An Institutional Approach to Understanding Leftist Party Change in Brazil: Corporate Campaign Contributions, Leadership Moderation, and Societal Interests
DISSERTATION
Presented in Partial Fulfillment of the Requirements for the Degree Doctor of Philosophy in the Graduate School of The Ohio State University
By
Justin Earl Lance, B.A., M.A.
Graduate Program in Political Science
The Ohio State University
2010
Dissertation Committee:
Professor Marcus Kurtz, Advisor
Professor Sarah Brooks
Professor Richard Gunther
Copyright by
Justin Earl Lance
2010
Abstract
Leftist victories in Latin America in the early part of the 2000s sent shockwaves through the international investment community. Foreign investors, scared that these victories would be the end of pro-business, pro-market policies in the region, began to flee from a large part of the region. Yet, only a few short years later, it was clear that while some leftist victories, particularly those in Venezuela and Bolivia, were indeed the end of pro-business, pro-market policies, other leftist victories in the region were not.
Some countries, in particular Brazil, continued with and, in some cases, deepened the pro-business policies of the previous administrations. This has simultaneously raised questions concerning the abandonment of the left‟s traditional constituency: labor unions.
This dissertation examines why the left in Brazil, led by the Partido dos
Trabalhadores (or PT) and its charismatic leader and current President of Brazil, Luiz
Inácio Lula da Silva, continued with the pro-business policies of the prior center-right administration while simultaneously pursuing policies that the party‟s labor union allies opposed when the left took office in 2002. This dissertation relies on a new measure of party change in Brazil by focusing on interest group positions on legislation, thus showing how the leftist legislators in the Brazilian Câmara dos Deputados (Chamber of
Deputies) increasingly supported policies that labor unions opposed, but the business sector supported.
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The theoretical premise of this work is that the institutions structuring “two arenas” of Brazilian politics were, in part, responsible for understanding changes in leftist deputies‟ voting patterns. The first arena, the congressional, stresses that the institutions governing behavior in the Câmara dos Deputados allowed those in leadership positions to enforce increased discipline on its members, causing deputies to vote in a manner consistent with the leadership‟s position. Because the party and chamber leadership increasingly advocated a pro-business and anti-labor position, it enforced discipline on its members, causing leftist deputies serving in government to vote in opposition to labor unions (their traditional allies) and in support of business. The second arena, the electoral, is governed by institutions that allow corporations to donate contributions to candidates‟ campaigns but that also prohibit donations from peak associations, including labor unions. Leftist deputies thus became reliant on corporations to fund the excessively high costs of their campaigns, which in turn caused leftist deputies to increasingly vote in favor of business interests and against their traditional labor union allies.
The results of this project confirm that both factors (serving in government and levels of corporate campaign contributions) significantly impact leftist deputies‟ votes on legislation deemed important to business and union interests. Serving in government and receiving higher levels of corporate donations significantly increased leftist deputies‟ propensity to vote against their traditional constituency and in favor of business interests.
These results not only help to explain the shift of the left in Brazil but also raise important questions regarding the implications of this shift for the representation of all segments of society.
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Dedication
TO ERIN
Who has supported me through everything
And
TO MY PARENTS
For instilling in me the value of education
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Acknowledgment
No dissertation would be possible without support and help from others, and this dissertation is no exception. To start, I would like to thank my dissertation committee who helped me to grow academically throughout my course of study. I am grateful to both Marcus Kurtz and Richard Gunther for providing me feedback when necessary and for pushing me to develop academically. I am especially grateful for the feedback, assistance, and support from Sarah Brooks, without which I wouldn‟t be in the position I am today. Thanks also needs to be extended to the Tinker Foundation for providing me with pre-dissertation research funds and to the Library of Congress whose research assistance in the Law Library made a large part of this dissertation possible. Go Bucks! A thank you also needs extended to those in the PRL, especially Bill Miller who helped me arrange resources and Dino Christensen and Anand Sokhey, who were not only great soccer teammates, but also provided valuable methodological guidance.
On a personal level, this dissertation wouldn‟t have been possible without the support of family and friends who have provided me with the encouragement and compassion needed throughout the process. To my friends, special thanks are necessary to Dag Mossige, who has been about as good of a friend as anyone could ask for through this entire process. I also want to thank Konstantin Vossing for his support as well as his creative ways to enjoy soccer. To my other numerous friends I have made throughout this
v process, including Lorenzo Zambernardi, Srdjan Vucetic and Anita Saha, Roman and
Maddie Ivanchenko, and others, I thank you for providing me valuable friendship and much needed support and release when needed.
My family has been eminently supportive of me through this entire process and they never wavered in their support for me. I am blessed that my parents, Charles and
Debra Lance, and the rest of my family have always helped me whenever they could throughout this process, even though I‟m sure they often wondered what exactly it was that I was doing. I am especially indebted to them, and to my grandparents, for instilling in me the value of education when I was younger that has helped to feed my drive and curiosity to this day, and this process would not have been possible without their constant assistance.
I am most indebted to my wife, Erin McAdams, who throughout our time together has been a constant source of strength. She read through numerous drafts and helped me overcome numerous obstacles through discussion. She has continually and unflinchingly supported me through this entire process. Her friendship has been unwavering, her love and devotion steadfast, and her encouragement resolute. I could not ask for- nor imagine- a better partner. It is to her and to my parents that this dissertation is dedicated.
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Vita
May 8, 1980 ……………………………. Born – Elyria, Ohio.
2002……………………………………... B.A., summa cum laude, Political Science, Bethany College
2006……………………………………... M.A., Political Science, The Ohio State University
2002 to 2008…………………………... Graduate Research and Teaching Associate, The Ohio State University
Fields of Study
Major Field: Political Science
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Table of Contents
Page Abstract…………………………………………………………………………….. ii
Dedication………………………………………………………………………….. iv
Acknowledgments………………………………………………………………….. v
Vita…………………………………………………………………………………. vii
List of Tables………………………………………………………………………... x
List of Figures………………………………………………………………………. xiii
CHAPTERS: 1. Introduction………………………………………………………………… 1
2. Institutional Incentives to Change: The Role of Campaign Finance and Governing in Leftist Party Change in Brazil...... ……….. 23
3. Institutional Incentives to Abandon Traditional Allies: Labor Unions, Leftist Legislators, and Behavior in the Brazilian Camâra dos Deputados from 1999-2007...... ……………………….. 58
4. Institutional Incentives to Support New Allies: Campaign Finance, Business, and Leftist Legislator Behavior in the Brazilian Camâra dos Deputados from 1999-2007 ...... ………………………………. 97
5. Businesses‟ Continuing Influence on Congressional Behavior: Ex-Post Contributions and Voting Patterns by Leftist Deputies...... 132
6. Conclusion...... ………………………... 160
Works Cited.………………………………………………………………………… 181
Appendix A: Coding of Pro-Labor Union Legislation based on Departamento Intersindical de Assessoria Parlamentar (DIAP) Position ...... …………… 193
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Appendix B: Coding of Pro-Business Legislation based on Confederação Nacional da Indústria (CNI) Position ...... …………………………………………………. 200
Appendix C: Logistic Regressions of Individual Business Votes…………………... 215
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List of Tables
Page 1.1 Vote Total for Articulação Faction Slate for National Directorate (1984-2009) ...... …………………………………………………….. 10
1.2 1st Round Vote Total for Articulação Candidate for PT Party President 1995-2009) ...... 11
1.3 Average Pro-Labor and Pro-Business Votes by Deputies (1999-2009) ...... 19
2.1 Percentage of Voters Who Remember Which Federal Deputy They Voted For in the Last Election ...... ………………....……………..……….. 33
2.2 Party Preferences of Voters by Union Affiliation ....……………..……….. 34
2.3 Average Campaign Contributions to Candidates for Federal Deputy (in Reais) by Election Outcomes (1998 and 2002) ....……....………..……….. 40
2.4 Businesses‟ Position on Legislation Proposed by the Executive and Rank-and-File Leftist Deputies ...... ……………..……….. 55
3.1 Percentage of Brazilian Deputies‟ Pro- and Anti-Labor Votes, by Congress and Ideological Orientation (1999 to 2007)...... 62
3.2 Campaign Contributions by Corporations to Deputies from Leftist and Select Center and Rightist Parties...... 69
3.3 Corporate Donations to Deputy Candidates from Leftist and Centrist/ Rightist Parties as Percentage of Total Corporate Contributions...... 70
3.4 Summary Statistics for All Variables in Model for 51st Congress...... 76
3.5 Summary Statistics for All Variables in Model for 52nd Congress...... 77
3.6 Predicting the Number of Pro-union Votes in the 51st and 52nd Congresses...... 83
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3.7 Predicted Probabilities of Number of Pro-Union Votes by Leftist Deputies in the 51st Brazilian Congress...... 86
3.8 Predicted Probabilities of Number of Pro-Union Votes by Leftist Deputies in the Governing Coalition in the 52nd Brazilian Congress...... 90
3.9 Predicted Probabilities of Number of Pro-Union Votes by Leftist Deputies not in the Governing Coalition in the 52nd Brazilian Congress.... 93
4.1 Amount of Pro- and Anti-Business Legislation that Became Law, by Confederação Nacional da Indústria’s Position (1999-2007)...... 102
4.2 Campaign Donations Made by Five Most Active Corporate Donors (1994, 1998 and 2002) ...... 106
4.3 Summary Statistics for All Variables in Model for 51st Congress...... 115
4.4 Summary Statistics for All Variables in Model for 52nd Congress...... 116
4.5 Predicting the Number of Pro-Business Votes in the 51st and 52nd Brazilian Congresses...... 121
4.6 Predicted Probabilities of Number of Pro-Business Votes by Leftist Deputies in the Governing Coalition in the 52nd Brazilian Congress...... 126
5.1 Predicting Valid Vote Share (Measured as Percentage) for Candidates for Federal Deputy (1998 and 2002) ...... 137
5.2 Summary Statistics for 51st Brazilian Congress...... 146
5.3 Summary Statistics for 52nd Brazilian Congress...... 147
5.4 Predicting Change in Corporate Campaign Contributions between 1998 and 2002 (Based on Votes in the 51st Congress)...... 151
5.5 Marginal Effects of Pro-Business Votes in the 51st Congress and Significance Testing of the Interaction Effect...... 152
5.6 Predicting Change in Corporate Campaign Contributions between 2002 and 2006 (Based on Votes in the 52nd Congress)...... 155
5.7 Marginal Effects of Pro-Business Votes in the 52nd Congress and Significance Testing of Hypothesis...... 156
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5.8 Predicted Change in Corporate Campaign Contributions in 2006, Based on Percentage of Pro-Business Votes in the 52nd Congress...... 157
6.1 Business Legislation by CNI and Outcome in the 51st and 52nd Brazilian Legislatures...... 176
6.2 Laws Governing the Source of Campaign Contributions in Major Latin American Countries...... 178
A.1 Labor Union Votes Analyzed From the 51st Congress………………….. 194
A.2 Labor Union Votes Analyzed from the 52nd Congress………………….. 198
B.1 Business Votes Analyzed From the 51st Congress……………………… 201
B.2 Business Votes Analyzed from the 52nd Congress……………………… 206
C.1 Logistic Regression Results on Business Votes- 51st Brazilian Congress…………………………………………………………….…… 217
C.2 Z-Statistics of Interaction Effects in the 51st Brazilian Congress……..… 218
C.3 Logistic Regression Results on Business Votes- 52nd Brazilian Congress…………………………………………………………….…… 220
C.4 Z-Statistics of Interaction Effects in the 52nd Brazilian Congress…….… 221
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List of Figures
Page 1.1 Monthly Unemployment in São Paulo and Metropolitan Areas During Cardoso‟s Administration (December 1994-December 2002) ...... 15
3.1 Marginal Effects of Leftist in Opposition on Number of Pro-Labor Votes in the 51st Brazilian Congress Across Range of Corporate Contributions Given During the1998 Election Period………………………………..….. 85
3.2 Marginal Effects of Leftist in Governing Coalition on Number of Pro-Labor Votes in the 52nd Brazilian Congress Across Range of Corporate Contributions Given During the 2002 Election Period...... 89
3.3 Marginal Effects of Leftist in Opposition on Number of Pro-Labor Votes in the 52nd Brazilian Congress Across Range of Corporate Contributions Given During the 2002 Election Period...... 92
4.1 Changes in Public Opinion Poll Support of Luiz Inácio Lula da Silva and Changes in Contributions to Federal Deputy Candidates in PT/PCdoB in 2002...... 110
4.2 Changes in Public Opinion Poll Support of Ciro Gomes and Changes in Contributions to Federal Deputy Candidates in PPS/PDT in 2002...... 111
4.3 Changes in Public Opinion Poll Support of Anthony Garontinho and Changes in Contributions to Federal Deputy Candidates in PSB in 2002...... 111
4.4 Changes in Public Opinion Poll Support of José Serra and Changes in Contributions to Federal Deputy Candidates in PSDB/PMDB in 2002...... 112
4.5 Marginal Effects of Leftist in Opposition on Number of Pro-Business Votes in the 51st Brazilian Congress Across Range of Corporate Contributions Given During the 1998 Election Period……………………………..….. 123
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4.6 Marginal Effects of Leftist in Governing Coalition on Number of Pro-Business Votes in the 52nd Brazilian Congress Across Range of Corporate Contributions Given During 2002 Election Period.……..….. 125
4.7 Marginal Effects of Leftist in Opposition on Number of Pro-Business Votes in the 52nd Brazilian Congress Across Range of Corporate Contributions Given During the 2002 Election Period..………………………..…...... 128
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Chapter 1
Introduction
“Getting money from this kind of donor [construction companies] will only mean a loss of ethics if the party changes the way it behaves. Not only party militants, but many other people, don’t understand this…Another point: the PT cannot pay for a Presidential campaign just by selling badges. It is a question of choice: either the rank and file finds alternative means of financing a national campaign or it has to accept the law that lets companies donate money to political parties.”
-Luiz Inácio “Lula” da Silva in an interview in December 1994 (Branford & Kucinski, 1995, p. 101)
How money influences politics is a question that has long eluded researchers.
While many (if not most) scholars, pundits, and policymakers hold a tacit belief that campaign contributions influence how congressional representatives behave, the evidence to date on the effects of campaign contributions has been less than robust. Most studies have stressed that the relationship between money and congressional behavior in the
United States, for example, is tenuous at best (Stratmann, 2005). In other contexts, political funding is often directly tied to corruption, although empirical studies of this nature often rely on hearsay and present little in terms of empirics (Malamud & Posada-
Carbó, 2005; Pinto-Duschinsky, 2002). In short, the evidence of the ways in which campaign contributions impact politicians‟ behavior (to date) has been unconvincing at best, wrong at worst, and relatively lackluster in all aspects.
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Yet, very few studies have examined the effects of campaign finance in developing countries, precisely where weak institutional constraints on politicians‟ behavior should allow campaign contributions to have the greatest impact. The implications for democracy are considerable; whether campaign contributions affect politicians‟ behavior once in office is directly connected to how democratic governments in Latin America function. If campaign contributions do affect behavior, it raises important questions about who governments represent, specifically if institutional rules favor one group over another. And if democratically elected governments are actually rewarded for supporting the policy positions of one segment of society, it raises important questions about the state of democratic accountability in the region.
To date, however, only a handful of studies have focused on campaign finance in developing countries, and scholars have only begun to acknowledge that campaign funding may have a much greater relationship in those contexts.1 This project aims to add to the growing literature on campaign finance in comparative context by focusing on the impact of campaign finance rules (along with congressional institutions) on deputies‟ behavior in the Brazilian Câmara dos Deputados, or House of Deputies. In this dissertation, I examine the extent to which campaign contributions have, in fact, affected how deputies vote on legislation in the Brazilian Câmara, examining specifically how campaign contributions from corporations have caused deputies from leftist political
1 Notable exceptions for Latin America include Samuels 2001a, 2001b, 2002, and 2003, Pereira, Rennó, & Samules, 2008, and Claessens, Feijen, & Laeven, 2008 on Brazil; Poiré, 2005 and Eisenstadt, 2004 on Mexico; and chapters by Ulloa on Colombia, Urbaneja and Alvarez on Venezuela, Garretón on Chile and Casas-Zamora on Uruguay in Malamud & Posada-Carbó, 2005. More comparative studies include Pinto- Duschinsky, 2002 and Casas-Zamora, 2005. 2 parties to abandon their traditional labor union allies and support policies favored by the business community.2
Comparing deputies‟ votes on legislation related to labor and business interests in the 51st (1999-2003) and 52nd (2003-2007) Brazilian Congresses provides the context for this research. Examining this impact within Brazil allows important institutions and political actors to be held stable, while comparing among Congresses uncovers sources of behavioral differences under the same institutional and socioeconomic conditions.
Furthermore, unlike many other second and third world countries, Brazil‟s Tribunal
Superior Eleitoral (TSE), or Supreme Election Court, keeps detailed records of all campaign contributions given to candidates for public office. Contributions are recorded at the individual candidate level and are available to the public.3 The laws governing who can contribute are also detailed and help to explain why deputies from leftist political parties rely on corporate donors during election periods. Although much “shirking of the rules” is involved, the information provided by these records (which have become much better over time) provides the researcher a unique opportunity to test the influence of corporate campaign contributions on legislative behavior.
2 Leftist political parties in Brazil include the main leftist party, the Partido dos Trabalhadores (PT), as well as the Partido Democrático Trabalhista (PDT), the Partido Socialista Brasileiro (PSB), the Partido Popular Socialista (PPS), the Partido Comunista do Brasil (PCdoB), the Partido Verde (PV), and the Partido Socialismo e Liberdade (PSOL). 3 I am also grateful to Dr. David Samuels for posting much of this data on his website. All data used from his site in this project was cross-checked with the TSE whenever possible. There are, as Samuels notes, problems with the data and, by his estimates, reported contributions represent only about 25% of the contributions given to a candidate during a campaign. These problems notwithstanding, the data that is reported (and used here) thus presents a most-restrictive condition scenario; if analysis determines that small levels of legally reported contributions by businesses affect how deputies vote, then one can also assume that “under-the-counter” donations have an even greater effect on deputies‟ behavior in Congress. 3
The New Left and Leftist Transformation in Brazil and Latin America: “Friends with Delfim Netto”
Until recently, leftist politicians in Brazil have advocated socialist economic policies as necessary to correct the many economic problems in the country, such as high levels of income inequality (which are among the highest in the world), fiscal pressure created by foreign debt payments, and a highly inequitable distribution of land.
Politicians affiliated with leftist parties have also had important and comprehensive links with the labor union movement (Hochstelter, 2008). The main leftist party, the Partido dos Trabalhadores (PT), was founded out of the “new unionism” wave that swept Brazil in the late 1970s and early 1980s (Meneguello & Amaral, 2008). The party‟s leader (the current President of Brazil, Luiz Inacio “Lula” da Silva) first became involved in politics as a labor union activist in the metalworkers union of the ABCD-region of São Paulo, the largest and most industrialized part of the country. Many of the PT‟s other elites, who are by-and-large public workers (Meneguello & Amaral, 2008, p. 16), are also union members and active in the Central Única dos Trabalhadores (CUT), the largest and most radical labor union in the country.
Because of the types of policies advocated by leftist parties, the business sector in
Brazil has long had a tenuous and, at times, hostile relationship with leftist politicians.
The business sector actively opposed Lula‟s first bid for the Presidency. In fact, Mario
Amato, the president of the São Paulo business confederation FIESP/CIESP, bluntly stated that if Lula was elected, more than 800,000 business owners would leave the country (Reuters, 1989). And in every election until 2002, the business community actively supported members of centrist and rightist political parties, while providing
4 almost no campaign funds to any politicians running for office from leftist political parties.
It was therefore striking that, in 2006, Lula announced that he was “friends with
Delfim Netto,” a former Brazilian finance minister and deputy closely aligned to the business community and the military regime from 1964-1985. As a member of the right- wing PFL party (which is now known as the Democrats), Delfim Netto was a long-time adversary of the left in Brazil. Lula and the PT had long opposed the policies that he supported, particularly those perceived as favoring the financial community.
Although to an outsider, Lula‟s pronouncement would elicit little response, the quote (and Lula‟s subsequent interpretation of Georges Clemenceau‟s oft-cited quote that
“not to be a socialist at twenty is proof of want of heart; to be one at thirty is proof of want of head") carried deep meaning because it signaled a change for the PT and leftist parties in general in Brazil. When leftist politicians gained control of the government in
Brazil in 2002, they had won by moderating their positions on important issues, such as the repayment of foreign debt, fiscal stability, and support for important civil society actors advocating policies such as land reform. Unlike other leftist victories in the region, politicians from the PT and other leftist parties governed in a way that contradicted their earlier stances on important societal and economic issues. Rather than support the policies favored by their traditional constituents (labor unions), the “New
Left” in Brazil appears to have become “friends” with the business community instead.
This dissertation thus begins with the simple questions: why do legislators from leftist political parties support policies that labor unions (that form the backbone of their constituencies) oppose? And why do leftist politicians support policies that the business 5 sector (which has long had a tenuous and sometimes hostile relationship with leftist politicians) support?
Thus, while this dissertation examines the impact of campaign finance on politicians‟ behavior in Brazil, it simultaneously aims to contribute to the literature regarding the “New Left” in the region and why and how leftist politicians govern once in office. Recent leftist victories across the region (of which the left‟s victory in Brazil is only a part) have generated a host of scholarly analysis of the “New Left.”4 Major journals have devoted whole issues to the topic (the Journal of Democracy, for example), policy-oriented think tanks have created working groups on it (the Woodrow Wilson
Institute, for example), and a wholes series of conferences and panels have been convened to examine issues related to the “New Left.” And yet, there are a number of factors missing from recent scholarly advances on this phenomenon.
First, as Murillo, Oliveros and Vaishnav note, much of the literature focuses on why leftist parties and candidates win elections and then conflates that with how those parties and candidates, once in office, govern (Murillo, Oliveros, & Vaishnav, 2008, p.
6). While often related to one another, the former does not a priori result in the latter.
Thus more research is needed to examine how leftist politicians govern once in office.
Second, there has been an almost exclusive focus on how the president behaves once in office at the expense of systematic thinking about what causes other (lower-level) politicians to behave the way they do once in office. This is particularly problematic given the absence of theorizing about how legislators behave because they exercise
4 For broader comparative approaches see, for example, the Woodrow Wilson Institute, 2007; Journal of Democracy, 2006; Seligson, 2007; Panizza F. , 2005b; Panizza F. , 2005a; Murillo, Oliveros, & Vaishnav, 2008; Wong, 2004; Kingstone & Young, 2009; Stokes, 2008 and Cameron, 2009. 6 important veto power over executive proposals, have the authority to introduce and pass their own legislative proposals, and have (relatively) extensive budgetary power
(Morgenstern & Nacif, 2002).5 Therefore, more systematic theorizing is necessary regarding what causes leftist legislators to support or oppose policies. Third, in much of the literature to date, there has been an absence of systematic micro-level theorizing about the causes of behavior and behavioral change. In most cases, scholars have developed broad-based theoretical arguments that provide the context, but not the cause, for the behavior of leftist politicians once in office.
To avoid these concerns and contribute to these missing factors, this dissertation thus focuses on legislators‟ behavior and the sources of their change in support for policies related to their traditional constituents (labor unions) and the business community. Rather than focus on the sources of change in leftist parties or at the executive level, the theoretical approach here is developed at the individual deputy level.
Also, rather than focus on broad-based ideological change of the left, this project also measures change in leftist deputies‟ behavior in relation to the specific costs or benefits of these changed policies for important interests in society. By focusing on the change of leftist legislators to support policies opposed by their traditional constituents and favored by business, the dissertation aims to not only contribute to the literature on the impact of campaign finance but the cause of the “right” left as well (Castañeda, 2006).
5 They also have dramatically different motivations for their behavior, a point discussed in greater detail in Chapter 2. Notable exceptions include Zeichmeister, 2006 and Saiegh, 2007. 7
Scholars of Brazilian politics specifically have advanced two main theories to explain the PT‟s change.6 Yet, in addition to the shortcomings described above regarding the literature on the New Left more generally, these studies also have a number of shortcomings pertaining specifically to the case of Brazil. The first theory of the PT‟s transformation focuses on democratic internal party institutions within the PT as the cause of its moderation. The PT is a highly factionalized party and holds internal elections among formally recognized factions for party leadership positions.7 Some see the PT‟s change as a result of more moderate, pragmatic rank-and-file members becoming more powerful in the party during the 1990s (Samuels, 2004). Scholars who have focused on internal party institutions have argued that service in local government
(as city council members, mayors, and governors) was particularly crucial to an understanding of the party‟s change. As more members gained experience with governing at the local level, they became more pragmatic because they now had to deal with different constituencies (Baiocchi, 2003). In short, this approach argues that because the PT‟s internal democratic institutions allowed the moderate rank-and-file to achieve power, changing policy positions ensued. This latter point is especially interesting given that many thought a “class-mass” party like the PT should suffer from “strategic inertia”
6 For research on how Lula and the PT in Brazil have changed politically, see Hunter, 2007; Hunter, 2008; Samuels, 2004; Samuels, 2008; Goldfrank & Wampler, 2008; Meneguello & Amaral, 2008; Pereira, Rennó, & Samules, 2008; and Hunter & Power, 2007. For research on how the PT has changed in relation to economic policies, see among others Amann & Baer, 2006; Morais & Saad-Filho, 2005; Bianchi & Braga, 2005. Research on social policy change under the Lula adminsitration includes Brooks, 2009; Melo & Anastasia, 2005; and Marques & Mendes, 2006. An excellent biography of Lula is Bourne, 2009. 7 The PT traditionally has had at least two main groups within the party with different factions constituting those groups. One group of factions is on the left, while a second group is in the center (of the party, not the electorate). Among other differences, those on the left have traditionally focused on building the party‟s grassroots support and favored a strategy emphasizing this rather than competing in elections. Those in the center (and center-right) of the party have traditionally favored electoral competition instead of grass-roots party-building as a political strategy for the party (Lacerda, 2002). I refer to the centrist block of the party as Articulação, the historical name for that block. 8 and should (even with a moderation of its base) have difficulty adapting (Samuels, 2004, p. 1001; Levitsky, 2001; Burgess & Levitsky, 2003).
While the internal democratic institutions of the PT are laudable, it is unclear how internal institutions within the PT, especially democratic ones, did any more than facilitate, not cause, party change (Hunter, 2007). First, it is unclear how much power those with governing experience at the local level had within the party and, by extension, how governing at the local level influenced policy change. In fact, it is questionable whether the small number of mayors and city councilmen had much influence on policy
(Hunter, 2007). Certainly the PT learned from experience in local government (Baiocchi,
2003). Yet, whether these experiences did anything more than change the governing style of a small number of petistas (the term used for PT members) is uncertain. Even as late as 2000, the PT controlled only 187 mayoral posts in the country, and it is doubtful that the small number of mayors in the party were able to influence policy in any way
(data from Jairo Nicolau‟s database cited by Hunter, 2007; p. 475). In short, while the changing policy approaches of PT mayors is largely analogous to change in the party‟s governing style at the national level, it is debatable whether the former caused the latter.
It is also unclear whether the power of moderate factions within the party increased in any meaningful way. Again, the PT has been a factionalized party with formalized competition between factions for leadership posts within the party. Thus, if a rank-and-file moderation occurred within the party, evidence should show that moderate factions within the party not only increased their share of the vote, but gained a hegemonic position within the party leadership. The evidence, however, doesn‟t support such a conclusion. Tables 1.1 and 1.2 below show the results of internal elections in the 9
PT in the past 25 years; Table 1.1 reports the results of party slates contesting seats on the national directorate from 1984 through 2009, and Table 1.2 shows the results of 1st round vote totals for party president from 1995 to 2009.
Table 1.1: Vote Total for Articulação Faction Slate for National Directorate (1984-2009)
Year Articulação Faction Percent of Campo Majoritária Total Vote Percent of Total Vote 1984 Por um PT de Massas 65.8% N/A
1986 Articulação por uma proposta 75.2% N/A democrática, de massas e socialista para o PT 1987 Por um PT de Massas 59.4% N/A
1990 Articulação da Luta Socialista 56% N/A
1993 Articulação Unidade na Luta 29.3% 40.92%
1995 Articulação Unidade na Luta 40.3% 47.92%
1997 Articulação Unidade na Luta 34.7% 46.55%
1999 PT de Lutas e de Massas, and Revolução 46.5% 54.49% Democrática 2001 Um outro Brasil é possível 51.7% N/A
2005 Construindo um novo Brasil 41.9% N/A
2007 Construindo um Novo Brasil 42.6% N/A
2009 O Partido que Muda o Brasil 55.1% N/A Source: Lacerda 2002 though 1999. PED- PT 2010 for 2001-2007 Available at: http://ped.pt.org.br
Although the percentage of leadership posts captured by the Articulacão faction
(which represents the center of the party and includes most of the party‟s most prominent members, including Lula) has varied, as Table 1.1 shows, it has long been the dominant faction in the party since the party was founded in 1983. This faction only briefly gave up control of the party presidency and national directorate in the mid-1990s, yet regained the party presidency less than two years later in 1995, as shown in Table 1.2 (Lacerda, 2002).
10
Furthermore, it continued to constitute approximately the same the percentage of the PT‟s internal leadership throughout the period in which the PT changed. In conjunction with the center-right Democracia Radical faction (which combined with
Articulação to form the Campo Majoritária, or Majority Camp), the moderate factions of the party (as a percentage of the national directorate) actually remained somewhat steady over time and even slightly decreased in the period between 1999-2001 when the party underwent its most fundamental change.
Table 1.2: 1st Round Vote Total for Articulação Candidate for PT Party President (1995-2009)
Year Articulação Faction Candidate Percent of Total Vote in 1st Round 1995 José Dirceu 54.02% 1997 José Dirceu 52.59% 1999 José Dirceu 54.8% 2001 José Dirceu 55.6% 2005 Ricardo Berzoini 42.0% 2007 Ricardo Berzoini 43.4% 2009 José Eduardo Dutra 57.9% Source: Lacerda 2002 though 1999. PED- PT 2010 for 2001-2007 Available at: http://ped.pt.org.br
Thus, it is unclear what caused rank-and-file party members to support a move to the center of the political spectrum, and even more unclear why they would support policies that were pro-business and anti-labor given the potential effect on one of their most important constituencies. It is also unclear what would cause members of the leftist factions in the party (who constituted a sizable minority) to support the party‟s position once in power. Even more surprising is that members of other leftist parties supported the
PT-led government as its policies changed.8
8 No deputies in any of the PT‟s leftist allies were involved in the Mensalão scandal, where the PT essentially bought off opposition parties to gain their support in Congress by paying deputies monthly “salaries.” One can, however, certainly speculate that they played some part. 11
Rather than focus on endogenous factors that allowed the PT to change, a second school of thought argues that exogenous factors- including the decline of socialism worldwide, political institutions that often resulted in minority governments, and the success of Fernando Henrique Cardoso‟s (Lula‟s predecessor‟s) Plano Real in stabilizing the economy- are the primary reasons for the PT‟s adaptation (Hunter, 2007). These changes (especially the economic ones) made the traditional PT agenda seem dated and obsolete and meant the party had to adapt strategies in the late 1990s (Hunter, 2007). For example, evidence suggests that Brazilians overwhelmingly support free trade (Baker,
2003), so the idea of restricting trade flows seemed out of touch with many Brazilians.
Domestic political institutions also changed to allow the PT to adopt a more centrist political position. In short, the party changed to remain viable. Party change in this formulation is thus a rational response to external factors, much like Western European social democratic party change (Prezworski & Sprague, 1986; Kitchelt, 1994).
Clearly, the decline of socialism made the PT‟s policy proposals for far-reaching state reform seem not only unviable, but out of touch with Brazilians‟ attitudes (Baker,
2003). Yet, it took the party years from the Eastern European collapse to bring about policy proposals that weren‟t socialist, suggesting that external factors had a limited impact on the party and provided the context, not the cause, of the party‟s change.
Commenting on the Eastern European collapse in 1990, Lula noted “I am totally convinced that I have no reason to complain and mourn about what has happened in
Eastern Europe, because it‟s going to be good for socialism” (Sader & Silverstein, 1991, p. 167). The PT itself continued to espouse a socialist ideology and policy proposals until 1994 and still maintains (as a party) that the state should play a prominent role in the 12 economy. Some of the other leftist parties (mainly the PDT and, to some extent, the
PCdoB) also maintain that the state should play a more prominent role. It is thus unclear why external factors drove the PT (and other leftist parties) to moderate their policy positions when they did.
Domestic economic events also suggest that the left should have maintained or deepened its prior policy proposals. Although the policy proposals of the PT up until the mid-1990s had not yet translated into votes and the party leadership was well aware of this (especially those in the Articulação faction), the Plano Real‟s effect for most
Brazilians was surprisingly modest. The success of the Plano Real should not be understated; it stabilized the economy (in particular inflation) and is widely (and correctly) credited for Brazil‟s current economic success. Yet, by the early 2000s, it was clear that many of the other policies aimed at reforming the state were having minimal, if not negative, effects for many Brazilians. It was surprisingly at this time that the PT and other leftist parties began adopting more conservative economic policies- when macroeconomic indicators suggested that, if anything, the left should have deepened its opposition to neoliberal reform favored by parts of the business sector rather than begin to support it. For example, a domestic energy crisis in 2001 was widely blamed on privatization of distribution networks (Business News Americas, 2001). Although investment issues had long plagued Brazil‟s energy system (Kingstone, 2004) and a drought was main impetus for the energy crisis (which resulted in rationing, price hikes, and fines for citizens who didn‟t decrease their consumption), it nonetheless should have induced actors who had long opposed any privatization or neoliberal efforts at state reform to deepen their opposition to the economic policies in place. 13
Official government data from IPEA, a government-run economic think tank, further confirms the story: first, quarterly GDP growth rates from the introduction of the plan until the second quarter of 2002 averaged only 2.5%, the lowest of any of the BRIC
(Brazil-Russia-India-China) countries that Brazil often compares itself to. Exposure to the international economic system also had questionable effects on the left‟s willingness to support liberal economic policies because international economic exposure caused a series of economic crises in the country during Cardoso‟s second term. Major economic crises hit the country in 1999 and 2002 (the latter caused by foreign investor opposition to Lula‟s expected victory- see Jensen and Schmith 2005); both crises were the result of foreign investor pressure on the government debt. The negative effects of these crises should have caused members of leftist political parties (who had long advocated nationalization of the financial sector and default on Brazilians‟ foreign controlled debt with the IMF) to further their opposition to neoliberal economic reform- not go to great lengths to appease those investors (as Lula and the “New Left” eventually did).
Other domestic indicators show that the Plano Real had further long-term negative effects for many Brazilians. Interest rates over Cardoso‟s second term were averaging 20%, making credit excessively expensive and out of reach for most
Brazilians.9 A survey of urban areas by the World Bank in 2002 showed that only 15% of
Brazilians had applied for credit in the previous year and only 10% received it (Kumar,
Beck, Campos, & Chattopadhyay, 2005). Perhaps most importantly, as shown in Figure
9 A recent news article shows how high interest rates (around 13% in early 2009 when the article was written) affect the lives of most Brazilians; in early 2009, interest rates on credit cards averaged 150-170% a year, while a $100,000 mortgage- in the U.S. with average payments of around $530 a month- would cost $1029 a month (Kugel, 2009). High government interest rates had less of an effect on large corporations, since their creditworthiness got them much lower interest rates, and a much greater effect on lower-income citizens. 14
1.1, formal unemployment increased throughout the period. Formal average monthly unemployment rates rose to 6.25% from a 4.43% average over the prior ten years, in part because of privatization; employment in the informal sector also rose dramatically during this time period, a trend that official statistics often underestimate (Amann & Baer,
2006). And economic inequality stayed exactly the same; the GINI index from 1995-
2001 only declined .004 (IPEA, 2010). If anything, such economic performance should have caused political parties claiming to represent the poor and organized labor to deepen their opposition to the policies of the Cardoso administration (1995-2003), not to continue with those policies once in government.
25
20 Unemployment 15 Formal (Metropolitan 10 Areas) 5 Formal and 0 Hidden Unemployment
(São Paulo)
1994.12 1995.08 1996.04 1996.12 1997.08 1998.04 1998.12 1999.08 2000.04 2000.12 2001.08 2002.04 2002.12
Figure 1.1: Monthly Unemployment in São Paulo and Metropolitan Areas During Cardoso‟s Administration (December 1994- December 2002)10
As neither school of thought has been able to offer an adequate explanation of the cause of Brazil‟s “New Left” moderation, specifically among legislators, the question thus remains why leftist deputies began to support legislation favored by the business community and oppose legislation favored by their traditional constituents over time. The
10 This includes people age 15 or older who are actively looking for work for 30 days. Metropolitan areas include Recife, Salvador, Belo Horizonte, Rio de Janeiro, São Paulo and Porto Alegre. Source: SEADE (São Paulo data) and IBGE/PME (Metropolitan Data). Available at http://ipeadata.gov.br
15 goal of this project is to determine the ways in which institutions (such as campaign finance laws) provided incentives to induce this change. However, in order to determine why leftist deputies voted in favor of business interests and against the interests of their traditional supporters, a new measurement technique is needed to determine the extent to which deputies voted in a pro-business or anti- union direction (as well as determine what constitutes a “pro-business” or “anti-union” vote). I now turn to a brief discussion of the new data set that was constructed for this project.
Measuring “Pro-Business” and “Anti-Union” Votes: Interest Groups, Legislative Agendas, and Voting Patterns in Congress
In this dissertation, I measure legislator support or opposition to major societal interests by measuring whether deputies in Congress voted in support of legislation on which the labor union lobbying organization and the main business lobbying confederation have stated a position (either in support or in opposition to the legislation).
To determine the labor union position, I rely on the voting guide published by the
Departmento Intersindical de Assessoria Parlamentar, or DIAP (2002; 2006). DIAP was formed in 1983 and is the largest labor union lobbying organization in Brazil with over
1,000 unions, confederations, and associations in all states as members. The voter‟s guide states, in detail, DIAP‟s position on specific pieces of legislation that have passed during the previous Congress as well as how deputies from each state voted on that legislation.
To determine the business position on legislation, I rely on the annual Agenda
Legislativa Industria (henceforth Agenda) published by the Confederação Nacional da
Indústria (CNI, 1996-2009). Formed in 1938, scholars have long noted the CNI‟s influence on politics (Schmitter, 1971; Mancuso, 2007). Unlike the DIAP‟s voter guide,
16 the CNI‟s Agenda is published annually and, in the words of the CNI, “lets parliamentarians know beforehand what the industrial sector thinks, clearly delineating its position formally registered in the document.” The CNI has supported significantly more pro-market policies, as “it consolidates a firm and effective relationship in defense of: the country's economic development; free enterprise; and legislation that reinforces the competitiveness of the Brazilian economy” (Confederação Nacional da Indústria,
2010). The data from the CNI thus required significantly more analysis, as discussed in
Chapter 5.
