The Southern Cone Model: The Political Economy of Regional Capitalist Development in Latin America

The Southern Cone Model

Developing an original blend of perspectives from the fields of International and Comparative Political Economy, The Southern Cone Model: The Political Economy of Regional Capitalist Development in Latin America presents an innovative and in-depth account of the contemporary political economy of the Southern Cone of Latin America—Argentina, Brazil, Chile, Paraguay and Uruguay. This book identifies a new and distinctive model of regional capitalist development emerging in the Southern Cone and its complex relationship with both the global political economy and the five distinctive national political economies in the region. Ranging across the contours of labour, business, states and regionalist processes, Phillips assesses the significance of the Southern Cone Model for the ways in which we understand contemporary capitalist development at both national and transnational levels. Nicola Phillips is currently Hallsworth Research Fellow at the University of Manchester, UK. Her research and teaching interests fall broadly in the field of International Political Economy and development, with a regional specialisation in the political economy of the Americas. She is co-editor, most recently, of New Regionalisms in the Global Political Economy: Theories and Cases (Routledge, 2003).

RIPE SERIES IN GLOBAL POLITICAL ECONOMY Series Editors: Louise Amoore (University of Newcastle, UK), Randall Germain (Carleton University, Canada) and Rorden Wilkinson (University of Manchester, UK and Wellesley College, USA) Formerly edited by Otto Holman, Marianne Marchand (both University of Amsterdam), Henk Overbeek (Free University, Amsterdam) and Marianne Franklin (University of Amsterdam) The RIPE series editorial board are: Mathias Albert (Bielefeld University, Germany), Mark Beeson (University of Queensland, Australia), A.Claire Cutler (University of Victoria, Canada), Marianne Franklin (University of Amsterdam, the Netherlands), Stephen Gill (York University, Canada), Jeffrey Hart (Indiana University, USA), Eric Helleiner (Trent University, Canada), Otto Holman (University of Amsterdam, the Netherlands), Marianne H.Marchand (University of Amsterdam, the Netherlands), Craig N.Murphy (Wellesley College, USA), Robert O’Brien (McMaster University, Canada), Henk Overbeek (Vrije Universiteit, the Netherlands), Anthony Payne (University of Sheffield, UK) and V.Spike Peterson (University of Arizona, USA). This series, published in association with the Review of International Political Economy, provides a forum for current debates in International Political Economy. The series aims to cover all the central topics in IPE and to present innovative analyses of emerging topics. The titles in the series seek to transcend a state-centred discourse and focus on three broad themes: • the nature of the forces driving globalisation forward • resistance to globalisation • the transformation of the world order. The series comprises two strands: The RIPE Series in Global Political Economy aims to address the needs of students and teachers, and the titles will be published in hardback and paperback. Titles include: Transnational Classes and International Relations Kees van der Pijl

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Gender and Global Restructuring Sightings, Sites and ResistancesEdited by Marianne H.Marchand and Anne Sisson Runyan Global Political Economy Contemporary TheoriesEdited by Ronen Palan Ideologies of Globalization Contending Visions of a New World OrderMark Rupert The Clash within Civilisations Coming to Terms with Cultural ConflictsDieter Senghaas Global Unions? Theory and Strategies of Organized Labour in the Global Political EconomyEdited by Jeffrey Harrod and Robert O’Brien Political Economy of a Plural World Critical Reflections on Power, Morals and CivilizationsRobert Cox with Michael Schechter A Critical Rewriting of Global Political Economy Integrating Reproductive, Productive and Virtual EconomiesV.Spike Peterson Contesting Globalization Space and Place in the World EconomyAndré C.Drainville Global Institutions and Development Framing the World?Edited by Morten Bøås and Desmond McNeill Routledge/RIPE Studies in Global Political Economy is a forum for innovative new research intended for a high-level specialist readership, and the titles will be available in hardback only. Titles include: 1. Globalization and Governance* Edited by Aseem Prakash and Jeffrey A. Hart 2. Nation-States and Money The Past, Present and Future of National CurrenciesEdited by Emily Gilbert and Eric Helleiner 3. The Global Political Economy of Intellectual Property Rights The New Enclosures?Christopher May 4. Integrating Central Europe EU expansion and Poland, Hungary and the Czech RepublicOtto Holman 5. Capitalist Restructuring, Globalisation and the Third Way Lessons from the Swedish ModelJ.Magnus Ryner 6. Transnational Capitalism and the Struggle over European Integration

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Bastiaan van Apeldoorn 7. World Financial Orders An Historical International Political EconomyPaul Langley 8. The Changing Politics of Finance in Korea and Thailand From Deregulation to DebacleXiaoke Zhang 9. Anti-Immigrantism in Western Democracies Statecraft, Desire and the Politics of ExclusionRoxanne Lynn Doty 10. The Political Economy of European Employment European Integration and the Transnationalization of the (Un)Employment QuestionEdited by Henk Overbeek 11. Rethinking Global Political Economy Emerging Issues, Unfolding OdysseysEdited by Mary Ann Tétreault, Robert A.Denemark, Kenneth P.Thomas and Kurt Burch 12. Rediscovering International Relations Theory Matthew Davies and Michael Niemann 13. International Trade and Developing Countries Bargaining Coalitions in the GATT & WTOAmrita Narlikar 14. The Southern Cone Model The Political Economy of Regional Capitalist Development in Latin AmericaNicola Phillips

* Also

available in paperback

The Southern Cone Model The Political Economy of Regional Capitalist Development in Latin America

Nicola Phillips

LONDON AND NEW YORK

First published 2004 by Routledge 11 New Fetter Lane, London EC4P 4EE Simultaneously published in the USA and Canada by Routledge 29 West 35th Street, New York, NY 10001 Routledge is an imprint of the Taylor & Francis Group This edition published in the Taylor & Francis e-Library, 2005. “To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk.” © 2004 Nicola Phillips All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data Phillips, Nicola, 1971– The Southern Cone model: the political economy of regional capitalist development in Latin America/Nicola Phillips. p. cm. Includes bibliographical references (p.) and index. 1. Southern Cone of South America-Economic conditions. 2. Southern Cone of South America-Economic policy 3. Capitalism-Southern Cone of South America. 4. Regional economics-Case studies. I. Title. HC167 .S67P47 2004 338.98–dc22 2003023896 ISBN 0-203-46333-1 Master e-book ISBN

ISBN 0-203-67196-1 (Adobe eReader Format) ISBN 0-415-34088-8 (Print Edition)

To my family—Susan, Vivian and Emma

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Contents

List of illustrations

x

Series preface

xi

Acknowledgements List of abbreviations

PART I

Introduction 1

Introduction

2

The political economy of capitalist development

PART II

The contours of Southern Cone development

xiii xv

1 2 11 41

3

Post-war development and regional integration

42

4

Versions of neoliberalism

59

5

The Mercosur project

84

PART III The emerging regional political economy

110

6

The reconfiguration of regionalist dynamics

111

7

Labour

143

8

Business

181

9

States

218

PART IV Conclusion 10

254

The Southern Cone Model

255

Notes

270

Bibliography

275

Index

305

Illustrations

Tables 1.1 Southern Cone countries: basic indicators, 2001 5.1 Mercosur: initial tariff liberalisation schedule 5.2 Mercosur trade: exports, 1990–2001 5.3 Mercosur trade: imports, 1990–2001 5.4 The Americas: selected trade openness measures, 1990–9 6.1 Direction of manufactured exports by subregional grouping, averages 1990–9 7.1 Southern Cone: urban open unemployment rates, 1980–2001 7.2 Southern Cone: distribution of employed population between 25 and 59 years of age by sector of activity, urban areas, 1990–9 7.3 Southern Cone: real wages in industry, 1990–2000 7.4 Southern Cone: waged workers without employment contract and withou t social security in urban areas, selected years 7.5 Southern Cone: union membership and trade union density, selected years 7.6 Southern Cone: distribution of population between 25 and 59 years of age by level of qualification, urban areas, selected years 8.1 Latin America: net FDI inflows, 1990–2001 8.2 Southern Cone: net FDI inflows, 1990–2001 8.3 Latin America and the Caribbean: composition of largest manufacturing firms, 1990–9 8.4 Latin America and the Caribbean: composition of largest exporters, 1 995 – 9

6 88 89 89 89 116 149 150 151 153 155 156 184 185 186 186

Figure 5.1

Institutional structure of Mercosur

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Series preface

IPE’s pre-occupation with analysing the ‘global’ is one of the discipline’s enduring strengths, but it also a significant weakness. IPE emerged out of an acute need to better understand the dominant patterns of, and systemic influences upon, developments at local, national and regional levels. Its aim in doing so was to overcome some of the short-sighted myopia of national and comparative political economy that refused to acknowledge the growing centrality of the ‘global’. In the pursuit of a more suggestive understanding of world political economy, however, IPE has sometimes lost sight of its national and regional roots. The pre-occupation with the ‘global’ has come to obscure the local, national and regional, and nowhere is this more on display than in the study of regionalism and regionalisation. Scholars have been quick to emphasise the common points of convergence in any number of regional projects, both among participating states and in terms of a dominant global orthodoxy. Few, however, have sought to explain the persistence of national and local variation within and among the states involved. Fewer still have sought to use such an exercise as a vehicle for re-adjusting our theoretical tools for thinking about IPE at the broadest levels. Nicola Phillips’ new book—The Southern Cone Model: The Political Economy of Regional Capitalist Development in Latin America—moves beyond the strictures of IPE’s self-inflicted intellectual short-sightedness. In doing so, it advances a truly global vision of political economy. What follows is an account of the political economy of the Southern Cone (Argentina, Brazil, Chile, Paraguay and Uruguay) that marries the insights of a macro-level analysis with an appreciation of the national and local particularities of the countries involved. Nicola Phillips’ work in this regard is both theoretically and empirically novel. Theoretically, Phillips puts forward the case for a political economy that combines the best of both international political economy and its comparative counterpart in a ‘controlled eclecticism’. Such an exercise, she argues, overcomes each discipline’s preoccupation with global or national particularities as the key determinants of development. Recognising the co-determination of the national and the global, Phillips argues, enables us to move beyond the ridged intellectual parameters of ‘path dependency’ as the dominant depiction of development, towards a move nuanced understanding of developmental

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trajectories as ‘path conditioned’. Empirically, Phillips’ work is rich and rigorous. To support her claim to advance a more nuanced understanding of political economy, she offers a carefully crafted exploration of the national and regional dimensions of each of the case study countries. Here her focus is not just on unpicking the unique social relations within each of the case study countries; she is also concerned with identifying and examining the contradictions and similarities that exist among them. Phillips has produced an innovative work; one that deserves a serious engagement by all who study international and comparative political economy. Not only is it a timely contribution to theoretical and empirical debates about the nature of the international political economy, it offers an important assessment about the state of development in a region that has suffered much economic turbulence in the past decade. The Southern Cone Model: The Political Economy of Regional Capitalist Development in Latin America is therefore an important work that will be read widely by political economists of many persuasions. Louise Amoore, University of Newcastle, UK Randall Germain, Carleton University, Canada Rorden Wilkinson, University of Manchester, UK

Acknowledgements

In the process of researching and writing this book I have amassed a huge array of debts and, sitting down to start to acknowledge them, I am uncomfortably aware that I am unlikely to be able to capture fully their extent or importance. The book is the product of a long-standing fascination with the political economy of Latin America and it would be impossible to pay credit here to all the people who, in all sorts of direct and indirect ways and in all sorts of settings, have fuelled this fascination, deepened and challenged my understanding of the region, and forced me to sharpen my thinking about it. I should like to record here, however, my particular thanks to a number of people. This book is based on extensive interviews and conversations, both formal and informal and over several years, with government officials, politicians, bureaucrats, private sector representatives and others in the Southern Cone, and I am most grateful for their time and often startling generosity with their ideas, information and perspectives. I have respected requests for confidentiality in the pages that follow; consequently specific interviews with specific persons have not been directly cited as footnotes, and I have confined myself simply to offering indications here and there of the sorts of interviews and discussions that formed the basis of certain observations or arguments I have chosen to make. My friends and colleagues in the Southern Cone have been responsible for making each trip to the region more interesting, absorbing and challenging than the last, and great fun as well. Diana Tussie of FLACSO/ Argentina scooped me off the pavement, so to speak, when I first went to Buenos Aires as a PhD student and since then has become a great friend, valued colleague and an enormous influence on my thinking about issues in which we share an interest, many of which are reflected in this book. Diana and other friends at FLACSO—especially Mercedes Botto, Valentina Delich, Paula Gosis, Miguel Lengyel, Cintia Quiliconi, Pia Riggirozzi, Gabriela Rodríguez López, Tracy Tuplin and Fernanda Tuozzo—have always offered fabulous hospitality during trips to Buenos Aires and an extremely stimulating environment in which to work. I have learnt a great deal from them and I enjoy my collaborations with FLACSO immensely. The book has also benefited from interactions, collaborations and conversations with a number of other colleagues in various parts of the region, as

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well as from the company and hospitality of my friends, many of whom were the same people. In this respect I would like to mention in particular Gabriel Casaburi, Francisco Diez, Margarita Solari, Esteban Solari and the rest of their family, Andrés Fontana, Manuel Mindreau, Ana Miura, Uziel Nogueira, Jesús Rodríguez and Francisco Rojas Aravena. I have been grateful also for generous hospitality from FLACSO/Chile and for the openness and helpfulness of people at CEPAL in Santiago, especially Jan Heirman, Carla Macario and Veronica Silva. I owe sincere thanks, finally, to my dear friends the Esquivel family— Carlos, María Alicia, Catalina, Cristián and Constanza—who first welcomed me into their home in Santiago in 1990, never having set eyes upon me before I turned up at the airport as a (very) wide-eyed undergraduate, and have been welcoming me into their homes and their family ever since, both in Chile and more recently in Argentina. Their kindness and generosity never fail to take me by surprise and their company has made repeated trips to both countries a sheer pleasure. (Carlos also generously offered thoughts on a series of questions relating to the chapter on business in this book). In the UK, conversations with colleagues and friends at Manchester, Warwick and various other places have helped me to refine my arguments and frequently pushed me to think that bit more carefully about the ideas contained in these pages than frustration and desperation to finish the book sometimes inclined me to do. I should make particular mention in this respect of thought-provoking comments, in informal conversations and seminar discussions, from Shaun Breslin, Victor Bulmer-Thomas, Paul Cammack and James Dunkerley, all of whom (occasionally unwittingly!) prompted useful trains of thought on various parts of this book. Shaun also had an invaluable knack of introducing a healthy sense of perspective into the whole enterprise just at the right moments. Wyn Grant kindly found the time to read the whole manuscript and give me detailed reactions, and Jean Grugel and George Philip also offered useful thoughts at various stages of the writing process. I am grateful to the RIPE series editors and to Heidi Bagtazo and Grace McInnes at Routledge for their enthusiasm for the project and very constructive suggestions at various points in the process. Cornelia Huelsz, one of my PhD students at Manchester, also provided valuable research assistance in compiling the index. My greatest debt of all is to Tony Payne. He read and commented on various drafts of chapters and on the full manuscript; his observations and suggestions were always perceptive (sometimes depressingly so!) and enormously constructive; and there were times during the process when his enthusiasm for this project seemed far, far greater than my own. While naturally I take full responsibility for all that follows, discussions and conversations with him and others have had a profound impact on the shape of this book and are duly, and very gratefully, acknowledged. Manchester, October 2003

Abbreviations

Abaen ABF AC AD AEA ALADI ALALC ALCA ANSSAL APEC ASC ASEAN Asexma BICE BNDE BNDES

Brazilian-Argentine Nuclear Energy Agency (Agencia Brasileño-Argentina de Energía Nuclear) Americas Business Forum (Foro Empresarial de las Américas); see FEA Andean Community (Comunidad Andina de Naciones); see CAN anti-dumping Argentine Business Association (Asociación Empresaria Argentina) Latin American Integration Association (Asociación Latinoamericana de Integración); see LAIA Latin American Free Trade Association (Asociación Latinoamericana de Libre Comercio); see LAFTA Free Trade Area of the Americas (Area de Libre Comercio de las Américas); see FTAA National Health Insurance Administration (Administración Nacional del Seguro de Salud), Argentina Asia Pacific Economic Cooperation Hemispheric Social Alliance (Alianza Social Continental); see HSA Association of South East Asian Nations Association of Exporters of Manufactured Products (Asociación de Exportadores de Manufactura), Chile Investment and Foreign Trade Bank (Banco de Inversión y Comercio Exterior), Argentina National Economic Development Bank (Banco Nacional de Desenvolvimiento Econômico), Brazil National Economic and Social Development Bank (Banco Nacional de Desenvolvimiento Econômico e Social), Brazil

xvi

CACM CAF CAI CAN CARICOM CARIFTA CAUCE

CCC CCLA CCM CCSCS CDM CEA CEB CEPAL

CES CET CGE CGI CGT

CICI

Central American Common Market Andean Promotion Corporation (Corporación Andina de Fomento) Argentine Industrial Council (Consejo Argentino de la Industria) Andean Community (Comunidad Andina de Naciones); see AC Caribbean Community Caribbean Free Trade Association Argentine-Uruguayan Agreement on Economic Complementation (Convenio Argentino—Uruguayo de Complementación Económica) Classist and Combative Current (Corriente Clasista y Combativa), Argentina Andean Consultative Council on Labour Issues (Consejo Consultativo Laboral Andino) Mercosur Trade Commission (Comisión de Comercio del Mercosur) Coordinating Body of Southern Cone Labour Unions (Coordinadora de Centrales Sindicales del Cono Sur) commercial defence mechanism Argentine Business Council (Consejo Empresarial Argentino) Brazilian Business Coalition (Coalizão Empresarial Brasileira) United Nations Economic Commission for Latin America and the Caribbean (Comisión Económica para America Latina y el Caribe); see ECLAC Economic and Social Council (Consejo Económico y Social), Chile common external tariff General Economic Confederation (Confederación General Económica), Argentina General Confederation of Industry (Confederación General de la Industria), Argentina General Workers’ Confederation (Confederación General de Trabajadores), Argentina; General Workers’ Confederation (Confederação General dos Trabalhadores), Brazil Inter-Ministerial Commission on International Trade (Comisión Inter-Ministerial de Comercio Internacional), Argentina

xvii

CICYP CIM CIOSL/ORIT CIU CLAT/CMT CLT CMC CNCE CNI CNT COMISEC CONAPRO CORFO CPC CPC CPE CPT CRG

CT CTA CTCS

Interamerican Council for Trade and Production (Consejo Interamericano de Comercio y Producción) Mercosur Industrial Council (Consejo Industrial del Mercosur) Inter-American Regional Workers’ Organization (Organización Regional Interamericana de Trabajadores) Chamber of Uruguayan Industry (Cámara de Industrias del Uruguay) Latin American Workers’ Umbrella Organisation (Central Latinoamericana de Trabajadores) Consolidated Labour Laws (Consolidação das Leis do Trabalho), Brazil Common Market Council (Consejo Mercado Común), Mercosur National External Trade Commission (Comisión Nacional de Comercio Exterior), Argentina National Confederation of Industry (Confederação Nacional da Industria), Brazil National Workers’ Central (Central Nacional de Trabajadores), both Paraguay and Uruguay Sectoral Commission (Comisión Sectorial), Uruguay National Programmatic Concertation (Concertación Nacional Programática), Uruguay Corporation for the Promotion of Production (Corporación de Fomento de la Producción), Chile Confederation of Production and Commerce (Confederación de Producción y Comercio), Chile Joint Parliamentary Commission (Comisión Parlamentaria Conjunta), Mercosur Comparative Political Economy Paraguayan Workers’ Confederation (Confederación Paraguaya de Trabajadores) Committee of Governmental Representatives on Civil Society Participation (Comité de Representantes Gubernamentales sobre la Participación de la Sociedad Civil), FTAA technical committee (comité técnico), Mercosur Argentine Workers’ Congress (Congreso de Trabajadores Argentinos) Council of Southern Cone Workers (Consejo de Trabajadores del Cono Sur)

xviii

CUT

CVD DDE DIRECON

DL 600 EAI ECLA ECLAC EEC EU FA FAT FCES FDI FEA FEDEXA FIERGS

FIESP FOSIS FS FSE FTA FTAA G-7

United Workers’ Central (Central Unica dos Trabalhadores), Brazil; Unitary Workers’ Central (Central Unitaria de Trabajadores), Chile and Paraguay countervailing duty Economic Deregulation Decree (Decreto de Desregulación Económica), Argentina General Directorate of International Economic Relations (Dirección General de Relaciones Económicas Internacionales), Chile Decree Law 600, Chile Enterprise for the Americas Initiative United Nations Economic Commission for Latin America United Nations Economic Commission for Latin America and the Caribbean European Economic Community European Union Broad Front (Frente Amplio), Uruguay Technical Assistance Fund (Fondo de Asistencia Técnica), Chile Consultative Forum on Economic and Social Issues (Foro Consultativo Económico y Social), Mercosur foreign direct investment Americas Business Forum (Foro Empresarial de las Américas); see ABF Federation of Agro-Industrial Exporters (Federación de Exportadores Agroindustriales), Paraguay Federation of Industries of the State of Rio Grande do Sul (Federação das Indústrias do Estado de Rio Grande do Sul), Brazil Federation of Industry of the State of São Paulo (Federação das Indústrias do Estado de São Paulo), Brazil Solidarity and Social Investment Fund (Fondo de Solidaridad e Inversión Social), Chile Union Force (Força Sindical), Brazil Social Emergency Fund (Fundo Social de Emergêncid), Brazil free trade area Free Trade Area of the Americas (Area de Libre Comercio de las Américas); see ALCA Group of Seven

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GATS GATT GDP GMC GMM GNI HSA IDB IFI ILO IMF INTAL IPE ISI LAC LACM LAFTA LAIA LEE MEBF Mercosur MIDEPLAN MFN MRECIC

