The Spark

“The emancipation of the working class will only be achieved by the working class itself.” — Karl Marx

After 50 Years of Economic Development ... Still Underdeveloped

Jan 31, 1984

Just a few short years ago, Brazil was being held up as an example of how a poor, underdeveloped country could be developed. Bourgeois economists claimed that Brazil and a few other countries belonged to a new category of nations. Before there had been only “developed” countries and “underdeveloped” countries. But we were told that Brazil and a few other countries had become members of a new category of nations referred to as the “newly industrializing” nations of the world. This designation implied that in a short while Brazil and these other countries would be able to take their places alongside the developed countries of the world.

Today we hear much less of this sort of talk. The Brazilian economy is threatening collapse completely. And the picture of Brazil that we are presented with today reminds us much more of a poor, underdeveloped country, than the “newly industrializing” country that Brazil was supposed to be.

Brazil’s present predicament has been triggered by the impact of the world economic crisis. But the big strikes, demonstrations and riots that have recently taken place in Brazil’s major industrial cities have also brought the fore some of the poverty, malnutrition and squalor that have all along been a feature of Brazilian society, even during earlier boom periods. Maybe before the effects of the present economic crisis hit Brazil, the glitter of the office buildings and nightclubs of Sao Paulo and Rio de Janeiro, and the figures on Brazil’s soaring industrial and agricultural production, could be used to blot out the indications of Brazil’s continuing underdevelopment. But now it is clearer that while decades of industrialization have indeed changed Brazil from the country it once was, to something very different today, this industrialization has not resulted in Brazil’s drawing closer to becoming a part of the developed world.

The Beginning of Industrialization Efforts

For over 50 years, Brazil’s own political and economic leaders have held forth the possibility of developing the country into a modern industrialized society. And in many ways, if any poor country in the world had the possibility of developing, it should have been Brazil. Brazil is the fifth largest country in the world – only a little smaller than the United States. Today it has a population of over 120 million people, which is slightly larger than the population of Japan, and significantly larger than the population of any of the Western European countries. Brazil also has vast resources of land and timber, good rivers for hydroelectric power generation, and large deposits of most of the raw materials that are important for the development of industry, including iron, bauxite, nickel, copper, tin, gold, and uranium.

In 1930, Brazil was caught up in the great economic depression that was then gripping the whole world. The collapse of the economies of the industrial countries caused their demand for Brazil’s exports – coffee beans, sugar cane, and other agricultural products; iron ore and other minerals – to drop to only about one-half of the pre-depression levels. The sharp loss of earnings from these exports meant that Brazil could no longer afford to import many industrial products from the developed countries.

Paradoxically, this situation seemed to create the opportunity for Brazilian industry to develop. Capital that had previously been employed in the expansion of coffee bean and other agricultural output for export, was now available for investment in other areas. A part of it could be directed toward the creation of domestic industry able to produce the manufactured goods that Brazil could no longer afford to import.

This economic shift toward investment in a domestic industry was accompanied by political changes in Brazil. In 1930, Getulio Vargas, the Governor of the Brazilian state of Rio Grande do Sul, seized power with the help of nationalist military officers. Vargas and these officers were supported by businessmen, intellectuals and other people in Brazil’s small middle class who wanted to develop and modernize the country.

The government adopted policies designed to encourage industrialization through Brazilian investment. The government favored and subsidized Brazilian businessmen who invested in industry. Laws were passed in an attempt to limit foreign exploitation of Brazil’s mineral resources, and reserve them for development by Brazilian companies. Encouragement was given to the development of a Brazilian-owned cellulose and paper industry. The government also set up federal and state-run companies to exploit Brazil’s mineral deposits, and to produce electric power, trucks and aircraft. Between 1929 and 1937, industrial output grew by 50 per cent.

But even in these first years of industrialization, it was clear that the Brazilian bourgeoisie did not possess sufficient capital to develop the economy of the country. When laws were passed prohibiting the importation of machinery and equipment, for example, it was not Brazilian businessmen or the Brazilian government that was able to produce these previously imported products. Rather, Ford and General Motors began assembling cars in Brazil from imported parts. Anderson Clayton and the Corn Products Refining Company set up facilities to process food products. European companies began turning out pharmaceutical products, and Canadian companies began to develop Brazil’s cement industry. When Brazil’s first steel mill was built in the early 1940s – the Volta Redonda plant of the newly created, government-owned National Steel Company – it was financed by the United States Export-Import Bank, and the plant was designed, and its construction supervised by a U.S. firm.

