Lula and the Markets

5 October 2002

Lula and the Markets

By 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 years 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.


To shorten to 725 words, omit paragraphs 4 and 5. (“Most…problem”)

NOTE: This article is written on the assumption that Lula will win Sunday’s poll outright. If it goes through to a second round, substitute the following sentence at the end of paragraph 9: “…whereas now that Lula has won the first round of the election and is a sure thing to win the presidency in the second round of voting on 27 October, they are in a flat panic.”