Abstract
When Luiz Inacio Lula da Silva, or for short Lula, took office as President of Brazil in 2002, big hopes and high expectations were attached to his leadership. On the one hand, many people around the globe expected to witness an approach to economic and social development in an emerging market economy of some remarkable size and political power beyond the so-called “Washington Consensus” usually implemented by the IMF. On the other hand, many people and voters for Lula hoped for an improvement of their poor living conditions by a strengthening of Brazil’s fragile economy, a more egalitarian (re-)distribution of wealth and income, and better, wider social protection and societal integration than before.
The book edited by Philip Arestis and Alfredo Saad-Filho sets out to explore whether Lula could deliver on these hopes and expectations in his first term from 2002 to 2006. Although no orientation is given for clustering the chapters of the book into different sections, I would propose the following subdivison: in the first four chapters of the book (excluding the short introduction by the editors), the political economy dimensions of Lula’s government are examined, while the next four chapters are concerned with different policy fields. Finally, the last three chapters center around instrumental and technical issues of the policy-making of Lula’s administration.
With regard to the political economy dimension, Alfredo Saad-Filho describes the transformation of the Brazilian left from its origins as an anarcho-communist and Marxist movement in the first half of the 20th century to Lula’s rather conventional social democratic Workers’ Party (Partido dos Trabalhadores, PT) which, once in power, turned against most of its former convictions: radical social reforms, resistance against privatization and deindustrialization, and the use of alternative economic policies. Instead, Lula’s government subscribed to most orthodox policies that make up the “Washington Consensus”: restrictive macroeconomic policies, privatization, and a focus on FDI-led economic growth. Moreover, Saad-Filho identifies the triggers to such a transformation: exposure to international financial markets and the lack of a clear alternative program to which Lula could have been committed. These assessments are reinforced in the following chapters. For Fernando Cardim de Carvalho, the conservativeness of the Lula administration not only was evident in the very policy instruments used and the arguably inadequate outcomes – although Lula’s social policies are probably the most redistributive in Brazilian history – but also in the lack of any attempt to empower the people in subordinate positions and pari passu to disempower the elite. Leda Maria Paulani emphasizes that this particular lack in momentum to structurally change the Brazilian society and pursue a model of “financial valorization” (as she terms it) instead, was a deliberate choice. Finally, Cardim de Carvalho and Fernando Ferrari-Filho highlight the apparent lack of alternative approaches to economic and social issues in the first place and the objective constraint to policy alternatives: the power of international financial markets due to a liberalization of the capital account during the 1990s.
In the second part of the book, various sectoral policies are discussed allowing the claims made in the first part to be tested. Alcino Ferreira Camara Neto and Matias Vernengo start with taking a look at Lula’s social policies. Social policy spending increased during the first Lula administration, with a positive redistributive impact improving some social indicators, which helps to explain the electoral success of Lula gaining him a second period in government. While the Lula government eschewed a radical social policy that could be embedded in a Keynesian framework of expansionary macropolicies, and educational and family policies that empower the people to participate in society, the Lula government framed social policy as a device for mitigating the social problems of market failures and of empowering workers to participate in the (labor) market.
In the next two chapters, Philip Arestis and his co-authors Alvaro Angeriz, Tirthankar Chakravarty, Luiz Fernando de Paula, and Fernando Ferrari-Filho investigate the performance of inflation targeting (IT) as the new consensus on monetary policy. Although the IT monetary policy shows a good record with respect to inflation performance, it is less clear whether these achievements are a distinct feature of IT orientations and whether this comes without any cost to the real sector of the economy. The Brazilian Central Bank had already adopted an exchange rate-augmented IT strategy by 1999, i.e. before Lula’s administration took office, maintaining comparatively low inflation rates as did many other non-IT countries. On the other hand, interest rates and output volatility were rather high, while the growth rate over the period was rather low. What may be seen as real cost to achieving price stability via an IT strategy may also be interpreted as initial investment for achieving long-term credibility. Unfortunately, these questions have not been addressed and no outlook for a consistent alternative to an IT strategy is given. Finally, in the last policy chapter, Frederico G. Jayme Jr. and Marco Crocco investigate Brazilian federalism, i.e. the posibilities and achievements of regional developments via fiscal redistribution of tax resources, regional stimuli, and credit funds. Although the Lula government succeeded in increasing the redistribution of financial resources via the regional (constitutional) development funds, the regional allocation of credit from public banks remains extremely uneven, thereby aggravating regional imbalances in Brazil.
The last part of the book comprises three chapters that address technical-instrumental issues. Lecio Morais and Alfredo Saad-Filho point out that the definition of the Brazilian public sector borrowing requirement (PSBR) – which is usually taken as a measure of the fiscal policy stance of a government – includes several non-fiscal items such as the cost of monetary policy (e.g. the net cost of the rediscount of the Brazilian Central Bank) that blur the informational content of the PSBR. Carlos Vidotto and Joao Sicsu highlight the importance of the – too high – interest rate for the understanding of the performance of the Brazilian economy in general and single issues such as the public deficit and the exchange rate in particular. Rather than providing a story of causal links, the authors identify open questions and formulate a research agenda. The book ends with a chapter on debt management written by Rogerio Sobreira and Paulo Gaya. The authors evaluate the achievement of Lula’s administration in restructuring the public debt towards longer maturities and a higher share of fixed-income debt. They argue convincingly but also somewhat unsurprisingly that debt management with this intention is successful only when the level of uncertainty about the future fiscal policy stance and interest rate movements is reduced, something which the Lula administration only succeeded in establishing at the end of its first term.
To summarize: the editors have provided an elusive and readable overview of the first term of Lula da Silva’s presidency. Although there are some almost unavoidable repetitions, the chapters nicely build on each other and form a conclusive picture of the political economy of Brazil; this is at least true for the first two parts of the book. The last part clearly stands apart and does not really contribute anything of substance to the editors’ objective: “…to cover recent political economy developments in Brazil…” (1). The book could have profited from incorporating a chapter comparing Lula’s administration with some governments equally charged with high hopes and expectations such as the South African government under Mandella/Mbeki and a concluding chapter that could have addressed policy alternatives. Nevertheless, the book in its successful mixture of economic and politico-economic approaches can serve as a blueprint for further country studies to come.