Lena Lavinas is an economist and full professor at the Economics Institute of the Federal University of Rio de Janeiro. In 2017, she published the book Takeover of Social Policy by Financialization. The Brazilian paradox, (Palgrave Macmillan). Here, in a long conversation with Fábio Grotz, she analyzes the directions and effects of the Bolsonaro government’s economic policy.
What is the direction of the Bolsonaro government’s economic agenda?
It must be understood that there was no solid pattern of public policy before Bolsonaro’s victory. His victory represents a rejection of petism [Workers’ Partyism], dissatisfaction and frustration with four years of recession. If we look at 2015 to 2018, we see that Brazil had negative growth of 4.7 percent of its GDP. This is too much. There are more than 13 million unemployed and another 4,9 million who are discouraged: individuals who have given up looking for work. There are 16 million households where income from labor is zero. People do not earn anything and live either on retirement benefits, from family welfare program benefits, or from other income sources that aren’t labor-based.
So what has taken place is a massive loss of faith in a society that had been on a path of relative growth since the middle of the 2000s; a society where there had been a reduction in the levels of poverty, thanks to economic growth. There had also been a relative attenuation of our patterns of inequality. I say “relative” because, in that period, the 1 percent of the richest people in Brazil increased their share of the economic pie, maintaining a large concentration of income and wealth, which is today in financial assets whose real magnitude is difficult to estimate. In other words, it is not enough to look at the labor market and the income it generates to understand income concentration. But although the reduction of inequality could have been more expressive, Brazil was on a trajectory of improvement, which fell apart due to a number of factors: the impeachment of Dilma Rousseff, slowing economic growth, mistakes made by Dilma’s government in terms of economic policy, and the constant corruption scandals that, with the Lava-Jato operation, have paralyzed the country. The president Michel Temer era began with a project of deep labor market disruption, aggravating the economic and political crisis and imposing a 20-year ceiling on social spending, freezing it. This put into question social policy and the reduction of Brazilian inequalities.
I think, therefore, that there was a reaction from society, driven by an enormous degree of dissatisfaction. It manifested itself as a giant cry of “Enough!” and the forces organized around Bolsonaro knew how to galvanize this dissatisfaction. In this sense, then, we are not seeing a government that has arrived with a structured economic agenda, but a government that builds one gradually from the specific interests of those who head the Ministry of Economics. It is almost an individualized agenda, as are the alliances that the Minister is building. Before the elections, the government did not need to discuss its economic agenda or even its projects, because it did not have any. Bolsonaro himself did not participate in debates. He did not say what he was going to do, nor did he have to. And this was unheard of.
And what was there before? The impression that the state, through its social-development policy, had intervened excessively in the economy, controlling public banks, for example, and in particular the National Bank for Economic Development (BNDES). The performance of the BNDES is indispensable for the formulation and execution of industrial policy. But it favored certain sectors in detriment of others, generating friction. Another relevant dimension of state intervention, considered intolerable by the elites and the financial sector, was the increase in the minimum wage, with the wage floor increasing above inflation and productivity gains. This, in fact, promoted some degree of redistribution in Brazil. Thus everything that was associated with the state and past administrations was seen as a major intervention in the economy and something that should be the abolished.
Conservative sectors with their own agenda, frustrated by the way things were going, took the opportunity provided by this moment of revolt to take up the reins of the economy once again. The economy had already been in trouble and has now entered a pre-collapse stage (forecasts of growth are falling every month and 2019 is likely to see less growth than 2018, when Brazil’s GDP growth increased by 1.1 percent). This, in an economy that was already in recession and in frank de-industrialization. But it’s hard for them to get control of the steering wheel of a car drifting about aimlessly. So a combination of factors has made up the government’s ideological agenda, the pattern of morality, the guidelines for the recovery of the conservative values of society set against the public sphere and equality. This agenda relies on the mantra of “putting our house in order” and it is gaining strength because everything else is completely disjointed and disorganized. The Bolsonaro government has to show it’s doing something, somewhere, and it is responding to the situation by dismantling education, environmental policy, foreign policy and etc.