There are a number of advantages to relying on these interest groups‟ positions on legislation to determine whether deputies voted on legislation in a way that supported or opposed business and labor union interests, starting with the fact that this technique allows me to assume nothing about the legislation in question. Thus, rather than infer from the specific content of an individual piece of legislation presented in Congress that a vote for it is pro- or anti-union, for example, I allow these major interest groups in Brazil to indicate that, which results in significantly less bias in the analysis. Thus, if a deputy votes in favor of a piece of legislation that DIAP (the labor union interest group) supports, this vote can be coded as pro-union with confidence; similarly, if a deputy votes in opposition to legislation that DIAP opposed, this vote can also be considered to be pro- union. Relying on elite surveys or examining political party manifestos, on the other hand, would require me to make inferences about the data, which would substantially increase the potential for bias.11
11 For the advantages of using elite survey‟s elsewhere, see (Higley & Gunther, 1992 ; Power, 2008); on the use of party manifestos, see (Gabel & Huber, 2000; Laver, Benoit, & Garry, 2003). 17
A second advantage of using interest group positions to determine the direction of legislators‟ votes is that interest groups have already overcome the collective action problem, so they can act concertedly for large or important groups of voters. More importantly, they obtain and disseminate information that is costly and difficult for individual voters to obtain. They have specific knowledge on complex policies and issues that many voters do not and thus can more realistically support or oppose government actions than most voters can. Interest groups are also likely to be concerned about specific policies that affect their members, rather than all legislation that is in front of
Congress. Thus, macro-scaling techniques, like the DW-Nominate technique to analyze roll-call votes (discussed in detail in Poole & Rosenthal, 2001; Poole & Rosenthal, 1997), are not appropriate for this study because the focus here is on how politicians vote on specific policies of concern to specific sectors, not necessarily macro-political action.
Finally, interest groups often represent sectors of society that politicians rely on for resources, especially during election periods. Labor unions, for example, are able to organize large numbers of voters in support of a candidate, while businesses can provide candidates for office with financial resources necessary to run a campaign. In both cases, interest groups are likely to provide support to the politicians who they believe will support their interests once these politicians are elected to Congress. They are also likely to make future support contingent on past support. Thus, voting patterns on issues specific to each group are likely to be directly related to the support those groups give during election periods.
The preliminary evidence from DIAP and the CNI suggest that, over time, leftist deputies in Brazil have increasingly become like their non-leftist counterparts by 18 supporting legislation that the business sector supports, while simultaneously supporting legislation that labor unions oppose. Table 1.3 reports the average percentage of votes that are pro-labor and pro-business by both leftist and non-leftist deputies over the course of the 51stand 52nd Congresses. For example, as determined by the position DIAP had taken on this legislation, leftist deputies voted, on average, in support of the labor union position 95% of the time in the 51st Congress (1999-2003).
Table 1.3: Average Pro-Labor and Pro-Business Votes by Deputies (1999-2009)
51st 52nd 53rd* Average Pro- Leftist Deputies 95.4% 23.5% N/A** Labor Votes Non-Leftist Deputies 20.1% 48.3% N/A** Average Pro- Leftist Deputies 22.1% 74.2% 73.6% Business Votes Non-Leftist Deputies 75.9% 67.5% 66.2% * Through June 2009 ** Data is currently not available Source: Departmento Intersindical de Assessoria Parlamentar (DIAP), 2002; Departmento Intersindical de Assessoria Parlamentar (DIAP), 2006; Confederação Nacional da Indústria (CNI), 1996-2009.
In the 52nd Congress, however, leftist deputy support of the pro-labor position had fallen to 23.5%, on average. This significant decline is paralleled by a rise in pro-business voting by deputies in leftist political parties, from 22.1% on average in the 51st Congress to 74.2% and 73.6% on average in the 52nd and 53rd Congresses (included for illustrative purposes here), respectively.
The evidence indicates, even at first glance, that a substantial shift occurred among how leftist deputies voted between the 51st and 52nd Congresses (i.e., after 2002).
The shift was much more significant in comparison with members of non-leftist parties who, even after leaving the governing coalition following electoral defeat in 2002, tended to vote in a predictable pro-business, anti-union manner. This initial evidence provides
19 confirmation that leftist deputies changed their legislative behavior away from supporting their traditional constituents and toward supporting the business community. As noted above, however, the central question remains: what caused this shift to occur, particularly when it did?
Chapter Outline
What has caused deputies from leftist parties to support policies favored by the business community, but opposed by their labor union allies? As developed in the theoretical approach presented in Chapter 2, I argue that supporting pro-business, anti- labor policies is a rational reaction to the institutional environment in which deputies in
Brazil find themselves. First, they face significant pressure to adopt policies that are agreeable to large political donors; the laws governing who can donate to political campaigns in Brazil consequently generate significant incentives for leftist deputies to champion policies favored by those who can contribute large amounts of money to their campaigns. Because Brazilian campaign finance laws prohibit donations from labor unions, the business sector has become the primary source of these funds in Brazil.
Second, leftist politicians have considerable incentives to support the party leadership and
President once in Congress. The President, through party leaders, has significant capacity to enforce discipline among members of the governing coalition. As the leftist party leadership shifted to a more centrist position and gained power, it is likely that they were also able to compel leftist deputies to follow suit, as reflected in their legislative votes.
These two institutional arrangements, both of which Brazilian scholars have largely identified as important causes of deputies‟ behavior in Congress more broadly, also generate concurrent pressures to support pro-business, anti-labor policies. 20
The hypotheses generated in Chapter 2 are initially tested in Chapter 3 by analyzing an original data set collected on deputies‟ votes on labor union legislation
(coded as pro- or anti-union according to the DIAP information described above). The chapter begins by noting how divergent expectations on the role of the state between labor union and the business sector existed and how that affects how leftist deputies voted on labor-oriented legislation. This chapter examines the extent to which corporate campaign contributions and pressure from the political leadership of the country caused leftist deputies to support policies that their traditional constituencies opposed. Chapter 4 extends this approach by testing whether corporate campaign contributions and pressure from the President and party leadership has also caused leftist deputies to support legislation favored by the business community once in office by analyzing deputies‟ votes on legislation identified by CNI.
Chapter 5 examines the reverse causal mechanism and tests whether leftist deputies‟ ex-ante votes on legislation in support of a pro-business direction has affected how much financial support corporations give those candidates in the following election.
In other words, this chapter aims to establish that a cyclical process exists: although campaign contributions from businesses are expected to cause leftist deputies to vote more pro-business, voting in a pro-business direction is also expected to result in greater financial support from the business sector during subsequent elections.
The concluding chapter summarizes the findings and notes their implications for the democratic process in Brazil. This chapter also provides three specific recommendations for a future research agenda on the topic, including: 1) an extension of the analysis on all votes in Congress to examine whether corporate campaign finance is a 21 separate dimension explaining how all deputies behave in Congress; and 2) an application of the analytical framework proposed here to Chile where the laws governing the campaign finance process allow unions to also donate, and where donations recorded at the individual deputy level allow further examination of the proposed framework.
Conclusion
While scholars have been fascinated by the formation of the “New Left” in Brazil and the shift in leftist parties, the quote by Lula presented at the start of this chapter indicates that the sources of this shift in legislative behavior may be related to the pressures induced by Brazil‟s campaign finance laws. Early concerns by Lula about the lack of funds for the party during election periods were certainly prescient at the time.
Yet, were party militants‟ concerns about accepting corporate funding and the influence it had on the party also as prescient? I begin in the next chapter by noting why I expect that these concerns (which Lula alluded to in this quote) to be as prophetic about the long- term effects on politicians as Lula‟s short term financial concerns were aware of his (and his party‟s) limitations.
22
Chapter 2
Institutional Incentives to Change: The Role of Campaign Finance and Governing in Leftist Party Change in Brazil
Following four attempts to win the Presidency, Luiz Inácio “Lula” da Silva of the
Partido dos Trabalhadores (PT) finally won in 2002. The watershed moment of his victory also corresponded to increased seat totals in the House of Deputies and Senate for the PT and its leftist allies; the PT itself became the largest party in Congress with 92 seats, while leftist parties captured 167 seats. Although both were far from the 257 seats needed for a majority (much less the 60% needed to amend the constitution), the PT nonetheless led the governing coalition with leftist party support for the first time in
Brazil‟s history. Like leftist party victories across Latin America in the early part of this decade, the victory of Lula and the PT in 2002 was greeted with great fanfare by labor unions and social movements in the country who had long supported the PT and worked to build the party base.
Unlike leftist party victories elsewhere in the region, however, the PT won in
Brazil by shifting to the center of the political spectrum and advocating centrist policies.
This was unlike what happened almost anywhere else in the region, where leftist parties and presidents won by staking out a distinctive leftist claim. For example, in Argentina in
2003, Nestor Kirchner won by moving the PJ back to the left. In Chile, the left-leaning coalition under Michelle Bachelet simply continued on the moderate path laid by her
23 predecessors, although the government there adopted more leftist policies than in the past. In Venezuela and Bolivia, new political parties supported winning candidates by positioning themselves to the left of the existing political order. And in Mexico, the PRD continued to remain on the left wing of the spectrum, even increasing its radicalism under
Andrés Manuel López Obrador, and barely lost the Presidency in 2006. In only a handful of other countries did established political parties move to the center or right, yet for these countries, election-specific factors were more proximate causes for change.12 In contrast, in Brazil, the PT followed its rhetorical change with policy change; the government adopted neoliberal economic policies and state reform that even its center- right predecessor couldn‟t pass, and it hewed tightly to most of the other macroeconomic policies the prior administration had laid out. The PT thus became part of what Jorge
Castañeda has called the “right” left- a moderate, social-democratic left that supported international economic integration (albeit with caveats), respect for property rights, and targeted government spending on social policy within orthodox fiscal policy constraints
(Castañeda, 2006).
In this chapter, I develop a new theory for understanding the left‟s change in
Brazil. While existing theories on the PT‟s change provide the context within which ideological change occurred, they are insufficient for explaining why the PT-led
12 In both Uruguay and Peru, leftist administrations also moderated their positions to the center or right, but (in both cases) election-specific factors were often cited as a reason for change. In Uruguay, new electoral rules and a severe economic collapse (similar to Argentina‟s 2001 meltdown) were the most proximate causes (Cason, 2002; Luna J. P., 2007). In Peru, the situation was even more election-specific and featured a previous President (Alan García) who had led a disastrous leftist administration from 1985-1990 and admitted he learned from his mistakes; in an interview with reporters he noted “I admit that I committed errors because I was young, but I have changed. I am not a fool who would repeat the same things I did before, which did not work. I have learned, and I have matured” (Forero, 2006). Furthermore, the presence of a leftist nationalist as the second candidate in the runoff election prompted García to move to the right to capture voters who had supported right-wing candidates in the first round (McClintock, 2006), thus moving him to the political center. 24 government introduced and leftist congressional representatives supported policies that were opposed by their organized labor union constituent base and supported by the business sector. Thus, my focus is not on explaining ideological change on a left-right spectrum (although that is part of the story), but rather on explaining why leftist politicians supported the government‟s policy decisions (Stokes, 2001). My theory argues that the left‟s propensity to adopt pro-business, anti-labor union policies was the result of distinctive constraints generated by Brazil‟s laws governing the electoral success of leftist deputies (in particular, their lack of campaign funds structured by institutional rules) as well as congressional institutions that centralize power with party leaders and the presidency. My framework, following the terminology used by Pereira, is a “two-arena” model (Pereira & Mueller, 2003; Pereira & Renno, 2003; Periera, 2000); in my formulation of this model (which differs from Pereira‟s work in both focus and causal mechanism), institutions that structure the electoral arena (campaign finance) and the congressional arena (centralization of power that invokes party discipline) affect policy outcomes. In short, Brazilian congressional deputies respond to electoral pressures when voting on legislation, but the effects of the electoral arena are contextualized by the congressional arena. This has affected leftist deputies‟ propensity to support policies championed by the business sector and opposed by organized labor.
This chapter starts with the rather simple, but straightforward, premise that institutions matter. Institutions structure choices: as either formal or informal rules on behavior, they induce actors to behave in certain ways by making certain types of behavior not only permissible but also rewarding, while simultaneously discouraging other types of behavior (Shepsle, 2006). Working within this theoretical premise, my 25 argument is that the types of institutions that Brazilian scholars have long noted as affecting deputies‟ behavior (electoral and congressional) have also impacted why leftist deputies have supported pro-business, anti-labor policies once in government.
Why the Left Changed in Brazil: Existing Theories on Shifting Policy Priorities
Most political parties in Brazil are generally considered either “catch-all” parties without any programmatic beliefs (such as the PMDB), or as electoralist vehicles for specific politicians (such as the PRN party that supported Fernando Collor de Melo,
President from 1990-1992). Unlike those parties, the PT (and most other smaller leftist parties in Brazil, such as the PCdoB, PPS, PSB, PDT, and PV) traditionally differed on three dimensions. First, they differed on an ideological dimension; they were distinctly programmatic and had a mass-base membership in society, particularly among labor unions. Second, they differed on the behavioral dimension; they not only were extremely disciplined in terms of voting in Congress, but they refrained from many of the questionable political strategies that other parties engaged in, such as vote-buying (Nylen,
2000). Third, they differed on a policy level. The PT and other leftist parties‟ policy proposals were closely related to their ideological commitment to socialism. Until the late
1990s, the left in Brazil routinely argued for nationalization of important sectors of the economy, primarily the financial sector which had actively opposed the party. A resolution of the 9th PT party Congress (the annual meeting held by the party to decide policy objectives) in 1994, for example, called for “neutralizing certain segments of the business community,” a fairly overt reference to businesses who supported Collor and
Fernando Henrique Cardoso (henceforth Cardoso) (Partido dos Trabalhadores, 2006).
The left also advocated an enormous increase in social policy expenditures. A resolution 26 from the 2nd National Congress of the PT in 1999, while significantly more moderate overall, reaffirmed the party‟s commitment to “radically redistribute wealth” (Partido dos
Trabalhadores, 1999, p. Section 14). Other leftist parties followed suit and often entered into alliance with the PT, supporting similar proposals. As Wendy Hunter notes, many of the policy proposals for the PT stemmed from their belief in the viability of socialism
(Hunter, 2007, pp. 452-453). Most leftist parties, and in particular the PT, resembled what Gunther and Diamond have called a class-mass party: distinctly programmatic, committed to democratic-socialism, and with an established functionalist base in the trade union movement (Gunther & Diamond, 2003, p. 179). Studies during the early part of the
1990s often focused on the PT‟s “uniqueness” among Brazilian political parties (Keck,
1992; Branford & Kucinski, 1995; Sader & Silverstein, 1991), and as recently as 2000, scholars noted how, as a “loyal opposition,” the PT had “so far avoided joining the list of progressive-sounding parties in Brazil that after entering office „have been successfully co-opted into the orbit of the patrimonial regime‟” (Nylen, 2000; Roett, 1978).
History would therefore suggest that when Lula became President, and the left became the main block in the governing coalition, Brazilian politics and the policy decisions made by Congress would be fundamentally different. By the end of Lula‟s first term in office in 2007, it was apparent to most observers that this was not the case; the PT and its leftist allies were not much different than the center-right governments that preceded them (Samuels, 2004; Hunter, 2007; Hunter, 2008; Samuels, 2008; Meneguello
& Amaral, 2008; Goldfrank & Wampler, 2008). The “new” PT and its leftist allies no longer differed from other political parties on any of the three dimensions discussed above. On the ideological dimension, the PT became excessively pragmatic, adopting 27 many of the policies of the prior administration even though it had radically opposed them only a few years before.13 Furthermore, most of the party‟s legislators had converged on a centrist ideological position regarding the role of the state in the economy
(Power, 2008). Although evidence suggests that the PT still remained on the left end of the political spectrum (Meneguello & Amaral, 2008), their movement- in particular, their changing ideas about the state and market- was nonetheless profound (Power, 2008)14
On the behavioral dimension, even though discipline rates remained high, the PT began losing control over some members of the party in Congress. This led the party to take the unprecedented step of expelling some members over failing to vote with the government on social security reform (Samuels & Shugart, Forthcoming; Folha de São
Paulo, 2003; Medici, 2004). It also found that maintaining discipline among its extremely heterogonous coalition in Congress was not easy. Perhaps most surprisingly, the party adopted the practices of its contemporaries in Congress, even though many cite the party‟s commitment to “clean” politics as a primary motivation for the 2002 electoral victory. The PT itself became embroiled in a vote-buying scandal (the Mensalão) in which the PT paid members of other parties monthly “salaries” to vote with the government (Hunter, 2008, pp. 28-29; Samuels, 2008, pp. 165-170; Goldfrank &
Wampler, 2008). The PT had now become an electoralist vehicle that was semi-
13 An example on pension reform highlights the how the PT changed: the PT actively opposed any attempts to reform the pension system by Cardoso, using legislative procedures to delay votes and expose those members of Congress who supported reform; by 2003, the Lula administration (with the support of most of the party‟s members in Congress) passed a reform measure largely similar to the one they opposed less than five years earlier (Brooks, 2009, pp. 272-295). 14 For example, Power‟s elite survey in 2005 of PT legislators found that “none support radical socialism” while “three said they supported a predominantly market economy with the least possible participation by the state”; in Power‟s words, “such a distribution of PT responses would have been unthinkable a decade earlier” (Power, 2008, p. 93). 28 programmatic, and it increasingly resembled a catch-all party (Gunther & Diamond,
2003; Kircheimer, 1966).
While both the ideological and behavioral changes of the PT were profound, changes on the policy dimension by the leftist-led government were arguably the deepest.
The Lula administration pushed through social security reform for public workers- something the party had long opposed and had successfully blocked under the Cardoso administration (Melo & Anastasia, 2005; Brooks, 2009). The Lula administration successfully gained tacit independence for the central bank as well, maintained a fiscal surplus above that of the Cardoso administration and what is required by law (Amann &
Baer, 2006), and pursued labor market and union reforms (Marques & Mendes, 2006).
Although the government did expand social spending under Bolsa Familia, there was little progress on land reform (Hunter, 2008), and the government pushed through only a modest increase of the minimum wage of 8.5%, much to the chagrin of most of the major labor unions who had advocated for a 20% increase (Mercantil, 2006). In short, the Lula administration, which routinely and, at times, viciously attacked Cardoso‟s policy agenda during his tenure as President, ended up as what many observers called “Cardoso‟s Third
Term.” The PT continued with policies favoring business and hurting entrenched unionized workers, many of whom were traditionally the PT‟s most important supporters.
Moreover, many leftist deputies surprisingly supported the reforms of the government, even though (ideologically speaking) many continued to consider themselves leftists
(Meneguello & Amaral, 2008).
It is not necessarily surprising that Lula supported a different set of policies once he became President; executives in Latin America have long had a propensity to “switch” 29 policies once in office. During Latin America‟s neoliberal era in the 1990s, for example, scholars noted that presidents in Latin America were willing to “bait-and-switch;” that is, they would campaign on a leftist platform but then adopt neoliberal policies given potential future electoral rewards (Stokes, 2001). Presidents were also successful in co- opting opposition to reform among important societal groups like the business sector or labor unions (Kingstone, 1999; Murillo, 2001) and benefitted immensely from the effects of neoliberalism, particularly from peasants in rural areas who became politically dependent to conservative elites (Kurtz, 2004). Altogether, it was not only logical for presidents in Latin America to adopt neoliberal policies once they overcame short-term opposition to reform, but there were also (in theory) tangible electoral rewards for doing so without political pressure from the groups that were most hurt by reform.
Existing theories on policy change offer some clues as to why Lula (as President) would be willing to support policies that he previously opposed. First, Lula maintained the policies of Cardoso to maintain economic stability in the country, although he combined those policies with increased, targeted social spending that proved to be electorally rewarding.15 Lula also benefitted from his improved contact with business and became willing to support policies that the business community favored, particularly since many of the costs of those policies were not clearly known to most of society ex-
15 It is important to note that Lula did not adopt any policies by surprise; he clearly laid out a plan of action that focused on specific policy improvements while indicating his overall support for the macroeconomic policies laid by Cardoso which (according to both the DIAP and CNI position on legislation in the 51st Congress) were largely pro-business and anti-labor. For instance, in his “Letter to the Brazilian People” released three months before the 2002 election, he detailed his commitment to liberal economic policies, including paying off foreign debts, maintaining a fiscal surplus, and pursuing tax reform (da Silva, 2006). 30 ante (Brooks & Kurtz, 2007).16 Targeted social spending, in the form of Bolsa Familia, was also largely responsible for Lula‟s ability to win support in rural regions, which became crucial to his re-election in 2006. Although much is made of the program, it accounts for only 2.5% of government spending, and just 2.3% of direct money transfer programs; by comparison, pensions account for 82% (Hall, 2006, pp. 693-694). As a result, it is supported by a large segment of the population because it creates little drain on the fiscal budget, but has considerably reduced poverty (Hall, 2006). The popularity of the program among lower income groups who benefit from the program is unparalleled and almost single-handedly explains Lula‟s re-election in 2006 (Hunter & Power, 2007;
Zucco Jr., 2008). Hence, he was able to offset the social dislocation associated with some of the policies he supported through increased small-scale social expenditures.
Although Lula‟s transformation followed a path that has been well-traveled by many other executives in the region, it differed in one important and meaningful way.
Unlike politicians who switched policy positions once in office, Lula was not backed by a
“populist” party (Levitsky, 2001; Burgess & Levitsky, 2003). Rather, Lula was backed by
(at least initially) the most ideologically coherent and disciplined party in the country. He did not have the autonomy from the mass of the party that exists in many personalistic parties that allowed executives in other countries to change. Instead, along with his factional allies in the Articulação faction in which he was a member, Lula was beholden to the mass base of the party through internal democratic party elections (Samuels, 2004).
Lula therefore had to rely on his party to support his policy positions, in particular the
16 Supporting anti-labor policies was much more difficult, although the potential rewards there (specifically in the form of greater business sector support) were partially responsible for his willingness in that arena. 31 partisan and ideological allies in Congress whose support was necessary to pass legislation.
It is this latter point that is especially perplexing; while Lula‟s decision to continue the pro-business, anti-labor policies of his predecessor were clear and rather unsurprising to some extent, it is less clear why leftist legislators (who were now leading the government coalition in Congress) would also support those policies. First, leftist deputies didn‟t necessarily benefit (at least overtly) from the policy decisions of the government in the same way that Lula did as President. As noted above, Lula was able to benefit from expanded social spending under the Bolsa Familia program, whereas PT candidates for deputy were not (Hunter & Power, 2007; Samuels, 2006). In fact, 2006 was the first election that PT membership in the Câmara declined from the previous election. The reason is simple; as Hunter and Power note, “most Brazilians are far more interested in Lula‟s personal story and the concrete benefits he has provided as president than they are in the PT‟s partisan story and the ideological cues it offers to voters”
(Hunter & Power, 2007, p. 23). Lula was therefore able to pursue policies that were amenable to a small segment of the population (the business community), yet remain politically popular among the majority of Brazilians because of increased social spending. That popularity did not, however, extend to PT and other leftist deputies.
Although many factors help to explain why PT deputies lost seats in 2006 (in particular, the Mensalão scandal), the overall evidence suggests that PT deputies have a strikingly different base of electoral support. Given this different base of support, it is unlikely that federal deputies would benefit politically in the same manner as Lula by supporting pro- business, anti-labor policies that went against their traditional constituents. 32
This different base of electoral support largely stems from the heavier reliance on organized supporters (particularly labor unions) that candidates for federal deputy have had during election periods in comparison with the President. Deputies in Brazil actually face much greater electoral competition than candidates for Presidency; open list proportional representation generates an unbelievable need for deputies to distinguish themselves during election periods. For example, in São Paulo in 2002, 703 candidates‟ names appeared on the ballot, competing for 70 seats in Congress; the PT alone fielded
59 candidates (TSE). Unlike the President, deputies do not benefit from name recognition or personal connections with most voters in their states. Very few voters, for example, even remember for which candidate for federal deputy they voted in the last election. Table 2.1 reports data from the Brazilian National Election Study (ESEB) in
2002 and 2006; approximately one-third of all voters actually remember which federal deputy they voted for in the 2002 election, and less than one-in-ten remembered their voting choices in the 2006 election. Although voters who belong to a union household do remember for whom they voted in comparison with those from non-union households, the percentages remain rather low. Thus, without this name recognition, it is unlikely that leftist deputies would have benefitted in the same way that the President did.
Table 2.1: Percentage of Voters Who Remember Which Federal Deputy They Voted for in the Last Election
All Voters Non-Union Union Household Household 2002 32.3% 31.1% 36.9%
2006 9.3% 8.8% 12.5%
Source: ESEB, 2002; ESEB, 2006
33
As a result, a winning strategy for federal deputies is to gain the support of organized supporters who can rally around a candidate. Table 2.2 further confirms that, among voters expressing a party preference, the PT far outweighs other parties for both unionized and non-unionized voters. Its edge has traditionally been greatest among unionized voters because the party was founded in the union movement. Although the difference seems small, the large number of candidates and low number of seats mean that victorious deputies often win with a small number of votes,17 suggesting that the advantage the PT has among unionized voters is more significant than it first appears.
Table 2.2: Party Preferences of Voters by Union Affiliation*
PT Other PSDB PMDB PFL/DEM PTB Leftist Unionized 68.5% 2.1% 5.5% 9.5% 8.0% 1.5% 2002 Non- 60.4% 3.6% 10.9% 10.5% 5.4% 1.2% Unionized
Unionized 64.6% 2.1% 10.4% 12.5% 6.2% 0% 2006 Non- 62.7% 6.1% 13.4% 13.4% 1% 2.1% Unionized
Source: ESEB, 2002; ESEB, 2006 * Among voters indicating a party preference
This evidence thus suggests that- because of their base of electoral support- leftist deputies had incentive to support a pro-union, anti-business position in Congress, rather than support a pro-business, anti-union position. Yet the latter is precisely what many deputies did. However, understanding the conditions under which leftist deputies were willing to support pro-market policies favored by the President is not clear from existing
17 The average number of votes with which a deputy won in 2002 in São Paulo, for example, was 161,339 votes and 0.82% of the votes. 34 approaches. Existing theories on the PT‟s change in Brazil do not speak directly to policy change, and more recent work has generally seen policy change as a natural outgrowth of ideological change (Hunter, 2007; Hunter, 2008; Samuels, 2004; Samuels, 2008;
Goldfrank & Wampler, 2008; Flynn, 2005).This chapter seeks to generate a fuller understanding of leftist party change in Brazil by exploring the sources of policy change.
I now turn to explaining why leftist legislators supported pro-business, anti-union policies in Brazil.
Institutions and Policy Change: A Two-Arena Model Explaining Why Leftist Deputies Support Pro-business and Anti-labor Policies
Once in government, it was surprising to many observers that the PT-led leftist government continued the pro-business, anti-labor policies of previous presidential administrations and that members of Congress from leftist parties supported the government in doing so (Stokes, 2001). I hypothesize that the reason for this perplexing behavior is a rational response by leftist deputies to the institutional incentives created by institutions structuring two “arenas” of politics: the electoral arena and the congressional arena. Although both sets of institutions are well-established in the Brazilian politics literature as an influence on deputies‟ behavior in Congress broadly, I argue that both also help to explain why leftist deputies have supported pro-business, anti-labor policies once in government. The hypotheses presented here propose that leftist deputies‟ propensity to cast pro-business and anti-union votes increases when leftist deputies receive a large amount of corporate campaign contributions and serve in the governing coalition. Thus, both corporate campaign contributions and serving in the government work to maximize the anti-union, pro-business votes of leftist deputies in Brazil. While I
35 hypothesize that both conditions independently affect leftist deputies‟ willingness to vote anti-union and pro-business, it is the presence of both conditions that truly amplify the number of anti-union, pro-business votes.
The Electoral Arena: Electoral Institutions and Individualistic Behavior by Members of the Brazilian House of Deputies
The first part of the theory developed in this chapter focuses on electoral institutions, in particular the institutions that structure campaign contributions to candidates. Scholars have long noted that there are significant electoral incentives for deputies‟ behavior in Congress (Ames, 2001; Mainwaring, 1999; Mainwaring & Pérez-
Linán, 1997; Ames, 1995; Mayhew, 1974). I extend approaches to date by focusing specifically on campaign finance institutions (Samuels, 2002) and the ways in which those institutions have resulted in policy change by determining which societal groups can give money to political campaigns. The propensity of many scholars to eschew the electoral connection stems primarily from those works‟ focus on open-list proportional representation electoral institutions; in my formulation, deputies behave in a predictable manner based on how much they rely on businesses‟ financial support during election periods. The theory developed in this section thus speaks to a very small but growing literature that formalizes what scholars have long suspected: campaign contributions affect deputies‟ behavior (Samuels, 2001; Samuels, 2002; Pereira, Rennó, & Samules,
2008; Claessens, Feijen, & Laeven, 2008; Goldfrank & Wampler, 2008).
Campaign Finance in Brazil: The Motivation for Deputies’ Behavior and Why the Structure of Campaign Finance Laws Matters
Deputies seek large amounts of campaign money in Brazil given the prohibitive costs of campaigns in Brazil and the necessity to distinguish themselves from 36 competitors, both inter- and intra-party.18 Money is spent in Brazilian elections primarily on campaign expenses and propaganda to differentiate themselves from competitors.
Although deputies receive free media airtime in Brazil, that airtime is limited in its reach
(sometimes as short as a couple of seconds, especially for candidates for lower level offices), and although parties provide the basic services for TV programs, deputies are expected to pay for any extra production costs (Mainwaring, 1999, p. 150).
Like political campaigns in other democracies, politicians in Brazil also use money for:
renting and purchasing automobiles and airplanes for transportation, hiring campaign consultants and workers, renting offices and telephones, printing campaign materials, distributing T-shirts and other goods at campaign stops, and attempting (sometimes illicitly) to win the sympathies of mayors and other local figures (Mainwaring, 1999, p. 151).
Unlike in other countries, campaigning in Brazil is largely individualistic; candidates rarely rely on party appeal (Ames, 2001; Mainwaring, 1999). This, in turn, means that deputies must raise most of the money they need on their own and do not rely heavily on party support during campaign periods (Samuels, 2001).
Therefore, how campaign finance laws are structured directly affects how much money candidates can raise during election periods. Brazil‟s modern campaign finance system was created when Congress passed Law 8,713 of 1993. That law established that deputies could obtain campaign contributions from individuals, political parties, and businesses (Article 38, §3, paragraph III), but that campaign contributions from any unions (as well as foreign entities, winners of public contracts, public utilities, etc.) were
18 Because Brazil uses open-list proportional representation, deputies must spend money not only to distinguish themselves from competitors in other parties, but also competitors in their own parties. 37 illegal (Article 45, paragraph VI). Subsequent revisions of the campaign finance laws
(Law 9,504 of 1997, Law 11,300 of 2006) maintained the restrictions on labor unions and continued to allow businesses to give up to 2% of their revenue to political campaigns.
While donations from individuals and parties were permitted, these types of donations often pale in comparison to the money that corporations give to candidates (Samuels,
2001). The laws structuring campaign donations in Brazil have meant that major corporations in Brazil have become the main supplier of campaign finance.
The results of the campaign finance law were exceedingly difficult on leftist parties because labor unions (who were the main supporters of leftist parties, in particular the PT) were unable to support candidates financially. The law also prevented any other powerful donors from emerging except the business sector. Major corporations, however, remained reluctant to give money to candidates from political parties that, in some cases, still called for socialism. A poll taken before the 1994 election, for example, showed that
97 of the 100 business leaders of FIESP supported Cardoso for the Presidency in that year (Boebion, 1994). Needless to say, businesses continued to give only modest contributions to leftists at the end of the 1990s (if they gave contributions at all), and leftist party members were badly outspent in campaigns. For example, in 1994 Cardoso raised over $41 million for his campaign, compared to a paltry $1.7 million for Lula
(Samuels, 2001, p. 31). Approximately 96% of the money given to the candidates for
President in 1994 came from corporations (Samuels, 2001, p. 34).19 As I show in Chapter
3, the same financial disadvantages extended to leftist candidates for federal deputy as
19 In the 1989 campaign, for example, Collor paid for his own private jet; Lula flew coach on commercial flights and, beholden to the Brazilian airline system, was often late and/or missed important campaign stops (Bourne, 2008, p. 72). 38 well. Among leftist parties, only the PDT (which was largely the personalistic vehicle of
Leonel Brizola) attracted any corporate support in the early 1990s, although that support was modest.
The significant financial shortfall for leftist deputies was directly linked to generally poor electoral performance, even though income distribution is amongst the most skewed in the world, land reform (a pressing issue for many poor Brazilians) has been modest at best, party identification rates are extremely favorable (particularly for the
PT), and unionization rates are among the highest in the world.20 And yet, in this environment, the left continued to gain only modest increases in representation during the
1990s.21 The reason was simple: without significant amounts of money to spend on their campaigns, it was difficult for leftist candidates to distinguish themselves from inter- and intra-party competitors. Table 2.3 below shows that, on average, winning deputies received significantly more money in comparison with losing deputies in 1998 and 2002.
In fact, corporate contributions (which make up a significant portion of campaign funds) were more than five times the amount for winning deputies (those elected) compared to losing deputies (those not elected-supplement) in 1998 and more than six times as much for winning deputies compared to losing deputies in 2002.22 Additional analysis also
20 The loss extended to the congressional level as well. Even though more than 16% of Brazilian voters consider themselves PT members in 1994 (Souza Carreirão & Kinzo, 2004), the PT could not capitalize on its strategic advantage. In 1994, for example, the centrist PMDB and PSDB (with an equal 16% and paltry 4% party ID rate, respectively) and the right wing, PFL (with an trivial party ID rate of only 3%) all gained at least 10 more seats in Congress than the PT; the PMDB (with 107) more than doubled the PTs total of 49 (Mainwaring, 1999, p. 96). 21 It would be wrong to suggest that the left made no gains; for example, they did increase their representation in the House from 7% in 1990 to 11.3% in 1998. Yet, the gains by the left, and in particular the PT, were modest compared to the favorable electoral environment they found themselves in. 22 There are four possible outcomes in Brazilian elections because of open-list proportional representation. The four categories refer to: 1) those elected outright, by virtue of their votes received (common); 2) those elected by virtue of the amount of votes their party received (rare); 3) those not elected, but whose party 39 reveals that not only do winning deputies receive more contributions, but that those contributions are a significant predictor of electoral performance. As shown by Samuels
(2001), the amount of money candidates for federal deputies spend on their campaigns is a strongly significant predictor of whether they win office. Analysis presented in Chapter
5 also confirms that not only contributions in the aggregate, but also corporate contributions more specifically, are a significant predictor of candidates for federal deputies‟ vote share.
Table 2.3: Average Campaign Contributions to Candidates for Federal Deputy (in Reais) by Election Outcomes (1998 and 2002)
Total Total Corporate Leftist Deputies‟ Leftist Deputies‟ Contributions Contributions Total Total Corporate Contributions Contributions 1998 Elected 156,129.70 96,782.29 67,382 24,530.21 Elected by 106,443.70 61,082.13 41,853.85 4,748.84 Virtue of Party Votes Not Elected- 39,216.79 18,418.95 16,976.21 3,084.31 Supplement Not Elected 7,787.37 2,160.49 4,606.39 1,740.90
2002 Elected 235,380.20 148,935.80 155,681.65 81,016.29 Elected by 168,001.83 87,669.27 118,099.91 55,827.81 Virtue of Party Votes Not Elected- 42,737.88 21,870.95 27,309.11 12,511.69 Supplement Not Elected 10,312.36 4,771.59 6,678.54 1,666.63
After the 1994 campaign, Lula himself acknowledged the problems that the campaign finance law presented for the party and began distancing himself from the party.23 Yet, many elements of the party remained reluctant to accept corporate campaign
received enough votes in the state to allow them to serve as supplemental members should an elected member resign or take a position elsewhere (common); or 4) those not elected outright and whose party performed below the state level threshold (rare). 23 Lula‟s attempts to distance himself from the PT, particularly through his development of the Instituto Cidadania, is detailed elsewhere; see (Bourne, 2008; Samuels & Shugart, Forthcoming). 40 contributions. In particular, party members in Congress raised concerns that accepting corporate contributions (especially those from construction companies who are major political donors in Brazil) would result in PT deputies‟ betrayal of the party‟s programmatic approach. Concerns about the serious financial disadvantage of the party eventually outweighed concerns about accepting corporate contributions. By 2006, candidates for federal deputy from leftist parties in Brazil, in particular the PT, were attracting on average corporate campaign contributions roughly equal to that of other major parties (Peixoto & Riberiro, 2009). However, many petistas‟ basic fears about how corporate campaign contributions would affect the party in 1994 were, as I argue here, extremely prescient.
Business and the Left: New Political Allies
As discussed in Chapter 1 and above, the profound transformation of the left was most apparent on a policy level. The emergence of the business sector as a political ally put leftist party members in a predicament: on the one hand, business had the financial power to change their election fortunes. On the other hand, businesses‟ preferred policy agenda was much different from the left‟s traditional policy positions, as well as the policy positions of the left‟s main supporters, in particular organized labor.
Notwithstanding that labor unions in Brazil wanted extremely particularistic benefits for their members (Weyland, 2002), in particular social security benefits that were out of line with most private sector pensions (Brooks, 2009, pp. 228-229), voting for legislation that labor unions opposed constituted a major political risk for members of leftist parties.
Furthermore, voting for legislation that businesses favored would represent a significant break with the past, where business and leftist parties were openly hostile to one another. 41
Leftist parties had long relied on labor unions for votes during elections. By 2000, following some internal reflection by the PT, this path no longer seemed sustainable.
Although Brazil has some of the highest unionization rates in the world, the unionized vote failed to elect Lula on three occasions; it gave the PT only 58 seats (9.5%) in the
House and 3 new seats (7 total, or 9.8%) in the Senate in 1998. The left itself controlled only 112 seats in the House (21.8%) and 13 seats in the Senate (18.3%), far from enough to even block constitutional amendments requiring 60% of the votes. Furthermore, labor unions were simply unable to provide the financial support necessary for leftist parties to mount effective campaigns; although labor unions organized contribution drives at factories, the results provided only modest funding (Samuels, 2001).
Leftist legislators were therefore left with little choice; on the one hand, they could continue with the same strategy that had for a decade been unsuccessful, or they could accept contributions from new constituents willing to “invest” in them (Schneider,
Forthcoming; Goldfrank & Wampler, 2008, p. 251; Ferguson, 1995). Businesses had incentives to give money to leftist political campaigns in an attempt to hedge the risk associated with a leftist administration, whereas leftist legislators needed campaign contributions that would allow them to effectively compete. I argue here that businesses‟ power to influence election outcomes, as structured by campaign laws, eventually outweighed leftist deputies‟ concerns about adopting positions that traditional allies opposed and supporting positions that traditional enemies favored. This, in turn, has affected how deputies in Congress vote. In other words, given the divergent preferences between the business and labor- as well as businesses‟ ability to essentially “purchase
42 congressional seats” (Mainwaring, 1999, pp. 151-152; Samuels, 2001)- deputies in
Congress voted for legislation that business favored and labor unions opposed.
Because of businesses‟ power to help deputies get elected, I expect that leftist deputies who receive significant support from businesses during campaign periods will vote in support of businesses‟ ideal legislative agenda. First, I expect that campaign contributions from corporations will affect leftist deputies‟ propensity to vote against their traditional constituents: labor unions. As noted above, labor unions in Brazil wanted highly specific benefits for their members; they generally were not concerned about the government‟s fiscal health or how specific benefits for members affected benefits for the rest of society (Weyland, 2002; Brooks, 2009). Instead, labor unions wanted to maintain, or even increase, government spending on policies (in particular social security) that were member-specific.24
Businesses, on the other hand, were concerned about larger issues affecting the state and, in particular, the fiscal health of the government. Business opposed labor unions on a number of issues, specifically when member-specific policies affected the government‟s financial capacity to pay down the debt and lower interest rates. For example, the Confederação Nacional da Indústria (CNI) even testified in support of legislation on social security reform that labor unions opposed (as discussed in Chapter
3); the main points of the CNI technical study concluded that social security for public workers was “central to the problem of the public deficit,” that the current system was a
24 In addition, the CUT (the main labor union confederation in Brazil) also wanted increases in the minimum wage (where they were partially, but largely, unsuccessful), a reduction in the length of the working day, and a reduction in outsourcing. Labor unions were largely ineffective in pursuing their agenda primarily because of business opposition to their policies (Rodrigues, Ramalho, & José da Conceição, 2008). 43
“social injustice” to most Brazilians, and that the proposed reform would satisfy the CNI on 5 critical points, including putting a ceiling on benefits and revising eligibility by raising the minimum retirement age (Johannpeter, 2003).
