21.11.2005
Fernando Henrique Cardoso: «We Need More Democracy to Tame Markets»
№4 2005 October/December
Vladislav Inozemtsev

Vladislav Inozemtsev holds a PhD in Economics; he is Head of the Department of World Economy at the Faculty of Public Administration, Lomonosov Moscow State University, and Director of the Center for Post-Industrial Studies.

Inozemtsev: Mr. Cardoso, you were a very
successful finance minister in Brazil who managed tight economic
and financial reforms, as well as the stabilization of the
Brazilian currency, the real. These moves were of a magnitude
comparable with Russia’s reforms in the early 1990s. Following this
period, you rose as a national leader and were eventually elected
president. Would you explain the main focus of your reforms and why
they were maybe unpopular, yet people understood it was necessary
to follow your proposals?

 

Cardoso: It was probably a convergence of
various trends and factors that helped me. One of the most
significant factors was that I was against the military regime1 in
Brazil. So I was perceived as a person coming from the left who was
against the military. I was not considered a leftist, but my
itinerary was against the established order, and mainly the order
imposed by the military.

 

Second,
when we produced a program to stop inflation, the so-called “the
Real Plan (Plano Real)2 I made an unusual decision that had
tremendous success. The idea was to explain to our people every new
step to be implemented beforehand. I was the finance minister, but
I am not an economist – I am a sociologist. However, very good
economists surrounded me, and I was a kind of translator of the
economic proposals to the nation on radio and TV and in the press.
It took a lot of time to prepare the program and to have it
approved by the Congress, to struggle against all the ideas in the
Congress. Not just entrepreneurs backed my
project, but the
middle-class, who were well informed, were also in favor of my
proposals. The unions, or the more populist parties, however, as
well as popular parties like the PT (Partido dos Trabalhadores),3
were against the reforms. But since inflation stopped, it was clear
to everyone that the workers were gaining.

 

So, the
sense of being better off as a result of my program was clear. I
won my first presidential election in 1994 because of that. And
when I became president, I started proposing reforms. That was much
less popular than stabilization because I had to propose social
security reform, tax reform, all kinds of reforms. Nevertheless, I
was re-elected four years after that. Incidentally, I got 54
percent of the votes in my election in 1994, and 53 percent in my
re-election in 1998. This means that the population was rather in
favor of our initiatives. Why? Because there was a sense
that


Brazil had to move faster toward a more open society and open
economy. This idea was disseminated by the mass media, and by some
leaders in
Brazil.

 

Then, we
had the devaluation of the real in 1999;4 thus, after my second
election, the situation went against me. The mood of the population
became much more skeptical. So, it was not so easy in the second
half of my second mandate. That’s why we – not me, but my candidate
– were defeated in 2002.5 I suppose my party will be victorious
again in the upcoming elections.

 

Inozemtsev: In the parliamentary
elections?

 

Cardoso: The elections for both the
presidency and the parliament. No one party has ever had more than
20 percent in parliament in
Brazil because it’s a big
country, like
Russia. It is fragmented,
it has many parties, and it is difficult. As for the presidency,
maybe we will revive the old trend, that is to say, Brazil has to
move faster because the world is moving ahead, and because of the
sense that we are losing ground to China, India, and maybe to
Russia and the rest of the world. Now we are in the middle of a
political crisis because of corruption and things like that. This
will open windows of reaction to the proposals made at the
beginning of my mandate, and to the way I presented the program and
used the mass media as an instrument.

 

Inozemtsev: Presumably, your talents as a
sociologist were of importance at that time because there was so
much explaining, as well as convincing the people to go to the
elections.

