“Imperialism Causes Inflation”: Economist Explains High

Inflation is not just a monetary phenomenon, which can be resolved with small reforms in economic policy. It is linked to the role countries play in global capitalism, how they dictate or absorb trends, and where their wealth is transferred.

It is from this perspective that economist Leonardo Leite, a professor at the Fluminense Federal University (UFF), analyzes a problem that intrigues from the International Monetary Fund (IMF) to the millions of workers who lost income in the pandemic and are faced with rising prices in the supermarkets.

“Do you know what else causes inflation in peripheral countries? Imperialism!”, he wrote Milk on the 13th, on your Twitter account.

Between criticism and praise, the post – which explains and graphically demonstrates his hypothesis – made him double the number of followers on the social network.

For the professor at UFF, the repercussion demonstrates the topicality of the topic and the relevance of the analysis, which he intends to develop in academic research.

Imperialism, to which Leite refers, is the set of policies of economic, political and cultural domain that rich countries exert on those on the periphery of global capitalism, such as Brazil.

The economist, who is part of the Interdisciplinary Center for Studies and Research on Marx and Marxism (Niep-Marx), explains why raising the interest rate will not solve the problem of access to goods and food.

In his interpretation, the problem requires structural changes, which range from encouraging family farming to urban reform.

Check out the best moments of the interview with Leonardo Leite:

Brasil de Fato: Oftentimes, inflation is treated only as a monetary phenomenon, which could be controlled through measures such as raising interest rates. This has been the option of Bolsonaro and Paulo Guedes and, even so, prices continue to rise. Why does it happen?

Leonardo Leite: I was following yesterday [21/10] a discussion of the European Central Bank, with the president of the IMF, among others. And one of the economists who participated in the event drew attention to the fact that we do not have a theory of inflation.

So even liberal theorists, traditional economists, are not sure what inflation is and how it is caused.

We often hear about interest rates only, but inflation is not just a monetary phenomenon. It is not just a greater amount of currency in circulation that causes inflation.

Brazil is not a country that produces trends in the world economy. He inserts himself in it in a subordinate way and receives, absorbs these tendencies.

We have a history of inflation that is not recent. It has been a recurring problem since the 1950s and 1960s. Everyone remembers that, in the 1980s, we also had a very big inflationary crisis.

And it’s not just in Brazil. The average inflation in the so-called peripheral countries, which have this subordinate insertion, is higher than in developed countries.

The so-called G7 of world economies has much lower inflation, and this is historic. So, there are important structural components that explain this. It’s not just an economic policy error.

In our case, inflation is especially associated with the price of the dollar. That’s the key point. When it increases, it generates a series of effects that produce price increases.

Even the IMF, in the World Economic Outlook, released recently, shows that the acceleration of inflation is associated with episodes of currency devaluation.

The increase in the price of the dollar makes, on the one hand, the products that we import. And, at the same time, for example, we currently have a problem in Brazil with the price of meat. Why does it go up, with the exchange rate devaluation, if we don’t import meat? Because the large slaughterhouses reduced the supply of the internal market to send goods abroad.

So, the decrease in the volume of goods in the domestic market increases the price.

The dollar’s appreciation doesn’t happen by chance. We are talking about the currency of the United States, decisions that are taken by businessmen and financial market operators in the Northern Hemisphere and that impact the lives of Brazilian workers. Is that why you maintain that imperialism is one of the causes of inflation in peripheral countries?

Exactly. When we analyze the economic situation, there are some elements that are structural. For example, imperialism. It shapes the way we connect with other economies around the world.

We have a tendency to transfer values ​​to the rest of the world. This is a key point shared by the whole of Latin America.

Companies operating in Brazil transfer values ​​abroad in various ways. For example, part of the transnational companies operating in Brazil send profits abroad. So, at the end of the year, the company generates an amount that is repatriated by the headquarters.

And there are several other channels: payment of interest on external debt, payment of royalties…. Through international trade, there is also a series of processes for transferring value abroad.

It’s basically a transfer of wealth produced in here – of money, ultimately.

This transfer constantly generates pressure and a shortage of dollars, so the price increases here.

The inflation of the 1980s, for example, is closely associated with the external debt crisis, rising interest rates in the US and the flight of wealth there. So, there are several episodes that explain and show us how it happened.

These recurrent episodes of inflationary crisis in Brazil have elements in common, but also particularities – like the ones you mentioned about the 1980s. What is the specificity of the current moment of high prices? Are de-industrialization and growing dependence on agribusiness decisive factors?

