Industry Preference

Despite their numerical minority as individual voters, in electoral democracies the economic elite wield significant political power. Through their investment decisions, those who control a nation’s wealth and credit have significant influence over its pace of economic growth, the value of its debts, and the exchange rate of its currency. On each of these rests the stability of a government and, ultimately, the legitimacy of its democratic institutions.¹ Though employers’ associations and finance are traditionally the core constituency of conservative political parties, those seeking to redistribute or alter the shape of economic growth do not have the luxury of ignoring this influence. It is something that progressive political parties must acknowledge—in response or anticipation—in devising their programs and campaigns.² 

An illustrative case is the relationship between Brazilian industrialists and the successive governments of the Workers’ Party (PT) since it first took over the Brazilian presidency in 2003. The quality of that relationship has varied over the past two decades. Despite Lula’s balanced-budget courting of international finance and his successor Dilma Rousseff’s subsidies to construction and manufacturing, the partnership became a vitriolic feud after 2013, culminating in industrialist-championed impeachment hearings against Rouseff and eventually the election of Jair Bolsonaro.³ Brazilians contemplating the future of continued PT rule disagree over the meaning of this history. Since Lula began his third term last year, competing interpretations have returned to practical significance. On them hangs the PT’s program, and the country’s future.

Some argue that the PT has lead a “productivist coalition,”⁴ a “neo-developmentalist front,”⁵ or even “an alliance of the losers of neoliberalism”⁶ consisting of the administration in the Planalto (the Brazilian executive office building, named for the plateau where Brasilia sits), organized workers, and segments of the business community that benefit from growth. Though Lula (2003–2010) prioritized finance, his social insurance programs maintained high demand and employment for the domestic market. His successor Dilma (2011–2016) committed to a developmentalist stance, reducing real interest rates and devaluing the currency in order to juice exports, and launching a package of spending measures (Plano Brasil Maior and the “New Economic Matrix”) and national development bank credit lines to stimulate industry. Against this evidence, however, is the fact that the very sectors stimulated by the Rouseff government campaigned emphatically for her impeachment in 2016. 

Why has the alliance between sectors of business elites and workers under the PT been so volatile? One potentially obvious answer—that the Workers’ Party and organized employers have a naturally antagonistic relationship—is less obvious given the deference the PT has shown to financial markets and the subsidies it has provided to business. Furthermore, it is not clear whether industrialists led the anti-PT wave of 2013–2020 or just followed it.⁷ Given the obvious ideological friction within the coalition, what sustained the alliance during the high-growth years of the early 2000s was short-term convenience—of aligning industrialists’ short-term interests with the widespread popular approval for the PT. What drove the alliance apart was the recession that followed the collapse of world commodity markets after 2012, coinciding with a popularity crisis sparked by national protests in June 2013. The recession, allowing industrialists to reorganize themselves as opposition, demonstrated the frailty of their alliance with the PT and shed light on the contradictions between the industrialists’ long-term interests and the PT project. 

Contextual support and latent tensions under Lula’s governments

The alliance that underpinned Lulism in the early 2000s is best understood as a response to the particularly hostile economic and political conditions of the 1990s. Historically dependent on the state for protection against imports and preferential access to credit, Brazilian industry had enjoyed a certain monopoly over the domestic sector since the 1950s. This changed with the privatizations and trade liberalization of the 1990s, and with the monetary policy required to maintain exchange rates under currency convertibility and increasingly liberalized trade.⁸ The so-called “tripod” of President Fernando Henrique Cardoso’s stabilization program—a budget surplus, flexible exchange rate, and discretionary interest-rate policy—coincided with an abrupt deindustrialization process, as imports rose and factories closed. Confronted with their economic and political decline, a part of the industrial elite was attracted by the development project that the PT presented in these years.⁹

Once elected, Lula accommodated the interests of the industrial sector in microeconomic policies and, to a lesser extent, in trade protection. However, he maintained the macroeconomic tripod.¹⁰ As early as Lula’s first term in office, business leaders criticized a macroeconomic approach aimed at controlling inflation to the detriment of national development.¹¹ Although the commodities boom during Lula’s second term allowed for greater fiscal leeway, and high economic growth enabled industry to grow in absolute terms, pro-industry policies and increased domestic demand were not enough to reverse the ongoing deindustrialization.

