What the US and Europe Can Learn From Brazilian Socialism

Presidents Lula and ChavezThe crash of 2008 called the World Social Forum’s bluff. For years, the Forum had proclaimed that “another world is possible” without much serious discussion of  the economy of that future world. It was as if all we had to do was get rid of “neoliberalism” and a wonderful new system would emerge spontaneously. Then the markets crashed. Neoliberals around the world threw in the towel. 

Even Alan Greenspan admitted his “shocked disbelief” that the free-market had failed to produce rational behavior. It was time to start building that other world. But how did the Left propose to organize the world’s economy?

The World Social Forum, first organized in Porto Alegre in 2001, had claimed to have the answer. Its biennial gathering was scheduled for January, 2009, just at the moment when the world was desperately seeking alternatives. Activists and leaders streamed into the Brazilian Amazon city of Belém and boldly proclaimed that “we are facing a global crisis which is a direct consequence of the capitalist system and therefore cannot find a solution within the system.”

So far, so good. But if there is no solution within the capitalist system, what is the non-capitalist solution? Faced with this question, the Forum dropped the ball, retreating into vague rhetoric that only thinly disguised the lack of specific, “shovel ready” ideas. The delegates resolved to “work towards the construction of a radical alternative that would do away with the capitalist system and patriarchal domination… a society that meets social needs and respects nature’s rights as well as supporting democratic participation in a context of full political freedom.”

Their only practical suggestion was to nationalize the banks without compensation to the owners. But several major banks in the United States had already gone broke, and the government was the de facto owner. There was nothing about what should be done with the banks after nationalization.

The use of the phrase “radical alternative” instead of “socialist” in this resolution was not accidental. To have called for socialism with full political freedom would have raised the issue of democracy in Cuba, not to mention North Korea. It would have raised the question of what kind of socialism, and how it would avoid repeating the errors of socialist efforts in the past.

The delegates knew they hadn’t solved the problem. They recognized that “in order to overcome the crisis we have to grapple with the root of the problem and progress as fast as possible towards the construction of a radical alternative.” But the World Social Forum has been working on this since it was founded in 2001, and many of the constituent groups have been working on it much longer than that. Why hasn’t more progress been made?

There is a hunger in the world for something to replace capitalist values and ethics. The WSF and other leftist groups have felt this hunger for a long time. Now it has spread to the liberal establishment that actually has the possibility of doing something about it. British Prime Minister Harold Brown recently commented that: “as we have discovered to our cost, the problem of unbridled free markets in an unsupervised marketplace is that they can reduce all relationships to transactions, all motivations to self-interest, all sense of value to consumer choice and all sense of worth to a price tag.”

But there is no way to talk about alternatives to capitalism without confronting the problem of socialism’s unhappy twentieth century history. Venezuela’s Hugo Chávez and Bolivia’s Evo Morales speak of “twenty-first century socialism,” which implies that something different from the Soviet, Cuban or North Korean models is needed. But Chávez and Morales say precious little about what that would be. Brazil’s Luiz Inácio Lula da Silva, perhaps the most important leader at the World Social Forum, refuses to use the socialist label, saying he doesn’t care what the new system is called.

But the Brazilian Workers Party, of which Lula is the most prominent leader, recently reasserted its commitment to “reconstruct a socialist alternative with liberty.” Its platform defines “socialism” as a system with competitive multiparty elections, full respect for human rights, and a mixture of private, cooperative and state ownership of property.

Latin America is at the forefront of democratic socialist theory and practice today because the Latin Americans have a long history of coping with capitalist crises. Although the Brazilian government, following Lula’s lead, chooses not to use the word “socialist,” much of its success in weathering the current fiscal crisis are due to practices that many think of as socialist. There is much that North Americans and Europeans can learn from Latin American thinking about socialist alternatives in the twenty-first century.

Heinz Dieterich’s Hi-Tech Socialism

Perhaps the most eccentric new socialist thinker is Heinz Dieterich, a German scholar who has lived mostly in Mexico since 1970 and who has been active in Venezuela. Hugo Chávez seems to have picked up the phrase “twenty-first century socialism” from him, and Dieterich hopes to persuade Chávez to implement his ideas.

Dieterich argues this is the time to implement utopian socialist ideas that were first developed in the nineteenth century. In his vision of socialism, the market will be abolished. Goods and services will be exchanged according to the number of labor hours it takes to produce them, not according to supply and demand. Dieterich believes that socialism failed in Eastern Europe because its leaders lacked the technological resources to realize these ideals.

