Brazilian Left Bonapartism and the Rise of Finance Capital

Boito and Saad-Filho interpret the rise and fall of the power bloc that has sustained Brazil’s PT governments in the tradition of Poulantzas’s work on classes, class struggle, and the state. They consider the Brazilian state to be the main arena in which classes manifest their interests and power to influence economic outcomes. As did Poulantzas, they fall into the trap of structural determinism, in which collective choices and actions are derived mechanistically from fixed social spaces. I disagree with their thesis that the PT administrations represented an internal-bourgeoisie power bloc in an alliance with the middle classes and the popular masses and instead describe those administrations, especially under Lula, as left Bonapartist. The federal government under them exhibited greater autonomy from the bourgeoisie because of positive economic indicators such as a large trade surplus through commodities exports, the expansion of incoming foreign direct investment, and the capitalization of state-controlled pension funds. The increasing fiscal efficiency of the state led the government to amass unprecedented financial power. Further, that autonomy was translated into instrumental policies directed personally by Lula to bestow public funds on two types of business groups: companies that were close to the national developmentalist governments of the 1950s and conglomerates founded by self-made capitalists from working-class and lower-middle-class backgrounds. The development strategy sought to transform national companies into global actors by financing foreign acquisitions in the belief that their technology and productivity would trickle down to Brazilian industry and project a positive image of Brazil as a progressive capitalist model that reconciled economic growth with social equity. However, once these Brazilian companies acquired global standing, they abandoned the Brazilian market, provoking a decline in capital accumulation and eventually a fiscal crisis. Finance capital, represented by Brazil’s largest private banks, was slowly consolidated as the hegemonic fraction of the Brazilian bourgeoisie.

Boito and Saad-Filho’s argument may be summarized as follows:

I have two questions that Boito and Saad-Filho do not answer. First, why did the PT, a working-class party that arose out of unions and rural and urban social movements, place the interests of the internal bourgeoisie at the heart of its policies? Second, why does their definition of “internal bourgeoisie” diverge from the one introduced by Poulantzas (2008 [1973]) to describe European corporate capitalism after World War II?

For Poulantzas the internationalization of capital, a natural outcome of monopoly capitalism, dissolved the national bourgeoisie. Weakened by the war and dwarfed by the American corporation, the European national bourgeoisie renounced its antagonism to foreign capital and negotiated its expansion in the domestic market in exchange for certain economic advantages, such as joint investments, mergers, acquisitions, and corporate alliances. Once international capital became a key actor in the domestic market, its interests were included in the apparatuses of the state to the detriment of the working class (Poulantzas, 2008 [1974]). In the Brazilian case, Poulantzas’s “internal bourgeoisie” would be equivalent to Cardoso and Faletto’s (1979 [1969]) “associated bourgeoisie,” consisting of companies that include multinational production chains. Although these groups are the most dynamic and modern of Brazil’s corporations, they depend on imported technology and decision making by holding companies.

Boito and Saad-Filho’s application of Poulantzas has led them to reintroduce the Instituto Superior de Estudos Brasileiros thesis of national capitalism led by a virtuous “national” bourgeoisie allied with the progressive urban middle classes, organized labor, and the masses in opposition to the “comprador” bourgeoisie and its external imperialist allies (Chilcote, 2014). Although they speak of a pragmatic détente between the two fractions, they still identify two distinct leading classes, power blocs, and political forces representing the crossroads between progress and reaction.

Their difficulty with the internal-bourgeoisie category is compounded by another lacuna that Poulantzas himself faced with regard to the nature of the state in capitalism. Following orthodox Marxism, he argued that the transition from competitive to monopoly capitalism reduced the relative autonomy of the state. In other words, capitalist development went hand in hand with the increasing subordination of the state to the interests of the dominant classes. The ease with which the welfare state was rolled back in the face of token resistance from the unions and the middle classes was Poulantzas’s (2008 [1976]) justification for the state’s increasing submission to capital. Similarly, Boito and Saad-Filho have reduced the class composition of the Brazilian state since redemocratization to two power blocs led by two distinct fractions of the bourgeoisie, with all the other classes acting as coadjutants.