An economic agenda only began to coalesce after Bolsonaro’s electoral victory. It consists of a pattern that is made in day-to-day actions, popping up here and there, adding interests as it goes along. It is an agenda, therefore, created through improvisation, with daily adjustments. That said, it is clearly in favor of agribusiness, the financial sector, the capitalization of social security, and the lobbying of arms manufacturers. In fact, the arms industry is the only industry that seems to matter to this government (the Brazilian weapons manufacturer Taurus is one of the three leading manufacturers of small arms in the world). But the economy as a whole was pushed aside. Does anyone think of unemployment or growth, which are both correlated? Saying that pension reform will solve everything is like blatantly revealing that in addition to cutting spending, nothing else can work.
We can say that the main goal of the government’s economic agenda is the dismantling of the state and fully opening Brazil to private capital and financial interests?
Yes, without a doubt. Financial markets are, once again, what everyone is eyeing. These sectors seek to control and define the economic policy, reaching also into the sphere of social policy. Look at the issue of public higher education, where the government’s unwarranted attacks and threats have led to a significant and immediate increase in the value of the shares of large corporations in the sector (Kroton, Estácio). One of the goals of the country’s financial and elite sectors is to expand the financial frontier of the economy, notably in insurance (privatizing pension schemes, for example) and credit lines.
We may wonder what is, in fact, fundamental to such ultra-liberal sectors at this time. The mantra repeated ad nauseum by the president and his “superminister “of economy, is that in 2023-2024 there will be no way to make any further payments without the pension reform. They are terrified that the country will break. Whoever looks at the millions of unemployed and discouraged, the significant increase in the population of people living on the streets, can easily think that the apocalypse is near. Does anyone talk about industrial policy, or how to raise Brazil’s anemic productivity? What is the axis of the tax policy they are waving around with? What kind of tax reform do they want? We do not know: we only have contradictory information. For the time being, they continue to exempt agribusiness, pardoning the fines of those involved in environmental crimes and of parties that have not implemented the promise to apply part of the Electoral Fund to the promotion of gender equality in elections.
The same goes for Social Security, whose reform project was only now sent to a special committee in the Federal Chamber for its merits to be debated, but which contains many outstanding points, which can only be addressed by supplementary laws. Nothing is set in stone, except the clear goal of deconstructing all existing institutions, whether in the sphere of social protection and security, whether in plans for development financing, or whether in showing contempt for one of the biggest issues if international politics today: the environment. Everything is being devastated in a general chainsaw attack on the state and government.
The fact that there are no well-defined proposals and everything seems disorderly, disintegrating, does not constitute an embarrassment for this government. They are about destroying what exists, dismantling what is possible. What we see today is a policy of dismantling republican institutions, dismantling institutions that regulate the labor market, dismantling the social protection system, which is very dangerous and distressing. What will come after this clear-cutting? The government is not very worried about this, because as they dismantle and scorch the earth, the market takes its own way. The dispute will take place between market forces and things will happen with increasing concentration processes through mergers and acquisitions. I think we will have great difficulties in facing this future. These are structural changes that point to complete deregulation and indicate that public provision will be largely replaced by access to the financial sector, via credit, insurance, etc.
How does this translate into politics?
The federal government rules with its back towards parliament and society. Just look at the social networks. In this situation of severe economic crisis, fans propagate the idea that Bolsonaro is a myth and sustain a false discourse around the idea that they are fighting privileges, fighting corruption while repeating the argument that everyone invariably cheats. They say that there are people who are scam off the family welfare system and rural retirement and ask: “How is it be possible that people have rural retirement privileges and live in the cities? They cheated!” As if people cannot choose where they want to live once they retire, particularly considering the poor supply of the services needed by the elderly in rural areas.
It is threatening to see a government that does not see the economy as a means to guarantee dignity, employment, income, and in short, does not in the least signal how it intends to try to recover a trajectory of growth for Brazil. This is a government that has no focus, whose priority is dismantling. That’s what it’s there for, so there are no actual propositions being put forth. Bolsonaro prides himself on acting like a truculent, mediocre, petty individual. Everyone tolerates this unprepared figure, who is disqualified for the position he occupies and who ignites political debate and demonstrations in streets. Why this tolerance? Because his role is to raze everything to the ground. The central point is that this destructive characteristic of Bolsonaro is very useful for certain groups of the elite who, very worried about Social Security reform, saw in the candidate and see in the President (or at least claim to see) someone who could lead this project of destruction of the foundations of the society that was created in the era of redemocratization to move on to something else. It is not by chance that there is so much talk of deconstitutionalizing rights.
The centrality of the Social Security reform is notable on the national agenda. The reform is being treated as a panacea. Will it really solve all the problems in Brazil?