MTA NAFTA NIEO NTB

General Agreement on Trade in Services General Agreement on Tariffs and Trade gross domestic product Common Market Group (Grupo Mercado Común), Mercosur Macroeconomic Monitoring Group (Grupo de Monitoreo Macroeconómico), Mercosur gross national income Hemispheric Social Alliance (Alianza Social Continental); see ASC Inter-American Development Bank international financial institution International Labour Organisation International Monetary Fund Institute for Latin American Integration, Inter-American Development Bank International Political Economy import substituting industrialisation Latin America and the Caribbean Latin American Common Market Latin American Free Trade Association (Asociación Latinoamericana de Libre Comercio); see ALALC Latin American Integration Association (Asociación Latinoamericana de Integración):, see ALADI Law of Economic Emergency (Ley de Emergencia Económica), Argentina Mercosur-EU Business Forum Southern Common Market (Mercado Común del Sur) Ministry of Planning and Cooperation (Ministerio de Planficación y Cooperación), Chile most-favoured nation Ministry of Foreign Relations, International Trade and Worship (Ministerio de Relaciones Exteriores, Comercio Internacional y Culto), Argentina Argentine Workers’ Movement (Movimiento de Trabajadores Argentinos) North American Free Trade Agreement New International Economic Order non-tariff barrier

xx

OECD PDT PEC PED PEE PICE PIT-CNT

PJ PM PROFO PSDB PT PYME REIH SAFTA SAM SENALCA

SFF SGT SNA SNM SOFOFA

Organisation for Economic Cooperation and Development Democratic Labour Party (Partido Democrático Trabalhista), Brazil Trade Expansion Protocol (Protocolo de Expansión Comercial) Political Economy of Development Special Export Programme (Programa Especial de Exportaçãos), Brazil Integration and Economic Cooperation Programme (Programa de Integración y Cooperación Económica) Inter-Union Workers’ Plenary/National Workers’ Central (Plenario Intersindical de Trabajadores—Central Nacional de Trabajadores), Uruguay Justicialist (Peronist) Party (Partido Justicialista), Argentina provisional measure (medida provisória), Brazil Promotion Projects (Proyectos de Fomento), Chile Brazilian Social Democratic Party (Partido da Social Democracia Brasileira) Workers’ Party (Partido dos Trabalhadores), Brazil small and medium-sized enterprise (pequeña y mediana empresa) Business Network for Hemispheric Integration (Red Empresarial para la Integración Hemisférica) South American Free Trade Area Mercosur Administrative Secretariat (Secretaría Administrativa del Mercosur) National Section for the Coordination of FTAA-Related Matters (Seção Nacional de Coordenação dos Assuntos Relativos al ALCA), Brazil Society for Manufacturing Promotion (Sociedad de Fomento Fabril), Chile working sub-group (subgrupo de trabajo), Mercosur National Agricultural Society (Sociedad Nacional de Agricultura), Chile National Mining Society (Sociedad Nacional de Minería), Chile Society for Manufacturing Promotion (Sociedad de Fomento Fabril), Chile; see SFF

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SONAMI SRA TNC TRIMS UDI UIA UIP UNCTAD UK URV URR US USTR WTO

National Mining Society (Sociedad Nacional de Minería), Chile; see SNM Argentine Rural Society (Sociedad Rural Argentina) transnational corporation Trade-Related Investment Measures Independent Democratic Union (Union Democrática Independiente), Chile Argentine Industrial Union (Union Industrial Argentina) Paraguayan Industrial Union (Unión Industrial Paraguaya) United Nations Conference on Trade and Development United Kingdom Real Unit of Value (Unidade Real de Valor), Brazil unremunerated reserve requirement, Chile United States (of America) United States Trade Representative World Trade Organisation

Part I Introduction

1 Introduction

The cases for ‘grounding’ the study of International Political Economy (IPE) in solid comparative analysis and for ‘contextualising’ the study of Comparative Political Economy (CPE) in analysis of global structural trends are more often made than the projects undertaken. Yet their achievement is essential for understanding the contemporary political economy of development across the regions of the world, and indeed the world order in which they are embedded. There are, in this respect, two sets of central questions that need to be asked by students of both international and comparative political economy relating to the nature of contemporary capitalist development. The first concerns the evolution of different national systems in the context of contemporary transnationalising and globalising processes: in a nutshell, how can we understand the relationship, or tension, between national contingency and diversity, on the one hand, and the reconfigurations of domestic political economy wrought by structural reorganisations, on the other? The second concerns the variety of national and transnational levels at which political economies are organised, and specifically, as the title indicates, their organisation at a regional level: how, in essence, can we understand regional forms of political economy and their relationship with the national systems they accommodate? My purpose in this book is to take these questions to the Southern Cone of Latin America and to use them as the foundations for a detailed study of the contemporary political economy of capitalist development in that region. It should be immediately clear that these questions reflect and feed into dominant debates in both CPE and IPE. But, while each offers distinctive theoretical and empirical avenues for their consideration, the key point is that they cannot be considered satisfactorily from within one or the other—that is, neither the conceptual frameworks nor the empirical focus of IPE or CPE in isolation from the other offers sufficient analytical means for understanding the contemporary political economy of development in the Southern Cone or any other region of the world. The problem, however, is that the study of political economy over recent years has become strikingly fragmented. ‘Classical’ political economy in the 19th century crystallised around what Andrew Gamble (1995:518) has identified as three ‘key discourses’: namely, a ‘practical’, policy-

INTRODUCTION 3

based one preoccupied with the best means of driving and regulating wealth creation; a ‘normative’ one concerned with the forms the relationship between state and market should take; and a ‘scientific’ one which focused on how political economies actually operate. Classical political economy thus comprised a number of different areas of enquiry but cohered as an endeavour with a ‘distinctive intellectual character’ (Gamble 1995:518). Over the 1970s and 1980s, however, the emergence of IPE as an identifiable disciplinary area and the crystallisation of CPE meant that this classical political economy tradition was largely left behind in favour of a field of enquiry organised effectively by levels of analysis. That is, the field came to be divided not into a set of intrinsically interrelated ‘discourses’, as in classical political economy, but, rather, into increasingly differentiated camps identified by their core preoccupation with national- or international-/global-level analysis. The resulting dividing lines between CPE and IPE have frequently been drawn very boldly—between the study of political economy from a predominantly nationalist and institutionalist perspective and the study of political economy adopting a primarily international, transnational or global focus for analysis. The former, CPE, approach concerns itself essentially with ‘the conceptual frameworks used to understand institutional variation across nations’ (Hall and Soskice 2001a:1), while political economists working in an IPE tradition have largely identified themselves as concerned, in Susan Strange’s pithy formulation, with the study of the ‘wood’ rather than the ‘trees’: that is, they are, and should be, ‘more interested in the webs of structural power operating throughout the world system than in comparative analysis of discrete parts of it, bounded by territorial frontiers dividing states’ (Strange 1997: 182–3). These divisions between IPE and CPE reverberate through the intellectual parameters of their guiding questions, theoretical frameworks and empirical referents, as well as the organisational demarcations of the academic disciplines with which they are associated (in respective conference circuits, journals and so on). Maybe this marking out of boundaries between IPE and CPE should not surprise us much. Clearly they have not emerged from thin air, and indeed they are not entirely irrelevant. At the broadest level, it can be argued that IPE and CPE are usefully distinguished from one another to the extent that they address different sets of issues, deploy different foundational questions and offer different intellectual approaches. Understanding the distinctiveness of national political economies demands, it could be argued, a different conceptual and theoretical toolbox from that required by the study of the myriad processes of structural change associated with what we have come to term, as shorthand, ‘globalisation’. Yet such a justification is also problematic in very important respects and the resulting separation of IPE and CPE is often excessively stark and artificial. There is a sense in which disciplinary divisions are a little easier to sustain in the context of the political science/international relations divide—it would be hard to dispute, for example, that the study of electoral processes is a concern largely exclusive to the former, or that the study of international conflict

4 INTRODUCTION

belongs more comfortably in the latter. Once taken into the realm of the IPE/CPE relationship, however, they become notably less convincing and much more difficult to sustain, primarily, and quite simply, because they belong to the same intellectual enterprise and the same intellectual tradition—the study of political economy. As such, the bulk of their central concerns—with the intersections of economic and political dimensions of social organisation, with capitalism, with processes and models of development broadly conceived—are shared ones. Many of the key questions associated with the study of globalisation, commonly assumed to be the preserve of IPE (and indeed its main market niche), have been central to the preoccupations of political economists from both IPE and CPE traditions. This is perhaps most clearly the case in the debates surrounding the notion of convergence. Far from ignoring globalisation, comparative political economists have sought to understand its impact on national political economies and the institutions and actors contained therein, seeking invariably to dispute the notion of convergence on the grounds of persistent institutional variation between countries. International political economists have been split in their evaluations of the convergence hypothesis, variously making a similar argument to the majority of their comparativist colleagues or else arguing that globalisation is indeed compressing institutional difference and policy outcomes to the extent that a process of convergence on a single model, conducive to the advance of neoliberal globalisation, is now clearly underway. We will return to these debates at length in Chapter 2, but in the meantime the point is simply that the concerns of IPE and CPE are much more shared and compatible than is sometimes suggested by the disciplinary demarcations established by representatives of each academic endeavour. The more important point, however, is that a satisfactory understanding of the political economy of development requires an engagement with and deployment of conceptual frameworks from both international and comparative political economy. Especially in light of recent intellectual challenges posed by globalisation, attempts to seal levels of analysis off from one another have become untenable and counterproductive, as indeed they always have been in a wider political economy tradition. This is especially so when it comes to the study of political economy in a particular region of the world, and even in a particular country. An understanding of domestic political economy requires an understanding of its location and mode of insertion within wider regional and global political economies; an understanding of processes in the global political economy demands an understanding of the ways in which they are intrinsically and fundamentally constituted by national states, state strategies and structures of social relations, and of the processes of change they unleash in distinctive national and regional contexts; and an understanding of regionalising dynamics similarly compels an understanding of the national political economies and the global political economy in which they are simultaneously embedded. In short, IPE and CPE perspectives require significantly greater ‘meshing’ than has

INTRODUCTION 5

hitherto been the case in order to achieve a satisfactory understanding of the political economy of development in different parts of the world. My central purpose in this book, in this light, is to elaborate a genuinely ‘political economy’ framework which combines, but does not conflate, relevant perspectives and debates from the broad terrains of IPE and CPE in order to address the central questions outlined at the start. At an empirical level, I seek to advance a key argument in response to them: that there is in evidence an emerging regional political economy in the Southern Cone of Latin America, and that, at its intersection with the distinctive national political economies that comprise the region, this regional political economy is giving rise to a distinctive variety of capitalist development that I have chosen to call the ‘Southern Cone Model’. Elaboration of these arguments entails a detailed analysis of the distinctive political economies of Southern Cone countries, the nature of the emerging regional political economy, and the nature of the intersections on which the Southern Cone Model rests, as well as an identification of the distinguishing attributes of the Model itself. Chapter 2 establishes the analytical framework within which, I suggest, these tasks can most profitably be pursued. Before turning to that, however, we have two remaining tasks in this Introduction: to establish our working definition of the Southern Cone region—its geographical scope and the principal characteristics of its composition—and then to outline what is meant by the term ‘model’ and what are understood to be the ingredients of a distinctive ‘political economy’. Locating the Southern Cone The Southern Cone of Latin America is so called for its conical geographical shape, but the group of countries it accommodates are at times identified in different ways. In conventional usage of the label it is taken to consist of five countries—Argentina, Brazil, Chile, Paraguay and Uruguay—and indeed this is the group which comprises the Southern Cone for the purposes of this study. On occasion Bolivia is also included in this group, and in geographical terms its inclusion makes some sense. More usually, though, Bolivia is seen to belong to the group of countries which makes up the Andean region, the latter loosely covering the northern part of the South American continent and in turn merging in its northernmost parts into the Caribbean Basin. Recently, however, the Southern Cone has come frequently to be defined in more organisational terms, linked with the Mercosur—Mercado Común del Sur (Southern Common Market) —regional integration project, created in 1991 between Argentina, Brazil, Paraguay and Uruguay. To the extent that this project has involved the reorganisation of the region into an identifiable political and economic bloc, and to the extent that the interactions of its constituent parts have come to be largely organised around this project, the Southern Cone region has acquired a concrete political and economic expression as well as a geographical identity. Chile and

6 INTRODUCTION

Bolivia took up associate membership of the Mercosur in 1996 and 1997, respectively, the latter coming thus to occupy some sort of point of intersection between the Andean and Southern Cone regions. Some words are therefore in order to clarify why Bolivia is excluded from our definition of the Southern Cone, and by extension from the Southern Cone Model. Although the Mercosur is pivotal to our understanding of the political economy of development in the region, definitions of the Southern Cone cannot revolve solely around the regionalist project. Indeed, one of the recurring themes in this book, and one of its central contentions, is that the emerging regional political economy derives both impetus and substance from the Mercosur project but does not correspond exactly with the boundaries of its membership and does not rest solely on the formal intergovernmental processes associated with it. Rather, the political economy of the Southern Cone arises from a much broader set of ‘social processes’ articulated at the regional level, and not just from the formal mechanisms by which the region is ordered in the Mercosur project. Understood in this way, and as the chapters here consistently demonstrate, the regional political economy emerging in the Southern Cone is constituted by a range of social processes that are both domestic and transnationalising in character. Thus Bolivia’s associate membership of the Mercosur is not in itself adequate justification for its inclusion in broader understandings of a Southern Cone Model. It should also be noted that the place of Bolivia within the Mercosur project has been of relatively minor importance to date, in that the contours of trade and investment and the extent of structural economic integration lie predominantly between the five countries that are conventionally taken to comprise the geographical space of the Southern Cone. Likewise, the social processes underway in the Southern Cone have not encompassed Bolivia in their substance or scope. Bolivia’s own political, social, historical and cultural identification has, in any case, rarely been with the Southern Cone either before or after the Mercosur’s inception, in contrast to that of Chile. Table 1.1 Southern Cone countries: basic indicators, 2001

Source: World Development Indicators database, World Bank, 2002.

INTRODUCTION 7

What is immediately notable about the Southern Cone, then, is the extent of disparity between its five countries, in terms of land mass, population size, economic size and, crucially, levels of development. The basic indicators summarised in Table 1.1 give an impression of the disparities in the size of Southern Cone countries and their respective economies. The region accommodates one of the poorest economies in the Americas in gross domestic product (GDP) and per capita gross national income (GNI) terms (Paraguay) alongside by far the largest economy in South America (Brazil). The size of the Brazilian economy, measured by GDP, is very significantly greater than all four of the other economies put together. Brazil also dwarfs the rest of South America and the Southern Cone in territorial size and population and, particularly with the establishment of the Mercosur, Brazil’s position as the key political power in the region was noticeably strengthened over the 1990s. As in the rest of the Latin American region,1 levels of urbanisation in the Southern Cone are strikingly and consistently high, but here again there is a marked contrast between the figure of over 90 per cent for the Uruguayan population living in urban areas and the Paraguayan figure of just over 50 per cent. The region also accommodates countries with long Atlantic coastlines (Argentina and Brazil, plus a shorter coastline in Uruguay), a long Pacific coastline (Chile) and a landlocked country (Paraguay), and gathers together almost all of the world’s varieties of climate and ecosystem. Moreover, the Southern Cone accommodates distinctive—and indeed divergent—national political economies, despite some similarities between the five countries in political history and type of political system, dominant models of development, and modes of economic organisation. Speaking in the broadest terms, the history of the region after the Second World War was characterised by the adoption of inward-looking development strategies accompanied by strong tendencies towards authoritarian forms of government and/or rapid alternations in power between civilian and military authorities. Again in the broadest terms, these were replaced over the 1980s and 1990s by a drift towards elected government and experiments with neoliberal market economics, a drift accompanied by the persistence of many of the salient traits of Southern Cone economies (strikingly high levels of inequality, recurrent instability and vulnerability to internal and external shocks) and political systems (quasiauthoritarian forms of leadership, corruption, clientelism and high levels of centralisation, to name but a few). Alongside these historically rooted similarities, however, the five domestic political economies have exhibited very substantial degrees of diversity and divergence through the post-war period and into the contemporary period, the latter being marked by nationally distinctive versions of neoliberalism, modes of insertion into the globalising world economy and modes of engagement with the Mercosur project. In this light, the chapters in Part II of the book seek collectively to map out the contours of Southern Cone development, and thus to identify the domestic and regional contexts within which the Southern Cone Model is embedded. They

8 INTRODUCTION

accord primary attention to national diversity within prevalent development models and the place of regionalism within them. Chapter 3 considers the trajectory of post-war development, specifically the intersection between the prevailing inward-looking development strategies and the ill-fated regionalist project to construct an Asociación Latinoamericana de Libre Comercio (ALALC/ LAFTA, Latin American Free Trade Association) which was integral to these strategies. Chapter 4 examines the trajectory of neoliberalism in the region and the different versions of neoliberalism which have emerged from the distinctive historical-institutional characteristics of each national setting, contrary to excessively generalising depictions of regional convergence on a single model of economic and political organisation. Chapter 5 sets out the parameters and substance of the Mercosur project and seeks to draw out the ways in which the five countries’ engagement in this process is shaped in contingent and specific ways by the distinctive versions of neoliberalism identified in the preceding chapter, along with the implications of these divergences for the evolution of the regionalist project. Defining political economies and ‘models’ of capitalist development I argued earlier that the Southern Cone Model of capitalist development emerges from the intersections between domestic political economies and the emerging regional political economy. So what do we mean by the terms ‘political economy’ and ‘model’ in this context, and how will these intersections be conceptualised? I understand a political economy to be made up of three layers. The first is indicated by the titles of the chapters in Part III of the book: a political economy rests on a central triangular structure of social relations—that is, between labour, capital/business, and states. It is the diversity in each of these three dimensions of capitalist organisation and the sets of social configurations that their interactions generate that distinguish between political economies. Thus, in the so-called ‘models of capitalism’ debate advanced primarily from within the CPE tradition, models (invariably conceived as national ones) are distinguished from each other by the nature and position of labour forces, the organisation of capital and business, and the architecture and strategic deployment of states. The various contributions to the debate choose to adopt particular emphases and pursue different research orientations—from a ‘firmcentred political economy’ (Hall and Soskice 2001a) to a guiding concern with the implications of different types of labour markets for economic performance (Coates 2000) or, in a more IPE vein, the distinctive ‘transformative capacities’ of states (Weiss 1998). Yet across the board the central concern is with the particular configurations of social relations which underpin different forms of capitalist development. However, in focusing on the relationship between states, capital/business and labour, we are confronted immediately with the danger of advancing an

INTRODUCTION 9

excessively agency-centred analysis—that is, one which treats these points of the triangle essentially as actors and focuses on their interactions in a way which neglects the contextual forces that shape and constrain them. In the models of capitalism debate the most common approach to considering these constraining factors is an institutionalist one, in which attention is afforded to the institutional arrangements coordinating economic actors and shaping their relationships. Adopting the now standard definition of institutions borrowed from Douglass North (1990)—as sets of rules, codes of conduct, norms of behaviour, and conventions, historically rooted and both informal and formal—most such analyses have sought to build in an understanding of structural context conceived as nationally specific institutional structures, amenable to comparative analysis and pivotal to understanding both of the debate’s key preoccupations: economic performance and the contours of distinctive models of capitalism. Here, again, several variations on the theme have emerged—from a focus on institutional arrangements within a ‘social system of production’ (Hollingsworth and Boyer 1997) to the role of institutions in supporting the relationships developed between firms for the purposes of resolving ‘coordination problems’ (Hall and Soskice 2001b:9)—but all rest on a broad consensus surrounding the need to accord institutions a central place in the analysis of distinctive models of capitalism. These points will be developed at much greater length in Chapter 2, but serve for the time being to indicate the presence of a second layer in the building blocks of a political economy. That is, the social relationships that lie at the heart of such a political economy need to be understood as both shaped and constrained by the institutional structures within which they are rooted and evolve. The problem with leaving a definition at that, however, is that it tells us next to nothing about the broader structural context which is fundamentally constitutive of any particular political economy, as well as the institutionalist arrangements and social relationships ‘within’ the units of interest in comparative analysis. It is indispensable that we take into account modes of insertion in the global political economy and appreciate the ways in which capitalist development in, say, Germany is fundamentally different from capitalist development in, say, Argentina, as a direct function of the different positions they occupy in the world economy and the consequently different shaping and mediating influences on their respective political economies. As we will see in the next chapter, such an awareness of structure is central to Marxist strands of the ‘models of capitalism’ literature and is also of key interest, in different ways, to comparativists preoccupied with the impact of globalisation and other processes of structural change on the evolution of national models. Nevertheless, the relationship between these models and the global political economy is generally neglected in CPE-based approaches to these debates, and their mutually constitutive nature needs to be taken more seriously than has hitherto been the case. Hence, returning to earlier points, our emphasis here on the need to integrate IPE and

10 INTRODUCTION

CPE perspectives and concerns in order to reach a satisfactory understanding of contemporary capitalist development. This, then, is the third layer of our definition of what constitutes a particular political economy, which we can now assemble as follows. A political economy rests on a triangular set of capitalist relations between states, labour and capital/ business, informed and coordinated by sets of historical institutional structures, and characterised by a particular relationship with the structures and processes of the global political economy. A ‘model’ of capitalist development is understood here to constitute an aggregated representation of the particular characteristics of the political economy in question, including the sets of strategies and policies which are its inherent accoutrements. In other words, a ‘model’ represents an aggregation and abstraction of the core and distinctive facets of a particular political economy, thus providing the analytical foundations for productive comparative analysis. The final and pivotal point, in this light, relates to what I consider to be the key problem in the comparative study of capitalist development: namely, that analyses almost invariably conceive ‘models’ to be national in character, being both unwilling and unable to accommodate an understanding of the ways in which forms of capitalist development are articulated progressively at international or transnational as well as—though emphatically not instead of—at national levels. An understanding of a transnational political economy rests on the same building blocks as conventional understandings of national political economies: a structure of social relationships shaped by distinctive institutional constructs and a particular mode of insertion into the structures of the global political economy. The form of transnational political economy in which we are primarily interested here, as already noted, is regional in character, and it should be made very clear that this exists alongside and in a relationship of mutual conditioning with the national political economies that comprise the region, rather than in an antagonistic relationship that augurs the latter’s absorption into the former. In similar fashion to national models, furthermore, the regional model of capitalist development—the Southern Cone Model—is associated with a political project and a set of policy strategies in the form of the regionalist project and the regionalist architecture which accompanies it. The chapters in Part III of the book, then, seek to lay out the contours of the emerging regional political economy and its intersection with the domestic political economies that comprise the Southern Cone, and to understand the manner of their mutual conditioning: how the regional political economy is shaped by domestic political economy, what happens to the latter in the context of the former’s emergence, and how their interactions are embedded within and forged by the structures and processes of global political economy. Chapter 6 deals with the regionalist dynamics that underpin this new regional political economy and in turn shape the evolution of the domestic political economies of the member countries; Chapters 7, 8 and 9 deal respectively with labour, capital/ business and the institutional structures of states.

