By Luiz Carlos Bresser-Pereira*
While, since 2008, neoliberalism has been in economic crisis in the rich world, and, since 2016, in political crisis, under attack by right-wing nationalism, in Brazil there is today a strange marriage between neoliberalism and this type of nationalism. The 2008 crisis marked the failure of 40 years of neoliberal economic reforms that promised a new and wonderful time for capitalism.
Eight years later, it became a political crisis as well. The election of Donald Trump and Brexit signaled the emergence, in the Anglo-Saxon heart of neoliberalism, of a right-wing nationalist reaction. In the rich world, right-wing nationalist leaders are called “populists” and are seen as a threat to “liberal democracy”, although, as I argue in this essay, they are attacking neoliberalism and its project, globalization. In Brazil, the Bolsonaro government is a neo-fascist government that attacks not only democracy, but also the welfare state, republican rights and the environment. However, instead of opposing neoliberalism as it happens in the North, it associates with it. How to explain this confusion that plagues both the rich world and Brazil?
The neoliberal turn – the turn from a Keynesian or developmentalist economic policy regime to a neoliberal regime – occurred in the rich world in 1980. In Brazil, it occurred ten years later, in 1990, the year in which Brazil opened up its economy on the commercial and, soon after, in the financial plan. In the center of capitalism, over the next forty years, the results of the neoliberal turn were low growth, high financial instability, and a radical increase in inequalities.
In Brazil, the liberal turn from 1990 resulted in strong deindustrialization, economic near-stagnation, and high financial instability. However, it did not mean an increase in inequalities. On the contrary, between the Real Plan, from 1994, until 2014, Brazil experienced a great reduction in poverty and a reasonable reduction in inequalities. This good result derived from the Democratic-Popular Pact that led Brazil to the democratic transition in 1985, the approval of a progressive Constitution in 1988, the control of high inertial inflation in 1994, and the election of a center-left government led by the Partido of Workers in 2002.
From developmentalism to neoliberalism
Why, after 50 years of successful developmentalism, did the neoliberal turn occur? Why did it fail both in the rich world and in Brazil? And why did the right-wing nationalism that derived from this failure turn against neoliberalism and globalization in the rich world, while in Brazil it tried to associate itself with neoliberalism?
To answer these questions, I will use political economy and the new-developmentalist economic theory that a group of Brazilian economists has been developing over the last eighteen years. A theory that is based on Keynesian theory and classical developmental theory, and is opposed to liberal theories: neoclassical and Austrian.
New Developmentalism considers the market to be a wonderful institution regulated by the State, which is irreplaceable in the coordination of the competitive sectors of the economy, but considers necessary the intervention of the State in the non-competitive sectors of the economy and in macroeconomic prices (interest rate, exchange rate , wage rate, inflation rate, and profit rate) that the market is unable to keep balanced or right.
Without an active macroeconomic policy, mainly an exchange rate policy, it is impossible to ensure that good companies existing in the national territory have equal conditions in competition with companies from other countries. Liberal theories, on the other hand, understand the market as a kind of providential mechanism, capable of coordinating the economic system in an almost optimal way, with the State limiting itself to guaranteeing property and contracts and keeping public accounts balanced (it should also defend competition against monopolies and cartels, but this is only done rhetorically).
For New Developmentalism, capitalism is developmental when, in addition to moderate State intervention, it practices equally moderate economic nationalism, and has the political support of a developmentalist coalition of classes, generally formed by industrial entrepreneurs, workers and public bureaucracy. Capitalism is liberal when it practices laissez faire. From these definitions, we can distinguish in capitalism two historical ways of coordinating the actions of economic agents and thus organizing capitalism: the developmentalist and the liberal form.
In all countries, the industrial and capitalist revolution – the fundamental moment in the affirmation of a Nation – took place within the framework of developmentalism. In countries such as the United Kingdom and France (which carried out this industrial revolution early), their capitalism turned liberal in the mid-nineteenth century, returned to developmentalism after the war, in its Golden Age, and regressed to neoliberalism in from the 1980s.
