Fiscal superstructure and the deepening of labour exploitation

Introduction

The aim of this study is to investigate how public debt can serve as a privileged mechanism for the potential deepening of class exploitation. I call attention to the necessary mediation by the state economic apparatus for the development of a specific process of financial expropriation that may eventually lead to the deepening of labour exploitation. Based on recent Brazilian experience, the paper explores the public debt and tax system since the launching of the Real Plan (1994), which sought to stabilise the country’s economy. Since then, workers’ incomes have been expropriated through a combination of interest on public debt and taxation that assumed an exploitative character. More than enabling redistribution of wealth, this combination of public debt interest and taxation is capable of deepening future labour exploitation through a state-mediated social relation of expropriation realised in the context of financialisation of the economy.

This hypothesis engenders the claim that taxes, as well as profits, interest and rent, are different forms that surpluses may take during the processes of capital production and circulation. Each of these forms is a means of appropriation of surpluses that depends on the role of the respective appropriator in capital accumulation. It follows that capitalists do not carry any tax burden, given that taxes are portions of surplus-value that are directed to the state. Therefore an increased tax on capitalists may bring about a further tax on labour exploitation. Nevertheless, the economic and political conditions required to allow increased taxes on profits are not always available, driving the state to eventually increase public debt. Because the state may have to increase taxes at some time in the future to service this debt, this increase in debt engenders a potential labour exploitation in the future as deep as the real interest to be paid by the state to lenders. This makes the financial system, its agents and mechanisms, as well as the state, organic to the entire labour exploitation process.

Therefore, fiscal policy in general, and taxation in particular, are elements of class struggle in which appropriators are not only the owners of the means of production. The surpluses to be appropriated by each agent also result from the mode of regulation, in which the capitalist state is the main actor. Whether the state will spend or collect more (or less), how it will do so, and who will cede (or appropriate) the relevant portions of the surpluses in dispute will depend on the correlation of forces acting on the state budget. Fiscal policy thus plays a critical role in capital accumulation, which has increasingly relied on neoliberal financialisation. Brazil – whose case this paper draws on – confirms the worldwide neoliberal pattern whose results have continuously been unfavourable to workers and other individuals living under domination of what Harvey (2010: 48) calls the ‘state-finance nexus’.

In this paper, I discuss how this debt-tax-finance nexus may deepen future labour exploitation. I begin in abstract terms, to which the two next sections are devoted. The following section concerns the financialisation of labour exploitation, which has placed finance in a privileged position in the appropriation of surplus-value. The third section specifies the argument by discussing how credit for workers may establish class relations that assume an exploitative character, even beyond the limits of production. This opens the way to approaching public debt as a mechanism that brings about a similar exploitative process that, now through the state, also deepens labour exploitation. The two sections preceding the conclusion use data about Brazil’s fiscal system, namely public debt and taxation, to illustrate these theoretical claims.

The financialisation of class exploitation

According to classical Marxist thought, capitalist exploitation is based on the relation between the owners of the means of production and those who own only their labour-power. The latter is sold in the labour market and, at the outset, no exploitation takes place. However, after the worker is hired, the relations move inside the workplace, where labour-power is turned into labour, whose value exceeds the value of the labour-power. When the fruits of labour are exchanged for money in the commodity market, that surplus-value is realised as the profit of the capitalist who thus appropriates the relevant portion of other’s labour. In this sense, the entire capitalist process, including both production and circulation, establishes a concept of class based on the notion of exploitation, which takes place within a given class structure.

In previous modes of production, masters exploited slaves and lords exploited serfs. In the currently dominant mode of production, capitalists exploit workers. Thus, although Marx recognised the existence of other classes, the fundamental distinction is between exploited and exploiter (Johnston & Dolowitz 1999). It follows that social classes ‘are groupings of social agents, defined principally but not exclusively by their place in the production process, i.e. in the economic sphere’ (Poulantzas 1978: 14). Although it is within production that the fundamental process of capital develops, this economic sphere must nevertheless be comprehended in a broad sense. It ‘includes not only production, but also the whole cycle of production-consumption-distribution’, and, as such, comprises all forms of capital, namely, ‘productive capital, commodity capital, money capital’ (Poulantzas 1978: 18; emphasis added).

This consideration of class as defined by the relations of exploitation, which is realised within a given class structure, indicates an empirical complexity beyond the understanding that capitalists exploit workers in production. The economic sphere is composed not only of the processes that are capitalist sensu stricto, i.e. those that produce surplus-value. In current capitalist society, other processes are relevant to the social relations among ‘economic’ agents. In fact, ‘people do not live in capitalism’, but in ‘in life-worlds, often overlapping’, which ‘opens the way to conceptualising its coexistence with other modes of production, other modes of doing things and relating to each other’ (De Angelis 2004: 67, 60; emphases in original). If we confine ourselves to modes of production in the abstract, we see that each of them involves two fundamental classes – masters and slaves, lords and serfs, bourgeois and workers – however, a concrete social formation involves more than two classes insofar as it is composed of various modes and forms of production (Poulantzas 1973, 1978).

