COSATU's Misleading Rhetoric on a ‘Lula Moment'

Talk of a so-called ‘Lula moment' emerged during COSATU's recent policy conference. The political report produced at the conference extensively discusses the Lula moment as part of a high-road scenario which would see the existing leadership of the ANC being largely maintained at Mangaung. The ‘Lula moment' is effectively being punted by COSATU (or at least by a powerful faction in the federation) as an excuse for upholding the current status quo within the ANC and government. The notion thus requires further interrogation.

So what exactly is a ‘Lula moment'? In COSATU's estimation it basically means that, ideally, President Zuma's second term would feature more interventionist social and economic policies in the belief that a more radical approach will lead to dramatic poverty and inequality reductions similar to those achieved by the Lula government during his second term from 2006 to 2010. This simplistic interpretation is extremely naive at best, and possibly downright misleading.

It is indisputably an accurate assertion that Lula's second term ‘saw a series of amazing achievements in terms of improvements of the living standards of the working people of Brazil'. Indeed, I have previously analysed the impressive recent reductions in poverty and inequality of Brazil. However, COSATU creates the inaccurate impression that these achievements came merely as a result of a more radical approach during Lula's second term, when in fact they were the outcomes of a much broader attempt to address the structural shortcomings of the Brazilian economy and social security system.

COSATU's attempt to reduce Lula's two term presidency into a mere simplistic ‘moment' perhaps deliberately ignores the fact that his government implemented various economic and social policies which are completely incompatible with COSATU's own policy positions. For example, the only references made to the economic and social reforms undertaken by the Lula government during its first term assert that the administration was ‘tainted both by the adoption of neo-liberal economic policies, as well as a serious problem of corruption'.

Setting aside the admittedly important issues of the mensalão and caixa dois corruption scandals and its impact upon the Lula administration, it is worth focusing on the specific policies adopted by the government which led to the so-called ‘Lula moment'.

Firstly, instead of simply ignoring Lula's first term economic policies on the grounds that they were ‘neo-liberal', COSATU would be wise to examine them more closely. For what emerges is a picture of a government which understood that it was crucial to firstly address the underlying structural shortcomings of the Brazilian economy if it was to ever achieve significant poverty and inequality reduction.

Upon assuming office in 2002, Lula methodically proceeded to calm the fears of foreign investors that Brazil was about to default on its debt. The panic was so intense that the Brazilian real depreciated by 40 percent during the six months leading up to his inauguration.

Lula attempted to assuage these fears by, among other things, affirming his commitment to honouring the country's debts, maintaining budget surpluses, protecting property rights and ensuring the independence of the Brazilian Central Bank. The most comprehensive statement on Lula's ‘conversion' to economic orthodoxy is the ‘Letter to the Brazilian People' which was released shortly before his inauguration.

Lula's government however did not just talk the economic reform talk, they also walked it. Brazil continually exceeded the budget surpluses required by the IMF and was able to pay-off a loan by that institution faster than originally anticipated. Lula also appointed the conservative Antonio Palocci (who was later fired as a result of his involvement in a corruption scandal) as Minister of Finance to further convince investors that their investments were safe and welcome in Brazil.

The reforms worked. In 2001, Foreign Direct Investment (FDI) exceeded US$22 billion, remained stable throughout Lula's two terms, and reached US$49 billion by 2010. At the same time, external debt levels were reduced from 43 percent in 2001 to 18 percent by 2006, where it remained until the end of Lula's second term. The interest rate also declined from 44 percent to 37 percent and GDP per capita grew from US$3 133 to US$11 289.

These policies clearly stand in direct contrast to COSATU's positions. But the Brazilian reform to the social security system is the one that would most clearly drive COSATU to revolt were it adopted in South Africa. Lula's government was faced with a considerable overhang from the Fernando Henrique Cardoso administration in this area and from a monetary standpoint, reform was desperately needed.

Previdencia Social (Social Security) spending on benefits for civil servants and some rural workers amounted to 39 billion reais, with 3.5 million civil servants employed throughout the country. This stood in stark contrast to the 17 billion reais that was available to the state-run social security system for workers in the private sector, the Instituto Nacional de Seguridade Social (INSS - National Social Security Institute), which had to finance the benefits of 19 million workers.

