Governance after Neoliberalism in Latin America (Studies of the Americas)

STUDIES OF THE A MERICAS edited by James Dunkerley Institute for the Study of the Americas University of London School...

Author: Jean Grugel | Pía Riggirozzi

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STUDIES OF THE A MERICAS edited by

James Dunkerley Institute for the Study of the Americas University of London School of Advanced Study Titles in this series are multi-disciplinary studies of aspects of the societies of the hemisphere, particularly in the areas of politics, economics, history, anthropology, sociology, and the environment. The series covers a comparative perspective across the Americas, including Canada and the Caribbean as well as the United States and Latin America. Titles in this series published by Palgrave Macmillan: Cuba’s Military 1990–2005: Revolutionary Soldiers during Counter-Revolutionary Times By Hal Klepak The Judicialization of Politics in Latin America Edited by Rachel Sieder, Line Schjolden, and Alan Angell Latin America: A New Interpretation By Laurence Whitehead Appropriation as Practice: Art and Identity in Argentina By Arnd Schneider America and Enlightenment Constitutionalism Edited by Gary L. McDowell and Johnathan O’Neill Vargas and Brazil: New Perspectives Edited by Jens R. Hentschke When Was Latin America Modern? Edited by Nicola Miller and Stephen Hart Debating Cuban Exceptionalism Edited by Bert Hoffman and Laurence Whitehead Caribbean Land and Development Revisited Edited by Jean Besson and Janet Momsen Cultures of the Lusophone Black Atlantic Edited by Nancy Priscilla Naro, Roger Sansi-Roca, and David H. Treece Democratization, Development, and Legality: Chile, 1831–1973 By Julio Faundez The Hispanic World and American Intellectual Life, 1820–1880 By Iván Jaksic´ The Role of Mexico’s Plural in Latin American Literary and Political Culture: From Tlatelolco to the “Philanthropic Ogre” By John King

Faith and Impiety in Revolutionary Mexico Edited by Matthew Butler Reinventing Modernity in Latin America: Intellectuals Imagine the Future, 1900–1930 By Nicola Miller The Republican Party and Immigration Politics: From Proposition 187 to George W. Bush By Andrew Wroe The Political Economy of Hemispheric Integration: Responding to Globalization in the Americas Edited by Diego Sánchez-Ancochea and Kenneth C. Shadlen Ronald Reagan and the 1980s: Perceptions, Policies, Legacies Edited by Cheryl Hudson and Gareth Davies Wellbeing and Development in Peru: Local and Universal Views Confronted Edited by James Copestake The Federal Nation: Perspectives on American Federalism Edited by Iwan W. Morgan and Philip J. Davies Base Colonies in the Western Hemisphere, 1940–1967 By Steven High Beyond Neoliberalism in Latin America? Societies and Politics at the Crossroads Edited by John Burdick, Philip Oxhorn, and Kenneth M. Roberts Visual Synergies in Fiction and Documentary Film from Latin America Edited by Miriam Haddu and Joanna Page Cuban Medical Internationalism: Origins, Evolution, and Goals By John M. Kirk and H. Michael Erisman Governance after Neoliberalism in Latin America Edited by Jean Grugel and Pía Riggirozzi

Governance after Neoliberalism in Latin America Edited by Jean Grugel and Pía Riggirozzi

GOVERNANCE AFTER NEOLIBERALISM IN LATIN AMERICA

Copyright © Jean Grugel and Pía Riggirozzi, 2009. All rights reserved. First published in 2009 by PALGRAVE MACMILLAN® in the United States—a division of St. Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010. Where this book is distributed in the UK, Europe and the rest of the world, this is by Palgrave Macmillan, a division of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN: 978–0–230–60442–1 Library of Congress Cataloging-in-Publication Data Governance after neoliberalism in Latin America / Jean Grugel and Pía Riggirozzi, editors. p. cm.—(Studies of the Americas) Includes bibliographical references and index. ISBN 0–230–60442–0 1. Neoliberalism—Latin America. 2. Latin America—Politics and government—1980– 3. Latin America—Economic conditions—1982– I. Grugel, Jean. II. Riggirozzi, Pía, 1971– JC574.2.L29G68 2009 320.51—dc22

2008051540

A catalogue record of the book is available from the British Library. Design by Newgen Imaging Systems (P) Ltd., Chennai, India. First edition: July 2009 10 9 8 7 6 5 4 3 2 1 Printed in the United States of America.

Contents

List of Tables

vii

Acknowledgments

ix

List of Abbreviations

xiii

Notes on Contributors

xv

1 The End of the Embrace? Neoliberalism and Alternatives to Neoliberalism in Latin America Jean Grugel and Pía Riggirozzi

1

2 “Basta de Realidades, Queremos Promesas”: Democracy after the Washington Consensus Jean Grugel

25

3 Social Policy in Latin America in the Post-neoliberal Era Rosalia Cortés

49

4 Economic Governance after Neoliberalism Diana Tussie 5 After Neoliberalism in Argentina: Reasserting Nationalism in an Open Economy Pía Riggirozzi

67

89

6 Evo Morales, the MAS, and a Revolution in the Making Pilar Domingo

113

7 The Bolivarian Revolution as Venezuela’s Post-crisis Alternative Julia Buxton

147

8 Continuity and Change in Chile’s Neoliberal Democracy Teresia Rindefjäll

175

vi

CONT ENT S

9 Brazil: Toward a (Neo)Liberal Democracy? Sean W. Burges

195

10 Conclusion: Governance after Neoliberalism Pía Riggirozzi and Jean Grugel

217

References

231

Index

257

Tables

1.1 1.2

Two Stages of Neoliberal Reforms in Latin America Poverty and Extreme Poverty in Latin America, 1980–2000 2.1 Street Protests against Economic Reform and Elite Democracy, 1989–2001 5.1 Poverty and Extreme Poverty in Argentina, 2001–2007 (Percentage of Population) 5.2 Income Distribution in Urban Argentina, 1990–2002 8.1 Poverty and Extreme Poverty in Chile, 1990–2006 (Percentage of Population) 8.2 Changes in Income Distribution in Chile (Ratios 10/10, 20/20, 10/40, and the Gini-Coefficient) 10.1 Latin America: Poverty and Indigence Rates, 1980–2006 (Percentage of Population) 10.2 Latin America: Urban Unemployment

8 15 38 98 99 183 186 229 229

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Acknowledgments

I

f all books are collective enterprises, this one is more than most. It is truly the product of shared thinking and reflection. All the chapter authors have contributed their ideas and energies generously, reflecting on our initial, rather vague instructions, telling us when we have got it wrong, and often trying to put us right. Our first thanks, therefore, go to Rosalia, Diana, Teresia, Sean, Julia, and Pilar for trying to make us think more clearly and analytically. If we have failed, it is not because you didn’t try. We would also like to thank you for making the editing of this book such a smooth and pleasant job. All of you, without exception, have written to deadlines, made changes without complaint and delivered manuscripts on time, even though some of you have moved countries and institutions in the process and all of you have had a whole host of other commitments. We would also like to acknowledge here a special debt to two people: Paul Mosley and Ben Thirkell White. This book originated in an ESRC-funded crossregional project on governance after financial crisis on which we have all worked together. Some of the initial ideas that appear in this book first emerged in conversation with Paul and Ben and they have contributed hugely to how we have taken those first musings forward. Paul and Ben have given a lot of their time and energy to helping us and we hope they know how grateful we are. We have presented some of the ideas for the book at conferences and seminars at the PSA, ISA, CSGR at the University of Warwick, the World International Studies Conference, IBEI, Barcelona, LASA, Aalborg University, and the Institute for the Americas at the University of London. We are grateful to all those who contributed through panel discussions and comments to helping us refine our ideas. Once again, thanks to Ben Thirkell White who organized some of these events and acted as commentator at others. We are particularly grateful to FLACSO-Argentina and to Diana Tussie who organized a seminar early on in the development of the project which really forced us to reflect on what we meant by post-neoliberalism. We would particularly like to thank Mercedes Botto of CONICET

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A C K N O W L E D G M EN T S

and FLACSO and Enrique Peruzzotti of the Universidad Di Tella, Buenos Aires, for their incisive comments and encouragement. The idea for the book was born while we did fieldwork together in Buenos Aires in 2006 and we would like to thank all the people who found time to talk to us during that visit. In particular, we would like to thank Aldo Ferrer, whose comments on the Argentine crisis made us see events in Latin America in a new way. We have been lucky to have external funding for the research for this book and we would like to thank the ESRC for its generous support. The ESRC also provided Pía with a postdoctoral award in 2006. We are privileged that the Institute for the Americas, London showed an early interest in the book and we would like to thank James Dunkerely for his encouragement at the beginning and to Maxine Molyneux for her support in organizing a round table in London around the book. Two anonymous reviewers who read for the book’s original proposal made very useful suggestions that we would like to acknowledge with thanks. We feel we have also been lucky to work with Palgrave Macmillan on the production of this book and would like to thank in particular Julia Cohen and Samantha Hasey for all their work. We want to say a really big thank you to Chris Moore, the photographer and filmmaker who so kindly allowed us to use one his wonderful pictures for the front cover. This is very much a “Sheffield” book and we would also like to thank our colleagues in the Department of Politics for all their help and support. We also have some personal debts to acknowledge. Jean would like to thank Martin (of course) for putting up with her absences, of mind as well as of body, with patience and good humor. Over the years he has had to listen to far more about Latin America than he probably ever wanted to know. She would also like to acknowledge the support of friends, especially Valerie (as ever) and Emma Ireland who has given her lots of time to work on the book, especially on Thursday evenings. She would like to thank Pía for her companionship and generous sharing of her knowledge of Latin America, often on the e-mail or the telephone. Pía is grateful, once again, to John for his unconditional love, friendship, and infinite patience. She owes thanks to Bill Smith and Eric Hershberg whose insights were particularly helpful in tightening up her narrative and the arguments of the book in general. And of course thanks to the many friends and family who made her fieldwork in Buenos Aires such a joyful time. Pía wants to emphasize the

A C K N O W L E D G M EN T S

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enormous pleasure of working together with Jean and in particular Jean’s extraordinary generosity and professionalism, and to thank her for the many conversations about what is important in life. Finally, we would like to dedicate this book to our daughters, Anna, Delfina and Celina, with love.


Abbreviations

AD ADN ALBA BNDES CAN CB CIDOB COB CONICET

COPEI

CSUTCB CTM CUT CVRD ECLAC/CEPAL EU ESRC FEJUVE FLACSO FTAA

Acción Democrática (Democratic Action), Venezuela Acción Democrática Nacional, Bolivia Alternativa Bolivariana para las Américas (Bolivarian Alternative for the Americas) National Bank for Economic and Social Development, Brazil Andean Community of Nations Círculos Bolivarianos (Bolivarian Circles), Venezuela Confederación de Indígenas del Oriente Boliviano Central Obrera Boliviana Argentine National Council for Scientific and Technological Research: Nacional de Investigaciones Científicas y Técnicas Comité de Organización Política Electoral Independiente (Political Electoral Independent Organization Committee), Venezuela Confederacion Sindical Unica de Trabajadores Campesinos de Bolivia Central de Trabajadores Mexicanos Comités de Tierras Urbanas (Urban Land Committees), Bolivia Companhia Vale do Rio Doce, Brazil Economic Commission for Latin American Countries European Union Economic and Social Research Council Federación de Juntas Vecinales, Venezuela Latin American Faculty of Social Sciences: Facultad Latinoamericana De Ciencias Sociales Free Trade Area of the Americas

xiv

GDP IADB IDH IFIs IMF IMSS ISI LATN MAS MIR MNR MTA MVR NAFTA NGOs OCAS

OECD OPEC PCV PDVSA PPT PT SAIC UCR UK UN UNASUR UNDP U.S. USAID WTO YPFB

A B B R E V I AT I O N S

Gross Domestic Product Inter-American Development Bank Impuesto Directo de Hidrocraburos International Financial Institutions International Monetary Fund Instituto Mexicano de Seguridad Social Import Substitution Industrialization Latin American Trade Network Movimiento al Socialismo, Bolivia Movimiento de Izquierda Revolucionaria, Bolivia Movimiento Nacionalista Revolucionario, Bolivia Mesa Técnica de Agua (Technical Water Tables), Bolivia Movimiento Quinta República, Venezuela North American Free Trade Agreement nongovernmental organizations Organización Comunitaria Autogestionaria (Community Self Management Organizations), Venezuela Organization for Economic Cooperation and Development Organization of Petroleum Exporting Countries Partido Comunista Venezolano (Venezuelan Communist Party) Petróleo de Venezuela Patria Para Todos, Venezuela Partido dos Trabalhadores (Workers’ Party), Brazil Science Applications International Cooperation Unión Cívica Radical, Argentina United Kingdom Unidad Nacional, Bolivia Union of South American Nations United Nations Development Programme United States United States Agency for International Development World Trade Organization Yacimientos Petrolíferos Fiscales Bolivianos

Notes on Contributors Sean W. Burges has a Ph.D. from the University of Warwick. He is the author of Brazilian Foreign Policy after the Cold War (University Press of Florida, 2009). In addition to having taught Latin American and Development Studies at the University of Wales, Aberystwyth, Carleton University, and the University of Ottawa, he held a Canadian Social Science and Humanities Research Council Postdoctoral Fellowship at Carleton University’s Norman Paterson School of International Affairs and the 2006–2007 Cadieux-Léger Fellowship at the Government of Canada’s Department of Foreign Affairs and International Trade. His academic articles have appeared in International Relations, Third World Quarterly, Cambridge Review of International Affairs, Bulletin of Latin American Research, International Journal, and Canadian Foreign Policy. Editorial and analytical articles have been published in the Washington Times, The Miami Herald, The Journal of Commerce, The National Post, Focal Point, the Washington Report on the Hemisphere, Análise Internacional, and Oxford Analytica Daily Brief series. Julia Buxton is a Senior Research Fellow in the Centre for International Cooperation and Security, in the Department of Peace Studies, University of Bradford. Her previous publications on Venezuela include “A South American Perspective” in K. Omeje (ed.) Extractive Economies and Conflicts in the Global South: Multi-regional Perspectives on Rentier Politics (Ashgate, 2008); “National Identity and Political Violence: the Case of Venezuela” in W. Fowler and P. Lambert (eds.) Political Violence and the Construction of National Identity in Latin America (Palgrave Macmillan, 2007); “Venezuela’s Contemporary Political Crisis in Historical Perspective,” Bulletin of Latin American Research 24 (3), 2005; “The Economics of Chavismo” in S. Ellner and D. Hellinger (eds.) Venezuelan Politics in the Chavez Era (Lynne Rienner, 2003); and The Failure of Political Reform in Venezuela (Ashgate, 2001). Rosalia Cortés holds an M.Sc. in Development Economics, ISS, Netherlands. She is currently Principal Researcher in the Area

xvi

NOTES ON CONTRIBUTORS

Economics and Technology of the Latin American Faculty of Social Sciences (FLACSO), Argentina; and Senior Researcher from the Argentine National Council for Scientific and Technological Research (CONICET). She has acted as head of evaluation missions of poverty programs in Ecuador, Costa Rica, and Bolivia. Her main areas of expertise include Public Policy and Labor Markets on which she has published extensively. Her most recent publications include “The Contemporary Social Policy Debate in Latin America,” Global Social Policy 4, 2008; Global Report on Migration and Children (UNICEF, 2008), and Evolución del Empleo y Pobreza en Hogares: Argentina 1996–2006 (with F. Groisman; forthcoming). Pilar Domingo is Senior Lecturer in Politics at the Institute for the Study of the Americas, University of London. Her research focuses on contemporary political development in Bolivia, the politics of rule of law and judicial reform, judicial reform, and on contemporary debates around the construction of rights-based citizenship in Latin America. Recent publications include: Courts and Social Transformation. An Institutional Voice for the Poor? New Trends in Social Rights Litigation (co-edited with R. Gargarella and T. Roux, Ashgate; 2006), Democracia, participación y gobernabilidad en Bolivia 1993–2003: fin de un ciclo y nuevas perspectivas (edited volume, Bellaterra, 2006); and Proclaiming Revolution: Bolivia in Comparative Perspective (coedited with M. Grindle, ILAS/Harvard University Press, 2003). Jean Grugel is Professor of Politics, in the Department of Politics, University of Sheffield. She has written extensively on democratization, development, and international political economy in Latin America, including Democratization (Palgrave Macmillan, 2002) and Critical Perspectives on Global Governance: Rights and Regulation in Governing Regimes (with Nicola Piper, Routledge 2007), as well as recent articles in Global Governance, Government and Opposition, International Affairs, Third World Quarterly, Economy and Society, and the European Journal of International Research. She is coordinator, with Professor Paul Mosley, of the ESRC project on Governance after Crisis, which has acted as inspiration for this book. Pía Riggirozzi is a Political Economy Research Centre Fellow at the University of Sheffield. She completed her Ph.D. in the University of Warwick and worked as Research Officer the ESRC-funded project on Governance after Crisis from which the research presented here draws. She also holds an ESRC postdoctoral fellowship in the Department of Politics, University of Sheffield. Her most recent publications include

NOTES ON CONTRIBUTORS

xvii

Advancing Governance in the South: What Roles for International Financial Institutions in Developing States? (Palgrave Macmillan, 2009) and “The Return of the State in Argentina” (with J. Grugel), International Affairs (March 2007). Teresia Rindefjäll is a Ph.D. from Lund University, Sweden and has taught at Lund University and Malmö University. Her research focuses on processes of political development, particularly in the fields of rights-based development and sustainable development, and has an empirical focus on Chile and Bolivia. She defended her dissertation, Democracy beyond the Ballot Box. Citizen Participation and Social Rights in Post-transition Chile, in May 2005. Diana Tussie directs the Latin American Trade Network (LATN) and is a Research Fellow at the Argentine campus of the Latin American School of Social Sciences. She has served as Under Secretary for Trade Negotiations and was a Member of the board of the International Trade Commission in Argentina. Her most recent books include Trade Negotiations in Latin America: Problems and Prospects (Palgrave Macmillan, 2003); El ALCA y las Cumbres de las Américas: ¿Una nueva relación público-privada? (Biblos, 2003); The Environment and International Trade Negotiations: Developing Country Stakes (Macmillan, 2000). In 2000 she was Guest Editor of Global Governance. She has recently been selected to join the High Level External Panel for the Trade Assistance Evaluation of the World Bank.


Chapter 1

The End of the Embrace? Neoliberalism and Alternatives to Neoliberalism in Latin America Jean Grugel and Pía Riggirozzi

This book sets out to explore how Latin America is responding to

what Dani Rodrik (2002) aptly described as the most pressing question currently facing the global political economy: “After neoliberalism, what?” We take as our starting point the fact that contemporary Latin American political economy is marked by the crisis of neoliberalism. Two decades of Washington Consensus policies have left legacies of uneven growth, inequity, social conflicts, and lackluster democracy. But the crises that erupted in much of the region with the onset of the twenty-first century were due to more than Latin America’s embrace of the Washington Consensus in the 1980s and 1990s; in a very real way, they were the latest episodes in a drama that has been played out since the 1930s over the state and the direction of the region’s political economy. The challenges of governance and development now, in other words, are rooted in “the disarticulation of the relations between state and society that have characterized the region since the 1930s” (Garretón 2006: 1). Latin America has, in effect, been in search of a stable model of growth and development since the collapse of the oligarchy-dominated model of liberal economics and export agriculture in the 1930s. At the center of the development debate in Latin America is the question of the role and the weight of the state versus the market. For this reason, rethinking regional political economy in Latin America can look like something of a journey back to the future. Old ideas that were dismissed as outmoded, such as nationalism, statist development, and the “people,” have suddenly reappeared on the agenda. Equally, however, the changes wrought by the neoliberal transformation mean that Latin America is very different sociological, political

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JE AN GRUGEL AND PÍ A RIGGIROZ ZI

and economic terrain from what it was in the period 1930–1975; older ideas are played out in a very different context. Any lasting solution to the current impasse must take those changes into account. Latin American political economy was fundamentally realigned under the Washington Consensus reforms, as economies were opened, foreign investment brought in and the state and social structures reformed. Consumption on a scale never before witnessed took hold across the region, even as inequalities proliferated. Following an initial quieting of civil societies in the immediate aftermath of transitions, mobilization from below, whether for basic needs or on questions of morality or principle, have became a standard element of regional politics. And if the region is now very different from what it was before the 1980s, so too is the outside world. Nevertheless, the nature of the global political economy and the dominant ideas about what constitutes “development” remain essentially primarily liberal and market-driven. For those countries that opt for more statist approaches to development, then, it means challenging the mainstream and going against the grain. We hope to analyze here the proposals for development and postneoliberal governance that are emerging in Latin America and look at the place of social and political inclusion, as well as economic growth, within them. We argue that discussions of the region’s economy cannot be meaningfully separated from an appreciation of how politics works—and in particular an analysis of the distribution of social and political resources and power more generally. Overall, our aim is to push the current debate beyond narrow dissections of economic crisis, simple talk of the wholesale failure of the market or journalistic accounts which explain the new politics of Latin America as a straightforward expression of populist politics or a sudden shift to the Left, toward a more fine-grained analysis which identifies the complexities of the new projects of economic and political governance alongside an engagement with developments at the level of the regional political economy. We thus raise questions about whether a new regional political economy can genuinely be discerned in Latin America, and if so, try to probe what this might mean. Is the new Left tide region-wide? Should we make a distinction between the older Lefts in Chile and Brazil and the newer Lefts of Chávez, Morales, and the KirchnerFernández governments? Are there continuities in practice with neoliberalism? How do the “new Left” governments face the challenges of combining dependence on global markets and foreign investment with the shift to more statist growth? Are post-neoliberal governments less fiscally conservative than their predecessors? Can they

T HE END OF T HE EMBR AC E?

3

survive the current phase of high export prices? Politically, the key question refers to the sustainability of the post-neoliberal projects of governance, in terms of managing domestic expectations for redistribution, social inclusion, and change. We do, of course, recognize that regional and national politics are connected to wider transformations in the global world economy; but our emphasis in this book is on national projects of change and continuity, located with a regional context that provides both opportunities and constraints for states and governments. We discuss the possibilities and limitations of state activism and social/political inclusion after neoliberalism and the extent to which a common regional trend away from the neoliberal state can genuinely be discerned. Perhaps the central question we are seeking to answer is the extent to which genuinely new and alternative models of governance are emerging in Latin America with respect to those framed under neoliberalism. If so, is there one model or several? What are the continuities with neoliberalism? Is change confined to simply a new set of strategies for economic growth—or can we also identify a fresh engagement with democracy, inclusion, social policy and even a new articulation of regionalism? How are governments seeking to control domestic expectations of redistribution, social inclusion and change? Are we seeing new elitist strategies for managing regional governance or, rather, an attempt at a more genuine sharing out of social and political power than has been the case so far in the region? The relevance of the issues we raise here inevitably goes beyond the Americas for the dilemmas of post neoliberal governance are global in scope. As such, our ultimate aim, and that of our contributors, is to contribute to the study of the global political economy by shedding some light on how states in the South are responding to the challenges of globalization and democracy, changing paradigms of governance and crises in Washington-sponsored models of global capitalism. We take the view that states, socially constituted groups and domestic social struggles continues to “matter” for political economy choices in the South in a very central and fundamental way and we hope to show this through our case studies. The purpose of this first chapter is to set the scene for the rest of the book and raise some of its core issues. We explore Latin America’s political economy in its historical context, the region’s engagement with neoliberalism, the troubled question of the state, and the relationship with Washington institutions that, alongside hemispheric politics more widely, have shaped the constraints, opportunities and ideational context in which projects of development and democracy

4


have been played out. We close the chapter with a discussion, inevitably somewhat speculative, of the new projects of regional governance in which we delineate the contours of what post neoliberal governance in Latin America is shaping up to look like. Narratives of Development and Governance in Latin America The political economy of Latin America since the 1880s when the liberal era of export-led growth and the introduction of capitalist practices in agriculture and mining began in earnest has been marked by the intertwined pressures of: uneven growth despite early insertion into the global political economy; tensions between production for the internal market and the global economy, in both the rural and industrial sectors; a history of elite bias within states; difficulties with domestic capital formation and the presence of foreign capital across important sectors of regional economies; and periodic mobilization from below in response to cyclical social, economic, and political crises. Recurring crises of governance, most notably in the 1930s, 1960s, and 1970s, ultimately reflected regional and national conflicts over models of development and at the same time, class struggles over the direction of state policy (Cardoso and Faletto 1979). Initially, the crisis of the 1930s was resolved, at least as far as elites were concerned, by the intensification of export agriculture, sometimes under the aegis of foreign capital (as in Central America) or by actively encouraging industrialization for the internal market (as in Brazil and Mexico most spectacularly, though also in Chile, Argentina and, to a lesser extent, in Peru and Colombia). Foreign loans were necessary to sustain industrialization across the region, since tax revenues, even in the more industrialized economies, failed to match government spending; foreign investment, meanwhile, was an important source of capital or technology (Evans 1979). Keen to keep Latin America within its sphere of influence for reasons of security, the United States was willing to lend, even for development approaches which did not entirely fit with Washington’s own preferences. Across the region, the public sector expanded dramatically, as did the commercial and business-oriented middle classes. But the import substituting model—to which all of Latin America aspired in the 1950s and 1960s and which initially seemed to offer a genuine, self-sustaining development alternative—slowed fatally in the 1960s and 1970s, under the weight of energy price hikes, the complexity of protectionist tariffs, the loss of industrial competitiveness, the difficulties of


5

internal capitalization and faith in the region’s heterodox approach to development fell away (for different perspectives see O’Donnell 1979; Gereffi and Wyman 1990; Biglaiser and Brown 2005). Social conflict intensified in the 1960s and 1970s, in protest at policies that effectively meant that import-substituting states invested in infrastructure and supported economic growth but failed to engage in an effective redistribution of income. The result was a series of bitter class struggles that eventually saw the nationalist projects of industrialization defeated in the Southern Cone countries of Argentina, Chile, Uruguay, and Brazil and the agrarian economies of most of Central America, where social conflict had been largely over access to land and communal rights. After more than a decade of violence that in most cases led to an upsurge in military dictatorships, Latin America entered a period of redemocratrization and a new era of human rights and social reconciliation by the end of the 1980s. But the economic context in which this political transformation was attempted proved highly inauspicious. The challenge of building democracies and more tolerant states was complicated by the legacies of erratic economic programs implemented during the years of authoritarian rule and profound economic recession that swept across the region from the late 1970s. Mainstream solutions to the “lost decade,” as the 1980s came to be known in Latin America, were driven by the need for external finance and investment. They inevitably involved, therefore, an enhanced role for transnational capital and the introduction of transnationalized neoliberal ideas about “good” policies on governance and development codified in what came to be known as the Washington Consensus. For much of the 1980s the standard prescriptions for development focused on shrinking the state, or reducing the scope (and cost) of its activities. From a deceptively simple assumption that the state— understood as a complex social and political process as well as an economic one—was to produce development in the 1950s and 1960s, it came itself to be seen as the principal obstacle to development, responsible for both crisis and stagnation. In response, a minimal “regulation” state was to provide the basis for effective market-led governance (Cerny 1995). The state was to guarantee the rule of law and take responsibility for the provision of public goods; but it was to be insulated from “politics” and popular pressures. Of course, there was always something of a sleight of hand involved here, since state autonomy, ultimately, was about fortifying the market; and governments were always open to business groups, especially exporters, which increased their influence over the state (Bartell and Payne 1995).

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The primary goal of the neoliberal orthodoxy was to reform the relationship between the state and the market. Consequently, the reforms associated with the Washington Consensus set out to transform the state via a range of policies from the privatization of public assets to cuts in public expenditure. A leaner, more focused state was to be achieved through cutbacks in infrastructure and pro-poor public services, accompanied by tight fiscal discipline. Reforms that broadened the tax base (that is, so that more people pay taxes) and reduced high rates of tax (so that capitalists pay less tax and, theoretically, are able to invest more in the economy) were recommended, alongside the adoption of market-driven competitive exchange and interest rates. Trade liberalization measures, including the adoption of a uniform tariff, were designed to encourage exports and foreign investment; and the adoption of legal and juridical policies to enhance and protect property rights, along with reform to labor markets, were also aimed at encouraging investment and market-led growth. The idea of switching to the market as the driver of the economy, and cutting back the state, soon settled into the new orthodoxy across the region. Without questioning the view that the neoliberal era represented a high point of external influence over regional politics, we should nonetheless note that there were quite distinctive national patterns of engagement with the new liberalism, in Latin America as elsewhere (Peck and Tickell 2002). In the process, emphasis on the particularities of regional development gave way to narratives which posited a model of globalized development through markets, financial deregulation, and internationalized capitalism (Williamson 1990; Dornbusch and Edwards 1991). Across Latin America, whether through conviction or because there seemed to be no alternative, governments capitulated to the tenets of a new economy of the market. Only in Brazil were state elites and local capital strong and confident enough to mix the new liberalism with a commitment to continuing to protect important sectors of domestic industry (Doctor and Macaulay, forthcoming). For some governing elites, the new liberal ideas were undoubtedly attractive in their own right. In Chile, for example, where a variant of the liberal state under Pinochet seemed to be able to deliver high levels of economic growth after decades of economic difficulties, the leaders of the new democracy were genuinely convinced of their worth. But, from a regional perspective, it is hard to avoid the conclusion that Latin America’s embrace of the new liberalism was largely engineered and supported from Washington. Drake (2006: 33) describes the Washington Consensus as essentially a set of “U.S. economic ideas”


7

about policy and attributes its adoption in Latin America fundamentally to the economic and political domination of the United States. The appeal of apparently simple and universal development recipes only increased in the context of the economic recession of the 1980s, intensifying the ideational and material leverage Washington and Washington institutions enjoyed (see also Biersteker 1990; Stallings 1992). It is not surprising that critical voices saw the adoption of neoliberalism in Latin America not only as an erroneous economic recipe but also as a straightforward capitulation to the United States— something the region had tried to avoid in the earlier years of import substitution industrialization (ISI) (Robinson 2004). The embrace of neoliberal reforms on the scale recommended by Washington meant that government policies generally comprised two distinct stages (Naim 1994; 1999; Rodrik 2006). The first stage was to stabilize the economy and bring inflationary pressures to an end, followed by a second, longer period of more complex reforms that would, in theory, change the cultures and practices of states and lead to a more productive economy. These two stages are summarized in table 1.1. In practice, the degree of variation with both stage one and stage two reforms was very significant. In Latin America, first stage reforms were difficult, if not impossible, to resist in most cases since, without them, the international financial institutions (IFIs) simply refused to release the funds governments required to prevent full-scale economic collapse and social disorder in the wake of the recurrent balance of payments and debt crises in the 1980s. But the highly sensitive political and institutional reforms that were to follow on from stabilization were often subverted, implemented only in part or altered in some fundamental way. The introduction of the core agenda of reforms to the state was mediated in most countries by, inter alia, concerns about sovereignty, the interests of politicians and political coalitions, the authority and cultures of state institutions, as well as state capacity, the contingent interests and ideas of socioeconomic and civic actors such as business groups, and the unintended consequences of the attempt to make these reforms politically and socially acceptable. Morley, Machado, and Pettinato (1999) show that Argentina conformed most closely with an ideal-type of neoliberal state, whilst Chile—despite its apparent discursive acceptance of neoliberalism— exhibited considerable variation and Brazil conformed only in part. Divergence was tolerated in Washington in the case of Brazil, because of the size of the economy and its importance to the United States; a clear reflection that the agenda of neoliberalism was always mediated

Table 1.1 Two Stages of Neoliberal Reforms in Latin America Stage I (First Generation of Neoliberal Reforms) Priorities

● ●

Reduce inflation Restore growth

Stage II (Augmented Neoliberalism) ●

●

Reform Strategy

● ●

●

Change macroeconomic rules Reduce size and scope of the state Dismantle institutions of protectionism and statism

● ●

●

●

●

Typical Instruments

●

● ●

● ●

●

Drastic budget cuts and tax reform Price liberalization Trade and foreign investment liberalization Private sector deregulation Creation of social “emergency funds” bypassing social ministries “Easier” privatizations

●

● ●

●

●

●

● ●

●

Decision making

● ● ● ● ●

Presidency Economic cabinet Central Banks World Bank and IMF Private financial groups and foreign portfolio investment

● ● ● ● ● ● ● ●

●

Increase international competitiveness Maintain macroeconomic stability Reform institutions Boost competitiveness of the private sector Reform production, financing, and delivery of health care, education, and other public services Create “economic institutions of capitalism” Build new “international economic insertion” Reform of labor legislation and practices Civil service reform Restructuring of government, especially social ministries Overhaul of administration of justice Upgrade of regulatory capacities Improvement of tax collection capabilities “Complex” privatizations Building of export promotion capacities Restructuring relations between states and federal government Presidency and cabinet Congress Public bureaucracy Judiciary Unions Political parties Media State and local governments Private sector Continued


9

Table 1.1 Continued Stage I (First Generation of Neoliberal Reforms)

Stage II (Augmented Neoliberalism)

Administrative Complexity of Reforms

●

Moderate to low

●

Very high

Main Governmental Challenge

●

Macroeconomic management by insulated technocratic elites

●

Institutional development highly dependent on mid-level public sector management

Source: Adapted from Naim (1994).

in Washington by pragmatic concerns about power (Arceneaux and Pion-Berlin 2005). The introduction of neoliberal reforms did bring some measure of optimism, at least to governing elites, in the 1980s and early 1990s if only because they brought a temporary stability to regional economies. In some countries neoliberalism even gained a degree of credibility more generally as stabilization policies succeeded in reducing inflation and, therefore altering the precipitous decline in living standards many ordinary Latin Americans experienced through the turmoil that followed the debt crisis. Growth rates improved as inflation fell. Average inflation in Latin America fell from 223 percent in the 1980s to just 6.5 percent in the second half of the 1990s (Fraga 2004: 90). Politically, the region’s embrace of the Washington Consensus was ensured, perhaps ironically, by the turn to democracy as the new civilian elites, having come to power in uncertain and difficult times, cast about for international support and opted, as Drake rather crudely puts it, for “subordination [to the United States] over anarchy or isolation” (Drake 2006: 26; Grugel et al. 2008). Yet the withdrawal of the state and the difficult process of privatization of even basic services, combined to changes in the labor market caused enormous social hardship. Neoliberalism effectively implemented a process of “accumulation by dispossession” (Harvey 2005). Toward the end of the 1990s, faith in neoliberalism in Latin America started to fall apart amidst a slow-down in growth following currency difficulties and rising indebtedness, especially pronounced in Argentina. The privatization of state pensions, the casualization of labor and rising unemployment even in the formal economy to over 10 percent left many without the resources to cope with the failure of the economic and financial deregulation in the region (see chapter 3).

10


In the end, therefore, it was the difficulty of embedding the neoliberal state in a stable model of democracy and inclusive politics, rather than a failure of its strictly economic rationale, that has led to its unraveling. The difficulties of making neoliberalism “fit” in Latin America point to the problems of applying global models of political economy in general: such models do not take into account the particularities of state formation and practices or cultures of representation and participation. Indeed they suggest that governments should reject past practices and historical legacies as aberrations that are to be overcome. Yet the fact is that, in Latin America, many of the reforms associated with the Washington Consensus simply could not work because they conflicted with political practices and could not be made to fit with established patterns of state behavior. Consequently, when they were implemented, the effect was often quite different from what was expected. One particularly difficult transition to embed in Latin American societies was the attempted shift to marketized concepts of citizenship. The neoliberal reforms aimed to turn citizenship into a resource to be determined by the market. But this has been actively resisted and the result has been the periodic eruption of social protest (Chile, as we shall see, is a rare exception here). Traditionally, Latin American states have responded to dissent or mobilization from below by adopting either strategies of clientelism or repression. Democratization made the option of repression illegitimate while fiscal constraint largely took away the option of clientelist policies of inclusion. Governments across the region found themselves in a governance dilemma; increasingly unable to contain the social conflicts and political tensions generated by the polarizing and pauperizing effects of the neoliberal model, the gap between democracy and the socioeconomic inclusion grew steadily wider in almost the whole region through the 1990s as welfare was systematically squeezed and inclusion reduced to those who could pay for health, good schooling, social security, and so on—goods that had previously been public. Hemispheric Relations and the Washington Institutions The uniqueness of Latin American political economy lies in the fact that its search for economic development has been profoundly and indelibly shaped, from the nineteenth century onward, not only by local political and economic conflicts but also by the need to offer national and regional responses to the steady assertion of U.S. global and regional hegemony. Washington has always mattered. The


11

region’s first experiment with laissez-faire economics at the end of the nineteenth century and throughout the first decades of the twentieth unfolded alongside the early consolidation of U.S. power in the hemisphere; whilst experiments with import substitution after 1945 and the search for nationalist development were an attempt to build regional autonomy and, as such, had the potential to create tensions in the inter-American relationship. These tensions were often exacerbated by the adoption of policies of nationalization of U.S.-owned assets or attempts to renegotiate the tax terms on which U.S. multinationals operated. Statism, and more particularly state-led industrialization in Latin America, therefore, inevitably invokes a degree of inter-American hostility. It is perhaps not surprising that government of General Pinochet in Chile, which enjoyed, at least initially, a considerable degree of protection from Washington, was the first to abandon import substitution, as early as the 1970s, in favor of the liberal ideas that were favored by Washington. Since the early 1980s, Latin America’s embrace of neoliberalism was inextricably inter-woven with the opening of a new chapter in Latin America’s relationship with Washington. The spaces of neoliberalism shaped not only national options but, more broadly, also conditioned regional relationships. The collapse of the nationalist projects in Latin America in the 1960s and 1970s left a set of regional governments that, with the exception of Mexico and Cuba, were largely compliant with the demands of the United States, in marked contrast to more turbulent years earlier decades. At the same time, the United States shifted from supporting authoritarian regimes that had initially seem to contain the threat of popular radicalization in the context of Cold War in the 1970s to favoring policies of controlled democratization by the 1990s. This volte-face allowed for gradual political change to take place in Latin America without serious disruption to interAmerican relations. Indeed, the 1980s, and especially the 1990s, marked something of a high point of convergence and cooperation. Economic collapse in Latin America in the wake of the debt crisis in 1982 and democratic change in effect brought the United States and Latin America closer and, for more than a decade, Washington’s regional hegemony went virtually unchallenged. Of course, beyond a genuine political willingness on the part of the new democratic governments to accept leadership from Washington as a way of returning to the international community, there was the reality of debt and an international shortage of credit. The sudden rationing of credit in the 1980s effectively constrained the policy choices available in Latin America, as governments struggled to

12


service international debts and kick-start their almost moribund economies. The debt crisis meant that the IMF and other multilateral donors were brought in and stabilization programs quickly put in place. Initially described as merely short-term measures, in the absence of any workable alternatives, the adjustment programs of the mid1980s gradually settled into a new philosophy of development, based on export promotion and deregulation of the economy. In turn, this shift opened the door to an immanent Washington presence inside Latin America as IFIs came to play a sustained role in crisis management through the 1980s and 1990. Financial assistance and policy support were of course conditional on the adoption of “good” policies, that is, the reform agenda sponsored by Washington. The new closeness with the United States also made the transmission of ideas— perhaps the key modus operandi of the IFIs—very effective. Funding and technical support lent enormous leverage to the IFIs vis-à-vis all borrowing countries as they had the power to direct the reinsertion of these economies into the international capital flow and were able to act as “gatekeepers” since many private lenders insisted on an IFI seal of approval before agreeing to loans. IFIs, however, had to work with domestic actors over policy implementation on the ground (Riggirozzi 2009: 158–160). Local elites at the domestic level of politics thus became part of new transnational networks formed by local technocratic experts, mostly trained economics graduate from U.S. universities and even within the IFIs, and global actors in the business and financial world (Sikkink 1991; Babb 2001; Teichman 2004). In short, Latin America, having found itself in an extremely weak bargaining position as even its own professionals were co-opted into relationships dominated by IFI approaches to development and, with little faith left in indigenous economic recipes, surrendered to U.S. rules. Bolivia followed Chile in introducing privatization policies in 1985 and Mexico followed suit in 1986 and Argentina in 1989, as the model slowly spread throughout the region. Access to the U.S. market and the prospect of stable new investment streams, along with the important, if intangible, commodity, U.S. support, were supposed to compensate for the pains occasioned by the new economic liberalism. The promise of a reinvigorated special relationship, then, through a project of new regionalism and a revitalization of the older institutions of inter-Americanism was supposed to ease Latin America’s insertion into the world economy and was central to the regional compliance with U.S. policy prescriptions (Grugel 1996; Phillips 2003a). Latin America was promised nothing less than the creation of a free trade area for the Americas and the


13

1990s were dominated by debates about the appropriate framework for the new regionalist architecture. At its height, new regionalism created a policy universe, separate from national politics and above states, in which elites of various sorts—states, business, technocratic experts and even organizations created to “represent” civil society— engaged in debate and summitry over the region’s new political economy (Hettne et al. 2000; Tussie and Botto 2003). There were two distinct, but linked, initiatives here: a proposal for hemispheric trade and investment liberalization, which was designed to create a market across the Americas; and regionalist governance. It soon became clear, however, that Washington would veto institutionbuilding in the model of the European Union and in particular the adoption of projects of cooperation in which economic integration would be compensated for by social spending. Regionalism in the Americas was to be “open” and compatible with neoliberal economics, in marked contrast to the EU’s social democratic approach (Grugel 2004). This gave it its characteristic shape as an integration project with strong but unwritten rules, forged through presidential initiative and business cooperation rather than through the creation of new institutions, with economics as its (concealed) core. As Phillips (2005: 3) notes: The economic project in the Americas is not a sort which envisages the construction of genuinely region-level regulatory structures in the construction of supranational regulatory bodies, comparable to those which are emerging . . . in the EU. The challenges of governance and regulation in the Americas relate instead to the construction of a regime of rules.

The trade integration agenda opened when the United States sought, for its own purposes, to reengage with its own hemisphere in the early 1990s. The Enterprise for the Americas was launched in 1990 by President G. W. Bush, senior and was designed to lead to a Free Trade Area of the Americas (FTAA) by 2005. For governing elites in Latin America, its main appeal was that it created new rules governing hemispheric trade and investment policy (ECLAC 2001). For many states, trade liberalization also appealed in a more pragmatic sense: having surrendered to the rules of the market, regionalism at least held out the prospect of winning stable access to North American markets. Nevertheless, it would be analytically misleading to over-simplify the complicated terrain of strategic alliances and pragmatic integration strategies during the 1990s; for Brazil especially, where regionalism

14


became paradoxically a way of resisting or staggering liberalization and building support within Latin America for a more mixed model of state-led regionalism. Overall, the result was a bewildering number of trade deals between various subregions and states. But—and this is perhaps the key point in this account of the region’s shift toward regionalism—progress toward free trade and the FTAA was too slow and the window of opportunity that opened for Washington to remake the hemisphere entirely in its own making had found clear limits by the end of the decade, amidst internal debates in the United States as to the wisdom of further integration and dissatisfaction in Latin America with the very few concessions that the United States was actually prepared to make. In addition, the social costs of neoliberal reforms in many countries in the region increased at the same time the level of dissatisfaction with Washington policies (Grugel 2005; 2006). The governance agenda, meanwhile, hardly fared much better. Initially, regional governance was to be managed via a process of summitry and regular ministerial negotiations, in which United States acted as the hub and U.S. policy developments as the main reference point. From this perspective, hemispheric relations were expected to complement economic integration and political/social governance through the Summit of the Americas process, mandated to debate development, democracy and security agendas. But this agenda began to disintegrate too, as both popular and elite-led opposition to it emerged in Latin America. In the first place, subregional projects such as MERCOSUR came to represent an alternative vision of regionalism based on a combination of “Latinness” and state-controlled market integration. Formed in 1991, it grouped together Brazil, the largest economy in Latin America, with Argentina, Uruguay, and Paraguay. Although MERCOSUR gradually became a “strategic and political platform” for the larger countries within it (Phillips 2003b: 221), it was, in fact, able to engage in little more than opposition politics. Its vision of an alternative model of integration has dwindled over time. Nevertheless, perhaps its most significant contribution was to question the legitimacy of Washington’s leadership at a time when there were few voices able to do so. Meanwhile, despite the association of new members such as Chile, Bolivia, Peru, Ecuador, Colombia, and Venezuela as full member, MERCOSUR itself has more recently been challenged by other, more radical ideas about integration, reflecting the emergence of models of integration functional to emerging nationalistic development strategies. In the end, the general perception in Latin America that the FTAA would lead to deeper neoliberal integration meant that support for it

15


lost ground. The loss of interest in the United States with regionbuilding, amidst internal opposition to market opening from business and trades unions and security concerns and fears of migration after September 11, 2001, led to something of a reconsideration of interAmerican relationships and specifically regional projects of integration within Latin America. The collapse of the economic core of integration meant that, from the perspective of Washington, the costs of ordering the Americas were seen as too great. The collapse of U.S.-sponsored integration and, with it, the bond that cemented the consensual leadership of the United States in Latin America, paved the way for the emergence of alternative projects of regionalist political economy creating a new environment for the reemergence of nationalism in the South. Toward a New Political Economy of Regional Development By the end of the 1990s, it was clear that the neoliberalism in Latin America was running out of steam. A slowdown in growth following currency difficulties, rising indebtedness (especially pronounced in Argentina), and a growing awareness of the appalling social costs the liberal model has occasioned changed attitudes toward pro-market reforms. The rate of economic growth in Latin America throughout the 1990s—less than average growth figures in the 1960s and 1970s—was deeply disappointing, especially in view of the reforms (see Lora et al. 2004: 9). Failure to tackle poverty and inequality also reinforced opposition to market reforms (see table 1.2).

Table 1.2

Poverty and Extreme Poverty in Latin America, 1980–2000 Latin American Poverty and Extreme Poverty Rates

Year

Poverty

1980 1990 1997 1999 2000 2001 2002

Extreme Poverty

Millions of People

% of Population

Millions of People

% of Population

135.9 200.2 203.8 211.4 207.1 213.9 221.4

40.5 48.3 43.5 43.8 42.5 43.2 44.0

62.4 93.4 88.8 89.4 88.4 91.7 97.4

18.6 22.5 19.0 18.5 18.1 18.5 19.4

Source: Grugel et al. (2008: 506).

16


By the end of the decade, even the IFIs were calling on states to embed markets in supportive institutional structures—an agenda that became known as the post–Washington Consensus (Stiglitz 1998). Social rejection of liberalization and what was often perceived as an externally imposed marketization of democracy can be traced back to the protests and riots that erupted in Venezuela and Argentina in 1989, though governments were largely able to control dissent until 2001. In Bolivia the failure of the market to act as the institutional foundation for social organization was manifested in the disintegration of the state and the seeping away of power from ruling elites. Even in countries such as Chile and Brazil, the rising levels of unemployment and underemployment and the stagnation of wages meant that neoliberalism was increasingly questioned. From around the time of the East Asian crisis in 1997, in particular, arguments about an inevitable global convergence and the triumph of market economics were on the defensive (Higgott and Phillips 2000). There is now a substantial body of literature exploring the extent of deviation from the standard neoliberal prescriptions in Latin America (e.g., Wise and Roett 2003; Panizza 2005a; Hershberg and Rosen 2006; Roberts 2007; Castañeda and Morales 2008). But what exactly are the new governments in Latin America doing that is different from the open economy approaches of the 1990s? Let us begin here by taking note of the strength of the leftward shift in Latin America. The election of Chávez in Venezuela in 1998 was followed by Lula in Brazil in 2002 (reelected in 2006), Néstor Kirchner in Argentina in 2003 (and then Cristina Fernández Kirchner in 2008), Tabaré Vasquez in Uruguay in 2004, Evo Morales in Bolivia in 2005, Michelle Bachelet in Chile in 2006, Rafael Correa in Ecuador in 2006, and Fernando Lugo in Paraguay in 2008. Around 60 percent of Latin America’s population now lives under a government that is, in some way, of the Left (Arnson 2007). In terms of style, language and discourse, there is certainly much to divide these governments. Roberts (2007a), for example, argues that one important distinction derives from their different social base. Whereas the governments of Venezuela and Bolivia depend for support on social movements of various sorts, the electoral basis of governments in Brazil, Uruguay, and Chile is linked to party organizations and is, consequently, far more stable. Other commentators have taken perhaps a more normative and less scholarly approach, assuming that there is a “good” Left and a “bad” one; a Left to be feared and one to be nurtured and supported. For Jorge Castañeda (2006: 1),


17

for example, there is not one Latin American [L]eft today; there are two. One is modern, open-minded, reformist, and internationalist, and it springs, paradoxically, from the hard-core [L]eft of the past. The other, born of the great tradition of Latin American populism, is nationalist, strident, and close-minded. The first is well aware of its past mistakes (as well as those of its erstwhile role models in Cuba and the Soviet Union) and has changed accordingly. The second, unfortunately, has not.

Castañeda’s typology and Roberts’ distinction capture now-standard views about the Latin American post–Washington Consensus Left. There is, on the one hand, the “social democratic” governments of Chile, Brazil, and Uruguay and, on the other, the “populist” regimes of Venezuela, Bolivia, and Argentina. Social democratic governments—Castañeda’s “first” Left—are said to be in tune with elements of the post–Washington Consensus, openly committed to the institutional form of liberal democracy and able to adopt a pragmatic approach to both the market and the United States. In contrast, the populist/nationalist governments of Venezuela and Bolivia are committed to the introduction of institutional reforms that will modify the institutions of liberal democracy, personalist in approaches to and styles of decision making and antagonistic toward both the U.S. and foreign capital (Castañeda 2006). Differences such as these are very real. Nevertheless, we want to suggest here that the two Lefts also share some characteristics. Pulling out what unites them allows us to identify some important commonalities that can be easily overlooked and, therefore, to delineate some of the core elements of the new regional political economy. In the first place, we should note that all serious contenders for office and all political groups that have won office have made their peace with capitalism. They are not, in any serious way, anti-capitalist—in marked contrast to some of their historical forerunners. Lula’s conversion to capitalism in 2002, after years of opposition, marked a crucial turning point in the region as well as in Brazil. A similar transformation had taken place on the Chilean Left in the late 1980s. Chávez, Morales and the Kirchner/Fernández partnership, meanwhile, have no genuinely radical past to abandon. Kirchner/Fernández and Morales have made it very plain that they are keen to build national capitalism; Morales, for example, speaks openly of the need to create “Andean capitalism” (Dunkerely 2007). In short, all governance projects in Latin America acknowledge, beyond any shadow of a doubt, the importance of the market and,

18


indeed, have made clear that they welcome both domestic and foreign private investment. None of these governments is in a position to antagonize or push domestic business groups too far. They need to encourage local investments, in fact; and they need to create conditions in which exports continue to expand. Indeed protecting the export sector is exceptionally crucial because of the commodity price boom which is currently funding much government spending. Following on from this, there are policy constraints on government that flow from the need to keep business happy. Tax reform, for example, looks to be off the agenda, as Cristina Fernández learned in 2008 after a bruising struggle with Argentina’s landowners. At the same time, much of the regional opposition to Morales’ constitutional reform comes from export-oriented groups that are unwilling to cede their earnings to central government. Whatever the rhetoric of leftwing governance, policymakers are in fact treading very carefully. All governments, from Chile to Bolivia and Venezuela, reject the idea of the market as self-regulating and argue that successful markets need guidance and leadership from the state. In particular, there is a view that the state has to play a role in designing industrial policy (Schrank and Kurtz 2005). Sheehan (1997) and others (Kurtz 2001; Boylan 2003) show how even the Chilean state, often regarded as imposing a classic neoliberal approach to development, in fact developed strategic policies in support of export industries, including the adoption of negotiations with business leaders on tax bands for exports and an active and subsidized search for export markets. Kurtz (2001: 2) for instance suggests that success in export led growth in the case of Chile is explained by a distinctive combination of an orthodox, monetarist experiment since the mid-1970s and state selective interventionism, or what he calls “state developmentalism” (Kurtz 2001: 16). In Argentina, meanwhile, a new approach to industrial policy emerged after the 2001 crisis as the hallmark of a new statism that rejects the idea of externally led capitalism but advocates the principle of “open-markets nationalism” (chapter 5). Second, there is the social composition of the coalitions on which the new Left governments depend. In addition to the poor and the working class, the urban middle classes play a pivotal role. Not only have they voted for the new Left but they have sometimes mobilized in the streets in support. Yet, in the past, these same groups have not hesitated to support sometimes extreme right-wing projects and even military coups against leftist governments (O’Donnell 1986). The origins of the alliance between the Left and the middle classes lie in the impoverishing effects of neoliberalism that brought with it a


19

gradual pauperization of some key middle sectors, in particular lowermiddle classes employed in the public sector. By the end of the 1990s, many middle-class employees and small businesspeople found themselves in situations of considerable economic uncertainty, with mounting debts and declining incomes. Like the urban working classes, the public sector middle classes were suddenly vulnerable to job losses and salary cuts (Osarow 2007; Kessler and Di Virgilio 2008). In addition, these groups paid a heavy price for the decline in public services in education and health. The unprecedented levels of middle-class impoverishment have led to the emergence of a new phenomenon: the “new poor” and, for the first time, governments have been forced to consider how to resolve middle-class poverty (Kliksberg 2000; Feijoo 2001; Kessler and Di Virgilio 2008). The presence of mobilized middle classes is pivotal in explaining the nature of the new Left and in particular the demands for a new and more active state in defending public goods and public spaces. But, at the same time, their commitment to the new governments is contingent and governments need to deliver materially to retain their support. Third, it should be clear from the above that managing the various tensions that have given rise to the emergence of a new political economy is fraught with dangers. All the new Lefts in Latin America seek, in one way or another, to redirect capitalist development away from the paradigm of “accumulation by dispossession” (Harvey 2005) into a more socially cohesive model of “growth with equity” (ECLAC 2007a). Governments have set themselves the tasks of address the legacies of industrial decay, economic restructuring and the need to produce new and more dynamic economies, as well as more equitable ones. Whatever the real limitations on policymaking, external and internal, managing the national economy and the challenge of global integration have been turned into priorities for governments in ways unthought-of ten years ago. And the state has become the central site for post-neoliberal political economy in Latin America. In this context, the most important question to ask is whether an almost constant recalibration of the balance between the state and market, determined as much by the need to keep various groups within the coalition on board, will permit sustained growth and a redistribution of income. Can domestic demands for welfare, social protection, and political voice be met within open economies? Can states that have ignored demands from below for many years and that have limited organizational efficiency and penetration in society now deliver a new agenda of social well-being for its citizens? To put it less mechanically, perhaps—can those regional states that are committed to delivering

20


the new agenda of balanced development, democratic deepening and social investments manage the social and economic tensions inherent in the new development models? Can they keep investors and exporters happy and, at the same time, manage demands from the street? It may be possible in the short term because of rising export prices for many of the region’s exports. But high export prices will not continue forever. Over the long-term, then, answers are clouded in uncertainty. As Tussie puts it succinctly in this volume, governments face the realpolitik dilemmas of avoiding open confrontation with powerful, established commercial interests while at the same time enhancing and maintaining important domestic civil society support to shore up their domestic popularity.

Structure of the Book The book combines attention to national case studies with an appreciation of the regional context. We begin at the macro-level: the region. In chapter 2, Jean Grugel focuses on the democratic potential of the new regional political economy. The chapter poses three core questions: what kind of democracy accompanied the Washington Consensus period?; to what extent can we talk about a “post–Washington Consensus scenario” in terms of politics and models of democracy?; and can states that have ignored demands from below for many years, and that have limited capacity now deliver a new democratic agenda of enhanced political and social citizenship? Contrary to repeated experiences in the past, in which economic and political turmoil paved the way for democratic breakdown, Grugel argues that current crises have been resolved without breaking with the democratic order. But this is only part of the story of regional democratization. The key issue, she argues, is the quality of democratic governance and the limited capacity of Latin American states to deliver on the ground. As a result, there are considerable challenges ahead. In chapter 3, Rosalia Cortés explores the transformation of welfare policies and social spending since the 1980s. She discusses the extent to which welfare regimes in the region are in a process of change in response to crisis and/or new electoral imperatives. Cortés also points out how most welfare spending in Latin America has been closely linked to political, not economic, needs as governments have used social policies as a way of buying political support and bringing potentially confrontational civil society movements into the structures of


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governance. Finally, she examines the extent to which new social policies link citizens with the state and whether they reflect stable postneoliberal distributional coalitions. Chapter 4 explores macro-economic arrangements in a postneoliberal era across the region. Diana Tussie argues that one of the core commonalities in projects of post-neoliberal governance is a search for distance from the United States, after years of following Washington’s prescriptions for development. This has led to attempts to redefine what regionalism means. Her argument is that all governments of the Left have been inherently pragmatic about managing important aspects of economic governance; although, interestingly, Chávez in Venezuela, and to a lesser extent Morales in Bolivia, may now be challenging that tradition somewhat. Furthermore, the new Left has an ambiguous relationship with the market, arguing that it is not to be trusted as an engine of development. But, at the same time, new Left governments are not blind to its power. This moral ambivalence, alongside its practical acceptance of the market, is rooted in the collapse of socialism and the broad structural economic changes that took place in the 1980s and 1990s and that cannot be undone. The result is the new Left, across the region, “is aware of the pain and risks involved in leaning too heavily on fickle financial markets” and seeks mechanisms, such as regionalism, to compensate. Chapters 5–9 offer five detailed national case studies of the principal models of post-neoliberal governance. Each case study explores the particular manifestations of crisis that have given rise to the emergence of new projects of governance and explore in detail what “postneoliberal governance” means in national settings. In both Argentina and Bolivia, the end of the neoliberal project was signaled by social disorder, economic collapse and political violence. In Argentina, the crisis of 2001 reflected external vulnerability and mismanagement of monetary policy, along with a loss of faith in the political system and political leaders. Pía Riggirozzi (chapter 5) explains how the unfolding crisis of neoliberalism since the late 1990s crisis affected Argentina’s democracy and brought the country to the brink of chaos in 2001. However, in an extraordinary reversal, the crisis marked the beginning of a new national political economy that maintains its ties— indeed seeks to deepen them—with the global economy. Accordingly, post-crisis Argentina witnessed the emergence of a new type of leadership that was in tune with the new spirit of popular mobilization and able to appeal to nationalist sentiment, as well as offering a new policy matrix. Yet, despite a remarkable recovery and a record of sustainable growth since 2003, questions remain about the extent of

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democratic revitalization, the concentration of executive power in policymaking, and the enduring vulnerabilities of the economy which mean that it is premature to think of “Kirchnerismo” as an institutionalized or coherent form of governance. Pilar Domingo tackles the complex case of Bolivia in chapter 6. Successive governments in Bolivia failed to construct anything close to a social consensus over the direction of the economy. As a result, the crisis of neoliberalism was manifested by an acceleration of regional tensions, national disintegration and a loss of control over the state by ruling elites, amidst rising social mobilization and violence, as crisis-management strategies failed. The political and institutional crisis in Bolivia led to the emergence of a new politics of identity and resistance that has, in turn, defined the emergent Bolivian model of post-crisis governance. Evo Morales, elected in December 2005, promises nothing less than a new state which is to be the instrument of emancipatory social transformation. Much less pragmatic than the Argentine variant of post neoliberal governance, Morales’s new political economy is both driven and contained by the traditions of popular mobilization that permeate the Bolivian polity. But questions remain about the viability of the government to effect a long-lasting social transformation, especially given the virulence of both elite resistance to the Left and regional rejection of central government. Chávez in Venezuela is seen as the most emblematic example of Latin America’s embrace of a new post-neoliberal political economy. Chávez’s emergence as politician was determined in the course of a series of crises in puntofijismo from the 1990s. In contrast to Bolivia and Argentina, the roots of post-neoliberal governance are explicitly political. As Julia Buxton suggests in chapter 7, the emergence of a new governance model was triggered by a deep-seated rejection of elite capture of the state and popular rejection of what was perceived as an externally imposed political economy of liberalization. In this context, it is perhaps less surprising that the new Left in Venezuela is explicitly revolutionary (though not anti-capitalist) and it seeks to transcend national frontiers. In chapters 8 and 9, we explore two cases of the older social democratic Left, Chile and Brazil. Chile in particular, is marked by a very cautious reform of neoliberal policies rather than a rupture. In Chile popular dissatisfaction has focused most on the social and distributional costs of competitiveness; in Brazil discontent with the costs of economic modernization and external vulnerability led to the election of the country’s first president from the leftist Worker’s Party.