2 The political economy of capitalist development

Recent interaction between the twin branches of contemporary political economy, denoted by the prefixes ‘I’ and ‘C’, has been dominated by a mutual anxiety to establish clear and differentiated intellectual identities. At a very basic level, the field of IPE has been concerned to distinguish itself as a coherent field of enquiry and a discrete academic endeavour, encountering some difficulty in doing so while at the same time striving to maintain an intellectual openness to other disciplines within the social sciences and beyond. CPE, for its part, has been concerned to defend its rationale and consistency from the challenge issued across the social sciences by the phenomenon of globalisation. The boundaries have consequently been drawn primarily with reference to levels of analysis, resulting in often excessively rigid demarcations between them, and excessively caricatured portrayals of the state-centrism of the comparative tradition, on the one hand, and the systemic, structuralist biases of IPE, on the other. In other words, establishing disciplinary identities has led frequently to an over-eagerness to reject the frameworks and questions of the ‘other’ branch of political economy rather than engage constructively with them. Efforts to build bridges between IPE and CPE have thus frequently, and unfortunately, been deemed to fall between two (or more) stools, at least to the extent that most scholarly journals and academic conferences seek to define their intellectual constituencies. IPE is founded explicitly on a rejection of the state-centric conceptual toolbox that is central to CPE in its emphasis on historical institutions and national difference. We saw in the opening chapter that international political economists by and large project themselves, for this reason, as concerned with the study of political economy solely at a ‘systemic’ (international, transnational or global) level: with, recalling Susan Strange’s turn of phrase, the ‘wood’ rather than the ‘trees’. In good part this orientation stems from the dominant contemporary preoccupation with the issue of globalisation. While the treatment of globalisation is far from uniform in IPE, it rests broadly on the central—indeed entirely justified—contention that political economy can no longer be understood entirely in national, or domestic, terms. The analytical and conceptual toolbox offered by state-centric social science is unequal to the task of understanding the structural reorganisations that globalisation implies of capitalism, development, governance or politics, depending on one’s chosen focus. Yet this position

12 POLITICAL ECONOMY OF CAPITALIST DEVELOPMENT

has also sustained a much more precarious contention about the actual or desirable parameters of IPE itself: namely, that the nation-state is no longer a fruitful or advised focus of analysis and that, accordingly, the ‘discrete parts’ of the world system are left appropriately to CPE and to that even more marginalised of endeavours, ‘area studies’. Drawing the boundaries of IPE in this fashion has carried with it two unhappy consequences. The first is that the countries and regions—the ‘trees’— that comprise the global political economy and are fundamentally constitutive of it have generally been ignored, such that we are left in the main with a somewhat disembodied and decontextualised field of enquiry. This point, however, requires qualification in a manner which suggests a more important point still, which is that ‘trees’ are not ignored per se or universally, but rather are of interest only inasmuch as they are seen to determine the nature and form of the wood. The result is that only a handful of trees are usually considered to be of note, and they are those ‘core’ trees which are considered integral to the webs of structural power and the structural processes underlying the contemporary world order. Particularly in respect of global economic processes, it is well established that the bulk are essentially trilateral in nature, concentrated in and between North America, Europe and Japan (see Zysman 1996; Hirst and Thompson 1999). The bulk of IPE scholarship thus focuses very narrowly on these areas, leaving to one side huge swathes of the rest of the world but also, moreover, assuming the processes underway in these ‘core’ regions to be synonymous with ‘global’ processes and inherently generalisable. In other words, large parts of the world are either neglected because they are not thought, putting it simply, to matter in the study of global political economy, or else deemed entirely amenable to analysis through the same theoretical and conceptual lenses as those deployed in the study of the ‘core’ regions and countries. The upshot has been not only that IPE as a whole has sustained a notably restricted empirical scope, but also that it has constructed for itself a theoretical and conceptual apparatus which pertains in a very particular way to the nature and experiences of this ‘core’ group of trees (see Breslin 2002; Phillips 2004a). The second unhappy consequence is that much of mainstream IPE has continued to struggle with the central metatheoretical question of the relationship between structure and agency. The various dominant bodies of theory in IPE— notably neorealism and neoliberal institutionalism, but also Marxism and many of its neo-Marxist offshoots—do indeed advance a clear conceptualisation of this relationship, but it is generally one which reflects the mainstream’s structuralist predilections. This conceptualisation is ultimately an unsatisfactory one in that it frequently has precluded an adequate account of agency in political economy. Much of mainstream IPE thus has been charged with carrying ‘excessively determinist connotations’ from which ‘it can only be freed…by inserting into the overall framework an explicitly agency-centred body of theory’ (A. Payne 1998: 266). This recognition, and the intellectual endeavour that flows from it, form the core of newer ‘critical’ currents in IPE, particularly the so-called ‘new political

INTRODUCTION 13

economy’ tradition which aims essentially to arrive at an analytical framework able to give equal weight to structure and agency and moreover to understand the relationship between them (see Gamble 1995; Gamble et al. 1996). Important niches in this project have been carved out by some of the newer theoretical strands within IPE, such as neo-Gramscian approaches and constructivism. But resort to other disciplinary resources is also particularly fruitful in this regard, especially if the concern with agency comes to rest, as Payne goes on to suggest it should, in analysis of state-society relations. It is at this point, indeed, that CPE perspectives become particularly valuable in our attempts to rectify both the structuralist bias of mainstream IPE and the restriction of its empirical purview to such a small handful of dominant countries or sectors. CPE, however, also suffers from the limitations of its focus. We saw in Chapter 1 that its central concern continues to rest with institutional difference between nations, and consequently it continues to deploy a nationalist and statist analytical apparatus consistent with its central research questions. The core concept underlying CPE is that of path dependency, by which is meant essentially that ‘the directions of the future of particular societies are very much influenced by the directions set in their past’ (Hollingsworth 1998:485)—in other words, that the distinctive shape of each national society and its institutions is historically contingent, their evolution will be fundamentally conditioned by this historical contingency, and consequently national difference will logically and necessarily persist. The conceptual centrality of path dependency has therefore meant that CPE has tended to neglect key questions about the spatial reorganisation of political economy, broader ideas about ‘world order’ and notions of ‘the global’, and indeed has struggled to accommodate such questions within its existing nationalist and statist conceptual frameworks. While much of CPE since the 1970s has grappled quite well with ideas about the structureagency relationship—in fact it has gone quite a way to redressing the traditional dichotomisation of structuralism and ‘intentionalism’ (see Hay 2002) —the tendency nevertheless remains to underplay structure in an anxiety to emphasise specificity and contingency, and this not surprisingly has been sharpened by recent challenges from IPE. This is not to say that structure, usually understood in terms of globalisation, is not taken seriously in the various strands of CPE: indeed, globalisation has been widely interpreted as validating and necessitating the comparative endeavour by compelling an abandonment of an insular and restricted analytical focus. The manner in which the challenge has been taken up has thus crystallised around a concern with the impact of globalisation processes on institutions and policy within states. Tellingly, though, one recent elaboration of the comparative project presents it as involving ‘merely’ a recasting of Peter Gourevitch’s (1978) work on the international sources of domestic politics, with some attention to ‘the way in which individual states contribute to the processes of globalisation’ (Mackie and Marsh 1995:186–7). The central analytical orientation of CPE is thereby maintained in an emphasis on historical institutions and the retention of a

14 POLITICAL ECONOMY OF CAPITALIST DEVELOPMENT

‘national’ frame of reference. Yet, at the same time, what Robinson (2001:556) has called a ‘tenacious nation-state centrism’ is also preserved in a manner which continues to conceive of political economy, and development, as something which exists or happens fundamentally at a national level. It is not, in other words, structure per se that is neglected by CPE but rather the excessive commitment to state-centrism that is retained. Limited recognition, or attention, is thereby afforded to the existence or emergence of distinctive political economies which are inter- or transnational rather than intrinsically national in character, but which are equally amenable to comparative analysis. The point, then, is that the contemporary study of political economy has come to labour under the tensions imposed by the ‘I’ and the ‘C’, and by the manner in which their relationship has recently evolved. The case for a greater meshing of their perspectives and approaches is, it seems to me, a strong one. Each offers valuable avenues in the study the contemporary political economy of development that are, despite customary assumptions, far from fundamentally incompatible. And such a project is compelled as soon as one starts to abandon the restricted empirical focus on the advanced industrialised democracies that make up the small handful of core trees. Indeed, it is interesting in this respect that it has been scholars working broadly on development and developing areas that have been at the forefront of advancing this sort of project (notably A. Payne 1998), supported by some earlier contributions from scholars focusing on, significantly, ‘small states’ in the European setting (Katzenstein 1985).1 My aim here, in similar spirit, is to advance a movement away from what Colin Hay (2002:257) has called ‘disciplinary parochialism’, in this case of IPE and CPE, towards a form of controlled eclecticism which offers a more constructive understanding of political economy. The term ‘controlled’ here is intended to underline that this is not a ‘kitchen sink’ kind of eclecticism that rides roughshod over the limits of theoretical or conceptual commensurability. Rather, what I seek to advocate here is an openness to relevant perspectives from the other sides of imposed boundaries, but at the same time care in selecting the appropriate and most fruitful terrains upon which, to coin Albert Hirschman’s famous phrase, to trespass. In sum, the task before us is not only to advocate such an approach but also to find some reasonably solid land, rather than simply a bridge over the dividing (troubled?!) water, on which to construct the resulting analysis. For this purpose, I propose to build an intersection between four specific literatures: from CPE, the models of capitalism debate and strands of development theory; and, from IPE, the study of globalisation and the study of regionalism and regionalisation. This approach is rooted in a particular understanding and utilisation of theory that deserves brief comment before we proceed. It seeks to dispense with the traditional choice in political science between inductive and deductive analytical strategies, each of which forms the basis of a range of contending theoretical frameworks within both CPE and IPE. In other words, the approach does not deploy pre-established theoretical premises which set the parameters of the

INTRODUCTION 15

subsequent analysis or the hypotheses on which it is based; nor does it seek to start with a body of empirical information into which a theoretical apparatus is subsequently fitted or moulded. Rather, theory here is treated in a manner akin to that favoured in newer currents in political science: that is, to use theory as a ‘guide to empirical exploration’, and to combine theoretical perspective and empirical analysis to advance a ‘rich and theoretically informed historical narrative’ (Hay 2002:47; emphasis in original). In other words, theory is here envisaged essentially as a framework within which to think about the political economy of the Southern Cone, which serves both to orient and inform the empirical endeavour and to understand the broader significance of its findings. It does not impose a priori a particular interpretation of them (in the manner of deductive strategies), and it does not use empirical data to determine which theoretical framework should be slotted into the analysis (in the manner of inductive strategies). In this spirit, the rest of the chapter is concerned with examining and taking up analytical positions within the four key debates that together comprise our approach. Models of capitalism The models of capitalism debate pursues the twin aims of mapping the diversity of national models of capitalism and identifying the determinants of relative levels of economic competitiveness. Differences between capitalist models and levels or types of economic performance are assumed across the debate to arise from historical institutional configurations and from the distinctive sets of social relationships which operate within these configurations and underpin the resulting mode of accumulation. The debate has long been dominated by institutionalist approaches of various descriptions, usefully conceived by Peter Hall and David Soskice (2001b:2–4) as starting with the modernisation approach of the 1960s, moving through the emphasis on (neo-)corporatism in the 1970s to the contemporary models of capitalism literature that took shape in the 1980s and 1990s, the latter representing the collective endeavours of comparative political economists, new growth theorists, new institutional economists, historical institutionalists, and others similarly inclined. The common link in these various phases of institutionalism is that capitalist diversity is measured according to the extent and pattern of ‘institutionalisation’, by which is meant the degree to which economic activities are subject to governance mechanisms which supplement or transcend—and in turn modify— market exchange and structures of managerial prerogative (Crouch and Streeck 1997:5). In this view, all market systems are socio-political constructions ‘embedded’ in historically specific institutional contexts. Put another way, capitalism is always an ‘institutionalised order, in which the normal functioning of both exchange (markets) and command (hierarchies) requires that economic behaviour is ‘embedded’ in institutions and practices which are guided by predictable and shared expectations and values’ (Radice 2000a:722). The nature

16 POLITICAL ECONOMY OF CAPITALIST DEVELOPMENT

of these disparate ‘institutionalised orders’ in turn is understood to be the underlying and fundamental determinant of long-run economic performance, and furthermore to sustain distinctive sets of social relationships. These relationships are understood primarily as the social relations of capitalism operating between state, capital/business and labour, and then as encompassing the interactions of the various sections of each: between, for example, industrial and financial capital, transnational and smaller-sized firms, skilled and unskilled sectors of the labour force, and so on. Various ways have emerged of theorising the ‘embeddedness’ signalled above. One approach has been offered by David Coates (2000), working within a rival Marxist rather than institutionalist framework but deploying similar arguments in this respect to those of his institutionalist colleagues. His focus is on notions of catch-up and convergence, building on Moses Abramowitz’s (1986, 1994) work on these issues. ‘Catch-up’ refers to the acceleration of productivity and growth rates to reach the levels of the ‘leading’ economies (namely, for most of the post-war period, the United States (US)); ‘convergence’ in this context refers to the decline of significant variation in productivity and growth levels, again employed usually with reference to the economies of the Organisation for Economic Cooperation and Development (OECD). Following Abramowitz, Coates sees the determinants of catch-up and convergence as lying not in some sort of automatic development process, but rather in a ‘particular interplay between technological congruence and social capability’ (Coates 2000:154; emphasis in original). That is, the technological and economic resources available within a particular economy can only translate into the realisation of growth potential when accompanied by a form of ‘social capability’, or institutional capacity, which represents the ‘non-economic prerequisites of successful convergence strategies’ (Coates 2000:157). While the notion of social capability suffers from imprecise definition and methods by which it might be measured, as J.Rogers Hollingsworth and Robert Boyer have pointed out (1997:35–6), the focus of recent interpretations of it has usefully fallen on a range of variables such as patterns of industrial relations, labour skills and management, financial markets, industrial structures and political systems, to which we could add modes of corporate governance, types of state capacity and many other such variables. At the very least, the notion of social capability flags up a useful way of thinking about the significance of capitalist organisation for performance and competitiveness, and also a means of distinguishing and classifying models of capitalism on the basis of their institutional characteristics. From the more self-consciously institutionalist camp, variations on the theme are Hollingsworth and Boyer’s own (1997) notion of ‘social systems of production’ and Peter Evans’ (1995) influential concept of ‘embedded autonomy’, by which he refers to ‘a concrete set of social ties which binds the state to society and provides institutionalised channels for the continual negotiation and re-negotiation of goals and policies’. All three of these formulations, at any rate, point largely in the same direction and to the same

INTRODUCTION 17

central contentions: that capitalism is a socially embedded construction; that models of capitalism are distinguished one from the other by their underlying institutional configurations; and that modes of capitalist organisation are crucial in determining relative levels of economic performance. On this basis, the classification of models of capitalism is typically tripartite: the Anglo-American (neo)liberal model, the state-led ‘developmental’ model characteristic of the Japanese and other Asian economies, and the European ‘welfare’ or ‘Rhineland’ model, occasionally with a dash of a ‘Scandinavian’ model thrown in for good measure (see, as examples, Albert 1993; Garten 1993; Coates 2000).2 Their comparison, especially over the 1980s, was put largely to the service of the ideological competition between ‘purer’ versions of a freemarket economy and those broadly ‘trust-based’ models that featured a more extensive degree of ‘institutionalisation’ than their Anglo-American counterparts. The common contention, both inside and outside the academy, was that in economies with lower growth rates it behoved authorities to observe and where possible adopt the institutional configurations that apparently gave rise in others to superior economic performance. Stronger post-war growth patterns in Europe and Asia (and specifically in Germany and Japan) were thus considered, within this ideological contest, to vindicate more strongly institutionalised or ‘coordinated’ versions of capitalism, and subsequently the swing of the economic pendulum over the 1980s and 1990s was claimed as a validation of neoliberal forms of capitalist organisation. This gave impetus to the dissemination of the ‘neoliberal revolution’ to the developing world, notably by the international financial institutions (IFIs), underpinned by the powerful ‘Washington Consensus’ that emerged in the late 1980s around the virtues of inflation stabilisation, commercial liberalisation, financial deregulation, privatisation, fiscal discipline, and labour-market flexibilisation (see Williamson 1990, 1994). It is at this point that the principal limitations of the dominant institutionalist approaches—and indeed of the manner in which the broader models of capitalism debate is conducted—begin to make themselves felt. The first manifests itself in this notion that institutional configurations might be ‘cherry-picked’, and a critique of this assumption allows us to turn our attention more fully to Marxist strands of the debate. While sharing the focus on institutions and structures of capitalist relations, Marxist approaches offer a qualitatively different understanding and account of them that rests on the analytical centrality of class. The dominant institutionalist approaches are deemed to miss the key point that the social relations which shape institutional configurations are intrinsically class-based, the corollary being that the triangular relationship between state, capital and labour consequently cannot be understood as governed merely by institutions. The assumption of path dependency underlies both institutionalist and Marxist approaches, but the difference in the latter is that the source of path dependency is held to be class rather than historical institutions, given that the latter are in any case fundamentally determined by the former. This assumption

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is then taken a step further in a number of Marxist approaches and used to challenge many of the central lines of enquiry of the institutionalist approach, especially what are seen to be the approach’s inconsistencies. The primary target has been its understandings, in the context of the ideological contest between models, of the means by which convergence and ‘catch-up’ might be a chieved by those economies deemed to be on the losing end of the spectrum (Coates 2000). The path-dependent nature of capitalist development, in essence, is held to mili-tate against the replication of models outside their historical home, and the inherently class-based determinants of national institutional structures furthermore preclude the latter’s uprooting and transportation to other settings. The persistence of contingency and specificity is thus ensured in ways which prevent the pursuit of catch-up by ‘cherry-picking’ institutional arrangements. The second limitation of institutionalist approaches, and again one which is forcefully challenged by their Marxist rivals, relates to the conceptualisation of capitalist models entirely in national terms—to the nationalist bias, if you like, that pervades the models of capitalism debate and indeed CPE more broadly. This is predictable and logical in institutionalist approaches to the extent that that institutions are both socially embedded and ‘nationally constrained’, reflecting the impact on societal structures of economic activity, those societal structures themselves remaining ‘predominantly nationally rooted’ (Coates 2000: 164). It is also for this reason that the models of capitalism literature is concerned centrally with national differences between capitalist systems while other perspectives, particularly those deriving from the debates surrounding globalisation, perceive convergence and/or the increasing redundancy of the nation-state to be the hallmarks of a globalised political economy. In response, Marxist approaches posit not only that capitalist models need to be understood with reference to the ‘class and ideological formations’ that originally underpinned their emergence but also, crucially, that these stem from the location of national capitalist systems within the world capitalist system. As Coates goes on to elaborate: The pattern of different performance between national capitalist economies…is best re-specified as a set of shifting national trajectories on a map of combined but uneven economic development, where the spaces for catch-up and convergence were predetermined by the prior character of class relations distributed across that map by almost five centuries of class struggle, capital accumulation, production and trade. (Coates 2000:227) The interesting facet of this Marxist perspective on capitalist development is thus the introduction of a notion of structure which relates, on the one hand, to the structures of capitalism as a world system and, on the other, to the class structures which are seen as determined by location within the production structure. The Marxist critique focuses in this way on the constraints imposed on states by these structures, as opposed to institutionalists’ emphasis on state

INTRODUCTION 19

autonomy, and on the ways in which the complexity and plurality emphasised by the institutionalists is thus subject to an ‘underlying structuring logic of its own, tied to the uneven development over time of capitalism as a world system’ (Coates 2000:226). Despite these claims, however, Marxist approaches stop somewhat short of remedying the nationalist biases of institutionalist approaches. As is well known, one of the central tensions in Marxist thought lies between the worldwide level of analysis appropriate to the economic system of capitalism and the national level of analysis appropriate to the study of class and the social formations underpinned by class struggle (Roxborough 1979:47). Given that classes are generally formed at the national level, and indeed that there is no transnational structure approximating a version of the state, the focus of Marxist analysis usually resides at the level of social formation and hence at the level of national political economy. As such, it is within the social (institutional) formations associated with underlying class structures that modes of production are shaped, and development thus acquires path-dependent characteristics. A nationalist bias is thus common to both Marxist analyses of capitalism and the institutionalist mainstream of the models of capitalism literature. However, the broader argument need not be made in Marxist terms in order to retain its force. It is simply to say that the national frame of reference is problematic in its preclusion of an understanding of transnational structure and its impact on capitalist models. Particularly in the institutionalist strains of the debate, but also in Marxist approaches, the focus on national models of capitalism concedes insufficient room to considerations of the ways in which these may or may not be mediated by the spatial (and conceptual) transformations wrought by structural change. Nor, indeed, is adequate space afforded to the notion that distinctive modes (plural) of capitalist organisation might themselves be articulated on a transnational basis, beyond the central Marxist conceptualisation of capitalism as a world system. The third demonstrable limitation of institutionalist approaches in the models of capitalism debate is again one which extends to its Marxist strains, and which weaves together a number of our arguments thus far. It is that the sights of those engaged in the debate are trained almost exclusively on the advanced industrialised economies. We saw this in the typical tripartite classification of models, which, while occasionally acknowledging Asian economies outside Japan, either ignores other capitalist systems or else assumes that they can simply be slotted in to one or other of the available existing models. In a nutshell, the debate is characterised by a blindness to the nature and articulation of capitalism in a context of what we might refer to as ‘late industrialisation’ in various parts of the world. This is perhaps especially surprising given the ways in which the developing world was insinuated over the 1980s and 1990s into the ideological battles which crystallised around contending models of capitalism: against the backdrop of what at the time was perceived as the ‘East Asian miracle’ (World Bank 1993a), the movement towards neoliberalism in Latin America signified

