Brazil: Unmasking The Miracle

September 25, 2007

By Theotonio Dos Santos, Brazilian author of numerous books and articles on imperialism and dependency, who is now associated with the Universidad Nacional Autonoma de Mexico. This article is a revised version of "The Crisis of the Brazilian Miracle," published by Brazilian Studies/Latin America Research Unit (Box 6 73, Adelaide St. P.O., Toronto 1, Ont., Canada), in April, 1977. The strategy for economic growth adopted by Brazil after the 1964 military coup has been widely acclaimed by the multinational corporations and certain economists. Representatives of multinational corporations and international development agencies as well as U.S. and Brazilian academics point to Brazil's double-digit growth rates and argue that the Brazilian model of economic development should be followed in other Third World countries. Insofar as it represents a "pure" model of dependent capitalist development in a relatively advanced stage of industrialization, the Brazilian experience has in fact a theoretical importance which transcends the country's borders and explains the enormous publicity apparatus that surrounds it. Kissinger's acknowledgment in 1976 of Brazil's exceptional position as an "emerging power" deserving special treatment among Latin American countries and as a worthy partner for the U.S. in a system of mutual consultation is evidence that things are happening in that country that are very important for imperialism and its strategy. The acknowledgment of Brazil's hegemony in South America and in the South Atlantic has been a long-time dream of the Brazilian military and of many civilian supporters, a dream which has had increasing support from national and international capital. The price for such long-sought hegemony would be, first of all, a total alignment with U.S. foreign policy, especially in regard to Third World countries. Brazil is opposed to cartels and similar forms of pressure by Third World countries; she is also committed to serving as a beachhead for imperialism in the North-South trade and aid negotiations, and in Latin 67 American economic integration discussions. In exchange for such an important role, Brazil would have a certain amount of freedom to develop pragmatic policies of her own towards the Arab world (as in the case of her U.N. vote condemning Zionism, which is explained by the fact that Brazil imports about 80 percent of the oil she consumes); towards Africa (where Brazil recognized the People's government in Angola, in order to gain access to African markets); and, to a certain extent, towards Europe (the nuclear agreement with West Germany, with French and perhaps British approval) and Japan (trade agreements made during President Geisel's visit to that country). But recognition of the alleged "emerging power" is based on yet firmer grounds. First, it is based on the necessity of supporting a country that has completely opened its doors to international capital and which is currently going through a serious economic crisis which might destroy Brazil's image as an investor's paradise - one that has cost imperialism so much to build. Brazil is an ideological "model" and an economic showcase which must be preserved. Second, it is important to note the increase in Brazil's strategic importance, her coast dominating most of the South Atlantic, where Angola fell under the control of anti- imperialist social and political forces. The South Atlantic used to be considered as a zone under the complete control of the West; there were few military bases there, for it did not present any strategic threat to the U.S. At present we are witnessing a military escalation in the area; the U.S. has asked the Brazilian government for permission to establish military bases along her coast in order to neutralize the loss of Angola. For all these reasons we think it is fundamentally important to study the so-called "Brazilian miracle," its possibilities and limitations. As noted, such study has theoretical implications in terms of the viability and the forms that economic development tends to take in dependent countries in the current stage of capitalism. It also has strategic and geopolitical implications insofar as it relates to the international importance of an extremely large country with a sizable population (100 million). HISTORICAL BACKGROUND What has become known as the Brazilian "economic miracle" was essentially a period of sustained GNP growth of approximately 10 percent between 1968 and 1973. During this period the nation's industrial product and exports of manufactured products, as well as the country's international credit and financial reserves, grew rapidly. In many instances direct investment projects assumed gigantic proportions, and Brazil's influence over her neighbors in the Southern Cone and over other parts of Latin America seemed to announce her emergence as a medium power in the international scene. Economic policies implemented by the Brazilian government became "recipes" for the development of other countries. What were the antecedents of such a "miracle"? Significant industrial growth in Brazil has occurred in spurts ever since the end of the Nineteenth Century.' The most direct antecedent of the current "miracle" cycle was the 1954-1961 period, which roughly corresponded to the presidential administration of Juscelino Kubitschek. During that period the gross national product showed an annual real growth rate of about 7 percent, compared to the 5 percent annual average of the 1948-1952 period. Between 1954 and 1961, the automotive industry grew rapidly and the government-owned steel industry, established in the 1940's, was expanded along with the basic infrastructure for transportation and energy. This period also witnessed the emergence of the electronic, machinery and tool industries. Massive state investments were the main stimulant behind this economic "boom." State spending rose from $10 to $20 million per year before 