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In Chile, decades of economic success appear to have left a profound legacy of social exclusion, contributing to demands for social spending and a more active state in terms of social policy in particular. Unlike the cases of Argentina, Bolivia, and Venezuela the search for alternative models of political economy in Brazil and Chile has been far less shaped by a crisis of governance and institutional breakdown. But the difficulties of combining market openness with a commitment to social inclusion have created tensions. Nevertheless, both these cases are marked by policy continuity as well as reform. Finally, in the conclusion, we return to the pressing issues of how to conceptualize Latin America’s alternative political economy(ies) and the sustainability of the region’s new models of governance. Here we draw attention to the challenges of integration, democracy, and economic management over the long term.


Chapter 2

“Basta de Realidades, Queremos Promesas”1: Democracy after the Washington Consensus Jean Grugel

In [Latin America], it seems that those who have been elected by the people . . . always end up in alliance with the economic Right. What is the secret of the ease with which the Right conquers power? Carlos Ibáñez del Campo

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he above observation is not a commentary on Latin American politics in the 1980s and 1990s, though it might well be. It is instead a remark from more than fifty years ago and it was made by Carlos Ibáñez del Campo, shortly after becoming president of Chile for the second time in 1952. He was elected into office on a huge mandate for root-and-branch reform of the political order—only to break with the Left within a year of the elections. He went on to adopt a probusiness agenda and contracted the U.S.-based Klein Saks mission to oversee an orthodox stabilization of the economy. Ibáñez’s comments serves here as a reminder of how fragile left-wing governance has traditionally been in Latin America and a caution against assuming that the promises of transformative democracy that are sometimes made during presidential elections are always translated into policies. Nevertheless, it is the case that the passing of the high period of neoliberalism in Latin America marks an important watershed politically, as well as economically. The debt crisis of 1982, to put something of an arbitrary date upon the paradigmatic shift in the region’s political economy, ushered in a twin transition to more liberal polities and more open economies. The embrace of liberal democracy coincided with the introduction of free market economics, which was

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adopted in almost all countries through a combination of force and persuasion. The results of economic liberalism have in the main been economically and socially catastrophic. Politically, however, the score sheet is perhaps more ambiguous. On the positive side, democratic institutions have been more stable that at any other period in the region’s history, civilian government has become firmly established and the public sphere has been consolidated as a space of a debate and discussion. The quality of democratic governance, however, has been much more problematic and political leadership has often been lacking in vision and capacity. More fundamentally, redemocratization has been cemented onto elite privilege and the result has been everwidening social fissures. Political, social and economic exclusion has deepened, as elected governments have failed to reverse the trend of rising inequality. It is perhaps not surprising that, by the turn of the new millennium, many regional governments were struggling to contain deep-seated social conflicts and political tensions which are the result of almost two decades of state retrenchment, pauperization and lackluster citizenship. Since then, demands have been made, and promises given, for more inclusive forms of citizenship, the introduction of new pacts between government and society, alongside a stronger, more “intelligent” state (Néstor Kirchner, quoted in Vilas 2006: 245). Whether these changes add up to a genuine opportunity for democratic renewal in the region is the subject of this chapter. Democracy and Democratization in Latin America before the Third Wave I adopt here an understanding of democracy that combines an emphasis on representative and accountable institutions with a recognition of the centrality of citizenship, social cohesion and policies of inclusion for democratic practices. Democracy requires a thick civil society, able to represent the very different groups and interests in society and translate the preferences of the majority into policies and protect political, civil and social rights, as well as an effective state (see Dahl 1989; Schmitter and Karl 1993; Diamond 1997; Grugel 2002). The importance of civil society for democracy does not simply reside in the fact that it creates a day-to-day experience of participation and inclusion at the margins of the state (see Forment 2003) or that it offers an autonomous space of debate and interaction that is alternative to the state. Vibrant and heterogeneous civil society organizations play a vital role in democracy in transforming the patterns of access to, and the practices and policies of, the state. Democratic states lay claim

D E M O C R A C Y A F T E R T H E WA S H I N G T O N C O N S E N S U S

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to being open and representative; and, it is to civil society that such states must render account. Liberal states also render account, but to a civil society composed mainly of elites; contemporary visions of democracy suggest that the state must be responsive to a broad, inclusive and complex civil society. This distinction between liberal democratic states as they emerged in the United Kingdom, Western and Northern Europe, and the United States in the nineteenth and early twentieth centuries and contemporary understandings of democracy is important, for ideas about democracy and civil society have changed over time quite dramatically; democracy is, in effect, a moving tableau. In its original formulation, democracy was essentially the rule of the “enlightened” elites and the propertied classes; democracy thus coexisted with a highly restricted suffrage and a fear of the mob (Dunn 2005). Contemporary democracies, however, are democracies of the poor, as well as the propertied (Przeworski forthcoming). They have emerged as subordinated social groups, organized in society, achieve sufficient access to the state to challenge and change patterns of policy making and representation within it and elites accept the need to share political power and to redistribute, to some extent, economic and social resources (Rueschemeyer et al. 1992). As a consequence, mechanisms for the inclusion of nonelite voices have evolved that promise the formulation of policies that reflect the needs and interests of the citizenry at large. Democracy is thus linked with the emergence of inclusive patterns of citizenship. For this reason, Marshall (1973) locates contemporary models of democracy with demands for social as well as political citizenship. Similarly, based on the experiences of Europe in particular, welfare theorists such as Esping Andersen (1999) and Stephens (2005) have suggested that the hallmark of contemporary democracy is the adoption of an extensive welfare state that operates to satisfy popular demands for social security and, at the same time, contributes to resolving governance problems by creating institutions that can contain social and political conflict. The key point here, then, is that stable democracy in an era of mass politics, where civil society movements have a capacity for extensive mobilization, depends on the development of state policies of redistribution and social integration. This, in turn, requires a transformation of elite mentalities. Elites must prefer, or at least accept the need for, compromise and redistribution over violence and repression when faced with sustained mobilization from below: the issue of the stability of democracy hinges on the reactions of the wealthy to the democratically processed demands of the poor . . . Increased

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participation of the poor is a threat to democracy only in situations where elites, fearing drastic redistribution, are prone to overthrow democracy. For the poor themselves, democracy might be the only viable means to get what they want. (Przeworski forthcoming)

Latin American elites took an early interest in liberal notions of democracy, that is as the government of the “enlightened” or the propertied. By the beginning of the twentieth century, regional elites, especially in the Southern Cone countries of Chile, Uruguay, Argentina and, to a lesser extent, Brazil were receptive to the notion that they should imitate European state-building practices via the introduction of limited, electoral politics. But they failed signally to live up the challenge of change when faced with popular organizations demanding inclusion. For this reason, despite a real and genuine engagement with democratic ideas across the continent, democracy faltered as the twentieth century progressed. Short-lived democracies were usually followed quickly by authoritarianism. Tentative engagement with democratic ideas regularly gave way at times of struggle over economic resources or challenges from below to the social privilege of the elites. This happened after the 1929 depression, when elites opted for military rule to quell rising social demands for state action. The legacies of the repression unleashed in the 1930s shaped both the Left and the Right in Central America, effectively ruling democracy out (except in Costa Rica), combined with a clear signal that the United States would, in the last resort, actively support repression over any demands for redistribution that would have to be paid for by U.S. companies, until the 1980s. Further South, a cautious engagement with electoral politics began again around the time of the Second World War, which was to last unbroken until the 1970s only in Chile and Uruguay. In Chile, an elite-run democratic order collapsed when the political and economic Right opted for military interventionism in 1973, in the face of the victory of a united Left under Salvador Allende and what it perceived as excessive popular demands for redistribution. In Uruguay, the collapse of democracy in 1974 unleashed an exceptionally brutal military dictatorship. Elsewhere, a cyclical pattern emerged, in which authoritarian rule was interspersed with brief periods of narrow and unstable elected governments. The result, as Hochstelter (2003) argues, was that “far from accruing rights in a lineal and incremental way [Latin American] citizens have seen their citizenship rights given, taken away, and restored in cycles largely outside their control.”


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The extent of civic, and most particularly social, inclusion in regional democracies in the twentieth century, even in Chile and Uruguay which were regarded as the most successful and stable, were actually quite limited; the secret ballot was, for example, introduced as late as 1958 in Chile. In Bolivia and Peru, meanwhile, elite prejudices of both class and race combined to marginalize and exclude most of the countries’ poor and indigenous communities. In Argentina, early experimentation with elite-led democracy gave way to demands for popular inclusion, economic citizenship and industrialization which were ultimately channeled not via “traditional” leftwing parties or a democratic regime but by a populist movement that was suspicious and hostile to democracy as a foreign and elite import. Peronism went on to become the hegemonic force in domestic politics, discrediting liberal democracy and reducing the space of civil society until after the dictatorship of 1977–1983. Democracy was problematic in Latin America, then, at least in the larger countries of the region, not because the economic conditions that sustain it were somehow missing but principally because elites preferred repression over class compromise. As a result, patterns of state-society relationships followed a very difficult trajectory from those of Europe (Oxhorn 2003). While the end of the Second World War provided a key moment of rupture in Europe, after which elites gradually came to be convinced of the importance, above all, of preserving social peace and internalizing the principles of political equality, welfare and social inclusion in order to maintain it, a similar break with traditions of elitism and extreme privilege could not be engineered in Latin America. Consequently, even in those countries where urbanization, industrialization and the growth of the working class led to intense social pressures for reform, as in Chile, Argentina and Brazil by the 1960s and 1970s, the result was not inclusion but dictatorship. O’Donnell (1973; 1999) argued that a particular, local form of authoritarian state emerged with industrialization that aimed to crush, not include, social movements—the bureaucratic authoritarian regime. In short, there simply was no real transformation of elite mentalities similar to that which took place in Europe. Instead of the willingness to compromise, an atavistic fear of the “people” dominated elite perceptions of the masses (Jelin 1996; Cruz 2003). In these circumstances, it is perhaps surprising that the idea of democracy returned to Latin America at all. Yet return it did in the 1980s as a result of the changing tenor of international relations (Huntington 1991), rising international hostility toward authoritarianism, the consequences of economic collapse in Latin America which

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tended to discredit (mainly repressive) office holders and a rejection of the violence and the destruction of human life in the 1970s and early 1980s that had left the social fabric of the region in tatters. The horrors of civil wars, military aggression and state-sponsored repression created a willingness on the part of ordinary people and their leaders not to push for too much in the way of redistribution from democracy. Predictability, security and order were valued, even if redistribution seemed to be off the agenda. But stability on this basis was unlikely to last long. Eventually, in societies with histories of mobilization and social organization, demands for better living standards and policies to halt the decline in welfare were inevitable. Democracy Returns to Latin America Third wave democratization in Latin America has led to institutionally stable regimes. This is partly the result of institutional engineering and attention to the crafting of constitutions and partly because there is a broad social commitment to maintaining the democratic form of politics within the region. There is no appetite for a return to the undemocratic past. But this is not to say that the region’s democracies are not problematic, in terms of their day to day practices and state cultures and policies. Elite bias is so deeply embedded within regional states as to be almost unconscious and goes, in the normal run of things, unquestioned. As a consequence, some policies—such as redistribution or certain forms of taxation—have simply been ruled off the political agenda: they cannot even be discussed seriously, as policy options. Indeed, the radicalism now of both Morales and Chávez lies in the extent to which they question this culture of elite dominance, rather than their policies as such. After the transition to democracy, in the context of a real fear by ordinary people of a authoritarian backlash, the retention of elite privilege and its reproduction through state policies largely went unquestioned. The result was the creation of states that were secretive and functionally and psychologically isolated from civil society (Oxhorn and Ducatenzeiler 1998). Important decisions were rarely subject to open debate; and popular organizations experienced huge difficulties almost from the beginning of transitions when it came to trying to input into policy making (Roberts 1998). Moreover, it was quickly apparent that elections were ineffective as a means of translating popular preferences into policy since, once in office, governments tended to ignore electoral mandates (Stokes 1995). Even in terms of the delivery of social policies or questions of basic needs, such as


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housing or health, there was only partial and sporadic access to the state on the part of popular movements (Eckstein 2004). As a result, rather than leading to solid improvements in social welfare, democratization has gone hand in hand with state cut backs that mean that social provision in the region is deteriorating relative to almost all other developing regions of the world (Birdsall and Londoño 1998). The imprint of extreme class tensions and the cultural distance between elites and the ways in which ordinary people live in the region have contributed to what O’Donnell (1993) has called the steady growth of “brown areas” in the region’s political systems where the “unrule” of law is common and ordinary people finds their rights violated and not protected by the courts or the police. Weyland (2005) speaks of “low intensity democracies” and Mendez (1999) of a “clear abdication of democratic authority.” The new democracies, in short, are fractured and contentious and citizens are increasingly distanced from and distrustful of their leaders and the institutions of governance (Hakim 2003). Whilst the roots of these problems lie historically in deeply rooted social tensions, their immediate origins can be traced to the extremely trying economic circumstances under which democracy returned. The debt crisis set the scene for a regional agenda of narrow democracy, limited to the sphere of political belonging, even though what had driven the dictatorships out, in Brazil perhaps most emblematically, was a rejection of poverty, exclusion and marginalization. The result was a regional model of elite-led democracy which deliberately eschewed traditional social welfare models in favor of a liberal order that demanded conformity with the market. Elites, meanwhile, agreed to accept the “uncertainty” of competitive elections rather than calling on the Armed Forces to protect their interests, as in the past (Przeworski 1986). But they were initially able to manage this “uncertainty” in their own interests because the Left had been (at least temporarily) defeated, broken or exiled by the dictatorships, as in Argentina and Uruguay, or transformed into a shadow of previous radical self, as in the case of Chile. The willingness of the Chilean Left to accept neoliberalism in exchange for participation and, indeed leadership, in the transition to democracy and the transformation of Peronism in Argentina in the 1990s both bore witness to a genuinely new and more conservative status quo across the region. As a result, the “official” agenda of democratization seemed mainly to be limited to the restoration, or in some cases the establishment, of electoral competition between elites, organized into political parties, alongside efforts to guarantee civil liberties, uphold the rule of law and—in some

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cases—a pledge to “do something” for the very poor through the introduction of workfare schemes or social programs targeted at the very poor. Nevertheless, to describe redemocratization in Latin America as being only about elite pacts would be to ignore the rebirth of civil society that also took place. In contrast to narratives that focus on elites and institutions, Avritzer (2002), Peruzzotti (2002), and Auyero (2001) offer accounts of redemocratization that reveal ordinary people as dynamic actors in regional politics. They show that, alongside the construction of a new political society dominated by a narrow range of elites, Latin American societal organizations have become denser, richer and more complex. Of course the public sphere is not evenly strong throughout the region. It is exceptionally significant in Argentina, Brazil and Mexico and, in a different way, Bolivia. But, in most of the region, the period since the middle of the 1980s has witnessed the emergence of new social organizations, autonomous of political parties and not fixed to doctrinaire positions, in fields as diverse as trade, human rights, childhood, gender corruption, or the environment. The problem is that such movements have only rarely exercised influence over the political agenda—and hardly at all with regard to questions of an economic order. Peruzzotti (2001) and Peruzzotti and Smulovtiz (2006) show how human rights movements were able to set something of the moral tone of democracies with regard to questions of violence and political rights; but civil society influence has not extended into debates about income distribution or the political economy of new regionalism, for example (Grugel 2000; 2006). In short, civil society has been limited in its role of carrying out its “everyday functions of [democratic] citizenship” (Cruz 2004: 306). It was this, more than anything else, that allowed for the introduction and survival of the largely unmediated free market policies in which the costs of economic stabilization have been paid principally by the poor. The Rise and Fall of Free Market Economics in Latin America The first stage of what later came to be known as the “Washington Consensus” took shape in the 1980s, more or less simultaneously with redemocratization, and was something of a leap in the dark (see chapter 1). Latin America had abandoned free markets in the 1940s and 1950s in favor of a variant of state capitalism and, although since then there had been periodic pressures for market opening from


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outside, governments had resisted or reforms had faltered, Chile under Pinochet was the only real example that could be pointed to where liberal economics has been consistently pursued. As a result, the introduction of neoliberalism in the 1980s was something of social and economic experiment, launched by international organizations and governing elites who had no detailed or “firm understanding of the complexities involved” (Massey et al. 2006: 6). Over a period of two decades, markets were forced open, foreign investors brought into previously closed sectors of the economy including pension provision, public utilities and natural resources and external tariffs slashed. The state, though it hardly disappeared, was clouded in shame, in contrast to the market which was suddenly associated with everything fashionable, desirable and attractive. The argument was made that, in addition to economic growth, markets would strengthen democracy. A liberal economic logic was upheld by U.S. government, IFIs and governing elites that markets are egalitarian, reduce rent-seeking and privilege competition and “freedom”; since capitalism was assumed to operate along socially democratizing principles, it was concluded that it would logically have a beneficial relationship on the region’s nascent democracy. The streamlining of the state, it was suggested, would reduce corruption and encourage the abandonment of special interests and the internationalization of the economy would create pro-democracy incentives. There was some evidence to suggest that liberal economics did indeed limit (or at least hold up to the light) corrupt practices and Wise (2003: 5) notes than some of the Washington Consensus reforms “whittled away at entrenched authoritarian legacies.” But overall, the immediate impact of the Washington Consensus on Latin America’s nascent democracies was far from the one that was predicted in Washington. In fact, it led to the introduction of highly executive and non-consultative procedures within government; reduced access to the state and limited the exercise of citizenship; and deepened poverty, heightened social and economic exclusion and increased social tensions. In the first place, the manner by which the Washington Consensus was introduced upheld, and possibly deepened, the elitism of government and its disengagement with the citizens at large. As Haggard and Kaufman (1995) show, especially in the early stages of political transitions, governments introduced market reforms with scarcely any popular consultation and, in some cases, simply via executive decree. Thereafter, governments had recourse to a variety of techniques of dubious democratic legitimacy in order to get neoliberal

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policies, which were unpopular from the start, adopted or implemented. Stokes (2001) shows how several regional presidents, from Peru to Venezuela and Argentina, ran for office opposing the new economic orthodoxy, only to change tack quickly once in office, sometimes within days, abandoning their opposition to free markets in favor of programs of privatization, structural adjustment and deals with the International Monetary Fund (IMF). This severely weakened popular trust in governments and faith in democracy, fomenting instead a belief in the cynicism of the political class. Moreover, the sudden introduction of structural adjustment policies was often a prelude to attempts to move toward a more thorough shutting off of economic policy-making in general from public debate. Running the economy was gradually turned into an arcane and technical field, in which only those with “specialist” and “professional” knowledge were granted the right to offer an opinion, or at least an opinion that would count. Such experts have been dubbed “technopols” by Dominguez (1997), to distinguish them from the “technocrats” who ran economic policy under the dictatorships. Like the technocrats, the technopols possessed international degrees in macroeconomics, and enjoyed a range of connections inside Washington institutions; but crucially, they also enjoyed a political authority that derived from their association with elected governments and which seemed to make them virtually unassailable once in office. Looking back now on the high point of the Washington Consensus, it is clear that the behavior of the technopols was not so different from that of their predecessors after all. High-handed and convinced of the own rightness, they rejected popular consultation or open intellectual debate. Many thought themselves in possession of an absolute truth about how to run the economy; Domingo Cavallo, who oversaw Argentina’s rapid privatization of the public sector, was responsible for pegging the Argentine peso to the dollar alongside a precipitous fall in exports and allowed national debt to spiral, all of which led to the disastrous crash of 2001, presented himself as the “messiah” of Argentina (Corrales 1997: 50). Even in Chile, where the tone adopted by economic managers of Chile’s post-democracy liberal economy has been far more modest, the economic managers remained convinced that they are “gifted” and in possession of a “mission” to save the country (Camargo 2008). Over time, the pattern of isolating executive decisions from popular debate gradually spilled over into other areas of decision-making. Concerns about the openness of governments surfaced steadily, even within the IFIs, through the 1990s, albeit unevenly; they were far


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more marked with regard to policy making in Argentina, Venezuela, Bolivia and Peru than Chile or Brazil. Grindle (2000: 6) notes that the reform of the state, which accompanied economic and financial liberalization in the 1990s, was carried out via “a highly centralized process of decision making,” characterized by “behind-the-scenes negotiations” between elites. Regional governments, in short, were become increasingly “delegative” (O’Donnell 1994). Although institutions were stable, there existed very few mechanisms for vertical control over government by the electorate or civil society organization and horizontal accountability via other democratic institutions (such as Congress or semi-autonomous state agencies) was weak and undeveloped. O’Donnell explained the persistence of delegative democracy in the 1990s through the retention of embedded cultural practices which meant that traditional relationship between government and citizens, characterized by a “mistrust of power,” went unchallenged (O’Donnell 2003: 41). The cumulative effect of market reforms, meanwhile, was to link citizenship in the new democracies not to the state via redistribution, as in social democracies, but to the market. “Second stage reforms,” as they are known inside the IFIs, are crucial here. Peck and Tickell (2002) describe second stage reforms as an attempt to “roll-out” a new, reformed state, stripped of any commitment to social justice, that will act in the service of the market. Reforms such as the transfer of state-owned enterprises, public goods and infrastructure to private investors, the privatization of fiscal and regulatory services and the labor market reforms aim to strengthen capital at the expense of trades unions. Labor reforms in particular make it difficult for unions to oppose the new political economy and, as Cook (2007: 5) indicates, generally required a degree of coercion that often went unnoticed. In practice, the introduction of second stage reforms proved enormously difficult (except in Chile where many had been completed before the transition to democracy began). Reforms, in reality, were often incomplete or partial, and, in any case, were shaped by the interests of governments, as well as those of capital; in addition, their success depended on the institutional capacity of the state (Hagopian 2005). But the key point is that their introduction—and governments’ often pig-headed commitment to them—reduced significantly the access ordinary people enjoyed to a variety of social, economic and political resources, many of which are central to the exercising of democratic voice. The state effectively abandoned any aspiration to uphold the rights of all citizens, however poor, and left their value to

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be determined by the market. Yet, at the same time as the poor found it increasingly difficult to exercise the rights that democracy, formally, conferred upon them because of their inability to compete in the market, second stage reforms also concentrated considerable economic, social and political capital in the hands of a reduced number of people who enjoyed privileged access to government. Business groups, local and transnational, tied to the export economy or involved in privatizations provided governments with finance, investment and legitimacy and were rewarded with the ear of government officials. The creation of unofficial channels of consultation undoubtedly lent an atmosphere of political stability to government whilst the generation of dense links between state elites and private business, provided private sector backing that helped guarantee the authority of the technopols’ handling of the economy. Market or neoliberal democracy was thus most profoundly embedded in countries where the state-business nexus was enmeshed in regular and repeated consultations and a two-way traffic between the two sectors was established, often to the effective exclusion of other groups. Chile and Costa Rica serve as exemplary cases of market democracies of this sort in the 1990s in which channels of consultation between business and the state not only guaranteed a stable environment for the introduction of neoliberal reforms, despite the reproduction of structural privilege and poverty, but also served as something of a substitute for wider consultations with society. In Chile, the Center-Left government of the Concertación Democrática that took office in 1989 took care not to upset either local business elites—despite businesses’ preference politically for more right-wing parties—and established excellent relations with the various peak business groups (Silva 1996) whilst in Costa Rica, where the state was transformed in the wake of the debt crisis in the 1980s, there was a marked shift toward the private sector, domestically and internationally (Clark 2003). In contrast, state-business relations were far less institutionalized in Argentina, although local and transnational capital was crucial to economic growth in the 1990s, accounting for the fact that the political instability characteristic of the country continued. In Brazil, meanwhile, the state remained sufficiently responsive to local business groups with national and regional interests to limit the reach of the reforms. The social costs from this neoliberal revolution were enormous, borne in the main by the poor, the self-employed, and public sector employees. Their lives were transformed, often brutally, as skilled jobs in factories or public sector jobs with pensions gradually disappeared


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in favor unskilled, temporary and part time work. Simultaneous cutbacks in state expenditure and the shift from partial welfare states to cash transfers and safety-net welfare meant that social services were unable to provide adequate support during restructuring, creating vulnerabilities, unhappiness, and insecurity among already fragile and low income groups (Barrientos 2006; Barrientos and DeJong 2006) and seriously weakening faith in democracy in the process (Oxhorn and Ducatenzeiler 1998). Poverty rates across the region averaged 40 percent by the middle of the 1990s, rising most spectacularly in the cities. Moser (1996) speaks of labor market reforms having a massive psychological and long term impact on ordinary people; Beneria (1992) and Gonzalez de la Rocha (1988) both argue that neoliberalism was at the root of widespread social disorder, the breakdown in the relationships and the disintegration of social networks based on the workplace that sustain the lives of the poor. Gonzalez de la Rocha (2006: 68–69) speaks of the assets of the poor as simply vanishing, as the state withdrew from the provision of social services: Poor people’s capacity for action very much depends on the development strategies deployed by government and the ability of social policies either to facilitate or constrain survival, social mobility and reproduction . . . economic conditions and labour market opportunities deteriorated [after the 1990s in Latin America] to the point where middle class households have become significantly poorer while poor households have lost real choices about how to earn their living. The margin left . . . to cope with poverty and economic instability has narrowed significantly.

Market Democracy Questioned The first mass rejections of market democracy in Latin America can be traced back to 1989 and the protests and riots that erupted in Venezuela and Argentina in that year (see table 2.1). Despite Venezuela’s oil wealth and the rise in oil prices after 1974, Venezuela was forced to adopt IMF-backed stabilization in order to manage its spiraling external debt. Having presided over the boom years of the economy in the 1970s, Carlos Andres Pérez was returned to the presidency in 1989, only to announce a tight program of adjustment. In the ensuing protests in Caracas, four hundred people were killed, police repression was fierce and the legitimacy of the elitist system of representative democracy was called into question. The Caracazo, as it came to be known, opened a cycle of social and political rebellion in Venezuela that continued through the 1990s. There were

Table 2.1 Street Protests against Economic Reform and Elite Democracy, 1989–2001 Country

President

Date of Deposition

Crisis Factors

Argentina

De la Rúa

December 21, 2001

●

● ●

Bolivia

Sánchez de Lozada

October 17, 2003

●

● ●

Bolivia

Mesa

June 6, 2005

●

●

Brazil

Collor de Melo

December 29, 1992

●

● ●

Ecuador

Bucaram

February 6, 1997

●

● ●

●

Ecuador

Mahuad

January 21, 2000

● ●

●

Ecuador

Gutiérrez

April 20, 2005

●

●

●

●

Widespread dissatisfaction with socioeconomic performance and with the political class Collapse of the economy Cases of corruption Widespread discontent due to socioeconomic situation Demands of indigenous peoples Exportation of natural gas Lack of sufficient social support and political backing Demands for nationalization of natural resources and a greater state role in the economy; better representation of indigenous communities; regional autonomy Economic crisis, including hyperinflation Human rights violations Corruption, personal scandals Corruption, patronage, nepotism Institutional disorder Attempt to privatize major State enterprises Elimination of public services subsidies Economic crisis Loss of confidence in the banking system (freezing of savings) Dollarization of economy Partisan struggle for control over Supreme Court and unconstitutional dismissal of judges Struggle for governability in the context of a highly fragmented and regionalized party and political system Deep disenchantment with congress and political system Loss of support of armed forces Continued


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Table 2.1 Continued Country

President

Date of Deposition

Guatemala

Serrano Elías

June 1, 1993

Crisis Factors ●

● ●

Paraguay

Cubas

March 23, 1999

● ●

●

Peru

Fujimori

November 19, 2000

●

● ●

Venezuela

Pérez Rodríguez

May 20, 1993

●

●

●

● ●

●

The “Serranazo” (attempted self-coup by Serrano) Suspension of the constitution Dissolution of congress, Supreme Court, and Constitutional Court Amnesty of General Oviedo Congress, the attorney general’s office, and the Supreme Court declare pardon unconstitutional Assassination of Vice President Argaña Authoritarian practices/ concentration of power Electoral fraud Large-scale political corruption The “Caracazo” uprising: popular revolts violently repressed Broad disenchantment with traditional political parties and the political system Economic crisis and austerity measures Social programs abandoned Two attempted coups d’état: February 3, 1992, and November 27, 1992 Allegations of corruption

Source: IADB (2006).

military uprisings in 1992 and Pérez himself was deposed in 1993. Mobilization reaching a peak in the years after 1999 only slowed when Hugo Chávez, who had been the leader of the 1992 rebellion, took office in that year (see chapter 7). In Argentina, meanwhile, just a few months after the Caracazo, and in the context of rampant hyper-inflation and rises in the cost of staple foods in the order of 400 to 1,000 percent, riots erupted in the provinces of Cordoba, Rosario and Buenos Aires (Auyero 2007). Although resolved without serious violence, the riots prompted an early change of government as Alfonsín, the country’s first elected president in the new democracy, was forced to step down in favor of Peronist Carlos Menem and

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provided a justification for President Menem’s policy of containing inflation at any price. These events were the background to the popular uprising which, just over a decade later in 2001, would, once again, bring down an elected government (see chapter 5). Less spectacular popular unrest simmered through the 1990s, although largely ignored by governments. Unions resisted the discipline imposed by marketization and labor reform; social protest by those excluded from the market became more widespread and articulate, as both the Movement of the Unemployed in Argentina and the Landless Movement in Brazil indicate (Dinerstein 2003a). New forms of identity politics also emerged within civil societies. Following a slow down in social movement activity in the early years after redemocratization, a fresh spirit of popular mobilization was evident at the beginning of twenty-first century as communities reorganized and claims for basic rights were gradually staked, partly sparked by the difficulties of living with constant austerity and a loss of social citizenship (Eckstein and Wickham-Crowley 2003a; Lazar 2008). Some popular protests went beyond bread-and-butter issues and challenged the morality of market democracy, positing an alternative view of state-society relationships that claiming that states have a moral responsibility to respect and uphold the inalienable (that is, not market-dependent) rights of their citizens (see Almeida and Jonhston 2006: 7). Eckstein and Wickham-Crowley (2003b: 11) suggest that the gradual articulation of views such as these, focusing on the centrality of basic “subsistence rights,” provided a frame through which popular organizations could link the social and economic upheavals set in train by the Washington Consensus reforms with the model of democracy itself. Protesters came to associate the problems of corruption at the top and the failures of elected government to consult or listen with the impact of the neoliberalism itself; as table 2.1 shows, economic and political grievances were inextricably inter-twined in the gathering storm of protest in the 1990s. It is hardly surprising that, by the end of the 1990s, critical observers of Latin America could see that the economic reforms lacked popular legitimacy. In 2001, Birdsall and de la Torre, renamed the reforms “Washington Contentious.” Civil society protests against the Washington Consensus increasingly centered on cities as, for the first time, poverty grew faster in cities than in the countryside. As a result, the city ceased to operate as an escape valve for the rural poor. By 2000, around 60 percent of the region’s poor lived in cities and the withdrawal of the state, coupled with urban and industrial decay led to the collapse of much of


41

the social fabric sustaining poor families and communities. For Ungar (2006), neoliberalism turned Latin America into a region “under siege by crime,” with the poorest in the cities paying the highest price. In Rio de Janeiro alone, the police killed 1,195 people in 2003 and in Sao Paulo 7,500 people were killed between 1990 and 2000—more than the total number of victims of Brazil’s military dictatorship between 1964 and 1985. Perlman’s (2006) ethnographic study of three generations of families in Rio’s favelas provides a dramatic account of the impact of the decline in public services on the poor. She shows how the stigma of poverty actually increased in the 1980s and 1990s, while life expectancy declined as decent jobs simply evaporated. Many of the popular protests of the 1990s were not, strictly speaking, against governments. But protests against the Washington Consensus always had the potential to turn quickly into demands for a change of government. It was no longer possible by the turn of the century to believe that market reform was simply a result of external imposition; the reform process had gone on too long and governments had endorsed them too enthusiastically for that to convince. The result was, as Salman (2006: 7) noted with respect to the protests in Bolivia, people were in danger of losing confidence in democracy as a possible mechanism to reverse the persistent socioeconomic division because the polity’s attitude was simply one of keeping the electorate out of the sort of decisions that decisively affect it.

In the end, then, the death of neoliberal democracy came about because it was rejected by civil society. Its demise was emblematically signaled by sudden eruption of waves of street demonstrations in Argentina in 2001, followed shortly after by uprisings in Bolivia in 2003 and 2005. These protests were the culmination of waves of periodic social unrest. In Bolivia from at least 1999, it was possible to identify “a new constellation of oppositional social forces” based around the indigenous groups, the teacher’s union and a range of urban social movements in the main cities (Kohl and Farthing 2006: 149). In Argentina, the 2001 protests were immediately prefigured by street protests dating from at least 1999 (Auyero 2007). But they were also the result of a model of democracy that systematically excluded social movements and ordinary people from exercising voice in any discussion about the political economy. As Peruzzotti (2006: 229) explains, the popular uprisings that took place in the early years of the twenty-first century in Latin America were another

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stage in the regional “conflict between civil and political society over what constitutes representative government [that] can be traced back to the . . . transition to democracy.” Neoliberal democracy was to emerge relatively unscathed only in Chile, where something of a sui generis version of neoliberalism had always operated anyway, and even there at least discursive concessions had to be made to the need for government to listen and respond to the poor (see chapter 8). Popular protest, then, against a combination of restricted democracy, the withdrawal of the state and what were seen as immoral economic policies came together to close the high period of the Washington Consensus. Protestors demanded a new democratic pact between the state and civil society in which popular interests would be more adequately represented and a new kind of political leadership. There was, in other words, a strongly normative element to the street protests that focused on a critique of the neoliberal state and set out popular expectations of what contemporary democratic states should do for ordinary people (Auyero 2006). The Challenges of Building Inclusive Democracy and Social Citizenship Ordinary Latin Americans, it seems, are in massed flight from market democracy. But new projects of participative or inclusive democracy (or protagonistic democracy as it is termed in Venezuela) remain difficult to build. Projects of social or participatory democracy are not globally the fashion and to speak of the role of the state as guarantor of development and social peace is to invoke criticism, even from sections of the moderate Left, despite the widespread discrediting of neoliberalism. Moreover, elite opposition to redistribution has far from evaporated. What, therefore, are the chances that the new Left governments that have taken office in Brazil, Argentina, Bolivia, Uruguay, and Ecuador will be able to implement a program that will finally start to make social citizenship a reality in the region? Perhaps surprisingly, a number of commentators are positive about the chances that such governments will lead to more consultative and participatory democracies. Hershberg and Rosen (2006: 2), for example, though cautious, are optimistic that “after nearly a quarter century of backtracking, the tide may be turning in favor of more inclusive, autonomous democratic development” and they identify the changing political economy, the demise of the Washington Consensus and the fresh debates about the role of the state in engineering balanced growth and social inclusion as the source of the new “democratic


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opportunity.” Lazar and McNeish (2006), meanwhile, focus instead on the eruption of civil society which they view, at least in Bolivia, as an almost irresistible source of political and social change. But, whilst there are grounds for such optimism, there is also a real need for caution. As Garretón (2006: 1) suggests, old models may be breaking down; but the future is by no means assured. It is clear that there is now a range of governments in the region, in Venezuela, Argentina, Uruguay, Ecuador, and Bolivia, and older “new” Left governments in Chile and Brazil, all of which are committed in different ways to reducing inequality and encouraging a new politics of participation. Certainly, there are some very difficult issues ahead. In the first place, there is the conceptual challenge of defining what democracy means in Latin America now that market democracy, which dominated the region since the 1980s, is discredited. Ignacio Walker (2008) distinguishes three different Left traditions in Latin America, the Marxist, the populist and the social democratic and, by implication, three different ideological routes to building more egalitarian societies. Whilst the Marxist Left is overtly non-democratic, both the Left Walker terms populist, typified most clearly by Hugo Chávez in Venezuela, and the social democratic model, typified by the most recent governments of the Concertación Democrática in Chile and Lula in Brazil, pursue equality though democracy. But they do so in significantly different ways. Both are concerned to build new forms of social citizenship and both believe in a democracy that can embrace the poor as well as the propertied (Przeworski forthcoming). Nevertheless, their vision of democratic institutions and state-society relations is quite different. The new (or what Walker terms the “populist”) Left is, in effect, seeking to create forms of participation and representation that are distinct from classic models of social democracy which it sees as outmoded, unworkable and perhaps even “foreign”; in addition, in Venezuela, social democratic politicians were directly implicated in the introduction of the Washington Consensus which has discredited the very concept of social democracy. While the social democrats in Chile and Brazil, meanwhile, continue to look to Europe for theoretical inspiration or at least to share experiences as their twentieth century forebears did, the new Left seeks to draw instead on the specificities of social structure and ideas that are peculiar to Latin America. These conceptual differences explain the very different trajectories of the governments of Chávez, Morales and Kirchner/Fernández from those of Ricardo Lagos and Michelle Bachelet in Chile.

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The “old” Left takes something of a statist approach to democracy, typical of European social democracy, assuming that representative democracy can, over time, become more inclusive. Institutionally, it aims to strengthen representative institutions and reassure elites that they have nothing to fear, either from the poor or from the leftist political leadership. By contrast, the newer Left, if not as full-bloodedly populist as Walker (2008) suggests, certainly mimics elements of Latin American populism. This is perhaps not surprising, given that populism is embedded in the very fabric of Latin American politics. Populism in Latin America has often been associated with caudillo politics or even with the Right (Weyland 2003); but populism has also been an important strand of indigenous leftwing thought across the region. Populism combines a personalization of authority, with strategies of popular mobilization and a discourse of reform centered on “the people,” in opposition to elites. The persistence or revival of populism today reflects, on the one hand, the survival of a traditional language of popular opposition to elitism and local patterns of clientelism and leadership ingrained in states and communities; it is also a consequence of the failure of the institutions of third wave democracies to respond to demands for inclusion and reform. It is, in short, a response to the failures of market democracy. For this reason, as Roberts (2007b) rightly points out, we should be wary of polarizing populism as intrinsically opposed to democracy as commentators in the press or from the Right have done (Castañeda 2006). Both the old (social democratic) and new (populist) Lefts, are committed to the principles of social citizenship and participation and identify a role for the state in alleviating inequality via a strategic deployment of the state (Roberts 2007b). But they do so in quite different ways. The old Left is gradualist and proceeds by cautious negotiation with elites over questions such as tax. The institutions of the state, however flawed, are to be treated with respect and the constitution adhered to. Social change, it is acknowledged, will be slow. The Concertación in Chile, for example, has placed its faith in improving the public education system in order to challenge inequality steadily, over time (see Matear 2006, for a critique of Chile’s educational policies). In contrast, there is a much greater willingness to confront elites amongst the “new” new Left governments; and to complement the classical institutions of representative democracy with the introduction of other forms of representation, accountability and voice. This is especially marked in Venezuela and Bolivia—in the case of Bolivia, indeed, the debate about constitutional reform has tended to


45

overshadow almost all other political issues since Morales took office. Both governments are also committed to using community organizations, which they see as more authentic forms of popular presentation than parties, as vehicles for representation. In the case of Bolivia, in particular, this is combined with a new politics of identify that reflects the assertiveness of ethnic communities and neighborhoods that provided the votes that took Morales into office. Developments such as these reflect the view that building social citizenship in Latin America requires not only a new policy matrix but new procedures of government that are open to a range of popular organizations that have traditionally been excluded and marginalized. They stand somewhat in contrast to the institutional conservatism of Chile and Brazil, where governments tend to uphold the autonomy of government from popular movements and are suspicious of conceding too much even to movements that are loyal to them. In Argentina, in contrast, where the Kirchner/Fernández governments continue to depend on trade unions and traditional working class organizations, the politics of identity or place are less important. Overall, these new strategies for popular representation undoubtedly reflect the growth of civil society since the 1980s. All of Latin America’s Left democrats are, in different ways, concerned to strengthen state authority in the social and economic domains. But, for the new, and more populist, Lefts, projects of governance weave together an emphasis on popular democracy with a commitment to nationalism. While Chile and Brazil are openly committed to the internationalization of their economies, Venezuela, Bolivia—and perhaps most distinctively Argentina—seek to combine open markets with a reconstruction of the national economy (Grugel and Riggirozzi 2007). Chávez, Morales and even Kirchner seek nothing less that to refound the nation state, in Morales’ and Chávez’ cases quite openly via constitutional transformation. The new version of leftist democracy thus offers a vision of the nation state infused with a sense of pride in its own particularity. There is something Janus-faced about these visions in that they look back on history as well as forward, and they stand in contrast to both the overtly modernizing projects that characterized the Latin American Left, radical and democratic, in the 1960s and 1970s as well as the notion of what the democratic state should be in the high period of elite democracy in the 1980s and 1990s, namely capitalist, secular, consumer-driven, and internationalist. In Venezuela, Chávez consciously and deliberately recalls the Bolivarian foundations of contemporary Venezuela and its liberation from the Spanish empire; in Bolivia, Morales harks

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back to an earlier notion of the pre-Spanish nation. In a less dramatic way, the rhetoric of a new nation and a new state can also be found in Argentina and Uruguay, but here the language refers more to the golden age of industrial development in the middle years of the twentieth century. So, Tabaré Vasquez in Uruguay described his program for government in the following way: If you ask me whether, from an ideological perspective, our government’s programme is a socialist programme, I will say that it is not. It is a national programme, a deeply democratizing one, a programme that seeks solidarity, social justice, economic growth with justice, in other words, human development. (El País, Montevideo Mach 3, 2005, quoted in Vilas 2006 244)

Néstor Kirchner, meanwhile, has spoken of rebuilding national capitalism, recalling the period of intensive industrialization. The notion that the state must reassert its strategic power is also present in Bolivia. Vice President Alvaro Garcia Linera claimed that: The MAS is in no sense seeking to form a socialist government. It is not viable because socialism is built on the basis of a strongly organised working class . . . socialism is not constructed on the basis of a family economy, which is what dominates in Bolivia, but on large industry . . . What is the model for Bolivia? A strong state, and that is capitalism . . . It isn’t even a mixed system . . . (cited in Dunkerley 2007: 159)

Visions of new countries and new states are, in effect, ways to try and repair the damage done to the poor by years of exclusion which have eaten away at their belief that they even inhabit, culturally and socially, the same country as elites or belong to the same political community. The seriousness of these divisions, in terms of their legacy for governance has perhaps been underestimated by governments in general, even by those committed to new forms of democracy or to its regeneration. For, beyond nuances of definition and ideological debate, the million dollar question really is whether the new governments can deliver materially for the poor—or, at the very least, deliver substantially more and better than market democracy was able to. The fact that miners in parts of Bolivia so quickly became disillusioned with Morales, having provided him with votes and other forms of very significant support in the past, is an indication that the patience of the poor in Latin America is now quite limited indeed; a politics of identity and nationalism, even when it is, in fact, interwoven with debates about resources, taxation and local decision-making,


47

can only go so far as a substitute for effective and sustained policies of social and economic inclusion. By 2008, and in the run up to the second referendum on the disputed relationship between centralism and autonomy, some miners in the lowland were organizing road blocks to protest at the government’s failure to improve their living standards; their loyalty has a clear statute of limitation. New Left governments, especially populist Left governments, need to deliver quickly. Unlike social democratic governments, they cannot offer political and civil rights as a substitute for social and economic inclusion. Whilst this is less of pressing problem for Venezuela, given its oil-wealth, retaining high growth rates remains crucial for improving the living standards of the poor in Argentina, since redistribution has now effectively been vetoed. In Bolivia, meanwhile, the intractability of the state as a tool for effective social policy, despite rising income from energy exports in particular, presents as a real problem for Morales. It is clear, in short, that the primary challenge facing the new democracies goes beyond how to create channels for expression and voice (though they are important) and entails articulating new and more inclusive social policies and working toward the creation of a more economically cohesive society. Policies to support “community” are clearly not enough unless a significant flow of material and financial resources follow. Conclusion It is perhaps remarkable that the challenge of building inclusive democracies in Latin America continues to face today the same obstacles as it did throughout most of the twentieth century which result, ultimately, from the fact that the region has still to find a stable and consensual solution to the collapse of the elitist limited democracies that ended in the 1920s and 1930s. In a very profound sense, the “crisis of oligarchic rule,” that erupted for the first time in 1929, remains unresolved (Walker 2006). The end of authoritarianism in the 1980s ushered in a limited version of democracy that has ultimately satisfied neither the desires of most ordinary people for citizenship, inclusion and wellbeing nor delivered stable economic growth, with the exception, perhaps, of Chile. The current crisis in democracy in the region is the result of the collapse of the elitist pacts of the 1980s in much of the region. The age of deferential democracy seems to be over. What is perhaps striking, given this history, is that democracy retains a real purchase in the region, its failures notwithstanding. Latin Americans, whether poor or rich, cannot really

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contemplate abandoning democracy—even if they cannot agree on what it should entail. But many ordinary people have become cynical about traditional, elitist political leaders and parties and a new kind of democratic pact is urgently required. The exhaustion of democracy confined exclusively to the political sphere is interwoven with the collapse in Washington Consensus-type liberal economics which turned markets into prisons, limiting the material resources that enable effective citizenship to the few, and in some cases making even the reproduction of daily life impossible. The question now is whether the various kinds of Left-democratic governments that have emerged in the region can offer recipes that free the state from its capture by elites, exercise some authority over the market and work to produce a more genuine engagement between states and society, support a more egalitarian culture and redirect national resources in such as way that makes an equality of citizenship between the rich and the poor possible. Note 1. Peruvian graffiti, cited in Walker (2008).

Chapter 3

Social Policy in Latin America in the Post-neoliberal Era Rosalia Cortés

This chapter examines the evolution of social policy in Latin America

since the mid-1980s. Given their central importance, I concentrate mainly on developments in social security policy and labor law reforms. The guiding argument is that governing coalitions define national economic strategy, which largely determines the distribution of services and access to social protection. State-directed redistribution takes place through a set of institutions encompassing the delivery of goods and services, social assistance, insurance schemes, and labor legislation, which shape the prevailing degrees of social protection. The financing and structure of universal and means-tested state social provision and of social security transfers, the rules of access and utilization of public social goods, and the nature of labor regulations are therefore crucial for the distribution of social and economic rights. My aim here is to analyze how far new social policies are unfolding in an emergent post-neoliberal era. I identify in the first section the ways in which the regional social policy matrix was dramatically reshaped by the process of economic liberalization and the paradigm of neoliberal growth in the late 1980s and 1990s. I argue that neoliberal social policy was a consequence of the emergence of new governing coalitions in Latin America that incorporated business interests—local and global—and accommodated the demands of international financial institutions (IFIs). The second section examines in more detail the process of social reform under neoliberalism, concentrating on changes in social security and labor market regulation. I explore the legacies of this period in terms of rising poverty and social (in)equity before turning, in section three, to the challenges that the new Left governments face as they attempt a transition to

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post-neoliberal models of development and social provision and to outlining more recent social policy trends. Changing Paradigms of Social Policy Import substitution industrialization (ISI) strategies between the 1940s and the mid-1970s in the larger Latin American countries of Argentina, Brazil, Chile, and Mexico strengthened political alliances between governing parties, employers and trade unions. As a consequence, the trade union movement was able to influence the policy process, albeit to different degrees in each country, and obtain benefits from social insurance and income policies. Social policies were constructed around patterns of broad access in the areas of social spending—education and health—with relatively stable budgets and strongly centralized implementation. There were, however, recurrent problems in financing expansive social services in this period. The cyclical downturns and bouts of inflation that were part of the import-substitution period were resolved via stabilization schemes sponsored by IFIs which imposed wage restrictions and state expenditure constraints. These policies contributed to stagnating investment in infrastructure, in health services and education in particular, and to the deteriorating living standards that became exceptionally apparent during the “lost decade” of the 1980s in the region. In addition, since social policies and labor law during the ISI period had reinforced the links between governments and trade unions and social protection had been mainly directed to the workforce (rather than the poor), the social policy regime had tended to neglect the rural population and the poorest groups in society. This segmented provision of social and economic rights has contributed over the long term creating lasting difficulties in terms of universalizing access to, and the public provision of, social welfare and justice. ISI came to a definitive end in the 1980s. The restructuring of economic strategies from import substitution to the opening of the economies since the late 1980s reflected not only a new paradigm of development globally but also fundamental changes in the nature of governing coalitions. The new governments tended to eliminate trades unions from debates over policy and, instead, acquiesced to the demands of local and global business groups, adopting IFI strategies for the region. The bottom line of the projects of social reform that accompanied economic liberalization in the late 1980s and 1990s was the curtailment of public expenditure, the privatization of social security and the introduction of flexiblization of labor regulations.

S O C I A L P O L I C Y I N L AT I N A M E R I C A

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The official view, both local and international, was that these policies would serve to protect the poor from the impacts of economic transition. In fact, however, the social reform program that accompanied economic liberalization reinforced the negative impacts of open markets on the labor market and on living conditions in general. The dominant role business interests acquired within distributional coalitions in Latin America during economic liberalization reinforced the transition toward neoliberal economic strategies. Business groups supported by IFIs were able to push for a reduction in the scope of state economic regulation and social protection. In some cases, in particular in Argentina and Mexico, governments also were able to contain opposition from the trade unions because of the historic links between governing parties and labor, leading to the introduction of corporatist agreement for the reform of labor regulation and social security privatization. Neoliberal policies and financial liberalization achieved almost immediate price stabilization and brought about short-lived growth. But growth did not last in most countries of the region (Chile being the exception here) and open markets contributed to declining output as domestic businesses used to protection closed, output declined and unemployment grew. Economic crisis became even more dramatic as the region suffered the impacts of international financial crises in the mid-1990s. As a result, the region entered a prolonged period of stagnation and increasing inequality1 between 1998 and 2003, which, in turn, contributed to the climate of social unrest. In most countries, unemployment and labor reforms had weakened trade union movement so, instead, it fell to social movements and civil society organizations to represent marginalized and excluded social groups. These movements were less open to state cooptation than the official trade unions and, as a result, demands for better living standards, government intervention and more social protection became increasingly vociferous. These circumstances contributed to dramatic political changes. By the end of the 1990s, politicians were emerging to contest elections on the promise of breaking with neoliberal economics and, by the turn of the century, presidential elections swept a new generation of political leaders into office committed to change. The emergence of Left-leaning presidents since the early 2000s thus reflects demands from below for change; but, the policy mix and the extent to which macroeconomic policies have been reshaped in practice varies from country to country. In some, a rejection of the neoliberal consensus has given rise to attempts to combine demands for social citizenship on the one hand with an unwillingness to break with market-led economic policies on

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the other; in others, the desire to recast the economy in a state-centered mould is more marked. In this context, continuity and change in the political economy in Latin America inevitably means that there is a mix of social policies on offer. Instead of a new, consolidated paradigm of social policy, we are witnessing the emergence of gradual and tentative alternative approaches to neoliberalism. The Process of Economic and Social Reform under Neoliberalism in Latin America The wave of economic reform in Latin America in the 1990s sought above all to reorient regional economies away from state-centered, protective policies toward trade and financial liberalization. These strategies were implemented under democratic rule, with the exception of Chile, where Pinochet’s dictatorship had initiated a round of deep reforms that inspired and influenced the direction of public policy across the region. The failure of the heterodox stabilization plans in the 1980s, mounting inflation and fiscal deficit all helped to make the introduction of neoliberalism possible by creating a sense in which there was no alternative. As such, there was little immediate hostility from the public at large to neoliberal reform proposals such as the privatization of public assets, economic deregulation and labor market flexibilization. Governments and IFI discourse stressed the possibility of long-term gains through integration into the global economy even if these required short-term costs through policies that would increase the competitiveness of the local industrial base, lower labor costs and taxes, and restrain public expenditure. Economic and social reforms were carried out by governing coalitions that, despite democratization, reflected, grosso modo, the interests of economic elites. But domestic political arrangements varied in each country and the pace and depth of reform were indelibly marked by political constraints: Argentina, Chile, Peru, and Bolivia introduced policy changes rapidly, over a short period of time, while Brazil and Colombia were far more gradual. The degree of compliance of Mexico to the neoliberal paradigm is unclear or at least the subject of debate: Ocampo (2004) considered Mexico’s reform experience as a gradualist process, while others identify it as “an early and radical reformer” (Puyana 2007; Dussel Peters, 1998) and the privatization of banks was an indicator of the robustness of neoliberal reforms in Mexico (Ros 2003). Certainly the debate in Mexico is complicated by the fact that trade liberalization took place in the context of the North American Free Trade Agreement (NAFTA).


