Daniel BIN

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Capital & Class2015, Vol. 39(2) 221–241

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Fiscal superstructure and

the deepening of labourexploitation

Daniel BinUniversity of Brasilia, Brazil

AbstractThis article analyses the expropriation of workers’ incomes through public debt andtaxation, in a fiscal system that is capable, more than of enabling a redistributionof surpluses, of deepening future labour exploitation. Based on recent Brazilianexperience, the paper shows that the increase of both public debt and intereston that debt has led to increased taxation, whose burden is eventually leviedon workers. Combined with a decrease in state spending on social wages, thishas led to an increase in the aggregate rate of labour exploitation, revealing theexploitative character of the state fiscal superstructure.

KeywordsFinancialisation, fiscal policy, labour exploitation, public debt, taxation

Introduction

The aim of this study is to investigate how public debt can serve as a privileged mecha-nism for the potential deepening of class exploitation. I call attention to the necessarymediation by the state economic apparatus for the development of a specific process of

financial expropriation that may eventually lead to the deepening of labour exploitation.Based on recent Brazilian experience, the paper explores the public debt and tax systemsince the launching of the Real Plan (1994), which sought to stabilise the country’seconomy. Since then, workers’ incomes have been expropriated through a combinationof interest on public debt and taxation that assumed an exploitative character. More thanenabling redistribution of wealth, this combination of public debt interest and taxation

Corresponding author:

Daniel Bin, University of Brasilia, Brazil.Email: [email protected]

CNC0010.1177/0309816815581774Capital & ClassBinresearch-article 2015

Article


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is capable of deepening future labour exploitation through a state-mediated social rela-tion of expropriation realised in the context of financialisation of the economy.

This hypothesis engenders the claim that taxes, as well as profits, interest and rent, aredifferent forms that surpluses may take during the processes of capital production and

circulation. Each of these forms is a means of appropriation of surpluses that depends onthe role of the respective appropriator in capital accumulation. It follows that capitalistsdo not carry any tax burden, given that taxes are portions of surplus-value that aredirected to the state. Therefore an increased tax on capitalists may bring about a furthertax on labour exploitation. Nevertheless, the economic and political conditions requiredto allow increased taxes on profits are not always available, driving the state to eventuallyincrease public debt. Because the state may have to increase taxes at some time in thefuture to service this debt, this increase in debt engenders a potential labour exploitationin the future as deep as the real interest to be paid by the state to lenders. This makes thefinancial system, its agents and mechanisms, as well as the state, organic to the entire

labour exploitation process.Therefore, fiscal policy in general, and taxation in particular, are elements of class

struggle in which appropriators are not only the owners of the means of production. Thesurpluses to be appropriated by each agent also result from the mode of regulation, in which the capitalist state is the main actor. Whether the state will spend or collect more(or less), how it will do so, and who will cede (or appropriate) the relevant portions ofthe surpluses in dispute will depend on the correlation of forces acting on the statebudget. Fiscal policy thus plays a critical role in capital accumulation, which has increas-ingly relied on neoliberal financialisation. Brazil – whose case this paper draws on – con-firms the worldwide neoliberal pattern whose results have continuously been unfavourable

to workers and other individuals living under domination of what Harvey (2010: 48)calls the ‘state-finance nexus’.

In this paper, I discuss how this debt-tax-finance nexus may deepen future labourexploitation. I begin in abstract terms, to which the two next sections are devoted. Thefollowing section concerns the financialisation of labour exploitation, which has placedfinance in a privileged position in the appropriation of surplus-value. The third sectionspecifies the argument by discussing how credit for workers may establish class relationsthat assume an exploitative character, even beyond the limits of production. This opensthe way to approaching public debt as a mechanism that brings about a similar exploita-tive process that, now through the state, also deepens labour exploitation. The two sec-tions preceding the conclusion use data about Brazil’s fiscal system, namely public debtand taxation, to illustrate these theoretical claims.

The financialisation of class exploitation

According to classical Marxist thought, capitalist exploitation is based on the relationbetween the owners of the means of production and those who own only their labour-power. The latter is sold in the labour market and, at the outset, no exploitation takesplace. However, after the worker is hired, the relations move inside the workplace, where

labour-power is turned into labour, whose value exceeds the value of the labour-power. When the fruits of labour are exchanged for money in the commodity market, that


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surplus-value is realised as the profit of the capitalist who thus appropriates the relevantportion of other’s labour. In this sense, the entire capitalist process, including both pro-duction and circulation, establishes a concept of class based on the notion of exploita-tion, which takes place within a given class structure.

In previous modes of production, masters exploited slaves and lords exploited serfs.In the currently dominant mode of production, capitalists exploit workers. Thus,although Marx recognised the existence of other classes, the fundamental distinction isbetween exploited and exploiter (Johnston & Dolowitz 1999). It follows that socialclasses ‘are groupings of social agents, defined principally but not exclusively by theirplace in the production process, i.e. in the economic sphere’ (Poulantzas 1978: 14). Although it is within production that the fundamental process of capital develops, thiseconomic sphere must nevertheless be comprehended in a broad sense. It ‘includes notonly production, but also the whole cycle of production-consumption-distribution’,and, as such, comprises all forms of capital, namely, ‘productive capital, commodity capi-

tal, money capital ’ (Poulantzas 1978: 18; emphasis added).This consideration of class as defined by the relations of exploitation, which is realised

within a given class structure, indicates an empirical complexity beyond the understand-ing that capitalists exploit workers in production. The economic sphere is composed notonly of the processes that are capitalist sensu stricto, i.e. those that produce surplus-value.In current capitalist society, other processes are relevant to the social relations among‘economic’ agents. In fact, ‘people do not live in capitalism’, but in ‘in life-worlds, oftenoverlapping’, which ‘opens the way to conceptualising its coexistence with other modes ofproduction, other modes of doing things and relating to each other’ (De Angelis 2004:67, 60; emphases in original). If we confine ourselves to modes of production in the

abstract, we see that each of them involves two fundamental classes – masters and slaves,lords and serfs, bourgeois and workers – however, a concrete social formation involvesmore than two classes insofar as it is composed of various modes and forms of produc-tion (Poulantzas 1973, 1978).

