Brazil’s economic and political rollercoaster

 


Posted by  michael roberts

The latest polls put Workers Party leader Lula de Silva ahead in the
two-horse race with incumbent right-wing President Jair Bolsonaro in
today’s final round of the presidential election in Brazil.  If Lula
wins, it will be a dramatic comeback for the former president after
having been jailed for alleged corruption under the previous right-wing
Temer regime; and then finally released and allowed to run again.  A
Lula victory will mean that the Workers Party has regained the
presidency after losing it when last WP leader Dilma Rousseff was
impeached by a right-wing Congress in a ‘soft coup’ in 2016.  

The victory of ‘Tropical Trump’ Bolsonaro in 2018 was achieved mainly
because of the disillusionment by sections of the working class with the
Workers Party and the successful media campaign claiming that the WP was
corrupt.  After the collapse of commodity prices in resources and
agriculture in 2014, the economy went into recession.  The blame for
this and corruption was laid at the door of the Workers Party.  But the
experience of the COVID slump under Bolsonaro, when over 750,000
Brazilians died, has been so searing that, apart from his base among
evangelical Christians and petty-bourgeois business people, it seems
enough Brazilians will have turned away from him and returned to Lula,
despite his past record, in hopes for better.

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Whoever wins, what now for Brazil’s economy? The economy has been slowly
recovering from the COVID slump, based on rising commodity prices over
the last year.  But Brazil’s long-term economic record, especially since
the Great Recession, is one of slowing growth in GDP and productivity,
rising private and public debt and above all, of extreme inequality in
wealth and incomes.  

The economic roller coaster ride of the last decade is reflected by
Brazil’s ranking among the world’s largest economies. Between 2010 and
2014, Brazil ranked seventh. In 2020, it slipped to 12th place. And in
2021 it dropped to 13th, according to Austin Rating. The trend growth
rate has been falling.

Brazil: real GDP growth rate (annual %)

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And Brazil has nearly the highest measure of income inequality in the world.

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Former President Lula put it more dramatically: /“In Brazil, 33 million
people don’t have enough to eat,”/ he wrote on Twitter. /“We managed in
the past to get Brazil off of the world map of hunger. But hunger is back.”/

Can Lula turn that round?  Well, if the past record of Lula is anything
go by, then the prospects are mixed.  There is an excellent analysis
<https://www.researchgate.net/publication/337871793_Profitability_and_Distribution_The_Origin_of_the_Brazilian_Economic_and_Political_Crisis/citations> of the economic performance of previous WP administrations by Brazilian Marxist economist Adalmir Marquetti and colleagues. This is how they sum up the impact of previous PT administrations. /“The PT governments combined elements of developmentalism and neoliberalism in a contradictory construction, organizing a large political coalition of workers and capitalists that allowed expanding the real wage and reducing poverty and inequality while maintaining the gains of productive and financing capitals. The decline of profitability after the 2008 crisis broke the class coalition constructed during Lula’s administration. The Dilma Rousseff government adopted a series of fiscal stimuli for private capital accumulation with meager economic growth. After her reelection, the government implemented an austerity program that resulted in negative growth rates. With the deepening economic crisis and without political support, Rousseff was removed from power.”/

Marquetti et al argue that the decline of profitability after the 2008
crisis played a key role in breaking the political coalition organized
under Lula’s leadership, opening the possibilities for the soft coup of
2016.  That’s because investment and GDP growth rates were strongly
associated with the profit rate in Brazil between 2000 and 2016.

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Between 2003 and 2007, the profit rate increased despite the decline of
the profit share because of an increase in capacity utilization and in
the potential productivity of capital. Between 2007 and 2015, the profit
rate declined because of an increase in the wage share and a drop in the
potential productivity of capital. In 2010, the last year of Lula’s
government, the profit rate was still higher than in the early 2000s.
However, the long-term path of the profit rate started to decline after
2010 at the end of the commodity price boom globally.  /“The
simultaneous decline in the profit rate and financial profitability was
the beginning of the end of the class coalition constructed by Lula’s
government.”/

The Rousseff government turned to neoliberal policies in attempting to
overcome the decline of growth associated with falling profit rates in
Brazilian capital.  Rousseff sought a rapprochement with the sectors of
the bourgeoisie, contrary to her promise during the election campaign.
The first fiscal measures, announced in January 2015, restricted
workers’ access to unemployment insurance and changed the rules for some
social security benefits. There was a reduction of fiscal spending;
federal government investment declined 32 percent in 2015.

The government capitulated to the view of Brazilian big business,
enshrined in its newsletter of July 2016 (Institute of Industrial
Development Research, a think tank linked to big Brazilian industry, “No
Profits, No Investments” (IEDI, 2016
<https://journals.sagepub.com/doi/full/10.1177/0094582X19887751#bibr26-0094582X19887751>).  The adopted neoliberal economic policy increased unemployment and reduced the real wage. But this capitulation did not save Rousseff from her impeachment by Congress and the institution of a right -wing government.

This is the danger ahead for a new Lula administration.  It will not
have a majority in Congress and will face a vicious media campaign.  And
it seems that Bolsonaro has cemented a coalition of the right based on
religious and crazed petty bourgeois layers, and an antagonistic upper
middle class particularly in the big cities of the south; with Lula
relying on a somewhat disillusioned working class.

The economic recovery of the last year has also bolstered support for
the Bolsonaro coalition as official unemployment has fallen to its
lowest level in nearly seven years (although it is still above levels
before the Great Recession of 2008-9).

Official unemployment rate (%)

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Inflation is also falling but still well above pre-pandemic levels.

CPI inflation yoy %

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The Brazilian economy expanded 3.2% year-on-year in the second quarter
of 2022, picking up from the 1.7% advance in the previous three-month
period and surpassing market forecasts of a 2.8% rise.  But this modest
recovery is unlikely to last into 2023 as the world economy heads into a
new recession that Brazil cannot escape.

It is often reported that Brazil’s public sector runs the largest debt
to GDP among all emerging economies. But more important, private sector
debt (as % of GDP) is now at a record high.

Private sector debt to GDP (%)

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With global interest rates rising fast, this is bound to weigh heavily
on Brazilian companies and their ability to expand investment profitably.

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The IMF forecasts just 1% real GDP growth for Brazil next year.  At the
same time, more than half of Brazil’s population remain below a monthly
income per head of R$560.  To cut this level of poverty to under 25%
would require productivity four times as fast as the current rate. And
there is no prospect of that under capitalism in Brazil.

That’s because the profitability of Brazilian capital is low and
continues to stay low. The profitability of Brazil’s dominant capitalist
sector had been in secular decline, imposing continual downward pressure
on investment and growth – to quote the Brazilian industry association
above: ‘no profits, no investment’.

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Source: Penn World Tables, author

As Marquetti et al have shown, the profitability of Brazil’s capitalist
sector is key to investment and production growth.  Brazilian capitalism
will be stuck in a low growth, low investment future with continuing
political and economic paralysis.  And that is even without a new global
recession coming over the horizon.

Em
Michael Roberts blog
 https://thenextrecession.wordpress.com/2022/10/30/brazils-economic-and-political-rollercoaster/
30/10/2022