This scheme has three flaws: (1) The multiplication of class fractions and strata within the state took decades of democratic struggles for citizenship. Any realignment from a multipolar to a unipolar power distribution that could endanger rights will face broad resistance. (2) The inclusion of international capital in the state will likely exacerbate rather than mitigate distributive conflicts. (3) Bureaucratic rationalization of public administration creates a social stratum of white-collar workers and managers that may not be politically subordinated to the bourgeoisie and, indeed, may form a common collective identity opposed to business. In sum, the political mobilization of the working class, greater rationalization of public administration, the institutionalization of citizenship rights, and the increase in the number of bourgeois fractions within the state will likely increase potential conflicts, allowing the state more autonomy from the bourgeoisie. This does not necessarily mean a rupture with the mode of production, but it requires political decisions to become more cognizant of economic realities and possibilities for change. Concretely, the state becomes active in reinforcing the economic, political, and cultural stability of capitalism without being submissive to any particular fraction of the bourgeoisie. In periods of economic downturn and fiscal crisis, governments appease the stronger bourgeois fraction but act to limit its dominance of the mode of production. In periods of economic growth and fiscal health, when governments become highly capitalized, they promote economic interests in line with their ideologies and political programs, and the political elites that occupy the executive branch of government can affect the direction of capitalism.

The relative autonomy of the Brazilian state has its own particular features. First, the Brazilian political system is highly centralized in the executive branch and in the presidency in particular. The executive rules through a web of alliances with local and state politicians and legislatures, the so-called coalition presidentialism. Alliances depend both on the command of a large pool of public funds extracted through a rationalized public administration and on appointments to key federal jobs. Secondly, because capitalist development in Brazil was marred by chronic instability, none of the bourgeois fractions was able to establish hegemony. In other words, coalition presidentialism secured a stable political arrangement that used public funds to determine the leadership of the bourgeoisie. Meanwhile, a relatively weak bourgeoisie, either associated with multinationals or dependent on state financing, was unable to influence politics.

This paradox encouraged a tendency to select charismatic political leadership that combined highly subjective economic and social policies with political objectivity to sustain political coalitions. By and large, the president’s personal, political, and ideological links with specific business groups could potentially determine the leadership of the bourgeoisie and significantly influence the direction of the capitalist mode of production. In exchange for governmental financial support, businesses channeled part of their funds to political campaigns.

For Boito and Saad-Filho, the interests of the internationalized fraction dominated the Collor and Cardoso governments. However, the fact is that in times of economic downturn and severe fiscal crisis both administrations practiced defensive relative autonomy rather than outright submission to international capital. For example, the Collor administration used Brazilian Development Bank funds to block foreign bids for Siderbrás in favor of the Brazilian Gerdau. The Cardoso administration used Brazilian Development Bank and state-controlled pension funds to finance local groups and demarcate economic spaces accessible to multinationals. Vicunha received public financing to purchase the strategic Companhia Vale do Rio Doce, Opportunity Bank had the support of Previ (the Brazilian Bank pension fund) to acquire Brasil Telecom, and LaFonte-Andrade Gutierrez received a significant injection of capital from BNDESPAR (Abu-El-Haj, 2007).

Lula and Dilma faced different economic realities. Economic prosperity and fiscal expansion of the state during Lula’s administrations allowed it greater freedom to support specific economic groups in line with its policies and ideology. What seems to Boito and Saad-Filho to have been a government sustained by an internal-bourgeois power bloc may have been the reflection of the political choices of a highly capitalized presidency sustained by abundant public funds and led by a charismatic leader who saw himself as the champion of social mobility. I have called this government left Bonapartism. Its economic development strategy promoted popular consumption and bestowed hefty subsidies through the Brazilian Development Bank, state-controlled pension funds, and Petrobrás on two types of capitalists: entrepreneurs with their roots in 1950s national developmentalism (Eike Batista, Sergio Andrade, Carlos Jereissati, and others) and self-made workers and lower-middle-class entrepreneurs who had climbed the ladder of fortune and built economic empires (José de Alencar, Jose Batista Sobrinho, and others).

To understand what happened in Brazil under Lula, three issues must be addressed: What were the sources of economic prosperity? How did the Brazilian state suddenly acquire fiscal health? Did the public funds used to support the multinational strategy produce the desired effects on general performance? Answering those questions may tell us whether the internal-bourgeoisie category has any validity.

The financial crisis of 2008 led to three fortunate coincidences that favored the Brazilian economy. It intensified China’s industrial drive and its demand for commodities and reduced the value of the U.S. dollar after the steep decline in U.S. interest rates, and the increase in the value of commodities compared with industrial imports due to Asian industrialization expanded the buying power of the real on the international market. Consequently, Brazil became the most important destination of foreign direct investment among developing countries. Five facts reveal the financial prosperity of Brazil during those years:

Economic growth was exploited by the state, specifically by the federal government, to expand its fiscal capacities. This began under Cardoso and continued under Lula and Dilma. Between 1990 and 2014, real tax collection increased 1,540 percent, beyond the rate of GNP expansion of 1,248 percent (IBPT, 2015b).

Although the 1988 Constitution redistributed taxes to states and municipalities, public funds remained centralized in the federal government. For example, immediately after the adoption of the constitution, the federal tax share dropped from 75 percent to 50 percent, with the rest destined for the states and municipalities, but starting in 1995 the federal government’s share of taxes returned to the military regime’s standard, 72 percent (IBPT, 2015a; 2015b).

