Lula and the Markets

Gwynne Dyer

George Soros, the world's leading currency speculator, told a
Brazilian newspaper in August that the 170 million Brazilians simply
wouldn't be allowed to have Labour Party leader Luiz Inacio 'Lula' da
Silva as their president. The higher his standing rose in the opinion
polls, the fiercer would be the speculative attacks on Brazil's currency,
the real. If he actually won the presidency, the markets' reaction would
be so negative that the country would have to declare a moratorium on its
huge $260 billion foreign debt."In the Roman empire, only the Romans voted," Soros explained
gently. "In modern global capitalism, only Americans vote. Not the
Brazilians." Brazilians were so outraged that even outgoing president
Fernando Henrique Cardoso was forced to defend Lula publicly -- but since
the former steelworker and trade union leader started climbing in the
polls, the real has dropped in value by about one percentage point for
every point that he has risen. Since April, it has lost more than a third
of its value.

This has happened despite the fact that Lula is now closer to
moderate socialists like Britain's Tony Blair and Germany's Gerhard
Schroeder than to Fidel Castro or Salvador Allende. He has promised to
service Brazil's international debt and to continue Cardoso's successful
fight against inflation. Asked why he abandoned his old radicalism, he
simply replies: "I changed. Brazil changed. Trade unionism changed.
Everyone is now more organised, more mature." But the international money
markets don't believe him.

Most of the market traders know nothing of Lula and little about
Brazil; he just seems to match their Identikit stereotype of a left-wing
extremist, so they flee screaming. Even those who do their research
cannot afford to act on their superior knowledge of the situation, because
they know that the majority of their colleagues will react differently,
and a successful trader is one who guesses which way the herd will run and
gets there first.

In terms of his origins, Lula does have the classic left-wing
activist's background. He never went to school and only started learning
to read when he was ten. Eventually he found work in the steel-mills of
the industrial towns that surround Sao Paulo and became a union organiser.
He founded the Labour Party in 1980, and led the strikes that brought down
the military dictatorship in 1985. He is pure working class and proud of
it -- and that is precisely the problem.

A little story. Twenty-three years ago I spent some time in
Brazil doing a radio series about the country -- and on two successive
days in Sao Paulo I interviewed the two most prominent figures of the
Brazilian opposition to military rule: Fernando Enrique Cardoso, now
completing eight years in the presidency, and Lula, who will have the job
for at least the next four. They didn't get much foreign attention in
those days, so they each gave me a full afternoon. Their goals were
similar, but the differences in style were huge.

Cardoso, who had spent the harsh early years of the generals'
rule in exile in Cambridge and Paris, was every inch the Marxist
intellectual: a sociologist of middle-class origins who lived in a
book-lined apartment overlooking the city. He didn't talk politics; he
talked about 'dependency theory' and other then-fashionable Marxist
concepts. He was a pleasant man, but it occurred to me as I left that he
lived somewhere along an axis that had Lenin at one end and Jean-Paul
Sartre at the other.

The next day I went all the way out to Sao Bernardo do Campo to
see Lula, the up-and-coming union leader. He was your classic
horny-handed son of toil, but it soon became clear that while he had
picked up some Marxist vocabulary, he would feel perfectly at home among
American or British trade unionists. It was only the extreme repression
and inequality of Brazil at that time that had pushed him into a more
radical position.

If you had asked me then, I would have said that Cardoso was far
the greater threat to the interests of international capital in Brazil.
In fact, neither man is a radical any more -- but isn't it interesting
that the markets didn't panic when Cardoso became president, whereas now
that Lula has won they're in a flat panic?

The answer is that Cardoso never LOOKED threatening. Lula was a
sweaty, gritty working-class hero who looked like a menace to the status
quo, and frightened the impressionable, untravelled young men (and a few
women) who make the market. After all, only two G-8 countries (Germany
and Canada) currently have working-class leaders, and a number of major
countries -- France, Japan, the United States-- have never had one.

Cardoso did a good job as president -- inflation is finally
tamed, and important indices like infant mortality, education and housing
are finally moving in the right direction despite sluggish growth -- but
he has used up his popularity. Lula could do good work too, if he is
allowed, but he still scares the ignorant because he is an actual worker.

It makes no sense for currency speculators to bring down the
world's seventh-largest economy and trigger an international financial
crisis, but most of them are ignorant of the world beyond their trading
rooms, and even the better-informed ones seek to anticipate the herd's
instincts rather than to be right too soon and all alone. To punish
Brazilians for electing Lula by destroying its currency and forcing Brazil
into default serves nobody's interests, but it could still happen. The
only people who still believe capitalists are rational are the Marxists.

Gwynne Dyer, Ph.D., is a London-based independent journalist whose
articles are published in 45 countries.For more on Gwynne Dyer, please
read his GBN interview
Dyer