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the extension of the competition between the Anglo-American and Asian models. Moreover, it does not take very deep a scratch below the surface to reveal that, in its present incarnation, the models of capitalism debate is infused with assumptions that do not travel easily to late industrialising economies (or what we might call, with full recognition of the term’s limitations, ‘developing’ countries), and that the nationalist bias becomes still less tenable once the empirical net is cast beyond the customary triad of models. This is so in a variety of senses, of which we might highlight two. First, much of the political economy of capitalism in the advanced industrialised economies is based on particular types of class, state, society and economy which do not accurately depict prevailing social realities in developing countries. Social groups and classes, for example, are considerably weaker, and class and societal structures more fluid, than in the older capitalist systems (Roxborough 1979:72). This is the consequence of a range of factors, which range from the pressures of often rapid processes of industrialisation and urbanisation to frequent political and social upheavals, and instability of development strategies and economic models. Most of the models of capitalism literature focuses merely on the distinctive nature and organisation of institutions, taking their existence and functioning largely as given, and affording little room for consideration of capitalist systems characterised by pervasive institutional weakness or underdevelopment. Similarly, key differences in the processes of state formation and nation-building (and the context in which these were realised) have generated types of state in developing countries that are fundamentally at variance with their counterparts in the industrialised ‘core’ systems (Hettne 1995: 22–4; Mittelman and Pasha 1997:97–8; Phillips 2004b). Some of these types of state have attracted various labels such as ‘failed’, ‘collapsed’, ‘developmental’ or ‘hyper-politicised’. They might be run by authoritarian regimes or by elected governments that do not conform to standard liberal definitions of ‘democratic’. They might be characterised by significant institutional weakness or underdevelopment, or equally by robust and effective levels of institutionalisation and bureaucratic cohesion. They might exist within patrimonial or highly presidentialist political systems, or be marked by high levels of corruption or centralisation, or simply exhibit ‘different’ types of bureaucratic procedures or legal structures. To draw the point out just a little further, the issue of institutional change is also a pertinent example of where attempts at generalisation run aground. In the models of capitalism debate the general assumption is one of institutional continuity, in which context ‘a social system of production continues along a particular logic until or unless a fundamental societal crisis intervenes’ (Hollingsworth 1997: 267–8). While the societal upheavals that characterised early industrialisation can conveniently be consigned to history and institutional continuity thus privileged, such fundamental societal crises continue to intervene on a regular basis in less institutionalised political orders, with important implications for our understanding of the nature of path dependency and

INTRODUCTION 21

development. Especially when issues such as the ‘evolutionary capacity’ (Berger 1996) of specific institutional orders are brought into the picture, we are drawn back not only to our comments just now about the nature of states and societal groups, but also to a recognition of the importance of different levels of institutional development. The point, in short, is that the study of capitalism outside the advanced industrialised democracies needs to dispense with restrictive assumptions about the nature of states, classes, labour, capital and so on, and seek to understand the articulation of capitalist development in systems not characterised by the institutional or societal attributes found in the customary models. Second, and related, the insertion of late industrialising economies into the world economy, the role they play within it, and the relationship between endogenous and exogenous processes cannot easily be compared with the equivalent situations of the advanced industrialised economies. Societal crises of the sort we mentioned just now, for instance, are far less likely to be precipitated by purely endogenous factors than by a more complex vulnerability to the crisisgenerating nature of global capitalism, especially when this vulnerability is coupled with pronounced levels of institutional weakness. Moreover, it is the understanding of the relationship between the exogenous and the endogenous that stands in need of rethinking. Even if their separation were plausible in the cases usually considered in the models of capitalism literature, coming back to earlier points, it becomes visibly much less tenable as soon as we turn our attention to other areas of the world, and a nationalist frame of reference becomes even more restrictive of a full understanding of contemporary capitalist development. In short, the study of capitalism in areas of the developing world demands —and has always been seen to demand—a rather different starting point in its conceptualisation of the ‘building blocks’ of a capitalist system or model, as well as of the relationship between endogenous and exogenous forces. For an understanding of these issues, and in order to go about addressing them, we can usefully turn in two directions. One is towards key currents in IPE, to which we will come shortly. The other is towards another area of CPE, specifically to a number of the key theoretical schools underpinning the field of development studies. While it would be inappropriate to classify development theory as a whole as part of CPE, given the huge diversity of disciplinary perspectives, theoretical approaches and empirical concerns it encompasses, there are several very influential strands of it which do warrant such a label given their central preoccupation with the study of political economy and the comparative analysis of development processes. Moreover, many of the important strands of early development theory intersect to a very striking degree with the contemporary models of capitalism debate, such that, I will argue, they can profitably be seen as the forerunners of this debate as it subsequently emerged in CPE.

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Theories of development It is curious that attention to capitalist systems in the developing world should be lacking from the contemporary study of capitalism in CPE. At a very basic level, as we have seen, much of the central concern about relative economic competitiveness was after all generated by the success of the Asian model and the incorporation into the mainstream of economic activity of a large swathe of socalled ‘emerging’ economies. It is all the more curious, though, in light of the very striking similarity between the research agendas of influential strands of development theory and the contemporary models of capitalism debate. This similarity resides most obviously in the centrality of a historical institutionalist orientation, which in development theory gained ascendance from the 1950s in the growing rejection of early evolutionary and modernisation theories. The latter advanced a teleological and highly prescriptive understanding of development, advocating in essence an emulation of the trajectory of early industrialisation processes. In rejecting such ‘universalist’ assumptions subsequent strands of development theory sought instead to identify institutional variation from a more explicitly historicist perspective (see Roxborough 1979: 14–15) and to understand, in much the same way as studies of contemporary models of capitalism, the sources of national contingency and specificity. The result was a spate of important studies of modernisation which sought in particular to identify the class-based foundations of this contingency, perhaps the most seminal instance of which was Barrington Moore’s (1966) study of the ‘social origins’ of democratic and dictatorial regimes in Europe, the US and Asia. The study of development that was advanced over the 1960s thus cautioned forcefully against an assumption that the experiences and models derived from the ‘West’ or from early industrialising economies were applicable across the late industrialising world, and furthermore were premised, like the contemporary models of capitalism debate, on a commitment to the comparative study of national capitalisms, sharing the core conceptual assumption of path dependency. They also suffered, however, from the same problem as the one we identified as afflicting the contemporary debate, namely the assumption that the determinants of development models are inherently endogenous and that explanations can be advanced which afford no attention to the role of exogenous factors. There were some notable exceptions, such as Alexander Gerschenkron’s (1962) study of the ways in which ‘backwardness’ might be mitigated by the importation (rather than indigenous development) of technology. Nevertheless, the dominant tendency was to see ‘structural’ influences on development trajectories as deriving from internal class and institutional structures rather than from the world economy and differential modes of insertion into it. The response to this endogenous bias in development theory was a purposeful swing towards exogenism and the emergence of a ‘political economy of development’ (PED) approach that sought to understand the constraints of world order on development processes (A.Payne 1998:261). So-called ‘structuralist’

INTRODUCTION 23

theories posited that development needed to be understood with reference to the location of economies within the world capitalist system and the interactions of the different parts of this system. In the first instance, as is well known, these ideas crystallised in the school of thought associated with the United Nations Economic Commission for Latin America (ECLA)3 and particularly with the work of its Executive Secretary Raúl Prebisch. The ECLA school derived its originality from the central premise that development and underdevelopment were part of a single process, and that ‘centre’ and ‘periphery’ formed part of a single world economy (Kay 1989:26). Early versions of the structuralist thesis focused largely on the retention in the centre of productivity gains from technical progress, contrasted with the lower levels of productivity in the primary sector in the periphery as a consequence of surplus labour (Thorp 1998:133). Subsequent versions expounded the famous ‘terms of trade’ argument—otherwise known as the ‘Prebisch-Singer’ thesis (see ECLA 1951)—according to which productivity gains in the periphery were transferred to the centre as a result of the growing discrepancy between international prices for commodities (produced in the periphery) and manufactured goods (produced in the centre). Trends in the terms of trade were thus consistently and progressively unfavourable to the periphery as a consequence of the long-term deterioration of export prices relative to import prices. Export sectors were unable to generate the levels of national income required for economic development in conditions of rapid population growth, and the development problems of the periphery were perpetuated by the need to increase exports in order to maintain import levels. The result was seen to be the structural entrenchment of a condition of ‘underdevelopment’ in the periphery, in which the construction of industrial bases and capital goods sectors necessary for industrialisation was impeded, leading to a rising gap in incomes between the centre and the periphery. The structuralist running was subsequently, and most visibly, taken up by dependency theory, which had its roots in both Latin American structuralism and Marxist theories of imperialism. While the dependency school is diverse and several different versions of the central thesis emerged, its essence is captured in the central proposition that development and underdevelopment exist in a relationship of structural symbiosis, as ‘the two faces of the historical evolution of capitalism’ (Sunkel 1972:520). The obstacles to industrialisation were seen as rooted in a structural logic of capitalism which served to perpetuate underdevelopment in the periphery as a precondition for development in the centre. According to a classic definition, Dependence is a conditioning situation in which the economies of one group of countries are conditioned by the development and expansion of others. A relationship of interdependence…becomes a dependent relationship when some countries can expand only as a reflection of the expansion of the dominant countries, which may have positive or negative effects on their immediate development.

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(Dos Santos 1970:231) Aside from its appeal as a critique of capitalism, dependency theory thus gained significant currency—especially in its Latin American homeland—as an explanation of the entrenched development problems of what at the time was known as the ‘third world’ and as an explanation of the failures of industrialisation in Latin America and elsewhere. Coinciding as it did with the prevalent biases towards economic nationalism and distrust of the United States in the developing world, the emphasis in much dependency theory on the external determinants of development struck a particularly sonorous chord among many state elites and popular sectors. Despite this rhetorical and ideological appeal, a good deal of early dependency theory was criticised for excessive exogenism in its analysis of underdevelopment: dependence was largely conceptualised as an external condition and little attention was afforded to the internal dynamics of underdevelopment. It was also charged with an excessive economic determinism, which derived from its neo-Marxist inspiration. Both of these critiques reveal a tendency to over-generalise a complex school of thought, although clearly they are not without foundation in most cases, particularly in the early dependency theory of, for example, André Gunder Frank (1969) and its offshoots in world systems theory (Wallerstein 1974, 1979; Amin 1974). However, some of the later and most influential work in the dependency tradition, notably that of Cardoso and Faletto (1979), sought deliberately to refine the theoretical position in the light of these critiques. The historical institutionalist orientation of earlier development theory remained integral to their approach, but they distinguished their work as a study of the interaction of internal and external dimensions of development. In so doing, they contributed a serious perspective on exogenous factors but located this discussion in the context of the specific modes of capitalist development articulated in particular national political economies, setting out their stall thus: The concept of dependence tries to give meaning to a series of events and situations that occur together, and to make empirical situations understandable in terms of the way internal and external structural components are linked. In this approach, the external is also expressed as a particular type of relation between social groups and classes within the underdeveloped nations…. [If]…market influences by themselves neither explain development nor guarantee its continuity of direction, then the behaviour of social groups and institutions becomes crucial to the analysis of development…. From a methodological perspective, we attempt to reconsider the problems of economic development through an interpretation emphasising the political character of the processes of economic transformation. At the same time, we try to demonstrate that the historical situation in which the

INTRODUCTION 25

economic transformations occur must be taken into account if these changes as well as their structural limitations are to be understood. (Cardoso and Faletto 1979:15, 21, 172) The important point in all this is to draw attention to the striking similarity between the research agenda laid out in these influential strands of development theory and that associated with the contemporary models of capitalism debate. Both, as already noted, are founded on a commitment to the comparative study of models of capitalism and their historical institutional bases. Further common ground is visible between dependency theory and Marxist versions of the models of capitalisms debate, arising from their adherence to the same conceptualisation of capitalism as a world system and the class-based underpinnings of modes of production. In short, there appears to be little fundamental difference between the agenda pursued in the contemporary study of models of capitalism and the six parameters of the agenda set out by Cardoso and Faletto (1979:15–16). These were: • the economic factors conditioning the world market; • the structure of national production systems and their linkages with the external market; • the historical and structural shape of societies; • the allocation of power within these societies; • the political-social movements and processes that exert pressure for change; and • (most telling for the present argument) the intersection of the economic system with the social system. Only the slightly closer focus on what is here called the ‘external’ (that is, structural context) thus distinguishes the ‘old’ study of national capitalisms in PED from the ‘new’ study of national capitalisms in the models of capitalism debate. This identification of common ground with contemporary debates in CPE is not intended as a call for a return to early development theories or for their wholesale transportation into contemporary studies of capitalism. The manifold weaknesses of dependency theory have been well documented (e.g. Kay 1989), and indeed any currency that it retains is largely limited to the concept of dependency as opposed to the theoretical body of thought associated with it (James 1997). Our recourse to development theory in seeking to refine the assumptions of the models of capitalism debate is thus not an exercise in remaking early theories. Rather, it is to demonstrate that large swathes of development theory were concerned precisely with the investigation of the bases and operation of capitalist systems, the identification of capitalist diversity and its roots, and the study of capitalism as a social system of production. If the ontological starting points are largely the same as those underlying the models of capitalism debate,

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what is required is an understanding of the ways in which the nature of its components (state, social forces, class, system of production, institutions) vary along distinct development axes and concretely between specific capitalist systems, consistent with the arguments we made at the end of the previous section. Strands of development theory, in short, offer potentially fruitful insights into ways in which this might be accomplished. They also offer a useful corrective to the nationalist biases in the contemporary study of models of capitalism, not in the particular understanding of structure they advance (which does not travel especially easily to the late 20th and early 21st century setting) but rather simply in their founding thesis that capitalist development cannot be understood in the absence of a thorough-going consideration of structural context. Nonetheless, although Cardoso and Faletto launched a commendable attempt to chart a middle ground between exogenism and endogenism, the evolution of development theory after the dependency school ran out of steam has again reflected an ongoing propensity to dichotomise these two levels of analysis. Ways out of the ‘impasse’ which development theory was widely purported to have reached by the early 1980s (Booth 1985; Schuurman 1993) were sought in a return to some of the premises of universalism that had dominated earlier theories. According to the proponents of the subsequent neoclassical turn, paths to development were not multiple and were not nationally or institutionally contingent. Rather, the path to development was common to all countries and economies and rested on granting primacy to market forces over state-led development strategies—on adopting, in essence, the liberalising and deregulating principles of the Washington Consensus. Development remained conceptualised as an inherently national process, the assumption being that it is national units that develop. Moreover, the reasons for poor economic performance or ‘development failures’ were identified as essentially endogenous ones, arising from incorrect government policies or from excessive state intervention in economic affairs, and consequently amenable to remedy by the implementation of ‘appropriate’ policies and the retrenchment of the state (Toye 1987:70). Neoclassical development theory was thus premised on both endogenist and individualist biases, even while the determinants of good economic performance—and the rewards accruing from conformity with the neoliberal orthodoxy—were identified as lying in the globalising world economy. Challenges to neoliberal theory centred similarly on the study of the institutional determinants of economic performance, the debate coming to revolve around the extent to which the successes of Asian developmentalism refuted neoliberal claims about the appropriate relationship between state and market. The task laid out by the most recent trends in development theory seeking to challenge these neoliberal currents has thus been to redress this longstanding dichotomisation of the endogenous and the exogenous, to still the swing of the pendulum and to move towards a means of charting a genuine middle course between them. The rationale for this endeavour lies in the contention, put pithily

INTRODUCTION 27

by Björn Hettne (1995:262), that ‘there are…no countries that are completely autonomous and self-reliant, and no countries that develop (or under-develop) merely as a reflection of what goes on beyond their national borders’. The elaboration on this basis of a ‘new’ PED thus coincides in its central propositions with the emergence of critical theories of IPE, and especially with the ‘new political economy’ turn. In IPE the endeavour is framed as one of meshing structure and agency; in PED it is framed as one of meshing exogenist (structuralist) and endogenist (individualist) understandings of development processes. It is primarily in this sense that currents in PED afford a series of useful avenues in reconsidering the ways in which we understand the political economy of capitalist development, and our approach to the study of models of capitalism. Apart from their utility in widening our focus to areas outside the core triad of capitalist models, currents in both earlier and more recent development theory point to the importance of structural context, and of structural change, in understanding capitalist development. In particular, a revision of what Mark Beeson and Stephen Bell (2004) call the ‘voluntaristic bias’ that stems from the exclusive focus on the advanced industrialised world involves a recognition of the constraints that issue from the contemporary structural context within which development processes unfold. Indeed, the upshot of the recently coincident currents in IPE theory and development theory has been a smattering of calls for either a constructive engagement between IPE and development studies (such as Hettne 1995) or alternatively for a rehabilitation of the beleaguered field of development studies within IPE (A.Payne 1998). Both articulate the central aim of understanding the relationship between development processes and the structural context in which they are rooted. It is perhaps not surprising, though, given their common location in the arena of CPE, that both development theory and the models of capitalism literature generally have acquitted themselves rather better in advancing understandings of national political economy than of structural context, the pioneering early contributions of structuralist development theories notwithstanding. It is for a fuller understanding of contemporary structural context, then, that we turn now to key debates in IPE. Globalisation Although studies of globalisation came to swamp the terrain of social science over the 1980s and 1990s, among the notable features of the debate are the continuing imprecision of the concept of globalisation and the lack of consensus on how we should think about it. Attempts to elaborate rigorous definitions of globalisation have lent themselves to rejections of the notion of globalisation in its entirety (Hirst and Thompson 1999) and equally to validations of it (Scholte 2000). The risk, however, is that in an anxiety to impose too rigid or demanding a definition of globalisation we end up narrowing excessively our understanding of it. What is important is to recognise, even if this means sacrificing a degree of

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definitional rigour, that the term ‘globalisation’ is useful as a shorthand for a variety of social processes, which stretch to encompass internationalisation and transnationalisation as dimensions of the ways in which these social processes are currently unfolding. In other words, it is this notion of a process, rather than of an end-state, which informs our understanding here of globalisation and our analysis of its significance. For this reason, we will advance with a working definition of globalisation akin to that of Held, McGrew, Goldblatt and Perraton — as a process by which worldwide ‘interconnectedness’ is deepened, widened and accelerated (Held et al. 1999:2). In so doing, we are called upon to navigate a sea of contending perspectives. Held and his colleagues have identified three dominant schools of thought— ‘hyperglobalist’, ‘sceptical’ and ‘transformationalist’—which offer a useful starting point. Here we will consider these three schools through a particular lens, namely the debate surrounding the notion of ‘convergence’, which constitutes one of the principal fault-lines along which understandings of the significance of globalisation have divided. The convergence hypothesis contends, in essence, that ‘all advanced industrial economies tend toward common ways of producing and organising economic life’, explaining any persistent differences in these modes of production and organisation as the result of ‘extramarket’ sources of distortion (Berger 1996:1). In its association with liberal globalisation discourses, and based on neoclassical understandings of trade and competition, the hypothesis holds that the universal availability of technological innovation to advanced industrial societies will generate convergent rates of productivity, accompanied inevitably by the emergence of common institutional configurations and patterns of state-society-market interaction (Boyer 1996). It extends to areas outside these advanced industrial societies in the assumption that the pressures of globalisation and the activities of the IFIs will generate convergence on neoliberal forms of economic organisation and thus on the institutional and social configurations necessary to sustain them. The neoliberal agenda peddled through the 1990s by IFIs, the US government and private economic agents rested explicitly on the elimination of those distortive ‘extramarket’ impediments to convergence. Each of the three schools of thought identified by Held et al. offers a distinctive perspective on the convergence hypothesis. Validation of it resides most notably in the first—‘hyperglobalist’—school, much of which sets itself up directly in opposition to the models of capitalism debate. Many of the more vehement of its statements, indeed, attack the validity of concentrating on difference and divergence at a time when systemic and structural forces driving towards convergence are, supposedly, in ample evidence. The gist of the argument is well known and requires only brief restatement here. It is that the nation-state is poorly adapted to the task of government or governance in the context of globalisation, and that state authority is progressively and decisively undermined by the structural power of markets. Primarily as a result of the ‘hegemony’ of global capital (Gill and Law 1989), the autonomy and room for

INTRODUCTION 29

manoeuvre which states previously enjoyed in matters of economic policy have been severely curtailed; deregulated financial markets and progressively integrated production structures dissipate national boundaries and render ‘national’ economic strategies increasingly anachronistic. The emergence of significant non-state forms of authority other than markets means, as well, that states are no longer the sole (or even primary) loci of political activity, much of their former jurisdiction having been redefined or invalidated (Risse-Kappen 1995; Mittelman 1996; Strange 1996). These non-state authorities range from international or supranational organisations to various forms of ‘private authority’ that have recently been identified (Cutler et al. 1999; Hall and Biersteker 2002). It is important to note that the hyperglobalist terrain is inhabited not just by neoliberals who consider these processes desirable and beneficial but also by their radical and neo-Marxist rivals, who see them as representing the victory of an oppressive and exploitative global capitalism (Held et al. 1999:3–4). What we might call a ‘market triumphalism’ thus prevails across the school of thought, the variation lying in the different receptions of it in the contending ideological camps. There is also a good deal of variation within the hyperglobalist school in the strength with which the argument is made. The strongest versions have deployed catchphrases such as the ‘borderless world’ (Ohmae 1990) or the ‘end of sovereignty’ (Camilleri and Falk 1992); rather more nuanced analyses have posited the ‘retreat of the state’ (Strange 1996) or the advent of ‘governance without government’ (Rosenau and Czempiel 1992). The important point for our purposes, though, is the hypothesis of convergence that the argument invariably carries with it. Not surprisingly, given the dominant neoliberal ideology underpinning the economic processes in question and indeed the bulk of these analytical positions, the ‘common configurations’ envisaged by the convergence hypothesis are depicted as neoliberal in character, such that ‘convergence came to be synonymous with the global mobility of the factors of production, and above all of finance’ (Berger 1996:5). Put in the context of the Washington Consensus and its promulgation by IFIs, the convergence hypothesis thus formed the basis not only of policy debates in advanced industrial economies but also for thinking about development as a broader phenomenon. Also underlying the convergence hypothesis, by extension, is the assumption that globalisation exerts a uniform impact and that state strategies and social relations will thus be pushed through largely the same process of reconfiguration. This tendency is clearest in strong .statements of the convergence hypothesis, but it also pervades the various weaker versions of it. Indeed, influential notions like that of the ‘competition state’ (Cerny 1997a) are effective in challenging the notion of the redundancy or obsolescence of states, but equally identify a process of conformity with the dominant ‘financial orthodoxy’ (Cerny 1994a) which is assumed to exercise a uniform impact across the world. Such notions are thus used directly to validate a convergence hypothesis, positing a direct connection between the onslaught of (financial) globalisation and the ‘erosion of capitalist diversity’ (Cerny 1997b).