Although these other classes are not fundamental, they may assume a leading positionin accumulation, depending on the conditions of the specific historical developmentphase of capitalism. This occurs because some processes may assume greater importancein the reproduction of capital, at least for some class in its pursuit of accumulation. Thishas happened, for instance, during the so-called financialisation of the economy of thepast several decades, involving the growing importance of financial activities as sourcesof profits (Krippner 2011) whose magnitudes have meant a shift in gravity of economicactivity from production toward finance (Foster & Magdoff 2009; Lapavitsas 2011).This has eventually led financial institutions and mechanisms, and their correspondingassets and debts, to reach levels that have placed finance at the top of the hierarchy ofthose who earn profits (Duménil & Lévy 2011).

This raises the importance of class fractions for comprehending the present regime ofcapital accumulation. Bourgeois domination operates through an alliance between itsfractions – industrial, commercial, financial – which are all dominant and share politicaldomination (Poulantzas 1973, 1978). Nevertheless, Poulantzas affirms that this alliance

only functions regularly under the hegemony of one of these class fractions, which uni-fies the class power under its leadership. It is broadly recognised that the hegemonic


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fraction in the past several decades has been finance – ‘the upper fractions of capitalistclasses and … financial institutions in any social arrangement in which these fractions ofcapitalist classes control financial institutions’ (Duménil & Lévy 2011: 13). This callsour attention to the possibility for the current hegemonic fraction and the related finan-

cial processes to alter the terms under which surpluses are generated and distributed, thusinfluencing the entire exploitation process.Capitalist exploitation means ‘that one category of economic agents works more than

is necessary for their own reproduction and that the fruits of their surplus labour areappropriated by another’ (Therborn 1999: 9-10). In a more relational approach, Wrightstates that ‘the welfare of the exploiter depends upon the effort of the exploited’ (2000:10, emphasis in original). For Wright, this very notion of dependency is what differenti-ates exploitation from oppression,1 given that in the latter there is no material depend-ence between agents. The end of a relation of oppression does not lead to any materialloss for the oppressor, but the end of the exploitative relation does so for the exploiter.

This distinction is in some way present in Poulantzas’s (1978) framework of the struc-tural determination of classes, which is brought about by relations of economic exploita-tion and also by relations of ideological and political domination.

Wright’s distinction between oppression and exploitation is useful in an abstract levelfor understanding how capital accumulation can be explained. For Poulantzas, thesesocial relations appear in an integrative way, and as such, they serve an empirical need tounderstand the present regime of accumulation, where finance has been organic to theentire accumulation process. As the hegemonic fraction of capital, finance exerts its ownlogic over production. It follows that the organisation of work and labour relations is alimited framework for analysis, given that the extraction of value takes place through a

variety of mechanisms inside and outside the workplace (Appelbaum et al. 2013). Thus,both Wright’s and Poulantzas’s approaches allow exploitation processes to be conceivedin a broader way, considering the possibility that exploitation rates are altered throughthe capitalist superstructure, e.g. in the financial realm.

This does not mean that exploitation occurs without actual material production, butrather that exploitation may have its very terms altered by what happens outside ofproduction. As noted by Jessop, ‘capital accumulation has major extra-economic condi-tions of existence in other social forms, institutions, organisations and social practices’(2013: 7, emphasis in original). This is the case of relations that develop in financialmarkets, where money operates as a commodity whose corresponding form of revenueis interest. These are extra-economic relations, because ‘in the case of interest-bearingcapital the return … is simply the result of a legal transaction’ (Marx 1991 [1894]:470). This turns our attention to the state’s role in financialisation. As in the priorFordist accumulation regime, the state has taken a central place in the correspondingmode of regulation.2

In the Fordist growth regime, the sites of dominant contradictions were wage rela-tions and money form, with the latter regulated by the steady expansion of credit and thestate budget and the former through mass production and mass consumption reinforcedby the Keynesian welfare state (Jessop 2013). In this regime, the state had strict regula-

tion over finance – including the overall mass of credit, interest rates, and financialoperations – to create mechanisms that could ensure full employment and limit


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business-cycle fluctuations (Duménil & Lévy 2001). In later times, under neoliberalism,the main role of the state has been to create and maintain an institutional frameworkcharacterised by strong individual private property rights, free markets, and free trade(Harvey 2005). Compared to Fordism, in the financial-dominated accumulation regime,

money became the most abstract expression of capital, disembedded in the space of worldwide flows, with the social wage privatised and recommodified, including privateconsumer credit (Jessop 2013).

Financialisation thus increased the relative weight of circulating money-capital, which was freed to seek profitable outlets worldwide. As money and financial debts and assetsbecame central to capital accumulation, inflation became a critical issue, because it wasone of the mechanisms for distributing the costs of Fordism and the Keynesian welfarestate (Jessop 2013). Controlling inflation then became a priority in the neoliberal era,giving it a strong class content (Duménil & Lévy 2011). Inflation is thus not exclusivelyan economic problem, but also a political one (Krippner 2011). In the realm of mone-

tary policy, financial interests were assured that inflation would not be tolerated(Papadatos 2012). The main result is that the owners of finance capital have gainedprominence in the appropriation of surplus-value, now also by extracting real interestrevenues from workers’ incomes.

