Just as Brazil-Russia-India-China-South Africa (BRICS) heads of state prepared to meet in Brasilia on November 13-14, hosted by Jair Bolsonaro, a double political earthquake hit: Lula’s freedom from prison on November 8, followed by a coup against Bolivian president Evo Morales on November 11.
Lula was central to BRICS’ establishment a decade ago. Details about the profound injustices and indignities suffered by Brazil’s 2003-10 president – who was jailed in April 2018 on (illegitimate, frame-up) corruption charges – and the potential for a Workers Party (PT) resurgence can reliably be found (in the English language) at Brasilwire. The situation remains fluid because the 74 year-old former president has more trials pending and is technically not allowed to return to politics due to his earlier bogus conviction, but appeals are underway.
Regardless of how lawfare plays out, Lula has created socio-political-economic schizophrenia: what Brazilian journalist Pepe Escobar describes as the contrast between social democracy and neo-fascism. More power to Lula and a resurgent Brazilian left – with all due caution about whether the balance of forces justify such hopefulness based upon the fate of a single politician, no matter how superlative his skills.
Certainly when, in early 1989, I interviewed him on the U.S. Pacifica radio network, his answer to my question was stunning: “You just came from the Brazilian-American Chamber of Commerce, so what did you tell them?”
Lula: “If they don’t give up their rings, we’ll chop off their fingers.”
But that radical Lula changed dramatically in the period since, after repeated runs for the presidency. His political agenda moderated and his hunt for allies among a supposedly patriotic bourgeoisie quickened, especially during the 2002-11 commodity super-cycle. But he also doubled the minimum wage and, with rising cash transfers to the masses, he cut sharply into Brazil’s notorious inequality. He left office with the world’s highest presidential approval polling: 80 percent.
Scenarios of fear and fantasy
Lula’s release leaves capitalists annoyed and nervous. Immediately after his release, wrote a Forbes correspondent, “Brazil was the worst performing emerging market thanks to that Supreme Court ruling. The Brazilian real weakened to its lowest level since September 14, 2018, hitting R$4.17 to the dollar. Wall Street may be right to view Lula as a has-been, with little ability to rabble rouse beyond his traditional union-base, a base that saw many vote Bolsonaro in 2018. However, no one should doubt Lula’s connections within the left-wing activist movements of South America like Grupo de Puebla and their ability to agitate against the right-leaning governments.”
Here’s the frightened Forbes correspondent’s scenario: “Lula gains some surprising traction and manages to get people out into the streets waving their red PT and Communist Party flags. Bank windows are smashed. Brazil’s stock market crashes by a good 10,000 points, and the Brazilian real goes to R$4.25 to the dollar in a heartbeat.”
From a different direction, Escobar expresses the hope that at least two of the other BRICS visitors, Vladimir Putin and Xi Jinping, will stage a secret meeting: “Putin and Xi are Lula’s real top allies on the global stage. They have been literally waiting for Lula, as diplomats have confirmed to me over and over again.”
Wishful thinking, this nevertheless requires a follow-up question: what legacies from Lula’s rule – and perhaps revival – can we derive for fighting neoliberal hegemony at this critical moment in history, just in advance of another world economic meltdown?
And as for the BRICS, a further controversy was articulated by Landless Workers Movement leader João Pedro Stedile in Brasil de Fato: “We fear that their agenda will only be commercial agreements and financial articulation of projects to be financed by the BRICS New Development Bank. The BRICS are a proposal for regional articulation aimed precisely at denouncing US imperialism for economic domination, the dollar and the manipulation of other international organizations such as the International Monetary Fund, World Bank and World Trade Organisation.”
Is that true, or to the contrary, aren’t BRICS repeatedly relegitimising these institutions? (This is the premise of a new co-edited book, BRICS and Resistance in Africa, just published by Zed Books.)
These disputes – both historical and contemporary – are worth more reflection, no matter the immediate distractions created by Lula’s current vitally-needed return to Brazilian politics.
‘God was Brazilian’ (at least in 2006-10)
My last visit to Brazil, in December 2018, allowed a chance to debate with a centrist supporter of Lula, former finance minister Luiz Carlos Bresser-Pereira. Certainly not a PT supporter at first, he then not only came around to strongly endorse Lula’s political economy, but worked it into his own theory: ‘New Developmentalism.’
