Party Politics and Social Policy

In The Takeover of Social Policy by Financialization, Lena Lavinas names the “Brazilian Paradox”: the model of social inclusion implemented by the Workers’ Party under President Lula and President Rousseff promotes a logic of financial inclusion and market incorporation, and has ultimately contributed to mass indebtedness among the Brazilian population. André Singer assesses this period of social policy expansion as an attempt to reach the “Rooseveltian dream”—a political project that ended with the impeachment of President Rousseff in 2016 and the election of President Bolsonaro in 2018.

On January 25, Lena Lavinas, André Singer, and Barbara Weinstein, historian and author of For Social Peace in Brazil, gathered to discuss this period of mass social inclusion and its unraveling in political scandal and a lurch to the right. A recording of the conversation can be watched here. The transcript was edited for length and clarity.

A conversation between Lena Lavinas, André Singer, and Barbara Weinstein

Barbara Weinstein: The premise of our discussion is a profound paradox: in Brazil, a dramatic period of social inclusion has given way to a revanchist politics of exclusion—with many of the beneficiaries of the first phase now key protagonists of the second. The paradox, while not unique on the global stage, feels especially acute in the Brazilian case. Given the magnitude of the “Rooseveltian” inclusion phase, how can we explain this transformation?

Lena Lavinas: This period of social inclusion under the Workers’ Party (Partido dos Trabalhadores, or PT) cannot be separated from the massive process of financial inclusion in Brazil, which was made possible thanks to shifts in banking regulations and other financial innovations, like crédito consignado,¹ first brought about in the mid-2000s. Both mechanisms unfolded together, but it’s important to make an analytical distinction between market incorporation and social inclusion—the former characterized by real improvements in wages and earnings, or by access to credit lines, which was the case under PT; and the latter reflecting redistribution that addresses structural inequalities by promoting decommodification.

A long-term problem in the Brazilian economy has been demand expansion and stabilization. The novelty since the 2000s is that demand has been stabilized not only through participation in the labor market, but also through participation in financial markets. Brazilians were, and remain, deeply integrated in the consumption market through mounting debt loads. It’s nearly impossible to be excluded from consumption markets in Brazil, because a variety of social benefits—including the emergency cash benefit program implemented during the Covid-19 outbreak—provide consumption guarantees to even the most socially vulnerable. To give you a figure: a recent national survey from late November showed 66 percent of all Brazilian households are indebted, and one-third have defaulted. This debt has been central to maintaining the period of social inclusion we are talking about, which I call market incorporation.

On the question of the “Rooseveltian” model pursued by the PT, it’s important to note that the accumulation of that period in the United States was impossible to replicate in Brazil. And in fact the Brazilian social protection system that was introduced beginning in 1988 is in many ways larger and more comprehensive than the one introduced under Roosevelt—characterized by pay-as-you-go schemes, pension systems, and unemployment insurance. Welfare benefits, Medicare, and Medicaid were only implemented in the mid-1960s. Conversely, in Brazil, the social security system implemented in the 1980s granted universal and free access to healthcare along with compensatory benefits like continuous cash benefits. The Brazilian social security system has developed well beyond the principles that oriented the “Rooseveltian” model in the US.

BW: How do we reconcile this welfare expansion with Brazil’s sudden shift to the right?

LL: What the far right succeeded in doing was convincing frustrated people that Brazil was broken—that corruption had destroyed the country. But corruption has always been widespread in Brazil, the difference was that after a period of (modest) development, we did not maintain high rates of economic growth.

This is because the initial period of market incorporation, which manifested in increased consumption of durable goods, higher wages, lower inequality and greater access to education, was founded on financialization. Ultimately, investment was insufficient to maintaining growth and the left lost control of the political narrative.

André Singer: The “Rooseveltian dream” that was pursued in Brazil was just that—a dream. It posited that you could construct a welfare state while bypassing a conflict between capital and labor. Lulismo² sought to reach this goal in an American, rather than European, way.

I disagree with Lena about what was achieved, which I have called a feeble reformism. There was a substantial and important increase of the minimum wage, at almost 100 percent of its real value, and an important increase in employment—Brazil went from 12 percent or more unemployment to 4 percent by 2014. And the crédito consignado that plays an important role in Lena’s financialization thesis was given to a large part of the employed population, who could get consigned credit from the bank at low interest because the monthly payments were deducted from their salary. That radically changed many people’s economic position. It was not a revolution, it was not even a welfare state, but it was the beginning of a welfare state.