As noted above, electoral pressures came to bear on many leftist deputies.
Because the business sector had the financial power to affect deputies‟ electoral potential,
I expect that business support for leftist politicians causes politicians to vote for legislation necessary for macroeconomic stabilization, such that:
H1: As campaign contributions from businesses increase, leftist politicians will vote against union interests as they begin to support macroeconomic stabilization policies favored by business supporters.
In short, I expect that electoral institutions affect leftist deputies‟ propensity to vote in support of their traditional constituents. Businesses‟ ability to impact election outcomes through campaign contributions and their support for macroeconomic stabilization meant that leftist deputies who were reliant on business support during campaign periods were less likely to support the labor union position on legislation.
I also expect that the influence of electoral institutions extends beyond issues where the business sector and labor unions had divergent preferences. On the one hand, I expect that corporate campaign contributions cause leftist deputies to move away from their traditional constituents on policy. However, I also expect corporate campaign contributions to move leftist deputies closer to the business sector on issues that the business sector preferred. Business elites in Brazil were consistently concerned about the role of the government in the economy. Although not as committed to free-markets and neoliberal economic policy as business leaders elsewhere in the region (Kingstone,
1999), Brazilian businesspersons were nonetheless concerned about how state 44 intervention affected their ability to compete both domestically and internationally.
Business leaders widely perceive that state macroeconomic intervention, a skewed tax system, restrictive labor and environmental legislation, and excessive bureaucracy all hurt competitiveness and raised production costs. Businesses called this the Custo Brasil, or
Brazil cost, which simply referred to the higher cost of doing business domestically.
Business lobbying efforts thus naturally centered on reducing the Custo Brasil
(Mancuso, 2007). To guide legislative lobbying efforts the CNI (again, a business lobbying organization) began publishing a yearly series on policy proposals in front of
Congress that would reduce the burdens and costs of doing business in Brazil.
Throughout the 1990s and even into the 2000s, business remained opposed to many of the proposals of leftist parties, fearing that they would dramatically increase the costs of doing business in the country (CNI Legislative Agenda 1997-2009). They thus used their financial power to attempt to change leftist politicians‟ behavior.
I again hypothesize that electoral institutions favoring business interests affected how deputies voted. Businesses used their ability to affect deputies‟ electoral success by giving contributions to affect policy outcomes and hedge the risk associated with a leftist administration; one noted observer called business support for the PT an “insurance policy” (Attuch, 2006 cited from Goldfrank & Wampler, 2008). By supporting leftist candidates with campaign contributions, businesses thus made leftist deputies more beholden to corporations. I thus expect that businesses give campaign contributions to leftist deputies to offset the risk of a leftist administration that is anti-business (Claessens,
Feijen, & Laeven, 2008, p. 563); therefore:
45
H2: As campaign contributions from businesses increase, leftist politicians will vote for business interests and support policies favored by business supporters who are key supporters of their election campaigns.
In short, I expect that leftist legislators who are more reliant on businesses‟ campaign contributions will not only oppose policies favored by traditional constituents (labor unions) but also support policies favored by new constituents (business).
A final corollary hypothesis is whether business will continue to remain influential in Brazilian politics. Whether or not business remains influential for the foreseeable future depends in large part as to whether pro-business legislators get elected, rather than those who have opposed business on important issues. This is particularly true for leftist politicians, whose cooperation with business- while increasing- is far from certain among leftist politicians. Concerns about which type of leftist politicians get elected is therefore particularly important to the business sector.25
Businesses can continue to influence politics by making future campaign contributions contingent on support for business interests in Congress. While the primary set of hypotheses proposed in this dissertation focus on contributions given during the prior campaign period (thus establishing that campaign contributions are a driving mechanism of vote choice), a consequential hypothesis is whether interactions between leftist politicians and businesses (especially those repeated over time) will result in continuing influence by business (Axelrod, 1984). Since campaign finance- businesses‟ investment mechanism- is often directly tied to electoral success (Samuels, 2001), I expect that businesses will invest more in those deputies who supported their position in
25 The business community is well aware of the differences among leftist politicians. While foreign investors, for example, increasingly punished the Brazilian market in 2002 when it became apparent that Lula would win, domestic investors (at least toward the end of the election period) sought to shore up support with the incoming President. 46 the previous Congress, thus helping those deputies get elected. In this way, businesses thereby gain more support for their positions in future Congresses, since their leverage on the government increases when those who receive more corporate campaign contributions are in power. I therefore expect that because deputies who receive campaign contributions from corporations are at a significant advantage at the polls:
H3: The more that leftist deputies vote in a pro-business direction in Congress, the more money from corporations they are expected to receive during the following election period.
Businesses thus use their financial power generated by campaign finance laws to remain influential, and they do so by making sure their allies in Congress win. An apt analogy here is that businesses expect a return on their investments and will continue to invest if those returns pay off (Ferguson, 1995). The business constituency is actively aware of “returns on investment;” in a major survey commissioned by the CNI, a majority of business owners noted that they monitored relevant proposals in Congress
(93.6%), followed their movement in the legislative process (86%), issued technical studies when appropriate (76.7%), and even used the media to divulge their position
(62.8%) (Mancuso, 2007, p. 96). Businesses‟ active involvement in the legislative process indicates that they not only use their leverage to gain support, but that they also base future support on how deputies perform since that affects their ability to influence the legislative process in subsequent Congresses. Hence, not only do corporate campaign contributions from prior election periods affect how deputies vote, but how deputies vote affects how much in corporate campaign contributions they receive in subsequent elections. Businesses, seeking to pick winners who they know will support their position
47 in subsequent Congresses, therefore base future financial support on whether deputies have supported their position in the previous Congress.
The Congressional Arena: Congressional Institutions and Party Discipline in the Brazilian Chamber of Deputies
The second part of the theory developed in this chapter focuses on congressional institutions, in particular the institutions that structure party discipline in the Câmara. I expect, as discussed below, corporate campaign contributions to contextualize the impact of congressional institutions on leftist deputies‟ voting patterns. Thus, the effects of congressional institutions, namely whether a leftist deputy serves in the governing coalition, are expected to be amplified by corporate campaign contributions.
Scholars, often writing in “defense” of Brazilian political institutions, have recently established that Brazil‟s political institutions function surprisingly well; while there were incentives for individualistic behavior in the electoral realm (induced by the institutional structure), there were also institutional incentives for strong party discipline once deputies began serving in Congress (Hagopian, Gervasoni, & Moraes, 2008;
Figueiredo & Limongi, 2002; Armijo, Faucher, & Dembinska, 2006; Pereira & Mueller,
2003; Figueiredo & Limongi, 2000; Santos & Vilarouca, 2008; Pereira & Renno, 2003;
Lyne, 2008a; Amorim Neto & Santos, 2003; Amorim Neto, Cox, & McCubbins, 2003). I extend this approach by arguing that political institutions in the Câmara also generate incentives to vote with the government on legislation that businesses support and labor unions oppose, arguing that the congressional institutions generate incentives to vote with the president and party leadership; this in turn, has moderated the effect of corporate campaign contributions and has meant increasing support for pro-business, anti-labor
48 policies by leftist deputies, particularly after 2003 when they entered the governing coalition.
Presidential Legislative Powers, Communal Leadership, and Agenda Setting in House: Why Congressional Institutions Matter
The “revisionist school,” as it has become known, begins with the premise that institutions structuring the Brazilian House generate incentives for individual deputies to vote with their party leaders once in Congress. Evidence suggest that parties in the legislature (especially leftist parties until recently) are extremely disciplined in Congress.
For example, Figueiredo and Limongi find that from 1989-1998, deputies voted with their party leaders (on average) 90% of the time; for the PT that percentage was 98.4% and for the PDT it was 92.1% (Figueiredo & Limongi, 2000). Furthermore, party discipline has remained relatively constant even into the middle of this decade; as Lyne has shown, the Rice Index26 measuring party discipline in Congress has been 84.3 for the government coalition and 89.4 for the opposition from 1990-2006, which is relatively high in comparison to other countries and almost twice as high as the previous democratic period in Brazil (1946-1964) (Lyne, 2008b). Governing coalition discipline rates were also high in the first part of the Lula administration, although evidence suggests they began to decline over the course of the administration, especially on important legislation like social security reform (Samuels & Shugart, Forthcoming).
Scholars generally have credited the strong legislative power of the President
(Figueiredo & Limongi, 2000), the powers of the leaders of Congress over committee
26 The Rice Index is a commonly used measure to identify how often members of the same party or government coalition vote; it is calculated by subtracting the minority percentage of votes from the majority percentage of votes. It ranges from 0-100, with 100 representing deputies of the same party voting in the same direction 100% of the time. 49 appointments, budget amendments, and the agenda (Lyne, 2008a), and the growing electoral incentives to act more party-oriented (Hagopian, Gervasoni, & Moraes, 2008) as all acting to generate party discipline in Congress. The President has exclusive jurisdiction over the budget, and his legislative powers include the ability to introduce legislation by decree (medida provisoria or MP) as well as the line item veto (Figueiredo
& Limongi, 2000, p. 155). The latter point is especially important as deputies who seek to secure pork often have their budget amendments cut once the budget is passed, making pork much less pervasive than is often assumed (Samuels, 2003).
Party leaders in the House also exercise strong control over legislation and the agenda, and most decisions are made in the Mesa Diretoria (the leadership organization of the House that includes all party leaders). Decisions in the Mesa are preferably made by consensus, as stipulated by the House rules (Amorim Neto, Cox, & McCubbins, 2003, p. 558). Thus, not only do congressional rules centralize power, but decisions on legislation are often made by consensus of party leaders. In short, scholars provide that significant evidence that party discipline in Brazil‟s Câmara results from congressional rules on legislation, and consensus-style decision-making results in centrist policies in many situations.
Congressional institutions that centralize power consequently generate strong incentives for party members to vote with the leadership on policy. Therefore, changing preferences of the political leadership of the Câmara and President should have an influence on both the type of legislation considered as well as whether that legislation passes the House of Deputies. This has resulted in policies that business supports passing the House, as well as legislation that labor unions oppose becoming law, given the 50 surprising pro-business, anti-union preferences of the President and government coalition leaders once the PT came to power.
Incentives to Support the Government on Policy
Given that party leaders often enforce discipline on votes, then the changing policy positions of the President and party leadership are important since the leadership is able to induce the party‟s rank-and-file members to vote with it. The centralization of power within Congress augments the effect that campaign contributions have: not only did leftist deputies respond to businesses who had become a noted campaign contributor, but the party leadership induced deputies to vote with them, threatening not only to withhold party support during election periods, but to also sanction members and even remove them from the party in the case of the PT.
The changing policy preferences of the PT leadership are well-documented. Lula had gone to great lengths to appease the business community during the 2002 election campaign. First, he chose business leader José Alencar of the small, pro-market Liberal
Party (PL) as his running mate to assuage the business community‟s concern about what policies would result if Lula won. Second, he released his now famous “Letter to the
Brazilian People” (Carta ao Povo Brasileiro), ironically aimed more at the international business community than the voters. In it, he detailed his commitment to respect the
“contracts and obligations of the country” and continue to combat inflation (da Silva,
2006). Finally, Lula and the PT both dropped socialist rhetoric from their platforms; as
Samuels notes, the only time the word “radical” appears in the party platform is in situations when the party affirms its commitment to “radically democratize” (Samuels,
2004, p. 1004). 51
Most importantly, however, was that the changing preferences of the government leadership also resulted in policy change. One of the first moves of the new administration, for example, was somewhat surprisingly to propose changes to the pension system for public employees. While in opposition, the PT had long opposed these changes, and labor unions remained adamantly opposed. Changes to the pension scheme, however, were rationalized by Lula, Antonio Palocci (then Finance Minister) and Henrique de Campos Meirelles (President of the Central Bank) as necessary for future fiscal security for the country.27 The President, after negotiating reform with the state governors in what is known as the Brasilia Letter, then pushed reform through
Congress, relying on the PSDB-PFL opposition to support him.
The PT-led governing coalition used all of the mechanisms at their disposal to enforce discipline on the votes on social security. The congressional leadership used the various tools to persuade deputies to vote with the government coalition, and if deputies did not cooperate, congressional leaders of the leftist parties in control of the Câmara punished those deputies by withholding pork for their districts, removing them from important committees, and, in the case of the PT, even kicking deputies out of the party and governing coalition. Thus, leftist deputies had important incentives to vote with the governing coalition, who proposed and supported anti-labor legislation, on all legislation.
The potential for sanction by the party leadership therefore means that:
H4: Being a member of the governing coalition is expected to decrease the number of pro-labor votes cast by leftist deputies.
27 Palocci and Meirelles confirmed as much in a letter to the IMF on February 27, 2003, noting that pension reform was one of the government‟s top priorities (Palocci & Meirelles, 2003). 52
I hypothesize that party discipline has worked to cause leftist deputies to switch voting positions in different Congresses on legislation that labor unions have supported or opposed. In the 51st Congress (from 1999-2003), the left was able to maintain opposition to Cardoso‟s reforms; not only did this cement their role as loyal opposition (Nylen,
2000), it also appeased their traditional labor union constituencies. Once in power in the
52nd Congress, however, the PT-led government no longer found it viable to support the positions of their traditional constituents. Serving as the main party in a broad governing coalition meant the PT and its leftist allies had to adopt a pragmatic approach to governing, and they had electoral incentives to move toward the center of the political spectrum. The willingness of the Lula to support pro-market policies once in Congress, as well as his ability to force legislation through Congress further forced the hand of PT deputies. In short, the PT deputies could no longer serve in the same role they once had; they now had to support policies that benefitted the whole country, even if their traditional constituents opposed those policies.
The PT-led government invoked the ire of labor unions by supporting policies that the left had long opposed and that labor unions still did. It is not surprising that labor unions, who had long opposed any change to the public pension system, would voice their concern not only about social security reform, but other policies. The Departmento
Intersindical de Assessoria Parlamentar (DIAP) retrospective voter‟s guide in 2007
(published during election periods to note which deputies were pro- and anti-labor) did not voice its electoral support for one single piece of legislation that came through the
PT-led 52nd Congress (opposing four of the nine votes, and reporting no position on the other five). Although labor unions still had many allies within the PT, they were unable 53 to prevent the President and party leadership from getting this legislation through
Congress. The President and party leadership was able to successfully insist on party members voting with the leadership on most major issues.
While labor unions increasingly opposed the PT-led government, businesses increasingly supported the new governing coalition. I also hypothesize that not only did the pressures of serving in government move the PT and its leftist allies away from their traditional constituencies but also, in conjunction with increasing corporate financial support during election periods, moved the governing coalitions closer to business and become more willing over time to support legislation that was supported by the business sector. The ability of the President and party leadership to insist on party support for legislation proposed by the administration was vital in this regard, particularly given the divergent preferences of the President and rank-and-file members on legislation supported by the business community. As documented elsewhere, the party and the
President began to part ways and establish separate bases of support; even though both remained affiliated with the party, it was clear that the sources of Lula‟s support in society differed from the sources of the PT‟s support (Samuels & Shugart, Forthcoming;
Samuels, 2006).
As with legislation that labor unions supported, the divergent preferences of the
President and the rank-and-file members in Congress were readily apparent; in short, leftist deputies remained skeptical of the business community and vice versa. The business community‟s position on legislation proposed before Congress shows the divergence in a striking manner. Table 2.4 details legislative proposals before Congress and the CNI‟s position. At the executive level, Lula became more pro-business than his 54 predecessor; the business sector supported 85% of his legislative proposals in the 52nd
Congress, compared to only 68.6% of Cardoso‟s proposals during the 51st Congress.
What is more striking, however, is the divergence between the President and rank-and- file members of his own party‟s proposals; the business sector only supported 13% of the legislative proposals submitted by PT members on which the CNI had a position. The evidence therefore suggests that the PT members in Congress and the President had parted ways, at least in terms of legislation that the business community supported.
Table 2.4: Businesses‟ Position on Legislation Proposed by the Executive and Rank- and-File Leftist Deputies
51st Congress 52nd Congress 53rd Congress28 (1999-2003) (2003-2007) (2007-2011) President- Cardoso President- Lula President-Lula Executive Business Supported 68.6% (70) 85% (34) 73.9% (17) Proposals Business Opposed 31.4% (32) 15% (6) 26.1% (6) PT Deputies Business Supported 8% (2) 13.3% (6) 27.3% (6) Proposals Business Opposed 92% (23) 86.7% (39) 72.7% (16) Other Business Supported 14.3% (2) 50% (5) 28.6% (2) Leftist Business Opposed 85.7% (12) 50% (5) 71.4% (5) Deputies Proposals
Based on the evidence presented in Table 2.4, expectations would be that the business community saw less of its supported legislative proposals- and more legislative proposals it opposed- become law. Yet, this was not the case. In fact, the business community (as detailed in Chapter 4) actually became more successful. Very few of the rank-and-file members‟ legislative proposals even made it out of committee, much less to floor, while the President saw a much larger percentage of his proposals come out of
Congress. This stems in part from the President and party leadership being able to impose
28 The data covered for the 53rd Congress, which is currently still in session, does not include legislation from the 2010 and 2011 CNI Agenda report. It therefore covers only half of the period in question and is presented here for illustrative purposes only to indicate how the trend in the 52nd Congress has continued into the current Congress. 55 discipline on back bench members, to set the agenda (which prevented many of the proposals the business community opposed from coming to a vote) and to use legislative decree by the President to pass legislation if Congress refuses to do so. This in turn has affected how leftist deputies in Congress voted since the threat of sanction causes leftist deputies in the governing coalition to behave according to party leaders‟ wishes, which in this case was to support pro-business policies:
H5: Being a member of the governing coalition is expected to increase the number of pro-business votes cast by leftist deputies.
Even though a majority of rank-and-file members opposed many of the government‟s proposals, they nonetheless supported them given the President‟s and party leaders‟ ability to impose discipline on the caucus. Thus, PT rank-and-file members voted for legislation that the business community supported, even though many of them (at least early on) had tenuous links with that community.29
Conclusion
This chapter has advanced an alternative theoretical framework for explaining why the leftist legislators in Brazil have increasingly supported legislation that labor unions actively opposed but the business sector actively supported. The expectation proposed in this chapter is that leftist deputies voted for business-supported legislation because of the incentives generated by two sets of institutions. The first, institutions governing campaign contributions, generated incentives for deputies to vote in favor of business constituents if they relied on businesses‟ financial support during campaign
29 There was a tangible benefit to voting with the president; as proposed in Hypothesis 3, those deputies who vote with the President in a pro-business direction should expect greater business support during the next election period. 56 periods. The second set of institutions, those governing the legislative process in
Congress that centralize power in the President and the party leaders in Congress, further caused deputies support pro-business, anti-labor policies once in Congress. I now turn to testing the “two-arena” model proposed in this chapter and whether the proposed causal mechanisms caused deputies to vote against their traditional labor union constituency once the left came to power in 2003.
57
Chapter 3
Institutional Incentives to Abandon Traditional Allies: Labor Unions, Leftist Legislators, and Behavior in the Brazilian Camâra dos Deputados from 1999-2007
When the Partido dos Trabalhadores (known as the PT or Worker‟s Party) emerged as the major party in Congress in Brazil following the 2002 elections, supporters of the party deemed it a major victory. As a major opponent of the Cardoso administration and one of the largest supporters of the PT and Luiz Inacío “Lula” da
Silva (the new president), labor unions saw the PT and Lula‟s victory as a significant advance. The Departamento Intersindical de Assessoria Parliamentar (DIAP), the main union lobbying organization, declared in an op-ed that the victory by Lula and the PT was a “profound transformation, which can result in favorable advances for the workers and unions” (Queiroz, 2003). As part of the “leftist revolution” in Latin America, unions perceived a favorable opportunity to work with the new government to achieve substantive policy changes for members, such as a reduction in the amount of hours worked without pay decreases, a guarantee of salary purchasing power, and the formalization of work done by informal laborers (Hochstelter, 2008; Queiroz, 2003).
Although unions still disagreed with one another on many major issues (such as the mandatory union dues required by law), most unions were nontheless optomistic that the incoming administration- through its control of the Presidency and high numbers of deputies in Congress- was one that would advance their interests. 58
While the PT and other leftist parties had moderated many policy positions before the 2002 elections30, it was not until the administration took office that the depth of the
PT‟s transformation became apparent, in particular its willingness to pursue policies that had negative effects on organized supporters, particularly civil society organizations that had long been supportive of the party (Hochstelter, 2008). Relying on a broad coalition in
Congress that included parties of all ideological stripes, Lula consolidated his popularity by maintaining many of the macroeconomic policies of his predecessor and coupling them with more redistributive fiscal policies, such as Bolsa Familia and Fome Zero that directly redistributed money to the lower classes through income transfers (Zucco Jr.,
2008; Marques & Mendes, 2006; Hunter & Power, 2007). Pursuing more conservative macroeconomic policies (more so than many supporters had anticipated, even given his campaign announcements), while simultaneously increasing broad social spending, meant the government had to reform current government programs that were draining the state‟s fiscal resources. Reforming the pension system was key in this regard, and the Lula government implemented a number of reforms of the pension system during its first term in office. While many economists noted that these reforms were necessary, they also had a concentrated, negative effect on unionized workers (particularly civil servants) whose many Central Única dos Trabalhadores (CUT)-affiliated unions are among the biggest
PT supporters. Civil servants, led by the CUT and PT Senator Heloisa Helena, went on strike for more than a month to protest the government‟s actions; protests became so
30 To date, most studies of the PT‟s transformation have focused on changes in electoral strategies until the 2002 elections, not necessarily governing strategies- see, for example, Hunter, 2007; Samuels, 2004. See Hunter, 2008 for an exception. 59 violent that some civil servants tried to invade the Congress and others vandalized the capitol building (Agência Jornal do Brasil, 2003 ; Reuters, 2003).
What explains the government‟s willingness to adopt these reforms? What explains the propensity of leftist deputies to vote for legislation that major, organized interest groups who supported the parties clearly opposed?31 And what explains the sudden changes in policies by the PT and its leftist allies once they won control of
Congress and the Presidency? It remains unclear why a majority of leftist deputies would vote in favor of reforms that carried such an enormous political risk- namely the loss of well-organized political supporters. As discussed below, unionized voters constituted an extremely solid support base for leftist parties (and the PT in particular), and the high number of unionized voters in many states meant leftist deputies could often win elections by relying on their support. This chapter aims to shed light on what specific mechanisms would cause deputies from leftist political parties to take that risk and vote in favor of policies that organized union supporters ardently opposed, showing that the theory discussed in Chapter 2 provides an explanantion for deputados’ behavior. This chapter shows that voting anti-union was significantly caused by leftist deputies‟ increased reliance on corporate campaign contributions to win elections as well as serving in the government coalition.
How the Left Changed
The PT was borne from the union movement in the ABCD-region outside of São
Paulo in the 1980s and had, until the 52nd Congress when it came to lead the government,
31 As noted in Chapter 1, leftist deputies in Brazil are considered to be members of the PT, PCdoB, PDT, PPS, PSB, PSOL, and PV. 60 supported the policies unions favored because unions were one of their major supporters.
The PT seemed to have important electoral incentives to vote for legislation that unions supported, even beyond this historical relationship. The average winning deputy in São
Paulo won just over 105,000 votes in 1998. In 2002, the average winning deputy won just over 160,000 votes. Both constitute only a small percentage of the 3.2 million unionized workers in the state. As Paulinho, head of the Força Sindical, noted, “no deputy has the courage to confront the union movement” for reasons of political survival (Sardinha,
2004). Although unions may not be the most deserving of leftist parties‟ support, voting against them still constituted an extremely high level of political risk.32
It is therefore surprising that the PT, in particular, took such a calculated political risk to abandon its traditional allies once in power. As discussed in more detail in the analysis section below, the pro-union lobbying organization DIAP publishes and disseminates its positions on specific pieces of Congressional legislation that it deems relevant to its cause. Table 3.1 reports how deputies from leftist parties voted on these specific pieces of legislation. As this table shows, leftist deputies were ardent supporters of legislation that favored unions in the 51st Legislature; 86.7% of deputies from leftist parties voted with the DIAP-coded pro-union position 100% of the time. For the PT alone, over 97% of its deputies voted with the pro-union position 100% of the time. Yet once the PT and its leftist allies came to power, they increasingly voted against the interests of unions. During the 52nd Legislature when these parties entered government, for example, the number of leftist deputies who voted in a pro-union position
32 While many of the policies favored by unions were for particularistic benefits for their own members that did not benefit most of society (Weyland, 2002, pp. 91-92), it remains perplexing that deputies were willing to take the risk and abandon traditional allies. I thank Sarah Brooks and Thomas Walker specifically for pointing this out. 61 dramatically decreased; in fact, 65% of leftist deputies voted against the union position
100% of the time. And for the PT alone, 85% of its deputies voted in an anti-union direction 100% of the time in the 52nd Congress.
Table 3.1: Percentage of Brazilian Deputies‟ Pro- and Anti-Labor Votes, by Congress and Ideological Orientation (1999 to 2007)*
Deputies from Deputies from Left Political Center and Right Parties Political Parties Voted Pro-Union 51st: 86% 51st: 4% 100% of the time 52nd: 10% 52nd: 29% Voted Anti-Union 51st: 0% 51st: 58% 100% of the time 52nd: 66% 52nd: 42% *A “pro-union vote” indicates voting in the same direction as DIAP has indicated (whether for or against legislation); an “anti-union vote” indicates voting in the opposite direction of DIAP‟s stated position on the legislation.
The transformation of the left (and the PT in particular) at the national level was analogous to their experience in state and local governments (Macaulay & Burton, 2003), where petista mayors and governors had trouble managing diverse constituent pressures once in office. Serving as a perennial opposition party was easy; serving in government was much more difficult because the party rarely had an absolute majority of seats in governing bodies or unlimited financial resources to put idealistic programs in place. In short, governing forced the PT to become more centrist, adopting pragmatic approaches to governing that sought not only to appease traditional supporters interests, but to consider the policy positions of other groups and interests (such as business) to ensure policy success (Baiocchi, 2003; Couto & Baia, 2006).
62
At the national level, the need to become more competitive politically and build and maintain a stable coalition (without a majority of seats in Congress in its own right) meant the PT-led government had to attract new allies and build a broad coalition to get even the minimal amount of votes necessary to pass legislation in the Camâra dos
Deputados. Serving as the main party in a broad governing coalition resulted in the PT and its leftist allies adopting a pragmatic approach to governing, and they had electoral incentives (given the greater campaign finance contribution from corporations) to move toward the center of the political spectrum. This was a significant reason why the PT and other leftist parties were willing to support policies that negatively affected important party supporters once in office. The left could no longer serve simply as a government critic; it now had to formulate policies that appeased a broader constituency, benefitted the country as a whole, and maintained macroeconomic stability.
Theory and Hypotheses
I examine what caused leftist deputies to vote against union interests by comparing how leftist deputies voted in the 51st (1999-2003) and 52nd Congresses (2003-
2007). As discussed in greater detail in Chapter 2, I develop a two-arena model that suggests that deputies faced institutional-induced incentives at both the electoral and congressional levels that caused them to support reform. Institutions are therefore hypothesized to have a conditional effect; as Kam and Franzese succinctly put it:
“institutions are interactive variables that funnel, moderate, or otherwise shape the political processes that translate the societal structure of interests into effective political pressures, and/or those pressures into public policymaking responses” (Kam & Franzese,
2007, p. 7). Specifically, I hypothesize that the amount of campaign finance a deputy 63 receives from corporations (electoral pressure) and whether that deputy serves in the governing coalition (congressional pressure) are the two most significant determinants of how a deputy votes in Congress. Rather than compartmentalizing deputies‟ behavior as determined by one set of pressures alone, it is important to begin with the principle that deputies face simultaneous pressures when voting in Congress, where different pressures are likely to influence behavior depending on the issue at hand (Alston, Melo, Mueller, &
Periera, 2006, p. 17).
To date, however, most studies have argued that congressional pressures moderate electoral behavior (Alston, Melo, Mueller, & Periera, 2006; Pereira & Renno, 2003).
Research that focuses predominently on pork allocation, for example, generally concludes that voting with the President while in Congress leads to a greater allocation of geographically-specific resources which a deputy can then “claim” during an election period, significantly increasing the chances of winning relection (Pereira & Renno,
2003). Although I start from the premise that the electoral and congressional realms are indeed linked with one another, I deviate from approaches to date by arguing that electoral pressures (i.e., regarding campaign contributions from corporations) are a strong determinant of deputy behavior once in Congress, and those pressures moderate behavior caused by whether a deputy is in the governing coalition. In this case, I emphasize that individual deputies face both electoral and congressional pressures, and both conditions push deputies to vote in an anti-union direction.
At the electoral level, leftist deputies in particular had electoral incentives to support fiscal adjustment policies that were favored by business firms who had become important new financial contributors to leftist deputies‟ campaigns. These incentives 64 were institutionally induced by the structure of Brazilian election law that prohibits labor unions (or any peak association) from donating to political campaigns, but allowed donations from corporations. This was a major impediment to leftist parties‟ and legislators‟ electoral success. By the late 1990s, it was readily apparent to many leftist legislators that they needed to find new sources of financial support if they were to effectively compete; most often, however, the interests that could legally contribute to campaigns had divergent preferences on legislation from traditional leftist party supporters. Business firms, the main legal contributors to political campaigns with large financial resources, had different legislative priorities than unions; businesses were concerned about the sustainability of the government‟s fiscal spending over time and wanted reform to the social security system that constrained public spending and ended the substantial discrepancies in social security benefits accruing to civil servants (O
Estado de São Paulo, 2003). Leftist deputies who wanted to continue to attract corporate funding had financial incentives to support the reforms that unions opposed, which structured how they voted in Congress.
While I argue that corporate financial contributions were a significant determinant of vote-choice, leftist deputies‟ decision making was also constrained by congressional incentives to vote with the governing coalition once Lula won the Presidency in 2002
(regardless of how reform affected their traditional allies) or face sanction by the party and President. Deputies therefore had both congressional and party-level constraints on their behavior that moderated the financial pressure they faced during election periods, significantly affecting their ability to support traditional allies once in government. Even if deputies sought to maintain pro-union positions and balance business supporters‟ 65 interests with those of their traditional constituencies, they were constrained by congressional rules that strongly favored reform that the unions opposed once they were in government in the 52nd Congress. Deputies faced strong institutional incentives to vote with the President, who had gone to great lengths to appease the business and financial sector by signing a memorandum with the IMF, appointing a former bank executive to head the Central Bank, and choosing José Alencar (a major business figure and member of the Partido Liberal, an economically conservative pro-business party) as his running mate; thus, he sought reform of the social security system to expand fiscal spending on other programs.
Although PT legislators still perceived themselves to be leftist, a large number were aware that the major consequence of controlling the federal government since 2002 was the growing distance between the PT and their traditional union and social movement bases of support (Meneguello & Amaral, 2008, p. 18). Legislators were aware that serving in government forced them to make difficult choices regarding specific policies with concentrated costs on well-organized constituents. Yet they were constrained by the President‟s ability to enforce discipline on their voting patterns through his control of the budget process, broad legislative powers and the leadership structure in the Câmara. Rigorously enforcing discipline on congressional votes, PT deputies faced sanction and even removal from the party for voting against the government. Losing access to government resources, both within Congress and in the government, was not a risk most deputies were willing to take.
66
Electoral Incentives to Support Reform: The Role of Campaign Finance
Leftist parties actively opposed any efforts of neoliberal reform under Cardoso.
Yet the stability brought about by economic reform made these changes politically popular. By the late 1990s, many leftist parties were increasingly aware that changes in their policy positions were necessary if they ever wanted to win control of the government; public support was no longer behind radical state-led reform, debt moratoriums, and economic isolation. Citizens benefitted from economic opening and supported more open trade and foreign investment (Hunter, 2007; pp. 457-458; Baker,
2003). The PT in particular found it necessary to moderate its previous positions on radical state-led economic reform (Hunter, 2007). “PT-light” called for more conservative macreoconomic policies that maintained a fiscal surplus, coupled with increased state intervention to combat poverty (Amann & Baer, 2006; Meneguello &
Amaral, 2008).
These changes were brought about by moderate segements of the PT (primarily the Articulação, the faction which includes Lula). They appealed to domestic business leaders who saw that the PT was no longer wholly anti-business and was also likely to win the election. Business leaders, increasingly aware that Lula would win the presidency, began to court the candidate during the campaign; Lula and his advisors held meetings with industrialists, after one of which Lula‟s advisor Guido Mantega proudly noted that “businessmen aren't afraid of us anymore” (Karp, 2001).33
33 While domestic business leaders understood the changes in the PT, international investors remained wary of a petista government and responded to public opinion polls that indicated a Lula victory by rapidly exiting the country (Jensen & Schmith, 2005). This response, while driving currency prices down in the short-term, was temporary. See Moseley (2003) for excellent research on the role of global capital in developing countries. 67
Part of businesses‟ increasing support for leftist parties was in the form of increasing campaign contributions to candidates from parties of which most businesses were intially skeptical. Traditionally, leftist parties had limited access to campaign funds, which put them at a distinct disadvantage during election periods. Much of the reason for leftist parties‟ financial shortcomings stemmed from how Brazilian campaign finance laws are written. The Supreme Election Tribunal (TSE) oversees all campaign funding to ensure that it complies with the laws governing campaign finance. Campaign finance laws allow for individuals to donate up to 10% of their gross yearly income to a campaign. Any corporation can donate up to 2% of its gross yearly income to a campaign
(Samuels, 2001; p. 28). In contrast, unions and interest groups are explicitly prohibited by law from donating money to a political campaign (Samuels 2001; IDEA 2008). Political campaigns in Brazil are exceedingly expensive and, although all candidates are allowed free airtime on radio and television, they must pay for the production of these spots, published material aids and billboards, and campaign events (Samuels, 2001).
Thus, leftist parties traditionally had to find alternative ways to fund election campaigns because their main networks of supporters (unions and social movements) were prevented from donating to candidates‟ campaigns. The PT, for example, sometimes funded elections through questionable tactics, maintaining a caixa dois network and relying on jogo do bicho donations (Hunter, 2007; pp. 465-468)34. Important changes emerged, however, when leftist parties began to moderate their policy positions and, in particular, when they showed that they could run efficient government at the state and
34 Caixa Dois refers to the Brazilian practice of maintaining two separate accounting books. Jogo do Bicho refers to the informal and illegal (though partially tolerated) lottery run by private entrepreneurs based in Rio de Janeiro. 68 municipal levels. By 2002, candidates from leftist parties were beginning to resemble centrist and rightist candidates insofar as they began to attract funding from corporations for their campaigns. Table 3.2 below shows the change in campaign contributions from corporations from 1994-2002 as a percentage of total contributions at the party level, indicating the increase in dependency on corporate donors over time.
Table 3.2: Campaign Contributions by Corporations to Deputies from Leftist and Select Center and Rightist Parties Party 1994 Corporate 1998 Corporate 2002 Corporate Contributions as Contributions as Contributions as % of Total % of Total % of Total Contributions Contributions Contributions PDT 15.72% 24.63% 48.25% PCdoB 42.64% 25.98% 27.89% PT 1.44% 26.11% 45.79% PSB 73.50% 35.31% 58.86% PPS 4.80% 30.70% 66.32% Sum/Avg for Avg. 30.06% Avg. 34.04% Avg. 51.96% Leftist Parties PMDB 16.68% 60.38% 54.30% PSDB 42.29% 59.84% 60.74% PFL 83.59% 66.37% 71.44% Sum/Avg for Avg. 47.58% Avg. 64.19% Avg. 62.16% Select Center and Rightist Parties
This evidence suggests that many leftist deputies were less dependent on corporations for campaign contributions and, because corporate contributors were the primary donors to campaigns, PT deputies were at a significant financial disadvantage.
The PT, for example, received only 1.4% of its total contributions from corporations in
1994, indicating that its reliance on corporate contributors was negligible at best.
However, Table 3.3 shows how candidates from leftist parties compared to centrist and rightist candidates over time, indicating that leftist deputies increasingly began to attract campaign contributions from corporations and began taking more of the total money given by corporations during campaign periods. In the 1994 election, approximately one- 69 fourth of the total contributions that deputies from leftist parties received were from corporations. However, by 2002, leftist deputies had significantly increased their total share of corporate contributions (to more than 42%) and, although still bringing in less corporate donations in comparison with those from center and right parties, they were more reliant on corporate donors than they had ever been in the past, as evidenced by the last column in Table 3.2 .
Table 3.3: Corporate Donations to Deputy Candidates from Leftist and Centrist/Rightist Parties as Percentage of Total Corporate Contributions
Parties * 1994 Total 1994 1998 Total 1998 2002 Total 2002 Corporate Percentage of Corporate Percentage of Corporate Percentage of Contributions Total Contributions Total Contributions Total Corporate Corporate Corporate Contributions Contributions Contributions
Left 295,211,407 25.69% 19,128,109 29.28% 45,758,230 42.14% Parties
Center/ 853,587,319 74.31% 46,187,741 70.72% 62,814,583 57.86% Right Parties Sum 1,148,798,726 100% 65,315,850 100% 108,572,813 100%
* The high amount of contributions in 1994 compared to other years was not because corporations gave more money but because of the currency conversion to the Real.
Business support made candidates from leftist parties more competitive during election periods by providing them with the financial resources necessary to distinguish themselves from inter- and intra- party competitors. Emerging corporate support, however, also had important policy effects on vote-choice for deputies from leftist parties. Given divergent preferences between business and unions on legislation regarding macroeconomic stabilization on the one hand, and concentrated constituent costs on the other, leftist politicians had to decide between electoral pressures. Leftist
70 politicians made more competitive by business support were likely to seek that support again in upcoming elections and had incentives to support policies the business community preferred. Thus, as outlined in Chatper 2, it is expected that:
H1: As campaign contributions from businesses increase, leftist politicians will vote against union interests as they begin to support macroeconomic stabilization policies favored by business supporters.
As noted above, businesses favored these reforms because of the consequences of fiscal stabilization that they would have on the state. Government outlays on social security spending had increased substantially in the 1990s as the population grew older.
This financial drain was causing a serious fiscal imbalance in the government accounts because spending on government employees pensions were directly from the government‟s yearly budget (Medici, 2004). Leftist politicians who received business financial support during election periods were thus likely to support reform given that major campaign supporters also favored some form of reform.
It is important to note that the hypothesis above is predicted to hold for members of leftist parties, not necessarily for centrist and rightist party members. Institutions, in this case as elsewhere, are hypothesized to be moderating and have a contextual effect.
Centrist and rightist party members, on average, have better access to corporate financial resources, as shown in the tables above. Furthermore, they share an ideological affinity with business groups, and many already support businesses favored position on legislation. Therefore, I hypothesize that campaign contributions given by corporations should have a significant impact on members of leftist parties who receive contributions rather than on center and rightist members of Congress.
71
Congressional Constraints on Deputados‟ Behavior: Emerging Party Discipline in the Camâra dos Deputados
The first constraint the Lula government faced when in office was forming a coalition in Congress; because of open-list proportional representation in statewide electoral districts and low minimal-entry thresholds, Congress was excessively divided among different parties (Ames, 2001). Even though the PT had the largest plurality of members in Congress, it still controlled only 17.5 percent of the seats, and the President, once in office, found it necessary to build a coalition of multiple parties, eventually succumbing to pressure to include the opportunistic and clientelistic PMDB in the governing coalition. While the governing coalition was unwieldy and fractured
(eventually contributing to the Mensalão scandal), it put pressure on the President and the
PT to adopt policies that appealed to centrist and rightist parties in the coalition to get legislation passed.
The President was able to achieve legislative success because of party discipline.