Although these other classes are not fundamental, they may assume a leading position in accumulation, depending on the conditions of the specific historical development phase of capitalism. This occurs because some processes may assume greater importance in the reproduction of capital, at least for some class in its pursuit of accumulation. This has happened, for instance, during the so-called financialisation of the economy of the past several decades, involving the growing importance of financial activities as sources of profits (Krippner 2011) whose magnitudes have meant a shift in gravity of economic activity from production toward finance (Foster & Magdoff 2009; Lapavitsas 2011). This has eventually led financial institutions and mechanisms, and their corresponding assets and debts, to reach levels that have placed finance at the top of the hierarchy of those who earn profits (Duménil & Lévy 2011).

This raises the importance of class fractions for comprehending the present regime of capital accumulation. Bourgeois domination operates through an alliance between its fractions – industrial, commercial, financial – which are all dominant and share political domination (Poulantzas 1973, 1978). Nevertheless, Poulantzas affirms that this alliance only functions regularly under the hegemony of one of these class fractions, which unifies the class power under its leadership. It is broadly recognised that the hegemonic fraction in the past several decades has been finance – ‘the upper fractions of capitalist classes and … financial institutions in any social arrangement in which these fractions of capitalist classes control financial institutions’ (Duménil & Lévy 2011: 13). This calls our attention to the possibility for the current hegemonic fraction and the related financial processes to alter the terms under which surpluses are generated and distributed, thus influencing the entire exploitation process.

Capitalist exploitation means ‘that one category of economic agents works more than is necessary for their own reproduction and that the fruits of their surplus labour are appropriated by another’ (Therborn 1999: 9-10). In a more relational approach, Wright states that ‘the welfare of the exploiter depends upon the effort of the exploited’ (2000: 10, emphasis in original). For Wright, this very notion of dependency is what differentiates exploitation from oppression, ¹ given that in the latter there is no material dependence between agents. The end of a relation of oppression does not lead to any material loss for the oppressor, but the end of the exploitative relation does so for the exploiter. This distinction is in some way present in Poulantzas’s (1978) framework of the structural determination of classes, which is brought about by relations of economic exploitation and also by relations of ideological and political domination.

Wright’s distinction between oppression and exploitation is useful in an abstract level for understanding how capital accumulation can be explained. For Poulantzas, these social relations appear in an integrative way, and as such, they serve an empirical need to understand the present regime of accumulation, where finance has been organic to the entire accumulation process. As the hegemonic fraction of capital, finance exerts its own logic over production. It follows that the organisation of work and labour relations is a limited framework for analysis, given that the extraction of value takes place through a variety of mechanisms inside and outside the workplace (Appelbaum et al. 2013). Thus, both Wright’s and Poulantzas’s approaches allow exploitation processes to be conceived in a broader way, considering the possibility that exploitation rates are altered through the capitalist superstructure, e.g. in the financial realm.

This does not mean that exploitation occurs without actual material production, but rather that exploitation may have its very terms altered by what happens outside of production. As noted by Jessop, ‘capital accumulation has major extra-economic conditions of existence in other social forms, institutions, organisations and social practices’ (2013: 7, emphasis in original). This is the case of relations that develop in financial markets, where money operates as a commodity whose corresponding form of revenue is interest. These are extra-economic relations, because ‘in the case of interest-bearing capital the return … is simply the result of a legal transaction’ (Marx 1991 [1894]: 470). This turns our attention to the state’s role in financialisation. As in the prior Fordist accumulation regime, the state has taken a central place in the corresponding mode of regulation. ²

In the Fordist growth regime, the sites of dominant contradictions were wage relations and money form, with the latter regulated by the steady expansion of credit and the state budget and the former through mass production and mass consumption reinforced by the Keynesian welfare state (Jessop 2013). In this regime, the state had strict regulation over finance – including the overall mass of credit, interest rates, and financial operations – to create mechanisms that could ensure full employment and limit business-cycle fluctuations (Duménil & Lévy 2001). In later times, under neoliberalism, the main role of the state has been to create and maintain an institutional framework characterised by strong individual private property rights, free markets, and free trade (Harvey 2005). Compared to Fordism, in the financial-dominated accumulation regime, money became the most abstract expression of capital, disembedded in the space of worldwide flows, with the social wage privatised and recommodified, including private consumer credit (Jessop 2013).

Financialisation thus increased the relative weight of circulating money-capital, which was freed to seek profitable outlets worldwide. As money and financial debts and assets became central to capital accumulation, inflation became a critical issue, because it was one of the mechanisms for distributing the costs of Fordism and the Keynesian welfare state (Jessop 2013). Controlling inflation then became a priority in the neoliberal era, giving it a strong class content (Duménil & Lévy 2011). Inflation is thus not exclusively an economic problem, but also a political one (Krippner 2011). In the realm of monetary policy, financial interests were assured that inflation would not be tolerated (Papadatos 2012). The main result is that the owners of finance capital have gained prominence in the appropriation of surplus-value, now also by extracting real interest revenues from workers’ incomes.

