According to polls, President Luiz Inacio Lula da Silva has emerged unscathed from the political crisis of corruption his government suffered in 2005. With his popularity on the rise, it is likely he will be reelected for another four years in October.
Nevertheless, there are indications that important changes have taken place that will limit his possibilities. The polls released in January leave no room for doubt: Lula has recovered a good portion of the popularity he lost in 2005 and is in good condition for a victory in the upcoming election in October, or at the latest, November when the count is finalized. According to all projections, Lula will defeat Geraldo Alckmin, governor of the state of Sao Paulo, who is running on the opposing Social Democratic Party (PSDB for its Portuguese initials) ticket.
The nature of Lula’s social support has been changing over the past three years and three months of his tenure in office. The traditional foundations of support on which the Workers Party (PT) rested came from industrial laborers and a certain sector of the urban middle class with university education. Today, however, the profile has changed, to the point where the sole explanation for Lula’s rise lies in the assistance program "Bolsa Familia," (family welfare) created in October of 2003. A poll by Datafolha during February shows that Lula holds 48% of the projected vote whereas his closest competitor, the mayor of the city of Sao Paulo, Jose Serra, holds 43%. But among those participating in the assistance program, Lula’s figure approaches 58%. In contrast, among those who do not participate in the program and do not know any participants, Lula gets only 41% of the vote in contrast with Serra’s 47%. The differences with Alckmin are even more pronounced. 1
Bolsa Familia benefits nearly 9 million poor families, or more than 30 million people in a country of 180 million inhabitants. It is estimated that the program reaches 77% of poor families with incomes under $45 a week, totaling 11 million, 49% of whom live in the Northeast portion of the country. This region—until recently, dominated by right-wing leaders—is where Lula now receives his highest level of support: 55% compared to 29% in the Southeast, the region where the PT was born and where Lula had the strongest hold during the 2002 elections. Corruption scandals have affected public opinion among the middle class and union workers, but to the poorest part of the population, they seem to have little relevance.
Economic Stagnation and Financing
One of the hardest facts the Lula government has had to deal with is that economic growth in 2005 was much lower than expected—only 2.3%, the lowest in Latin America after Haiti. In the years of Lula’s government, economic growth has been mediocre, averaging 2.6%, lower than the first three years of Henrique Cardoso’s government, which saw a rate of 3.4%. The "spectacle of growth" Lula promised upon election is not occurring, in spite of the fact that exports have doubled during this same time period.
For a good portion of analysts, the poor growth, which takes place at a time when emerging economies (among them China and Argentina) are growing at an average rate of 8-9%, can be explained by the financial sector, the one most benefited by state politics. In effect, investments and industry are growing at a slow rate due to the high interest rates being paid by the State, the highest in the world, at 16.5% annually. This explains how during a time of economic stagnation, banks have registered the highest profits in their history.
The earnings of Bradesco, the country’s largest bank, were 80% higher than in 2004 and the highest in the Latin American open-capital bank’s history. The second bank, Itaú, had earnings that exceeded 2004’s by 39%. The banks that follow on the list (Banco do Brazil, Caixa Económica Federal, and Unibanco) also registered the largest profits in their history. According to available information, in 2005 the government spent $63.2 billion (139 billion reales) on debt servicing to deal with the internal and external debt (85% and 15%, respectively). 2 This figure represents no less than 23% of Brazil’s total budget: nearly one out of every four dollars the government spends goes toward paying amortizations and interest on the debt. This would be a noose around the neck for any country, but in Brazil’s case, the government is the one that has tied the noose itself, by opting for the highest interests rates in the world in order to bring in capital and thus pay off its debt.
According to the National Conference of Brazilian Bishops (CNBB), the country has become a financial haven. The CNBB is a longtime ally of Lula and the PT, supporting them since the beginning, and it played an important role in opposing the military dictatorship that came to power in 1964. Bishop Odilio Scherer, Secretary General of the CNBB, directly accused Lula of having turned the country into a "financial haven," and Archbishop of Salvador Geraldo Majella Agnelo was harsher still when pointing out, "There has never been a leader so submissive to the banks." 3
Economist Ceci Vieira Juruá of Attac-Brasil says the banks, insurance companies, and transnationals have increased their capital worth in Brazil while the middle class, local businesses, and public finances have suffered. This has been caused, in her opinion, by a process of "reconcentration of income in favor of investment capital and against worker output," and greater debt incurred by the federal government, which is reflected in the third factor, the "deindustrialization and denationalization of the local system of production." 4
What is occurring in Brazil is an enormous transfer of the national income into the financial sector, which is increasingly cartelized but no more efficient. "What is interesting is that the earnings by the banks cannot be accounted for by increased efficiency. Rather, they are being generated by an abuse of economic power and a fragile institutionality," explains economist Reinaldo Gonçalves , professor of the Federal University of Rio de Janeiro. 5 Approximately 35% of public debt ownership, which represents more than half of the GDP, is in the hands of banks. Since the government pays very high interest rates, it benefits the investors to invest more in debt than in building factories, for example.
According to another economist, Marcio Pochman of the University of Campinas, the $120 billion paid by the State each year to debt security holders (some 20,000 families) makes up 7-8% of the GDP. This is the percentage of Brazil’s wealth that is transferred to the rich every year. Pochman’s assessment of the country’s evolution over the last decade of neoliberalism insists that privatization and financial deregulation have given the powerful even more power. "The economy today is managed in accordance with the interests of the 20,000 families who account for ownership of 80% of the total amount of public debt. This segment is so powerful it is capable of controlling the country’s economic policies. If interest rates fall, they will simply take their money, stop financing the debt, and leave. The Brazilian economy has been organized more and more to protect those interests." 6
If under Lula’s government the elite class has accumulated huge profits, the popular sectors have continued to suffer—though in a less drastic form—the same problems as always. "We are facing the most serious crisis in the development pattern of capitalism Brazil has ever seen," Pochman insists, an opinion shared by the majority of independent economists in the country. According to this analysis, there are "indications of social and economic regression." In 1980, Brazil had a per capita income 33% of the United States’; in 2003 it fell to 20%. In 1980, workers’ income made up half of the total GDP but by 2003 it had fallen to 36%. In developed countries, workers’ income hovers around 60% of GDP.