Why does Dieterich believe we can achieve true socialism today? Because today we have computers! Dieterich adopts the arguments of European thinkers Arno Peters, Konrad Zuse, Paul Cockshott and Allin Cottrell that modern digital computers make it possible to efficiently manage a planned economy without market mechanisms. These ideas are at the fringe of European socialist thought where critics argue that the scheme is impossible without establishing a market in “labor coupons” which would have the same defects as financial markets using dollars, pounds or euros.

In such a system, there would be no material incentives to increase productivity or to respond to consumer demand because everyone would receive the same hourly wage no matter how much they produced or how much demand there was for their products. There would have to be a cultural revolution to produce new men and women who would work for the common good instead of maximizing their personal incomes. Community planning processes would be needed to make decisions about new products or investments in new technology. This would certainly get away from the money-grubbing capitalist values so many are finding increasingly distasteful.

Venezuelan Defense Minister Raúl Isaías Baduel was one of Hugo Chávez’s most important allies in resisting the right-wing coup d’état in 2002. He wrote a prolog to Dieterich’s book urging Venezuelan intellectuals to take up President Chávez’s challenge to “invent the socialism of the twenty-first century.” He asked “where are the hundreds, perhaps thousands, of mathematicians, statisticians, economists, systems engineers, programmers, and information systems experts, committed to socialist ideology and to the change to a system different from capitalism, who will form the central planning team that will have the formidable and enormous mission of replacing nothing more and nothing less than the market and the businessmen?”

Baduel soon became disillusioned because Chávez did not seem to be seriously implementing Dieterich’s ideas. He became concerned that “twenty-first century socialism” was a smoke screen for setting Chávez up as a dictator like Fidel Castro. In his July 2007 retirement speech as Defense Minister, Baduel said he opposed “state capitalism” which he believed is what failed in Eastern Europe and called for a socialism that respected “bourgeois” concepts such as the division of power. Within a few months, he broke with Chávez and with the concept of socialism altogether, concluding that a socialist state is contrary to the Christian view of society because “it grants the state absolute control over the people it governs.”

Dieterich has little to say about the politics of twenty-first century socialism, although at some points he refers to it as a form of “participatory democracy.” Hugo Chávez talks about “participatory and protagonistic” democracy, which seems to mean rule by social movements and activist organizations instead of by formally elected politicians. His primary thrust has been to increase both his personal power and the power of social movements loyal to him.

Paul Singer and Economic Solidarity

Paul Singer is a retired University of São Paulo economist and Workers Party leader and author of several important works on socialism which are available only in Portuguese. Singer advocates a vision of socialism as worker self-management with worker-owned firms competing in a democratic marketplace. He strongly opposes the Soviet model of socialism as a state monopoly of the means of production because it led to a monstrous concentration of power, the exact opposite of the withering away of the state that Marx and Engels had anticipated.
Singer’s is a libertarian socialism. The same model is often referred to as the cooperative or employee ownership. The term used most in Brazil is “economic solidarity.” Philosophically, this has its roots more in the solidarity theories of French economist Charles Gide than in Marxist theory. Singer insists that every citizen has the right to organize his or her economic activities as he or she chooses, with only slavery and indentured servitude prohibited.

This means that socialism must emerge gradually from within capitalist societies by winning voluntary converts. In his view, true socialism cannot be imposed by a revolutionary party with a monopoly of state power. This means that “the socialist economy will probably suffer (for how long no one knows) competition with other modes of production. It will be permanently challenged to demonstrate its superiority in terms of self-realization of products and satisfaction of consumers. This leads to the conclusion that the struggle for socialism will never cease. If this is the price which socialists must pay to be democrats, I venture to say that it is not too much.”

Singer has been a close friend of Lula da Silva for many years, and Lula has recruited him to implement Economic Solidarity programs for the Brazilian government. As of 2007, there were 21,859 employee owned enterprises in Brazil. The largest number, 9,498, were in the impoverished northeastern region of the country. These enterprises had 1,687,496 employees, including 645,504 in the Northeast.

The Brazilian economic solidarity movement has focused on the underprivileged sector of the population including the approximately 45% of Brazilian workers who are in the “informal” sector without the protection of the country’s extensive labor legislation. Economic solidarity enterprises help these workers integrate into the formal structure of society.

Economic solidarity also works with individuals released from mental hospitals and prisons. Funding is raised through federal and community banks, credit cooperatives and rotating funds. More than 30 Brazilian universities maintain incubators for popular cooperatives, providing technical assistance and support.

Many of these employee-owned firms are small and economically vulnerable. Only 14% are formally organized as cooperatives, 55% are more loosely organized associations, and 27% are just informal groups. In some cases, small businesses reorganize as cooperatives to get a break from Brazil’s restrictive tax and labor legislation.

In other cases, the workers take over an enterprise that the original owners have abandoned. The emphasis of Paul Singer’s secretariat has been on working with poor and impoverished populations that have few alternatives, not on competing with viable private enterprises in more lucrative segments of the economy.

