Profitability and Distribution: The Origin of the Brazilian Economic and Political Crisis

• Published date: 01 January 2020
• Author: Cecilia Hoff,Adalmir Antonio Marquetti,Alessandro Miebach
• Date: 01 January 2020
• DOI: 10.1177/0094582X19887751
• Subject Matter: Articles

https://doi.org/10.1177/0094582X19887751

LATIN AMERICAN PERSPECTIVES, Issue 230, Vol. 47 No. 1, January 2020, 115–133

DOI: 10.1177/0094582X19887751

© 2019 Latin American Perspectives

115

Profitability and Distribution

The Origin of the Brazilian Economic and Political Crisis

by

Adalmir Antonio Marquetti, Cecilia Hoff, and Alessandro Miebach

The PT governments combined elements of developmentalism and neoliberalism in a

contradictory construction, organizing a large political coalition of workers and capital-

ists 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 accu-

mulation with meager economic growth. After her reelection, the government imple-

mented an austerity program that resulted in negative growth rates. With the deepening

economic crisis and without political support, Rousseff was removed from power.

Os governos do PT combinaram elementos de desenvolvimentismo e neoliberalismo em

uma construção contraditória, organizando uma grande coalizão política de trabalhadores

e capitalistas que permitiu expandir o salário real e reduzir a pobreza e a desigualdade,

mantendo os ganhos dos capitais produtivos e financeiros. O declínio da lucratividade

após a crise de 2008 quebrou a coalizão de classes construída durante o governo Lula. O

governo Dilma Rousseff adotou uma série de estímulos fiscais para a acumulação de capi-

tal privado com escasso crescimento econômico. Após sua reeleição, o governo implemen-

tou um programa de austeridade que resultou em taxas de crescimento negativas. Com o

aprofundamento da crise econômica e sem apoio político, Dilma foi afastada do poder.

Keywords: Brazilian economy, Profit rate, Wage share, Developmentalism,

Neoliberalism

Neoliberalism is a phase of capitalism that originated in the crisis of Latin

America’s Golden Age. The declining profit rate of the mid-1960s drove a reac-

tion by the capitalist class to restore profitability. A series of institutional reforms

favored capital, particularly finance capital. As these changes solidified, the

financial sector became hegemonic, consolidating the basic tenets of neoliberal-

ism. The reforms converted the market into the fundamental mechanism of

resource allocation to raise the profit rate. Neoliberalism succeeded in restoring

Adalmir Antonio Marquetti is a researcher in the Postgraduate Program in Economic Development

at the Pontifical Catholic University of Rio Grande do Sul and a professor at that university.

Cecilia Hoff is a professor at the Pontifical Catholic University of Rio Grande do Sul and a

researcher in its Department of Statistics and Economics. Alessandro Miebach is a researcher in

the Postgraduate Program in Economics at the Federal University of Rio Grande do Sul and an

associate professor at that university. They are grateful for the comments of the referees and the

editors of this issue. This study was partially financed by the Conselho Nacional de

Desenvolvimento Científico e Tecnológico (CNPq), Grant Number 307310/2015-9.

887751LAPXXX10.1177/0094582X19887751Latin American PerspectivesMarquetti et al. / Origin of the Brazilian Crisis

research-article2019

116 LATIN AMERICAN PERSPECTIVES

profitability, but it had its contradictions. The financial sector’s profitability

required new areas of unrestrained valorization to convert one type of capital

asset into another. This movement resulted in financial innovations and specu-

lative bubbles in the developed and developing countries. Triggered by defaults

on subprime mortgage loans, the financial crisis of 2008 rapidly reached the

United States and the global financial system, with enormous consequences for

the productive sector. The 2008 crisis was the structural crisis of neoliberal cap-

italism.

The structural crisis and changes in the institutional framework of the world

economy are fundamental for analyzing Brazilian economic history. The inter-

national context produced the economic and ideological constraints and incen-

tives for the Brazilian economic models: developmentalism during the Golden

Age (1950–1980) and the neoliberal model (1990–2002). After 2003, during the

Partido dos Trabalhadores (Workers’ Party—PT) administration there was a

combination of the two models with a redistributive policy. The 2008 crisis had

negative effects on the Brazilian economy in terms of profit rate and economic

growth.

The 1980s crisis opened the way for institutional reforms that gradually

abandoned the import-substitution model. In 1990, the first year of Fernando

Collor’s presidency, while maintaining some institutions from developmental-

ism Brazil adopted the neoliberal model (Amann and Baer, 2002; Filgueiras,

2006). The renegotiation of the foreign debt made possible the accumulation of

the foreign reserves for implementing the Real Plan in 1994. The plan succeeded

in reducing inflation and electing Fernando Henrique Cardoso president.

Neoliberalism increased the flow of international capital and the volatility of

exchange rates. Following the path of financial crises in developing countries,

Brazil devaluated the real in early 1999, just after Cardoso’s reelection.

The authorities adopted an economic policy that combined inflation target-

ing, primary fiscal surplus, and a floating exchange rate based on a high inter-

est rate and therefore high profits for finance capital. Lula’s government

maintained this macroeconomic policy. The inefficacy of neoliberal economic

policies in promoting growth and employment played a role in the PT’s victory

in 2002. Another reason for Lula’s election was the organization of a class coali-

tion supported by different social sectors (Boito Jr. and Saad-Filho, 2016; Vianna,

2007). The candidate for vice president was José Alencar, the CEO of a large

textile manufacturing company, representing the industrial bourgeoisie. In the

“Letter to the Brazilian People” published in July 2002, Lula informed the

financial sectors that the future government would maintain some features of

neoliberal economic policy, in particular the high real interest rate (Silva, 2002).

The PT’s economic policy combined contradictory elements of developmental-

ist and neoliberal models. The favorable international environment, with

China’s soaring demand for commodities, the adoption of elements of the

developmentalist state, and measures for social inclusion, resulted in rising

economic growth and falling unemployment. Lula was reelected in 2006. Early

in the next year the Growth Acceleration Program, consisting of a set of public

and private investments under the coordination of Minister Dilma Rousseff,

was launched. The Brazilian state returned to intervene in the market with a

developmentalist policy.