This regression can also be measured by other indicators: 10% of the country is unemployed and 25% underemployed or working in the informal economy. This situation is particularly pronounced among youth. Brazil has the fifth largest population of young people in the world, but half of the unemployed are under 25. The jobs being created, at least in the niches where young people are hoping to enter the labor market, are low paying and low quality. In 2005, 66% of new jobs paid less than $200 a month. In short, the jobs being created are insufficient in number and of poor quality.
With respect to agrarian reform, the statistics are even worse than those under the Cardoso government (1994-2002). The current trend is that 75% of families being settled are moved to already-existing settlements or public lands, which means that the expropriation of private land has been kept to a minimum. "The agrarian reforms of Lula’s government have worked against preventing the large-scale concentration of land ownership," and poor agricultural policies "are expelling already-settled families" just to "settle others" in their place. 7 These policies have been described by Bernardo Mançano Fernandes as "autofagia," (or self-cannibalism) since "the problem is never resolved, but rather, reproduces itself."
Even so, some economists, like Maria Conceiçao Tavares, maintain there have been important changes that cannot be ignored: the debt cancellation with the IMF ($15 billion) frees the country from the international noose for 10 years; there is no privatization; worker-capital and citizen-state relationships have changed in favor of the weaker; the external debt-GDP relationship is the best it’s been in the last 50 years. Among the popular sectors, those most benefited have been the poor. There have been marked improvements among those who earn minimum wage ($100/week) or less, there is a movement to formalize the job market, and the complaints, in her opinion, are due to the fact that jobs being created are no longer for the children of the middle class. 8
The two positions, that of those who criticize Lula because he has done little and that of those who defend him because he has made some changes, are based on real facts. It is certain that the poor are leading somewhat better lives, just as it is true that the country continues to sink into the fundamental tendencies of neoliberalism. In the middle, the process taking place is what Pochman calls an impoverishment ("deburgessization") of the middle class. This is a powerful trend in the neoliberal model that facilitates the unity of action between the poorest and middle-class sectors, as was the case in Argentina. But in the short term, it appears Brazil’s middle class is supporting Lula while the poor—who have always supported conservatives—have become devout Lulistas .
These tendencies present two problems. The support from the poor all but guarantees Lula a victory in the campaign for a second term. But unlike in the 1970s and 80s when industrial workers identified with the PT out of political motivations, the party now draws its votes based on the State aid given out under the Bolsa Familia project. This tends to reproduce the pattern of clientelism that already exists in the region. Second, there are no deep-seated changes taking place in the trends: between 1930 and 1980, Brazil underwent a process of industrialization. Since 1980, it has experienced a cycle of State-sponsored financialization and a decline in industry. Under Lula, this trend is only deepening.
Brazil’s Economy in 2006
GDP 2005: + 2.3%.
BANK EARNINGS: 35% (Bradesco: 60%, Itaú: 39%)
WEALTH/POVERTY: 20,000 families control 40% of total income; 90% of the population receives only 25% of total income.
NATIONAL DEBT SECURITIES: $54 billion goes to the payment of debt securities in the hands of 20,000 families ($2.3 million per family).
BOLSA FAMILIA (FAMILY WELFARE): 8 million families receive $32 a month from the government.
LABOR INCOME: In 1980, it made up half of the GDP. In 2005 it makes up 36.4%. Four million families live with no income.
EDUCATION/YOUTH: 27% of urban youth between 15 and 24 years of age do not work or study. 35% of Brazil’s young people between 15 and 17 are in school; in Chile, 85% are. For every 10 students who enroll in the first year of university, only one graduates.
1. Folha de Sao Paulo, 26 February 2006, page A4.
2. Brasil de Fato, 2 March 2006.
3. Folha de Sao Paulo, suplemento Aliás, 5 March 2006.
4. Ceci Vieira Juruá, "As previsoes para o novo ano de 2006", at www.desempregozero.org.br.
5. Brasil de Fato, 2 March 2006.
6. Brasil de Fato, interview with Marcio Pochman, "País é prisioneiro da elite nacional", 2 March 2006.
7. Bernardo Mançano Fernandes, "De ‘clonagem’ a ‘autofagia’: o dilema da reforma agraria no Brasil", www.mst.org.br.
8. Cited in CNBB, "Analise de conjuntura 2006", idem.
Translated for the IRC Americas Program by Nick Henry.
Raúl Zibechi, a member of the editorial board of the weekly Brecha de Montevideo, is a teacher and a researcher on social movements at the Multiversidad Franciscana de América Latina as well as an advisor to several social groups. He is a monthly contributor to the IRC Americas Program (www.americaspolicy.org), where this article was first published.
For More Information
Bernardo Mançano Fernandes, "De ‘clonagem’ a ‘autofagia’: o dilema da reforma agraria no Brasil", 3 March 2006 at www.mst.org.br.
Ceci Vieira Juruá, "As previsioes para o novo ano de 2006", at www.desempregozero.org.br.
CNBB, "Análise de conjuntura 2006", 21 de febrero de 2006, at www.cnbb.org.br.
Folha de Sao Paulo, "Iglesia y PT", 5 March 2006.
Marcio Pochman (interview), "País e prisioneiro da elite nacional", in Brasil de Fato No.157, Rtio de Janeiro, 2 March 2006.