When Luis Inácio Lula da Silva and the Brazilian Partido dos Trabalhadores (PT) finally came to power in 2002, expectations were high. No one expected the PT government to deliver common ownership of the land overnight. Nor did we expect participatory decision-making along the elegant corridors of Oscar Neimeyer’s state buildings in Brasília. At least not immediately. But for many of us on the left, the PT represented something new. With its roots in militant trade unionism, liberation theology, the grassroots movement of the landless and Paulo Freire- style radical pedagogy, it seemed to combine the participatory democracy of social movements with the representative institutions of liberal democracy.

Warning bells began to ring, though, when Lula’s government appeared to break the bond at the heart of the PT’s original strategy–achieving social justice by strengthening the power of popular movements–by failing to turn its overwhelming electoral mandate into a democratic counterforce capable of driving a hard bargain with the International Monetary Fund. But few petistas (as supporters of the PT are known) internationally or in Brazil were ready for the shock of discovering this past May that the party symbolizing to them a breakthrough in democratic socialist politics was governing on the basis of systematic corruption–including bribery to win parliamentary allies and the improper funding of Lula’s election campaign. The revelations unraveled after a tape-recorded case of corruption in the Post Office led back to the political appointment of a director from one of the smaller parties in the ruling coalition (the PTB, Partido Trabalhadores Brasileiro) as a deal struck with the PT. The PTB got access to Brazil’s notorious system of patronage in return for its votes in Congress. Further revelations came when the PTB’s president, angry at being portrayed as a lone villain, revealed the PT had made monthly payments to an unspecified number of federal deputies to insure their support for government legislation.

I’d visited Brazil in more hopeful times to investigate the PT’s participatory style in cities like Porto Alegre, and to take part in the World Social Forum, hosted four times by that city’s PT government. Recently I returned to find answers to some disturbing questions: What was the nature of corruption in the PT? What was the evidence for it? How had a party of participatory democracy become a party of corruption? Was the whole party infected, or were there just some rotten apples among the leadership?

The exact details are still under investigation by Congress–an investigation hampered by the fact that politicians from all the main parties are implicated in the charges. But it is generally admitted–including by Delúbio Soares, who was forced to resign as party treasurer–that the cúpula (group at the top) of the PT bribed political parties and congressmen on the right in order to pass the PT’s legislation. (Lula won with 61 percent of the vote, but the PT, though the largest party, still has only a fifth of the seats in Congress.)

The corruption also extended to the PT’s own election funds. Investigators revealed a caixa dois (“second cash register,” or secret slush fund), whose sources included donations from businesses contracted by PT municipal governments, public companies and private companies seeking government contracts. Duda Mendonça, the publicist in charge of Lula’s 2002 advertising campaign, says he was paid through an illegal offshore account held by the PT in the Bahamas.

Despite the large sums of money involved, the PT scandal is not about personal greed–though this exists as well–but about the corruption of the party’s internal democracy. It is about how a quest for power at any cost perverted the PT’s goals and values. This has several roots. Francisco de Oliveira, a Marxist sociologist and a founder of the PT, stresses the context of the Brazilian state, which gives greater powers of patronage to its politicians than possibly any other country in the world, offering huge opportunities for clientelism. As president, Lula has 25,000 jobs to give away. François Mitterrand, by way of contrast, had 150. Brazil’s electoral system, in which candidates stand not on party lists but as individuals, also makes for weak parties. Patronage and bribery have traditionally been used to get measures through Congress and the assemblies of regional and municipal government, which mirror the presidential system.

The participatory budgeting pioneered by PT governments in Porto Alegre and elsewhere was developed to attack this corrupt system. The idea was that instead of bribery and patronage, the mayor or governor (and, eventually, the president) would govern through a process of shared decision-making (for example, over annual investments in the municipal budget) with new institutions of popular participation rooted in the community. These negotiations would be underpinned by a process of direct and delegate democracy that councilors and regional deputies would be unable to ignore because their voters would be participants.

The Porto Alegre petistas I had met in better times confirmed this. “We ruled for sixteen years without bribery,” said Uribitan de Souza, an architect of the participatory budget. In Porto Alegre the party also repeatedly won re-election without the aid of expensive spin doctors. Guiding these pioneers was the recognition that electoral success does not, on its own, bring sufficient power even to begin social transformation–but that an electoral victory can be used to activate a deeper popular power. The PT approach, which combined winning elections and working closely with social and trade union movements to develop their power and political consciousness, brought it to the brink of winning the presidency in 1994. After Lula was defeated in the final weeks of the 1994 campaign by Fernando Henrique Cardoso–who manipulated the country’s currency, the real, to control inflation and forged a crucial alliance with Globo, Brazil’s powerful media monopoly–the leadership of the PT decided that the only way they would ever win was by subordinating everything to electoral politics, hiring the same marketing professionals who’d engineered victories for other political parties and centralizing power in the hands of the São Paulo-based party headquarters.

At the center of this strategy, and of the corruption that financed it, was José Dirceu–former guerrilla leader, party president since 1994 and the architect of Lula’s election campaigns from 1994 to the victory of 2002. Dirceu’s growing power was reinforced by the weakening of militant trade unionism as the forces of the global market ripped into the industrial heartland around São Paulo–the center of the PT’s trade union base. This industrial decline strengthened those union leaders, including Lula, whose approach was essentially one of pragmatic negotiation rather than militant confrontation.