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In Argentina and Mexico, the legacies of corporatism and the fact that labor-based parties were in government in the 1990s meant that labor movements could not simply be ignored in the reform process. In both countries, consequently, labor was an actor in both trade union and social security reform. But, more centrally, the reforms were shaped by the interests of private business. Domestic and transnational corporate interests increasingly participated in decision making in the areas of economic and social policy, lobbying for privatizing state owned firms in the areas of telecommunications, transport, water and services, as well as the provision of social services. Privatizations transferred assets and natural monopolies into the hands of single private firms (Birdsall et al. 2008); while agreements between public providers and corporations frequently resulted in increases in the cost of services despite little or no improvements in the quality of infrastructure provision and social services (Cervellino et al. 2003). Privatization of pension provision began in much of Latin America, including Argentina, Bolivia and Colombia around 1992. This involved a significant redefinition of the social role of the state, as pensions became an individual responsibility. At the same time, shared risks were replaced (totally or partially) with privately managed individual savings accounts. Reforms generally maintained a public system providing basic pensions and introduced a mandatory, fully financed private scheme, with fixed worker contributions and variable benefits dependent on individual accounts, with private or mixed management. The transition from the old to the new scheme involved leaving to the market the level of retired workers’ earnings, thereby maintaining or deepening earning inequalities and breaching the social contract between old and young generations. Yet the changes did not immediately encounter widespread opposition, partly due to the fact that existing social security schemes had limited coverage—they excluded rural and informal workers— meaning that privatization, in fact, affected mainly public sector and formal workers. In addition, public pension schemes were already a financial failure, contributing to a view that there was little alternative to the introduction of policies of privatization, at least amongst the urban middle classes who were hoping that it would secure them a better deal. Although IFIs favored pension privatization, there is little consensus as to the role they played in the detail of policy or privatization strategies or, indeed, whether the reforms were a response to IFI leverage. Some authors consider that IFIs were responsible for conditioning the granting of loans to the introduction reforms; others

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(Brooks 2004) posit that IFIs only indirectly influenced the diffusion of market oriented pension models through sponsoring economic and financial liberalization, and endorsing the latter’s impact on the development of savings and capital markets. Certainly the backing of the IFIs in no way obviated the need to construct support for the reforms on the domestic front. In Argentina the privatization project was approved by Congress only after intense negotiations with the opposition and with trade-union members of Parliament. A mixed system was then introduced with two components; a reformed public scheme offering basic pensions, and a fully funded second tier, managed by trade unions, cooperatives and private banks. This last element was central in allowing the government to win the approval of trade union members of parliament; the government traded the latter’s political support for economic benefits for trade union leaders, including their participation in the management of pension funds, and the suspension of the deregulation of the “obras sociales,” or statefunded health care schemes centralized under the control of the trade unions (Cortés and Marshall 1999). In Mexico, the main social security pillars were the Institute of Social Services (Instituto Mexicano de Seguridad Social, IMSS), created in the corporatist 1940s, and the Institute for Public Sector Employees. These institutions had served as the social basis of import substitution strategies, protecting workers’ income after retirement. But by the end of 1960s, the Mexican economy had lost most of its capacity to create employment and redistribute income to industrial sector workers, with the result that Mexico entered the 1980s with growing informal employment, rising urban poverty and growing demands for access to education, health and employments, none of which were being met within the existing social policy infrastructure. Economic crisis through the 1980s only served to exacerbate Mexico’s unprecedented levels of poverty. The response by the state was to transform the philosophy underpinning social policy hitherto and to shift toward targeted antipoverty programs. Social security reform was, therefore, a very clear part and parcel of the introduction of economic reforms and the Ministry of Finance dominated the reform process which aimed at deregulation and the introduction of the private sector into an area of governance that had previously been central to the identity of the state. Along with the Central Bank, the Ministry of Finance pushed for privatization as the only way to solve the bankruptcy of the IMSS, the institutions overseeing pensions. But the initial project encountered opposition from the trade unions and from within the institution itself (Mesa-Lago and Muller 2002). Consequently, a new scheme was


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introduced in 1992 which did not involve structural change and which won the approval of the trade union movement and the Central Bank. But the government had not abandoned the project of institutional reform and the 1995 Mexican financial crisis presented an opportunity to introduce them. As a result, a new pension scheme came into operation in 1997 which increased the threshold for receiving retirement benefits and closed the old scheme. Benefits would be respected for existing members but new entrants to the labor force would have to join a private scheme. The privileged pensions of key state officials such as civil servants and the military were maintained in order to minimize opposition. Worker and employer contributions did not increase, but the state’s share of financing did; as a result, at the end of the 1990s, further reforms took place and the totality of the formal labor force was passed over to the new system (Mesa-Lago 2002). Brazil’s social security and welfare policies suffered severely from recurrent economic instability and deteriorated steadily from as early as the 1950s. Brazil’s new constitution in 1988, introduced as part of democratization, recognized the universal social rights of all citizens; but any optimism that this would lead to progressive social reform were dashed by the economic problems that set in the mid 1990s when fiscal constraints and high inflation put an end to the possibility of extending social welfare. Brazil did not follow the region’s pattern of social security reform, however and its highly segmented labor market operated as a barrier to the privatization of retirement pension. Yet almost 80 percent of pension beneficiaries earned less than twice the minimum wage (Brooks 2004; Weyland 2006). President Cardoso introduced small changes only to private sector workers’ retirement scheme, as—yet again—reform was contested by public sector employees, mainly from the judiciary and legislative. These changes needed the support of three-fifths of both chambers and the approval of the judiciary and, as such, it was always vulnerable to setbacks. Still, instead of rollback, the government extended the coverage of targeted social assistance to uninsured workers (Faria 2003: 20). As a consequence, Mesa-Lago (2002) has labeled Brazil’s social security system as a kind of vertical mass expansion, in contrast to the horizontal mass expansion typical of countries with universal access to social services and social security. Supporters of social security reforms predicted an extension of coverage and an improvement of compliance after reforms; however, low coverage persists in the region after more than ten years of structural reforms because of noncompliance and the drop in levels of formal employment. In 2005 only 68 percent of formal workers and

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21 percent of informal wage earners in Latin America contributed to social security schemes (ECLAC 2006a). Coverage for the poorest quintile of the region’s population was below 20 percent (Rofman and Luchini 2006). Compliance among affiliates to social security also fell, dropping from 58 to 42 percent between 1998 and 2004. A World Bank review (Gill et al. 2005) in addition found that private management was becoming increasingly concentrated and administrative costs were worryingly high. Meanwhile, living standards were also squeezed by changes in the labor market and the impacts of labor reform. Labor institutions determine the nature of working conditions, the permanence or regularity of employment, access to representation and the level of wages. In Latin America, although parts of the labor market have always been excluded from labor legislation—labor law tended to cover registered waged workers in the formal economy but exclude unregistered wage workers in micro firms and family firms, household or domestic workers, rural workers, and subcontracted workers—in general labor law was protective. In Argentina, Brazil, and Mexico legislation aimed to guarantee workers regularity of employment by penalizing unjustified dismissals and limiting the use of fixed-term contracts. In view of these traditions of protection, reforms to flexibilize contracts, reduce penalties for termination of employment, facilitate out-sourcing to firms and change the patterns of wage determination by subordinating wage increases to productivity increases and transformation of collective negotiation were bound to impact negatively on the standards of living of workers. Reforms were particularly deep in Argentina (and earlier in Chile under Pinochet) where the government acquiesced to business demands and then obtained the support of part of the trade union movement in order to facilitate the introduction of new legislation. In particular, the new legislation was aimed at relaxing the costs of dismissing workers by reducing the penalties for doing so and transferred employment responsibilities to the state, employment agencies or subcontractors (Goldin 2007). In Mexico employers pressured for reform from around the mid 1980s, opening up a domestic debate on labor legislation (Cook 1998). In the end, however, rather than opting for new labor legislation, labor costs and discipline were adapted to the requirements of economic liberalization (Bensusan 2000). The control of labor costs was achieved through an agreement with the trade union federation, the Central de Trabajadores Mexicanos (CTM) that allowed for the introduction of flexible working patterns, short-term contracts—some had duration of only thirty days—and the introduction of subcontracting. In


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addition, the agreement covered income policies. Earnings were fixed, which meant that rising inflation caused real wages and compensations for lay-off to drop steeply. Real wages dropped by 60 percent in twenty years as a result (Goldin 2007). Brazil, meanwhile, proceeded more cautiously, at least initially. Under the military government, protection of employment had been eroded as early as 1966, but this was reversed by the 1988 Constitution which had extended protection to workers. The Constitution increased the length of time employers were required to give as notice, improved the amount of compensation that was to be paid in cases of unfair dismissals and imposed limits on the use of fixed-term contracts. These were resisted by President Cardoso, however, who presided over legislation in 1998 to increase flexible working, limit individual rights, introduce part-time contracts, and remove the limits on using fixed-term contracts. Overall, labor reforms in the late 1980s and 1990s curtailed workers’ individual rights while the expansion of short-term contracts contributed to increasing both employment and income insecurity. In addition, the numbers of unregistered workers, with no access to basic labor rights, expanded across the region. Partly to allow governments to cope with the fallout from these reforms and to prevent social disorder, the Inter-American Development Bank (IADB) launched a series of loan and technical cooperation programs between 1990 and 2002 to shore up the transformation of regional labor markets. The loans to the public sector for technical cooperation included projects for training the unemployed and for improving capacity in the labor ministries. IADB programs, along with others financed by the World Bank, were geared to implementing short-term subsidized employment in training schemes and public works, in association with governments. Workfare and training programs thus became tools for embedding labor market reform; and it was expected that these programs would pay the cost of training the unemployed so that they could meet the demands of the new labor market. Still, for some, the reforms did not go far enough. Lora and Panizza (2002), for example, argued that rigidities persisted in the labor markets; and certainly even after the reforms, collective rights were often maintained (Murillo and Schrank 2005). The Legacy of Economic and Social Reform Latin America after reform witnessed improvements on average in terms of export performance; inflation was controlled and fiscal deficits generally fell, with some exceptions. However, the outcomes in terms of output and productivity were much less successful. Whereas

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output in the region increased on average by 5.7 percent annually between 1950 and 1980, after economic liberalization this fell to an annual average of 3.5 percent. Financial liberalization, meanwhile, increased the region’s vulnerability to unstable flow of foreign funds, leading to the Mexican crisis in 1995 and the fall-out from the Asian crisis in 1998–1999. Economic liberalization, privatization of social security, and labor law reforms affected the labor market and living conditions, the dynamics of state and private institutions and the bargaining capacities of different groups. During import substitution formal employment and state protective regulations had allowed for the construction of forms of social citizenship in the region; now the reorientation of state intervention toward targeted assistance, labor and social security reforms was resulting in shrinking state provision of social protection, while enhancing the role of the labor market in shaping living conditions. Nevertheless, not all authors agree on the negative impact of neoliberalism in the social sphere. Walton (2004: 1) for example, concludes that the neoliberal transformation was “highly beneficial” for the region, arguing that economic and social reform process increased growth but did not increase social inequality. The failure of governments to address social problems stemmed from the legacies of preexisting inequalities, along with ineffective institutions, not from market reforms as such. Walton thus posits that the impacts of economic and social reform were mixed, with no overall pattern— inequality increased in Argentina, declined slightly in Mexico and improved in Brazil. In his view the fall in levels in inequality, where it occurred, was the result of expanded coverage in basic education, health, electricity, and water, complemented by cash transfer programs, such as those in Mexico, or to extended pensions in the rural areas in Brazil. Huber and Solt (2004), in contrast, argue that Latin America’s market reforms yielded disappointing results in terms of social equity, as well as with regard to the quality of democracy. And in general it is clear that the data available on labor markets and poverty clearly contradict Walton’s view. The drop in labor absorption following the crisis of manufacturing, public firms’ privatizations and the reduction of public sector employment led to rises in both unemployment and informal sector employment. ILO figures reveal an increase in unemployment from 8.2 to 10.5 percent between 1990 and 2000 across the region in Latin America. Moreover, the quality of jobs on offer declined. The public sector had historically offered the chance of stable and regular employment and in the 1980s 15 of every 100 jobs in Latin America were in the public sector. During the 1990s


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the proportion of public sector jobs fell to 12 percent. With the shift toward private employment and the burgeoning informal economy, together with the introduction of more short-term labor contracts and the extension of subcontracting, employment instability and income insecurity rose. The deterioration of working conditions and falling wages for much of labor force meant increased income concentration and widening levels of inequality. Wage differentials increased between formal and informal occupations widened;2 and the decentralization of wage negotiation contributed to further wage inequality.3 Incomes in the informal sector, comprising the self-employed, unpaid family workers, domestic servants, and waged workers without protection, declined, according to Portes and Hoffman (2003), while the incomes of employers increased faster than average. By the turn of the century, the income share of the poorest 40 percent of the regional population was down to 10 percent (Palma 2006).4 Poverty levels dropped somewhat in the first part of the nineties but still, by 1999 the percentage of the regional population living in poverty was still greater than it had been in the 1980s (ECLAC 2003). Moreover, during the 1990s, the income of the poor increased less than that of the non poor (Lopez and Perry 2008). Szekely and Birdsall (2003) attribute these high levels of poverty in Latin America, even during periods of economic growth, to persistent levels of inequality in long-term income and assets. Moreover, changes in social policy strategy reinforced the preexisting barriers for accessing social services, social redistribution, and realizing social rights. Administrative reform in the provision of basic social services such as education and health was not sufficient to redress the longterm stagnation of public investment and public provision of these services. Instead, it added to the financial burden for the poorest groups that remained dependent upon them, while middle and high income groups had already moved to private providers. Brazil was something of an exception, once again. Here, social reforms broadened social and political access to services to some extent (Draibe and Riesco 2006); but the expansion of political rights did not extend the benefits of protection to those who were historically unprotected, expanding instead levels of social security within the formal sector. The vast number of informal workers remained “out of the system” and mainstream Brazilian society (Sola and Miguel 2007). It has been suggested that the changing patterns of social policy transformed relationships between the poor and civil society organizations, on the one hand, and the poor and political parties, on the other. Some authors have insisted on the idea that, in spite of

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the rigors of adjustment, civil society developed and matured and was able to channel the demands of the poor and vulnerable groups, in contrast to political parties which suffered a crisis of representation (Friedman and Hochstetler 2008). In the social policy field, targeted local programs, geared to building the so-called safety-nets for protecting the poor from income losses, aimed to strengthen the capacity of community-based organizations to deliver goods to beneficiaries. But social policy civil society organizations frequently reproduced exclusionary practices; and in addition, found themselves mediating between government officials and the community. In Argentina local authorities and emerging community organizations assumed a central role in the distribution of social plans, especially during the economic crisis of 2001 (Grugel and Riggirozzi 2007). But the selection of beneficiaries fell in hands of local political leaders, reinforcing their bond with a dependant and complying “clientele.” These leaders later were to become influential interlocutors with local and central governments, structuring the demands of their territorial constituency. In short, it is not clear that the new role of non state actors in policy delivery necessarily added up to more opportunities for greater voice for the poor or for policymaking that is less “political” in its delivery, despite the political significance of the rise of civil society. To conclude this section, we should note that, in spite of the differences in the scope and depth of social policy reform during the 1990s, there were important similarities between countries in the region in the way they approached the issue. Overall, the drive for economic reforms transformed the social world of Latin America, with changes in social policy reinforcing, not mediating, the impact of economic change. The weakening of the labor movement and a corresponding growth of civil society occurred in the context of a deep recession, falling incomes, and shrinking levels of social protection. These changes contributed to the crossroad in economic and social policy that emerged early in the twenty-first century. The Emergence of New Economic and Social Strategies? By the end of 2003, changes in the global economy were favorable for Latin America, leading to growing demand and rising prices for its commodities (ECLAC 2006a). The region also moved away from overvalued local currencies, boosting exports and tourism. The upswing in economic activity improved fiscal accounts, although the region still faces serious fiscal challenges, and social spending remains


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pro-cyclical (Braun 2007). The year of crisis between 1998 and 2003 eroded many of the political coalitions that had prevailed during the high period of economic reform, with the result that elections since then have tended to favor the Left. Electoral campaigns in Argentina, Brazil, Venezuela, Bolivia and Chile were based on harsh critiques of neoliberalism and market-oriented economic and social policies. However, it is not yet clear how far the new governments will chose, or indeed be able to, dismantle what are now established social programs and regulations and create alternate economic and social strategies to the neoliberal paradigm. Argentina under Kirchner began a process of re-regulation of the labor market, redressing some changes imposed during reforms, in 2004. Mexico, however, remains committed to continued flexibilization of the labor market, and Brazil remains in an intermediate position. Argentina has introduced reforms to the two-pillar retirement system, fostering the return of workers to the public system, and extending the numbers of noncontributory pensions. Brazil has continued social security reform aimed at including public sector employees; but Mexico has not made changes of significance here. Overall, targeted cash-transfer programs have been extended, with increased budgets and extended coverage, while maintaining their main lines of intervention. Argentina reoriented its economic strategy from 2002 when the devaluation of the local currency facilitated the recovery of manufacturing and the domestic market, boosting the expansion of urban employment. In Argentina, the new administration also acknowledged the role of labor in production and growth importance by reinstating collective bargaining, and reviving a tripartite council for defining the level of minimum wages, which, by 2008, was three times their 2003 level.5 But incomes policy mainly benefits the waged formal sector workers, leaving workers in precarious and informal jobs with low pay and without the benefits of social protection. Targeted programs in Argentina, meanwhile, remain insufficient for tackling income poverty which remains high. During the turmoil of December 2001, representatives of the Church and civil society organizations had devised an emergency social plan aimed at providing some minimal income for the very poor. The “Plan Jefes y Jefas de Hogar Desocupados” consisted of cash transfers to household heads with children under 18, a pregnant spouse or disabled children. Beneficiaries had to work 20 hours per week, and were responsible of guaranteeing children’s regular schooling and vaccination schedules, receiving in return income of around 50 percent of the minimum

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wage. The program’s coverage was broader than that of previous programs; but it was still insufficient, reaching only 24.5 percent of poor and 35.5 percent of extremely poor households in 2004. The program stopped accepting new beneficiaries in 2003 and benefits remained unchanged in spite of inflation; by 2007, the value of the cash benefits were down to 15 percent of the minimum wage. In Brazil Lula da Silva came to power with the support of trade unions and professional associations and the Executive reoriented its social policy priorities, shifting away from its traditional supporters (Sola and Miguel 2007; Zibechi 2006). Under Lula, the government has continued to expand social security along the lines of the Cardoso administration which favored extending benefits to formal sector employees, while at the same time directing expenditure toward poor families. According to Almeida (2004) Cardoso and Lula share essentially the same reform agenda, which he characterizes as “moderate reformism.” Lula has delivered the reform of social security that Cardoso promised but could not put in place; he has reduced the benefits enjoyed by public employees and he has unified the retirement schemes for both public and private sector employees (Almeida 2004: 6). Cardoso had created targeted policies including four conditional cash transfer programs.6 Lula created two main targeted programs, Fome Zero (Hunger Zero) and Bolsa Familia, which increased expenditure on, and coverage of, cash-transfer programs for the poor. Fome Zero was eventually brought into the Bolsa Familia program, unifying and simplifying the cash transfer programs. In 2005 Bolsa Familia covered 6 million families which was extended to 11 million by the end of 2006. Its objectives are to not only to reduce poverty through monetary transfers but also to create incentives for poor families to keep children in school and extend their access to primary health care and other social services. It has been suggested that the extension in coverage has a political motivation and that the shift toward targeted programs in Brazil as functional for obtaining massive political support from poor beneficiaries, claiming that they help explaining Lula’s victory in the 2006 general elections (Zibechi 2006). In Mexico, social policy has continued in the direction of assistance to the vulnerable and poor, and away from support to the labor market. This reflects the definitive collapse of the social coalition that had operated in the import substitution era, the declining importance of social security and labor rights, and stagnation with regards to public investment in education and health services. The new social policy responds instead to the needs of the governing alliance which


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continues to prioritize the role of the market in the allocation of income and the access to services. As such, social policy interventions are restricted to cash transfer programs directed at the extremely poor. Mexico was, indeed, a pioneer in this respect. The initial Progresa program became Oportunidades which aimed to alleviate extreme poverty in rural and urban areas through cash transfer conditional, once again, on health checks and school attendance. The program started in 1997 covering 300,000 households. When it ended in 2005 it reached 24 percent of the Mexican population and was costing 2.3 percent of public expenditure. Oportunidades did achieve an increase in secondary school enrollment, although it was less effective at raising primary school attendance, along with improvements in nutrition levels for children in extremely poor households. But this type of program will not solve the problems of access to health and education for the poor over the long term as we can see from the fact that 90 percent of the poor in Mexico in 2006 still lacked access to health care coverage. What is clear is that the cash transfer program remains the paradigm of social policy in Latin America, despite the demise of the Washington Consensus. This is due in large part to the fact that governments remain committed to maintaining fiscal equilibrium. Meanwhile, in the absence of redistributive measures—for example changing taxation structure—it is clear that cash transfer programs will only ever have partial coverage and satisfy basic needs. All such programs in Latin America exclude important segments of the poor. In Brazil, for example, 66 percent of new jobs created in 2005 paid less than 200 dollars a month and were of poor quality, while half of the unemployed were under 25 years old (Zibechi 2006). Cash transfer programs cover families and tend to exclude those who are in work but are poorly paid. They can, therefore, only be part of the solution to poverty in the region. Besides, cash transfer programs bypass public social institutions and rarely build independent citizenship. Instead, they facilitate the interaction between governments and the growing numbers of poor in the region and can become a means of social control by co-opting the poor and the civil society organizations that are responsible for distributing benefits. They easily become, in other words, part of populist strategies for managing social unrest. As Merino (2006: 59) suggests “clientelism occurs when bureaucrats, politicians and other actors have discretion over the allocation of benefits and when some groups are better able than others to resolve collective action problems, apply political pressure and extract such benefits.”

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Final Remarks Social policy in Latin America has changed since the end of the neoliberal high period—but with varying intensity. In Argentina the idea behind the reorientation of social policy was that economic growth and the ensuing increase in employment could contribute to overcoming most social issues emerged during the 1990s reforms. Although rising employment has absorbed an important proportion of the unemployed, there remains a significant segment of the labor force which still faces obstacles to finding secure, regular jobs. Throughout the 1990s, young people from low income neighborhoods and regions in particular were not able to enter the labor market and, over time, these people have become dependent on cash transfer programs and work fare schemes. This group has become almost unemployable within the context of the market and has largely remained out of work, despite economic growth after 2003. Moreover, the construction sector, trade and small-scale manufacturing firms, sectors that took off with economic recovery has not created quality employment and increasingly depends on unregistered workers. Nevertheless, the new government has incorporated the majority of the trade unions into policy debate—and it is interesting that they have not demanded an extension of protection or the increase in social assistance benefits for non-union members. The poverty question is losing ground on the policy agenda as state social intervention is shifting—although not always explicitly—away from “poverty” toward “labor issues.” In this respect, Argentina’s emerging model of social policy is based on a dichotomy between the introduction of measures that enhance rights for formal sector workers while neglecting the rest of the labor force, thereby intensifying the formal/informal labor divide. In Brazil, meanwhile, the present social model combines continuity with the neoliberal period in the area of social security, with a new attention to targeted programs. Another new component is the decision to increase minimum wages, and the growing centralization of social policy by the federal government. However, these new elements have not substantially altered the thrust of policy inherited from the previous administration (Sola and Miguel 2007: 38). Mexico, in contrast, has a very fragmented set of social policies. Social security had not been totally privatized; and education and health services have been increasingly decentralized. Workfare and social assistance programs have tended to coexist with cash transfer programs. There are, in other words, components of the pre and post neoliberalism reform paradigm. Some of the social policy institutions date from the import


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substitution era; while public spending has declined and labor has been deregulated, the focus of social policy has shifted from workers to extreme poverty (Barba Solano 2004). If we compare across the region, it is clear that a paradigm shift in social policy occurred under neoliberalism, as the basic components of import-substitution welfare regimes, namely social security schemes and labor law, were reformed. These changes occurred in parallel with a fall in employment and declining wage security, the extension of unprotected work and poverty. There has been less of a clear transition with post-neoliberalism. Argentina has begun to undo elements of the neoliberal legacy; but in Mexico, Brazil, and Chile this is less obvious. The emerging social policy model in Latin America is a segmented and limited one, divided between regulations and provision for workers and cash transfer programs for “the poor.” Moving toward universal social security coverage, providing full access to quality employment, improving levels of education and health—these do not as yet seem to be on the agenda. Notes 1. Inequality in income, housing, access to education, and health. Inequality tended to increase during the 1990s across the region, but mainly in the Southern Cone (Lopez and Perry 2008). 2. Wage differentials expanded in all countries, except Costa Rica. 3. The opposite view was held by economists in the IADB; they claimed that excessive labor regulations had created a segmented labor market between formal, skilled, high-wage jobs and the rest, thus contributing to worsen income distribution in Latin America. 4. There is still little consensus among economists on why wage and income distribution have deteriorated; some studies focused on the role of technological modernization, others have pointed at the negative impacts of economic reforms, or at changes in wage negotiation. 5. In 2003 the minimum wage was 300 pesos; in December 2008 it will reach 960 pesos. 6. Bolsa-Escola, Erradicação do Trabalho Infantil (PETI), Bolsaalimentação, Auxilio-gás, and Agente Jovem.


Chapter 4

Economic Governance after Neoliberalism Diana Tussie

The rise of the Left after the era of neoliberalism calls for a reflection

on its impact on policy decisions. New political leaders have emerged as representatives of highly mobilized mass movements and in the search for a redefinition of the discredited neoliberal social contract. These leaders differ in the ambition of their ideas as well as in their political roots and the projects they uphold. Néstor Kirchner and his successor, Cristina Kirchner, in Argentina come from the Peronist party, the quintessential populist movement, which has managed to shift ideologically from the founding populist nationalism of Perón to the neoliberal right wing policies of Carlos Menem over a fifty year time span, thanks to its electoral strength and its voice over organized labor.1 Despite this pendular party tradition, the economic policies of both Kirchner administrations are regarded as post-neoliberal and even leftist. In contrast, Lula da Silva in Brazil, Tabaré Vázquez in Uruguay, and Michelle Bachelet in Chile were elected on leftist and Center-Left tickets, but have been accused of being unwilling to abandon orthodox or neoliberal economic policies once in office (Jaguaribe 2006). Lula comes from the Workers Party, a traditional labor-based party; Bachelet is a long standing political figure in the Socialist Party, a member of the ruling Concertación alliance; and Vázquez is the leader of a leftist coalition comprising Encuentro Progresista, Frente Amplio, and Nueva Mayoría. In terms of rhetoric and ideology, all four are outflanked by Hugo Chávez in Venezuela, Evo Morales in Bolivia, and Rafael Correa in Ecuador, 2 who are openly committed to modernizing socialism in ways that fit the new century and have introduced more radical reforms, use more revolutionary language and claim that further, and deeper, reforms are to come.

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Latin America is a continent of contrasts, as policy trends and patterns of consensus and conformity have tended to come in waves, sweeping in and out at more of less the same time. These commonalities, whether economic, political or social, have provided distinct analytical and normative frames for understanding the region’s political economy. True to this pattern, the first years of the twenty-first century ushered in a regional paradigm shift, introducing a new policy style and new economic fashions and philosophies, based around resistance to, and rejection of, the seemingly unrelenting push of market reforms. It may be, indeed, that under the surface of embracing neoliberalism, a faith in state intervention never truly died out in Latin America. One way or the other, an alternative mindset is taking shape, as a new generation of political leaders seems ready to explore fresh approaches to organizing economic and social relations. Although there are important differences, we should note here that all these governments are seeking, in one way or another, to distance themselves from the United States over a number of key issues. Karl Polanyi’s classic study of the Great Transformation (1944) provides us with an entry point into the study of the “double movements” of the sort currently taking place in Latin America. Polanyi’s uses the term to depict a society convulsed by pain that is the result of the encroachment of market rationalities. As a result, people seek the protection of political institutions which they hope will act to limit the reaches of the market. The first stage, the moment of acquiescence with market expansion, leads in time to a second stage, which represents the build up of political mobilization against the unchecked power of capitalism. Polanyi’s insight provides an important starting point for my attempt here to provide a perspective on what has been happening in Latin America since the onset of the twenty first century. My concern is to address, in Polanyian fashion, how political authorities are currently redefining economic governance and provide some analysis of the distinctive features of Latin American economic relations. What do the leftist governments share in terms of economic policies, both domestic and external? Where do they differ? How are these commonalities and differences reflected in their mutual relations? What is the extent of the great transformation in Latin America today? My aim to reground the contemporary debate about the new political economy in a way that allows for differences over time and between countries and accounts, at the same time, for how current economic policies seem to be profiting from processes of social learning, even as they struggle with the legacies of the past.

ECONOMIC GOV ERNANC E AF T ER NEOLIBER ALISM

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Unearthing the Roots of Social Learning The notion of the “Left” is open to multiple interpretations. In the 1960s and 1970s it was associated with revolution and the concept of the proletariat. The political Left in Latin America identified strongly with the goals of social justice, economic development, national emancipation and socioeconomic equality and, in terms of policies, it advocated redistribution of wealth through agrarian reform, progressive taxation, the expansion of welfare services, the protection and expansion of workers’ rights, a strong participation of the state in the process of industrialization and hostility to foreign capital (Panizza 2005a; 2005b). The democratic Left had, however, very few chances to govern, with the exceptions of Arbenz in Guatemala in the 1950s, Allende in Chile in the 1970s, the Sandinistas in Nicaragua in the late 1970s and early 1980s, and Alan García in Peru in the 1980s. All tried to align economic policies with their social mandate but all were victims of their own financial largesse, unfavorable external interventions and, ultimately, political destabilization by the United States. Attempts at leftist governance thus turned out to incur high costs precisely for those very groups whose lives they have meant to improve. Judging by that record, then, one might be forgiven for thinking that leftist economic policies were a dead end, socially and economically, and that their proponents would never be been returned to office. In fact, in true Polanyian fashion, leftist parties (and on occasion the same leaders) have been voted back into office out of the ashes of neoliberalism. But, at the same time, the Left has changed. Its ultimate goals remain the same; but the path is different. The return of Sandinismo to power in Nicaragua is perhaps the most visible reminder of the resurgence of veteran leaders, but even here Daniel Ortega was elected with a program that aims to accommodate market rule. Not only are the Left governments taking account of the interplay between the collapse of socialism and broad structural economic changes (Grugel 2007) but there has also been a sizeable learning process on the Left that started in the late 1980s and is linked to two watershed experiences. The first one was the introduction of a pro-market set of reforms implemented by neoliberal or centrist technocratic governments in the 1990s, under the aegis of Washington Consensus, which changed the political economy of the region in general and, more specifically, reordered the relations between states and markets, as well as capital and labor, opening these countries up to international trade and financial flows. The second is that the political Left was able to win and hold onto victories at the level of local

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government during this period, running key provinces such as Rio Grande do Sul in Brazil and large metropolises such as Buenos Aires, Rosario, Montevideo, Bogotá, Mexico City and Sao Paulo. The combination of both experiences led to adjustments in how the Left perceived the challenges of governance and the kind of policies that were thought necessary for achieving social justice and economic development (Panizza 2005a). Finally, democratization and the shift to electoral competition for office have pushed the Left into abandoning all notions of revolution. Structurally, the Latin American Left has also had to cope with the implosion of the Soviet Union. In terms of demonstration effect, Soviet economic policies were eventually shown to have produced much less development than was believed, with much higher side-effects. At the same time, in terms of global alliances, the collapse of the Soviet Union definitively cancelled out the option of integrating into an alternative non-capitalist system. Structural adjustment programs in Latin America in the 1990s drastically reduced (but did not eliminate) state ownership in the economy, freed the prices of essential goods and services, and most importantly, opened up economies to external competition. In addition, the policy experience of the leftist parties in local government during the 1990s provided lessons on what an effective agenda for social policy could include. Even though extrapolation to the national level might be difficult, leftist parties acquired confidence and the skills to navigate the kind of political obstacles that stand in the way of effective policy. The outcome, then, was not full accommodation to market rule and blind willingness to sign up to neoliberal norms but the development of new skills and the know-how to adapt to the political system. Social learning of this sort meant that the new Left parties have acquired the skills needed to adapt to the reigning economic conditions and catalyze the new climate of opinion. Social learning theories emphasize that actors learn through an interactive process where they are exposed to new information, norms or conceptual frames that can reshape their interests and identities (Checkel 2001). Our cases lead us to emphasize the strategic component of this learning. Strategic learning is a political process by which organizations and individuals become increasingly aware of the larger political environment within which their interests are set. This learning can be observed as these actors incorporate new strategies into their skills and organizational practice. What we see today is the emergence of a complex mindset on the new Left of social learning, adaptation, and contestation, buttressed from two sources: on the one hand, by a positive consensus born from


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the experiences in local government (i.e., the need to step up public investment in health and education, to bring the state back in to coordinate the provision of physical infrastructure and energy and other measures assisting the overall competitiveness of the economy); and, on the other, by a negative consensus derived from the critique of neoliberalism (i.e., a moratorium on privatizations, stricter regulation of private monopolies, and a halt to further unilateral trade liberalization). But the learning extracted from the neoliberal experiences of the 1990s has been much more impressive and far-reaching even than that and it transcends the repetitive chorus of leftist politicians criticizing those reforms and informs the debates on macroeconomic policy. The most significant lessons are that massive fiscal deficits and trade deficits are unsustainable over time; and no amount of continuous pro-market reforms can satisfy the expectations of future gains of foreign and local investors forever. Eventually, even the most fundamentalist neoliberal governments will lose favor if they do not balance the fiscal and monetary books. That is the lesson learnt from Menem’s Argentina, Battle’s Uruguay, Cardoso’s Brazil, Frei’s Chile, Salinas’ Mexico, and several others. In all those cases, financial crises provoked by systematic lack of concern for deficits or contagion from countries with similar vulnerabilities brought them the disfavor of Washington. It was precisely at this juncture that the new Left reemerged as a power contender in a range of Latin American countries. Less than two years after financial crisis brought about by macroeconomic mismanagement by either Right or Center-Right governments, leftist parties or candidates have won the subsequent presidential elections in a range of countries. And if, in a world of integrated trade and capital markets, floating currencies and volatile financial markets, the limits of the possible are in everyone’s mind, this is even more the case for governments elected on a leftist ticket or attempting to follow leftist policies. Their response has been to construct governments that can uphold an agenda with a leftist heart, with policies that emphasize local responses to cover social deficits, but that remain fiscally responsible and hence quite conservative. This is the result of the painful lessons of the 1970s and 1980s. And it has the advantage that it presses an electoral advantage over the party that was previously in office and shows the electorate that, in fact, the Left might, in fact, be both more socially sensitive and more economically responsible than its predecessors. The next sections analyze these trends from two perspectives. I analyze first the main features of domestic economic policies in order

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to flesh out in a comparative way where similarities and differences lie in the cases of Latin America’s new Lefts. I then move onto to show how the new projects of economic governance intersect with projects of regionalism. One Size Does Not Fit All3 All the Left governments in Latin America combine a mix of interests and policies and have contrasting rhetorics. They range from those that define themselves as leftist, such as Lagos and Bachelet in Chile, Lula in Brazil, and Tabaré Vazquez in Uruguay, to those claiming to be the a new, and truer or more indigenous, Left, such Chávez in Venezuela, Correa in Ecuador, and Morales in Bolivia; some, such as the Kirchner/ Fernández husband and wife team in Argentina are perceived as on the Left but do not openly define themselves as such. Several are suspicious of IFIs and have sought to free themselves of direct oversight from the IMF by early repayment of loans. In December 2005, for example, Argentina and Brazil announced that they would pay off US$9.8 billion and US$15.5 billion respectively. Uruguay, Panama, Ecuador, and Venezuela followed suit. In all cases, there is also a marked distinction made between the intention of carrying out a leftist agenda of social justice and self-determination at the micro level and the macro policies employed to manage the economy at large. We start with Argentina, where Néstor Kirchner took office in May 2003, with an economy barely beginning to recover from crisis and unprecedented levels of poverty and unemployment.4 Under Kirchner, macroeconomic management focused essentially on creating fiscal surpluses, even after accounting for debt payments, keeping the currency undervalued so as to help the recovery of local industry and maintaining a trade surplus. This tripod of policies put the country’s idle capacity back into action and accounted for the dramatic upswing of the economy which recorded record annual rates of 9 percent yearly until 2007. This accumulated growth more than recoups the losses accrued over the slump that marked the last years of Menem and the final meltdown at the end of 2001. The achievement of the fiscal surplus included a tough renegotiation of foreign debt on which Argentina had defaulted. Kirchner managed to get over 76 percent of bondholders to accept a reduction of 65 percent in the value of their bonds, thereby reducing the total debt to less than 60 percent of GDP. This allowed the government to expand expenditures in public investment in infrastructure and establish subsidies for transportation and energy services, at the same


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time as it resumed payment of reduced liabilities. This was achieved alongside a fiscal surplus. The government has focused on investing in public works to promote the level of economic activity (Economist Intelligence Unit 2006). But Kirchner’s policy of fiscal largesse had its limits with regard to public sector salaries, which are still 40 percent below their 2001 levels,after adjustments for inflation. Investments in public infrastructure have been accompanied by increases in private investment in manufacturing and services, eventually reducing unemployment from 20 percent in 2003 to 8 percent in 2007. This has led to a dramatic reduction in welfare expenses, especially with regard to the social programs inherited from the previous administration of Eduardo Duhalde, which had been set up to provide a minimum income scheme for unemployed people in order to mitigate the worst and most immediate effects of the crisis (Grugel and Riggirozzi 2007). Such trust in the benefits of a recovery spearheaded by the private sector has partially been confirmed by a reduction of poverty from 57 percent in 2003 to 30 percent, which, whilst still acknowledged as too high within the government, nevertheless explains the “feel-good” sensation that led to the landslide electoral victory of Cristina Kirchner in late 2007. The government applied price controls to a range of goods as the inflation index from 2005 revealed an economy that was visibly overheating. It has also raised export taxes on basic foodstuffs to drive a wedge between international and domestic prices and keep food prices relatively low. Adherence to fiscal control has precluded tax reductions, which had been increased in the agonizing efforts to prop up currency convertibility in 2001. Value added tax and exports taxes continue to make up the bulk of fiscal income. Such macroeconomic conventionalism—strong fiscal accounts, competitive currency, and promotion of physical infrastructure—nevertheless has its limits; further privatizations of state-owned banks or nuclear plants, favored by the IMF since 2002, are off the agenda. Patently though, so too are large-scale nationalizations, currency controls, or generous wage increases of the sort that might be expected from leftist regimes (Ramírez Gallegos 2006). In fact, railing against the IMF role in Argentina’s crisis, and the complicity of international banks against debt renegotiations stand in the strongest of possible contrasts with mainstream macroeconomic policies and the visible neglect of an active social policy to reduce poverty. Markets seem to be the preferred answer, as a way to accelerate growth and employment, under the rather severe hand of government “guidance” in the guise of selective price controls and export taxes.

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Lula da Silva provides the starkest possible contrast to Argentina and one that also reveals the extent to which policy coordination in MERCOSUR has plateaued. Since Lula took office in Brazil in 2003, the adoption of socially active and socially conscious policies has radically changed the role of the state, which now provides minimum income levels through the Bolsa Familia program to some 44 million people, one quarter of the population (Hall 2006). The government has also made systematic efforts to direct the few fiscal investment monies available at the federal level to providing running water and building schools in the most impoverished areas of the Northeast. Such efforts have paid off in poverty reduction. Poverty has fallen from over 30 percent to less than 25 percent, a remarkable achievement when one considers that unemployment increased from 8 to 12 percent in that same period (ECLAC 2006b). These efforts to push forward a social agenda have, however, been accompanied by macro policies that have benefited the financial sector. The government has maintained extremely high interest rates in an effort to reduce inflation levels, which have come down from 17 percent when Lula took office to barely 3 percent. The result, unfortunately, has been rocketing interest rates that have brought the profits accruing to the financial sector to record levels, while manufacturing and agricultural businesses have suffered from higher borrowing costs, thereby reducing incentives for further productive investment. In fact, Brazil, generally the most dynamic economy in the region, grew below 3 percent annually during Lula’s first term, the second lowest rate in the whole of Latin America, with only Haiti, immersed in civil strife, having a worst record.5 Moreover, while economic growth is barely keeping level with population expansion and cannot generate enough jobs, short-term finance has moved into the country at breathtaking speed, now accounting for over 50 percent of the financing of the public domestic debt. Such financial gains were made tax-free in 2006, a benefit not even local investors receive. To finance such growing indebtedness, which totaled over 65 percent of GDP in foreign and domestic debt, the government has issued ever more bonds. Fiscal expenditures on state wages and pensions, meanwhile, remain high. In fact, state employment has grown at 2 percent per year, especially in state enterprises, such as Petrobras (17,000 new jobs or 25 percent of the firm’s workforce), Banco do Brazil and several others. Brazil, with one of the youngest populations in South America, already has a large deficit accruing from retirement pensions, equivalent to 2 percent of GDP. Nevertheless, after initially limiting benefits in 2003, the government has increased pensions over


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17 percent, significantly more than the rate of inflation (Bloomberg July 21, 2006). In sum, Lula da Silva’s government has followed a leftist agenda with regard to social problems and has chosen to provide direct support to the poorest sectors of the population, generate government jobs and increase state pensions. In macroeconomic policy, however, its fiscal largesse has consequences and debt now accounts for over 8 percent of GDP or 20 percent of total fiscal expenditures (IMF 2006). To sustain this, Lula has increased the size of the state to over 40 percent of GDP but without investing much in public infrastructure or in production-friendly measures. Monetary policy has attracted foreign investors ready to provide finance in return for high, quick profits, at the cost of an overvalued currency. That, in turn, has lowered employment opportunities and reduced competitiveness. Only high export prices for Brazilian primary goods, such as soybeans, sugar, iron ore and coffee, have reduced the impact of these policies on overall sustainability (Economist Intelligence Unit 2007b). The government seems to believe that, even if they repeat some of the irresponsible management strategies of the 1990s, they will be forgiven by an electorate grateful for the introduction of social policies on a scale previously unseen. This certainly seemed to be the case when Lula was reelected in 2006, when the northeast for the first time voted massively for his party after decades of supporting conservative local clientelist leaders, while the industrialized south and agriculturally competitive center voted strongly against him. It remains to be seen whether he can continue to afford favoring the poorest and the richest in Brazil at one and the same time, and in such a radical manner. Ricardo Lagos and Michelle Bachelet’s administrations in Chile offer in comparison a rather moderate lesson on what being leftist might be like. Lagos had a much more difficult time in office than Bachelet since it looked as though the so-called Chilean miracle, based on growth, was over by 1998 when its economy went into recession. After 15 years of expansion similar to the East Asian pattern of 7 percent year on year growth, GDP fell to 3 percent in 1998, and the economy has grown since at only 3.2 percent on average, significantly below the rate of developing countries and in line with the most mediocre of regional performers, such as Ecuador or El Salvador. Lagos’s response was to reduce capital controls on financial flows, allow the currency to devalue, and to argue strongly against the monetarist approach of Chile’s central bankers who were determined to increase interest rates to contain inflation. In classic Keynesian fashion, Lagos

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preferred higher inflation so as to minimize the effects of the recession on unemployment. He also argued for fiscal deficits to finance public investments, a luxury no other Latin American country could afford, due to Chile’s negligible weight of debt. But he was unable to advance further or push for either a reform of the labor legislation, which was dates back to the era of the Pinochet dictatorship, or large increases in the budget for education and public health due to the weakness of his Concertación coalition. Some members of the coalition were as much opposed to initiatives of this sort as the rightist opposition parties and expressed concerns that more rights for workers and more state expenditures would stifle Chile’s successful pattern of market-led growth. At the same time, the business community was critical of Lagos’ attempts to push the government to the Left and his willingness to criticize and rebuke Chilean capitalists affected the investment climate, accounting for its slow recovery from the 1998– 1999 crisis, which was only really achieved in 2003. Poverty, at around 20 percent, is low by regional standards. But there have been no improvements since 2001, marking a breach with the performance of the earlier Concertación governments of Frei and Aylwin which had energetically tackled poverty rates of over 40 percent in 1990 (ECLAC 2006a). It was therefore no coincidence that in the 2004 elections, the opposition mounted a serious challenge with a populist billionaire, Sebastian Piñeira, who campaigned credibly on the failures of the Concertación to reduce poverty and, especially, to deal with increasing social inequality. Interestingly, Piñeira made the argument that the government’s slowness in tackling poverty and inequality were themselves contributing factors in the slower economic growth the country experienced around the turn of the century, an idea close to the traditional critiques of the Latin American Left of neoliberal governments. Chile has, in fact, been saved, by the commodity bonanza that has helped Latin America in general but has had a bigger impact on Chile than anywhere else.6 The price of its main export, copper, which accounts for over 60 percent of total exports, has skyrocketed, with price growing by 310 percent since a low period in 2001. Bachelet arrived in that rapidly improving context; but she has not continued along the path laid out by Lagos, focusing instead on incremental measures to improve the efficiency of social expenditures. She has adamantly refused to provide any substantial increases in public education and health expenditures, leading to widespread discontent and indeed producing the largest demonstrations in recent history when over half a million students protested against education policy.


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Bachelet’s policy has been to try and ensure that the windfall copper revenues remain abroad for use by future generations. In contrast to Lagos, she has not objected strongly to the appreciation of the currency which, while it has helped dampen inflation, has acted to the detriment of non-copper exports such as wine, fruit and textiles and the very high interest rates that favor the financial over the productive sectors. Tabaré Vázquez in Uruguay illustrates an interesting mix of features. Like Lula da Silva and Bachelet, he takes a cautious approach, welcoming foreign investment whilst promoting the benefits of a careful management of fiscal and trade accounts. This is reflected in the strong flows of financial capital since he took over, with the currency appreciating in value as in Brazil and Chile. Building on the measures taken by his neoliberal predecessors, Vázquez has overseen a recovery of the economy and important reductions in unemployment. That, combined with strong investments in social services and subsidies, in the range of US$100 million in fact, has contributed to an important reduction in poverty from 22 to 17 percent (ECLAC 2006a). But as with the Kirchner/Fernández administrations, the main thrust of the government is to offer public works and improvements to infrastructure as the key to economic growth. This includes investments in fiber optics for telecommunications, port improvements, and road building to assist the development of the dynamic paper and pulp plants. Like Lula da Silva and Bachelet, Vázquez also carries the weight of having been chosen on an officially “leftist” ticket and thus expected to follow leftist policies. One result is that he is strongly criticized domestically by sectors of his own electorate and his own party for following policies that do too little to reduce social inequality, favor foreign financial capital and, with regards to trade policy, seems too close to the United States for comfort (COHA 2006). Such nuances and accommodations are not the paths chosen either by the rambunctious administrations of Hugo Chávez, the most senior member of the new Left, or Evo Morales’ ethnic-based government. Both now claim to be socialist and the thrust of their administrations is to engage in deep institutional reform, politically and economically. They aim to achieve dramatic changes to the distribution not only of income but also of wealth, both governments having set strict limits on foreign capital. Their economic policies, provide an interesting window through which to measure how deep the post-neoliberal changes actually go. Chávez first took office eight years ago, in a context of deep recession induced by very low oil prices (US$12 per barrel in 1999, compared

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to over US$100 in mid-2008), and popular dissatisfaction with the political and economic establishment that had ruled Venezuela since the 1950s. In his first years in office, radical reforms were introduced in terms of the institutional arrangements of the state, a new constitution was introduced, the judiciary was transformed as Chavistas were brought in and there were attempts at organizing new labor unions; but the economy was largely left untouched. In fact, Chávez retained the policy approach of the previous administration, gradually reducing trade tariffs, keeping the currency convertible and real interest rates very high in order to curb inflation via orthodox measures. Foreign investment kept flowing in, at a pace of US$3 billion per year from 1999 until 2001, largely in the oil industry, since regulations were not tightened in any significant way (Business Week September 20, 1999). The fight against poverty was, however, a hallmark of the government from the beginning, with increases in public expenditure in public education and health, the introduction of transport subsidies and, most importantly, the creation of a system of state-owned and worker operated food markets and drug stores to provide cheap basic goods. In contrast, public funding for physical infrastructure, such as roads, ports, and energy transportation, was slashed—all projects historically privileged by governments to buy support from the business elite who had made huge profits from public contracts (Ellner and Hellinger 2003). These socioeconomic policies, along with his tendency to adopt an aggressive and critical tone with regards to the domestic establishment and the United States soon brought open support from Fidel Castro, who offered to exchange doctors and teachers for oil. This, in turn, radicalized the opposition, which supported a strike in Petróleo de Venezuela (PDVSA), the state oil company, and soon after, in 2002, a coup d’état, headed by the main business leaders. Even though the coup was a resounding failure, the conflict continued as Chávez’s response has been to radicalize his plans (Fletcher 2003). In 2007 he announced that Venezuela would withdraw from membership of the IMF and World Bank and the government has sought to gain control over PDVSA, which is the source of nearly half the government’s revenues and 80 percent of the country’s export earnings. By 2002, a three pronged strategy had emerged, clearly along the broad lines of Latin American historic left-wing populism. In the first place, Chávez seeks to redefine government contracts with foreign companies; second, his aim is to foster the growth of cooperativestate industrial and agricultural firms; and third, the government has tried to “migrate” Venezuela from the Andean Community to


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MERCOSUR. Oil, steel, and cement have been declared strategic industries and are to be placed under state control. These measures are accompanied by a policy of keeping the currency overvalued in order to maximize consumption for wage earners (of imported goods, ironically); currency controls to impede capital flight, and lax fiscal and monetary policies to accelerate recovery from the slump caused by the 2002 strike and coup attempt. The mix has produced a dramatic recovery in GDP, jumping to almost 17 percent in 2004, and then 10 percent twice in a row. High oil prices have certainly helped, mostly allowing the government to expand the budget allocated to social policies and the funding for the new cooperative sector (The Economist March 19, 2008). The short term results are impressive: unemployment has fallen from 25 percent in 2003 to just 10 percent; poverty from over 60 percent in 2002 to less than 35 percent and there is an unprecedented consumption and construction boom. The problem is that the economy is clearly overheating and inflation was over 15 percent for 2006. The region’s first indigenous president, Evo Morales, is also making history in Bolivia. After two years in power changes in economic policy have been radical. Upon taking office in 2006, Morales announced that he would let the standing loan agreement with the IMF expire and that the government would not enter into any new agreements. In May 2007, he declared that Bolivia would withdraw from a World Bank arbitration center that handles investment disputes. He decreed the nationalization of the oil and gas industry, calling on investors, including Brazil’s Petrobras and Spain’s Repsol, to accept new contracts that effectively meant that they would be allowed to extract and exploit oil reserves; but they would no longer be deemed owners of the oil deposits. After tough bargaining, Morales eventually achieved his goal, with all foreign companies signing up to the new rules. This, plus the hike on taxes to the industry, has finally turned around the fiscal deficit of 2.3 percent of the GDP in 2004 to a surplus of 5 percent in 2006 (ECLAC 2006a). One problem, however, is that these policies are strongly resisted in the Eastern provinces of the country where the main gas reserves are located (see chapter 6). Interestingly, this massive increase in fiscal revenue has not been accompanied by a corresponding increase in expenditures, as in Venezuela or Brazil. Morales has voiced his preference for following Bachelet’s example and setting up a stabilization account abroad with the surplus funds. But, after decades of pumping aid into Bolivia, many foreign agencies are withdrawing from providing technical assistance, leaving central government offices bereft in some key respects

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such as delivering social policy on the grounds and channeling funds to social groups. Morales is bent on redistributing wealth, proceeding with plans to nationalize mining, and redistribute agricultural land in the Eastern provinces; but whether the administration has the capacity to bring about such radical changes, as opposed to implementing policies for gradual social improvement, remains an open question. What does all this mean? The pendulum in economic policy has certainly moved toward a mix of policies that reflect the core roots of leftist governance. But governments are far from being classic textbook cases of the “Left.” They all represent a reversal with neoliberalism with regard to the state and there is clear support for greater state intervention. They all reject the “neoliberal” growth model and, in different ways, seem determined to speak up for the inclusion of marginalized people in political life. However, changes to property rights have advanced most in Venezuela and Bolivia. Distributive social policy has been intensified in all countries, except Argentina and Chile that have tended to rely instead on high growth to reduce unemployment; but these policies have not made big dents in inequality. Brazil has stuck to orthodox macro at the cost of low growth but has stepped up social policy and reduced inequality. Most interesting is the adherence to tight fiscal policy. It is here where social learning has been most strategic (Santiso 2006). Except for Brazil and Venezuela governments seem risk averse in terms of fiscal balances. These are the policy areas that, in the end, suggest an important process of social and political learning has taken place; the turn to the Left notwithstanding, governments are aware of the pain and risk involved in leaning too heavily on fickle financial markets, and seem to have concluded, like Polonius, that it is best to “neither a borrower nor lender be.” Post-neoliberalism, in short, incorporates a wide diversity of policies. If there is a single coincidence in this diversity, it is the search for a new social contract and the emergence of a pragmatic belief in a role for coordinated state management. Current policies form part of the renewed debate over the role of the state as a provider of social welfare, and seek to reverse the trends toward a minimalist state, reduced public provision of services and privatization of social security. Yet, the average regional tax burden remains at only 12 percent of GDP— compared with over 30 percent for the European Union—marking clear that there are real limits across Latin America to the creation of a genuine welfare state and the transformation of income distribution over the long term. The social policies that are now possible because of the extended good fortune of the commodity bonanza, may not


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be here to stay. And the scope for real clashes of interest and of values within Latin American societies remains considerable. Indeed there are divisions even indeed within and between Left- leaning governments themselves, as we see in the next section. Regional Cooperation: Competing Projects Regionalism is the principal arena of Latin American collective action on the part of states. Moreover, Latin America is the only troubled area of the world where U.S. influence had remained largely uncontested after the end of the Cold War (Castañeda 1993); it had provided a window for the most encompassing U.S. attempt to establish a model of regional economic governance. The idea of creating a single market with the thirty-four countries of the Americas was predicated on consolidating the hegemony of U.S. multinationals and neoliberalism. The relevance of the FTAA here stemmed from issues of preferential market access for trade and investment and a model of laissez-faire economics and politics. All of the governments described above have in one way or another sought to resist and distance themselves from the U.S. project for the Americas. Economic dependence and social learning, however, have meant that governments have tended to adopt a pragmatic approach and confronted difficult decisions both about the management of U.S. power and relations in conjunction with their neighbors. Only Chile is something of an exception here. But competitive projects have also emerged via MERCOSUR and the rivalry between Brazil and Venezuela that vie for the role of hub and try to gain a competitive edge over U.S.-inspired regional pacts. Implicitly and explicitly, a mix of challenge, sidelining and resistance to the hegemony of American interests and values lie at the core of these conflicts. A lot of the activity by states at the regional level grows out of the need to try and balance inequalities between them. At the same time, it is also concerned with retaining power in the region, filling spaces in which American leadership or resisting global structures that are seen to encroach or excessively constrain state agency (Fawcett 2005). In sectors where producer interests sometimes compete with foreign business or play a crucial political role domestically, governments respond attempting to gain markets and spaces for local players. The regional arena is used, in other words, by governments, business and other actors to resist and shape markets, emphasizing the primacy of concerted state intervention, domestic politics and economic or social values such as distributive outcomes rather than

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global efficiency (Hirst and Thompson 1996). Adaptation, resistance and administration, all of which shape Latin American regionalism at the level of state responses, indicate the importance of non-economic or social values such as distribution and “social justice” as a driving force for their actions, in contrast to the basic template of open regionalism that emphasizes growth and/or efficiency. The challenge of intervention thus lies at the core of regional cooperation. Regional cooperation can involve trying to draw in the expanded regional market to build up markets for domestic business. But at the same time, attention sometimes goes beyond economic actors and interests to emphasize non-state actors or social groups as well as domestic political institutions and processes, partly in response to the democratization agenda (Nesadurai 2002). Opposition to the neoliberal terms of regionalism was evident in the Brazil’s determination to use MERCOSUR as a vehicle for feet dragging over the FTAA. Several reasons underlie the strategy of resistance. In the first place, the two main partners of MERCOSUR, Argentina and Brazil, are sizeable economies with dense domestic markets of their own. Both are the least open economies in the region with average tariffs standing at around 14 percent (the highest in the continent) and with exports accounting for less than 10 percent of GDP. Business interest in both countries in the FTAA was lukewarm as a result and public opinion was, at most, indifferent, if not outright averse. A referendum in 2002 organized in Brazil by more than sixty civil society organizations with the support of the National Confederation of Catholic Bishops revealed that more than 90 percent of these consulted were opposed to the FTAA and in favor of quitting negotiations altogether. Brazil stands apart in other respects too. Brazil’s main exports to the U.S. include relatively high tech goods such as aircrafts, tractor-parts, engines, and telecommunications equipment, along with low-skilled labor intensive goods such as footwear and natural resource intensive goods such as steel and paper. The latter have often been the target of U.S. protectionist instruments such as tariff peaks and antidumping and countervailing duties. This has been the case, for instance, with orange juice, footwear, apparel, and sugar exports. Partly as a result, Brazil has been pursuing a reasonably successful effort to become a leader of a regional South American bloc. This may not seem in itself a leftward move. But in the context of a worldwide process of multipolarization, the establishment of such regional zones weakens the power not only of the United States but of the North as a whole in terms of North-South relations. Brazil’s leadership of the


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so-called G-20 countries has been a major factor in the weakening of the World Trade Organization’s attempt to embed a neoliberal agenda. In this context, and partly with the aim of restraining U.S. power, Brazil spearheaded MERCOSUR’s overtures with Europe, China and other countries of the global south. At the core of its regional and foreign policy, therefore, is a developmentalist reaction that seeks to avoid or compensate for adjustment costs and a concern with global redistribution that accepts the inevitability of some trade liberalization while trying to manage its worst aspects through producing continuous counterproposals across all negotiating fronts, including the World Trade Organization (WTO). To give one example of how effective this can be: disagreement with the United States on procedural and substantive issues were raised relentlessly in the FTAA, a strategy that effectively delayed all the established schedules and deadlines and ultimately hollowed out the entire project. Beyond MERCOSUR, other new Left governments have sought to use the region as a platform for resisting U.S. power. The second regional contender to the FTAA is the Alternativa Bolivariana para las Américas, or ALBA as its Spanish acronym indicates, led by President Chávez, which takes a more confrontational line in that it attempts to challenge the United States, generally openly, across almost all issues on the inter-American agenda. ALBA currently is made up of Bolivia, Cuba and Nicaragua, as well as Venezuela, and its agenda reflects something of the widespread resistance of social movements to the FTAA and the ensuing reflection around possible alternatives (Saguier 2007). Its advocates promote a socially oriented trade block rather than one based on market incentives. The corner stone in the design of the ALBA is the proposal for a Compensatory Fund for Structural Convergence which would manage and distribute financial aid to economically vulnerable countries. ALBA favors endogenous engines of development; rejects the low quality employment of globalized sweatshops; promotes self-sufficient agriculture and opposes the intellectual property rights regimes on the grounds that they only protect the areas of scientific and technological knowledge that developed countries control, while neglecting biodiversity and the traditional knowledge of peasant and indingenous peoples. Furthermore, Venezuela insists on that ALBA will identify deprived areas and ensure that resources are channeled there in order to develop economic infrastructure. Meanwhile, Venezuela is also engaging in a region-wide set of initiatives in its own right. Venezuela has bought the leading micro-credit

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institution in Bolivia, Prodem, which owns ninety-two branches across the country and has 250,000 clients. Venezuela has also bought a large share of the new bonds issued by Argentina. As a result, Argentina was one of the first countries to support Venezuela’s application to the subregional bloc MERCOSUR. Indeed, over the last couple of years, Venezuela and Argentina have become strategic partners in the start up project for the Banco del Sur. With an initial capital of US$10 billion the Bank is meant to pool reserves in order to provide finance for regional development projects as an alternative to Washington-sponsored financing institutions. At the same time, Brazil and Venezuela, both competitors for regional leadership, are trying to build a cross-regional consensus with new players capable of making that balance viable. This is evident in the efforts to build the Union of South American Nations (UNASUR), the constitutive treaty for which was signed in March 2008. UNASUR brings together the countries of the Andean Community of Nations (CAN) with those of MERCOSUR, through initiatives of energy integration and physical infrastructure. At one level, UNASUR represents an attempt at expanding Brazilian export interests into regional markets and, at the same time, the region’s need for energy supplies from Bolivia and Venezuela. But, at the same time, UNASUR also constitutes a direct political challenge to the web of U.S. bilateral agreements. Regardless of whether UNASUR actually works as an economic union able to bridge the gulf between the CAN and MERCOSUR, it has succeeded in pushing the agenda of integration beyond trade negotiations and floated the idea, yet again, of integration as a political project that aims to resist U.S. interference in the South. What these regional projects in sum show, is the tentative emergence of a grand strategy; and behind the lofty words there are a series of steps that aim to legitimize a new and more political sense of the region. In a world where tariff debates are losing their significance and shortages of foodstuffs and energy have gained relevance, what is being questioned is the extent to which the United States’ leverage on regional projects still applies. The trend may be toward regional convergence on some issues, such as tariffs, but also toward greater diversity over other instruments and even leadership. As each country juggles with its own idiosyncrasies and difficulties, it is unlikely now that we will see now a single regional bloc, whether under U.S. leadership or otherwise. Boundaries will be fuzzy and diversity will continue, as component pieces are arranged in ever new combinations,7 underpinned by increasingly intense regional relations sidelining and contesting U.S. policy preferences.


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In the new political climate governments are also motivated to make overtures to civil society networks for the purpose of mobilizing public support in contentious negotiations with the United States. The emerging alliances forged between the new leftists leaders, especially in the Southern Cone, suggest an interesting configuration in which agendas advanced by groups resisting neoliberalism are now accepted and to some extent even articulated by governments. What we are suggesting, however, is not only a political swing but also a synchronization of agendas by governments that are seeking allies in order to consolidate their own hold on power and legitimize their standing with grassroots movements and labor groups. Specific strategic political motivations are leading to a new alignment of perspectives and indicate the emergence of an ideological affinity with those groups more resistant to American-led patterns of regional trade integration. Concessions of selective participation to some civil society actors, a strategy deployed in the past by the United States in a classic twolevel game approach as a way of increasing its leverage in negotiations, is now being emulated by weaker Latin American governments in their strategies to challenge the United States. Leftist Latin American government leaders face the real dilemmas of avoiding open confrontation with powerful, established commercial interests while at the same time enhancing and maintaining important domestic civil society support to shore up their domestic popularity. As governments and civil society interests become increasingly convergent, so it was convenient to all the FTAA (perceived as “the onslaught of empire”) to be widely opened up for criticism. What emerges from these trends is an interesting relationship between the use of mobilization and resistance in which it is not always clear how governments will balance the risk-adverse mindset of business elites with mobilization and claims-making by civil society. All of this points, yet again, to the real possibility for clashes of interest and of values inside new Left states. It implies that the new meaning of regional relations needs to be understood not only in terms of competition with the preceding framework but also in terms of tensions between regional partners and possibly between governments and some civil society groups. Conclusion So, what does this all add up to? Certainly not a “revolution.” But it is a new stage of regional political economy and there is evidence of a Polanyian double movement. Pulling the threads together, the examples here imply that a political and economic backslash in Latin

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America has led to a search for a new balance between states and markets and one, moreover, that allows for multiple policy mixes and that changes the terrain of inter-American and regional relations. With the exception of Venezuela, where oil always reigned supreme (and the Left never had a chance at government before), our cases lead us to emphasize, above all, the process of learning by which organizations and individuals have become increasingly aware of the larger political challenges within which their interests are set. As a result of such learning elite leftist leaders are willing to incorporate new skills and strategies into their practice. The policy mix we see today is evidence of a complex mindset of social learning, adaptation and cautious contestation at national and regional levels of authority. In economic terms there are some stark differences with the old Left or pre-neoliberal times, associated with import substitution, state capitalism, and over-expansionary (populist) macroeconomic policies. Some policies of post-neoliberalism are pragmatically repackaged economic principles associated with the previous model but now presented as questions of national constraints and opportunities. There is no strong sense of a return to protectionism and the fiscal and monetary policies espoused by newly Left governments show a deep awareness that, despite the current bonanza of high commodity prices, world markets are volatile and cannot be ignored. In the realm of economic policies, learning is manifest in a pragmatism that is neither friendly nor blind to markets. To take the example of Morales: although determined to renegotiate state contracts with foreign firms, he continues to seek bilateral trade agreement with the United States; moreover he has not caved in to pressures to follow in Chávez’s footsteps and withdraw from the Andean Community. The external face of this new choice of policies is assertiveness. This assertiveness finds expression through efforts to build competing regional projects peopled by producer constituencies and civil society groups. The era of blind following of the United States has come to an end. What should be apparent is that as developmental values regain legitimacy, the regional trade arena has become a site of noncompliant challenges where the weak or underrepresented seek windows of opportunity to reshape rules and reduce pressure for policies they wish to evade or for which they want genuine payoffs. As contending players grow in strength and stature, they are investing in becoming measure that will technically empower them to challenge established rules through evasion, modification and resistance. In regional arenas civil society organizations have also become an important vehicle in the various regional attempts to shape the international distributions


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of goods and the sharing out the costs. There is, then, a constant patchwork of negotiations in the attempt to build consensus at home by co-opting some antiglobalization movements (particularly those affiliated with more organized and combative labor organizations), and, at the same time, by generating technocratically strong proposals that can accommodate domestic commercial interests. All this amounts to a growing politicization of the regional space as regional relations have been turned into a complex, multi-layered arena characterized by negotiation and competing projects of integration. Notes The generous and constructive research assistance of Melisa Deciancio for this chapter is acknowledged with thanks. 1. Weyland (1999a) and others have advanced the argument that Carlos Menem in Argentina, Carlos Salinas de Gortari in Mexico, and Alberto Fujimori in Peru were in fact populist governments with neoliberal agendas. Although the inclination of some new Left governments in Latin America to adopt populist guises is understandable, the possibility of an amicable relationship between populism and neoliberalism is not denied. 2. Ecuador is not a part of this work, but cannot be left aside when referring to the new leftist governments in Latin America. 3. This section draws extensively from Heidrich and Tussie (2008). 4. GDP fell between 1998 and 2002 by a total of 20.7 percent, unemployment reached 24 percent, and poverty, 60 percent (ECLAC 2006a: Statistical Annex). 5. For some, due to its low rate of growth and continuous deficits, Brazil should no longer be considered a true member of the BRIC economies, the group pooling together the largest and most dynamic countries of the developing world, such as China, India, and Russia (Financial Times, September 13, 2006). 6. According to ECLAC annual trade report, high commodity prices explain for the 2003–2006 period over 70 percent of the growth in Chilean exports, 60 percent of Venezuela’s, 50 percent of Brazil’s, and close to 20 percent for Uruguay and Argentina (ECLAC 2006c). 7. See Baldwin (2006) for the similarities of the process with the configuration of the European Free Trade Area following the creation of the European Economic Community and the domino effect when Britain changed camps in the 1970s. Ireland, Norway, and Denmark, nations that had seen fit to stay out of the EEC in the 1957, all put in applications soon after Britain.


