Lula Raises the Stakes

by William Greider and Kenneth Rapoza

The Nation magazine, December 1, 2003

The bearded political leader they call Lula is the new phenomenon of globalization, a man with audacious ambitions to alter the balance of power among nations. Luiz Inacio Lula da Silva, the new left-wing president of Brazil, envisions a united South America that gains economic strength by drawing closer together in I trade and bargaining collectively, much as the European Union does. He wants to create a global coalition, speaking for the not-rich countries-reminiscent of the "nonaligned nations" that | decades ago tried to stand | between the cold war's two superpowers. And he wants to | push the IMF, the World Bank and the United Nations to become more democratic.

Lula may well fail. Nevertheless, his aggressive diplomacy looks like the most promising initiative to reform globalization in many decades. One sure indication that Lula must be taken seriously is that the US government has mounted its own nasty, hardball diplomacy to isolate him from potential allies and crumple his ideas before they can gain momentum. The United States versus Brazil is a most uneven contest, and the smart money will not be betting on Lula. But he does not stand alone in the world, and may speak more authentically to this new historical moment than Washington does.

Toward that end, Lula became an energetic world traveler during his first ten months in office. He has persuaded South Africa and India to join Brazil in a new triangular dialogue that will focus on technological alliances and social issues like world hunger, and also serve as a unifying opposition voice inside the World Trade Organization. Indian Finance Minister Yashwant Sinha defined the purpose as promoting the economic and social interests of the Southern Hemisphere. "We have thought enough about South-South cooperation," he said, "and we have reached this stage now where we want to give it a concrete shape." Lula is courting China to become the next big partner. China and Brazil have already signed a commercial accord covering agribusiness, technology, construction and natural resources. In October the two countries jointly launched an earth-monitoring satellite.

In South America, Lula traveled to Peru and Colombia, where he urged closer economic relations between the Andean Pact nations and their southern rivals in Mercosur (the Southern Common Market), anchored by Brazil and Argentina. He offered to mediate talks between the Colombian government and the revolutionary guerrillas of FARC. In Venezuela he gave embattled President Hugo Chavez a $1 billion line of credit to buy Brazilian exports. In mid-October Lula joined with Argentina's President Nestor Kirchner to unfurl ~e "Buenos Aires consensus," a proposed alternative to the much-despised "Washington Consensus," which has straitjacketed developing economies with its harsh economic rules. The future, hey declared, must give poorer nations the sovereign space to .determine their own development strategies, balancing social ,necessities with economic stability.

Lula was also a hit with delegates at the UN General Assembly, where he laid out a visionary proposal for eradicating hunger worldwide and reforming the UN itself. Then he was off to tour five Southern African capitals, with a December excursion planned for the Middle East and later, Russia. This past summer his travels took him to Washington, where he chatted up George W. Bush. "Not the man I would like to see in the White House," Lula allowed afterward, but the two "would have to get along."

What Lula has in mind is literally changing globalization as we know it-the version led from Washington. A muscular coalition of developing countries could block the draconian investment rules that multinational corporations and bankers keep pushing for the WTO and the Free Trade Area of the Americas (FTAA), set for debate in Miami this month. A convergence of third-force nations might also generate more trade and capital investment among the developing economies, allowing somewhat less dependence on the wealthiest nations. In short, Lula's vision is for a multilateral world, with power dispersed from the center, shared more equitably with regional trading blocs and alliances. That idea is anathema to Washington (also Brussels, Paris, Berlin and Tokyo). But, for many political and economic reasons, this new approach might sustain and stabilize the global trading system more effectively than the present top-down arrangement.

Cancun was the flashpoint where Lula's ambitions collided head-on with American power. His diplomats helped organize the coalition of twenty-two developing nations that stood their ground in the WTO negotiations and did not yield to the usual pressure tactics from the United States, Europe and Japan. The talks collapsed, an emblematic victory for Lula in demonstrating that unity means power. After the breakdown at Cancun, US Trade Representative Robert Zoellick announced that he will negotiate individual trade agreements with the "can do" nations, never mind the "won't do" nations. Zoellick's rebuke was "an open declaration of war against Brazil," declared the liberal weekly Folha de Sao Paulo.

Indeed, it was. The United States began immediately to deliver economic threats and reprisals against the Latin nations that had stood with Lula at Cancun. Zoellick and his agents put the squeeze on them, one by one. The impoverished island nations of the Caribbean were told they could forget about their newly negotiated US trade agreement. They folded. Central American countries were threatened with loss of the modest trade preferences already granted to their products. Costa Rica, one of Lula's original allies, was hammered-privatize your energy and telecommunications sectors or be left in the cold-and gave in. Peru and Colombia both resigned from Lula's group. Paraguay and Uruguay also kept their distance, though both are partners with Brazil in Mercosur. Within a few weeks, Lula's G-22 coalition had shrunk to the G-12.

It looked like a rout, but the underlying reality was more complicated. Federico Cuello, while forced to resign as the Dominican Republic's WTO ambassador, expressed admiration for Lula's cause: "Brazil embodies the hope of countries like the Dominican Republic, showing that you can still have dignity at the negotiation table.... I doubt that Lula, who has massive public support and a top-notch Cabinet, will be intimidated."