Entrepreneurs often choose to invest their money on the Stock Exchange, in government bonds, bitcoins, instead of making a productive investment, which would increase the supply of products and have an impact on inflation.

So, the reprimarization of our economy, associated with this financialization, are two decisive features of the current period.

Could the increase in interest rates, in an attempt to control inflation, have the opposite effect, further stimulating financialization? What is the alternative in this case?

The interest rate has two basic roles. One is to depress, to slow down the economy. But this is a tragedy in a country that is experiencing a social crisis like the one we are witnessing.

It is a mechanism that also slows down the labor market.

Another aspect is that the increase in the interest rate attracts speculative capital from the outside to the inside. It is an attempt to reverse this transfer of value, bringing dollars to Brazil.

What’s wrong with that? The United States is currently going through a period they call the “currency tightening”. They are beginning to scale back the gigantic stimuli they added after the 2008 crisis and which they reinforced with the pandemic. And, in a little while, interest rates will increase.

So, this interest rate increase here tends to be cancelled, because this capital is interested in going to the US, where it has a more certain gain.

In other words, the interest rate is not the ideal mechanism to fight inflation.

Inflation in Brazil has two main components today: the dollar price, which I’ve already mentioned, and the energy crisis, a water shortage that has led to an increase in the cost of producing electricity.

Where does this energy crisis come from? From the use of water. And who else uses water in Brazil? Agribusiness, which is also the major exporter.

This year, according to IBGE, we will have a record soybean harvest. This crop is exported. So, the export of soy is also an export of water, because water is incorporated into production.

So, there are a series of mechanisms of a more structural nature that would need to be done. For example, an important component of inflation in Brazil is food.

Basic food basket inflation is at 16% this year. Who produces food in Brazil? Family farming. So, mechanisms are needed to encourage family farming, agrarian reform, which would expand the supply of healthy food on the Brazilian table.

So, I find it difficult to see mechanisms in economic policy capable of reversing this process. Unless, mechanisms that stimulated production, in fact. But, this would require a series of structural reforms.

For example, 16% of inflation comes from housing. Rent prices are skyrocketing. What is the way out of this? An urban reform that uses part of the unoccupied properties for social purposes, which would reduce the pressure on rents.

In other words, it seems to me that, with a set of popular structural reforms, it is possible to attack inflation without making people’s lives worse.

The reforms you mention lead to thinking about economic problems beyond the “box” of liberalism. This is one of the proposals of the Marxist Theory of Dependence, which had wide repercussions in Latin America from the 1960s onwards. Do you see in this theory important contributions to thinking about 21st century Brazil?

We are in a very serious, radical, and very dramatic crisis. We see scenes of barbarism in our daily lives. We’re normalizing people scavenging garbage trucks, going after beef carcasses. From an ecological point of view, it is an equally serious crisis, whose palliative solution will not solve the problem.

So, a crisis of the proportions we are currently experiencing can only be overcome in a positive way, for the population as a whole, thinking outside the box.

The set of solutions implemented so far did not work, so we need to think of different alternatives.

We have theories built by thinkers in Latin America that help us understand today’s problems. One of them is the Marxist Dependency Theory, although the first works are from the 1960s and 1970s.

The basic author of this theory is Ruy Mauro Marini, who builds a very particular interpretation of Latin American capitalism.

The key point is the link between Latin America’s insertion in global capitalism, which generates a process of dependence through imperialism, with the overexploitation of the workforce.

It is a labor force that is paid less and less, with less and less access to goods and services – a deteriorating standard of living.

Today, the US is undergoing a labor market restructuring. With the billion-dollar injection of resources into the economy, there is economic growth, with unemployment at a very low level. The bargaining power of workers is increasing, wages are growing.

So, companies are adopting technologies that save, save and eliminate work from the production process. Not only there: if we go to any network of fast food in Brazil, we see a trend towards automation, with fewer and fewer employees serving.

These technological innovations, this automation, will be incorporated into the production process in Brazil. Brazilian companies, eager to profit more, will incorporate these techniques, creating a dramatic crisis in the world of work.

These workers go to social marginality, to a more accelerated process of impoverishment, which is the overexploitation of the workforce.

Realize the relevance of these concepts. And thinking about Brazil based on them requires solutions that radically transform our reality. In other words, palliative solutions will not solve the problem.

Edition: Vivian Virissimo

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