From the 1950s, the Argentinian economist Raúl Prebisch (1901-86) analysed the risks of Latin America’s dependence on the vagaries of foreign economies: the US, the UK, China. Since the colonial era, it had been consigned to the status of producer of raw materials, destined to import finished goods from the North. In former colonies where the middle class copy the North’s consumption patterns, every increase in national income means imports grow faster than exports, to the detriment of the balance of payments. Prebisch recommended developing local industry through import substitution.
In Brazil, President Fernando Henrique Cardoso’s (1995-2002) shock therapy had the opposite purpose: his policy facilitated imports, which would supposedly spur productivity and competitiveness. It didn’t matter if the balance of trade plunged into the red, the books could be managed by attracting foreign speculative capital, encouraged by high interest rates.
Since 2010 the global price of raw materials has fallen by 40%, and oil prices plummeted by 60% between June 2014 and January 2015. The reaction was swift: in 2015 growth stagnated in Ecuador and Argentina, and declined by 3% in Brazil and 10% in Venezuela. Worried by mixed reports on emerging economies, foreign investors repatriated their funds to the North. Talk of interest rate rises from the US’s central bank, the Federal Reserve, only hastened the process. The 14.25% rate offered by Brazil (7% of it consumed by inflation) was no longer enough to guarantee a sufficient capital flow for foreign investors. According to the Institute of International Finance, in 2015 emerging countries experienced the greatest capital flight since the concept of “emergence” was invented in the 1980s. Brazil is among the worst affected. Though some celebrated the decoupling of southern economies from those of the North years ago, Brazil’s balance of payments depends to a large extent on Federal Reserve president Janet Yellen.
Progressive governments, aware of the mechanism Prebisch identified, have tried to rebalance their economies by stimulating their industrial sectors. More urgently since most of their leaders have adopted an idea from the communist movement: that in underdeveloped nations, revolution should first aim for the emergence of a bourgeoisie; and that only after this anti-imperialist phase is it possible to work for a socialist revolution.
The idea of using one group of employers against another might seem attractive. But is capitalist modernisation always something capital shies away from? Rafael Uzcátegui, a critic of the Bolivarian revolution, writes: “The hypothesis […] is that the coming to power in Venezuela of a populist, charismatic president, who resembled a caudillo, makes it possible for the country […] to adapt to changes made necessary by the globalised process of production” (1). His reasoning seems shaky since the efforts to spur on industrialists have so far failed. President Hugo Chávez suffered a coup orchestrated by, among others, Venezuela’s boss of bosses in 2002, then a lockout in 2003; Chávez brought 500 bosses together in 2008 to propose a national effort to relaunch productivity. In a speech of reconciliation, he used the word “alliance” more than 30 times. Five years later, little had changed. His successor, Nicolás Maduro, had to restart the initiative: “We are launching an appeal […] to build a nationalist private sector.”
In Brazil, President Dilma Rousseff’s efforts to please industrialists won plaudits from the neoliberal Veja magazine: “The president has done everything entrepreneurs demanded. They wanted lower interest rates? They fell to a record low. They wanted an exchange rate that favoured exports? The dollar is at more than two reais. They wanted a drop in salary rates? They were reduced in several sectors of the economy.” And still, neither industrial output nor private investment increased. Valter Pomar, a member of the Workers’ Party (PT), is not surprised: “The bosses have a real problem: they’re capitalists. It wouldn’t be responsible of them to choose any path other than maximising their profits.” The financialisation of the economy has removed the opposition between industrial and speculative capital. Betting on financial products in Brazil or gambling on exchange rates in Venezuela is much more profitable than investing in production.
“There are a thousand and one ways to increase demand,” says journalist Breno Altman. “A minimum wage could be introduced, along with social programmes and public services. Boosting supply […] turns out to be a real conundrum, […] governments depend on the bosses’ goodwill.” Valter Pomar has come to the same conclusion: “Either the state takes things in hand and accepts there will be a showdown with the middle class. Or it tries to convince them to play along without being sure they’ll agree.”
1) Rafael Uzcátegui, Venezuela: révolution ou spectacle?, Spartacus, Les Lilas, 2011.
This article appears in the excellent Le Monde Diplomatique, whose English language edition can be found at mondediplo.com. This full text appears by agreement with Le Monde Diplomatique. CounterPunch features two or three articles from LMD every month.