Early evidence led many scholars to consider the Brazilian political system to be among the most dysfunctional in the world (Ames, 2001; Mainwaring, 1999). Again, open-list proportional representation with low entry thresholds, as well as a separately elected
President with strong legislative powers, parties with weak (if non-existent) roots in society and even among its own members of parliament who routinely alter their party affiliations, and logrolling and bribes as common parliamentary practice were seen as emblematic of the failure of the Brazilian political system35. Scholars in this school often thought deputies would vote on personal motivations to secure pork, eschewing political
35 See Armijo, Faucher, and Dembinska 2006 for a review of what they call the “hyperactive paralysis” approach. See also Mainwaring 1999 and Ames 2001. 72 party positions. More recent approaches have questioned this assumption. Examining votes in Congress, many have found that deputies vote with party leaders a significant portion of the time (Figueiredo & Limongi, 2002; Figueiredo & Limongi, 2000; Pereira
& Mueller, 2003; Armijo, Faucher, & Dembinska, 2006; Hagopian, Gervasoni, &
Moraes, 2008). While electoral incentives exist for personalistic campaigning, deputies have incentives to vote with the government or opposition coalition once in office. Party leaders have reasons to build stable coalitions, and the President and Mesa (the leadership system in the House) use budgetary amendment control, urgency requests, and caucus votes to enforce discipline (Lyne, 2008; Lyne, 2008). Individual deputies have incentives to vote with the governing coalition, though, even when pork isn‟t available. Deputies have increasingly become aware that voters value party-programmatic campaigns, especially in the more developed regions of the country (Hagopian, Gervasoni, &
Moraes, 2008).
Both internal and external rules were at the PT‟s disposal after 2002. The PT has traditionally been the most disciplined of political parties in Brazil; enforcing internal party rules has always been an important attribute of the party that has differentiated it from others in Brazil (Samuels, 2004). The party has been willing to sanction and even remove deputies who vote against the leadership‟s wishes. After the 2002 elections when the PT captured the presidency, the party had the other tools (such as the presidential line-item veto and control of important Camâra positions) at its disposal to enforce discipline on members not only of the party, but also other members of the coalition government. Both internal attributes of the party, as well as congressional and
73 presidential institutions, shaped leftist deputies‟ willingness to vote for reforms supported by the President. Therefore, it is expected that:
H4: Being a member of the governing coalition is expected to decrease the number of pro-labor votes cast by leftist deputies.
Recent research suggests that one reason the Lula administration was able to pass social security reform was that the PT was able to enforce party discipline among most, though not all, of its members (Melo & Anastasia, 2005). PT deputies were willing to vote for the reforms to the pension system once in government given that maintaining macro-economic stabilization was a priority of the Lula administration. Through party discipline, the government forced deputies in the PT and other leftist parties in government to vote with the leadership, threatening to expel party members of the PT who voted against the government and withhold valuable pork from coalition members.36
The effects of being in government- while pushing deputies to support legislation that labor unions opposed- was not uniform, however. I expect that while all deputies in the governing coalition would vote against labor union interests, I expect that relationship to also be contextualized by the amount of corporate campaign contributions they receive.
Analysis and Results
Dependent Variable
As noted above, the pro-union lobbying organization DIAP publishes and disseminates its positions on specific pieces of Congressional legislation that it deems relevant to its cause. As presented in Appendix A, the group identified ten pieces of
36 The PT made good on its promise to enforce party discipline on social security legislation, forcing three members and suspending nine others who abstained for 60 days out of the governing coalition (Folha de São Paulo, 2003; Valor, 2003). 74 legislation in the 51st Congress and four pieces of legislation in the 52nd Congress as most salient to union interests. DIAP‟s stated position on these issues thus provides an indication of whether a deputy‟s vote on each bill was in a pro-union or anti-union direction. For example, if DIAP was opposed to the passage of a particular piece of legislation, and a legislator voted against that legislation, then this is coded as a pro-union vote; in contrast, if DIAP was opposed to a piece of legislation that a deputy voted for, then this is considered to be a vote in an anti-union direction. Deputies‟ actual votes on these specific pieces of legislation were downloaded from the Camâra’s voting archive and coded according to whether they matched DIAP‟s position. To calculate the dependent variable, the number of times a deputy voted in a pro-union direction was added together to create a count of pro-union votes such that higher values indicate a larger number of pro-union votes.37 Summary statistics for both the dependent variable and all independent variables are in Table 3.4 for the 51st Congress and 3.5 for the 52nd
Congress below.
Key Independent Variables
This chapter tests two hypotheses regarding the impact of corporate campaign contributions and being in the governing coalition. To test the first hypothesis, I include a variable that measures the amount of campaign contributions that each deputy received
37 I include abstention votes (when a deputy is in Congress, counts for quorum, but doesn‟t cast a yes or no vote) and obstruction votes (when a deputy is in Congress, but doesn‟t count for quorum by voting to obstruct the House‟s business) as meaningful. If a deputy was serving in Congress at the time of the vote (many deputies serve only partial terms), I also include an absence as meaningful. If a deputy fails to show up they are not doing businesses or labor bidding- thus an absence is counted as a meaningful indication of support or opposition to legislation. 75 from corporate entities in the previous election cycle.38 Measured in reais (for ease of interpretation, the output notes thousands of reais), this variable ranges from zero to more than BRL500,000 for leftist deputies, and over BRL1,000,000 for candidates from center and rightist parties. Because individual candidates are expected to fund their own campaigns, most contributions are to individual candidates from other individuals or corporations. Parties rarely give money to support candidates.
Table 3.4: Summary Statistics for All Variables in Model for 51st Congress
Min Max Mean Std. Dev.
Dependent Variable Percentage of Votes Pro-Union Position 1 10 3.57 3.25
Proposed Causal Variables Campaign contributions from corporations (in reais) 0 822,334 85,264 123,008
Member of leftist party out of government coalition 0 1 0.236 0.425
Interaction term of member of leftist party out of 0 542,198 6,896 35,755 government coalition and campaign contributions from corporations
Control Variables Supplemental Member of Congress 0 1 .130 .338
Supporter of Governor during election period and 0 1 .357 .479 Governor Supporter of President Percentage of Voters in State who are Members of the .030 .200 .067 .036 CUT
Opportunities Deputy had to Vote 1 10 8.47 3.07
38 The data on corporate campaign contributions was obtained from the Brazilian Superior Electoral Court web site (www.tse.gov.br) as well as from David Samuels‟ web site. I am especially grateful for the accessibility of his data. 76
Table 3.5: Summary Statistics for All Variables in Model for 52nd Congress
Min Max Mean Std. Dev.
Dependent Variable Percentage of Votes Pro-Union Position 0 4 1.61 1.41
Proposed Causal Variables Campaign contributions from corporations (in reais) 0 2,293,100 134,627 195,549 Member of leftist party out of government coalition 0 1 0.028 0.165 Member of leftist party in government coalition 0 1 0.282 0.450 Interaction term of member of leftist party out of 0 355,000 2,363 21,716 government coalition and campaign contributions from corporations Interaction term of member of leftist party in government 0 533,568 19,225 60,117 coalition and campaign contributions from corporations
Control Variables Supplemental Member of Congress 0 1 .130 .333 Supporter of Governor during election period and 0 1 .114 .317 Governor Supporter of President Percentage of Voters in State who are Members of the .030 .200 .067 .035 CUT
Opportunities Deputy had to Vote 1 4 3.35 1.19
As noted above, higher amounts of corporate campaign contributions should
significantly and positively predict higher levels of anti-union (i.e. less pro-union) voting,
but I predict that this variable should only have a significant impact on deputies from
leftist parties whose voting in Congress depends on whether they serve in the governing
or opposition coalition. Leftist parties, again, are considered to be the PT, PCdoB, PDT,
PPS, PSB, PSOL, and PV. Since my expectation is that the effect of corporate campaign
contributions is different for leftist deputies compared with center and rightist deputies, I
include multiplicative interaction terms that multiply these corporate campaign
contributions with dichotomous measures of whether a deputy was a member of a leftist
party that served in either the governing or opposition coalition. In the 51st Congress, this 77 technique results in only one interaction term since all leftist politicians served in opposition. In the 52nd Congress, two interaction terms are present; the first variable interacts corporate campaign finance with whether a deputy was a member of a leftist party in the governing coalition; the second term interacts corporate campaign finance and whether a deputy was in a leftist party that was not in the governing coalition.
Specifying the interactive relationship requires me to also include the constitutive terms in the analysis (Brambor, Clark, & Golder, 2006). The problems with interpretation of the results caused by including a multiplicative interaction term(s) are discussed in greater detail below.
Control Variables
First, I include whether a member served as a supplement for a titular member. It is common in Brazil for members of the Câmara to leave their positions in Congress to take appointed positions elsewhere in the country or to leave their positions to run for mayor or governor of their home states (Samuels, 2003). When this happens, a supplemental member (usually the next highest vote winner in the state during the previous election) then serves in Congress.39 Supplemental members, however, usually do not have the same levels of popularity as titular members, and I therefore expect them to behave differently in order to increase their popularity and win a titular seat in the next election (Pereira, Rennó, & Samuels, Forthcoming). I expect that serving as a supplemental deputy will predict higher levels of pro-union votes because, by voting pro- union, they can increase their vote share in coming elections among unionized voters.
39 This explains why the number of observations below is larger than the number of seats in Congress (513). 78
Another career consideration to consider is the relationship of deputies to the governors in their home states. The relationship between governors and federal deputies is unique in Brazil, especially compared with other federal systems, since some scholars have found that governors exert a substantial amount of influence over the states bancadas (or bank of deputies from the state). For example, Samuels argues that governors exert substantial influence over their states‟ bancadas since they control valuable political resource distribution within their state, control access to thousands of government jobs, and help coordinate large donations to political campaigns (Samuels,
2003, p. 19). Evidence is mixed on the role of governors, however, and some have suggested that party discipline is a better predictor of vote choice and find little evidence of state governors influencing deputies‟ vote on issues pertaining to the federal distribution of resources (Arretche, 2008). The most comprehensive study to date has shown the influence of governors to be minor compared to the effects of being in the governing coalition (Cheibub, Figueirdo, & Limongi, 2009)
In order to capture the impact of governors in the legislative process, I create a two-part measure. First, I measure whether a deputy was in a party that supported the winning governor during the election period, using data obtained from the TSE on coalitions. In Brazil, it is not uncommon for state-level politics to differ from federal politics, and coalitions at the state level during election periods can vary greatly from those at the federal level. The PT and PSDB, for instance, may actively oppose one another at the federal level, but within different states in Brazil they may actually support one another. Therefore, it is possible for the PT and PSDB to both support the same
79 candidate for governor, yet remain opposed in federal politics.40 The first part of this variable, therefore, seeks to capture whether a deputy was aligned with the governor during an election period, indicating whether the governor should have any influence over a deputy once in Congress. The second part of the governor variable measures whether a governor was in a party aligned with the president in Congress. Although the
President often negotiates with governors on legislation before negotiating with federal deputies, it is unlikely that the President has much influence over governors who are not aligned with the government at the federal level, especially if those governors have their own federal and presidential ambitions (for example, Jose Serra of São Paulo, or Aécio
Neves of Minas Gerais of the PSDB are both eying the Presidency themselves). The resulting variable that combines these two factors is dichotomous. I expect that if both situations hold, it will significantly predict less pro-union voting in both Congresses.
The final control variable I include accounts for the proportion of voters in each deputy‟s electoral district who are unionized. Because the potential alienation of a large
(and concentrated) number of voters is a political risk for leftist deputies, those from states with high unionization rates should be less likely to vote against union interests.41
However, the pressure on deputies to vote pro-union may differ depending on whether those unionized belong to a “central” (one of the four, national union organizations) as well as to which central they belong. Unions in Brazil are not required to join a central, and only about half do so. Individual union members who join a central are likely to be
40 For example, in Acre in the 1998 elections, both the PT and PSDB supported the PT candidate for governor, Jorge Ney Viana Macedo Neves, even though they were bitterly divided in Congress. This more often occurs when parties aligned with one another only offer one candidate for governor to increase the chances of winning. 41 I use the term electoral district and state interchangeably, given that states are the electoral districts in Brazil. 80 more politically mobilized and concerned about how deputies in Congress vote, thus applying greater pressure to their Congressional representatives. Variations in the proportion of workers who are central members in each state should also be able to account for competition between unions in a given electoral district (Murillo, 2001).
Therefore, the model includes a variable that measure the percentage of voters in each deputy‟s electoral district who belong to the largest union central in Brazil: the
Central Única dos Trabalhadores (CUT).42 The most left-leaning central in Brazil, the
CUT represents a large majority of the civil servant unions and radically opposed the reforms of the Lula government. Representing a state with a higher proportion of CUT members should serve as a significant deterrent for leftist deputies from voting against union interests. I therefore expect higher levels of the proportion of CUT membership in each deputy‟s state to predict lower levels of anti-union votes (i.e., higher levels of pro- union votes).43 All variables are measured at the individual deputy level, except for the percentage of voters in a state in the CUT, which is measured at the state level.
Results
Table 3.6 presents the results for the 51st and 52nd Congresses. Because the dependent variable is a count of how many times a deputy voted in a pro-union direction,
42 Both variables were calculated by dividing the number of members of each “central” by the total number of voters in each deputy‟s electoral district (state). The data was obtained from a 2001 survey on union membership conducted by the Instituto Brasilero de Geografia e Estatistica (IBGE, 2003) 43 An alternative control variable used was a measure of each state‟s GDP per capita; GDP per Capita is an effective proxy measure for the penetration of Bolsa Familia, which scholars have noted as a significant reason for Lula‟s and PT support in 2006 (Hunter & Power, 2007; Marques & Mendes, 2006; Zucco Jr., 2008). Bolsa Familia gives direct income transfers payments to the traditionally maligned, poorest segments of the population if families keep their children in school. The expansion of social spending could be a reason why leftist deputies were willing to vote anti-union although all evidence to date suggests that the PT deputies did not benefit in the same way as the President from Bolsa Familia‟s success (Hunter & Power, 2007). The GDP per capita term is significant for results from the 52nd Congress; although the impact is miniscule at 0.0002. Results from this model are available upon request. 81 a Poisson regression was conducted for each Congress.44 The number of observations is
533 in the 51st Congress and 603 in the 52nd Congress; the number of observations is higher than the number of deputies serving at any one point in time (513) given that many deputies fail to serve their entire term in Congress and are replaced by supplemental members of Congress, usually those who received the highest number of votes without being outright elected in the last election. The goodness of fit measures for each model vary depending on the Congress; the pseudo R2 in the 51st Congress is 0.29 and 0.11 in the 52nd Congress. While the pseudo-R2 (which should be approached with caution) does decrease markedly in the 52nd Congress, this is likely the result of right and centrist deputies serving in the opposition. The default position of many rightist legislators is to vote anti-union, and their inclusion in the model decreases the pseudo-R2 because these legislators were torn between voting their preferred position and opposing the government, thereby resulting in less explanatory power for the 52nd Congress.
The results from the Poisson regression are not easily interpreted, given that the coefficients represent a one-unit increase in the log of the expected counts. Thus, these coefficients can indicate significance and direction, but the interpretation of their impact is not easily deduced. Furthermore, the hypotheses presented for testing in this chapter revolve around an interaction term, the significance and impact of which are not clearly generated in the Poisson regression output.
44 Scaling the votes and running ordinary least squares analysis (OLS) regression gives largely similar results, although for parsimony with subsequent chapters the Poisson regression results are presented here. The results from the OLS analysis are available upon request. 82
Table 3.6: Predicting the Number of Pro-union Votes in the 51st and 52nd Congresses
51st Congress 52nd Congress Poisson Count Model Poisson Count Model with Robust Standard with Robust Standard Errors Errors Coefficient Coefficient (S.E.) (S.E.) Corporate Finance From Prior Election (in thousands -.0006103* .0002785* of reais) ( -.0006103) (.0001325) Expected direction: -
Left party deputy not in governing coalition (1= Yes) 1.045625** .1944468 Expected direction: + ( .0639057) (.2299007)
Interaction left party deputy not in governing coalition -.0002316 .0013055 and Corporate Finance from Prior Election (.0004307) (.000905) Expected direction: - (51st)+ (52nd)
Left party deputy in governing coalition (1 = Yes) -- -.3759613** Expected direction: - (.1041756) Interaction of left party deputy in governing coalition -- -.0011943 and Corporate Finance from Prior Election (.0008442) Expected direction: -
Supplemental Member of Câmara (1= Yes) -.1321416 .1399001 Expected direction: - or + ( .1010795) (.104387)
Percentage of Voters in State who are Members of the -2.557425** -.7694814 CUT (.6068908) (.8460704) Expected direction: +
Party Label Supported Governor AND Governor‟s -.2553764** .2800929** Party Supporter of Government (1=Yes) (.0761104) (.0977863) Expected direction: -
How many Opportunities Deputy had to Vote .1877478** .5492301** (.0129777) (.0450644)
Constant -.4846917** -1.4246 ** (.1507429) (.1892947)
Model Summary Statistics N = 533 N = 603 Pseudo R2 = 0.2881 Pseudo R2 = 0.1091 Wald chi2(7)= 1398.31 Wald chi2(9)= 220.05 Prob > chi2 = 0.0000 Prob > chi2 = 0.0000 ** p < .01, two-tailed * p < .05, two-tailed
83
Hypothesis testing is therefore conducted by calculating marginal effects for ease of interpretation. The impact of the proposed causal variables is then reported using predicted probabilities.45 I begin with the results of the 51st Congress, when all leftist deputies served in the opposition. Cardoso was able to attract no support from the left during his second term in office (the 51st Congress), which meant the left- serving as the opposition parties- was able to support policies that their traditional labor union constituents favored while simultaneously opposing the government.
The marginal effects of the interaction term for the 51st Congress shown in Figure
3.1 confirm that being a member of a leftist party was a significant predictor of voting pro-labor. Yet this relationship, also as predicted, is contextualized by the amount of corporate finance deputies receive. The downward trend in the line indicates that leftist deputies who received more corporate finance during the prior election were more likely to cast fewer pro-labor votes than deputies who received little or no corporate campaign contributions. The values are significant across the range of corporate finance, since the dotted 95% confidence interval bands are both above zero throughout the range of this variable. Thus, this interactive effect is a significant predictor of leftist deputies‟ votes on the labor legislation examined in the 51st Congress.
45 Marginal effects are calculated using the “grinter” command add-on for Stata (Boehmke, 2008). Predicted probabilities are calculated using the Clarify utility for Stata (Tomz, Wittenberg, & King, 2001; King, Tomz, & Wittenberg, 2000) 84
1.4
1.2
1
Marginal Effect of Left of Marginal Effect
.8
on Pro-Labor Votes- 51st Congress 51st Votes- on Pro-Labor .6
0 100000 200000 300000 400000 500000 Corporate Finance Election Before Dashed lines give 95% confidence interval.
Figure 3.1: Marginal Effects of Leftist in Opposition on Number of Pro-Labor Votes in the 51st Brazilian Congress Across Range of Corporate Contributions Given During the 1998 Election Period
The results suggest that both being a member of leftist party in opposition and
corporate campaign contributions are important determinants of a deputy‟s propensity to
cast anti-union votes. For ease of interpretation, I also calculated predicted probabilities.
These values (reported in Table 3.7) show the predicted number of pro-union votes cast
by leftist deputies at different levels of corporate campaign finance while holding other
variables constant. The results are presented assuming a deputy is a non-supplemental
member of Congress who is a member of a party that supported their home state governor
in the last election. The percentage of the electorate who are CUT members is held at the
mean of 6.8%, while the opportunities to vote are held at the median of 10.
85
Table 3.7: Predicted Probabilities of Number of Pro-Union Votes by Leftist Deputies in the 51st Brazilian Congress
0.70 0.60 0.50 0.40 0.30 0.20 0 Reais 0.10 Predicted Probability Predicted 125,000 Reais 0.00 0 to 3 4 to 7 8 to 10 250,000 Reais 0 Reais 0.06 0.46 0.33 375,000 Reais 125,000 Reais 0.10 0.54 0.28 500,000 Reais 250,000 Reais 0.15 0.58 0.22 375,000 Reais 0.21 0.60 0.16 500,000 Reais 0.29 0.58 0.12 Predicted Number of Pro-Labor Votes
The results indicate that as corporate campaign contributions increase, leftist deputies become less likely to cast more pro-union votes, all other variables held constant. The predicted probabilities are indicative of the proposed relationship: as corporate contributions increase, the probability of voting pro-labor union decreases.
Table 3.7 specifically indicates the sum of the predicted probabilities of casting a low (0 to 3), middle (4 to 7), and high (8 to 10) number of pro-union votes by leftist deputies in the 51st Congress, based on the amount of corporate campaign contributions received in the 1998 election. The results indicate that a leftist deputy in opposition (which, in the
51st Congress, was all of them) who received no corporate contributions is predicted to have a 6% chance of casting a low number of pro-labor votes, while a similar deputy has a 33% predicted probability of casting a high number pro-labor votes. Conversely, a deputy who receives near the maximum of corporate contributions to leftist deputies is
86 predicted to have a 29% probability of casting a low number (0 to 3) of pro-labor votes, but only a 12% probability of casting a high number (8 to 10) of pro-labor votes. The clustering around the middle number of votes also increases as corporate contributions increase, indicating that- as corporate campaign contributions increase- leftist deputies do not abandon their labor union allies completely, although their overall support for those allies does decrease.
In terms of control variables, the percentage of votes in the CUT is significant in the 51st Congress, although it is significant in the opposite direction of what is predicted.
In other words, the more CUT members present in one‟s state, the fewer pro-union votes are cast. It is possible that many deputies from states with high unionization rates may be from center or rightist parties. A simple correlation between the percentage of voters in the CUT and leftist deputies reveals that the two are in fact negatively related, indicating that most leftist deputies come from states with lower percentages of voters in the CUT.
This perplexing result does, however, support the idea that leftist deputies became more pro-business because labor unions were unable to help them get into office. Labor unions, even though they had a numerical advantage, were simply unable to get leftist deputies, who relied on their support, into office. The governor variable is also significant and in the predicted direction, indicating that governors were able to call on their allies in
Congress to support legislation the government supported. Since the government coalition- in this case the center-right PSDB-led government- supported all of the legislation that the labor unions opposed, governor allies of the government were thus more likely to vote in an anti-union direction.
87
The results for the 52nd Congress show an even greater impact of corporate campaign contributions on voting patterns, especially for leftist deputies who served in a party in the governing coalition. In the 52nd Brazilian Congress, many leftist politicians entered the governing coalition. Although Lula initially relied on all leftist parties for support, the policies he pushed through Congress caused many in the PDT and PPS to leave the governing coalition and form a leftist opposition to the government in the first year. Thus, the left in the 52nd Congress was divided, and the analysis includes separate variables to capture this division.
The marginal effects for leftists serving in the governing coalition and corporate campaign finance are presented in Figure 3.2. This figure shows that a leftist deputy serving in a party in the governing coalition was significantly more likely to cast more anti-union votes (in other words, fewer pro-labor votes). Consistent with the hypotheses presented, the interaction between serving in the governing coalition and corporate campaign contributions was an important determinant of casting more anti-union votes
(because the line and significance bands are both below 0). The downward trend in the line is indicative of the proposed relationship that more campaign contributions leads to even less pro-union voting.
88
0
-.5
-1
-1.5
on Pro-Labor Votes- 52nd Congress 52nd Votes- on Pro-Labor
Marginal Effect of Leftist in Governing Coalitionin Governing Leftist of Marginal Effect -2 0 100000 200000 300000 400000 500000 Corporate Finance Election Before Dashed lines give 95% confidence interval.
Figure 3.2: Marginal Effects of Leftist in Governing Coalition on Number of Pro-Labor Votes in the 52nd Brazilian Congress Across Range of Corporate Contributions Given During the 2002 Election Period
As reported in Table 3.8 below, the predicted probabilities for the 52nd Congress
and the PT-led government also demonstrate how corporate campaign contributions
affect leftist deputies‟ vote choices. The predicted probabilities are even more indicative
of the proposed relationship: as corporate contributions increase, the probability of voting
pro-union decreases for leftist deputies who serve in a party in the governing coalition.
The predicted probabilities are calculated by assuming a deputy is a non-supplemental
member of Congress and member of a party that supported their home state governor in
the last election. The percentage of the electorate who are CUT members is held at the
mean of 6.8%, while the opportunities to vote are held at the median of 4.
89
Table 3.8: Predicted Probabilities of Number of Pro-Union Votes by Leftist Deputies in the Governing Coalition in the 52nd Brazilian Congress
0.70 0.60 0.50 0.40 0.30 0.20 0 Reais 0.10
Predicted Probability Predicted 125,000 Reais 0.00 0 to 1 2 3 to 4 250,000 Reais 0 Reais 0.45 0.27 0.24 375,000 Reais 125,000 Reais 0.50 0.26 0.21 500,000 Reais 250,000 Reais 0.56 0.24 0.18 375,000 Reais 0.60 0.23 0.15 500,000 Reais 0.64 0.21 0.13 Predicted Number of Pro-Labor Votes
The results show a considerable increase in the probability of casting more pro- union votes as campaign contributions increase. A leftist deputy serving in the governing coalition who receives no corporate campaign contributions is predicted to have a 45% probability of casting a low number of pro-labor votes, while a deputy who receives
250,000 reais in 2002 is predicted to have a 56% probability of doing so. At 500,000 reais, the difference is most pronounced; leftist deputies serving in the government who received that level of corporate contributions have a 64% predicted probability of casting only 0 or 1 pro-labor votes, an increase in probability from those receiving no corporate contributions of almost 20 percentage points. This occurs even though both hypothetical deputies were serving in the governing coalition. Furthermore, a deputy who receives no corporate contributions has a predicted probability of casting a high number (3 or 4) of pro-labor votes of almost 25%, even though the governing coalition in which they served
90 supported the anti-labor position. This also decreases over time, and deputies who receive
500,000 reais are predicted to have only a 13% chance of casting 3 or 4 pro-labor votes.
Overall the predicted probabilities indicate that proposed hypothesis H1 holds for those leftist deputies in the governing coalition since the predicted probability of voting anti- labor (by casting no pro-labor votes, as shown in the rightmost column) increases substantially and- as indicated by the marginal effects above- this impact is statistically significant.
The results also indicate that serving in a leftist party opposed to the government is also a significant determinant of maintaining support for the labor union position, although this relationship is only statistically significant at higher levels of corporate campaign contributions. A graph of the marginal effects of this relationship indicates under what conditions this interactive relationship is significant: when both of the confidence bands reach either over (or under) the zero line, the relationship becomes significant. As Figure 3.3 shows, the relationship of corporate campaign contributions and leftist deputies serving in opposition only approaches significance when deputies receive more than 100,000 reais from corporations. However, when leftist deputies receive less than that amount, being a leftist in opposition has no significant impact on deputies‟ votes on this labor legislation.
91
1.5
1
.5
0
on Pro-Labor Votes- 52nd Congress 52nd Votes- on Pro-Labor
-.5 Marginal Effect of Leftist not in Governing Coalition Governing in not Leftist of Marginal Effect 0 100000 200000 300000 400000 500000 Corporate Finance Election Before Dashed lines give 95% confidence interval.
Figure 3.3: Marginal Effects of Leftist in Opposition on Number of Pro-Labor Votes in the 52nd Brazilian Congress across range of Corporate Contributions Given During the 2002 Election Period
For ease of interpretation, I also calculated the predicted probabilities for how
leftist deputies in opposition to the Lula government voted on the labor union legislation,
shown in Table 3.9. The results indicate that a leftist deputy who receives 125,000 reais
and serves in opposition is predicted to have a 37% probability of casting a high number
(3 to 4) of pro-labor votes, while he or she is predicted to have only a 17% probability of
voting mostly anti-labor (casting 0 or 1 pro-labor votes). The results indicate support for
the first hypothesis as well; even though the leftist deputies in question were in
opposition to the government, they still were less likely to support the pro-labor position
if they received significant amounts of corporate finance.
92
Table 3.9: Predicted Probabilities of Number of Pro-Union Votes by Leftist Deputies not in the Governing Coalition in the 52nd Brazilian Congress46
0.40 0.35 0.30 0.25 0.20 0.15 0.10 0 Reais 0.05 Predicted Probability Probability Predicted 125,000 Reais 0.00 0 to 1 2 3 to 4 250,000 Reais 0 Reais 0.17 0.19 0.37 375,000 Reais 125,000 Reais 0.10 0.15 0.37 500,000 Reais 250,000 Reais 0.05 0.10 0.31 375,000 Reais 0.03 0.06 0.23 500,000 Reais 0.02 0.04 0.15 Predicted Number of Pro-Labor Votes
At 500,000 reais, for example, leftist deputies in opposition to the government are predicted to have an 15% probability of casting 3 to 4 pro-labor votes, a decrease of over
22 percentage points in comparison with if they had received 125,000 reais in corporate contributions during the previous election. Even the predicted probability of casting a median number of pro-labor votes decreases over the range of corporate contributions markedly, with those deputies receiving 500,000 reais predicted to have only a 4% probability of casting even a median number of pro-labor votes, a decrease of over 11 percentage points from a deputy who received 125,000 reais in corporate campaign contributions.
The only substantive control variable that reaches statistical significance in the model for 52nd Congress is the governor variable, although this moves leftist deputies in
46 Assuming deputy is a non-supplemental member of Congress and member of a party that supported their home state governor in the last election. The percentage of the electorate who are CUT members is held at the mean of 6.8%, while the opportunities to vote are held at the median of 4. 93 the opposite of the predicted direction. The positive relationship here indicates that governors used their allies in Congress to oppose the government; thus, rather than the traditional relationship that suggests that presidents use the governors to round up support in Congress (Samuels 2000), the findings presented here suggest that aligned governors have actually induced their allies in Congress to oppose the government. Thus, leftist deputies who were aligned with the governor of a state in a party supporting the governing coalition were actually predicted to vote more pro-labor. This result is somewhat perplexing given that Lula negotiated the policies in question with the governors before introducing the measures in Congress (Brooks, 2009). This may suggest that governors, initially supportive of the measures, may have changed their minds later on once the effects of the measures in question (in particular, changes to the bureaucratic pension system) became fully known.
Discussion and Conclusion
The findings here are broadly consistent with approaches that suggest that politicians often abandon electoral allies once in office. On the one hand, politicians may vote against traditional allies‟ interests if they believe they have a mandate for doing what is right for the country, which could involve adopting policies that traditional supporters oppose (O'Donnell, 1994). Conversely, politicians may be willing to take risks in adopting policies they expect will have future electoral returns (Stokes, 2001).
These results confirm that deputies in the Brazilian Camâra did abandon allies once in Congress, yet they also offer evidence that leftist politicians have not represented traditional allies for both electoral and congressional reasons. This is surprising given that institutionalization (a process that, as noted above, is occurring in both Congress and
94 at the polls)47 should be expected to increase the quality of representation. Stable political systems provide voters with clear choices at the polls; because of this, it should be expected that, when elections produce leftist governments, they should support the policies of their constituents. Evidence in Latin America confirms that as party systems institutionalize, the interests of voters are better represented (Luna & Zechmeister, 2005).
It is therefore perplexing that the representation of the interests of leftist political parties‟ allies has not improved, as many observers have (either implicitly or explicitly) noted should occur.48 These results thus raise important questions regarding representation and why deputies represent different interests.
The findings here also suggest that the electoral incentives deputies face are primarily financial. Adopting anti-labor policies by leftist parties is, at least in part, the function of the emergence of new political campaign support. In this case, the significant and positive impact of the corporate campaign contributions variable indicates that leftist deputies had new corporate political allies who would be in favor of reform. Businesses, with the financial capacity to increase the effectiveness of political campaigns, could significantly increase a deputy‟s chance to win political office. Deputies, however, faced a calculated risk: the support of business made them more competitive financially, but voting anti-union ran the risk of losing substantial support at the polls. It appears as if leftist deputies (particularly those serving in the governing coalition) favored the former
47 Simple evidence from recent electoral results demonstrates institutionalization at the polls: the same two parties (the PT and the PSDB) have competed for the Presidency in the last four elections; the same four parties (PT-PSDB-PMDB-PFL/DEM) have controlled approximately 65 percent of the seats and have served as the main power brokers in government and opposition (Santos & Vilarouca, 2008). 48 Again, though, this does not mean that unions should have achieved their preferred legislative position given what their demands were. 95 over the latter, willing to take the risk at the polls to be financially competitive and use that money primarily on advertising to try and change voters‟ minds.
Within the congressional arena, politicians have strong incentives to vote with the government when their party is in the coalition and against the government when out of the coalition. This broadly confirms recent approaches that have noted that the divide in the Camâra is primarily along government-opposition, not ideological lines (Zucco Jr.,
Forthcoming). Yet the findings here also suggest that the impact of serving in government is contextual on how much corporate contributions a deputy receives. The movement away from traditional labor union allies caused by being in the governing coalition is amplified by the amount of corporate contributions received during the previous election period.
Therefore, although labor unions anticipated that the PT and its leftist allies coming to power would result in a better representation of their interests, the evidence here suggests that there were substantial impediments to a leftist agenda (Bresser-Pereira,
2008). Leftist legislators are not likely, when in power, to meet many of their supporters‟ expectations. What remains unclear is whether leftist deputies are also more likely to meet the expectations of business interests as well. In other words, while corporate campaign contributions given during the previous election period and being in the governing coalition reduce the amount of pro-union votes cast, the question remains whether these same factors actually increase the amount of pro-business votes. In the next chapter, then, I turn to the effect of these factors on deputies‟ pro-business votes.
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Chapter 4
Institutional Incentives to Support New Allies: Campaign Finance, Business, and Leftist Legislator Behavior in the Brazilian Camâra dos Deputados from 1999-2007
The first open Presidential election following the gradual transition from military rule in Brazil occurred in 1989, and with the economy spiraling out of control (the inflation rate in 1989 was over 1500%), Luiz Inacío “Lula” da Silva emerged as the main contender for the Presidency. Although Lula would later court business organizations in a subsequent run for the Presidency, in this earlier election, Lula and the PT were widely viewed as being socialist and opposed to private enterprise; Lula‟s main campaign promises of ending payment of foreign controlled debt, redistributing land to peasants, and nationalizing the financial system terrified both international and domestic businesses
(Ryser, 1989). Business leader Mario Amato, the President of the São Paulo business confederation FIESP/CIESP, bluntly stated that if Lula was elected, more than 800,000 business owners would leave the country (Reuters, 1989). Lula eventually lost that election, but in his concession speech, he criticized how Fernando Collor de Mello would
“govern in favor of big business, the armed forces and the International Monetary Fund”
(AP, 1989). In short, a PT and Lula victory was perceived by members of the business community as being extremely detrimental to the country‟s economic standing, with one observer suggesting that immediate economic collapse was not only possible, but inevitable, if Lula won (Barnham, 1989). Business owners therefore threw their support
97 behind the novice rightwing candidacy of Fernando Collor de Mello in 1989, with many observers suggesting that business played a key role in his victory.
The relationship between Lula, the PT, and business was strikingly different in the
2002 Presidential election. As has been addressed previously, Lula, PT congressional representatives and big business had already cemented a financial relationship by this time. As also noted in Chapter 3, Guido Mantega‟s quote that “big business” was no longer afraid of the PT is emblematic of part of this transition. Yet, the transition was deeper than a simple truce between the two sides (i.e., a mere acceptance of each other‟s position). Industrialists increasingly saw the administration as one that was committed to neoliberal economic policies favored by businessmen with state intervention amenable to business concerns, such as private-public partnerships for infrastructure improvement and supply-side intervention to promote exports (Kurtz & Brooks, 2008; Kurtz & Schrank,
2005). A survey conducted one year after Lula took office, for example, showed that businessmen and investors, both foreign and domestic, were increasingly satisfied with the administration, with 67% agreeing that they were very satisfied with the government‟s commitment to neoliberal economic policies (Valor, 2003). The director of the Confederação Nacional da Indústria (henceforth, the CNI) even worked behind the scenes to pacify foreign private-sector investors about a potential PT victory before the election (Valor, 2002). And by 2005, the head of the CNI (who was also serving as a federal deputy in Congress in the governing coalition, having moved from the PSDB to the PTB party) suggested that the Lula administration, despite his disagreements with the petistas in Congress on labor laws and social policies, was even better than Cardoso‟s, which was widely supported by business (Sardinha & Ramos, 2005).
98
Again, the depth of the transformation of the PT and the left more generally after the 2002 election (as with their declining commitment to organized labor) was profound.
While the PT and Lula, in particular, sought to distance themselves from their previous policy positions during the campaign period, it wasn‟t until the administration took office that the depth of the conversion to neoliberal economic policies was apparent. Previously committed to expanding the role of government to combat inequalities and increase worker‟s wages, the administration actually increased the fiscal surplus from the Cardoso administration (from 3.75 to a 4.7% surplus in October of 2004), maintained tight inflation targeting policies, and maintained exceptionally high interest rates- reaching
19.25% in March 2005, which were among the highest in the world (Amann & Baer,
2006). Some have suggested that the policies maintained by the Lula administration contributed, at least in part, to stagnant and declining real industrial wages and continued high unemployment over 10% (Amann & Baer, 2006, pp. 227-228).49 All of this contributed to greater support from the business and investor class and the perception amongst many Brazilians that the Lula administration wasn‟t much different from the
Cardoso administration‟s commitment to neoliberal economic policies since the implementation of Real plan in 1994.
This chapter seeks to explain the government‟s willingness to adopt and continue the pro-business policies of the Cardoso administration, even though business hadn‟t been a major supporter (and even an ardent detractor) of the PT and the left until this time. What explains congressional representatives‟ willingness to allow the
49 Amman and Baer suggest that when “hidden” unemployment is included (those formally seeking work while simultaneously engaging in a more precarious economic activity- such as street vending) actual unemployment hovers close to 20% during the first years of the Lula administration (Amann & Baer 2006, p. 230). 99 administration to hew to tight fiscal policies and other liberal economic policies that until this time they had argued against? In other words, what would cause leftist deputados to become pro-business over time? Following the theoretical framework presented in
Chapter 2, I show that an increase in corporate campaign contributions – combined with the pressures faced by serving in the governing coalition – was an important factor in explaining leftist deputados‟ support for policies favored by business in the 51st (1999-
2003) and 52nd (2003-2007) Congresses.
How the Left Changed
The PT (and the left more broadly) in the late 1980s and early 1990s had a strong commitment to state intervention in the economy. There was a belief within the left (even among moderate factions in the PT, such as Articulação) that state intervention in the economy was necessary to combat economic problems within the country, particularly economic inequality. Many of those in the PT, in particular, remained committed to the belief that socialism was necessary- and possible- in Brazil, given the vast levels of economic inequality. Many petistas thought that, over time, more voters in the lower classes would be swayed by the PT‟s message and, given compulsory voting, this would result in greater PT victories (Hunter, 2007; Branford & Kucinski, 1995, p. 98). The PT remained committed to the socialist program set out in the 1989 election during the next round of elections in 1994, even though Cardoso‟s Real plan had immediately stabilized the economy and made many of the PT‟s policy proposals seem far-fetched and outdated.
In 1998, Lula, the PT, and the left more generally continued to rally against neoliberalism and, as Brazil descended into financial chaos triggered by the Asian financial crisis, Lula called for higher taxes on large fortunes and financial speculation (Bourne, 2008, p. 95).
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While electoral losses had their effect on Lula‟s campaign and mind-set, a large percentage of the left (and the PT) remained committed to socialism and socialist policies- including redistribution of wealth and greater state intervention in the economy- even after Lula‟s defeats in 1989 and 1994. The party, for example, reaffirmed in the first paragraph of motions from its ninth national meeting its “commitment to socialism,” specifically noting that trade unions and the CUT must play a “key role in the formation of a strong national movement of the struggle of the workers … and the struggle for socialism” (Paragraph 28). Given the commitment to and belief in socialism and government intervention within the PT in the 1990s, many thought it would be surprising if the PT-led government would support pro-business policies once in office in 2002. Yet this is precisely what the PT-led government did.