Zoellick's offensive might not get the WTO negotiations back on track, but it was meant to soften up Lula for the next critical showdown-the upcoming FTAA negotiations. And when Lula didn't seem to get the message, Zoellick's deputy, Peter Allgeier, announced that the United States intends to go ahead on FTAA without him. The new agreement would include all of North and South America-every country but Brazil. Argentina, however, stood firm with Lula and turned down a backdoor trade offer. Its foreign minister, Rafael Bielsa, explained, "If the US hopes that our countries will be subservient, they are sadly mistaken."

Anyone who understands the dynamics of globalization will recognize that the US threat is quite hollow. Together, Brazil and Argentina account for nearly two-thirds of South America's economic output. Brazil, as one well-placed Washington trade lawyer confided, is the only reason US multinationals wanted the FTAA in the first place. It is intended as a NAFTA-style pact that will impose on the world's eleventh-largest economy the investment and public-policy rules that now confine Mexico. Other Latin American countries are small and already compliant by comparison. As recent events demonstrate, Washington doesn't need new trade agreements to push them around.

"Miami will probably decide whether there is an FTAA," predicts Vicki Gass of the Washington Office on Latin America. "I don't see the United States making any real concessions, and I don't see Brazil backing down. It's just not in their interest. They have seen what happened to Mexico under NAFTA."

The threats and warnings from Washington officials are perhaps better understood as an attempt to conceal their own failure. A few days before Miami, US and Brazilian diplomats had a more amiable exchange, perhaps hoping to avoid another drama of name-calling.

But while Lula may be able to exercise real power in the international trade arena, and even pull the giant's beard, he is vulnerable at home-from both the right and the left-with regard | to trade policy. The Brazilian economy is stable but growing ~ quite slowly, too weak to produce the jobs and rising incomes he has promised to deliver for his working-class and poor constituencies. Lula's governing coalition includes Cabinet ministers from important industrial sectors-manufacturing and agribusiness-who are extremely nervous at seeing their government in confrontation with the colossus of the North. "I really like what they're doing here," said one Brazilian financier, "but the government definitely got too excited and overplayed their hand. They've given the United States the easy way out-the opportunity to pin the blame on Brazil."

On Lula's left flank, the Workers Party he has led for a generation and the movement of landless peasants are nervous for opposite reasons, fearing that Lula's exertions for expanded trade and investment may eclipse social objectives like reducing Brazil's extreme poverty and inequality. If Lula backs down from the fight with Washington, that might reassure business interests but disillusion his core supporters. The president's poll ratings are still quite high but beginning to decline. Popular wisecracks now depict Lula as Brazil's Bill Clinton, triangulating between supporters and the business lobbyists.

The United States holds most of the cards, including crucial trade concessions it could grant to Brazil's leading agricultural exports: soy products, citrus, sugar and beef. Since no one expects the Bush Administration to injure those domestic sectors in the run-up to the 2004 election, it is difficult to envision terms that could rescue FTAA without also humiliating Lula. An international relations authority in Sao Paulo predicts the two Latin allies can resist US pressures, but in that event "Brazil and Argentina will drown holding each other's hands."

And yet even Latin America's business leaders seem to love the man's go-for-broke politics-what Lula has called his "sure-fire democratic gamble." According to a Zogby International poll, only 39 percent of the continent's business and government elites think FTAA would benefit everyone equally, while a majority expect the United States to be the big winner. Business people may fear reprisals from the colossus, but only 12 percent give Bush a positive rating (only 8 percent in Mexico and 2 percent in Brazil). Lula, by contrast, is the most popular political leader in Latin America among elites-supported by 78 percent in Mexico. Maybe his "democratic gamble" has a stronger future than the smart money realizes.

Why is this happening now? It's about much more than Lula's nerviness. The Brazilian president has made himself point man for a deep shift under way in the politics of globalization-new values were dramatically surfaced by the worldwide popular movement born at Seattle in 1999. Even if a falls short, the global landscape has changed since the heady boom time of the l990s. The establishment has nothing much to say in response, and its usual tactics are no longer so successful at controlling the outcomes.

George W. Bush's go-it-alone foreign policy unwittingly encouraged the emerging realignment of interests. Jose Genoino, president of Lula's Workers Party, explained: "With the end of the cold war and a new US foreign policy, the world has acquired a unilateral nature, with the imposition and pre-eminence of US interests. The discord. ..has created lines of force favoring the formation of a multilateral world." In other words, many nations, rich and poor, now have an interest in creating a political counterbalance to US power. Brazil's leadership, Genoino emphasized, "has no hegemonic ambitions but rather is aimed at consolidating blocs of forces, producing new significant actors on the continental level and in areas of global relations."

