Brazil: The Lula Government and Financial

Globalization*

alvaro bianchi, State University of Campinas

ruy braga, University of São Paulo

Abstract

The electoral victory of Luís Inácio “Lula” da Silva in the presidential elections
of 2002 epitomized two decades of social and political transformations in Brazil.
Nevertheless, instead of launching an alternative mode of doing politics, the program
of the Workers’ Party affirmed a state logic with a view to gradually updating
the economic structure of Brazilian capitalism by means of successive transitions
directed by the state, avoiding the active intervention of the subaltern classes in
this process. In this logic are inscribed fiscal discipline, social security reform, and
giving value to private pension funds. Such funds established a bridge that makes
viable the organic alliance of a union bureaucracy, now the manager of these funds,
and globalized financial capital.

Introduction
The election to president of former metalworker Luís Inácio “Lula” da Silva
in November of 2002 reflected a profound desire for change in a Brazilian
society exhausted by more that a decade of neo-liberal experiments. This desire
for transformation was expressed so strongly that social and political analysts
commonly referred to it. It is not only the desire for economic change, and this is
where we begin to notice a difference among analysts. It is also a desire for social
and political transformation, and this is perhaps more significant for the present
analysis. The vote for Lula expressed for millions the possibility of transforming

* Alvaro Bianchi is Professor, Department of Political Science, State University of Campinas

(albianchi@terra.com.br) and Ruy Braga is Professor, Department of Sociology, University of São
Paulo (ruy.braga@uol.com.br). This article was translated by Professor Robert Anderson, University
of North Carolina at Chapel Hill.

© The University of North Carolina Press Social Forces, June 2005, 83(4):1745–1762
1746 / Social Forces 83:4, June 2005
politics into something that can be done in the first person plural —“us”— no
longer exclusively of the third person —“them.”
The symbolism of this winning candidacy is extremely strong. Lula is a
Northeastern migrant who fled the hunger that overran his native town of
Garanhuns, in the interior of the state of Pernambuco, together with his mother
and seven siblings. He is a metal lathe operator, who left school after the first few
years. He is a unionist who in the late seventies inscribed his name forever in the
history of Brazil. Voting for him was, for many, an exercise in recreating social
identity and of creating a political consciousness. It meant affirming something
that is usually hidden and denied AND finding oneself again. It was the revenge
of the defeated, of the humiliated, of the despised.
However, the very act of reconstructing the identity of the subaltern classes
was only possible insofar as Lula’s electoral strength expressed a change in the
relation of forces in Latin America and, at the same time, was the founding
moment of this change. A series of events that surfaced powerfully and with
multiple significance in Latin American politics in the year of 2002: the defeat of
the military-business class coup in Venezuela, the social rebellion in Argentina, the
electoral performance of Bolivian peasant leader Evo Morales, and the victory of
ex-colonel Lúcio Gutiérrez in Ecuador. On the one hand, these events indicate
the weakening of the neo-liberal project on our continent, resulting in part from
its economic exhaustion, and, on the other hand, indicate the reactivation of
social movements after the retraction of the ‘90s.
Brazil did not find itself at the front of the continental transformation in
the relation of forces. In going against its own historical dynamic, its rhythm
was slower. It was the last country to get onto the neo-liberal boat, and it was
also the last one to try to get off. In fact, the social radicalization in Argentina,
Ecuador, Bolivia, and Venezuela preceded the events in Brazil and took the
form of direct action by the social movements. Even when this radicalization
was expressed through electoral victories in these other countries, they were
preceded by important social agitation that opened the way for the rise of political
leadership directly or indirectly identified with these movements. This was not
the case in Brazil.
Paradoxically, the election of a candidate whose personal trajectory is deeply
identified with the union and political movements of the Brazilian working class
occurred in a context in which the reactivation of these movements had not yet
happened. It expresses, therefore, political changes that took place slowly below
the surface of society: a profound weakening of the neoliberal model, a loss of
faith in traditional politicians, and a silent revolt against the dominant classes
that prospered amid the increasing misery and social inequality.
Even so, as we were saying above, the electoral victory is also a founding
moment of the present relation of forces. It can allow these movements,
which had been taking shape underground, to accelerate and break through to
 The Lula Government and Financial Globalization / 1747
the political surface, and it can transform the potential energy of these social
movements into the mechanical energy of change. The collective identity created
around the figure of the president-elect can put hope into motion, transforming
it into struggle fed by the deep social resentments of the subaltern classes, by the
desire for change, and by the perception that these classes have of the potential
change in the relation of social forces.
The social movements interpret the electoral victory as the beginning of an
era of change. Thus, in its “Letter to the Brazilian People and to President Lula,”
the National Steering Committee of the Landless Rural Workers’ Movement
(Movimento dos Trabalhadores Rurais Sem Terra, or MST) stated:
We have the opportunity at this time to carry out the historic task of
implementing a true agrarian reform in order to democratize access to
land and to eliminate hunger, unemployment, and social injustices. We
call on all workers, male and female, on Brazilian society in general, to
organize, to mobilize, and to help us carry out agrarian reform. A more
just and equal Brazil is possible. And this is the time! (MST 2002)
This is not, however, the only voice heard. The National Board of the Central
Workers’ Organization (Central Única dos Trabalhadores or CUT) has not made
any call to action or mobilization. Its most important resolution was to form
“six CUT working groups (tax and fiscal reform, union and labor reform, social
security reform, agrarian and agricultural reform, employment and income, and
the state and public policy),” which will have the goal of presenting proposals to
the new government and of participating in all of the “forums of negotiation.”1