There are three dimensions that help explain the phenomenon we started with—the revanchist politics of exclusion following this period of inclusion. The first is that, since 2013, there has been an erosion of the project of Lulismo, accompanied by a worsening of global economic conditions. In Brazil, the crisis began in 2011, not 2008. And from then on, President Dilma Rousseff was obliged to do many things that challenged the interests of the entrepreneurial class. She managed to keep employment levels high until 2014. But from 2015 onwards, that was no longer the case—and that’s where the narrative problem which Lena mentioned began. Corruption charges were levied in a factional way against Lula and the PT, and a process of broad middle-class mobilization against Lulismo took form.

The second dimension is the impeachment of President Dilma in 2016, which was a parliamentary coup. It was not a coup d’etat, because impeachment is a constitutional clause. In some ways, the law was respected—for instance, there was a legal majority to impeach. What was not respected was the legal necessity for proof of responsibility and of crime. There was neither crime, nor proof. The established press, which is far from sympathetic to Dilma, recognized this. The process was corrosive to Brazillian democracy, and opened the door for Bolsonaro.

2018 was the year in which these developments took an electoral dimension. The extreme right was able to mobilize their traditional base, which constitutes about 30% of the vote, plus another 10% from the center right. It was not so different from what happened in the US in 2016.

BW: I want to summarize your different approaches, and Rosana Pinheiro Machado’s approach, to the last two decades of Brazilian political history. Lena, you emphasize the shift in social policy away from direct provisioning, the more classic form of the welfare state, to much cheaper targeted cash transfers, which are then collateralized by the private sector to fuel consumption through debt. André, you emphasize the collapse of the Lula coalition, precipitated by the departure of industrialists, driving a return to the neoliberal politics of the pre-PT era. And finally in her shorter time frame Rosana emphasizes how declining purchasing power reduced the perceived self-worth of new (especially male) consumers created by Lulismo, precipitating their shift to Bolsonaro. Are these all related dimensions of a single phenomenon?

AS: I think the views can be synthesized. I agree with Lena that cash transfers may not have been the most progressive way to fight poverty, but they may have been the only means available. Targeted cash transfers, including the Bolsa Familia, are part of what I term feeble reformism. But the Bolsa Familia remains unique and important. I also agree with Rosana’s account. But it’s important to note that between declining purchasing power and the consumer shift towards Bolsonaro was the economic crisis, which began in 2008 but reached us in 2011. So it was not an automatic shift. My emphasis is on the interests of the business class, who I argue paradoxically wanted the 2012 recession because it opened the way for austerity.

BW: The apparent contradiction of the business class wanting a recession doesn’t seem so strong if we consider it in light of Covid-19 politics in the US. The stock market reached all-time highs exactly when the US economy was in the worst shape it has been in since the Great Depression.

LL: This is the crucial issue. The financial sector reproduces itself not through the real economy, but through financial markets. At the onset of the Covid-19 outbreak, foreign capital left the Brazilian stock market. But it came back again in November, after which Brazilian stock exchange reached highs that have never been reached before. Brazil is now leading the number of IPOs worldwide.

Today’s interest rates are very low, between zero and ten percent everywhere in the world. Treasury bonds are not providing the same returns they did in the past. And because of deindustrialization in Western economies, because there was delocalization towards Asia, the only alternative we have now are financial markets. That’s why we see investment shifting away from the state and into the stock market. Just to give some figures: more than $760 billion has been invested in asset management companies in 2020. They have reached $8 trillion in net value. How is it that so much money is being made in the midst of a deadly pandemic and a sluggish real economy?

I would like to come back to two points in André’s first answer. I fully agree with him that the minimum wage was fundamental to Brazilian development; it reduced poverty and inequality. But as a share of GDP, wages only increased from 38 to 43 percent. Why did this happen? 85 percent of all new formal jobs were below twice the minimum wage. As we know, higher wages are concentrated in the industrial sector. By creating low-wage jobs in the retail and service sectors, the PT was unable to reverse the trend towards deindustrialization.

Financial inclusion meant that people had access to new credit lines. They used these credit lines not only to purchase durable goods, but also to pay for their own reproduction. They started amassing debt and accruing interest to shop at the supermarket and buy medicine. According to the Brazilian Central Bank, in 2005, only 17 percent of all households’ disposable income was compromised with debt. Today it’s 55 percent. So debt was embedded within the process of financial inclusion, and when, as André noted, the economy began to decline, they continued to pay high interest rates.