 

Cardoso: It was quite new and not easy. You
can imagine our technicians and economists saying that it was
impossible because everybody would engage in speculation. But I
think it was a wise decision. One of my friends, an economist who
has a much more open mind, said: “Okay, let’s do simple and clear
things.” So, we used what I call “democratic pedagogy.” And the
people believed it. I think it is important to explain to the
people again and again… In big countries like Russia or Brazil,
it’s not easy to go to the grassroots. But you have to make the
effort at least, and try to convince. I am a profound democrat, so
I think that inasmuch as you can give good information and the
chance to make a good choice, you can win in the end. I think that
if you believe that people cannot understand you, that you have to
manipulate the public, it’s the beginning of a disaster in an open
society. And Brazil is an open society, which is also amazing
because, if you look at our past, at where we are coming from now,
together with the inequality in Brazilian society,6 it’s hard to
understand how that kind of disparity and freedom can be
compatible. But it is like that here. And it is a kind of engine
moving Brazil ahead. It’s an open society.

 

Look at
what is going on in our country now. It’s just impossible not to
explain things to the people, not to tell the truth, because
everyone sees it. This is an important characteristic. Another
thing is that Brazil is a culture of tolerance. It is a paradox
that, being so unequal, it is possible to be open and tolerant.
There are some cultural explanations. It is also true that we are
like America and different from Russia. We are composed of many
different people. I don’t know how many Brazilians are now of
Portuguese descent. Maybe they are in the minority. We have blacks
and mulattos and we have Germans. No less than ten million
Brazilians are of German descent. There are no less than 25 million
Brazilians of Italian descent. We have many Poles, as well as
people from Ukraine, and no less than three million Arabs, mainly
Lebanese. We have Japanese – perhaps two million of them, or
more.

 

So this is
a melting pot. In the 1950s, sociology explained America in terms
of a big melting pot. America, however, is not a true melting pot
because the different nationalities are there, but each one is a
pot, a special area with its own community. We mix it up. And we
are proud that we have this tremendous blend of people. This is
also very important to stress. This is our national ideology. So,
we have to accept differences as a natural
thing.

 

If you
compare what happened in the Spanish nations in America with
Brazil, you will see that we have always been a little more prone
to conciliation, to accommodation. This has been highly criticized,
mainly by the left who say that this prevents the country from
benefiting from a more genuine clash of classes. We have been much
more prone to conciliation here. Of course, there have been moments
of conflict, but we are more pragmatic in dealing with
conflicts.

 

Now, let’s
compare Brazil with America. America is fantastic in that they were
able to change the situation with their black population in a very
short period of time. But how did they accomplish this? First, the
struggle was very hard. Second, the law enforced it; the American
people are equal by law. We in Brazil don’t care about laws; we
have much more flexibility. While it is true that we may lack the
institutional instruments to enforce equality, we still have much
less discrimination here than in America. We are equal yet we are
different.

 

Inozemtsev: If Brazil has had such a huge
success in uniting its people and creating tolerance in society, do
you think there are prospects for other South American nations? Can
they follow this example?

 

Cardoso: In Latin America, you have different
styles of culture and national integration. If you compare Brazil
to countries in the southern part of the region, you will find they
are very similar to each other. I would say the southern part of
Brazil, Uruguay and Argentina are all about the same. And what I
said about Brazil, with some exceptions, can also be applied to
Argentina, Uruguay and even Chile. These are open societies with
much less inequality, and much less differentiation in terms of
race, than in Brazil.

 

In the
Caribbean and Central America countries, they are perhaps more
unequal and more differentiated in terms of race, but this is
because of the blacks, not because of the indigenous population.
Furthermore, they are highly influenced by the U.S. In the Andean
nations, the situation is completely different: in countries like
Bolivia or Ecuador and, to a lesser degree, Peru, there remains the
problem of how to integrate the indigenous and the non-indigenous
populations. It is a matter of national identity.

 

Look at
what is happening in Bolivia. The size of the indigenous population
is by far the biggest in the region. However, they are not asking
to be integrated into the white or non-indigenous population, they
are asking for power for themselves. Bolivia is much more
fragmented, including in terms of geography. Some parts of Bolivia
are now discussing autonomy.

 

In Ecuador
as well, you have the coastal area and the highlands. The highlands
are much more indigenous, the coastal area is much more Spanish and
black. So there are problems of national integration. That’s not
the case in Argentina, Brazil, Uruguay or Chile.