Exploitation beyond labour exchange

Besides acknowledging that labour exploitation takes place in the entire accumulation process, the previous section draws attention to means for the activation of capitalist production and the distribution of its fruits that develop beyond the production sphere. Since capital is only reproduced in motion (Harvey 2010), the sphere of circulation is critical for the analysis of the entire exploitation process that capital engenders. It happens that the capitalist mode of production conceals the exploitation of direct producers more than other modes. In feudalism, for instance, exploitation is clearly noticed through the part of serf’s production that is appropriated by the lord, whereas in capitalism the output is not divided between capitalist and worker, but taken to the market (Cohen 1979). There, a variety of social relations can affect the sharing of surpluses that, besides making labour exploitation less obvious, points to a potential future intensification of this exploitation.

The fact that socially produced wealth is brought to market adds appropriation processes and actors that were hitherto absent. According to Marx, ‘the separation of sale and purchase makes possible not only commerce proper, but also numerous pro forma transactions, before the final exchange of commodities between producer and consumer takes place. It thus enables large numbers of parasites to invade the process of production and to take advantage of this separation’ (1971 [1859]: 98, emphasis in original). For a variety of superstructural arrangements, each of these actors, now via markets, is qualified as a recipient of part of the surplus-value. The functioning capitalists – i.e. industrialists and merchants – who earn profit are joined by the state, which collects taxes, and by money capitalists, who earn interest, and by all sorts of professionals, bureaucrats, middlemen and brokers who receive salaries, commissions, etc. Rephrasing Cohen’s (1979: 358) proposition about capitalist exploitation, it can be said that ‘the proletarian produces the whole product, but the capitalist [and other unproductive agents appropriate] part of the value of the product’.

Taking this path is not to deny that the object of capitalist exploitation is the other’s labour, but that its terms may also be determined by social relations that take place elsewhere. One may see that other types of relations, distinct from the direct hiring of labour, can lead in some measure to the deepening of labour exploitation. This possibility is clearer in Roemer’s (1982a: 263) proposition ‘that even the Marxian class structure can be produced without any institution for labor [sic] exchange’. He was not denying that class exploitation is bound to labour, which is the very criterion that distinguishes exploiter and exploited (Roemer 1982a, 1982b). For Roemer, the latter is someone who works more than is socially necessary and the former is someone who works less than is socially necessary. What Roemer sought to demonstrate is how exploitation based on inequalities not necessarily related to the selling of labour-power may take place. To make his point, he envisions three hypothetical economies: a competitive market with unequal ownership of the means of production, a labour market, and a credit market.

For Roemer, all of his hypothetical economies would be able to produce the Marxian class structure, even without the existence of the sale of labour-power. In his credit market – which is of special interest in this paper – labour-power is replaced by capital to be loaned by the potential exploiter to the potentially exploited. These statuses – exploiter or exploited – as well as their class positions are defined by interest on debt, which allows the former to work less and push the latter to work more than is socially necessary. Marx (1991 [1894]: 477) made a similar analogy by saying that ‘money, and likewise commodities, are in themselves latent, potential capital, i.e. can be sold as capital; in this form they give control of the labour of others, give a claim to the appropriation of other’s labour’. Referring to ‘secondary’ ³ exploitation in 1848-50’s France, he wrote, the ‘exploitation [of peasants] differs only in form from the exploitation of the industrial proletariat. The exploiter is the same: capital. The individual capitalists exploit the individual peasants through mortgages and usury; the capitalist class exploits the peasant class through the state taxes’ (Marx 1972 [1850]: 111; emphases in original).

Despite all the controversies ⁴ related to Roemer’s approach, it is possible to perceive that the true extent of exploitative relations is the whole of society, not just those relations within capitalist production (Dymski 1992). This broadens the sociological meaning of exploitation by recognising that it may have its terms altered through relations that take place outside production, e.g. in the realm of financial markets. One notion of this is given by Bowles & Gintis (1990), who, in criticising Roemer’s idealisation of markets in equilibrium, insert the concept of contested exchange. For them, market exchanges are contested, i.e. there is no guarantee that the agents will comply with the terms of the contracts. For example, even if a given amount of time to be devoted to work can be contracted, its effective realisation in quantity and quality cannot be guaranteed a priori. Similarly, although the conditions of a loan can be the object of a legal contract, future actions of the borrower or others who influence the probability of the loan’s repayment cannot be guaranteed a priori.

One may then notice that financial markets are not realms of equilibrium, but of class struggle. Therefore, the identification of subjects with classes is not restricted by their relations within production, but is broadened by the relations that develop in the financial markets (Williams 2001). Money capitalists, for instance, in addition to owning loanable capital, are able to draw extraordinary income through their position relative to the financial system (Lapavitsas 2012). The critical point for this relation is the interest on money, which is the commodity itself circulating in this system. It must be emphasised that just as surplus-value does not come from the mere circulation of commodities – its source is labour within production – neither does it come from the mere circulation of money-capital because of debt. Nonetheless, interest acts to establish class relations that develop beyond the limits of direct production relations.

