There are few things more depressing than the sight of financial traders perking up in response to the electoral success of racist, misogynist, homophobic, pro-torture authoritarians.
Brazilian markets have been the latest to follow this dismal pattern. When it became clear earlier this month that Jair Bolsonaro was likely to win the presidential election in Brazil the stock market got a jolt and the currency went higher. Those indicators are expected to extend their gains today on confirmation of Bolsonaro’s final victory in Sunday’s runoff over Fernando Haddad of the Workers’ Party.
Yet surely we have learned over the past decade that markets are not infallible. Could traders’ response to Bolsonaro’s success not just be immoral, but actually misguided in its own narrow terms?
Bolsonaro promises control of public finances and inflation, a programme of mass privatisations, tax cuts for individuals and companies, and public pension reforms. The combination of authoritarianism and free market economics is reminiscent of Pinochet in Chile in the 1970s. Bolsonaro even has a Chicago University-trained economic guru, drawing comparisons with Pinochet’s Milton Friedman-schooled “Chicago boys”.
Brazil has unquestionably fallen into economic crisis in recent years. It is only now limping out of the worst recession in the country’s history. The unemployment rate is 12 per cent – double that of five years ago. The poverty rate has jumped from 20 per cent to 25 per cent over that time.
This was not part of the optimistic vision of Jim O’Neill in 2001, when the Goldman Sachs economist influentially outlined a global economic future defined by the success of the so-called BRICs: Brazil, Russia, India and China.
So why has the Brazilian brick crumbled? Not because of those classic Latin American economic failings of fiscal and monetary indiscipline. And it’s not obviously because of excessive state control of the economy, large though that influence remains in some sectors of Brazil.
A major economic headwind has been weak commodity prices. Brazil is a major exporter of soybeans, iron ore and sugar, whose prices have been falling since 2011.
The other major factor is a collapse of domestic investment. By far the biggest culprit here has been the giant state-oil company Petrobras (which alone accounts for 2 per cent of GDP and 10 per cent of national investment). Petrobras slashed spending in response to both lower global oil prices and the massive “car wash” state corruption scandal, which has discredited the ruling Workers’ Party.
External shocks thus helped to reveal serious underlying weaknesses in the Brazilian economy – poor infrastructure, a sclerotic bureaucracy, an inefficient tax system and, of course, gross corruption.
The underlying Brazilian problem lies in rotten political institutions, rather than an overly large state or excessive taxation. The centre-left failed, catastrophically, to run a clean public administration and it has suffered a brutal punishment from the voters as a result. That administrative incompetence is also reflected in the breakdown of law and order and a record number of homicides in Brazil in 2017.
The extraordinary political rise of Bolsonaro, previously an obscure congressman in a fringe party, is a symptom of that failure – not just on the part of the Workers’ Party, but the entire political and business establishment.
Yet Bolsonaro’s policy prescription, as presented, does not match Brazil’s economic malady. Indeed, his plans to interfere with the composition of the Supreme Court would undermine the country’s institutions further. And it’s notable that Bolsonaro’s Chicago adviser, Paulo Guedes, is under investigation for allegedly defrauding public pension funds.
The example of Russia in the 1990s shows that privatisation of state assets is perfectly compatible with rampant political corruption. And there is no obvious association between low taxes and a cleaner public realm. There are also plenty of reasons to be sceptical of the idea that Bolsonaro will be able to deliver on even necessary reforms like overhauling pensions.
This is a time of deep anxiety for minority communities in Brazil. Traders too may ultimately find that Brazil’s authoritarian turn yields a bitter harvest.
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