In countries that carried out their industrial revolution later, as was the case in the USA, in the mid-1980th century, and Brazil, in the 1990th century, capitalism became liberal respectively in the XNUMXs and XNUMXs.
Today we are led to believe that capitalism in the United States has always been liberal, but this is false. American capitalism only became liberal after 1980. Before, the weight of republicanism as well as economic nationalism was great in the United States since the Founding Fathers; the country maintained high customs tariffs until 1939, the role of the State was always crucial in technological development, and the World Bank, controlled by the United States, was the main center of irradiation of developmentalism until 1980. With the neoliberal and individualist domination that occurs in from then on, republicanism was put aside and the moral and political crisis began, and the radical division of American society, which until the 1960s was impressively cohesive.
The role of economists
In this conversion to neoliberalism, the role of economists was important. Since economics is the science of markets, economists tend to profess economic liberalism. It was like that with the classical economists, and it is like that today with economists of the Austrian school and those of the neoclassical school. They are the orthodox economists who, with their abstract, hypothetical-deductive theories, feel legitimate in their defense of the market and a pure science.
In the 1930s, however, thanks to the revolution represented by Keynesian theory and the emergence, in the following decade, of classical developmentalism, the profession became for the first time dominantly developmentalist. And then we had the agreements of Bretton Woods and the Golden Age of capitalism. A great moment of growth, financial stability, strongly progressive taxes and reduction of inequalities. From the neoliberal turn, however, the neoclassical school returned to being dominant.
In Brazil, the industrial and capitalist revolution took place between 1930 and 1980. Income grew extraordinarily, at a per capita rate of 4% per year, the Brazilian economy became industrialized, and the catch up became a reality as the distance between Brazilian income per inhabitant and that of rich countries decreased. Brazilian politicians and economists then had structural change and industrialization as their motto.
On the other hand, the fact that in central countries Keynesian macroeconomics – a developmentalist theory because it defends a moderate intervention by the State – has become dominant reduced the pressure of the ideology of the laissez faire about economic elites and Brazilian politicians and economists. It also made it possible for the imperial center – which had always been opposed to the industrialization of the periphery – to ease this pressure, favoring the development of Brazil.
After the Golden Age
The Golden Age of capitalism ended in the mid-1970s, when the rich economies, mainly the American and British ones, faced a crisis of low growth and falling profit rates.
A new and narrow coalition of neoliberal classes emerged, formed by rentiers and financiers – an informal political pact that naturally had the support of economists holding doctorates in the United States and the United Kingdom, the new organic intellectuals of capitalism. The new neoliberal narrative – formulated by eminent intellectuals, mainly economists – turned out to be a strong narrative that criticized the mistakes made by previous developmentalist governments, served the interests of the financial-rentier coalition, and was propelled by the collapse of the communist project and the Soviet Union .
In the 1990s, neoliberalism became hegemonic – the earth now “was flat”, a single truth was now valid for the entire globe. And it contained, of course, a promise. The “reforms” would bring prosperity, stability and well-being to the world.
The mathematical models of neoclassical theory (the main liberal school of economics) provided “scientific” justification for neoliberal reforms – trade and financial liberalization, privatizations of public monopolies, widespread deregulation of markets. Reforms that in a short time changed the economic policy regime of the rich world. Which, under the command of the United States, had no hesitation in seeking to impose them on peripheral countries such as Brazil. For this, they used the International Monetary Fund, the World Bank, and the World Trade Organization as instruments, and took advantage of the weakness of these countries caused by the external debt crisis of the 1980s.
Neoliberalism in Brazil
Brazil surrendered to the new truth in 1990. That year, it carried out the commercial reform, in 1992, the financial reform, in 1995, the privatization of monopoly public services, and, in 1999, the fluctuation of the Real, which until then obeyed the regime of mini-devaluations. In this way, its economic policy regime changed from developmental to liberal. Something that also happened throughout Latin America and Africa. The great exception was the countries of East Asia, which, as they did not export commodities, were already economies focused on the export of manufactured goods.