Chapter 5

After Neoliberalism in Argentina: Reasserting Nationalism in an Open Economy Pía Riggirozzi

A rgentina’s economic collapse in December 2001 is seen as perhaps

the most emblematic evidence of the failure of neoliberalism to provide sustainable and equitable economic growth in the developing world. That crisis, however, provided a turning point out of which an alternative project of political and economic governance has developed. The search for post-crisis governance has meant a new and more dynamic role for the state in the pursuit of growth and social stability in the context of a model that I term “open-economy nationalism.” It is built on the basis of a new nationalist rhetoric that recalls the welfare state and the import substitution era of the 1940s yet remains committed in important respects to open markets and export-led growth. The aim of this chapter is to examine what, precisely, “openeconomy nationalism” implies in terms of governance. It explores the new organization of the economy and the nationalistic political project that has come to structure key aspects of state-society relationships since 2002. In the process, the chapter explores the constraints on the new governance project and poses the question of whether this post-crisis reassertion of nationalism constitutes a stable, socially integrating model able to resolve the vast social and democratic legacies left in Argentina after a decade of neoliberalism. The chapter is divided into five sections. The first analyzes the origins and nature of nationalism as a political economic project in Argentina, the role played by Peronism in the articulation of new forms of social and collective action, and the economic and political limits of a state-centric model. The second section turns to the emergence of

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neoliberalism as a triumphant response to the failure of inward-looking models of development that had huge consequences on the social and macroeconomic foundations of Argentina’s political economy and that ultimately led to economic breakdown in 2001. In the third and fourth sections I identify how the pendulum swung back to a more statecentric model for development and analyze the characteristics of the “open-economy nationalism” model as an alternative to neoliberalism. The final section evaluates the challenges, limits, and sustainability of state-led governance in Argentina. Nationalism as a Political Economic Project in Argentina Manifestations of nationalism have been a defining feature of Latin American political economy since the early twentieth century. Emerging in the early 1940s as a reaction to the crisis of the liberal, oligarchic rule, nationalism provided the frame for a new way of thinking and speaking about politics, economics and culture. It appealed to an emerging working class as it appeared to offer access to rights and resources and prompted feelings of solidarity, belonging and identity. Argentina, along with other countries in Latin America during this period, experienced state consolidation, rapid economic growth, industrialization, and a booming trade sector, especially in the agricultural sector. New social groups challenged dominant liberal ideologies, resulting in the rise of popular nationalism (see Germani 1965; Di Tella 1965; Collier and Collier 1991). Marginalized sectors including rural and urban workers and those adversely affected by the export-led growth provided a growing constituency that opposed the “liberal project” and economic internationalism. These groups provided support for the new nationalist/interventionist economic policies that, by the mid-1940s, were taking shape as an alternative to liberalism with the advent of Peronism. After Juan D. Perón won the elections in 1946, the government initiated an industrialization plan (Lewis 2005). The introduction of protectionism and state control of industrial development provided the material means to integrate the working class through a welfare regime managed via labor unions, cooperatives, recreational groups, and other social network associations (James 1988). The improvement in working-class conditions that took place around the same time encouraged the expansion of Argentina’s internal market and provided a stimulus for the import substitution economy. The nationalistic rhetoric and the political economy of Peronism redefined “citizenship” in terms not of individual rights but as economic

AF T ER NEOLIBER A LISM IN A RGENT INA

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rights and social inclusion. This heralded something of a pragmatic and contingent class compromise in Argentina, as business came to terms with the new politics. However, industrialization under Peronist import substitution remained heavily dependent on the surpluses provided by agricultural exports, which meant in turn not only an external vulnerability but also continuous negotiations to balance the interests of the landowners, tenants, and exporters and, at the same time, deliver for the working class (Teubal 2001: 36). Development of welfare state institutions was an essential element of the process of economic growth and social integration in Argentina under Peronist rule and Argentina saw rapid growth in social spending, the expansion of social programs, and the expansion of regulation of the overall economic process. The corporatist developmental state under Peronism was part of a regional trend associated with the ECLAC/CEPAL which advocated protectionism for infant industries, exchange rate control and other forms of state arbitration in order to foster “national capitalist” growth (see, e.g., Prebisch 1949; 1952). In Argentina, it contributed considerably to social and economic development; but this was not accompanied by political stability. A conservative revolution in 1955 tried to reimpose the liberal order and to disarm the populist state. Despite the apparent eclipse of Peronism, however, a mobilized and organized working class, attached to the symbols and ideas of Peronism, was impossible to evict completely from national politics. Equally, the notion of development based on national industrialization had an important constituency of support beyond the Peronist coalition (Grugel and Riggirozzi 2007: 89). What followed the overthrow of Perón, therefore, was a period of ideological dispute between those who sought to uphold the legacy of corporatist nationalism and the dominant factions of bourgeois society. According to Teubal (2001: 39): On the one hand, we can identify the more “nationalist” alliance based on an explicit or implicit pact of labour with certain bourgeois factions generally interested in furthering ISI and the domestic market. On the other hand, the “liberal” alliance between the traditional agrarian interests, associated with certain transnational interests and with foreign capital, vied continuously for their say in policy decisions, tending to greater liberalization of the economy and monetarism.

This tension not only shaped the course of the Argentine political economy in the aftermath of Peronism: it continues to explain the nature of social conflict today in Argentina.

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Distributional conflicts and social instability dominated the period after 1955, creating uncertainties as to the direction of political and economic governance. This led to erratic “stop-go cycles” by the late 1960s where economic expansion was followed by contraction and political stalemate that culminated in the military dictatorship between 1976 and 1983 (O’Donnell 1973; 1982; Basualdo 1987). The coup in March 1976 took a fiercely anti-Peronist stance, persecuting union leaders and party militants. The ruling Junta launched a “Process of National Reorganization,” known as el proceso, that in political terms meant social demobilization by means of persecution and kidnapping of civilian dissidents—mainly labor movement representatives and Peronist activists. The Junta closed Congress, imposed censorship, banned trade unions, and brought state and municipal government under military control. The international community, in particular the United States, not only overlooked the massive human right abuses that occurred in this period but actively helped the regime by offering military training and economic support. In the midst of the Cold War, U.S. support to anti-nationalist and anticommunist regimes in Latin America such as that in Argentina was significant. The proceso also led to plans to draw up a new economic program for Argentina. In March 1977, the Minister of the Economy, José Martínez de Hoz, announced austerity measures and launched a new and unprecedented strategy of market opening, trying to reverse traditions of state dirigisme and import substitution strategy. In the years that followed, cuts in wages and a strict monetary policy shaped economic planning. But they resulted in only erratic control over inflation and devastated much of the manufacturing sector, which was unable to compete with the flood of foreign imports. In turn, the trade deficit increased to gigantic proportions and international reserves decreased to a critical point. The resulting financial crisis put an end to the apparent internal cohesion of the ruling Junta and internal disputes began to plague the regime. The decision to freeze wages completely and a plan for the privatization of part of the military-industrial complex could not undercut the emerging, though restricted, opposition (Pion Berlin 1985). In an attempt to revert the economic and now political backlash, in April 1982 President Leopoldo Galtieri took the extreme and ludicrous decision to embark on a war with the British in order to recover control of the Falklands/ Malvinas Islands. The swift defeat of Argentina’s military forces, combined with the devastating economic situation, brought a transition to democracy in 1983.


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Argentina’s return to democratic rule was shaped by the various traditions it inherited, both from the ISI period and the more recent military regime. Democratization took place amidst economic crisis and, as a result, state capacity to institutionalize more effective forms of economic governance was highly reduced. Politically, there was a strong convergence of civil society actors and political parties around the need to make democracy work, unlike in the past. Labor unions and human rights organization both played their part in the democratic transition (see Drake 1996; Munck 1998). But although the resilience and political power of the unions and of civil society contributed to reestablishing the foundations of democracy, the traumas from the past, alongside intense economic vulnerability, meant that governance remained problematic. Raúl Alfonsín, the new Radical Party (Unión Cívica Radical—UCR) president, failed to create a sense of common identity within the country or build a coalition capable of establishing a stable project of governance. Institutionally, the government’s inability to force the military to submit to civilian rule led to a series of rebellions that were resolved only by the government conceding to military demands (Levitsky 2005: 74). Economically, the heterodox economic project embodied in the socalled Plan Austral in 1985 led to the introduction of new policies in an effort to stop inflation—which exceeded 600 percent in 1984—by freezing prices and wages. But labor opposition undermined the plan. Without social or cultural ties to the Radical government of Alfonsín, the trade unions rejected all attempts by the government to negotiate a social pact, leading to thirteen general strikes against the government between 1984 and 1988 (Smith 1990). In addition, a Peronist controlled Senate opposed many reform initiatives causing stalemates between the executive and legislative branches. In short, the relative strength of Argentine democratic institutions was severely challenged by economic collapse, hyperinflation and the failure of the government to stabilize the country, economically and politically. With his leadership in tatter, Alfonsín resigned in June 1989, six months before completing his term. As a result, the candidate for the Peronist party, Carlos Menem, who had been elected president in the elections of May 1989, took office in July. Despite his free use of nationalist discourse and ideological manipulation associated with Peronism, once in government the need for political and economic stability and the desire to avoid financial chaos led the new government to take an extraordinary “right turn,” in which it adopted a new development paradigm consistent with neoliberal ideas and in tune with the demands of IFIs. Sweeping reforms followed that

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dismantled the multiple roles the state had come to play in Argentina in development, as an instrument of social mobility and mobilization and a tool for redistribution and social integration. Along with a new matrix for the economy, the neoliberal reforms were accompanied by a view of politics that had profound consequences for social actors and forms of collective action (Garretón 2002: 14). Neoliberal Transformation in Argentina’s Political Economy The failure of import substitution projects, together with severe repression of the Left as a result of the military dictatorship, meant that Argentina, like many other Latin American countries, was fertile terrain for the introduction of new ideas of political and economic liberalization. In addition, the Alfonsín administration, having failed to pull social and economic groups interests into a stable coalition, had discredited heterodox approaches to stabilization and left a problem of governance that was manifest in high levels of political uncertainty, social discontent and economic stress. A generalized sense of “urgency” in Argentine society helped push through an agenda of radical reforms and gave the new government the legitimacy to deal with sporadic domestic resistance (Palermo and Novaro 1996: 124). At the core of the new neoliberal agenda were two main objectives: a radical reduction in the size of the state through privatization of public services and a cutback of social spending; and the deregulation of the economy, including the labor market. One of the challenges of democratization, not only in Argentina but in Latin America in general, was whether the various social and political actors would be able to reach an agreement over distribution of goods, services and incomes, given their contradictory interests in situations that were frequently marked by high levels of political and economic uncertainty (Acuña and Smith 1994). In Argentina, where this had become an almost intractable problem, in the context of economic and hyperinflation crises, the threat of a military coup and the latent possibility of violent domestic protest, the “solution” was power delegation to the Executive. Following the decision to bring the presidential succession forward in 1989, two laws were enacted that conferred on the Executive ample powers to define the detail of reform policies. The State Reform and Economic Emergency laws granted power to the Executive to modify critical aspects of economic and sociopolitical relations simply by presidential decree. These included the suspension of state subsidies for industrial promotion;


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the introduction of identical regimes for foreign and national investors; modifications to the taxation system; and downsizing of public administration by suspending contracts and the recruitment of new employees within the central administration, public enterprises and other state units (see Bambaci et al. 2002). In fact, Menem’s concentration of power was also facilitated by a distinctive power imbalance that emerged as a result of the 1989– 1990 hyperinflation crisis, followed by the effects of the subsequent reforms process that reduced the room for maneuver of pressure groups. This situation was exacerbated by the government’s extraordinary success in stabilizing the economy, which conferred on Menem and his Economic Minister, Domingo Cavallo, a sense of “indispensability” by much of the economic elite and a significant fraction of the electorate. It would become clear subsequently that this perceived indispensability raised the threshold of public tolerance for abuses of power (Levitsky 2000: 60). As part of a new rhetoric and in order to show commitment to change, the Convertibility Plan was introduced in 1991. The Convertibility Plan crowned a decisive moment in economic and political reforms and in development thinking in Argentina. The program pegged the peso to the dollar and thus created the conditions for a new stability plan. The plan brought prompt relief, reducing annual inflation from 200 percent in 1989 to less than 5 percent by 1994 (Pastor and Wise 2004: 8). Menem’s monetary reform managed to convince the IFIs of the country’s commitment to reform and they soon recommenced their activities in the country. It also satisfied the interests of both local and international private financial institutions. The global financial enthusiasm for emerging markets in the early 1990s, meanwhile, led to a huge influx of foreign investment, mainly in the newly privatized sectors of the economy, climbing from US$3.2 billion in 1991 to US$11 billion in 1992, and to US$10.7 billion in 1993 (Rock 2002: 65). Contrary to what is said in much of the literature on the political economy of reforms, in Argentina the reform process was not carried out by an Executive power in isolation from social, political and institutional actors (see, in particular, Haggard and Kaufman 1992). Rather, reforms were the product of a series of negotiations between the Executive and some key actors as well as the neutralization of potential opposition. A new law in April 1999, the Ley de Ampliación, increased the number of members of the Supreme Court from five to nine, creating a favorable climate for the introduction of further reforms since Menem could now appoint four new members to the

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Supreme Court, where ultimately the fate of many of the reforms would be decided since, constitutionally, Supreme Court approval was required for reforms for some of the most contentious political and economic reforms, especially those linked to the privatization of services (Carrió and Garay 1996). In addition, Menem resorted to the use of presidential decrees. For instance, while President Alfonsín issued 10 decrees, during his administration Menem enforced a total of 308, covering the sensitive issues of economic deregulation, privatization and tax collection (Ferreira Rubio and Goretti 1996). Menem also successfully neutralized the opposition of domestic firms, especially those traditionally protected industries, such as textiles, electronics, and auto-parts, affected by these reforms, and the bargaining power of the unionized movement by negotiating with union leaders concessions in support of reforms. At the same time, the government managed to build an alliance with the powerful and diverse business firms that benefited from the liberalization of trade and the privatization of state-owned companies (Murillo 1997; Acuña et al. 2006: 21–23). Macroeconomic stability together with the return of credit led to an immediate increase in consumption and to a period of economic growth that was turned into political capital for Menem and strengthened commitment to the program. Privatization and budgetary austerity followed led to growth rates between 1991 and 1995 that were in excess of 4 percent per year—among the highest since 1945. Nevertheless, the endorsement of neoliberalism inside the Peronist Party as a whole, though widespread was largely pragmatic. For instance, the process of decentralization, which accompanied neoliberalism and served as a way to reduce state spending, strained federal relations with provincial elites and eroded the bonds between the poor/working class and the Peronist Party, both key factors in ensuring stable governance under Menem. As Rock (2002: 67) explained: The role of federal government was transformed. Instead of operating as an “interventionist state,” its main function now consisted of raising revenues and passing them on to the provinces through the system known as coparticipación. Responsibility for health and education was also decentralized—the reforms placed more than 180,000 teachers under provincial jurisdiction. In the process, the federal government shed more than 200,000 jobs between 1990 and 1992—although around 40 per cent of these were transferred to the provinces. Decentralization attracted little criticism at the time; the provinces had plentiful access to coparticipación funds and rediscounts from provincial banks.


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Cutting the role of the state in this context often meant that the central government transferred its responsibilities, but not its resources, for certain services in health, education and welfare to the provinces that took on a range of extra responsibilities. In most cases the process meant a serious strain in the fiscal accounts of the provinces that was often translated into poor service delivery and job reductions. In this context, stability was guaranteed by discretionary use of funds via clientelism and patronage to gain support from provincial governors in Parliament (Gibson 1997; Pastor and Wise 2004; Levitsky 2005). Pragmatic political calculations also played an important part in Menem’s position toward labor. Part of the neoliberal restructuring involved a massive deregulation of the labor market in order to “modernize” labor relations in the country. At the basis of the labor flexibilization was an attempt to limit the traditional power and corporatist relationship between state and organized labor that had developed since the 1940s. The labor reforms proposed by Menem aimed to undermine the power of unions, on the understanding that this was an essential step in order to move promptly in other areas of economic reform. By 1996, Menem had successfully introduced a number of laws and executive decrees that radically changed social and labor rights in the country. The changes altered not only the context within which the unions operated but, more dramatically, their capacity to defend their membership. The unions were unable to prevent a fall in living standards for most workers, due to the dramatic decline in real wages and the escalation of ever more precarious working conditions (Patroni 2001). As with federal-government relationships, the social costs of neoliberal restructuring and labor contraction were mitigated by populist distribution; but this depended on maintaining high levels of economic growth, foreign investment, and a steady stream of income from privatization. In the long run, it was inevitable that rising unemployment, sustained federal cuts in spending, and a steady increase in impoverishment and social exclusion would surpass the capacity of populist redistribution schemes to mitigate these and other problems. The Mexican and Asian financial crises of the mid to late 1990s posed a serious challenge to Argentina. The rigidities of the economic model based on the currency board made it difficult for government to adjust to international changes. This was made absolutely clear in 1998 when Brazil devalued, a move which seriously undermined Argentina’s export performance and led to a contraction of the economy and rising unemployment and made debt management extremely difficult. Even before that—by 1995—poverty had risen to alarming

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figures, setting in place a trend from which, despite improvements recently, Argentina is yet to recover from (see table 5.1). Furthermore, the living standards of the poorest not only failed to improve but actually declined during the years of economic growth. The World Bank (2003) estimates that while domestic income has fallen, the deterioration among the poorest groups has been even more dramatic since 1994 (see table 5.2). By the end of the decade, it was clear that neoliberalism did not provide the instruments to resolve the problems which had accrued in Argentina. The country faced serious social deterioration and a decline in its external account as a consequence of capital flight stirred up by the crises in emerging markets. This was made worse by the fact that the government revenues were beginning to suffer from the slow down in the sale of state enterprises by the mid to late 1990s (Schorr 2005). The economy entered a sharp recession in 1995 marking the beginning of a critical downturn that a brief rise in growth figures could not hide and that was to lead ultimately to the crisis of 2001. It soon became apparent that while the Convertibility Plan was successful in reducing inflation, it had left unaddressed problems resulting from industrial decline, high levels of indebtedness and the steady erosion of social security. The presidential elections of October 1999 were won by Fernando de la Rúa, the candidate for the opposition coalition, known as Alianza, between his own UCR and a Center-Left group of breakaway Table 5.1 Poverty and Extreme Poverty in Argentina, 2001–2007 (Percentage of Population) Year May 2001 Oct 2001 May 2002 Oct 2002 May 2003 2nd semester 2003 1st semester 2004 2nd semester 2004 1st semester 2005 2nd semester 2005 1st semester 2006 2nd semester 2006 2nd semester 2007

Poverty 35.9 38.3 53.0 57.5 54.7 47.8 44.3 40.2 38.5 33.8 31.4 26.4 20.6

Extreme Poverty 11.6 13.6 24.8 27.5 26.3 20.5 17.0 15.0 13.6 12.2 11.2 8.7 5.9

Source: http://w w w.indec.mecon.gov.a r/nuevaweb/cuad ros/74/gra f pobreza1_ ephcontinua.xls/. Accessed February 22, 2009.

1990

1992

50.7 4.6 0.454 11.0

Source: World Bank (2003: 57).

Relative measures Top 20% share Bottom 20% share Gini coefficient Top/bottom 20% ratio

51.0 4.5 0.456 11.3

51.6 4.2 0.467 12.3

43.2 188.1 1,060.7

1994

53.7 3.6 0.493 14.9

28.1 158.1 992.3

1996

Income Distribution in Urban Argentina, 1990–2002

Per capita income by decile (in 1999 pesos) First decile (lowest) 38.3 45.6 Fifth decile 153.4 181.1 Tenth decile 825.4 1,004.7

Year

Table 5.2

54.8 3.5 0.504 15.7

31.7 167.3 1,114.2

1998

53.8 3.5 0.494 15.4

30.4 164.2 1,028.2

1999

55.1 3.2 0.510 17.2

26.3 155.1 1,041.9

2000

56.8 2.6 0.530 21.8

17.1 136.3 993.8

2001

58.2 2.1 0.551 27.7

9.0 97.9 769.9

May 2002

57.2 2.8 .532 20.4

16.1 95.8 705.3

October 2002

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Peronists. De la Rúa promised reform, a return to transparency and policies to build trust between political leaders and the electorate. However, once in power the administration was unable to deal with domestic and international pressures, especially pressures to keep the currency based at fixed exchange rate. It soon became clear that the government lacked the political strength to oversee change. In what was in the end a politically suicidal move, De la Rúa brought Domingo Cavallo, former Finance Minister under Menem back in to government. His appointment was designed to show international creditors that Argentina could be trusted; but the result was that Convertibility could not be abandoned. In fact, De la Rúa began to deepen orthodox policies and push ahead with neoliberal structural reforms in order to obtain much-needed credit from the IMF. But despite adjustments that included sharp tax increases, restricted public spending, a timid tax-sharing agreement between the provinces, and the introduction of further labor market deregulation (that was overshadowed by allegations of corruption and bribery) recession and fiscal deterioration continued. As a result, poverty and unemployment steadily increased between 1998 and 2001. The poverty rate rose from 28 percent of the population in May 1998 to a staggering 37 percent by October 2001, as the economy stagnated and the economic/financial crisis worsened. Unemployment rose from 13 to 18 percent (World Bank 2003: 5). Attempts to take control of the gathering crisis were ineffective and reinforced the polarization between those who favored retaining convertibility and those who argued for devaluation. The government’s inability to sustain the debt burden and the country’s risk level skyrocketed. State management capacity became increasingly questioned, domestically and internationally. As a policy of last resort, the government announced a “Zero Deficit Plan,” a budget cut of 13 percent in state workers’ wages and pensions plus the reduction of resource transfers to provincial governments. The move allowed the government to secure a new lending from the IMF and other creditors, who offered a rescue package of US$8 billion in September 2001 (Akkerman and Teunissen 2001). But it did nothing to pacify the increasingly vociferous protesters on the streets or stop the street blockages that were growing in frequency and becoming more and more radicalized. Collapse was triggered by the decision of the IMF to withdraw its support in November 2001. In a desperate reaction to stop a massive wave of capital flight Fernando de la Rúa imposed restrictions on bank withdrawals and money transfers, a policy that became known


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as the “Corralito.” In response, a movement of the unemployed (piqueteros) rapidly emerged to oppose further cuts and to demand a renationalization of privatized companies and banks and the nonpayment of the external debt (Svampa and Pereyra 2003; Dinerstein 2003b). The middle classes joined the unemployed and public sector employees in massive street protests. De la Rúa declared a state of siege and unleashed a wave of ferocious police repression which led to over 20 deaths (Peruzzotti 2001; Manzetti 2002). The slogan of the demonstrations, Que se vayan todos (“out with all of them”) expressed the enormous distance between government and society. It represented a rejection of what was now perceived as a selfserving and corrupt governing class; but, just as importantly, it also indicated a loss of faith in the development model which was now thought to have brought Argentina to the brink of chaos. Cavallo resigned first, followed quickly by De la Rúa. In mid-December, the country defaulted and within two months the value of the peso had dropped more than a third and was to fall still further in the coming year. Between 2001 and 2002, presidents came and went in quick succession until the temporary parliament-led government of Eduardo Duhalde was able to assume some degree of institutional command. Duhalde took over in January 2002 amidst economic and political uncertainties. In the wake of the crisis, poverty rose still further, from 38.3 percent in October 2001 to an alarming 57.5 percent a year later. In the same period, extreme poverty rose from 13.6 to over 27 percent (see table 5.1). The broken links between the state and society were increasingly compensated by the emergence of new sites of social mobilization and spontaneous networks of solidarity. The newly impoverished middle classes became the so-called new poor— lower middle-class small business people, the self-employed or public employees who lost jobs, savings and sometimes even their home in the financial collapse of 2001 (Feijoo 2001). Thousands of barter clubs based on non-official barter monies came into existence and abandoned factories even were overtaken by former workers and set back into production as cooperatives (Pearson 2003; Petras 2004). The significance of this social response was foundational in many ways. Spontaneous organizations from within civil society provided an emergency social safety net for people in the form of food, shelter, clothing and primary health care in the face of the collapse of the state. It also established a new, and much-needed, sense of belonging, of citizenship, empowering those “abandoned by the state.” In order to reestablish internal governance, it was necessary for the post-crisis

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government to reintegrate the new social actors into the formal channels of state-society networks and to take control of the new sources of production. In contrast to the crisis of the 1980s, what was required now was far more than simply an adjustment in economic policy. To his credit, Duhalde recognized this and sought, above all, stability. He did so by appealing to old ideas and the residual legitimacy of the national development project, which had been overturned with the advent of neoliberalism in the 1980s and 1990s. Reasserting Nationalism after Neoliberalism The crisis of 2001 epitomized three major political economic developments. First, the resurgence of political activism and society’s capacity for self-organization, after years of neutralization and even disarticulation; as a result, civil society reasserted its right to a voice in decision making, especially with regard to crisis resolution policies. Second, the reassertion of the state as multi-faceted actor able to resume its role as an agent of development, a manager of social conflict, a source of social integration and a site of democratic renewal. Finally, the crisis in Argentina represented a turning point that led to the introduction of audacious reforms that aimed to overturn some core elements of the neoliberal model. Once a parliamentary government was settled in office in January 2002 it was clear that the challenges ahead were huge. In addition to the difficulties of managing a debt default and promoting growth, the government faced the possibility of social collapse and rebellion. Regaining control was only possible, the government concluded, by reintegrating social actors into the formal channels of state-society networks. As such, the immediate need was to mend the fractured social consensus and restore some legitimacy to the state and the ruling class. But it was less clear immediately that the government would advocate an alternative to neoliberalism. In fact, the government was constrained by the need to placate the IFIs at the same time as trying to respond to the demands of highly mobilized domestic constituencies for accountability, welfare relief and, above all, a change in the rules of the game. Historically, nationally organized interest groups, notably business groups, financial groups, individual investors, the politically influential middle-class, and corporate organizations have often acted to veto proposed changes to policies. Faced with the uncertainty of devaluation at this time, they all played a role in delaying the introduction of decisions that would modify the status quo (Tommasi 2002). In short, there was an impasse in terms


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of how to reactivate the economy without exacerbating social and political tensions. In this tense and delicate atmosphere, with society visibly mobilized and deeply politicized, the government appealed to a discourse of unifying nationalism and proposed a new approach to economic management. The government incorporated elements of the demands of popular movements, in particular those of the unemployed workers articulated through the piqueteros, with pressures from national and international actors as a means to both economic stabilization and social appeasement. First, in order to compensate for past mistakes and its own low levels of public legitimacy, Duhalde adopted a critical tone vis-à-vis the IFIs, in particular against the IMF. Economically, this meant balancing the populist appeal of high government spending on social policies with prudent fiscal and social management in order to inject some life into the economy whilst, in fact, beginning to reinsert the economy in the international capital flows. One of the first and highly symbolic decisions of Duhalde was to abandon Convertibility, impose a moratorium on servicing the public debt and convert financial contracts from dollars to pesos in a process called “pesification,” a decision that ultimately favored debtors owing dollars debts but undermined middle class investors (Baldi-Delatte 2005). The end of Convertibility and the debt default calmed the critics who had rejected the neoliberal model, but more importantly, they allowed the government to recover some political strength. The devaluation of the Argentine peso was aided by changing dynamics within the international political economy. A dynamic upswing in the global economy led to favorable exchange terms in commodity markets, benefiting Argentina along with other developing countries. China’s entry in the WTO in 2001 also opened markets. But while the international context created opportunities, the way development strategies unfolded depended on the domestic politics. In Argentina, the emergence of a strong domestic political alliance between the government and the so-called Grupo Productivo (Producers’ Group), formed by representatives from industrial sectors, was decisive. The Grupo Productivo had developed as a lobby group in the 1990s in relation to the privatization policy and adopted a stronger line after the recession in 1998, arguing for policies to promote national businesses. It went on to become highly influential in shaping a new national economic strategy around the needs of domestic industry. The Grupo Productivo strongly supported devaluation and the reactivation of national industry by lowering the costs of production and fostering export and trade (UIA 2001). As such, this alliance

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brought into the center of the political and economic arena industries that provided substitutes for foreign imports and financial resources to back up government policies. Thus, in contrast to the 1990s when the retrenchment of the state augmented the power of capital over production and natural resources, the post-crisis development recovery plan was engineered by a combination of export expansion and reindustrialization for the domestic market. In tandem with a decisive bounce back effect on exports after devaluation, a series of ad-hoc policies restored the fiscal balance supporting the reconstruction of state capacity. For instance, Duhalde’s government managed to negotiate a 20 percent tax on export earnings from agricultural commodities and hydrocarbons, which became the central source for financing social emergency programs. Increased state income as a consequence of debt default and export-oriented growth bolstered welfare spending, political inclusion and the promise of job creation (see Grugel and Riggirozzi 2007: 28). Another key policy decision was to take a tough approach with the demands of privatized companies that were affected by the decision to control the prices of basic services they provided (Aspiazu 2002). Finally, in order to help stimulate the domestic market, the Corralito was lifted in December 2002. Politically and institutionally, two other policy changes contributed to the reconstruction of governance after the crisis. The first was the new relationship between the federal state and the provincial governors, while the second involved the creation of an emergency social program that went on to cover almost half of the population below the poverty line. Given the long history of veto power by provincial governors and traditions of fiscal and monetary disobedience, the national government was keen to redefine state-provincial relations in ways that would strengthen presidential authority. It therefore presented a proposal to provincial governors for an understanding in which the national government committed to help finance provincial expenditures so as to allow for provincial government to resume the payments of salaries and public service providers, while provincial governments committed to reduce progressively their deficit and to stop printing alternative quasi-currencies. According to the Under Secretary for Relations with the Provinces, the so-called Pacto Federal (Federal Pact) was the first step in terms of consensus building for post-crisis institutional reconstruction (interview with author, June 5, 2006). Although triggered by IMF conditionality, the Federal Pact was a key instrument of post-crisis governance since


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it reinforced the legitimacy and authority of the state in national policy decision-making. In fact, as international lines of credit were cut, most of the resources for the Federal Pact stemmed from the devaluation of the peso and the subsequent reactivation of national industry as it regained competitiveness in the international market. A growing export sector, meanwhile, helped to stabilize the currency. Just as importantly, it made possible new social investments which, though modest, contributed to calming the situation socially by allowing the distribution of food, health and workfare plans and subsidies and integrating leading civil society groups into the implementation of social plans (Svampa and Pereyra 2003). Institutionally, a crisis-driven consensus-building initiative, Mesa de Diálogo, was launched in April 2002 with the support of the Catholic Church and the United Nations Development Programme (UNDP). The Mesa was designed to serve as an alternative to Argentina’s traditionally corporatist structure of social relations. Organized in thematic roundtables, it encouraged inputs into governance discussions by a broad range of society-based actors including labor, business, nongovernmental organizations (NGOs), piqueteros, social movements, political parties, and religious groups (Barnes 2005). One of its most significant initiatives was to push for the adoption of urgent policies of social inclusion. In this context, the most politically relevant and timely social program, the Unemployed Men and Women Heads of Households Program (Programa Jefes y Jefas de Hogares Desempleados) was proposed. Jefes y Jefas was a workfare program that started in April 2002 financed initially partly with a loan of the World Bank and partly with income from export taxes. The plan was designed as an emergency plan to alleviate the impact of rising unemployment due to the worsening economic crisis (Galazo and Ravallion 2004). Another important program that placated immediate social needs was a health plan, Plan Remediar, supported by the IADB, which organized the distribution of basic medicines to the poorest social groups. Together with a reorientation of the lending portfolio of the World Bank and the IADB, a new platform for social policies was established and with it the basis for an effective and fast response to the social problem that targeted employment creation, attention to health urgencies and income subsidies. These and subsequent emergency plans were also an effective strategy for controlling social conflict as they were implemented in ways that brought the unemployed organizations into national, provincial and municipal power circuits. In the immediate post-crisis, welfare spending worked as an effective method of political inclusion of the

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poor. What it all points to is the adoption of a qualitatively different approach to state responsibility and state spending that stands in sharp contrast with the belief in the market of the 1990s and, that, at the same time, echoes some practices from the past, in particular from the Peronist government of the mid-1940s. But instead of a semi-closed economy based on national promotion of domestic markets and import-substitution, the post-crisis political economy is based on a strong state (and governmental) leadership in the economy while taking advantage of the regional and international markets dynamics that offered opportunities for Argentine export markets. All this comes together as “open-economy nationalism,” an attempt at reconciling the centrality of the state in social life and its role as an economic agent through policies that bring together social spending and interventionism, export-led growth and a revival of regional integration as a platform for an alternative political economy. Cementing the Alternative? From Kirchner to Fernández de Kirchner The strategy of national inclusion and industrial reactivation inherited from Duhalde formed the basis of policies under Néstor Kirchner, who took office in May 2003. The two administrations effectively managed to relegitimize and reinstitutionalize a model of governance that depended closely on nationalism to justify the new coalitions shaping policy. Domestically, state authority was gradually recovered through the implementation of effective pro-poor policies, along with the successful deployment of a politics of identity that, like Peronism in the 1940s, proved useful for resolving distributive conflicts (Itzigsohn and Vom Hau 2006: 204). Nationalism was, therefore, a core part of Kirchnerismo. As soon as Kirchner took office, nationalist discourses were deployed in order to allow the government to consolidate an alternative form of governance. In this context, the social investments for the poor affected by the collapse in 2001 were turned into political capital for the government; and the climate of mobilization and repoliticization opened up space for a discussion on the role of the state, the quality of Argentina’s democracy and, even, class compromise, all of which allowed Kirchner to present himself as offering something qualitatively new from the neoliberal era. Paradoxically, and in marked contrast to the earlier period of nationalist development, contemporary nationalism is presented as compatible with market rules. This is partly possible because the current international political economy is extremely favorable to


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Argentina; exports are in demand and prices are high. After devaluation, the Argentine economy benefited from improved terms of trade that, together with a competitive exchange rate, allowed the country to build trade and fiscal surpluses quickly and thus reduce its dependency on external funding. Furthermore, while in the 1990s the government effectively gave up interest rate and currency control in order to satisfy foreign investors, the devaluation of early 2002 was part of a new commitment to flexible exchange rates and a more expansive monetary policy. External trade and internal surplus were possible because economic growth took off immediately as industry and agro-exports benefited from the depreciation of the peso and the recovery in domestic consumption. Growth has continued at a rate of 9 percent since 2003. Revenue acquired after 2003, meanwhile, as a result of export-led economic growth has allowed the government to increase welfare spending on unemployment insurance and pension benefits in the public sector, raise transport subsidies, fix the costs of and increase state participation in various public services, and invest in public works. In addition to the political significance that welfare acquired, state spending also aimed at strengthening the position of the state vis-à-vis international institutions. As Argentina became less dependent on fresh money from the IFIs, the government’s bargaining capacity vis-à-vis the IFIs increased. Economic recovery and the competitiveness of national industry gave the state more control over the economy, allowing for higher levels of state investment, an expansion of public works and the introduction of forms of tighter regulation over public service companies and banks; policies that not only contradicted IMF rules but also made clear that Argentina was no longer willing to tolerate foreign creditors dictating national economic norms. At the same time, these policies reduced the leverage of the IMF as “lender of last resort.” Kirchner’s strategy became known as “des-endeudamiento” (de-borrowing) meaning the renegotiation of existing debt with international institutions and private creditors on as favorable terms as possible, without asking for any further loan and cancelling payments with national reserves. In the end, the US$9.8 billion debt was settled in December 2005, creating the image inside Argentina that a new, more autonomous period of development was opening up (Riggirozzi 2007: 137; also Cooper and Momani 2005). Kirchner’s decision to seek independence from IMF pressure by paying the debt owes as much to questions of political management as economic policy. Nurturing an image of a sovereign state in Argentina was important in a country where the electorate had been so injured

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by external-induced reform programs. At the same time, it genuinely allowed the government much greater room for maneuver, economically, politically and even diplomatically. For example, Argentina has been able to form closer ties with Venezuela and to find a place the new regionalist schemes that are developing in Latin America, as the old integrationist schemes associated with neoliberalism fall away. Kirchner formed an alliance with President Chávez, who offered Argentina financial support over debt renegotiation. Venezuela has also become a partner in emerging arrangements around infrastructure and energy. Deals are also being struck with Bolivia and Brazil over the supply of natural gas (see chapter 4). The recovery from the crisis thus opened a new cycle of political economy in Argentina. But while the style of government is nationalist and Kirchner was committed to economic expansion via industrialization, fiscal policy has been quite conservative. Social policies under the new desarrollismo have clear limits (Grugel and Riggirozzi 2007; and chapter 3). Growth, falling levels of poverty and fiscal responsibility allowed the government to carry out some politically sensitive reforms—mainly in the areas of tax, welfare and institutional and human rights reforms—and, at the same time, present himself as the architect of the miracle. Kirchner’s own political capital allowed his wife, Cristina Fernández de Kirchner, to win the presidential elections of October 2007, with a promise to continue policies of “openmarket nationalism.” Essentially, agreeing on how to recover from 2001 was relatively easy; accepting that Néstor Kirchner needed to be given “space to govern” was, if not easy, then prudent for all concerned. However, the extent to which that space to govern is sustainable over the longer term and compatible with the need to strengthen Argentina’s democracy is becoming an issue of concern. In addition, whilst Kirchner, and Duhalde before him, put in place measures that were successful in terms of economic recovery, their policies have not necessarily institutionalized a coherent and sustainable model of governance politically. Like Menem in the 1990s, the administration of Néstor Kirchner (and the pattern is similar with Cristina) relied on systematically concentrating decision making in the hands of the Executive, thereby weakening other political institutions. The political culture of Argentina remains personalist and hyper-presidential. Kirchner tended to micro-manage all the areas of government he saw as crucial. For instance, fear of inflation meant that at times, the president himself would conduct hours of negotiations with business, including representatives of supermarkets and agro-industry, in an effort


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to contain prices. When negotiations of this sort failed, the government’s response was to take direct action, if it could. This could mean that certain goods (e.g., beef) might be banned from export in order to keep the domestic market supplied well enough to prevent prices rising. At times, the president himself urged consumers to boycott supermarkets that raised prices. The accumulation of power in the hands of the Executive in the post-crisis period was indeed part of the legacy of political fragmentation, executive dominance and failure of Argentina’s political parties to develop clear and coherent programs for governance. This, certainly, reflects the erosion of the traditional institutional bonds between state and society during the decade of neoliberalism (see chapter 2). But the post-crisis model of governance has not addressed the democratic deficit in Argentina either and it took advantage of a weak and incoherent opposition and the failures that have beset the Radical Party. The Peronist Party today effectively governs without a political opposition (Sanchez 2008). The game of opposition is played out internally, inside the Party or between the government and economic pressure groups, as was made abundantly clearly shortly after Cristina Fernández took office when her decision to raise export taxes was challenged successfully by agro-exporters. The widespread public distrust and vilification of the political class and parties that became explicit in the crisis of 2001 was a sign of a crisis of representation that has not been resolved. The state has recovered some authority as an economic actor; but attitudes to political elites remain much more ambiguous. Post-neoliberal Governance: Challenges Ahead The extreme crisis of governance that opened in 2001 and 2002 is over. The Kirchners have been able to manage the two principal governance challenges, namely social desperation on a scale that threatened to bring down the political system and the need for a new macroeconomic matrix. As a result, a partial but still unstable new political economy has emerged; but the cost has been an extraordinary accumulation of executive power that sometimes risks falling into (semi-democratic) authoritarianism. Growth has been steady at almost 9 percent annually since 2003. But, with the euphoria of recovery over, attention is increasingly focusing on the tendency toward state interventionism in taxation, price setting and other economic policies, and a policymaking style which relies to an excessive degree on the figure of the president. As a result, the challenges of

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democracy building are far from over with the demise of neoliberalism in Argentina (see Grugel this volume). There is little doubt of the success of the post-crisis governments in reasserting the command and capacity of the state in the new political economy. Effective and well-targeted policies combined with a nationalist rhetoric reflected the urgent need to manage the crisis in a way that was sensitive to popular needs. Yet, effective policies after crisis do not equal sustainability over the long term. The first depends upon the rapid introduction of crisis-resolving strategies; the second on the institutionalization of a coherent and consensual program for governance over the longer term. The reassertion of a new political economy, as in many other countries, requires a greater autonomy of the government from dominant economic groups (Haggard and Kaufman 1992). Yet in Argentina’s current political economy, this has led to restricted political participation in negotiations and decision making that has resulted in measures that curtail the power of opposition groups. There is, consequently, a growing conflict with one of the main sources of income for the state: the agro-export sector. Increasingly important because of record commodity prices worldwide and a favorable exchange rate, export groups have been identified as those that should bear the cost of increasing state revenue through higher taxation. The attempt to raise taxes to a floating rate of about 40 percent of export values, in March 2008, together with rising inflation, led to unprecedented strikes, roadblocks and protests by the agro-industrial sector. This, in turn, meant food shortages and boycotts in the cities; and it contributed to rising class conflict and increasingly inflexible positions over questions of income distribution. Argentine politics is beginning to reflect a historic division between the nationalistic stance of the government, appealing to the pueblo, and an opposition alliance based around farmers and the urban middle class. If these differences harden, the result is likely to be stalemate in governance terms. In short, the dilemma of how to structure political power and to reconstitute political authority is far from over. There are other issues that have the potential to derail the new political economy. On one hand, there is the apparently “technical” debate about how to finance social development—in the government’s view the answer seems to be via increasing tax on exports, in a way that is similar to policies adopted immediately after the 2001 crisis but at a higher rate. As we have seen, this opens up a range of social tensions that are not easily managed. Yet this is probably less contentious than the option of increasing taxation on income and


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wealth. On the other hand, there is a “political” debate about what nationalism currently means as a political economic project. The role of the state and the long-running struggle between landowners and the central government—since the time of the first Peronist government in the mid-1940s—over who is in charge of the political economy of the country, suggests the emergence of a new axis of conflict. Beyond the contextual character of “distributional struggles,” this suggests a degree of weakness in the capacity of the state to deliver an alternative project in post-neoliberal Argentina. Political and economic consolidation and social stabilization in the long run involve managing the distributional game between growth, production and inclusion. This has been a historic challenge in Argentina and is particularly acute in a society that is still struggling with high levels of poverty, extreme poverty and job informality (see table 5.2). Overall then, the extent to which policies of “open-economy nationalism” are turning into a consolidated, effective post-neoliberal project of consensual development is unclear. The post-crisis appeal to nationalism relied symbolically on the deployment of elements of “old” Peronism and a sentimental attachment to the nation that were lost during the neoliberal years. But the sustainability of this strategy will depend on whether the new policies can resolve the legacy of poverty and exclusion from the years of neoliberalism, as well as managing class tensions with rural producers. Finding a new way to tackle these questions and embedding new policies institutionally are the most pressing tasks for government. Note The financial support of the ESRC Postdoctoral Fellowship is gratefully acknowledged (Ref: A112865). This chapter has also benefited from the ESRC-funded project on Governance after Crisis.


Chapter 6

Evo Morales, the MAS, and a Revolution in the Making Pilar Domingo

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he model of development around multiparty democratic rule and neoliberal policies which had shaped the assumptions and goals of what good governance should be in Bolivia from 1985 entered a period of crisis and change at the start of the new millennium. The Water War in Cochabamba in 2000 and the Gas War of 2003 that prefaced the dramatic collapse of Gonzalo Sánchez de Lozada’s second presidential term in October 2003 were symptomatic of the magnitude of the governability and legitimacy crisis that had been brewing from the end of the 1990s. At the same time, they also reflected new and alternative forms of political voice through popular mobilization from below, and fresh aspirations regarding models of development and democracy. The process of institutional crisis and political transformation (still ongoing) that Bolivia has experienced since 2000 culminated in the December 2005 electoral victory of Evo Morales at the head of the Movimiento al Socialismo (MAS) movement, and constitutes a new era of post-neoliberal politics and economics. It is important to stress the need for caution regarding any endeavor to map out the consequences of this crisis and the extent of change (coherent or otherwise) under the Morales government. It is still very uncertain what the post-neoliberal model of state, society, governance and development will end up looking like, and what its impact on issues of inclusion, redistribution and political participation may be. At best we can piece together the different processes that converged to create the governance crisis at the end of the 1990s, examine the way in which different actors have navigated through times of social conflict and apparent institutional implosion, and point to the principal features of the post-neoliberal agenda.

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It is also important to identify the particularities of change and continuity which characterize Bolivia’s current transformative experience. In the process of rethinking the state, and political and economic development since the Water War in 2000, the actual process of change has not involved complete rupture with the past. Indeed, in many respects it is inevitably constrained by various levels of structure and contingency: the realities of a globalized world economy and the nature of Bolivia’s particular insertion in it; specific political developments and state reform processes which were part of the neoliberal and democratic development model in place since the 1980s; the longer-term legacies of state-building projects implemented since Independence, as well as political practices that combine a cyclical dialectic tension between a rooted tradition of rebellion and (corresponding) shifting elite positions and constitutional change from above. Finally, it is also useful to distinguish between the discursive, the symbolic (and subjective), and the actual policy levels of transformation with regard to how the debates and practice of issues about political economy and democratic forms are playing out in the agenda for change. It is likely that these three levels will develop along different tracks and potentially in tension with one another. This chapter has three parts. The first summarizes the main components of the model of economic and political development during the 1980s and 1990s, and outlines the main features of the governance crisis and its different stages from the Water War in Cochabamba in 2000 and the Gas War in 2003, to the electoral victory of Evo Morales in 2005. The second part looks at how structural legacies impact upon the prospects for social transformation, not only as a constraining but also as an enabling constellation of political, institutional, socioeconomic and cultural factors that constitute Bolivia’s particular history of state-building. The third part focuses on the changing paradigms of development and governance at the discursive, symbolic, and policy levels. Here I examine the main shifts in economic policies throughout the period and assess the degree to which they represent a rupture with the neoliberal model, or whether they constitute more of a change of emphasis regarding the role of the state in economic development. I also address the social dimension of government policy. To what extent has the response to the governance crisis of the 1990s brought about more redistributive policies, and how sustainable and coherent are the policy choices that are being made? Finally the political dimension of change is examined, as are the ways in which state-society relations are being redefined and renegotiated.

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The Evolution of the Post-neoliberal Agenda Running out of Steam: Neoliberalism and “Pacted Democracy,” 1985–2000 The Cochabamba Water War of 2000 waged against the privatization of water in Bolivia sounded the death knell of the neoliberal model, rendered plausible an alternative discourse of political and economic development, and set the tone for an emerging form of street-led politics. After this event it seemed that popular mobilization and an increasingly vocal web of grassroots and social movements (with varying levels of organizational and associative capacity) began to call the shots regarding political outcomes.1 An alternative discourse of political and economic development emerged and acquired seemingly revolutionary proportions with the dramatic overthrow of President Gonzalo Sánchez de Lozada during the Gas War in October 2003, and with the 2005 election of Evo Morales, an indígena and cocalero leader. Moreover, this agenda of social and political transformation was pushed to the fore at the hands of new political forces and social movements as the old political order was gradually displaced. Between 1985 and 2000, Bolivia’s democracy had settled around a routinized dynamic of neoliberal economic policies supported by a succession of coalition governments. At the political level, electoral politics was dominated by three parties, which constituted the traditional political class: the Movimiento Nacionalista Revolucionario (MNR), which led the 1952 National Revolution, and then pioneered the neoliberal economic policies of the 1980s; the Centre Left Movimiento de Izquierda Revolucionaria (MIR); and Acción Democrática Nacional (ADN), which became the official electoral voice of the Right with the transition to democracy. Between 1985 and 2003 power alternated between successive party coalitions made up of different combinations of these parties, and an assortment of other smaller parties. Outsider parties tended to be labeled populist or anti-system. The dominant political feature of this period was the stabilization of electoral cycles around a logic of coalition politics the goal of which was to secure majority support in congress. This produced an important degree of governability and political stability. During this period of “pacted democracy” the dynamics of coalition government was shaped by a crude logic of clientelism, as inter-party coalition agreements mostly involved dealing out access to public sector jobs and state patronage for the parties involved, with little deference to ideological positions or electoral programs. This contributed to a

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growing crisis of legitimacy and credibility of the political party system. Moreover, policy decisions, much as O’Donnell (1994) describes in his concept of “delegative democracy” were formulated behind closed doors with little congressional or public debate, heightening the sense of exclusionary, technocratic and non-representative government. At the same time, though, it was some of the institutional and constitutional reforms, especially in the 1990s that precisely—and paradoxically—contributed to creating political opportunity structures for new social and political actors that then challenged the old political order, and also weakened the logic of the democracy of elite pacts (see Kohl and Farthing 2006; also Crabtree and Whitehead 2001). The following reforms, many of which were passed under the MNR led administration of Gonzalo Sánchez de Lozada’s between 1993 and 1997, are particularly noteworthy. Foremost, there is the not insignificant achievement of the routinization and acceptance of electoral politics as the only legitimate route to political power after 1985. In connection with this, successive electoral reforms progressively opened up new political spaces which facilitated the inclusion of political outsiders, including eventually Evo Morales and the MAS. In particular the introduction of uninominal candidacies to Congress through a mixed system of proportional and majority representation in a reform of the electoral code in 1996 yielded important electoral successes for the MAS. This became especially evident in the 2002 and 2005 general election. Second, the Ley de Participación Popular of 1994, which decentralized political power and resources to the municipal level, acknowledging community structures of authority, created the opportunity for the political incorporation of indigenous and campesino politics and grassroots mobilization into the political system in some localities.2 Third, a 1994 constitutional reform formalized the multicultural and pluriethnic nature of Bolivian society and combined with the emerging political presence of indigenous movements to secure the ascendancy of a political discourse of cultural affirmation and identity politics. There were also various other institutional reforms that, at least nominally, were directed at deepening rule of law, strengthening mechanisms of accountability and promoting rights-based citizenship. These included various levels of judicial reforms, but most significantly the creation of what became a socially progressive human rights ombudsman which in time further supported an emancipatory discourse of rights-based politics that forms part of the subtext of the current post-neoliberal agenda.


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Thus, the political logic of 1985–2000 was in effect exclusionary, but the institutional legacy of state reforms in this period shaped new opportunity structures within the political rules of the game, which in turn facilitated new dynamics of political participation and contestation from below. Essentially the institutional reforms of the 1990s spoke to a growing tension between the increasingly discredited logic of “pacted” democratic politics sustained by the traditional political parties, on the one hand, and the growing demand from below for broadening the scope of political participation and direct democracy, on the other. On the economic front all the governments in this period unwaveringly followed a neoliberal policy agenda, albeit a la boliviana, as there were particular features of the economic reforms adopted that were peculiar to the political conditions prevailing in the country in the 1990s (see Assies 2004; Kohl and Farthing 2006; Crabtree 2006). The governments of 1985–2003 worked their way through the Washington Consensus in stages, reflecting the commitment of the traditional political parties to the neoliberal model, and pressures from the World Bank and IMF. The MNR under Paz Estenssoro introduced the first neoliberal measures in 1985. From the start Sánchez de Lozada was a key architect of the economic liberalization measures, and these would be deepened during his first presidency in 1993. The model involved fundamentally diminishing the role of the state in the economy. The first wave of pro-market measures in 1985, implemented through the decreto 21060 concentrated on curbing hyperinflation through shock treatment and fiscal austerity, and on initiating economic liberalization.3 The closure of publicly owned mines had the effect, moreover, of demobilizing the once politically powerful miners’ union and the Central Obrera Boliviana (COB). In the 1990s economic reform consisted principally of privatization, the main thrust of which took the form of capitalización in 1994 under the government of Sánchez de Lozada as part of the Plan de Todos, an umbrella policy plan premised on the assumptions that privatization would provide the motor for investment and economic growth. Moreover, the redistributive element that was incorporated into the discourse of market reform was designed to appease political opposition. The law of capitalization was passed with minimal congressional debate, and it authorized the sale of a number of state-owned enterprises. The original intent was that a public trust fund would retain 50 percent to be administered on behalf of the population, and would fund an old age pension scheme, under the name of the BONOSOL. In the end the companies negotiated a 50 percent control of the enterprises as they insisted on having control

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of the companies they bought. Amongst the state-owned sectors that were privatized was the state owned energy company, Yacimientos Petrolíferos Fiscales Bolivianos (YPFB). The other key measure adopted in the 1990s was the controversial land reform implemented through the Ley INRA of 1996. This attempt at “multicultural neoliberalism” sought a balance in rural property ownership structures between a market logic and a formal recognition of communal and indigenous lands holdings (Assies 2004: 38). The measure also aimed to establish a system to regularize existing land property titles. Overall, the reform has tended to serve mostly the interests of large landholdings in the eastern regions and there has been little progress with the regularization of existing land titles. Indeed, there has been a reconcentration of rural property and an expansion of new latifundios over the last decades, particularly around the new agro-industry that began to emerge in the 1970s primarily in the eastern lowlands. Ultimately, privatization and market reforms did not yield the expected results in terms of promoting growth, or significant private sector investment outside the capital intensive hydrocarbon sector. During the 1990s growth averaged at 3.8 percent (UNDP 2002) and by the end of the decade the economy was reeling under the strains of the global economic downturn and the Argentine crisis. In structural terms, the economy has remained highly dependent on hydrocarbons and minerals which still make up 49 and 19 percent respectively of legal exports (Gray Molina 2007). The state had lost the revenue of the recently privatized state companies, and unemployment soared (Kohl and Farthing 2006). The perceived failure of the neoliberal model to address issues of poverty and inequality fuelled the social discontent that shook the political landscape after 2000. For fifteen years, then, there prevailed a seemingly successful balancing act between stable coalition politics dominated by the traditional political class and an abidance, to international acclaim, to the agenda of “good governance” and responsible adherence to the Washington Consensus. By 2000 this had run its course as the failings of the economic model to address long term challenges of poverty alleviation, sustainable growth and development had become evident. The Governance Crisis and the Collapse of the Old Order By the end of the 1990s new political forces had come into play, some of which would constitute the wave of popular support that backed


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the electoral victory of Evo Morales. In part this reflected also a reconstitution of the traditional Marxist Left and new forms of union politics distinct from the old structures of the COB, albeit rooted in a long-standing tradition of radical bottom-up political mobilization (Kohl and Farthing 2006). The new faces of subaltern politics included the following. First, the campesino movement gained increasing political visibility and organizational autonomy through the consolidation of the CSUTCB (Confederacion Sindical Unica de Trabajadores Campesinos de Bolivia) during the 1980s. Second, and in connection with campesino politics, indigenous movements and the politics of cultural and ethnic identity gained unprecedented visibility in the 1990s (see Van Cott 2000; Assies and Salman 2005; Albro 2005; Yashar 2005; Albó and Barrios 2006; Canessa 2006). Indigenous politics was rooted in early expressions of katarismo in the 1970s, and politically channeled through the CSUTCB and a handful of katarista political party organizations that underwent successive transformations. In a parallel process, indigenous communities from Amazonía began to organize in defense of their autonomy from the state and to resist developmental policies that encroached upon their territorial space. The Confederación de Indígenas del Oriente Boliviano (CIDOB) emerged as the associational space for the lowland indigenous communities and by the 1990s had acquired its own national visibility in the quest for cultural and territorial affirmation. Thus, by the turn of the century, cultural and ethnic identity was effectively politicized as the consequence of the combined impact of bottom up action of the CIDOB and a campesino mobilization politics in the Andean region. Moreover, this process gained strength with the institutional opportunity structures afforded by some of the top down institutional measures, notably, the formalization of the multicultural and pluri-ethnic nature of Bolivian society with the 1994 constitutional reforms, and the Ley de Participación Popular. Finally, the 1990s was also the decade of international recognition of cultural and indigenous rights. The political discourse around identity politics settled by 2005 around the project of promoting a “plurinational state” a concept which was intended to encompass the struggle for the decolonization of the state and the formalization of Bolivia’s cultural and ethnic pluralism, moving beyond the earlier and less radical versions of multiculturalism of the 1990s (Albó and Barrios 2006). Importantly, the politicization of ethnicity was also about a long-standing struggle over access to and distribution of resources—crucially the issues of territory and land reform are at the heart of the campesino and indigenous agenda.4

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Third, the highly organized cocalero movement concentrated in the Chapare region in Cochabamba by the 1990s spearheaded the anti-neoliberal rhetoric. Although the thrust of the cocalero agenda lay in combating U.S.-driven coca-eradication policies the movement was characterized by a radical discourse on a broader set of issues and by a militant organization which married well with the tide of growing popular discontent of the 1990s. Finally, there emerged an array of urban social movements that were engaged increasingly with the growing opposition to neoliberalism. On the one hand, this included the more organized associations such as the juntas vecinales of El Alto, and their umbrella organization, the Federación de Juntas Vecinales (FEJUVE) which played a key role in the events of October 2003, or sectoral urban grassroots organizations such as that representing the street vendors, and on the other hand, it included the emergence of more spontaneous grass roots mobilization around specific issues, notably the mobilization leading up to the Cochabamba Water War (Lazar 2006; Arbona 2008). The above groups have been the protagonists of the post-neoliberal struggle that began to dictate political outcomes from 2000 onward. They resorted to a range of discursive and mobilizational strategies, with varying degrees of organization, cohesion, or spontaneity. These included street led protest and popular grassroots mobilization behind the banner of direct and participatory democracy, but also significantly recourse to electoral strategies and a commitment to democratic forms and constitutional government. Overall, this is a diverse and heterogeneous alliance of political and social actors with overlapping political identities compounded also with class, ethnic, cultural, and regional identities, which has shaped a complex web of expectations and aspirations that is far from structured or coherent. Significantly, this swell of grassroots mobilization was able to coalesce more or less around the leadership figure of Evo Morales, and with varying levels of support and integration into the MAS as an umbrella political organization. Morales’ political career evolved within the ranks of the cocalero movement and campesino politics. Over the years he proved capable of navigating through a range of political discourses and issues of conflict as these emerged. Proclaiming a socialist and anti-neoliberal agenda combined with identity politics and multiculturalism, a commitment to land reform and campesino demands, he showed an ability to heed to the challenges posed by the Water War and the nationalist discourse of the 2003 Gas War. Moreover, he managed to maximize


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electoral gains with an unwavering commitment to electoral and constitutional politics which wore down the resistance to his political success among the traditional political class and economic elites. As the traditional political parties began to fall to pieces, especially after 2003, the political Right began to reconstitute itself into a broad family of what currently amounts to a counterreform movement of sorts, backed mainly by large sectors of the urban middle class, and by entrepreneurial and landed elites. For the 2005 elections, the remains of the old political class essentially regrouped at the national level round two main parties—PODEMOS, led by Jorge Quiroga formerly of the ADN, and Unidad Nacional (UN) led by a former member of the MIR. But most significantly, the voice of opposition to the postneoliberal agenda holds its stronghold among the lowland elites in the media luna. This refers to the crescent shaped geographical link between the departments in the east of the national territory, politically organized and led by the Santa Cruz civic committee. Of note is not only the stark rejection by the economic and landed elites that the media luna political discourse represents of a model of development which they perceive to be inimical to their interests, but also the racist tone in which their views are frequently cast. Since the 2005 election the Right is also vocally represented by the opposition-elected Prefectos of these departments and their respective civic committees (see Assies 2006). Significantly, this new set of political actors on the Right have also appropriated themselves of street politics and mobilizational strategies—and more recently also resorting to violence and intimidation—to voice their opposition to the Morales government. It is against this emerging patchwork of new political voices, social movements and mobilizational strategies that the crisis of governability unfolded, and the post-neoliberal agenda gained ground. Thus, at the turn of the century Bolivia entered a period of escalating political and institutional instability punctuated by three landmark events: the Cochabamba Water War of 2000, which unleashed vigorous street politics; the Gas War of 2003 which led to the dramatic resignation of Gonzalo Sánchez de Lozada; and the election to the presidency of an indigenous cocalero candidate at the end of 2005. The Water War of 2000, which reversed the planned privatization of water in Cochabamba, put grass roots social movements center-stage of political life in Bolivia and led to an escalation of social protest and sense of institutional crisis. The Water War had three effects. First, the victory of the popular movement over the Bechtel water company generated a strong sentiment of empowerment among those social forces that had joined spontaneously to protest against a particular

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policy decision. Second, it sent the powerful message that neoliberalism was indeed reversible, and could be beaten by popular mobilization and grass roots activism. Third, some of the popular momentum found its way into electoral politics, as Evo Morales obtained a close second position after the MNR in the national elections of 2002, for instance.5 In an effort to resist the political advance of the “antisystem parties” as they were called, the traditional political class rallied together to form a political coalition (the megacoalición) in 2002 behind Sánchez de Lozada’s candidacy. Sánchez de Lozada’s second administration soon faced escalating social tension. The first major incident occurred in February of 2003 when the police revolted against a highly unpopular income tax measure.6 The policy was withdrawn, but popular sentiment against the government remained high. Then, amidst growing social tension the Gas War broke out, rapidly connecting a series of protest movements and issues to unite behind the nationalist banner of returning the hydrocarbons industry that had been privatized in 1996 to Bolivian hands (Assies 2004; Crabtree 2005; Lazar 2006; Hylton and Thomson 2007; Dunkerley 2007). The government resorted to violence and in a matter of weeks the death toll rose to over seventy. This led to a mass popular rising against Sánchez de Lozada who fled from La Paz in October 17, 2003. The October protest agenda fixed on four main demands: the demand for a renationalization of gas and its not being sold to Chile, a rejection of the Free Trade Agreement, the reversal of a hard line citizen security act which had just been passed in congress, and the resignation of the president. Of note is that the Gas War succeeded in mobilizing a range of political actors and social sectors—including the urban middle class—and uniting these disparate groups in support of a highly charged broad nationalist discourse focusing on control over natural resources, and a radical political manifesto that seemed to represent an extension of the struggle against the exclusionary colonial and postcolonial structures of social, political, and economic power. This second and crucial turning point of the governability crisis brought a violent end to the democracy of pacts that had characterized the political system since 1985. For the two years that followed, Bolivia was governed by two interim administrations, as mandated by the constitution (more or less), first under Vice President Carlos Mesa, and then under Supreme Court president Eduardo Rodriguez Veltzé. The former, a journalist and historian, lacked political experience and faced the impossible task of reconciling the swell of popular demands expressed in the October Agenda, with a growing tide of resistance from the political Right. Mesa steered through a referendum on the


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gas issue which sought to avoid the question of outright nationalization, but it was an initiative that ultimately confirmed that the majority of population wanted some form of national recuperation of the natural resource. In the end, the new gas law promoted by Mesa failed to please anyone and in June 2005 he was forced to resign amidst escalating social tensions. Upon taking office, his successor, Eduardo Rodriguez Veltzé immediately called for general elections to be held in December 2005 which somewhat relaxed the sense of deadlock that had gripped the country. Four trends became apparent in the 2003–2005 interim period of government. First, the demise of the traditional political class was clear. Second, the ascendancy of new political forces was confirmed— not only those representing the anti-neoliberal position, but also new physiognomies of the political Right, especially in connection to the regional claims of the media luna. Third, in connection with the above, the ascendant anti-neoliberal discourse of social transformation and empowerment from below was consolidated. It was neither homogenous nor clearly spelt out in terms of specific policy proposals, but had broad popular support. What emerged from this was a complex political agenda with an explicit nationalist rhetoric to do with the popular demand of reappropriating natural resources, but which was also rooted in—and subordinated to—a language of empowerment at the local level in which the politics of community and cultural identity in connection to decolonizing struggles had became a prominent ideational axis, and direct and participative democracy was seen as the route to emancipation. Finally, despite the perception of political and institutional implosion, and escalating polarization of political positions and discourses, a not irrelevant commitment to constitutional forms prevailed amongst most political actors, including, importantly, the armed forces. The third landmark event of the post-neoliberal period was the 2005 general election, in which the MAS ticket won 54 percent of the vote, the highest electoral percentage gained by any single party since the return to democracy in 1982. Evo Morales proved capable of channeling the momentum of popular protest to push a postneoliberal agenda and there was now an opportunity to put this project into practice.7 The “Democratic Revolution,” Social Transformation and the State in Bolivia As Evo Morales took office, an academic question that soon emerged was to gauge how revolutionary indeed was this process of political

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implosion in Bolivia since 2000.8 Did this constitute a social revolution on the scale of 1952? How coherent and plausible is the project of transformation? What are the constraining factors in terms of structural legacies and global economic realities? What are the issues and likely outcomes? Revolutionary processes are slippery at best, and assessments complex, especially when they are ongoing events, as is still the case in Bolivia. It is one thing to examine the process of change, but quite another to assess the outcomes. Revolutions are characterized by high levels of uncertainty regarding the direction that they might take. The protagonists feel their way, often improvising in an ad hoc manner, and tend to be driven by short-term considerations, sometimes responding to moments of extreme tension, and often in the face of virulent resistance from counterrevolutionary forces. It is only with the benefit of hindsight that the extent of the process of transformation can be gauged, but during the process what is likely to prevail is a sense of absence of clear direction, even coherence, and an unsettling sense of great uncertainty regarding the future. This is the point at which Bolivia finds itself today. At the heart of this analysis lies the concern with the degree to which meaningful social transformation is possible, what the process and outcome look like, what the expectations of transformation may be, and which are the constraining conditions resulting either from structural legacies rooted in the particularities of state development in Bolivia, or from resistance by the forces opposing change (and the two are inevitably linked of course). In terms of process, what is particular about the post-neoliberal era in Bolivia is that it has been led from the bottom up. And this harks back to a distinctive feature of Bolivian political development which is characterized by recurrent cycles of intense mobilizational capacity from organized forces from below pushing for change. This tradition of insurrection and popular mobilization which has surfaced cyclically throughout the history of Bolivia has impacted in a multilayered and complex way on the history of state-building.9 At the same time, with varying levels of success, counterreform or counterrevolutionary forces have also experienced corresponding cycles of reconstitution and realignment in the wake of, and in opposition to, moments of structural change. Significantly, the complex interface between insurrection and reaction has shaped key moments of structural change in state development and has contributed to successive shifts in the balance and structure of political, economic, and social power, also producing changes in the rules of political engagement (and in some cases constitution writing).