Data from the annual Agenda Nacional da Indústria published yearly by the CNI shows that businesses actually saw more of its preferred legislative agenda become law in the 52nd Congress (when the left emerged as the governing coalition) than in the 51st
Congress (when the left had been in opposition).50 The CNI gives its position on pieces of legislation it deems important (as well as an explanation as to the reasons for its positions) with four possible responses: convergent, convergent with reservations, divergent, or divergent with reservations.51 Scholars elsewhere have labeled the first two
50 The CNI publishes the Agenda on an annual basis, which notes its position on legislation pending before Congress. Unlike the positions published by DIAP used in Chapter 3, much of the legislation that the CNI notes a position on does not become law. Of the 504 unique pieces of legislation the CNI published its position on between 1998 and 2006, only 50 became law (less than 10%). Those that became law are the ones used in this analysis. It is also important to note that showing what legislation did not become law is largely ineffectual, since even archived legislation can be brought before Congress again if a deputy petitions to move it from archive. This means that legislation proposed in 1988, for example, can still be taken up by the current Congress (which occasionally happens). 51 Convergent or divergent means that the CNI completely agreed or disagreed, respectively, with the legislation. Convergent with reservations meant that the CNI agreed with the legislation for the most part, although they disagreed about certain parts of the legislation. Conversely, divergent with reservations 101 categories as a pro-business position, while the latter are considered to be anti-business positions (Mancuso, 2004; Mancuso, 2007). Table 4.1 shows that the number of pieces of legislation that became law that were pro-business (i.e., when the CNI‟s stated position was convergent or convergent with reservations) actually increased in the 52nd Congress from 17 to 22 (although there was a movement towards the convergent with reservations position).
Table 4.1: Amount of Pro- and Anti-Business Legislation that Became Law, by Confederação Nacional da Indústria’s Position (1999-2007)
51st Congress 52nd Congress Convergent 9 (39.1%) 4 (14.8%) Convergent with 8 (34.8%) 18 (67.7%) Reservations Total Convergent/ Pro- 17 (73.9%) 22 (82.5%) Business Divergent with 3 (13%) 2 (7.4%) Reservations Divergent 3 (13%) 3 (11.1%) Total Divergent/ Anti- 6 (26.1%) 5 (18.5%) Business TOTAL 23 (100%) 27 (100%)
Furthermore, the number of pieces of legislation the organization opposed (where they held a divergent or divergent with reservations position) stayed roughly the same, with only 6 and 5 becoming law in the 51st and 52nd Congress, respectively. There was therefore little difference in terms of legislative output between the PSDB-led 51st and
PT-led 52nd and 53rd Congresses insofar as legislation supported or opposed by
meant the CNI disagreed with the legislation for the most part, although they agreed with certain portions of the legislations. I follow Mancuso (2004) and include both convergent and convergent with reservations as pro-business, while both divergent and divergent with reservations is considered anti-business, unless the vote included in the analysis below is directly related to the reservations portion of the CNI position at which point in time it can switch positions. 102 industrialists was concerned, even though there was a substantial shift in the composition and leadership of Congress and the Presidency during this time.52
This change has important implications in Brazil given that business and politics are intricately linked. The government dictates many sources of business finance though control of both commercial and development banks. The largest bank in Brazil (Banco do
Brasil), for example, is state-owned, and three of the ten largest banks in the country are owned by the government (including the state development bank BNDES and Caixa
[Banco Central do Brasil, 2009]). The central bank is still technically controlled by the finance ministry and only has independence that is informally given to it (as the Lula administration has done). Moreover, state contracts valued in the billions of reais are often determined by the political connections firms have (Mainwaring, 1999; Claessens,
Feijen, & Laeven, 2008; Samuels, 2002). Businesses are rewarded in the contract process either through contracts or increased stock value, especially companies who have political connections and have contributed money to winners‟ campaigns (Claessens,
Feijen, & Laeven, 2008). Concerns about property rights are also endemic; many investors remained skeptical that advances made under Cardoso in securing property would be reversed under other administrations (Amann & Baer, 2006, p. 220).
Understanding the transition to pro-business policies by the leftist government in
Brazil is therefore of upmost importance. The policies pursued by the Lula administration were far from those anticipated by foreign investors (many domestic investors realized
52 While scholars such as Kingstone and Schneider have noted businesses‟ varied, but largely ineffectual, impact on politics, more recent work has stressed that industrialists have been much more successful than anticipated, especially the increased role of the CNI. Using data from the CNI from 1996-2003, Mancuso shows that business was largely successful in achieving its ideal legislative agenda (having proposals it supports turned into law, or preventing those it opposes from becoming law) 66.7% of the time (Mancuso, O Lobby Indústria no Congresso Nacional: Empresariado e Política no Brasil Contemporaneo, 2007, p. 167). See Kingstone, 1999; Schneider, 2004; Mancuso, 2007; and Mancuso, 2004 for greater examination of businesses‟ lobbying successes and failures. 103
Lula‟s increasing moderation, but foreign investors continued to see him as a radical and punished the Brazilian economy- see Jensen & Schmith, 2005), and were far from those advocated by many of the PT‟s traditional supporters.53 Although many of the policies pursued by the administration were amenable to both business and labor interests, they nonetheless represented a radical transformation from the PT‟s previous positions on business.
I argue that electoral pressures induced by the laws governing campaign finance affected how the left governed. I examine what caused deputies to vote for business interests by again comparing the 51st and 52nd Brazilian Congresses, and I again hypothesize that the amount of campaign finance a deputy receives from corporations
(electoral pressure) and whether that deputy serves in the governing coalition
(congressional pressure) are the two most significant determinants of how a deputy votes in Congress on legislation of interest to business.
Theory and Hypotheses
To reiterate, campaign finance laws in Brazil are extremely favorable for businesses. The restrictions in place nominally constrain businesses by placing caps on their donations, but in practice these constraints have been largely irrelevant since they were set so high (2% of earnings) (Samuels, 2001). Corporations not only benefit from being allowed to contribute to campaigns, but they also benefit from restrictions on other groups (namely labor unions) preventing them from donating to campaigns. Given the absence of other credible large-scale donors, businesses know that politicians with
53 The transition is in many ways quite similar to the transition of leftist parties elsewhere in the world, such as the Socialists in Spain, Labour in Great Britain, the SPD in Germany, the PJ in Argentina, and even the Democratic Party in the United States (Levitsky, 2001; Burgess & Levitsky, 2003; Kitschelt, 1994; Blyth, 2001). 104 political career ambitions, even outside of the federal government, have no other major sources of funding (Samuels, 2003).54 Again, as noted by Lula in the beginning of
Chapter 1, “the PT cannot pay for a Presidential campaign just by selling badges. It is a question of choice: either the rank and file finds alternative means of financing a national campaign or it has to accept the law that lets companies donate money to political parties” (Branford & Kucinski, 1995, p. 101). Small-scale private donors are simply insufficient for running a large-scale campaign, even at the state level.
Table 4.2 illustrates the growing amount of corporate money given to leftist political candidates for federal deputy by examining the campaign contributions of five of the largest corporate donors to political campaigns. These companies (Geradau, Ipiranga,
Banco Itau, Klabin, and Norberto Odebrecht Construction) represent a broad cross- segment of Brazilian industry. As some of the most active donors over time, it is interesting to note how their contributions changed from 1994-2002. Although all of these companies continued to give most of their campaign contributions to center and rightist candidates, the proportion given to leftist candidates increased dramatically, particularly by Iripanga and Odebrecht Construction. Even Banco Itau‟s very modest contributions to leftist candidates in 2002 represented a dramatic shift considering that many of the leftist parties favored nationalizing the banking sector only a few years before. Overall, leftist candidates for federal deputy increased their share of donations from the five most active donors from only 3.8% of total donations in 1994, to 19.5% by
2002.
54 See Samuels 2003 for a more detailed description of how politicians in Brazil move among level of governments. The somewhat perplexing path of many politicians- from federal deputy to mayor, for example- is entirely rational in Brazil‟s political system. Thus, even though many deputies fail to get re- elected, they often have political career goals outside of federal deputy, which in Brazil is seen as a position of minimal importance when compared to other offices. 105
Table 4.2: Campaign Donations Made by Five Most Active Corporate Donors (1994, 1998 and 2002)
Company Gerdau S.A. Petroleo Banco Itau Klabin S.A. Construtora Name Ipiranga Noberto Odebrecht S.A. Sector Steel Petroleum Financial Paper Construction Total 1994 80,000.00 84,000.00 714,498.81 305,941.03 906,581.83 Contributions to All 1998 1,045,000.00 862,500.00 1,520,000.00 301,666.00 556,800.00 Candidates for Federal 2002 1,555,000.00 778,500.00 1,495,000.00 1,814,703.81 1,855,000.00 Deputy Total 1994 30,000.00 15,900.00 0 19,646.51 12,000.00 Contributions to Leftist 1998 105,000.00 157,500.00 0 60,558.00 2,500.00 Candidates for Federal 2002 * 245,000.00 283,000.00 40,000.00 381,249.23 520,000.00 Deputy Percentage of 1994 37.5% 18.9% 0% 6.4% 1.3% Total Contributions 1998 10.0% 18.3% 0% 20.1% .01% to Leftist Candidates for Federal 2002 15.6% 36.4% 2.7% 21.0% 28.0% Deputy * All leftist parties attracted at least one contribution from one of these major corporations in 2002, including the Green and Communist Parties.
Electoral Incentives to Support Business: The Role of Campaign Finance
The first possible way in which electoral pressures shape how deputies vote in
Congress is that ex-ante campaign contributions influence their votes on legislation deemed important by business. Businesses try to influence deputies by giving money to their campaigns, hoping to affect policy outcomes in the following Congress. In short, the first hypothesis tested in this chapter assumes that rational corporate donors expect (to borrow Ben Ross Schneider‟s analogy) a “return on their investment,” by receiving favorable legislative outcomes from Congress (Schneider, Forthcoming).
Foremost among businesses‟ motivation to proactively invest in leftist politicians is the risk associated with a leftist government. A rational investment strategy for businesses is to spread their investments around, including investing some “venture 106 capital” in politicians whom they are unsure of their long-term support. Businesses benefit from giving money to leftist candidates in the long term given that rightist (and most centrist) deputies already support businesses‟ position. This allows business to therefore use campaign contributions to hedge the risk associated with a leftist administration (Claessens, Feijen, & Laeven, 2008, p. 563). Using money to influence leftist deputados, businesses are therefore able to influence all types of deputies in
Congress in order to achieve favorable legislative outcomes. As Chapter 2 indicates, I expect that:
H2: As campaign contributions from businesses increase, leftist politicians will vote for business interests and support policies favored by business supporters who are key supporters of their election campaigns.
Businesses are aware of leftist deputies‟ problems in attracting large amounts of campaign finance. Knowing this, businesses are able to offer even a small amount of money to help leftist deputies win election. In turn, businesses expect that leftist deputies once in Congress should become decidedly more pro-business on issues that business deems important (Schneider, Forthcoming). As Mainwaring (1999) notes, “Many candidates depend upon large campaign chests, so private business is a favorite target for raising funds. Businessmen usually expect some form of reciprocity. For example, large construction firms often support campaigns with the understanding that they will later be rewarded public contracts” (Mainwaring, 1999, p. 188). In short, this hypothesis predicts that businesses are able to buy deputies‟ votes with campaign contributions. This type of clientelistic behavior is often expected in Brazil, where corruption and scandal are commonplace in politics.55 Institutions, by structuring who can and cannot give money
55 See Ames 2002 pp. 56-57 for a good illustration of how this process worked in regards to the seven dwarfs scandal. 107 to political campaigns in Brazil, thus influence how deputies behave, given that all politicians must rely on corporate donations to fund campaigns that have become increasingly expensive. Leftist politicians are therefore left with little option since they cannot find major campaign contributors other than business.
If businesses are using their contributions to influence future government policy and hedge the risk associated with a leftist government, then initial evidence should show that, as the possibility for one party winning an election outright (or in the case of executive positions making it to the second round) increases, then there should be a corresponding increase in campaign contributions to candidates affiliated with that party, as victory becomes more likely.56 Simply put, if businesses are using contributions to influence policy outcomes, then they should use available information to determine how to best “invest” their resources, including investing in leftist politicians as their victories become more apparent.
Therefore, businesses make educated guesses on which candidates will win the election, and if they want to influence future government policy, they try to give money to those most likely to win (business is, as Claessens, Feijen, & Laeven [2008] note, usually quite succesful in determining winners). For example, as opinion polls increasingly indicate the chances for a PT victory in 2002, then there should be a corresponding increase in campaign contributions from corporations to PT candidates for deputado, as businesses sought to gain leverage in the new administration. Conversely, when opinions polls indicated a slide in support for Ciro Gomes after an early lead, there should also be a decline in financial support for PPS and PDT candidates for federal
56 In Brazil, deputies and other legislative positions are elected in the first round of balloting. For executive positions (President, Governor and Mayor), if no majority is received by any candidate, then a second round run-off is held. 108 deputy (given that the coattail effects of Gomes‟ electoral support was declining, therefore making it more difficult for PPS/PDT candidates to win).
To illustrate this point and offer initial insight, I use data on corporate campaign contributions from the TSE and public opinion polling data regarding individuals‟ intended vote choice for the President (used as a proxy here for party approval) issued weekly by IBOPE to examine whether the relationship suggested above existed in 2002.57
In order to make the charts more comparable, I use the change in each value (instead of the raw numbers) for both the opinion polls and financial data with the financial data lagged one period. Thus, the charts measure a presidential candidate‟s rise or fall at time t, while simultaneously showing the corporate campaign contributions to leftist deputies in aligned parties at t+1. If businesses use their campaign contributions to proactively influence policy outcomes, then we should see a rise in contributions if a candidate rises in the polls and a drop if the candidate drops in the polls. Figures 4.1 through 4.4 below show the results.
The results suggest that as a presidential candidate rises or falls in the polls, campaign contributions to federal deputy candidates in their affiliated parties rises and falls in relative sync during the following week. This is especially true for leftist
Presidential candidates (Lula, Ciro Gomes, and Anthony Garontinho, and their allied coalition partners of leftist parties). Businesses seemed to follow opinion polls closely and lend more financial support to Congressional candidates as opinion polls indicated that presidential candidates representing their respective political parties would likely
57 Interestingly, the last IBOPE poll almost predicted the election perfectly. The final poll had Lula at 50%, José Serra at 22%, Ciro Gomes at 10% and Anthony Garontinho at 17%. The final results of the first round were Lula at 46.4%, Serra at 23.2%, Gomes at 12.0% and Garontinho at 17.9%. This indicates that the IBOPE polls are very reliable. TSE election results are available at: http://www.tse.gov.br/internet/eleicoes/2002/result_blank.htm). 109 make it to the second round of the election. Thus, as a candidate‟s support in the polls increased, a corresponding increase in campaign contributions to aligned candidates for federal deputy also increased during the following week. In contrast, deputies in the
Gomes party coalition (the PPS and PDT) saw businesses‟ financial support drop as
Gomes who, as noted above, started off strong in the campaign yet saw his support among voters fall week-over-week as the election wore on. The data also illustrates that a late-minute rise by Anthony Garontinho in the polls (which put him in the position to have a chance at making the second round) also saw a rise in contributions to candidates in the PSB (although they remained at a major financial disadvantage in absolute terms).
4000000 8 3000000 6 2000000 4 1000000 2 0 0 -1000000 -2 -2000000 -4 -3000000 -6 -4000000 -8 Jul 11-Jul Jul Aug 9- Aug 21- Sept 4- Sept 19- Oct 3- 17 27-Aug 1 Aug 14 Aug 28 Sept 8 Sept 24 Oct 6
PT/PCdoB Candidates for Federal Deputy Change in Corporate Campaign Contributions Lula Change in Opinion Polls
Figure 4.1: Changes in Public Opinion Poll Support of Luiz Inácio Lula da Silva and Changes in Contributions to Federal Deputy Candidates in PT/PCdoB in 2002
110
4000000 8 3000000 6 2000000 4 1000000 2 0 0 -1000000 -2 -2000000 -4 -3000000 -6 -4000000 -8 Jul 11-Jul Jul 27-Aug Aug 9-Aug Aug 21- Sept 4- Sept 19- Oct 3- Oct 17 1 14 Aug 28 Sept 8 Sept 24 6
PPS/PDT Candidates for Federal Deputy Change in Campaign Contributions Ciro Change in Opinion Polls
Figure 4.2: Changes in Public Opinion Poll Support of Ciro Gomes and Changes in Contributions to Federal Deputy Candidates in PPS/PDT in 2002
4000000 8 3000000 6 2000000 4 1000000 2 0 0 -1000000 -2 -2000000 -4 -3000000 -6 -4000000 -8 Jul 11-Jul Jul 27-Aug Aug 9-Aug Aug 21- Sept 4- Sept 19- Oct 3- Oct 17 1 14 Aug 28 Sept 8 Sept 24 6
PSB Candidates for Federal Deputy Change in Campaign Contributions Anthony Garontinho Change in Opinion Polls
Figure 4.3: Changes in Public Opinion Poll Support of Anthony Garontinho and Changes in Contributions to Federal Deputy Candidates in PSB in 2002
111
4000000 8 3000000 6 2000000 4 1000000 2 0 0 -1000000 -2 -2000000 -4 -3000000 -6 -4000000 -8 Jul 11-Jul Jul 27-Aug Aug 9-Aug Aug 21- Sept 4- Sept 19- Oct 3- Oct 17 1 14 Aug 28 Sept 8 Sept 24 6
PSDB/PMDB Candidate for Federal Deputy Change in Campaign Contribution Jose Serra Change in Opinion Polls
Figure 4.4: Changes in Public Opinion Poll Support of José Serra and Changes in Contributions to Federal Deputy Candidates in PSDB/PMDB in 2002
Congressional Incentives to Support Business: The Role of Serving in Government
The second hypothesis to be tested in this chapter is whether leftist politicians who serve in the governing coalition behave differently than those in opposition. As in
Chapter 3, I expect that being a member of the party in government should be a significant predictor of how deputies in Congress vote. The literature on party voting in
Brazil suggests that party control in Congress, especially by the PT, are important predictors of how Congressional deputies vote (Figueiredo & Limongi, 2002; Figueiredo
& Limongi, 2000; Pereira & Mueller, 2003; Armijo, Faucher, & Dembinska, 2006;
Hagopian, Gervasoni, & Moraes, 2008). Again, as noted in Chapter 3, while deputies seek to differentiate themselves from both inter- and intra- party competitors during election periods, deputies have incentives to vote with the government or opposition
112 coalition once in office, and party leaders use budgetary amendment control, urgency requests, and caucus votes to enforce discipline (Lyne, 2008; Lyne, 2008).
Based on Table 4.1 above, it is clear that being in government matters for voting pro-business. Businesses‟ legislative success in both Congresses indicates that being a member of the governing coalition should be a significant predictor of voting pro- business since the legislative outcomes in both Congresses on legislation that the CNI had a stated position on were decidedly pro-business. I therefore hypothesize that:
H5: Being a member of the governing coalition is expected to increase the number of pro-business votes cast by leftist deputies.
The expectations here are that serving in government increases the number of times that a leftist deputy votes in a pro-business direction. The Lula administration was able to use the various congressional mechanisms at its disposal to enforce discipline on votes because the administration itself had supported policies favored by the business community. As in Chapter 3, the effects of being in government- while pushing deputies to support legislation that businesses supported – again is not expected to be uniform in effect. I expect that while all deputies in the governing coalition would vote for business interests on legislation, I expect that relationship to also be contextualized by the amount of corporate campaign contributions they receive.
Analysis and Results
Dependent Variable
In order to examine the hypotheses listed above, I follow the same methodological technique (Poisson regression analysis) as that used in Chapter 3.58
58 In addition to the Poisson regressions analyzed here, I also conducted a series of logistic regression analyses on deputies‟ pro-business votes on each of the pieces of legislation examined here. The results, which are presented in Appendix C, yield the same substantive results. 113
Similar to the dependent variables in the previous chapter, the dependent variables here capture the number of times deputies voted in a pro-business direction on legislation in
Congress. To determine whether a deputy‟s vote was pro-business or not, I coded their votes according to lobbyists‟ positions on certain pieces of legislation. Specifically, the pieces of legislation from which votes are analyzed are those listed in the annual Agenda
Legislativa da Industría, published by the industrial business lobbying organization CNI.
There are, however, important differences between the labor union lobbying organization data used in Chapter 3 and the business lobbying data presented here that required important conditions to be met before these votes were included in the analysis.
First, the labor union publication used for coding deputies‟ votes in Chapter 3 was a retrospective voter‟s guide to evaluate how supportive deputies were of labor union favored legislation. In contrast, the CNI Agenda looks prospectively at legislation proposed before Congress. Because the business organization publishes the Agenda as a prospective guide, it covers legislation at all stages of the legislative process and thus includes more than 500 pieces of legislation over the course of the 51st and 52nd
Congresses. Most of the legislation covered by the Agenda, however, rarely makes it out of committee; even less gets placed on the Câmara’s agenda, and even less than that gets voted on in plenary session. In fact, of the 501 pieces of legislation covered during the two Congresses in question, only 58 pieces (11.6%) had any recorded plenary vote on it.
Of those pieces of legislation, approximately half were merely procedural votes or votes that were inconsequential for the business lobbying organization‟s position.59 This
59 The coding involved collecting all recorded votes for each piece of legislation, then coding whether they were related to the business position by examining the Agenda position of the CNI and examining whether any of the legislative votes were related. The votes included were only those directly relevant to the CNI position; other votes were excluded. For example, on some pieces of legislation, votes were only held on 114
process thus identified 11 votes in the 51st Congress and 12 votes in the 52nd Congress
that could be included in the analyses here. Each piece of legislation included in the
analysis is summarized in Appendix B. Deputies‟ votes were then coded as being in the
pro-business or anti-business direction, and the dependent variables were determined by
simply counting the number of times each deputy voted in the pro-business direction in
each Congress.60 Summary statistics for the dependent, independent and control variables
are presented in Table 4.3 for the 51st Congress and Table 4.4 for the 52nd Congress.
Table 4.3: Summary Statistics for All Variables in Model for 51st Congress
Min Max Mean Std. Dev.
Dependent Variable Number of Votes Pro-Business Position 0 9 4.82 1.71
Proposed Causal Variables Campaign contributions from corporations (in reais) 0 822,334 85,264 123,008
Member of leftist party out of government coalition 0 1 0.236 0.425
Interaction term of member of leftist party out of 0 542,198 6,896 35,755 government coalition and campaign contributions from corporations
Control Variables Supplemental Member of Congress 0 1 .130 .338
Supporter of Governor during election period and 0 1 .357 .479 Governor Supporter of President Number of Business in the State 1,035 125,723 36,529 39,900
Opportunities Deputy had to Vote 1 11 9.71 2.51
whether to grant the measure emergency status (common in the Câmara). On others, only DVS votes (Destaque para Votação em Separado, or votes that are held on individual parts of the legislation that any party leader can call for) were held that were unrelated to the CNI Agenda position. In these cases, the legislation is excluded from analysis. 60 As in Chapter 3, I include abstention votes (when a deputy is in Congress, counts for quorum, but doesn‟t cast a yes or no vote) and obstruction votes (when a deputy is in Congress, but doesn‟t count for quorum by voting to obstruct the House‟s business) as meaningful. If a deputy was serving in Congress at the time of the vote (many deputies serve only partial terms), I also include an absence as meaningful. If a deputy fails to show up, for example, then they are not doing businesses‟ or labor‟s bidding; thus, an absence is counted as a meaningful indication of support or opposition to legislation. 115
Table 4.4: Summary Statistics for All Variables in Model for 52nd Congress
Min Max Mean Std. Dev.
Dependent Variable Number of Votes Pro-Business Position 0 12 6.21 2.62
Proposed Causal Variables Campaign contributions from corporations (in reais) 0 2,293,100 134,627 195,549 Member of leftist party out of government coalition 0 1 0.028 0.165 Member of leftist party in government coalition 0 1 0.282 0.450 Interaction term of member of leftist party out of 0 355,000 2,363 21,716 government coalition and campaign contributions from corporations Interaction term of member of leftist party in government 0 533,568 19,225 60,117 coalition and campaign contributions from corporations
Control Variables Supplemental Member of Congress 0 1 .130 .333 Supporter of Governor during election period and 0 1 .114 .317 Governor Supporter of President Number of Businesses in the State 888 132,188 36,605 40,602
Opportunities Deputy had to Vote 1 12 10.17 3.27
It should be noted that the subject matter of the legislation included here follows
the policies laid out by the winning presidential candidate in each of the previous
elections quite closely (Cardoso in the 51st and Lula in the 52nd). For example, the issues
covered in the legislation identified for the 52nd Congress are rather similar to the six
points laid out in the PT‟s Program for Government that included price stability,
efficiency of the taxation system, provision of long- term finance, investment in research
and development, education of the workforce, and selective investments in infrastructure
(Amann & Baer, 2006, p. 220).
The legislation also covers a wide variety of subject areas important to business.
The range of issues covered includes factors such as judicial reform, social security
reform and labor rights in negotiation and collective bargaining in the 51st Congress. In
116 the 52nd Congress, issues covered also vary widely, including small business access to credit, pension reform, and even reform of the campaign finance system. The wide variety of issues covered thus allows broad conclusions to be drawn about legislation concerning business interests, even though the issues covered are only those given by one
(albeit the largest) business lobbying group.
The legislation included in the analysis does differ slightly from the overall distribution of legislation included in the CNI‟s Agenda, although these differences are not extensive and stem primarily from the nature of this study, which focuses on recorded floor votes in Congress. First, the legislation included is, in general, slightly more controversial.61 Second, the legislation included in the analysis also includes slightly more constitutional amendments (PECs) than ordinary legislation (PL or PLPs) in comparison with all of the legislation found in the CNI‟s Agenda.62 Both more controversial issues and constitutional amendments tend to generate more floor activity, which thus generates more votes that can be explicitly tested. The differences, however, are slight and generally speaking do not generate significant issues for the analysis. As discussed in Chapter 6, examining the other pieces of legislation that have not generated any floor votes in Congress is a promising avenue for future research.
61 One way to measure controversy is to examine the overall number of recorded floor votes. Since any party can (usually) gain enough votes to launch a detached separate vote (DVS) on portions of legislation, more controversial legislation generally tends to generate more overall votes. The average number of floor votes on the legislation included is 2.54 while the average number of floor votes on legislation that the business community had a stated position on that became law and is not included in this analysis is 1.7, which is not significantly different. The legislation included in the analysis, therefore, generally tends to generate more active opposition than the legislation not included in the analysis, although not in a meaningfully significant way. 62 Constitution amendments (PECs) make up roughly 11.8% of the pieces of legislation that the CNI had a stated position in the Agenda from 1998-2007, but makes up 23.8% of the pieces of legislation included in the analysis. Conversely, ordinary laws (PLs) and complementary laws (PLPs) make up 90% of the legislation in the CNIs agenda, but only 76.1% of the legislation included in the analysis.
117
Key Independent Variables
To test whether business‟ financial support to deputies‟ campaigns increased the likelihood of voting pro-business, one of the key independent variables is a measure of the amount of corporate contributions a deputy received during the prior election period, measured in thousands of reais. As noted above, I predict that higher levels of corporate campaign finance should significantly and positively predict higher levels of pro-business voting. I also predict that the effects of corporate campaign finance should be a significant predictor for leftist deputies, in particular those who are members of the governing coalition. As with the analysis in Chapter 3, I included two multiplicative interaction terms since I expect that campaign finance affects leftist deputies differently.
The first multiplies the amount of corporate campaign finance a deputy received in the previous election with a dichotomous variable indicating whether a deputy was a member of a leftist party and a member of the governing coalition; the second combines the amount of corporate campaign contributions a deputy received with a dichotomous variable indicating whether the deputy was a member of a leftist party but in the opposition. In addition to these interaction terms, each of the constitutive terms of the interactions are included in the analyses as well.
As with the labor data analyzed in Chapter 3, all leftist deputados in the 51st
Congress (which was Cardoso‟s second presidential term from 1999-2003) were members of the opposition, and so only the variables that measure whether a leftist deputy was a member of an opposition party are included in that model. In the 52nd
Congress, both measures (whether a leftist deputy served in the governing coalition or in the opposition) and their interaction terms are included. Again, I not only expect that
118 corporate campaign contributions will have a distinct effect on leftist deputies, but I also expect that the leftist government variable, when combined with the corporate campaign finance variable, works to maximize the propensity of a leftist deputy to vote pro- business.
Control Variables
The analyses also include a number of relevant control variables to test for their independent effects on deputies‟ voting behavior on this legislation. First, I include a dichotomous measure of whether a deputy was a supplemental member of Congress (1) or not (0). Supplemental members of Congress take office when titular members resign, often to take executive level or appointed positions. Because they did not win enough votes in the previous election to win a titular seat, I expect supplemental members of
Congress to be more apt to support legislation that increases their competitiveness during the next election period. I therefore expect that being a supplemental member is positively associated with voting pro-business in both Congresses.63
I also control for systematic statewide variation in voting patterns caused by governors‟ influence in the congressional process (Samuels, 2003), although the findings are mixed in this regard (Arretche, 2008). I use the same variable described in Chapter 3 as a measure of governors‟ influence on state bancadas. To reiterate, I measure whether a candidate for federal deputy is in a party affiliated with the governor during the prior election period (a proxy for governor and deputy relationship), using data from the TSE. I then determine whether the governor of the state is in a party affiliated with the government, since I do not expect governors not aligned with the government (and, in fact, actively opposed to the government) to have much influence on the legislative
63 This variable was calculated using the deputies‟ biographies available on the Câmara’s website. 119 process. If both conditions hold, I code the dichotomous governor variable a 1, since an aligned governor may be likely to influence a deputy‟s vote. I expect that this governor variable is positively associated with pro-business voting in Congress because governors are intricately linked to their own state economies and seek to promote growth in the state.
In regards to this latter point, I also include a measure of the number of businesses in a state averaged over the Congressional period using data obtained from the Federal
Tax Registry (Commercio, 2009). The expectations here are fairly clear: I expect the number of businesses in an electoral district to be positively associated with pro-business voting.64
Results
Presented in Table 4.5 below, the results report the findings from two Poisson regression analyses, given that the dependent variable in the analysis is a simple count of how many times a deputy votes in pro-business direction. The number of cases includes
533 deputies in the 51st Congress and 603 deputies in the 52nd Congress. Again, the number of observations is higher than the number of deputies serving at any one point in time (513) given that many deputies fail to serve their entire term in Congress and are replaced by supplemental members of Congress. As in Chapter 3, the goodness-of-fit measures vary by Congress, and the modeling technique better predicts how a deputy votes in the 52nd Congress (pseudo-R2 of .16) than in the 51st (pseudo-R2 of .09).
64 A second way of measuring business influence could measure how important business is in an electoral district (in this case, the state), rather than the number of business in each state. An additional analysis was thus also conducted using industrial value added in each state (constant 2000 reais) as a proxy measure for business influence (IPEA, 2010). The results from that model are similar to the one presented (this variable remains insignificant across observations), and the inclusion of this measure does not change the results presented here. The results from the models using state business economic activity (instead of the number of businesses) are available upon request. 120
Table 4.5: Predicting the Number of Pro-Business Votes in the 51st and 52nd Brazilian Congresses
51st Congress 52nd Congress Poisson Count Model Poisson Count Model with Robust Standard with Robust Standard Errors Errors Coefficient Coefficient (S.E.) (S.E.) Corporate Finance From Prior Election (in thousands .0001685* -.0002438** of reais) (.0000798) ( .0000841) Expected direction: +
Left party deputy not in governing coalition (1= Yes) -.061511* -.0987304 Expected direction: - (.0283045) ( .0888464)
Interaction left party deputy not in governing coalition .0000191 -.0008612 and Corporate Finance from Prior Election (.000222) ( .0007841) Expected direction: -
Left party deputy in governing coalition (1 = Yes) -- .1243067** Expected direction: + ( .03093)
Interaction of left party deputy in governing coalition -- .0003564 and Corporate Finance from Prior Election (.0002444) Expected direction: +
Supplemental Member of Câmara (1= Yes) .0024417 .0687269 Expected direction: + (.0387109) ( .0425983)
Number of Businesses in the State (in thousands) -.0002076 -1.63e-06 Expected Direction: + (.000233) ( .0002968)
Party Label Supported Governor AND Governor‟s .0282709 -.0181291 Party Supporter of Government (1=Yes) (.023372) (.0500518) Expected direction: +
How many Opportunities Deputy had to Vote .1355677** .1374629** Expected Direction: + (.0069642) (.0062221)
Constant .1648777* .3359647** (.0764158) (.0757628)
Model Summary Statistics N = 533 N = 603 Pseudo R2 = 0.0879 Pseudo R2 =0.1596 Wald chi2(7)= 538.61 Wald chi2(9)= 704.36 Prob > chi2 = 0.0000 Prob > chi2 = 0.0000
** p < .01, two-tailed * p < .05, two-tailed
121
As noted previously, the Poisson regression coefficients presented are difficult to interpret: they represent an increase of one unit in the log of the expected count.
Furthermore, the significance of the interactive relationship is not clearly deduced from the output presented above because hypothesis testing must take into account the relationship across the range of values of these variables (Brambor, Clark, & Golder,
2006). Therefore, hypothesis testing is conducted by calculating the marginal effects, and the impact of the proposed causal variables is then reported using predicted probabilities for ease of interpretation.65
I begin with the results of the 51st Congress, when all leftist deputies served in the opposition. The marginal effects of the interaction term in the 51st Congress are shown in
Figure 4.5 below. The results are somewhat surprising: the predicted relationship is statistically significant only at very low levels of corporate campaign finance, at approximately 100,000 reais (as indicated because the confidence intervals are not longer both below zero under this value). Even at the low levels of corporate campaign finance, the relationship, while in the predicted direction, is tenuous at best. The results suggest that the predicted relationship does not hold in the 51st Brazilian Congress when the left served in opposition. In other words, neither corporate campaign contributions nor serving in opposition significantly impacted leftist deputies‟ votes on this business legislation in the 51st Congress.
65 Marginal effects are calculated using the “grinter” command add-on for Stata (Boehmke, 2008). Predicted probabilities are calculated using the Clarify utility for Stata (Tomz, Wittenberg, & King, 2001; King, Tomz, & Wittenberg, 2000) 122
.2
.1
0
-.1
Marginal Effect of Left of Marginal Effect
-.2
on Pro-Business Votes- 51st Congress 51st Votes- on Pro-Business -.3 0 100000 200000 300000 400000 500000 Corporate Finance Election Before Dashed lines give 95% confidence interval.
Figure 4.5: Marginal Effects of Leftist in Opposition on Number of Pro-Business Votes in the 51st Brazilian Congress Across Range of Corporate Contributions Given During the 1998 Election Period
While these results are somewhat surprising, it should be noted that Cardoso had
amassed a significant portion of the Câmara to support him. His coalition, which Santos
& Vilarouca (2008) note operated as a parliamentary coalition in practice, had over 60%
of the seats in the Câmara, well more than enough to pass ordinary legislation and
constitutional amendments. Thus, the left‟s opposition to the government was feeble and
primarily in the form of vocal opposition, rather than an opposition movement that could
effectively block government proposals. Given the lack of seats by the opposition- which
in the 51st Congress was the left- it could not in practice actively prevent much of
Cardoso‟s agenda from becoming law.66 Thus, voting against legislative proposals
66 Although the left did not have enough seats to prevent the government from implementing legislation through voting procedures, it did have other parliamentary tools at its disposal, including the ability to introduce unlimited detached separate votes (DVS‟s) on legislation. It used this tool to effectively block Cardoso‟s proposed social security reform, although the use of DVS‟s by the left to block legislation 123 carried little benefit other than to show supporters that they actively opposed the Cardoso administration, which was vehemently reviled by organized labor in particular.
On most legislation, and particularly legislation related to labor laws, the left actively opposed the administration because that carried little tangible risk, while opposing the government carried significant benefits because it helped to shore up the support of traditional supporters and others opposed to the policies of the Cardoso administration. Therefore, on most forms of legislation, voting against the government carried little tangible risk. On legislation on which the business sector took an active interest, however, the left‟s opposition to the government did carry a tangible risk: voting against the business-favored position on legislation carried the risk of alienating important financial sectors of society, and in particular the segment of society that could help deputies during election periods. Thus, the left was caught in a “Catch-22” situation: on the one hand, opposing the government was important for their constituents, yet opposing the government on legislation that benefitted the business community carried with it important political risks. The findings presented here, showing essentially null results for the 51st Congress, suggest that the left‟s position on this business legislation oscillated between performing as opposition that furthered the support of traditional allies and supporting legislation that powerful financial interests supported.
The marginal effects for the 52nd Congress, however, reveal a different picture. As noted above, many deputies from leftist parties entered the governing coalition in the 52nd
Congress (dividing these deputies with leftists who remained in opposition to the government). Presented in Figure 4.6 below, the marginal effects of the interaction term
eventually resulted in a new parliamentary rule on their use, limiting each party to four on each piece of legislation. 124
for leftist deputies serving in a party in the governing coalition confirm the predicted
relationship; as both bands of the confidence interval are above zero, this interaction is
significant across the range of values for these variables.
.5
.4
.3
.2
on Pro-Business Votes- 52nd Congress 52nd Votes- on Pro-Business
.1 Marginal Effect of Leftist in Governing Coalitionin Governing Leftist of Marginal Effect
0 100000 200000 300000 400000 500000 Corporate Finance Election Before Dashed lines give 95% confidence interval.
Figure 4.6: Marginal Effects of Leftist in Governing Coalition on Number of Pro-Business Votes in the 52nd Brazilian Congress Across Range of Corporate Contributions Given During the 2002 Election Period
The results indicate that serving in a party in the governing coalition is a
significant determinant of how leftist deputies vote. The results also indicate that this
impact is contextualized by how much deputies received in corporate contributions
during the previous election period; leftist deputies serving in government who had
received more in corporate contributions are predicted to cast a higher number of pro-
business votes than leftist deputies who received no corporate campaign contributions.
Predicted probabilities were also calculated for ease of interpretation. To calculate
the predicted probabilities, I assume a leftist is in a party in the governing coalition and is
125 a member of a party that supported their home state governor in the last election. The number of business in the state is held at the mean of 36,605 and the number of opportunities to vote variable is held at the median of 12. Table 4.6 shows that, as hypothesized, higher levels of corporate contributions increase the amount of pro- business votes cast by leftist deputies in a party in government, although it should be noted that the relationship is not as strong as this impact was on labor-related legislation presented in Chapter 3.
Table 4.6: Predicted Probabilities of Number of Pro-Business Votes by Leftist Deputies in the Governing Coalition in the 52nd Brazilian Congress
0.60 0.50 0.40 0.30
0.20 0 Reais
Predicted Probability Predicted 0.10 125,000 Reais 0.00 250,000 Reais 0 to 3 4 to 8 9 to 12 375,000 Reais 0 Reais 0.04 0.54 0.35 500,000 Reais 125,000 Reais 0.04 0.53 0.36 250,000 Reais 0.04 0.51 0.37 375,000 Reais 0.03 0.50 0.37 500,000 Reais 0.03 0.48 0.38 Predicted Number of Pro-Business Votes
The predicted probability of casting 0 to 3 pro-business votes (or voting anti- business most of the time) for any deputy who serves in the governing coalition is between 3 and 4%; this value decreases only slightly over the range of corporate campaign finance and indicates that serving in government was a significant predictor of voting pro-business. The relationship is further contextualized over varying levels of
126 corporate contributions. A deputy who receives 500,000 reais in corporate campaign contributions is expected to be approximately 6 percentage points less likely of casting only a median amount of pro-business votes in comparison with a deputy who received no corporate contributions and a slightly higher probability of casting 9 to 12 pro- business votes. Overall, although the results are less substantial than those found regarding the labor legislation in Chapter 3, the results still lend support to the hypothesis that corporate campaign contributions move deputies in a pro-business direction; this also confirms the hypothesis that serving in the governing coalition was a significant determinant of whether deputies votes in a pro-business direction. Moreover, as the significance of the interaction term suggests, these impacts are amplified when both of these conditions are met.