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It is largely in opposition to the convergence hypothesis that the other two of the three schools of thought have crystallised. The ‘sceptical’ school finds its ammunition in empirical evidence, which has been marshalled to advance primarily two arguments. The first is that the very existence of globalisation is open to considerable question. Patterns of trade and foreign direct investment (FDI) flows are taken to indicate that globalisation boils down to no more than a continued process of internationalisation, and indeed that the world economy was no more internationalised in the late 20th century than it was during other historical periods (see Hirst and Thompson 1999). While such perspectives made an important impression on the debate in their insistence on understanding globalisation in historical context, the resulting presentation of globalisation as a ‘myth’ did end up obscuring many important facets of contemporary structural change. The second argument is rather more effective. Its message, in a nutshell, is that the global does not eliminate the national. Economic activity remains rooted primarily within the borders of national states and within the institutional order contained therein, and governance structures remain fundamentally the product of national contexts and located within them. As John Zysman persuasively puts it (1996:180), ‘the national institutional foundations of the several market systems are neither washed away nor compressed into homogeneous convergence by growing international interconnections, or at least not yet’; he goes on to suggest that, ‘increasingly in the years to come, the politics of trade…will be about reconciling differently structured political economies that express different values’ (1996:181). Thus, consistent with the central arguments of both institutionalist and Marxist strands of the models of capitalism literature, there is no reason to imagine that divergence will become any less pronounced as a result of contemporary ‘globalisation’ than it has been at any other time in the history of social and economic development (see Crouch and Streeck 1997; Hollingsworth and Boyer 1997; Hollingsworth 1998; Coates 2000). The dividing lines between these sceptical perspectives and the third —‘transformationalist’—school of thought are rather blurred, and indeed parts of the one melt quite nicely into the other. A transformationalist understanding of globalisation, which Held et al. themselves favour, perceives it to be ‘a powerful transformative force which is responsible for a “massive shake-out” of societies, economies, institutions of governance and world order’ (Held et al. 1999:7, citing Giddens 1996). While this understanding might rightly be upbraided for a certain vagueness, it is nevertheless useful inasmuch as it accommodates notions of diversity, unevenness and complexity. In so doing, it insists that ‘the existence of a single global system is not taken as evidence of global convergence or of the arrival of single [sic] world society’ (Held et al. 1999:7). Even more importantly for our purposes, it sees globalisation as ‘associated with new patterns of global stratification in which some state, societies and communities are becoming increasingly enmeshed in the global order while others are becoming increasingly marginalised’ (Held et al. 1999:8). It thus provides a framework

INTRODUCTION 31

within which to challenge the notion of convergence on a single (AngloAmerican) model, but also the notion of convergence into a globalising world economy. Such a challenge is further facilitated by the coincidence of the transformationalist school with the ‘middle ground’ that has emerged in studies more specifically of the relationship between globalisation and states (see Boyer and Drache 1996; Amoore et al. 1997; Evans 1997a; Scholte 1997; Weiss 1998; D.A. Smith et al. 1999). In response to the contention that states are uniformly in retreat or decline or, moreover, buckling under the tide of convergence, the middle ground envisages states as undergoing processes of adaptation or transformation. It also restates an established argument (e.g. Helleiner 1994) that globalisation processes are embedded in the structures and actions of states, and conversely that states themselves are structurally integral to the creation and propulsion of globalisation itself. The arguments of this transformationalist middle ground thus reinforce and elucidate our central contention in this book that an analytical dichotomy between the ‘global’ and the ‘national’ is ill conceived. Rather, we need to conceive of globalisation as fundamentally a political process constituted by states and in so doing to understand the reconfiguration, rather than obsolescence, of domestic political economy. Thus the appropriate task is not to contest the idea that globalisation has an impact but rather to understand that impact and the reasons for its differential and contingent nature. This said, the principal contribution that globalisation debates offer to the study of domestic political economy and models of capitalism is the recognition that the institutional order of capitalism is not intrinsically national (Radice 2000a:732). This recognition is important not only as a contention in itself but also as a means of understanding the conjunctural context in which globalising processes are propelling a complex redefinition of the spatial organisation of capitalist systems. This spatial organisation is not, however, being redefined in identical ways across the world, as suggested by the convergence hypothesis. Political economies differentiate themselves along a variety of axes, the most obvious of which is historicalinstitutional, and what it is important to grasp is the ways in which these institutional configurations are themselves the product of particular types of insertion into the world economy. It is here, then, that our challenge to the nationalist frame of reference inherent in the models of capitalism literature, and indeed in CPE more broadly, starts visibly to crystallise. The construction of an intersection between these perspectives on globalisation and the study of models of capitalism would seem therefore to be an appealing way forward, particularly in view of the fact that it is within these two bodies of thought that the bulk of the challenges to the ‘convergence’ hypothesis have been erected. In both, as we have seen, attention has been called to myriad manifestations of capitalist divergence, principally in such areas as corporate governance and business systems (Whitley 1992a, 1992b; Ruigrok and van Tulder 1995; Hollingsworth and Boyer 1997; Doremus et al. 1998), and state strategies and capacities (Boyer and Drache 1996; Crouch and Streeck 1997;

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Weiss 1998), among many others. Despite these common concerns, though, the engagement between them has been hitherto very limited and very awkward. The ‘levels of analysis’ tension between CPE and IPE is one reason for this, the result being notable inadequacy in the extent to which the bulk of globalisation studies and the bulk of the models of capitalism literature incorporate key perspectives from the other. Yet, moreover, the awkwardness also stems from the difficulty with which the respective frameworks stretch to accommodate these perspectives, even when their incorporation might be attempted. This point can be illustrated usefully with reference to the models of capitalism literature in which, when not ignored completely, the treatment of globalisation remains uneasy. In Crouch and Streeck’s (1997) collection, for instance, the editors conceive of national states and models of capitalism as undergoing a process of ‘transition’ as a consequence of globalising forces, but nevertheless insist on the durability of national capitalist models. Most of the chapters privilege the national unit of analysis with greater or lesser attention to the influence of globalisation processes. Those chapters (Cerny 1997b; Strange 1997) that focus most closely on the impact of globalisation processes, however, do so in order to identify a process of convergence in which ‘national’ models become unsustainable and the space for capitalist diversity is compressed. Capitalist diversity thus remains the focus of the institutionalists among the contributors, but a strong convergence hypothesis rears its head as soon as globalisation is added to the mix. This laudable attempt to induce comparative and international political economists to rub shoulders in a single volume thus seems instead simply to underline the apparently entrenched divergences between them. Hollingsworth and Boyer’s (1997) volume similarly seeks to incorporate explicitly a discussion of the ‘new’ spatial coordination of capitalism, and integrates a variety of perspectives ranging from the explicitly globalist (Grant 1997), through a questioning of global and regional convergence (Hirst and Thompson 1997; Schmitter 1997b), to a focus on the construction of international regimes (Eden and Osler Hampson 1997). While this range of arguments again is instructive, the emphasis is on the strategies pursued by capitalist actors in response to globalisation rather than on the evolution, in this context, of the models underpinning the economies in which these actors are located. Coates, from a Marxist perspective, also struggles with the globalisation/convergence issue. On the one hand he argues that path dependency puts paid to notions of convergence on a single model of capitalism, and on the other he goes on to contend that the ‘neoliberal specification of capitalist governance’ has become firmly embedded in the ‘new’ global political economy in ways which curtail the growth potential of alternative capitalist strategies. Across capitalist models, he argues, there is a race to the bottom in wages and labour rights to the extent that, ‘although the institutional structures of ‘trust-based’ capitalisms may remain in place, their substance will not’ (Coates 2000:260). The point, it seems, is that there might be various paths available, but they all lead ultimately to the same place.

INTRODUCTION 33

The purpose of going into some detail in these illustrations is to clarify the key difficulty in the models of capitalism literature, which concerns not only an understanding of transnational structure but also the relationship between domestic and transnational political economy. The latter is also the key difficulty in the globalisation literature, and in this respect we have identified a useful way forward in the transformationalist middle ground of the debate. In both, however, the difficulty is reinforced by the focus on advanced industrialised economies. Contemporary development, as Philip McMichael has put it (2000: 150), ‘has shed its national characteristics and is now undergoing reformulation as a global project’: ‘global positioning’, in other words, has replaced the ‘management of the national household’ as the primary goal of development projects. A broadening of the scope of analysis thus highlights the meshing and blurring of global and domestic forces in contemporary capitalist development. It also demonstrates to good effect the limitations of transporting understandings of the impact of structural processes in advanced industrial economies to the analysis of the contemporary developing world. In the latter, as has long been recognised (Cardoso and Faletto 1979:26; Roxborough 1979: 73), social formations are articulated to a very important degree at a transnational level rather than at a purely domestic level, in contrast to the older capitalist systems in which development was conditioned by an entirely different world order. As Hugo Radice has observed of developing countries (2000b:12), ‘crucial segments not merely of the “national economy”, but of their entire social and political orders, are tightly bound to the dynamics of accumulation centred elsewhere’. The point here is not to advocate a return to ‘exceptionalism’ in the study of developing areas, but rather merely to emphasise the need for the insinuation of a more considered treatment of global and transnational structures into the comparative study of capitalist models. The conclusions for our analysis are thus threefold. First, we need to dispense with the false dichotomy between the global and the national (or the systemic and the locally contingent) from which large parts of both the globalisation and the models of capitalism literatures manifestly suffer. Specifically, engagement with the former begs attention to the ways in which globalisation may or may not act to alter social and institutional configurations. While it would be absurd to claim that globalisation washes away the historical foundations of these configurations, its impact pushes them through an important moulding process. On the one hand, globalisation is associated with the emergence of new, ‘transnational’, structures of social relations. This is formulated in some cases as the development of a ‘transnational historic bloc’ or transnational class alliances (Cox 1983, 1987; Gill 1993; Rupert 1995; van der Pijl 1998; Sklair 2000) but extends also to transnational links between political actors and transnationalised forms of politics. On the other hand, globalisation generates reconfigurations of the social and institutional framework within which actors interact, with important implications for the relative autonomy of social forces and interactions between them.

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The second, and related, conclusion is that the key difficulties we have identified in both the models of capitalism and the globalisation literature— namely, accommodation of the relationship between domestic and transnational political economy—might in fact be eased by the widening of the focus to areas of the world outside the advanced industrialised core. A wider and more considered comparative perspective dismantles the reliance on a convergence hypothesis, and permits a focus both on the forms of convergence that might be underway and on persistent forms of diversity and contingency that coexist with them, along with the sources and ‘arenas’ of each. Equally, as we have seen, in the models of capitalism debate attention to models outside the customary triad highlights forcefully the issue of transnational structure and demands a serious treatment of it in our broader understanding of capitalist development. The third conclusion is that there is still only limited recognition in both the models of capitalism and the globalisation-state literatures that capitalist systems (or models) are not bounded always and necessarily by the nation-state. There is even less recognition, however, that the ‘transnational’ is not necessarily ‘global’. The proliferation of ‘experiments with scale’ (Schmitter 1997a:312) connotes a changing institutional, economic and political geography, and the movement towards globalisation represents only one element of this spatial reorganisation of capitalism. The other dominant manifestation of such experiments arises at the regional level, and it is the regional dimensions of capitalist organisation that have been most systematically neglected by the models of capitalism literature and indeed by a good deal of the IPE literature on transnationalisation processes. It is to the notion of regional political economy, then, that finally we turn. Regionalism and regionalisation Given the overall nationalist bias in CPE, the neglect of the regional dimension in the study of models of capitalism might not be entirely surprising. Its neglect in the globalisation debate, and especially in those strands that surround the convergence hypothesis, is perhaps more so. Many approaches in the hyperglobalist school of thought would attack a regional focus on the same grounds on which they excoriate the nationalist and institutionalist inclinations of comparative analysis. But, even in those analyses which seek to challenge the convergence hypothesis or to contest the contention that national states are in decline, the regional level of analysis is frequently left aside (as in, for example, Berger and Dore 1996; Weiss 1998, 1999). Where the regional dimension is mentioned at all, the concern is generally with regions in the broadest sense as geographical units, rather than with the processes of regionalism and regionalisation underway within them, and is commonly limited to an observation that economic activity is significantly more inter- or intra-bloc than genuinely global (Ruigrok and van Tulder 1995; Zysman 1996; Weiss 1998; Hirst and Thompson 1999). Whichever the tendency, the upshot is that in both the

INTRODUCTION 35

globalisation and the models of capitalisms literatures cases like Korea and Taiwan can be considered without reference to Asia Pacific Economic Cooperation (APEC) or the Association of South East Asian Nations (ASEAN) (e.g. Weiss 1999) and German capitalism can be considered without reference to the European Union (EU) (e.g. Crouch and Streeck 1997; Coates 2000). In the models of capitalism literature and in the broadly ‘sceptical’ approaches to the study of globalisation the source of this neglect lies, it seems, largely in a tendency to view regions as simply ‘nations writ large’, to borrow Radice’s phrase (2000b:8). By this he refers to the tendency to treat a region as a nation, both in statistical terms and in the assertion that globalisation can be condensed into a notion of regionalisation, thereby questioning the existence or significance of the former. However, we can usefully borrow the phrase and deploy it to denote a different tendency, which is that of portraying regionalism as merely the magnification of domestic economic strategies. In other words, the regional arena is treated as the ‘nation writ large’, in which domestic policy orientations are projected to the regional level and the regional arena is conceptualised primarily as a modus operandi for domestic modes of capitalist organisation. This tendency finds its justification primarily in the links between neoliberalism and the ‘new’ regionalism of the 1980s and 1990s, regionalism here being defined best as a ‘state-led or states-led project designed to reorganise a particular regional space along defined economic and political lines’ (Payne and Gamble 1996:2). As contemporary development came to be about ‘global positioning’, to recall McMichael’s phrase, regionalist projects emerged as crucial mechanisms for the pursuit of appropriate positioning strategies. Regionalism was thus conceived as a strategic response to the demands of a globalising world economy —as a means of achieving the ‘accommodation of economic interdependence through reciprocal market liberalisation’ (Moravcsik 1993:486–7) and the elaboration of appropriate responses to the pressures of global liberalisation (Hirst and Thompson 1999:226). At the same time, new regionalist projects were conceived as mechanisms by which states could maintain a degree of discretion over domestic policy and salvage effectiveness in specific policy areas. The regional negotiation of policy strategies was seen to permit governments to reconcile priorities peculiar to the local—national and regional—setting with the pressures of engagement in globalising forms of economic activity Its utility was also linked, in the same sort of vein, to the perceived need to ‘lock in’ neoliberal reform processes and reinforce domestic discipline in the context of the high adjustment costs occasioned by global and local restructuring. The locking-in effect arose from the ways in which establishing binding agreements with ‘external’ agents— whether these were financing arrangements with the International Monetary Fund (IMF), compliance with the rules of the multilateral trading system or the signing of trade liberalisation agreements with neighbouring and other commercial partners— acted significantly to increase the costs of deviation from a particular (neoliberal) policy path. Such negotiated arrangements were thus

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envisaged as keeping liberalisation and deregulation on an even keel by constraining the whims of policy makers and their ability to backtrack on commitments to neoliberal reform (Phillips 1999:78), and at the same time by acting as political ‘release valves’ for the pressures imposed by neoliberal restructuring on industries, public sector employees, unskilled workers and so on (Bowles 2000:438–9). Regionalism, in short, constituted a mechanism by which the constraints on policy autonomy deriving from global economic processes might be exchanged for other, politically negotiated, ones. The ‘nation writ large’ assumption, understood in this way, sheds useful light on the roots of regionalist projects and on ways in which domestic policy strategies might be influenced by the rules agreed within a regional bloc, but allows limited room for the notion that the models of capitalism underlying domestic political economy might be informed, shaped and mediated by the processes associated with and crystallising around the regionalist project. The neglect of the regional level of analysis in the hyperglobalist strands of the globalisation debate, conversely, stems from a widespread assumption that regionalism can be treated as largely synonymous with globalisation. That is, regionalism and globalism are conceived as twin political projects, articulated largely by the same political and economic elites, and with essentially the same aims of furthering global liberalisation. The regional level is thus conceived as an intermediary stage—a stepping-stone, to use the well-worn phrase—in the process of globalisation (inter alia, Perraton et al. 1997), as well as the means by which states seek to respond strategically to globalisation, effect the adjustment and restructuring this is seen to entail, and manage politically the associated processes of reform and convergence. This perspective stands in direct contradiction with the alternative conceptualisation of the relationship that is equally common in the hyperglobalist literature, propounded largely by neoliberal economists. Regionalism in this latter view represents the antithesis of globalisation, as discriminatory trading arrangements are seen to run counter to their preference for ‘a rule-based, open and multilateral trading system’ (Bhagwati 1992:31; also Bergsten 1996). The important point justifying the former argument, however, is that the prevailing regionalist template over the 1990s was one of open regionalism— a strategy premised on unilateral trade liberalisation as a means of generating increased and more effective participation in the world economy. Given the links between regionalism and neoliberal policy reform, the emphasis is thus on the ways in which liberalisation and deregulation processes have been articulated in regional and national contexts in ways which facilitate and contribute to multilateral liberalisation and to the broader globalisation of economic activity. Regionalisation, we might say, represents ‘globalisation writ small’. This argument works to a certain (limited) extent if it assumes a focus solely on the neoliberal orientation of (some) contemporary regionalist projects. But, like the ‘nation writ large’ approach, the ‘globalisation writ small’ position affords the regional level little autonomous analytical interest. In the former it is

INTRODUCTION 37

perceived as a projection of the domestic; in the latter it is perceived as a manifestation of the global. In the former the formation of a regional bloc is concerned with various dimensions of state-building, and thus sits well with the nationalist frame of reference in CPE; in the latter regionalism constitutes a transnationalisation of economic and political activity, and related ideas about the ‘pooling of sovereignty’ fit well with notions of the transcendence or retreat of national states (Phillips 2000a:386). Here, in short, lies the rationale for the overall neglect of the regional dimension: it is easily ‘spoken for’ within a focus on domestic political economy or on globalisation. Either way, there is little room for understandings of regional processes beyond formal regionalist projects of policy coordination, or for a full understanding of regional political economy as distinct from domestic or global political economy. The additional problem, especially in considerations of regionalism from the vantage point of globalisation studies, is that quite so much effort should have been expended in a quest to establish ‘the’ relationship between globalisation and regionalisation, in a manner which glosses over pivotal differences and divergences between regions and regionalist projects. Following on from our earlier comments in this vein, observation of the distinctiveness of regionalist projects, the differences in the domestic political economies of member countries and the differences in the mode of insertion of each region in the global political economy suggests strongly that efforts to identify a single relationship between globalisation and regionalisation processes are both futile and misguided. In order to address these two problems, then—the overall neglect of the regional level of analysis and the penchant for excessive generalisation in discussions about the globalisation-regionalisation relationship—we turn to the enormous literature on regionalism and regionalisation, specifically to the avenues offered there for understanding regional structures and processes that cannot adequately be captured in narrowly statist or globalist approaches. Recent currents in the study of regionalism, indeed, have taken up this task with some success, much of the debate taking Europe as its principal laboratory. The notion of ‘multi-level governance’ in the EU was especially pivotal in a general movement away from traditional statist approaches to regionalism, instead conceptualising governance in the EU as operating across a variety of levels, involving a range of state and non-state actors and featuring a significant degree of ‘decisional reallocation’ to the supra- and subnational levels (Marks et al. 1996; Hooghe and Marks 2001). The problem, of course, lies with the extent to which these trends have any resonance beyond the EU, and indeed the problems of generalising EU experience have been widely recognised. So too has the continuing insularity of EU studies, which continues to hive itself off as a separate discipline with ‘its own conference circuit, its own journals, its own internal discourses’ (Breslin and Higgott 2000:343). The result has been a literature which on the whole has little comparative utility, especially those strands of it which concern themselves primarily with supranationalism. Yet while the multilevel governance framework might not lend itself easily to

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generalisation, its utility to us lies in its privileging of a distinctively regional level of analysis and, more concretely, in the study of regional political processes that reach beyond the formal intergovernmental negotiation. A very similar drift is evident in much of the regionalism debate in IPE, crystallising particularly in ‘new regionalism’ approaches which seek to locate regionalism, identified earlier as a state-led project, within broader and more complex processes of regionalisation. The latter, in some similarity to the notion of multi-level governance in EU studies, is understood as ‘a social process manifest at the regional level’ which, like globalisation, represents ‘combinations of historical and emergent structures—a complex articulation of established institutions and rules and distinctive new patterns of social interaction between non-state actors’ (Payne and Gamble 1996:2). Regionalisation processes, in this sense, reach ‘far beyond the goal of creating region-based free trade regimes or security alliances’ to encapsulate ‘the political ambition of establishing regional coherence and identity’ (Hettne 1999:xvi). They cannot be understood in the absence of a conception of regionalism—on the one hand, the latter seeks to accelerate, modify or perhaps reverse these processes of social change and, on the other, it is pivotal in the continual reproduction of these structures (Gamble and Payne 1996:250). They can, however, have a momentum which exceeds often ponderous regionalist processes, and indeed a scope which reaches beyond the purview of formal inter-state or intergovernmental negotiations. The point is that in order to move away from the restrictions of the ‘nation writ large’ assumption we need to put an understanding of regionalisation alongside our understanding of regionalism, thereby situating the regional level of analysis as informed by, but not reducible to, domestic dynamics. Turning to the ‘globalisation writ small’ assumption, it is notable that currents in EU studies are not quite as helpful. While leading the pack in the challenge to bottom-up nationalist (and ‘national writ large’) approaches, EU studies has largely brought up the rear in understanding the relationship between regionalism and globalisation. It has, as Helen Wallace has put it (2000:369), conducted itself ‘as if somehow Europe were closed off from the wider international arena’. Conversely, scholars interested in contemporary regionalism more broadly, and especially those approaching it from IPE, have directed most of their energies to identifying the relationships (note the plural) between regional and global processes and advancing analyses ‘grounded’ in the study of specific regions. The result has been an impressive body of comparative regional studies (for example Gamble and Payne 1996; Coleman and Underhill 1998; Grugel and Hout 1999; Hettne et al. 2000; Breslin et al. 2002), which has included a small handful of important contributions on Europe (notably Rosamond 2004, along with Wallace 2000). This emerging field of comparative regional studies, at any rate, is pulled together by the central contention that the relationship between regionalising and globalising forces is neither fixed nor singular, but rather evolving and inherently contingent. This project is thus undertaken in much the same spirit as attempts from the transformationalist middle ground of the