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Crucially, for instance, in the twentieth century the 1952 National Revolution crystallized and propelled this insurrectional tradition that has since been reconstituted several times by different social actors and political forces of the Left. In the 1950s, the miners’ union and the COB were important architects, along with the MNR, of the revolutionary agenda of the time. The ultimately unstable alliance of forces underpinning the 1952 Revolution also rested on the mobilizational capacity of the campesino population. The story of 1952 is one of unfulfilled expectations and structural constraints and counterrevolution, but it is also one of systemic change and the transformation of subjectivities that feed into the process and discourse of change currently underway in Bolivia.10 Through the subsequent cycles of military rule, democratization and neoliberalism, this insurrectional tradition underwent important changes, leading to a reconstitution of new subaltern actors with varying levels of connection to the traditional Left and union structures and varying levels of organizational and mobilizational capacity. Despite successive cycles of state building since Independence— endeavors structured around different ideological premises regarding political and economic development—none of these achieved a sense of enduring embeddedness in society. Structures of state authority at the local level have developed their own dynamics, also reflecting the de facto existence of parallel structures of authority—some related with indigenous community structures of authority, some with surviving colonial and oligarchic structures of domination. At the same time, these incomplete state-building projects have left layers of structural and discursive legacies that impact upon contemporary patterns of political exchange and political identity, and also upon current popular imaginaries regarding the possibilities of redefining statesociety relations—sometimes in a constraining and sometimes in an enabling way with regard to the prospects for emancipatory social transformation (Tapia 2002; Dunkerley 2007; UNDP 2007). An example of this is the collective memory of the national-popular discourse of the 1950s that contributed in part to the popular demand for economic nationalism of the October 2003 rebellion (Hylton and Thomson 2007). The uneven and fragmented nature of these layers of state-building projects is a legacy which will inevitably condition to some extent the outcome of the current post-neoliberal project. And Bolivia contends with the legacy of very weak state structures which are embedded in a fragmented, uneven and poorly legitimated manner in Bolivian society (see UNPD 2007). If we are to judge the Bolivian

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state in terms of state capacity—the accumulation and distribution of resources, administrative-bureaucratic effectiveness, legal presence, and legitimacy— it falls considerably short of modern standards of good governance. In terms of accumulation, Bolivia’s fiscal capacity to collect revenue is weak and moreover is structured around a tax system that depends overwhelmingly on the export of primary goods. Overall the Bolivian economy has failed to break with its history of a highly dependent insertion in the global market, principally because of the weight of the export of primary goods (mostly mining, natural gas, and since the 1970s some of the agro-industry products of the eastern regions, mainly through Soya exports). Bolivia is also dependent on international aid as an important source of revenue (with the corresponding conditionality that this has signified). In turn, the dependent nature of the economy is linked systemically to the weak distributive capacity of the state. Bolivia remains extremely poor and has one of the highest levels of income inequality in the region. UNDP (2002) report’s Bolivia’s human development index at 0.948 in 1999 in contrast to the average for Latin America at 0.760. Poverty is higher among the indigenous population both in rural and urban areas. Moreover, extreme poverty has increased among the indigenous population between 1997 and 2002 (see also World Bank 2003). That the bureaucratic and administrative capacity of the state across the national territory is patchy and deficient also contributes to the ineffective allocation by the state of scarce resources. Institutions of accountability are weak, and clientelism and corruption are common in the public sphere at all levels, undermining the prospects for legitimating state structures. The formal legal presence of the state is poor and judicial and law-enforcement institutions are seen as suspect and untrustworthy. Overall, the rule of law and democratic citizenship is experienced in very diverse and uneven ways, determined by cleavages of class, ethnicity, the rural/urban divide, and regional location (UNDP 2007; Domingo 2006). In connection to this, the density and quality of state society relations is highly uneven. That weak state structures limit the capacity not only for governance but in fact for the prospects of carrying through a project of social transformation as that embodied in the post-neoliberal project of the MAS is inevitable. But it is also important to locate our analysis at the margins of the state, precisely because of the latter’s uneven presence and authority. It is precisely at the margins of the state that subaltern actors have reconstituted themselves over time (with varying levels of impact on state development), and have shaped, through the most recent cycle of insurrection, new imaginaries about


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empowerment and participation—now expressed in terms of plural conceptions of state society relations in ways that reflect the heterogeneity (along cultural, ethnic and regional dimensions) of Bolivian society or the “pluri-national state,” as it is referred to in the new constitutional draft text. It is also at the margins of the state that pacts of domination have historically been renegotiated and reconstructed, with varying degrees of reappropriation of the state by elite groups. Thus, de facto structures of authority have always coexisted outside the state, importantly with varying levels of acceptance and legitimation. These can be found for instance either through forms of legal pluralism such as community justice mechanisms, but also in oligarchic and postcolonial structures of domination that persist at the local level and operate at the margins of the formal rules of governance. The illegal paramilitary activity in areas within the media luna at the service of the landed elites is an alarming example of the latter today. Looking specifically at the dilemmas of governance faced by the MAS government, it is likely that these structural legacies will considerably condition, if not determine, policy choices about redefining the role of the state. In this regard, it is useful to trace the elements of change and continuity in the process of political and economic transformation which began in 2000, and to examine the likely disjuncture between the discourse of radical transformation and what is turning out to be the much more moderate and conventional sequence of policy choices and forms of political engagement in the MAS government since 2006. The particular configuration of the coalition of social forces that led Evo Morales to power, and the path of resistance and protest adopted by a reconstituted political Right has brought a series of issues center-stage. On the question of political economy, first, what is at stake is the redefinition of the role of the state in the economy and the management of natural resources, at least discursively. There is also the question of how Bolivia can move away from the trappings of excessive dependence on the export of primary goods (gas and minerals). Then there is the complex issue of what direction land reform should take in terms of redistributing and redefining the parameters of rural property ownership, and the role of the state in the rural economy. And in connection with issues of social justice, there is the crucial question of how to address poverty and inequality through new patterns of redistribution. On the political front, the debate is driven principally by two questions. First how can the structures of political power be redefined in order to reconstitute political authority around a new basis of

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legitimacy, rooted more effectively in the culturally and ethnically plural reality of Bolivian society, in response to the aspirations of the subaltern political agendas that have driven the process of change? Second, how should the regionalist tension, driven principally by the media luna in the pursuit of far-reaching regional autonomy, be negotiated to fit into a reconstituted political order? Both questions are being fought out through the accident-prone Constituent Assembly, and at the level of the regions. And the battlegrounds are proving to be extremely volatile and conflict-ridden, as what is ultimately at stake is the distribution of political power and access to resources.

Post-neoliberalism at Work? Redefining the Economic Model In terms of economic policy, the key question is the degree to which it has crystallized around a coherent alternative model. At the level of discourse and symbolic gestures, Evo Morales has shown a keen eye for impact and well choreographed imagery at key points of policy decisions, such as the visually dramatic announcement of the nationalization of gas in May of 2006 at a natural gas field surrounded by members of the armed forces. The symbolic value of this policy measure is of great political relevance, not only because it epitomized the cornerstone of the Gas War, but showed the government heeding to the wave of nationalist and anti-globalization sentiment that that Gas War had aroused. In a similar vein, the powerful image of campesino leaders occupying the presidential palace in November of 2006 for the announcement of the first stage of the land reform in no small measure contributes to the elusive transformation of subjectivities with regard to how different social groups are repositioning themselves in the current political moment. At the level of ideas and discourse, the vice-presidential figure, Álvaro García Linera, has been useful in providing an impressively structured intellectual reasoning of the different components of the vision of development promoted by the current government. Specifically, the notion of capitalismo andino, a concept diffused by García Linera, reflects an endeavor to rethink the role of the state as the primary motor and point of contact of the diverse logics of economic activity that co-exist in a heterogeneous and multicultural society which is moreover textured by the uneven way in which different social groups relate to modernity, by the trappings of colonial structures and a heritage of communitarian cosmovisions rooted in


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indigenous traditions. Three forms of economic activity are identified as forming part of this plural modernity specific to Bolivia’s particular history, and which overlap and interact in complex ways. First, there are those sectors of the economy which exhibit a modern and globally connected capitalist logic, for instance the agro-industry sector of the lowlands. Second, there is the micro-entrepreneurial form of urban and rural economic activities which prevails in much of Bolivian society, some of which forms part of the informal economy, namely, street vendors, stall owners in the markets, the hauliers (transportistas). And finally there is the logic of communal traditions regarding economic exchange at the community level in rural areas (interview with García Linera in La Razón, December 30, 2007). The distinguishing feature of the notion of capitalismo andino is its recognition of this diversity of economic logics that coexist and overlap, interacting in complex ways within the same national territory, and the identification of the state as the locus for exchange and connection of these three realities. This culturally informed understanding of the structures of market and economic exchange in Bolivia has acquired a widespread ideational currency among intellectuals and supporters of the MAS government, and has the merit of combining the nationalist heritage, that is, the need to strengthen the pivotal role of the state in articulating economic activity, with the recognition of plural forms of social and economic organization, in alignment with the notion of the “plurinational state” (Stefanoni 2007; Natanson 2007). At the same time, the state is intended to be at the service of a constantly mobilized society through the force of active social movements which are conceived as both the source of the emancipatory potential of change and also the watchdog of the process of change. This is only a very brief summary of some of the ideas behind the discourse of the post-neoliberal era. The core issue, however, is that while the theoretical constructs behind the project of transformation may be seductive, it is something else to turn this into a concrete policy alternative to neoliberal rule. Once neoliberalism “unraveled,” what was to take its place? The Plan Nacional de Desarrollo was launched in June of 2006, and outlines the main features of the project of transformation of Bolivian state, economy and society, setting out an ambitious set of objectives of economic development and social justice. Essentially, this is a project about reinvigorating the state’s role in the economy, propelling the development of inward led-growth and channeling the regained public resources to pro-poor social policies which in the long run will redress the issues of inequality and poverty. In general terms, there is much which resembles the more

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traditional model of state-led capitalism, imbued with more explicit references to the goals of rooting economic development in the context of a culturally diverse and plural society (Rochlin 2007). A key question since the Gas War inevitably concerned what renationalization of Bolivia’s natural resources would look like. On May 1, 2006, the nationalization of the energy sources was announced and presented as the moment of Bolivia’s recuperation of control over its resources. Politically this was important. The public statement issued by Evo Morales set a six-month deadline for the renegotiation of the state’s contracts with the energy companies, setting off a period of considerable uncertainty. In October agreements with the energy companies were reached, but in the main this did not involve a nationalization process as such. Rather, at stake was a renegotiation of the contracts with a view to redefining the proportion of government revenue from the companies’ take, which now constitutes to up to 82 percent of royalties for Bolivia. The companies were granted access to the gas resources for the next twenty-three to thirty years (Rochlin 2007). The outcome, contrary to alarmist voices on the Right and in the international community during this process, was a more beneficial relationship for the public purse than that defined by the 1996 Hydrocarbon Law, and did not immediately lead to the flight of the gas companies. State revenue from the sale of hydrocarbons has increased nearly fourfold between 2006 and 2007, although this has been somewhat offset by an increase in expenditure on goods and services in the gas industry (Economist Intelligence Unit 2007a: November). There is no doubt that the political yields of the nationalization process have benefited from a highly propitious global context of rising prices of minerals and gas and petroleum. The redefinition of the relationship between the state and the companies in the energy sector as a consequence of the nationalization process was an inevitable outcome of the political developments since 2000. Of note, contrary to the skepticism from the Right, is that the Morales government was able, at least in the short term, to navigate between a politically charged discourse of nationalization and the need to lock in the commitment of the private companies in the energy sector. Nonetheless, it is the case that private investment initiatives regarding exploratory drilling in the petroleum sector have slowed down considerably (Rochlin 2007: 1332). The second major area of reform still underway is the issue of land reform. In November 2006, the new land reform was announced, which in the end did not amount to a major break with the spirit of the 1953 agrarian reform, but nonetheless set the tone for the goal


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of reducing the latifundios and distributing underproductive property. The measure does not attack property rights per se, but rather continues the tradition of qualifying the social function of the use of land. Underused property is now more vulnerable to confiscation (with compensations). The law was passed amidst great political tension. Perhaps more than the content itself, the legislative victory constituted a major symbolic achievement for the campesino movement. The land issue is especially difficult in the eastern departments that over the past thirty years have witnessed a reconcentration of rural property, in many cases under irregular circumstances (for instance, in exchange for political favors). The latifundistas of the lowlands have an important voice in the politics of the media luna, and the issue of land lies at the heart of much of the political opposition from the eastern regions. There has been important progress with the current government in terms of speeding up the process of land regularization set up by the INR A law of 1996, but so far less so in terms of challenging the ownership of the larger latifundios. Land titling has speeded up under the Morales administration. 5.375 million hectares have been regularized, and 481,664 hectares have been distributed to poor farmers (Weisbrot and Sandoval 2007). This is proving to be one of the harder political battles in the face of the virulent opposition from the media luna departments.11 Article 398 of the new constitutional draft of December 2007 establishes two options for a maximum limit on the size of land holdings still to be settled in a referendum (5,000 or 10,000 hectares). The problem is that both limits fall short of the many latifundio landholdings in the lowlands, and are seen as unacceptable by the political elites of the those departments. In 2007 Bolivia’s fiscal balance, balance of payments and international reserves had improved. Public sector revenue increased from 27.5 percent of GDP in 2004 to 40.2 percent in 2006. Bolivia’s public and foreign debt was reduced. GDP growth overall has accelerated, and the current account is in surplus (Weisbrot and Sandoval 2007). Clearly, these favorable economic indicators are connected both to the current moment of high prices for Bolivia’s traditional exports, notably natural gas and minerals, and to the massive increase in revenue from the process of nationalization, underlining the inevitable issue of continuity regarding Bolivia’s dependent position in the regional and global economy. This continues to be an export led economy in which the capital intensive sectors generate the lion’s share of economic production, accounting for 65 percent of income, but only employing 7 percent of the workforce. The challenge for the government is how to address this excessive vulnerability to external

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factors and generate the opportunity structures to promote a diversification of exports and some form of inward led growth through national industrialization (Gray Molina 2007). A more recent challenge to economic performance lies with the resurfacing of inflationary pressures. The general trend of economic policies in the first two years of the Morales government has been to reposition the state within the economy, regaining its centrality as the motor of development. But overall, there has been no endeavor to challenge the premises of capitalist structures. To the extent that private property is qualified, this is much in the tenor of the nationalist policies of the 1930s and 1950s, to do with securing the social function of how property is put to use, but now with a more explicit discursive objective of redressing colonial structures of domination and exclusion, and embedding political development in the context of a culturally diverse society (Hylton and Thomson 2007). Overall, then, the discourse of neoliberalism has been more radical than the reality of the policy practice in the first two years of the MAS government. The radical discourse is targeted at the grass roots support of the MAS, and the more moderate policy process speaks of the realities of structural constraints, but also the need to remain on good terms with the energy and mining companies and foreign investment generally. But this is a delicate balancing act to maintain, especially in a context of rapid political polarization. The Social Dimension of Change The second area of change has to do with the post-neoliberal agenda of addressing social exclusion, inequality and poverty. In this regard a number of measures have been put in place. As with economic policy, the rhetoric of change is more radical than the policy measures themselves or the scale of the achievements. Many fall in the category of cash transfers to particular groups. Nonetheless the social impact on the ground for the targeted groups is not negligible. Social reform measures include the following. Two key cash transfer measures include the Juancito Pinto initiative in October 2006 and the Renta Dignidad, announced in October 2007. The Juancito Pinto involves distributing an annual payment of 200 bolivianos to primary school children in public schools. The beneficiaries are 1,400,000 children, and this has proved to be a popular measure that is perceived to make a difference to the lives of many of the recipients. The Renta Dignidad—effectively the successor to the BONOSOL annuity of the 1990s—announced in November 2007


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is an old age pension paid to all Bolivian citizens over the age of 60. The Renta Dignidad differs from the BONOSOL in the following ways: the amount paid has increased; there is now an option to receive it monthly to secure a more regular income for pensioners; and the age at which it is payable has been reduced from 65 to 60. It is, in effect, a universal non-contributory pension, the only one of its sort in Latin America (Bolivia Information Forum 2008; La Prensa 2008; Economist Intelligence Unit 2007a). How the Renta Dignidad will be financed is, at the moment of writing this chapter, a conflictual issue, as it requires that the MAS government is able to secure a redistribution of the allocation structures of revenue generated from the energy sector in the form of the Impuesto Directo de Hidrocraburos (IDH). Effectively, the government has sought to redirect a proportion of IDH resources previously destined to regional government (prefecturas) to the municipal level of government and to the funding of the Renta Dignidad, prompting virulent opposition to the measure especially in those regions where the prefects represent the opposition. In addition there is an assortment of other pro-poor measures. In 2007 the government inaugurated a social housing program calculated to cost $90 million, which is aimed to providing affordable housing, and creating employment in the construction sector. The minimum monthly wage was raised from $63 to $67 in 2006 (Rochlin 2007). The government has developed a national literacy program with considerable success and the campaign includes providing eye-check ups and glasses. Access to eye treatment has increased through 100,000 new eye surgeries. Six new hospitals were opened, and there are plans to put in place universal health insurance coverage (Weisbrot and Sandoval 2007). Maternity care has already been expanded. In health care provision, the involvement of Cuban doctors and Venezuelan resources has been signaled by the opposition as problematic (Mayorga 2008). Finally, there is a government program to reduce child malnutrition and related diseases. These are concrete measures which are having concrete results— albeit in some cases at a small scale. Nonetheless they are the result of increased spending on social policy. Arguably they do not represent a systemic break with the past. Moreover, the effectiveness of pro-poor measures is limited both by the legacy of weak state structures, and by the scale of the problems of inequality and poverty. The government faces the challenge of navigating amidst criticism from the Right, which involves exaggerating the populist and irresponsible excesses of what it claims is a technically ill-equipped government lacking in

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human resources and educated cadres, and also a degree of skepticism from critics on the Left whose hopes for a more radical agenda of change are unlikely to be met. Overall, then there is perhaps more continuity than change in terms of the structure of social spending, notwithstanding the real increases in resources now devoted to propoor policies. To the extent that change is taking place, it involves resorting to models of social democratic state-led welfare politics. With regard to both the economy and social reforms, there is no doubt that at the symbolic level much has been gained, but there is perhaps realistically less room for conceptual innovation than is suggested by the rhetoric of change. In terms of the real impact on poverty reduction and income distribution, the distributive battles have not yet fully played out. But it is unlikely that the popular expectations unleashed by the political process of change will be met in the short or medium term. Bolivia is the one of the most unequal societies in Latin America, with a gini coefficient of 60.1 and ratio of richest 10 percent to poorest 10 percent of 168.1 (UNDP 2007). The Politics of Change Perhaps it is at the political level of transformation where change—and resistance—is most visible, albeit in a complex way given the ongoing and escalating sense of political crisis in Bolivia, which appears to have worsened since the middle of 2007. Again it is useful to think of different levels of analysis in terms of what has changed at the symbolic (and subjective) level, at the discursive level, and how the reality of institutional change and constitutional reform is unfolding. At all three levels of analysis it is my view that patterns of change and continuity overlap more than is suggested by the current levels of political polarization. As discussed before, the democratic process of 1985–2000 despite its failings in many respects sowed the seeds for the possibility of social transformation and allowed for the emergence of new political actors. At the symbolic level, the very fact of an indigenous and cocalero leader being elected to the presidency had tremendous impact both nationally and internationally. Importantly, it contributed to reshaping the subjective positioning of different social groups in relation to the formal structures of power and to each other (Hylton and Thomson 2007). To begin with, it contributed to a sense of empowerment among those groups in Bolivian society that felt represented by Evo Morales and, until recently, had felt themselves to be effectively excluded from political processes of decision making. They shared


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the perception that exclusion around cleavages of class and ethnicity had not only survived the introduction of democratic politics but had become entrenched in the structures of political and economic power during the period of 1985 and 2000. The growing sense of empowerment through popular mobilization which gained ground after 2000 and culminated in Morales’ 2005 presidential election made possible a sense of appropriation of the structures of political power—at least for a while—by social sectors that previously felt disenfranchised. The sense of polarization of the past has not abated, and Bolivian society sees itself as fundamentally divided—and in some respects irreconcilably so. This perceived shift in the relations of power has intensified and brought to the surface a climate of zero-sum politics. For the “winners” of the 2005 election, the previously disenfranchised, the possibility of taking part in defining political and distributional outcomes and recasting the rules of state society relations became plausible. But for those that see themselves as “losers” of the MAS project, especially the Right and the landed elites of the east, there is a sense of raw rejection of the government and any of its political initiatives. The more extreme representations of this rejection are resorting to stark expressions of outright racism and violence.12 This level of analysis which deals with relational political subjectivities, and with how different social groups situate themselves in relation to structures of political power, and to each other, is elusive in terms of empirical analysis precisely because of the complexity of how political identities are constructed, but it is no less relevant for that. The second level of analysis has to do with the rhetoric of change and the ideational mandate with which the MAS occupied the corridors of power at the start of 2006. This entailed at least heeding to the October agenda of the Gas War, which meant responding to the call for some form of renationalization of the energy sector, and holding elections for a constituent assembly. But beyond that, the discourse of social and political transformation projected by the MAS during the electoral campaign of 2005 has proved to be more radical than the constitutional text that was finally approved by the MAS constituents in 2007, discussed further on. The third level of analysis is about assessing the institutional process of change regarding how political conflict is channeled and brokered, and the extent to which new rules of political engagement are being put into place which reflect the aspirations of the popular movement behind the MAS. Once in government, the new administration faced the difficult challenge of first, appearing to heed to its grass roots support base, and its demands, amongst other things, for

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the promotion of direct and participatory democracy, second, trying to secure a sense of governability, and third, facing down an increasingly organized and virulent opposition front. By 2008, the fact is that the Morales government is having to contend with the combined legacy, on the one hand, of the process by which participatory and direct democracy was invigorated as a legitimate discourse and form of political engagement, and on the other, of the accumulated consequences of a range of institutional reforms carried out prior to his presidency which have altered the logic of governability and have introduced new levels of political participation. We have already discussed the institutional reforms of the 1990s, but should now also point to later reforms, which were the outcome of particular moments of political crisis after 2000, and have added additional layers of decentralized government and participation politics (even direct democracy) to the institutional framework. First, the institution and practice of referendum politics was introduced after the Gas War to meet the demands of the October agenda. In 2004 a regulatory law was passed to frame the referendum on hydrocarbons carried out under the Carlos Mesa administration. This set an important precedent for recourse to referendum politics that has featured at key points of conflict as a strategy to either defuse moments of confrontation, or seek popular legitimation regarding conflictual issues. A first referendum was held on the issue of gas during the interim presidency of Carlos Mesa. Shortly before his resignation the civic committee of Santa Cruz, with the support of the business community, secured a commitment to hold a referendum on regional autonomy. The referendum was held on July 2, 2006, on the same day as the election for the Constituent Assembly, and yielded politically complicated results. The “no” vote, led by the MAS government, obtained 57 percent at the national level, and won in five of the nine regional departments. The “yes” vote won in the remaining four departments that had been pushing for regional autonomy.13 The media luna later held de facto and illegal referendums in defiance of central government to vote on the proclamation of departmental autonomy. Evo Morales’ response was to call a referendum revocatorio (a recall referendum on the continued mandate of elective positions— the presidency, vice-presidency, and prefectures) in August 2008. A second reform involved the introduction of direct elections for departmental prefects, also passed during the Carlos Mesa administration (and also in response to political pressures from the eastern regions). This reform has added a new level of political interface between central government and regional politics. Regional prefects


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in the past, and in accordance with the 1967 Constitution, were government appointees and had the role of representing central government at the departmental level. Pressed by the civic committee of Santa Cruz, Carlos Mesa passed a decree during his interim presidency which established that prefects be elected to the post.14 The electoral calendar for prefects was made to coincide with the general election of December 2005. Evo Morales won the presidency, but faced a novel political situation in which in six of the nine departments opposition candidates won the election to the post of prefect. This transformed overnight the nature of the relationship between central government and regional politics. Moreover, it had the effect of shifting the locus of political conflict between the MAS and an important section of the opposition to the relationship between central government and regional government. Situations of political deadlock between government and opposition are now more often than not negotiated (or not) between opposition prefects and the executive branch, and less so between the opposition parties in the legislature and the executive. The point here is that institutional changes over the last two decades have progressively formalized the growing popular rejection of pacted and elite democracy and seen the introduction of new levels of government and institutions of direct democracy in the form of referendum politics. These changes reflect on the one hand, the conquests of protest politics, not only from the social movements that have been advancing the principles of direct and participatory democracy. The regionally based political Right in the media luna has also secured its own institutional victories, the most important of which to date is the direct election of departmental prefects. But significantly, the Right has also appropriated the language of direct democracy in staging de facto referendum politics in 2008 at the level of each department to decide on the question of regional autonomy. Thus the rules of political engagement have shifted considerably since the times of coalition politics. The cumulative effect of successive institutional and constitutional reforms dating back to the 1980s has been on the one hand to open up new arenas of political participation and direct democracy, and on the other has also led to a fragmentation and reconfiguration of the structures of political interface between government and opposition, and government and civil society. Under the old logic of unitary government, governability was negotiated through coalition politics in Congress and executivelegislature relations. Now political tensions surface at the interfaces between central government and regional government through the prefects, between central government, regional government and the

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municipal tier as a result of Participación Popular, and between the government and civil society, in the form of highly organized and politicized social movements of both Left and Right. There is now then a more complex synergy of political negotiations at these different points of potential conflict that undoubtedly places new strains on government (Mayorga 2007a). In a context of acute political polarization where a climate of zero-sum politics has gripped the country, this is contributing to a sense of permanent confrontation and crisis. And finally, the Constituent Assembly elected in 2006 added one more layer of political tension, potentially complicating, rather than facilitating, the post-neoliberal agenda of social transformation. For the social forces that came together under the banner of the October agenda in 2003, the possibility of change was concentrated on the Constituent Assembly. The constituent process contained the promise of a foundational project able to reconcile a number of emancipatory goals. At the discursive level these included at least some of the following. First, it reflected the aim of decolonizing the structures of power to redress the historical legacy of ethnic and class exclusion. In the same vein, for the indigenous movements the Assembly represented the first historical opportunity to have a say in defining the relationship between the state and society on their own terms, more rooted in the recognition of community structures of authority through new forms of political and territorial autonomy, and land reform. By the time of the Constituent Assembly the debate in Bolivia around a culturally sensitive process of social transformation was well versed in the problematique of intercultural dialogue and its relevance for rethinking notions of citizenship, justice and plural structures of political power in a plurinational society (Albó and Barrios 2006). Second, and in connection with this, the Constituent Assembly represented the opportunity to redefine the terms of democracy, more in line with a tradition of direct and participatory popular government. Here the momentum of the social movements and their sense of empowerment through direct action was important in shaping the rhetoric of grassroots-led political deliberation. Third, and through a combination of an older legacy of popular nationalism and a socialist agenda aimed at addressing poverty, inequality and social exclusion, the Assembly was also seen as the opportunity to redefine the role of the state in the economy, the management of natural resources and land, and the model of development more generally with a view to creating a more equitable and fairer society. These are some of the themes that have shaped the rhetoric of social transformation which inspired the political momentum behind the constituent process.


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The actual experience of the Constituent Assembly elected in July 2006 has proved to be far less inspiring, and perhaps unsurprisingly so. As with any constitutional project its success and legitimation ultimately rests on the degree to which the normative principles that it enshrines are subsequently accepted as binding by the key political forces. The Bolivian experience was beset by a number of problems from the beginning which are likely to have an impact on the prospects of the final document in terms of its acceptance, viability and durability. First, within the MAS government, the tendency throughout has been to undermine the voice of the grassroots indigenous, campesino and urban popular movements, both in terms of how the rules of the assembly were negotiated, and in terms of the progress of the debate itself once the task of writing the text was at hand (Hylton and Thomson 2007). Thus the spirit of participatory democracy soon gave way, as the executive branch took upon itself to lead the process at the expense of its natural constituents among the popular movements. Second, the rules of the Constituent Assembly yielded an electoral result which favored the media luna and the conservative parties, against the initial calculations of the MAS. The MAS obtained 54 percent of the vote falling short of the two thirds necessary to approve a constitutional text on its own. This meant that a politics of compromise with the opposition forces would be necessary to produce an accepted text. In an increasingly polarized political climate, the viability of the constituent process seemed destined to failure. The escalation of political crisis and the situation of political deadlock reached by mid-2007 in the Assembly prompted the suspension of its plenary sessions. In a political move to seek closure on the constituent process, and following a complicated sequence of events, a constitutional project was approved by the MAS delegates in Oruro on December 10, 2007, in defiance of many of the procedural rules.15 The reaction of the media luna departments was to reject the project, and to draft their own project for regional autonomy. At the time of writing this chapter, with Evo Morales into his third year of government the political focus in fact has shifted away from the constitutional text and is centered on the conflict around the de facto and illegal process of regional decentralization that is been driven by the forces of opposition in the media luna and the president’s response in calling the recall referendum to ratify or challenge the continuation in office of the president, vice president and all the prefects. The constitutional draft text itself is a lengthy document with over 400 articles, and represents an amalgam of a broad range of political

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and developmental aspirations. It is full of rhetorical excesses, but is not entirely devoid of internal coherence, as its critics would have it. Raul Prada, a constituent delegate for the MAS indicates that in the end it does indeed combine the liberal democratic tradition of representative government with an institutional framework that recognizes indigenous community structures of authority (Prada in La Prensa 2008). The constitution calls the new political order a unitary and plurinational state. Rights (in all their categories) feature strongly, and much emphasis is placed on protecting social and economic rights, and cultural rights. Legal pluralism is formally incorporated in recognition of indigenous rights and community at the same time that primacy is given to human rights (which are universalist in their conception). It would seem that overall the structure of the political system does not deviate completely from relatively conventional forms of separation of powers. In the end social movements are not given a formal place in the Constitution. With regard to economic development, the text confirms the statist model of development promoted by the MAS government. It is then, a constitutional project that speaks to a broad range of voices and political aspirations, and draws on diverse political and ideological traditions rooted in Bolivia’s political history of state-building and insurrectional politics, but the outcome is in fact somewhat more moderate than its rhetorical casing. The enormous challenge which faces the Morales government is whether the constitutional text can be approved through a national referendum with sufficiently broad levels of acceptance, and not only amongst its supporters. There is a sense that the MAS has just survived so far in government as the political process has lurched from one crisis to another with increasing levels of polarization and drama. Violence is increasingly featuring in some of the more explosive moments of political confrontation. The radical rhetoric of government has not been shed, but in practice the MAS movement has fallen into the logic of trying to secure minimum levels of governability, and this has included both following more moderate policy decisions across the board and prioritizing top-down decision making over participatory democracy. Its own internal divisions are somewhat masked by the need to unite against the opposition forces. In the opposition camp both the media luna leaders and the opposition parties seem to be driven by the objective of ensuring the failure of Morales’ government at whatever cost. At the time of writing the political process is beset by a deteriorating sense of uncertainty and instability regarding the short term.


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Concluding Reflections By way of conclusion I return to the question of whether the Morales government and the post-neoliberal agenda that it embodies constitutes a democratic revolution. In this regard, it is too soon to tell what the long-term developmental consequences of the current process of change will be. Nonetheless, it would appear that events since 2003 speak of systemic changes which amount to more than a shift in economic model. In fact, the economic model may not have changed all that much, but it is in other spheres of power relations that alterations are perhaps taking place. Hylton and Thomson’s (2007) compelling study argue the case of revolution to the effect that Bolivia has undergone the following stages since 2003. First, Bolivia experienced a profound state crisis which in important respects (whatever the outcome) is leading to a renegotiation of the nature of state society relations and of the role of the state in economic and social development. Second, there has been a transformation in the structures of political power, as the balance of social and political forces has shifted fundamentally to empower what were perceived to be effectively disenfranchised sectors of society. Third and in connection to the latter, the authors point to a transformation of subjectivity, developing a suggestive notion of political consciousness being recast in the degree to which newly empowered groups “re-conceive both their own roles as historical agents as well as the nation’s future,” (Hylton and Thomson 2007: 19). There is, therefore, a reframing of the question of the distribution of power, and a rethinking of the role of the state, perhaps especially at the level of popular imaginations of new possibilities as a consequence of this insurrectionary process. Finally, the process has yielded the inevitable emergence of a counterrevolution of sorts, which has found expression in the siege mentality of the wealthier neighborhoods of La Paz, but mostly in the voice of the right-wing discourse of the eastern regions, through the media luna (Hylton and Thomson 2007). The concept of revolution in the making is useful in that it captures the transformative dimension of what Bolivia is undergoing in terms of a rebalancing of the structures of power in state and society. At the same time, though, it allows us to account for the ongoing high level of uncertainty regarding the future as the rules of the game are still being redefined, as are the political projects and aspirations of the participating political actors. It also accounts for the shortterm and seemingly ad hoc nature of the political strategies of the key actors of the moment as they navigate through times of ongoing

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tension. Regardless of the outcome, there is a symbolic and ideational dimension of transformation which is perceived as having taken place. However, the plausibility of fulfilling the expectations that have been unleashed is at the same time constrained by the structural legacies of Bolivia’s political, institutional and cultural history, and the logic of political contingency in times of uncertainty. At the time of writing this chapter there is a dramatically heightened sense of unpredictability and crisis. The media luna departments are holding de facto referendums calling for devolved government and control of departmental resources. In the face of successive victories at this level for the regionalist claims, the government has called for the recall referendum (referendum revocatorio) to be held in August 2008, by which Evo Morales puts his continuation in office on the line—as do the vice-president and each of the regional prefects. The political battle behind the current context of zero-sum politics is over the constitutional project of 2007, the allocation of IDH resources (from the energy sector), and the question of regional decentralization. But what lies behind this are issues about the viability of the MAS project of social transformation given the virulence of the resistance by the opposition forces. Behind the regionalist claims are demands about devolving control over natural resources, the structure of rural property and the rejection of indigenous conceptions of citizenship and political power. Thus ultimately, this reflects to some extent entrenched resistance by elite sectors in the opposition toward the potential redistribution of political and economic power that the rhetoric of the MAS project encompasses. Electoral volatility among urban middles classes will be crucial in determining the outcome of August 2008. Paradoxically, it would seem that the continuation of Evo Morales in office is a better guarantee of governability and the possibility of Bolivia muddling through these complicated times. Beyond sharing a rejection of the MAS project, the opposition forces since the collapse of the traditional political class are in disarray, and would be unlikely to offer a better alternative in terms of governability and political stability. Addendum Since this chapter was written, two important events have taken place in Bolivia, amidst a climate of escalating conflict and political polarization. First, in the August 2008 recall referendum Evo Morales’ presidential mandate was confirmed with 67.41 percent of the national


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vote. Second, in January 2009 a referendum on the constitutional draft of 2007 was held. The text was approved with 61.4 percent of the national vote.16 Importantly the text had undergone some changes resulting from an earlier pact with the opposition. Crucially the following elements were amended from the original 2007 draft: that the new limit on the size of land holdings would not be applied retroactively; to allow for presidential reelection of only one term; to increase regional autonomy; to limit some of the provisions on indigenous justice mechanisms; to establish that future constitutional reforms require two thirds majority.17 Notes I thank Alexandra Barahona de Brito, Horacio Zambrana Calvimonte, and Adalberto Kopp for their comments and insights. 1. Dunkerley (2007) draws particular attention to the scale of protest politics that characterized the period between 2000 and 2006. By one count social conflicts were running at 400 a year by 2005. 2. The Law of Popular Participation may well have had the intention of decentralizing of political conflict to the local level, where it should have been contained, but it also provided opportunities to launch outsider candidates onto the political scene. See Kohl and Farthing (2006) and Gray Molina (2003). 3. As Kohl and Farthing (2006) among others, point out, the role of money laundering from the coca and cocaine business, contraband, and remittance is often understated in the assessment of how the economy was stabilized in the 1980s. 4. From these processes emerged the indigenous discourse in Evo Morales’ political projection, and also the rival aymara political formation, the Movimiento Indigena Pachacutik (MIP) led by Felipe Quispe. The evolution of cultural identity and indigeneity as a political claim in Bolivia in recent decades is less straightforward than is often reflected. Canessa (2006) develops a subtle analysis of the complex ways in which indigenous discourses were indeed rooted in colonial legacies of exclusion and discrimination, but were also appropriated in novel ways by excluded sectors of rural and urban society as a discourse of increasing international appeal and as a route to political empowerment and visibility, although not necessarily as the principal goal of an agenda of social transformation. Here there is an interesting synergy at play between top-down institutional and international processes of construction of discourse around indigenous issues, and local power structures in which ethnicity and culture are relevant dimensions of exclusion, but are also appropriated and reformulated from below as politically instrumental modes of political struggle.

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5. The MAS obtained 21 percent of the votes, and the MNR 22.5 percent for the presidential election of 2002. Felipe Quispe, the aymara campesino leader at the head of the MIP obtained 6 percent of the vote. At the time this was noted as an alarming signal for the traditional political parties. See http://www.cne.org.bo/proces_electoral/ eg2002.aspx. Accessed September 3, 2008. 6. The tax measure levied a 12.5 percent income tax on salaries over US$110 a month. The police led a revolt against the tax in La Paz, which was violently put down amidst a shoot out with the armed forces leading to 33 deaths and over 200 injured. http://www. a m nest y.org/en/a lf resco_ asset/da0ba705-a3bf-11dc-9d08f145a8145d2b/amr180062004en.pdf. Accessed September 3, 2008. 7. See Romero (2006) for a breakdown of the 2005 electoral process. Of note is that the 2005 election showed a far from negligible proportion of the urban middle class voting for the cocalero leader. 8. I especially draw attention to Hylton and Thomson’s (2007) insightful construction of the political, rhetorical, and symbolic components of the revolutionary momentum as it gathered pace, and to Dunkerley (2007) who develops a lucid review of the complex structural, political and intellectual underpinnings of the current process of transformation. 9. From different analytical perspectives Hylton and Thomson (2007), Thomson(2003), Dunkerley (2007), Tapia (2002), Whitehead (2001) analyze this insurrectional tradition in Bolivian history which has shaped the texture and direction of state development and the (re)positioning and reconstitution of different social and regional actors in the structures of economic and political power over time. 10. The key changes in 1952 were land reform, nationalization of mining and the introduction of universal suffrage. Overall this was a bourgeois nationalist revolution which put in place a model of state led capitalist development, which would be displaced by the market reforms of the 1980s and 1990s. 11. During 1996–2006 the previous administrations dragged their feet in the process of land regularization and land titling. Under the current administration has speeded up these processes to double the amount of the past (INR A 2007). 12. The racist incidents, such as the public humiliation of indigenous leaders at the hands of opposition youths in violent confrontation in Sucre in May 2008 are one of numerous examples. 13. See Mayorga (2007b) for a detailed discussion of the politics of referendums in Bolivia, and its impact on the practice of participatory politics of sorts. 14. The legal community questioned the constitutionality of the elections for prefects in Bolivia despite the fact the constitutional tribunal subsequently upheld the decree (Los Tiempos February 26, 2005)


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15. Lazarte points to the institutional irregularities that have characterized the constituent process from the outset (La Razón January 9, 2008). This disregard for procedures also features strongly among the opposition forces and has characterized the practices of the lowland regions as they carry out illegal referendums on the question of regional autonomy in the first half of 2008. 16. Results taken from the Corte Nacional Electoral: http://www.cne.org. bo/resultadosrr08/wfrmPresidencial.aspx on the recall referendum of August 2008 and http://www.cne.org.bo/ResultadosRNC2009/ on the constitutional referendum of January 2009. 17. ht t p://news.bbc.co.u k/ h i/spa n ish/ lat i n _ a mer ica/newsid _ 7845000/7845036.stm/.


Chapter 7

The Bolivarian Revolution as Venezuela’s Post-crisis Alternative Julia Buxton

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enezuela has produced the most well-known and controversial neoliberal alternative in South America. Not since the Cuban revolution of 1959 has the tenets of the hemisphere’s political economy been so fundamentally challenged as under Hugo Chávez’s Bolivarian Revolution. Bolivarianism is a repudiation of the free trade, free market principles, and policies that shaped South America in the 1980s and 1990s; of the philosophical underpinnings of the neoliberal model; and of the “agents” of its adoption and institutionalization across the region—the United States government, the World Bank and the IMF. In the political and governance realm, Bolivarianism eschews liberal democracy and formal institutions, in favor of routizined popular participation (termed protagonistic democracy) and informal, partisan and personalized modes of state management. The end-goal of the Chávez administration is to create Twenty-first Century Socialism in Venezuela, which is to be realized through the transformation of the state’s role in the national and global economy, and of the relationship between the state, government and citizens. This chapter explores the dramatic change in paradigms of development and governance in Venezuela. It discusses the shift away from orthodox economic policies that were pursued in the 1990s to the heterodox course of the 2000s and considers the accompanying changes in the political realm, outlining how the move away from liberal democracy that had prevailed since 1958 to protagonistic democracy impacted on modes of political representation and institutional structures. The chapter adjudges Bolivarianism to be a truly transformative model, one that has the potential for consolidation on account of two Venezuela-specific factors; the country’s unique status as a major oil exporter and the pre-Chávez political and institutional legacy. These

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provide the financial resources and have created a political culture conducive to a radical reshaping of Venezuela’s political economy and the embedding of Twenty-first Century Socialism. However there are serious institutional and organizational impediments to the delivery of Bolivarian policies and these call into question the viability of the Revolution over the long term. The “Venezuela specific” characteristics of oil wealth and popular antipathy to the pre-Chávez political system, also explain one of the great ironies of contemporary developments in South America: Venezuela, a long standing democracy with a history of centrist government, has produced the most stridently anti-neoliberal administration on the continent, although the country had only fleeting exposure to economic orthodoxy, and even then (dated crudely from 1989– 1992 during the Presidency of Carlos Andrés Pérez to 1994–1996 during the Rafael Caldera administration) stabilization and structural adjustment measures were haphazardly applied. However, the chapter approaches Bolivarianism primarily as a response to Puntofijismo, Venezuela’s limited model of democracy that prevailed from 1958 until Chávez’s election in 1998, and not neoliberalism. Venezuela experienced a very specific, domestic configuration of crisis—profound popular alienation from the Punto Fijo parties and political system. This ran parallel with brief neoliberal experiments in Venezuela in the 1990s. However the crisis of Puntofijismo predated the flirtation with orthodoxy which merely reinforced it. The influence of Puntofijismo over the structure and orientation of the Chávez government is understood here in both historical and temporal terms. Not only is the legacy of Puntofijismo important to an understanding of the Bolivarian revolution, the day to day actions of Punto Fijo actors during the Chávez presidency were a decisive influence over the direction taken by the Chávez government. Attempts by the Puntofijista opposition to remove Chávez from power forced a radicalization of the government and, along with the rise in the international oil prices, allowed for the emergence of a more expansive and revolutionary project than had been envisaged in 1998. As such, Venezuela’s Bolivarian post-crisis alternative emerged by default and not design, and it was premised on anti-Puntofijismo not anti-neoliberalism. To Twenty-first Century Socialism from Puntofijismo: Changing Paradigms of Development and Governance in Venezuela Before addressing the post-crisis policies introduced by the Chávez government it is helpful to identify the actual crisis that Chávez inherited

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when elected in 1998. In Venezuela, an oil “rich” country, 20.6 percent of the population was living in extreme poverty, according to the National Statistic Institute. The price of Venezuelan oil had fallen to $10.6 per barrel (p/b), forcing the outgoing government of President Rafael Caldera (1994–1998) into $6 billion public spending cuts. Venezuela ranked below the regional average in terms of investment in health and education and, combined with moves toward privatization of welfare and social security, this had created a social apartheid of coverage and opportunity that divided the rich and poor. The country’s external debt was equivalent to 25.5 percent of the GDP and nearly half of the economically active population was employed in the informal sector, where they worked without social security protection and for less than a third of the remuneration of formal sector workers (see Economist Intelligence Unit 2005). Chávez took power at the end of a decade that had seen a catastrophic deterioration in living standards—a period that ran parallel with the application of neoliberal economic policy measures. But the crisis of the 1990s had deeply rooted political dimensions. Indicative of the predominance of the political over the economic, Chávez was elected on a platform of radical political change and specifically his pledge to overhaul Puntofijismo and refound the Republic in line with the vision of the Independence hero Simón Bolívar. There was little reference during his presidential campaign to neoliberalism—or economic policy in general—only a commitment to fiscal prudence and repayment of the foreign debt. The British Prime Minister Tony Blair was cited by Chávez as a role model, and the incoming Venezuelan president upheld Third Way Socialism, in which the state intervenes only to compensate for the failures of the market, as a model to be copied (Gott 2005). Indicative of the popular hostility to established politicians and political parties, Chávez was elected as a political outsider without ties to the dominant parties, the Social Democrat Acción Democrática (AD, Democratic Action) and Christian Democrat Comité de Organización Política Electoral Independiente (COPEI, Political Electoral Independent Organization Committee) that had governed Venezuela since 1958. He won the election on the back of the collapse of the presidential campaign of another non-traditional candidate, Irene Sáez, a former Miss Universe and mayor of Chacao municipality. Underscoring the primacy of the political determinants of Venezuela’s crisis period, Sáez’s support for neoliberal approaches had not undermined her popularity. Her three year lead in opinion polls only collapsed when she accepted the support of COPEI and the AD in the 1998 presidential race (Buxton 2001).

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Opinion poll surveys throughout this decade reflected profound popular disaffection with national government, state institutions and the main political parties, AD and COPEI. Traditionally high levels of partisan affiliation and identification with the two parties had collapsed amid perceptions that these organizations were corrupt and unrepresentative. There was a massive spontaneous popular uprising in February 1989, in which four hundred people were killed by security forces. The catalyst of the so-called Caracazo uprising was the unexpected announcement of fuel price rises, in line with a neoliberal lurch in 1989. But it was the political crisis in the parties and their deterioration as vehicles for the negotiation and articulation of popular interests that transformed popular opposition to the price adjustment into a full-blown systemic crisis. There were two military coup attempts in 1992 (one of which involved Lieutenant Colonel Hugo Chávez); Andrés Pérez was impeached on charges of corruption—a first in Venezuela’s democratic history—and in the national elections of 1993 the country’s dominant two-party system fragmented, creating a political environment conducive to the success of a radical, anti-party outsider in 1998. It was in this context that Chávez’s proposal for a complete rupture from the Puntofijo system and his pledge to construct an alternative social, political and economic model was popular. The following section discusses the Punto Fijo period in order to demonstrate how it influenced the emergence of Bolivarianism. Puntofijismo as a Determinant of Bolivarianism The Punto Fijo state was created in 1958 when leading national actors committed themselves to a democratic pact that was intended to overcome a post-independence legacy of military government (McCoy and Myers 2006). The Pact of Punto Fijo protected the economic and political interests of the AD and COPEI parties, the Roman Catholic Church, the military, business, and the trade union movement. It provided material incentives, guaranteeing subsidies, protectionism and corporate benefits for all sectors committing to the pact, and built vested political interests into the new democratic arrangements by establishing party political control of promotions in the judiciary, the military, the electoral council and the national bureaucracy. This institutional engineering ensured the commitment of all actors to the survival of the new democratic system. Two other factors were instrumental in institutionalizing the Punto Fijo arrangements. The first was the commanding organizational role


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of AD and COPEI. Autonomous civil society organizations were penetrated, controlled and brought within the corporatist Punto Fijo framework through AD or COPEI affiliated federations and movements. This limited political challenges to the Pact from organizations of the Left and Right that were outside of the core group of signatories. In addition, both parties were structured as intensely hierarchical political machines, with power concentrated in the party elite. Central control was exercised in a ruthless and disciplinarian manner, thus ensuring that the constituencies of both parties (labour and peasants in the case of AD, business and landholders in the case of COPEI) could not challenge the policy consensus underpinning the pact. These organizational factors, combined with a centralized national administration and an electoral system that worked against minor party political competitors, enabled AD and COPEI to achieve electoral hegemony and the Punto Fijo model to be quickly consolidated. The second stabilizing factor was oil. Oil export revenues flowing to the state in the form of taxes and royalties imposed on private sector operators lubricated Venezuela’s dominant two-party system or partyarchy (Coppedge 1997). The oil revenues provided the fiscal resources for successive AD and COPEI governments to maintain the cross-class policy consensus and the political loyalty of their constituencies. Public spending was high after the democratic transition and it benefitted all social sectors in the 1960s and 1970s. This “sowing” of the oil wealth, channeled through the parties, structured a “populist system of reconciliation” (Rey 1972), essentially a triangular relationship between the party controlled state, the oil economy and the electorate under which the electorate accepted an illiberal model of democracy in exchange for access to the oil “rents.” The launch of a Cuban-inspired guerilla insurgency in the early 1960s by the Venezuelan Communist Party (PCV), which was excluded from the Pact of Punto Fijo, convinced successive AD and COPEI governments of the need to disperse the benefits of the oil wealth widely and particularly to lower socio-economic groups and peasants to whom the PCV aimed to appeal. The 1960s saw a major land reform and redistribution program that benefited small farmers and an extensive array of labour benefits introduced for workers. Venezuela experienced strong economic growth in the 1960s and early 1970s as petroleum revenues, which increased from 28.3 percent of central government income in 1940 to 65 percent by 1965, were channeled through central government spending. The national education budget tripled between 1958 and 1965, while per capita spending on health care, sanitation, and social security doubled (Coker

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1999). The adoption of an import substitute industrialization model, a Keynesian economic strategy and petrodollar inflows structured a positive sum game that enabled Venezuela’s party controlled state to avoid the politically conflictual tradeoff between divergent class based interests. Deterioration and Crisis In the mid-1970s this virtuous cycle of economic growth and strengthening political legitimacy went into regression. In particular it was the failure of the parties to update the Pact combined with chronic economic mismanagement that undermined the legitimacy of the Punto Fijo state. In political terms, centralization around the leadership of AD and COPEI undermined internal democracy, while the control exercised by the party elite created a web of corruption and patronage. Despite the evolution of Venezuelan society and the changing nature of social demands, internal ideological debates were shelved in order to maintain the fundamentals of the Pact and the promotion of a young generation of party leaders was blocked by the old guard. Although the parties became progressively detached from Venezuelan society, social and political alternatives could not breakthrough owing to AD and COPEI’s institutionalized hegemony. In failing to readdress the political agreements in the Pact, the political parties presided over the gradual decay of state institutions. Partisan appointments, as set out in the Pact, undermined efficiency, accountability, transparency and the rule of law. In this institutional and party political context, there were no functional mechanisms for oversight or “checking and balancing” the executive, creating an environment in which economic mismanagement thrived. Serious governance limitations became woefully apparent in the 1970s as Venezuela adopted an expansive model of state capitalism on the back of a tenfold increase in the international oil price and following the nationalization of the state oil company, PDVSA in 1974. However, the deepening of the ISI model (specifically through investment in heavy industry) was financed through international borrowing, a model of debt financed development that was predicated on the oil price remaining high. This strategy proved catastrophically flawed when the oil price fell back and international interest rates rose sharply at the end of the 1970s. The burgeoning economic crisis of the 1970s revealed overdependence on the oil sector as a key weakness of the Punto Fijo regime. Reliance on oil export revenues rendered the economy extraordinarily


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vulnerable to shifts in the international oil price. Periods of high prices created “boom” conditions (1974, 1979, 1981), with the country subsequently falling into recession when the price fell. Owing to the “illusion of prosperity” generated by the oil income, central government did not raise alternative revenue sources, such as income tax and because export revenues were received in dollars, the Bolivar was constantly overvalued, rendering non-oil exports artificially expensive and imports cheap (Karl 1997, Coronil 1997). Successive Punto Fijo governments failed to correct these distortionary impacts. This had severe structural implications as the economy acquired a highly oligopolistic structure. Agriculture was progressively run down leading to reliance on imports to cover basic food demand, while fuelling massive rural to urban migration. By the early 1980s 80 percent of the population lived in urban areas but the demands of this new urban sector were not addressed by AD or COPEI. The parties had no mechanisms for incorporating those located in the barrios (slums) into their rigid organizational structures. Small and medium industries struggled to expand within the Punto Fijo framework, with state decreed severance and labor benefits particularly onerous for small private firms to cover. An additional challenge was the competition posed by the circle of politically connected large business families (the oligarquia in the language of the Chavistas) such as the Cisneros family (Gott 2006) that were able to consolidate control of industry and agricultural landholdings that became unprofitable for small entrepreneurs and farmers to maintain. Employment generation in this context was a severe problem and particularly given the dominance of the petroleum sector, a capital rather than labor intensive industry. The absence of investment in a national infrastructure was an additional handicap, with the lack of a rail network or paved highway system outside of major cities serving as an impediment to territorial integration, the development of backward linkages in the economy and the evolution of efficient national distribution systems. The heavy industrialization drive that was the centerpiece of development strategy in the 1970s did generate employment opportunities; but the sector was bloated, inefficient and permeated by corruption as political appointees who oversaw regional development zones ciphered state investment into private overseas accounts—a problem that intensified in the 1980s amid expectation of a currency devaluation. When currency devaluation did come, on “Black Friday” in February 1983, the wealthy and politically connected who had advance knowledge were able to convert their

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savings to dollars. The poor and politically unconnected were left exposed. For one observer Black Friday signaled “the beginning of not only a material but also an ideological crisis from which the country would never recover” (Hellinger 1991). The populist system of reconciliation had imploded. Despite the severity of the fiscal crisis in the 1980s, economic policy retrenchment was fiercely resisted by the diminishing network of corporatist and business interests around AD and COPEI. The neoliberal shift that was being undertaken in neighboring countries was rejected in Venezuela, where economic policymaking was characterized by stop and go adjustments, random application of deflationary policies to control public sector deficits and recurrent devaluations of the domestic currency. This, combined with escalating inflation, had a regressive impact on living standards, while clientelism and political favoritism distorted public sector spending priorities. In education for example, the bulk of the budget was absorbed by the labour costs of the AD affiliated teaching union. In terms of distribution across educational sectors, funding patterns were shaped like an inverted pyramid, with the middle-class dominated universities that accounted for less than 5 percent of total student numbers receiving the bulk of spending, to the detriment of primary education, where provision and teaching standards were poor and drop-out and abstention rates among those of limited economic means (the D and E groups) was high (Economist Intelligence Unit 2005). It was against this backdrop of political and institutional crisis and severe economic deterioration that a neoliberal policy shift was attempted. This compounded the preexisting crisis of Puntofijismo, culminating in the displacement of that model with the Bolivarian alternative at the end of the 1990s. As I discuss later, the Bolivarian alternative primarily aimed to rectify the national development failures outlined above, and which were specifically attributed to Puntofijismo. Accelerating Crisis: The Neoliberal Experience The incoming AD government of Carlos Andrés Pérez inherited a dire economic situation in 1989. With revenues to cover only four days of imports, it turned to the IMF for a $4.5 billion loan. It was an unexpected move, given that Andrés Pérez had been reelected with a promise of returning Venezuela to the boom times of the 1970s. To make matters worse, the shift to austerity was undertaken against a backdrop of escalating poverty. By 1989 poverty had more than doubled on the level recorded during the same period a decade earlier,


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rising from 27.6 percent of households to 58.9 percent. Over the same period, extreme poverty increased from 7.4 percent of households to 26.9 percent (Maingon 2005). The stabilization and structural adjustment package that was introduced (El Paquete) aimed to reduce and reorder the state, and transform Venezuela into an outward looking economy, with a diversified economic base. Its introduction in February 1989 triggered the Caracazo: “the most massive as well as the most violently suppressed urban protest in Venezuelan history” (Coronil and Skurski 2005) as fuel subsidies were lifted. Over the following two years, interest and exchange rates were freed; tariffs were lowered; the national telecommunications agency and state airline (CANTV and VIASA) were privatized; private sector partners were invited to participate in PDVSA operations in 1991 (through a circuitous legislative initiative that went against the original nationalization legislation) and public spending was sharply reduced (Naim 1993). In foreign policy, the government sought to lock in these changes and ride the regionalist tide of the early 1990s by taking Venezuela into free trade agreements and commercial associations. However the neoliberal experience was limited in comparison to the orthodox shift in neighboring countries and El Paquete was not applied in a comprehensive manner. There was no rationalization of the bloated, party dominated state, reform of state institutions or improvements to non-oil taxation structures. The privatization process was limited and not accompanied by the introduction of adequate regulatory mechanisms. Moreover Andrés Pérez was not averse to expansionary approaches when the oil price increased, a policy flux that led some critics to argue that the problem was not neoliberalism, but its half-baked implementation (Naim 1993). No matter how limited the neoliberal shift was, the social consequences of economic orthodoxy were disastrous. Falling real wages and volatile inflation exacerbated an existing trend of rising poverty. By 1991, 69.8 percent of households were living in poverty of which 35.8 percent were classified as extremely poor. There was also a trend of deepening inequality with the share of national income accruing to the richest 10 percent of the population rising from 30 percent to 43 percent between 1988 and 1991, while the share of the poorest 10 percent declined from 2.3 to 1.8 percent (Coker 1999: 83). Food costs were particularly difficult for poorer sectors to cover after devaluation in 1989, owing to Venezuela’s historical lack of food sovereignty and gross inequalities in land distribution (with 70% of agricultural holdings in the hands of 3% of producers).