Exploitation beyond labour exchange

Besides acknowledging that labour exploitation takes place in the entire accumulationprocess, the previous section draws attention to means for the activation of capitalistproduction and the distribution of its fruits that develop beyond the production sphere.

Since capital is only reproduced in motion (Harvey 2010), the sphere of circulation iscritical for the analysis of the entire exploitation process that capital engenders. It hap-pens that the capitalist mode of production conceals the exploitation of direct producersmore than other modes. In feudalism, for instance, exploitation is clearly noticed throughthe part of serf’s production that is appropriated by the lord, whereas in capitalism theoutput is not divided between capitalist and worker, but taken to the market (Cohen1979). There, a variety of social relations can affect the sharing of surpluses that, besidesmaking labour exploitation less obvious, points to a potential future intensification ofthis exploitation.

The fact that socially produced wealth is brought to market adds appropriation pro-cesses and actors that were hitherto absent. According to Marx, ‘the separation of saleand purchase makes possible not only commerce proper, but also numerous pro forma transactions, before the final exchange of commodities between producer and consumertakes place. It thus enables large numbers of parasites to invade the process of productionand to take advantage of this separation’ (1971 [1859]: 98, emphasis in original). For avariety of superstructural arrangements, each of these actors, now via markets, is quali-fied as a recipient of part of the surplus-value. The functioning capitalists – i.e. industri-alists and merchants – who earn profit are joined by the state, which collects taxes, andby money capitalists, who earn interest, and by all sorts of professionals, bureaucrats,

middlemen and brokers who receive salaries, commissions, etc. Rephrasing Cohen’s(1979: 358) proposition about capitalist exploitation, it can be said that ‘the proletarian


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produces the whole product, but the capitalist [and other unproductive agents appropri-ate] part of the value of the product’.

Taking this path is not to deny that the object of capitalist exploitation is the other’slabour, but that its terms may also be determined by social relations that take place else-

where. One may see that other types of relations, distinct from the direct hiring of labour,can lead in some measure to the deepening of labour exploitation. This possibility isclearer in Roemer’s (1982a: 263) proposition ‘that even the Marxian class structure canbe produced without any institution for labor [sic] exchange’. He was not denying thatclass exploitation is bound to labour, which is the very criterion that distinguishesexploiter and exploited (Roemer 1982a, 1982b). For Roemer, the latter is someone who works more than is socially necessary and the former is someone who works less than issocially necessary. What Roemer sought to demonstrate is how exploitation based oninequalities not necessarily related to the selling of labour-power may take place. To makehis point, he envisions three hypothetical economies: a competitive market with unequal

ownership of the means of production, a labour market, and a credit market.For Roemer, all of his hypothetical economies would be able to produce the Marxian

class structure, even without the existence of the sale of labour-power. In his credit mar-ket – which is of special interest in this paper – labour-power is replaced by capital to beloaned by the potential exploiter to the potentially exploited. These statuses – exploiteror exploited – as well as their class positions are defined by interest on debt, which allowsthe former to work less and push the latter to work more than is socially necessary. Marx(1991 [1894]: 477) made a similar analogy by saying that ‘money, and likewise com-modities, are in themselves latent, potential capital, i.e. can be sold as capital; in thisform they give control of the labour of others, give a claim to the appropriation of other’s

labour’. Referring to ‘secondary’3 exploitation in 1848-50’s France, he wrote, the ‘exploi-tation [of peasants] differs only in form from the exploitation of the industrial proletariat.The exploiter is the same: capital . The individual capitalists exploit the individual peas-ants through mortgages and usury ; the capitalist class exploits the peasant class throughthe state taxes ’ (Marx 1972 [1850]: 111; emphases in original).

Despite all the controversies4 related to Roemer’s approach, it is possible to perceivethat the true extent of exploitative relations is the whole of society, not just those rela-tions within capitalist production (Dymski 1992). This broadens the sociological mean-ing of exploitation by recognising that it may have its terms altered through relations thattake place outside production, e.g. in the realm of financial markets. One notion of thisis given by Bowles & Gintis (1990), who, in criticising Roemer’s idealisation of marketsin equilibrium, insert the concept of contested exchange . For them, market exchanges arecontested, i.e. there is no guarantee that the agents will comply with the terms of thecontracts. For example, even if a given amount of time to be devoted to work can becontracted, its effective realisation in quantity and quality cannot be guaranteed a priori.Similarly, although the conditions of a loan can be the object of a legal contract, futureactions of the borrower or others who influence the probability of the loan’s repaymentcannot be guaranteed a priori.

One may then notice that financial markets are not realms of equilibrium, but of class

struggle. Therefore, the identification of subjects with classes is not restricted by theirrelations within production, but is broadened by the relations that develop in


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the financial markets (Williams 2001). Money capitalists, for instance, in addition toowning loanable capital, are able to draw extraordinary income through their positionrelative to the financial system (Lapavitsas 2012). The critical point for this relation is theinterest on money, which is the commodity itself circulating in this system. It must be

emphasised that just as surplus-value does not come from the mere circulation of com-modities – its source is labour within production – neither does it come from the merecirculation of money-capital because of debt. Nonetheless, interest acts to establish classrelations that develop beyond the limits of direct production relations.