In the second Lula administration (2006-10), said Bresser-Pereira, “God was Brazilian.” Thanks to the commodity super-cycle and his Programa de Aceleração do Crescimento, Lula “did not bring inflation nor adversely affect growth,” Bresser-Pereira recalled. The PT “did not fear to displease the rich,” but nevertheless “was fiscally responsible” and “reacted well to the 2008 global financial crisis,” in part by “lowering the real interest rate by nearly half” and imposing “controls over capital inflow.”
Lula as leader, gushed Bresser-Pereira in a 2011 article, “remembered that there is such a thing as the entrepreneur and the national enterprise, or, in other words, that there is a nation, whose strength and ability to compete with the other nations will depend on the clarity and cohesiveness of the political coalition between entrepreneurs, public bureaucracy and workers.”
The Bolsonaro regime has since destroyed any such ‘nation,’ and is correctly accused of returning Brazil to a stooping stance, especially in relation to Washington, so is best termed ‘sub-imperialist’ (as Brazilian dependencia theorist Ruy Mauro Marini described the posture a half-century ago). Thanks partly to Donald Trump’s rise, extraordinary geopolitical problems are unfolding across the world, and Lula’s grasp of these, during a long interview with Escobar two months ago, reveals his unequaled seniority and confidence.
But there are longer-term lessons of Lula’s era to contemplate. Was his social-democratic but also quasi-neoliberal ideology a genuine alternative for global progressives to ponder now, as much as we (naively) did, for example in South Africa, during the so-called ‘Lula Moment’? As Escobar put it this week, “At least now the die is cast – and crystal clear: It’s social democracy against neo-fascism. Socially inclusive programs, civil society involved in setting public policy, the fight for equality versus autocracy, state institutions linked to militias, racism and hate against all minorities.”
Brazil’s New Developmentalism against Washington’s imperial under-developmentalism
The tri-continental wave of anti-austerity protests over the last two months must chill the spine of neoliberal ideologues. The IMF and World Bank turned 75 years old this year, long past a reasonable retirement age. For the sake of global financial management, most reformers’ hopes rest in changing the character of the Bretton Woods Institutions, including the nationality of their leadership, their loan conditionality, the character of bailouts, and Third World countries’ ‘voice’ and voting power.
As part of that process, the BRICS network was expected to support a more balanced, ‘polyarchic’ division of international financial power and responsibility, thanks to the large emerging-market surpluses and what some see as a developmental ideology. To that end, in 2014, the New Development Bank (NDB) and Contingent Reserve Arrangement (CRA) were born at the BRICS’ Fortaleza summit, hosted by Lula’s successor Dilma Rousseff.
Frustrations had mounted about multilateral financial institutions responsible for both balance-of-payments support (the IMF) and project finance (the World Bank and its regional cousins). The hopes of New Developmentalism spreading globally included the supply of credit for both macro- and micro-economic strategies similar to the strategy adopted by Brasilia’s PT government, and the CRA and NDB were considered vital pilot projects.
However, five years later, as Brazil again hosts the BRICS leaders, these hopes have been dashed – a problem that dates to well before Bolsonaro came to power. In retrospect, today, the BRICS’ efforts to reform and relegitimize the Bretton Woods Institutions appear not only fruitless but dangerous.
Instead, a different, more ambitious approach consistent with an older philosophy, the dependencia critique, is now much more appropriate, even if it’s obvious that the adverse balance of forces within the BRICS, makes this extremely unlikely in the foreseeable future.
Do the BRICS and the West struggle, or snuggle?
By the time of the 2014 Fortaleza summit, the New Developmentalism identified by Bresser-Pereira was fraying, as Dilma faced mass protests. But the logic was nevertheless compelling to reformers: much more active management of international economic relations, including financial and monetary matters, drawn in part from Brazil’s successful strategy during the late 1990s and 2000s.
One critical aspect was the sense of not only the BRICS’ ascendance, but the decline of Western power and legitimacy, which in turn was reflected in how the Bretton Woods Institutions imposed conditionality-heavy credits and reproduced leadership unfairly: always a U.S. citizen leading the Bank, and a European heading the IMF.
Partly for that reason, and partly because of a gap in the sustainability financing marketplace, the BRICS’ strategy for global financial reform was identified with two former World Bank chief economists – Joseph Stiglitz and Nicolas Stern – who wrote the original concept paper for what became the BRICS New Development Bank (NDB) in 2011.
This supposedly new approach was possible, Bresser-Pereira explained in a 2018 technical paper, because the World Bank fell “into an identity crisis when, in the early 1980s, the American government constrained it to change from a developmental multilateral bank whose policies were oriented by development economics to be the agency charged with making the neoliberal reforms to advance in the developing countries – to change their economic policy regimes from developmental to liberal.”