 

Even in
Central America they have different problems. Only Guatemala has
problems with the indigenous population. Latin America is highly
differentiated. The Atlantic nations always looked much more to
Europe, but now it’s different. They are looking north, to North
America. As for the Pacific area, it has always looked much more
north than to the west.

 

The
European influence has been much more profound in these parts of
America, including Mexico. Mexico also had a strong European
influence – French and Spanish. That’s not the case with Central
America, which was much more influenced by the
U.S.

 

In terms
of economy, globalization has been a sort of earthquake across the
world, and some countries have been able to recover from the
earthquake in time to become integrated in a favorable way; others
have failed to do so. I would say that, in terms of investment –
foreign capital investment and increasing domestic investment –
Brazil ranks number one in terms of foreign investment since the
1990s, when globalization was already there. Now Brazil is becoming
much more integrated into the global production system than other
countries. Mexico, for example, basically became integrated into
the United States. We are more removed from the United States, so
we have more chance to polarize here, to be more independent in our
decisions. Not just in our decisions, however, because investment
came to Brazil not just because of Brazil, but also because of the
southern part of America, probably from the period of stabilization
on. I mean, in 1994, 1995 and on. We have received no less than
$150 billion in foreign direct investment in Brazil. Compared to
the past, that’s an enormous sum. When I was the finance minister,
Brazil used to receive between $1 billion and $2 billion a year. In
2000, we received $33 billion. Today, as the country is steering
through a bad moment, we are receiving about $15 billion. So we are
escalating in terms of our capacity to attract foreign capital.

 

Now look
at Chile, which has a smaller economy. The Chileans have been wise
and are now able to utilize globalization to export some crucial
products and manage trade circuits in the world. They are exporting
things such as wine, fruit and salmon. And they have also become
very good in services. Thus, they are accumulating far more capital
than they can absorb and are investing abroad, in other parts of
Latin America.

 

If you
look at Argentina or Uruguay, it’s different. They do not know yet
where they have to move. If you look at the Central American
countries, you will see that the Americans have always considered
this region more carefully than other parts of the region because
of their strategic interests – Venezuela because of its oil and
energy, for example, and Colombia because of its guerrilla
activities. What did Central America really do? It opened the doors
for Central American exports into America.

 

So,
economically speaking, the chances presented by globalization are
unequal. Some countries had more chances, and some countries were
able to seize the moment, others have failed. If you compare Brazil
to Argentina, you will see that Brazil was much quicker in moving
toward what was necessary at that time. Argentina is moving much
more slowly in the sense of globalization. So all this introduces
vast degrees of differentiation in the Latin American region.

 

It is
interesting that, with globalization, foreign investment in Brazil
is coming basically from the Latin countries in Europe. The U.S.
has always been present here and continues to be. In the past, we
had foreign investment from the UK, Germany, Sweden, and
Switzerland. They are all still here. But new investment is now
coming from Portugal, Spain, France and, to a lesser degree, Italy
– all Latin countries.

 

Inozemtsev: Indeed, I know from statistical
data that the Europeans are surpassing the Americans in investment
in Brazil, in Argentina, and in various Latin American countries.
But speaking about globalization, a book by Professor Jagdish
Bhagwati of Columbia University appeared not long ago. As I
understood it, the main idea of his book is that it is not
globalization that causes damage to the peripheral economies of the
world. It can cause huge harm, like an earthquake, only if
governments oppose globalization processes in an unsophisticated
manner. Do you agree with this?

 

Cardoso: It depends. I would say it’s true
with some of the more developed countries. If a government were
wise enough to understand new opportunities and move toward them,
globalization would be helpful for them.

 

That is
the case with Brazil. It was also the case with Chile. But if you
look at Africa, it’s much more difficult to blame governments
because the situation is so hopeless there. And globalization can
be productive not by itself but in terms of comparison: people look
around and see things are going fast and they are still in bad
shape. This can provoke unrest.