In the 1980s, when the unions led the resistance to the dictatorship, these union leaders had become radical political leaders, as their every action, however wage oriented or locally focused, encountered repression. But with the unions, particularly in the auto industry, now facing rising unemployment and declining influence, their leaders urged restraint. Some other key PT activists–for example, former guerrilla José Genoino, president of the party until the corruption revelations–reacted to the fall of the Berlin wall by dropping belief in radical change and adopting a variant of Tony Blair’s “third way,” i.e., weak social democracy. But the differences between the leadership and the majority of petistas who campaigned on the principle of mobilizing and educating the people were submerged by the desire for a PT victory. Those who tried to warn of corruption, like César Benjamin, a leading party official until 1994, were rebuffed as disloyal. “We believed too much in Lula,” confesses Orlando Fantasini, a deputy for São Paulo. A radical Catholic, Fantasini is part of a “Left Bloc” of around twenty deputies and a few senators that was quick to demand an investigation into the corruption revelations.

Throughout the 1990s Lula personified petista hopes for social justice and popular democracy. If Dirceu and the cúpula demanded greater autonomy, or argued for centralization of the party at the expense of the local nuclei in the name of a Lula victory, their demands were granted. In elections, campaigning in the streets gave way to marketing in the media; activist volunteers were replaced by paid leafleteers. Meanwhile, Lula drank bottles of whiskey with the bosses of Globo, thinking he could get them on his side. His wishful thinking was understandable: Globo has immense power in a country where the vast majority of people receive all their news and political commentary through TV. PT’s opponents had deployed this power to great effect in 1998. But Lula’s obsession with wooing Globo betrayed a fatal lack of faith in the capacity–including the electoral capacity–of his own party members.

The PT’s reputation for democracy was based partly on the rights of different political tendencies to representation at all levels of the party. But from the mid-1990s, according to César Benjamin and others, Dirceu started to use a slush fund to strengthen the position of the Campo Majoritário, or Majority Camp, building a network of local leaders who depended on him. Along with the autonomy demanded for Lula’s group, this made the PT’s internal democracy irrelevant and ineffectual.

As I listened to party activists and former activists at every level, from organizers in the northern city of Fortaleza to one of Lula’s veteran advisers in the Palàcio do Planalto, it became clear that the neoliberalism of Lula’s government and the systematic corruption of the party organization went hand in hand. The steady strangling of democracy–which is, after all, what corruption is about–meant that the party lost all autonomy from the government. It also shut down all the mechanisms linking the social movements to the party–which therefore ceased to act as a channel for their expectations, their pressure and their anger. Even Marco Aurélio Garcia, co-founder of the PT and Lula’s chief adviser on foreign affairs, told me that he had no way of calling the economics minister to account.

The coming months are likely to see a struggle to reclaim the party–and the left more generally–from the government. Many former petistas are now associated with the PSOL, a new party to the left of the PT formed in 2003. Meanwhile, Lula is trying to distance himself from the party without losing its support. (He denies personal involvement in the corruption, but few are convinced.) The president’s popularity has been steadily waning since the corruption scandal broke–but not as rapidly as his party’s. And Lula’s support has held up in the rural areas, where even the government’s meager Family Grant program of direct financial assistance has lifted millions out of extreme poverty. He seems to be betting on winning a second term by building up a “Lulismo” distinct from “petismo.” This might involve building an electoral coalition involving other parties in addition to the PT.

“Lulismo,” says Francisco de Oliveira, “is a kind of populism, but it is different from the populism created by Vargas [Brazil], Perón [Argentina] and Cárdenas [Mexico]. In authoritarian fashion they included poor people in politics. Lulismo takes poor people out of politics into clientelism. It is the worst outcome imaginable for the PT.”

Also bad news for the PT is the election of Ricardo Berzoini as party president. Berzoini, a trade union leader, won a very narrow victory. He’ll be forced to rely on Dirceu, who remains the power behind the throne, even after reigning as Lula’s chief of staff. Berzoini’s victory is a sign of the cúpula‘s continuing influence. But the strong showing by the left’s candidate, former Porto Alegre mayor Raúl Pont, suggests that the PT’s radical spirit is not entirely crushed, though its expression varies significantly from region to region. In Rio Grande do Sul, where Pont’s support approached over 70 percent, the focus is on retaking power in the state government and in Porto Alegre. In São Paulo, where the cúpula is strong, many on the left are likely to leave the PT, with most joining the PSOL–not as a permanent home but as a base for wider dialogue across the left. Many of those leaving the PT do not see electoral activity as their priority, but rather will return to working with social movements.

“The situation is open–very open,” said Feliz Sanchez, who coordinated the participatory budget when the PT was in government in São Paulo. Around the world there is an experimental left refusing to accept a forced choice between some variant of Blairism and the abandonment of electoral politics. The disaster facing the PT should prompt us not to turn away from Brazil and search elsewhere for a new political holy grail but rather to learn with our petista or ex-petista friends from their defeat and try to deepen their innovative but necessarily incomplete answers to questions that face us all.