The full employment that resulted from Brazil’s favorable exchange with the international market led to the capitalization of the two main development banks and state-owned companies’ pension funds. The Brazilian Development Bank became the world’s largest development bank, spending an average US$96 billion on development, more than either the World Bank (US$28.9 billion) or the China Development Bank (US$93 billion) (Coutinho, 2011a; Ferraz, 2011). Public funds were used to expand the buying power of all social classes, particularly in the North and the Northeast. Besides poverty alleviation programs, the Brazilian Development Bank and the Bank of Northeast Brazil established new financing standards for these two regions (Coutinho, 2011b). When Lula assumed office in 2003, the two banks’ spending in these regions averaged R$3.4 billion, but by 2013 transfers had expanded more than tenfold, reaching R$47 billion. Consequently, the Northeast maintained higher economic growth than the national average (BNB, 2013) while the North became Brazil’s new agrarian frontier and the recipient of massive investment in highways and power plants.

Expansion of salaries, low unemployment, and the pension reforms of 1998 and 2003 led to capitalized state-controlled pension funds. In 1994 they amounted to R$75 billion, equivalent to 10 percent of the GNP, but by 2003 they had increased to R$240 billion, 15 percent of the GNP (ABRAPP, 1997; 2015). Today their R$670 billion in deposits are often used to finance the expansion of Brazilian multinationals but also to invest in Brazilian-owned telecommunications companies (OECD, 2014).

Did the strategy of bestowing hefty public subsidies on Brazilian multinationals produce the desired effects? And, if not, why not? To visualize the true effect of that strategy, I present the emblematic cases of JBS and Gerdau, two Brazilian companies turned multinationals. The former has become the world’s largest meat-packing company and the latter the Americas’ largest rolled-steel manufacturer and a global player.

JBS was founded in Goiás in 1953 and had become a middle-sized player by the late 1990s. By 2014 it was Number 766 of the Forbes Global 2000 and the sixth-largest company in Brazil, with US$35 billion in annual sales. Today it is the meat-packing leader not only in Brazil but in the United States, Australia, Italy, and the UK. Much of its success can be attributed to the personal support of Lula and financing by the Brazilian Development Bank. In 2004 the bank lent it R$1.1 billion to finance its internal expansion, and between 2007 and 2009 the bank’s loans to it amounted to R$18.5 billion, which it used to acquire companies in Argentina and in the other countries just mentioned. At the cost of US$17 billion, JBS acquired Swift, Smithfield Beef, and Pilgrim’s Pride Corporation in the United States, Cargill in Australia, Marfrig in the UK, and Primo in Italy, along with other acquisitions in Argentina and Brazil (Singh, 2015). In exchange for public funds, the Brazilian Development Bank controlled 20 percent of its nonvoting shares, a proportion larger than the Batista family holdings. Thus BNDESPAR assumed the role of an institutional investor without voting rights, maintaining the Batista family’s control of the multinational (Blackfield, 2011).

The expectation of the Brazilian Development Bank was that JBS, by becoming a global multinational, would introduce competitiveness and productivity into the Brazilian food industry, lowering prices on the domestic market and allowing greater access. The reality was that JBS’s international expansion did not benefit Brazilian citizens as predicted. In fact, after its transformation into a powerful multinational between 2007 and 2009, Brazilian meat and poultry prices soared above the international average. Today meat prices in Brazil are higher than in the United States and comparable to European prices. In other words, the bank’s strategy caused an inversion of competitive advantage and produced unequal exchange as capital mobilized in the internal market was drained to finance international acquisitions and expansion.

A similar pattern is seen with Gerdau, a Brazilian multinational with subsidiaries in Argentina, Chile, Colombia, the Dominican Republic, Guatemala, India, Mexico, Peru, Spain, Uruguay, Venezuela, and the United States. Gerdau had acquired Ameristeel in the mid-1980s, but its presence in the United States was limited until September 2007, when it acquired (with Brazilian Development Bank financing) the Chaparral Steel Company mills in Texas and Virginia for US$4.2 billion. By 2005 Gerdau had received R$5.5 billion to finance the purchase of new equipment and modernize its existing mills in Brazil, and between 2007 and 2009 the bank’s financial support, aimed at international acquisitions, expanded dramatically to R$61.4 billion. By 2015 Gerdau’s sales in the U.S. market amounted to 33 percent of its net income, surpassing its Brazilian sales. André Gerdau, in an interview with Forbes, declared that the main aim of the company in the coming few years would be to expand its investment in the United States, since its historic “cash cow” (Brazil) had exhausted its potential for growth (Juan and Spinetto, 2015).

