The article of banker and economist André Lara Resende recently published [Consenso e Contrassenso: deficit, dívida e previdência, Valor, 08/03/2019; read here in Portuguese] caused some “discomfort” in the team of investment fund executive and current Minister of Economy, Paulo Guedes. A member of former president Fernando Henrique Cardoso’s economic team and one of the idealizers of the Real Plan, Lara Resende questions the mechanisms of financing of the deficit in the budget of the Federal Government.
Written by João Ricardo Soares. PSTU-Brazil.
Although he defends the Pension Reform, the dissonant note of one of the Real Plan’s idealizers, with prestige amongst the ruling class, may indicate the it will not be easy for Guedes to implement the whole of his politics. However, the theory for these gentlemen is but justification for unloading the burden of the crisis and decadence of a subordinate capitalism on the shoulders of the working class in order to save their profits.
Only the depth of of the capitalist crisis could lead a member of the neoliberal orthodoxy, an artificer of an economic plan which deepened the subordination and decadence of the country to feed financial parasites, to warn his class colleagues that maybe they are going too far.
To what measure the recipes now proposed by Resende, the financing of the State through the simple printing of money, could solve the dilemma in which the ruling class is? If the so-called fiscal deficit, the size of the public debt and the interest rate had not relation with the production of profit, and found a solution in itself, Resende could solve the question of the “new capitalism” of French Minister Le Maire, who states that there is a lack of money to put this capitalism en march (see previous article).
Though the problems faced by the French ruling class and distinct from those that stand before the subservient Brazilian bourgeoisie. For while French multinationals must compete with those from the USA and fight a battle of giants, the last company installed in Brazil with some technological capacity to fight in the world market, Embraer, has just been taken over by Boeing, a direct competitor of Airbus, where French capital is paramount.
So, before entering the subjects touched by Resende’s article, we must discuss the nature of the capitalist crisis of Brazil. Not the consequences of the crisis over the State, but the reasons which turn it into the apparent epicentre of the crisis.
The trajectory of decadence
Without identifying the place Brazil occupies and has once occupied on the world division of labour we cannot understand the process of industrialization of the country or its decadence. We will also not understand the root of the reasons of the fact that, divided about what to do faced with the deepest recession in the history of Brazilian capitalism, the different fractions of the Brazilian ruling class are unanimous about the necessity of destroying the public pension system.
The basis on which the urbanization of the country was built – with the immigration of the work force towards the great cities – were rooted on the investment of international monopolies – the multinationals. The flagship of this industrialization – the car industry – boosted not only the auto parts companies linked to this specific production and focused on them all of the “national” capital, but also the investment of the State on the infrastructure necessary for the circulation of the vehicles, as well as on the parts of the industry which demanded high investment, such as the production of steel. One the other hand, the way the cities grew boosted the entire inner productive chain necessary to reproduce and conserve the workforce particular to the large urban conglomerates, opening the field for the accumulation of local capital.
Since this industrialization is dependent on external investments on the cutting-edge sectors of capitalist accumulation, the so-called “national industry” was developed on the margin of this central axis. In particular, the local monopolist sectors import cutting-edge technology in the form of machines and tools, for its production oriented towards the inside market and, until a short time ago, to exporting to Latin America.
In spite of this technology importing, there was space for the creation of a machine industry, which is backwards compared to the dominant countries, but had an important role in the national productive system which developed on the margins of the multinationals, such as the auto part industry.
In so far as they are dependent on importing technology, the dollars necessary for its acquisition were generated by exportation, both of manufactured goods and primary goods – agricultural and extractive.
Thus, the profits, interests and land income express a strong dependency on the investments of multinationals and the State. While this dependency generated an industrialization subordinated to the multinationals, it was also above the average for semi-colonial countries at least until the 80’s, when imperialist investments focused on East Asia.
The expansion of industrialization subordinated to the multinationals and the State also market its own limits for capitalism on the country. Limits which are expressed in the subordination of the capitalist development of the other regions of the country to the concentration of industrial production on the Southeast.