INTRODUCTION 39

globalisation debate to identify the diverse ways in which states accommo-date and adapt under the influence of structural change, with further similarity emerging in the concern with the ways in which world order is in turn constituted by regions themselves. The focus therefore rests less on the relationship between globalisation and regionalisation than on the dialectical interaction between regional processes and facets of the contemporary world order, notably patterns of hegemony and governance (see Gamble and Payne 1996; Hettne 1999; Mittelman 1999; A.Payne 2000; Phillips 2000a). These IPE currents in the study of regionalism find their particular strength in this challenge to more simplistic versions of the ‘globalisation writ small’ and convergence hypotheses. However, there remains a tendency to privilege this line of enquiry at the expense of attention to the domestic dimensions of regional processes—that is, to the accommodation of diverse national models of capitalism within a single regionalist project and, moreover, the influence of regionalising forces on the shape of these national models. Anthony Payne is thus entirely right to point out (2000:205) that ‘the various projects are all, albeit in different ways, centrally concerned with the reorganization of the dominant form of state operative in their region’, but we need to frame this in a slightly broader sense to link regional processes to the articulation and evolution of models of capitalism. What regionalism and regionalisation mean, in essence, is that strategies of national economic management and the processes by which accumulation occurs can be expected to undergo a redefinition. This redefinition involves important forms of convergence at the regional level, evident not only in harmonised economic strategies and ‘regionalised’ forms of market organisation, but also in a reconfiguration of social relations over a regional, rather than a peculiarly domestic, terrain. Models of capitalism, in short, need to be understood as reflecting a complex combination of domestic, global and regional processes, and as articulated at a variety of national and transnational levels. Conclusion Our purpose in this chapter has been to construct the beginnings of a meshing between CPE and IPE perspectives, in a way which begins to break down the restrictive disciplinary boundaries that have hindered their constructive engagement in the study of capitalist development. Our aim of exercising this sort of ‘controlled eclecticism’ rests on the central premise that the divisions between CPE and IPE are frequently artificial ones, the tensions between the ‘I’ and the ‘C’ fostering unhelpful analytical and theoretical divisions within the study of political economy and imposing a range of restrictions on its empirical scope. The purpose is thus to develop a genuinely ‘political economy’ approach that does not labour unnecessarily under the weight of prefixes and which allows a due appreciation of both the ‘wood’ and the ‘trees’ in contemporary capitalist development. Specifically for our analysis of the Southern Cone, what this

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approach fosters and permits is an appropriate sensitivity both to contingency in the evolution of domestic political economies and to the contours of the emerging transnational political economy organised at the regional level, along with avenues by which to understand their interactions. It allows us to build upon our central contention that a transnational-national dichotomy is ill conceived and that emerging transnational political economies do not herald the obsolescence of domestic ones. The spatial organisation of contemporary capitalist systems is increasingly complex, which means that understanding it necessarily requires an abandonment of both purely statist and purely globalist frameworks for analysis.

Part II The contours of Southern Cone development

3 Post-war development and regional integration

It is relatively easy to draw a broad-brush portrait of the theoretical foundations of post-war development in Latin America and the policy orientations which resulted from them. In theoretical terms, the underpinnings of post-war development were constituted by two principal sets of ideas, both of them indigenous to the Latin American region. The first was the structuralist school of thought expounded by ECLA economists, which provided the intellectual impetus to import substituting industrialisation (ISI) from the end of the Second World War, and indeed to the emergence of regional integration strategies in the form of the LAFTA. The second was the related dependency school, which emerged at least in part as an attempt to account for the failures of ISI, along, implicitly, with the failure of integration strategies to achieve any perceptible momentum. In terms of policy strategies, the picture is one of a movement by Latin American countries in relative tandem through an experiment with inwardlooking industrialisation, heavily conditioned by external linkages and offered a degree of rhetorical cohesion by regionalist endeavours, towards the onslaught of neoliberalism in the 1990s. Yet significant national diversity was equally manifest in the nature of inward-looking development strategies and experiences of industrialisation, arising from the types of state and state—society relations that both conditioned and were conditioned by industrialisation processes. The first sections of this chapter are thus concerned with sketching out the main contours of ISI and regional integration strategies in the region and the evolution of the principal theoretical currents that underpinned or emerged in response to them. The later sections of the chapter are dedicated to the task of laying out and understanding the distinctiveness of post-war national political economies in the Southern Cone—as well as variations in the nature and outcome of industrialisation projects—as a necessary foundation for the more detailed discussions in Part III of labour, business and states in the contemporary neoliberal period.

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Structuralism, ISI and developmentalism The search for a viable ‘development strategy’ became of central importance in post-war Latin America, as indeed elsewhere, as a result of a confluence of factors. First, the experience of the Great Depression and the two world wars prompted a reassessment of the virtues of the broadly laissez-faire strategies that had been pursued up to that point. Second, demographic trends urgently necessitated a focus on employment as the primary goal of economic policymakers (Thorp 1998:128). Third, the post-war world economy for Latin America was dominated by the relatively low priority afforded to it by the US in the context of its dominant preoccupation with its economic and security agendas in Europe and Asia, by heightened protectionism in the European and US markets, and by the movement towards the formation of the European Economic Community (EEC). The confluence of these three factors initiated a period of experiments with inward-looking industrialisation strategies, which dominated the regional landscape over several decades and derived their theoretical substance from the structuralist school of thought associated with ECLA and Prebisch, which we outlined in preliminary detail in the previous chapter. ISI was elaborated on the basis of three central policy goals: the further development and consolidation of the industrialisation drive through a more coherent system of state intervention in the economy; the political integration of the working classes through a programme of social reform; and the achievement of some degree of national autonomy vis-à-vis the international economy. In its original ECLA formulation, ISI was envisaged not as a route to excessive protectionism or as a route to autarkic economic strategies, but rather as a means to the achievement of what Prebisch conceived as ‘balanced growth’ (Kay 1989: 37). Industrialisation was seen to involve a restructuring of the economy away from the production of primary products in order, on the one hand, to overcome the difficulties in generating national income occasioned by the deterioration in the terms of trade and, on the other, to promote those sectors capable of more effective absorption of the surplus labour which was deemed to hamper productivity gains. To these ends, ISI strategies were formulated in two phases: ‘primary’ ISI was associated with the domestic production of basic consumer goods, while ‘secondary’ or ‘vertical’ ISI involved the domestic production of capital- and technology-intensive manufactured products, which necessarily featured higher levels of skill intensity than the primary stages of ISI. It was this secondary phase that constituted the cornerstone of the so-called developmentalist or desarrollista experiments in Latin America, pursued principally in Brazil under Presidents Getúlio Vargas (1930–45) and Juscelino Kubitschek (1956–60) and in Argentina under Arturo Frondizi (1958–66), although variations on the theme emerged also elsewhere, notably in Mexico, Chile and Colombia. The thrust of developmentalism was the promotion of basic industries (such as steel, energy, chemicals, machinery and capital goods) in the

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context of the much greater prominence that was accorded to foreign capital over trade as the motor of capital accumulation and industrial development. ISI was, however, as much a political project as an economic one. It rested on the construction of a specific model of capitalism based on the centrality of the state as the agent of social, political and economic change. As such, it involved a genuine shift in the balance of power between the elements of the central triangle in capitalist systems (state, labour and capital) and a transformation in the nature of each of these constituent elements of the capitalist triangle. The thrust of developmentalism in Latin America was in this sense fundamentally antioligarchic, featuring the construction of ‘developmentalist alliances’ between a mobilised industrial bourgeoisie, the state bureaucracy and the urban proletariat and popular sectors against the exporting group for the purposes of releasing from the hands of the latter the necessary capital and foreign exchange for the industrialisation effort (Cardoso and Faletto 1979:131). ISI also depended on an expansion of domestic demand in order to increase productive capacity and compensate for the loss of consumption potential in foreign markets. In this sense it necessitated a political strategy of inclusion and empowerment of urban workers as a new class of consumers, often articulated as populist and corporatist strategies of political management. The upshot of these political strategies was the prevalence over the post-war period of patterns of class conflict and political polarisation that, in many cases, states and institutions were not capable of absorbing or mediating, alongside an enormous increase in the importance of the state as the motor of accumulation. Despite the variations in national interpretations and experiences of ISI, to which we will come shortly, Latin American industrialisation strategies for the most part were seen to fail. Very few countries made any significant incursions into secondary ISI after the first, ‘easy’ phase had been exhausted. Of the manifold reasons for this failure (see Baer 1972), four central tensions in the model are worth emphasising. First, the small size of Latin American markets inevitably hindered the expansion of demand and consumption on which successful ISI depended, and without exception the resulting bottlenecks became quickly apparent. Second, contrary to the aspirations of inward-looking development, ISI remained dependent on inflows of foreign capital and technology. The original ECLA thesis emphasised the importance of public capital, but in the event the model came to depend to a much greater extent on private investment and the ‘classic’ examples of ISI in Latin America—Argentina, Brazil, Chile, Colombia and Mexico—were marked by the heavy participation of transnational corporations (TNCs) (Thorp 1998:133–4).1 This participation was premised on ‘national segmentation’, in which TNCs established parallel national industries oriented to supplying protected domestic markets (Gereffi 1990:99) and the levels of reinvestment of profits were accordingly high. The participation of TNCs in many cases also complicated relations between states and local capital, hindering the emergence of developmentalist alliances between the state and the domestic industrial sectors on which successful industrialisation depended.

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In respect of technology, as Prebisch himself recognised as early as 1952, the anticipated absorption of surplus labour as a consequence of industrial growth was complicated by the capital-intensive characteristics of the technology that peripheral countries were constrained to import from the centre as a result of the absence in the former of viable capital goods sectors (Kay 1989:38–9). The inappropriate nature of this imported technology over the long run exacerbated the employment problem and acted to the detriment of the project of capital accumulation, on which the absorption of labour rested. Moreover, methods of production relied increasingly on capital- and energy-intensive techniques, and on skilled labour and managerial specialisation rather than on unskilled labour, exacerbated by the progressive skewing of industrial sectors in favour of the production of consumer goods rather than capital goods (Sheahan 1987:88). Neither of the policy goals of reducing the share of imports in national income and generating structural transformations capable of responding to demographic imperatives was consequently served by the ISI experiment. Third, for these reasons, industrial efficiency continued to depend on dynamism in the agricultural sector, as the rising import bills associated with industrialisation projects were financed principally by revenues from agricultural exports. Consequently, the economies of region remained heavily dependent on the production and export of primary products, and their external vulnerability was maintained rather than lessened by the twin dependence on export earnings and imports of foreign capital and technology. Given that industrialisation depended on states’ ability to transfer resources from the rural to the urban sectors, furthermore, this tension assumed important political dimensions as a result of the entrenched opposition of the traditional rural sectors to this transfer and the alienation of these sectors which arose from the imposition of state controls on trade, credit and exchange flows. The political battles fought over the terrain of both the foreign capital issue and the reallocation of resources issue, along with the structural tensions in the model itself, are central to understanding the reasons for the failures of ISI. Fourth, and finally, it is generally recognised that the implementation of ISI in Latin America was mistimed. While Latin American countries were engaging in inward-looking development strategies, the international economy was embarking on a period of growth that lasted for more than 30 years. Contrary to the ‘export pessimism’ which underlay structuralist interpretations of the direction in which the post-war world economy was heading, this expansion carried with it a very notable increase in demand for Latin American commodity exports. The foreign capital issue was also sharpened by the explosion in liquidity in international financial markets in the late 1960s and 1970s and its availability to Latin American countries in the form of loans, credit, industrial financing and so on, such that the ISI model in its later stages came to be driven by the massive accretion of foreign debt.

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Regional integration and inward-looking development The bottlenecks that resulted from the combination of these tensions acted principally to hinder transitions from primary to secondary ISI. It was in the interests of facilitating this transition that ECLA proposed a strategy of regional integration to underpin the industrialisation process. The most obvious utility of regional integration lay in the possibilities it afforded for overcoming the constraints imposed by market size on the expansion of demand and consumption, which in the Latin American context meant that primary ISI reached its point of exhaustion extremely rapidly. In addition, industrial products were uncompetitive in the international marketplace due to the high production costs occasioned by protectionism, and consequently possible outlets for domestically produced goods were limited to the region itself. At the same time, the early post-war period was marked by a decline in intra-regional trade, the share of total regional exports absorbed by other Latin American countries falling from 12.1 per cent in 1953 to 7.1 per cent in 1961, while imports from the rest of the world increased by 20 per cent in the same period (Dell 1966:27). These considerations combined to underpin ECLA’s vision of regional integration, which emphasised a movement away from the traditional export trade based on primary commodities and dependence on US and European markets, and the modernisation of economic and industrial structures by means of establishing specialised production patterns: Latin America’s basic long-run development problems can be solved only if the following fundamental fact is recognised: Latin America, however great the assistance it receives, however high the rate at which its exports expand…will be unable to carry out its development plans, will be unable even to regain the rate of growth achieved in the ten post-war years, unless it makes a sustained effort to establish within its own territory the capital goods industries of which it is in such urgent need today, and which it will require on a large scale during the next quarter of a century…. In order to produce these capital goods and develop all the intermediate goods industries required to launch these highly complex dynamic industries… Latin America needs a common market. (ECLA 1969:1) Although the aim of regional integration was thus primarily one of market expansion, the goal of this expansion was the deepening of a process which emphasised autonomous economic development and market protectionism, consistent with the initial rationale of an inward-looking development strategy. In this way, ISI was ‘elevated to a continental scale’, operating on the basis of complementarity rather than competition (Tussie 1982:401–3) and signalling an important distinction from integration initiatives pursued in the industrialised world. The premises of trade liberalisation and increased competition which

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underpinned the latter were seen to be unsuitable for the Latin American region: here trade, it was argued, needed to be ‘promoted’ rather than ‘freed’ (Wionczek 1966:291–5). ECLA’s regionalist predilections were also driven by the post-war international environment. As we have already seen, an early version of ‘export pessimism’ prevailed as a consequence not only of the international uncompetitiveness of Latin American products but also of the decline in demand for primary products at a time when import bills were on the increase. The establishment of the EEC and subsequent protectionism, particularly in agricultural markets, fed directly into perceptions in Latin America and among ECLA economists of the need for greater independence from these markets. Moreover, these trends in Europe spurred a gradual drift towards regional integration in various other parts of the world economy, and in turn this drift constituted an important stimulus to integration in Latin America. Such a position is reflected in the statements of the LAFTA’s Executive Secretary Gustavo Magariños in a report issued in April 1969: Latin American economic integration should also be seen as the response of our countries to a challenge that has been posed from outside, in view of the fact that the countries of the world are tending to organise themselves into large geo-economic units, conscious of their common destiny and the need to defend their common interests. In its origins, the LAFTA has shared this conception and on more than one occasion has emphasised that its birth was merely a reflection in our continent of the European movement which crystallised in 1957 with the creation of the European Economic Community. (ALALC 1969a:5) A final rationale for the regional integration strategy in Latin America rested on conventional ‘power politics’ considerations. The Kennedy Round of the General Agreement on Tariffs and Trade (GATT) negotiations and the United Nations Conference on Trade and Development (UNCTAD) conference in New Delhi were seen in 1969 as perfectly illustrative of the power imbalances in the international system, which left developing countries with extremely limited bargaining power and little prospect of achieving cooperation with more industrialised countries. These concerns entrenched the conviction that developing countries were constrained to rely on solidarity and cooperation among themselves in order to address the disadvantageous terms on which international economic and political interactions were conducted. These considerations found significant expression, as is well known, in theoretical currents such as dependency theory and political movements such as the New International Economic Order (NIEO), but also in the ways in which the regional project was articulated in Latin America. According again to Magariños,

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The LAFTA could serve as a useful instrument for reinforcing the Latin American presence in international negotiating forums which deal with economic problems. While it may be premature to think about the formulation and implementation of a unified regional foreign trade policy, at least until we can establish a well-defined programme for the gradual establishment of a common external tariff, the import capacity of our countries’ markets together…could allow for the attainment of commercial advantages that would otherwise be granted only with enormous reluctance and difficulty to the region. (ALALC 1969a:6) On the same note, the regional integration project corresponded with a period marked by distrust of the United States, nationalist economic policies, and foreign policy agendas in countries like Brazil dominated by ‘tercermundismo’ (Third-Worldism). The early antipathy of the US to regional integration in Latin America undoubtedly did much to foster initial support for it among Latin American countries (see Denham 1969), at the same time as it was widely seen as a way of forcing a change in the indifference of the United States to Latin America’s development problems (Wionczek 1970:52). Put together, the upshot of these trends and conditions was the establishment of the LAFTA in 1958 by Argentina, Brazil, Uruguay and Chile—precisely those countries most affected by the problems associated with regional trade (90 per cent of the decline was concentrated in these four) and by the structural limitations to continued industrialisation.2 The Tratado de Montevideo (Treaty of Montevideo) was signed in February 1960 by these countries plus Paraguay, Peru and Mexico, and took effect in June 1961. By 1968 the number of member countries had expanded to 11. The initial project envisaged expansion of commercial and economic complementarity between countries, along with the liberalisation of all tariff and other barriers to intra-regional trade with a view to the establishment a Latin American Common Market (LACM) within 12 years. This latter goal, it should be noted, was directly a function of the requirements of the GATT, which allowed for preferential trading arrangements where there was a clear intention to progress towards a customs union or free trade area. Given that Brazil, Chile and Uruguay were GATT signatories by 1960, and Argentina by 1967, the LACM project became articulated as the principal aim of the LAFTA in order to ensure their compatibility (see Tussie 1987). The immediate effects of the LAFTA were reasonably positive: by 1964 trade between members had doubled to US$558 million, LAFTA’s share of total regional trade was up to 10 per cent from 6 per cent in 1961, there was some significant progress on tariff reductions, and by the end of the first two rounds of negotiations in July-August 1961 and August-November 1962 a total of 7,593 tariff concessions had been approved (Dell 1966:70). Yet in the end the LAFTA project barely got off the ground. By 1967 agricultural and primary products still accounted for 70 per cent of intra-LAFTA trade (Wionczek 1970:54; Mathis

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1969:70) and its initial dynamism had all but disappeared, even though trade with the rest of the world continued to increase. Plans for the establishment of a LACM by 1985 laid down in the Punta del Este conference of 1967 were shelved soon afterwards; the Caracas Protocol of late 1969 postponed the establishment of a free trade area from 1973 to 1980 and slowed the timetable of tariff liberalisation. The LAFTA was finally proclaimed dead in 1980, having failed to produce any agreement on foreign trade and industrialisation policy or the treatment of foreign investment, or to generate any notable product diversification. It was replaced by the Asociación Latinoamericana de Integración (ALADI/LAIA, Latin American Integration Association) in 1981.3 The principal reasons for the failure of regional integration in the post-war period were again essentially four. First, the most immediate difficulties were administrative, deriving predominantly from the extent of diversity between member countries in their relative sizes and levels of development. The consequence was a need for concessions from the larger (Southern) countries of the region under Article 32 of the Treaty of Montevideo. Second, linkages between economies were distinctly underdeveloped, largely because of traditional competition between protected national markets and the absence of institutional structures mediating relations between member countries, but also because of infrastructural impediments (transport and communications) to trade flows and integration. These two considerations were central to the establishment of the Comunidad Andina de Naciones (CAN/AC, Andean Community of Nations) in 1969.4 Third, regional trade remained concentrated in the large Southern economies of Argentina, Brazil and Chile (Wionczek 1970:54). Although after 1962 this concentration was offset to an extent by the increasing activities of, for example, Colombia and Mexico, the three Southern countries’ share of regional trade diminished only marginally (Argentina’s from 36.2 per cent in 1952–61 to 34.8 per cent in 1968; Brazil’s from 28.8 per cent to 24.6 per cent) or not at all (Chile’s rose from 13.4 per cent to 13.8 per cent) (ALALC 1969b:7–8, 14). This generated heightened awareness in these countries of unequal responsibilities and burdens from trade liberalisation, and in smaller countries of disproportionate benefit accruing to the larger economies. Such perceptions were recognised by the LAFTA Executive Committee, along with the ways in which smaller economies were unable to sustain the structural transformations and ‘national mobilisation’ resulting from regional integration, particularly in financial and administrative matters (ALALC 1969a:31, 33, 74). As a result of these characteristics of the LAFTA project, it was little surprise that the implementation of trade liberalisation strategies in the larger economies led to a splintering of the project and any consensus that underpinned it (Tussie 1982). The system of preferences and concessions on which the LAFTA was constructed was damaged by tariff liberalisation in Argentina, Chile, Uruguay and Peru, and the LAFTA increasingly came to be seen as incompatible with the drift of national economic strategies in these countries. The erosion of the margin of preference as a result of liberalisation thus reduced the incentives for these

