Vargas and the Depression

LATIN AMERICAN RESPONSE TO THE DEPRESSION: BRAZIL AND VARGAS

GETULIO VARGAS

Historical Context

-          The stock market crash of 1929 had adverse effects on the Brazilian economy, which depended on staple products like coffee. The economic and political turmoil that resulted produced favourable conditions for Vargas to rise to power.

-          Until 1930, the political scenery was dominated by the states of São Paulo and Minas Gerais (which were the largest producers of coffee and also benefited from their incipient industries).

-          The period became known as Old Republic (Republica Velha), or epoch of the coffee-and-milk.

-          Vargas came to power after the revolution of 1930, which was a bloodless coup d’etat that saw the removal of a corrupt presidential candidate (Júlio Prestes).  

-          Vargas’ main aim upon securing power was to reform the Brazilian economy.

Vargas’ Policies

1.       Up until 1930, Brazil was dominated by the ruling class of Sao Paulo and Minas Gerais who showed little concern for the new middle class.

a.        Vargas understood that with the breakdown of direct relations between workers and owners in the expanding factories of Brazil, workers could become the basis for a new form of political power--populism.

2.       The New York crash of 1929 had a severe impact on Brazilian economy, which depended on producing coffee—price of coffee fell from $200,000 a bushel in 1929 to $21,000 in 1930.

a.        The Brazilian economy relied on exports of a few staple products, which was dangerous in the case that export of these products could not be maintained. This is what occurred during the Depression, and it encouraged Vargas to try and develop industrial self-sufficiency in Brazil. (Industrial self sufficiency would prevent Brazil from becoming dependent on foreign nations for imports of manufactured goods.)

3.       Vargas created the post of interventor, which was a federally appointed officer to take over governance of states or cities that were not obeying orders from the Federal Government.

a.        Vargas presided over a shifting of power from the states to the central government and from landowners to middle- and lower-class urban residents. Vargas sought to transform Brazil from a plantation-based economy into an industrialized powerhouse, under the guidance of government intervention.

4.       The Constitution of 1934 gave the Brazilian government the right to nationalize industry. Using the new Constitution Vargas increased workers’ rights and in return labor unions went under strict government control.

a.        It contained some electoral reforms, including women's suffrage, a secret ballot, and special courts to supervise elections.

5.       In November 1937 Vargas assumed dictatorial powers based on European fascist models (Franco of Spain and Mussolini of Italy). The new regime was called the Estado Nôvo (New State).

a.        Increased industrialization and urbanization diminished power of agricultural elites, and the elites of the old state pátrias gave up their independent military power in return for federal protection of their interests. Furthermore, armed forces would support group they thought would secure order and progress.

b.       This style of government allowed massive intervention in all matters by the State, and gave Vargas a means to implement huge change. 

6.       Under the Estado Nôvo Brazil started an Import Substitution Industrialization (ISI) program—where Brazil placed protective tariffs on products they wanted to produce locally—and industrial production doubled.

a.        ISI programs meant that countries had to import expensive technology and led to balance of payment deficits.

b.       ISI programs led to urbanization, increased industrialization, high prices, foreign debt, and inflation.

7.       Vargas created the DASP - Administrative Department of Public Service, to adapt the civil service to the new times.

a.         DASP was the beginning of professionalization of civil servants in Brazil, contributing the establishment of a working middle class.

8.       Vargas instituted the minimum wage in Brazil and passed a labour legislation, which is enforced still today.

a.        Vargas took measures to bring social security to the middle class. Because of these acts, which benefited a mass of urban workers, Vargas is often referred to as ‘Father of the Poor’.

9.       Vargas declared war on the Axis powers, taking advantage of the fact that US and United Kingdom wanted to have Brazil as ally during the World War II.  

a.        This led to Vargas’ most notable contributions—laying the necessary foundation for infrastructure, industrialization and modernization in Brazil. Vargas negotiated funds for the installation of heavy industries in Brazil with Allied aid, such as the first steel mill of Brazil; Vargas also laid the basis for the creation of future petroleum and electricity national companies.

R. S Rose. One of the Forgotten Things. (2002)
“…for the middle class, [Vargas] was the one who brought stability…”

James M. Malloy. The Politics of Social Security in Brazil. (1979)
“… the first realization of the volatile nature of social insurance policy occurred when the Vargas …sought unsuccessfully to reform and rationalize the system.”

Karl Lowenstein. Brazil under Vargas. (1942)
“During these first years of the dictatorial regime the ground was laid for many of the subsequent efforts toward the social reconstruction of Brazil.”

“I never worry about action, but only inaction.” Winston Churchill

“If a free society cannot help the many who are poor, it cannot save the few who are rich” JFK