The results for leftist deputies in opposition, however, are not as substantial. As
Figure 4.7 indicates, the relationship between being a leftist in opposition and campaign finance is statistically significant only between approximately 100,000 and 200,000 reais.
Below 100,000 reais and above 200,000 reais, these variables do not have a significant impact on deputies‟ votes.67
None of the control variables (except the simple control of how many times a deputy had the opportunity to vote) are significant in either analysis. These results indicate that immediate factors- financial support from corporations and serving in the government- had the greatest impact on deputies‟ vote choice, rather than macro-factors
(such as the number of business in the state) or influence exerted by other important players (such as governors). This latter point, in particular, supports recent work on the
67 Given the lack of significance over most of the range of corporate campaign finance, I refrain from presenting predicted probabilities, although those results are available upon request. 127
role of governors in Brazilian politics that questions their overall influence on the
legislative process (Cheibub, Figueiredo, & Limongi, 2009). The fact that the most
proximate factors influenced deputies‟ votes is not surprising; unlike the labor data
analyzed in Chapter 3 that had distinct costs on large constituencies, the legislation
analyzed here had specific costs only a distinct constituency (Brooks & Kurtz, 2007).
.5
0
-.5
-1
on Pro-Business Votes- 52nd Congress 52nd Votes- on Pro-Business
Marginal Effect of Leftist not in Governing Coalitionin Governing not Leftist of Marginal Effect -1.5 0 100000 200000 300000 400000 500000 Corporate Finance Election Before Dashed lines give 95% confidence interval.
Figure 4.7: Marginal Effects of Leftist in Opposition on Number of Pro-Business Votes in the 52nd Brazilian Congress Across Range of Corporate Contributions Given During the 2002 Election Period
Discussion and Conclusion
Overall, the results presented in this chapter lend partial support to Hypothesis 2
and full support to Hypothesis 5, as outlined in Chapter 2. These findings demonstrate
that campaign contributions from businesses generally had a statistically significant
impact on how leftist deputies in the 52nd Congress voted on legislation of interest to the
CNI (the primary business lobbying organization) and that this relationship has increased
128 over time as businesses have contributed more money to the campaigns of leftist deputies. Although increased corporate campaign finance had little effect on how leftist deputies voted on this business legislation in the 51st Congress, the results demonstrate that the amount of campaign contributions that leftist deputies received from businesses significantly increased the likelihood that they would vote in a pro-business direction in the 52nd Congress.68
This distinction stems from the emergence of both conditions proposed in this analysis. First, leftist parties were now serving in the governing coalition. While serving as opposition allowed leftist parties to maintain their opposition to neoliberal reform in the 51st Congress, once those parties were in power in the 52nd Congress, they needed to formulate macroeconomic policies that benefitted a much larger constituency. Given the absence of a competing economic model with proven success, they found that continuing with the policies laid out by the Cardoso administration (that they routinely had previously critiqued) was the best way to maintain economic stability.
Second, leftist legislators also began to attract substantially more money from corporations in 2002 compared to 1998. Unlike in 1998 when leftist parties did little to appease business concerns about their active opposition to Cardoso‟s economic policies, in 2002 leftist legislators took important steps to appease the business community. Lula, as noted in Chapter 3, even went so far as to meet with important business leaders before the election, wrote the “Letter to the Brazilian People” affirming his commitment to prudent macroeconomic policies and willingness to pay back Brazil‟s debt, and chose a
68 A preliminary extension of the analysis into the current (53rd) Congress reveals a similar pattern. Available upon request, these results further confirm that the processes occurring in the 52nd Congress extends into the current Congress. These results are only preliminary, however, because the 53rd Congress is still in session. 129 business leader as his running mate. These steps led to increasing financial support from the business community in 2002 for leftist deputy candidates, which in turn led to increasing support for policies favored by the business community in the 52nd Congress
(2003-2007) compared to the 51st Congress when the left opposed the neoliberal (and pro-business) policies of the Cardoso administration.
These results thus indicate that the emergence of new allies has had important implications on representation in Brazil. In this case, increased financial support from corporations has impacted how leftist deputies vote on business-oriented legislation.
Traditionally at odds with one another, the left increasingly has supported a pro-business position in Congress, with both sides finding common ground to not only reduce the so- called “Brazil cost,” but implement policies to reduce the tax burden and increase growth rates (Kurtz & Brooks, 2008).
In conjunction with the findings in Chapter 3, it is becoming clear that the institutions structuring campaign finance in Brazil have important implications on how deputies vote in Congress. By allowing businesses to contribute to campaigns, but preventing other important societal organizations (such as labor unions) from making campaign donations, the rules structuring campaign finance affects how deputies vote, and they are particularly important in impacting how leftist deputies in Congress vote. As contributions from corporations to leftist deputies have increased, deputies in leftist parties have increasingly voted against their traditional allies and for the emerging business constituency. The findings here suggest that the left‟s transformation in Brazil, and in particular the PT‟s, is explained, at least in part, by the emergence of new political allies and a rational response by leftist deputies to the concerns of those new allies.
130
As demonstrated here, leftist politicians had clear incentives to support policies that business supported (Stokes, 2001). An important question raised by this analysis, however, is whether business will continue to influence Brazilian politics. How can business, for example, remain influential, especially in light of recent corruption scandals that have brought to the forefront many important questions about the role of money in
Brazilian politics? In other words, how do businesses ensure that they will receive favorable support in coming years, when so many are concerned about the corrupting influence of money? Chapter 5 now turns to that question.
131
Chapter 5
Businesses‟ Continuing Influence on Congressional Behavior: Ex-Post Contributions and Voting Patterns by Leftist Deputies
A medical doctor by training, Arlindo Chinaglia was first elected to the Brazilian
Câmara dos Deputados in 1994. He reported only 200 reais in contributions from corporations for his campaign. A long-time member of the PT, he was (and is) an active internal player in the party (Lacerda, 2002; Meneguello & Amaral, 2008). He briefly served as a national director of the party in 1995, and from 1995-1997 actively opposed the direction Luiz Inácio “Lula” da Silva and his Articulação faction wanted to move the party (Lacerda, 2002) In 1998, Chinaglia ran for re-election. He received 16,361 reais from corporations during the campaign- none from major companies. During the 51st
Congress, Chinaglia voted in a pro-labor direction on the legislation examined in Chapter
3 100% of the time, making him a reliable labor ally. In contrast, he only voted pro- business on only one of the legislative votes examined in Chapter 4; most of the other deputies in the PT voted more pro-business than Chinaglia in that Congress.
In 2002, when Chinaglia ran for reelection, his contributions from businesses increased steadily. He received 64,688 reais from companies, including major corporations such as Banco ABN Amro, the Suzano group (a major paper company) and
Ricahuelo (a major clothing store). It was during the 52nd Congress that major changes took place in Chinaglia‟s career, moving him away from internal party politics and into the national spotlight. In 2004, he became leader of the PT in the Câmara and went on to
132 become leader of the government in 2005 during the height of the Mensalão scandal. It was also during the 52nd Congress that Chinaglia‟s position on labor- and business- oriented legislation changed; he voted pro-business 80% of the time (7 out of 9 votes cast) and pro-labor none of the time (3 of 3 votes he cast were against the labor position).
In 2006, when Chinaglia ran for reelection again, he received over one million reais in campaign contributions from corporations. Contributions included 100,000 reais from Vale (the world‟s largest iron ore producer), 150,000 from OAS Construction (and more than 350,000 from construction companies in total), 70,000 from Companhia
Siderúrgica Nacional (one of the world‟s largest steel companies), and 50,000 from
Bertin (the largest meat producing company in Latin America with operations in over 100 countries), among others.69 The “who‟s who” list of Brazilian business made Chinaglia the 22nd highest recipient of corporate campaign contributions in the Congress during that election period.
Clearly some of Chinaglia‟s newfound financial support from the business community stemmed from his position in power in Congress, as well as his internal position as a power broker within the PT. Yet, this anecdotal case is not as unique as it seems.70 A number of other deputies saw their contributions from businesses rise dramatically, following the change within the PT and the left more broadly. For example,
Ricardo Berzoini (PT-SP), a moderate within the PT and social security minister during the social security reforms discussed in Chapter 3, voted pro-business 100% of the time in the 52nd Congress and received almost 900,000 reais for his reelection campaign in
69 Information on contributions was obtained from the TSE. Information on companies was obtained from their respective websites. 70 Chinglia‟s case was reported here because he was one of the few deputies to serve in the Câmara from 1994 until the present. 133
2006. Jose Eduardo Cardozo (PT-SP), a rising star in the PT who would later become party president, voted with business 75% of the time in the 52nd Congress; he received close to 900,000 reais in 2006 when running for federal deputy. The question remains, therefore, as to what caused this rise in contributions and what could be responsible for the vast increase in corporate financial support to some leftist deputies but not others?
In this chapter, I extend the analyses presented in the previous two chapters by examining whether business will remain influential by continuing to support friendly allies. The previous two chapters presented evidence that corporate campaign contributions given during the previous election period are a significant determinant of how deputies in Congress vote on legislation deemed important by labor and business interests. In both cases, the contributions considered were those given by businesses in the election period before a Congress: for example, how the amount of corporate campaign contributions given to a deputy in the 1998 election affected his legislative votes in the 1999-2003 Congress. In other words, as the previous chapter demonstrated, the amount of corporate finance in the prior election period increases leftist deputies‟ propensity to vote pro-business. In this chapter, I argue that business contributions are also, in part, contingent on past support. Thus, while most contributions are given proactively to influence policy, these contributions are also given to those politicians whose demonstrated support (even if small) is more likely to be bought with future contribution increases.
Business is therefore both proactive and retroactive in its financial support of deputies‟ campaigns, although their retroactive behavior stems primarily from their desire to remain proactively influential in subsequent Congresses. I argue that, in order to
134 remain influential, businesses made future corporate campaign contributions contingent on whether leftist deputies supported businesses‟ position in Congress. This is, in my formulation, a rational investment strategy by businesses to attempt to continue to influence Brazilian politics. If businesses reward legislative behavior by increasing their contributions even further in the following election period, then business can expect to influence the legislative process even more. Furthermore, by supporting leftist deputies who had supported their positions in Congress, businesses could assure themselves of future influence (given that their contributions influence how deputies vote), even among leftist administrations. As a result, it should be anticipated that- even in the presence of a leftist government- Brazilian businesses will continue to influence politics and achieve favorable legislative outcomes for the foreseeable future in Brazil.
As in previous chapters, I argue that the Congressional and electoral realms in
Brazilian politics are closely tied and that behavior in Congress and electoral pressures are intricately linked. Most scholars to date have tended to focus on one realm or the other, with many arguing that unresponsive and individualistic legislative behavior is a result of the electoral system (Ames, 2001; Mainwaring, 1999). Others have focused predominantly on internal Càmara rules, Presidential power, and the role of party leaders as evidence of strict discipline in Congress and, therefore, of a separation in the electoral and Congressional realms (Figueiredo & Limongi, 2002; Figueiredo & Limongi, 2000;
Pereira & Mueller, 2003; Armijo, Faucher, & Dembinska, 2006; Hagopian, Gervasoni, &
Moraes, 2008). However, I argue that the two are closely connected and that one is highly related to the other; in this case, behavior in Congress (how deputies voted in
135
Congress) is closely tied to the electoral realm (the amount of corporate campaign contributions they received).
How the Left Changed
Leftist deputies had a strained relationship with business during the 1990s, as detailed in Chapter 4. Following businesses‟ active opposition to Lula‟s 1989 campaign
(which many credit, at least in part, for Lula‟s defeat) and the left‟s agenda to increase state control over the economy, business and leftist parties actively opposed each other throughout the decade. However, beginning in the late 1990s and into the early part of the next decade, leftist parties began to adopt centrist positions more agreeable to business.
In turn, a financial relationship soon developed between businesses and leftist legislators.
Clearly, leftist deputies had a compelling incentive to attempt to attract business support during election periods; higher levels of corporate campaign finance made deputies significantly more competitive. To illustrate this initial point, I conducted two
OLS regression analyses on the valid vote share (measured as the percentage of the popular vote) that all candidates for federal deputy running in the 1998 and 2002 elections received in those respective elections. The key independent variable in each is the amount of corporate campaign finance that those candidates received for each election. The results, reported in Table 5.1 below, reveals that valid vote share during election periods is significantly predicted by the amount of corporate campaign finance deputies receive, which confirms previous studies on campaign finance and vote share in
Brazil (Samuels, 2001). In fact, attracting corporate campaign finance is a strongly significant and positive predictor of what percentage of the vote deputies receive in both elections, even controlling for incumbency, presidential coattail effects (as captured by
136 the PSDB in 1998 and PT in 2002 variables), state size and competitiveness of the race.71
Corporate money, driven by a host of factors including (but not limited to) presidential poll results, candidates‟ positions on issues, and past voting records, therefore influences federal deputy election outcomes in a meaningful way.
Table 5.1: Predicting Valid Vote Share (Measured as Percentage) for Candidates for Federal Deputy (1998 and 2002)
Regression Regression Coefficients Coefficients (Standard (Standard Errors) Errors) 1998 Election 2002 Election
Corporate Campaign Contributions Given During 3.171E-6*** 2.405E-6*** Election Period (measured in reais) (4.79E-7) (2.65E-7) Expected Direction: + Member of the PT (1 = member of PT) -.171 .093 Expected Direction: - in 1998, + in 2002 (.129) (.085)
Member of the PSDB (1 = member of PSDB) .048 -.004 Expected Direction: + in 1998, - in 2002 (.130) (.105)
Incumbent Deputy (1 = incumbent) 1.260*** 1.371*** Expected Direction: + (.103) (.084)
Candidate Competing in São Paulo, Minas Gerais, or Rio -1.592*** -1.374*** de Janeiro (1 = candidate from a large state) (.124) (.070) Expected Direction: - Number of Candidates Competing for Each Seat in State .069 .116*** (measured as # of candidates in state divided by seats (.035) (.084) available) Expected Direction: - Constant .887*** .084 (.210) (.032)
Model Statistics N= 1563 N= 2546 R2=..266 R2= .275 Adj. R2 = .263 Adj. R2 = .273 F= 93.854 F= 160.542 DF= 6 DF= 6 *** P < .001, two-tailed, ** p < .01, two-tailed, * p < .05, two-tailed
71 As expected, the incumbency advantage holds for both elections, with incumbent candidates receiving a significantly higher valid vote share than non-incumbents in both elections. Candidates from large states also received significantly more votes in these elections. Contrary to expectations, a higher number of candidates competing in the 2002 actually increased candidates‟ valid vote share, although this significant impact only holds for the 2002 election. No other control variable had a significant impact in either model on candidates‟ vote share. Running the model with GLS and panel corrected standard errors by state changed little about the results (results available upon request). 137
Specifically, an increase of 50,000 reais in corporate campaign contributions (a fairly average level of corporate campaign contributions) significantly predicts a .16 percentage point increase in valid vote share obtained by candidates for federal deputy in the 1998 election and a .12 percentage point increase in valid vote share in 2002. Further extrapolation reveals a very distinct advantage: the models predict that a deputy who receives 500,000 reais in corporate campaign contributions will increase their valid vote share by 1.6 and 1.2 percent, respectively.
While these numbers may seem small, it is important to note that the average winning percentage for deputies in Brazil is also quite often small, thus indicating that corporate contributions‟ impact on vote share were significant. In 2002, the average winning deputy won 2.748% of valid vote share; in 1998, the average winning deputy won 2.754% of the valid vote share. In the large states of Minas Gerias, Rio de Janeiro and Sao Paulo in 1998 average winning deputy received only 0.781% of the overall vote, while in 2002, the average winning deputy received only 0.796% of the vote, an exceedingly small percentage of the overall votes cast. In São Paulo, the number was even smaller (0.559% in 1998 and 0.618% in 2002).
These initial results therefore demonstrate that leftist deputies had an undeniable reason to attempt to attract financial support from businesses for their electoral campaigns. Yet, how did deputies- particularly leftist candidates for federal deputy- attract financial support from corporations during these elections, given that business was, at the very least, skeptical of leftist politicians and, at the very most, hostile to them?
Furthermore, why did some federal deputies, like Chingalia, receive so much in corporate support, while others received so little? Most importantly, how did businesses decide
138 which deputies to support financially? I now turn to answering these questions, first noting that businesses in Brazil had a very distinct reason to support some leftist deputies more than others: to remain influential in Brazilian politics.
Theory and Hypotheses
Chapters 3 and 4 demonstrated that ex-ante campaign contributions were a significant reason that leftist deputies began to adopt anti-labor and pro-business positions when voting on legislation in Congress. In this sense, businesses give money to influence policy. And as evidenced in Chapters 3 and 4, business support was an important reason for the transformation of the left in Brazil. The left in Brazil had become increasingly reliant on corporate funding during election periods, and that funding moved leftist deputies in two directions. First, deputies who attracted significant amounts of corporate funding during their campaigns moved away from their traditional labor union allies and increasingly voted against labor unions‟ preferred position on legislation. Additionally, corporate contributions also moved leftist deputies to vote more pro-business, whereby leftist deputies who received higher amounts of business support during the previous election were significantly more likely to vote in a pro-business direction once in Congress, especially if they served in the governing coalition. Thus, businesses‟ influence on legislative behavior has been clearly documented in the prior two chapters.
Corporate investment in politicians follows a distinct logic that is rooted in basic assumptions of economic rationality. For example, Laurence Whitehead notes that if the benefits outweigh costs in five different areas, then rational businesses (continue to) invest in politicians (Whitehead, 2005). Specifically, business investment in politicians
139 must: 1) outweigh the costs if the money is invested elsewhere; 2) be easy to manage and not take up too much management time; 3) overcome the risk of adverse consequences if the corporation becomes too aligned with one party; 4) overcome the compliance problem and shirking by politicians who take the investments and then vote against business interests; and 5) reap rewards great enough to overcome the free rider issue, when the rewards accrue to other entities as well, including competitors (Whitehead,
2005, p. 29). When the investment rewards outweigh the costs, then it is rational for businesses to invest, and continue to invest, in politicians.
In this chapter, I assume that businesses are acutely aware of the investments they have made and whether they have resulted in large enough returns to outweigh the costs of their investments. Like any rational investor, businesses can recognize if their investments have gained them any support in Congress and are able to decide if further investments will reap them further influence. Thus, if businesses make investments in politicians, they expect a return on that investment from their allies and will only continue to invest if the rewards from that investment pay off.
This simple assumption naturally leads to an intuitive prediction: businesses should withhold (punish) high levels of support from deputies in whom they have invested but from whom they have received little support. Conversely, businesses should continue to invest greater sums of money in the campaigns of deputies who have consistently supported their positions in Congress and where the rewards have been sufficiently high. Seeking the greatest dividends on their investment, businesses are willing to make high-risk investments in politicians if the returns are sufficiently high,
140 and only willing to continue with that investment (i.e., re-invest) when they know the risk is lower. This is the case in Brazil; as Pereira, Rennó, and Samuels (2008) note:
Business owners in Brazil are not tied to any particular party, and prefer to spread their political “investments” around (see e.g. Schneider 2004). They seek low-risk or secure investments, and expect a high return. After all, they could simply put their money in a Brazilian bank and earn a healthy if limited return after four years. A campaign-finance “investment” must have lower risk than any other investment that does not enjoy indexing against the inflation rate (Pereira, Rennó, & Samules, 2008, p. 20).
Therefore, rational businesses continue to invest in politicians with whom their investments have garnered sufficiently high returns. An important part of the entire equation, however, is information. Businesses must know if their investments have gained sufficiently high returns. Businesses are likely willing to invest blindly in politicians if it seems likely that those politicians will win office, thereby securing them some influence, even though they might remain skeptical of the set of politicians. Once in office, however, business expects those assets to perform and expects a return on that investment. Thus, businesses use the information that is available to them and are likely to reward those politicians with whom their investments have paid a healthy return.
Because this information is essential to this process, businesses are more likely to pay greater attention to indicators of how leftist deputies perform, rather than centrist and rightist deputies. Unlike centrist and rightist politicians, whose support for business interests is reliable given ideological and personnel links between the two, business investment in politicians from parties whose main base of support is labor unions and whose leaders have been active in the labor union movement is much more risky. Much like foreign investors who invest in developing countries base their investments on a broad set of indicators (Moseley, 2003), businesses that have invested in leftist politicians
141 are thus more likely to take into account more information (when it is available) on which to base their investment strategy.
The easiest and most straightforward way for corporations to get the information that determines their levels of risk is by examining voting patterns in Congress when that information is available. Ultimately, businesses seeking to remain influential are most likely to give money to those politicians who have and who they believe will continue to be allies. Determining who their allies are, particularly those they are skeptical of (like leftist politicians), is key to determining not only which “investments” to make, but also which investment will pay off and gain business support in future Congresses. Hence, businesses seeking to remain influential will seek to identify allies within Congress to support during future election campaigns in order to further their influence.
Evidence supports the premise that businesses are actively aware of politics; a
CNI study presented by Mancuso (2007) suggests that businesses are well aware of how deputies vote in Congress. The CNI commissioned a survey of business leaders (called the RedIndústria survey), which found that 93.6% of business association leaders surveyed said they monitored the introduction of relevant legislative proposals in
Congress, while 86% said they monitored how legislative proposals were working their way through Congress (Mancuso, 2007, pp. 96-98). In the same survey, 89.4% of business leaders reported that they contacted a member of a commission considering relevant legislation, while 87.2% contacted the rapporteur responsible for the legislation
(Mancuso, 2007, p. 96). Both results indicate that businesses are actively aware of legislation and voting patterns by deputies in Congress.
142
There is, therefore, not only some initial evidence supporting the view that businesses are aware of who their allies are, but also significant theoretical reasons to expect that businesses make future contributions contingent on deputies‟ support for business legislation so they can remain influential in the coming Congress. Given businesses‟ active participation and awareness of the legislative process, I expect that, because the business sector seeks to remain influential in politics by making wise investments:
H3: The more that leftist deputies vote in a pro-business direction in Congress, the more money from corporations they are expected to receive during the following election period.
Again, this suggests that the electoral and Congressional realms are linked.
Rational deputies are acutely aware that more campaign contributions from corporations make them more competitive at election periods. They are also aware that businesses monitor the legislature; many of them are routinely contacted by businesses leaders to indicate their support or opposition to legislation. Deputies are thus likely aware that supporting legislation that business favors and opposing legislation that business also opposes could have important implications for their future political careers, by helping them to secure the contributions necessary for their reelection and career advancement.
And businesses are aware of which deputies they could influence the most with contributions.72
Businesses are also aware of how they can make smart investment decisions.
Supporting deputies who were anti-business during prior administrations (especially if
72As James Synder points out, the standard view in U.S. politics is that “rational contributors should not waste their money on either close friends or distant enemies but should focus their efforts on marginal enemies and uncertain friends” (Synder Jr., 1992, p. 16). The same is true in Brazil where corporations gave money to uncertain allies. 143 those deputies in the governing coalition whose support of the pro-business administration was imperative for securing the passage of key legislation) would make for an irrational re-investment decision. Hence, businesses also make important investment decisions depending on how often deputies supported their positions in the prior Congress. This is likely to be especially true for leftist deputies who businesses are aware could present more opposition to their positions in subsequent Congressional periods.
Analysis and Results
The models presented below examine whether increases or decreases in ex-post corporate contributions impacted by the way in which deputies had voted on important business legislation during the prior Congress, largely to determine whether business used the information at its disposal to make wise investment decisions and secure future support. As noted above, corporations‟ decisions to provide funding to deputies‟ campaigns may be driven by the ways in which these deputies voted on business interests. The hypothesis above thus indicates that the more that leftist deputies voted in a pro-business direction in a particular Congress, the more likely they are expected to receive an increase in corporate campaign contributions during the following election period.73
Dependent Variables
Corporations have increased their donations to deputies‟ campaigns steadily over time; in 2002, the average deputy in the House of Deputies received 153,858 reais in
73 This analysis is constrained because it is only possible to examine this process for deputies who served during the previous Congress and actually ran for re-election as federal deputy, since I examine how their voting patterns in Congress relate to future contributions from business. The number of observations are, however, sufficiently high for analysis.
144 contributions from corporations. In 2006, this almost doubled to 287,954 reais on average for incumbents running for re-election. The dependent variables in the analyses below take into account this general trend by measuring the difference between the amount of contributions (in reais) that deputies received from corporations in each of the
2002 and 2006 elections- obtained from the TSE- and the amount of corporate campaign contributions they received during the prior election period. The dependent variable for the analysis of the 51st Congress, therefore, is the difference in 2002 corporate campaign contribution from contributions received in the 1998 elections (or, the amount of corporate contributions received in 2002 minus the amount of corporate contributions received in 1998), and for the 52nd Congress, the dependent variable measures the change in the amount of corporate campaign contributions between the 2002 and 2006 elections.
Using the change in corporate contributions allows me to examine whether leftist deputies were punished or rewarded by businesses. The summary statistics for these and other variables are included in Table 5.2 (for the analysis of the 51st Congress) and Table
5.3 (for the analysis of the 52nd Congress) below.
Key Independent Variables
The key independent variable in both models is the percentage of pro-business votes a deputy casts in the 51st Congress (for the model predicting corporate contributions received in the 2002 election over the 1998 election) and the 52nd Congress (for the model predicting change in corporate contributions received in the 2006 election over the
2002 election). Relying on the legislative votes examined in Chapter 4, this variable measures the proportion of pro-business votes cast in each Congress. A percentage is used instead of the raw count of pro-votes cast since it is necessary to control for the
145 number of times a deputy could vote. Using the raw vote count as an independent variable, for example, would count a deputy who had one opportunity to vote and cast a pro-business vote the same as a deputy who had ten opportunities to vote, for example, but only cast one pro-business vote. In other words, I assume that businesses seek to determine which deputies offered consistent support to business when in Congress, which makes it necessary to control for how often a particular deputy votes. Given this, the key independent variable captures the percentage of pro-business votes cast by each deputy
(calculated by dividing the number of pro-business votes by the number of all votes each individual deputy cast on the business legislation in each Congress, which is listed in
Appendix B).
Table 5.2: Summary Statistics for 51st Brazilian Congress
Min Max Mean Std. Dev.
Dependent Variable Change in Campaign contributions from -250 1700.116 66.87236 151.2173 corporations (in thousands of reais) from 1998-2002
Proposed Causal Variables Percentage Scale of Pro-Business Votes 0 1 .4929306 .1315222 Member of Leftist Party (1= yes) 0 1 .2210797 .4155085 Interaction of Scale of Pro-Business Votes and 0 1 .0993059 .1977927 Member of Leftist Party
Control Variables Member of PT (1 = yes) 0 1 .1079692 .3107411 Member of PSDB (1 = yes) 0 1 .1979434 .3989624 Percentage Scale of Anti-Union Votes 0 1 .5784375 .349555 Interaction of Percentage Scale of Anti-Union Votes 0 1 .0152604 .0634593 and Member of Leftist Party Supplemental Member of Congress 0 1 .1388175 .3462012
Aligned Governor Candidate Won Outright or Made 0 1 .5244216 .5000464 Second Round Number of Business in the State 1.029 125.735 37.661 39.950
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Table 5.3: Summary Statistics for 52nd Brazilian Congress
Min Max Mean Std. Dev.
Dependent Variable Change in Campaign contributions from corporations -662.576 2270.833 155.3304 286.0408 (in thousands of reais) from 1998-2002
Proposed Causal Variables Percentage Scale of Pro-Business Votes 0 1 .6228833 .1876849 Member of Leftist Party (1= yes) 0 1 .3386728 .4738008 Interaction of Scale of Pro-Business Votes and 0 1 .2301144 .337213 Member of Leftist Party Control Variables Member of PT (1 = yes) 0 1 .1922197 .3944964 Member of PSDB (1 = yes) 0 1 .0892449 .2854236 Percentage Scale of Anti-Union Votes 0 1 .5513285 .3585577 Interaction of Percentage Scale of Anti-Union Votes 0 1 .2336957 .3766086 and Member of Leftist Party Supplemental Member of Congress 0 1 .1169725 .3217567
Aligned Governor Candidate Won Outright or Made 0 1 .4897025 .5004669 Second Round Number of Business in the State .888 132.188 36.930 40.211
I also expect that businesses will be more concerned with how leftist deputies vote than center and rightist deputies, who are closer to businesses‟ preferred ideological position. In other words, voting patterns in Congress should matter more for deputies from parties for which business is uncertain of their support. To gauge this interactive effect, I therefore created an interaction term between the percentage of pro-business votes variable and a dichotomous variable indicating whether the deputy was a member of a leftist party or not.74 I predict that higher percentages of pro-business votes should significantly and positively predict a larger increase in corporate campaign contributions received in the following election period by leftist deputies in both Congresses. This
74 As one of the key constitutive terms of the interaction term, this measure of whether a deputy was a member of a leftist party was also included as an independent variable in the models. 147 variable also takes into account that the vast majority of leftists were in the governing coalition (by comparing the 51st and 52nd Congresses), and this measure also details whether the business sector rewarded deputies who were strong supporters of the Lula administration in the 52nd Congress (which was mostly pro-business).75 I also run a separate model on only leftist deputies in which this interaction term is dropped.
Control Variables
Beyond voting patterns in Congress, a number of other factors might determine how much businesses contribute to deputies‟ campaigns. The first control variable I include in these analyses is whether a deputy is a member of the PT or PSDB (coded as dichotomous variables). Because PT members are traditionally at a significant disadvantage in receiving corporate campaign contributions during election periods
(Hunter, 2007), I expect that being a member of the PT to be negatively associated with campaign contributions in both Congresses, although it should have less of an effect on the 2006 contributions than 2002 contributions because of the business sector‟s satisfaction with the Lula administration. This also provides a measure of presidential coattails since the winner in both contests was Lula of the PT. As Lula became more popular with businesses, I expect that contributions to the PT (even though he had gone to some length to distance himself from the party) should increase and therefore the change in contributions between 2002 and 2006 elections should thus be positively related to PT membership. Conversely, I expect that being a member of the PSDB to be positively associated with the amount of contributions received (Samuels, 2001, p. 39).
75 Although previous analyses in Chapter 3 and 4 differentiated between leftists in government and those in the opposition, I drop the separation and consider leftist as one entity because the opposition term was insignificant in both previous analyses. This also makes theoretical sense given that I hypothesize that the information used to make investment decisions differs between leftists and center/rightist candidates. 148
Through the party‟s close links to the business sector, PSDB members traditionally receive significantly more money during election periods, and I expect those contributions to continue to increase.
I also include a measure of how often a deputy votes in an anti-labor direction in each Congress (again, this is measured as a percentage to account for the number of votes a deputy actually cast). I also include an interaction term of that scale and whether a deputy is a member of a leftist political party because I expect businesses to be more concerned with how leftist deputies vote. I included these measures as control variables, however, since I have no theoretical reasons to expect that businesses are overly concerned with those votes, but rather more concerned with how leftist deputies vote on business-oriented legislation. However, if these variables do matter, I expect that the more that leftist deputies vote in an anti-union direction (that is, against their traditional constituents), then this should result in a greater increase in corporate campaign support in the following election cycle.
I also include two control variables measured at the deputy level. First, I include a measure controlling for whether a deputy is a supplemental member of Congress. I expect that being a supplemental member of Congress to be negatively associated with campaign contributions during the following election period, even controlling for their business votes. Supplemental members lack the base of support that many titular members of
Congress have and traditionally have access to significantly less campaign contributions during election periods, so I expect their campaign contributions to not increase significantly. I also include a measure of how well the candidate for governor who was aligned to the deputy‟s party performed in the election, given some evidence of a
149 gubernatorial, rather than Presidential, coattail effect in Brazil (Samuels, 2000). This dichotomous measure is coded as a 1 if an aligned candidate for governor either wins the election outright in the 1st round (by winning over 50% of the vote) or wins enough votes to make the 2nd Round as one of the top two vote getters. I expect that deputies aligned with a winning candidate should receive more contributions from corporations.
Finally, I include a structural control variable that is expected to be positively associated with the amount of campaign finance received. This variable simply measures how many businesses are in the state, as compiled from the Federal Tax Registry
(Commercio, 2009). I expect that the amount of campaign contributions to be positively predicted by the number of businesses in the state.
Results
I test this hypothesis by conducting OLS regression analyses given that the dependent variable (amount of change in corporate campaign contributions from one election to another) is continuous. The results for the 2002 election (as predicted by deputies‟ votes in the 51st Congress) are presented in Table 5.4. The first column in the table reports the results for an OLS regression on all deputies from all parties who ran for re-election. The results in second column reports the regression results for leftist deputies only, allowing for further testing of the hypothesis. It should be noted that, in the second model, a number of variables drop from the analysis because the regression is conducted only on these leftist deputies; thus, variables measuring whether a deputy is a member of a leftist party, for example, can no longer be included. The R2 for the first model (which analyzes the data for the entire Congress) is only .06, which indicates that this model does a fairly poor job in predicting changes in deputies‟ corporate campaign contributions
150 in 2002. However, although the number of cases is small (86), the goodness-of-fit improves markedly in the second model (to R2 = .15).
Table 5.4: Predicting Change in Corporate Campaign Contributions between 1998 and 2002 (Based on Votes in the 51st Congress)
Regression Coefficients Regression Coefficients (Standard Errors) (Standard Errors) ∆ Contributions 2002 ∆ Contributions 2002 from 1998 (All from 1998 (Leftist Deputies) Deputies Only) Member Leftist Party on Majority of Votes 43.63633 -- (1= Member of Leftist Party) (70.27942) Expected direction: - Percentage Scale of Pro-Business Votes 66.23163 66.1625 (Range: 0-1) (70.17792) (77.04868) Expected Direction : + Interaction of Percentage Scale of Pro- -3.748267 -- Business Votes and Member of Leftist Party (139.5927) Expected Direction : + Member of PT for a Majority of Votes -7.827762 -7.982907 (1=Member of the PT) (36.24416) (23.41413) Expected direction: - Member of PSDB for Majority of Votes (1= 64.56756** -- Member of the PSDB). (20.44768) Expected Direction: + Percentage Scale of Anti-Labor Votes (Range 49.82578 125.4775 0:1) (38.84042) (93.89984) Expected Direction: + Interaction of Percentage Scale of Anti-Labor 81.1131 -- Votes and Member of Leftist Party (153.3152) Expected Direction: + Supplemental Member of Câmara (1= Yes) -27.83781 -27.21726 Expected direction: - (22.87605) (26.6163) Did Aligned Governor Candidate Win -1.505892 -12.99499 Outright in 1st Round or Make Second Round (15.96268) (22.48201) (1 = Governor won) Expected Direction: + Number of Businesses in the State (in .4655** .6625** thousands) (.1997) (.226) Expected Direction: + Constant -30.43463 6.967037 (44.93219) (35.78471) Model Summary N= 384 N= 86 R2= 0.061 R2= 0.155 Adj. R2 = 0.035 Adj. R2 = 0.091 F= 2.41 F = 2.42 DF= 10 DF= 6 *** p < .001, two-tailed, ** p < .01, two-tailed, * p < .05, two-tailed, „ p <.10, two-tailed
151
In terms of the hypothesis above, how deputies voted on legislation related to business interests in the 51st Congress (when the left was in opposition) did not significantly affect how much money they received in the 2002 election from corporations, which is confirmed by both models. Turning to the interaction term, I test for significance using differential calculus (Kam & Franzese, 2007), and the results
(which report the marginal effects, their confidence intervals and corresponding t-value scores) are shown in Table 5.5. Because the variable in question is dichotomous, a table
(instead of a chart, as in previous chapters) is used to report the marginal effects.
Table 5.5: Marginal Effects of Pro-Business Votes in the 51st Congress and Significance Testing of the Interaction Effect
Marginal High Value Low Value T-Value Effects Leftist 1.94 245.891 -226.147 0.082
Non-Leftist 9.87 139.487 -135.610 0.028
As Table 5.5 indicates, neither leftist nor non-leftist deputies‟ corporate campaign contributions in 2002 were significantly predicted by the proportion of their pro-business votes in the 51st Congress. In fact, corporate contributions during that election appear to be only driven by the number of businesses in the state and whether a deputy was a member of the PSDB. Each of these predicted an increase in the amount of contributions: a member of the PSDB was a significant predictor of receiving 64,567 reais more than non-PSDB members. The number of businesses also was predicted to increase the amount of corporate contributions: for every 1,000 more businesses in the state, a deputy is expected to receive 465 more reais in corporate contributions in comparison with the previous election. Both findings are intuitive, and when the model is run only on leftist
152 deputies, only the number of businesses in the state is significant (predicting a 655 reais increase in contributions with each 1,000 more businesses).
While the results for the 2002 election do not confirm the hypothesis presented above, they are intuitive when considered in the context of the 2002 elections. To reiterate, opinion polls placed Lula far ahead of any candidate from early July for the
October contest (see Figure 4.1 in the previous chapter), and although he did not win outright (facing José Serra of the PSDB in the run-off), most observers expected an easy win for Lula throughout the election period.
Businesses therefore sought to invest and hedge the risk associated with a leftist government by giving money to leftist candidates to influence them, regardless of how they voted during the previous administration. The amounts of money given to leftist deputies also indicate that they considered their investments as high-risk; the example of
Arlindo Chingalia‟s support in 2002 versus 2006 (as shown at the beginning of the chapter) is indicative of this. The results also indicate that there is an incumbency advantage of serving in the government; the significance of the PSDB variable indicates that businesses rewarded the main party in Fernando Henrique Cardoso‟s administration with greater financial support during the election. Did PT and other leftist deputies gain a government incumbency advantage in 2006, after they served as the main party in the governing coalition as the PSDB did in 2002? Furthermore, did businesses try to identify distinct pro-business leftists in which to invest, rather than give blanket contributions in that election?
To determine whether voting pro-business increased corporate donations following the 52nd Congress, I now turn to the OLS regressions conducted with the
153 change in corporate campaign contributions in 2006 from 2002 as the dependent variable.
The results are shown in Table 5.6 and, as before, the left column reports the results of the analysis conducted on all deputies in Congress, while the right column reports the analysis conducted on only leftist deputies. In comparison with the previous analysis for
2002, both models here better predict the change in corporate campaign contributions received in 2006. The R2 for the first model is .10, while the model conducted on leftist incumbents alone has an R2 of .146.
The results of the regression analyses reveal support for the hypothesis presented in this chapter that businesses increase the amount of their campaign contributions given to leftist deputies who supported their position in Congress. In the first model, the interaction between being a member of a leftist party and percentage of votes cast in a pro-business direction appears to have a significant impact, which is confirmed by an examination of the marginal effects, which are presented in Table 5.7. How a leftist deputy voted on legislation of interests to business in the 52nd Congress was a significant
(and strong) predictor of how well they were rewarded by businesses in the following election.
However, the same is not true for deputies from center and rightist political parties: the way in which they voted on this legislation deemed important by the business lobbying group does not significantly impact the amount of corporate funds they received.
