Under the two Lula governments between 2003 and 2011, the average annual growth of Brazil’s GDP was 4.5%, the highest since the economic miracle years of the 1960s and 1970s. The minimum wage rose 5% a year, unemployment plummeted, the underground economy too, and some 40 million people were lifted out of poverty.
The Lula 1 and 2 governments squared many circles. The incorporation of millions of low-income families into the market for basic products, from televisions to refrigerators and motorcycles, generated a virtuous cycle that boosted economic growth. Although the contribution of wages to the Brazilian GDP rose from 40 to 45%, private investment grew by more than 12% per year. Public spending was up 5% a year, but federal government debt fell to a record low of less than 50% of GDP.
This synergistic relationship between public and private investment and between income redistribution and economic growth made Brazil the most cited Latin American model of the new post-neoliberal heterodoxy. Dilma Rousseff, who replaced Lula as president in 2011, spoke of a Rooseveltian project. But Brazil was more reminiscent of Western postwar success. “Equal growth in Europe and the US after World War II is often known as the golden age,†said Ricardo Summa, an economist at the Federal University of Rio de Janeiro. “With Lula it was a golden era too, but very brief.”
Why so short? Some economists attribute the collapse of the model in 2015 – the beginning of a long economic stagnation that lasts until today in Brazil – to the end of the so-called raw materials supercycle, which had inflated the prices of commodities such as oil, soybeans and iron. . Hence a greater desire in the current Lula 3 program to reduce dependence on the agro-industrial sector –the most dynamic in the economy– and reverse de-industrialization after a drop in industrial production from 36% to 11% of GDP since 1985.
There is some indication that Lula intends to repeat Rousseff’s effort to ally himself with the powerful Sao Paulo Industrial Federation (Fiesp) against, in theory, the banks and large agricultural producers. Lula also wants to take advantage of the new bloc of left-wing governments – from Bogotá to Buenos Aires – to rebuild regional markets for manufacturing exports. The relaunch of the Unasur South American integration project has just been announced.
But for other economists, the collapse of the growth model of the first Lula governments has little to do with dependence on raw materials. This is a classic example of the distribution conflict – as conceptualized by the Keynesian economist between the wars Michal Kalecki. The conflict occurs when business elites join forces to reverse labor and social gains, even though these have been necessary to guarantee growth without a demand crisis.
In the Brazilian case, there was no investment strike, as in the classic example of the Polish Kalecki, but strong political, legal and media pressure was exerted that forced the Rousseff government to commit a kind of harakiri: counterproductive policies of austerity and a cut draconian of public investment.
The counterattack counted on “part of the middle class furious about the increases in the cost of services such as domestic employment,” explains Summa. Hence the mega-demonstrations in Rio and Sao Paulo starting in 2013 that demanded – and achieved – the imprisonment of Lula and the dismissal of Rousseff.
To make matters worse for developers confident in the support of industrial capital for the PT project, a huge inflatable duck became the icon of the demonstrations. It was Fiesp’s gift to the protest movement.