From the Logic of Difference to the Logic of the State

Indeed, the electoral victory Lula and the Workers’ Party (Partido dos
Trabalhadores, or PT) epitomized more than two decades of social and political
transformations in Brazil. Great transformations. In these two decades historical
time was accelerated, fragmented, convulsed and broken, creating a country that
would have been recognized only with difficulty in the preceding decades, even
though its social formation was marked with centuries-old continuities. Such
temporal acceleration was not only experienced in the great metropolises, where
it was to be expected, but also in the rural milieu, where the slow tempo of
natural cycles, with its seasons, its days and nights, was shaken by the intrusion
of politics, with its own rhythm.
Historical time gained thrust and speed from the unusual decision to Seize the
Moment. On 12 May 1978, the workers at the Saab-Scania truck factory, in the
“São Paulo ABC” — the industrial zone formed by Santo Amaro, São Bernardo,
São Caetano and other municipalities in the metropolitan São Paulo area —
decided to shut down the machinery and cross their arms. Demanding a wage
1748 / Social Forces 83:4, June 2005
increase of about 20%, the two thousand metalworkers of the company began
a landmark strike. They broke the cadenced rhythm of the clock, they stopped
the tempo of production, and with this, they appropriated political time.
The work stoppage by the Saab-Scania workers was the flashpoint for an
intense workers’ rights movement that would spread throughout the region and
beyond. In the course of that year, about a half a million workers carried out
strikes, and in the following year the figure reached 3,241,500 strikers, giving
rise to a long cycle of labor struggles and organization of the working class that
lasted practically without interruption until 1989.
The movements that took place in the São Paulo ABC at the end of the 1970s
started a broad struggle against labor overexploitation and repressive political
legislation that subordinated the union movement to the state and restricted forms
of workers’ representation (Antunes 1992). Marked by its spontaneity and by
its going on the offensive, such strikes launched new trade unionist and political
practices. Rejecting the social pacts and immobilization that had characterized
a good part of the Brazilian Left up until then, the ABC strikes created a social
movement founded on social confrontation and class independence.
The birth of the PT is connected insolubly to this strike movement. By
the middle of 1978, the newspaper Versus had already begun to circulate the
proposal to create a party of workers without bosses that would defy the military
dictatorship then in power. Such a proposal gained voice in the thesis that
the Santo André Metalworkers’ Union presented at the 9th Convention of the
Metalworkers’ of the State of São Paulo, held in the city of Lins in January of
1979 (PT 1998:47-48).
On 1 May 1979, Brazilian Labor Day, a “Letter of Principles of the Workers’
Party,” was circulated. It reaffirmed the following proposal: “Repudiating all
forms of political manipulation of the exploited masses, including, above all,
manipulations particular to the pre-64 regime, the PT refuses to accept among its
ranks representatives of the exploitative classes. In other words, the Workers’ Party
is a party without bosses!”(PT 1998:53) (By this, the Letter of Principles referred
to the paternalistic and corporatist policies of the pre-dictatorship republic.)2
In its early years, the strategic definitions of the PT’s political project
continuously manifested extreme generality and ambiguity. The “Program of the
Party,” approved at the National Founding Meeting in October of 1980, proposes
building, in the struggle against the repressive regime, “an alternative of economic
and political power, dismantling the repressive machine and guaranteeing the
broadest freedoms to workers and the oppressed, that may be supported in
the mobilization and organization of the popular movement and that may be
an expression of its right and will to decide the destinies of the country.” The
“Program” defined this alternative power as a constitutive of a society without
exploited or exploiters and stated that its construction would go against the
 The Lula Government and Financial Globalization / 1749
interests of major national and international capital; yet, it said little about the
ways of arriving at that power(PT 1998:68-69).
In its early years, what gave the Party its strength was not its strategic plan
but rather its social force. What attracted union and youth movement militants
was the possibility of acting effectively through political participation in a party
that did not bear the heavy stigma of immobilization and bureaucratism that
had drowned the Brazilian Left before the 1964 military coup. In this sense, the
PT consolidated the process of the Brazilian working class’s social and political
reconfiguration. In the 1970s, a multiplicity of social movements contested the
old forms of institutionalization of the politics of the subaltern classes (see Sader
1995). What made the new party promising was its logic of difference (Keck
1997).
The construction of the Workers’ Party represented, thus, the founding of a
practical classism — that is, an empirical class action, without clear programmatic
definitions — the political-organizational translation of that spontaneous strike
movement that had shaken the military dictatorship at the end of the 1970s,
profoundly altering the shape of the exercise of politics in Brazil (Bianchi
2001:106-116). The marks of this practical classism were its almost instinctive
rebuff of politics of collaboration, agreements and alliances with the bourgeoisie,
its affirmation in its birthplace of an anticapitalist calling, and a belief in the
miraculous power of the “bases of the party.” This practical, spontaneous
dimension was what gave the Workers’ Party the vigor and momentum capable of
renewing the political task of the working class and, in reaction, of the dominant
classes themselves. It was the political affirmation of a force unimagined and
unexpected up to that time.
The spontaneous practices of this classism soon became a theoretical
spontaneity. The absence of more precise strategic definitions was credited to the
plasticity of the very movement and was presented as the greatest virtue of the
Party. From that came the insistence that the PT was not born “ready made” and
that its program arose “from the political practice of its social bases” and would
be fleshed out “by the political practice of the workers.” (PT 1998:70-71)
In Lula’s speech at the 1st National Convention of the Party in 1981, this