154
Table 5.6: Predicting Change in Corporate Campaign Contributions between 2002 and 2006 (Based on Votes in the 52nd Congress)
Regression Coefficients Regression Coefficients (Standard Errors) (Standard Errors) ∆ Contributions 2006 ∆ Contributions 2006 from 2002 (All from 2002 (Leftist Deputies) Deputies Only) Member Leftist Party on Majority of Votes -281.9849** -- (1= Member of Leftist Party) (115.5084) Expected direction: - Percentage Scale of Pro-Business Votes -68.80508 397.793** (Range: 0-1) (102.6072) (126.2889) Expected Direction : + Interaction of Percentage Scale of Pro- 480.3656** -- Business Votes and Member of Leftist Party (176.776) Expected Direction : + Member of PT for a Majority of Votes -57.9972 -62.40309 (1=Member of the PT) (55.34514) (48.85466) Expected direction: + Member of PSDB for Majority of Votes (1= 160.2824** -- Member of the PSDB). (51.94626) Expected Direction: + Percentage Scale of Anti-Labor Votes (Range -33.83045 -22.57527 0:1) (51.74534) (72.65186) Expected Direction: + Interaction of Percentage Scale of Anti-Labor 16.8812 -- Votes and Member of Leftist Party (97.17343) Expected Direction: + Supplemental Member of Câmara (1= Yes) 33.47039 44.87172 Expected direction: - (47.20838) (70.6899)
Did Aligned Governor Candidate Win 40.84632 -43.35379 Outright in 1st Round or Make Second Round (28.29619) (45.7859) (1 = Governor won) Expected Direction: + Number of Businesses in the State (in 1.6407** 1.377** thousands) (.0003471) (.0004887) Expected Direction: + Constant 111.9172 -116.5809 (65.02073) (93.191405) Model Summary N= 413 N= 144 R2= .107 R2= .146 Adj. R2 = .086 Adj. R2 = .109 F= 4.9 F = 3.92 DF= 10 DF= 6 *** p < .001, two-tailed, ** p < .01, two-tailed, * p < .05, two-tailed, „ p <.10, two-tailed
.
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Table 5.7: Marginal Effects of Pro-Business Votes in the 52nd Congress and Significance Testing of Hypothesis
Marginal High Value Low Value T-Value Effects Leftist 411.56 693.53 129.56 2.86
Non-Leftist -68.81 132.30 -269.91 -0.67
The results in the second model (which includes leftist deputies only) further confirm this relationship. The positive coefficient for the percentage of pro-business votes variable indicates that casting a greater proportion of pro-business votes in the 52nd
Congress significantly increases the amount of corporate campaign contributions that leftist deputies received in the 2006 election. In fact, an increase of only 1% in this pro- business scale is predicted to increase the amount of corporate campaign finance that a leftist deputy receives by nearly 400 reais.
The results are indicative of the proposed causal relationship that leftist deputies who vote more pro-business are expected to receive greater corporate support during the following election period. Assuming businesses seek to further their influence and remain influential in subsequent administrations, they have significant incentives to support the deputies who have voted in favor of their positions in Congress, while punishing those who have voted against them. Like any investor, businesses withhold further investments if their previous investments do not pay off, while they become more likely to invest an even greater amount if their previous investments reap enormous returns.
To illustrate how the business sector continued to invest in surprisingly well- performing assets (in this case, these “assets” are leftist deputies), I calculated the
156 predicted values, which are presented in Table 5.8 below. These predicted values are calculated for a leftist deputy who is a titular member of Congress and member of the PT and who voted the mean percentage of pro-business votes. The number of businesses in the state is held at the mean and whether the aligned governor candidate made the 2nd
Round or won outright is held at the median.
Table 5.8: Predicted Change in Corporate Campaign Contributions in 2006, Based on Percentage of Pro-Business Votes in the 52nd Congress
Predicted Change in Corporate Campaign Contributions Percentage of 0 Decrease of 40,015 reais Voting in Pro- Business 0.25 Increase of 28,464 reais Direction 0.5 Increase of 96,943 reais
0.75 Increase of 165,423 reais
1 Increase of 233,902 reais
Predicted for a Leftist Deputy who is a titular member of Congress and member of the PT, who voted the mean percentage of anti-union votes. The number of businesses in the state is held at the mean and whether the aligned governor candidate made the 2nd Round or won outright is held at the median.
These predicted values indicate that, holding all else constant, a leftist deputy who never voted in a pro-business direction in the 52nd Congress (or, voted pro-business 0% of the time) is predicted to actually experience a 40,000 reais decrease in the amount of corporate contributions in comparison with what they had received in 2002. This indicates that a completely anti-business voting record is punished by businesses in the next election cycle. Conversely, a leftist deputy who voted pro-business on every vote possible is predicted to garner a significant increase of 233,000 reais in corporate campaign contributions. In fact, for every 25 percentage-point increase in pro-business votes, a deputy could expect to receive more than an additional 68,000 reais in the
157 following election. This confirms that businesses in Brazil act much like PACs in the
U.S. (Bronars & Lott Jr., 1997): they reward reliable allies in the legislature through campaign contributions in the subsequent election cycle.
In terms of control variables, the PSDB and number of businesses in the state variables are still significant when comparing the difference in contributions between
2006 and 2002. Again, both of these variables predicted an increase in the amount of contributions: a member of the PSDB was a significant predictor of receiving 160,282 reais more than non-PSDB members. The number of businesses also was predicted to increase the amount of corporate contributions: for every 1,000 more businesses in the state, a deputy is expected to receive 1,641 more reais in corporate contributions in comparison with the previous election. Both findings are intuitive, and when the model is run only on leftist deputies, only the number of businesses in the state is significant
(predicting a 1,377 reais increase in contributions with every 1,000 more businesses).
Both models also indicate that businesses are becoming more involved in politics, contributing more regularly than they have in the past.
Conclusion
The results from the analyses above again indicate that electoral and congressional behavior by deputies in Brazil‟s Câmara dos Deputados is linked. The results offer support for the hypothesis that businesses reward and punish leftist deputies during election periods, based on whether deputies cast votes in the previous Congress in a way that was favorable toward business. The results also show that businesses are more concerned with the voting patterns of leftist deputies rather than those from center or rightist parties. As unlikely and uncertain allies, businesses were willing to invest some
158 money in 2002 in leftist deputies‟ campaigns without their demonstrated support in the previous Congress in order to hedge their risk, but invested heavily in those leftist legislators in 2006 who voted pro-business in the 52nd Congress when their initial investments reaped significant returns. Leftist deputies who supported policies that business favored in the hopes of future electoral gain found that there was a significant payoff during subsequent elections (Stokes, 2001)- not with votes, but rather with financial contributions from corporations. The results hold even when controlling for
Presidential and Gubernatorial coattail effects and the number of businesses in the state.
Overall, the findings confirm that the institutions structuring campaign finance in
Brazil also will have real effects on policy outcomes in Brazil in the foreseeable future.
The results (combined with those found in Chapter 3 and 4) indicate that not only do a priori contributions buy businesses‟ influence, but businesses‟ method of determining who to give additional money to in subsequent elections is designed to maintain that influence. Therefore, it is likely that businesses will continue to impact Brazilian politics in the foreseeable future. Clearly, politicians and businesses have learned how the campaign finance system in Brazil works and how to maximize returns for both parties.
What this means for representation in Brazil, however, is a different question. The results presented here suggest that businesses- through their campaign contributions- will continue to influence politics under both left- and right-wing administrations. The study presented here clearly raises important questions about the state of democracy in Brazil, where businesses can use their financial leverage to influence policy and where evidence suggests they will continue to do so. I now turn a discussion of the results and future research dimensions in the concluding chapter.
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Chapter 6
Conclusion
As leftist parties took control of governments in Latin America during the early part of this decade, investors around the world greeted their victories with great caution.
In Brazil, foreign investors began to flee the country in 2002 as opinion polls put Luiz
Inacío “Lula” da Silva closer to a first round victory, scared that his victory in Brazil would reverse many of the pro-market policies put in place by the Cardoso administration
(Jensen & Schmith, 2005). However, the concerns of foreign investors did not come to fruition; in fact, the Lula administration has, on many policy dimensions, maintained more conservative macroeconomic policies than its predecessor. The main finding of this study is that corporate campaign contributions, moderated by the institutions structuring power in the Câmara, has affected how deputies from leftist parties vote once in
Congress, inducing leftist deputies who receive corporate contributions for their campaigns to vote- not only against legislation supported by their traditional constituents- but also in favor of legislation favored by the business community.
This dissertation started with a quote from Lula in 1994 in which the now-current
President of Brazil offers a justification for the party accepting campaign contributions from corporations. Trying to assuage the party‟s rank-and-file members that corporate contributions will affect how the party behaves, Lula notes that “getting money from this
160 kind of donor [construction companies] will only mean a loss of ethics if the party changes the way it behaves. Not only party militants, but many other people, don‟t understand this” (Branford & Kucinski, 1995, p. 101). This dissertation has found, however, that corporate campaign contributions (including those from construction companies), combined with the pressures of governing that made the Brazilian left increasingly willing to satisfy the concerns of other sectors of society rather than their traditional allies, have affected how deputies from leftist parties behave.
This dissertation started with two simple questions: why do legislators from leftist political parties support policies that labor unions (that form the backbone of their constituencies) oppose? And why do leftist politicians support policies that the business sector (which has long had a tenuous and sometimes hostile relationship with leftist politicians) supports? In order to measure both if and how the “party changed the way it behaved,” I developed two new measures using interest group policy positions to directly measure legislative behavioral change. These new measures, directly examining party change in light of interest group support or opposition, allowed me to more fully examine how the left‟s change in Brazil has affected (and been affected by) important groups in society.
The first of these measures (that gauges the amount of pro- or anti-union votes cast by deputies) relied on a voting guide published by the Departamento Intersindical de
Assessorial Parlamentar (or DIAP) on issues related to labor union movement
(Departmento Intersindical de Assessoria Parlamentar (DIAP), 2002; Departmento
Intersindical de Assessoria Parlamentar (DIAP), 2006). The main advocacy group for a large number of labor unions, DIAP‟s monitoring efforts of legislation were so
161 successful that the government in the 1990s sometimes held floor votes (rather than recorded votes) to prevent DIAP from determining deputies‟ positions (Hudson, 1998). I also developed a measure of pro- or anti-business votes cast by deputies using information from the Conferederação Nacional da Indústria (CNI)‟s annual publication on issues related to the business sector (Confederação Nacional da Indústria (CNI), 1996-
2009). The CNI, as the peak lobbying association for the business sector, has seen its influence grow in recent years, and its position on issues salient to the business sector is an important measure of overall business support for legislation (Mancuso, 2007).
The findings presented here suggest that corporate campaign contributions and serving in government help to answer both of these key questions. The institutions structuring these “two arenas” of politics (the electoral and the Congressional) both generated incentives for leftist deputies to support policies that labor unions opposed, but the business sector supported. The implications of these findings on representation in
Brazil are, as discussed below, profound.
Summary of Main Findings: Implications for Representation in Brazil
The principle of modern democratic government rests on representation. Yet, who exactly politicians represent once in office has caused many to question whether the majority of the citizenry would support democratically elected governments. Federalist
Paper #57, for example, went to great lengths to dispel the belief among many in the
United States in the late 1700s that the House of Representatives “will be taken from that class of citizens which will have least sympathy with the mass of the people, and be most likely to aim at an ambitious sacrifice of the many to the aggrandizement of the few.”
Concerns about elected representatives working for the powerful instead of the majority
162 of citizens has been oft- repeated since. Charles Lindblom‟s now famous work on
Politics and Markets, which repeatedly questions the role of big business in American politics, stresses that the wise policymaker knows the important role that business plays, even if they are opposed to what businesses often do. In market-oriented systems,
“collaboration and deference between the two [business and government] are at the heart of politics…the duality of leadership is reminiscent of the medieval dualism of church and state, the relations between business and government are no less intricate than in this medieval duality” (Lindblom, 1977, p. 175).
Others have stressed that the relationship is even more one-sided in favor of the business elite; because big businesses control the financial future of elected officials through their ability to influence campaigns, they control the political system and obtain policies that benefit them (Ferguson, 1995). And as communism collapsed, the role of money for many is expected to be even greater, since communism‟s decline “removed a major external pressure for the exercise of self-restraint by those with enough wealth to purchase undemocratic political advantage” (Whitehead, 2005, p. 10). This less-than- flattering view of politics suggests that government works for an elite constituency of the powerful at the expense of the masses who are unable to command the attention of government, and likely will for the foreseeable future.
The Declining Influence of Labor Unions in Brazilian Politics
If the government of Brazil truly works for an elite few, then who has the government not worked for? The findings of this project indicate that leftist deputies have moved away from their traditional allies (labor unions) due to the institutions structuring the electoral and Congressional arenas. Chapter 3 began by answering the first question
163 from above: why do legislators from leftist political parties support policies that labor unions (that form the backbone of their constituencies) oppose? The Brazilian organized labor movement is among the largest in the world and among the most powerful in the region. Labor unions had long formed the core of the left‟s constituency in Brazil; the
Partido do Trabalhadores (PT), for example, was intricately linked with the labor union movement in Brazil. The PT was formed out of a new unionism movement in Brazil in the late 1970s and early 1980s that sought to escape the bonds of corporatism, and throughout the 1990s, the PT explicitly sought to represent unions. The movement and the party shared leadership and worked to further each other‟s aims, with the labor unions, particularly the CUT, actively campaigning for PT deputies in Congress and leftist members of Congress actively supporting pro-labor union policies once in office.
As detailed throughout this study, the Lula administration has governed much differently than many observers had expected. Had the party, and the governing coalition in Congress that it led, represented the majority of its constituent base who were (and still largely are) workers affiliated with labor unions, then it is likely that a much different set of policies would have emerged. Yet, the Lula administration has throughout its time in office- as shown here- explicitly represented the business sector by supporting policies the business sector supports. Furthermore, the administration did the opposite of what many expected by not just supporting, but introducing, policies that its main constituency of organized labor has opposed. The results presented in Chapter 3 thus suggest that two sets of institutions in Brazil pushed leftist deputies to vote against their traditional allies.
Institutions, by generating incentives for politicians to behave in a specific manner and
164 rewarding politicians who do, are an important cause for why leftist deputies have abandoned their traditional labor union allies.
This project thus supports the growing body of literature stemming from Argelina
Figueriedo and Fernando Limongi‟s pioneering work that suggests that congressional institutions that centralize power with party leaders, the governing authorities of the chamber, and the President affect how deputies vote in Congress, inducing party discipline and organizing the chaos that many see as emblematic of Brazilian legislative politics (Figueiredo & Limongi, 1999). These institutions have, in my formulation, affected how leftist deputies have voted on issues that labor clearly supported or opposed.
Because the President and Congressional leaders increasingly supported an anti-labor position, institutions that centralized power in Congress allowed them to induce leftist deputies in the 52nd Congress (now mostly serving in the governing coalition) to support policies that labor unions opposed.
While it is clear that Congressional institutions are an important component of how deputies votes, they are not the only determinant of legislative vote choice. I thus differ from the more recent Congressional-based approaches to Brazilian politics by arguing that there is also a distinct electoral connection for what deputies do. More broadly, these findings support the conclusions of many scholars to date who argue that electoral institutions affect how deputies behave in Congress (Ames, 2001; Ames, 1995;
Mainwaring, 1999). I argue that campaign finance laws that allow (in practice) unfettered corporate campaign contributions, while simultaneously preventing labor unions from donating to political campaigns at all, has important implications on legislative outcomes. As leftist deputies in Brazil slowly began to realize that they needed
165 corporate funding to compete in Brazil‟s expensive electoral system (and since corporations are the only major donors allowed by law in Brazil), leftist deputies who received greater amounts of corporate support increasingly supported policies that reduced fiscal expenditures (even increasing the fiscal surplus under Lula) and reduced the deficit, all long-time goals of the business sector in Brazil. This has also, in turn, caused leftist deputies to become less reliant on labor unions and increasingly unwilling to support their demands in Congress.
The results of this “two-arena” model suggest that leftist deputies were strongly influenced by how much they received in corporate campaign contributions and whether they served in government. Both conditions maximized a leftist deputy‟s propensity to cast a lower number of pro-labor votes and the results thus confirmed the first and fourth hypotheses from Chapter 2. The results therefore indicate that the structure of institutions in Brazil have affected who leftist deputies represent once in office, and the institutions as they are currently structured have caused leftist deputies to cast an increasing number of votes against their traditional constituencies.
The Increasing Influence of the Business Sector in Brazilian Politics
Movement away from their traditional allies did not necessarily mean that leftist politicians in Brazil would suddenly become pro-business advocates. While corporate finance and the pressures of governing induced leftist deputies to support positions labor unions opposed, it is at first glance unclear whether the same set of institutions would cause leftist deputies to become more pro-business in Congress. Hence, Chapter 4 sought to answer the second question from above: why do leftist politicians support policies that the business sector (which has long had a tenuous and sometimes hostile
166 relationship with leftist politicians) supports? That chapter tested whether the same set of institutions also affected how leftist deputies voting patterns on issues favored by the business sector.
The results in Chapter 4 confirm that electoral institutions that encourage leftist deputies to accept corporate campaign contributions, as well as an increasingly pro- business leadership in the upper echelons of the left now leading the governing coalition in Congress, has also caused leftist deputies to vote more pro-business. As before, both conditions maximized the number of votes cast by leftist deputies in a pro-business direction. More corporate contributions, therefore, made leftist deputies in the governing coalition more likely to vote in favor of business and, conversely, less likely to oppose it.
Unlike the results in Chapter 3, however, the results in this chapter only hold for the 52nd
Congress, when most leftist deputies served in parties in the governing coalition. This implies that not only did both conditions further leftist deputies‟ propensity to vote in support of both interests, but it appears that both conditions are necessary to cause leftist deputies to vote in support of business. Although this analysis only partially confirms
Hypothesis 2, these findings provide full support for Hypothesis 5, as presented in
Chapter 2.
The results from both of the analyses thus paint a sobering picture of Brazilian politics; Brazil‟s government works primarily in the interest of big business and rarely supports the interests of other major societal groups. A clear extension of this- the subject of Chapter 5- addresses whether businesses will continue to influence Brazilian politics in the foreseeable future, especially in light of recent corruption charges that has made many
Brazilians skeptical of the role of money in politics.
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The Continuing Influence of the Business Sector in Brazilian Politics
The main findings of this dissertation demonstrate that in Brazil, governments of all ideological stripes have supported the policies favored by business, and this has resulted in a representative government making “an ambitious sacrifice of the many” for
“the aggrandizement of the few.” Whether or not this hurts the majority of citizens is debatable, since not all economic policies that benefit the business sector explicitly hurt the majority of citizens, and many benefit both groups.76 But if, for example, citizens elect politicians in an attempt to rein in businesses‟ influence, then the fact that all administrations in Brazil have supported policies benefiting business raises important questions about Brazilian democracy.
A government that claims to represent a mass constituency should seek to respond to that constituency‟s will. Many citizens supported Lula and the PT in 2002 in the hope that he and the party would clean-up the political system. Most Brazilians were frustrated with years of political crises, corruption scandals, and clientelism; when asked how often corruption occurs in their country in the 2002 Brazilian National Election Study, more than 80% thought corruption happened most or all of the time.77 The flow of money in politics- primarily from corporations, both legally and illegally- has greased the wheels of corruption in the minds of many Brazilians. Brazilians, including many in the upper and middle classes, supported Lula and the PT because in 2002 it was the only “clean” party in the Brazilian system. Of those who thought corruption happened all of the time in the
76 There is, of course, the age-old adage in the U.S. that “what‟s good for GM is good for the country.” In Brazil, the same could be said of many agro-industrial companies. 77 The exact question wording asked: “In your opinion, corruption among politicians in Brazil happens all the time, most of the time, happens occasionally, or never?” (ESEB, 2002). 168 country, 50% voted for Lula in the first round and 68% voted for Lula in the second round of the 2002 presidential election.
What happened when Lula and the PT took office? The party itself succumbed to the temptation that money holds and became embroiled, ironically enough, in perhaps the largest of the Brazilian corruption scandals ever to unfold. The “clean” party in Brazilian politics that, until 2005, had its anti-corruption stance as a significant part of its appeal for many voters, had surprisingly succumbed to the “dirty” politics commonly found in
Brazil.78 As these cases increase both in number and magnitude (for example, the governor of the Federal District was found in late February to be paying off allies, who were caught on film stuffing money into their underwear and socks (The Economist,
2010)), it is likely that the citizens will become even more frustrated by the amount and effect of money in politics.
Recent evidence suggests that this is the case and that citizens in Latin America are becoming increasingly dissatisfied with corruption in their nascent democracies
(Seligson, 2002). Although this dissertation does not speak directly to the issue of corruption, and rather has focused on the legal ways in which businesses influence politicians‟ votes, it still raises important questions about the influence of money. Thus, it is easy to extend from this analysis that if legal corporate campaign contributions have affected how deputies vote, illegal contributions are more than likely to do the same.
78 There were a large number of scandals, including PT members paying legislators to support the governing coalition in Congress monthly “salaries” to support the government, known as the Mensalão. Other scandals include the PSDB-led “Bloodsuckers” scandal where politicians received kickbacks for arranging the overpriced sale of ambulances, and a PT scandal where two campaign workers were found with $770,000 trying to buy information on the PSDB scandal during the election. Such practices have continued into the current Congress, with former President José Sarney (of the PMDB and now leader of the Senate) accused of illegally appropriating millions in funds from the Congressional purse, while his daughter was still under investigation for corruption charges stemming from her run for governor of Maranhão. 169
The mechanism through which voters can counter the influence of money is through the ballot box. Yet, this dissertation also raises questions about whether voters can, in practice, counter businesses‟ influence there, given that the amount of corporate funding is directly tied to winning (Samuels, 2001). Since those with more money can spend more on their campaigns (via advertising, free promotions [common in Brazil] and travel), they are more likely to win office. Yet because deputies rely on business for their most significant amounts of funding, they are also more likely to govern in favor of business. The campaign system in Brazil is a double-edged sword; not only do contributions buy influence in Congress (inducing deputies to vote a certain way), but they also are important for determining which deputies are elected to Congress in the first place.
Chapter 5 sought to examine how businesses will remain influential. The simple premise therein is that businesses will seek to remain influential by supporting the pro- business section of the left, thus ensuring that (because money equates to winning) a pro- business government will remain in power. The analysis specifically examined whether business pays attention to how deputies vote, and then whether businesses punish or reward deputies in subsequent elections based on their support for business interests when they vote. The results indicate that there is a strong government effect, but also a strong effect based on the vote choices of leftist deputies (not center of rightist deputies).
Leftist deputies who cast no pro-business votes in the previous Congress get punished by business during the next election (if they run for re-election) by receiving fewer campaign contributions than they had in the previous election, while the leftist deputies who support business 100% of the time are rewarded handsomely during the next
170 election period (if they run for re-election) by receiving even more corporate contributions than they had in the previous election. Since the amount of money spent is closely tied to election outcomes, businesses make smart “investments” to ensure continuing influence.
Whether this bodes poorly for Brazilian democracy in the long-term is not known, although this project‟s findings in Chapter 5 suggest that businesses‟ influence will likely continue into the foreseeable future, unless campaign finance regulations were to change
(as discussed below). If politicians can, in essence, be “bought” with campaign contributions (which this dissertation has suggested they can), then the long-term implications on Brazilian democracy certainly insinuates that Brazil‟s system will work for the “aggrandizement of the few” for some time to come.
Institutional Reform: Private versus Public Campaign Finance Systems
This dissertation has noted throughout that campaign finance laws in Brazil explicitly results in politicians becoming more beholden to business interests; allowing corporations to give (again, in practice) unfettered money to politicians has been among the primary reasons that leftist politicians in Brazil have become beholden to powerful business interests and a key reason why other interests (be they organized or unorganized) command little attention. On a practical level, a reform of Brazil‟s campaign finance system in which either the system became entirely funded by the government, or one where peak associations would be allowed to donate more freely, would be the two practical ways to circumvent these effects.
One way to “level the playing field” and reduce business influence would be to shift to a completely public funding system. The current campaign finance system in
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Brazil is a mixed one, with the government providing minimal sources of revenue to the political parties (but not for candidates who are expected to finance their own campaigns, by and large). To access funds, parties registered with the Supreme Election Tribunal
(TSE) must receive 5% of the valid votes in the last election for federal deputy and must also receive 2% of the vote in 1/3 of the states (Zovatto, 2005, p. 303). The current system also gives candidates free airtime and advertising, although for lower-level candidates this reach is limited. Thus, while the current system is mixed, as it is currently designed, it forces candidates to rely on outside sources of funding, the majority of which comes from businesses.
Moving to a publicly funded system would also require significant up-front costs by the government, but would also limit the amount of money spent during elections in
Brazil, which are currently among the most expensive in the world (Peixoto & Riberiro,
2009). It would also limit the influence of groups seeking sector-specific benefits, namely business. Finally, it would limit the role of money more broadly in Brazilian politics, thus potentially reducing corruption in Congress.
While businesses‟ contributions are technically restricted, in practice these restrictions are set so high (2% of revenue) that businesses‟ influence is clearly greater than any other group. A second way to control business influence would allow other societal organizations to legally contribute to campaigns at similar levels. Doing so would require little up-front costs by the government and would make all deputies less reliant on one sector or group for campaign funds. It would also allow different societal groups who currently have representatives who support their positions to remain in office and would limit the influence of one group, potentially creating a significantly more
172 representative government in Brazil, rather than one that represents solely the business sector.
Avenues for Future Research
There are two natural extensions for the study at hand. The first avenue for future research would examine the case of Brazil in more detail, focusing on how legislation which the pro-business CNI supported or opposed did not become law and how campaign contributions can affect the behavior of important veto actors in the legislative process over time. A second avenue for future research would put the proposed framework in comparative perspective. Both of these extensions of the research are explained in greater detail below.
Veto Points in the Brazilian Câmara: Deeper Analysis of an Inherently Murky Process
In addition to examining the impact of serving in government on legislative behavior, this study has detailed how the campaign finance laws, as they are written in
Brazil, have affected politics by allowing major corporations to donate money to political campaigns and by restricting the ability of major societal actors, such as labor unions and civil society organizations, from doing the same. How institutions are structured thus causes different political outcomes. The analyses conducted here involved an examination of this impact under the most restrictive conditions: open and declared campaign contributions and recorded plenary session votes. These restrictive conditions are an important advantage. On the other hand, analysis of the most restrictive conditions limits the scope of the study to a limited number of (albeit, important and most controversial) pieces of legislation that the labor union (DIAP) and business lobbying
(CNI) organizations have stated positions on, thereby restricting the scope of the study.
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If corporate campaign contributions affect how deputies vote in Congress when votes are open and recorded, one can only assume that businesses‟ behind-the-scenes influence is even greater (Mancuso, 2007). Campaign contributions may, for example, work to ensure behind-the-scenes support in gaining government contracts and inducing powerful actors to stop legislation. Cisco Systems, for example, was recently awarded a series of contracts in Brazil while simultaneously being under investigation by the
Federal Police for illegally arranging over 500,000 reais in illegal contributions to the PT
(Folha Online, 2007). More broadly, much of the legislation the CNI opposed was stopped by powerful actors in Congress before even reaching a vote in plenary session.
Like legislative processes elsewhere, the Brazilian legislative system has multiple places where important actors can impose veto power authority. An extension of the theoretical framework provided here will be adapted for a veto-point analysis of legislation to examine whether specific contributions have affected the legislative process in Brazil in more detail. In this regard, analysis would determine whether corporate contributions affected how legislation, particularly that which the business community opposes, was stopped and at which points.
The legislative process in Brazil involves multiple points at which legislation can be stopped. For the business legislation opposed by the CNI, the majority of the legislation did not become law, indicating that- at some stage of the legislative process- an actor with veto authority was able to stop the legislation from moving forward. In the
House, all legislation is referred to specific committees where legislation can be held up by: 1) the committee chair; 2) the rapporteur, who can either rewrite the legislation completely, sit on the legislation and refuse to issue a ruling, or issue a ruling not in favor
174 of the legislation; 3) a vote against the legislation by the committee that immediately kills the legislation; or 4) by attaching the legislation to an unpopular measure unlikely to ever pass the House or, conversely, by attaching unpopular measures to the legislation itself.
The other powerful actor in the legislative process is the leader of the Câmara and the Mesa, or governing body. The leadership of the Câmara can singlehandedly hold up legislation by: 1) creating a special committee to consider the legislation and then waiting indefinitely to create it; 2) withholding legislation that has passed committee by refusing to place it on the agenda; 3) holding the vote on legislation when a quorum is unlikely to occur; or again 4) by attaching the legislation to an unpopular measure unlikely to ever pass the House or by attaching unpopular measures to the legislation itself. The third way that legislation fails to become law is if it stalls in the Senate, either as an original measure or as measure that has passed the House and was now in the Senate. Essentially, there are multiple ways, including many of those presented here, that can kill legislation in the Senate.
Table 6.1 details the 555 unique pieces of legislation on which the CNI stated a position in its annual Agenda Legislative da Indústria from 1998-2007. The first column details that most of the legislation deemed important by the business community died in one of three ways: by stalling in committee; by stalling with the house leadership; or by stalling in the Senate. Eighty percent of the legislative proposals contained in the CNI‟s
Agenda died (as of January 1st, 2007) before even clearing the House.
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Table 6.1: Business Legislation by CNI and Outcome in the 51st and 52nd Brazilian Legislatures
Percentage of Favorable Legislation (out of Outcome for Overall Total Business Pieces of Organization Legislation) (out of section total)
Legislation That Did Not Become Law (between 1/1/1999 and 13/31/2007)
Legislation Stalled in Committee 21.8% (121) 63.6% (77) Legislation Stalled with House Leadership 37.8% (210) 58.8% (123) Legislation Stalled in the Senate 11.0% (61) 53.7% (35) Other (legislation was violation of MERCOSUL , 9.2% (51) -- retracted by author, ruled prejudicial, etc.) Total 80% (444) --
Legislation that Became Law (between 1/1/1999 and 12/31/2007)
Executive Decrees 10.1% (56) 78.7% (44) Transformed into Law without Recorded Plenary 4.1% (23) 73.9% (17) session vote Transformed into Law with Recorded Plenary 5.8% (32) 78.2% (25) session vote Total 20% (111) --
The second column indicates business success in the process. The first two categories in Table 6.1 show that a significant amount of legislation that business was opposed to either died in committee or with the House leadership. Business was also successful at killing legislation at these stages, receiving favorable outcomes (detailed in the second column) for legislation it opposed. For example, 63.6% of legislation that died in committee was legislation in which the CNI was opposed to, thus indicating that business was able to successfully block much of the legislation that it opposed in committee. Business was successful in blocking a further 58.8% of legislation that it opposed through its ties with leadership. In all cases, the majority of stalled legislation was that which the business organization wanted stalled, while, conversely, much of the legislation that made it through the legislative process and became law was that which the
176 business organization supported. How and why legislation dies is important since businesses are inherently risk-averse.79 Although identifying how business kills legislation would require analysis beyond that presented here, this remains a promising avenue for future research.
Campaign Finance Restrictions in Latin America: Are they Responsible for a “Right” and “Wrong” Left?
The framework provided here argues that the unique constellation of Brazilian campaign finance laws has influenced the behavior of politicians in leftist political parties by inducing them to support policies that the business sector supports and labor unions oppose. However, when the reverse conditions hold (labor union donations are permitted, but corporate contributions are not), do leftist politicians support the opposite policies? In other words, when the institutional structures are reversed, does a pro-labor, anti-business left remain? This question has important implications for democracy in the region, especially if the “right” and “wrong” left (in Jorge Casteñada‟s terms) is caused, at least partially, from the way in which campaign finance laws are written (Castañeda, 2006).
Table 6.2 reports data compiled from the International Institute for Democracy and Electoral Assistance (IDEA) on campaign finance in major Latin American countries. The vast majority of countries in the region either explicitly prohibits donations from corporations and labor unions altogether or allows campaign contributions from both. The notable exceptions in this regard are Bolivia and Mexico, which allow union donations but explicitly prohibit corporate donations (laws that are exactly the opposite of the campaign finance laws in Brazil).
79 I thank my brother, a tax accountant with a major Fortune 500 corporation, for pointing this out. In his view, any change in law requires businesses to adapt. This is costly and businesses, therefore, are inherently opposed to any change, unless the benefits from a change in law are considerable. 177
Table 6.2: Laws Governing the Source of Campaign Contributions in Major Latin American Countries
Is there a ban on Is there a ban on Are campaign corporate trade union donations donations to donations to recorded at the political parties? political parties? individual Country candidate level? Brazil Partial Yes Yes
Argentina Yes Yes No Bolivia Yes No No Chile No No Yes Colombia No No No Ecuador No No No Mexico Yes No No Paraguay Yes Yes Yes Peru No No No Uruguay No No No Venezuela No No Yes Source: (International Institute for Democracy and Electoral Assistance, 2010) and (Zovatto, 2005)
Comparative analysis of an alternative case would allow confirmation as to whether campaign finance‟s impact in Brazil is unique to that country, or whether the effects are felt elsewhere in the region. The study would be limited, however, by the fact that very few Latin American countries keep detailed records of campaign contributions at the individual candidate level, as evidence by the third column in Table 6.2. In this regard, Chile and Venezuela would both be welcome additions to such a study.80
In Chile, a moderate left assumed power following the downfall of the Pinochet regime and has remained moderate ever since. The Chilean case could involve examination of two major societal interest groups, as done here for the case of Brazil.
The business sector and the union movement in Chile are well-organized. Tentatively, an analysis of the legislation deemed important by the Confederacion de la Produccion y del
80 At this stage, it appears as if both the poor monitoring and diverse methods for financing campaigns (which are also largely illegal, according to the Constitution) in Venezuela make further analysis of that case largely improbable (Urbaneja & Alvarez, 2005). 178
Comercio (CPC) for business and the Central Unitaria de Tabaljadores de Chile (CUT) for labor unions would result in a similar approach as taken in this project. In Chile, corporations are also the main donors to campaigns, even though union donations are permitted (Garretón, 2005). Analysis of campaign funding from Chile would provide for an even greater testing of the theoretical foundations proposed here since campaign contributions from both businesses and unions are allowed, thus providing greater leverage on the causal mechanism to be examined. Furthermore, since the left has been in power in Chile for an extensive period of time and has adopted a moderate position- similar to that of the left in Brazil, further examination could determine whether the presence of both proposed causal mechanisms (corporate contributions and being in government) maximize the propensity to vote in an anti-union, pro-business direction, including how serving in government results in anti-union, pro-business policies.
While further examination of the Chilean case would be possible, the Electoral
Service in Chile does not report contributions directly and openly; thus, most analyses rely on alternative sources for funding information (Zovatto, 2005, p. 315; Johnson J. W.,
2009; Garretón, 2005). Recent changes in the election law in Chile, however, present promising avenues for future research, and could allow further examination of open and declared contributions.
Conclusion
Many scholars, pundits, and policymakers hold a tacit belief that money (in the form of campaign contributions) buys votes. Yet very little evidence has supported this claim and repeated attempts by scholars to uncover money‟s impact, particularly in the
United States, have proved futile at best. However, alternative contexts could provide
179 some of the most fruitful avenues for future research, as this dissertation has demonstrated. Although this study was limited to the case of Brazil, it has indicated that money (and the structure of institutional rules governing the use of money) played an important in the transformation of left in Brazil. Combined with the centralizing forces induced by governing, when Lula and the PT-led government took office they began a process of appeasing various groups in society, and in particular their new campaign supporters in the business sector.
The rise of a centrist left in Brazil has countered and assuaged many of the fears of policymakers and pundits of what leftist advances in the region in the first part of this decade would mean. Foreign investors and governments were particularly concerned that the leftist advances in the region would lead to a radical reversal of property rights, including government nationalizations, increased taxation, and undemocratic measures.
This has only been the case in a handful of countries (notably Venezuela and Bolivia), and in Brazil, the left has been more pro-business than the center-right government preceding it. The long term implications of a moderate left on representation, however, may be more severe than many with more immediate concerns about leftist victories in the region have anticipated. When democracies work for an elite few with money, it is likely that Latin Americans with dissatisfaction with democracy will only deepen over time.
180
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Appendix A
Coding of Pro-Labor Union Legislation based on Departamento Intersindical de Assessoria Parlamentar (DIAP) Position
The following is the list of legislation that the labor union lobbying organization, the Departamento Intersindical de Assessoria Parlamentar had a stated position on in the
51st and 52nd Brazilian Congresses. The votes included here are used for analysis in
Chapter 3 and otherwise when discussing what constitutes a pro-labor or pro-union position. All translations of the written positions are my own.
193
Table A.1: Labor Union Votes Analyzed From the 51st Congress
Vote # and DIAP Position Description of Pro- Description Vote Included Labor (Formal Union Proposition Position Number and Vote Included ) 1- Collective Alteration of the Collective Bargaining Position Vote on Não is Bargaining (Article 618) of the Consolidation of Labor Laws Substitute Pro- Reform (CLT)- “Alters Article 618 of the CLT and determines Draft of Labor that Article 618 of the CLT only applies in the Legislation PL Nº 5.483/2001 absence of accord or convention that has been - SUBSTITUTIVO arranged separately, establishing that the (04/12/01) negotiated prevails over the legislated. The law authorizes a reduction or renouncement of rights, even though there is the participation of laborers unions. According to this law, all of the rights previously established in law may be reduced or eliminated in collective bargaining (as is currently the case with professional association unions); including thirty days of holiday, the Christmas bonus [establish by law in Brazil], the length of the working day, paid weekly rest. These and other rights would become subjects of negotiation.” 2- Pension Alteration of the Terms Calculating Social Security Vote on Não is Benefit Reform Provisions- “Law 9,876 of 1999 introduced a Substitute Pro- formula for calculating pensions, known as the Draft of Labor PL. Nº 1.527/99 - “social security factor,” that increased the number Legislation SUBSTITUTIVO DA of contributions needed to define the value of written by the CCSSF (06/10/99) benefits, now includes the age of the insured, the Social Security expectation of survival and the time of contribution, and Family substantially reducing the benefits for those Committee. required to retire by the age of 60. The law aims to delay retirement under the pretense of reducing the value of pensions by requiring the beneficiary to fulfill requirements of the minimum age (53 years old for men, 48 for women) and time of contribution (25 years for women, 30 years for men, or in the case of proportional pensions 30 and 35 respectively, in the time of service).” (See Brooks 2009, esp. p. 181-182, for more information on the law).”
Continued
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Table A.1 continued
Vote # and DIAP Position Description of Pro- Description Vote Included Labor (Formal Union Proposition Position Number and Vote Included ) 3- New Proposal to end RJU, recruitment by employment Vote on Não is Government scheme, and the application of the CLT for Public Substitute Pro- Employee Plan Workers- Law 9,962 of 2000 established a new Draft of Labor system of employment for public workers. The law Legislation PL Nº 4.811/98 - establishes that future public servants who are not written by the SUBSTITUTIVO DA part of the so-called “careers exclusive to the Work, Public CTASP (10/11/99) government” under contract by the CLT, do not Service and have the rights to collective negotiation, can have Administration their salary readjustments defined by law, may be Committee freely dismissed and will not have the right to government retirement. In practice, this violates the right of employment stability and full retirement, in addition to depriving these public employees the power of salary negotiation, as occurs with private sector workers.”
4- Establishment Establishment of “Commissions of Preliminary Vote on Não is of Workplace Settlement” to solve individual disputes between Substitute Pro- Settlement workers and businesses- “Law 9,958 of 2000 Draft of Labor Commissions establishes reconciliation commissions within Legislation companies, empowered to reconcile and discharge written by the PL. Nº 4.694/98 - any labor demand. The text authorizes the creation Work, Public SUBSTITUTIVO DA of such commissions even within companies under Service and CTASP (21/10/99) union agreements. In the first case, the installation Administration depends only upon the desire of the employer and Committee the union only supervises the election of representatives of employees. In the second case, any Commission depends upon collective bargaining between the Union and the employer. Thus the Commission with the union only occurs with the agreement of the employer, while the Commission in the context of company independence occurs in concordance of the union. Finally, it impedes access of the worker to the court system [Justiça do Trabalho], if in the case workers want to appeal cases directly without first going through the company commission.”