What might replace them? The NDB has a notional capitalization of an impressive $50 billion (though only $10 billion is, by 2021, required from BRICS taxpayers as paid-in capital, equally divided among the five members). The CRA’s capitalization is $100 billion, consisting of countries’ foreign currency reserves which are dedicated to on-lending in the case of a member’s balance-of-payments emergency.
Reflecting power relations within the BRICS, both new institutions have vital Chinese influences, not least in Shanghai’s headquarters role for the NDB, and Beijing’s outsized 41 percent financial contribution to the CRA, followed by Brazil, Russia and India with 18 percent of the shares each, and South Africa with 10 percent.
But Western-oriented banksters are thick on the ground within the NDB. For example, the president K.V. Kamath had earlier privatized India’s main state industrial bank. The South African chosen as Vice President, Leslie Maasdorp, previously worked at Goldman Sachs, Barclays and Bank of America – as well as leading Pretoria’s internal privatization office. From July 2015 through August 2017, the South African non-executive director serving the NDB was Tito Mboweni, then based at Goldman Sachs, and also a former Reserve Bank governor (and from October 2018, South Africa’s finance minister) best remembered for maintaining extremely high interest rates during his 1999-2009 tenure.
Such orthodoxy is important at a time the West’s self-interested financial agenda parallels its utterly chaotic, self-destructive roles in other vital areas, e.g. global climate governance, geopolitics and macro-economic management. The suicidal tendencies only intensified under Trump’s influence. Yet he was offered the uncontested appointment of David Malpass as World Bank president in early 2019, which confirmed the West’s durable power to not only manage multilateral finance and its institutions (including leadership), but also set the agenda for an era of increased West-BRICS conflict, given Malpass’ well-known hostility to China.
Or perhaps not, since Malpass has backed away from his earlier Sinophobia. According to the Bank’s former China director, Yukon Huang, “China is doing the World Bank a favor by borrowing, because people realize it’s not going to default on those loans.” He does not expect Malpass to make major changes in relation to China during an era of economic turmoil, because “America always goes for a solution which strengthens the global financial system, because that’s America’s strength. The global financial system is essentially America’s financial system.” And bizarrely, for now, that suits Beijing.
The power and arrogance of the Malpass appointment is not surprising. As another example of Western malevolence within global financial management, former World Bank chief economist Nicholas Stern bragged to a 2013 London conference that he co-instigated the very idea of a BRICS Bank, for reasons that had nothing to do with alleged sustainability and climate financing (as claimed by Stern and Stiglitz in their 2011 NDB paper). Instead, he desired an institutional lock-in between business deal-makers and a dependable cohort of BRICS national officials who would respect their states’ contracts with such corporations.
Stern specifically sought ways to avoid policies that adversely affected those corporations: “If you have a development bank that is part of a [major business] deal then it makes it more difficult for governments to be unreliable… What you had was the presence of the European Bank for Reconstruction and Development (EBRD) reducing the potential for government-induced policy risk, and the presence of the EBRD in the deal making the government of the host country more confident about accepting that investment. And that is why Meles Zenawi, Joe Stiglitz and myself, nearly three years ago now, started the idea. And are there any press here, by the way? Ok, so this bit’s off the record” (Stern 2013). (Actually, it’s on record, on youtube.)
As for the $100 billion CRA fund, it may one day become relevant in the event of financial meltdowns and contagion similar to 1998 and 2008, especially in South Africa. But at that stage, the IMF is likely to be even more important, if repayment of Pretoria’s now-unprecedented $180 billion foreign debt is in question. After South Africa borrows its first $3 billion from the CRA, its rules require that before the next $7 billion is released, the IMF must implement structural adjustment on the borrower.
These and many other features represent the South-North snuggle, not struggle. The BRICS have retained a certain credibility as ‘middle power’ accompaniments to multilateralism.
However, with Bolsonaro’s new rightwing agenda coming into focus (including his appointment of the next BRICS NDB president), the situation is unpredictable. His ultra-neoliberal finance minister Paulo Guedes was named NDB chair at the April 2019 Annual General Meeting in Cape Town, at a time Guedes’ own role in pension-related corruption was becoming more explicit.
But macroeconomic trends will likely be decisive, and here – just as in the institutional arena that Stern (2013) explained – it again appears that the BRICS are no alternative, but instead an amplifier, of contradictions created within Western-centric capitalism (Bond and Garcia 2015). In that context, not only is New Developmentalism no antidote to these trends, it is revealing to consider the broader lessons of Lula’s rule.