denial of theory was made explicit. Referring to those who asked about the
PT’s ideology and conception of socialism, Lula responded that, “those questions
only serve to express mistrust in relation to the political capacity of the Brazilian
workers to define their own path.” Further on in the same speech he presented
what would be his own conception:
The socialism that we want is defined by all of the people, as a concrete
requirement of popular struggles, as a global political and economic
response to all of the concrete aspirations that the PT might encounter.
It would be very easy, sitting here comfortably in the precincts of the
1750 / Social Forces 83:4, June 2005
Senate of the Republic, for us to decide on one definition or another. It
would be very easy and very wrong. The socialism that we want will not
be born of a decree, neither ours, nor anyone’s. The socialism that we
want will be defined in the daily struggles, in the same way that we are
building the PT (PT 1998:114).
The constitution of a new societal project was reduced, thus, to a spontaneous
movement. In the conflict of rationalities that takes place in the class struggle in
action, what the PT had to offer was only the act of struggle itself. This absenteeist
attitude in the conflict of rationalities did nothing more than to create a passive
subalternity of the Party in the ideological terrain, feeding an increasingly strong
theoretical eclecticism. Without establishing a conception of an alternative world,
it imprisoned those energies within a trade-unionist horizon far short of a societal
project capable of affirming a new order. The political identity the Party had
constructed was limited. It had not been translated into a theoretical identity
that might understand in an innovative and radical way the problems posed by
the complex Brazilian and Latin American reality. It limited itself to some vague
phrases the reproduction of a shared theoretical sense. It did not produce new
knowledge; it reproduced old truths.
This theoretical spontaneity got its strength from the social energy of the cycle
of strikes that began in 1978 and was limited to that energy. But the practical
classism that fed and energized the reorganization of the subaltern classes’ political
and union movement was short-lived. It could not withstand the weight of the
PT’s electoral victories. The Party had elected only two mayors in the first election
in which it participated in 1982. In 2000, it elected 2,485 members of municipal
councils and 187 mayors six of which headed state capitals, including the city
of São Paulo, the largest and most important in the country. In the national
elections, the growth was also impressive: 8 federal deputies in 1982; 16 in 1986;
35 in 1990; 49 in 1994; 58 in 1998; and 91 in 2002.
The PT’s rise within the state apparatus was accompanied by the strengthening
of a party bureaucracy increasingly removed from the Party’s bases. By the mid-
1980s, the groups that should have organized the base militants had shown clear
signs of atrophy. In the beginning of the 1980s, they simply no longer existed,
having been substituted by the candidates’ electoral committees, thus reproducing
the personalization of Brazilian politics, dictated by votes for a name and not
for a party.
This transformation of the Party is graphically illustrated by the growing
presence of political employees and by an accelerated decrease in the number
of unionists at the meetings of the PT. At the 11th National Meeting, held in
1997, 60% of the delegates were professional politicians: 18% were members of
congress; 13% were congressional aides; 9% were paid militants of the social
movements; 8% held positions of trust in the state and municipal governments;
6% were paid directors of the PT; 2% were employees of the Party’s internal
 The Lula Government and Financial Globalization / 1751
constituencies; 1% were Party aides or employees; 1% were mayors or governors.
Only 31% were not professional politicians (Garcia 2001:93-105).
The large space that this body of political and public employees occupied
within the Party apparatus took its toll. Bit by bit, the practical classism diluted
its social points of reference and retained only its pragmatic dimension (for a
critique of political pragmatism in Brazil see Lessa 1995). The trade-unionist
horizon had its social content modified. The logic of difference that had oriented
the early years of the trying life of the Party gradually yielded to the logic of the
state sustained by the large number of members of congress, mayors, governors
and their cortege of aides. Such logic rested on the concept of an ambivalent state,
supposedly distanced from determinations of class, the bearer of a heightened
capacity of adaptation to the new content that its directors had incorporated.
(For a critique of the ambivalent state, see Braga 2003.)
Without running into ideological and theoretical barriers, the raw pragmatism
of realpolitik flooded party life, impregnating the resolutions of its meetings and
conventions, and especially the political practice of its directors. Adherence to a
state logic was not, however, simple and mechanical. There were great conflicts
within the Party, with the expulsion of at least one important current — exactly
that which, through the newspaper Versus, had proposed the creation of the PT.
There was controversy over the institutionalization of statutory mechanisms
that restrict public expression of differences and the censorship of the current
of the so-called PT Left. But after just a few years the state logic became largely
overwhelming.
When the Workers’ Party announced the beginning of a strategic debate at its
1st Convention, held in 1991, it could no longer be the translation of practical
classism. The defeat of the Lula candidacy in 1989, the defeat of the civil servant
strike in 1990, and the first steps in the implementation of a neoliberal model
had dissipated the energies of the social movements and paved the way for the
consolidation of a state logic of management of politics within the party.
Already in the debates leading up to the 1st Convention, the consolidation
of this logic asserted itself with a force and clarity unaccustomed in the PT
tradition. The PT’s Secretary for International Relations, Marco Aurélio Garcia,
presented its consequences with crystal clarity: “Political democracy cannot only
be understood as a way of arriving at social democracy or a better position from
which to fight for it. Political democracy is an end in itself: it is a strategic value
as well as an enduring one. If this thesis is social democratic, patience: let us be
social democrats.” (Garcia 1990)
The final resolution of the Convention, titled simply Socialismo, was marked