1955 to $90 million in 1956, $144 million in 1957, and then stayed close to the $100 million mark until 1961. But this growth in state spending was not built on a sound financial base, nor was it backed by foreign investment. The consequences of such a style of growth were soon felt, and in 1962 an economic recession set in and continued until 1967. Internal inflation and a serious foreign exchange crisis were the most visible aspects of that crisis. It was essentially a matter of not being able to expand markets and investments. The impossibility of continuing the process of accumulation of capital without carrying out reforms in the economy became widely acknowledged. However, different solutions were proposed for solving the country's problems. On the one hand, a sector of the dominant classes, under pressure from a growing popular movement, proposed an expansion of the internal market and diversification of the external one. The corollaries of this point of view were: 1) an agrarian reform to allow an increase in the peasant's income; 2) a distribution of income which could favor lower-income workers; 3) reliance on national capital and the restriction of foreign investment; 4) intensification of the already massive state intervention in the basic sectors of the economy; and 5) the establishment of an independent foreign policy which would seek new markets in Latin America, Africa, and the socialist countries. Such an economic project would have to seek political support among rural and urban workers as well as in the petty bourgeoisie, and it would find its expression in a political democracy with ample popular participation. The leader of this camp was Joao Goulart, a progressive politician and big landowner, who became president in 1961. The contradictions which led to the failure of this policy are quite evident. Expansion of the internal market via increases in the income of the salaried workers was in contradiction with the high profits needed by Brazilian capitalists to expand their investments. Thus, it prevented a strengthening of national capital which, as a consequence, began to oppose Goulart's economic model. On the other hand, the exclusion or restrictions placed on foreign investment made foreign capital another strong enemy of the proposed policies; and this enemy was not simply foreign, for by this time foreign capital had become entrenched in the internal industrial sector and had acquired allies among Brazilian capitalists. Thus, the workers and progressive petty bourgeoisie were the only social base for this alternative. And they tended to support strong state intervention, extensive agrarian reform, and real social democracy. Under the influence of the Cuban Revolution, such radicalism acquired socialist tones. Faced with an historical process which began to overcome its class origins, Goulart withdrew and passively accepted the 1964 military coup, which affirmed the power and absolute hegemony of the local bourgeoisie allied to international capital. Such hegemony was consolidated by winning the support sectors of the petty bourgeoisie, who at that point were frightened by the social radicalization in progress.8 THE PROGRAM OF THE "ECONOMIC MIRACLE" The military coup of 1964 was more than just a "military revolt." The ideologues of the 1964 movement have rightly characterized it as a "preventive counterrevolution." The military came to power with a definite program which represented the answer of big national and international capital to Goulart's "economic adventures and populist policies." Such a program was also based on a recognition of the Brazilian economic crisis. However, the solutions it proposed were very different from the ones initiated under Goulart. In view of the political difficulties of expanding the internal market by means of reforms, this program proposed to expand the internal market by increasing the income of a limited urban sector able to acquire sophisticated technology. This market was particularly important for big capital because of the high profits it offered. On the other hand. a significant lowering of wages, especially for the non-skilled or semi-skilled workers who form an important sector of labor, would permit an increase in profit rates as well as the concentration of investments and centralization of capital. In addition, a policy of clear alignment with the U.S. and an open acceptance of foreign capital would stimulate a massive inflow of foreign investment along with technology and know-how. These foreign enterprises, in turn, would expand the country's markets abroad by increasing the flow of Brazilian exports to the industrialized countries. However, in order to achieve these goals it would be necessary to go through a stage of "high social costs," i.e., it would be necessary to adopt the "economic stabilization" program of the International Monetary Fund (IMF), and get rid of the inflation inherited from the previous period. It would also be necessary to eliminate "inefficient" small and medium-sized enterprises and to cut back state spending which had served the popular sectors and interests aligned with previous governments. And big landowners, in exchange for the preservation of their large agrarian estates, would have to modernize and increase productivity. The political consequences of this economic policy were clear. It called for a strong, authoritarian, modern and efficient State, a State free from internal pressure by the affected bourgeois sectors and, most of all, from pressure by popular sectors which would certainly not "understand" the need for the "social costs" involved. It was believed that after a few years of consumption-restricting policies ana inflation-containment, a period of economic growth would begin and then it would be possible to obtain a broader political base for the regime. These economic, social and political calculations had a seemingly solid foundation. In contrast to the liberal bourgeois and nationalist-democratic opposition, which tried to demonstrate the nonviability of this project in the medium run, those who had opposed capitalist development and advocated socialism correctly reasoned that this was the only capitalist solution for the crisis. The military's program corresponded to a new stage in the process of international capital accumulation, one where there were no alternatives for capitalist development other than the subordinate, dependent and politically unpopular one proposed by the Brazilian military. The only possible alternative was a socialist plan for development, based on the support of the popular forces which had been gathering momentum under Goulart's populism. 