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Underscoring this, malnutrition-related infant mortality rates doubled over the brief two-year period of the initial economic adjustment, increasing from 29.7 deaths per 100,000 in 1988 to 60.2 deaths in 1990 (Coker 1999). The social costs of the orthodox turn were popularly understood as a result of the corrupt Puntofijista regime and its record of economic policy failure rather than neoliberalism per se. There was a widespread popular view that Venezuela was rich on account of its oil wealth, but that the poor were disproportionately bearing the costs of an adjustment that had been forced on the country because of the corruption and mismanagement of politicians and privileged elites. Moreover the move to slim down the state went against a tradition of high levels of intervention in the economy, which was seen as legitimate because of the predominance of the oil sector. Oil shaped a majoritarian predisposition that the state should be a vehicle for social and national advancement, and it was perceptions of exclusion from the benefits of (mismanaged) oil wealth that subsequently shaped support for Chávez among marginalized groups in 1998. Andrés Pérez revoked the Puntofijista social contract under which illiberal democracy was legitimate so long as oil rents were channeled to the population. The end of heterodoxy meant that the partyarchy could no longer be maintained and in recognition of this, there was an accompanying package of institutional and political reforms. Decentralization of administrative responsibilities to mayors and state governors was launched in 1989 and there was a reform of the electoral system (Buxton 2001). But Andrés Pérez was not in a position to compel internal party reform of AD and COPEI and the political reforms failed to reequilibrate the political system or national government. If anything they accelerated system crisis. New parties, such as the left of center La Causa Radical (Radical Cause, LCR) were able to win office in regional and congressional elections, although their impact was limited by the fact that they were being brought into a chronically de-legitimized political framework. Certainly neoliberalism was widely rejected, but the dominant social and political narrative of this period was configured around the need to reform Puntofijismo. A key demand going into the national elections of 1993 was constitutional and institutional reform, issues that formed the platform of the winning candidate, the octogenarian former COPEI leader Rafael Caldera. However Caldera failed to deliver on his campaign commitments, accelerating the social, economic and political crisis. Caldera turned to the IMF for a $1.4 billion stand-by agreement in 1996 after the banking system collapsed but


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an influx of revenues in 1997 from further private sector openings in the oil sector prompted the administration to ditch monetarist approaches and embark on an expansionary spending spree, buoyed by rising oil prices. When the oil price fell back in 1998, the year of the national election, Caldera was forced to slash public spending. The zigzag from heterodox to orthodox policies compounded the deleterious social impact of the earlier adjustment. Indicative of this, the number of households living in poverty jumped to 77.1 percent by 1996 of which 45.1 percent were in extreme poverty. Moreover the terms of many of the privatization contracts signed by the Caldera administration were detrimental to the national interest. The Information and Technology arms of PDVSA was sold to the American defense and intelligence contractor Science Applications International Cooperation (SAIC) for just $1000, and under the oil sector opening, PDVSA was contracted to pay private oil producers a fixed price for the oil pumped and sold back to PDVSA under joint venture agreements. When the international oil price fell to $9 per barrel by 1998, the Venezuelan state was producing oil at a loss, while the autonomy that PDVSA enjoyed in investment decisions deprived the central government of an important share of the revenues from the privatization process (Mommer 2002). Pressure for system rupture rather than reform gained traction as disgust with Caldera deepened. The end result of nearly two decades of crisis in the Puntofijista model was a society polarized over the future direction of the country. This was personified in the 1998 election, in which the two front runners presented distinct post-crisis options—a model of decentralized political authority and economic shock therapy (Henrique Salas Römer) and a Bolivarian Revolution that promised to break with Puntofijismo and fulfill the nation’s squandered potential (Chávez). The application of neoliberalism exacerbated but did not generate political and economic crisis in Venezuela, and this was reflected in support for Salas Römer who won 40 percent of the vote in the 1998 contest. But the cumulative impact of progressive system deterioration was popular demand for a political rupture, and it was for this reason that Chávez triumphed, with 56.2 percent. Bolivarianism: A Post-neoliberal Paradigm? The Chávez government sought to craft a domestic and regional alternative to neoliberalism based on “Bolivarian” principles of cooperation, solidarity and justice and which looked to the poor and

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excluded as its core constituency of support. In Venezuela, the pursuit of Bolivarianism, redefined in 2005 as Twenty-first Century Socialism, saw the state assuming a pro-active role in the economy as the “motor” of the revolution. The privatization processes that were undertaken in 1990s were rolled back in the oil, telecommunications, electricity, heavy industry, cement, banking and mining sectors, and price and exchange controls reintroduced. New state financed models of social, political and economic organization that stressed participation and empowerment of el pueblo (the people) were launched that included worker self-management (cogestión), community councils (of which there were over 17,000 by 2008) and cooperative groups (numbering around 4,000). These initiatives were underpinned by a sweeping overhaul of the country’s constitutional and institutional arrangements and complemented by a social and economic policy agenda that sought to build social capital and redistribute wealth through a state rather than market led allocation process. At the regional level, the government turned away from free market-based global and regional integration strategies and forged new Bolivarian partnerships that were institutionalized in the Bolivarian Alternative for the Americas, ALBA, a counter to the now defunct FTAA and which included Bolivia, Cuba, Nicaragua, and Dominica. It also launched an array of initiatives to progress the Bolivarian agenda and push back the influence of neoliberalism. These included Bank of the South (Banco del Sur), intended as an alternative to the World Bank; Petrocaribe, a discounted oil export agreement with seventeen Caribbean and Central American countries, and the New Television Station of the South (La Nueva Televisora del Sur, TeleSUR), a regional media channel that provided a South American based news alternative to “Northern” media. The Chávez government sought to reorder commercial ties by ending close bilateral economic relations with the United States and entering into commercial agreements with non-traditional partners that included China, Russia, Belorussia, and Iran. In both domestic and foreign affairs then, neoliberal polices and the primacy of the market and private sector were eschewed in favor of state-led initiatives and state to state, public sector partnerships. In no other South American country did the state return with such vengeance, was neoliberalism rejected with such vigor and the foundations of a viable alternative economic project established. But what is equally striking is that Venezuela’s post-crisis model is, in fact, defined as a counter to Puntofijismo, along with the fact that it emerged by default and has evolved over time.


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The Meaning of Bolivarianism When Chávez assumed the presidency in 1999, the Bolivarian project (named after the independence hero Simón Bolívar) was presented as a domestic alternative to Puntofijismo. It had five integrated elements: political, economic, social, territorial, and international. In terms of the political, Bolivarianism emphasized popular empowerment, with citizens serving as protagonists of change, hence the term “protagonistic democracy.” It had a vision of a pro-active civil society, constantly engaged in decision making in a bottom-up system of government, politics and social organization (Sesto 2006). The people, el pueblo, were to resume a sovereignty the Chavistas argued was usurped by the AD and COPEI partyarchy and illiberal Punto Fijo democracy. This new model of post-crisis democracy was based on a vision of socio-economic inclusion (the social element of the Bolivarian program) that stressed investment in social capital, the promotion of social justice and the redistribution of economic and political power to those excluded from Puntofijismo. In line with this, the economic element looked to create a “social economy” that focused on the needs of poor people; which would break with inequitable patterns of oil rent distribution and construct new economic production and distribution chains in order to rupture the economic dominance of the oligarquía. The promotion of food sovereignty, small and medium enterprises and the co-operative movement were integral aspects of this economic vision and this in turn informed the national element of the Bolivarian program, which emphasized territorial integration, land redistribution and state investment in traditionally neglected and depopulated rural areas (Chávez 2005; Wilpert 2007). The final aspect of the Bolivarian vision, the international strategy, stressed four core priorities: the deepening of ties with other oil producing nations; the construction of a multipolar world; regional integration on Bolivarian principles of solidarity and justice, and promotion of state sovereignty. Fundamental to an understanding of the Bolivarian project is the Chavista vision of oil resources. In the Chavista critique, oil dependency was destabilizing and antidevelopmental only because of the structure of the global oil markets. Revenue unpredictability and boom and bust conditions were thought to stem from a lack of cooperation among oil producing countries and constant downward pressure on prices from consumer countries. From this perspective, the full fiscal benefits of oil could be realized if oil producers worked effectively together to keep prices high and stable, and the amount paid by consumers reflected the real value of

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scarce energy resources (Chávez 2005; Mommer 2002). In line with this, the government pledged to reverse the oil opening of the 1990s and reclaim state control of PDVSA. Bolivarian energy policy looked to maximize revenues accruing to the state through deepening ties and technological cooperation with other oil producing countries. Strategies here included strengthening the role of the Organization of Petroleum Exporting Countries (OPEC) and building new bilateral links with Iran, Iraq, Russia and non-traditional consumer countries, such as China. This in turn linked with the Bolivarian vision of a multipolar world, in which the dominance of the United States, Venezuela’s most important commercial partner, would be reduced. Venezuela’s historically strong bilateral relations with the United States were seen to run against the national interest (Kozloff 2007). In the Bolivarian critique, dependence on the United States had locked the country into supplying artificially cheap petroleum through commercial agreements signed by the Punto Fijo governments. While the Punto Fijo elite had been closely tied, economically, culturally and politically to the United States, Bolivarianism sought to replace NorthSouth linkages, with South–South ties. Regional integration was integral to the multipolar vision. It was presented as the fulfillment of Bolívar’s historic quest to build a united southern hemisphere as a counter to the influence of the United States. It should be stressed that while this Bolivarian program was informed by strong anti–United States and anti-neoliberal sentiment, it was not articulated by the government as such. Instead, the program was consistently presented through the lens of the domestic political and economic experience and specifically the failures of Puntofijismo to realize Venezuela’s potential. Bolivarian Nationalism The primacy of anti-Puntofijismo was reflected in Chavista efforts to construct a new Bolivarian identity to underpin and legitimize revolutionary change. During the Punto Fijo period, the political parties, specifically AD, had defined Venezuelan nationalism through reference to that party’s symbols and democratic mythology. Nationalism was understood through the experience of the democratic struggle. This nationalist vision portrayed Venezuela as a modern, outward looking society, informed by Lockean principles of social contract and consent (Buxton 2007). Bolivarian nationalism posited a different nation and a distinct national identity. It looked


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backward to historic national heroes and legends, the most important of these being the “trinity” of the liberator, Bolívar; Ezequiel Zamora, a military leader during Venezuela’s federal wars; and Bolívar’s tutor, the pedagogue Simón Rodríguez. Bolivarian nationalism enjoined the nation in a project to fulfill the historical potentialities of the country, which Bolivarian discourse portrayed as betrayed by the Punto Fijo elite (Buxton 2007). There was a stress on racial pride and the reclaiming of Venezuela’s indigenous and black heritage, which had been downplayed by the Punto Fijo white elite (Gott 2005). And where Adeco nationalism had been Lockean in its democratic vision, Bolivarianism was informed by Rousseauen principles of direct democracy; where Adeco nationalism had looked to the North and “modernity,” Bolivarianism idealized indigenous tradition and domestic cultural values. These tenets of the Bolivarian vision and Bolivarian nationalism easily slipped into a critique of neoliberalism and U.S. “imperialism” that eventually became the hallmarks of the administration. But this shift, which is outlined below, only occurred once Chávez’s presidency, which evolved across three phases, was underway. The Evolution of Bolivarianism The meaning of Bolivarianism and the aims of the Chávez administration shifted dramatically between 1999 and 2008. This was driven by factors external to the initial project of the administration, with the capacity for intra-regime evolution facilitated by the theoretical and ideological eclecticism of Chávez and the shifting nature of alliances around the executive. Two key drivers of change can be identified: the effects of U.S. and domestic (Puntofijista) opposition to the Chávez government after 1999 and the rise in the international oil price. Drivers of Radicalization From 1999 onward, lobby groups traditionally privileged by the Punto Fijo political arrangements mobilized against the Chávez administration. Their protests focused on street mobilization; stoppages and lock outs; a coup attempt in 2002; a takeover and stoppage at PDVSA; a recall referendum against Chávez in 2004; a nonpayment of taxes campaign and an abstention platform in national and regional elections. These actions were instrumental in shaping the Twenty-first Century Socialism agenda in three respects. First,

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they forced the Chávez government to focus on consolidating its core support base among the poor. Welfare spending in Phase Two was used to engage and deliver to the excluded who were pivotal in sustaining the administration and counter-protesting the opposition’s actions. In stark contrast to Punto Fijo practices, government spending was not used to bring confrontational elite groups into the political system, and this deepened the zero sum characteristics of distributional politics in the country. Consequently the Misiones, a key social policy element of the administration’s neoliberal alternative, was instrumentalized from the need to deliver concrete gains to its constituency of support in a context of polarization and instability. Second, the general strikes, lockouts and stoppages convened by opponents led the state to acquire a higher profile in the economy in order to keep production and distribution chains functioning. For example, a lock out that paralyzed food distribution over the Christmas period 2002 led to the administration introducing subsidized food outlets in order to overcome shortages. Hugely popular among the poor, these were maintained after the strike had collapsed, and institutionalized as Misión Mercal. Similarly capital flight and the nonpayment of taxes campaign led the Central Bank to impose exchange rate controls in order to stabilize the currency. This became a key monetary tool, prefiguring later moves to extend executive control over the economy, as seen for example in the Constitutional reform proposal of 2007 to place international reserve management in the hands of the executive. The lock outs in the private industrial sector encouraged pro-Chávez unions to takeover private manufacturing facilities, a development that in turn pressured the government to accept nationalization of facilities and endorsement of a model of worker-management control called cogestión. Third, the opposition actions led the Chavistas to assume hegemony within state institutions by default. The lock out of PDVSA in 2002 provided the government with grounds for purging all striking oil sector workers (17,000 members of staff) and replacing them with loyalists, while the failed coup attempt of 2002 led to a purge of the armed forces and replacement of senior commanders with Chavista loyalists. The opposition strategy of boycotting election processes in order to de-legitimize the Chávez government enabled the already popular Chavistas to gain control of all elective tiers across the country. An inter-related driver of radicalization, and one which accounts for the acquisition of anti-neoliberalism initially in foreign rather than domestic policy, was the severe deterioration in Venezuelan-U.S.


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relations after President George Bush assumed office in 2000. The Republican government adopted an energetic approach, once it was decided that Chávez’s initiatives ran counter to U.S. security interests. U.S. support for the anti-Chávez opposition, expressed through official statements and financial allocations channeled through the U.S. Agency for International Development (USAID) and the National Endowment for Democracy (Gollinger 2006), led the Chávez administration to pursue foreign policy goals that would allow Venezuela to insulate itself from, and deflect, U.S. pressure. Anti-neoliberalism, oil-financed regional integration and anti-Americanism became the key tools for achieving this objective and they were advanced in the Second Phase as U.S. antipathy toward Venezuela—and U.S. recourse to destabilizing strategies became pronounced. Moreover U.S. efforts to punish Venezuelan “deviance” through for example a 2005 arms embargo, fuelled incentives to build multipolarism. Blocked from upgrading its U.S.-supplied weaponry, Venezuela turned to China and Russia. The second driver of the administration’s evolution was the strong rise in the international oil price. Venezuela is the world’s fifth largest oil producer. When Chávez first assumed the presidency, the value of the Venezuelan basket of crude had bottomed out at $7 per barrel. After 2002, the oil price strengthened, rising to $56.5 in 2006. This petrodollar windfall, in addition to the negotiation of more beneficial contractual terms for the state in oil venture agreements provided the administration with ample fiscal resources to deliver the Misiones and finance regional integration projects. Venezuela’s oil wealth uniquely positioned the Chávez government to break dependence on foreign and private investment and international financial institutions. They also made it possible to fund experiments with a post-crisis model that directly challenged the ideological hegemony of neoliberalism. The abundance of oil revenues in addition provided Chávez with an unprecedented level of independence from U.S. political pressure and traditional tools of North American “hard” diplomacy such as embargos, sanctions and the blocking of loans. The Three Phases of Bolivarianism Phase One 1999–2004 The first phase dates from Chávez’s assumption of the presidency through to the beginning of 2003, when a lock out of PDVSA by opponents of the government fragmented. The collapse of the stoppage, which led to oil export revenue losses of over $17 billion, was

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the culmination of a period of high instability. During this period, the administration was modest in its ambitions. Its appeal and program of government was specifically structured around the critique of Puntofijismo, and support for the administration was broad-based. The key actors around the Chávez presidency, and the cabinet itself, was comprised of moderate figures from the center-left, which included members of the LCR offshoot Patria Para Todos (PPT) and Chávez’s own Movimiento Quinta República Party (MVR). The introduction of a new constitution was pivotal to the project of refounding the Republic. A referendum on the redrafting of the constitution was decreed by Chávez in February 1999, supported by a majority of voters presaging elections to a constituent assembly and the drafting of a new Bolivarian Constitution, which was approved in a referendum in December 1999. This inaugurated the Fifth Republic and, reflecting the sense of national rebirth, the country was renamed the Bolivarian Republic of Venezuela. Through these popular consultation exercises, the administration sought to establish an agenda of change mandated and led from below. The Bolivarian Constitution eliminated all institutional vestiges of Puntofijismo, emphasized the sovereign nature of the oil sector, precluding nationalization and it institutionalized an expansive array of state guaranteed welfare and social rights as a basis for the new vision of citizenship. Fresh presidential, national and regional elections to relegitimize all elective positions were convened in 2000. The Chavista alliance, the Polo Patriótico, emerged as the dominant political force, consolidating the political shift that had taken place in the country. Throughout 2001 and 2002, the administration focused on establishing a legal framework in line with the provisions of the 1999 Constitution. Measures such as the 2001 Hydrocarbons Law, the Land Law, the Organic Law on Potable Water Services and the 2002 decree on Urban Land Tenancy sought to structure the new social economy and establish social participation in development projects and public service provision. They catalyzed new models of social organization and participation. Comités de Tierras Urbanas (CUTs, Urban Land Committees) sprang up across the country to meet the legal requirement for communities to self-organize (typically in groups of 200 families in urban areas and 500 in rural areas) and present community regeneration plans in order to receive land and tenancy rights through the National Land Institute. Similarly, in line with the legislation on drinking water provision, Mesa Técnica de Agua (MTAs, Technical Water Tables) emerged as the organizational form for the planning and elaboration of community water projects


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and negotiations with municipal and state water boards (Lerner 2007; Wilpert 2007). These organizational forms, which included other initiatives such as the Organización Comunitaria Autogestionaria (OCAS; Community Self Management Organizations), had a long but academically neglected history. They had flourished in the municipal capital, Libertador, in the early 1990s and other municipalities under the control of the Causa Radical party (Bravo-Escobar 2007). But they had been small in scale and without legal status or funding. Under the Chávez administration, they became the central organizational vehicle for the delivery of the Bolivarian agenda of social development and citizen engagement (Wilpert 2007). By contrast to developments in the political realm, economic policy was marked by continuity with the loose orthodoxy of the preceding administration. The government emphasized its commitment to repaying the national debt and respect for private property rights and commercial contracts, a position that alienated it from the radical Left which in turn went on to form an eclectic alliance against the government with former enemies from the Punto Fijo elite. The administration did not elaborate a coherent social policy agenda. Instead, a public works program was introduced, the Social Emergency and Internal Defense and Development Plan, under the command of the armed forces. This focused on school and road building, with the armed forces deployed in order to bypass the ineffective state administration, in line with Chávez’s vision of the military assuming a progressive national role. However the absolute priority, and reflecting the influence of the anti-Puntofijismo dynamic, was constitutional reform. The elaboration of Bolivarian foreign policy was similarly muted, although the small steps that were taken caused deep controversy. Chávez visited the former Iraqi leader Saddam Hussein as part of the move to strengthen OPEC, and the energy team succeeded in negotiating a price band mechanism among OPEC producers in 2001. This kept the price per barrel in a range of between $22 and $28, a policy that was condemned by the incoming government of U.S. President George Bush as contrary to global and U.S. energy security. Phase Two: Toward Anti-neoliberalism 2004–2006 In the second phase the administration became more overtly antineoliberal and radical in its vision of social change. The role of the state was dramatically extended and a more interventionist stance in the economy and economic management was assumed. The government’s core support base progressively narrowed and became focused

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on the poorest sectors, as middle class support for the administration waned. The coalition of influence around Chávez shifted as moderates who emphasized consensus, such as Chávez’s early mentor Luis Miquilena and former military colleague Francisco Arias Cárdenas, broke with the Chavistas. This phase was also noteworthy for the organizational shift that took place within the Chavistas. As the weaknesses of MVR became apparent, particularly in relation to its capacity to mobilize votes for Chávez and articulate government policy, new community and grassroots based movements became the central organizational force of the Chavista movement. In the first instance this took the form of the Círculos Bolivarianos (Bolivarian Circles, CBs), originally created by Chávez in the early 1990s as a prelude to the founding of MVR in 1997. The role of the CBs, which typically grouped eight to ten people, was to engage at the grassroots in consciousness raising and community projects (Antillano 2005; Bravo-Escobar 2007). As political opposition to the administration grew in 2001 and 2002, the CBS were resurrected and other new grassroots based pro-government initiatives outside of MVR emerged. These included the Comando Político de la Revolución (Revolutionary Political Command), responsible for coordinating the Bolivarian Circles; the Comando Ayacucho, tasked with mobilizing support for Chávez in the August 2004 recall referendum; the Comando Maisanta, which evolved from the Comando Ayacucho; and the Unidades de Batalla Electoral (Electoral Battle Units) that mobilized Chávez supporters for the legislative and regional elections of 2005. Going into the 2006 presidential election contest, a new vehicle, the Comando Miranda was established. These constantly evolving organizational initiatives reflected and reinforced the emphasis on non-traditional party political forms as a key characteristic of the government’s post neoliberal project. This was a period of constant experimentation with new mechanisms for and types of participation that broke with established party based schemas and institutionalized modes of representation (Raby 2006). Their ad hoc nature reflected the challenge faced by the Chávez government of incorporating traditionally excluded and marginalized groups in a context of alienation from, and disaffection with, established party politics. This phase also saw a more pro-active and ambitious social policy agenda, laying the foundations of the neoliberal alternative model. Informal structures were created for the delivery of an extensive range of integrated welfare services for the excluded, which linked citizens to the state in a radically different manner to that which had prevailed under Puntofijismo. Termed the Misiones, these sought to provide in


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situ access on the basis of community identified need, determined by citizen participation in community organizations. This marked a strengthening of moves in Phase One to construct a new model of linkage between people and the state that bypassed state institutions. They included Misión Barrio Adentro (April 2003) that provided primary and preventative health care staffed by 17,000 Cuban medics operating in 4,400 community clinics; Misión Robinson, a national literacy campaign staffed by 100,000 volunteers (July 2003); Misión Sucre (July 2003) which expanded access to higher education and included the construction of new public Bolivarian universities; Robinson Two (October 2003) which increased elementary education and led to the construction of over 2,000 Bolivarian schools with breakfast clubs; Misión Ribas (November 2003) a program to facilitate the completion of high school through the provision of grants to over 100,000 students; Misión Mercal (January 2004), a network of 6,000 subsidized food co-operatives and popular markets; Misión Identidad (February 2004) that provided identification cards-a prerequisite for access to service provision and voter registration; Misión Vuelvan Caras (March 2004) that provided job training and Misión Habitat (August 2004) that focused on housing provision for the poor. The Cuban government’s model of social welfare delivery was certainly an influence over the policy direction that was taken. But the approach was also pragmatically informed by the institutional weaknesses of the post-Punto Fijo state, and the administration’s need to deliver rapid social benefits to its core constituency of support in a period of conflict and instability. Community organizations consolidated their position as the key mechanism for the government’s model of protagonistic democracy, assuming responsibility for the coordination and delivery of the Misiones. The government extended significant financial support to community based vehicles, with over $6 billion in funding diverted from PDVSA to the 12,000 organizations that existed by 2006 (Wilpert 2007). Opposition to the government’s Bolivarian revolution was the key driver of change and innovation during this second phase. Nevertheless, the government’s narrative continued to be framed through reference to Puntofijismo. The administration condemned the opposition as elitist and claimed that their hostility to Bolivarianism was predicated on vested interests in restoring the exclusionary Punto Fijo model. In foreign policy, however, government language altered dramatically with the adoption of an approach that saw foreign policy objectives articulated through anti-neoliberalism. During this phase the administration

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became pro-active in developing a foreign policy consonant with its vision of a multipolar world and formulating strategies and institutions for regional integration. The focus of initial anti-neoliberalism was the planned Free Trade Area of the Americas. Chávez couched his hostility to the proposal through reference to the negative impacts of free trade and neoliberal policy in other South American countries and as a counter to the FTAA, Venezuela advanced the ALBA. While the ALBA was a small project drawing on some of the weakest and most fragile economies of the region, its significance lay in its possibilities and symbolism as a non-free trade based model of regional integration. Venezuela’s oil emerged as a vital tool for advancing regionalism, a development that was facilitated by the reassertion of PDVSA majority share in all ventures through the 2001 Hydrocarbons Law. This served to enhance the authority of the Ministry of Energy over the traditionally autonomous PDVSA executive, bringing the oil economy and oil policy under the direct control of national government. The 2001 oil legislation also increased the oil revenues flowing to the state by increasing the royalties paid under joint venture agreement. These changes to the political control of the oil sector enabled the government to introduce Bolivarian energy initiatives such as Petroamerica, Petrocaribe, Petrosur (a strategic alliance with other South American public and semi-public energy companies), and regional energy integration and cooperation strategies, such as financial and technical assistance for the upgrading of Cuban, Ecuadorian, and Nicaraguan oil refining and Bolivian gas exploration capacities. Oil revenues also positioned Venezuela to purchase over $1 billion in Argentine debt bonds and provide development assistance to social projects in Bolivia, Cuba, Haiti, and Belize, to name but a few of the recipients of Venezuelan financial support, which outstripped North American development assistance. This commitment to expanding Bolivarian principles of solidarity and regional cooperation was counter-posed against the lending practices of international financial institutions such as the World Bank and IMF. The Venezuelan administration condemned these institutions for the harsh conditionalities imposed on borrowers, and the impacts of their neoliberal prescriptions on the poorest people in the region. Financially positioned to craft an alternative and follow through on this commitment to liberate the Americas from the IFIs, Venezuela began to develop proposals for a new regional lending institution, the Banco del Sur, with Brazil, Argentina, Bolivia, and Ecuador in 2006. The anti-neoliberal rhetoric and emphasis of Venezuelan foreign policy was also clear in the strategy of constructing wider


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multipolarism. Commercial, military and energy agreements were signed with Iran, China, and Russia during this second period, with the Venezuelan administration emphasizing its preference for bilateral relations with state owned companies over private interests. Taken together, these ventures enabled Venezuela to delimit the country’s exposure to the globalized economy, reduce reliance on private (and volatile) foreign direct investment, and lay the foundations of a distinctive alternative political economy. With the country insulated from reliance on private foreign direct investment, domestic macroeconomic management strategies focused on lowering interest rates and generating economic conditions in line with national development needs and not the requirements of foreign investors or risk assessors. Phase Three: Twenty-first Century Socialism The final third phase marked a deepening of the revolutionary project and moves to consolidate a coherent ideological and organizational alternative to neoliberalism both domestically and in foreign policy. First unveiled by Chávez at the 2005 World Social Forum meeting, this was termed Twenty-first Century Socialism, a model that would be driven forward by the “Five Motors” of the revolution. These five motors were: the “explosion” of communal powers; a new geometry of power in order to institutionalize the authority of the communal councils; an educational and moral struggle to inculcate new communitarian values; the use of executive decree to drive through the changes proposed and; reform of the constitution to allow for consolidation of the new socialist model. Within weeks of retaining the presidency and in line with the vision set out in the Five Motors schema, the Chávez administration decreed majority ownership of heavy oil projects in the Orinoco belt and nationalized (with compensation) foreign and private interests in the telecommunications and electricity sectors. This underscored the extent to which the administration was prepared to deploy the new authority of the state to limit the country’s economic openness and focus on the perceived priorities for nationally focused development. An initiative to merge the heterogeneous pro-Chávez party political coalition and disparate grassroots organizations was also launched during this “consolidating” third phase under the umbrella of a new United Socialist Party of Venezuela. In September 2007, a series of planned reforms to the 1999 Constitution, which affected thirtythree of the text’s three hundred and fifty articles, was announced by Chávez. The measures included the elimination of term limits on

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presidential reelection, executive control of international reserves, a redesign of the federal territory (in line with the “new geometry of power” schema), and a new classification of land to include cooperative and social ownership. The measures, which were subject to two rounds of legislative debate ahead of their submission to the electorate in a referendum in December 2007, represented a move to institutionalize the reconfigured economic and political relations within Venezuelan society and between citizens and the state that had emerged during the second phase of Bolivarianism, and the new balance between growth and social spending priorities that followed from the launch of the Misiones. They were however rejected by the electorate, in a move that marked the first electoral defeat for the Chavistas. The defeat of the proposals was attributed to abstention among traditional Chavistas, pointing to a growing disaffection with the administration among its core support base. Chávez subsequently pursued the changes on a reform by reform basis. But as the Conclusion discusses, the most pressing issue faced by the administration was not its capacity to pursue its ideological end goal, but the weakening popular endorsement of this vision. Conclusion: Reflecting on New Modes of Governance and Political Economy Venezuela has without doubt moved the furthest in laying the foundations of a neoliberal alternative model but by 2008 it was evident that the survival and consolidation of the Bolivarian process was contingent on addressing debilitating structural weaknesses and contradictions within the model. The weaknesses identified demonstrated striking similarity to those experienced during the Punto Fijo period. While Bolivarianism and Puntofijismo are posited as radically distinct, there are strong elements of continuity. The first of these is weak institutions. The sclerosis and politicization that characterized the Punto Fijo institutional framework was prevalent under the Bolivarian system. In the Chávez period, these stemmed from factors that included: the low priority given to institution building by the Chávez administration; the reliance on informal, parallel mechanisms for policy and service delivery; partisanship in staffing state institutions and the failure to develop effective checks and balances, the latter owing much to the heavy centralization around the executive and the highly personalized nature of the Chávez presidency. In the absence of effective, functioning institutions based on principles of


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meritocracy and accountability, the Chávez government struggled to deliver its social policy agenda and to shift service provision from an emphasis on quantity of provision to the more complex challenge of quality of provision. Waste, inefficiency and corruption were serious problems by the time the government was entering into the third phase and this in turn translated into mounting popular disaffection with the government and diminishing faith in its capacity to deliver on policy pledges. A second element of continuity was that of oil dependence and the pre-1990s model of oil-financed state led development. Although the Chávez government aimed to break with the Punto Fijo regime’s debilitating reliance on the oil sector, by the third phase oil export revenues had actually increased as a percentage of central government income and trade with the United States had increased, despite Chávez’s aims of diversifying commercial ties. More problematically, the same structural and macroeconomic distortions that had been present during the Punto Fijo period continued into and were arguably reinforced during the Bolivarian period. This was particularly problematic for the Chavistas as it threatened to undermine the goals of the Bolivarian revolution. For example, the overvaluation of the exchange rate undercut efforts to boost food sovereignty as the country continued to suck in cheap imports. Crafting socialism in an oil boom was a complex economic policy challenge; one that rising inflation and production shortages indicated the Chávez government had not devised adequate tools for. However, on a note of difference, while boom and bust conditions were a severe problem during the Punto Fijo phase, the prognosis for the international oil price was one of sustainable price highs during the Bolivarian period. However, the benefits to the Chavistas here were offset by serious concerns relating to underinvestment in oil drilling and production capacities owing to diversion of oil profits into social spending. A further aspect of continuity related to the failure to consensually define the role of the state. The Puntofijo period created two classes of citizen in Venezuela,—those connected and privileged by the state and party system and those excluded from political influence and the distribution of the oil revenues. This scenario prevailed under the Bolivarian revolution, but with the categories of included and excluded actors reversed. Division and conflict during the Chávez presidency underlined the extent to which a unifying national vision and agreement on the distributional characteristics of the state remained elusive. As such, the struggle by contending interests to capture and control the state remained the key political dynamic, diminishing

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prospects for institutional reform and with debilitating consequences for political and economic stability. A final element of continuity related to foreign policy. A much neglected aspect of the Punto Fijo period was the consistent policy emphasis on Bolivarian principles of multipolarism, of supporting progressive revolutionary movements (e.g., the Sandinistas in Nicaragua), of building a just international order, promoting regional solutions to the conflict in Colombia, and of building ties with other oil producing nations. These were all central tenets of the Chávez administration, but in the manifestly different conditions of the War on Terror and diminished U.S. tolerance of ideological deviance in its backyard. The danger faced by Chávez going into the Third Phase was of a major shift in the regional order; the ending of the presidency of his nemesis George Bush and the weakening of Center-Left regional administration’s that helped to insulate Chávez and which gave his Bolivarian experiment hemispheric traction. And while Chávez went further than his predecessors in realizing the long-held vision of a multipolar world, basic inefficiencies in the Bolivarian government, in delivering on commitments and following rhetoric through with actual policy on the ground were a severe impediment to the consolidation of the changes the Bolivarian government introduced through initiatives such as ALBA and Banco del Sur. Alongside continuity between Puntofijismo and Bolivarianism there was also significant change. At the elite level, the political Left that was excluded from the founding Pact assumed control of the country and in turn brought into politics those that fell out of the Puntofijo framework. There was a redistribution of political and also economic power through the protagonistic democracy model and the government’s social spending and development strategy. According to government figures, by the end of 2007, unemployment was down to 6.3 percent; the infant mortality rate had fallen from 25.6 per 1,000 births in 1990 to 13.9; enrollment and completion in basic, secondary, higher and further education all showed strong improvements over the decade of the Bolivarian process and the number of people living in extreme poverty fell from 24 percent in 1990 to 9.4 percent by 2007. The external debt to GDP ratio was down to just 11.3 percent and Venezuela experienced double digit growth and a strengthening of its international reserve position. This was also a period of strengthening political legitimacy. Poll surveys showed that Venezuelans had a high level of confidence and trust in their participatory democracy, president, and electoral system—marking a strong change from the 1980s and 1990s (Bravo-Escobar 2007;


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Latinbarometro 2006). Further to this, there was a growing body of evidence that the Misiones, the MTAs, the CUTs and community councils had a transformative impact on traditionally marginalized and excluded groups (Bravo-Escobar 2007; Encuentros 2005; GarcíaGuadilla 2007; Lacabana and Cariola 2005), with participation in these organizations improving perceptions of individual efficacy, levels of interpersonal trust, connections to government, access to welfare, and social development. Ultimately the challenge facing the “Bolivarian alternative” lay in institutionalizing these progressive and democratic changes introduced by the revolutionary process and ensuring their survival beyond the presidency of the authoritative figure of Chávez. This was a complex proposition in a period of conflict, evolution and transformation; persistent shifts in the power bases around the government; eclecticism in policy direction; the high turnover of personnel and ad hoc policy initiatives—all of which were key features, and weaknesses of the Bolivarian alternative.


Chapter 8

Continuity and Change in Chile’s Neoliberal Democracy Teresia Rindefjäll

In a region where neoliberalism is questioned in sometimes radical

ways, Chile stands out for its robust governance, strong political institutions, and the relative stability of the neoliberal model (Panizza 2005a: 726). Chile is undoubtedly one of the few Latin American economies where opening the economy has led to steady, export-led growth. Nevertheless, inequalities in income and political influence are entrenched, despite some success in terms of poverty alleviation programs (Taylor 2006). Since the transition to democracy, Chile’s political economy has been one of “reformed neoliberalism” (Taylor 2006: 79–81), a balancing act between continuity and change (Gwynne and Kay 2000: 153). Continuity is considerable in the economic field where the democratic governments of the Concertación Democrática—the Center-Left coalition that has governed the country since General Augusto Pinochet’s seventeen-year-long military dictatorship ended in 1990—have been notable for their prudence and fiscal restraint, continuing the free-market economic policies undertaken by the military dictatorship. Continuity is also present in the social field. Here, however, there has been a more pronounced attempt to go beyond the Washington Consensus recipe for development. The state has been given a more active role in social policy and public expenditures have risen substantially, enabling a systematic cutback in poverty. This commitment to poverty alleviation, which successive governments have deployed to good effect as a demonstration of their genuine commitment to more equitable development, has served to limit the extent of domestic opposition to market democracy. The administration of Michelle Bachelet combines traditions of both continuity and change. Her election as president in 2006

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represented the fourth consecutive victory for the Concertación. Yet, despite this obvious continuity, she was proclaimed as a force for change and described as heading the first truly “post-transitional” government. Her campaign rested on a claim that she would, as president, prioritize the struggles for equitable development; but it has been hard for her to turn rhetoric about social inclusion into practice. The difficulties, I argue here, can be ascribed to the powerful legacies inherited from the dictatorship (1973–1989), both in terms of entrenching the open market paradigm and with regard to the firm institutional limitations on democratic deepening. This is not to say, however, that change is completely off the agenda; but change is far from being the leit motif of the Bachelet government and it is happening within a context of relative continuity. The chapter is divided into three sections. I begin with a discussion of Bachelet’s program of change and the inclusion agenda and examine how far this has been translated into policy thus far. In order to understand the slow pace of change, we need to understand the context and the particularities of Chile’s development since the 1970s. I argue that, despite a progressive agenda, the Bachelet administration has been able to steer only very cautious reforms through that do not challenge the fundamentals of economic arrangements inherited from the dictatorship. In the second section, I argue that the socioeconomic and political constraints rooted in Chile’s model of democracy explain why the most radical reforms proposed by the government have failed. There is a tension, I suggest, between the agenda of development through inclusion, that is, Bachelet’s own agenda for government and the preservation of the economic model. Analysis shows that, despite some important attempts at innovation by government, policies of social and civic inclusion are not challenging preexisting hierarchies and neoliberal norms. Yet, at the same time, the measures to reduce poverty, which have been a hallmark of the later Concertación governments, limit the extent of popular opposition. Finally, in the conclusion, I discuss the sustainability of Chile’s sui generis accommodation between neoliberalism and progressive politics. Economic Growth and Social Inclusion: Changing Paradigms of Development The economic history of Chile has been characterized by pendulum swings between fundamentally different concepts of the role of the state and the market. The kind of rupture that has led, in much of Latin

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America, to a dramatic rejection of the neoliberal project, had taken place in Chile in 1973—except in this case, it was a violent rejection of statist governance which contributed to military intervention and laid the groundwork for the introduction of early neoliberalism (Roberts 1998; Garretón et al. 2003). Still today the market-based model of development inherited from the military regime and subsequently recalibrated by the Concertación governments enjoys a relatively high degree of legitimacy (Panizza 2005a: 726). This legitimacy relies in large part on the fact that social peace and a commitment to incremental social progress have been grafted onto the terms of the neoliberal model which have allowed for a significant reduction of poverty and a general increase in welfare. In conjunction with economic growth, this has meant that political leaders have been able to avoid a detailed domestic debate about the viability of export-generated growth over the long term; there are no realistic signs that anyone from within the Center-Left (or indeed from outside it) can seriously challenge the concept of market-led development (Motta 2008). But, even though market approaches to development go largely unquestioned, neoliberal norms and principles have entrenched a skewed distribution of power and deeply rooted inequalities, which go beyond those of income. There is something of a paradox in that the application of Washington Consensus–style policies has produced a model of stable growth which, in turn, has contributed to the emergence of an elite consensus around the domestic political economy; but, at the same time, it has also embedded deeply conservative and undemocratic social hierarchies—not only of class, but also of gender and ethnicity—which actively undermine citizenship and limit and impoverish the public sphere. The costs of neoliberalism, in other words, have not just been economic; they have also been eminently political. The growing citizen alienation from traditional political parties and political elites, and the closed-door approaches to policy and decision making that they pursued (the latter in fact was an integral part of the growth with equity strategy), meant that expectations were high when Michelle Bachelet took office in 2006. Not only did Bachelet, a left-wing member of the Concertación, promise to bring into office a new generation of Chileans but her political agenda was firmly anchored in commitments to a more participatory, inclusive and equal society (Franceschet 2006; Angell and Reig 2006; The Economist March 11, 2006; Siavelis 2007). At the same time just as neoliberalism was being ousted and criticized elsewhere, Bachelet

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promised not to undo neoliberal economics but to find a formula that would make open markets compatible with equitable citizenship. Bachelet’s Agenda of Equal Opportunities—A Change or More of the Same? More than two years into her presidency, the record of the Bachelet administration can, at best, be described as mixed. As with her immediate predecessor, Ricardo Lagos, Michelle Bachelet, previously minister for Health and then Defense, was elected on a program that reflected elements of both continuity and change. Pledging to maintain macroeconomic stability which is fundamental to the growth with equity strategy (see Ramos 1995) and insisting on the fiscal responsibility of the state, the parameters within which change was to take place were set from the start. In other words, rather than challenging the model per se, Bachelet made it clear that reforms were to be carried out within the existing model. Thus, the reformed neoliberalism of Bachelet is significantly less dissociated from neoliberal orthodoxy than in Venezuela and Bolivia. Nevertheless, her agenda for government differed from former Concertación government agendas in proposing to deepen reform in key social policy areas. Bachelet also expressed her commitment to greater transparency, accountability and participation and vowed to forge a more inclusive and open “government of citizens” (cf. Angell and Reig 2006; Valenzuela and Dammert 2006). Bachelet made education reform a priority, alongside reform to the pension system and a rethink on policies for young children, thereby promising, in effect, the introduction of an element of social protection for all Chileans from the cradle to the grave (Gobierno de Chile 2005b: 11–13; La Tercera August 29, 2007; El Mercurio Online November 14, 2007). Building on reforms that had taken place under the previous administration, these proposals were grounded in a language of rights. The aim was to provide a conceptual framework that would allow the government to address the problems of inequality and social welfare without antagonizing the Right or business. Rights talk was a far more marked element of Bachelet’s program and, above all, reflected in her commitment to strengthen entitlements for the most vulnerable groups. The government can point to some important achievements, pushing through reforms of the educational and pension systems, introducing a solidarity element in the individualized system as well as establishing a minimum pension for all (La Tercera August 29,


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2007; latino.msn.com November 13, 2007; El Mercurio Online November 14, 2007). In addition, the government expressed a commitment to gender equality and, to show an example, appointed an equal amount of women and men to cabinet posts. Further underlining her focus on equality of opportunity, she has subsequently implemented reforms to allow women access to careers in the army and police forces, established a women’s abuse hot-line and trying to make the “morning-after-pill” more readily accessible to Chilean women.1 Although Bachelet has made it clear that there will be no legalization of abortion or gay marriage, her policies on gender are certainly progressive, even if their impact will be felt most by middle class and professional women rather than the poor (cf. Franceschet 2006). But, overall, reforms have fallen far short of the initial promises and the result has been considerable domestic disenchantment with the failure to improve the lives of ordinary Chileans. This has led to waves of protests from students and trade unions without precedent, at least since 1973 (cf. La Nación September 23, 2007; Siavelis 2007; Lagos 2008). Although not comparable to the massive protests that have brought governments down elsewhere in Latin America, they are a sign of an awakening and repoliticization of the Chilean citizenry and of a more collective questioning of the social debt left behind by Pinochet. As such they are an expression of a disappointment with the failure to produce equality of opportunities for all citizens (La Nación September 23, 2007; Lagos 2008). The protests have had, above all, a symbolic value; they have been thin and ineffective as instruments of political change and stand in sharp contrast to Chile’s own tumultuous past and the rest of the region. Why this should be so can only be understood in the context of Chile’s transition and the norms and institutions that were established then and which continue to condition political action now. Chile’s Neoliberal Modernization Chile’s application of neoliberal ideas has been unusual in several ways. First, the reforms and policy measures began under the Pinochet dictatorship in the mid-1970s, much earlier than in the rest of the region. Second, the political climate at the time, characterized by elite fear of disorder and Communism, a weakened landowning class as a result of the land reforms carried out in the years before the military coup and high levels of state repression meant that the reforms were implemented at a speed and with a scope and ideological coherence

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which was unparalleled elsewhere (Scott 1996; Schild 2000). For this reason, the first stage of neoliberalism, between 1973 and 1982, has widely been regarded as the most orthodox implementation of the neoliberal model (Portales 2000: 379; Schild 2000: 297; Mesa-Lago 2002: 2; Ffrench-Davis 2003: 81). In effect, the military regime embarked upon a program of rapid economic stabilization followed by the introduction of a range of freemarket reforms, the so-called Plan de Modernizaciones (Modernization Plan). The financial sector and foreign trade were liberalized, and public services and companies were privatized, with the important exception of copper (Vergara 1994; Ffrench-Davis 2003). In combination with decentralization, tax cuts and massive decreases in public spending on social programs, these measures served not only to lay the ground for long-term macroeconomic stability but to reduce the role of the state and to dismantle earlier attempts to construct a welfare state (Estado de Beneficiencia), replacing it with a subsidiary state (Estado Subsidiario) (Roberts 1998: 111; Schild 2000: 282; cf. Ffrench-Davis 2003: 84). Thus, the old developmental model where the state tried to act as a source of social integration was replaced by a model that identified the market as the engine of development and income distribution. Philosophically, social equity was thought to result from the trickle-down effects of economic growth (even if this would take some time) rather than government planning which would interfere with the workings of the market (Schild 2000; MesaLago 2002; Illanes and Riesco 2006).2 Market-based reforms were not only directed toward the financial structure and the trade regime but also at social institutions such as social security and health care. These reforms and the concomitant redefinition of social and civic entitlements as commodities had the effect of depoliticizing traditionally key public policy sectors. For instance, privatization schemes served to dismantle Chile’s traditionally strong public health system as accessibility came to rest on the ability to pay (Collins and Lear 1995: 98–105; Illanes and Riesco 2006). Following a similar logic, the introduction of reforms to foster competition in the educational system led to the segregation of schools by socioeconomic criteria (Matear 2007: 104). In short, neoliberal-inspired policy was put into place as a development strategy and a new social policy paradigm. With this broad application of market-liberal ideas and an emphasis on individual solutions, citizens were transformed into clients and consumers. In combination with the abolishment of democratic institutions, and the attack on collective action by the ban on parties and unions, Chile experienced


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a dramatic transformation of its social and political landscape and a deactivation and de-politicization of public political life (Silva 2004; Weyland 2004). The policies adopted in the 1970s brought inflation, one of the bugbears of the Chilean economy until then, firmly under control, as well as leading to significant foreign investment (Ffrench-Davis 2003: 240–243; Andersson 2003). But the effects of unmediated structural adjustment in the 1970s also included a sharp decline in living standards for the majority of Chileans (Vergara 1994: 144–145; Schild 2000: 282–283). Rising employment combined with falling real wages and massive welfare cutbacks led to soaring poverty rates (Scott 1996: 160; Ffrench-Davis 2003: 85–86, 313). According to a headcount ratio, the poverty rate in Chile in 1987 was 38.1 percent, compared to 17 percent in 1970 (Scott 1996: 171). With the debt crisis in 1982 and 1983, Chile’s GDP fell by 16 percent and unemployment reached 30 percent. Around 50 percent of the Chilean population fell below the poverty line (Foxley 2004: 1). The crisis, which has been compared in severity to Argentina’s crisis in 2001, gave the opposition a boost that would pave the way for the transition to democracy. Unlike the Argentine crisis in 2001, however; repression and the effects of the de-politicization process served to curb the protests and to limit the extent to which neoliberalism was rethought. Nevertheless, recognizing the need to recalibrate the economic model, partly in response to public unrest, the neoliberal experiment was altered after 1983, allowing for a greater degree of state regulation over the market (Jadresic and Zahler 2000: 7; Foxley 2004: 1; Ffrench-Davis 2003: 30–37).3 Thus, to some extent, orthodox neoliberalism was deemed a failure in Chile as early as at the beginning of the 1980s. The more pragmatic engagement with neoliberalism that was the result led to steady, export-led growth after 1985. Between 1986 and 2005, growth in Chile registered 4.8 percent annually, a remarkable success in the context of region-wide instability. This, more than anything else, explains why the market model goes unquestioned inside the Concertación. The Evolution of the Chilean Development Model—Toward Post-neoliberal Governance? Chilean democracy was restored in 1989 and the first democratic government took office in early 1990 under Patricio Aylwin. On taking office, the government benefited from a more promising economic situation than any other of the new democracies in the

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region and the tough liberalization and privatization policies then being undertaken by many neighboring countries under the auspices of the World Bank and the IMF had already been carried out in Chile (Vergara 1994; Hershberg 1997). From 1987 although structural adjustment programs had had disastrous effects on income distribution (Ffrench-Davis 2003: 316), poverty had already started to decline. Nevertheless, Chile still had one of the most regressive income distribution structures on the continent (Schild 2002: 177–178; Angell 2005). In this context, the Concertación opted for the growth with equity development agenda which allowed the government to retain its commitment to market-based economic growth whilst emphasizing the importance of social development. In practice it meant the continuation of conservative fiscal and monetary policies, pursuit of a budget surplus and a reduction of public debt, liberalization of trade and a preoccupation with competitiveness as policy keystones (Hershberg 1997: 342; Weyland 1999b: 71; Foxley 2004: 1).4 This continuity, which would avoid redistributive conflict and capital flight, was a central element of the so-called democracia de los acuerdos (democracy by agreement), an approach which shaped the Chilean transition and which implied that all sensitive policy issues would be resolved via negotiation and agreement between powerful economic actors and leaders of the opposition (Weyland 1999b: 70; Siavelis 2007: 75). Inevitably, this model set in stone a continuation of the alliance between the state and business which had emerged under Pinochet, privileging the voice of Chile’s capitalist class over economic decisions (Silva 1993; Grugel 1999). The Concertación attempted to balance broad continuity in economic policies with increased attention to the need for social equity. The state took on new roles in the economy but it did so selectively, pragmatically and quietly. For example, the tax base was broadened, regulations on short-term foreign capital flows introduced and a focus on domestic savings had the effect of strengthening the Chilean position on the global market (cf. Ffrench-Davis and Agosín 1999: 129–136). Discursively, the fight against poverty rose up the political agenda (Ffrench-Davis 2003: 318; Foxley 2004: 1), but the anti-poverty policies were constrained by the dominance of the Ministry of Finance which remained committed to free market policies (cf. Taylor 2002: 58; www.agoravox.com October 9, 2007). Nevertheless, social policy initiatives emerged that were significantly different from those undertaken by the military regime, not only in scope but also in terms of underlying principles. Instead of being seen as a necessary means to curb social unrest, a reduction of poverty was

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considered an ethical imperative for the new democracy and a motor for continued growth. Moreover, anti-poverty strategies have been steadily successful. Poverty has fallen from 38.6 percent in 1990 to 13.7 percent in 2006 (MIDEPLAN 2007a: 28). During the same period, the incidence of extreme poverty decreased from 13.0 to 3.2 percent (MIDEPLAN 2007a: 28) (see table 8.1). According to most observers, these successes can be attributed to a combination of robust growth and social intervention (Foxley 2004: 6; Ffrench-Davis 2003: 15; Siavelis 2007: 73).5 Growth rates were an average of 5.5 percent between 1990 and 2005, double the regional average (www.imf.org). At the same time, public expenditures in the social sector increased dramatically (Weyland 1999b: 81; Angell 2005: 20; García Hurtado 2006: 3; Muñoz 2007: 94). Although public expenditure levels are still low compared with pre-coup levels, in relation to GDP and compared to social spending across Latin America, they reveal a cautious departure from the policies of the military regime, even from the reformed neoliberalism which took hold after 1985 (cf. Illanes and Riesco 2006). Indeed, in some ways, the growth with equity strategy of the Concertación could be described as an early engagement with post-neoliberal governance. Rather than being a blueprint of unfettered market liberalism, progressive state intervention has gradually become a marker of development strategy, incipiently from 1983 and in a more pronounced and open fashion from 1990. Economic growth and social spending have resulted in significant improvements in HDI (human development index), increasing from 0.788 in 1990 to 0.859 in 2004 (UNDP 2007: 249). Preschool education coverage has increased steadily, access and participation among the poorest pupils has improved and formal education has been extended to 12 years of compulsory study (Matear 2007: 102; Table 8.1 Poverty and Extreme Poverty in Chile, 1990–2006 (Percentage of Population) Year

Poverty

Extreme Poverty

1990 1992 1994 1996 1998 2000 2003 2006

38.6 32.9 27.6 23.2 21.7 20.2 18.7 13.7

13.0 9.0 7.6 5.7 5.6 5.6 4.7 3.2

Source: MIDEPLAN, Encuesta CASEN (2007a).