by innumerable amendments introduced by the Leftist constituencies, but even so
it lost its fundamental character: democracy sans phrase was defined as a universal
value. Socialism was conceived as a combination of “state planning and a socially
oriented market,” and, finally, power to work miracles stopped being of the “bases”
1752 / Social Forces 83:4, June 2005
— the rank and file — and passed to a “state [that] exercises regulating activity
over the economy through its own enterprises and mechanisms of control of the
financial system, of tax policy, of prices, of credit, of antitrust legislation, and of
consumer, wage earner, and small property owner protections.” (PT 1998:502)
The theme was taken up again recently on the occasion of a series of debates
that the Workers’ Party held on socialism. In a contribution that sums up to a
great extent the majority view of the Party, economist Paul Singer developed a
proposal of market socialism:
The function of the socialist market is to make viable the freedom of
initiative of individuals or groups with new ideas or plans. They should be
encouraged to offer their products without restrictions and without having
to get permission from some planning jurisdiction. [. . .] Competition in
these cases should last until the consumers have decided to adopt the new
products or stick with the old ones (Singer 2000).
In his elaboration, the argument does not clarify either why competition should
be held in check or why it would not give rise to relations of exploitation.
Radicalizing Singer’s argument, Lula registered in this debate the
contradiction: Human beings are eminently competitive. To the extent
that competitive capacity of the human being is blocked and everyone is
set up to earn the same in a factory, that factory’s chances of success are
cut short. People are leveled from below and not from above. Socialism
has not managed to solve this problem (Singer 2000:72).
Evidently, there is no viable program in the absence of a subject able to bring
it about. For this reason, at the heart of the PT project, next to the market we
find the state.
The solution to the problem introduced by Lula takes up once again the
theme of state protagonism:
The market only functions if there is a very strong state regulating that
market and obliging it to fulfill some social contracts. The market alone
does not resolve this. To make the market compatible with a regulatory
state, able to guarantee people’s needs, would be the ideal. How to do
this is what is put before the PT (Singer 2000:73).
The arguments as well as the solution presented can only remind one of Proudhon.
Competition, and therefore the market, is presented as the mechanism capable
of affording equality and social development. There might be, however, the bad
side of competition: its most likely effect is to turn against those that participate
in it. Proudhon’s solution is analogous to the PT’s. The French philosopher
stated: “here, the matter of destroying competition would not be appropriate,
something as impossible as destroying freedom; rather, it is a matter of finding
the balance — I would say, to a good degree by policing.”3
A naturalized market and an essential, permanent human trait (competition)
together form the situation upon which socialism should be built. This is nothing
 The Lula Government and Financial Globalization / 1753
other than the exorcism of the evil of the market by means of the state, recovering
that which is potentially good: the opportunity to allow choices based on opinions.
The marketplace — that is the place of freedom. The Proudhonian regulatory
state is its guardian.
Defined in such a way, the PT’s socialism is transformed into a solid base for
a program of capitalist government that has as its goal overcoming the crisis of
the neo-liberal model. It is not a matter of building the future but managing
the present, removing what is bad or undesirable. A PT government makes
this exorcism of evil feasible, and it values what good the market presents, and
humanizes it. Guido Mantega, the new Minister of Planning and one of Lula’s
principal aides during the electoral campaign, summed up this objective thus in
response to what a Lula government would hope for:
I would say that the PT is a party of the modern Left, similar to the
Socialist Party of France, to the English Labor Party, to the Italian Left. I
would put it on this list of parties that aspire to and long for a capitalist
society because socialism is something totally undefined today; it no
longer exists. We do not seek a more efficient capitalism, rather one made
human (Mantega 2002).
Just as in Proudhon, the dialectic is mutilated, the immanent contradiction
becoming something that can be externalized and eliminated through state
management. In this way the dialectic is reduced to a game of good/bad
oppositions, capable of being eliminated through suppression of its poles. So
suppression (as opposed to dialectical overcoming) through political cancellation
of the bad side would permit the recreation of the situation on new bases. The
result of this operation is a constant reproduction of the previously existing by
means of a process of perfection and harmonization of the real. Let us recall
what Gramsci said about the Proudhonian “dialectic”:
There is in Proudhon a mutilation of Hegelianism and dialectic, as much
as in the Italian moderates; therefore, the critique of this politico-historic
conception is the same, always alive and current, as that contained in The
Philosophy of Misery. The philosophical error (of practical origin!) of such
a conception consists in the fact that in the dialectic process presupposes
“mechanically” that the thesis should be “preserved” by the antithesis in
order not to destroy the process itself, which therefore is “foreseen” as
an infinitely, mechanically, arbitrarily preset repetition (Gramsci 1977:
1220-1221).
If as a method we have a mutilated dialectic as a political program, we have
passive revolution. This and no other is the content of the PT government: the
gradual updating of the economic structure of capitalism by means of successive
transitions commanded by the state, avoiding the active intervention of the
subaltern classes in the process. Updating and not overcoming capitalism, as
Minister Mantega makes clear in his declaration. Such a strategy reproduces,
1754 / Social Forces 83:4, June 2005
under a new political command, the history of Brazilian capitalist development,
marked by permanent passive transformations carried out by a guiding state. Far
from making real the hope of Brazil as a “country of the future,” such processes
have done nothing other than recreate the past through the management of the
present.