A real process of globalization was then taking place, caused by the decrease in transport and communication costs, while peripheral middle-income countries such as Brazil were making their transition to democracy. The United States, exercising its role as leader of the West, transformed the two facts into two projects: the project of “globalization” through which all national markets would open up and nation-states would lose relevance, and the project of “liberal democracy”. ” that would make all countries democratic regardless of their degree of economic development.
Both projects were unrealistic and failed. The rich world was certain that it would be the great victor of globalization, but the real winners were China and, more recently, also India. As for the proposal to make liberal democracy dominant in the peripheral world, the United States adopted it around 1980 as a strategy to avoid the emergence of nationalist political leaders. They also failed. Nationalist leaders continued to emerge from the periphery, and some of them, such as Lula in Brazil, the Kirchners in Argentina, Erdogan in Turkey, Evo Morales in Bolivia, and Rafael Correa in Ecuador, were reasonably successful. There were also major failures like what happened in Venezuela under Chávez and Maduro.
The more developed peripheral countries like Brazil managed to make the transition to a reasonably consolidated democracy, but they did so based on their own capacities. When Dilma Rousseff was impeached in 2016, this serious attack on democracy had the support of the United States, showing how empty its proposal for democratization is. Many poorer countries, which have not yet completed their capitalist revolution, have also become democratic, but their democracy has proved to be unstable, the result of external pressure rather than internal demand.
In Brazil, where the democratic transition took place in 1985, both the center-right and center-left governments were unable to resume the growth that had been interrupted in 1980. The democratic transition benefited from the external debt crisis and high inertial inflation started in 1980, but the Sarney government (1985-1990), marked by incompetent developmentalism, was unable to solve both problems.
The election of a neoliberal government, at the end of 1989, marked the failure of this fiscal populism and the change of the economic policy regime to economic liberalism. Since 1990 this economic policy regime has been dominant in Brazil.
In the years of the Workers' Party government (2003-2016), even though efforts were made to adopt industrial policies and the necessary increase in the minimum wage was promoted at that time, economic liberalism remained dominant. There was only one attempt, in 2011, to return to the developmentalist regime, but it was an ill-conceived attempt and soon abandoned.
The liberal economic policy regime that has presided over Brazil since 1990 was characterized by economic populism – something different from political populism. Political populism implies the existence of a political leader who manages to establish a direct relationship with the people without the intermediation of ideologies and the respective political parties. Economic populism means irresponsibly spending more than you earn. If the country as a whole spends, there will be chronic current account deficits and exchange rate populism. If it is the State that spends irresponsibly and incurs chronic public deficits, we will have fiscal populism.
As a result of these two forms of populism, the two respective deficits, and the fact that trade liberalization in 1990 dismantled the mechanism that neutralized the Dutch disease, the country was trapped in a trap of high interest rates and an appreciated exchange rate that made industrial companies non-competitive and made their investments unfeasible. As a result of public deficits alone, which was also due to the capture of the State by rentiers and financiers, on the one hand, and by a privileged public bureaucracy, on the other, the public savings that existed in the 1980s were transformed into dissavings, and the necessary investments public services in the country's infrastructure are no longer carried out.
The economic results of neoliberal domination were regrettable for Brazil. Between 1980 and 2019, the per capita growth rate was just 0,8% per year, while in the peripheral countries as a whole it was 3%. In rich countries, it was 1,9%. Manufactured goods accounted for 62% of total exports; today they represent only 30%.
After the 2008 crisis
This is when the 2008 global financial crisis throws cold water on liberal orthodoxy. Suddenly capitalism in the central countries, which since the mid-1990s had celebrated “the great moderation”, found itself facing a crisis that the dominant theory said “could not happen”. Governments, whether pragmatic or without an alternative, reacted with strong fiscal expansion. This prevented the crisis from becoming uncontrollable.
Then, however, governments withdrew, reverted to fiscal orthodoxy, and the core economies began to grow slowly. The ones who responded radically to the quasi-stagnation were the central banks. Banks in the United States, the United Kingdom, Europe and Japan began to issue money by buying government and private bonds – and the financial markets used a euphemism to name this issue: quantitative easing. However, there was no increase in inflation.