World War II, when Britain – which had been the dominant power in Brazil – was tied up in pursuing its war effort, could have seemed like the opportunity for Brazil to take a distance from imperialism. But despite the nationalist pretensions of Brazil’s leaders, and the favorable economic conditions for Brazil created by wartime demand for Brazil’s exports, a real national economic development did not occur. The war simply allowed the United States to replace Britain as the dominant power in the country.

After the U.S. entered World War II, Brazil granted the U.S. the right to establish air and naval bases in the northeast region of the country. U.S.-equipped and modernized units of the Brazilian army fought alongside U.S. forces in the Italian theater of the war. This cooperation of Brazil with the U.S. began strong ties between the U.S. and Brazilian military that were to continue after the war was over, and reinforced the economic ties that bound Brazil to U.S. imperialism.

By the time the war ended, foreign investment in Brazil was playing an even more important role than it had played before Brazil adopted its nationalist industrialization policies. In the years that followed the war, this trend continued.

There was a great demand in Europe at this time for materials to rebuild from the massive destruction of the war. And there was a great pent-up demand for consumer goods in the U.S. So in the late 1940s and early 1950s, the demand for Brazilian raw materials and agricultural exports was strong.

Once again, it was primarily big foreign corporations, rather than Brazil’s much smaller businessmen, that had the capital to invest in the expansion of Brazilian agriculture and mining. Foreign auto companies also began in the late 1950s to invest in parts and assembly plants to produce autos for export.

In order to keep the industrialization process going, the Brazilian government borrowed more and more from foreign banks to build up the transportation network, the electric generation and distribution network, and other parts of the infrastructure needed to facilitate export-oriented, foreign-owned production. At the end of World War II, Brazil had been one of the least indebted underdeveloped countries in the world. But by 1960, it had become one of the most indebted. In 1960, 36 per cent of Brazil’s total export earnings had to be used to make payments on its foreign borrowings.

The Results of 30 Years of Industrialization

From 1955 to 1960, Brazil achieved an average industrial growth of 10 per cent per year. Total economic growth averaged 8 per cent per year. This was three times the average for all of Latin America. For the entire period from the end of World War II until the early 1960s, total economic growth averaged 7 per cent per year. This rapid growth of industry, particularly in the 1950s and the early 1960s, created millions in profits for hundreds of foreign corporations, and for a few Brazilian businessmen. A middle class of professional and technical workers had also been created.

But the growth of the economy had not been well-rounded. By the early 1960s, after more than 30 years of industrialization, Brazil had achieved a very limited and distorted economic development. It was concentrated primarily in mining and in the construction of some modern manufacturing plants that laid the basis for the later development of new, large, foreign-owned, export-oriented sectors of the economy.

Despite the industrialization that had occurred by the early 1960s, the vast majority of Brazil’s population still lived in poverty. Over half of the population still worked in agriculture. Except for the big estates that were devoted to the cultivation of export crops, most agriculture remained quite primitive – bare subsistence farming carried on by peasants, who remained almost completely outside of the development process. The rural northeast region of Brazil, where almost one-third of Brazil’s total population lived, was poverty-stricken. The millions of peasants who lived in this region had almost no access to decent housing, education or health care. Malnutrition was widespread, and even outright starvation occurred.

The conditions of life for most of Brazil’s industrial and service workers were only a little bit better than that of the peasants. A minority of people working in industry and services were part of the small, affluent professional and technical middle class. But the much larger majority of the industrial and service workers had very low incomes. Some of them worked in factories and offices that were as modern as those in the developed countries of the world. But they were paid far less than their counterparts in the developed countries. The very low incomes of Brazil’s workers and peasants meant that the development of Brazil’s internal market for manufactured goods was severely restricted.

Even in those years when industrial growth was proceeding most rapidly, there was a huge amount of joblessness and underemployment in Brazil’s industrial cities. These cities attracted millions of peasants, who had no land or had been displaced from their lands in even more poverty-stricken rural areas of the country. By the early 1960s, a flood of people had migrated from the rural areas to the industrial cities of Sao Paulo and Rio de Janeiro, where they created immense slum areas with thousands upon thousands of shacks made from scrap materials, with no running water nor sewers. Today these huge agglomerations of jobless, propertyless people have come to be a common feature of virtually all the underdeveloped countries of the world.