2 THE "MIRACLE" YEARS As we have seen, between 1964 and 1967 Brazil was plagued by economic stagnation. The average growth of the GNP between 1962 and 1967 was 3.7 percent, while the population growth was 2.4 percent. Thus the annual real product growth was 1.3 percent. In contrast, between 1956 and 1962 the average annual GNP growth had been 7.8 percent and real, product per capita growth had been 4 percent. Between 1956 and 1962 industry grew by an annual average of 10.3 percent and agriculture by 5.7 percent. In the 1962-67 period these sectors grew by 3.9 percent and 4 percent respectively. Such effects had been expected with the adoption of the IMF stabilization policies. The purchasing power of the minimum wage dropped by 55 percent. 3 Between 1963 and 1966 industrial workers' real wages dropped 9 percent while their productivity increased 5 percent. 4 National income was massively concentrated in the top 5 percent income group. The 1960 and 1970 census results showed that the top 5 percent income group retained 27 percent of the total income in 1960, and 36 percent in 1970.s This group earned an average of $1,645 in 1960 and $2,940 in 1970, while the overall per capita income increased from $300 to $400 per year. Thus, five million Brazilians had a per capita income comparable to European levels. But the next 15 percent of the population maintained its participation in the total income at about 27 percent, with a per capita income increase from $540 to $720. The next group, representing 40 percent of the population, decreased its participation from 34 percent to 28 percent, with an increase in per capita income from $257 to $278. Finally, the 40 percent on the bottom saw their share of the total income drop from 11 I percent to 9 percent, with an increase in per capita income from $84 to $90. According to the census (which tends to understate the income of the very rich), 80 percent of the population barely reached minimal survival levels and its already low share of the national income fell from 45 percent in 1960 to 37 percent in 1970. The social price was clear, but so were the financial results. Inflation, which had reached 93 percent in 1964, fell to 23 percent in 1967.6 And the fiscal deficit which in 1963 amounted to 4.8 percent of the GNP fell to 0.3 percent in 1971 at the height of the development surge. The balance of payments deficit decreased as a result of the drop in imports, caused by the decline in consumption investments. The State became an important consumer and investor, compensating in part for the fall in consumption and investment by domestic capitalists. Contrary to what might be supposed, foreign investment, which had fallen substantially in the Goulart period ($9 million in 1962 and $30 million in 1963), remained low in 1964 ($28 million), and then averaged $70 million over the next four years. The explanation for this phenomenon is simple: if there is economic stagnation there is no investment. The little capital which did enter the country and the reinvestments which were made during this period went to buy national enterprises that were going bankrupt because of credit restrictions and the monetary stabilization program imposed by the IMF. Thus we arrive at 1968, the year when the economic boom so often called the "Brazilian miracle" began. The reason we have taken so long to reach this crucial point9 should be clear; in the preceding discussion we tried to define the antecedents of this pheonomenon. Brazilian economic development has often been linked to military dictatorship and it is claimed that a direct relationship exists between authoritarianism and economic development. From what we have seen so far, this is false. First of all, significant peaks of economic development were achieved in largely democratic situations, such as the Kubitschek years. Second, the military dictatorship is itself responsible for the most serious economic recession in post-war Brazilian economic history. Let us now consider the 1968-1974 boom. First of all, the annual GNP growth rate increased steadily between 1968 and 1974, averaging around 10 percent. Industry grew by an average of ii percent a year. At the same time, inflation was kept at manageable levels, having fallen to 17 percent in 1972 and, according to some controversial data, to 12 percent in 1973. This seemed like a miracle. After years of high inflation rates, Brazil was able to achieve economic development with low inflation rates. Other indicators contributed to the surprise and euphoria. Growth was particularly noticeable in high-technology industries, which forecasted, according to general belief, the coming end of technological dependency. Among the facts not publicized was the limited growth of the clothing and shoe industries (1 percent between 1969 and 1972); the 4 percent decrease in textile production during the same period; the fact that construction grew by 26 percent in contrast to a 56 percent increase in manufactured products; and that the growth of the machinery sector was also below the overall average (42 percent). The Brazilian people (or rather 20 percent of them) began to consume transportation equipment (a 144 percent increase between 1964 and 1972), electric equipment (a 113 percent increase), non-metallic minerals (62 