But the totality of this process was and is determined by the subordination of the ruling class to the external investment on the cutting-edge sectors of industrial production.
Two factors in different times completely ruined this mechanism: the concentration of the productive investments of the multinationals on East Asia and China, and particularly and more recently, the global restructuring of the auto industry. The divestment of Ford in São Bernardo do Campo is only an expression of the fact that this model of dependent capitalism has collapsed.
It was substituted for another, even more submissive one, which brings us back to colonial times. Being removed from the circuit of the investment in cutting-edge sectors of capitalist accumulation, the location of Brazil in the world division of labour drops in grade. From a platform for the exporting of manufactured goods to Latin America, it has focused on the exportation of primary goods to China. Faced with the growing urbanization of Asia (among the 30 largest cities on the planet 21 are in Asia) and the boom of prices for these goods, it seemed that the effects of de-industrialization would be richly compensated by the “big farm”.
But the price of the place reserved for Brazil in global production of goods takes its toll. Reality is here, sooner rather than later.
The deep recession in course and the long time until recovery express the disarticulation of dependent industrial production. Since exterior investments on industrial production have gone dry, and with it the surroundings from which local capital fed have narrowed, worsened by opening to importations of industrial supplies, the multinationals also imposed smaller prices to local suppliers and/or imported the supplies themselves.
The foreign investment that boosted the production of value on the dependent capitalism and created an important industrial park, on being interrupted, allied to the inability of the ruling class of breaking this cycle of dependence, opens a period of deep, prolonged decadence.
Thus, faced with the drops in the rates of profit, the rule is pillage, rent-seeking and destruction, which appears in the shape of the torture of unemployment for workers. And rentism, to make money from money, needs public debt and the State to be propelled. That is when the Real Plan comes in.
Another way to “keep the car running”
If Guedes’s politics are the pure, harsh expression of the pillage and sale of the country for at bargain prices, typical of investment funds which need more speed in the return of their “actives”, the article of a banker, André Lara Resende, questions Guedes’s path of “bringing back” growth.
The banker Lara Resende joins the group of economists that have gone on to defend the Modern Monetary Theory as a solution for the “instabilities” of the capitalist system. This important PSDB economist imports the debate by the economists of imperialist countries who, after the ruin of Greece and the “austerity plans” of Europe, present solutions which can make capitalism viable somehow.
From John MacDonnell, member of the British Labour Party, to Stephanie Kelton, teacher at Stony Brook University, former chief economist of the Democrats on the team of economists of the US Senate Budget Committee and economic advisor for senator Bernie Sander’s 2016 presidential bid, these economists have an intense discussion with the defenders of neoliberalism and financial orthodoxy about how to treat public debt.
Resende’s article was answered by Guedes’s defenders, who recite the prayer in unison: without the Pension Reform the Brazilian State is impossible. The same can also be said differently: the accumulation based on leeching rent from the public debt, faced with the drops in the profit rates, would be deadlocked.
Resende is a defender of the Reform, insofar as it would be a “condition for the sustaining of the public debt”, that is, a guarantee that there will be primary surplus. But he disagrees on the limits of the public debt and of the fiscal policy to keep the car running. What Resende says is that the financial round dance sponsored by the State can and must find other ways to stay alive, ways more adequate to the correlation of forces.
For the banker turned defender of the MMT, the government should not necessarily gather funds through the emission of public debt securities. Vindicating the recent experience of the USA, Europe and Japan, the Brazilian government could simply print money, since the experience after 2008 crisis has shown that even when you inject trillions of dollars, euros and yens in the economy, this mechanism was not inflationary as is stated in the handbooks which the managers of the capitalist economy use to learn how to conduct the politics of the State.
But, Resende warns, only whenever the interest rate is “below the economic growth”. His thesis is anchored on the fact that, if interests drop, and if the government keeps primary surplus, the public debt tends to reach equilibrium and does not present a threat, and states: “monetary expansion does not provoke inflation”.