In the late 1950s and early 1960s, these horrible conditions for millions of Brazilians were exacerbated by a surge in the country’s rate of inflation, and a temporary halt in the economic expansion. Brazil experienced its own home-grown recession, the effects of which were amplified because of the country’s underdevelopment. In 1958, inflation was already running at the rate of almost 25 per cent per year. But it leapt upward in the next few years, hitting a whopping 91 per cent in 1964. In the same period, economic growth fell from a high of over 10 per cent in 1961 to only 1.5 per cent in 1963, and only 2.9 per cent in 1964. This happened even while Brazil’s population continued to grow at a rate of approximately 3 per cent per year. Thus in an economy where much of the population was already poverty-stricken and jobless, unemployment shot upward, and average income began to fall even lower.

A New Surge of Industrialization

Amid rising unemployment, strikes and demonstrations, the Brazilian military took power in 1964 with the assistance of imperialism. It once again subjected the country to a dictatorial government, demonstrating that Brazil was still like the other underdeveloped countries of the world in its inability to afford even a bourgeois form of democracy.

The military regime repressed all the poor layers of the population and kept wages low, reassuring imperialism about the security of its investments. A big new surge of foreign investment helped to establish an upward trend in the economic growth rates. The annual increase in total output climbed from 4.8 per cent in 1967 to over 10 per cent in 1972.

In the boom period of the late 1960s and early 1970s, foreign corporations were only too willing to pour millions of dollars into Brazilian industry and agriculture. Steel, paper and cellulose, textiles, shoes, chemicals, mineral extraction and aluminum production were all expanded rapidly during this period. Huge agricultural development projects also took place. Million-acre cattle ranches were carved out of Brazil’s jungles. Sugar production soared. Soybean cultivation was expanded rapidly when the price on the world market more than tripled in 1973.

By 1979, over a million cars a year were being manufactured in Brazil by foreign corporations including Volkswagen, Ford, General Motors, Mercedes Benz, Fiat, Chrysler and Toyota. These automobiles were sold in Brazil, in other countries in Latin America, in Africa and in the Middle East. In addition, 150 companies exported automobile parts.

By the 1980s, the list of foreign corporations with big investments in Brazil began to read like a Who’s Who of the corporate world. In addition to the big auto companies, there were U.S. Steel, Bethlehem, Alcoa, Goodyear, General Electric, Royal Dutch/Shell, GTE, RCA, Philco, Siemen’s... the list goes on and on.

Has Brazil Finally Achieved Development?

Today, Brazil’s auto production is among the highest in the world. Its steel output places it among the ten top producers. It is the eighth largest producer of paper and cellulose. Brazil exports the second largest tonnage of agricultural products in the world. In 1980, it was even the seventh largest exporter of arms in the world.

In some ways, it seems as if Brazil has become, or is close to becoming, a developed, modern society.

But this is not the case. Almost all the important sectors of Brazil’s economy are dominated, if not outright owned, by foreign corporations. In 1978, sales by foreign corporations in Brazil accounted for the following rates of total sales in the country:

Plastics and rubber76.1
Petroleum distribution60.8
Heavy vehicles54.8
Pulp and paper40.1

Foreign corporations make huge profits on investments like these in Brazil. The margin of profit on their investments there is higher than in the United States, and in many other areas of the world. And most of these profits are taken out of the country rather than being re-invested there. This drains Brazil of its wealth, rather than building it up – the opposite of the process of development. Between 1970 and 1980, for example, corporations in all the rich countries of the world invested about 63 billion dollars in all the underdeveloped countries of the world. About 15 per cent of this total was invested in Brazil. In this same period, these same corporations took out of these countries more than twice this amount in profits – about 140 billion dollars.

So rather than helping to bring about economic development, foreign investment in Brazil and the other poor countries of the world prevents the accumulation of wealth that could bring about development. This investment is therefore ultimately an obstacle to development, rather than the means through which development can occur.

In addition, wealth is also drained from Brazil in the form of interest payments on loans from foreign banks, governments and lending agencies. Brazil now has the largest foreign debt of any poor country in the world. In the 1970s and early 1980s, the Brazilian government and private capitalists stepped up their foreign borrowing in order to build up the country’s infrastructure to meet the needs of foreign investors. Rather than beginning to pay off the big foreign debt that Brazil had built up before its recession of 1963-67, the country went deeper and deeper into the hole. The quadrupling of world oil prices in 1973 also pushed Brazil further along the path of debt peonage to the big banks of the United States, Western Europe and Japan. In 1973, Brazil’s foreign debt totaled 12.6 billion dollars. Today it is close to 100 billion.

