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Lula and Social Policy: In the Service of Financial Capital

Rosa Maria Marques teaches political economy at the Pontifícia Universidade Católica de São Paulo. Áquilas Mendes teaches economics at the Pontifícia Universidade Católica de São Paulo and Fundação Armando Alvares Penteado in São Paulo. He is coordinator of the Centro de Estudos de Pesquisas de Administração Municipal and vice president of the Brazilian Association of Health Economics.

The Lula government’s concept of social protection is not to be found in any official document or in any paper from his Workers’ Party (PT) or his electoral platforms. This is why it is so difficult for the public at large, unfamiliar with the principles of social policy, to understand the meaning of his proposals and actual policies. In trying to explain this concept, we will discuss the government’s reform of the social security system, underlining its impact on the state apparatus. We will analyze the core of its social policy as represented by the Programa Bolsa Família (Family Basket Program) and describe the way the economic cabinet designs social policy. From this start, we make the point that Lula’s public policy puts on hold previous advances in the field of social rights, tries to create a private health care system, and erects welfare networks not founded upon rights. This last factor is crucial for the creation of a new base of support for the government, one not structured around social, union, and political workers’ organizations.

The Social Security Counter-Reform

The social security reform passed in December 2003 picked up the matter exactly where it had been left during the government of Fernando Henrique Cardoso: age is the sole criterion for retirement of public employees; retirement pension values are no longer defined by the average income while active1; tax and social security payments are collected from retirees, although the notion goes against the very principles of social security law since it does not generate future benefits; and the conditions are set for the future privatization of the system to benefit pension funds run by unions and private concerns. To push through his proposal, Lula used all sorts of expedients—from half truths to prejudice and misinformation.

In this fight for hearts and minds the government made use of the general belief that there is a great deficit in the social security system, a belief cobbled together by previous governments over many years. However, the argument was eventually abandoned because of the flood of counter information coming from the media and opinion makers, and it did not figure in the final voting draft. In Brazil, pensions, along with health, unemployment insurance, and social assistance, are managed by the Social Security Administration. By constitutional mandate the fiscal resources that finance them, coming from different tax bases, cannot be treated in isolation. However, the government has discarded that constitutional mandate and compared the monies being paid as retirement pensions with the funds being collected from workers with formal jobs, that is, those that work in legal conditions from the point of view of labor relations. But if the constitutional principle of social security is followed, the system shows a surplus (R$47.3 billion in 2005) larger than the total federal expenditure in health, for instance.

Another strategy was to present the idea that the state is inefficient and public employees are privileged and lazy. To shore up this argument, a comparison was made between a relatively senior public official’s pension and the average pay of private sector workers, diluted by averaging in the millions earning the minimum wage mandated by the Constitution at the time of the democratic restoration.2 Thus, a public already made accustomed to the idea that public service was low in quality and inefficient by years of bombardment by the media and anti-government thinkers went against public employees. Thus isolated, civil servants only had their own resources with which to fight against Lula’s reforms.

A motivation given for the reform is the understanding that pension funds would create a significant national savings account, helping to finance domestic development. Besides, the government has declared that it would use the pension funds to finance future infrastructure and social programs—as part of its plan to introduce a system of undefined benefits, that is, without a guarantee of value for pensions. There are those who defend this as a way for workers to gain power in a world dominated by financial globalization, a reading of reality common to several former officials in the Lula administration, currently out of office due to allegations of corruption. All the same, retirement rules have been changed for public employees and licenses have been issued to unions to start their own pension funds.

Another reason given for reform, also in the service of financial capital, is the achievement of large primary surpluses. In the last few years, Brazil made an enormous effort to generate surpluses and pay its foreign debt. The new government has stuck to that policy, as shown in a letter from the economy minister, Antonio Palloci, to Horst Köhler, director general of the IMF, sent on May 28, 2003, a month after sending the reform law to Congress.

The government has moved rapidly to implement its agenda for economic recovery and reform. After an important consensus-building effort, an ambitious package of tax and retirement reform was sent to Congress earlier than expected. Fiscal policy has concentrated on reducing public debt: the Budget Directives law sent to Congress raises the primary surplus aim to 4.25% of GDP. Besides, the constitutional amendment that eases financial regulation—a needed step to consolidate the autonomy of the Central Bank—was passed.

