Lula's legacy

Most foreign news is about broken things: failure, crises, scandals, misery. Rarely does a bombshell of good news sweep everything else off the front page. I had just begun working as a reporter when I saw Egyptian president Anwar Sadat land in Tel Aviv in 1977 and change the middle east for ever. I have only been present at one other such stirringly optimistic, game-changing moment. That was election night in Brazil eight years ago. I was in São Paulo on Paulista Avenue, the skyscraper-lined artery of Latin American finance. The results were in and the socialists had won. The pavements outside the Armani and Ferrari outlets filled up with people from the suburbs carrying drums and hand-painted signs. Trucks appeared with loudspeakers and samba dancers. The business district turned into a carnival of red banners, Che Guevara posters and impatient revolutionary slogans.

At a nearby teahouse, I interviewed some old ladies of the bourgeoisie, who were bracing for the worst. Um operario (a labourer) was going to run their great land. Though once a lathe operator, Luiz Inácio Lula da Silva has mostly held desk jobs, as a union leader and then a politician. But in class-obsessed Brazil, the term “labourer” is more a tribal assignation than a job description.

I wasn’t unmoved by the euphoria on the streets, but I also had more ominous feelings. Much of the new Brazilian optimism that accompanied Lula’s election had been made possible by market reforms begun ten years earlier—and influential leftists were now lobbying for them to be reversed. Many of those celebrating belonged to pressure groups which expected Lula’s Workers’ party (the Partido dos Trabalhadores or PT) to start spending the way the Peronists were doing in Argentina, where export earnings are usually wasted on bribing opposition politicians and subsidising beef. And in the immediate period after Lula’s first election as president, the signs were indeed ominous. Fear of socialism spurred a flight of capital, which drove down the exchange rate and forced the outgoing government to sell dollars desperately. Brazilian bonds found no buyers, credit ratings plunged and it seemed the country might default on its huge foreign debt.

Just after Lula took office on 1st January 2003, the third anti-capitalist World Social Forum began in Porto Alegre. The star speaker was Noam Chomsky, who poured cold water on the new Brazilian optimism. “It will never work,” he said to the media. “Look at the Brazilian interest rates. Look at the debt. The US will never let this happen. The banks won’t either. If they try anything serious here there’ll be chaos.”

Yet these gloomy expectations were not fulfilled. Nearly eight years later, as Lula prepares to step down from the presidency, his two terms must be declared a resounding success. Brazil goes to the polls on 3rd October and the favourite to succeed Lula is his protégée Dilma Rousseff, an ex-guerilla fighter, economist and PT strongwoman. And Brazil’s image has been transformed—once an enchanting bundle of contradictions forever teetering on the brink, the country is now portrayed as an exemplar of developing world progress, its finances the envy of richer nations. A friend of mine who works at the São Paulo stock exchange, which received Lula’s election with trepidation, tells me that he and many of his colleagues favour Rousseff for president “in the name of stability.” This irony is underscored by the fact that her main rival is José Serra of the centre-left Social Democratic party (PSDB). Serra, governor of the state of São Paulo, is an intellectual whose writings supplied the theoretical basis for the market reforms in the 1990s—in the face of protests from the PT.

In spite of a Byzantine tax system and other impediments, Brazil’s economy is booming. Its hugely successful agro-sector will be boosted further in 2012 by the completion of the Transoceanic highway across the continent. This behemoth, construction of which is blasting a corridor through rainforests and Inca highlands, will deliver iron and food from Brazil’s interior to Peru’s ports and then on to China. Brazil’s politics, long a cesspool of vote-buying and football club-like transfers of politicians between parties, is also showing signs of recovery. Most on the left have shed their statist illusions, and a large part of the centre and right have made comparable changes, incorporating the social agenda of Lula’s PT and of the PSDB into their manifestoes. Few politicians openly oppose the PT’s anti-poverty programme, launched as Fome Zero (zero hunger) in 2002 and now called Bolsa Familia (family allowance), which helps 16m of the country’s poor.

Meanwhile, investors are snapping up Brazilian stocks and bonds. Brazil has been generating such impressive returns lately that many foreign observers have become complacent, assuming the country is now coasting towards solid institutions and ever-diminishing poverty. Though a tenuous notion, this has done wonders for Brazil’s reputation and recently won it the two biggest prizes on the international image circuit: the 2014 World Cup and the Rio de Janeiro Olympics of 2016. Neither would have been possible without Lula.