Inflation would be only the result of the inability of industry to provide the demand for goods needed by the population and which are unavailable in the necessary amount. Since there would be no change in the wage policy, nor any substantial modification in the profit rate of companies which boosted investments, filling the banks to the brim with money and making them buy debt securities with lower interest would keep the round dance intact. It would be less traumatic to fiddle with the constitutional criteria for budget distribution.
Profit rates and parasitism: the twin facets of the accumulation of capital
What the banker does not say are the reasons why the interest rates in Brazil are among the biggest in the world. Believing that the nature of the crisis of the capitalism economy in Brazil can be managed with monetary politics, be they the control or expansion of public debt, of money or of credit, is just another attempt at saving the rings.
The capitalist system is a social relationship based on the exploitation of workers with the goal accumulating capital, that is, producing profits on a growing scale. And this can only be done through the production of value, that is, the growth of the slice of work not paid to the workers.
Capital already does this both by expanding productive activities – and the rickety Brazilian industry theoretically would have a lot of space to expand – or through increasing the productivity of the installed industry with technological intensification.
In a dependent capitalism which produces less and less value since the Real Plan built by our banker, the high interest rates were the way found by the system of passing from an unbalanced type of accumulation (hyperinflation) to another, the currency anchor.
That is, with a currency, the Real, which represents little production of value and is “worthless” (excuse the redundancy), the sky-high interest rates were the form found by capital to attract the capital in dollars which filled the void left by the lack of the investments which produced added value.
But the effects of this process went beyond being a “currency anchor”. Insofar as the country is not longer receiver of investments from multinationals with enough strength to drag along the whole economy, the international capital which was attracted by the high interest rates had merely speculative effects.
And so the interest rates were always the biggest in the world. But this did not benefit only the foreign capital, since domestic capital also feasts on this interest, with rent-seeking and parasitism the banners that lead accumulation.
The real effect on the production of value, that is, over the hypothetical capitalist development, other than the stabilization of the currency, was null. The grand deed was stabilizing a worthless currency and the profits disorganized by hyperinflation.
But the medium-term effect was an impulse to de-industrialization, since the artificial valuing of the real faced with the dollar made investments more expensive since the technology is imported. To lessen the losses of the ruling class, the FHC administration distributed, or, in their words, “privatized” a series of state companies to their friends. In this episode, our banker loses his office, involved on shady privatization deals. And stimulates rent-seeking, starting the shielding of the federal budget to guarantee payment of public debt securities and removing the tax over profits and dividends of the companies and banks distributed for shareholders.
However, the relentless course of decadence deepens, insofar as the circumstantial improvement of the profit rate for non-financial companies was the result solely of the increase of workers’ exploitation. The two axes around which the investments spun – the multinationals and the State – no longer would have the same role as before. Thus the profit rates, or the return in the form of profit for the invested capital, kept falling.
This is demonstrated in the studies of Adalmir Marquetti (PUC-RS). The strong drop of the profit rate explains the dynamics of the successive crises of Brazilian capitalism. Taking the year 1955 as a reference (100%), the profit rate of non-financial companies represented, in 2015, only 40%, having dropped 60%.
So since the Real Plan the rent-seeking, the accumulation of money through pure and simple speculation, be it with public debt securities or other speculative mechanisms, became more and more prominent in the midst of economic decadence. This mechanism was boosted not only by the Real Plan of FHC, but also during the Lula administrations, when it converts titles of foreign debt, which had low interest remuneration due to the drop in the interest rate of the USA, for domestic debt with sky-high interest rates.
This whole macabre mechanism should be sustained by a bed of dollars which allowed the dollars which come in the country to go out. So the exporting of primary goods to Asia compensates the drop in the exporting of industrialized goods to Latin America.
The 4% GDP growth between 2003-2010, encouraged by the average increase of 130% of the exported basic goods, was a passing illusion, since when these products have a brusque fall the industrial production, already decadent, can no longer be the engine of the capitalist production. The Lula administrations were only the continuity of the Real Plan during the boom of raw materials.
