Liberalization Hits Roadblock

In April 19, the painstakingly slow movement towards democracy in Brazil received a crushing setback. For the first time during the military regime's six-year period of liberalization, security officers arrested trade union leaders in a successful effort to break a six-week strike by 140,000 metalworkers. The government charged Luis Inacio da Silva, president of the Sao Bernardo metalworkers union and the country's most widely recognized' opposition figure, with "crimes against the national security." Although Inacio da Silva-popularly known as "Lula"-was released recently in the wake of a popular outcry over his detention, military police have rounded up six other labor leaders in an apparent attempt to permanently cripple the union.

Latin American political observers and human rights activists have been speculating for weeks on the meaning of the labor clampdown-whether it will be generalized to other sectors of Brazilian society and why it happened now.

There are power struggles going on in the military, some say, with hardline -generals asserting new influence over political and economic policies. Others suggest the intervention was directed largely at Lula himself; Brazil's generals feared the popular leader might unite the country's squabbling opposition elements into a viable political force.

Unnoticed in much of this discussion, however, is the role played by a handful of foreign corporations-particularly the country's foreign-based automobile manufacturers-whose reluctance to bargain with the metalworkers over non-wage issues directly precipitated the strike. By refusing to consider worker demands for minimal job security, these multinationals, most notably Volkswagen, Ford and General Motors`, created an economic and, political crisis for Brazil's increasingly' divided military. The regime would have been willing to accept an agreement incorporating union demands reached during pre-walkout negotiations. But once the strike began, the media and the military turned it into a fundamental political confrontation from which the government could not back away.

The strike involved metalworkers from the heavily industrialized "ABC" region outside Sao Paulo (the suburbs of Santo Andre, Sao Bernardo and Sao Caetano). Workers initially pushed for a real wage hike of 15 percent, although they were prepared to sacrifice financial demands in favor of institutional advances. Their primary goal was to secure a one-year employment guarantee, making an admittedly minor dent in a long-standing corporate policy of reducing wage costs through "labor rotation."

Turnover rates are astronomical in Brazil, largely because multinationals coordinate regular hiring and firing of workers to take advantage of post-coup changes in the country's labor laws. Before the military takeover of 1964, employers were required to furnish severance pay to workers they dismissed, and any employee with more than ten years in a plant could not be fired without "just" cause. When the military assumed power, corporate officials lobbied hard to remove these job security regulations. The regime quickly enacted legislation eliminating the ten-year stability clause and sharply reducing compensation payments. With employment security thus derailed, companies began a no-holds-barred policy of labor rotation. Today, many firms routinely dismiss their high-wage workers a and replace them with new employees at starting wages.

While this lack of employment stability affects all Brazilian workers, the country's automobile manufacturers are uniquely suited to take advantage of the, law. The physical concentration of the industry around Sao Paulo means companies can systematically "exchange" whole groups of employees without uprooting them, shedding unwanted union activists along the way. John Humphrey, a labor historian at the University of Liverpool, argues that labor rotation has created a reserve pool of semi-skilled workers in Sao Paulo who can be hired and fired by auto manufacturers without having to be re-trained. , Wage costs can be reduced, and employers are not faced with the dilemma of investing money in training new employees and soon dismissing them to prevent their wages from rising.

Job security was an "absolutely essential" demand in the recent strike, says Maria Helena Alves, a community organizer with close ties to the leadership of the metalworkers union. While she concedes the union proposal was far from a meaningful employment guarauntee, she calls it a significant first step.

Changes in labor legislation are but one example of the close relationship between foreign corporations and the government in Brazil. For the last 15 years, corporate pursuit of profits and the military's drive for political stability have tied the two closely together; nowhere are these ties 'more visible than in the auto industry. The growth of automobile production in Brazil has been founded on production state intervention in the areas of tax policy, export promotion and credit expansion. The automobile industry has been the moving force behind Brazil's breathtaking rate of industrialization, and remains totally dominated by foreign firms.- Multinationals control nearly 100 percent of the automobile assembly sector and 65 percent of auto parts manufacturing.

A history of corporate subsidies and state economic intervention has created a "mutual hostage" relationship between the government and foreign firms in Brazil, argues Brown University sociologist Peter Evans; author of a widely acclaimed book on Brazilian development. Multinationals' critical role in the economy provides them with enormous political influence, but future corporate prosperity depends heavily on continued official support.

Given their large-scale presence in Sao Paulo, multinationals possess tremendous powers to collectively resist worker demands. Foreign firms and major local companies wield economic and political clout through their official bargaining arm, the Federecoas das Industrias do Estado de Sao Paulo (FIESP), the most powerful employers association in Brazil. According to one U.S. scholar with close ties to the Brazilian government, FIESP is dominated by hard-line officials adamantly opposed to any form of institutionalized dialogue with workers. The association's power at the national, level results from Sao Paulo's role as the center of manufacturing in Brazil and the participation of the automobile producers. Automobile firms directly employ 100,000 Brazilians, with Volkswagen alone employing 40,000 workers. The industry is also highly concentrated-in the first eight months of 1978, for example, Volkswagen accounted for just under 50 percent of Brazilian automobile production, while VW, Ford and General Motors together controlled 80 percent of domestic sales.