In qualitative terms, interest is a mechanism for redistribution of surplus-value, andin quantitative terms, it can be an expression of the value of the additional effort to beexecuted by workers. Interest is ‘nothing but a part of the profit, i.e. the surplus-value’(Marx 1991 [1894]: 493), which does not arise from the objective conditions underlyingthe essential characteristic of capitalism – the separation between labour and the meansof production – but from the circumstance in which not only productive capitalists own

money (Hilferding 1981 [1910]). However, even if that which Marx (1991 [1894]: 732)characterised as interest-bearing capital ‘has capital’s mode of exploitation without itsmode of production’, the fact that money is not only in the hands of the functioningcapitalists means that finance, by being nourished by labour, interferes with employmentand income and in the means of domination of labour (Salama 1998). In this sense,financialisation has a clear class content established by its potential to support, or evendeepen, labour exploitation in a scenario mounted to confront an accumulation regimethat had revealed serious limits.

Since the late 1970s, real accumulation has had mediocre and precarious growth;meanwhile, capitalists have found new sources of profit through financial markets

(Lapavitsas 2012). This has in part been brought about by both the stagnation of real wages and retreating social wage, which have been pushing working people to increas-ingly rely on borrowed money to meet basic reproduction needs (Dos Santos 2012;Lapavitsas 2011). This has opened up ways for modes of appropriation of value that havehad a very exploitative character insofar as they developed through an organic relationbetween production and finance. This exploitative character of finance also fits theMarxian distinction between ‘secondary’ and ‘primary’ exploitation.5 Appropriation ofvalue through financial processes can actually engender a potential deepening of the rateof exploitation insofar as workers are led to substitute credit for wage income. This is thecase of consumption- and mortgage-credit whose exploitative social content is broughtabout by the fact that their ‘interest-payments are generally made from subsequent wage-receipts by borrowers’ (Dos Santos 2012: 94).

Public debt, taxation and redistribution ofsurpluses

An exploitative relation may involve different social and institutional arrangementsaccording to the regime of accumulation. The exploitative character of relations in thefinancial realm may take place in the very context in which workers are pushed into debt

and to eventually transfer shares of their income to finance. Nonetheless, the factors thatmake social relations in the financial realm exploitative are also present in another


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mechanism that has become critical for financialisation. This is public debt, which has asimilar exploitative character insofar as the capital to be accumulated by bondholdersdepends upon the debtor’s effort. This is a mode of indirect financial expropriation in which the state plays the twofold role of reducing tensions and redistributing wealth

between classes. It is indirect in comparison to the one through which private creditorsloan money directly to workers who are, nevertheless, the actual debtors in both kinds ofrelations.

Actually, state mediation between social classes is not particular to financialisation. If we consider capitalism in its historical dimension, we notice that the state has alwaysplayed a mediating role in its different phases. Since the welfare of one class occurs at theexpense of another, the relation between them is necessarily conflictual (Johnston &Dolowitz 1999). It is up to the state apparatus to provide the material means to connectclasses ‘in an asymmetric relationship of domination and exploitation’ (Therborn 2008:220). According to Therborn, since the centralisation of the state often leads to the

assumption that it and its leaders are not directly responsible for immediate exploitation,this exploitation can be concealed through state interventions. This has been critical tothe financial expropriation that has been taking place during the current neoliberalfinancialisation phase.

In terms of accumulation, ‘the main achievements of neo-liberalism have been redis-tributive rather than generative’ (Harvey 2006: 43). Thus, capital has faced a contradic-tion given that the income redistribution from working people towards the upper classesundermines the legitimacy of the whole system. Nonetheless, since the consequences ofcontradictions take time to erupt, in the meantime, capital may profit from them. In thisfinance-led accumulation regime, capital has probably relied less on legitimacy provided

by the state and more on its ambiguous position among classes. Since the state is rela-tively independent from particular classes, it may present itself as an agent of the interestsof the entire society when redistributing funds collected via taxes. It therefore acts notonly as a buffer of class conflict generated by financial expropriation, but also serves toredistribute surpluses that arise in this kind of accumulation.

Let’s see how this has worked by considering the recent evolution of the Brazilianeconomy.

If in the most developed countries the growth of both state revenues and expenditureshave stabilised within the past two decades (Vernengo 2007), in Brazil there has been acontinuous increase in the tax burden. Not able to count on as much trust as richercountries, the Brazilian state has had to offer, in addition to high interest rates, assur-ances that it would meet repayment conditions. Thus, a fiscal system capable of guaran-teeing sufficiently high levels of taxes to meet the debt interest payments had to beestablished. This system was complemented with the institution of the primary fiscalsurplus, whose goals have explicitly been set in budgetary laws since the early 2000s.Since this surplus is the difference between non-financial revenues and non-financialexpenditures, its very existence provides a budgetary provision to pay interest on publicdebt (Bin 2014).

The system is as simple as that described in the concept of primitive accumulation, in

which Marx (1990 [1890]: 921) saw ‘the modern system of taxation [as] the necessarycomplement of the system of national loans’. One notices this in Brazil today in Figure 1,


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which shows a significant increase in the public debt and federal taxation. One may noticethat the rise of the latter has in large part occurred to support the increase of the former.During a significant portion of the 1990s, public debt was kept relatively stable and so was federal tax collection. When the average public debt rose from 27.3 per cent of GDPduring the 1992-7 period to 52.3 per cent in 1998-2002, federal taxation rose from 11.2per cent to 13.5 per cent of GDP.6 This latter period coincides with the eruption of several

global financial crises – in Southeast Asia, Russia, and Brazil itself – that pushed the gov-ernment to raise interest rates7 and eventually the debt service. Public debt started to fallin the early 2000s and, after a time lag of several years, so did federal tax revenues.