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countries to trade within the LAFTA and induced reciprocal behaviour in other affected countries. Similarly, the sense of a common objective was fractured by the departure in these countries from previous policy preferences, with the result that ‘most countries became reluctant to maintain regional multilateral concessions to countries with dissimilar economic policies’ (Tussie 1982:411). The failure of post-war integration initiatives is thus most plausibly explained with reference to the divergences between member countries, especially in their motives for involvement in the LAFTA and preferences regarding the shape of regional integration, which in turn derived from significant diversity in terms of economic size and levels of development. The larger Southern Cone economies (Argentina, Brazil, Chile and Uruguay) favoured an integration formula which was much less ambitious than that proposed by ECLA at the time, given that their principal interest in inte gration was dictated by its potential to overcome the payments crisis which affected all of these economies at the end of the 1950s. The four Southern countries’ interest thus lay solely in protecting existing levels of trade, while the attractiveness of the ECLA formula to Mexico lay in the possibilities it offered for liberalising its trade with the region, which at the time was minimal (Haas and Schmitter 1964:722). By extension, the emergence of stronger patterns of subregionalism in the later life of the LAFTA and after its demise rested on certain affinities between countries in these subregions. In the case of the Southern Cone countries, the four large economies were marked not only by roughly similar levels of industrialisation and trade but also, as we have seen, by the direction economic policy began to take towards the end of the 1960s and through the 1970s and by perceptions of the costs of integration on a Latin American scale. The fractures between Southern Cone and Andean economies contributed significantly to the demise of the LAFTA and, crucially, to its insidious splintering into the subregions which later came to be articulated as separate integration projects. Yet none of this should be taken to indicate a commonality of purpose or the collective articulation of a regional strategy by the countries involved. In each of the Southern economies, perceptions of the costs and benefits of integration varied, as did negotiating positions and the special arrangements demanded by specific governments. In the earlier days of the LAFTA, only Brazil adopted a position of seeking to address the problems of adjustment through the Treaty of Montevideo; other governments instead negotiated various sets of exemptions and concessions which reflected a strikingly low level of common interests between LAFTA countries, or for that matter between the Southern economies (Haas and Schmitter 1964:726). The fourth and final reason for the collapse of the LAFTA project related, obviously, to the exhaustion of ISI itself, reflected in the shift to economic liberalism that took place in the Southern Cone economies over the course of the 1970s. The increase in demand for Latin American commodity exports, along with the explosion in liquidity through the 1970s, generated the disappearance of the foreign exchange bottlenecks which previously underpinned both ECLA’s

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core propositions and the rationale for the regional integration project itself. In addition, the ready availability of external financing for Latin American industrial projects in the 1960s reinforced nationally oriented development and industrial strategies, thereby complicating the achievement of regional cooperation (Wionczek 1970:61–2). The changing external environment through the 1960s and 1970s thus undermined not only the development model underlying the regional integration project but also the possibilities for cooperation between Latin American countries. ISI in Latin America ran aground, in sum, as a result of the internal bottlenecks in the model itself and the political and economic difficulties associated with policy implementation, as well as the political and economic obstacles to the regionalist project designed to underpin the policy strategies themselves. As is often the case, the LAFTA did not collapse until some time after it had ceased to have any meaningful existence: as we have seen, the central relationships between member countries had become hollow and any economic dynamism had been extinguished by the end of the 1960s. This, crucially, was also about the time at which structuralist theories of development started to give way to the dependency school. The dependency critique both informed and responded to many of the key political battles which crystallised around ISI, particularly those surrounding the foreign investment issue, and had some rather short-lived impact on the terms on which policy debates were conducted. It also played an important part in the articulation of the NIEO movement at the international level, and indeed many of the weaknesses and biases of dependency—excessive exogenism, economic nationalism, economic determinism—crept into the arguments and language of the NIEO (Hettne 1995:103). But, unlike structuralism, the impact of the dependency critique was felt almost entirely in the theoretical sphere. It was not connected with any concrete development strategy in Latin America or elsewhere and in this sense failed notably to penetrate the structures of Latin American states. The emergence of the dependency critique thus carried few implications for the conduct of industrialisation experiments in Latin America, and indeed offered no discernible response to the progressive exhaustion of either ISI or the LAFTA project through the 1970s. This sketch of Latin American countries’ collective trajectory through ISI and regional integration experiments is important in identifying general trends in the post-war period, and the reasons for their eventual replacement with neoliberalism and qualitatively new forms of regionalist project. Before we can move on to draw some conclusions about the relationship between post-war industrialisation and regional integration, however, a final part of the picture needs to be put in place: namely the diversity and distinctiveness of the political economies of industrialisation at the national level.

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National political economies of industrialisation The nationally distinctive character of industrialisation processes rested fundamentally on differences in institutional and social structures and the interaction of social groups within them. In all cases, ISI generated a clash between social groups attempting to influence the political process in order to achieve redistributive development objectives and those doing the same in order to achieve the reorientation of monetary and fiscal policies towards the capitalisation of public and private enterprises (Cardoso and Faletto 1979:131). States, in this sense, became the battleground on which these battles were fought, but their substance and outcome depended fundamentally on the specific ‘social system of production’ (Hollingsworth and Boyer 1997) which defined the national political economies in question. However, we need to understand distinctiveness not simply as the path-dependent consequence of national institutional structures but also in terms of the specific interactions of these with the structures and forces of the world political economy. In other words, recalling Cardoso and Faletto’s formulation (1979:16), it is at the intersection of the ‘economic system’ and the ‘social system’ that not only the possibilities for development but also particular political economies of industrialisation are determined. Argentina Argentina at the end of the Second World War had a relatively integrated economy and society in which there was little underemployment, wide access to education and significantly less socio-economic inequality than elsewhere in the region. This greater integration heightened both the scope for increasing national income by incorporating the underemployed and the costs of misallocating resources, especially in a situation of resource scarcity (Sheahan 1987: 180). The severe penalisation of agriculture and the primary export sector which characterised Argentine industrialisation thus inevitably, and intentionally, brought traditional rural interests and the industrial sectors into sharp conflict with each other. The collapse of the first government of General Juan Perón (1943–55) owed much to its failure to convince most of the crucial non-Peronist actors of the utility and coherence of the policy package, which itself was in part attributable to the centralised nature of the policy-making process it established. At the same time, the primacy accorded by Perón to the expansion of political participation, reflected in the enormous increase in urban wages, was not accompanied by a successful strategy of inclusionary institutionalisation. The upshot was the creation of the most militant trade unions in Latin America and an enduring pattern of polarised party and interest group politics, in which there was a clear perception that ‘there was little room for compromise in the governing of the nation’ (Wynia 1978:80).

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In good part as a result of this political reorganisation of society under Perón, post-war industrialisation in Argentina was dominated by open confrontation between social groups, with sharp dividing lines between the power bases of the political protagonists. The Peronist constituency was (and remains) the most coherent and solid. It was dominated by organised labour, mainly through the Confederación General de Trabajadores (CGT, General Workers’ Confederation), and small and medium-sized business and industrial sectors, represented by the Confederación General Económica (CGE, General Economic Confederation). Tangential support came from large industry through the Unión Industrial Argentina (UIA, Argentine Industrial Union) and from major agriculture in rural areas through the Sociedad Rural Argentina (SRA, Argentine Rural Society). The organised power base of the Radical Party was, by contrast, weak. That of the armed forces was constituted in a much more ad hoc and transitory manner than either of the main political parties. As a result, from the 1940s onwards no single political grouping was able to achieve sustained access to political power and no government after 1955 proved able to absorb the electoral strength of Peronism (O’Donnell 1988:43). The partic-ular conjunction in Argentina of the legacies of industrialisation and Peronism thus created a combination of a hyper-politicised state and a vacuum of governmental legitimacy, obstructing the possibilities for the formulation and implementation of coherent macroeconomic and development strategies. It is hardly surprising, then, that developmentalism worked considerably less well in Argentina than it did in Brazil. In both cases it entailed attempts to remove restrictions on foreign capital and to enhance political acceptance of this centrality of foreign investment in the ISI model: key promotional legislation on foreign investment was passed in Brazil in 1955 and then in Argentina from 1958. In the latter, the Frondizi government’s attempt to chart a developmentalist middle course between the twin currents of national populism and economic liberalism was stymied largely by nationalist resentment; this itself, in a vicious circle, enhanced the dependence on private loans in order to offset the problems of reconciling IMF demands and domestic pressures (P.H.Lewis 1992:277–8; Sikkink 1991:48). Especially given Frondizi’s originally nationalist credentials, his controversial opening of the oil sector to foreign participation was roundly opposed by Peronism. Similarly, the terms of the IMF stand-by agreement of December 1958 produced the breakdown of the alliance that had been established with labour, and the use of the military became progressively central to Frondizi’s attempts to maintain political order. After a brief democratic interlude, the military government of General Juan Onganía from 1966 ran up against similar obstacles. Its overarching aim was to ‘depoliticise’ economic policy-making and to privilege technical expertise as the basis of the policymaking process (O’Donnell 1988:75–6). Economic policy emphasised the completion of the industrialisation project through the manipulation of income distribution and relative prices, with greater importance attached than previously to the private sector and multinationals (Wynia 1978:167). As before, opposition

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quickly emerged from traditional business and rural sectors disadvantaged in favour of industrial and financial interests, and from labour in response to the denationalisation of industry and cuts in government spending. The failure of the second Peronist government (1973–6) led to the collapse of both democracy and industrialisation in 1976, as the subsequent military dictatorship embarked on a similarly ill-fated experiment with economic liberalism. Brazil The form and trajectory of industrialisation in Brazil were rather different. The penalisation of agriculture was not as severe as in Argentina—real incomes fell by about 20 per cent as opposed to the figure nearer 50 per cent in the Argentine case —and the diversion of potential agricultural exports into domestic consumption (as a result of rising wages) was far less significant. As a result, the foreign exchange crises that were felt quickly and over a prolonged period in Argentina did not emerge to any particularly troublesome degree in Brazil and, again by contrast, in the industrial sector the gains for industrialists were far greater than for labour (Sheahan 1987:182). On the whole, the Brazilian industrialisation strategy was a far more significant success inasmuch as the state was more effective in maintaining the export base of the economy at the same time as it embarked on a wide-ranging programme of industrial promotion. The upshot was that levels of class conflict between capital and labour in Brazil were significantly lower than in Argentina or indeed Chile, and consequently the politics of industrialisation were marked by a sectoral bias rather than the pressures for government protection of the investment environment that emerged in the two neighbouring countries (Frieden 1991:88; see also Kaufman 1990: 130). In addition, the institutional and political support of the private sector, especially the Banco Nacional de Desenvolvimiento Econômico (BNDE, National Economic Development Bank),5 was pivotal to Brazilian developmentalism. The BNDE itself was central to Kubitschek’s 1956 Plano de Metas (Targets Plan), parts of which enjoyed a significant degree of success, and is a key example of the so-called ‘bolsões de eficiência’ (pockets of efficiency) which characterised the institutional evolution of the Brazilian state and the construction of its developmental capacity over the post-war period. Those projects in the Targets Plan under the jurisdiction of Executive or Working Groups and the financial wing of the BNDE achieved 102 per cent of their targets, as opposed to the traditional bureaucracy’s achievement rate of 32 per cent (Barbara Geddes, cited in Evans 1995:61). One of the weaknesses common to both Argentina and Brazil, however, was the limited nature of institutional development, which ran counter to the requirements of the long-term maintenance of industrialisation. The absence of significant tax reform, the failure to develop the institutional base necessary to sustain a large public sector and the lack of state control over the financial system contributed to the structural bottlenecks that plagued industrialisation attempts

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throughout the region (Thorp 1998:148). In Brazil, moreover, at the same time as the thick ties between the traditional oligarchy and the state militated against class conflict, they also constituted one of the principal constraints on Brazilian industrialisation and indeed have been invoked as one of the reasons why the Brazilian state was significantly less successful in its developmental role than its counterparts in East Asia. The ‘fusion of traditional oligarchic power with the modern state apparatus’ fettered the possibilities for the construction of a joint project between the state and industrial capital, and attempts at both transformation and internal reform were consistently undercut (Evans 1995:62– 3). The existence of only ‘pockets’ of capacity and efficiency were insufficient to generate an overarching coherence in the state apparatus which might have offset these constraints (Evans 1995:72). But, in comparative terms, the Brazilian state was buttressed in its post-war economic strategy by greater levels of institutional capacity and a relatively strong nexus between the state and the industrial bourgeoisie. This public—private developmentalist alliance endured after the military takeover of power in 1964, as did the broad industrialising thrust of economic policy through the particularly active form of state promotion of manufactured exports. The authoritarian period has been described as one of ‘managerial capitalism’ (Sheahan 1987:189), in which there was much greater emphasis than in 1946–64 on the use of market forces in the context of an overarching model of state intervention. Strikingly, borrowing strategies from 1964 were almost exclusively for investment purposes (Frieden 1991:96). The resulting economic expansion did to some extent reduce the dependence of the Brazilian economy on FDI as the motor of industrialisation. Interestingly, though, the decline in the participation of TNCs reflected not the evolution of the domestic private sector but rather the rise of the public sector at the expense of both domestic and foreign firms (Sheahan 1987:192). To this extent, the Brazilian case is archetypal of Peter Evans’ (1979) model of ‘dependent development’, and indeed the ambivalence regarding foreign capital in the Brazilian economy persisted into the neoliberal era of the 1990s. Chile In Chile a notion of market-oriented industrialisation took root by about the mid-1950s—rather earlier than in Brazil—largely because the dominance of foreign interests in the copper sector meant that that local elites were forced into industry at a far earlier stage (Thorp 1998:180). Concomitantly, a pronounced developmental role for the state was fostered by two factors. The first was the need for strong state action to control the pressures on the exchange rate stemming from copper revenues (Thorp 1998:180). The second was the structural composition of the economy—the foreign-owned copper sector as the principal source of exports, agriculture as the net importer—which fostered a wide consensus on the notion of industrialisation through protection and state

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promotion (Sheahan 1987:205). The absence of any notable conflict over the appropriate role of the state distinguishes the Chilean case from both the Brazilian and the Argentine ones: in Brazil the early stages of post-war industrialisation were marked by a battle between liberals and developmentalists, which of course was won fairly quickly by the latter; in Argentina no consensus ever emerged and industrialisation was marked by trenchant struggles for control of the state. The absence of conflict in Chile also meant that the developmentalist state was entrenched at the centre of the model by the 1960s and the promotion of industrial investment significantly more advanced than in either Argentina or Brazil. Chilean society, as a result, cohered to a far greater extent than either of the other two, marked by high levels of participation and organisation of the labour force, and the mediation of class conflict by the so-called estado de compromiso (compromise state) (Sheahan 1987:205–6). In institutional terms, the existence of bodies such as the Corporación de Fomento de la Producdón (CORFO, Corporation for the Promotion of Production), the industrial development agency, offered a technical strength to the industrialisation process. CORFO was reorganised in 1958 to prioritise its provision of credit over its entrepreneurial role (Thorp 1998:143). Yet notions of political compromise and participation had important economic costs, reflected in persistent inflation, slower growth and inefficiency (Sheahan 1987:206), and did not prevent the progressive polarisation of Chilean society and politics over the decade preceding the election of socialist president Salvador Allende in 1970 and the military coup which brought General Augusto Pinochet to power three years later. Although this pattern of polarisation complicated the formulation of coherent industrialisation strategies and the primary export dependence of the economy was maintained well into the 1980s, the overall legacy of early industrialisation in Chile was one of significantly higher levels of state and institutional capacity than in either Argentina or Brazil, with important implications for the type of neoliberal political economy which later emerged. It is worth just pausing for a moment to pull together some comparative perspectives together on these three cases. It would seem that Chilean industrialisation stands somewhere between the Brazilian and Argentine experiences. It shares with the Brazilian case the features of a relatively strong developmental state and system of industrial promotion, but shares with Argentina the class conflict and political polarisation which were notably lacking in Brazil. The specific nature of the state and political scenarios were, of course, very different from one another. Similarly, in all of these cases the relationship with foreign capital was pivotal—and became further entrenched with the explosion of borrowing from the late 1960s—but the variation in the nature of these relationships is revealing. Jeffry Frieden (1991:74–83) points to two key areas of difference. The first lies in the type of approach adopted by states towards capital inflows: a market-oriented position was adopted by Chile (most notably) and Argentina, while a significantly more interventionist strategy was

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pursued in Brazil (along with Mexico and Venezuela) in which an import substitution orientation was preserved. By extension, the bulk of inflows in the first two countries were largely directed to the private sector and in the second group to the public sector. This corresponded in turn to an increase in the level of public spending as a percentage of GDP in Brazil, a more modest increase in Argentina and a decline in Chile, a similar pattern prevailing in the area of public investment. A second variation lies in the sectors and activities favoured by the interventionist strategies of governments: in Chile and Argentina a general financial—as opposed to manufacturing—orientation was established, in contrast to the active promotion of manufacturing which dominated in the Brazilian (and again Mexican and Venezuelan) case. What all this points to, very simply, is that ISI was considerably more successful and more sustained in Brazil than elsewhere in the Southern Cone or indeed Latin America, notwithstanding some significant success in the Mexican case. In both Argentina and Chile, the manufacturing sector’s share of GDP declined over the 1970s, in contrast to the increases in Brazil (and Mexico); the opposite country pattern, as already indicated, occurred in the area of financial services (Villareal 1990:297). Uruguay and Paraguay Industrialisation in Uruguay, by contrast with all of these larger countries, was notable largely for its short duration. Quite high levels of industrialisation (measured by industry as a percentage of GDP) were fostered by considerable levels of protectionism, and early industrialisation was financed not by foreign capital but rather by protected profits and the rural sector (Thorp 1998:185). However, as a consequence of the long-run stagnation of the rural sector that arose from the absence of significant investment, ISI ran aground much more quickly in Uruguay than elsewhere, having effectively been exhausted by the time Argentina and Brazil were embarking on developmentalist strategies in the mid-1950s. Industrialisation in Paraguay, by contrast again, simply failed to happen in any meaningful sense. Instead, Paraguay carved out an export specialisation in primary agricultural products, particularly cotton and soya, along with a role as an intermediary in regional triangular trade (mostly nonregistered) by exploiting tariff differentials, particularly between Argentina and Brazil, to import goods for re-export (Lambert 2001:2). To this extent, Paraguay stood apart from the industrialisation tide which characterised the rest of the region in the post-war period. Export performance, however, was poor and the comparative advantage of the Paraguayan economy came primarily to rest on illegal and informal trade. These characteristics of the post-war economy entrenched a type of state characterised by extremely low levels of institutional development, efficiency and effectiveness, and extremely high levels of corruption and politicisation, with a resulting absence of state capacity that might have facilitated the execution of a defined development strategy.

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Conclusion: regional integration and development Experiments with ISI in Latin America, as is well known, culminated in the debt crisis of 1982, which was widely seen to mark the exhaustion of the inwardlooking development model as it had evolved in Latin America. Yet in the runup to the Mexican default which sparked the crisis a significant degree of divergence in economic strategies was already in evidence, as the larger Southern economies were already beginning to embark on experiments with economic liberalism and trade liberalisation. In Chile, a ‘monetarist’ neoliberal orientation replaced ISI much earlier than elsewhere, arriving with the Pinochet dictatorship in 1973, although the period of sustained and successful reform was initiated from 1984 or so onwards. In Brazil certain liberalisation measures were integral to the developmentalist drive, while in Argentina the military governments of 1976–82 embarked on an ill-fated liberal experiment which collapsed along with the regime. Care must therefore be taken not to overstate the uniformity of post-war development strategies or their outcomes. ISI in any case was not universally pursued, being almost entirely absent in the Paraguayan case, and the political economy of industrialisation and the nature of the associated development projects exhibited very substantial degrees of national contingency. The greater success of ISI in Brazil, furthermore, meant that the thrust of industrialisation and developmentalism did not reach its ‘exhaustion’ in the early 1980s (as in Argentina and Uruguay) or indeed earlier (as in Chile). For its part, the LAFTA represented an attempt to entrench a particular development model by means of regionalist strategies. Its demise and replacement by the LAIA thus stemmed not only from its buckling under a range of collective action and political problems, but also from the abandonment of ISI as the dominant policy orientation in the Latin American region. The key point, however, is that post-war regional integration is notable largely for its lack of structural relevance. Industrialisation remained predominantly national in character and strategies were articulated predominantly at the national level. In other words, the shape of national political economies was not significantly moulded by the regional integration project, and there is no sense in which we can perceive even the early crystallisation of a ‘regional’ political economy around the LAFTA project.