 

None of
the Andean countries are going back at this point. If you look at
social indicators in Latin America, the situation is not worsening.
Even if you take the problem of unemployment, which we often hear
is being destroyed by globalization, we should look at the facts
with some caution. Globalization requires integration at a global
level; it requires the sophistication of technology, a high level
of education, and institutions. If a country has all these
conditions and the government is able to take the leadership, you
can enter the globalization process in a positive way. If you don’t
have these minimal conditions at the starting point, you are left
aside.

 

Inozemtsev: That’s a very interesting
opinion. Was the quality of government, of life, of people
different here – in Brazil, Argentina, Chile, Venezuela – twenty or
thirty years ago? I think they were somewhat similar, but some
governments fight for national sovereignty, for their rights, for
the chance to manage their own economy, while others accept the
globalization process. It’s not about endorsing it and going faster
than other countries. It’s the question of
acceptance…

 

Cardoso: There’s no alternative, no other
way.

 

Inozemtsev: So the problem with
globalization, in my view, is that some governments do not really
want to fight globalization or allow it to happen either. And it
will not happen in their countries. If they just fall aside, like
in Africa, they are not globalized. The world is happy to live
without them.

Cardoso:
You are right. What is globalization basically? It’s the
integration of the world financial market plus the capacity to take
control of the production system across the globe. It is a new form
of capitalism. Capitalism today is dead. Globalization moves due to
big corporations, those with the capacity to rationalize the
production system and with a sophisticated information system to
make proper decisions. That’s what globalization is. In some sense,
this is the progress of our days.

 

Inozemtsev: In some
sense.

 

Cardoso: You can compare it with the
beginning of industrialization in Europe in the early 19th century
when the workers were prepared to break the machinery because they
were against it. To be against globalization is a similar
situation, to some extent. I would say that if Karl Marx were still
alive he would say: “You people are crazy. This is the means to
progress.”

 

Yet there
is another question: Who will control the progress? What class? You
must have additional elements to tame globalization because it’s a
fact that the markets become very powerful and may be cruel to some
people. That’s why you have to compensate by having governments, an
active civil society, an open society, by people moving in defense
of their interests, and so on. So, we need more democracy and more
governmental capacity to tame markets, for the market is becoming a
ferocious animal. That’s the way I see it.

 

Inozemtsev: I absolutely agree with you here.
Now, in connection with what you said about some of the historical
links between South and Latin America and Europe, can you imagine
something like European projects emerging
here?

 

Cardoso: Well, that was the original idea behind
Mercosur.7

 

Inozemtsev: Yes, but I don’t think Mercosur
exists now. Is it anything more than an economic
union?

 

Cardoso: At the beginning, in the early
1990s, it was our peculiar way of aiming for more political
solidarity. The project had more prospects then than what it became
in the end. It seems that we are moving toward trade treaties.
Earlier, however, the economies of the base countries, Brazil and
Argentina, were in bad shape and faced some financial crises and,
as a consequence, had problems with exchange rates due to different
kinds of systems of exchange. Thus, we clashed more frequently, and
it became very difficult to make progress and have good trade
agreements.

 

Thus, the
presidents decided to move toward joint infrastructure projects. I
proposed to hold a presidential meeting in Brasilia in the year
2000,8 composed not just of Mercosur representatives but South
American people. We asked the Inter-American Development Bank
(IDB)9 to present some programs for the physical integration of the
region, to integrate the infrastructure in terms of the axis of
development. The bank proposed several actions to promote the
integration of the railroads, roads, energy, electricity,
telecommunications, and so forth, to imitate what had been done in
Europe when they started the coal and steel
community.

 

We skipped
a bit past trade because it proved difficult. We moved to other
more basic integration, and now we still do not know what to do
with it all. Some political convergences still exist, albeit very
small political convergences, because even now, in this year’s
elections at the IDB and the WTO, the Brazilian candidate was quite
alone, with even some people from Mercosur voting against him. So,
we are at a bad moment in terms of this movement. This is not our
finest hour.