In qualitative terms, interest is a mechanism for redistribution of surplus-value, and in quantitative terms, it can be an expression of the value of the additional effort to be executed by workers. Interest is ‘nothing but a part of the profit, i.e. the surplus-value’ (Marx 1991 [1894]: 493), which does not arise from the objective conditions underlying the essential characteristic of capitalism – the separation between labour and the means of production – but from the circumstance in which not only productive capitalists own money (Hilferding 1981 [1910]). However, even if that which Marx (1991 [1894]: 732) characterised as interest-bearing capital ‘has capital’s mode of exploitation without its mode of production’, the fact that money is not only in the hands of the functioning capitalists means that finance, by being nourished by labour, interferes with employment and income and in the means of domination of labour (Salama 1998). In this sense, financialisation has a clear class content established by its potential to support, or even deepen, labour exploitation in a scenario mounted to confront an accumulation regime that had revealed serious limits.

Since the late 1970s, real accumulation has had mediocre and precarious growth; meanwhile, capitalists have found new sources of profit through financial markets (Lapavitsas 2012). This has in part been brought about by both the stagnation of real wages and retreating social wage, which have been pushing working people to increasingly rely on borrowed money to meet basic reproduction needs (Dos Santos 2012; Lapavitsas 2011). This has opened up ways for modes of appropriation of value that have had a very exploitative character insofar as they developed through an organic relation between production and finance. This exploitative character of finance also fits the Marxian distinction between ‘secondary’ and ‘primary’ exploitation. ⁵ Appropriation of value through financial processes can actually engender a potential deepening of the rate of exploitation insofar as workers are led to substitute credit for wage income. This is the case of consumption- and mortgage-credit whose exploitative social content is brought about by the fact that their ‘interest-payments are generally made from subsequent wage-receipts by borrowers’ (Dos Santos 2012: 94).

Public debt, taxation and redistribution of surpluses

An exploitative relation may involve different social and institutional arrangements according to the regime of accumulation. The exploitative character of relations in the financial realm may take place in the very context in which workers are pushed into debt and to eventually transfer shares of their income to finance. Nonetheless, the factors that make social relations in the financial realm exploitative are also present in another mechanism that has become critical for financialisation. This is public debt, which has a similar exploitative character insofar as the capital to be accumulated by bondholders depends upon the debtor’s effort. This is a mode of indirect financial expropriation in which the state plays the twofold role of reducing tensions and redistributing wealth between classes. It is indirect in comparison to the one through which private creditors loan money directly to workers who are, nevertheless, the actual debtors in both kinds of relations.

Actually, state mediation between social classes is not particular to financialisation. If we consider capitalism in its historical dimension, we notice that the state has always played a mediating role in its different phases. Since the welfare of one class occurs at the expense of another, the relation between them is necessarily conflictual (Johnston & Dolowitz 1999). It is up to the state apparatus to provide the material means to connect classes ‘in an asymmetric relationship of domination and exploitation’ (Therborn 2008: 220). According to Therborn, since the centralisation of the state often leads to the assumption that it and its leaders are not directly responsible for immediate exploitation, this exploitation can be concealed through state interventions. This has been critical to the financial expropriation that has been taking place during the current neoliberal financialisation phase.

In terms of accumulation, ‘the main achievements of neo-liberalism have been redistributive rather than generative’ (Harvey 2006: 43). Thus, capital has faced a contradiction given that the income redistribution from working people towards the upper classes undermines the legitimacy of the whole system. Nonetheless, since the consequences of contradictions take time to erupt, in the meantime, capital may profit from them. In this finance-led accumulation regime, capital has probably relied less on legitimacy provided by the state and more on its ambiguous position among classes. Since the state is relatively independent from particular classes, it may present itself as an agent of the interests of the entire society when redistributing funds collected via taxes. It therefore acts not only as a buffer of class conflict generated by financial expropriation, but also serves to redistribute surpluses that arise in this kind of accumulation.

Let’s see how this has worked by considering the recent evolution of the Brazilian economy.

If in the most developed countries the growth of both state revenues and expenditures have stabilised within the past two decades (Vernengo 2007), in Brazil there has been a continuous increase in the tax burden. Not able to count on as much trust as richer countries, the Brazilian state has had to offer, in addition to high interest rates, assurances that it would meet repayment conditions. Thus, a fiscal system capable of guaranteeing sufficiently high levels of taxes to meet the debt interest payments had to be established. This system was complemented with the institution of the primary fiscal surplus, whose goals have explicitly been set in budgetary laws since the early 2000s. Since this surplus is the difference between non-financial revenues and non-financial expenditures, its very existence provides a budgetary provision to pay interest on public debt (Bin 2014).