The unfulfilled project of the New Economic Matrix

Rousseff took office at the turning point of an economic cycle, as the aftershocks of the 2008 crisis slowed down the global economy and increased the pressure from financial markets for reductions in government expenditure as to match lower tax receipts—fiscal austerity.¹² As a response to this new context, the president introduced a program called the New Economic Matrix (NME) that sought to halt the ongoing deindustrialization process and hence generate economic growth, income, and employment.¹³

The industrial reaction to the NME can be characterized by three distinct moments. Initially, between 2011 and early 2012, the business sector was extremely optimistic about the new economic policy and demanded its expansion. The second moment, from mid-2012 to early 2013, was marked by a growing impatience regarding the slow implementation of announced policies. The concern was that the measures would be more lip service than concrete. Business leaders were already suggesting the measures were “palliative” and “short-term”—that, although welcome, they would not be enough to correct the “predatory” competition from Asian countries, especially China, in the local market.

From the second half of 2013 onwards, the business sector would go so far as to describe the NME as a cause of the ongoing economic crisis. What could explain this shift? The end of the commodities boom had led to a decline in export demand at the start of 2013. At the same time, the government expenditures for NME brought the future of the tripod into question. Financial markets were already threatening a crisis as inflation, which had risen gradually over Lula’s second term to 6.6 percent, did not fall under Dilma. Financiers pressed for contractionary measures.¹⁴

In the face of these new challenges from organized business, the administration itself backed down on both micro and macroeconomic measures. Policies that were in the process of implementation were frozen, and measures already in place were announced as being at risk of reversal.¹⁵ Meanwhile, business saw that the same kind of restraint on spending for entrepreneurs would not be true on the labor front. The government maintained its commitment to the minimum wage increase and had until then resisted cutting expenditure on social policies. The general assessment among business leaders was that industrial productivity was no longer keeping pace with rising labor costs, which meant that their share of national income would fall. Business leader Fernando Pimentel (ABIT) argued that if the government didn’t control inflation by curbing demand, the business sector would do so through unemployment.¹⁶

Faced with the economic slowdown, the fine balance of the productivist coalition between the conflicting interests of workers and businesspeople became difficult to maintain. Industrialists had lost faith in the government’s ability to meet their sectoral demands.¹⁷ Pressure mounted for fiscal austerity and neoliberal reforms—tax, social security, and labor, as well as a reduction in the size and function of the Brazilian state—as an alternative to the NME. As the government resisted for at least another year, industrialists found themselves no longer aligned with the priorities of the government’s agenda.

June 2013 as a window of political opportunity

As for the timing of the industrial opposition, this is best explained by the political context. While there were signs of dissatisfaction at the start of the year, the business community seemed to maintain its veneer of support for the government. After all, Dilma was extremely popular, with around 65 percent approval for the first half of 2013. Business leaders had little reason to harbor open discontent with a government that had every chance of being re-elected the following year.

The scenario profoundly changed with the major protests in June of that year, which brought thousands of Brazilians onto the streets. Although it had originated with progressive agendas over public-transit fares in Sao Paulo, the result of the demonstrations was the strengthening of the extreme right, anti-politics rhetoric, anti-PTism, and a generalized desire for “change” in politics.¹⁸ The protests pushed Dilma’s government “towards the demoralization and discredit to which governments everywhere were subjected as a result of the economic crisis that began in 2008.”¹⁹ In a matter of weeks, the president’s approval rating fell to 30 percent. This radical change in the Brazilian political scene made possible a new kind of politics for business. 

As illustrated in the figure above, business preference followed the opposite trend to the expectation of the voters’ preference until the beginning of 2013. In other words, although Dilma was not the favorite candidate of businesspeople, there was a high expectation that the president would be re-elected—and it was this expectation that determined the apparent maintenance of industrial support until June 2013. Following the protests, however, businesspeople calculated that expectations would align with their preference in the 2014 elections, and they bet on the victory of PSDB candidate Aécio Neves—grandson of former president Tancredo Neves, leader of the institutional opposition to the military dictatorship—against Dilma. Goldman Sachs-Brazil’s then-president summed up the harmony between the streets and the private sector: “Both investors and the population have expressed, in different ways (the population, with the protests; the private sector with the loss of confidence), similar things, which relate to the loss of connectivity between politics, investors, and popular concerns.”²⁰

Expecting that Dilma would not be re-elected, industrialists publicly broke with the ruling coalition and sided with the opposition to the government. From that point on, industrial disapproval of the government grew,²¹ and business rhetoric became largely critical of the government and its economic policy.²² As Fernando Pimentel, the same industrial leader, summarized in an interview with the author, “these demonstrations came with the intention of solving the problem, a situation that had been growing more complicated. So, I believe they were part of the solution for us to overcome that problem.”²³

