by Michael Roberts
I have just returned from Brazil where I spoke at the annual Society for Political Economy (SEP) conference
at the University Federal Fluminense (UFF) in Rio de Janeiro and at the
economics faculties of the Federal University of Rio de Janeiro and the
State University of Sao Paolo.
I did so as the currencies of the major so-called emerging market countries dived against the dollar. The moves by President Trump to ‘up the ante’ on tariffs on trade against everybody
and the resultant retaliation planned by the EU and China will hit the
exports of these economies hard. At the same time, the US Federal
Reserve has raised its policy interest rate yet further. That will
eventually increase the cost of servicing dollar debt owed by these
emerging economies. So the emerging market debt crisis is getting
closer. Argentina has already had to go to the IMF for a $50bn loan
and its stock market dropped nearly 10% in one day this week. The South
African rand is also heading back towards its all-time low against the
dollar that it achieved two years ago.
Brazil is part of this new trade and currency crisis. The Brazilian
real has taken a hit too, halving in value against the US dollar since
2014 and heading back to a record low since the Great Recession of R$4
to the US$.
Unemployment remains near highs.
And this is at a time when the country is bracing itself for a
presidential election in October. The leading candidate in the polls is
former president Lula of the Workers Party (PT). But he is languishing
in jail convicted on a supposed corruption charge. He is unlikely to be
able to stand in October. So the election result is wide open.
And with 50% of Brazilians saying that they are not going to vote (even
though it is compulsory!), that is an indication of the disillusionment
that most Brazilians have with their mainly corrupt politicians and
with the prospects of Brazil getting out of its slump that the economy
has been since the end of the commodity price boom in 2010.
The Great Recession of 2008-9 hit the economy as everywhere else, but
when the prices for Brazil’s key exports (food and energy) also
plummeted, the economy entered a deep depression that troughed in
2015-6. The mild recovery from that is now stalling.
The incumbent administration of President Temer came into office through a constitutional coup
engineered by right-wing parties in Congress that led to the
impeachment of the Workers Party president Dilma Rousseff. From the
start, Temer aimed to impose the classic ‘neoliberal’ policies of
‘austerity’ in the form of drastic cuts in public services, reductions
in public sector jobs and government investment. Above all, Temer aimed
to massacre state pensions. The slump and the high level of public
debt were to be paid for by Brazilian households. No wonder Temer’s
popularity ratings have slumped to a record low of just 4%. But public
sector deficits (now around 8% of GDP) and debt must be brought under
control to re-establish business and foreign investor ‘confidence’, so
the argument goes.
As I showed in a previous post, Brazil has the highest public debt ratio among emerging economies (IMF data).
But as I also showed in that post, the cause of the high budget
deficit and debt was not ‘excessive’ government spending on pensions
etc. Instead it was continual recurring crises in the capitalist sector
and the low level of tax revenue – because the rich do not pay high
taxes and continually avoid them anyway, while the majority pay sales
taxes that are highly regressive ie. the poorer pay more as a percentage
of income than the richer.
The slump has been caused by the collapse of the capitalist sector in
Brazil and the cost is being shifted onto the public sector and average
Brazilians through austerity measures. The results of the slump and
austerity were evident to me on my latest visit to Brazil: in the
rundown streets of the cities of Rio and SP; and from the comments of
people and the attendees at my meetings on the continual freeze in
education and health spending etc – and in the high levels of crime.
So it was no surprise that SEP asked me to speak on the impact of austerity globally. Austerity, investment and profit.
Actually my paper made two points: first, that austerity was not the
cause of the slump or Great Recession in global capitalism. On the
contrary, government spending was rising in most countries before the
crash, as economies globally boomed. See below for state spending in
emerging economies (my calcs).
But more important, I wanted to show that, while Brazilians must
resist and reverse ‘austerity’ with all their might to protect public
services and welfare, just increasing public spending will not solve the
underlying problem of capitalist booms and slumps – as the Keynesians
In my paper, I presented both theoretical arguments and empirical
evidence to conclude that just boosting government spending will not
deliver the sufficient ‘multiplier’ effect on growth, income and jobs
wherever the capitalist mode of production dominated. Capitalist production only revives with an increase in profitability
and overall profits; and a slump and ‘austerity’ are the ways that
capitalism can get out of a crisis – at labour’s expense. I showed that
the impact of a rise in profitability on growth under capitalism – what my colleague G Carchedi and I have called the Marxist multiplier – is much greater than boosting government spending (the Keynesian multiplier). So the policy of austerity is not just some ideological pro-market irrationality as Keynesians claim, but has rationality in the context of low profitability for the dominant capitalist sector.
And as I pointed out in my other lectures in Rio and SP universities,
the Long Depression continues and now it seems to be entering a new
phase (The state of world economy):
first, with the growing risk of a major trade war between Trump’s
America and everybody else; and second, with the rising cost of debt
biting into corporate stability, particularly in ‘emerging economies’
like Brazil. The repayment schedule for debt owed to foreigners will
reach a peak next year, as the costs of servicing and ‘rolling over’
that debt will have risen.
And as I have shown before, Brazil has the highest interest costs on
debt of all major emerging economies (see BR in the graph below).
The global economy has been experiencing a mild upswing (within the
Long Depression) from a near recession in 2016. But in 2018 it looks
like growth globally will peak
and the underlying low levels of profitability and investment will
reappear, along with a new debt crisis in non-financial corporate sector
itself, to pose new risks. We shall see.