percent), as well as metal (66 percent), rubber (89 percent), chemical (69 percent), and paper (58 percent) products. Such an industrial pattern is quite understandable; it met the demand created by the sophisticated consumption of the 20 percent of the population that experienced a significant increase in their income. The unprecedented industrial growth during this period was primarily due to investments for the expansion of the automotive industry. This led to a heavy demand for spare parts, steel, glass and other inputs as well as precipitating the growth of highways, shopping centers and cement production. The heavy petrochemical industry also grew rapidly thanks in part to the automotive industry. To top it all, the "miracle" supposedly included social measures. Large investments in housing projects were publicized, only to collapse later in failure. Another social initiative, the MOBRAL literacy program, sought to engage students in teaching adults how to read and write, with some students being sent to the far reaches of the country for this purpose. After a vast and costly campaign to publicize its successes, a scandal in the mid '70's involving the leaders of MOBRAL destroyed its credibility and pointed out the poor quality of the teaching it provided;so much so that the next education census will require written proof of writing and reading ability from everyone holding MOBRAL certificates. During this period there was also a large flow of students into elementary and secondary schools as well as universities. New universities were created, most of which were private, and the country seemed to be on the verge of an educational boom, complete with the massive creation of graduate programs, many of which focused on the creation of a "national science." At present, however, the poor quality of the education provided by the new private schools has created a crisis in higher education. So serious is the situation that the government is refusing to acknowledge diplomas given by such private universities. The lack of jobs for those who graduated during the educational boom is another factor that contributes to the increase in the number of unemployed with college degrees. The growth of foreign trade was another widely publicized "miracle." There was some truth to this assertion. In 1964 exports amounted to $1.4 billion while in 1975 they stood at $8.2 billion - a sixfold increase in eleven years! In "I saw my mother die of hunger, my first son die of hunger before he was a year old, and I have seen hundreds of children die like that in my country. We are accustomed to see death from hunger among our people, but we are not resigned to the continuation of this situation." - Letter from Brazil The Human Toll The so-called "Brazilian economic miracle, " while bringing riches for a privileged elite, has brought a deterioration of living and working conditions for the industrial working class. Some 20 percent of the work force in Brazil is employed in industry. The following are excerpts adapted from a recent article by Raimundo Arroio analyzing the pauperization of the Brazilian proletariat in the last decade.' If we focus on the period 1960-1970, we see that real minimum wages dropped some 50 percent. In Mexico, by comparison, real minimum wages increased 77 percent during the same period. 2 This figure is significant when we take into account the fact that nearly 60 percent of Brazilians working in industry received only the official minimum wage or less (while 86 percent were paid twice the minimum wage or less). 3 Variations in the purchasing power of minimum wages thus affected the great majority of the industrial labor force and their dependents. The decrease in minimum wages results naturally in an increase in the number of hours of work necessary to obtain one's basic diet. As the accompanying table shows, while the real minimum wage fell some 50 percent there was a corresponding increase in work time necessary for the worker to feed himself and his family. Again comparing with the Mexican case, we note that the corresponding amount of work time in Mexico was slightly more than half (4 hours 41 minutes) that in Brazil. 4 These data indicate that nearly 70 percent of the Brazilian industrial workers did not even manage to decently feed their families with a normal load of work hours. If we add on costs of housing, transportation, clothing, health care, etc., it is clear that the number of work hours would have to be extended to physically unbearable limits in order for the workers to meet those expenses. This decrease in salaries inevitably led to lower and worse standards of nutrition, housing, transportation, etc., and to an almost total elimination of expenditures for health, education, entertainment, etc. The consequences of this situation were well expressed by the Program of Opposition of the Metallurgical Workers of Guanabara: "We continuously experience premature aging, disease, nervous disturbances, record frequencies of work accidents and the physical and spiritual crushing of our fellow workers." 5 In view of this situation of growing pauperization, the "solution" adopted by the worker was, whenever possible, to work for longer hours, or to make his wife and children enter the productive process, thereby increasing the income of his family. "In the period between 1964 and 1975, on average an additional member of each worker's family began to work. This increased the family income, but even so that income remained lower than it was in 1964."6 Although this mechanism did not succeed in preventing the drop in real family income, it at least reduced the decrease - albeit by imposing greater sacrifices upon the worker's family. In 1970, 24 percent of the workers in manufacturing industries and in civil construction worked more than 50 hours per week. The percentage was even higher in the sectors of foodstuffs (29 percent), ceramics and glass products (27 percent) and mecahnics (24 percent). 