At the same time, faced with the liquidity trap, they lowered interest rates more and more, which, in the case of Japan, the European Central Bank and several other rich countries, became negative. But negative interest rates have done little to increase investment and drive rich countries to growth. Only the United States, where growth rates remained reasonable, did not resort to negative interest rates. Europe, on the other hand, was deeply shaken by the mistake that was the creation of the euro. It was as great a mistake as it was a great success to have created the European Union.
Since 2008 the world economy has been in “secular stagnation” – a word that does not mean zero growth, but loose aggregate demand, low interest rates, and similarly low investment and growth rates. Now it also means issuing money without inflation and negative interest rates.
The rentiers, both small and large, are paying the cost of the 2008 crisis with negative interest rates that already reach about a third of household financial assets. Small rentiers and retirees protest; the big rentiers are being forced to revise their faith in the radical economic liberalism they have supported for the past 40 years. A capitalism that in this period became financial-rentier capitalism, established economic liberalism as a religion, the fight against inflation as the only game in town, and made the very rich even richer. Suddenly, however, despite the priority they always gave to relatively high nominal interest rates and low inflation to achieve an increase in real interest rates, these became negative.
Many still feel surprised by the non-inflationary nature of currency issuance, because they still believe in the fable known as the “monetarist theory of inflation”. A theory that became dominant with the neoliberal turn of the 1980s, but central banks, which are more committed to reality and need to deliver results, soon abandoned it. They replaced the monetarist theory with a pragmatic inflation targeting strategy, and went back to raising interest rates every time demand heats up and inflation exceeds the target. Faced with this theoretical failure, neoclassical economists stopped talking about monetarist theory, literally forgot about it, but preserved the neoclassical heart of their view of economic theory (the general equilibrium model and the rational expectations model) and their macroeconomic policy – the orthodoxy liberal – focused on fiscal austerity.
The review of economic theory
Secular stagnation, issuing money without causing inflation, negative interest rates; capitalist economics and economic theory are upside down. It is now necessary to review economic theory. The neoclassicals with their radical economic liberalism do not have an explanation. Keynesian developmentalists, who defend moderate state intervention in the economy, see the trend towards insufficient demand that exists in capitalism confirmed, but this does not explain such low interest rates.
Marxists, who do not make economic policy proposals, but often make provocative analyzes of capitalism, remember that the interest rate is the price that active capitalists are willing to pay rentiers for borrowing their money. But in those terms profit rates should have fallen for interest rates to have fallen as they did. And that's not what happened. Profit rates in developed capitalism remain satisfactory despite insufficient demand. This is possible because large companies do not stop carrying out mergers and acquisitions and their monopoly power is now enormous.
The new developmentalists have an explanation: excess capital, the brutal profusion of capital that characterizes financial-rentier capitalism today. John K. Galbraith had an intuition of this fact when, in his great book, The New Industrial State (1967), stated that capital ceased to be the strategic factor of production because it had become abundant and was being replaced by technical-organizational knowledge.
But the main cause for the profusion of capital today is a new historical fact: the two mechanisms that extinguished capital – the great crises and the great wars – have not happened since 1929 and 1945. Since then, the stock of capital has not stopped growing. grow by simply accumulating financial assets. Supposedly liquid assets that are no longer expressed in the ownership of factories, plantations, buildings, infrastructure equipment, tangible assets, but through credit titles of the most varied types.
Movable capital, which has no value in itself, which is worth what it yields at each moment, serves as the basis for financialization, for the increase in the power of financiers and the increase in the share of financial companies in national income. A capital that is no longer subject to the devaluation that usually occurred due to the aging of entrepreneurs and the incompetence of heirs. In these financial-rentier capitalism, the heirs or rentiers remain incompetent, but their companies no longer depreciate because they are absorbed by corporations and managed by professional administrators.
In this capitalism, profits are high, because they are monopoly profits. However, companies invest little, because there are no good investment opportunities aimed at expanding demand. So much so that they do not reinvest their profits in the business itself, or in some parallel sector in which they have competence, but buy their own shares or distribute dividends, leaving the problem of applying the resources to the shareholders.