Retirement Counter-Reform & the State

The reform of the retirement system has been antidemocratic and has promoted an inverted redistribution of income from public employees to financial capital. It has been antidemocratic mainly because it ignored the need for proper transitional rules. In the case of public employees, the law used to guarantee retirement payments equal to active salaries, meaning that workers had no loss of income at the time of retirement. All of this was on the understanding that the system compensated officials for salaries lower than those paid by the private sector, particularly those of less-skilled public workers. In the course of a lifetime, the total income earned by public and private-sector workers tended to converge, since private-sector workers suffer an abrupt loss of income at the time of retirement (the higher the wage, the larger the loss) and public employees, who make less while active, had no loss at retirement. In other words, the covenant between the public sector and its workers was a guarantee of life-long income, although lower than that offered by the private sector for the same level of qualification. Through that system, officials were sheltered from the uncertainty of the future and were able to create an income/savings ratio different from that of private-sector workers. Although their net income was lower, public workers needed to save less for the future because their future income was guaranteed.

Lula’s reforms meant breaking this covenant between the state and its public servants. This break up has been extremely violent since it did not consider the fact that public workers have no way to correct their past income/savings ratio. It should be remembered that those who would qualify for a full-wage pension under the new conditions (age, time of service, and years of contribution to the system) are few. In any democratic society, when retirement laws are altered, a transitional system must apply to minimize the losses of those already in the job market. It seems that the government’s promise not to breach contracts, stated publicly on several occasions, does not apply to those who work for it.

Since there is no expectation that public workers will stop earning lower salaries than private-sector workers, the change in the retirement system will discourage skilled professionals from applying for state jobs. The only scenario in which that would not happen is one of high unemployment, when public-sector jobs would be more highly prized. The retirement system reform carried out by the Lula government is a decisive step toward the destruction of the Brazilian welfare state, a process initiated by the Collor administration.

Bolsa Família: The Flagship of Lula’s Government Social Policy

The Lula government’s Project Zero Hunger: Food Insurance for Brazil uses as its benchmark the World Bank’s world poverty line ($1.08 per day), adjusted by regional cost of living and by the existence or absence of self-sustaining agriculture. The primary target of the project was the population living under this poverty line—44.043 million people, involving 9.32 million families—a number that encompasses 21.9 percent of all families, 27.8 percent of the total population, 19.1 percent of the urban population, 25.5 percent of the non-metropolitan urban population, and 46.1 percent of the rural population. The sheer size of the impoverished population makes it difficult to see the policies targeted at them as in any way focused. Indeed, it stands to reason that the policy is not universal, since the size of the target-population is so enormous.

After Lula’s first few months in office, the efforts concentrated on the Programa Bolsa Família (Family Basket Program) took over pre-existing programs. The Bolsa Família did not create a social right but, as the name suggests, was a benefit created by the federal government (see table 1). Research by Marques and others in 2004 estimated that by December 2003, when 4.1 million families received the Bolsa Família, the population served, considering the average number of people per family, was 16.5 million. In Lula’s second year in office, 2004, it reached 5.7 million families. By December 2005, it reached 8.7 million families in all of Brazil’s municipal departments. By May 2006, the program was benefiting 9.1 million families, not quite the total target population of 11.1 million.

Bolsa Família, monthly benefits to the target population, 2006

Most of the population benefiting from the program (69.1 percent) lives in the Northeast, Brazil’s poorest region. The percentage of the population reached there was quite high, with some municipal departments showing proportions of 13 percent to 45 percent. The latter percentage was reached in towns of less than 20,000, as well as in rural counties with populations of 20,000–100,000, with a Municipal Human Development Index (M-HDI) below the national average and economies dominated by third-sector, i.e., nonprofit, activities.

The results attained in the Northeast reflect the general poverty of its population, but the concentration of the Bolsa Família in that region does not mean that other areas do not have sizable populations that could benefit from the program. An example would be Itaguatins (a town of less than 20,000 with an M-HDI below the average and an economy dominated by third-sector activities) or Tocatins, in the North, where 38 percent of the total population uses the program. With exceptions, the population reached in the South is relatively small, a reflection of the economic and social situation there. And yet, the program still fulfills a role in sustaining a minimum level of income. For example, in Porto Alegre, the seat of several World Social Forum meetings and a city enjoying an M-HDI above the national average, 5 percent of the population benefit from the program, a far from negligible proportion.

