On Sunday, the Brazilian people achieved something that the pundits said was impossible. They re-elected as president the former metalworker Luiz Inácio Lula da Silva, on the eve of his 81st birthday, stemming the Trumpist, evangelical, neofascist Zionist tide sweeping through Latin America. Only three weeks earlier, he came second in the first round to Flávio Bolsonaro, son and political heir of the man who had plotted a cynical coup against Brazilian democracy — moreover, the main candidates eliminated during the first round were rightists whose voters had every reason to gravitate to Bolsonaro. Nonetheless, Lula overturned this deficit and won with a margin of nearly four and a half million votes.
His victory tells a broader story. A story about a war: the class war that the few are waging against the many across the Western world. It’s a war acknowledged by its victors, including Warren Buffet who once quipped: “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.” Mr Buffett was not exaggerating. For almost four decades, Western governments and central banks have pulled every policy lever in the same direction: to make the assets of the few burgeon at the expense of the incomes of the many.
Consider the numbers. Between 1952 and 1988, economic growth was behind nearly all the gains of the West’s stock market. From 1989 onwards, though, growth explains only about a quarter. The largest share, around 40%, came from income diverted from workers to shareholders. Another third came from cheaper money and lower perceived risk. This is not wealth creation. It is wealth extraction: a transfer from those who work to those who own, exacerbated by states making cheap money available to those who already have loads, and trumpeted on the evening news as “a strong economy”.
And the wealthy rarely pay taxes: they don’t actually earn an income, but, rather, own assets, which are taxed only when sold. So they avoid selling, borrow against their soaring assets at 1 or 2% and live on the loan. Then they die without ever paying tax on their capital gains and pass on the loot to their kids at ridiculously low inheritance taxes. Meanwhile, the worker borrows on a credit card at 20% to pay bills and put food on the table, her debts the mirror image of their fortunes.
This arrangement relies on one crucial thing: asset prices must be protected from collapse. And when they are threatened, the state comes to the rescue: 2001, 2008, 2020, the British gilt crisis of 2022, Silicon Valley Bank in 2023. Together this string of bail outs reveals the rule: when financial wealth is threatened, governments discover that money can be found. Today, in the United States, the top 10% own almost 90% of all shares. It’s a similar picture in the UK and the EU. The US federal government and the Fed, the UK governments and the Bank of England, Brussels and the European Central Bank have repeatedly intervened to insure the wealth of the wealthy, doing “whatever it takes” to prop up their asset prices. The rest of the population pays the premium, in the form of the austerity that follows every bailout.
Yet austerity does more than redistribute the costs of a crisis. It also changes the balance of power between those who own and those who work. To understand why it keeps returning, even though it undermines economic growth, consider the story Marx told about Thomas Peel, who in 1829 sailed to Western Australia’s Swan River with £50,000 of provisions and three hundred working-class men, women and children. On arrival, his workers walked off into the bush and worked for themselves. Peel had brought money, tools and labour, but he could not bring capitalism along, because his workers had alternatives.
Capital, Marx concluded, is not a thing, a mere asset, but a social relation: the power of those who own to get those who don’t own to do things they’d rather not do. Austerity is not an economic policy. It is a disciplinary device, keeping the many sufficiently insecure and indebted to accept “an offer they can’t refuse”. The ruling class’s deepest fear is not inflation or debt. It is to end up like Peel: asset rich, but without the power to compel.
Here is the part of the story that keeps me awake at night. When centre-left politicians, from Bill Clinton, Barack Obama and Tony Blair to Gerhard Schröder, François Hollande and Andy Burnham, abandoned the language of class, a void opened up in the working-class heartlands of the West. Into that void stepped a venomous storyteller with a century of experience in filling such voids: the resurgent far-right, including its rebranded fascists. It offers left-behind workers a story of dignity, then redirects their fury away from the owner who shipped their factory abroad, or the minister who sold their council house to some fund, and towards the migrant next door. It does not end the class war. It merely divides one side — the workers — to rule over them. It camouflages the war.
From the red suburbs of Paris to south Piraeus, from England’s red wall to Italy’s rust belt in Taranto, from the American rust belt to eastern Germany, the pattern is relentless. And so a fatalism has set in: the class war waged from above, we are told, must inevitably end in a neofascist, racist, misogynist revival.