7 An investigation published in Brasil Socialista concluded that "in general, the work day varies between 11 and 12 hours, extending in some cases to 14, 15, 16 or more hours . . Companies are already planning production on the basis of a work day of 11 or 12 hours." 8 According to the secretary general of the Union of Metallurgical Workers of Sao Paulo, those workers are working almost 12 hours per day, and 97 percent of them have adopted the following weekly schedule: 8 regular hours per day, plus 2 hours overtime (the maximum permitted by law), and an additional 1 hour 36 min to compensate for Saturdays. But it just so happens that on Saturdays the workers usually put in another 8 hours, which makes a total of 66 hours per week, instead of the normal 48 hours. 9 It is clear that if the workers are underfed, forced to work more and, in many cases, more intensely than required by their normal load, they will be more prone to work accidents. "As is widely known, Brazil holds the world record in this area: one in every seven workers suffers accidents in the course of one year." 0 NUTRITION AND HEALTH In theory, expenditure on food is the last thing to be cut back on by the worker, since this is the expenditure that secures the reproduction of his labor force. In the specific case of Brazil, the worker's diet could hardly be reduced any further without virtually causing his and his family's physical annihilation. Nevertheless, some studies note that the nutritional MINIMAL DIET FOR FAMILY OF 5 Item Daily Work Hours (At average minimum wage) 1960 1965 1971 .25 kg meat 5 eggs .25 kg beans 10 loaves bread 1.25 liter milk .25 kg rice .20 kg cassava flour .25 kg sugar .10 kg butter 5 bananas 5 potatoes/tomatoes .10 kg coffee TOTAL 1:04 0:33 0:16 0:43 0:55 0:15 0:08 0:13 0:58 0:26 0:09 1:08 1:13 0:13 1:03 0:51 0:16 0:10 0:20 0:38 0:15 0:50 0:10 1:33 1:07 0:25 1:04 0:51 0:20 0:13 0:18 0:31 0:45 0:36 0:45 5:45 7:08 8:31 Source: Anuario Estadistico do Brasil. 1963, 1969. and 1973. 10conditions of the Brazilian people have been deteriorating rapidly, with the predictable consequence of a decrease in the life expectancy of the workers and increases in infant mortality. The Intersyndical Department of Statistics and Socioeconomic Studies (DIEESE) did a study in 1969-1970 on the nutritional standards of Sao Paulo workers. Results: "Satisfactory indices were found only for protein and iron, substances which are found in black beans - the basic nourishment of the worker. For all other substances, such as animal protein, calcium, vitamin A, thiamin, riboflavin and ascorbic acid - all of which are indispensable for survival -- the indices found were negative."" The situation has become so critical that there have even been cases of the population offering shelter and protection to muggers in exchange for food.' 2 The increasingly poor diet of a great portion of the Brazilian workers has resulted, as mentioned before, in a shortening of their life expectancy and in an increase in infant mortality rates. In Sao Paulo, the richest state in the country, the average life expectancy was 62 years in 1950-1960, which corresponded to the average for the 1920-1930 decade in the developed countries; between 1960 and 1970 the average dropped to levels comparable to those of the 1910's in developed countries.'3 Thus, not only does the life expectancy of the worker decrease but, in addition to being shorter, his life is worse than it was two decades ago, when his real salaries were higher, and his wife and children did not always have to work. Every year in Brazil 280,000 infants die before their first birthday. Between 1970 and 1974 alone, 1.4 million children died for causes that could have been avoided, such as diarrhea, measles, tetanus, and other diseases grouped together by the common denominator of extreme poverty. According to the World Health Organization (WHO), malnutrition is responsible for 69 percent of all deaths of children under five in Brazil.14 In 1970 the infant mortality rate in Brazil was 105 deaths for every 1,000 live births; in Latin America this rate was exceeded only by Haiti's rate of 130/1000. According to WHO, rates lower than 30 are considered low, those between 30 and 50 moderate, those between 50 and 80 high, and rates above 80 very high. In 1970 the rates were 12.9 in Sweden, 15.3 in Japan, 16.4 in France, and 18.6 in England.'s In Brazil the rate is not just "very high" - it has been increasing steadily in the major cities; in Sao Paulo it grew from 62.9 in 1960 to 93 in 1973."6 HOUSING According to the 1970 census, there were 16 million homes in Brazil, of which only 5.8 million were equipped with plumbing; 7.5 million had no regular means of water provision whatsoever. The situation is disastrous even in big cities such as Rio and Sao Paulo. The governor of Sao Paulo has recognized that "while 54 percent of the homes in Sao Paulo are served by the city water system, only 23 percent of them have drainage facilities." 7 In other cities the problem is even more serious. In Belem (capital of the state of Para), 41 percent of the city residents live in "favelas" (slums or shantytowns); in Porto Alegre, 28 percent; in Rio, 14 percent (560,000 people). In Belo Horizonte (capital of Minas Gerais) 240,000 people live in 54 favelas. In none of them is there a system of water drainage, and the average number of people living in a single house is, in some cases, higher than eight.18 1112 addition, there was a change in the type of exports. Coffee, which made up 53 percent of the country's total exports in 1965-69, fell to 24 percent in 1971. The remaining primary products increased from 51 percent to 57 percent in the same period. Iron grew from 6 to 8 percent; meats from 2 to 5 percent. Finally, there was an increase from 7 to 15 percent in the participation of manufactured products in total exports. However, the data provided by the propagandists of the miracle failed to note one important fact - imports grew even more