This meant that these designated groups within the civil service were receiving disproportionate benefits which were unsustainable from an economic standpoint, as it was adding to the deficit and was clearly structurally unsound. However, the beneficiaries of this system were a very powerful group that included retired judges and military officers, while the legislation went as far back as the Vargas era.

Nevertheless, the reform bill was passed by both the Senate and the Chamber of Deputies in December 2003. Its stipulations increased the minimum retirement age for civil servants to sixty, while it limited the pensions paid to widows and orphans of civil servants. Additionally, it placed caps on the wages and retirement earnings of civil servants as well as for the entire service, and capped the pensions paid to private sector retirees.

Retired civil servants also had to contribute to the system if they earned more than 1440 reais per month. Additional stipulations were also included to control the spiraling social security costs imposed by the system, effectively privatizing large segments thereof.

COSATU would obviously be heavily opposed to similar reforms being enacted in South Africa, despite the fact that it also features an economy hamstrung by structural inefficiencies, excessively rigid labour legislation and, perhaps most significantly, a bloated, inefficient and financially unsustainable public sector.

Desperately needed reforms to these sectors in Brazil were not easy to implement and it even led to the alienation of some of the Partido dos Trabalhadores' (PT - Workers' Party) traditional labour supporters to the extent that a breakaway party was formed. But the point is that the reforms were nevertheless undertaken, because the Lula administration was convinced that without the necessary structural reforms, a more generous social security system would be unsustainable as recipients would become mere dependents and be locked-out of a structurally unsound economy indefinitely (a description which accurately sums up the current state of affairs in South Africa).

The enormous economic successes of Lula's first term, although perhaps less spectacular than the obvious social achievements of his second term, is just as important a part in the story of Brazilian poverty and inequality reduction as the Bolsa Família programme.

Had the government failed to tackle the crippling structural problems in the economy, its social policies would have failed. The sequence of the reforms was also crucial: economic problems were addressed first, followed by the implementation of more generous social programmes.

The Zuma administration has taken a diametrically opposite approach by significantly increasing unconditional (as opposed to the conditional social policies of the Brazilian Bolsa Família) social benefits first, while spectacularly failing to address the underlying structural problems of the South African economy.

It is this failure to implement reforms of the economy and public sector, as well as the sequence in which the South African government has approached problems, which has led to the development of a passive and unsustainable welfare system in South Africa, while Brazil features a dynamic system where welfare recipients are able to temporarily use social grants as a springboard to greater prosperity through productive employment.

This fact also means that there is an obvious practical problem inherent to COSATU's approach: Lula was able to expand the social welfare system in Brazil significantly from 2005 onwards precisely because Brazil did not previously implement such programmes on a large scale. Due to South Africa's inverse approach to addressing poverty, the country already features one of the most generous social welfare systems in the world and it is unclear exactly how any further welfare programmes could be afforded, given the already unsustainable nature of South African social security.

This very simple practical fact already means that a ‘Lula moment' is not possible in South Africa. When combined with COSATU's deceptive and revisionist interpretation of Lula's two terms, it becomes clear that the reference to a ‘Lula moment' is misleading and creating expectations which could never be fulfilled within four years, for the simple reason that the Zuma government has avoided addressing the underlying problems in the South African economy, choosing instead to take a backwards approach to poverty and inequality reduction.

Instead of discounting Lula's first term focus on economic fundamentals and viewing his government's second term social outcomes in isolation, COSATU would do well to realise that reducing poverty and inequality is not a simple process of increasing redistribution and wages.

It firstly requires a stable, structurally sounds economic environment, implemented in combination with developmental social policies aimed at actively enabling people to share in the advantages generated by the aforementioned economic environment. By ignoring these facts, COSATU's rhetoric about a ‘Lula moment' is both impracticable and highly misleading.

*Leon Schreiber is a South African PhD student in Political Science at the Freie Universität Berlin in Germany. The views expressed are his own. This article first appeared on his blog at http://theschreiberei.wordpress.com/. He can be followed on Twitter here.

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