The economic solidarity movement comes out of a democratic socialist tradition but the word is not used by the Lula government, perhaps because it has too many other meanings. It is market socialism; the enterprises compete in the marketplace and the workers decide on pay scales and incentives. They may choose to pay more for managerial expertise. Economic solidarity is not a frontal assault on capitalism, it is an alternative for those who have not found inclusion in the capitalist economy or who prefer working in a cooperative environment. If it ever replaces capitalism, it will be by building a better world one enterprise at a time.

Brazilian Social Democracy. The third interesting Latin American model is perhaps best illustrated by the Lula de Silva government in Brazil, although there are similar developments in many other Latin American countries. Lula has no interest in theoretical speculation; he is building his model by example. It continues a great many initiatives from his predecessor, the sociologist Fernando Henrique Cardoso.

The Brazilian model combines market friendly economic policies with a strongly regulated financial sector. In addition to very large private banks, there are huge federal banks that bring stability and allow the government to target investments. The largest bank in the country, the Banco Nacional de Desenvolvimento Econômico e Social, lends money to projects that are deemed important for the development of the country.

It loaned out approximately US$ 28 billion in 2007. This included funding many cooperatives and micro-businesses. In the past it had helped to fund privatization efforts; its priorities depend on the government in power. The Caixa Econômica Federal, entirely controlled by the federal government, finances construction and infrastructure projects.

The Banco do Brasil, the largest bank by assets, is partly privatized and its shares trade on the stock market, but it is government controlled. The Banco Central is the national monetary authority and regulates the money supply in much the same way as the American Federal Reserve bank.

Due to strict regulations imposed after bank failures in the 1990s, Brazilian banks lend out only approximately 10 times their capital, while American commercial banks lend out approximately 20 times their capital and American investment banks 50 times their capital (at least prior to the crisis of 2008). Brazilian banks do not generally make the risky, sub-prime loans that brought down so much of the American financial sector in 2008.

The national development bank invested heavily in energy and transportation projects, including highways, railroads and marine shipping. Brazil relies heavily on hydroelectric power and there have been blackouts during periods of drought. There was concern that rapid economic development would increase electricity demand beyond the capacity of the grid to supply.

The government banks also invested significantly in technology development, indeed Lula highlighted technology as the first item in his annual report to Congress. The Lula government also took specific measures to facilitate entrepreneurialism, including simplifying regulations and taxes for small businesses, and cutting down on the bureaucracy that makes it difficult to start a business. Lula’s annual report to Congress boasts that as of 2007, the average time spent on registering a new business had been cut to 20.3 days.

Socialist Alternatives for the Current Crisis

These Latin American models do provide ideas for responding to the current crisis, alternatives that would focus the economy more on social needs. The United States government has already spent hundreds of billions of dollars to “bail out” major banks, insurance and investment companies. The next step would be to take them over and run them as National Banks for Economic and Social Development.

Instead of just giving money to bankers in the hope that they will lend it out constructively, the banks could actually start lending out money according to social priorities. National development banks don’t have to replace private banks that are solvent and well managed; they can function along side the private sector.

Similarly, instead of just giving hundreds of billions of dollars to the auto companies, why not set them up as employee owned corporations? General Motors might no longer be the largest auto company in the world, but it could be the largest worker-owned auto company. Of course, national development banks could finance cooperatives and worker owned enterprises in every sector, not just when a huge corporation goes broke.

Alternative financial systems based on barter or labor coupons are also possible on a small scale in local communities. There were quite a few of these in Argentina after the national currency collapsed in 2001, although most of them have gone back to using pesos. There are precedents in the United States, such as Ithaca Hours, a local currency in Ithaca, New York.

Cooperative and worker-owned companies might choose to set up arrangements such as these to share their products. The value of these arrangements is not primarily economic; their main point is to help to develop a sense of community, to develop more humanistic values.

All of these measures are perfectly feasible within the framework of multi-party electoral democracy. All would be voluntary. All would exist along side a capitalist economy. A worker-owned General Motors would have to compete with Toyota and Honda.

Neighborhood cooperatives would have to compete with chain stores and supermarkets, as well as with small businesses owned by private entrepreneurs. Entrepreneurs could borrow from private banks instead of from national development banks. It wouldn’t matter whether the system that evolved was called socialism or something else. It would certainly be a radical alternative.

Ted Goertzel, Ph.D. is Professor of Sociology at Rutgers University in Camden, New Jersey. He is the author of a biography of Fernando Henrique Cardoso, available in English and in Portuguese. He can be contacted at goertzel@camden.rutgers.edu and his WEB page can be found at http://goertzel.org/ted.


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