rapidly. In 1960-1964 they amounted to $1.2 billion a year and were lower than exports ($1.3 billion); by 1972 imports had risen to $4.2 billion per year, and by 1975 to appoximately $12.2 billion. This meant that the trade balance, which was favorable before the "miracle," became highly unfavorable in the end. In 1975 the trade deficit was about $3.5 billion! At this point it might be asked if we are not making a biased presentation of the Brazilian miracle. But it so happens that the famous "miracle" boiled down to seven years of sustained economic growth after six years of stagnation. It so happens that the much-praised increase in exports generated a much higher increase in imports and led to a deterioration in the trade balance. It so happens that the educational and housing plans have turned out to be total failures, as the government itself admits. All things considered, what is left of the Brazilian "economic miracle"? How was it able to generate so much publicity and euphoria? The answer is simple, although we have not yet begun to consider the crisis of the "miracle " Much of the discussion about the Brazilian "economic miracle" took place during the peak years when a balanced appraisal of its results was not yet available. Flooded with data on the growth of the internal product, of exports, of financial reserves, of school openings, as well as data on decreases in inflation and elimination of some apparently unsolvable problems, such as the treasury deficit, many social scientists who opposed the Brazilian regime took a defensive position and tried to show that such growth was real but that it nevertheless hid the no-less-real misery of the Brazilian people. This was true, and data on nutrition, life and health conditions show that the "economic miracle" was directly associated with increases in the rate of exploitation of Brazilian workers, increases in the duration of their working days, decreases in their nutrition and other essential consumption aspects, as well as increases in infant mortality rates. It was correct therefore to show that the consequences of such irrational economic growth, which was based on the hideous forms of super-exploitation of human labor, amounted in fact to a "false development."' However, few dared to expose the internal contradictions which would make such a model of development eventually collapse. 8 Today Brazil is sunk in crisis. The annual growth rate of the GNP has fallen to 4 percent; the balance of payments deficit and the country's external debts are near the bankruptcy point; the much-vaunted financial reserves have been cut in half; and many planned direct investments are being cancelled. The government is forced to take steps to reduce imports and is warning the country of the seriousness of the crisis. Inflation continues to climb, reaching 30 percent in 1975 and 40 percent in 1976, while production growth rates fall. The "miracle" is turned upside down: from economic wonder it has turned into economic disaster. What happened? How did such a prestigious and publicized economic model get itself into such an un- favorable situation? After the enormous sacrifices imposed upon the Brazilian people in the name of GNP growth, of consolidation of a successful export sector, of improvements in education, of a great power future, how is it that it has become necessary to say to them that all their sacrifice was useless (in the short run, at any rate), that they must accept declining growth rates, economic depression, financial instability, inflation, a deficit-ridden and nearly bankrupt external sector, a deteriorating educational situation, and a dubious future? And what about the selling of the country to international capital? If we examine the available data we will see that the multinational corporations were the major beneficiaries of this economic "miracle," just as they had benefited from the economic surge of the Kubitschek years and bought the national enterprises going broke during the 1962-1967 depression. Today the most dynamic sectors of the Brazilian economy are controlled either by international capital or by state enterprises. Locally owned enterprises find themselves restricted to areas without much promise. National economic groups have tried to reorganize, concentrating and centralizing their capital in an effort to survive the de-nationalization of the country's industrial, commercial, financial and agricultural wealth. As a consequence, a highly concentrated and monopolized economic structure linked to a growing but over-stimulated financial market was formed. Those holding small savings embarked on a speculative adventure between 1968 and 1971 which ended up in a financial collapse that benefited big capitalists and speculators. Tax credits for exporters, for investments in certain regions of the country, for the development of tourism, etc. formed an anarchic "native" Keynesianism which inflated a financial market that did not have a sufficient base in production. The results of all this can be seen in Werner Baer's analysis of the 10 largest enterprises in each major economic sector in 1972.9 In the most dynamic sectors multinational corporations are clearly dominant. They control most of the assets in the following sectors: 1) Tobacco - two MNC's control 94 percent of the assets of the 10 biggest enterprises. 2) Transportation materials - eight MNC's control 90 percent. 3) Rubber products - three MNC's control 81 percent. 4) Machinery - seven MNC's control 72 percent. 5) Electrical equipment and communications - six MNC's control 52 percent. 6) Textiles - five MNC's control 55 percent. 