The most significant new actor is China, not Brazil. China's entry into the WTO two years ago tipped the balance of power within global governance as well as global economics, Gwynne Dyer, a savvy Canadian observer of globalization, has pointed out. China's economy is three times the size of Brazil's, but is growing explosively and destined to become a world industrial power with girth that threatens even advanced economies. China-like Brazil or India or any other country-will doubtless pursue self-interest first, but will also find political advantage in making alliances with other poor countries. China, also like Brazil and India, has no desire to be governed in its development by WTO rules devised by American and European multinational corporations. But unlike Brazil, China comes to the debate "with an economy too big to be bullied or bluffed," as Dwyer puts it.

Another, more fundamental reason for political confrontation is I | that the reigning dogma of globalization has failed, visibly and catastrophically, for developing countries (and less obviously for some wealthy nations, too). A decade ago, when the globalizing forces were accelerating, strategists at major multinationals used to talk ambitiously about the "big emerging markets"-the five countries with the greatest promise for investment and growth. The Clinton Administration picked up the "BEM" line and made a half-baked economic policy of courting those nations: China, India, Mexico, Brazil and Indonesia.

Three of them have since been mangled by globalization. Mexico fell off the list in 1995 when the peso collapsed and the Salinas "miracle" was exposed as a fraud. Indonesia's prospects were smashed by financial crisis in 1997. Through no fault of its own, Brazil was brought down the following year by the financiers' panic that swept around the world, randomly collapsing currencies and economies. In each instance, Washington and Wall Street blamed "crony capitalism" or incorrect management of national finances for the failures. These explanations became far less persuasive after the United States encountered the same disorders-the scandals of corrupt corporate accounting and a rising tide of foreign indebtedness.

For developing countries, the boom-bust experience taught a searing lesson: The center cannot be trusted to run things or to provide sound economic advice. Argentina followed the rigid discipline of the Washington Consensus more faithfully than any other Latin economy. Yet its policies also failed, in 2001, and plunged the country into devastating recession, discrediting the US orthodoxy. Nations large and small are now united in the need to escape the "golden straitjacket," as pundit Thomas Friedman called it. The trick is doing this without offending the world's only superpower or losing entry to its largest consumer market.

Lula's grand ambitions illustrate the historic obstacles. Uniting South American nations in a common cause, if not a fully developed federation, is a very old dream, championed 200 years ago by Simon Bolivar. But his campaign was centered in the northern colonies of Spain, not Portuguese-speaking Brazil. Given the history of continental conflicts, the first step may be at best only a modest platform for trade cooperation and joint public works. A "United States of South America" will remain a distant dream.

Lula's global coalition seems off to a more promising start, and if China joins, it will have impressive muscle. This idea, however, has also failed before. The movement of nonaligned nations during the cold war never formulated a robust ideological alternative beyond declaring they were in neither the Soviet nor the US camp. Brazil never joined, though it sent representatives to the meetings. Most nations merely used nonalignment as a bargaining chip with the two rival superpowers. Some countries cleverly managed to win aid and arms deals from both. The same pressures to cut a separate deal with the big boys will test the new formation.

In any case, the center is not holding. India is trying to organize a Southeast Asia trading zone. China and Japan have made similar noises. American and European leaders denounce freelance alliance-building by Lula and others on grounds that it will balkanize the "one world" trading system into many potentially protectionist blocs. But this is deeply hypocritical, because Washington and Brussels are themselves doing/dozens of such side deals with smaller nations and regions.

The fundamental problem is that global economic integration cannot proceed with stability under the undemocratic canopy of the WTO, which is designed to serve multinational commerce and investment but not the aspirations of national cultures, economic equity or human values. Events are making clear that the WTO cannot enforce its own commandments, nor can it reform itself. The world, in a sense, is stuck halfway between global governance and the nation-states. Nothing illustrates this better than the current flap over steel, with the United States caught between the demands of its national producers, who want tariffs, and the WTO, which, pressed by European steel-producing nations, has ruled such tariffs illegal. Most nations are too weak to defend their interests while standing alone, yet joining the global system makes them subservient to the powerful few with colonialist appetites.

The future of globalization may actually become more equitable if nations first accept the need for intermediate organizations like regional trading blocs, which can experiment with home-grown development strategies and collaborate on how to synthesize economic goals with social imperatives. Governments would gain greater proximity to the decision-making, but so would citizens with diverse views of how the future should look. The WTO would perhaps continue to exist, but its stalemated condition would not halt the possibilities for progress.

The more localized context would seem to be a better laboratory for advancing global reforms like labor rights, environmental values and democratic self-government. The global justice movement would have to rethink its strategy, but could achieve far more tangible results in regional settings, instead of the negative victories of blocking the multinational agenda at the WTO. If the US government were not so beholden to the multinationals, its diplomats might see Lula's initiatives as a great opening for a different kind of FTAA-a chance to work out mutual terms for advancing social goals and economic development in tandem. As it is, Washington is using its power unilaterally to discredit and destroy this visionary leader. Americans might ask themselves: Is that really in our long-term national interest?

William Greider is The Nation s national affairs correspondent. His most recent book is The Soul of Capitalism (Simian & Schuster). Kenneth Rapoza is a staff correspondent in Brazil for World Press Review. He has written for publications including Newsday and the Sun Sentinel.

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