*****

But Brazil is not out of the woods. Poverty and corruption are still endemic, and the waste of human capital remains one huge difference between Brazil and the first world. In western Europe, few talented young people are lost due to a lack of opportunity; in Brazil, thousands of potential high-tech geniuses are begging or sweeping streets. As Chomsky noted, it is a chaotic country.

Yet Brazilian chaos has not been the result, in that Chomskian sense, of foreign interference. Brazil was the only South American country to free itself from colonial power without a civil war. It became a monarchy without violence, abolished slavery in 1888 without bloodshed and became a republic a year later without a shot being fired. For hundreds of years, Brazil has caused its own complications, generated its own crises and gotten drunk on its own myths. Not since Napoleon’s invasion of Portugal in 1807—which led to Brazilian independence—has anything big in Brazil been decided abroad.

Modern Brazil, however, was shaped by global dynamics—in the form of coffee. The discovery that coffee, formerly an upper-class drink, reduced the horror of getting up before dawn resulted in a migration of millions. In the 1830s, the Paraiba valley in the state of Rio de Janeiro saw the first coffee boom, but was soon overtaken by the state of São Paulo. At first, the coffee was picked by African slaves. After slavery was abolished, São Paulo’s coffee growers looked abroad for labour and imported families on a vast scale, first from Italy, then Japan. The coffee business kept expanding, the immigrants worked hard and their children left for the city—the usual story in Latin America.

Conditions were created for something unique in what is now called the developing world: industrial development fuelled by local capital. Two conditions were crucial in this transformation: coffee was locally owned and it could be extracted without expensive technology. Unlike the sugar of Cuba, the oil of Mexico or the tin of Bolivia, coffee could be produced without mortgaging future harvests to get access to foreign capital and machinery. The only enterprises São Paulo planters could not manage without British capital were the railroads and ports needed to export their product—but, then again, neither could the US when it began to build its railways. Immigration kept wages low (in the rest of the continent wages were high relative to Europe) and the planters accumulated enormous capital from their coffee exports. The rapid industrial development of São Paulo was the result.

Together, the old coffee nobility and the upwardly-mobile immigrants changed São Paulo. Landowners and immigrants did not hate each other as they did in Argentina. They intermarried and, after the first world war, there was already a fairly unified Brazilian elite, which agreed that the future belonged to industrialism rather than coffee. They were in favour of protective tariffs, unlike the other elites of South America, who wanted free trade for beef and metals.

Brazil was not forced to grow coffee by foreign banks or governments. Dependency theorists argue that agro-exports monopolise capital, and therefore that agro-exporting and industrial development conflict. But in the case of São Paulo, the peaks in industrial investment coincided with coffee export peaks.

The path to capitalism was, however, far from smooth. A state bureaucracy emerged to run the export economy and protect it from fluctuations in price by buying up the surplus coffee. (This only worked because Brazil controlled the world market and coffee could be stored.) The state expanded in other ways, becoming ever more overstaffed and expensive, reaching its bloated zenith after 1930, when Getúlio Vargas came to power.

Vargas was the first Latin American populist—the model for Juan Perón and all the others. He was a rancher from the Pampas, but believed in domestic industry. The economy took great strides under his command, with the development of dams, steelworks and state-managed labour unions. But growth and progress tapered off, and after Vargas’s protégé, Juscelino Kubitschek took over in 1956, job creation couldn’t keep up with population growth. The state became more involved in pricing and in the distribution of credit. Deficits were chronic, as was inflation, with ensuing social unrest.

In 1964, there was a military coup, but the generals continued down the same road of protective tariffs and state-directed, if not state-owned, industries. This state-run, import-substitution model had by now become an article of faith across Latin America. “At the end of the 1960s we realised that investment was slowing down, because protected monopolies were not interested in growth,” recalled Pedro Aspe, later Mexico’s minister of finance. Mexico faced two choices: “to shift to an export-oriented economy, as South Korea had done in 1965, or to carry on along the same old road, depending on state investment for growth.” The country chose the latter and its stagnation deepened.