7) Non-metallic minerals - five MNC's control 52 percent. State enterprises retain an important part of assets in such basic sectors as mining (one enterprise controls 59 percent), steel and metallurgical products (four enterprises, 70 percent), public services (nine enterprises, 87 percent), and oil refining and distribution (two enterprises, 80 percent). Overall, multinational corporations control 40 percent of the liquid assets of the main industrial and mining enterprises in the country and retain 55 percent of the profits of those enterprises. State enterprises account for 35 percent of liquid assets and 21 percent of profits. Finally, national private enterprises control 24 percent of the profits. In summary, the main beneficiaries of this "miracle" are the top 5 percent income sector of the population and the multinational corporations. The state apparatus is also strengthened but it serves international capital. If the economic miracle had continued, this situation would probably be accentuated rather than reversed.13 THE CRISIS OF THE " MIRACLE" We must now look at the roots of the crisis of the Brazilian "miracle." What is the extent and depth of the crisis? How is it explained? How long will it last? What are the prospects for the country and the present regime? The first signs of crisis appeared in 1974. Consumption of key products, such as electronic equipment, began to decline. Production rates did not fall very much, but stocks began to pile up. The government increased credits in order to facilitate sales. As a consequence, inflation shot up. At the external level, international loans and investments were not enough to cover the trade and balance of payments deficit. As a result the government depleted its accumulated financial reserves. Events took an even sharper turn in 1975.'0 The GNP growth rate fell to 4 percent, while inflation climbed 20 percent and the cost of living index 31 percent. Hopes for improvement in the external sector did not materialize. Let us consider the data for 1975, although they are little more than a repetition of the data for the preceding year. Exports amounted to $8.7 billion and imports totalled $12.2 billion. The trade deficit was thus around $3.5 billion. The inflow of international loans, foreign aid and capital added up to approximately $5.2 billion, but this was offset by an outflow of $3.2 billion in the form of loan repayments, and the withdrawal of profits. Thus, the balance of payments registered a deficit of $1.5 billion, which was paid out of the country's financial reserves. As a consequence, these reserves fell to $3.8 billion - approximately half of the $6.4 billion in reserve in 1973. On the other hand, the foreign debt increased to $22 billion. The gross foreign debt was generally not considered an important figure by the government technocrats; according to them, it was necessary to take the existing reserves into account and consider only the resulting liquid foreign debt. However, the facts turned against their subtle reasoning. With the artificial increase of reserves, the ratio between liquid debts and the total value of exports fell from 1.62 in 1969 to 0.33 in 1973. This was seen as one of the achievements of the "miracle." But what happened when reserves began to fall? The mentioned ratio increased to 1.93 after two years, that is the liquid debt (total debt minus reserves) was almost twice as large as the total value of exports. Such was the end result of the "miracle": instead of decreasing the debt-to- exports ratio, it increased it! The financial experts are being given a hard economics lesson. Without the input of new loans at rates higher than the debt repayment rates, their magic disappears. And facts start to knock on the door. If the current trends in the balance of payments continue, the vaunted reserves will be exhausted in two years and the foreign debt will rise to $28 billion. A bankruptcy situation. What can be done? Get more loans? Will Brazil's financial friends (the IMF, the U.S. Export-Import Bank, private bankers) be able to provide her with more than $3 billion which she clearly cannot repay? Is it conceivable that more than $2 billion per year in foreign investment will be directed to a bankrupt country? Existing data show a massive fall in direct investments as compared to short-term investments (the so-called "hot money" that gets quick returns and leaves). The situation is clearly very serious. Perhaps exports could be increased. Such a prospect emerged at the end of 1976, as the world market began to reflect the effects of recovery of the international economy. But such an increase in exports would only have a favorable effect if it were possible to decrease or stabilize imports. There is, however, a close relationship between the import and export of manufactured products. It is the machines imported by multinational corporations that allow the establishment of investments which in turn promote increased exports. The trade balance data have shown that14 every increase in exports produces a greater increase in the import of raw materials and machinery. In addition, most mining and manufactured exports in Brazil (as in dependent countries in general) are under the control of multinational corporations. According to data collected by Carlos Von Doilinger, multinational corporations contribute 51 percent of all Brazilian exports of minerals and manufactured products. State enterprises contribute 39 percent and private national enterprises contribute only 10 percent. Thus increases in exports generate profits for the multinational corporations, profits which are immediately sent abroad, thereby increasing the capital deficit. Would it be possible for the government to control such a massive exit of profits? That would certainly create a conflict with the multinationals, which are considered to be the key element of the "economic miracle." Finally, increases in the exports and imports would require more spending on freight and insurance. This would imply an outflow of assets since these services are controlled by international transport companies. How would it be possible to create a national merchant marine when shipping is monopolized by big international investors? So, what is to be done? Some sectors of the establishment are beginning to pose the necessity