Right-wing nationalism
In the rich world, the political crisis of neoliberalism or globalization as a project became clear in 2016, eight years after the global crisis. How to explain this crisis? Neoliberal elites and their economists are essentially wrong about this. They say the Trump administration and Brexit, as well as right-wing nationalism in peripheral countries like Poland and Hungary, are manifestations of a “populism” that threatens liberal democracy.
I prefer to understand these leaders and the political movements that support them as right-wing nationalists. They are economic nationalists in the United States and the United Kingdom, ethnic nationalists in Poland and Hungary; they are conservative because they intend to speak on behalf of the people while defending the interests of the rich, and because, at the behavioral level, they reject women's rights to their own bodies, the rights of LBGTI and indigenous peoples.
My biggest disagreement, however, is not about defining Trump and Brexit as populist, as long as their economic nationalism is clear. My disagreement is with the claim that they are turned against democracy. No, they are fundamentally turned against neoliberalism, because in the United States and the United Kingdom it was not democracy that failed, but the neoliberal project of globalization. Not only because the big winner was China, but also because nationalist politicians realized that they could count on the electoral support of lower-middle-class white workers who were the biggest losers of neoliberalism – those whose wages stagnated or even fell in terms real.
Democracy in these countries is a basically consolidated democracy because it interests the vast majority, including the middle classes, but it interests mainly the popular classes for whom universal suffrage was a great achievement. A society is minimally democratic when, in addition to guaranteeing civil rights, it guarantees voting for all citizens. Democracy is of less interest to financial-rentier and neoliberal elites, who always seek to limit the power of voters, but even they hesitate to defend the return to authoritarian regimes. The leaders of right-wing nationalism are not paragons of democratic politics, but their nationalism has a popular base that they do not ignore.
Neoliberal ideologues speak of a “threat to liberal democracy” because they call the neoliberal economic and political system “liberal democracy”. These ideologues avoid using the expression neoliberalism, and when they use it, they do so critically, putting the word in quotation marks. In its place, they talk all the time about “liberal democracy” which would be the wonderful realization of the good society. A society that they understand as ideal, but, as we know, it is an unstable and excluding form of social organization.
From fear to hate
The nationalist right's reaction to neoliberalism that we see in the rich world has a logical basis: the failure of the globalization project. The association of the neo-fascist extreme right with neoliberalism in Brazil is an opportunist association that is more difficult to explain.
The Brazilian economy also suffered the impact of the 2008 global financial crisis, but the current crisis only started in 2013 and lasts until today. A long-lasting crisis that began on the political side, but already then reflected the dissatisfaction of almost everyone with the economic quasi-stagnation that began in the 1980s. In 2013, large popular demonstrations took place in Brazil that started this crisis. They reflected the dissatisfaction of the traditional middle class, both its bourgeois branch and its technobureaucratic or managerial branch.
Within the framework of an almost stagnant economic system, this middle class was squeezed between the financial-rentier elites and the workers. On the one hand, by the very rich, whose wealth has not stopped increasing; on the other, by the popular classes that were benefited, first by the stabilization of the high inertial inflation in 1994, and, second, by the social policies that the Cardoso government (1995-2003) and mainly the PT governments (2003-2016) adopted. Trade and financial liberalization, deregulations and privatizations, and high interest rates directly benefited the very rich, while social policies and the increase in the minimum wage benefited workers and the poor. In both cases, the upper middle class or traditional middle class was forgotten.
Then, in Brazil, a terrible process of political polarization takes place. Brazilian society, which had come together in the early 1980s to build a great coalition of classes aimed at democracy and social development, suddenly found itself gripped by the hatred that began in the middle classes. And that had as main objects the PT and Lula.
I realized this fact already in 2014 with great concern. I had never seen hatred in Brazilian politics before. In the crisis that preceded the 1964 military coup, I saw fear in the middle classes. Fear of communism, which President João Goulart did not justify, but which the Cuban Revolution of 1959 and the radicalization of the Brazilian left explained. Now, however, the problem was not fear, but hatred. Hate that is incompatible with politics and democracy. Democratic politics is a struggle between adversaries, not a struggle between enemies. Democracy presupposes the alternation of power; the hatred, the suppression, the elimination of the enemy.