Yes, in fact, it’s being treated as if reforming the welfare system was the silver bullet. Instead of thinking about how to improve the social protection system, make it financially sustainable and fairer, the argument is that we live in a fiscal crisis without a solution, with a debt that increases uncontrollably. This is not true. But reform will not solve the problems of Brazil, which begins with high and persistent inequality, a latent and resilient structural heterogeneity, made more acute by the process of early deindustrialization in the midst of domination by great financial institutions, and by levels of exclusion which should be seen as intolerable.
In the heads of those preaching reform, who are committed to leveraging financial markets, the goal is to restrict the coverage the state provides in terms of income transfer to retirees and the poorest segments of the population, favoring a shifting in these demands for coverage to the financial sector. This will reduce spending while maintaining a highly regressive tax system – perhaps even more regressive. That’s what they want: the strengthening of the financial sector, which has grown in Brazil in recent years but has not been accompanied by a similar expansion of insurance and capitalization and pension funds. These have been short-changed. We already have open capitalization in Brazil today, but it is voluntary and complementary to the public system. The capitalization sector has grown since the 2000s (today it is more than 800 billion reais of net worth, compared to 20 billion in 2002) , but the idea is that if there is a complete dismantling of public retirement and social security as a whole, then this gap will be covered by new financial products in an ever-expanding market.
The central logic is that financial credit is there to meet basic needs and that this is not the state’s responsibility. It is a rentier logic: it puts interest-bearing capital at the center of the process of wealth accumulation in the country. It is a process of expropriation from the popular classes and from the population in general. That’s what the government has in mind. They are even gradually showing the content of their Social Security proposals because nothing has yet been closed and defined. The thing is being sewn together: they go fishing for proposals from economists that are pronounced here and there on the subject. It’s a patchwork quilt. They are thus assembling something that seems to have a certain consistency, but is, in fact, inconsistent. We do not have data that prove per se that a capitalization model must be passed. Why do we have to contribute to social security for 40 years? Why would a small rural producer, who does not have the capacity to contribute given the nature of his activity, not be able to receive a pension? What data was used to justify the government’s proposal to reduce isonomy?
What will happen in the future if the reform proposal, as proposed, is approved?
It is necessary to be clear that the big problem today is not the risk of the poorest losing the right to receive a pension consisting of a minimum wage. There are, in addition to the welfare reforms, a series of new rules that take away all rights, affecting those who depend on social security and work. The minimum wage will tend to decrease in real terms. Public social spending has been frozen for 20 years, established by constitutional amendment in 2016. If this does materialize, the public provision of goods and services will worsen, and therefore people will need more liquidity. For this, they will have to resort to the financial sector, taking out loans. It is a phenomenon that has been studied not only in Brazil but in other countries. It arises under various denominations as credit for welfare, assets-based welfare or the collateralization of social policy.
It is clear that the poorest will be greatly disadvantaged. But who will be most proportionately harmed? The middle class. The middle class is impoverishing in this country. They are in the eye of the hurricane and they do not realize it. The middle class will be the most affected by Social Security reform. The claims being made are that reform is needed to combat privilege. Well, the privileged will get along very well. They are all, as I have already pointed out, in the financial sector. Everyone is making money on the capital market, living off of rents. But the working and unemployed population will have to choose between making a capitalization plan or paying for their children’s schooling because there will be no improvement in public education, which is increasingly deteriorating. And wages will not cover new expenses such as health insurance (because the Public Health System will close due to underfunding) or private schools and universities, which will become the only alternatives in the face of the abandonment of quality public education.
People cannot afford private schools today. 75 percent of university students are in private colleges, mostly poor quality ones. They are in debt. People leave an expensive and bad university and can’t find jobs, or when they find them, their salary is below what they need to repay their loan and live. There is much talk about the impact of reform on the poor, farmers, and small farmers. In fact, they too will be hit. They will certainly be forsaken in their old age. But I believe that rural retirement and the Continuous Benefits Program will be negotiated to show “good faith” and will end up being spared. The dismantling of the public system will not be negotiated, however.
Already the middle class is being massacred and this will continue. If pension reform goes through and the compulsory capitalization regime is established, the hardest hit will be them. In 20 years, those who are 45 years old today will not have any retirement. They will not be able to pay health insurance and medicines, school credit for their child attending university and their individual retirement plan. Let’s not forget that the average monthly salary in Brazil today is approximately R$ 2,300 (US$ 520).