Limitations of the Program

The standard of living of millions of Brazilians has been improved by the Lula government’s Bolsa Família. But the precondition to join the program is a very low real income, well below what is provided by a minimum wage, which is itself inadequate. Although the program benefits a sizable portion of the Brazilian people, a large sector of the population, those making the minimum wage, are ineligible for these benefits—on the grounds that their income is too high. Nevertheless, it is a fact that the minimum wage is the actual bottom line of the legitimate wage scale, and any salaries below it would be both illegal and immoral by social standards. According to the legislation that made it possible, the minimum wage should constitute a real living wage for workers and their families. However, despite the fact that during Lula’s government it has recovered part of its real purchasing power, the minimum wage remains far below the real minimum income needed for the sheer survival of a family of two adults and two children, as stipulated by the law.3

The fact that the Bolsa Família doesn’t take into consideration the legal meaning of the minimum wage, that of being the legal national minimum lawful income, points to the reality that the government does not see the need for the population to have a common minimum income at the level of minimum wage.4 The notion that the minimum wage should correspond to the minimum income needed for survival expresses the obvious fact that there is no difference between the absolute basic needs of a worker in the formal market and those of, for instance, a boatman in the Amazon Basin.

There is a need for measures to be taken to break the malignant logic of wealth accumulation in Brazil and at the same time it is urgent to institute as a right a guarantee of a basic level of income for all. That income should be understood as a right derived from the concept of citizenship, therefore enshrined in the Constitution. Only in this way would the minimum income be ensured as a basic right of any Brazilian citizen, just like health and elementary education—and not a mere social assistance policy.

Even if a more ambitious program—one involving a guaranteed higher quality of life for the people and not just ensuring that the poorest families stay an inch above the absolute poverty line—were to demand a large share of resources, and that would not be the case, it should still be a priority for current social policy. It is, after all, the only way that Brazilian society could claim to be engaged in the development of the country. Growth without redistribution of wealth not only continues a history of extreme inequality, but intensifies it.

The Birth of a ‘New Populism’

The Bolsa Família has created a new base of support for the Lula government, one independent of unions and social movements. Starting with that policy a special relation has been created between the government and the poorest sectors of the population, which we call a “new populism.”

Our usage of the term “populism” is political: “a kind of political action that takes as its base of legitimacy the common citizen, whose interests it aspires to represent” or “a policy founded on the advancement of the lower classes.” To be sure, that is not the usage now current in economics, which associates populism with governments that spend more than they collect. Bresser Pereira, who also defines populism as a form of fiscal indiscipline, claims that its adherents believe that economic development and wealth redistribution can be easily achieved through wage increases, more public investments, and more social expenditure, a combination that as a rule creates inflation. Here, however, we will limit ourselves to the much more defensible political dimension of the term.

The new populism is not a continuation of the traditional populism of Getulio Vargas but in many ways its reverse. Brazilian populism as introduced by Vargas had the characteristic of, among other things, being able to contain or manipulate organized mass movements through the state apparatus. In order to achieve that, it was essential to destroy independent unions by absorbing them into the state and, at the same time, to concede ground in the labor-capital relationship and in social security. According to Weffort, “the peculiar flavor of populism stems from the fact that it appears as a form of domination at a moment of political vacuum when no social class is hegemonic and precisely because no class feels able to be hegemonic” (F. Weffort, O Populismo na Política Brasileira, 1981, 159).

During the Vargas years, populism was based upon the masses, who were organized against their own traditional leadership, thus transforming unions into agencies of support for Varga’s political project. Lula’s new populism, however, not only cannot find support in any organized movement but is at the service of international capital, particularly financial capital. It cannot be claimed either that there was a political vacuum at the time of Lula’s election. Rather the Brazilian elites were at an impasse, unable to push further the agenda dictated by the World Bank and the IMF. Only a man of the people could, in their name, complete the reforms.

Weffort defines Vargas’s populism as close to the idea of Bonapartism described by Marx in The Eighteenth Brumaire of Louis Bonaparte—where action by the state was fundamental to creating a flourishing industry. His project, however disturbing to some interests, was targeted at development as industrialization. Lula’s new populism, by contrast, disregards any economic initiative outside those put forward by the IMF and the World Bank, as if the national interest was identical to the interest of those institutions and of those they represent. Instead of rebuilding the investment capacity of the state or defining an industrial and technological policy, among other urgent tasks, it seems to have as its sole priority servicing the foreign debt by generating unprecedented fiscal surpluses. The efforts made have been greater than those made by Germany to meet war reparations after the First World War.

The other great difference between Vargas’s populism and the new populism is to be found in relation to the masses. The former sought support from workers to advance legislation that created a job market for the industrial sector, the latter uses union structures and leaderships to keep social protest from stopping its counter-reforms (labor, union, and even retirement, again on the agenda). In regard to the masses, its policies are strictly compensatory.