Difficult developmentalism and the elusive ‘Lula Moment’
The 2014 Fortaleza founding of the NDB raised expectations that the BRICS could generate an exciting new potential: to break the grip on multilateral financial governance by the neoliberal Bretton Woods Institutions, whose conditionality-riddled credit control grew after the 2008 financial crisis. The Western-backed banks came to rule not just impoverished but also emerging economies (e.g., Argentina recently) – just as in the 1980s – and even a few wealthier countries (Portugal, Ireland, Greece and Spain) that recently fell into crisis.
Brazil’s New Developmentalism, in contrast, consisted of rising levels of social inclusion and lower inequality, coinciding with successful export orientation. The New Developmentalism’s promotion of manufactured exports is closely associated with four macro-economic, monetary and fiscal policy factors:
+ falling exchange rates, given the bias is to undervalue the local currency and thus keep relative wage rates low;
+ a shrinking state deficit on current (not capital) spending so as to avoid crowding out financing for private sector investment;
+ a commitment to establishing new infrastructure; and
+ a relatively low real interest rate.
In South Africa and a few other emerging-market countries, these ideals motivated debates over needed policy shifts, especially where the early 2000s boom provided sufficient macro-economic space to attempt aspects of New Developmentalism.
In Johannesburg phraseology, during the height of Worker Party power in 2013-14, the desire for a ‘Lula Moment’ was expressed by leading centre-left policy academics and trade unionists from South Africa and Brazil alike, led by the Communist Party’s Chris Hani Institute. To be sure, Lula Moment advocacy also attracted criticism, especially insofar as it was a strategy encumbered by unsustainable ‘corporatist’ philosophical underpinnings. Comparing Brazil with South Africa’s potential, scholar-activist Ben Fogel complained, Lula “failed to build a new political culture through constitutional and political reforms or by tackling an institutionally hostile media” and instead, made “alliances with corrupt and reactionary regional power brokers, embracing Brazil’s traditional patronage political culture to gain institutional power at the expense of trade union and social movement allies.”
The South African debate coincided with the expulsion of the largest trade union – the 350,000-member National Union of Metalworkers of South Africa (Numsa) – from the country’s main union federation because it was too leftwing. So the contrast was with a potential ‘Numsa moment’ that would have much more radically changed ownership of the economy’s commanding heights.
In 2014, Brazilian political economist Alfredo Saad-Filho argued that contextual differences between the two countries require more nuance in analysis: “The attempt to build a ‘Numsa moment’ in South Africa will face much greater difficulties than those that confronted the PT and trade unions (CUT) in Brazil, back in the early 1980s. South Africa has already gone through the transitions to democracy and to neoliberalism, while the PT and CUT emerged before these two transitions. Political democracy and neoliberalism have had very adverse implications for the composition, organic unity and capacity of mobilization of the working class almost everywhere. So the challenge is now greater, but the working class movement and the left in South Africa are also much stronger than they ever were in Brazil. The point, then, is to build a political left with working class hegemony, rather than under the intellectual leadership of sections of the middle class, or the economic hegemony of the domestic bourgeoisie, as was the case in the ‘Lula Moment’ in Brazil.”
However, regardless of whether South Africa should have pursued this approach, especially in macro-economic terms, by the mid-2010s there was little left to hope for, in either country. South Africa suffered a kleptocracy from 2009-18 under Jacob Zuma’s leadership, combining talk-left populist-developmentalist rhetoric with walk-right neoliberalism and prolific corruption.
Ironically, in Brazil, the 2013 turn to neoliberalism by Lula’s successor, Rousseff, meant the domestic bourgeoisie’s support for the PT evaporated, once the 2013-16 protests damaged her legitimacy and lowered public approval to single digits. The dissent was originally catalysed by leftists furious with public transport price rises. But progressive activism was soon smothered by wealthy right-wing elements which by mid-2016 resulted in a parliamentary coup against Rousseff by her right-wing vice-president Michael Temer and his sleazy congressional allies.
It was evident by the peak of the commodity super-cycle in 2011 that the era of globalization and rising commodity prices could only deliver so much to Brazil. While in the 1998-2004 period, mostly under Fernando Henrique Cardoso’s centrist rule, Brazil drove its trade/GDP ratio from 15 up to 30 percent, this measure of integration subsequently fell to 24 percent by 2017. (The rest of the BRICS countries’ trade/GDP ratios also dropped markedly, after peaking during the 2000-08 period, falling even further than the world’s drop, from 61 to 56 percent.)