Qualitatively, the diagnosis of the main obstacle to industrial growth also changed. The international crisis  and the advancement of imported products in the domestic market were no longer identified as the source of industrial hardships. The main issue became a “national crisis,” caused by the Brazilian state model and, consequently, by its governing power. In brief, the businessmen argued that the ruling party was responsible for a “bloated and inefficient” state. They claimed the PT’s “backward” and “ideological” economic policy had dragged the country into crisis, and that, as a corrupt “political elite,” the PT was responsible for leaks in the public coffers. Therefore, according to the business narrative, the economic crisis was directly linked to a political and ethical crisis. The solution, following this argument’s logic, would be for the PT to step down from the presidency and for the state and the economy to undergo a simultaneous transformation. Instead of “excessive” social spending, a “rigged” and “parasitic” state apparatus, and “short-termist” economic policies, the state should “turn off the tap” on public spending and limit its activity to macroeconomic management. Moreover, it should be a priority to “modernize” the 1988 Constitution, which established social and labor rights that were “not consistent” with today’s economic competition. This meant advocating for the passage of so-called structural reforms, such as “flexibilizing” labor rights, reforming the social security system, and reducing taxes on industry’s value chain.²⁴ By no coincidence, the critique and the proposed reforms were compatible with popular opposition to the government—as embodied by movements like Brasil Livre, Vem pra Rua, and Revoltados Online—as well as with the partisan opposition, especially that of candidate Aécio Neves, both being strengthened by the June demonstrations.²⁵

Implications for the present moment

Both the timing of the business sector’s shift toward the opposition and the substance of its criticism exposed the fragility of its alliance with the PT government. In fact, the targeted policies implemented during the PT’s administration had a positive impact on national industry, although they were not enough to reverse the ongoing deindustrialization process. As industrialists often commented, and as the sector’s performance confirmed, the PT’s measures to help the industrial sector were specific and compensatory. With the exception of a brief attempt to reduce bank spreads, the economic policies did not alter the model of accumulation and, therefore, did not reinvigorate the declining position of national industry—especially industry destined for the domestic market—in the global value chain and in national economic participation. Hence, there is a structural misalignment between the PT governments’ state model, committed to labor rights and redistributive policies, as well as the model of accumulation fostered by the period’s policies and the national industrial business sector that has hindered a long-term, ideological alignment within the so-called productivist coalition. In a period of economic deceleration, in which Dilma’s administration slowed down the pace of implementing micro policies and meeting industrial demands, and as macro policy was no longer aligned with business expectations, the immediate and punctual material motivation to support the government was corroded. When presented with a political opportunity—the scandalization of PT fiscal policy—industrialists abandoned ship. The apex of the conflict is materialized in industrialists spearheading the pro-impeachment movement during Dilma’s second term, but the argumentative grounds for opposing the PT had already been present in the industrial rhetoric since 2013.

This discussion is even more relevant when we observe the rapprochement between industrialists and the PT during the 2022 elections, made explicit by a letter in defense of democracy issued by FIESP. Despite having mostly supported Bolsonaro in 2018, Bolsonaro’s administration acted more independently, marginalizing a significant part of the business sector from 2020 onwards. Additionally, the country’s political handling of the pandemic deepened the economic crisis. Motivated by these factors, part of the business sector supported Lula in the electoral contest—albeit indirectly through a pro-democracy speech. In this new Lula administration, we have been watching almost a rerun of the pre-June 2013 dynamic between the PT government and industrialists, with the launch of Nova Indústria Brasil (New Industry Brazil), the resuming of Minha Casa Minha Vida (My House, My Life), and the Programa de Aceleração do Crescimento (Growth Acceleration Program, PAC). Yet maintaining this alliance seems even more delicate today, as Lula’s third administration has limited room for economic and political maneuvering. Firstly, support for Lula was not consensual.²⁶ Secondly, the economy is nearly a decade out of steam, and the government’s budgetary autonomy is further reduced due to high fiscal and monetary pressures—even stronger now under an independent Central Bank and the legal restrictions implemented by the post-coup regimes.²⁷ Elected on the promise of resuming and strengthening redistributive policies, Lula has to make difficult choices about public spending, which have the potential to deepen class conflict. Lastly, with the government’s parliamentary base reduced, Congress is more radicalized, and the far-right opposition is proving to be more competitive than the PSDB of the 2010s. It remains to be seen whether the support of a part of the business elite is once again circumstantial and dependent on the government’s popular approval, or whether the threat to democracy represented by the Bolsonarist opposition has produced greater solidity in the new Lula-PT alliance.