The system is as simple as that described in the concept of primitive accumulation, in which Marx (1990 [1890]: 921) saw ‘the modern system of taxation [as] the necessary complement of the system of national loans’. One notices this in Brazil today in Figure 1, which shows a significant increase in the public debt and federal taxation. One may notice that the rise of the latter has in large part occurred to support the increase of the former. During a significant portion of the 1990s, public debt was kept relatively stable and so was federal tax collection. When the average public debt rose from 27.3 per cent of GDP during the 1992-7 period to 52.3 per cent in 1998-2002, federal taxation rose from 11.2 per cent to 13.5 per cent of GDP. ⁶ This latter period coincides with the eruption of several global financial crises – in Southeast Asia, Russia, and Brazil itself – that pushed the government to raise interest rates ⁷ and eventually the debt service. Public debt started to fall in the early 2000s and, after a time lag of several years, so did federal tax revenues.

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Figure 1.

Public debt and taxes as percentages of GDP, 1992-2012.

This situation has guaranteed the sustainability of public debt levels, considering both the state’s capacity to pay it back as well as the need to guarantee returns on the private capital invested in it. Both the debt and interest rates on it have been low enough so that the debt may be serviced and, at the same time, high enough to offer satisfactory returns to financial investors. It is relevant that while Brazil’s federal domestic debt rose from an average of 18.9 per cent of GDP during the 1994-8 period to 41.2 per cent during the 1999-2012 period (see Figure 2), the foreign debt dropped systematically to such a low level that since 2006 it has been more than offset by foreign exchange reserves. The critical point is that the relatively more expensive domestic debt has financed repayment of the cheaper foreign debt. Whereas the latter’s annual average implicit interest rate was 5 per cent during the 2002-12 period, the former’s was 14.8 per cent. ⁸ This same expensive internal debt has also funded foreign exchange reserves, returns on which reached an annual average of 4.7 per cent during the 2003-11 period. ⁹

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Figure 2.

Interest, public debt and investment, 1992-2012.

Both these spreads have meant huge transfer payments from the state to finance, which makes obvious the answer to the rhetorical question raised by Wilson (2002): why would anyone give up charging extortive rates to an entity that cannot go bankrupt when all that is needed to perpetuate this situation is an outstanding debt high enough not to be significantly reduced by the instruments available to such an entity? Marx had already said that ‘public credit rests on confidence that the state will allow itself to be exploited by the wolves of finance’ (1972 [1850]: 40, emphasis in original). The Brazilian state has been able to meet all these conditions, maintaining the magnitude of indebtedness and safely defining who should support both debt services and the tax burden. Since debt services are eventually supported by taxes, who shoulders the tax burden is of critical importance.

Bourgeois economic analysts and the media have been able to convince the general public that the country’s tax burden is very high. These analyses are commonly presented without any parameter of what a high tax burden actually is. Almost always constructed in a non-relational fashion, this discourse reproduces the mistaken notion that, despite economic inequality, there are policies and decisions whose outcomes are experienced equally by classes. This is not the case, even within a single class, as we saw in Brazil’s last big debate on taxation, which eventually led to the abolishment of the contribution on financial transactions (CPMF). In a congressional hearing in 2007, while the president of the leading industrial federation argued ‘let’s abolish it’, the representative of the main banking federation stated that the CPMF ‘could continue, but with a clear trend towards reduction’. ¹⁰ It is thus critical for understanding political action around fiscal issues to consider the class dialectics behind this complex social relation that develops through the state’s economic apparatus.

Taxation – as well as interest or rent – is just a form of appropriation of surpluses generated by labour in each historical context. ¹¹ It ‘only alters the proportion in which that surplus-value is divided between the capitalist himself and third persons’ (Marx 1990 [1890]: 658). Since surplus-value – actually the entire value – is produced by labour, it follows that capitalists do not carry any actual tax burden; they only transfer to the state coffers – under the name of tax – a portion out of that surplus. For this reason workers are the ones who actually bear the tax burden. Nevertheless, one cannot assure that taxes collected today are exclusively deductions from past profits nor that, as such, they will not be deferred to future production. Workers cannot defer their reproduction needs, but capitalists may divert some capital from present production towards more profitable alternatives in the future. ¹² This is exactly what they do when they divert money-capital to either private or public credit as a substitute for a productive investment that is potentially less profitable in the present. Figure 2 displays transactions that are in some measure consistent with this hypothesis.

By dividing the timeline of Figure 2 according to the changes in gross fixed capital formation (GFCF), which represents investment in production, one may notice a negative correlation between GFCF and both interest rates and federal domestic public debt. While GFCF fell from an average of 18.3 per cent to 16.2 per cent of GDP between the 1992-8 and 1999-2005 periods, domestic public debt rose from 16.4 per cent to 40.9 per cent, and remained at that level during the 2006-12 period. In this last period, when interest rates fell to an average of 5.9 per cent – they had averaged 10.6 per cent during the 1999-2005 period and 24 per cent during the 1992-8 period – GFCF rose to the same level as in the first period. In sum, when interest rates increased, potential investments in production were diverted to interest-bearing capital, returning only when interest rates started to fall.