In recent years, Brazil has had to borrow more and more just to be able to make interest payments on its previous borrowing. It is estimated that in 1984, Brazil will use fully 70 per cent of its hoped-for record-breaking 9 billion dollar trade surplus just to make these interest payments.

The draining of Brazil’s wealth by foreign corporations and banks that have invested in the country or loaned it money, has made the imperialists richer. But for the people of Brazil, this plundering of their country means that all the problems of underdevelopment that they suffered from in earlier years are still present – only now these problems are even worse. The incomes of workers remain extremely low. Today about one-third of the workers in Sao Paulo make less than 75 dollars per month. Unemployment in the country as a whole stands at 15 per cent officially, but some estimates put the real level at about 40 per cent.

In the past 20 years, peasants have continued to migrate to the cities as they did before. But the rate of migration has increased, because the development of big cattle ranches and farms by foreign corporations during these years has pushed more and more peasants off their lands. These lands are now used to produce crops for export, rather than food for domestic consumption. Thus this agricultural development actually has reduced the quantity of food available to Brazil’s workers and peasants.

Today only 30 per cent of the houses in Sao Paulo are connected to the sewer system. Half of the houses have no running water. International health organizations estimate that 38 per cent of Brazil’s population is seriously malnourished and that 25 per cent of all Brazilians are illiterate.

Today the world economic crisis which began to affect Brazil deeply in 1980, is turning what was a desperate situation for the Brazilian people into a complete catastrophe. In 1980, inflation began to shoot upward once again. By 1983, inflation had hit about 100 per cent per year. By the beginning of 1984, it was running at about 200 per cent.

In 1981, the country’s total economic output shrank by about 2 per cent, the first absolute decline in more than 25 years. In 1982, the economy grew by less than 1 per cent, while Brazil’s population was growing by about 3 per cent per year.

In 1983, Brazil was forced to go to the IMF for emergency loans just to be able to meet the interest payments on its foreign debt. The IMF demanded a series of austerity measures, including cuts in government spending on social programs, and the limitation of salary and wage increases to no more than 80 per cent of the rise in the Brazilian cost-of-living index, which underestimates the actual rise in the cost of living to begin with.

An Explosive Situation

Brazil and all the other poor countries of the world today are not able to develop as the countries that are rich today did at least a century or more ago, because today, the world is dominated by these rich countries. Imperialism controls the world markets for products and investments and technology. It is not possible for the poor countries to industrialize and develop, because they have neither the capital, nor the control of the markets, nor the required technology. Industrialization that takes place in the poor countries as the result of imperialist investment, simply allows the imperialists to suck wealth out of these countries. Any development that occurs is a distorted development that does not benefit the masses of people in these countries. On the contrary, the more imperialist investment there is, the less the workers and peasants of these countries are able to secure even the bare necessities of life.

While imperialist investment has not freed Brazil from underdevelopment, it has created an explosive situation in concentrating millions of poor people in the big cities. Moreover, it has created a concentrated working class, which could lead these masses in a fight against imperialism. And in Brazil, these masses and this working class have begun to move.

In early 1983, thousands of unemployed workers in the industrial city of Sao Paulo ran through the streets looting food stores. Three days of rioting followed. In July 1983, a strike protesting the government’s IMF-dictated salary limitations and other austerity measures shut down Sao Paulo, and led to protest marches in several other Brazilian cities. The leaders of the strike called for a moratorium on payment on Brazil’s foreign debt. In September and October of 1983, looting of supermarkets again took place in Sao Paulo, along with a sharp increase in bank robberies. In January 1984, there was an anti-military, anti-IMF demonstration of over 150,000 people.

Of course, to have the prospect for a decent life, the masses and the working class not only need to riot, demonstrate and strike, but to break the stranglehold that imperialism has on the wealth of the whole world. And to break this stranglehold, they have to make a revolution – to take the power into their own hands – and to extend this revolution into the imperialist countries in alliance with the working classes of the imperialist countries. Such a revolution could begin today – it could begin in Brazil. It is for this reason that the country that imperialism was holding up just a short while ago as a model that other poor countries should follow, is the same country that causes them to worry today.