Finance vs. Industry

The continuous sequence of increases in the benchmark interest rate has once again placed the analysts' spotlight on the operating mechanisms of the Monetary Policy Committee (Copom). After all, over the last five meetings of the body, the Selic rate has been systematically increased, rising from 10,50% in September 2024 to the current 14,25%. The detail is that during this period there was a change of leadership in the board of directors of the Central Bank (BC), with the appointment of Gabriel Galípolo as president of the bank, replacing Roberto Campos Neto. In addition to promoting this important replacement, the fact is that seven of the nine directors of the entity are appointments made by Lula in his third term. The impending tragedy is such that the minutes of the most recent meeting of the committee point to the need for further increases in the coming meetings.

However, what we have seen is the continuation of the monetary policy implemented by the appointee of Paulo Guedes and Bolsonaro, who was nominated for the position in February 2019. Thanks to the coup predicted in Complementary Law No. 179 of 2021Following the establishment of the Central Bank's independence, Roberto Campos' grandson remained in the position until the end of 2024. Despite all the criticism leveled against him by the new President of the Republic, the fact is that his departure from the leadership of the institution did not change the management of the bank's policies and responsibilities by the new President in any way. Galípolo maintained the Selic monetary policy at high levels and did not alter the system for consulting the "market" through the weekly Focus survey.

Given these conditions, the government has lost any credibility in its eventual criticisms or disagreements with the austerity policy. The Ministry of Finance continues with its obsession with cutting expenses and absolute respect for the sacrosanct New Fiscal Framework. This occurs at the same time as the Central Bank keeps Brazil among the top countries in the ranking of the highest real interest rates on the planet. Now, since Galípolo's administration continues to feign ignorance in the face of the scandalous "spreads" practiced by the oligopoly of private banks, the costs of credit and loan operations remain unfeasible for any type of entrepreneurial activity in the real sector of the economy.

Neoliberalism: Four decades against industry. This means that the hope for an effective change in the fundamentals of neoliberal economic policy, in operation since the coup against President Dilma Rousseff, continues to be frustrated with each passing day. The guidelines of the program contained in the document/manifesto "Bridge to the Future," presented in 2015 by the MDB to the elites as a guarantee that Michel Temer's half-term in the Planalto Palace would be oriented towards strategies such as privatization, fiscal austerity, and extreme economic liberalism, remain in effect. And so came, for example, the Spending Cap through Constitutional Amendment 95 and the dismantling of Petrobras. Austerity was included in the constitutional text, prohibiting increases in budgetary spending for a long 20 years. The state-owned oil company had its pricing policy redefined through automatic alignment with the price of crude oil on the international market.

This entire neoliberal agenda deepened the deindustrialization process of our economy, a trend that had been underway since the beginning of the 1990s. Besides the extremely high financial cost, the deliberate policy of currency appreciation also contributed to reducing companies' interest in increasing their productive capacity on the real side of the economy. The frantic search for attracting speculative financial resources in the international sphere was realized through the absurd profitability offered to financial parasitism. Thus, the contradiction between rent-seeking and industrial production continued to be resolved by favoring the interests of finance at the expense of stimulating the secondary sector.

Despite the well-known and recognized strategic importance of industrial activity as a generator of greater added value on a production scale, successive governments have focused on maintaining austerity and high interest rates. The growing relevance of export-oriented agribusiness and the model of incentivizing the sale of commodities in the international market has transformed the Brazilian economy into a major player specializing in the production and export of agricultural and mineral goods with little positive impact on our society as a whole.

Reindustrialization is the way forward. One of the main arguments presented by proponents of this veritable secular lag in the development of our productive forces lies in international comparison, highlighting the supposed virtues of the process experienced by developed countries. Thus, the technological revolution and the emergence of the knowledge economy would have caused a relative loss of industrial participation in those nations. The phenomenon is real, but the point to be emphasized is that, in those cases, what was observed was a substitution of the industrial economy by activities with even higher added value, supposedly in the sector still classified as "services". In the Brazilian case, growth occurred in areas such as telemarketing, app-based deliveries, and others, all characterized as having very low value-added capacity.

Brazilian industry has lost both domestic and international capacity. Domestic consumption of manufactured goods has been redirected towards imports, and our companies have lost virtually any possibility of competing with the rest of the world. The graph below clearly illustrates the drama of deindustrialization that has accompanied our country's economy. Initial growth occurred throughout the 1950s and 1960s with the installation of the Petrobras complex and the state-owned steel industry, followed by the establishment of the automotive industry. After the 1964 coup, Brazil witnessed growth in economic activity in general – the period of the so-called "economic miracle." During this time, the industry's share of GDP reached its peak, approaching 30%.

The beginning of the 1990s marks the start of a downward spiral in this respect. The measures aimed at rampant liberalization sponsored by President Collor suddenly and without any planning exposed the Brazilian economy to international competition. This was the first shock of the relative decline in the importance of industry. It was a time of widespread and generalized substitution of domestically manufactured goods by imported ones. Subsequently, the macroeconomic adjustment policy derived from the Real Plan, starting in 1994, imposed an artificially overvalued exchange rate regime, due to the constant influx of speculative resources from the international sphere, seeking the high financial returns offered domestically. The official interest rate remained at high levels, and this contributed to reducing incentives for productive activity in the real sector of the economy.

Production vs. rent-seeking Regarding this topic, an important book was recently published. "Production versus Rent-seeking – Workers and entrepreneurs for the reindustrialization of Brazil"Organized by Carlos Pereira, the material in this publication is the result of the National Seminar for the Reindustrialization of Brazil, held at the headquarters of the Central Workers' Union of Brazil (CTB) on June 11, 2024. It compiles interviews with representatives of business owners and workers about ways to reverse the process of economic stagnation that has been stifling the Brazilian productive sector and the country's development for decades.

The tragedy of deindustrialization is so profound and affects so many sectors of our economy and society that the search for a broad front in defense of reindustrialization becomes a fundamental task. Increasingly, branches of the dominant classes not directly linked to the interests of finance are realizing the mistake they made in embracing the neoliberal agenda without any assessment of its consequences. The political and ideological hegemony exercised by the ideologues and propagators of the Washington Consensus prescriptions was at the root of the destruction of Brazilian industry.

Initiatives such as the government program "New Industry Brazil" (NIB) These measures are important and very welcome. However, despite being anchored in the Ministry headed by Vice-President Geraldo Alckmin, the NIB (National Industrial Development Plan) has clearly proven insufficient to effectively promote what it proposes: an intense process of neo-industrialization of our economy. The fiscal austerity policy carried out by the Minister of Finance presents itself as a huge obstacle to ensuring that government funds are compatible with the needs of a robust recovery of industrial production capacity. On the other hand, very high interest rates also strongly inhibit investment and operational capacity in the real and productive economy.

As in other areas of government, Brazil anxiously awaits a clear signal from President Lula in favor of industry. It is up to him to promote the necessary shift in economic policy, abandoning once and for all this austerity-driven rigor. Overcoming the contradiction between production and rent-seeking implies the adoption of a robust economic and social planning program, providing the spaces and means for reindustrialization to be set in motion.