 

Regardless, I believe it’s important to keep the idea of a
more profound integration in the area. We are also starting to
engage with Europe, to have a direct relationship between the
European Union and Mercosur. For example, we have proposed to
convene a conference in Rio, but the Europeans have their own
problems now; they failed to get enough votes for the EU
Constitution. Thus, we have to wait to re-establish a link between
Europe and Mercosur. But I would say it is
important.

 

The FTAA10
was an American proposal. Brazilians were skeptical about the FTAA
– we sensed American competition. Now the Americans have moved
toward regional pacts in Central America and with the Andean
countries; they have one with Chile. They are isolating Brazil and
Mercosur to some extent by closing bilateral trade agreements with
other countries and groupings of countries in the region.

 

I think we
have to revisit all the subject matter, to see how to overcome the
present situation for integration. And it’s very difficult – Russia
understands this – to convince a big nation to integrate with a
small nation and make concessions. The thing is that the idea of
sovereignty is still very profound and well entrenched in Brazil,
but I think we have to move to other countries and integrate early
into South America. Brazil has a responsibility to move ahead
because we are more powerful than our
neighbors.

 

Inozemtsev: I have been dividing my time in
recent years between Moscow and Paris, so I see European processes
and European society. The processes in Europe involve a huge
social, personal and psychological integration. We are witnessing
something like the birth of a European nation. Maybe you have to
see it one hundred years later, but something is happening. In
Europe, around 5 percent of marriages are between different
European nationals. Can you imagine something like this happening
here, between Chile and Argentina or Paraguay and Brazil? Do the
nations understand each other, and not just the
politicians?

 

Cardoso: I lived in Chile for five years, and
I would say that we possibly have less difference among Latin
Americans countries than do the people of Europe. The first thing
to consider is the language; the basic language here is Spanish.
Brazilians understand Spanish, but they don’t understand
Portuguese; they understand Spanish. So, it makes contacts much
easier. We are Latinos. Maybe it’s too vague, but it’s true. There
are some similarities.

 

Inozemtsev: But distances are much greater in
South America than in Europe. All of Western Europe could fit
inside Brazil. I saw my ticket to Lima for tomorrow and it’s about
a five-hour flight. You could go from London to the Urals in that
time.

 

Cardoso: From the southern part of Brazil to
the north takes a jet six to seven hours. East to west, it’s like
Russia.

Anyway,
what is moving ahead is tourism. It is now an instrument of
integration, corporate integration, because Argentines come to
Brazil, Uruguayans come to Brazil, Paraguayans come to Brazil. They
all come for the beaches. And Brazilians go to Buenos Aires and
Chile. This is increasing our mutual understanding. We also have
trade, and maybe, to some extent,
universities.

 

Here is a
small personal story. I was in Paris in 1961 and spoke French. And
I realized that, in spite of the fact that I was fluent in French
and my academic training in Brazil was influenced by the French, I
felt more at ease with Spanish-speaking people, with Latin
Americans, than with the French, because our sense of humor is
similar. The lack of formality is similar.

 

There are
some cultural traits that do not come from the Portuguese. They are
not like that. Maybe it’s because we are a migrant people and an
open society, with open spaces. It’s not difficult for this kind of
people to interrelate. I am not saying that we are always able to
understand each other but, as far as we have contact, we realize
that we have similarities.

 

Inozemtsev: There will be a general assembly
this autumn to discuss the United Nations reform. Do you think it
is possible to speculate about some kind of new world order that is
not quite so American?

 

Cardoso: I am personally involved in UN
reform. I was heading a working group on it, and we were trying to
deal with ideas around a real global civil society and the extent
to which NGOs can be included in the UN.

 

I think
there is, again, a twofold movement toward the reorganization of
the world order. One is vaguely based on different movements, the
NGOs, civil society. The fact that cities are now asking for more
of a voice shows that there is a kind of democratization process
concerning the issues of the world order. On the other side, there
are movements originating with some governments and states saying
that it’s no longer possible to have this kind of unipolar
order.

 

The world
is unipolar to some extent, yet we still have five big countries
that do not want to open their doors to the others. I think that,
if we could imagine a stronger Europe in the future, and China
playing a more active role, as well as countries like India,
Brazil, Russia and Mexico also, it would be possible to imagine a
more balanced order.