The most important question to understand the dynamics of the crisis is what drives the capitalist economy. It’s the profitability of the capitalist investment that drives growth and employment, not the size of the government’s deficit. And for this subject, Resende’s article does not dedicate a single word.
And like we saw, the abrupt drop of this profitability leads to these parasites keeping their profits through increasing exploitation via the Labour Reform, and the Pension Reform to continue pillage and leeching the State.
The banker’s fetish
Lara Resende’s article is not without a comical side. Now our banker has discovered that:
“… the currency is essentially an index, an official accounting unit for the balance of the actives and passives of the government with society, it is more disorganizing of the established macroeconomic notions than it might seem. This is the Cartalist view, recovered by the Modern Money Theory, in opposition to the Metallist/Quantitativist view which was dominant until the last decade of the XXth Century.”
Without solving the essential problem of the deep crisis of Brazilian capitalism, our banker advocates that the State should simply print money; after all, making money from money is the speciality of bankers. According to our author, it is empirically proved that printing money does not “cause inflation”. After all, Lula has already converted an important share of the foreign debt into domestic debt and the country now is indebted in local, sovereign money, so it cannot print dollars, but nothing stops it from printing reais.
Those that insist that the nature of the capitalist crises is rooted in finances and can be solved in the framework of the amount of money in circulation, be it on the camp of neoliberal orthodoxy or in the MMT, are discussing how to “keep the car going”, that is, they discuss how to “save capitalism from capitalists”.
But if its true that simply printing money is the empirical proof that this mechanism does not cause inflation, it is also true that this was not what determined the recovery of economic growth, as explains British economist Michael Roberts:
“Iwata was originally the architect of the program of massive buyout of titles by the Bank of Japan, known as ‘Quantitative and Qualitative Easing’ (QQE). His goal was driving the economy through a massive injection of monetary offering. But while the Japanese government continued with yearly budgetary deficits, it was unable to reactivate the nominal growth of the GDP or of the household income.”
The “empirical proof” that the quantitative easing does not cause inflation does not solve the dilemma of Brazilian capitalism, as it did not solve in Japan. The unbalancing and rebalancing of the capitalist system are not a problem in and of themselves for capital, but the very essence of a turbulent system in which inequality reigns, going from an unbalanced stage to another. The anchor of all these processes is whether the interest rates increase and capital keeps on being accumulated by the exploitation of workers.
When the profit rate does not compensate the investment, a speculative stage is expressed in the “unbalance” of the public sphere with the growth of the debt and the pressure to decrease taxes levied on property and profit. This does not depend on the justifying theory which is fashion at the time.
Insofar as the absence of primary surplus puts in jeopardy the payment of dent securities with a present interest rate, our banker can solve an aspect of the problem: how all banks in a critical stage of the rent-seeking mechanism can change this mechanism for another one. But the concrete effects over the production of value can be at most indirect, that is, decreasing the interest rate to allow investment.
But capitalists still have another dilemma: it is the profitability of capital that determines investment. Even filled to the brim with money in their banks, capitalists do not invest because the profit rate does not pay, and this is what was shown with the printing of money in Japan (or the “quantitative easing”, as it is called)..
The Brazilian capitalists will answer the same way. The interest rates can hinder or help, but they are not determinant, among other things because capitalists do not fund themselves with the current Selic interest rates which pay for public debt securities; they apply their money there exactly because of the drops of the profit rates of their companies.
The high interest rates of Brazil remain higher that the average profit rates, or as our banker says, they are superior to the “economic growth rates”, but not because they are an absolute hindrance to the productive investment of the big monopolies; on the contrary, they are only the expression of the decadence of the productive system. They are the way found to guarantee capitalist accumulation.
The image appears inverted on the mirror of economists in service of capital because the central problem of the theoretical basis of the Modern Money Theory is denying the fact that profit comes from the added value extracted from the exploitation of workers in the process of capitalist production. They fetishize money, and it substitutes value instead of representing it. They believe that money is the cause of the crisis and also its solution through the creation of value. They ignored the origin and the role of profit.
Translated by Miki Sayoko.