of revising the whole model of development. Palliative measures adopted in 1975 were aimed at decreasing imports by state enterprises, limiting the imports of luxury articles, and restricting the outflow of assets through tourism abroad. Such measures, however, do little more than scratch the surface of the problem. The root cause is the multinational corporation and the whole structure of dependent economic development. The existing alternatives are self-contradictory. Consider the reorientation of production toward the internal market formed by millions of starving people with no purchasing power. How could this be done? These people would have to take part in the economic and political life of the country and this would imply deep social reforms. Could those be carried out by a regime that has been repressive since its inception? Another alternative would be to protect national industries, strengthen the State and confront the multinationals. But with what social support? With what international support? Could this be done by a regime that has so openly associated itself with the top 5 percent of the population, with the multinational corporations, and with U.S. foreign policy? Obviously not. A program of economic reconstruction for Brazil cannot therefore come from the present regime; nor from the national capitalists who have given in to international capital; nor from the technocrats who have placed themselves at the service of big capital and the super-exploitation of the Brazilian people; nor from the military who have used their guns for repression, censorship and torture during these years of starvation for the people. A program for Brazil's economic reconstruction, one that serves the people of the country, can only come from urban and rural workers, from intellectuals repressed by the dictatorship, from peasants and small urban proprietors in the process of proletarianization because of the violent economic concentration. Only the Brazilian people can save their country. Anything else is a palliative that cannot deal with the basic causes of the crisis, a crisis that is already acute and potentially explosive. FOOTNOTES BRAZIL ECONOMIC MIRACLE I. The most complete factual analysis of Brazilian indus- trialization is found in Werner Baer's Industrialization and Economic Development in Brazil, Yale Univ. Press, 1975. This book is the major data source for this article. 2. These points were summarized in Theotonio Dos Santos, Socialismo o Fascismo: El dilema latinoamericano y el nuevo character de la dependendia, Ed. Pla, Chile, 1971, and Ed. Periferia, Argentina, 1973. 3. Cf. Raymundo Arroyo, "Relative and Absolute Pauperization of the Brazilian Proletariat in the Last Decade," LARU Studies, 1, 1977. 4. IPEA, Special Study: A IndustrializaCdo Brcsileira: Diagn6stico e Perspectivas, Rio de Janeiro, 1969, p. 146. 5. Werner Baer, op. cit. 6. M. H. Simonsen and R. 0O. Campos, A Nova Economia Brasileira, Rio de Janeiro, 1974, p. 80. 7. These data were published in the conservative newspaper 0 Estado de Sdo Paulo on January 25, 1976. The cited work by Raymundo Arroyo presents a detailed evaluation of super- exploitation in Brazil since 1964. 8. Celso Furtado's book El Mito deJ Desarrollo follows this line of reasoning. 9. Werner Baer, op. cit., based on data published in Visdo maga- zine on the major enterprises in Brazil. 10. Data for 1975 were taken from the annual survey of the economy by the Economics Department of the Federation of Indus- tries of Slo Paulo, published in O Estado de Sdo Paulo, January 25, 1976. THE HUMAN TOLL 1. Raymundo Arroyo, "The Relative and Absolute Pauperiza- tion of the Brazilian Proletariat in the Last Decade," LARU Studies, No. 1, October 1976 (Latin American Research Unit, Box 673, Adelaide St. Post Office, Toronto, Ontario, Canada). Available in Spanish in Cuadernos Politicos. July-September 1976 (Ediciones ERA, Apartado Postal 74-092, Mexico 13, DF, Mexico). 2. National Commission of Minimum Wages of Mexico. 3. The data for the whole country are from the VIII Demographic Census of Brazil for 1970, (IBGE, Rio de Janeiro, 1974). The data for Sao Paulo are from the Demographic Census of Sao Paulo 1970 by the same publishers. 4. Alejandro Alvarez and Elena Sandoval, "Desarrollo Industrial y la Clase Obrera en Mexico," Cuadernos Politicos, 4, 1975, p. 18. 5. Cited in T. Mattos and M. Carvalho, "Efeitos da Super- explotacao da Clase Operaria," Brasil Socialista, 3, Switzerland, 1975, p. 31. 6. "Radiografia da Politica Salarial Brasileira," Movimento, August 25, 1975, p. 8. 7. Unfortunately, due to differences in the compilation of the data, it is not possible to compare the relevant information in the 1970 census with that of the previous (1960) census. 8. Brasil Socialista, op. cit., p. 32. 9. Ibid. 10. O Estado de Sao Paulo, September 1974. 11. Mattos and Carvalho, op. cit., p. 39. 12. "In exchange for food, 15,000 unemployed people in Passo Fundo (Rio Grande do Sul) are helping muggers who act in the city and then hide in one of the 69 alleys in Passo Fundo, where citizens shoot at any policemen who dare go after the delinquents. Since last year, because of the protection given to muggers, six soldiers of the 16th Military Brigade have been killed in street shootouts. The delinquents gained the nickname of 'Robin Hood Group' after they made the first distribution of food from a downtown grocery store." (O Estado de Sao Paulo, May 22, 1974) 13. From a speech given by Sao Paulo governor Paulo Egydio Martins at the Governors Conference in Brasilia, February 1975, cited in Opiniao, No. 121, February 28, 1975, p. 3. 14. Opiniao, No. 153, October 10, 1975, p. 7. 15. Ibid., p. 7. Data from World Health Organization. 16. Anuarios Estadisticos do Brasil, 1961-74, Rio de Janeiro. 17. Paulo Egydio Martins speech, op. cit. 18. Data from Mattos and Carvalho, op. cit., p. 37.

Tags: Brazil, economic miracle, dependency theory, inequality

Like this article? Support our work. Donate now.