I think this cycle of chronic debt aggravated the reaction against the PT. People were worried about corruption, and about the retrenchment of in-kind public provision, which forced them to increase out-of-pocket expenses to meet their essential needs and led to massive indebtedness, with mounting rates of debt defaults. Two years ago, sixty-five million Brazilians—60 percent of the adult labor force—defaulted on their loans. It’s also important to note that the problem is not consumption in and of itself. It’s about the means you have to consume, and the products you are consuming. Paying for healthcare and education, which are guaranteed by the constitution, is a problem. The emergency basic income program launched in response to the pandemic distributed checks which were much higher than unemployment insurance or even the Bolsa Familia, but food insecurity increased. Why? Because people were paying off their existing debts.

I would also argue that the power of industrial elites which André references collapsed a long time ago with the financialization of the Brazilian economy. We have been witnessing a permanent process of premature deindustrialization that no government since 1985, when the regime of corporate financialization started off, was able to address, despite the centrality of the developmentalist framework in Brazilian politics. From 1930–79, the rate of investment as a share of GDP increased from 9 to 23 percent. Investment peaked in the 1980s, after which this developmental model was replaced with a neoliberal one. In the 70s, this included anti-inflationary institutional mechanisms. Later, it was based on high interest rates and inflation targeting. The PT did not reverse this macroeconomic context, which favored rentiersm. In my opinion, the rupture of the alliance of the industrialist class with the developmentalist vision of the PT had been a long time coming, but it wasn’t noticed by the left. Industrialists were already assuring their reproduction as a class, and the reproduction of their wealth through financial profits. They were no longer committed to investing in production and the real economy.

BW: André, you presciently wrote that “Roosevelt’s New Deal emerged in the center of capitalism during a period of dominant Keynesianism. Applied to Brazilian material in times of globalization and neoliberalism, it tore Lulismo apart, driving society to who knows what distant shore far from the egalitarian aspirations the ‘Rooseveltian dream’ had crystallized.” This seems to overlap with Lena’s argument.

AS: There is no doubt that the jobs that were created were primarily low-wage, and that this has to do with deindustrialization which is tied to financialization at the domestic and global level. But I would like to add that although they were low-wage jobs, they were important, and they were not exclusively created through financialization. It’s crucial to note that the wages of industrial workers also increased as a result of full employment, and an accompanying strike wave—there were more than two thousand strikes from 2002 to 2013. In Brazil, the organized metal worker, for example, is now effectively middle class—this is a central component of the base of the old Lulismo, whose conditions improved during this period.

I would also modify Lena’s claim that no government addressed deindustrialization; I would say that no government addressed the problem of deindustrialization with success. Unfortunately, Lulismo failed in that sense, but it tried, and specifically President Dilma tried very hard. She pursued a huge fight against the financial sector in 2012, 2013, 2011, to bring down the interest rates.

BW: Let’s shift to the million dollar question: how can this be reversed? There are two approaches that have been discussed of late, (1) finding a Brazilian Biden, the moderating power of the centrão, the ideologically thin parties of the political center, or (2) building a broad front of the left. Your research seems to call both into question. So what is to be done?

AS: Brazil has a proportional electoral system and not a majoritarian one. With more than thirty parties in Congress, the Biden solution seems completely out of question. The main problem in my view is that we have no electoral left front. This is incredible in an authoritarian government. If an election happened today, Bolsonaro would make it to the second round. But who would be running against him?

LL: I fully agree with André’s approach. Bolsonaro is vulnerable, and support for him oscillates. But if an election happened he would make it to the second round, and at this moment we are completely unable to build a leftist, and a democratic, front. To reverse the situation, we must re-found a secular republic. The growing influence of religious fundamentalism in political movements has had dramatic and corrosive effects on the political landscape, and the segmentation of public life by private markets has weakened shared experiences within the population. What has to be reversed is this lack of commonality.

BW: We’ve been talking about Brazilians as citizens, consumers, as members of different social classes, but there’s been no discussion of race and gender. I myself have written about race and region in Brazil—if we look at a map from the voting results from the last four presidential elections, they’re absolutely bifurcated with the southern and eastern states voting for the right, and the northern and northeastern states, with a few exceptions, voting for the left. This is a new pattern, started in 2006. It shows a regional division that I think has a racial component. Do you have any thoughts on this polarization, which started long before the crisis?

LL: I would say what we’re seeing now in Brazil is at least in part a backlash against the racial inclusion that took place in recent decades. Unlike in the United States, in Brazil Black and mixed race people constitute 56 percent of the population. We can also see this in the case of gender—the agenda of the feminist movement that I’m a part of have been sacrificed in order to compromise with the Evangelicals. Giving power to Evangelicals and ruralists was a political choice to build a majority, but this gave the diversity agenda to the right. The big problem now is how we’re going to recover our own agenda. Even our agenda has been eroded by the hegemony of the far right.