Social Liberalism as “Passive Revolution”

The perspective of passive revolution outlined above oriented the Programa de
Governo 2002 Coligação Lula Presidente (PT 2002). Stripped of any reference
to socialism (the word is not present in the 88-page document), the PT exit
program for the neo-liberal crisis rested mainly in the broadest proposal for
implementation of the “new social contract” under the tutelage of a Proudhonian
state of the social liberal sort. In the future government, the social liberal state
would assume the role of court of final appeal, guaranteeing, supposedly, the
mediation between the imperatives of the market and the social demands, between
the interests of the dominant and the subaltern, through the intermediary of the
new social contract:
The new model cannot be the product of unilateral government decisions,
such as occurs today, nor will it be implemented by decree, in a voluntarist
way. It will be the fruit of a broad national negotiation that must lead to
an authentic alliance throughout the country, to new social contract, able
to ensure growth with stability. A premise of this transition will naturally
be respect for the country’s contracts and obligations (da Silva 2002).
With the diffusion of public policies appropriate to the action of a developmentalist
manager, the state would be the moderator of conflicts, the moving force of
“hope,” and the economy would no longer be thought of as an autonomous
instance seeking to incorporate the working class peacefully. The social liberal state
would shape the universe of the commodity fetish at the expense of regulatory
initiatives over prices, wages, investments, subsidies, etc. As is pointed out in the
Programa de Governo 2002, “the huge task of creating an economic alternative to
confront and beat the historical challenge of social exclusion requires the active
presence and regulatory action of the state over the marketplace, preventing the
predatory behavior of monopolies and oligopolies.” (PT 2002:8)
Upon stabilizing the contradictory, integrating elements of the subaltern
classes into its apparatus, the social liberal state would be able to build a
correlation between economic objectives and political objectives, guaranteeing
the circularity of public policies that would rely on the economic to promote
the social. The expansion of the domestic market would become the means of
rescuing the economy from distress. The authority of the state would find itself
immersed in the economy because of the management of global demand, to
 The Lula Government and Financial Globalization / 1755
the extent that the coercive forces of the market would be preserved within the
social liberal state:
The state cannot limit its actions to administering the short term and
emergency issues, but it must plan for a strategic long term vision,
articulating interests and coordinating public and private investments that
pour into sustained growth. This implies reactivating economic planning,
ensuring farther horizon for investments (PT 2002: 42).
However, expansion of the domestic market through the intermediary of the
social liberal state is reduced only to expansion of the financial market. The
orientation of the Lula government strengthened the Brazilian stock market by
instrumentalizing wage and pension funds. As was already clear in the government
program: “pension funds have established themselves as an increasingly important
mechanism of mobilizing wage earners’ savings. This would also create the
opportunity of directing additional resources to special credit institutions,
reinforcing their funds available for loan.” (PT 2002: 43-44)
Causing the Brazilian stock market to become an effective instrument for
leveraging productive investments illustrates in great measure the central concern
of the Lula government: the stimulated involvement of Brazilian workers in
the “strengthening of the future domestic market.” The PT proposal of the
financialization [financeirização] of wages vindicates the engagement of pension
funds — particularly the resources coming from wage funds, like the Time of
Service Security Fund (Fundo de Garantia por Tempo de Serviço or FGTS) but
also the use of stock investments with supposed worker participation in the
management of actually mobilized or potentially useable resources.
It is worth recalling that the Fernando Henrique Cardoso government (1994-
2002) was a pioneer in the use of resources from the wage funds for capitalization
of state companies like Petrobrás [the national oil company] or privatized firms
like the Companhia Vale do Rio Doce (the formerly semipublic iron and steel
company). Or rather, the strengthening of the Brazilian capital market through
the use of resources from wage and pension funds joins a movement already
begun by the previous government that is not very novel in conceptual terms.
The political novelty derives from the government’s incorporation of the proposal
from a party on the Left of financialization of the wage funds with the goal of
making social security reform viable.