But the political use of labor organized in unions, associations, or movements has very strict limits given the contradictions between the government’s agenda (particularly the service of the debt) and the need for a leadership that would rebuild public companies and articulate a proper income policy, among other tasks. In this sense, any mobilization of organized labor represents a threat to the government. It is no coincidence that, since Lula was inaugurated, the highest officials in the PT and the Central Unica dos Trabalhadores (CUT), the Central Workers’ Federation, have always tried to dampen debate about his actions.

Lula’s new support base does not threaten his government because it is spread across the country and has only low income in common. This population has no reason to question the government because of their internal characteristics and the type of benefits they receive. As long as the benefits keep coming, low-income people will regard Lula’s government as the one that changed their lives for the better. The fact that the social, economic, and political structures of the country reproduce the factors that create poverty is not a problem for them, as long as the payments are not interrupted. Moreover, the expense of the program is not very high (R$8.3 billion in 2005; for comparison purposes, the total federal expense in health services through the Ministry of Health was R$37.1 billion in the same year).5 It is clear, then, that the continuation and enlargement of the program is not a major problem for the government, as it doesn’t hinder its agenda. On the contrary, assistance programs of this kind are part and parcel of the neoliberal agenda, starting with the World Bank’s.

Social Policy & the Economic Cabinet

In its communications to the IMF (as in the letter from the Brazilian government to Hörst Köhler, November 21, 2003, Ministerério de Fazenda) the government has stated its intention to change the preconditions on which budgets are designed, be they federal, state, or county. In the item “Creating a pro-development situation,” the government writes of flexibility in the allocation of public resources as one among many actions needed to “steer the country toward a course of growth.” “Less than 15 percent of primary expenses are allocated in a discretionary way by the government,” the letter continues, “which generates a budgetary rigidity that often inhibits in a significant way a more fair and efficient use of public resources.” The document ends by saying that “the government plans to prepare a study on the implication of sector linkage….” Even if that aim is never achieved, its very inclusion in the paper shows the neoliberal leanings permeating the Lula administration at the top.

The government’s intention here is to do away with the federal constitutional mandate that a percentage of all monies levied be spent by various levels of government on health and education. Education stands for 18 percent of federal expenses and 25 percent at the state and municipal department levels. In regard to health, that change would mean that the Ministry of Health would no longer be under the obligation to raise its expenses yearly by the percentage of nominal growth of GDP; the states would no longer be expected to spend 12 percent of their budgets on health, or municipalities 15 percent of theirs. The government is thus pursuing a two-pronged strategy in relation to the budget: to make the health and education budgets non-mandatory, and to redirect their allocations to pay the debt and to make public investments, probably under the umbrella of the Public-Private Partnership project, part of the Millennium agenda.

No other government had the courage to think that servicing the debt should come before meeting social security expenses, much less raising them. Such an objective becomes “consistent” with social policy only when associated with the concern to direct all social initiatives to the poorest sectors alone. With regard to health, this implies redirecting investments along the lines of something akin to the basic alimentary program, as recommended by the World Bank. With regard to education, the initiative assumes that no new investments will be made in public universities and that new places for students will be created, with public monies, only at private universities and colleges.

Conclusion

The Lula administration is creating a new support base through income transfer programs—a strategy quite different from the one originally advanced by his PT—and this goes hand in hand with the destruction of the advances in social security that had been enshrined in the 1988 Constitution, then a testimony to the redemocratization of the country. In the name of stability, growth, and fulfilling the “contracts” with foreign and domestic creditors, the idea of universal social policy has been abandoned and older forms of assistance are offered to the very poorest, leaving the masses of workers (but not the very rich who benefit from ever greater subsidies) to fend for themselves in the market.

To point out these aspects of the Lula administration does not mean to ignore the reality of the millions benefiting from wealth transfer programs. On the contrary, in a system of universal social security, income transfer would be not only a priority, it would be a right—one extending well beyond mere poverty assistance.

Notes

  1. Officials’ salaries are always below market value so, as compensation, retirement payments were equal to salaries.
  2. Rural workers that never contributed to the system and/or rural workers making too little to contribute are entitled to the minimum wage.
  3. The current minimum wage is equal to 1.99 “basic food baskets,” calculated in the city of Sao Paulo. That is the largest proportion since 1979, according to the Departamento Intersindical de Estatística e Estudos (Diesse).
  4. This refers to the relative importance among active workers of those earning at least minimum wage.
  5. Responsibility for public health in Brazil is shared by the three levels of government, with the federal level accounting for less than 50 percent.