 

So far
it’s difficult to imagine how such a new order would really be
implemented. I think that we have to move using soft power, rather
than hard power. I think it is possible to move slowly toward a
better world order, because certainly the order based on this
unipolar system has limitations. Look at Iraq. They were able to
destroy the former regime, but they are unable to build anything
else and they had to request help from the
UN.

 

The threat
of terrorism, for example, could unify the global order in a
different way, because we have a common threat. It cannot be dealt
with because one power is so powerful that it can stop it – it’s
not powerful enough to stop terrorism. This requires soft power in
order to try ideology and persuasion, the idea that I was
emphasizing, tolerance and new approaches.

 

1 The
military regime established by General Humberto de Castello Branco
in 1964 drastically curtailed democratic freedoms and led to the
dissolution of the National Congress. The regime began to move
toward liberalization in the late 1970s as General Jo?o Figueiredo,
who ruled Brazil between 1979 and 1985, laid the foundation for the
country’s return to democracy (hereinafter the footnotes by V.
Inozemtsev).

2  The plan for combating
hyperinflation, which depreciated the Brazilian currency, was
devised by the chairman of the Central Bank of Brazil, Gustavo
Franco, and provided for a series of monetary and fiscal measures.
These included the freezing of salaries, termination of state
borrowing, budget sequestration, the establishment of outside
control over the credit policy of the top 40 banks in the country,
and the introduction of a conventional monetary unit. In July 1994,
as inflation eased, a new currency emerged – the Brazilian
Real.

3 The
Workers’ Party of Brazil (Partido dos Trabalhadores, PT) – one of
the most influential leftist political parties in Latin America.
Representatives of the Brazilian intelligentsia and activists of
the labor movement founded the party in 1980. It controls 18
percent of the seats in the lower house of
parliament.

4 In early
1999, Brazil was hit by a financial crisis provoked by financial
upheavals on the East Asian and Russian stock and debt markets. The
government was forced to depreciate the real by eight percent.
Although the rise of the dollar rate against the real (slightly
more than 55 percent) was insignificant compared to the
depreciations in Asia and Russia, Cardoso still views this event as
a major setback of his policy.

5 Luis
Inacio “Lula” da Silva, a co-founder and leader of the Workers’
Party of Brazil, won the presidential elections in October 2002
with 53 percent of the votes. His rival, Jose Serra, proposed by
Cardoso as his successor, won only 32.5 percent of the
votes.

6
According to official statistics, in the late 1990s the poorest 10
percent of the Brazilian population accounted for 0.7 percent of
the aggregate income, while the richest 10 percent accounted for 48
percent. The Gini Index, which shows the gap in income between the
rich and the poor, stands in Brazil at 0.607, twice as much as in
the EU countries.

7 Mercosur
(Mercado Com’n del Cono Sur), a common market in South America,
comprises Brazil, Paraguay, Uruguay and Argentina. Founded in
Asunci?n on March 26, 1991, it was intended to be precursor to a
customs union between the countries. In 1996, its four countries
plus Chile and Bolivia set up a “political Mercosur.” In recent
years, Mercosur has had difficulties implementing earlier approved
economic measures. Mercosur and the European Union are linked by
the Interregional Framework Agreement for Cooperation, signed on
December 15, 1995 in Madrid. The agreement went into force on July
1, 1999.

8 The
first summit in Latin America held in Brasilia in August 2000. The
summit established a standing Latin American Business
Council.

9 The
Inter-American Development Bank (IDB) is the world’s first regional
interstate bank for financing development programs. The bank was
founded in 1959 on the initiative of Brazilian President Juscelino
Kubichek by 19 Latin American countries and the United
States.

10 The
Free Trade Area of the Americas (FTAA) is a regional organization
intended to ensure the free movement of goods and capital in the
Western Hemisphere. However, the general slowdown of the world
economy’s growth and other numerous problems has caused delays in
the negotiating process, which continues to this
day.