of the financial markets. Despite industrial policies, deindustrialization and the “reprimarization” of exports were not reversed either, largely due to the maintenance of an unfavorable macroeconomic policy, which benefits financial gains.

The financialization index for the post-2015 period is not yet available. However, it is possible to infer that, as this index was already high (7,7) for the period 1995-2015 (which includes the 2008 financial crisis), there are no signs that financialization has receded in Brazil in this regard, as well as as it did not in the world. In fact, politically the return of a neoliberal coalition since the 2016 coup, brought an agenda of reforms and legislative changes in favor of capital in general, such as the Labor Reform, and finance in particular, such as Constitutional Amendment No. Public Expenditure Ceiling”, which limits a series of expenses, mainly social, but not the payment of interest on the public debt). The Bolsonaro government tries to accelerate these processes through a series of other neoliberal reforms and privatizations, in addition to adopting a posture of submission to the US at the international level. No wonder, after a sharp drop in the Stock Exchange due to the pandemic, which reached its lowest point in mid-March 95, the financial market remained confident in the government and quotations have been recovering (until the recent fall), despite the drop of economic activity and the thousands of weekly deaths from Covid-2020.

Taking advantage of the mention of the 2008 crisis, it caused major shocks in the world's financial markets (which, however, soon recovered) and inaugurated a long period of low interest rates and slow economic growth, the consequences of which are still present. In Brazil, as well as in many countries outside the capitalist center, the effects of the crisis did not arrive immediately, and hit us hard only a few years later, already under the Dilma government. This “bad luck” was compounded by errors in the government’s economic policy (Laura Carvalho’s book[xi] is quite enlightening in this respect), leading to a situation of economic fragility. Rousseff still committed an important political error when, faced with this situation, she went against some financial interests (reducing interest rates, depreciating the exchange rate and pressing for a reduction in the spread Bank officer). As presented at the beginning by way of hypothesis, a more pronounced confrontation of financial interests could have been a virtue at the height of the Lula government. Already in the Dilma government, a much more modest confrontation became a big problem. This does not explain, of course, the president's overthrow, but it was probably an important factor, especially since, as highlighted, even large industrial companies have significant interests in the financial markets.

Anyway, I'll close on the line at the beginning. The coup against Dilma and the character of the governments that succeeded her attest to the political strengthening of financial interests, as a neoliberal coalition took over the government, now in a highly truculent form. The magnitude of the political and social setback is astonishing and it is not yet known how long this will last. The PT's attitudes (including its programmatic errors), therefore, need to be understood in light of the pressures of these social forces, which never left the scene and have now returned to the center of the spotlight.

*Ilan Lapyda he holds a PhD in sociology from USP.



[I]     LAPYDA, Ilan, Financialization in Brazil in the Lula years (2003-2010), Doctoral Thesis, University of São Paulo, São Paulo, 2019.

[ii]    CHESNAIS, François (Org.), Financial globalization: genesis, costs and risks, São Paulo: Xamã, 1998.

[iii]   HARVEY, David, The New Imperialism, São Paulo: Loyola, 2004.

[iv]   LAVINAS, Lena; ARAUJO, Eliane; BRUNO, Miguel, Brazil: vanguard of financialization among emerging countries? An exploratory analysis (Text for Discussion 032/2017), Instituto de Economia da UFRJ, available at: , accessed on: 2017 Apr. 20.

[v]    PAULANI, Leda, Brasil delivery: financial servitude and state of economic emergency, 1st. ed. São Paulo: Boitempo Editorial, 2008.

[vi]   VERNENGO, Matias, Belindia Goes to Washington: The Brazilian Economy after the Reforms, in: TAYLOR, Lance (Org.), External liberalization in Asia, post-socialist Europe, and Brazil, Oxford ; New York: Oxford University Press, 2006, p. 42–64.

[vii]  LAVINAS, Lena; GENTIL, Denise, Brazil in the 2000s: social policy under financialization, New Studies – CEBRAP, v. 37, no. 1, p. 191–211, 2018.

[viii] BECKER, Joachim et al, Peripheral Financialization and Vulnerability to Crisis: A Regulationist Perspective, Competition & Change, v. 14, no. 3–4, p. 225–247, 2010.

[ix]    We take advantage of the ironic term used by sociologist Roberto Grün. See GRÜN, Roberto, Financialization of the Left? Unexpected fruits in 21st century Brazil, Tempo Social, v. 2, no. 153, p. 184–2009, XNUMX.

[X]    MEDEIROS, Marcelo; SOUZA, Pedro HGF; CASTRO, Fabio Avila de, The top of the income distribution in Brazil: first estimates with tax data and comparison with household surveys (2006-2012), Data, v. 58, no. 1, p. 7–36, 2015; MEDEIROS, Marcelo; CASTRO, Fabio, The composition of income at the top of the distribution: evolution in Brazil between 2006 and 2012, based on information from the Income Tax, Economy and Society, v. 27, no. 2 (63), p. 577–605, 2018.

[xi]   CARVALHO, Laura, Brazilian Waltz: From Boom to Economic Chaos, São Paulo, SP: However, 2018.

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