At the same time, two major scandals took place: the Mensalão scandal, in 2006, which lasted until the trial of the main defendants in 2012, and the scandals revealed by the Lava Jato operation from 2014 onwards. virtually all other political parties were involved. However, the judge and the task force of prosecutors based in Curitiba who conducted the Lava Jato operation realized that in addition to popular support, they would get the support of the economic elites if they concentrated their efforts on prosecuting and condemning Lula in order to derail his candidacy for the presidency. . That's what they did and they were successful. It is only now becoming clear to everyone that they were not working for justice, but for their own personal advancement.
A few years earlier, in 2010, Lula had held a great government and ended his presidency triumphantly. At that time, it had the approval of 84% of the population, including the economic elites. But he left Dilma Rousseff with a brutally appreciated exchange rate. This fact, the immediate reduction in the growth rate and another sequence of economic and political mistakes made by the new presidency meant that already in the middle of its second year in government, it had lost all the support of the economic elites that, in the 2014 elections, joined the middle classes to defeat it. They were defeated.
The PT's victory then turned out to be, however, a Pyrrhic victory, because while the president did not stop making mistakes, it became clear in the first two months of 2015 that the country was entering a serious fiscal crisis and a very serious one. recession. And that the political crisis took on a new aspect. Thus, an impressive neoliberal ideological hegemony is constituted. Something I had never seen before either. At a time when neoliberalism entered a deep crisis in the rich world, it became dominant in Brazil
The consequences of the political crisis and neoliberal hegemony were the impeachment of 2016 and the election of Jair Bolsonaro to the presidency in 2018. To achieve the impeachment, then Vice President Michel Temer, president of the PMDB, asked liberal intellectuals to produce a rigorously neoliberal support for his party, the PMDB, in order to gain the support of the financial-rentier neoliberal elites. Thus he obtained the impeachment, and assumed the presidency. Then, the candidate Jair Bolsonaro, who was never a neoliberal either, but an extreme right-wing politician, announced before the elections the name of his future finance minister, a fundamentalist market economist trained at the University of Chicago, thus also obtaining the support of the middle classes and the elites.
Thus, in Brazil, we have a strange marriage between an extreme right-wing nationalist and neoliberalism, while in the rich world, right-wing nationalism is opposed to neoliberalism. The latter may be obnoxious, but it has a logic; it means the recognition of the failure of the globalization project and the defense of economic nationalism.
In the case of Brazil, the logic is merely opportunistic. For the president, it was a way to obtain the support of the economic elites. For these elites, a way of obtaining the reforms that interest them – that place all the weight of the necessary adjustment on the shoulders of wage earners, regardless of the fact that in return the government may commit violence against civil rights, the University, elementary education, culture , health and environmental protection.
Some of these economic reforms are necessary, such as the pension and labor reforms, but they could have been less unfavorable to workers; others are merely neoliberal, such as the constitutional amendment that established a ceiling for public expenditure regardless of population and GDP growth.
Is there any prospect that this gloomy picture that I have just described, both at the global level and in the case of Brazil, can be overcome? Is it possible to think of a progressive and environmental developmentalism? It is possible that part of the upper middle class that has served as the basis for neoliberalism, and the lower white middle class, which has served as a basis for right-wing nationalism, realize how much they have been harmed by both neoliberalism and the nationalism of right and join the popular classes and progressive intellectuals?
The biggest difficulties, in the rich world, are growing inequality, the inability of the market to regulate the economy, and the immigration problem that leads the lower white middle class to feel threatened and to vote for right-wing candidates. The biggest difficulties in Brazil are the high preference for immediate consumption expressed in exchange rate populism and fiscal populism and the growing inability of economic elites and middle classes to identify with the Nation, making it difficult for the country to return to having a national development project. And there is a basic difficulty: the rich world and Brazil lack an economic theory and a political narrative that can account for the challenges that modern societies face today – a society that tends to be global, but continues to be mainly national.
* Luiz Carlos Bresser He is an emeritus professor at the Getúlio Vargas Foundation (FGV-SP).