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MIDEPLAN 2007b). The gross enrolment ratio for secondary level education increased from 73.5 percent in 1990 to 90.8 percent in 2005 (www.devdata.worldbank.org). During the Lagos presidency, the number of students in higher education rose from 411,000 to 600,000 (Angell and Reig 2006: 482). With regard to health indicators, the mortality rate for children aged 1 to 4 fell 50 percent in the 1990s and maternal mortality rates are now amongst the lowest in Latin America (Gobierno de Chile 2005a: 24–28). Moreover, between 1990 and 2000, real wages increased by 3.3 percent per year. In 1998, the minimum wage was equivalent to 45 percent of the average salary of unskilled workers, increasing to 60 percent in 2003 (de Gregorio 2005: 70). Unemployment levels have been volatile, but after an increase in levels between 1998 and 2000, unemployment has decreased again, reaching 7.3 percent in 2006 (MIDEPLAN 2007c). And there are also other material indicators of the relative success of the Chilean development path—between 1992 and 2002 the numbers of households possessing color TV and cell phone increased from 53 to 87 percent and 1 to 51 percent respectively (Muñoz 2007: 104). In conjunction with measures to decrease Chile’s volatility as an export-oriented economy and measures to strengthen state capacity, government effectiveness and the rule of law, the Chilean development model has retained a relative elasticity when faced by temporary economic downturns such as the Asian crisis in 1997 (cf. Weyland 1999b: 73; Angell and Reig 2006: 483).6 In short, it is hard to avoid the conclusion that the success of Concertación governments in raising the living standards of the poorest—due in large part to a willingness to deviate from orthodox neoliberal ideas with regard to the state—along with the steady growth rate, go a long way to explain why there has been relatively little popular protest, despite entrenched inequality. This was the Chile Bachelet inherited. To it, she tried to bring a greater ambition in terms of social reform. In contrast to social policy practice during the major part of the 1990s, Bachelet’s reforms proposed to provide near-comprehensive protection; and this, more than anything else, marked her approach out as a break with the past (cf. Schild 2002: 178). Moreover, her agenda picks up on important changes in the international and domestic context. The cooling effect of the Asian crisis at the end of the 1990s, in conjuncture with the debate that followed the detention of general Pinochet in London in 1998, was the starting point of some more serious questioning of the neoliberal paradigm in Chile (cf. Taylor 2002: 68–69, Silva 2004; Illanes and Riesco 2006). In addition, there are signs that ordinary


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people may be becoming more impatient with elite rule and the lack of redistribution; what Peter Siavelis calls “the paradox of success” (2007: 75; cf. Lagos 2008: 121) is leading to some impatience with the slowness of social change. Bachelet captured the appetite for change well during her presidential campaign, promising an agenda of social citizenship to balance the neoliberal economy. Once in government, there have been a range of proposals designed to lead to a new politics of inclusion, voice, and participation. But her commitment to change has meant, perhaps ironically, that she has been less able to govern decisively and effectively than earlier Concertación administrations. Some of her policies have generated elite opposition, such as her commitment to civic participation in certain key reforms. With regard to the pension system reform, for example, even though participants were mainly high-ranking economists, and organizations representing the poor were conspicuously absent in the consultations, opposition was considerable. Equally, many of the more progressive elements of the recent educational reform, in the end, were bargained away in order to push the reform through Congress.7 At the same time, the reemergence of social protest, sometimes at the slow pace of change, has contributed to a view that she has failed to anticipate and contain unrest (Siavelis 2007). While Chile’s pattern of very unequal income distribution predates neoliberal restructuring, it was intensified by structural adjustment measures and the speed of increases in earnings of the top 1 percent of the population (Ffrench-Davis 2003: 40; Angell 2005: 16). Privatization of the social security system, education, and health care created a two-tiered system that made vulnerable groups even more vulnerable and reduced the capacity and role of the state to distribute quality services more equitably (cf. Matear 2007). Chile’s privatized health care system covers only about 18 percent of the population. The remaining part of the population relies on the public system which is seriously under-funded (Siavelis 2007: 74–75). Studies have also shown that, despite dramatic increases in public and private investments in education, quality remains poor and choice in education is contingent on purchasing power (Siavelis 2007: 74; Matear 2007). Nevertheless, social spending has made some difference and a slight improvement in equality can be discerned between 2003 and 2006 (MIDEPLAN 2007d) (see table 8.2). To conclude this section, it should be acknowledged that the Bachelet administration has recognized the problem of socioeconomic

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Table 8.2 Changes in Income Distribution in Chile (Ratios 10/10, 20/20, 10/40, and the Gini-Coefficient)

10/10 20/20 10/40 Gini

1990

1992

1994

1996

1998

2000

2003

2006

30.1 14.0 3.5 0.57

27.9 13.2 3.3 0.56

29.9 14.0 3.5 0.57

32.2 14.7 3.5 0.57

34.5 15.5 3.5 0.58

32.8 14.5 3.5 0.58

34.6 14.6 3.4 0.57

31.3 13.1 3.0 0.54

Source: MIDEPLAN, Encuesta CASEN (2007d). Calculations based on autonomous income.

exclusion and made efforts to address it. Nevertheless, the government has not managed to substantially redirect development into a more equitable mould. Targeting remains the preferred social policy mode, despite rights talk. This is due to deeply embedded norms, which have been internalized within the Concertación and indeed across the mainstream of the political spectrum, which privilege economic growth over redistribution. Thus, the country’s dismal inequality records are due not only to fiscal constraints and elite veto over the introduction of a more progressive tax system, but also to a lack of political will (Weyland 1999b: 70; Schild 2000: 174). Nevertheless, the model worked well in terms of providing a stable climate for governance and earned Chile international acclaim. There were, consequently, few incentives and little support from within the coalition for Bachelet to make good on her promises once she had taken office, especially since doing so would have meant unpicking the agreements between the state and the industrial/agro-exporter community which has enjoyed disproportionate political inf luence over decision making since the transition to democracy. Political Inclusion—Participation, Citizenship, and Rights More than anything else Chile’s model of democracy explains the persistence of continuity over change. As we shall see in this section, it is also a contributing factor in explaining the lack of major popular protests against neoliberalism. With the reintroduction of democracy in 1990, the political system was dramatically altered as electoral competition and civil and political rights were reestablished. During the course of the Concertación administrations, democracy has been stable and its institutions are strong. According to a World Bank governance index, Chile scores well above the Latin American average


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on indicators such as the quality of regulation, control of corruption and accountability (Angell and Reig 2006). However, the political system is still largely one where policy is the result of inter-elite negotiation, with very limited citizen input, and disproportionate powers are vested in the executive. The electoral system was specifically engineered to institutionalize right-wing influence. Authoritarian enclaves have persisted. In effect, the so-called democracy by agreement was designed to safeguard the economic and political project of Pinochet and it has done so quite successfully thus far. Concertación governments have rarely challenged this restrictive democracy or encouraged popular participation, except for self-help activities which are devoid of transformative potential (Moulián 1997: 104–106; Paley 2001: 146–147). As a consequence, most Chileans have gradually disengaged from politics. There are signs, however, that this quiescence is coming to an end and evidence of a political awakening of important citizen groups. The Participatory Agenda of Bachelet The election of Michelle Bachelet signaled that there were some real concerns inside the Concertación about the need to extend the terms of political inclusion. Building on previous efforts by president Lagos to strengthen civil society and providing at least some inroads for citizens into public policy–making, Bachelet promised greater participation in public debates and decision making. Accordingly, reforms to increase the representation and responsiveness of the political system as well as to open up the political system were announced. The former was expressed in the government’s commitment to reform the binomial electoral system and the latter in the Agenda Pro Participación Ciudadana (Pro Citizen Participation Agenda) from September 2006 where measures to strengthen civil society, participation in public administration and to promote non-discrimination and respect for diversity were presented (SEGEGOB 2006). Many of these reforms were encased in a language of rights, reflecting the international interest in the rights-based approach to development (see Nyamu-Musembi and Cornwall 2004; Rindefjäll 2005). The government has shown interest in pushing freedom of information reforms, for example, as well as the gender reforms mentioned above. But even here, there have been difficulties and the government has been forced to proceed with caution. Contentious issues relating to reproductive health have been dropped, considered too politically sensitive to tackle (cf. Franceschet 2006). Gender reform in

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particular has come up against the conservatism of the political elite and the Right, which enjoys a disproportionate power in Congress since Constitution amendments require a two-third majority. Even the ruling elite has a deeply held fear of ordinary people, meaning that sectors of the Concertación itself are suspicious of social reform. Meanwhile, the capacity and confidence of the government to engineer social (as opposed to economic) change has been limited by its steady withdrawal from the social sphere in the 1970s and 1980s. Again the roots of the problems now lie in the political changes wrought under Pinochet. Neoliberal Modernization and the Reconceptualization of Citizenship The rearticulation of the sociopolitical matrix that took place during the years of military rule had far-reaching and enduring effects on the citizen-state relationship. During the statist period in Chile, within the parameters of a strong paternalistic state, the dominating social policy paradigm conceptualized the citizen in terms of a passive beneficiary and benefits were frequently granted in exchange for political support (Roberts 1996). At the same time, in contrast to what might be expected, Chile was probably one of the most politicized countries in Latin America during the 1960s and early 1970s (Garretón et al. 2003: 17; Silva 2004: 63). Social movements, in particular workers’ organizations, were active in pushing for social change and political parties played a key role in articulating societal demands (Serrano 1998, Posner 1999: 60). However, the key drivers of political action on the part of civil society came from the state, and the state was the main source of social integration (UNDP 2000: 180; SEGPRES 2001: 9; Garretón 2003: 10). In a conscious attempt by the military regime to depoliticize society by criminalizing political activities and shifting the responsibility of social welfare issues from the state to the individual, the allegedly neutral market became the principal mechanism for allocating resources (Silva 2004: 68). Social support programs were kept to a minimum and distributed via targeting. Although the neoliberal model did not completely replace the traditional state-centric model, it did come to permeate social and political institutions. In the process, the state lost much of its responsiveness. Meanwhile, as citizens were reconceptualized as consumers with responsibility for their own fate, and in the context of violent repression, social organizations disintegrated and mass mobilization declined (Schild 2000: 275–282;


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Silva 2004: 69). This view of the citizen and her relation to the state is present in the 1980 Constitution, which reflects “a coherent neoliberal project and a strong neo-liberal interpretation of citizenship” (Taylor 1998: 62). Social mobilization only seriously threatened the stability of the dictatorship once, in 1983. Sparked by the onset of the debt crisis in 1982, street protests challenged the dominant view of the role of the citizen as a self-sufficient apolitical agent. But elites quickly reorganized and, as the transition seriously began in 1988, input from the popular sectors was kept to a minimum by the closed-door negotiating strategies of elite actors, anxious to preserve the economic model and contain any chance of disorder (Oxhorn 1994: 54–57). Overall, the neoliberal development model required an essentially elite model of democracy where democracy is understood in its minimalist sense of a political order functional to stable economic growth. As a consequence, civil society emerged from the transition fragmented and lacking in coherence and force. Furthermore, actors that traditionally had protected and represented the least advantaged sectors in society, the Communist Party and labor unions, were weakened as they were outflanked by the considerably more sophisticated reformed Left (Roberts 1998: 112–115). A New Role for the Citizen and the State? To some extent, aspects of the participatory agenda had surfaced in the Concertación before Michelle Bachelet’s campaign. The state had also taken on some of its previous social role through coordinating pro-poor policies. Successful efforts to alleviate poverty had increasingly enabled citizens to participate more effectively in the market and in sociopolitical processes. Furthermore, in contrast to the very restricted view of citizen participation adopted by the Pinochet regime, the Concertación always emphasized the value of participation, in its own right and as a contribution to economic modernization (MIDEPLAN 1992: 29–33; Garces and Valdes 1999: 18). Bachelet’s agenda is deeper however and its success depends, once again, on whether she can successfully reform the electoral system and bring to a close the excessive power the Right has had to determine the parameters of reform. There is no doubt that the constitutional order, which was important in convincing the Right of the need to work with democracy in the first stage of the transition, has now opened a gap between leaders and citizens which is fundamentally untenable with the agenda of substantive and responsive democracy

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(Angell 2005: 5; Valenzuela and Dammert 2006: 72). It is for this reason that she made electoral reform a top priority. So, when her proposals were turned down in the lower chamber of Congress in May 2008, it was a serious blow not only to the agenda of political change but also to the possibilities of social reform and it stands as a clear sign of the deep opposition of the Right to her agenda. The elite fear of the masses, quiescent and moderate, is still a significant motivating force of the Chilean Right; the scars of 1973 are far from healed. In this context, it is not really surprising that the citizenship agenda has not progressed far. To be fair, there were a few timid successes under Lagos. In particular, the Concertación could point to the AUGE reform of the health sector and the so-called New Deal in 2001, supported by the IADB, which tried to promote the idea of participation as a feature of modernization (DOS 2003: 5). Lagos’ strategy was to try and depoliticize the imperative for change by aligning it with change in the international development agenda which increasingly focused on the idea of citizen involvement as a tool of development (Cornwall 2000: 31–41). Bachelet has on the whole been more upfront. Legislation on citizen participation was prioritized and the government managed to get it approved in the lower Chamber of the Congress in March 2007. Although limited in contents, the new law, once in place, should bring in some much-needed changes. However, despite these achievements, the Bachelet administration suffers from many of the same weaknesses as during the Lagos administration. The introduction of the muchvaunted citizen councils are a telling example here. Bachelet came up with the idea of commissioning citizenship councils in key social policy areas early into her administration in an effort to make plain the willingness of the government to listen and to broaden the base for decision making (Aguilera 2007: 121). But the experiment has had mixed results. It has been positive with regard to issues of voice and transparency (Aguilera 2007: 138–142). But it has not changed the direction of policy. Councils have failed to act as an effective channel of influence for key actors such as labor unions (Aguilera 2007: 138–142). The councils are illustrative of the ideological conflict inside the Concertación between those who are keen to upgrade questions of rights and democracy on the one hand and the persistence of traditions of individualism, privatism, and elitism. These overlapping agendas create a tension that, in the end, limits the potential of government initiatives to open up spaces that encourage citizen participation. The Concertación governments—even the Bachelet administration—have largely got away with quite limited reform because of the


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fragmentation and weakness of civil society. But student and worker protests after 2006 indicate a change in the tempo of dissatisfaction with government and may be a sign of a popular repoliticization. Ironically, it could be argued that they offer an opportunity to the president and other Concertación members committed to the social agenda, if they are able and willing to embrace it, for mobilization from below might serve to open up opportunities for the introduction of reform. It is worth noting that it was only after public pressure that the Lagos administration began to address the issue of inequality in health services, resulting in the AUGE reform (Teichman 2008: 450). But the government will have to tread a very cautious path if it does press on with further reforms for fear of antagonizing the business community. If that happens, the government will almost certainly opt to abandon the reform agenda. By Way of Conclusion—The Challenges Ahead It has been argued in this chapter that the Chilean development model represents a variant of reformed neoliberalism (Taylor 2006: 80). The reorientation from neoliberal orthodoxy began after 1982 but was significantly accelerated with the reintroduction of democracy and a transformation of government policies in line with neostructuralist ideas of growth with equity (cf. Gwynne and Kay 2000: 153). The state has taken on a more important role and the need to include disadvantaged groups and create more effective practices of citizenship have been identified as outstanding tasks for government. This is a significant move away from neoliberal orthodoxy. But it is rarely recognized as such because Concertación governments have themselves tried to deflect attention away and have proceeded with the agenda of change very cautiously and have tried, at the same time, to reassure domestic business and international investors that the economy remains “safe” in their hands. Nevertheless, in some ways what is often regarded as a free-market miracle is, in fact, an understated and pragmatic version of post-neoliberal governance. The case has been made here that the Chilean development model is an intricate interplay between continuity and change and its capacity for evolution provides a partial explanation for its resilience. Change, though most pronounced in terms of social policy and the citizenship agenda, also involved a more dynamic role for the state in terms of managing the market. As a consequence of sustained economic growth and effective public social spending, meanwhile, the Concertación governments have been able to reduce poverty and raise standards of

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living for the poor. In other words, an important but neglected explanation for the success of the Chilean development model is effective state intervention (Illanes and Riesco 2006; Siavelis 2007: 72). In the process, most Concertación leaders, even those who had been vociferous critics of the neoliberal recipes, have become convinced of the superiority of Chile’s idiosyncratic model. Improvements in human welfare, as reflected in health and education indicators, have been wrenched out of the system and, although unevenly distributed, have served to take the edge of discontent and protest. I have also argued that the stability of the development model owes much to the politics of the transition. First, the institutional legacies of the Pinochet regime and the embedded patterns of inter-elite negotiation and agreement have hindered the introduction of major reforms to what is a carefully crafted political system. Elite agreements, meanwhile, have been predicated and maintained through the persistence of a de-politicized and de-activated citizenry (cf. Moulián 1997: 104–106; Paley 2001: 146–147). However, while this model of democracy offered much needed stability in the early years of democracy, it is now a real obstacle to democratic deepening and acts as a block on governments elected with a mandate for sweeping change, such as that of Bachelet. The cautiousness of her agenda, as well as the difficulties that she has had in translating it into actual policymaking, show how strong the institutional and economic legacies from the past are. These legacies have contributed to a continuation of technocratic and targeted solutions to socioeconomic problems, even as Bachelet has endorsed a rights-based agenda in terms of discourse. As a result, policy changes have been palliative, rather than transformative and have preserved the status quo, rather than challenging it. The growth with equity model so beloved of the Concertación obviously rests on a balance between open markets and exports and the social agenda; the state needs to encourage the market to focus on job creation as well as growth, along with the introduction of effective pro-poor policies, measures to tackle social inequalities and promote social inclusion and a genuine democratization of social relations. The ability to deal more effectively with inequalities in Chile is now more crucial than ever if the country is to maintain social peace and continue to represent a positive governance model for Latin America, where neoliberal recipes for development are seriously under challenge. For a small, open economy such as Chile, external vulnerability must be continue to be countered by policies to promote diversification of exports with greater value-added. A more flexible use of reserves is required along with a greater commitment to regional integration


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(although this is difficult for Chile, given the current politics of the region), along with investments in science and technology. But an agenda of technological or economic change is unlikely to be sufficient now. Growth now requires serious investments in human capital and, in turn, this requires greater equality of opportunities. This suggests that quite radical change is required. Until recently, the Concertación has been ambivalent about questions of equity, locating them squarely as part of the social agenda and, at the same time, viewing them as potentially destabilizing. Bachelet’s initiatives and focus on social rights and her understanding of the interconnectedness between the social, economic and political dimensions of development represents an important step in this regard. Thus far, however, the legacy of targeted action and established patterns of individualized solutions have acted as an obstacle to the introduction of change. Finally, in addition to social change and a strengthening of the economic role of the state, institutional reform is crucial if Chile’s particular form of post-neoliberal governance is to continue. The gap between citizens and decision-makers is simply unacceptable in what is now a stable democracy. Reform of the current electoral system is urgently required not only to improve the representativeness and legitimacy of Congress but also to renew party competition and internal party democracy (Siavelis 2007: 76). Considering the dramatic decline of citizens’ confidence in the traditionally strong party system, reform here could have important implications for the quality of democracy (cf. Valenzuela and Dammert 2006: 73). Moreover, while a greater openness to citizen participation and influence was discerned during the Lagos administration, the participatory and rights-based agenda of Michelle Bachelet has gone one step further, opening up opportunities for a more politicized and inclusive citizenship. But it remains to be seen whether this agenda for change, which moves along slowly and incrementally, can be carried out in the context of reformed neoliberalism. The obstacles to further change are very considerable; but equally, without it, Chile will be left behind in a region where change is happening fast. Notes 1. Although the so-called morning-after pill is still for sale in Chilean pharmacies, the ruling of the Constitutional Court in April 2008 banned the free distribution of the morning-after pills in public health clinics. As a consequence, only women who can afford the morningafter pill have access to it (IPSNews April 23, 2008).

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2. With regard to state capacity, it has been argued elsewhere that neoliberal restructuring was never really about merely shrinking the state. Rather, it was a deeper process of institutional transformation aimed at redefining the forms and tasks of the state and thus the relationship between state and society (cf. Schild 2002: 174). 3. It is also important to note, and of relevance for the discussion of post neoliberal governance today, that keeping the copper industry in state hands was a deviation from orthodox neoliberal policy from the outset. The importance of CODELCO, the national copper industry, today should not be underestimated as it contributes with a sizeable share of total fiscal revenues and enhances state capacity. 4. Having initiated unilateral trade liberalization in 1975, Chile is today one of the world’s most open economies with a multitude of trade agreements within and beyond Latin America. 5. The first stage of poverty reduction was relatively easy—according to estimates between 60 and 85 percent of the reduction resulted from economic growth (including employment creation) rather than income distribution (Weyland 1999b: 83; Angell 2005: 15; García Hurtado 2006: 9). The challenge is to make social spending more effective and to reach the hard core of extremely poor (Angell 2005: 15). 6. Deviations from orthodox market principles which have been effectuated and reflect the increasingly balanced role of the government and market include expansion of controls on foreign investment and tax increases (Weyland 1999b: 73; Valenzuela and Dammert 2006: 68; Siavelis 2007: 73). Although Chile still relies on export of primary goods, the democratic governments have continuously sought to achieve higher value-added in Chilean exports by processing the raw materials it had so far exported unprocessed (Weyland 1999b: 75). This diversification of the export sector decreases Chile’s vulnerability on a volatile world market. 7. With regard to early infancy, Chile is now one of only two governments not to have turned the Convention on the Rights of the Child into domestic law, largely in order to avoid a quarrel with the Catholic Church over sex education and contraception.

Chapter 9

Brazil: Toward a (Neo)Liberal Democracy? Sean W. Burges

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ne of the mantras that a student of Brazilian politics and society quickly encounters is that Brazil is not like other countries in the region, being a Portuguese-speaking former monarchy in a continent of Spanish-speaking republics. This assertion of difference and exceptionalism in core principles of national identity also resonates in debates on economic policy and the consolidation of democracy. Where other countries in South America such as Argentina, Bolivia, Ecuador, and Venezuela have spent most of the first decade of the twenty-first century profoundly questioning the economic models implemented within their countries and seeking to radically reformulate representative institutions and traditions, the reverse has taken place in Brazil. Here, the process has been one of continuity of central features of the national political economy, with change primarily limited to the mode of application. The 2002 electoral transition from the Center-Right government of Fernando Henrique Cardoso to the leftist government of Luiz Inácio Lula da Silva saw the rise of a Chile-like consensus on what shape economic policy should take. Mainstream political questions now revolve more around a tinkering with existing institutions, not the wholesale reformulation of representative systems. This is not to argue that there is no dissatisfaction with the socioeconomic situation; it is obvious that great challenges remain. But the so-called neoliberal era was not the disaster for Brazil that it sometimes appears to have been elsewhere. This chapter will argue, then, that neoliberalism or liberal economics have not been a failure in Brazil. Rather, much of the positive economic and political changes that have taken place in Brazil will be attributed to the consistent pursuit of a homegrown liberal economic

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agenda. The problem is instead one of partially formed regulatory structures and decrepit physical infrastructure imposing what amounts to a production tax on inward- and outward-oriented firms in Brazil. For Brazilians reveling in the rise of international champions such as Petrobras and Embrear, the question is not whether liberal economic policies should be pursued—there is a grudging consensus that reform has made the economy stronger and more stable—but how the theory of liberal economics should be applied to the Brazilian case and what measures the state should be taking to ensure that all members of society have a fair opportunity to pursue their social, economic, and political ambitions. In this respect Brazil is again very different from its neighboring countries. Rather than pursuing economic reform as a stand-alone goal, the new policies launched in the early 1990s were quickly integrated into a deeper, more probing program of sociopolitical reengineering that built upon the electoral procedural changes implemented during the democratic transition of the 1980s. The process mirrors the changes that were seen during the evolution of democracy in Western Europe and North America, drawing on shifting loci of political and economic power to push the country toward at least the second half of the motto on the national flag: “Order and Progress.” The significant departure that Brazil takes from the transformative democratization experienced by Northern countries in the eighteenth and nineteenth centuries is that the state has not absented itself from decision-making, meaning that Brazilian governments continue to actively attempt to implement national development policies, only now by recruiting and seducing the markets, not the strong-arming of the past. While the liberal economic experience of Brazil is certainly that of the “opening” seen throughout the rest of the continent, the unique aspect is that this opening is not just to external markets (and here the opening is decidedly guarded), but also to internal forces, giving more than just the economic elite a stake in the successes and opportunities that can come with deepreaching and sustained reform. In short, liberal economic reform in Brazil has been about far more than macroeconomic accounts; it has been an integral part of a long-term program of sociopolitical change accepted by vast swathes of the Brazilian political landscape. The Brazilian response to the pressures of neoliberal orthodoxy is predicated on a number of factors that sets the country apart. First, the country has an enormous domestic capacity for economic theorization and modeling. Second, two successive presidents have taken an extremely pragmatic approach to the formulation of economic policy, with Cardoso first drawing on his decades of study and research

B R A Z I L : T O WA R D A ( N E O) L I B E R A L D EM O C R A C Y ?

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on Brazil and development to formulate the real plan in 1994, and then Lula recognizing that results matter more than ideology and therefore choosing to maintain the core economic principles of the Cardoso era. Underpinning all of this were important changes in the political structure brought about by the 1988 constitution, which mandates all Brazilians over the age of 18 to vote. When combined with the sort of economic reforms implemented by Cardoso and continued by Lula, the changed political matrix precipitated by the 1988 constitution has created a self-sustaining process of transformative economic, political, and social democratization that is distinct from the wider Latin American experience and harkens back to processes seen in Western Europe and North America—representative democracy as a political regime-type evolving and entrenching in society because it most effectively and efficiently captures and channels the interests of important emerging political and economic actors. All of these factors in the Brazil case are important because they remind us of a number of things that we know intuitively, but often manage to forget when engaged in the detail of analysis. First, the so-called Washington Consensus is a package of policy principles derived from the precepts of classical liberal economics, not detailed commandments (Williamson 1997). As such, neoliberalism is actually open to interpretation, shifts in emphasis, and critically for the Brazilian case, revision. Granted, this latter aspect is tricky and relies on the ability to engage in detailed and sustained discussions using the language of economics and econometrics, but this is also precisely what has been taking place in Brazil for over twenty years. The second point draws directly on the first and has actually been codified in OECD DAC development assistance best-practices guidelines such as the 2005 Paris Declaration on Aid Effectiveness: development and economic policies should be tailored to reflect the actual realities of each country and not be applied in the cookie-cutter manner commonly found in IMF structural adjustment programs and their replacement poverty reduction strategy papers. Third, economics is about the distribution and allocation of resources, making economic policy a fundamentally political issue because it directly reflects the distribution of power throughout a society. This, in turn, has immediate impacts on democratic practice within a country. Stemming from this is the fourth reminder, namely that economic policy, particularly of the sort classified as neoliberal, does not operate in an institutional vacuum and thus requires a remolding of governmental and regulatory institutions and practices to reflect shifts in the underlying socioeconomic fabric of a country.

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Brazil during the neoliberal era is a particularly interesting case because it is an example of economic policy being consciously used to reform the nature of both the economy and politics of a country while simultaneously reflecting a shift in nature of policies required for electoral success. It is also an interesting case because the political leadership in the country at the presidential level was the critical factor initiating, leading, and maintaining transformative economic policies. As will be set out in the first section, Fernando Henrique Cardoso drew on a new political reality to explicitly deploy the principles of classical liberal economics during his presidency (1995–2002) in an effort to consolidate and further liberalize democracy within Brazil while simultaneously seeking to create a stable platform upon which future years of growth might take place. Electoral reforms started with the 1985 ballot and entrenched in the 1988 constitution provided a critical underpinning for the economic reforms Cardoso led, giving voice to the masses of informal workers and poor who were not protected from inflation through the sorts of carefully crafted union negotiations that Cardoso’s presidential successor undertook in the 1980s. The critical nature of the political shift that underpinned Cardoso’s programs was reinforced by the administration of Luiz Inácio da Silva, the candidate of the Partido dos Trabalhadores (Workers’ Party, PT), who apparently looked past his leftist political history to maintain the Center-Right economic policies of his predecessor and continue an economically grounded transformative democratization process of the country’s formal and informal politics. The cosmetic twists and turns Lula added along the way to appease his political base will be outlined in the second section, which will set up the analysis of the third section. An interesting sideline—one that points to the democratic transformations that took place in Brazil—that will be obliquely suggested in the discussion of the Lula presidency is that it almost appears as if a strange new coalition of interests emerged in the Brazilian polity at the end of the Cardoso era, one linking the inflation-hating informal poor with a new, export-oriented agricultural and industrial elite who require the international credibility that comes with macroeconomic stability to pursue expansion of their businesses. Although some of the top-level macro-economic indicators for the period are considerably less impressive than those found in countries such as China and India, a disaggregation of the GDP growth numbers by deciles paints a considerably different picture, one that is reinforced by the qualitative impressions that can be garnered simply by wandering through the country’s major cities. By combining this


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analysis with a consideration of the transformation in Brazil’s global trading profile the point that begins to emerge in the final section is not that liberal or neoliberal-style economic policies are the problem per se, but that the failures stem from a lack of concomitant governance reforms, chiefly the absence of adequate institutional and regulatory reform as well as a shortage of investment in key areas such as infrastructure. Moreover, a more controversial hypothesis that can be developed from the Brazilian case is that the poor of non-unionized, informal sectors are effectively pro-liberal economic policies because it removes one of the greatest strains on their economic welfare: inflation. Transformative Economics Brazilian economic history throughout the 1980s and 1990s is not a story of tranquility. As with the rest of the region, the debt crisis hit Brazil hard because the country had been consuming rather than investing the money it borrowed with negative interest rates during the 1970s. The result was a succession of economic rescue plans, none of which did more than slow run-away inflation. From a relatively tranquil 65 percent in 1986, inflation took off, spending six of the next eight years at well over 1,000 percent. After hitting 1,783 percent in 1989 and 1,476 percent in 1990, things calmed a bit in 1991 with a rate of 480 percent before macro-economic instability drove inflation back up to 2,708 percent in 1993 (Bresser Pereira 1998: 138). Spiraling inflation was accompanied by an overlapping series of foreign debt crises and homegrown structural adjustment programs, all of which created multiple disruptions in the country’s financial system, let alone international markets. Matters were not eased by the periodic revaluations of the currency and sudden direct government intervention to arbitrarily set the price for basic food stuffs and other consumer goods (Vidal Luna and Klein 2006; Bacha and Malan 1989). Overarching all of this economic chaos was the country’s transition to democracy, including the 1992 impeachment of Fernando Collor de Mello, the country’s first directly elected president in twenty-five years. While still seen as powerful, during the early 1990s the post of finance minister was considered something of a poisoned chalice that presented its incumbent with an almost Herculean task. By 1993 Brazil was again facing another financial crisis, exacerbated this time by the rule of a president who had not been directly elected, but instead named to that office through the constitutional succession

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procedures after Collor was forced out. Itamar Franco’s response to this challenge was to call on his then foreign minister, Fernando Henrique Cardoso, an individual with a long track record of important contributions not only to the social, political, and economic study of Brazil, but also to the actual running of the country as an active politician (Goertzl 1999; Cardoso 2006a). After reluctantly accepting the post, Cardoso turned his attention to recruiting—often cajoling— the brightest economists in Brazil to join his team.1 In simple terms, the economic strategy devised by Cardoso’s team when he was finance minister used a loose peg to the U.S. dollar to stabilize inflation and create a degree of predictability that would allow the situation to be brought under control. The manner in which he went about doing this not only pointed to a nuanced understanding of the sociology of economic crisis that sets the Brazilian case apart from others, one that intrinsically linked economic stability with what today is referred to in the democratization literature as the good governance agenda, but also capitalized upon fundamental changes in the domestic political structure brought about by the 1988 constitution. In contrast to much of Latin America, ISI strategies in Brazil worked, drawing on the country’s enormous population and resource base. During the 1960s and 1970s, ISI development policies brought Brazil the sort of meteoric economic growth rates seen in China and India in the first decade of the twenty-first century. These boom times not only created a strong and vibrant industrial base in Brazil, they drove a population shift to urban centers and created a new economic elite that prospered under economic policies that underwrote sustained economic growth with high inflation levels and international credit that came with an effective negative interest rate. The argument Armijo (2005) makes is that these inflationary policies were maintained because the costs of growth and benefit for the elite were unloaded on the country’s informal workers and illiterate poor, a political class that was irrelevant to both the pre-dictatorship electoral matrix and support coalition that maintained military rule. While the elite and upper-middle classes could access a variety of financial intermediation devices, the masses of poor working in the informal sector were left to bear the cost and keep the economy afloat with their increasingly inexpensive labor. Until the mid-1980s the political structures that had been designed to keep existing elites in power while creating a solid patina of democracy ensured that those in the informal sectors lacked a sufficiently strong political voice to make the ruling elite act to end inflation. The rules of the post-1985 political system, including the latest version promulgated in 1988,


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eliminated the literacy requirement and mandated that everyone over the age of eighteen vote; previous constitutions had made voting optional for the illiterate and thus turned them into a group that local landed elites could manipulate out of the electoral system. In short, the formerly voiceless gained a voice, raising the net political cost of inflation above that of stabilization. As will become apparent when we turn our attention to Lula’s continuation of Cardoso’s economic policies in 2003, this shift in the political calculus is critical for understanding why many elements of supposedly “neoliberal” economic policies were strengthened by a “leftist” Workers’ Party government. What should be remembered is that it was not electoral considerations that initially drove Cardoso’s anti-inflationary take on an economic revitalization program—in part he ran for president to ensure that the real plan was continued. Rather, the shifts in the underlying electoral realities gave Cardoso the political oxygen needed to force the elite and middle class to tackle inflation and engage in substantive and sustained economic reform. There were two key strands to the “real plan,” the economic reform program Cardoso implemented as finance minister and then entrenched as president. The first was the obvious economic element, a subject that has been treated in great detail elsewhere and will only be obliquely addressed here (Cardoso 2004; Ferreira and Tullio 2002; Bulmer-Thomas 1999; Flynn 1996; 1999; Samuels 2003). More significant for the questions addressed in this book was the democratizing imperative that Cardoso embedded in the substance of the real plan. One of its most striking aspects was the central place of its communications strategy (Prado 2005; Cardoso 2007). Unlike some of the previous attempts at stabilizing the Brazilian economy, the real plan was marked by a phased introduction of ideas with a concomitant serious and sustained attempt at public education and acclimatization that saw policy shifts publicly announced as much as six months before they were due to come into effect. Indeed, the importance of clearly and consistently communicating economic policy to the public, not just the markets, is held up by Cardoso (2007) as one reason why the real devalued in such chaos in 1999 after a theoretically sound, but technocratically obtuse stabilization policy was announced. The key strut of the real plan—the launching of a new currency called the unidade real de valor, known now as the Real—was linked to a new indexation system that would kill inertial inflation by ending the practice of automatically raising the minimum wage a set amount each month. This mattered because private sector wages and prices

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in the market place were popularly conceptualized in multiples of the national minimum wage and thus tracked its changes (Armijo 1996, 10). The challenge was to end the automatic raising of the minimum wage without creating widespread panic that real incomes had suddenly been undercut by government policy. Rather than asking citizens to simply take it on faith that the government was acting in their best interests, the plan devised by Cardoso’s team saw retail outlets posting prices in both the outgoing currency, the cruzeiro, and the new currency, the real. Over the course of several months consumers could see two things: the price of products in cruzeiros continued to rise, but the price of the same products in reais (plural of real) stayed the same. As Cardoso has made clear, successfully implementing the real plan was essentially a confidence game on a national scale, something which he acknowledges was also made easier by the self-belief Brazil regained after its 1994 World Cup victory (Cardoso 2006b: 196; Cardoso 2006a: Chapter 3). The key insight Cardoso had in the formation of the real plan was that success was entirely contingent on the population understanding the logic behind the program and believing it would work. On a deeper, democratizing level this pointed to a need for the wider population to be actively included in the economy, to be afforded a voice in how decisions were made, and recognized explicitly that a critical electoral constituency for future political power was the anti-inflation poor that had previously been marginalized (Armijo 2005). The underlying argument was that there was a fundamental linkage between the sustainability of a fully functional democracy and economic stability and growth. Of particular concern was the manner in which the Brazilian state had previously been used to politically repress the population in order to provide pliant labor to the national economic elite while simultaneously protecting this elite from external competitive forces that would have required them to rely on the profitability of their firms, not access to the cheap oil money readily available in the 1970s (Cardoso 1973; 1989; Cardoso and Faletto 1979). In effect, Cardoso put on his social theorist hat and conceptualized a link between the requisites of democracy and the principles of liberal economics. While he did not go as far as Milton Friedman (1982) and argue that for democracy to truly be in place the state needs to almost completely retract from interaction with society, he did find space for democratic deepening in the substance of what some have labeled neoliberal economic reforms. The theoretical essence of the democratic dilemma facing Cardoso has been neatly captured by his


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former planning minister Luiz Carlos Bresser Pereira (2000) in the concepts of democracy of the elite and democracy of civil society. In a democracy of the elite control of the state becomes essential because it is only through the instruments and mechanisms of and controlled by government that wealth can effectively be garnered. This takes several dimensions, ranging from the use of political oppression to keep labor costs down,2 through the artificial creation of markets through elevated tariff levels, to the possibilities of kleptocracy where elite actors outright rob the population with various forms of corruption. Democracy of civil society, by contrast, is a situation where control of the state is of less importance because it is more efficient and lucrative to extract wealth from the economy through normal business practices. The two ends of the democracy of elites and democracy of civil society continuum point to the different stages of the political liberalization process found in what might be labeled the transformational school of democratization (Polanyi 1944; Moore 1966; Rueschemeyer et al. 1992). Bluntly put, if there is no bourgeois, there is no democracy. Western liberal democracy is thus seen as the result of a long historical process of social transformation, which means that democracy as a political system is constantly evolving. In a process that continues, the power of landowners and industrialists was gradually eroded by an increasingly secular, activist, and urbanized working class who demanded increased representation and an equal role in government. In the Brazilian case the terms of the 1988 constitution gave impetus to the socially transformative aspect of democratization by giving a voice to the tens of millions living in the informal sector and thus beyond the power-brokerage control of agrarian and industrial unions. Indeed, it was this new political constituency that Fernando Collor de Mello rode to victory in the 1989 presidential ballot by promising to slay the lazy “maharajas” in Brasília.3 Although Collor’s corruption-doomed presidency arguably proved to be but another addition to the “maharaja class,” it did initiate the swing to liberal economics that would lay the foundation for the mid-1990s rise of a wider range of opportunities for workers and industrialists in a diversified, broadly market-directed economy. As some observers have noted, there is a link between economic development and democratic rigidity, with the prospect of an authoritarian retrogression virtually disappearing once per capita GDP is over US$6,000 in a predominantly urban country (Przeworski et al. 1996: 48). The implication here is not particularly new, and points to the sort of power changes seen in the United Kingdom during the Industrial Revolution and

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after the world wars when the emergence of new loci of economic and labor power first pushed for enfranchisement, and then used it to recast the structural rules of the national political economy (Polanyi 1944). In Bresser Pereira’s terms, as the size of the economy grows the necessity of controlling the state decreases, making it acceptable to allow larger, previously threatening groups substantive political participation. Wrapped up in the details of the real plan and the subsequent spate of liberal economic policies entrenched during the Cardoso presidency was an implicit acknowledgement that the continued preeminence of the state in the Brazilian economy threatened to hold the country closer to a democracy of elites than one of civil society. The challenge, particularly in a democratic context, was to retract the state from areas of the economy where its presence had a deleterious impact creating enormous industrial inefficiencies, artificially inflating prices, stifling innovation, accruing yet more debt, and providing the economic tools needed to perpetuate the sorts of clientelistic patronage networks that had traditionally handicapped Brazilian political development. A great complication in this task was that the activities of state-owned enterprises and a surplus of public employment opportunities had created a situation where even the most poorly paid worker in the state-based production chain thought they had an interest in maintaining the system as it was because it guaranteed them employment, albeit at a low wage without much prospect of further advancement. Moreover, these state enterprises were used as pork barrels by the political elite to maintain their power base and retain control of the state, with activities such as the sustained issuance of spurious loans through state banks being a particularly egregious contributor to Brazil’s spiraling debt levels. The financial crisis of the 1990s presented Cardoso with an opportunity to use economic reform as a lever to further the ongoing deeper and more penetrating political transformation. Traditional orthodox economic policies such as the opening of the economy initiated by Collor and a dramatic restriction of public spending combined with low inflation and a slightly overvalued exchange rate to undercut the profitability of many Brazilian firms that had depended for survival upon state manipulation of economic conditions. While this certainly resulted in a slowdown of Brazilian economic growth rates and a retraction of traditional industries that has been widely decried by nationalist sectors within Brazil, it also helped undercut the powerbase of the extant political elite. More to the point, Cardoso was explicitly seeking to recruit large flows of foreign direct investment.


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The obvious and most carefully studied rationale for this was to generate the income needed to rapidly pay down some of the national debt and prevent it from continuing to grow by restricting state borrowing (Rocha 2002), which he finally did with the 2001 Fiscal Reform Law that effectively banned states from running a deficit. Less fully examined was the impact that it would have on the political economy of democratization that Cardoso explicitly set out in a series of speeches and articles (Cardoso and Font 2001: Parts 3 and 5–7). The socioeconomic theorization that marked Brazil’s approach to liberalism came through strongly in this context, with the privatization of state firms being far from the act of simple ideological faith seen in some other countries. Rather, privatization was a targeted activity seeking to bring about specific results in individual industrial sectors that extended beyond the generating of income for debt repayment (Cardoso 2007). For example, telephone and electricity companies were privatized to encourage investment in new technology and capacity, not to mention revitalization of management structures. More revealing was the privatization of such firms as the giant mining enterprise Companhia Vale do Rio Doce (CVRD), steel producer Companhia Siderúrgica Nacional (CSN), aerospace firm Embraer, and the partial privatization of state oil company Petrobras. In each case the goal was to force what should be a globally competitive company to set its fiscal and managerial accounts in order by removing government support and political interference, something that has proven spectacularly effective in each case. Nevertheless, privatization of these and other firms has met with severe criticism from the nationalist-Left claiming that Cardoso “sold off” the national patrimony, a criticism that overlooks share ownership structures that place majority control collectively in the hands of public sector pension funds and the National Bank for Economic and Social Development (BNDES). The picture of economic reforms implemented during the Cardoso era is thus more complicated than the traditional story of putting the nation’s financial house in order. While that task was certainly critical and amongst the foremost ambitions of the Cardoso presidency, of at least equal concern was a desire to create the conditions necessary for long-run sustainable growth and the consolidation of democracy. All of this was underpinned by a shift in the politics of economic policy driven by the constitutional requirement that all people must vote. What often gets overlooked about the “neoliberalism” of the Cardoso era—a depicter he forcefully rejects—is the remarkable degree of economic stability and credibility that it generated for Brazil, which

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in turn points back to why the poor of the informal sectors of the economy consistently supported adherence to the liberal economic policies launched in 1994 (Armijo 2005). A long-run comparative analysis of the devaluation of the real in 1999 and the collapse of the Argentine economy in 2002 would have posited another economic catastrophe for Brazil during both events. Thanks to the integrated sociopolitical/economic approach that marked Brazil’s liberal economic experience, the reality was that inflation stayed under control and that the technocrats in the central bank and finance ministry were able to devise successful sustainable responses to each crisis that stunned critical international arbiters such as the IMF. Transformative Democracy Depending on where you sat on the political spectrum, reaction to the possibility and reality of a Lula victory in the 2002 presidential election ranged from a mixture of euphoria through to outright fear. As Rocha (2002) and Williamson (2003) rightly point out, the financial situation in Brazil at the end of the Cardoso era was stable, but very fragile. The international fear was that Lula would hold to promises from his previous three presidential campaigns and initiate a debt moratorium or the sort of radical nationalist economic agenda that Hugo Chávez was then contemplating in Venezuela. Thus, as the election date approached, the value of the real plummeted, bottoming out at 3.99 Reais to the U.S. dollar; the global English-language press abounded with stories of the coming crash in Brazil and widespread unease at the prospect of a Lula victory. Reality in Brazil was somewhat different. For his part, Cardoso was clear that he felt Lula would govern responsibly. More significant were election-eve comments from key groups such as São Paulo industrial leaders connected to increasingly internationalized industrial sectors that while they would have preferred a victory by the Center-Right candidate Jose Serra, they were content with a win by Lula. They went further down this line by pointing out that Lula had demonstrated a keen sense of business acumen when negotiating for the metal workers’ union and were confident that he saw the connections between a healthy business environment in Brazil and his stated goal of sustainable socioeconomic development. Still, Lula’s victory was not quite the epic landslide vote of confidence often depicted by the PT; Lula’s wins came in the second round of voting, not in the outright garnering of over 50 percent of the vote in the first round achieved by Cardoso.


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Ever the pragmatic politician, Lula and key advisors such as Jose Dirceu and Marco Aurelio Garcia were aware that the traditional nationalist-leftist rhetoric would not result in a ballot box win. They thus worked to form a surprising coalition of the establishment, nationalist, almost middle-class Left in Brazil and the far more pragmatic masses of essentially non-ideological poor in the informal economy with support from key elite figures. Lula was aware that in order to achieve his governmental goals of ensuring inclusion and social equity he would have to guarantee continued economic stability and assuage the major concerns of the international community. Cardoso sought to calm international ructions and rapidly rising debt costs caused by electoral uncertainty, obtaining U.S. Treasury support for a US$30 billion IMF standby agreement. While Lula was generally disbelieved by the national and international capital markets, he was able to restore calm by clearly and repeatedly stating that he was not going to embark on a radical new economic policy path. To add weight to these statements he restated the importance of the Central Bank’s essentially independent role in macro-economic policy. Moreover, Lula announced that, if elected, he would appoint the former global president of Bank Boston, Henrique de Campos Meirelles, as the Central Bank president. Shortly after being elected, Lula further surprised observers by announcing that he was going to surpass the IMF condition of a 3.75 percent primary fiscal surplus by aiming for a minimum of 4.25 percent. The suggestion that Lula simply continued the market-oriented economic policies of the Cardoso presidency even finds traction in the area of social policy. At the center of Lula’s policy agenda is a series of conditional cash transfer programs designed to directly support the poorest of Brazilians. Under this type of social programming individuals are, in effect, paid by the state to fulfill a set of conditions attempting to reinforce wider policies aimed at sustainable socioeconomic development—normally, regular health check ups and ensuring that children go to school. Much to the consternation of some senior Cardoso administration figures, Lula very publicly claimed that his program Fome Zero (Zero Hunger) was revolutionary and would ensure that everyone would have their minimal daily nutritive requirements satisfied. In reality what it did was take the Cardoso era programs such as Bolsa Escola and increase coverage as well as replicating the model in other areas of social programming. After the inevitable teething problems that accompanied the establishment of the necessary administrative structures, Lula revamped Fome Zero and launched a program called Bolsa Familia (Hall 2006).

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Although what was perceived as continuation of the core of Cardoso’s economic policies caused a great deal of angst amongst Lula’s traditional political supporters, this was not enough to derail his political machine. Items such as the privatization of state enterprises quietly dropped from the radar, including the shelving of plans to sell off the Banco do Brasil. On a wider governmental level a very interesting split could be seen in the assignment of high-level government offices. Ministries central to the continued economic health of Brazil such as finance and agriculture went to individuals who would continue the liberal policy track of the Cardoso years, albeit with certain key modifications. Other high profile ministries such as the foreign ministry were handed over to the Left almost as playgrounds where ideological whims could be exercised without doing any serious economic damage to the country. Indeed, the foreign ministry itself seemed to functionally split in two, with one half taking a very hard-headed approach to international economic issues through negotiations to maintain MERCOSUR and deepen the WTO, while the other sought a considerably more utopian path toward items such as Southern solidarity and a permanent seat on the United Nations Security Council. All of this would appear to suggest that Lula had abandoned his leftist roots for the politically pragmatic purpose of gaining power, a charge that he frequently has had to rebut. Yet, political pragmatism and a moderate rhetoric should not be taken as conformism. Articles such as former Peruvian presidential candidate Alvaro Vargas Llosa’s (2007) “Return of the Idiot” and former Mexican foreign minister Jorge Castañeda’s (2006) “Latin America’s Left Turn” point out that the notion of a unified “Left” in Latin America is at best problematic. Instead, there are two versions of the Left. One, which we might characterize as a radical version that is almost wantonly ahistorical and grounded in ideological, anti-U.S. rhetoric—mainly characterized by Hugo Chávez in Venezuela, Evo Morales in Bolivia, or the Castro brothers in Cuba. The other is an almost political-sociologists construct responding to pressures from the nearly non-ideological informal poor discussed by Armijo (2005), and takes a results-oriented and pragmatic stance, focusing on social policy within a marketoriented framework to create sustainable, equitable, and widespread economic, political, and social development. As during the Cardoso era, the formation of economic policy under Lula was not a case of demonstrating orthodoxy, but utilizing the theories as tools to pursue clearly defined goals in response to the new political voice of the inflation-hating ostensibly voiceless masses. This included the


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reshaping of IMF agreements and standing policies, which took place in 2004 when Brazil successfully argued that major investments in national infrastructure should not be included as budgetary liabilities when calculating the country’s primary fiscal surplus (Sotero 2004), freeing over a billion reais for expanded social programming. Order and Progress? So what can we say about the results of over twelve years of liberal economic policy and its impact on the substance of democracy? Has it matched the motto “Order and Progress” found on the Brazilian flag? As befits a country of Brazil’s size and complexity, the answer is suitably convoluted, and rather distinct from the larger Latin American picture. A quick inspection of macroeconomic numbers paints a picture that while not exactly euphoric, is far from disastrous. Measured in constant dollars, GDP grew from US$506 billion in 2002 to US$1,068 billion in 2006; of course, the churlish might point out that GDP stood at US$844 billion in 1998 and that the value of the real has risen considerably during Lula’s tenure (ECLAC 2007c: Table A-2). A more pointed criticism would note not only that per capita GDP growth has generally been lucky to hit the 2–3 percent range during that time period (ECLAC 2007c: Table A-4), but also that the Lula years have been marked by a remarkable boom in the price of international commodities that has been concomitant with Brazil’s explosion in international markets as a leading exporter of the top ten globally traded commodities. Over this same period the country’s debt has dropped markedly, falling from US$226 billion in 1999 to just over US$173 billion in 2006 (ECLAC 2007c: Table A-19). Over the same time period foreign reserves have bloomed, going from US$33.4 billion in 2000 to just over US$200 billion in July of 2008. What these figures underplay in a continent of export-focused economists is the extent to which stabilization and economic growth are homegrown. Brazil has a population of over 180 million people and a remarkably low reliance upon exports for growth, which have risen steadily over the last five years but still account for less than 10 percent of GDP. These macroeconomic indicators are important because they have underpinned the rise of Brazil as a “serious” country in international economic fora. Beyond the symbolism of Lula’s inclusion as the face of the friendly Left and moderate third world at events such as the World Economic Forum is the more substantive role that Brazil has played in leading attempts to draft the text to close out the WTO

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Doha negotiating round as well as contributions to the reformulation of the governance procedures in the global financial architecture. Privatized and semi-privatized Brazilian firms have played a crucial role in this transformation. Petrobras has become one of the leading global oil firms with a July 2008 market capitalization of just under US$270 billion and an overwhelming technical advantage in very deep-ocean drilling. With a single transaction CVRD’s US$18 billion purchase of mining-giant Inco vaulted Brazil to being the fifth largest source of foreign direct investment in G8-member Canada. Of course, one of the major criticisms of liberal-style economic models is that resounding improvements in macroeconomic indicators often do not translate into substantive changes for the population. On a surface level, this critique would appear to hold for Brazil. Poverty is still a crucial problem for the country. As Lula’s first term approached its end the country still had 60.3 million poor people and 23.3 million extremely poor. While these numbers are horrific, they also have declined significantly from the economic uncertainty at the very beginning of Lula’s presidency. By pursuing largely the same economic policies as seen during the “neoliberal” Cardoso presidency, the number of poor fell by over 7 million and extremely poor by over 6.5 million. The expansion of the conditional cash transfer programs under Bolsa Familia has certainly made a major contribution to this change, but perhaps more significant has been the impact of consistently low inflation. This allows families to save and, more importantly, prompts stores to offer payment for basic durable goods on a lay-away basis. While such financing is not available to the poorest of Brazilians, it does mean that credit has been extended to the enormous lowermiddle class, driving domestic economic growth at the micro level, which in turn filters through to support a rather vibrant grey-market economy. This is reflected in the share of GDP that goes to the bottom deciles of the economy. While overall economic growth has been less than impressive, the distribution has been improving. The 4.6 percent fall in inequality that took place between 2001 and 2005 is indicative of where the GDP growth is taking place (de Barros et al. 2007: 7). In percentage terms, the proportion of GDP going to the poorest deciles of the population is growing faster than it is for the richest, which if sustained will have a major transformative effect on the glaring social inequality that plagues Brazil. But there is a potentially major catch. As a 2007 critique published in the leading Brazilian newspaper O Estado de São Paulo noted, while Bolsa Familia may be doing dramatic things to alleviate poverty for the 44 million Brazilians that it serves, it is


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far from clear that these families will be able to raise their incomes enough to get off social assistance (Manzano Filho 2007). The critique that Bolsa Familia may not actually offer a way out of poverty for millions combines with the vibrant grey-market economy to highlight some of the structural factors that are limiting Brazil’s economic growth. Significantly, these are not failures of neoliberalism or liberal economics-inspired polices, but some of the underlying governance and regulatory factors perpetuating the conditions that create such discontent with the neoliberal/democracy formula pushed in the region since the early 1990s. As one analyst at the São Paulo Federation of Industrial Enterprises noted, a staggering number of small and medium enterprises are unable to get bank loans because they are being prosecuted in tax court by the government (Interview with author, March 2007). This is not the result of any deliberate malfeasance, but of a tax code Byzantine to the point where few small and medium enterprises—the types of firms that drive high economic growth rates—are able to understand their obligations. For individuals running a micro-enterprise that might grow into a small or medium enterprise a serious consideration is whether or not the potential expanded profits will justify the regulatory and legal headaches that will come with full formalization of their business. For larger enterprises a crushing problem is the quality of Brazil’s physical infrastructure. The central development programs pursued by Cardoso on a national level—Avança Brasil—and regional level—IIRSA—all focused on overhauling the country’s transportation, energy, and ICT infrastructure linkages. None of the measures enacted proved entirely adequate, including the Programme of Accelerated Growth that Lula launched in 2006 in a bid to use infrastructure spending to precipitate economic growth. Shortcomings in infrastructure investments are highlighted by Bresser Pereira (2007) as one of the most important explanatory factors behind Brazil’s anemic growth since 1994. Business leaders speaking in the context of global trade talks implicitly back this hypothesis, suggesting in an increasingly loud voice that they would be happy to compete with any market in the world if the government would only act to remove the competitive disadvantages of the country’s tax system and crumbling physical infrastructure. Overlapping these regulatory and physical challenges is the persistence of an attitudinal issue nestled in the intersection of economics and politics. The democratic challenge is one of authority and how elected political figures deal with the existence of independent public agencies. On a prosaic level, Cardoso (2007) points to the relationship

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between the board of governors for a São Paulo cultural organization and the state minister of culture. As is the case with many cultural foundations in North America and Western Europe, the corporate governance structure for the organization calls for the board to oversee activities, fulfill accountability requirements, and determine strategic direction. The role of the state is that of hands-free funding agency, providing a significant proportion of the financing needed for the provision of cultural services. Explicit in this arrangement is the independence of the cultural organization from the political direction of the state, which is posing a significant problem to a minister who has trouble understanding that a public agency can be allowed to exist and function free from his direct personal and political control. The existence of functionally independent public and regulatory agencies is central to the operation of a liberal, market-based democracy. Yet, it also represents an enormous transformation in a political culture that has a history of powerful political bosses and regional coronels. Lingering notions of personal and almost imperial power trace through the series of corruption scandals that continue to plague Brazilian politics. A regulatory state implies that known procedures dictate how decisions are made in a transparent, clear, and predictable manner, which in turn implies a great deal of accountability over how public funds are spent. Although there is a shift in this direction in Brazil with a major decline in the incidence of the sort of nine-figure corruption scandals unearthed during the Collor and Cardoso presidencies, the ability to get things done and have rulings made in your favor often remains tied to personal relationships reminiscent of the coronelismo era depicted in the novels and stories of Jorge Amado and Machado de Assis. This in part explains why Cardoso’s presidency was not charged with the sort of corruption problems that marked Lula’s rule. As a hereditary member of the national elite, Cardoso had immediate and deep influence on congressional and state-level legislators and decision-makers as well as access to the socioeconomic elite needed to provide the sort of licit incentives for action by political figures seen in North American and European democracies. Such access for Lula has been considerably more problematic due to his leftist political base and history as a union leader. The result was, amongst others, the mensalão scandal, which saw his former chief of staff Jose Dirceu engineer a system of monthly payments to congressmen in order to ensure the passage of government legislation. Another challenge to sustained Brazilian growth again crops up in the difficulties that political figures have with the concept of


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independent technocratic regulatory agencies. Many public posts are given as rewards to political supporters who help with a successful electoral campaign. While this is not necessarily problematic in itself, the issue that arises in some Brazilian cases is that individuals are being appointed to technocratic positions as what amount to sinecures. This is having serious implications for the country’s enormous agro-industrial exporters. As the international relations officer for one producer’s association noted, the political appointees simply do not understand or care about the importance of establishing the systems to document and follow the phytosanitary procedures necessary to maintain market access to Western Europe, North America, China, and Southeast Asia. Slowly the message is filtering through to political leaders, often driven by the same fiercely independent and investigative press that has been very busy unearthing and exposing the figures involved in corruption scandals. What is perhaps more significant is the force with which the new and emerging export-oriented industrial sectors in Brazil are pressuring the government to get out of their way, pointing to a nascent democracy of civil society in which the market, both foreign and domestic, is viewed as the most ready ground for extracting wealth. Conclusion Rather than viewing neoliberalism as being in terminal crisis in Brazil, the case has been set forth in this chapter that Brazilian politicians and technocrats, in keeping with their self-professed different approach to global issues, have appropriated the theoretical substance of liberal economics and retooled it in a manner that reflects the social, political, and economic realities of their country. Simply put, if neoliberalism was in crisis in Brazil, why did Lula choose to not only retrench and deepen the supposedly neoliberal policy agenda implemented during the eight years of the Cardoso presidency but also continue it after being reelected in 2006? Although external pressures and fragile national finances were clearly a critical influence early in the Lula era, stabilization of Brazil’s macroeconomic situation has not resulted in a return to old-style direct state intervention in the national economy. As has been outlined above, the reason for this is that seventeen years of liberal-informed economic policies has not only revived the fiscal viability of the state, but also resulted in a transformation of the national political economy such that the market is now acting as the driver of economic growth. This is in turn presenting a new challenge for the state, namely one of trying to strategically direct the economy

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without dominating it while simultaneously engaging in the social spending needed to support the country’s legion poor and allow them to develop future opportunities for an improved quality of life. The differences in the Brazilian case offer three important lessons for the economic reform process and the analysis of socioeconomic transformation within Latin America. First is a restatement of the basic principles encapsulated in the OECD DAC Paris Declaration on Aid Effectiveness, namely that reform programs must be context specific and “owned” by the implementing country. One of the characteristics that sets Brazilian and Chilean examples apart from other Latin American cases is the extent to which domestically based economists and policymakers reformulated the assumptions and inner mechanics of the models used to concoct liberal economic policies. An even more significant difference in the Brazilian case is the extent to which Cardoso used liberal economic policies to push pro-democracy political changes, demonstrating an explicit understanding of the symbiotic relationship of politics and economics that often appears to be completely absent in economic reform projects. A second lesson is that liberal-style economic reform is about far more than shifts in government expenditure and reallocation of government resources. One of the astounding characteristics of economic reforms is the extent to which regulatory and administrative reform is overlooked despite over fifteen years of discussion of the importance of the governance agenda to socioeconomic development and their explicit inclusion in the Washington Consensus. More disturbing is the assumption that regulatory and administrative reform is often equated with a complete retraction of the state from the operation of the economy and society. Brazil demonstrates a different path, one predicated upon a boosting of the state’s technocratic capacity so that regulatory decisions can be made on clear, predictable criteria that provide the continuity and consistency needed for a marketbased economy to flourish. As is argued in this chapter, a critical challenge facing the liberal economic agenda in Brazil is the evolving nature of the regulatory state and the uncertainty that comes from some agencies still working on a politicized basis and others according to clear legal and technical guidelines. In short, economic policy reforms must be accompanied by serious governance reforms if they are to meaningfully address poverty and inequality. The final lesson is one of time-scale. As this chapter was being written, Brazil appeared set for a substantial period of sustained economic growth, having weathered almost two decades of political as well as economic uncertainty and crisis. Parts of the narrative above


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point to improvements in the socioeconomic development situation within Brazil, albeit at a lower level than might be desired. The reality overriding this is that it takes time for growth in one part of the economy to have an impact in other areas and in turn drive political transformations. This very reality is becoming apparent in the agroindustrial belts of the country where booming commodity prices and production are resulting in a transformation in living standards. These economic changes are also pushing political change, with the public becoming far less patient with endemic corruption and the media working as a very effective hound-dog when it comes to public malfeasance by elected officials. That said, the process is not complete and large swathes of the country remain in poverty, searching for a way to be included in the booming parts of the national economy. This points in a circular manner to the first two lessons in this chapter, suggesting strongly that a key indicator of the potential success of liberal economic policies is the extent to which a country engages in a dialectical process of constantly reappraising its regulatory and governance structures with a view to making them open, transparent, and accessible. Notes 1. The team that Cardoso assembled reads like a who’s who of Brazilian economics over the past twenty years. Members included Gustavo Franco, Persio Arida, Andre Lara Resende, Pedro Malan, Francisco Lopes, and José Roberto Mendonça de Barros. When Cardoso stepped down as finance minister to run for president, he was replaced by Ambassador Rubens Ricupero, one of the leading figures in global trade talks. 2. Cardoso (1973) makes this argument when characterizing the authoritarian regime in Brazil as being of the associated-dependent variety. His point was that an alliance was formed between the military and domestic capitalist elite with international linkages, which saw the military working to maintain a low cost of labor in Brazil to ensure the continued national and global competitiveness of domestic capital class. 3. A label coined by Collor to refer to very high-waged civil servants and an instrument in his election showing voters’ reaction to public service decay in Brazil.