Continued
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Table A.1 continued
Vote # and DIAP Position Description of Pro- Description Vote Included Labor (Formal Union Proposition Position Number and Vote Included ) 5- Partial Partial Privatization of Pensions- “Article 4 of the Detached vote Não is Privatization of substitute draft of legislation by the rapporteur to number 4 Pro- Pension Reform complementary law proposal number 9 of 1999, called by the Labor establishes a complementary private social security PT to suppress PLP Nº 9/99 - DVS system that would: a) force the worker to contribute clause Nº 4 - PT– to a defined contribution plan exclusively; b) force (29/11/00) the worker to buy lifetime benefit packages in open entities, managed by banks and private insurers; and c) require the worker to buy insurance on the risks of investment. The DVS the vote was intended to suppress this article and enable a provision of the defined benefit plan to allow benefit payments to be made by the Pension Fund and not by banks or private insurers, where the risk is enormous.” 6- Reform of Limits the Rights of Rural Workers to File Grievance Vote is the Não is Rural Worker’s Claims to Five Years- “Constitutional Amendment first of two Pro- Rights 28 of 2000 limits to five years the right of rural votes required Labor workers to claim labor rights violations during for approval of PEC Nº 7/99 - employment, modifying the text of the constitution, the Substitute SUBSTITUTIVO DA whose right of complaint is not prescribed in the draft of COMISSÃO course of work relations. The proposal, under the legislation ESPECIAL pretext of equalizing rights for rural and urban written by the (02/02/2000) workers, hurt rural workers, applying on them Special restrictive law that before only applied to urban Committee workers.” 7- Prioritizing Law of Fiscal Responsibility- “The law of fiscal DVS nº 2 on Não is Government responsibility establishes limits on personnel section of the Pro- Expenditures expenses and infrastructure expenditures (especially bill that Labor social infrastructure), without limiting payments on privileges PLP Nº 18/99 - debt service. In other words, the text privileges the payments on DVS Nº 2 payment of the debt and principle on the debt to debt interest (01/02/2000) the determent of spending in other areas, including while capping personnel. The DVS nº 2 on paragraph 2, § 2º of spending on Article 9 of PLP 18/99, wanted to delete the section staff and favoring the financial market, by removing the infrastructure expression “including those intended for payment of (particularly debt service,” while also subjecting payment limits social on other commitments of the federal, state, and development) municipal governments. The objective, therefore, was to establish equality among the obligations of the government, determine limits for all expenses, and not just for those who benefit from the financial markets.” Continued
196
Table A.1 Continued
Vote # and DIAP Position Description of Pro- Description Vote Included Labor (Formal Union Proposition Position Number and Vote Included ) 8- Reducing Labor Exempt the employee from Labor Court Costs in Amendment in Sim is Court Costs Some Cases - “Amendment number 4 to Regular Plenary nº 4 Pro- Law proposal 4,693 of 1998, authored by José to change Labor PL. Nº 4.693/98 - Pimental (PT/CE), has the objective to exclude the double EMENDA DE right of accelerated provision that says the worker- payment PLENÁRIO Nº 4, when presenting a judicial claim- if not giving the clause COM PARECER proper address for the claim and the value CONTRÁRIO DO corresponding to the cause or not attending the RELATOR hearing, will in addition to having the claim archived (15/06/99) still have to pay the processing costs. This provision, that the amendment presented here seeks to suppress, instituted a double punishment on the worker: the archiving of the action, and the condemnation to pay the court costs. The text of the law is convoluted in that neither the poor, who according to article 5 of section LXXIV of the Constitution may not be sentenced to the payment of costs or other costs incurred by the State, were excluded from this payment.” 9- Changes to Criteria for Work Dismissal- Amendment 38 to Amendment Sim is work Dismissal Complementary Law proposal 248 of 1998, number 38 to Pro- Criteria authored by Luiz Antônio Fleury (PTB/SP), set objective Labor establishes objective criteria for performance criteria for PLC N 248/98 - evaluation and special guarantees against job loss dismissal from DVS EMENDA for long-term public employees. The amendment public service N.38 (17/08/99) would, in the addition to the right of ample defense, which would consider among other factors (for the purpose of insufficient performance assessment): a) administrative discontinuity; b) institutional performance lowered by budgetary restrictions; c) the precarious supply of resources and instruments necessary for the achievement of institutional goals; and d) a fixed term unfeasible for executing activities and tasks or in achievement of those objectives that are targeted.”
197
Table A.2 Labor Union Votes Analyzed from the 52nd Congress
Vote # and DIAP Position Vote Included Pro- Description (Number) Labor (Formal Union Proposition Position Number and Vote Included ) 1- Social Security Social Security Reform- “Amalgamation amendment Amalgamation Não is Reform number 4 (to the Substitute of the Rapporteur) of amendment Pro- pension reform: 1) Increased the minimum age for number 4 Labor PEC Nº 40/2003 - retirement by 7 years; 2) instituted contributions EMENDA from pensioners to the system; 3) reduced overall AGLUTINATIVA benefits; 4) eliminated proportional retirement GLOBAL Nº 4 benefits; 5) ended the public retirement for (05/08/2003) university professors; and 6) finished parity for future employees”
2- Requirement Contribution of Retired Civil Servants to pension Detached Não is of Retiree system- “Established a contribution of 11% for all separate vote Pro- Contributions to retired federal civil servants on pay above 60% of number 7 on Labor Social Security the ceiling set by the INSS. The level was also set at System 50% for state and municipal employees. BY decision of the supreme court, collection now focuses on PEC Nº 40/2003 - that exceeding the ceiling of the INSS (the value in DVS Nº 7 ART. 40, August of 2006 was R$2,801.00).” CAPUT E § 18 DA CF, DO ART. 1º E (06/08/2003)
3- Modification of Procedural vote on whether to allow changes to Vote on the Não is General Social calculation of the General Social Security System opinion of the Pro- Security System (RGPS)- Changes the calculation and extension of Rapporteur Labor time limits for the sick leave, accident assistance, that the MPV Nº 242/2005 and retirement for special disability, reducing legislation is - PARECER DO benefits for the insured. In addition to the admissible RELATOR PELA unconstitutionality of the MP, with the material it ADMISSIBILIDADE regulates necessary to be passed by constitution (07/06/2005) amendment, it contradicts Amendment 32. The MP has no usefulness.”
Continued
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Table A.2 Continued
Vote # and DIAP Position Vote Included Pro- Description (Number) Labor (Formal Union Proposition Position Number and Vote Included ) 4- Reduction of Change calculation of sick pay benefits for those in Detached Não is Sick Pay Benefits General Social Security System (RGPS)- Ends the separate vote Pro- right to sick leave with assistance and changes the on section 10 Labor MPV Nº 242/2005 calculation methods, reducing benefits for the of article 29 of - DVS PDT - § 10º insured. This provision determines that the monthly the legislation. DO ART. Nº 29 payments for sick leave cannot exceed the last (15/06/2005) paycheck of an employee, considered monthly, or the last contribution wage, in the case of variable remuneration. The significance for the worker is that they will continue to pay more than they receive, but this payment is no longer recuperated in the benefit. In practice the average shall only apply if it is a value lower than the last salary contribution, regardless of any historic or average contributions. However, this doesn’t consider the gains of an average employed worker or cost of living increases.”
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Appendix B
Coding of Pro-Business Legislation based on Confederação Nacional da Indústria (CNI) Position
The following is the list of legislation that the business lobbying organization, the
Confederação Nacional da Indústria (CNI), had a stated position on in the 51st and 52nd
Brazilian Congress. Preliminary data and analysis from the 53rd Brazilian Congress is available upon request. To be included in the analysis the legislation must have had a relevant, recorded plenary session vote, meaning some legislation is excluded since no recorded vote is conducted, or the only recorded votes conducted are irrelevant to the business organizations position. The votes included here are used for analysis in Chapters
4 and 5. All translations of the written positions are my own.
200
Table B.1 Business Votes Analyzed From the 51st Congress
Vote # and CNI Overall CNI Position Description Pro- Description Position of Vote Business (Formal Included Position Proposition Number and Vote Included ) 1-Social Convergent Social Security Reform- Transfer of Vote on Sim is Security Accounts “This proposal, which fits the detached Pro- Reform; terms of constitutional amendment vote Business Transferring 20/98… introduces the ability of workers number 2 Accounts to transfer accounts (called “portability”), on article 33 through which the participant in the of the PLP Nº 10/99 - pensions program can- as a result of substitute DVS - § 2º DO termination of their term with the allowing ARTIGO 33 – employer- transfer their accrued savings “portability” SUBSTITUTIVO and benefits to another entity, and of accounts allows the proportional benefit deferred by reason of termination of the employer, so the employee can receive the full benefit. In short, brings the proposal modernizes the social security system.”
2- Judicial Convergent Institutional Reform- Modification to Vote on Sim is Reform with the Judicial Structure - “The proposal to using Pro- Reservations modernize the Brazilian judicial system is Substitute Business PEC Nº 96/92- of interest to society at large, and Draft of SUBSTITUTIVO specifically industrial business; however Legislation (19/01/00) the project deserves some improvements CNI in the text, such as: a) abolishment of the Approved period of 120 days for effectiveness of precautionary measures granted by ADIN ’s; b) introduction of a provision though complementary law that establishes and sets new labor rights in regards to collective bargaining; c) introduction of provisions establishing, with convention or collective bargaining agreements, arbitration decisions that carry the same force as judgments; d) removal of the provision that assumes the relevance of extraordinary appeals; and e) amendment to the text that allows the Supreme Federal Court to edit summaries binding only on matters of their own jurisdiction.” Continued
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Table B.1 continued
Vote # and CNI Overall CNI Position Description Pro- Description Position of Vote Business (Formal Included Position Proposition Number and Vote Included ) 3- Creation of Convergent Social Security Reform- creating the Vote on Sim is Complementar institution of Complementary Social using Pro- y Social Security schemes for the federal, state, Substitute Business Security and local governments - “The proposal Draft of Provision regulates the mechanisms created by Legislation Constitutional Amendment No 20/98, PLP Nº 9/99 - and enables the creation of additional SUBEMENDA social security entities for public office SUBSTITUTIVA holders’ and public employees, (28/11/00) effectively reforming the process of social welfare. It is worthwhile proposition, since joining public employees in the pension scheme will have an important role in expanding the system, bringing a strong stimulus to the generation of domestic savings, and contribute to the credibility of the scheme. In addition, it will reduce the negative impact social security obligations have on the fiscal performance of the country, providing financial and actuarial balance in the management of assets and obligations.” 4- “Kandir” Divergent “Kandir Law”- “This law limits the right Vote Não is Law” to credit under the ICMS and its effect on Included on Pro- electricity and telecommunications whether to Business PLP Nº results in increased taxes on approve the 114/2000 - investments. In addition, the law project APENSADO – encourages businesses not to maintain PROJETO) surpluses, especially in the case of businesses purchasing for permanent activity, whose term of consumption in the process is less than the period for which the exporting credit is authorized.” Continued
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Table B.1 continued
Vote # and CNI Overall CNI Position Description Pro- Description Position of Vote Business (Formal Included Position Proposition Number and Vote Included) 5- Tax Code Divergent Tax Code Reform: This project modifies Vote Não is Reform various parts of the National Tax Code, included to Pro- introducing provisions highly unfavorable approve Business PLP Nº 77/99 – to taxpayers, removing immunities, substitute SUBSTITUTIVO clamping down on the rights to defense and giving the Treasury unreasonable powers. 6- Preferred Convergent Regulation of the Economy- Rights of Vote on the Sim is Shareholder with Preferred Shareholders- “The proposed Substitute of Pro- Rights Reservations amendments improve the general the Business conditions of the preferential Amendment PL Nº 3.115/97 shareholders, assigning them rights in s in Plenary - SUBEMENDA areas currently not given in law, such as SUBSTITUTIVA participation in boardrooms and taxation. ÀS EMENDAS The legislation Intensifies the CVM's role DE PLENÁRIO E in supervision and regulation of the capital AO 1º market and restrains the use of privileged (28/03/01) information... However, the project does have a number of shortcomings that would inhibit investment and opening of capital markets: a) it is inappropriate to compel the election of Directors by the extraordinary general meeting, convened in case of the absence of the Board of Director, and should be using the same procedures for the election of members of the Board; b) is not justified to require that the directors and two thirds of the members of the Board of Directors are residents in the country; c) the possible intervention by the CADE to appoint the Board in cases of “ risks for free competition ” is not a good idea, attributing excessive discretion to the organization; d) the provision allowing for the nomination of the fiscal director by the CVM, for an indeterminate time, for the administration of the participating entity in the market where any irregularity was found that “can cause serious damage to investors, and allows undue interference on publicly traded companies.” Continued
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Table B.1 continued
Vote # and CNI Overall CNI Position Description Pro- Description Position of Vote Business (Formal Included Position Proposition Number and Vote Included) 7- Increasing Divergent Increased Contributions to the FGTS Detached Sim is Employment (Unemployment Insurance Scheme)- vote on Pro- Insurance “The new contributions the project seeks Amendment Business Contributions to impose has serious drawbacks. #49 called Increased taxation on companies will for by the PLP Nº have a negative impact on the PDT and PPS 195/2001 - DVS competitiveness of Brazilian products (would have - PDT/PPS - and services and, combined with excluded EMENDA Nº 49 vulnerability in the formal labor market, small (29/05/01) will have negative repercussions, businesses including on the Fund's own future from the performance. Moreover, it is simply not increase) appropriate to allocate the burden to the worker (in the form of the difference of the purchase price of the credit), nor the entrepreneur( in the form of new taxes), the responsibility for repositioning the fund.”
8- Divergent Reorganization of Judicial System: “This Vote on Não is Reorganization legislations features flagrant injustices Urgency Pro- of the Judicial that entail serious uncertainties and Requiremen Business System prejudice the harmony of the labor court t to system. The delegation of powers to the automaticall PL Nº Supreme Court is reproachable not only y require 3.267/2000 - in the light of constitutionality and vote on REQUERIMENT incompatibly with our legal system, but legislation in O DE URGÊNCIA especially that the agency that may be plenary instituted may counter the superior session jurisdiction of that court.” 9- Labor Rights Convergent Labor Rights in Negotiation and Vote on Sim is in Collective Reconciliation- “It is essential to substitute Pro- Negotiation modernize labor relations, with fewer form of Business conflicts and major commitments legislation PL Nº between employees and employers, so the CNI 5.483/2001 - the adoption of the principle of the supported SUBSTITUTIVO negotiated over the legislated, while (4/12/01)) maintaining the possibility of other rights established by law or other benefits or advantages, without generating labor liabilities for the employer is supported.”
Continued
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Table B.1 continued
Vote # and CNI Overall CNI Position Description Pro- Description Position of Vote Business (Formal Included Position Proposition Number and Vote Included ) 10- Extension Divergent, Extension of the CPFM tax on financial Vote on the Não is of CPFM Tax I with transfers- “The CPFM is revealing, over substitute Pro- Reservations the years to be a regressive tax that adopted by Business PEC Nº affects development, suppressing the the special 407/2001 - capital markets and now exports, and commission. SUBSTITUTIVO leading to damage that is a difficult DA COMISSÃO measure for all of society. Despite the ESPECIAL relevance to the balance of the (20/02/02) government budget and the fiscal effect of the law, a simple extension of the cumulative tax represents a contradiction to the government’s attempt to stimulate exports as a means to combat the economic vulnerabilities of the country. It should be emphasized that given the need to protect the fiscal balance, the text approved in first round by the plenary in the Câmara, represents a ”lesser evil,” because it reduces the time for an extension, redirects the effect on stock applications, prevents the increase of the tax rate, and maintains the current revenue sharing.” (CNI 2002)
11- Extension Divergent, Extension of the CPFM tax on financial Detached Sim is of CPFM Tax II with transfers- See Listing Number 10 directly vote on Pro- Reservations Above Article 4 of Business PEC Nº the 407/2001 - DVS substitute - PSB/PCdoB - (Art.85 of ART. 85 - ART. the Const.) 4º DO SUBST. that allowed (27/2/02) for an exemption of securities and exchange companies among other provisions.
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Table B.2: Business Votes Analyzed from the 52nd Congress
Vote # and CNI Overall CNI Position Description Pro- Description Position on Vote Business Formal Included Position Proposition Number and Vote Included 1- Financial Convergent Law Permitting Financial Regulation by First vote to Sim is Regulation with Complementary Provision: “By enabling approve the Pro- Reform Reservations the financial system to be governed by measure Business several complementary laws, rather than following PEC Nº 53/1999 a single piece of legislation, the project revisions - PRIMEIRO permits changes to the system created made the TURNO - by the Federal Constitution, which the Senate SENADO legislature has not been able to do over FEDERAL the past ten years. However, is not appropriate to fix complementary law parameters for the financing of the Public Administration, since that is already monitored well by the National Congress, with the aid of the courts, and fixing those spending parameters could jeopardize the broad research prerogatives of Congress.”
2- Small Convergent Regulation of Small Business Access to Vote is on Sim is Business Credit with Credit- “The present MPV reintroduces whether to Pro- Access Reservations provisions vetoed when the President convert the Business sanctioned MPV 66/2002. In this form, it legislation MPV Nº recovers changes made to the tax system to a law that 107/2003 - for the non cumulative contribution for could be PROJETO DE LEI the PSI/ PASEP and SIMPLES system from voted on DE CONVERSÃO the agreements passed by Congress. To turning into (29/04/03) remove the stopping of participation by law, rather small enterprises opting for SIMPLES than though credit cooperatives, the MPV expiring (as favors amplifying small businesses MPVs do) options for access to credit, through the after 60 cooperative. As a negative point, it is days. noted that there is no form of recuperation in the MPV, and the provisions vetoed referred to reopening the terms of choice by REFIS. This is the material contemplated in the when converting MPV 66/2002, approved by Congress, that meeting the need for renegotiation of liabilities is often unsustainable while also increasing the collection by the National Treasury.”
Continued
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Table B.2 continued
Vote # and CNI Overall CNI Position Vote Pro- Description Position Included Business (Formal Position Proposition Number and Vote Included ) 3- Judicial Convergent Regulation of Property and Contracts; Vote on Sim is Recovery in Allowing Judicial Recovery in substitute Pro- Bankruptcy Bankruptcy Procedures- “A convenient form of Business proposal, which contributes to legislation PL Nº development of the institution of the CNI 4.376/1993 - bankruptcy and creates the necessary supported SUB-EMENDA advances for credit and business SUBSTITUTIVA development. In this form, it stimulates (15/10/03) recovery from non-compliant businesses, as well as allows for greater security in the market by introducing more stringent mechanisms for ensuring the request for formalization liquidation of businesses. In addition, the project will prevent the practice of utilizing the institution with simple recovery action, which stimulates an excessive number of applications for bankruptcy in the country to the detriment of the judiciary’s desired speed.” Continued
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Table B.2 continued
Vote # and CNI Overall CNI Position Vote Pro- Description Position Included Business (Formal Position Proposition Number and Vote Included) 4- Bankruptcy Convergent Regulation of Bankruptcy: “The proposal Detached Não is Regulation with aims at adapting the National Tax Code Separate Pro- Reservations to the changes created by the new Vote on Business PLP Nº 72/2003 bankruptcy law, especially by the Section 185 - DVS PL - ART. establishment of the institute of called by the 185 bankruptcy. However, it has provisions PL on which are not in line with that intention, whether and they are inconvenient for the “presumed business sector and to some extent, fraudulent inconsistent with the institution of the judicial recovery, that was approved in encumbranc Congress. Even though the government e of assets has not filed the application in cases or income regarding the presumption of fraud in for the sale of assets, the government only taxpayers in has the power to guarantee contracts debt to the when it is flexible and sensible in readily Treasury for executing bankruptcy. The law also goes tax credit against the basic idea of the existence of regulation.” legal corporations (pessoas juridicas in Portuguese), which is the legal separation of a business from the assets of the individuals who compose it. Regarding the reduction of the period to claim the refund of amounts paid unduly, the rulings by our courts have confirmed the understanding that in the absence of ratification over the past five years, the period begins to run only after the manifestation of the Treasury or, failing that, after the deadline for ratification.” Continued
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Table B.2 continued
Vote # and CNI Overall CNI Position Vote Pro- Description Position Included Business (Formal Position Proposition Number and Vote Included) 5- Convergent Reform of the Tax System: “The proposal First Vote to Sim is Simplification with has the great merit of promoting the Approve the Pro- of Tax System Reservations federalization of law and the unification Legislation Business of the ICMS tax rates, which represents a PEC Nº step forward in the simplification of the 228/2004 - tax system. Despite questions about its PRIMEIRO effectiveness, the definition of tax limits TURNO in relation to GDP, the promise of further reform in 2007, and a new industrial development policy for less well- developed regions, the represents important signs that the government is more committed to increasing the competitiveness of Brazilian products by reducing taxes on production and investment in productivity. The proposal does, however, need some improvements: Regarding the granting of tax incentives, state laws that define the rules in force at the time of the promulgation of the law continue to apply - suggesting that the rules agreed before the promulgation of the constitutional amendment may be invalidated or modified- so the proposal contradicts the principle of retroactive enforcement of law. The incidence of GST on the transfer of goods between institutions of the same owner and on every stage of movement of electric energy represents an increase of taxes in the first case, and undermines the distinction between established and necessary goods and commodities. I would add also that the powers conferred upon CONFAZ to define goods and services that will constitute different groups tax rates raises questions on the principle of legality that could jeopardize the constitutionality of the new model.” Continued
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Table B.2 continued
Vote # and CNI Overall CNI Position Vote Pro- Description Position Included Business (Formal Position Proposition Number and Vote Included) 6- Re-Creation Convergent Re-Creation of Regional Development Vote on Sim is of Regional with Authorities: “The recreation of the regional Amendments Pro- Development Reservations superintendents of development is to Legislation Business Authorities essential element of regional development in Plenary policy. The extinction of Sudene PLP Nº (Superintendent for the Development of 22/2003 - the Northeast) and Sudam (Superintendent SUBEMENDA for the Development of the Amazon), left SUBSTITUTIVA no other organizations with the ability to ÀS EMENDAS formulate and implement effective and DE PLENÁRIO efficient policy in their place, leaving no regional policy instruments to coordinate the development process… the CNI estimates that there is need and room for improvement in the bill. As regards the instruments and operating mechanisms, it is important that the final project contemplates the existence of funds for capitalization of companies alongside loans and financing mechanisms, because the capitalization is the main mechanism for leveraging private investment location. It is also essential in maintaining the exemption and reduction of income tax in current and new developments in the region in order to equalize the conditions of profitability of the region(s) with the rest of the country. Finally, the project should also ensure a steady flow of resources towards the areas of delayed development. Regional institutions for development must be reborn stronger and properly positioned for its coordinating role, leadership, resource mobilization, technical and long- term planning needed to develop the regions. In the way they are, the projects for the rebuilding of Sudene and Sudam do not meet these expectations. The institutions are being rebuilt without adequate resources and tools. There are, therefore, necessary changes in order to adapt them to the needs of regional development.” Continued
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Table B.2 continued
Vote # and CNI Overall CNI Position Vote Pro- Description Position Included Business (Formal Position Proposition Number and Vote Included) 7- Genetically Convergent, Scientific and Technological Development of Detached Sim is Modified with Genetically Modified Agricultural Products- vote on Pro- Agriculture Reservations “The proposal aims to end conflicts of Article 14, Business ministerial powers that have been developing Paragraph 1 PL Nº for years, a disincentive to the research and that would 2401/2003 - commercialization activities involving GMOs make DVS PT - (genetically modified organisms) and their decisions by ARTIGO 14º, derived products in our country . Regarding the CNTBio PARÁGRAFO research, the proposal does a good job bureaucratic 1º (2/3/05) defining the role of CTNBio and the necessity agency to receive its order of release, eliminating binding on unjustifiable bureaucratic obstacles. all other However, with regard to marketing, the agencies. proposal is inadequate - committing large amounts of funding for research. Unlike the opinion then presented by the rapporteur, Mr Aldo Rebelo (PCdoB / SP), the opinion approved by the House of Representatives provides that in case of release for marketing, in addition to a favorable opinion of CTNBio and CNBS, business will be required by the licensing organ and supervision of the Ministry of Environment - which will involve the enforceability of the EIA for all phases of activities related to the marketing of GMOs and their products. In addition to a repetition of requirements and formalities as required by CTNBio, this expedient allows the creation of administrative and legal barriers that would raise, in fact, the continuing ban on the marketing of any GMOs in Brazil and their derivatives - irrespective of any evidence of food safety environmental analysis and attested by the technical-scientific CTNBio and their socioeconomic convenience demonstrated by CNBS. I would add that the proposal is lacking in clear and reasonable criteria for labeling of GM products, and create more a tribute that would add to the already critical tax burden borne by the national productive sector.” Continued
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Table B.2 continued
Vote # and CNI Overall CNI Position Vote Pro- Description Position Included Business (Formal Position Proposition Number and Vote Included) 8- Social Convergent Social Security Reform- “The reform of Detached Não is Pro- Security with social security that has been consolidated vote on Business Parallel Reserva- in part with constitutional amendment Article (would Amendment tions number 20, more recently by PEC Number 4 have [constitutional amendment] 41, and now, from the included PEC Nº with this “parallel PEC,” is necessary for original Article 4 of 227/2004 - pursuing fiscal equilibrium for social proposal, the original DVS Nº 8 PFL - security. The new proposition presents which capped as opposed ARTIGO Nº 4 improvements, such as a definition of the contributions to Article 2 DA PROPOSTA maximum levels for the remuneration of to of the INICIAL retirement proceeds to civil servants, social beneficiaries substitute) (16/03/05) control over Social Security (with [the of deceased creation of] collegial institution developed workers and for that purpose, guaranteed to have therefore representatives from the three branches of limited costs, government and civil service), and a census instead of of all persons receiving social security. Article 4 of However, in a flagrant step backward, and the in total prejudice to the fiscal equilibrium substitute, made in previous revisions, it includes which would retirement proceeds for public employees have that have entered into public service until prevented the date of publication of PEC 41, in the the caps on same proportion and in the same date payments. conceded to current public employees.” 9- Unification Convergent Unification and Simplification of the Vote on Sim is Pro- of the Tax , with Federal Tax System- “The unification of the substitute Business Code Reservatio Federal Receipt in Brazil (tax collection form of ns agency) has the potential to result in legislation PL Nº synergy of the tax code, simplification of created in 6272/2005 - procedures for taxpayers, integrated the special SUBSTITUTIVO information systems, and more effectives commission DA COMISSÃO combating of fiscal concealment. However, that the CNI ESPECIAL the project is structured to increase public supported (25/01/06) spending through the creation of 1,200 new positions in the National Prosecutor of the Ministry of Finance. It would be better, in addition to the unification of responsibilities, to promote the unification of the human resources of Secretariat of the Federal Receipt and the Secretariat of the Social Security Receipt.” Continued
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Table B.2 continued
Vote # and CNI Overall CNI Position Vote Pro- Description Position Included Business (Formal Position Proposition Number and Vote Included ) 10- Campaign Convergent, Campaign and Election Reform- “The Bill Detached Sim is and Election with modifies various aspects of electoral Vote on Pro- Reform Reservations legislation, especially the rules relating to Amendment Business financing and accountability of electoral #8 which PL Nº campaigns. The proposal does not have allowed the 5855/2005 - a fiscal impact on the federal TSE to set SUBEMENDA government and is worthwhile since it levels of SUBSTITUTIVA addresses problems with collection, finance À EMENDA Nº management and enforcement of based on 8 (21/03/06) campaign resources, by reducing their regional costs, improving control of the system, variations and increasing punishment for violators. and gave It seems to us, however, an inconvenient political and unnecessary proposal when, under parties the pretext of reducing campaign costs, it greater prohibits, in general, propaganda and control of billboards, distribution of t-shirts, hats, the process. key rings, and other products, which hurts small and micro-enterprises, which is detrimental to employment and family incomes. A more appropriate provision in the bill that establishes a law that recognizes local peculiarities sets limits on campaign expenses.”
Continued
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Table B.2 continued
Vote # and CNI Overall CNI Position Vote Pro- Description Position Included Business (Formal Position Proposition Number and Vote Included ) 11- Creation of Convergent Creation of SUPERSIMPLES, a Unified Vote on Sim is SUPER- with Tax Collection Agency: “In line with Amendment Pro- SIMPLES Reservations recent amendments to the Tax System by s to Business Constitutional Amendment No. 42/2003, Legislation PLP Nº the proposition creates the in Plenary 123/2004 - SUPERSIMPLES - a single system for SUBEMENDA collecting taxes at the three levels of SUBSTITUTIVA government, which will effectively ÀS EMENDAS facilitate tax administration and the DE PLENÁRIO especially help micro and small enterprises. However, there are imperfections that must be remedied. The most serious is the omission in determining the rate and basis of calculation on which the tax will be cleared in the substitute draft of the legislation. There is talk that if such elements were already in the current Law of SIMPLE, then that rate would also serve as the basis for calculation the replacement of federal taxes only [making SUPERSIMPLES somewhat worthless]. Another problem is the assignment given to the President to set tax rates - which violates the Principle of Legality. Finally, the bill does not clarify the criteria for apportionment between the Union, State and Municipalities, the amount that will be collected by the tax substitution, which may represent an impediment to the implementation of the new system.”
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Appendix C
Logistic Regressions of Individual Business Votes
The following charts present logistic regression results on individual deputies‟ business votes in the 51st and 52nd Brazilian Congresses (preliminary results from the 53rd
Brazilian Congress- whose term is still in session and will end in 2011- are available upon request). Because the dependent variable in each model is a dichotomous measure of whether individual deputies voted in a pro-business direction on each piece of legislation, I use a series of logistic regression analyses, separated by Congress. The results for the 51st Congress are presented in Table C.1; the results for the 52nd Congress are presented in Table C.3. Because logistic regression is used, the results presented here are only on specific votes in which at least 25 deputies voted in each direction (sim or não) since variation is necessary to run logistic regression. There must also be some variation among leftist deputies, meaning at least one leftist deputy must vote in a both directions. If all leftist deputies vote in the same direction, the constitutive term gets dropped from analysis and the interactive relationship cannot be determined using post- estimation techniques. Thus, both conditions are necessary for logistic regression; if either condition is not met the vote is dropped; this is why, for example, only 7 votes are analyzed from the 51st Congress and only 6 votes from the 52nd Brazilian Congress.
I also test whether the interaction term across the pieces of legislation examined in each of the models is significant. All logistic regression results were calculated in
215
Stata, while predicted probabilities were calculated using the INTEFF utility available from Ai and Norton (discussed below- see Ai and Norton 2003 and 2004). As noted in
Chapter 3, the inclusion of the interaction term requires the researcher to test the significance of the terms included in the interaction separately (Kam & Franzese, 2007, pp. 111-123). However, because logistic regression was used in these analyses, the linear technique often used to calculate predicted probabilities and significance will produce incorrect results because of the underlying assumption of models with a dichotomous dependent variable that the impact of each variable is contextual of the value of the others in the equation. It is therefore not possible to calculate the simple marginal effects results using a linear approach since the marginal effects of one variable are contingent on the values taken by the other variables.
Instead, I rely on the technique discussed by Ai and Norton for calculating the statistical significance of interactive relationships in models with dichotomous dependent variables (Ai & Norton, 2003; Norton, Wang, & Ai, 2004). The results from this technique are shown in Table C.2 for each model analyzed for the 51st Congress, and
Table C.4 for each model analyzed for the 52nd Congress. Marginal effects are available upon request.
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Table C.1: Logistic Regression Results on Business Votes- 51st Brazilian Congress
Vote 2- Vote 6- Vote 7- Vote 9- Vote 10- Vote 11- LOGIT Results for Judicial Preferred Increasing Labor Extension Extension Votes in 51st Congress Reform Shareholde Employ. Rights in of CPFM of CPFM r Rights Insurance Collective Tax I Tax II Legislation → Cont. Negotiation Variables ↓ Constant 3.72724*** 4.34909*** -2.64464*** 0.185627 -1.75393*** 1.66430*** (0.7073531) (1.207176) (0.4985987) (0.238852) (0.2944119) (0.3542524)
Member of Leftist -1.842123** -3.46184*** 3.18240*** -5.05713*** 1.40097*** 3.78594*** Party (1=yes) (0.7660433) (1.225723) (0.5260109) (1.316478) (0.359587) (0.5452169) Corporate Campaign 0.0052226 0.0162063 -0.0072089 0.00385*** -0.0014933 0.0001965 Contributions (in (0.0067657) (0.0202287) (0.0044751) (0.00129) (0.0018034) (0.0019584) 1000 reais) Interaction term of -0.0005864 -0.0128594 0.0085119 0.003899 0.0010588 0.0005277 Member of Leftist (0.0101063) (0.0208125) (0.0064467) (0.0049) (0.0034065) (0.004037) Party and Campaign Contributions from Corporations during prior election period Member of PT ------2.388603** (1=yes) (1.101608) Member of PSDB (1 -- -0.7534903 -1.424631 2.22579*** -- 1.201573 = yes) (1.427318) (1.058944) (0.451509) (0.767563) Number of Businesses -0.00000117 2.83E-6 6.63E-6 -9.60E-6** 1.02E-6 8.07E-6 in the State (0.00000627 (6.08E-6) (4.52E-6) (3.70E-6) (3.56E-6) (5.61E-6) )
Supplemental -0.1657775 -0.551764 -0.20384 -0.21313 0.0442777 0.419222 Member of Congress (1.097944) (0.5618874) (0.528251) (0.411506) (0.4345166) (0.634475) (1 = yes) Party Label 1.015088 0.2950172 0.142407 0.793805** -0.6926245* 2.19209*** Supported Governor (1.166059) (1.238888) (0.591307) (0.257459) (0.3988952) (0.673317) AND Governor‟s Party Supporter of Government (1=Yes) MODEL N: 446 N: 373 N: 374 N: 442 N: 379 N: 420 STATISTICS Pseudo R2: Pseudo R2: Pseudo R2: Pseudo R2: Pseudo R2: Pseudo R2: 0.1728 0.351 0.459 0.499 0.1211 0.6256 Chi Square: Chi-Square: Chi-Square: Chi-Square: Chi Square: Chi Square: 24.96** 66.39** 173.49** 261.69** 43.56** 298.22**
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Table C.2: Z-Statistics of Interaction Effects in the 51st Brazilian Congress
Vote 2- Judicial z-statistics of Interaction Effects after Logit Reform 10
5 z-statistic 0
-5 .85 .9 .95 1 Predicted Probability that y = 1
Vote 6- z-statistics of Interaction Effects after Logit Preferred 10 Shareholder Rights
5 z-statistic 0
-5 .6 .7 .8 .9 1 Predicted Probability that y = 1
Vote 7- z-statistics of Interaction Effects after Logit Increasing 10 Employment Insurance
Contribution 5 z-statistic 0
-5 0 .2 .4 .6 .8 Predicted Probability that y = 1
Continued
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Table C.2 continued
Vote 9- Labor z-statistics of Interaction Effects after Logit Rights in 10 Collective Negotiation
5 z-statistic 0
-5 0 .2 .4 .6 .8 1 Predicted Probability that y = 1
Vote 10- z-statistics of Interaction Effects after Logit Extension of 10 CPFM Tax I
5 z-statistic 0
-5 0 .1 .2 .3 .4 .5 Predicted Probability that y = 1
Vote 11- z-statistics of Interaction Effects after Logit Extension of 10 CPFM Tax II
5 z-statistic 0
-5 0 .2 .4 .6 .8 1 Predicted Probability that y = 1
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Table C.3: Logistic Regression Results on Business Votes- 52nd Brazilian Congress
Constant Vote 2- Vote 3- Vote 7- Vote 8 – Vote 9- Vote 10- Small Judicial Genetically Social Unification Campaign Business Recovery in Modified Security of the Tax and Access to Bankruptcy Agriculture Parallel Code Election Credit Amendmen Reform t
Member of Leftist 1.57693*** 1.61970*** 2.84632*** -1.90690*** 1.38691*** 2.36953*** Party (1=yes) (0.2389817) (0.2788024) (0.3921493) (0.282172) (0.2124509) (0.4120258) Corporate Campaign 2.36188*** 0.3868747 -2.32656*** 0.6340076 -1.32751*** -3.52619*** Contributions (in (0.8738061) (0.6793874) (0.4863795) (0.420593) (0.34213) (0.5852884) 1000 reais) Interaction term of -0.00244*** -0.0015287 0.0015342 0.0005375 -0.00202*** 0.0043746* Member of Leftist (0.0007443) (0.0009913) (0.001807) (0.0010048) (0.0006649) (0.0025279) Party and Campaign Contributions from Corporations during prior election period Member of PT 0.0110933 0.02938*** 0.008458** 0.0030227 0.0019756 0.0025642 (1=yes) (0.0162366) (0.0102271) (0.0034401) (0.0021966) (0.0019938) (0.0037763)
Member of PSDB (1 -- -1.669415** -1.05131 1.82629*** 2.44307*** -3.21271*** = yes) (0.6996019) (0.3859449) (0.4105328) (0.4675369) (1.069043) Number of Businesses 0.6444116 -3.72616*** -0.515635 -2.18074** 1.28793*** -0.7135114 in the State (0.4439795) (0.8508446) (0.6992075) (1.032379) (0.5099299) (0.7176009) Supplemental 4.15E-7 -7.89E-6 -4.97E-6 -1.64E-8 -3.59E-6 -3.35E-6 Member of Congress (3.63E-6) (3.52E-6) (3.51E-6) (3.42E-6) (2.81E-6) (5.08E-6) (1 = yes) Party Label -0.7235265 1.771691* 0.2899233 0.7164696* 0.4021992 1.210469* Supported Governor (0.5045254) (0.9908868) (0.4706319) (0.38434) (0.3597645) (0.693457) AND Governor‟s Party Supporter of Government (1=Yes) MODEL 0.546247 1.185693* -0.6405334 -0.5811827 0.2627785 -0.2352231 STATISTICS (0.4882034) (0.6366763) (0.5628824) (0.4869691) (0.3818904) (0.6790304) Constant N: 433 N: 325 N: 388 N: 397 N: 455 N: 313 Pseudo R2: Pseudo R2: Pseudo R2: Pseudo R2: Pseudo R2: Pseudo R2: 0.1607 0.2549 0.2825 0.21 0.1036 0.5561 Chi Square: Chi Square: Chi Square: Chi Square: Chi Square: Chi Square: 60.52** 92.46** 109.24** 91.27** 53.31** 208.85**
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Table C.4: Z-Statistics of Interaction Effects in the 52nd Brazilian Congress
Vote 2- Small z-statistics of Interaction Effects after Logit Business Access 10 to Credit
5 z-statistic 0
-5 .2 .4 .6 .8 1 Predicted Probability that y = 1
Vote 3- Judicial z-statistics of Interaction Effects after Logit Recovery in 10 Bankruptcy
5 z-statistic 0
-5 0 .2 .4 .6 .8 1 Predicted Probability that y = 1
Vote 7- z-statistics of Interaction Effects after Logit Genetically 10 Modified Agriculture
5 z-statistic 0
-5 .2 .4 .6 .8 1 Predicted Probability that y = 1
Continued
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Table C.4 Continued
Vote 8 –Social z-statistics of Interaction Effects after Logit Security 10 Parallel Amendment
5 z-statistic 0
-5 0 .2 .4 .6 .8 Predicted Probability that y = 1
Vote 9- z-statistics of Interaction Effects after Logit Unification of 10 the Tax Code
5 z-statistic 0
-5 .2 .4 .6 .8 1 Predicted Probability that y = 1
Vote 10- z-statistics of Interaction Effects after Logit Campaign and 10 Election Reform
5 z-statistic 0
-5 0 .2 .4 .6 .8 1 Predicted Probability that y = 1
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