Fiscal Discipline and Regressive Income Distribution

Lula’s Social Security reform continued the changes begun during the Cardoso
government with a delimitation of the benefits ceiling for the private sector. The
Lula government’s reform took aim at the public sector. Proposed Constitutional
Amendment 40 of 2003 (PEC 40/03) directed to the National Congress by the
1756 / Social Forces 83:4, June 2005
Lula government limited the retirement benefit ceiling and raised the minimum
retirement age to 55 for women and 60 for men, requiring social security
contribution of retirees and pensioners, and creating a system of complementary
private retirement funds, among other changes in the legislation formerly in
effect. The changes hit workers who were then in public service, eliminating
rights already acquired and creating an exception for the judicial sector. Civil
servants organized a strike that contested the government’s policy, although it
has not been able to overturn it.
The defenders of the reform mustered two arguments: the first, fiscal; the
second social. The fiscal reform did nothing more than reproduce the discourse
of the Cardoso government: public social security is in the red (for a critique of
the fiscal argument in the Lula government see Andrade 2003:21-25; Granemann
forthcoming). In 1995, Proposed Constitutional Amendment 33 (PEC 33/95),
reforming the social security system, was founded on the thesis of structural
bankruptcy of the system. PEC 33/95 did away with the retirement for time of
service, raised the minimum retirement age, and established a ceiling of benefits
for workers in the private sector of R$ 1,200.4 Echoing the World Bank report
(World Bank 1994), the Cardoso government’s social security reform proposal
asserted that “the rapid aging of the Brazilian population would impose a heavy
fiscal burden on the a relatively small work force. It is evident that that fiscal
horizon is neither desirable nor executable.” (Presidência da República 1997)
The 20th Amendment to the Constitution, approved in 1998 during the
Cardoso administration, initiated social security reform. In the fiscal argument,
social security reform should lead to a complementary system of private
retirement funds through the establishment of pension funds. Such a system
would unburden the country and, at the same time, would constitute a domestic
savings able to finance economic growth. What is important to point out is that
Lula’s government kept the fiscal argument that was made in Lula’s campaign
platform.
In his inaugural address Finance Minister Antonio Palocci, was already
proclaiming the argument:
The current public account imbalance has to be faced with vigor and
determination. A planned adjustment of the public budget is essential.
Thus we are committed to social security reform as a priority of this
government. What is more, we said in the campaign, we said in the
transition, and we say now: we will create the primary surplus necessary
to guarantee the sustainability of the public debt. This is the most direct
way to reduce Brazil’s risk and interest rates so as to make possible the
resumption of growth (Palocci 2003).
In defense of the fiscal demand for reform, Lula has not stinted in openly
manipulating the social security numbers in order to show it as running a
deficit. The National Union of Federal Revenue Financial Auditors (Sindicato
 The Lula Government and Financial Globalization / 1757
Nacional dos Auditores Fiscais da Receita Federal — Unafisco) and the National
Association of Social Security Inspectors (Associação Nacional dos Fiscais da
Previdência Social — Anfip) argued repeatedly in their publications that the deficit
was forged discounting the allocation destined for payment of the interest on
the foreign debt: “The total of receipts from social security contributions on the
payroll, shows a collection of R$ 136.9 billion, with expenditures for health, social
security, and welfare of R$ 105.4 billion. One can see, then, in this year alone,
a surplus of R$ 31.5 billion from social security was passed back to the federal
budget to generate a primary surplus.” (Anfip 2003:21) Unafisco and Anfip also
argued that the impact of social security reform on public finances would be, in
the middle term, eroded by the reduction in receipts by fiscal renunciation and
misappropriation, which reveals the fragility of the fiscal argument.
The second argument is social. Ex-unionist and Social Security Minister
Ricardo Berzoini has argued that reform was necessary to rebalance the federal
budget, stopping the financial hemorrhage caused by growing expenses and
insufficient revenue for the social security system. The alibi was furnished by
the “excluded”: “Reform is indeed a necessity, but for the neediest population
of the country, which does not have access to the state’s public policies because
the budget is tied up in other types of expense,” Minister Berzoini affirmed
(Berzoini 2003:14).
The social argument is empty. From the government’s point of view, the
resources necessary for social policies must come, then, from cuts in expenditures
on social rights of wage and salary earners. The redistribution policies would
proceed thus horizontally, with the transfer of income within the working class
itself. But social security reform presented in PEC 40/03 does not contain any
proposal for broadening the number of beneficiaries of social security. There are
only proposals for reduction of the benefit values. In the face of the contradiction,
the government added to the final draft an innocuous clause transferring to
future legislation the creation of a “special system social security inclusion for
low income workers.”5 Making social security benefits universal, a highlight of
the structural policies announced in the Zero Hunger (Fome Zero) program
became thus a dead letter.
If it is clear that these compensatory social policies do not expand rights, then
what is their function? In the fiscal logic proper to “tropical” social liberalism,
they merely fulfill the function of legitimating the government. They become
reduced, thus, to the creation of clientelist networks with the goal of reducing
social pressure and conflicts, since political engineering is a mechanism that
preserves archaic patterns of political domination in Brazil at the same time that
it innovates in its forms. The passive revolution à la mode brésilienne in the Lula
government, instead of seeking its legitimacy in market stability in the forms of
Latin American 1990s neo-liberalism, seeks to construct it from the articulation
between market imperatives and social demands that can be channeled through
compensatory policies (and only through those).
1758 / Social Forces 83:4, June 2005
Pension Funds and Patrimonial Capitalism Brazilian Style
This analysis of social security reform is fundamental for understanding not
only the guidelines government policy but also its social base. We defend the
thesis that the fiscal argument is fragile and the social argument is empty. If
such arguments are no more than rhetoric, what are the reasons for the reform?
These reasons can be found in the constant defense on the part of the government
of a system of pension funds capable of energizing the stock market and the
national economy.
The proposal gained strength with social security reform and the
establishment, envisioned in PEC 40/03, of a new, private Complementary Social
Security. Representatives of the CUT and of the Union Force (Força Sindical),
a union affiliation along neo-liberal lines, insisted in negotiations that the labor
unions should have the right to establish social security plans for unions or
professional organizations. Before social security reform was even finalized, the
Council for Complementary Social Security (Conselho de Gestão da Previdência
Complementar) authorized the creation of these “union funds.” Right away the
São Paulo Engeneers’ Union (Sindicato dos Engenheiros de São Paulo) and the
alumni association of the Getúlio Vargas Foundation (Fundação Getúlio Vargas)
sent in their requests for recognition. The Union Force also began to negotiate
its own fund.6
According to Minister Berzoini and the Secretary for Complementary Social
Security of the Ministry of Social Security Adacir Reis, “President Luiz Inácio
Lula da Silva has reiterated his commitment to stimulate growth in Brazilian
social security savings, democratizing workers’ access to pension funds.” (Berzoini
and Reis 2003: A-3) In Berzoini’s estimates, “the expectation is that we can reach
between 4 and 5 million workers. If each one of 4 million workers saves an average
of R$ 2,000 per year for retirement, we will have R$ 8 billion in savings.” Then
he added, “That is a useful amount of money for investment in the country, and,
best of all, it is domestic money.”7
The estimate of Fernando Pimentel, President of the Brazilian Association of
Complementary Social Security Companies (Associação Brasileira das Entidades
Fechadas de Previdência Complementar) was much more daring: “If we add the
increase in funds from the class and union organs, which are being authorized,
to the plans that will be offered to new civil servants, we will double the potential
from R$ 200 billion to R$ 420 billion in 2007,” he stated to the press.8 Pimentel’s
calculation is bolder because he included public employees that receive above
the new social security ceiling and that will be obliged by law to join pension
funds operated within the system of defined contribution. The system of defined
contribution envisions fixed payments on the part of workers, but does not