The difficulty of the multinationalization strategy was also apparent in two negative indicators of Brazil’s general performance: deindustrialization and a decline in international competitiveness. According to the United Nations Industrial Development Organization (2015), Brazilian industry was 14.92 percent of the GNP in 2000 and had declined to 13.51 percent by 2011. During the same period, China increased its industrial share of the GNP from 32.12 percent to 34 percent and South Korea from 25.23 percent to 29 percent. The decline of industry was paralleled by a considerable retreat in general competitiveness. In 2000, Brazil’s forty-fifth position in the World Economic Forum report (2000; 2014; 2015) was close to China’s forty-first position, but by 2014 it was fifty-seventh while China was twenty-eighth.

Boito and Saad-Filho have recreated the myth of a national bourgeoisie opposing the internationalized bourgeoisie, but there is little evidence that the two bourgeoisies differ in politics, ideology, and economic priorities. Both fractions began as national corporations but gradually exploited opportunities to expand beyond national borders. All bourgeois fractions demonstrate political pragmatism and economic realism in their relations with governments. What Boito and Saad-Filho consider an internal bourgeoisie struggling against foreign capital is nothing more than a set of business groups that have been favored by certain governments in periods of economic prosperity and fiscal health. The impression of a nationalist power bloc was reinforced by Lula’s charisma, a sort of a left Bonapartism. He presented himself as a well-intentioned leader who supported all national forces, a savior of the poor, a champion of local capital, and a messenger of Brazilianness. His personal grace fell on capitalists who had been allied with the developmentalist governments of the 1950s and self-made businessmen from lower middle-class or working-class backgrounds. The latter group in particular, made up of struggling ordinary citizens who had prospered and become tycoons, was portrayed as proof of social vitality, an international showcase of Brazilian success. However, the groups favored by left Bonapartism used public funds and privileged access to the Brazilian domestic market to expand on a world scale. Once this political favoritism was exhausted, many national companies abandoned Brazil and migrated to foreign markets. Not only did they not bring new value to Brazilian society but their actions reversed a decade of favorable exchange with the international market and contributed to Brazil’s dramatic economic retreat in 2015.

Although the government considered the downturn to be temporary pending a fiscal adjustment, in reality it indicated a step toward the hegemony of the financial fraction. The fiscal erosion of the federal government in 2015 ended a decade of relative autonomy enjoyed by the PT and initiated a new cycle of orthodox economic policies (fiscal adjustment) that caters to the financial fraction. The new era signaled the political and economic demise of left Bonapartism. The latest polls by the Instituto Brasileiro de Opinião e Estatística and Datafolha show Lula trailing all political contenders even in the Northeast, where he once enjoyed overwhelming support. Meanwhile President Dilma’s approval rating has sunk to 7 percent. The political reversal was so dramatic that Lula himself announced that he and Dilma were in the “dead space.” Economically, the powerhouse of left Bonapartism, the Brazilian Development Bank, announced a 40 percent cut in development financing and a hike in its interest rates, in fact ending the national-champions strategy.

Meanwhile, Brazilian commercial banks that had accumulated massive capital since the 1990s were becoming the leading fraction of the Brazilian bourgeoisie. Their prowess was limited to economic influence and investment capacity, but the political consensus in favor of orthodox economic policies indicates that finance capital’s solid economic core is being surrounded by a protective shield of institutionalized long-term economic policies that will make it the rising hegemonic force. Despite the unions’ and social movements’ resistance to the fiscal adjustment and especially the cuts in social programs and the pro-bank social security reform, their mobilization was hardly felt in the streets. Meanwhile, the left parties inconsistently support President Dilma against impeachment and vote for the fiscal adjustment while voicing concern about its social cost. At the same time, the fiscal adjustment is being presented as unavoidable by a coalition of banks, business federations, the press, and financial rating agencies.

The financial fraction assumed an uncontested economic leadership of the Brazilian bourgeoisie that turned into hegemony when its political program, the orthodox fiscal adjustment, became consensual. Two facts point to the stabilization of this hegemony. First, of all the fractions the commercial banks were the only businesses that benefited from the steep rise of interest rates in 2015 and the current intense speculation in stocks and exchange rates. Secondly, the fiscal adjustment is presented as the first step toward private financing of infrastructure that will recover long-term economic growth, with the banks organizing, centralizing, and directing investment to public-private partnerships. In other words, the hegemony of the financial fraction is assuming an objective economic reality complemented by a political consensus that has created symmetry between the interests of the commercial banks and the economic and social welfare of the country. Tragically, left Bonapartism, while aimed at creating a new economy commanded by progressive entrepreneurs and tycoons coming from the working class, in fact established the conditions for the rise of the financial fraction to the role of a hegemon in Brazilian capitalism.