This situation has guaranteed the sustainability of public debt levels, consideringboth the state’s capacity to pay it back as well as the need to guarantee returns on theprivate capital invested in it. Both the debt and interest rates on it have been low enoughso that the debt may be serviced and, at the same time, high enough to offer satisfactoryreturns to financial investors. It is relevant that while Brazil’s federal domestic debt rosefrom an average of 18.9 per cent of GDP during the 1994-8 period to 41.2 per cent dur-ing the 1999-2012 period (see Figure 2), the foreign debt dropped systematically to sucha low level that since 2006 it has been more than offset by foreign exchange reserves. Thecritical point is that the relatively more expensive domestic debt has financed repaymentof the cheaper foreign debt. Whereas the latter’s annual average implicit interest rate was5 per cent during the 2002-12 period, the former’s was 14.8 per cent.8 This same expen-sive internal debt has also funded foreign exchange reserves, returns on which reached anannual average of 4.7 per cent during the 2003-11 period.9

Both these spreads have meant huge transfer payments from the state to finance, which makes obvious the answer to the rhetorical question raised by Wilson (2002): why would anyone give up charging extortive rates to an entity that cannot go bankrupt when

all that is needed to perpetuate this situation is an outstanding debt high enough not tobe significantly reduced by the instruments available to such an entity? Marx had already

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Federal public debt (at right) Federal taxes

Figure 1. Public debt and taxes as percentages of GDP, 1992-2012.

(i) Yearly average outstanding domestic and gross external public debt; (ii) taxes do not includesocial security contributions.Source: Instituto de Pesquisa Econômica Aplicada (IPEA).


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said that ‘ public credit rests on confidence that the state will allow itself to be exploitedby the wolves of finance’ (1972 [1850]: 40, emphasis in original). The Brazilian state hasbeen able to meet all these conditions, maintaining the magnitude of indebtedness andsafely defining who should support both debt services and the tax burden. Since debtservices are eventually supported by taxes, who shoulders the tax burden is of criticalimportance.

Bourgeois economic analysts and the media have been able to convince the generalpublic that the country’s tax burden is very high. These analyses are commonly presented without any parameter of what a high tax burden actually is. Almost always constructedin a non-relational fashion, this discourse reproduces the mistaken notion that, despiteeconomic inequality, there are policies and decisions whose outcomes are experiencedequally by classes. This is not the case, even within a single class, as we saw in Brazil’s lastbig debate on taxation, which eventually led to the abolishment of the contribution onfinancial transactions (CPMF). In a congressional hearing in 2007, while the presidentof the leading industrial federation argued ‘let’s abolish it’, the representative of the mainbanking federation stated that the CPMF ‘could continue, but with a clear trend towardsreduction’.10 It is thus critical for understanding political action around fiscal issues toconsider the class dialectics behind this complex social relation that develops through thestate’s economic apparatus.

Taxation – as well as interest or rent – is just a form of appropriation of surplusesgenerated by labour in each historical context.11 It ‘only alters the proportion in whichthat surplus-value is divided between the capitalist himself and third persons’ (Marx1990 [1890]: 658). Since surplus-value – actually the entire value – is produced bylabour, it follows that capitalists do not carry any actual tax burden; they only transfer tothe state coffers – under the name of tax – a portion out of that surplus. For this reason

workers are the ones who actually bear the tax burden. Nevertheless, one cannot assurethat taxes collected today are exclusively deductions from past profits nor that, as such,

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Interest rate Federal domestic public debt GFCF (at right)

Figure 2. Interest, public debt and investment, 1992-2012.

(i) Interest rates in ex post real terms; (ii) debt and gross fixed capital formation (GFCF) as percent-ages of GDP; (iii) yearly average outstanding domestic public debt.Source : IPEA.


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what has been observed in Brazil in the last several decades. Figure 3 indicates that indi-rect taxation has been increasingly higher than direct taxation. While the annual averageof the latter rose by 1.6 percentage points (from 4.7 to 6.3 per cent) of GDP between the

1986-93 and 1994-2012 periods, the former rose by 3 percentage points (from 11.6 to14.6 per cent). The overall picture is that indirect taxation has been almost two-and-a-half times higher than direct taxation.

A consideration should be made of the possibility that public debt serves to pro-duce multipliers through state expending in a Keynesian fashion that would lead togrowth. One could also envisage a potential reduction of labour exploitation throughsocial wages – state welfare expenditures. Theoretically, there is no objection to thesepossibilities, mainly to economic growth funded by public debt. Nevertheless, eco-nomic growth is no guarantee of reduced exploitation. Since exploitation is a rela-tional concept, it depends not only on the overall output to be distributed, but also

on both capitalists’ and workers’ shares of this output. Only a rising workers’ share would indicate reduced exploitation, and that has not been the Brazilian trend sincethe mid-1990s. While GDP grew an annual average of 3.2 per cent during the 1994-2012 period, labour’s share of GDP declined during most of the 1994-200913 period(see Figure 6).

Since economic growth per se does not lower exploitation, increasing the social wagethrough welfare expenditures seems to be a theoretically more plausible way to reduceexploitation. But the Brazilian fiscal superstructure has not presented evidence that sup-ports this hypothesis. For instance, as shown in Figure 4, there has been a negative cor-relation between changes in welfare expenditures and outstanding debt. While the latter

rose continually during the 1995-2002 period, the former was kept virtually stable at an

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Figure 4. Public debt and selected expenditures as percentages of GDP, 1995-2012(i) Yearly average outstanding domestic and gross external debt; (ii) Welfare: federal expenditureson social security, healthcare, sanitation, education, culture, housing, urbanization, and labour(mainly unemployment insurance).Sources: (i) IPEA (public debt and interest, except for the 2010-2 period, whose source is BancoCentral do Brasil ); (ii) Secretaria do Tesouro Nacional (welfare and investments).