Current taxes may engender future labour exploitation insofar as capitalists are able to transfer the tax burden to workers’ future production. A complement to what was presented in Figure 2 can be brought about by the tax system in terms of its pro- or regressiveness. As we have said, the entire actual tax burden is ultimately levied on workers, but this does not eliminate the possibility for that burden to be deepened through changes in the tax structure. This happens, for example, when indirect taxation – e.g. on workers consumption – grows faster than direct taxation – e.g. on income and property. This is what has been observed in Brazil in the last several decades. Figure 3 indicates that indirect taxation has been increasingly higher than direct taxation. While the annual average of the latter rose by 1.6 percentage points (from 4.7 to 6.3 per cent) of GDP between the 1986-93 and 1994-2012 periods, the former rose by 3 percentage points (from 11.6 to 14.6 per cent). The overall picture is that indirect taxation has been almost two-and-a-half times higher than direct taxation.

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Figure 3.

Indirect taxes and direct taxes as percentages of GDP, 1986-2012.

A consideration should be made of the possibility that public debt serves to produce multipliers through state expending in a Keynesian fashion that would lead to growth. One could also envisage a potential reduction of labour exploitation through social wages – state welfare expenditures. Theoretically, there is no objection to these possibilities, mainly to economic growth funded by public debt. Nevertheless, economic growth is no guarantee of reduced exploitation. Since exploitation is a relational concept, it depends not only on the overall output to be distributed, but also on both capitalists’ and workers’ shares of this output. Only a rising workers’ share would indicate reduced exploitation, and that has not been the Brazilian trend since the mid-1990s. While GDP grew an annual average of 3.2 per cent during the 1994-2012 period, labour’s share of GDP declined during most of the 1994-2009 ¹³ period (see Figure 6).

Since economic growth per se does not lower exploitation, increasing the social wage through welfare expenditures seems to be a theoretically more plausible way to reduce exploitation. But the Brazilian fiscal superstructure has not presented evidence that supports this hypothesis. For instance, as shown in Figure 4, there has been a negative correlation between changes in welfare expenditures and outstanding debt. While the latter rose continually during the 1995-2002 period, the former was kept virtually stable at an average of 11.8 per cent of GDP. It was only when debt began to fall that welfare expenditures began to rise, reaching an average of 12.9 per cent of GDP during the 2003-12 period. Nevertheless, federal government investment took the opposite path, falling from an average of 0.8 per cent to 0.5 per cent of GDP between these periods. This, combined with the fact that an annual average of 4.6 per cent of GDP accrued as interest on outstanding debt during the 1995-2012 period, suggests that new public debt issuances have been used more to sustain interest payments than to produce economic multipliers.

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Figure 4.

Public debt and selected expenditures as percentages of GDP, 1995-2012.

Public debt and the deepening of labour exploitation

Taxation has always been critical to the superstructure of capitalism, but it became even more so during neoliberal financialisation. Governments, similarly to businesses and households, have been thoroughly ‘financialised’ insofar as finance has increasingly been able to create and market legal claims on shares of all sorts of future income flows, including future tax revenues (Radice 2010). The state’s involvement with finance has thus encouraged the creation of financial mechanisms that combine with the tax system in an organic complex of expropriation and exploitation as well. Thus, beyond the question of tax as a form of redistribution of surplus-value, one may consider the hypothesis that taxation elevates the very magnitude of future surplus-value. As Therborn (2008) points out, in the dynamics of any specific mode of exploitation of production, the working class should generate surpluses for its exploiters and, additionally, fund the state’s domination over the working class itself.

Wright (1999) affirms that due to the weight of state legitimacy it is reasonable to assume that the working class might accept a level of taxation on wages higher than the corresponding wage reduction that would otherwise occur in an eventual context in which these taxes were lacking. One explanation for this could be that, ‘owing to the distance of the state from both the immediate exploitative process and local traditions of a “just rent” or “fair wage”, it is usually easier to increase the amount extracted for “public” purposes than it is directly to raise the profits of individual members of the ruling class. A rise in state taxation has tended to encounter less resistance than rent increases or wage-cuts’ (Therborn 2008: 227). If this is correct, ‘taxation can thus be seen as, in part, a weapon in the class struggle by which the state appropriates a certain amount of surplus labor that is unavailable to private capitalists’ (Wright 1999: 129; emphasis in original).

Wright opposes the thesis that capitalists would invariably appropriate the presumed value of tax in a hypothetical situation without taxation, i.e. that the capitalists would have reduced wages to the minimum necessary for the reproduction of labour-power. For him, this reasoning is, at best, dubious if real wages and taxes are seen, at least partially, as results of class struggle instead of resulting from an extracted portion of a wage that is supposedly higher than that necessary for the reproduction of labour-power. To sum up, taxation ‘has the capacity to increase the aggregate rate of surplus value’ (Wright 1999: 129). By so doing, he considers that exploitation can take place in the sphere of circulation, as do Roemer and other scholars cited in this work. Lapavitsas (2012: 33), for instance, though using the term ‘financial expropriation’ to ‘[avoid] confusion with exploitation at the point of production’, warns ‘this does not preclude the existence of exploitative processes in circulation’.

