by Michael Roberts
More than a million protesters took to the streets of Brazil on
Sunday to call for the impeachment of President Dilma Rousseff, as anger
intensified over increasing economic hardship and the
multibillion-dollar corruption scandal at state oil company Petrobras
(where money was siphoned off for the use of political parties, mainly
the governing one, while Rousseff was chair of Petrobras!). “I’m tired of corruption — we’re all tired of paying high taxes and seeing no return for society,” said Cristina Araújo, a systems analyst.
Brazil’s economy, presided over by a social-democrat administration
that claims to stand for the poor and for labour, is in disastrous
decline. Brazil’s currency, the real, is at a 12-year low. The economy
is contracting and real incomes are falling.
The government’s answer has been to introduce neo-liberal reforms and
fiscal austerity. Since Brazil recorded its first primary budget deficit
in more than a decade last year, newly and narrowly elected Rousseff
has tried to introduce tax and benefit cuts to correct the country’s
public finances. The tax cuts are to benefit the corporations and the
benefit cuts hit the poor.
However, she has met tough resistance, not only among ordinary
Brazilians but also from coalition parties in Congress, which has been
paralysed by infighting over the Petrobras scandal. Three weeks ago,
truck drivers set up roadblocks across a third of the country in protest
over higher fuel taxes, among other costs, leaving supermarket shelves
bare and disrupting soyabean shipments. The government was forced to
give into most of their demands.
Brazilians are also outraged by poor public services and rising
inflation, which hit the highest level in a decade in February even as
the country heads for another technical recession this year. Many states
are also struggling with water shortages and the possibility of energy
rationing after the country’s worst drought in 80 years.
What’s gone wrong? Well, I can refer to my post of July 2013 with almost little amendment (https://thenextrecession.wordpress.com/2013/07/02/brazil-the-carnival-is-over-2/).
In that post, I showed that the profitability of Brazil’s dominant
capitalist sector had been in secular decline, imposing continual
downward pressure on investment and growth.
Between 1963 and 2008, the rate of profit fell by about 19%. This
secular fall was really the product of the very large decline in the
rate of profit from 1963 to the early 1980s and 1990s. Over these 20
years or so, the rate of profit fell over 30% while the organic
composition rose 23% and the rate of exploitation fell 17% – a classic
example of Marx’s law of profitability at work.
But from the mid-1990s, Brazil’s ruling elite adopted neo-liberal
policies designed to restore the rate of profit. Between 1993 and 2004,
the rate of profit rose 35%. The organic composition of capital rose 20%
as foreign investment flooded into industry (autos, chemicals and
petroleum), but the rate of exploitation rose even more, up 55%, as more
Brazilians entered the industrial and agro processing labour force with
intensive capitalist production methods, while wages were held down.
Brazil became a major agricultural producer and exporter to the world
market. Leading exports include soybeans and products, beef, poultry
meat, sugar, ethanol, coffee, orange juice, and tobacco. Brazil’s
agrifood sector now accounts for about 28% of the country’s GDP.
Brazil’s is now the world’s third-largest agricultural exporter (in
value terms), after the US and the EU. Rapid export growth was
accompanied by changes in the composition of agricultural exports away
from tropical products to processed products – up the value-added scale.
Processed products now account for about three-fifths of agricultural
And Brazil, like some other emerging economies, benefited from some
other favourable external factors that supported the neo-liberal
policies at home. Food commodity prices rose. In a way, it was like the
discovery of North Sea oil that helped Britain’s Thatcher government in
the 1980s. The income windfall to Latin America from persistently high
commodity prices over the past decade was unprecedented. It averaged 15%
of domestic income on an annual basis and close to 90% on a cumulative
basis. So there was a lucky combination of rising commodity prices
driven by Chinese demand; of productivity gains as the rate of
exploitation rose; and an expansion of employment from the rural areas.
All this boosted profitability and growth for a decade. After the 2002
crisis, GDP growth averaged above 4% per year until 2010. This led to
significant improvements in living standards and life in general.
Under the government of former president Lula and the commodity boom,
there were some important gains for the working class: a social
protection system, increasing credit at low interest rates for workers
and universalising health and education. The Bolsa Familia, or family
allowance programme, is the most visible face of these policies. Between
2004 and 2011, the number of families benefiting from income transfers
more than doubled, from 6.5 million to 13.3 million, representing nearly
one-quarter of the population. In the more isolated regions, payments
under this programme have become the principal engine of the local
economy. Another pillar of government policy, adopted through
negotiations with the unions, was to raise the minimum wage and
associated pension. It went up by 211% in nominal terms between 2002 and
2012, for a real inflation-discounted increase of 66%. Unemployment
rate plunged from 12.3% to 6.7% and the labour force expanded at a 1.6%
But the iniquities of capitalist development remained embedded in the
system. Inequality of income and wealth in Brazil remains at extreme
levels, exceeded only by post-apartheid South Africa. Despite the boom
of the last decade, average household net-adjusted disposable income in
Brazil is still way lower than the OECD average of $23,047 a year – and
that’s the average. Over 16 million people are still living in what is
deemed extreme poverty, with monthly incomes of below 70 reais (about
$33). Some 80% of men are in paid work, compared with 56% of women and
12% of employees work very long hours, higher than the OECD average of
9%, with 15% of men working very long hours compared with 9% for women.
Around 7.9% of people reported falling victim to assault over the
previous 12 months, nearly twice the OECD average of 4.0%. Brazil’s
homicide rate is 21.0, almost ten times the OECD average of 2.2, one of
the highest in the world at 21 per 100,000. Violence is concentrated
among young people and over the past decade and a half, violence –
including armed violence – has become a major social problem in the
country. And Brazil’s regional disparities remain very high: average
GDP per capita varies from just 46% of the national average in the
Northeast region to 34% above the average in the Southeast.
Moreover, Marx’s law of profitability was still at work. From 2004,
the rate of profit began to fall (down 8% to 2008 and more since), as
wages shot up and the rate of exploitation dropped 25%. It was only the
continued boom in commodity prices that kept growth going. When the
global slump came in 2008-9, the emerging capitalist economies could not
avoid the consequences.
In the case of Brazil, it seemed that rising commodity prices plus a
deliberate policy by the government to increase state-financed
investment had enabled Brazil to avoid the worst of the slump compared
to others. But prices for Brazil’s key agricultural exports began to
falter from 2011 onwards. In the last few years, global commodity prices
have fallen back sharply and profitability began to fall further. Now
Brazil’s export profitability is some 20% below its best years before
Brazil’s GDP growth has consequently slowed since 2011. There has
been a sharp fall in manufacturing investment and exports over the past
two years. While public investment increased by 0.4% points to 5.4% of
GDP, it has not been enough to compensate for the fall in the ratio of
private investment to GDP from 14.3% to 12.7% last year. Industry has
not even returned to its pre-2008 crisis production level.
The government has tried to get private sector investment going
through tax cuts and incentives for the corporate sector but only at the
cost of running up a deficit on its budget. Interest costs on the
public debt have been mounting, forcing the government to cut subsidies
to transport, housing and education on which the majority rely. It was
the last straw to spend huge amounts on football and the Olympics
(partly to boost capitalist sector profits) at the expense of basic
Subsequent unrest has prompted the government to make some
concessions, but it has no intention of reversing its neo-liberal
policies. Profitability in the capitalist sector will not recover
without further hits to living standards. But austerity and making
labour pay for the failure of Brazil’s capitalist sector is not working.
That’s because economic growth will remain low as long as the world
economic recovery remains weak. This brings to the surface the blatant
corruption and political patronage, like dirty scum floating to the top
of polluted water.
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