Globalization is now deteriorating further, what with Trump’s U.S. protectionism. The World Trade Organization (2019) recorded dramatic declines in the 2018 WTO Index of trade, including a fall in that index of 6.3 percent (year-on-year from December 2017), as well as -7.9 percent on export orders, and double digit crashes in demand for automobiles (-10.3 percent) and electronics (-12.9 percent).
The Workers Party era gave Brazil relatively more inclusive and (briefly) rising export-led growth, which follow Bresser-Pereira’s New Developmentalism framing. But this was not the only Latin American country offering lessons for development. In addition, there were successful – and far more radical – approaches to global-national-local interfaces especially in relation to finance.
Currency-conscious finance
Radical alternatives included default on Odious Debts (e.g. by Ecuador in 2009, thanks to Norway’s confession that shipping loans were corrupt) and tighter exchange controls to halt illicit financial flows (e.g. Venezuela in 2003). There was also the (stillborn) proposal for a Bank of the South by Hugo Chavez that would have injected a strong developmental and environmental agenda into South-South cooperation. All these radical strategies emerged with one overarching concern: acute consciousness of how foreign indebtedness would derail developmental ambitions, as Latin Americans and all other Third World countries recalled from the 1980s-90s era.
Last year, Bresser-Pereira remarked on one of the most crucial features of new, alternative financing strategies, which is to match assets to liabilities when it comes to the currency in which lending occurs: “The NDB, the bank governed by BRICS countries, spelt out the proposal to follow this line of action. Some multilateral banks, particularly the Asian Development Bank, the International Finance Corporation and even the World Bank are already lending in local currency. Why? Would it be the new concern with currency mismatches and the development of local capital markets?… the Multilateral Banks are turning to domestic currencies because their customers are most of the time private companies that resist to take loans in hard currency to avoid foreign exchange risks.”
He continued, “Second, because after the Asian 1997 financial crisis, many countries, particularly the Asian countries, realized the financial crisis risk involved in getting indebted into foreign money and began to accumulate large international reserves. Third, because, after the disastrous attempt to grow with foreign indebtedness (foreign savings) that the Washington Consensus proposed from the early 1990s (just after the major 1980s’ foreign debt crisis was overcome), the governments of the developing countries went back to the policy of keeping the current account balanced or with a surplus, as China has been doing for long.”
But the vision of Bresser-Pereira was never realized through the NDB. One leading Asian advocate of the developmental state, Jomo KS, was wistful when recently asked about the NDB: “I wish the new multilateral development banks would be bolder, but thus far, they have largely chosen to work within the dominant framework shaped by the Washington Consensus, probably to secure market confidence.”
Genuine development?
None of this would have surprised seasoned observers of the divergence between BRICS elites and the needs of their societies and environment. As Delhi-based political economist Prabhat Patnaik predicted in 2014, “The question of the BRICS Bank cannot be analyzed without reference to the big bourgeoisie of the BRICS countries, as the commentators have almost universally done. In other words the class nature of these regimes has a crucial bearing on the direction that the BRICS Bank will take: whether the BRICS Bank and the CRA will become mere replicas of the World Bank and the IMF with some delegation of authority from the “top” to the BRICS powers, or whether they will expand the elbow room of the countries of the South.”
Patnaik continued, “Several BRICS countries in short had connived with the US-led imperialist bloc to sabotage a proposal to bring countries of the South to the forefront of “global economic governance”, and had even resuscitated a near-defunct IMF for this purpose. To imagine that the same countries are now going to stand with the South, through the BRICS Bank, to loosen the hold of imperialism, is utterly fanciful.”
Assuming the BRICS and global elites can one day be dislodged, is a different philosophical approach possible? John Maynard Keynes offered one of the most generous of formulas: “I sympathize with those who would minimize, rather than with those who would maximize, economic entanglement among nations. Ideas, knowledge, science, hospitality, travel – these are the things which should of their nature be international. But let goods be homespun whenever it is reasonably and conveniently possible and, above all, let finance be primarily national.”
That approach implies an older form of developmentalism, one that applies tight exchange controls, that balances an economy’s various sectors through import-substitution industrialization, that therefore has a great chance to meet society’s basic needs in an environmentally-conscious way, and that welcomes skilled and unskilled labor to its shores.
None of the BRICS are following this strategy at present, but at some stage in future, their countries’ progressive politicians will recognize the need to move in a genuinely developmentalist direction. The reactionary, failing characteristics of the BRICS global financial governance reform agenda and institutions will then fade into history, where they belong.