commit itself to defined benefits at the time of retirement; or rather, what the
worker receives will depend on the success of the fund in the market.
Thus is designed, by means of these funds, a powerful regressive and vertical
 The Lula Government and Financial Globalization / 1759
transfer of income from wage and salary earners to financial centers. In this
way, the determinants of social security reform are revealed. The reduction in
fiscal gains that it will produce in the short term would be compensated by the
opening up of new fronts of expansion for financial capital. For the workers
would remain only the promise of employee shareholding, the possibility of
benefiting indirectly from the growth of the financial market through pension
funds controlled by the unions.
Already in October of 2002, on the eve of the second round of the elections,
representatives of the Lula campaign, among them future Minister Berzoini, had
signed a joint document with representatives of the São Paulo Stock Exchange
(Bolsa de Valores de São Paulo or Bovespa), guaranteeing that as a complement
to a universal public social security system, incentive measures should be taken
to establish and develop complementary social security funds. The growth of
the accumulated savings in these funds will have an important role in financing
productive activity, by means of relevant participation in capital market, as occurs
in the main developed countries.”9
In the “main developed countries,” it is true; the proposal of making relations
between the financial system and the industrial structure a sort of precondition
for a new wage-earning pact has gained MUCH support. In France in particular,
“Leftists” — like the economists of the School of Regulation (see Aglietta 1998)
— and “Rightists” — led by Alain Minc (Minc 2000) — find themselves among
the principal defenders of the proposal of “patrimonial capitalism” as an economic
model best able to adapt to contemporary circumstances. At the end of the
1990s important economists, like Michel Aglietta and Robert Boyer, defended
the proposal to create employee share ownership plans under the control of
companies and unions as, supposedly, progress in the direction of “new social
rights.” Employment is not guaranteed in this program but certain workers, like
management, receive a part of the profits in the form of shareholder participation
(for a critique of the theory of patrimonial capitalism see Husson 2001:81). This
shared responsibility would be accompanied by workers’ share in the profits.
Such an alternative system built on the long transition of the 1970s would
be made viable by recourse to a new growth regime, first established in the
United States, and would be progressively structured in Europe due to the
internationalization of trade and the increasing individualization of the salary and
wage earner. Aglietta qualifies this “new” capitalism as patrimonial, because of the
role played by the extension of employee shareholding and of the importance of
institutional investors in the governance of companies. Patrimonial capitalism,
supported by the assets and the extension of employee share ownership, would
be inseparable from economic globalization characterized by these three factors:
technological changes, individualization, and financial globalization.
“After a quarter century of crises and structural transformations, a new regime
of growth directs the development of salary and wage earning societies,” stated
Aglietta (Aglietta 1997). If capitalism could present the “capacity of mobilizing
1760 / Social Forces 83:4, June 2005
human energies to transform into growth,” the same would not occur with the
production of a “joint coherence of the shock of individual interests.” Only
the mode of regulation could orient the regime of growth to “improve also the
conditions of life of the salary and wage earner.” (Aglietta 1998) The public funds’
option for capital, whose argument is centered on fiscal logic, must be articulated
bearing in mind that human resources are different from nonhuman resources
– that is, bearing in mind the argument based on social logic.
From the renewal of the wage-earning pact would arise a sort of third way free
both from the instabilities of neo-liberal capitalism and the shackles imposed on
companies by outdated bureaucratic statism: “that is a capitalism of collectively
owned funds, socialized property of the companies that could emerge through
the intermediary of institutional investors. This evolution, if it receives the push
from a political plan, can lead to a sort of wage-earning society markedly different
from the market economy of the Anglo-Saxon sort, and different also from the
European corporative capitalisms of the Fordist era.” (Aglietta 1997:462) Mediated
by the employee shareholding, the old reformist thesis, according to which the
collaboration of classes will guarantee common prosperity, appears more active
than ever. If the unions of wage earners find again a power of influence over
the division of income, they should be aware that the control of the stock of the
company is a battle that they must pitch and win. In this way, the development of
wage funds becomes the main institutional mediation able to produce a “virtuous”
dynamic involving the financial sector and productive activities.
The ideological unfolding of the economic argument implies an evident
“appeal” addressed to the workers to defend the competitive position of their
company and, even more, to participate actively in a system of intense competition
involving national corporate groups and geographic blocs. Progressive rationality
understands that the renewal of the social-democratic project must occur within
the scope of the subjection of national societies to the materiality of capital.
Therein lies the grand objective of arriving at a new social commitment negotiated
among companies and unions around the proposal of employee shareholding.
In Brazil the argument was endorsed by President Lula himself during the
1st International Pension Fund Seminar in May of 2003: “obviously I am aware
that the pension funds have as a basic premise the sustainability of the pension,
of the retirement funds, for their members. Therefore the pension funds cannot
invest to lose money. They must invest to earn money, preferably reasonably
well, because the stronger the pension fund, the more privileges they can offer
their members and the more influence they can have in some decisions in our
country.” (da Silva 2003)
From this, justifying the participation of the pension funds in the Brazilian
privatizations was just a step: “Obviously, if I were asked at the time, I would not
have hesitated to say that I was against the funds getting into buying Brazilian
public assets, public assets that often at the time were contributing more to
firing workers than to hiring workers. In the meanwhile, many of the fund and
 The Lula Government and Financial Globalization / 1761
company interventions had good results. And we witness today some companies
successful in their participation in the important pension funds in Brazil.” (da
Silva 2003)
Still during the campaign, candidate Lula presented his “Letter to the Brazilian
People” — which critics nicknamed “Letter to the Bankers” — and in his visit
to Bovespa, showed a strong willingness to work towards “strengthening the
Brazilian stock market.” It was not merely anti-alarmist rhetoric as some critical
segments within the PT itself thought at first. It was a case of something at the
same time broader and more complex.
It was broader in that it involved an unprecedented and far-reaching change
in the PT’s programmatic trajectory: the support for the financial economic
sector, previously so harshly criticized. It was complex because it involved new
interests seated in the very heart of the PT’s bureaucratic structure: the caste of
syndicalists and employees of the state companies’ pension funds. On the one
hand, it is difficult to see in these interests the ready-made manifestation of the
rise of a “new social class” composed of managers, originally from the working
classes and the base of the CUT, and from the state company pension funds, as the
Brazilian Marxist economist and sociologist Francisco de Oliveira has argued (de
Oliveira 2003). On the other hand, it seems quite clear to us that relative weight
and the hegemonic capacity of the managerial segments (frações gestoras) of the
working class itself that share responsibility valuing these funds has developed
enormously. The pension funds are thus the bridge that makes the organic
alliance of the sectors of union bureaucracy and of financial capital viable.
The political and social change in the Workers Party is clearly shown in the
reform of the welfare system. However, the nature of the change is not restricted
to this reform. It is an ambitious program to update the Brazilian capitalism
through a passive revolution led by a new layer of state managers. As indicated
before, the history of republican Brazil may be understood as a succession of
processes of passive revolutions. The characteristic difference of the current
moment is the role played by the new social subjects with origins coming from
the subaltern classes. Although it is true that in other historical moments the
Brazilian subaltern classes acted as supporters for projects akin to this, such as
during Getúlio Vargas’ government (1930-1945), the novelty that the government
has brought about by the current government consists of the centrality of a union
and party bureaucracy whose roots lay on a past marked by social struggles.