Chapter 10

Conclusion: Governance after Neoliberalism Pía Riggirozzi and Jean Grugel

This book has explored, over the course of the previous nine chapters,

the difficult birth of alternative political economies to neoliberalism in Latin America. We have reflected on the costs of neoliberalism in the region in terms of citizenship, democracy, inclusion, and social policies, as well as the difficulties of sustaining growth over the long term via Washington Consensus–type policies; and we have identified the crises of various sorts—developmental, representational, social and political—inside Latin America that meant that market democracies were questioned and have sometimes faltered. Here, we wish to pull together some of the interpretative threads and key insights of the chapters with the aim of conceptualizing more precisely what governance after neoliberalism means in the region. In order to do so, we need to identify the common terrain between the various emergent and sometimes contradictory national strategies of democracy and development. At the same time, we must avoid nailing too firmly a single, fixed interpretation onto what are evolving policy paradigms, characterized as much by national specificities, pragmatism, ad hoc policymaking and responses to changing global and regional politics as ideology and principle. Our task, then, is to balance the need for a broad regional synthesis of change, alongside sensitivity to national specificities. We begin by recapping the tensions between statism and liberalism that have shaped Latin America’s development since the beginning of the twentieth century and which were played out at the turn out the century in the context of a crisis of elite-led democratization and rising demands for inclusion.

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Statism versus Liberalism The political economy of Latin America has been marked by alternation between liberal and statist approaches to development. These cycles, we should note now, have not mapped in any straightforward fashion onto the movement between democratic openings and authoritarianism closures. Indeed it was not until the 1980s and 1990s that Latin America experienced, for the first time, simultaneous political and economic liberalization. Early in the twentieth century, export-oriented, open markets across Latin America were embedded in restrictive, sometimes repressive polities, dominated by a narrow stratum of elites (sociologically, racially, and in terms of gender) or military dictatorships. In the larger and more industrialized countries, such as Brazil and Argentina, mass politics and the mobilization of workers in the context of state corporatism and stateled industrialization led to experiments in populism; whilst in Chile industrialization contributed to the emergence of a party system that oscillated between demands from below and the need to accommodate urban and rural elites. In Venezuela, the emergence of party politics and the veneer of inclusion served to insulate political leaders from ordinary people, undermining faith in democracy over the long term. Elsewhere in the region, the failure to consolidate a model of industrial production, often in the context of weak and divided national states, meant recurrent political instability (as in Bolivia) or elite dominance, usually accompanied by periodic waves of repression (as in much of Central America and Colombia). Across Latin America, the prevailing economic strategy rested on import substitution or, at the very least, aspired to industrialization via the internal market, motivated by a belief in development through protectionism and the desire to reduce external dependency on world markets. The view in the 1950s and 1960s inside Latin America, as elsewhere in the developing world, was that free trade cemented a global North-South hierarchy in place because of an inevitable decline in the terms of trade for primary commodities over time. Protectionism, it was argued, would prevent the rich nations from “kicking away” the ladder of progress and growth (Chang 2002). Governments thus worked to a logic that development meant building, stimulating, and protecting domestic industries through subsidies and protection from external competition. By the 1970s, however, Latin America’s experiments in import substituting industrialization had created economic bottlenecks and encouraged the emergence of industrial conglomerates heavily dependent on state intervention, along with governments

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that consistently lurched from one fiscal crisis to another. As a result, the political economy underpinning import substitution was increasingly under siege from both the left and the right (see Collier and Collier 1991; Dornbusch and Edwards 1991; Thorp 1998). The image of overblown and inefficient state-owned enterprises that encouraged rent-seeking, corruption, political patronage, and cronyism meant that import substitution was reevaluated and the judgment this time was harsh. The 1970s were pervaded by a gloom, inflation and stalled growth. As social demands increased and the Left—whether of the populist sort, as in Argentina and (earlier in Brazil) or democratic, as in Chile—grew stronger, elites turned increasingly to the armed forces, a strategy made possible by Washington’s willingness to turn a blind eye to repression, torture, violence and state-sponsored murder in the developing world, provided it was carried out by governments that claimed to be anticommunist. The bureaucratic-authoritarian regimes (O’Donnell 1978) combined repression with proposals to reverse statist development in favor of an emphasis on exports and markets. But, with the partial exception of Chile, the attempt at economic liberalism in the context of authoritarianism was an unmitigated failure. Nevertheless, economic liberalization soon settled into the new orthodoxy in the 1980s and 1990s, although this time in the context of redemocratization, as much for political reasons as for reasons of faith in its efficacy as a strategy for regional development. On the one side there were those who saw the market as a way to discipline the region’s working class and thereby avoid a return to what was seen as radical, leftist disorderly politics. On the other hand, local technocratic elites, especially in the Southern Cone countries, often seemed genuinely convinced of the potential market opening had in the region as a motor for growth. In any case, Latin America was politically in no position to resist the global ascendancy of neoliberalism in the 1980s and early 1990s. The result was what looked like a definitive reversal of state-led development, as new democratic governments abandoned any pretence of deploying the state as a buffer between ordinary people and international economic forces and adopted instead policies of deregulation, privatization, tax cuts, and reduction of government services. Attempts were made to lock these policies in through bilateral trade deals with the United States and the promise of a regional trade block across the Americas. Generally, and at best, neoliberal policies produced short bursts of economic recovery and growth, especially during the first half of the 1990s. In many countries, the greatest achievement of neoliberalism was that it seemed able to tackle systematically and effectively

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Latin America’s long standing problem with inflation. But in order to do so, governments, across the region, put in place policies that limited and curtailed social citizenship, created huge insecurities, generated mainly low-paid employment, and left ordinary people with little social protection. As a consequence, governments allowed, perhaps even encouraged, a dangerous and confusing disjuncture between the consolidation of the formal institutions of democracy and everyday practices of weak and unprotected forms of citizenship. They failed, in other words, to consider the importance of securing social and economic inclusion in societies already devastated by dictatorship, violence and fear of the state. And they also failed to take into account the cyclical nature of the world economy and their own vulnerability to footloose foreign capital (Rodrik 1999; Evans 2008). As a result, governments did not to create policies and institutions that would cushion economies from external shocks. In so doing, they paved the way for the economic and social crises that built up through the 1990s and erupted with the turn of the century. The costs of neoliberalism, in short, have been equally and inseparably economic and political and have been felt throughout the region. Nevertheless, as the examples of Brazil and Chile show, where neoliberalism was adapted in ways that could accommodate—at least to some extent—demands for improvements in living standards, in the context of strong states able to open the economy to external markets strategically and reflexively, in a way that could genuinely support national capitalist development, post-Washington Consensus political economy models are not an absolute rejection of open markets. They are, rather, a judicious mix of change and continuity, characterized by a genuine concern to alleviate the worst forms of poverty and exclusion—albeit within limits and, in the context of Chile in particular, via conservative and targeted social policies. Where neoliberal policies lacked popular support of any sort (e.g., Venezuela) or where economic recipes seemed to be imposed from outside, as in Bolivia, the new political economy has emerged as more strongly statist. The extent of the rejection of neoliberalism, in other words, varies within the region and depends a great deal on the way economic reforms in the 1980s and 1990s were handled, the legitimacy of political leaders and the capacity (and willingness) of state elites to mediate the social costs of liberalization. Can We Speak of a New Regional Political Economy? It is at this juncture that we might want to consider the insights offered by Karl Polanyi in The Great Transformation (1944). Reflecting on

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social and economic transformation wrought by industrialization in Europe, he identifies what he calls a “double movement” in development strategies as the costs imposed by marketization led to a “bottom up” rejection and a rebalancing of the state as it adjusted to the need to accommodate social interests and mitigate the disruptive effects of the market on communities and lives. From a Polanyian perspective, then, states under capitalism make adjustments, if they are to survive, to demands from below for regulation of the market. Is Latin America facing a comparable Polyanian moment of compensation for market excesses? Or are we witnessing, instead, what Domingo in her chapter on Bolivia calls a “revolution in the making?” Is this a “pink tide” as Lievesley and Ludlam (forthcoming) claim, characterized by attempts to push the state in a socialist or social democratic direction? Or is the real novelty the introduction of changes in the relationship between states and citizens, as in Venezuela’s much vaunted model of “protagonistic democracy” or the social movement politics of Bolivia? Or, in fact, were the grassroots protests of the beginning of the new millennium nothing more than a storm in a teacup and is it now business as usual, or neoliberal democracy, as Burges and Rindefjäll largely contend, in the cases of Brazil and Chile? How, in other words, are we to interpret the fall of the Washington Consensus and the various attempts at articulating alternative political economies in Latin America? The usual route toward answering questions of this sort is to make a distinction between social democratic responses to neoliberalism in Latin America and the more radical alternatives of Venezuela or Bolivia (see chapter 1); that is to focus on difference, distinguishing between the “good” Left of long-standing, moderate projects such as in Brazil and Chile and the “bad” Left of the Bolivarian Revolution in Venezuela, the indigenista leadership in Bolivia and to a lesser extent, the personalist democracy in Argentina under the Kirchner-Fernández de Krichner presidencies. What makes the bad Left bad, according to Castañeda (2006) is less a matter of policies and more a question of style. It is the populism and alleged despotism, the appeal to nationalism and the “cult of the leader” that he objects to. We argue, on the contrary, that it would be analytically misguided to stereotype new projects of post neoliberal governance straightforwardly into such highly normative categories. Instead, we acknowledge the nebulous but important regional spirit of change, alongside the centrality of contingency, circumstance and context in explaining much of the detail of policies. The challenge, as we suggest here and in chapter 1, is to explore the very real national differences in the context of regional commonalities.

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We begin, then, by asking the question of what the post–Washington Consensus governments in Latin America share. In the first place, we should note that all governments are keen to maintain a tight fiscal equilibrium and the consequences that follow from this, for social policies in particular. New Left governments set great store by distancing themselves from the image of high spending, unfocussed pre-authoritarian leftist governments, lacking in technical expertise and tending to spend beyond their means. In contrast to earlier periods, this generation of Left governments clearly wishes to project images of itself as responsible, serious and statesman-like. As Tussie rightly points out, the new fiscal conservatism owes much to electoral and political considerations. She argues that the new Left governments are committed to upholding a citizenship agenda based not on extending central state expenditures but on encouraging local and community responses to social problems; this, she suggests, is the result “not only of the painful lessons of the 1970s and 1980s but also of the need to press an electoral advantage over the party that was previously in office and show the electorate that, in fact, the left can be both more socially sensitive and more economically responsible than its predecessors.” In short, these post-crisis projects of inclusion do not represent a revolutionary attack on market-led development. They signify, rather, an attempt to ameliorate or modify market dependence and limit the worst forms of poverty left behind by neoliberal restructuring. Only in Venezuela has there emerged a proposal to create an alternative economic system; and, even here, the Bolivarian post-crisis alternative emerged by default rather than as a result of ideology. Fiscal austerity means that governments have little room for maneuver when it comes to designing and implementing the social inclusion policies that form the core of their appeal to the poor. They are dependent on revenue from exports to finance social expenditure. If we take Argentina as an example here, we can see some of the challenges that this strategy poses. The spectacular recovery of the economy after 2003 has allowed for the introduction of a range of antipoverty policies, investments in education, and increases in social protection for pensioners and single parents, alongside job creation. But control over social expenditure as a whole remains tight and most of the funding for post-2002 social programs come from taxes on the export sector. Maintaining, or even expanding, these policies depend on the willingness of the exporting elite to cooperate with government (or, to put it differently, the extent of their fear of mobilization from below)—something that historically has generally proved

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difficult in Latin America (see chapter 5). Meanwhile, tight control over fiscal spending also implies that governments must defer public sector wage increases and offer other forms of compensation, such as price controls over basic necessities. It is a balancing act that has worked to some extent, so far. The number of people living under the poverty line dropped from over 57 percent in late 2002, to 20 percent in 2007. But, as an approach, it is vulnerable to a fall in export prices from their currently high levels or to political opposition from the exporting elites. At the same time, there are inherent problems with social policies based on targeted spending and cash transfers. As Cortés notes such policies are bound to be disappointing in the long run: “in the absence of redistributive measures—for example changing taxation structure—it is clear that cash transfer programs will only ever have partial coverage and satisfy basic needs. All such programs in Latin America exclude important segments of the poor.” There are no simple answers to dilemmas of this sort since more radical redistribution requires raising revenue that, in turn, supposes a political cost that governments refuse to accept. But equally, there is an obvious risk that the new governments, elected with the votes of the poor through promises of reform, inclusion and growth, will quickly be found wanting. The new governments certainly are aware of the risks they run. Indeed, partly in order to counter them, Morales, for example, is pioneering the introduction of a universal old age pension in Bolivia—as well as trying to keep the current account in surplus. The Kirchners, meanwhile, engage in a constant struggle to keep the prices of basic goods low, for the same reason. Only in Venezuela, thanks to its oil wealth, has the government been able to massively extend social investments in housing, education, jobs and food programs—and even here spending has mainly been directed to keeping the government’s core electoral constituency satisfied. Second, still thinking of similarities, post–Washington Consensus governments may be critical of unmediated economic liberalization but they are not hostile per se to capitalism. They are not, in other words, agents of “counter-hegemonic globalization” (see Evans 2008). Once again, Chávez comes closest to an open endorsement of socialism and has, as a result, the most conflictual relations with local entrepreneurs and business groups—though more for political than strictly economic reasons. Even here, “twenty-first century socialism” took some time to emerge and it has done so for complex, geopolitical reasons. Flowing from this, it is clear that governments—again with the exception of Venezuela—know that they cannot afford to antagonize key productive sectors, business organizations or associations

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of rural producers. Whatever the rhetoric, Morales and the KirchnerFernández team in practice are as keen to encourage local industry as Lula and the Concertación governments in Chile. This has, in turn, imposed certain restrictions on other policies such as taxation. Third, we should note the return of the model of economic growth based on the export of primary commodities—with the partial exception here of Brazil. The value of Latin American exports has expanded spectacularly in recent years—23 percent across the region in 2004, followed by 19 percent in 2005—with Venezuela, Chile, Bolivia, Ecuador, Colombia, and Argentina experiencing particularly high growth levels. This has created an aura of prosperity and, at the same time, encouraged pragmatic negotiations with much-needed foreign investors. But there are real vulnerabilities, nevertheless, in growth of this sort that are not dissimilar to the period of exportled growth in the first part of the twentieth century. In Chile, for example, the rise in copper prices hides the fact that the country’s export profile remains limited to mineral and agricultural goods, with copper accounting for 45 percent of all exports. The Economic Commission for Latin America (ECLAC 2008) has drawn attention to the persistence of underlying structural weaknesses of this sort, including the failure to develop appropriate technologies that allow for a transformation of the productive sector and the increase in value-added industries, which leaves the region at risk of recession if the price of exports fall, the cost of transport of materials rises steeply or the price of imports, including food and electrical goods, increase sharply. In short, the region remains extremely vulnerable to changes in the global economy, with the sole possible exception, perhaps, of Venezuela. This vulnerability, in turn, reinforces the conservatism in policymaking and the timidity and unwillingness to embrace radical economic change which can be witnessed across Latin America. Fourthly, all governments seek economic reactivation in the context of trying to deepen democracy. Perhaps in order to compensate for conservative economics, new Left governments have tried to embrace more radical models of political inclusion and, in the case of Venezuela and Bolivia especially (and Brazil to a lesser extent), a new attitude to nation-building and representation. A growing crisis of representation has been palpable in Latin America for several years, which intensified in the early years of the millennium and to which “civil society” or new nonpartisan forms of inclusion and participation have emerged as the standard answer (Hochstetler and Friedman 2008). Latin America certainly has long-standing traditions of civil society organization, partly as a reflection of long-standing traditions of

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community participation outside the state (Avritzer 2002). Moreover, the collapse of the Washington Consensus was heralded by new forms of community organization demanding voice, accountability and inclusion. As Grugel argues in chapter 2, social movements “challenged in fact the morality of elite-led democracy with an alternative view of state-society relationships that posits the moral responsibility of the state and rights of citizens.” The governance challenge now is to embed civil society and popular organizations within a strengthened democratic order. So far, new governments seem to have been largely successful at this—though mainly through short-term, ad-hoc measures, again with the exception of Venezuela. As a result, they have been able to restore faith in political society to some degree. The use of the state as an agent of social reconciliation has been important here. But, in view of the limitations on the spending power of governments, once again, there is the risk that these new forms of governance will also fail to live up to popular expectations. Finally, there is the enduring appeal of the region, although what the “region” signifies in development has changed considerably from the 1990s. “Open” integration posited an end to regional and national specificities whereas now regionalism is increasingly a space to proclaim the developmental particularities of Latin America. Nevertheless, all Latin American governments remain convinced that regional cooperation, remains an important goal and that its realization will contribute to both the diversification of their economies over the long term (although all remain unwilling to pay short term costs to achieve that) and democracy stability. The differences refer in particular to the place North America should occupy in the South. The irruption of Chávez has transformed Latin American foreign policies, destroying what was already a fracturing consensus around a model of integration based on the U.S. economy. Yet Chile remains firmly focused on the U.S. market (partly as a result of trade dependence on U.S. markets), while Brazil continues to look to play a role beyond the regional stage. MERCOSUR, meanwhile, struggles to come to terms with Venezuela’s alternative proposals, funded by oil money. It is impossible to say where this will lead; but what is clear is that the assumption that U.S. leadership was secure in Latin America, typical of analyses of regionalism in the 1990s (see, e.g., Grugel 1996) was far from the mark. Toward New Models of Governance? How far do these changes in development strategies add up to new models of governance, that is new patterns of state-society coalitions

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and the introduction of new policies that allow for stable rule? New forms of governance would require lasting changes to have taken place within the coalitions that underpin the activities of the state. We turn now to consider the question of whether this has happened. As the case study chapters show, despite a common matrix, there was in practice considerable latitude in what neoliberal governance meant. Neoliberalism was encased in internationally validated models of democracy, committed to marketization, on the one hand, and to representation and inclusion essentially restricted to the political realm, on the other; but generally similar sets of policies— deregulation, privatization, state roll-back, and so forth—were implemented in contexts where both democracy and the market were understood in somewhat different ways and where levels of dependence on international institutions were also different. Some countries were able to legitimize the neoliberal revolution socially and politically more than others—and here domestic politics was key. Where neoliberalism was politically stable, it rested in particular on the formation of close policy coalitions between the state and business, local and transnational. Collaboration between the state and business not only allowed for the successful implementation of economic reforms but also made possible the generation of support within society at large, alongside the creation of a political bloc that was able to marginalize opposition. Indeed the real distinction between Chile and Brazil on the one hand and Argentina, Bolivia, and Venezuela on the other refers to the way states relate to the business communities. In particular, the Chilean and Brazilian states have established formal and informal channels that ensured business of regular access into policy debates. As a corollary, these states have also tacitly accepted the constraints on policy formation that alliance with business implies. In Chile, Concertación governments have worked steadily with industrialists and export producers over, for example, national strategies of integration and tax policies (Grugel 1999). Yet it would be wrong to suggest that Chilean governments are dominated by business; state elites have retained some policy autonomy and they have largely been able to select their private sector partners (Grugel 2000). In Brazil, meanwhile, as Burges shows here, the election of the Worker’s Party has not significantly disrupted the pro-business stance of government. In contrast, neoliberalism was introduced “by surprise” in Argentina, Bolivia and Venezuela (Stokes 2001). One consequence was that the faith of citizens in their governments was damaged and democracy itself discredited (Dominguez 1998); another was that stable coalitions with business was difficult to achieve because governments were

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not perceived as trustworthy or because open alliances with them were politically unfeasible. As a result, neoliberalism in these cases was inherently less politically stable. These differences in the social context of neoliberalism help explain the different trajectories of policies after the Washington Consensus. Michelle Bachelet’s attempts to push the Concertación in Chile toward embracing more radical policies have been a failure mainly because the old model of governance has not, in fact, broken down, and there is resistance to change inside the governing coalition. There is still considerable support within the Concertación for the old policy matrix. As a result, we can identify only timid attempts at reform, within a larger context of continuity. On tax, for example, Bachelet has not been able to disrupt the alliance between the state and industrialists which has effectively shaped how much the Concertación has to spend on social programs. What of the countries where neoliberalism was less deeply embedded? How far can we identify new social coalitions supporting the governments of Argentina, Venezuela and Bolivia? All three have, in different ways, certainly tried to engineer new coalitions of support. In Bolivia, it was clear from around 2000 that the traditional political class could not exercise power through consensus and that the “pacted democracy” which had emerged after 1985 was falling to pieces. As Domingo argues, politics since the election of Evo Morales has largely been about the need to “reconstitute political authority around a new basis of legitimacy, rooted more effectively in the culturally and ethnically plural reality of Bolivian society, in response to the aspirations of the subaltern political agendas that have driven the process of change.” But there is little evidence, as yet, that this has been done successfully. Politics remains polarized and violent and there is no stable alliance underpinning the government able to offer a convincing alternative to elite politics. In Argentina, although the battle lines are much less stark, the governments of KirchnerFernández have not succeeded either in building a consensus over how to govern the country. In particular, there is opposition from agricultural exporters whose power was revealed in the open conflict with the government in 2008 over new proposals to increase export taxes. Only in Venezuela is a real governance alternative emerging, with genuinely new forms of representation. But even here, the power of the opposition is still considerable, especially as Chávez moves toward more radical positions. In short, new alliances between governments and social actors are only discernible in outline and are far from stable. But—and this

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is equally important—there undoubtedly are attempts at articulating alternative approaches to neoliberal governance. This, in itself, is significant, given the view within the scholarly community in the 1990s that neoliberalism was locked in for the foreseeable future. Alternative proposals take inspiration from two recent developments in particular in Latin America. The first is a rethink about the role of the state. Albeit to differing degrees, the state is taking on new responsibilities as a mediator across social classes and as an agent of development across the region. The state is no longer a dirty word, associated exclusively with rent-seeking and corruption. This more positive view of the state is indicative of a genuine shift from the high period of neoliberalism in Latin America. Of course, the economic role of the state is rather conservative compared to the import substituting period. Far from acting to stimulate economic diversity or invest in risky long term projects, the economic role of the state now is largely confined to managing economic opening and steering the primary export sector. But, compared to policies in the 1990s, this is still a considerable change. Second, new models of governance rest on the rapid growth of the Latin American economies over the past five years and the confidence that this has generated. Foreign investment is at its highest level for twenty-seven years (ECLAC 2008) and export levels are high. For the present, export-led growth appears to challenge previous convictions about the developmental weakness of overreliance on primary commodities, as Latin America has moved to take advantage of new markets in China and the global rise in international prices for agricultural goods, minerals and energy. But, as we argue above, how far growth though primary exports is sustainable over the long term is more debatable. Perhaps the greatest weakness in terms of governance, however, is the challenge of democracy. Although democracy itself is clearly valued in the region, by elites and by ordinary people, exclusively marketized visions of citizenship have been roundly rejected. The challenge facing governments now is how to respond to the demands to deepen citizenship and establish new forms of inclusion, within the confines of electoral democracies and with the restrictions that a conservative management of the economy implies. Put differently, the most urgent task for most governments is to develop strategies for balancing the budget with demands from below for more inclusive policies and wider programs of poverty reduction and social welfare. So far, as the case studies show, the new governments are just about managing to square the circle and, region-wide, poverty and unemployment have fallen (tables 10.1 and 10.2).

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CONCLUSION

Table 10.1 Latin America: Poverty and Indigence Rates, 1980–2006 (Percentage of Population) Year

1980 1990 1997 1999 2002 2004 2005 2006

Poor

Indigent

Total

Urban

Rural

Total

Urban

Rural

40.5 48.3 43.5 43.8 44.0 42.0 39.8 36.5

29.8 41.4 36.5 37.1 38.4 36.9 34.1 31.1

59.9 65.4 63.0 63.7 61.8 58.7 58.8 54.4

18.6 22.5 19.0 18.5 19.4 16.9 15.4 13.4

10.6 15.3 12.3 11.9 13.5 12.0 10.3 8.6

32.7 40.4 37.6 38.3 37.9 33.1 32.5 29.4

Table 10.2 Latin America: Urban Unemployment Year

Percent

1990 1999 2000 2001 2002 2003 2004 2005 2006

7.3 11.0 10.4 10.2 11.0 11.0 10.3 9.1 8.7

Source: ECLAC (2007: 290).

But what of progress over the long term? Given the limits on government spending, this will depend on a continuation of the export boom and the introduction of sectoral reforms that prioritize efficiency savings and create opportunities for new investments without governments having to significantly increase spending overall. There are, needless to say, difficulties here. Chile, for example, seems to be reaching the limits of what targeted programs can achieve. In Brazil, Bolivia, and even Venezuela, there is still room for well-implemented, pragmatic, and focused social policy to cut poverty; indeed Brazil has reduced the percentage of population living in poverty from 48 in 1990 to 33 percent in 2006, and the numbers in extreme poverty from over 23 to 9 percent, without massively increasing social expenditure (ECLAC 2007b: 54). But implementing these changes will require concerted, efficient state action. Moreover, whether changes of this

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sort will be enough to satisfy the demands for citizenship and inclusion more broadly is unclear. The task of satisfying popular expectations, in the context of tax vetoes that cannot be challenged without undoing the pacts that keep the export economy functioning, is an extremely hard balancing act for leftist governments to achieve. We might argue, indeed, that there is a common political economy of risk and vulnerability—to global markets, the threat of popular unrest and the fear of antagonizing big producers and investors—in Latin America and this, more than anything else, still provides the thread of commonality that holds the region together. The extent to which new forms of political and economic governance are, as yet, consolidated into a coherent post-neoliberal program across the region is thus still uncertain; nevertheless the resilience of new left projects of development, that cohere around pragmatic proposals for new regional and national political economies should not be underestimated.

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Index

AD (Acción Democrática), 149, 150, 151, 152, 153, 154, 156, 160 AD government, 151 ALBA (Alternativa Bolivariana para las Américas), 83, 158, 168, 172 Alfonsín, Raul, 39, 93, 96 Allende, Salvador, 28, 69 AND (Acción Democrática Nacional), 115, 121 Arbenz, 69 austerity, 40 authoritarianism, 28, 29, 47, 109, 219 see also regime; rule Bachelet, Michelle, 16, 43, 67, 72, 75, 76, 77, 79, 175, 177, 178, 184, 185, 187, 189, 190, 192, 193, 211, 227 Bachelet government, 176 Banco del Sur, 84, 158, 168, 172 “Black Friday”, 153, 154 BNDES (National Bank for Economic and Social Development, Brazil), 205 Bolivarianism, 147, 148, 150, 157, 158, 160, 161, 167, 170, 172 meaning of, 159 phases of, 163 Bolsa Familia, 62, 207, 210 BONOSOL, 117, 133

business, 5, 13, 15, 17, 36, 53, 74, 105, 108, 150, 178, 182, 226 domestic, 82, 191 foreign, 61 business elite, 85 business groups, 50, 51 Caldera, Rafael, 148, 149, 156, 157 campesino leaders, 128 campesino movement, 119, 130, 139 campesino politics, 116, 119, 120 campesino population, 125 CAN (Andean Community of Nations), 84 capitalism, 17, 18, 32, 33, 221, 223 “Andean”, 17 global, 3, 6 national, 46 power of, 68 state-led, 130 see also state capitalism capital market, 207 capitalismo andino, 128, 129 Caracazo, 37–9, 155 Caracazo uprising, 150 Cardoso, 55, 57, 62, 71, 195, 196, 197, 198, 200, 201, 202, 204, 205, 206, 207, 208, 211, 212, 214 cash transfer programs, 58, 61, 62, 63, 64, 65, 207, 210, 223 cash transfers, 223 Causa Radical, La, 156

258

INDEX

Centre-Left, the, 164, 177 Centre-Left government, 36 Centre-Right government, 195 Chávez, Hugo, 2, 16, 17, 21, 22, 30, 39, 43, 45, 67, 72, 77, 78, 83, 86, 108, 147, 148, 149, 150, 156, 159, 163, 164, 166, 169, 170, 172, 173, 206, 208, 223, 225, 227 Chávez government, 148, 157, 158, 161, 162, 163, 166, 171 CIDOB (Confederación de Indígenas del Oriente Boliviano), 119 citizen participation, 193 citizenship, 10, 26, 27, 33, 35, 47, 48, 63, 96, 101, 138, 142, 164, 177, 186, 188, 189, 191, 217, 220, 228, 230 democratic, 126 economic, 29 equitable, 178 political, 20, 27 rights-based, 116 social, 20, 27, 40, 43, 44, 45, 51, 58, 185, 220 civil society movement, 20 class, 29, 106, 126, 135, 177 capitalist, 182 elite, 200 landowning, 179 middle, 4, 18–19, 53, 101, 110, 121, 122, 142, 200, 201, 210 political, 227 working, 18–19, 29, 46, 90, 91, 96, 203, 219 class exclusion, 138 COB (Central Obrera Boliviana), 125 Cocalero agenda, 120 Cocalero leader, 134 Cocalero movement, 120 Collor de Mello, Fernando, 199, 200, 203, 204 community participation, 225 Concertación Democrática, 36, 43, 44, 175, 176, 177, 181, 182,

183, 186, 187, 189, 190, 192, 193, 227 Concertación government, 177, 184, 187, 190, 191, 224, 226 Congress, 35, 54, 92, 115, 116, 137, 185, 188, 190, 193 conservatism fiscal, 2, 222 Constituent Assembly, 128, 136, 138, 139 COPEI (Comité de Organización Política Electoral Independiente, Venezuela), 149, 150, 151, 152, 153, 154, 156 COPEI government, 151 corporatism, 53 state, 218 Corralito, 101, 104 Correa, Rafael, 16, 67, 72 Countries Argentina, 4, 5, 7, 9, 12, 14, 15, 16, 17, 18, 21, 22, 23, 28, 29, 31, 32, 34, 35, 36, 37, 39, 40, 41, 42, 43, 45, 46, 47, 50, 51, 52, 53, 54, 56, 58, 60, 61, 64, 65, 67, 71, 72, 73, 74, 80, 82, 84, 89–111, 168, 195, 218, 219, 221, 222, 224, 226, 227 Bolivia, 12, 14, 16, 17, 18, 21, 22, 23, 29, 32, 35, 41, 42, 43, 44, 45, 46, 47, 52, 53, 61, 67, 72, 79, 80, 83, 84, 108, 113–42, 158, 168, 178, 195, 208, 218, 220, 221, 223, 224, 226, 227, 229 Brazil, 2, 4, 5, 6, 7, 13, 14, 16, 17, 22, 23, 28, 29, 31, 32, 35, 36, 40, 41, 42, 43, 45, 50, 52, 55, 56, 57, 58, 59, 61, 62, 63, 64, 65, 67, 70, 71, 72, 75, 77, 79, 80, 81, 82, 84, 108, 130, 168, 195–215, 218, 219, 220, 221, 224, 225, 226, 229 Chile, 2, 4, 5, 6, 7, 10, 11, 12, 14, 16, 17, 18, 22, 23, 25, 28, 29, 31, 33, 34, 35, 36, 42, 43,

INDEX

44, 45, 47, 50, 51, 52, 56, 61, 65, 67, 69, 71, 72, 75, 76, 77, 80, 81, 122, 175–93, 218, 219, 220, 221, 224, 225, 226, 227, 229 Columbia, 4, 14, 52, 53, 172, 218, 224 Costa Rica, 28, 36 Cuba, 11, 17, 83, 158, 168, 208 Dominica, 158 Ecuador, 14, 16, 42, 43, 67, 72, 75, 168, 195, 224 Guatemala, 69 Mexico, 4, 11, 12, 32, 50, 51, 52, 53, 54, 56, 58, 61, 62, 63, 64, 65, 71 Nicaragua, 69, 83, 158 Panama, 72 Paraguay, 14, 16 Peru, 4, 14, 29, 34, 35, 52, 69 Uruguay, 5, 14, 16, 17, 28, 29, 31, 42, 43, 46, 67, 71, 72, 77 Venezuela, 14, 16, 17, 18, 21, 22, 23, 34, 35, 37, 42, 43, 44, 45, 47, 61, 67, 72, 78, 79, 80, 81, 83, 84, 86, 108, 147–72, 178, 195, 206, 208, 218, 220, 221, 222, 223, 224, 225, 226, 227, 229 crisis, 3, 4, 20, 51, 54, 71, 72, 73, 89, 94, 98, 102, 113, 138, 140, 142, 148, 150, 152, 181, 214, 217 Argentine, 118, 181 Asian, 184 economic, 54, 60, 93, 100, 105, 152, 156, 157, 220 financial, 97, 100, 199 fiscal, 154, 219 governability, 122 governance, 113, 114 hyperinflation, 95 institutional, 121, 154 of legitimacy and credibility, 116 of manufacturing, 58 Mexican, 55, 58

259

political, 134, 136, 139, 154, 156, 157 of representation, 224 social, 156, 220 sociology of economic, 200 system, 156 year of, 61 see also debt crisis; state crisis CSUTCB (Confederación Sindical Unica de Trabajadores Campesinos de Bolivia), 119 debt, 11, 34, 37, 75, 101, 107, 204, 209 external, 149 foreign, 131, 149 national, 165, 205 see also indebtedness; public debt debt crisis, 9, 25, 31, 36, 181, 189, 199 Del Campo, Carlos Ibáñez, 25 democracy, 3, 9, 10, 21, 23, 26, 27, 28, 29, 30, 31, 33, 34, 35, 36, 37, 40, 41, 42, 43, 44, 46, 47, 48, 58, 92, 93, 108, 113, 115, 116, 117, 123, 175, 181, 183, 186, 189, 190, 191, 193, 195, 198, 199, 202, 205, 209, 217, 218, 224, 226, 228 by agreement, 187 Chilean, 181 of civil society, 203, 204, 213 direct, 137, 161 of the elite, 203, 204 elite-led, 29, 31, 225 evolution of, 196 formal institutions of, 220 illiberal, 156 illiberal Punto Fijo, 159 liberal, 17, 25, 29, 36, 147, 203 market-based, 212 marketization of, 16 model of, 20, 41, 176, 186, 192 neoliberal, 41, 42, 175, 195, 221 of pacts, 122

260

INDEX

democracy—Continued participatory, 120, 136, 137, 139, 140, 172 popular, 45 post-crisis, 159 protagonistic, 42, 147, 159, 167, 221 representative, 197 restrictive, 187 social, 13, 35, 42, 43, 44 terms of, 138 transformative, 206 see also market democracy democratization, 26, 30, 31, 52, 54, 70, 93, 94, 125, 196, 197, 203 elite-led, 217 political economy of, 205 regional, 20 of social relations, 192 transformational school of, 203 deregulation, 12, 54, 94, 100, 219, 226 economic, 52, 96 financial, 6, 9 of the labor market, 97 development, 1–3, 5, 6, 10, 12, 18, 42, 46, 83, 91, 106, 107, 113, 114, 118, 121, 128, 132, 138, 140, 148, 175, 177, 180, 186, 192, 193, 197, 217, 218, 225, 230 balanced, 20 Bolivian political, 124 Brazilian political, 204 of Chile, 176 economic, 69, 70, 114, 115, 125, 129, 130, 140, 141, 203, 208 equitable, 176 market-based model of, 177 market-led, 177, 222 national capitalist, 220 nationalist, 11 paradigms of, 176 political, 114, 115, 125, 132, 208 regional, 219

social, 110, 141, 182, 208 socioeconomic, 207, 214 state-led, 219 statist, 219 see also state development dictatorship, 29, 176, 189, 220 military, 5, 28, 41, 92, 94, 175, 218 see also Pinochet dictatorship ECLAC/CEPAL (Economic Commission for Latin American Countries), 91 economy, 33, 34, 52, 71, 72, 73, 77, 78, 79, 89, 94, 95, 97, 98, 103, 105, 106, 107, 117, 118, 127, 129, 132, 134, 138, 152, 153, 155, 156, 158, 162, 165, 175, 182, 196, 198, 200, 203, 204, 210, 214, 220, 222 Bolivian, 126, 129 Brazilian, 201, 204 export-led, 131 export-oriented, 184 global, 21, 52, 131, 147, 224 grey-market, 210, 211 informal, 129, 207 market-based, 214 market-directed, 203 national, 147, 213, 215 neoliberal, 185 new social, 164 open, 19, 82, 192 regional, 131 see also export economy; oil economy education, 19, 50, 54, 58, 59, 63, 65, 71, 76, 78, 96, 97, 149, 154, 172, 183, 184, 185, 222, 223 higher, 167 public, 201 elite, 6, 9, 12, 13, 16, 22, 27, 28, 29, 31, 32, 33, 35, 36, 44, 48, 52, 121, 156, 177, 198, 201, 218, 219, 222, 228

INDEX

economic, 121, 196, 200, 202 exporting, 223 landed, 135, 201 national, 212 political, 188, 204 socioeconomic, 212 technocratic, 219 see also business elite; party elite; Punto Fijo elite; state elite elite sector, 142 elitism, 190 employment, 56, 57, 64, 65, 73, 133, 181 formal, 55, 58 informal, 54, 58 low-paid, 220 private, 59 urban, 61 see also public sector employment energy sector, 130, 132, 135 Enterprise for the Americas, 13 EU (European Union), 13 exclusion, 31, 46, 111, 132, 156, 220 economic, 26, 33 ethnic, 138 political, 26 social, 23, 26, 33, 132, 138, 159 see also class exclusion expenditure, 62, 79 fiscal, 75 government, 214 social, 76, 222, 229 see also public expenditure export, 6, 17, 18, 34, 47, 60, 76, 77, 82, 104, 107, 109, 110, 132, 192, 209, 219, 222, 224 Argentine, 107, 206 primary, 228 see also world exports export economy, 230 export tax, 73, 105, 109, 227 FEJUVE (Federación de Juntas Vecinales), 120 “Fome Zero”, 62, 207

261

Franco, Itamar, 200 free trade, 218 Free Trade Agreement, 122 FTAA (Free Trade Area of the Americas), 13, 14, 81, 82, 85, 158, 168 Gas War, 113, 114, 115, 120, 121, 122, 128, 130, 135, 136 GDP growth, 209 gender, 179 globalization, 3 governance, 1, 3, 5, 10, 13, 14, 17, 22, 27, 46, 54, 69, 70, 80, 93, 94, 96, 104, 106, 108, 109, 110, 113, 114, 118, 126, 147, 148, 175, 186, 217, 228 crisis of, 23, 109 democratic, 20, 26 dilemmas of, 127 economic, 21, 68, 69, 72, 81, 89, 92, 93, 230 forms of, 226 “good”, 118, 126 institutions of, 31 left-wing, 25 models of, 23, 225, 227, 228 neoliberal, 226, 228 new Left, 43 new modes of, 170 political, 89, 92, 230 post-crisis, 22, 104, 109 post-neoliberal, 3, 21, 22, 181, 183, 191, 193, 221 projects of, 45 rules of, 127 state-led, 90 statist, 177 structures of, 20–1 government, 16, 17, 19, 20, 26, 30, 33, 34, 35, 36, 37, 40, 41, 43, 45, 46, 50, 51, 52, 53, 54, 55, 56, 57, 58, 60, 61, 63, 64, 70, 71, 72, 73, 74, 75, 76, 77, 78, 79, 80, 81, 85, 86, 93, 95, 96, 97, 100, 101, 102, 103, 104,

262

INDEX

government—Continued 106, 107, 108, 109, 110, 113, 116, 117, 122, 123, 128, 131, 132, 135, 137, 138, 139, 140, 142, 148, 149, 158, 159, 160, 165, 173, 176, 178, 179, 181, 182, 185, 186, 187, 188, 190, 191, 192, 202, 203, 211, 213, 218, 219, 220, 222, 223, 225, 227, 228, 229 Bolivarian, 172 Brazilian, 196 central, 137, 153, 157 civilian, 26 constitutional, 120 decentralized, 136 democratic, 181 devolved, 142 Left-democratic, 48 Leftist, 195, 230 municipal level of, 133 national, 168 neoliberal, 76 New Left, 47, 49, 83, 222, 224 popular, 17, 138 post-neoliberal, 2 post-Washington Consensus, 222, 223 regional, 132, 137 representative, 42, 140 social democratic, 17, 47 see also AD government; Bachelet government; Centre-Left government; Centre-Right government; Chávez government; Concertación government; COPEI government; Left government; MAS government; Morales government; United States government; Workers’ Party government government policy, 114, 156, 166, 191, 202 growth, 19, 51, 58, 72, 73, 75, 80, 82, 102, 107, 108, 109, 111,

118, 172, 183, 192, 198, 200, 202, 209, 215, 217, 218, 219, 223, 224, 228 Brazilian, 212 economic, 2–3, 6, 15, 33, 36, 46, 47, 59, 64, 74, 77, 89, 90, 91, 96, 97, 98, 107, 117, 151, 152, 176, 177, 180, 182, 186, 189, 191, 200, 209, 210, 211, 213, 214, 224 export-generated, 177 export-led, 90, 106, 107, 175, 181, 224, 228 export-oriented, 104 inward-led, 129, 132 market-led, 76 stable, 177 “growth with equity”, 19, 191 Grupo Productivo, 103 health, 10, 19, 31, 50, 54, 58, 59, 63, 65, 71, 78, 96, 97, 149 reproductive, 187 see also public health healthcare, 62, 151, 180, 185 health sector, 190 IADB (Inter-American Development Bank), 57, 105, 190 IFIs (International Financial Institutions), 7, 12, 15, 33, 34, 35, 49, 50, 51, 53, 54, 72, 93, 95, 102, 103, 107, 163, 168 see also IMF; World Bank IMF (International Monetary Fund), 12, 34, 72, 78, 79, 100, 103, 107, 117, 147, 154, 156, 168, 182, 206 import substitution, 219 inclusion, 3, 26, 27, 28, 44, 47, 113, 116, 176, 185, 207, 217, 218, 222, 223, 224, 225, 226, 228, 230 civic, 29, 176 economic, 47, 220

INDEX

policies of, 26 political, 2, 105, 186, 187, 224 popular, 29 social, 2–3, 22, 29, 47, 96, 176, 192, 220 socioeconomic, 10, 159 income distribution of, 5 redistribution of, 19 income inequality, 126 income tax, 15 indebtedness, 9, 15 individualism, 190 industrialization, 4, 5, 29, 46, 69, 90, 91, 107, 221 import-substitution, 4, 5, 7, 11, 50 state-led, 11, 218 inequality, 2, 15, 26, 51, 58, 59, 80, 81, 127, 129, 132, 133, 138, 155, 175, 177, 178, 184, 192, 210, 214 in health services, 191 social, 76, 77, 192, 210 see also income inequality inflation, 9, 40, 50, 52, 55, 57, 73, 76, 77, 78, 79, 92, 93, 98, 108, 110, 154, 155, 181, 198, 199, 200, 201, 204, 206, 210, 219, 220 institutions, 108, 170 democratic, 180 financial, 95 formal, 147 governmental and regulatory, 197 international, 107, 226 judicial and law-enforcement, 126 political, 68, 82, 175, 188 representative, 195 social, 180, 188 see also state institutions; Washington institutions investment, 5, 12, 36, 50, 62, 71, 73, 74, 77, 81, 117, 118, 149, 152, 193, 199, 222, 229 direct, 169, 204, 210

263

domestic, 17 foreign, 4, 6, 17, 77, 78, 97, 132, 163, 169, 181, 204, 210, 228 private, 17, 163, 169, 185 social, 105, 106, 223 in social capital, 159 stagnation of public, 59 see also public investment; state investment investment policy, 13 ISI (Import Substitution Industrialization), 91, 93 ISI development policy, 200 Kirchner, Christina Fernández de, 2, 17, 18, 43, 45, 67, 72, 73, 100, 109 Kirchner, Néstor, 2, 16, 17, 43, 45, 46, 61, 67, 72, 73, 106, 108 Kirchner-Fernandez governments of, 227 kirchnerismo, 106 Kirchners, the, 109, 223 labor market, 6, 9, 51, 55, 56, 57, 58, 61, 64, 94 labor market regulation, 49 labor regulation, 50, 51 labor rights, 97 labor unions, 190 Lagos, Ricardo, 43, 75, 76, 77, 187, 190 latifundistas, 131 Latin America, 1–2, 4, 6, 7, 9, 10, 11, 12, 13, 14, 15, 16, 17, 19, 20, 23, 25, 29, 32, 41, 43, 44, 45, 47, 49, 51, 52, 53, 56, 57, 58, 59, 60, 63, 64, 65, 68, 69, 70, 72, 74, 76, 81, 85–6, 90, 94, 108, 126, 133, 134, 176–7, 179, 183, 184, 188, 192, 200, 208, 214, 217, 218, 219, 220, 221, 222, 223, 224, 225, 228, 230 law, 190 rule of, 5, 31, 126, 152, 184 unrule of, 31

264

INDEX

learning social, 70, 80, 81, 86 Left, 2, 16, 17, 21, 22, 25, 28, 31, 42, 43, 45, 61, 67, 69, 70, 72, 76, 80, 86, 94, 125, 134, 138, 151, 172, 189, 208, 209, 219 “bad”, 221 Chilean, 17, 31 “good”, 221 middle-class, 207 nationalist-Left, 205 new Left, 2, 18, 19, 21, 22, 42, 43, 44, 70, 71, 72, 77 “new” new Left, 44 old Left, 2, 22, 44 unified Left, 208 Left government, 86 liberalism, 217, 218 economic, 26, 219 liberalization, 14, 16, 91, 220 economic, 35, 49, 50, 51, 54, 56, 58, 94, 117, 218, 219, 223 financial, 35, 51, 52, 54, 58 of investment, 13 political, 94, 218 political economy of, 22 of trade, 6, 13, 52, 71, 83, 96, 182 liberalization policy, 182 Linera, Alvaro Garcia, 46 living standards, 9, 30, 47, 50, 51, 97, 149, 154, 181, 184 loans foreign, 4 “lost decade”, the, 5, 50 Lugo, Fernando, 16 Lula, 16, 17, 43, 62, 67, 72, 74, 75, 77, 195, 197, 198, 201, 206, 207, 208, 209, 210, 211, 212, 213, 224 market, 1–2, 6, 10, 12, 13, 16, 17, 18, 19, 21, 31, 33, 35, 36, 40, 48, 53, 63, 68, 69, 73, 81, 82, 86, 98, 103, 106, 149, 158, 176, 180, 181, 188, 189, 191,

192, 196, 201, 203, 211, 213, 219, 221, 226, 228 domestic, 91, 104, 106, 109, 213 export-oriented, 218 external, 196, 220 financial, 71 foreign, 213 free, 32, 34 global, 2, 126, 182, 230 internal, 4, 90, 21 international, 199 open, 192, 218, 220 regional, 84 see also capital market; labor market; world market market democracy, 36, 37, 40, 42, 43, 44, 46, 175, 217 MAS, the (Movimiento al Socialismo, Bolivia), 46, 113, 116, 120, 132, 135, 137, 139, 140 MAS government, 127, 129, 132, 133, 136, 139, 140 MAS movement, 140 maternal mortality rate, 184 media luna, 121, 123, 127, 128, 131, 136, 137, 139, 141 Menem, Carlos, 39–40, 67, 71, 86, 93, 95, 96, 100, 108 MERCOSUR, 14, 74, 79, 81, 82, 83, 84, 208, 225 Mesa, Carlos, 136, 137 MIR (Movimiento de Izquierda Revolucionaria, Bolivia), 115, 121 MNR (Movimiento Nacionalista Revolucionario, Bolivia), 115, 117, 122, 125 Morales, Evo, 2, 16, 17, 18, 21, 22, 30, 43, 45, 46, 47, 67, 72, 77, 79, 80, 113, 114, 115, 116, 119, 120, 122, 123, 127, 128, 130, 134, 135, 137, 139, 140, 142, 208, 223, 224, 227 Morales government, 121, 132, 136, 141 mortality rate, 184

INDEX

movement, 45 community and grass-roots based, 166 indigenous, 119, 138, 139 popular, 31, 45, 103, 139 protest, 122 social, 16, 29, 41, 51, 83, 105, 115, 120, 121, 129, 137, 138, 140, 188, 225 see also civil society movement; MAS movement NAFTA (North American Free Trade Agreement), 52 nationalism, 1, 11, 15, 45, 46, 67, 89, 90, 103, 106, 111, 138, 160, 221 Adeco, 161 Bolivarian, 160, 161 corporatist, 91 economic, 125 “open-economy”, 106, 111 open-markets, 18, 108 popular, 90 Venezuelan, 160 nation state, 45 neoliberalism, 1–3, 6, 7, 9, 10, 11, 15, 16, 25, 31, 33, 37, 40, 41, 42, 49, 52, 58, 61, 65, 67, 68, 69, 71, 80, 81, 85, 89, 90, 96, 98, 102, 110, 111, 115, 120, 121, 125, 129, 132, 148, 149, 155, 156, 157, 158, 161, 163, 168, 169, 175, 176, 177, 180, 181, 183, 186, 195, 197, 205, 211, 213, 217, 219, 220, 221, 226, 227, 228 anti-neoliberalism, 148, 162, 163, 165, 167, 168 crisis of, 1, 21, 22 “multicultural”, 118 post-neoliberalism, 2, 65, 80, 86, 128 reformed, 178, 191, 193 NGOs (nongovernmental organizations), 105

265

oil economy, 151 oil sector, 152 oligarchy, 1 oligarquia, 153, 159 Ortega, Daniel, 69 Pacto Federal, 104 participation, 26, 27, 31, 43, 44, 113, 127, 158, 166, 173, 178, 185, 186, 187, 189, 190, 224 political, 117, 136, 137 politics of, 43 popular, 147, 187 see also citizen participation; community participation party, 180 political, 31, 32, 59, 60, 105, 109, 117, 121, 150, 177, 188 partyarchy, 156 party elite, 151, 152 PDVSA (Petróleo de Venezuela), 78, 152, 157, 160, 161, 162, 163, 167 Pérez, Carlos Andrés, 37, 39, 148, 150, 154, 155, 156 Peron, 67 Peronism, 29, 89, 90, 91, 93, 106, 111 pesification, 103 Petrobas, 196, 205, 210 Pinochet, 6, 11, 33, 52, 56, 179, 182, 184, 187, 188 Pinochet dictatorship, 76, 179 piqueteros, 101, 103, 105 Plan de Modernizaciones, 180 “Plan Jefes y Jefas”, the, 61–2 Plan Nacional de Desarrollo, 129 Plan Remediar, 105 PODEMOS, 121 policy, 80, 100, 107, 110, 111, 175, 185, 187, 221, 226, 227, 228 antipoverty, 222 Bolivarian energy, 160 Bolivarian foreign, 165 Center-Right economic, 198 deflationary, 154

266

INDEX

policy—Continued developmental, 119 domestic, 162 economic, 53, 60, 61, 67, 68, 77, 79, 80, 86, 90, 102, 107, 109, 114, 115, 128, 132, 147, 149, 165, 175, 182, 195, 196, 197, 198, 199, 200, 201, 206, 208, 210 fiscal, 79, 80, 86, 107, 182 foreign, 83, 155, 162, 167, 169, 172, 225 free market, 32, 182 industrial, 18 inflationary, 200 liberal economic, 204, 209, 214 market-oriented economic, 207 monetary, 79, 86, 182 neoliberal, 33–4, 51, 113, 220 orthodox economic, 204 politics of economic, 205 radical, 227 regional, 83 social, 3, 21, 23, 30, 37, 47, 49, 52, 53, 54, 59, 60, 61, 62, 63, 64, 65, 70, 73, 75, 79, 80, 105, 129, 133, 175, 191, 207, 208, 217, 220, 222, 223, 229 socioeconomic, 78 Venezuelan foreign, 168 Washington Consensus-style, 177 Washington Consensus-type, 217 see also government policy; investment policy; ISI development policy; liberalization policy; privatization policy; public policy; social inclusion policy; social security policy; stabilization policy; state policy; tax policy; trade policy; welfare policy political economy, 25, 41, 42, 52, 68, 69, 94, 109, 110, 111, 114, 127, 147, 218, 219 alternative, 106, 169, 217, 221

of Argentina, 90 of Chile, 175 domestic, 177 global, 1–3, 4, 10, 103 international, 103, 106 Latin American, 10, 90 national, 21, 195, 196, 213, 230 new, 13, 19, 22, 35, 110, 220 of Peronism, 90 post-crisis, 106 post-neoliberal, 19, 22 regional, 1–2, 17, 20, 85, 220, 230 regionalist, 15 of risk, 230 of Venezuela, 148 populism, 2, 17, 44, 218, 221 leftwing, 78 poverty, 15, 19, 31, 36, 40, 41, 49, 54, 58, 59, 61, 62, 63, 65, 72, 73, 74, 76, 77, 78, 79, 100, 101, 108, 111, 126, 127, 129, 132, 133, 138, 149, 154, 155, 157, 172, 175, 176, 177, 182, 183, 189, 191, 210, 211, 214, 215, 220, 222, 228, 229 price stabilization, 51 privatism, 190 privatization, 6, 9, 12, 34, 35, 36, 50, 52, 53, 54, 55, 58, 71, 73, 92, 94, 96, 97, 117, 118, 121, 149, 185, 205, 208, 219, 226 of social security, 58 privatization policy, 182 proceso, el, 92 production tax, 196 Programa Jefes y Jefas de Hogares Desempleados (Unemployed Men and Women Heads of Households Program), 105 see also “Plan Jefes y Jefas”, the property rights, 6, 80, 131, 165 protectionism, 4, 86, 90, 91, 150, 218 protest, 16, 40, 191 grass-roots, 221 popular, 186

INDEX

social, 185 public debt, 131, 182 public expenditure, 6, 50, 52, 63, 76, 78, 183 public health, 76 public investment, 76, 185 public policy, 52 public sector, 4, 19, 58, 107 public sector employment, 58 puntofijismo, 22, 148, 149, 150, 156, 157, 158, 159, 160, 164, 166, 167, 170, 172 anti-puntofijismo, 148, 160 crisis of, 154 Punto Fijo elite, 160, 161 Punto Fijo state, 152 “real plan”, the, 197, 201, 204 redistribution, 2, 3, 27, 28, 30, 35, 42, 47, 49, 69, 94, 113, 127, 159, 185, 186, 223 global, 83 social, 59 regime authoritarian, 11 regionalism, 12–13, 14, 21, 72, 81, 82, 168, 225 new, 32 regulation, 13, 58, 61, 65, 71, 78, 107, 182, 221 economic, 51 expansion of, 91 quality of, 187 see also labor market regulation; labor regulation; state regulation representation, 226 crisis of, 60 forms of, 227 revolution, 70, 85, 113, 141, 148, 158 Bolivarian, 147, 148, 157, 167, 171, 221 democratic, 141 neoliberal, 226 social, 124

267

Right, the, 28, 44, 121, 122, 123, 127, 130, 133, 135, 137, 138, 151, 178, 188, 189, 190, 219 rights, 31, 35, 36, 40, 90, 140, 178, 186, 190, 225 citizenship, 28 cultural, 119, 140 economic, 49, 50, 90–1, 140 human, 140 indigenous, 119 language of, 187 political, 26, 32, 47, 59, 186 social, 26, 49, 50, 55, 59, 97, 140, 193 see also labor rights; property rights; subsistence rights riots, 16, 39 rule authoritarian, 5, 28 Sandinistas, the, 69 sector, 150 export-oriented, 213 financial, 74, 77 formal, 59 industrial, 4, 162, 205, 206, 213 informal, 59, 199, 200, 203 private, 36, 73, 158, 162 productive, 77 rural, 4 social, 135, 151, 183 state-owned, 118 see also elite sector; energy sector; health sector; oil sector; public sector social inclusion policy, 222 socialism, 21, 46, 67, 69, 223 social security, 10, 27, 55, 56, 59, 62, 64, 151, 180 privatization of, 80 reform of, 62 social security policy, 55 social security privatization, 51 society, 19, 26, 36, 47, 48, 50, 68, 81, 101, 103, 109, 111, 113, 125, 129, 138, 141, 157, 160,

268

INDEX

society—Continued 188, 189, 196, 197, 202, 214, 220, 226 Bolivian, 116, 119, 125, 127, 128, 129, 134, 135, 227 Brazilian, 59 civil, 2, 26, 27, 29, 30, 32, 40, 41, 42, 43, 45, 60, 85, 101, 102, 137, 138, 159, 187, 189, 191, 224, 225 culturally diverse, 132 equal, 177 inclusive, 177 multicultural, 128 participatory, 177 plural, 130 plurinational, 138 political, 42 Venezuelan, 152, 170 Southern Cone, 5, 28, 85 sovereignty, 7 stabilization, 7, 11, 25, 94, 148, 201, 209, 213 economic, 32, 103, 180 IMF-backed, 37 social, 111 see also price stabilization stabilization policy, 9, 201 stagnation, 5, 51, 62 of wages, 16 standards of living, 56, 191–2 state, 1–2, 5, 6, 7, 13, 16, 18, 19, 20, 21, 22, 23, 26, 27, 33, 35, 36, 40, 42, 44, 46, 47, 48, 53, 54, 55, 56, 69, 71, 74, 75, 78, 80, 81, 86, 94, 97, 101, 102, 104, 106, 107, 109, 110, 111, 113, 114, 117, 118, 119, 123, 126, 127, 128, 129, 130, 132, 138, 141, 147, 151, 155, 156, 158, 160, 162, 165, 166, 167, 169, 170, 171, 175, 176, 180, 182, 186, 189, 192, 193, 196, 202, 203, 204, 207, 212, 213,

214, 219, 220, 221, 225, 226, 227, 228 authoritarian, 29 Bolivian, 125–6, 129 Brazilian, 202, 226 Chilean, 18, 226 corporatist developmental, 91 fear of, 220 national, 218 neoliberal, 10, 42 new Left, 85 party controlled, 152 “plurinational”, 119, 127, 129 regulatory, 5, 212, 214 unitary and plurinational, 140 see also Punto Fijo state; welfare state state capitalism, 86, 152 state crisis, 141 state development, 124, 126 state elite, 220, 226 state institutions, 150, 152, 155, 162, 167 statism, 18, 217, 218 state investment, 107, 153, 159 state policy, 4 state regulation, 181 structural adjustment, 34 structural adjustment measures, 183 structural adjustment programs, 182, 197, 199 subsistence rights, 40 Tabaré, Vasquez, 16, 46, 67, 72, 77 tax, 6, 44, 52, 79, 104, 110, 222, 227 reform of, 18 see also export tax; income tax; production tax taxation, 30, 46, 109, 110 progressive, 69 tax policy, 226 tax revenue, 4 technopols, 34, 36 Third Way Socialism, 149 trade liberalization, 83

INDEX

trade policy, 77 trade union, 15, 35, 45, 50, 51, 54, 62, 64, 92, 179 trade union movement, 150 Twenty-First Century Socialism, 147, 148, 158, 169, 223 UN (Unidad Nacional, Bolivia), 121 UNASUR (Union of South American Nations), 84 UNDP (United Nations Development Program), 126 unemployment, 9, 16, 51, 58, 72, 73, 74, 77, 79, 80, 97, 100, 105, 118, 172, 181, 184, 228 unions, 180 power of, 97 United Kingdom, 27 United States government, 147 United States of America, 4, 7, 11, 12, 13, 14, 15, 17, 21, 27, 28, 68, 69, 77, 82, 83, 84, 85, 86, 158, 160, 171, 219 hegemony of, 7, 10

269

Washington Consensus, 1–2, 5, 6, 9, 10, 20, 32, 33, 34, 40, 41, 42, 43, 63, 69, 117, 118, 197, 214, 221, 225, 227 post-Washington Consensus, 16, 17, 20 Washington institutions, 3, 7 Water War, 113, 114, 115, 120, 121 welfare, 10, 19, 29, 36, 97, 164, 177 safety-net, 37 social, 31, 50, 55, 80, 178, 228 welfare policy, 20, 55 welfare state, 27, 37, 80, 89, 180 welfare state institutions, 91 World Bank, 57, 78, 98, 105, 117, 147, 158, 168, 182 world exports, 114, 220 world market, 86, 218 Workers’ Party, 22, 67, 226 Workers’ Party government, 201 WTO (World Trade Organization), 83, 103, 208

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