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average of 11.8 per cent of GDP. It was only when debt began to fall that welfare expen-ditures began to rise, reaching an average of 12.9 per cent of GDP during the 2003-12period. Nevertheless, federal government investment took the opposite path, fallingfrom an average of 0.8 per cent to 0.5 per cent of GDP between these periods. This,combined with the fact that an annual average of 4.6 per cent of GDP accrued as interest

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Labor income share Capital, self-employed, and mixed income share

Figure 6. Functional distribution of income as percentages of GDP, 1990-2009(i) The data disregards taxes minus subsidies on production and imports, which represented anannual average of 14.3% of GDP; (ii) Capital, self-employed, and mixed income: profits, dividends,rents, interest, other capital gains, income of self-employed and mixed income, which is that whichcannot be identified as arising solely from labour or capital.Source: Instituto Brasileiro de Geografia e Estatística.

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Figure 5. Gross taxes and net taxes as percentages of GDP, 1995-2012(i) Federal taxes, except social security contributions; (ii) net taxes: gross taxes minus interest onpublic debt; (iii) I&P: income and property.Source : IPEA.


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on outstanding debt during the 1995-2012 period, suggests that new public debt issu-ances have been used more to sustain interest payments than to produce economicmultipliers.

Public debt and the deepening of labourexploitation

Taxation has always been critical to the superstructure of capitalism, but it became evenmore so during neoliberal financialisation. Governments, similarly to businesses andhouseholds, have been thoroughly ‘financialised’ insofar as finance has increasingly beenable to create and market legal claims on shares of all sorts of future income flows,including future tax revenues (Radice 2010). The state’s involvement with finance hasthus encouraged the creation of financial mechanisms that combine with the tax systemin an organic complex of expropriation and exploitation as well. Thus, beyond the ques-

tion of tax as a form of redistribution of surplus-value, one may consider the hypothesisthat taxation elevates the very magnitude of future surplus-value. As Therborn (2008)points out, in the dynamics of any specific mode of exploitation of production, the working class should generate surpluses for its exploiters and, additionally, fund thestate’s domination over the working class itself.

Wright (1999) affirms that due to the weight of state legitimacy it is reasonable toassume that the working class might accept a level of taxation on wages higher than thecorresponding wage reduction that would otherwise occur in an eventual context in which these taxes were lacking. One explanation for this could be that, ‘owing to the dis-tance of the state from both the immediate exploitative process and local traditions of a

“just rent” or “fair wage”, it is usually easier to increase the amount extracted for “public”purposes than it is directly to raise the profits of individual members of the ruling class. Arise in state taxation has tended to encounter less resistance than rent increases or wage-cuts’ (Therborn 2008: 227). If this is correct, ‘taxation can thus be seen as, in part, a weapon in the class struggle by which the state appropriates a certain amount of surpluslabor that is unavailable to private capitalists’ (Wright 1999: 129; emphasis in original).

Wright opposes the thesis that capitalists would invariably appropriate the presumedvalue of tax in a hypothetical situation without taxation, i.e. that the capitalists would havereduced wages to the minimum necessary for the reproduction of labour-power. For him,this reasoning is, at best, dubious if real wages and taxes are seen, at least partially, as resultsof class struggle instead of resulting from an extracted portion of a wage that is supposedlyhigher than that necessary for the reproduction of labour-power. To sum up, taxation ‘hasthe capacity to increase the aggregate rate of surplus value’ (Wright 1999: 129). By so doing,he considers that exploitation can take place in the sphere of circulation, as do Roemer andother scholars cited in this work. Lapavitsas (2012: 33), for instance, though using the term‘financial expropriation’ to ‘[avoid] confusion with exploitation at the point of production’, warns ‘this does not preclude the existence of exploitative processes in circulation’.

Making an analogy based on the state’s legitimacy to distribute, it is reasonable toassume that it also has the legitimacy to redistribute to the exploiters – e.g. through inter-

est – part of the surplus labour to be collected through taxes. Through taxation, the statemay increase the aggregate rate of labour exploitation, which may be raised as far as


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public debt is able to elevate the tax level. The state’s ability to incur debts may increaseits power of taxation insofar as, by taking this path, it is actually raising the amountequivalent to expenditures not met by taxes. In the same sense that ‘interest-paymentsare generally made from subsequent wage-receipts’ by workers who were pushed to sub-

stitute credit for wage income (Dos Santos 2012: 94), tax increases used for servicingpublic debt may have a similar exploitative character. This ‘new’ taxation may alter theterms of further labour relations within accumulation processes, changing the aggregateexploitation rate to recover a given profit level (to be) undermined by taxation.

We saw earlier that the Brazilian tax structure is more onerous for the working classesthan for the proprietary ones because the indirect taxation is higher than direct taxation(see Figure 3). But this regressiveness is not confined to the tax realm: it is a reality of thefiscal structure in a broader scope, also considering public debt. In the period underanalysis, the Brazilian state has been managing a system of redistribution of wealth that,combining debt and taxation, became even more regressive than the tax system on its

own. The public debt is not just a temporary replacement of taxes that, for some reason,are not available for collection in the present. It offers the possibility of a real increase intaxation as large as the size of interest payments. Figure 5 presents an example of what Imean by the regressive fiscal structure established by the organic combination of tax andinterest on public debt. It reveals that federal taxes have not been as high as generallyclaimed by right-wing analysts who, drawing on aggregate level of analyses, say the bur-den levies on the whole society .

Beyond the fact that capitalists effectively do not carry any actual tax burden – theyonly transfer to state coffers a portion of surplus-value – the amounts they have beendelivering to the state are even lower than is claimed, due to the interest on public debt.