By the time negotiations rolled around in March, political observers-and the multinational auto firms-anticipated that the union would aggressively address long-simmering grievances over the labor rotation system. The metalworkers won at least partial wage victories through strikes in 1978 and 1979. While virtually all strikes are technically illegal in Brazil, the regime tolerated 140 walkouts last year, cultivating a slow liberalization of labor relations. Despite prior successes and apparently conciliatory official attitudes, however, union leaders recognized that a major walkout might provoke a backlash, particularly since the economy has deteriorated so dramatically over the past 12 months. "Workers were gambling that the government would not come down hard on them," says John Garrison of the respected Washington Office on Latin America. Their gamble depended heavily on the response of Sao Paulo's corporations.

Throughout pre-strike negotiations, Sao Paulo's employers presented' a unified and hostile front, refusing to even consider any of the union's non-wage demands. In addition to short-term profit concerns, employer intransigence was motivated by long-term considerations. "The automobile companies have to be able to fire people at will," argues Kenneth Merikel of the University of Wisconsin, an authority on Brazilian labor history. "[Labor rotation] sets a whole climate for labor relations," he asserts. Automobile manufacturers considered the struggle over job security a precursor to a longer-term battle over greater worker control on the shop floor, a battle they we .-e not about to concede in its early stages.

While the corporations needed no prodding from the government to reject the union's non-wage demands prior to the walkout, as the dispute dragged on, the government and a small group of multinationals entered into a confrontation over acceptable concessions. The strike was becoming expensive for Sao Paulo's corporations; The Economist estimates it cost $400 million in lost production in the first three weeks. Some executives appeared unnerved by the unity of the . workers-although no picket lines were ever assembled, the strike was nearly 100 percent effective in Sao Bernardo during the first several weeks. "The corporations tested the waters and saw how powerful the union was," says human rights activist Garrison.

Faced with the prospect of continued losses, a number of companies were ready to desert the government-backed FIESP position. While no foreign firm contemplated reaching agreement on the job security demands, some were apparently willing to offer wage hikes larger than those supported by the employers' association or dictated by the Brazilian labor courts. "Some of the firms decided they need more stable labor relations," says labor historian Merikel. ,

The softer line eventually adopted by a group of corporations brought to light some apparently diverging interests between multinationals and the military, and sparked a precedent-setting breakdown in their normally harmonious relations. _, While executives remained wary of the long-term implications of acquiescing to job security proposals, they were prepared to offer higher wages as an incentive to resume production immediately. The government, by this time, interpreted any settlement above the terms handed down by the Brazilian courts as a major political defeat, a defeat which might prompt other unions to defy official directives in future walkouts. After a prominent Volkswagen executive appeared on television and declared that some of the union's wage demands were not "unjustified," the generals made thinly veiled threats to punish any company discovered negotiating.

Given the history of state economic intervention in Brazil, government officials possess substantial leverage over auto company policy, at least in the short and medium terms. "The government has some very effective weapons with which to discipline the companies," says Wisconsin professor Merikel. The generals were prepared to use a number of economic "weapons" to bring the companies into line. One obvious target was a subsidized loan program which has been a tremendous source of corporate profits over the last few years. Foreign firms including V W, Ford and General Motors have been using funds borrowed from the government at subsidized interest rates for pure financial speculation, reports the Brazilian financial journal Gazetta. Mercantil, and in recent years some firms earned more through speculation than through the sale of automobiles.

For Sao Paulo's metalworkers, the temporary breach in the united front between the government and the companies was of strictly academic interest. The "maverick" firms quickly backed off in the face of government pressure, and a few weeks after Lula's arrest, the last strikers returned to work: Open confrontation between the government and foreign corporations does, though, raise questions about the future impact of multinationals on liberalization in Brazil. If, as many political observers now suggest, the metalworkers strike provokes a fundamental reassessment of liberalization in high military circles, future negotiations will take on even greater significance. , While no one expects foreign firms to seriously challenge a government decision to crack down on organized labor, corporate concerns about labor stability may prompt them to act as a moderating influence.

Corporate reactions to a resurgence of anti-union repression may depend heavily on the response of the unions themselves. The military has stripped Lula of his position. If the workers succumb to government pressure due to lack of leadership, corporations would gladly accept the pre-liberalization days of army-enforced labor peace, speculates community organizer Alves. On the other hand, if a crackdown is met by worker protest and violent unrest, multinationals may look to mitigate the potential for widespread instability. "Corporations are willing to make concessions in an effort to develop ten to 15 years of stable labor relations," says Merikel. "But they are committed to retaining control of the workforce."

Whatever the corporate position, most observers agree their influence will be exerted quietly, "without a high visibility public position," according to Merikel. "I don't think corporations will ever act in open defiance of the government," he says. Given their role in precipitating the recent wave of repression and anti-union violence, quiet corporate influence may play a decisive role in shaping the future of political freedom in Brazil,

Bonnie Potter is a member of the international affairs staff of the United Auto Workers: She spent several weeks in Brazil during the recent metalworkers strike.