Notes
1. CUT. A CIT e o novo cenario politico. São Paulo, 28 November 2002.
2. Translator’s note.
3. Quoted in Karl Marx, Miséria da filosofia. Resposta à Filosofia da Miséria do Sr. Proudhon.
São Paulo: Ciências Humanas, 1982, p. 136.
1762 / Social Forces 83:4, June 2005
4. At the time this amount was equivalent to 10 minimum salaries, but its annual indexing
would not preserve this proportion and it would be realized by inflation. In September of
2003, 10 minimum salaries equaled R$ 2,400, but the benefits ceiling of the private sector
was approximately R$ 1,500.
5. PEC 40/03, art. 201, §12.
6. Lula quer fundos para induzir crescimento. Folha de S. Paulo, São Paulo, 11 mai. 2003,
p. A-7
7. Lula quer fundos para induzir crescimento. Op. cit.
8. Setor estima que nova lei deva elevar montante da carteira de R$ 200 bi para R$ 400 bi
até 2007. Folha de S. Paulo, São Paulo, 9 set. 2003, p. B-6.
9. O mercado de capitais como instrumento do desenvolvimento econômico. Folha On-Line,
17 out. 2002. Disponível em: <http://www1.folha.uol.com.br/folha/dinheiro/ult91u57382.
shtml>. Accessed on: 22 out. 2003.