Making an analogy based on the state’s legitimacy to distribute, it is reasonable to assume that it also has the legitimacy to redistribute to the exploiters – e.g. through interest – part of the surplus labour to be collected through taxes. Through taxation, the state may increase the aggregate rate of labour exploitation, which may be raised as far as public debt is able to elevate the tax level. The state’s ability to incur debts may increase its power of taxation insofar as, by taking this path, it is actually raising the amount equivalent to expenditures not met by taxes. In the same sense that ‘interest-payments are generally made from subsequent wage-receipts’ by workers who were pushed to substitute credit for wage income (Dos Santos 2012: 94), tax increases used for servicing public debt may have a similar exploitative character. This ‘new’ taxation may alter the terms of further labour relations within accumulation processes, changing the aggregate exploitation rate to recover a given profit level (to be) undermined by taxation.

We saw earlier that the Brazilian tax structure is more onerous for the working classes than for the proprietary ones because the indirect taxation is higher than direct taxation (see Figure 3). But this regressiveness is not confined to the tax realm: it is a reality of the fiscal structure in a broader scope, also considering public debt. In the period under analysis, the Brazilian state has been managing a system of redistribution of wealth that, combining debt and taxation, became even more regressive than the tax system on its own. The public debt is not just a temporary replacement of taxes that, for some reason, are not available for collection in the present. It offers the possibility of a real increase in taxation as large as the size of interest payments. Figure 5 presents an example of what I mean by the regressive fiscal structure established by the organic combination of tax and interest on public debt. It reveals that federal taxes have not been as high as generally claimed by right-wing analysts who, drawing on aggregate level of analyses, say the burden levies on the whole society.

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Figure 5.

Gross taxes and net taxes as percentages of GDP, 1995-2012.

Beyond the fact that capitalists effectively do not carry any actual tax burden – they only transfer to state coffers a portion of surplus-value – the amounts they have been delivering to the state are even lower than is claimed, due to the interest on public debt. During the 1995-2012 period, the total of federal taxes averaged 13.9 per cent of GDP, but when interest on public debt is subtracted, they account for 9.4 per cent of GDP. Considering only direct taxes on income and property, they accounted for 6.3 per cent and 1.8 per cent of GDP respectively. Logically, in both cases the differences between gross and net taxations are the same, namely the 4.6 per cent of GDP that interest on public debt amounted to during that period (see Figure 4). However, since this interest is paid to virtually the same people who ‘pay’ taxes on income, they were the ones who received the higher benefit. ¹⁴ It turns out that this interest works as a negative tax, since the state returns it to the very money capitalists and other individuals who buy public debt securities.

When one realises that interest on public debt is a negative tax, that this tax is negative for the proprietary classes, and that the positive tax – that which funds state spending – comes from the producing classes, the complex of public debt and taxation reveals itself to be a system that deepens labour exploitation. This does not occur in the sense of the compression of necessary labour and the corresponding amplification of surplus labour that takes place in a finished capitalist production process. It is rather in a sense of a class struggle that takes place in the circulation sphere, which nevertheless points to a potential rise in the aggregate rate of surplus-value in the future. This portion may be higher or lower not only because of economic aspects sensu stricto – production process – but also because of sociological aspects related to the class struggles carried out through the state.

This fiscal realm can then be characterised as a sub-field of the socially constructed economic field, where actors confront each other with different endowments, where the effectiveness of actions in attaining their goals will depend on the position of each one within the structure of capital distribution (Bourdieu 1997). A significant result of this confrontation has been the increased financial profits at the expense of reduced profits from the production of goods, which has depressed real wages and raised the rate of exploitation of labour-power (De Oliveira 2006), a reality that has been observed in Brazilian industry since the mid-1990s (Boito 2007). Thus, since finance is organic to the entire capitalist accumulation process, which also encompasses the system of public debt and taxation, this system allows increasing the aggregate rate of exploitation of labour similarly to what private credit does in the financialisation of workers’ income. Actually, the whole superstructure of the finance-led regime of accumulation is composed of an intricate web of financial mechanisms that involve both private and state credit and assets, as well as both private and state agents whose relations are mediated by these financial mechanisms.

It is difficult to empirically analyse the ability of taxation to increase the rate of exploitation, which has been discussed on a theoretical level. This is also true of the public debt and taxation system. One will never be able to specify how much of the social wealth distributed refers to portions of either necessary or surplus labour or how the latter may be increased in the next cycle of capitalist production. Nonetheless, if it is correct to assume that taxation itself may increase the rate of future exploitation, even though it is not possible to precisely indicate to what degree, at least the general trend can be grasped. In the Brazilian case, what can be affirmed is that the results of the neoliberal and financial changes have been continuously unfavourable to the working classes. The gap between the workers’ share and the capital’s share of the total output has considerably increased in favour of the latter, as indicated in Figure 6. This supports the claim that, ‘judged by its own class objectives, neoliberalism was an unquestionable success’ (Duménil & Lévy 2011: 25).