During the 1995-2012 period, the total of federal taxes averaged 13.9 per cent of GDP,but when interest on public debt is subtracted, they account for 9.4 per cent of GDP.Considering only direct taxes on income and property, they accounted for 6.3 per centand 1.8 per cent of GDP respectively. Logically, in both cases the differences betweengross and net taxations are the same, namely the 4.6 per cent of GDP that interest onpublic debt amounted to during that period (see Figure 4). However, since this interestis paid to virtually the same people who ‘pay’ taxes on income, they were the ones whoreceived the higher benefit.14 It turns out that this interest works as a negative tax, sincethe state returns it to the very money capitalists and other individuals who buy publicdebt securities.

When one realises that interest on public debt is a negative tax, that this tax is nega-tive for the proprietary classes, and that the positive tax – that which funds state spend-ing – comes from the producing classes, the complex of public debt and taxation revealsitself to be a system that deepens labour exploitation. This does not occur in the senseof the compression of necessary labour and the corresponding amplification of surpluslabour that takes place in a finished capitalist production process. It is rather in a senseof a class struggle that takes place in the circulation sphere, which nevertheless points toa potential rise in the aggregate rate of surplus-value in the future. This portion may behigher or lower not only because of economic aspects sensu stricto – production process

– but also because of sociological aspects related to the class struggles carried outthrough the state.


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This fiscal realm can then be characterised as a sub-field of the socially constructedeconomic field, where actors confront each other with different endowments, where theeffectiveness of actions in attaining their goals will depend on the position of each one within the structure of capital distribution (Bourdieu 1997). A significant result of this

confrontation has been the increased financial profits at the expense of reduced profitsfrom the production of goods, which has depressed real wages and raised the rate ofexploitation of labour-power (De Oliveira 2006), a reality that has been observed inBrazilian industry since the mid-1990s (Boito 2007). Thus, since finance is organic tothe entire capitalist accumulation process, which also encompasses the system of publicdebt and taxation, this system allows increasing the aggregate rate of exploitation oflabour similarly to what private credit does in the financialisation of workers’ income. Actually, the whole superstructure of the finance-led regime of accumulation is com-posed of an intricate web of financial mechanisms that involve both private and statecredit and assets, as well as both private and state agents whose relations are mediated by

these financial mechanisms.It is difficult to empirically analyse the ability of taxation to increase the rate of exploi-

tation, which has been discussed on a theoretical level. This is also true of the public debtand taxation system. One will never be able to specify how much of the social wealthdistributed refers to portions of either necessary or surplus labour or how the latter maybe increased in the next cycle of capitalist production. Nonetheless, if it is correct toassume that taxation itself may increase the rate of future exploitation, even though it isnot possible to precisely indicate to what degree, at least the general trend can be grasped.In the Brazilian case, what can be affirmed is that the results of the neoliberal and finan-cial changes have been continuously unfavourable to the working classes. The gap

between the workers’ share and the capital’s share of the total output has considerablyincreased in favour of the latter, as indicated in Figure 6. This supports the claim that,‘judged by its own class objectives, neoliberalism was an unquestionable success’(Duménil & Lévy 2011: 25).

Figure 6 shows the percentage distribution of income, represented by GDP,between the main appropriators of the wealth produced annually. One can see thatin the early 1990s, shortly before the Real Plan (1994), there were regular alterna-tions between labour and capital in terms of which appropriated the larger portionof GDP. Since 1994, this has no longer occurred, and labour did not appropriate thelargest portion again until 2009. During the 1994-2008 period, the income appro-priated by owners and self-employed individuals exceeded labour’s share by anannual average of 3.8 per cent of GDP. It is worth recalling that interest on publicdebt, which is eventually transformed into income to money capitalists, amountedto an annual average of 5.3 per cent of GDP during the same 1994-2008 period (seeFigure 4). Labour’s reduced share of GDP and the interest appropriated by moneycapitalists combined have in some measure led to an increase in the aggregate rate oflabour exploitation. This whole movement confirms Amin’s (2008) analysis of howhigh interest rates and oligopolistic financial markets have allowed finance to appro-priate significant portions of value – roughly GDP minus labour income – in the last

several decades.


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This phenomenon cannot be fully explained by the configuration of the system ofpublic debt and taxes, but this configuration has a share in the explanation. In a scenarioof rising interest rates, agents react accordingly. In high interest rate environments, com-panies demand higher returns on investments and seek to pay them off in shorter timeperiods (Krippner 2011). They tend to increase the pressure on labour to extract enoughsurplus-value not only to attain a certain profit rate target for functioning capitalists, but

this rate must now be high enough so that an additional amount can be appropriated byfinance. Even if functioning capitalists do not divert capital to financial investments,they rely on finance to fund production. Moreover, since interest rates set the opportu-nity costs of either functioning or money capital, any raise in these rates will raise theminimum level of profitability of productive activity. Functioning capital does this bymaking labour-power cheaper, and, as Marx (1973 [1844]: 107) affirmed, this occurs‘the more commodities [the worker] creates’.

As shown in Figure 7, labour productivity in Brazilian industry has risen considerablythroughout the period analysed, in relation to sales revenue. These revenues grew at ratesconsiderably accelerated relative to the amount of hours worked, which, after havingdeclined from 1992 to 1999, remained relatively stable from 2000 to 2012. Meanwhile,hours worked declined about 11 per cent, while output rose about 108 per cent between1992 and 2012. Pastor and Dymski (1991) observed an analogous increase in foreigndebt interest accompanied by a reduction of the share of wages in industrial productionin several Latin American countries between 1970 and the mid-1980s. Since then, Brazilhas followed a fiscal strategy that has recently spread through the global North: ‘the working classes, directly through wage repression to boost international competitiveness,and indirectly through tax increases and public sector cuts, should pay for the crisis andfor the restoration of the economic viability of capitalist control over the financial sys-

tem’ (Albo & Evans 2010: 286).