Brazil has just refuted this fatalism.
Brazil knows the monster intimately. It lived through four years of Jair Bolsonaro, with his nostalgia for the military dictatorship. On 8 January 2023, his followers stormed the Congress, the Supreme Court and the presidential palace. Brazil’s far Right is not a fringe. Unlike Trump’s ragtag stormtroopers, they had years of running a dictatorship. They won the first round of this election. They had the White House fully behind them, while the US Democrats, once again demonstrating their irrelevance, stayed mute. And yet, yesterday, they were defeated.
How? Not by hand-wringing about “populism”, nor by a centrist promise to manage the status quo more efficiently. Lula won because he did what the Western centre-left has forgotten how to do: he spoke the language of class, and backed it with policies that shifted power, however modestly, from the few to the many. His government exempted those earning up to 5,000 reals a month from income tax and paid for it with a minimum tax on the very richest. During Brazil’s G20 presidency, he proposed a global minimum tax on billionaires. When Lula tells Brazilian workers that the elites have rigged the game, he points his finger upwards, at the rentier and the speculator, not sideways, at the migrant or the poor. But the most innovative weapon in Brazil’s arsenal is one that few outside Latin America have heard of. It is called Pix.
Every time you tap a card to pay for a coffee, a toll is levied. Visa, Mastercard and the banks take a cut, often 2% or 3%, from every transaction. Multiply this by billions of purchases a day and you begin to recognise one of the most lucrative rent-extraction machines ever devised. These are not profits made in competitive markets but a toll extracted by those who own the digital rails on which our economic lives now run. It is a key weapon of technofeudalism.
Unlike Britain, Europe or, of course, America, Brazil’s central bank moved to limit this rabid exploitation. It launched an alternative: a public, instant payment system, free for individuals and with capped fees for merchants. A Brazilian pays a street vendor in Salvador or sends money to her mother in Recife, instantly, using Pix from her phone, with no card company or bank taking its slice. Brazilians adopted it with astonishing enthusiasm. Last year, Pix processed almost 80 billion transactions and overtook credit cards as the most popular way to pay online.
Pix is the Swan River of the digital age. It gave tens of millions of Brazilians, including the poorest, who had never had a bank card, an alternative to the toll booths of Big Finance. And, like Peel, the collectors did not take it lying down. This summer, Washington imposed 25% tariffs on most Brazilian exports, and its trade representative explicitly named Pix as a grievance, complaining that it “unfairly disadvantaged” American payment companies! The most powerful government on Earth deployed its trade arsenal against a Brazilian free public service for being too successful at denying rents to Visa and Mastercard.
Lula did not blink. He defended Pix as a Brazilian public good, and Brazilians rewarded him for it. Here, at last, is a concrete example of limiting the power of Big Business, Big Finance and Big Tech: not with slogans, but by building public digital infrastructure that removes the opportunity to extract rent in the first place.
Let me, however, refrain from romanticising Lula. Lula is no revolutionary. His margin was admittedly narrow. Brazil’s Congress remains in the grip of agribusiness and evangelical blocs. Its central bank still keeps interest rates punishingly high, a weapon of the class war if ever there was one. Lula himself has compromised much too much with those vested interests, and lost support as a result.
But Brazil has shown us three things: first, that the class war waged against the many does not have to end in fascism. Fascism flourishes only when the Left vacates the battlefield of class. Second, a progressive government can win by pointing upwards, at those who extract rent, rather than downwards, at those who suffer. And third, Big Business can be defeated, at least forced to lose some battles, by building public alternatives to its rent-extracting machines.
So, here is the challenge to Britain, to Europe, to the people of the United States. Build your own Pix: public payment rails that end the tolls of Visa and Mastercard. Tax capital gains, not just income. Make every rescue conditional, with the public receiving real, permanent equity in return. Create a public investment bank as an alternative to the bond markets. Restore the bargaining power of the workforce. And give working people what Peel’s workers found at Swan River: an alternative, and thus the freedom to say no.
Buffett was right. There is a class war, and his class has been winning hands down. But yesterday, in Brazil, it lost a battle; though not the war. It lost because a working-class president dared to name the war and fight it using weapons fashioned to defend the many.
view comments