By the 1980s, when I first started spending time in Latin America, the desolation was frightening. There was no credit. The only growth industry was inflation. There was little trade between countries. Chilean wine was smuggled into Bolivia at night on the backs of llamas. The Argentinian system was so obstructive that asparagus growers sneaked their produce into Chile for export. Talented young people had to choose between their homelands and their careers. After 40 years of state populism, Latin American capitalists had ceased to be adventurous. All their energy went into cultivating political contacts, making sure the tariffs remained high. Economists sounded the alarm but it wasn’t enough. Market reform acquired an ominous ideological significance—Augusto Pinochet was partially successful in Chile but when the Argentine junta tried it failed amid bloodshed and corruption. Capitalism and trade became associated with murderous dictators.

The only way forward was for a politician within the system to step up and say “This isn’t working.” Eventually such people did emerge—from two of the most inward-looking parties in history: the Mexico PRI and the Peronists of Argentina. In 1994, Salinas de Gortari took Mexico into Nafta, the north Atlantic free trade zone, and, in the early 1990s, Carlos Menem fought and defeated his own Peronist trade unions. There was a huge outcry within both parties, but the leaders didn’t flinch. In Brazil, the taboo was finally broken by Fernando Henrique Cardoso, one of the country’s leading intellectuals. A former believer in dependency theory, he changed his mind during a long exile in Chile and the US. Cardoso became the PSDB’s finance minister in 1992 and was elected president in 1994 and 1998, defeating Lula both times.

It was hard going. There was nothing inevitable about Brazil’s return to the global economy. It is one thing to command market reform without opposition, in the absence of parliament, elections, a free media, unions, strikes and protests. That’s the way it was done in Chile, or in China under Deng Xiaoping. The real test is to do it in a democracy with bad governance and defective central control, with a faulty system of justice, corrupt security forces, a ferocious opposition and upcoming elections. That’s how it was done in Brazil.

Many critics were certain it couldn’t be done. Currency reform would make imported fuel expensive, they cried, public transport costs would soar; jobs would be lost when protected industries collapsed; reduced subsidies on basic foods would lead to riots and election defeat. And all those misfortunes would occur simultaneously, reinforcing each other.

*****

When Lula took office, he faced an uphill battle. There was no growth for almost his entire first term. His minister of finance, Antonio Palocci, an ex-Trotskyite pediatrician, told Lula to stay the course and stick with the reforms. The pressure from within the party to return to populism was huge and some leftists broke away. There were ugly corruption scandals involving Lula’s aides. And yet he was re-elected.

Barack Obama has called Lula “the most popular politician in the world.” But Lula’s charisma is not like Obama’s—it is not cool, nor brilliant, nor original. It is of the he-is-one-of-us type. He sometimes seems too much like one of us—he likes his football and drinks a bit too much and commits faux-pas like wearing an Armani suit to a meeting of old union pals. He has produced, like many of his countrymen, a child out of wedlock. His illegitimate daughter once cost him an election, but nobody holds her against him now. Lula has repeatedly been forgiven for peccadilloes that would have been fatal not only to Obama’s image, but his presidency.

Yet Lula’s real success has little to do with his personality or image. He has not prevailed by seeking popularity, but by his tenacious refusal to budge from principles and policies that actually belonged to his ideological adversaries: balanced budgets, constant vigilance against inflation and a readiness to defer easy wins in the name of long-term strategy. During the recent global economic downturn, Brazil was among the last countries to slow down—and one of the first to recover. Today there is impressive growth and substantial resources are finally being spent on the project that does belong to Lula: the fight against rural poverty in the northeast.

But all this came too late to secure him a second term. He won that election on trust. Latin Americans do not always clamour for irresponsible deficit spending—they can stand painful adjustment if they feel it is sincere. Argentina’s Carlos Menem did many bizarre and awful things but was re-elected and loved by the poor. The Chileans did not vote away Pinochet’s reforms after he stepped down in 1990. Alberto Fujimori of Peru languishes in jail yet remains idolised by the poor. Cardoso won two presidential terms in Brazil, and Lula was re-elected without producing much milk and honey.

Nearly all Latin American nations have come to accept the market economy, except Argentina—which has slipped back into Peronist darkness. Brazil, as well as getting it right, has been lucky: benefitting from Chinese growth, the boom in soya, the destruction of the Venezuela farming sector by its own government, and the huge Atlantic oil finds which may cure its dependence on foreign fuel. But, eight years ago, the sense of history being made was not an illusion. It was a genuine political watershed. Until then, the market economy and world trade were the central and most divisive issues in Brazilian politics. Today, there is no significant candidate running on the old statist, populist platform. The country’s future no longer rests on a sterile confrontation between socialists and capitalists.