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Figure 6.

Functional distribution of income as percentages of GDP, 1990-2009.

Figure 6 shows the percentage distribution of income, represented by GDP, between the main appropriators of the wealth produced annually. One can see that in the early 1990s, shortly before the Real Plan (1994), there were regular alternations between labour and capital in terms of which appropriated the larger portion of GDP. Since 1994, this has no longer occurred, and labour did not appropriate the largest portion again until 2009. During the 1994-2008 period, the income appropriated by owners and self-employed individuals exceeded labour’s share by an annual average of 3.8 per cent of GDP. It is worth recalling that interest on public debt, which is eventually transformed into income to money capitalists, amounted to an annual average of 5.3 per cent of GDP during the same 1994-2008 period (see Figure 4). Labour’s reduced share of GDP and the interest appropriated by money capitalists combined have in some measure led to an increase in the aggregate rate of labour exploitation. This whole movement confirms Amin’s (2008) analysis of how high interest rates and oligopolistic financial markets have allowed finance to appropriate significant portions of value – roughly GDP minus labour income – in the last several decades.

This phenomenon cannot be fully explained by the configuration of the system of public debt and taxes, but this configuration has a share in the explanation. In a scenario of rising interest rates, agents react accordingly. In high interest rate environments, companies demand higher returns on investments and seek to pay them off in shorter time periods (Krippner 2011). They tend to increase the pressure on labour to extract enough surplus-value not only to attain a certain profit rate target for functioning capitalists, but this rate must now be high enough so that an additional amount can be appropriated by finance. Even if functioning capitalists do not divert capital to financial investments, they rely on finance to fund production. Moreover, since interest rates set the opportunity costs of either functioning or money capital, any raise in these rates will raise the minimum level of profitability of productive activity. Functioning capital does this by making labour-power cheaper, and, as Marx (1973 [1844]: 107) affirmed, this occurs ‘the more commodities [the worker] creates’.

As shown in Figure 7, labour productivity in Brazilian industry has risen considerably throughout the period analysed, in relation to sales revenue. These revenues grew at rates considerably accelerated relative to the amount of hours worked, which, after having declined from 1992 to 1999, remained relatively stable from 2000 to 2012. Meanwhile, hours worked declined about 11 per cent, while output rose about 108 per cent between 1992 and 2012. Pastor and Dymski (1991) observed an analogous increase in foreign debt interest accompanied by a reduction of the share of wages in industrial production in several Latin American countries between 1970 and the mid-1980s. Since then, Brazil has followed a fiscal strategy that has recently spread through the global North: ‘the working classes, directly through wage repression to boost international competitiveness, and indirectly through tax increases and public sector cuts, should pay for the crisis and for the restoration of the economic viability of capitalist control over the financial system’ (Albo & Evans 2010: 286).

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Figure 7.

Labour productivity in industry, 1992-2012.

Conclusion

This paper analysed the state fiscal system composed of the public debt and taxation based on the hypothesis that more than enabling a redistribution of wealth, this fiscal structure has deepened the aggregate rate of labour exploitation. One of the most important achievements of the superstructural configuration analysed has been a system of expropriation that released some capitalists from the drawbacks of direct labour exploitation at the point of production. Through this system, money capitalists may exert pressure on the working class via financial markets and eventually appropriate increasing shares of the fruits of their labour. A scenario of high interest rates increases profit expectations and consequently the pressure on workers.

The Brazilian state has become an important competitor for capital circulating in financial markets, with the ability to arbitrate rules and thus attract capital more easily than other institutions. Companies do not have the same conditions as the state does when borrowing; for instance, the latter does not disappear as easily and frequently as the former. One consequence is that higher public debt has led the state to tax more. By so doing, it has increased the rate of aggregate surplus-value, relying on its legitimacy to levy taxes to pay interest on the public debt and present this tax bill to the working classes. In the old Marxian terms, it follows that the workers, besides working a part of the day for themselves, work part of the day without pay for the functioning capitalists, another part of the day without pay for the state and must also work an additional part of the day without pay for the money capitalists.

All in all, the system composed of public debt and taxation, backed by the institutional guarantees provided by the state, has been an important mechanism for redistribution of the fruits of labour. This format has led to several historical phenomena to be observed in Brazil today: a peripheral economy in which one of the most important mechanisms of both early and late capitalism provides relevant magnitudes of what Marx characterised as primitive accumulation. Nevertheless, in the era of financialisation, this primitive character has become organic to the entire accumulation process, to which the fiscal superstructure has become of critical importance as capitalism has faced limits created by its general logic and particularly by its neoliberal variation.