In relation to gender inequalities, what impacts will the reforms generate?
Economic theory shows that public single payer schemes, such as we have today, redistribute wealth from the young to the elderly because the active worker contributes and thus pays for the retirement of their elders. The other dimension of this redistribution within the public system is from men to women. Women tend to not contribute with the same regularity as men because they go in and out of the labor market more frequently, due of responsibilities in the domestic sphere such as motherhood, caring for children and elderly, for sick family members, etc. Their insertion in the labor market is thus still very precarious.
A welfare reform that dismantles social security and tends to equalize the retirement age of men and women, forces men and women to work harder and longer. If it is already difficult for women to contribute for 15 years, imagine how they will contribute for 40 years, uninterrupted! If you reach the age of 62 without having 40 years of contribution you will continue working: there will be no minimum age to apply for retirement. It’s bullshit. This reform tends to throw female workers into the lowest levels of the pension scheme, and that’s only if they manage to make 15 years of contributions, which is unlikely. But, looking beyond the social security system, the ceiling imposed by public spending is perhaps the most damaging because it drastically restricts the possibilities of reducing gender inequality in everyday life.
This because…?
Because public spending is what can replace women’s working time with quality. There is no full-time school, there are not enough daycare centers or full-time work. Note that there are a number of gaps in social provision – education is just one example – that tend to worsen in a scenario of budget constraints on investments. Who takes the sick to the clinics and hospitals? If public health care becomes so precarious, who will lose their time in trying to get care for their sick family members? Women. Now comes the nonsense with the Bolsonaro administration threatening universities with cuts under various pretexts, from the ideological (anti-Marxist) to the ridiculous claim that the money can be redirected to build daycare centers. This is a fallacy because those who have to build nursery schools are not the federal government, but the municipal governments. But the point here is that there will also not be money for nurseries and daycare center. Even when the country was growing, there was no money for that.
I would also like to draw attention to an aspect that is not exactly economical, but which speaks volumes about the horrors of this government in the area of gender relations. The anti-crime law minister Sergio Moro has put back into public play the legal argument that intense emotion (a common element in femicide) justifies unlawfulness. The government has already made gun ownership easier and has increased the size and potency of legal weaponry, including highly lethal weapons. We have already seen high rates of femicide in a scenario where the arms trade is illegal, so what can we expect from this combination of the enlargement of the legalized gun market and the return to the reckless idea that one is authorized to kill in situations of high emotion? It is a very dramatic situation.
We must not forget that the President of the Republic has already expressed his support for rape and torture on other occasions, as well as not being embarrassed to publicly and repeatedly disparage the image of women in general. It is a barbaric thing: a level of disrespect and brutal violence that goes beyond anything we’ve recently seen. We live a gloomy moment when women are at the center of a conservative neoliberal offensive. Women, and all that they represent as a reaction, their conquest of individuality and autonomy and their capacity for struggle outside the frameworks of our corrupted, decrepit political party sphere.
What is your prognosis for the near future?
What is so serious is that society is completely anesthetized. People do not understand the gravity of what is at stake. They do not understand that there will no longer be public welfare, that you cannot know what your benefit will be 30 years from now if they are in a capitalization fund. It is enough to remember what happened after the great financial crisis of 2008 in many countries, where social security benefits lost 25 percent of their real value and many people stopped retiring, even though they had reached the minimum age and continued contributing to social security.
On the other hand, I think that there will come a time when some of those who support this government and who help it obtain some of its goals, such as the pension reform (however it turns out) and the deconstitutionalization of rights, will be caught in its collapse, which is imminent. They will then seek to set up a government capable of giving direction to what will remain ungovernable. I am certain that this will happen. Even if only because those who surround Bolsonaro today are interested in making money. They need to dismantle what exists to make market and financial logics gain in density and to eliminate obstacles that have hampered their even greater expansion.
But once these objectives are achieved they will no longer have any reason to continue supporting a mediocre government, whose indigent and bigoted rhetoric shames. A government in which the president cannot even organize a dinner in his honor in New York. It’s humiliating. The whole world is worried about Brazil. Lucky, the world knows that the Brazilian people are not made of the same essence as those who today govern the country.
Translation: Taddheus Blanchette
Image: Maurice Weiss/Ostkreuz