0

50

100

150

200

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Hours worked Real output

Figure 7. Labour productivity in industry, 1992-2012.1992=100.Source : IPEA.


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Conclusion

This paper analysed the state fiscal system composed of the public debt and taxationbased on the hypothesis that more than enabling a redistribution of wealth, this fiscalstructure has deepened the aggregate rate of labour exploitation. One of the most impor-tant achievements of the superstructural configuration analysed has been a system ofexpropriation that released some capitalists from the drawbacks of direct labour exploita-tion at the point of production. Through this system, money capitalists may exert pres-sure on the working class via financial markets and eventually appropriate increasingshares of the fruits of their labour. A scenario of high interest rates increases profit expec-tations and consequently the pressure on workers.

The Brazilian state has become an important competitor for capital circulating in financialmarkets, with the ability to arbitrate rules and thus attract capital more easily than otherinstitutions. Companies do not have the same conditions as the state does when borrowing;

for instance, the latter does not disappear as easily and frequently as the former. One conse-quence is that higher public debt has led the state to tax more. By so doing, it has increasedthe rate of aggregate surplus-value, relying on its legitimacy to levy taxes to pay interest on thepublic debt and present this tax bill to the working classes. In the old Marxian terms, it fol-lows that the workers, besides working a part of the day for themselves, work part of the day without pay for the functioning capitalists, another part of the day without pay for the stateand must also work an additional part of the day without pay for the money capitalists.

All in all, the system composed of public debt and taxation, backed by the institu-tional guarantees provided by the state, has been an important mechanism for redistribu-tion of the fruits of labour. This format has led to several historical phenomena to be

observed in Brazil today: a peripheral economy in which one of the most importantmechanisms of both early and late capitalism provides relevant magnitudes of what Marxcharacterised as primitive accumulation. Nevertheless, in the era of financialisation, thisprimitive character has become organic to the entire accumulation process, to which thefiscal superstructure has become of critical importance as capitalism has faced limits cre-ated by its general logic and particularly by its neoliberal variation.

Acknowledgements

This is a revised version of a paper delivered at the 107th American Sociological Association AnnualMeeting, Denver, August 2012. The author is grateful to the editors and reviewers of Capital &

Class for their comments and for their insightful advice on how to revise the earlier drafts. The finalversion has benefitted from thoughtful comments by Alfredo Saad Filho and Erik Olin Wright, to

whom I am grateful. All remaining errors of omission and commission and one-sidedness are my

own. The work was supported by CNPq, Brazil (grant number 471535/2011-7).

Endnotes

1. Wright uses the notion of oppression as a resource in a comparative methodological approachto make his point about exploitation.

2. A mode of regulation is ‘an ensemble of norms, institutions, organisational forms, social net- works, and patterns of conduct that can temporarily stabilise an accumulation regime’ (Jessop

2013: 8).


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3. The working class is ‘exploited by the petty trader who supplies the workers with means ofsubsistence. This is a secondary exploitation, which proceeds alongside the original exploita-tion that takes place directly within the production process itself’ (Marx (1991 [1894]: 745;emphases added).

4. Roemer’s model has been severely criticised by Marxists. For Dymski (1992), it pushes aside

exploitation for it is based entirely on differential ownership of productive assets, dismissingeffort. Lebowitz (2005) goes further, charging that it places presuppositions absorbed fromMarx within an anti-Marxist framework, namely that of methodological individualism.

5. Primary exploitation ‘involves the direct extraction of surplus labor [sic] … Secondary exploitationoccurs in distribution and exchange, and rests on capitalists property power alone; it takes the formof housing rent, interest, dividends, monopoly price differential, etc.’ (Dymski 1992: 295).

6. All amounts presented in this paper without reference are based on author’s calculations usingstandard databases whose underlying data source is cited in the relevant figure under analysis.

All amounts are updated to the latest available data. Any aspect not made explicit will becommunicated on request.

7. This refers to the Selic rate, which rose from an ex post real average of 18.6% in 1997 to26.7% in 1998. During the 1995-2012 period, the rate had an ex post real average of 11.2%per annum (see Figure 2).

8. Banco Central do Brasil. Net public sector – implicit interest rate historical series. Availableat , accessed 19 November 2013.

9. Banco Central do Brasil. International Reserves Management Report, June 2012. Available at, accessed 8 November 2013.

10. Diário do Senado Federal, 15 November 2007 LXII (185): 40616; 40640.11. Logically, some portions of taxation may return to workers in the form of tax-financed goods

and services, i.e. the social wage. Thus, I refer here to that portion of taxation that is notdiverted by the state to the reproduction of labour-power.

12. Surely, workers may rely on credit as a substitute for wage income, but this, more than a merepostponing of payment, tends to place even more pressure on labour in terms of real wagesdue to the interest payments.

13. This is the latest available official data.14. During the 2000-12 period mutual funds, banks, and other financial companies held an aver-

age of 89.7% of the federal public debt bonds, and non-financial corporations and individu-als, 10.3%. As of December 2012, about 12% of all these bondholders were non-residents(Banco Central do Brasil. Detentores dos títulos federais em poder do público. Available at, accessed 26 February 2012).

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Author biography

Daniel Bin teaches public policy at the University of Brasilia, where he runs the Group for Study andResearch on Labour. He has been a visiting scholar at Yale University and at the University of

Wisconsin-Madison. His recent work focuses on economic policies and their implications for labourand class relations. He is presently conducting research into dispossession of means of subsistence andproduction.

Documents

Daniel BIN