Where now? Rousseff is the favourite to win, largely because Lula has campaigned hard on her behalf. But inside the PT, she was considered a lacklustre compromise, lacking his popularity (Lula has approval ratings of 82 per cent). She reached her current position of chief of staff (de facto prime minister) in 2005 when she replaced José Dirceu, who stepped down because of a corruption scandal. The hero of the PT’s economic management, Antonio Palocci, was also forced out of office after revelations of corruption. Lula’s government was elected on an anti-corruption ticket, yet has been involved in some of the sleaziest vote-buying swindles ever seen in the country, which speaks volumes about the Brazilian political system’s resistance to good intentions.

Yet such issues pale next to Brazil’s social problems. Economic and political indices scarcely describe the reality. Had the International Olympic Committee spent more time in “the most beautiful city” before awarding Rio de Janeiro the 2016 Games, its ruminations might have been disturbed by automatic gunfire and military helicopters. The drug war is relentless. Special forces in Rio have lost helicopters to traffickers. Drug militias clash over turf, or confront the feared BOPE military police, whose symbol is a death’s head. It is not unusual for commuters to detour around gun battles as they drive along eight-lane highways.

Nowhere in Brazil is the contrast between macroeconomics and the harrowing routines of daily life as stark as it is in Rio. But few of Brazil’s urban centres are spared. In many peripheral areas, particularly in the Amazon, it would be suicide for policemen and judges to confront criminal interests. Federal agents investigating slavery on farms are often gunned down. It is common to describe the favelas and the other lawless enclaves—areas from which state, government and police have withdrawn—as Hobbesian war zones. If this were so, Brazil could put its house in order by entering these areas and flushing out evildoers in the way that resolute New York mayors have pushed down crime rates. Unfortunately, the problem goes deeper than that. A bewildering but vigorous coalition of forces and interests maintains the status quo—and politicians and other major figures are involved.

From the 1950s to the 1970s, many Rio favelas organised themselves in admirably democratic fashion. The leaders of the associações de moradores (dwellers’ organisations) often worked with business leaders, the church and politicians to provide services and schooling. But in the 1980s, when the US government began to attack the cocaine trade between Colombia and Florida, the cartels of Medellín and Cali had to find alternative routes. Rio was the most promising distribution point, with its convoluted coastline and its endless supply of unemployed young men. The shanty towns perched on the crests of cone-shaped monoliths were like the eagle’s nests of medieval barons. When the drug money started to pour in, the trade moved to these natural bastions, whose populations also provided a useful human shield during police assaults.

In the old days, politicians toured the favelas during election campaigns. Today, access to favela voters is a commodity to be bought and sold. While some police units are engaged in a bloody battle with the traffickers, others sell weapons to the bandits and receive payoffs. Unknown quantities of laundered drug money finance the campaigns of some Brazilian politicians. The state is not absent from the zones of crime and poverty—but perversely present. Combating the drug industry is a challenge only the bravest take on. In São Paulo, the crime syndicates have paralysed public transport for days to remind politicians of what they stand to lose. To have this happen during the Olympics would be a nightmare.

While Brazil asserts itself on the international stage—challenging the US on Iran, insisting on a seat on the UN security council, buying up large parts of Peru and Paraguay—it is helpless when dealing with the challenges in its front yard. It may no longer be on the economic brink, but it remains unstable, caught between its demons and its development. Lula and the PT’s embrace of the market economy reflects a still fragile ideological shift on the continent. Capitalism and global trade are not seriously debated in western Europe, but in Latin America, exports and multinational companies remain red-hot issues. There is a yearning among Latin America’s Peronists, populists, Castroists, Chavists and a dwindling number of Marxists to see capitalism fall. In Chile recently, after the earthquake, there were food riots in some southern towns. Leftist publications in Argentina and Bolivia published photos with captions like: “The grim reality behind the Chilean miracle.” No wonder then that Brazil’s progress is keenly observed by both camps. If Brazil succeeds, it will influence the politics of every other Latin American state. If it should fail, it will be no less significant.

This article is based on a recent lecture presented to the Engelsberg Seminar, held annually in Sweden. It will appear in a book of essays, “On Capitalism,” forthcoming from the Ax:son Johnson Foundation