4 Versions of neoliberalism

The ascendance of neoliberalism in the global political economy from the 1970s was articulated directly as a challenge to the principles of Keynesian economic management, which in Europe had constituted the prevalent mode of development over the post-war period. Given the absence of comparable welfare state structures in Latin America, neoliberalism was articulated there in opposition to inward-looking development strategies and indeed as a response to the perceived exhaustion of the post-war ISI model. The neoliberal analysis of both Keynesianism and ISI, however, was much the same: it viewed the expansion of state intervention in the economy, in each case oriented to the goals of full employment and economic growth, as the root cause of problems with inflation and political management which, again in both cases, centred on the militancy of trade unions. In the Latin American context, it was argued that the corporatist legacy of the ‘hyper-politicised’ state both heightened political dislocations and complicated effective economic management. For these reasons, foundational neoliberal thinkers such as Milton Friedman saw limited government as essential for the preservation of public order and the protection of private contracts, as well as for the promotion of competitive markets and viable economic development (Friedman 1962). The substance of the new neoliberal thinking thus rested centrally on the prioritisation of capital as money over capital as production (Gamble 2001:131), with the range of associated strategies enabling a disengagement of the state and capital from their roles in the European Keynesian welfare state model and the Latin American inward-looking industrialisation model. This range of strategies enabling the retrenchment of the state is by now a very familiar one, encapsulated in the Washington Consensus. Their common objective was not only the enhancement of market activity but also the promotion of an explicit separation of the public and the private or, in other words, of state and market. The Washington Consensus, in this sense, represented what Hirst and Thompson (1999:262) have described as ‘antipolitical liberalism’. Markets were held to exist and operate independently of a political sphere and, furthermore, to respond to a ‘logic’ of market globalisation based on ‘rational’ criteria for economic and investment decisions. It was in this context, buttressed by the dominance of the neoclassical school in the economics

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profession (see Tabb 1999), that neoliberalism and the Washington Consensus could be packaged as nothing less than common sense and that John Williamson himself could famously assert that I find it ironic that some critics have condemned the Washington Consensus as a neo-conservative tract. I regard it rather as embodying the common core of wisdom embraced by all serious economists. (Williamson 1994:18) The widespread, and at times zealous, neoliberal turn in Latin America thus signified both a sea-change in the dominant development model and the ideas which underpinned it, and a transformation of the political and economic landscape in the region. But the uniformity of this transformation is usually overstated, as, indeed, is the extent to which it was indicative of a broader process of convergence on Anglo-Americanism in the global political economy. In the first place, the march of neoliberalism over the 1980s and 1990s in Latin America was both untidy and faltering, and the commitment to neoliberal principles and the manner and extent of their implantation varied considerably across national settings. Second, the extent to which Latin American neoliberalism approximates the neoliberalism of the United States, or the idealtype neoliberalism of the models of capitalism debate, is open to considerable question, the divergences stemming largely from the mediating influence of the distinct political and social environments in which it was implanted and has been articulated. And third, just as post-war development models were shaped in distinct ways—and with distinct outcomes—by national historical and institutional structures, so distinct versions of neoliberalism have been clearly identifiable across the Southern Cone. The primary concern of this chapter is to map out the contours of this diversity, but some prefatory remarks on the reasons for the shift towards neoliberalism are first in order. Globalisation and neoliberal restructuring Given its association with key ideological and material shifts in the global political economy, the adoption of neoliberalism in Latin America is commonly seen, particularly in IPE-based accounts, as the consequence of a range of ‘external’ influences. The central rationale of neoliberalism—the privileging of capital as money over capital as production—needs to be understood at the global as well as local level, and neoliberal restructuring in domestic settings is in important respects contingent on the demands of this restructuring of the global political economy. Globalisation, and specifically capital mobility, requires for its embedding and flourishing the implantation of the ‘appropriate’ (read: neoliberal) policy environment at the national level, which in turn depends on the enactment of both economic and social restructuring. In economic terms, deregulation, liberalisation and other adjustment strategies are necessary to

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maintain the possibilities for capital mobility and freer trade on which global restructuring is purported to rest. At the social level, likewise, globalisation depends on restructuring strategies designed to entrench neoliberal forms of social relations—that is, the subordination of labour to capital—again in order to create the conditions conducive to a global economy premised on highly mobile capital. The ‘embedded financial orthodoxy’ (Cerny 1994a) that has thus arisen is held to be the primary catalyst for neoliberal restructuring in various national settings. Concretely, this orthodoxy holds that in such conditions expansionary fiscal and monetary policy strategies become not only ineffective but also counterproductive. In part this is a consequence of a generalised preference for freed exchange rates, in which ideally monetary policy is removed from the range of policy instruments available to governments. In other part it is the result of the significantly more problematic implications of macroeconomic divergence in conditions of high capital mobility. With the globalisation of financial markets, expansionary fiscal and monetary policies generate significant pressures from markets and other governments for a defence or devaluation of the national currency, and consequently foreign reserves come under threat (Andrews 1994). As a consequence, the premium is perceived to be on macroeconomic convergence, stable and fixed forms of monetary policy and fiscal discipline. High capital mobility, furthermore, generates a situation in which the ‘exit options’ of mobile capital asset holders are heightened, along with the ease with which they are exercised, and consequently the interests of these actors are elevated to primacy (Milner and Keohane 1996: 245). It becomes increasingly difficult and costly for states to tax capital, whether this is capital flowing across national borders or capital interests within the boundaries of the national economy. Financial deregulation thus creates an imperative to shift the burden of taxation to other areas of the economy and society, with significant distributive implications. Concomitantly, the parameters within which tax policy can be used by governments in pursuit of distributive and employment objectives are considerably narrowed, generating an overall trend towards regressive tax structures and increased emphasis on such areas as sales taxes (Rhodes 2001; see also Rodrik 1997). What this augured for much of the 1990s was a reformulation of the terms in which contemporary growth and development were understood. The structural ‘hegemony’ of global capital (Gill and Law 1989) dictated a new structure of rewards and punishments in the global political economy, to the extent that growth and development came be seen as contingent on the attraction of capital flows and competitive insertion in the global economy. The onus consequently fell on the implantation of the ‘right’ policy environment at the national level. According to ECLAC in the mid-1990s, for instance—the same organisation that championed inward-looking development strategies in the post-war period— an improvement of ‘linkages with the global economy’ was the sine qua non for Latin American countries to achieve ‘sustainable changes in production patterns

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with social equity’, to be achieved through a comprehensive package of trade, exchange rate, export-promotion and ‘productive development and finance’ policies (ECLAC 1995:15–16). The activities of the IFIs constituted the central mechanism by which this set of ideas was disseminated and the associated policy strategies were implanted at the domestic level, specifically through the conditions—so-called ‘conditionality’ — attached to their lending strategies. Conditionality, in this sense, has been the primary conduit through which the influences of globalisation, and specifically the demands of capital, have been transmitted to developing countries. It has also been the principal means by which the domestic restructuring necessary to maintain capital mobility and free trade has been advanced, in that it has aimed explicitly to establish the common rules by which the new global ‘game’ is played and to effect a transnational convergence on these rules. If we think about these issues in the context of the governance of the globalising world economy, the underlying assumption is that such a convergence facilitates the task of governance in the sense that ‘it is more difficult to form regimes or to anticipate governance at the international level if the internal operating principles of actors are radically different’ (Biersteker 1992:104). Hence the emergence of a common structure of conditionality, resting on a ‘one-size-fits-all’ approach to structural adjustment in which lending programmes were formulated without attention to distinct historical, political and socio-economic realities. Much of this approach stemmed from an attempt to maintain the ‘apolitical’ nature of lending strategies stipulated by the Articles of Agreement of both the IMF and the World Bank, but it also stemmed from a negotiating style which lent itself to the imposition of conditionality without any significant degree of ‘ownership’ of adjustment programmes by governments and other actors in the recipient countries. It was this political explanation for the failure of structural adjustment that was central to the reformulation of IFIs’ strategies in the early 1990s, the faith in economic orthodoxy remaining almost entirely unshaken by the storm of criticism at the end of the 1980s. The World Bank articulated its central challenge as that of ‘build[ing] home-grown commitment mechanisms, rooted in domestic institutions’ (World Bank 1997a:60) and the emphasis fell on the construction of ‘dialogue’ between IFIs and national governments, along, somewhat later in the decade, with key civil society and private-sector actors in the interests of inclusiveness. The agenda itself was also reconfigured in a manner which abandoned the earlier terminology of ‘structural adjustment’ and instead developed the new organising concept of ‘good governance’ (see World Bank 1992; for discussions, see Williams and Young 1994; Williams 1996; Tussie 2000; Doornbos 2001). This essentially moved to highlight the intrinsic centrality of institutions in economic reform processes and the focus of the World Bank’s strategies correspondingly shifted in the mid-1990s from macroeconomic stabilisation and adjustment issues to the so-called ‘secondgeneration’ reform agenda of fiscal targets, labour flexibilisation and the

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‘modernisation of the state’ (see Wodd Bank 1997a). The result of this reconfiguration was essentially the abandonment of the former pretence of an entirely apolitical style of engagement in developing countries and thus the acquisition by Western governments and IFIs of ‘an unprecedented capacity to shape the strategic direction of large parts of the world’ (A.Payne 2004). It is notable, furthermore, that the good governance agenda suffered from the same failings as its structural adjustment-oriented predecessors, namely that it was ‘too idealistic, insufficiently historically specific and over-confident in respect of what we do know and can know about the politics of development’ (Philip 1999a:226). These limitations notwithstanding, possibilities for more cooperative relationships between Latin American governments and the IFIs were afforded by shifts in the positions of policy-makers towards the IFIs’ agendas, as a result of the importance of multilateral funds for financing development (especially in conditions of economic crisis), facilitating debt restructuring and enticing private investment. In the early 1990s agreements with the IFIs were crucial as the seal of approval necessary to bolster credit status and consequently attract capital inflows, as well as being a precondition for securing debt relief under the Brady Plan.1 The changing relationship with the IFIs had domestic roots also in the leeway such agreements offered to national governments for the purposes of insulating neoliberal reform processes from political opposition. This argument is again a relatively familiar one: that unsavoury and politically charged restructuring measures could be ‘sold’ to sceptical electorates as necessary for compliance with conditionalities attached to multilateral loans, thereby relieving political pressures on policy-makers. In this sense Margaret Thatcher’s famous ‘TINA’ (‘there is no alternative’) discourse was mirrored in Latin American governments’ political presentation of both engagement with globalisation and agreements with the IFIs. We are still left with the question, however, of why the timing and trajectory of neoliberal reforms should have varied so significantly given these ‘common’ influences and pressures. A focus on globalisation and conditionality is also a poor guide to the reasons for neoliberal restructuring in cases where IFIs had little input, such as the flagship liberalising case of Chile. For an understanding of the specificities of reform processes we need a recognition of the internal factors precipitating the neoliberal turn. Indeed, in most cases neoliberal reforms were initiated in the first instance for these internal reasons rather than because of external pressures. The most salient of these relates to political and economic crisis, particularly the sorts of hyperinflationary crisis that were widespread in the region in the late 1980s and early 1990s. Such crises were seen to open the political space necessary for swingeing reform processes and to grant incoming governments the political mandate to resolve the situation by whatever means they chose (see Grindle 1996). These crises, moreover, were taken as representative of the final exhaustion and discrediting of the previous inwardlooking development model, along with the heterodox experiments pursued in

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countries such as Argentina, Brazil and Peru over the 1980s. The choice specifically of neoliberalism was thus propelled by the structures of compulsion in the global economy and the failed attempts at a range of other strategies. Again the crucial issue, however, concerns the manner in which the ideational foundations of neoliberalism were laid and built upon in domestic policy-making environments, which was through the presence of significant ‘technocratic’ elements which displayed the properties of ‘epistemic communities’ (see P.M. Haas 1992). Indeed, in this respect rather more uniformity can be found across the Southern Cone. Analyses of reform in various Latin American countries have focused on the dominance of state and policymaking apparatuses by these so-called ‘technocrats’, usually in possession of PhD degrees in Economics from the Massachusetts Institute of Technology (MIT), Harvard, Yale, Chicago and similar, and often with strong links to the relevant policy communities in Washington. Prominent examples in the Southern Cone can be found in Chile (see P.Silva 1991, 1993; Valdés 1995), where the socalled ‘Chicago Boys’ formed the core of the policy elite under Pinochet in the 1970s. In the first democratic government of Patricio Aylwin from 1989, similarly, 18 of the 23 ministers and senior officials held postgraduate degrees from US universities, and a significant number of the major players in the 1992/3 election campaigns —Alejandro Foxley, Sebastián Piñera and Ricardo Lagos— held PhDs in economics (Hojman 1994:198). Lagos subsequently assumed the presidency in 2000. Similarly, in Argentina among many other examples, we can point to Domingo Cavallo, Economy Minister from 1991 to 1996 and again from mid-March to mid-December 2001, who held a PhD in economics from Harvard and had worked for the World Bank in the early 1980s (see Santoro 1994). His successor, former Central Bank president Roque Fernández, also held a PhD in economics from the University of Chicago. These technocrats had no formal political affiliation, and consequently were able to affect a ‘technical’ approach to policy-making designed to divert political pressures on restructuring processes. They served as the conveyor belt by which the ideas associated with neoliberalism were transmitted to the relevant domestic environments and the mechanism by which these ‘external’ ideational forces gained legitimacy among political classes in the region. They were also one of the principal means by which credibility was generated in the international arena, in a manner which, it was presumed, would be conducive to securing financial assistance from international creditors and IFIs. Certainly in the Chilean case the Chicago Boys were immensely popular among the banking community and with the US government at the same time as the latter’s relationship with Pinochet himself was notably tense (Constable and Valenzuela 1991: 172). In Argentina, similarly, there is a strong suggestion that the appointment of Cavallo in 1991 was made at the instigation of the US government and the associated financial community at a time when economic crisis was threatening President Carlos Menem’s survival, and somewhat against the initial preferences of Menem himself.2

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These ‘internal’ factors, then, would appear to be the most pivotal in explaining the initial implementation of neoliberal reform, and indeed major involvement by the IFIs tended to feature only after this initial implementation (Phillips 2000b:284–5). In some cases, such as Chile and (to a lesser extent) Brazil, this involvement was anyway not particularly extensive, and in other cases, such as Paraguay, neoliberal reform has not advanced to any notable extent. Globalisation-based explanations, therefore, have something to offer in terms of a general ideational and material shift and in terms of the mechanisms which buttress and propel neoliberal restructuring. They offer much less purchase on the precise ways in which neoliberal reform processes were initiated and, indeed, on the nature of neoliberalism which actually took root. The diversity of the latter is not captured by analyses which seek to identify a uniform process of convergence on a single economic model; nor, however, is it captured by analyses which seek to explain the differential trajectories and outcomes with reference to such variables as the nature and intensity of the catalytic crisis preceding reform rather than the historical-institutional characteristics of the political economies in question (such as Weyland 2000). The roots of this diversity, along with the politics of the reform processes, will emerge in Part III of the book; our task here is simply to identify the main contours of the distinct versions of neoliberalism that emerged in the Southern Cone. Argentina The orthodox neoliberal agenda found its most vigorous expression in the Argentine case. In large part, this can be explained by the severity of the economic crisis at the end of the 1980s, which constituted the latest episode in the destructive boom-bust pattern that had obtained since the first Peronist government and the failure of the experiment with heterodoxy conducted by the first democratic government of Raúl Alfonsín (1983–9) following the 1976–82 military dictatorship. This experiment was launched under Economy Minister Juan Sourrouille with the Plan Austral (Austral Plan) of 1985 and subsequently pursued through the Plan de Julio (July Plan) of 1987 and the Plan Primavera (Spring Plan) of August 1988, all of which deployed the conventional heterodox emphasis on wage and price freezes, the elimination of indexation, and monetary reform, and none of which achieved the central aims of controlling inflation and stabilising the external sector (see Manzetti and Dell’Aquila 1988; Kahler 1990; W.C.Smith 1992). The failure of heterodoxy, at least in part, stemmed from political pressures on the policy-making process, and indeed President Alfonsín’s own accounts of this period consistently have emphasised the ‘unsustainable expectations’ of key interests in Argentine society.3 It also stemmed from a range of structural factors, which include the collapse of the financial system with the debt crisis of the early 1980s and ‘external’ events such as the demise of the Soviet Union, which had become a major market for Argentine exports by the end of the 1970s. At any rate, the result of both

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political pressures and economic dislocations was the emergence of hyperinflation running at some 5,000 per cent in 1989, an acute foreign exchange shortage, a 20 per cent fall in per capita income, a 50 per cent fall in domestic investment, and the premature resignation of Alfonsín and his team in 1988. While this crisis created the political space for neoliberal restructuring under the Peronist government of Carlos Menem (1989–99), political support for neoliberalism itself was slow to emerge. Menem campaigned in 1988 on a populist rather than neoliberal platform—as did a number of other subsequently neoliberal presidents elsewhere in Latin America—and indeed the bumpy trajec-tory of neoliberal reform in the early 1989–91 period generated significant political opposition to the government. Neither the Plan Bunge y Born —so named for the association of Economy Minister Manuel Roig with the Argentine multinational Bunge & Born—nor its successor, Plan BB II, was particularly effective in stemming inflation or in ensuring a resumption of economic growth, and these initial years of the Menem government thus remained characterised by a climate of what has been called ‘hyper-recession’ (W.C.Smith 1991:59). The neoliberal restructuring process genuinely took root only in 1991 with the appointment of then Foreign Minister Domingo Cavallo to the post of Economy Minister. The centrepiece of neoliberal reform in Argentina was Cavallo’s Plan de Convertibilidad (Convertibility Plan), launched in April 1991. It established the full convertibility of the currency (at that time the austral) with the US dollar within the range of 9,500–10,000 australs to the dollar. This was later modified with the reintroduction of the peso as the national currency from 1 January 1992, which was fixed at 1:1 parity with the dollar. The Convertibility Plan also stipulated that the monetary base be backed fully by available reserves of gold and hard currency. The central aims of Convertibility were thus anti-inflationary and reflected a move to establish exchange rate policy as the primary instrument of fiscal and monetary discipline. By eliminating the role played by the exchange rate in determining the vulnerability of key economic sectors to external competition, the government aimed to establish costs and productivity as the keys to competitiveness and import liberalisation was facilitated by the maintenance of parity with the cheap dollar. In short, exchange rate policy—in the shape of Convertibility—became the pivot between the various elements of economic policy reform, notably inflation stabilisation, trade liberalisation, financial deregulation and privatisation. With Convertibility, a three-tier tariff structure was introduced in an attempt to simplify the tariff rules governing external trade, established at 22 per cent, 11 per cent and 0 per cent for, respectively, finished goods, intermediate goods and inputs, and raw materials and food products. An additional tariff rate of 35 per cent still existed and was applied to some electronic items and motor vehicles. The only exception to the process of import liberalisation was the special regime for the automotive sector. Trade liberalisation received its strongest impetus from the Decreto de Desregulación Económica (DDE, Economic Deregulation

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Decree) of October 1991, which sought to promote internal and external trade through market deregulation and simplification of the tax system, in an extension of the provisions introduced by the Ley de Emergencia Económica (LEE, Law of Economic Emergency) and the Ley de Reforma del Estado (Reform of the State Law) of August and September 1989. Subsequent legislation such as the Ley de Comercio Exterior (Foreign Trade Law) aimed to further the removal of tariff and administrative barriers to trade (Report of the Argentine Government to the GATT Trade Policy Review, in GATT 1992). Nevertheless, the process of trade liberalisation from 1991 was articulated predominantly within the framework of the Mercosur. Financial deregulation was in turn essential to Convertibility in that capital inflows were necessary for the maintenance of the monetary base and for the financing of a US$8 billion budget deficit. Progressive reform under the DDE and LEE, along with measures such as the 1992 tax ‘amnesty’ and central bank laws, culminated in the key 1993 Ley de Inversión Extranjera (Foreign Investment Law), under which all restrictions on remittances and capital repatriation were eliminated and oil and gas exploration was opened to foreign participation. The only remaining areas of restricted access for FDI were broadcasting and energy (Chudnovsky et al. 1995:43–4). The privatisation process, finally, was one of the most rapid and thoroughgoing in the region and indeed outstripped the pace of privatisation in the UK under Thatcher (see Manzetti 1999; also Ministerio de Economía 1992; Gerchunoff and Coloma 1993; World Bank 1993b). This process did advance quite significantly in the otherwise faltering 1989–91 period, but was especially robust from about 1992 onwards—by 1995, very few of the 93 major state enterprises that existed at the end of the 1980s remained in public hands, and some 75 per cent of total capital inflows between 1990 and 1995 were associated with the privatisation process. It was considerably better designed from 1995 onwards than it had been up to that point, as Cavallo and his team sought to counter criticisms of the rushed and haphazard nature of early privatisation and indeed the suspicions of corruption that had surrounded it. They sought to do so by privileging considerations of productivity and efficiency, fostering greater competition among the new private enterprises, and seeking to augment both the transparency of the process (by greater congressional involvement) and legal security for investors (Llanos 2001:77–9). Yet those regulatory bodies that did come into being only after privatisation had taken place were consequently burdened from their inception with myriad legal problems and litigation (Manzetti 2002:8). There are a couple of instances of fairly effective and transparent regulatory bodies—notably the gas and electricity commissions—but the overall pattern has been one in which regulatory bodies are financed from sources laden with political connections, subject to intense lobbying by large firms, and with little autonomy from the executive branch, the latter intervening and trespassing frequently on the exclusive authority of regulatory agencies (Pastor and Wise 1998:16; Manzetti 2002:8–9). At any rate, the result of Convertibility and these associated reforms was the facilitation of a Brady Plan

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agreement, which was eventually signed in April 1993. This both reinforced the central aim of attracting foreign investment and facilitated the agreement of the 1992 Extended Fund Facility agreement with the IMF. The latter, in turn, paved the way for other dealings with commercial banks, the World Bank and the InterAmerican Development Bank (IDB). After the enforced departure of Cavallo in 1996—largely the result of his deteriorating relationship with the President—few innovations were made in the broad economic orientation, and indeed the ‘strategy’, such as it was, advanced very little beyond the thrust of the 1991 stabilisation plan. The pattern from the time of the Mexican ‘tequila’ crisis of 1994/5 was largely one of ad hoc decisionmaking oriented predominantly towards crisis management. Crucially, very few of the sources of rigidity or vulnerability in the Argentine economy were addressed over this period and Convertibility, in particular, was maintained despite the steady and significant appreciation of the currency it occasioned. The overvaluation in turn steadily eroded the competitiveness of the Argentine external sector, which stood in conflict with the government’s attempts to elaborate a growth and employment plan premised on export dynamism. The external sector derived some short-term competitive advantage from the appreciation of the Brazilian real over the 1990s but its fragility was exacerbated by the very low level of diversification in the export profile. Investment in the early 1990s was channelled primarily into the non-tradeables sector and very little progress was made in shifting away from low valueadded exports of agricultural and energy products towards higher value-added exports, indicating clearly the sustained lack of coordination between macroeconomic and microeconomic strategies (Pastor and Wise 1998:12–13). The poor performance of the external sector was also relevant to the debt situation in that the foreign exchange associated with exports was necessary for servicing government and private sector debt, both of which were predominantly external and denominated in foreign currency. Between 1993 and 1998 the total debt rose from 29.2 per cent to 41.4 per cent, and nominal GDP also rose by 26 per cent. This accretion of debt relative to GDP in years of economic growth not only signalled a lack of fiscal discipline but also threw the spotlight on the inadequacies of the mechanisms by which such a debt might be serviced, namely the taxation system and the external sector. The ratio of total debt to foreign exchange revenues from exports reached about 500 per cent in 1998, a figure exceptionally high for an emerging market in any case and one generally held to herald a foreign exchange crisis, the resolution of which would necessitate debt restructuring (Mussa 2002:8–9). By 2000 the debt-to-GDP ratio rose further, to 50 per cent, and the deleterious impact of the Brazilian devaluation on the Argentine export sector meant a further increase in the ratio of debt to foreign exchange from exports. The result of these macroeconomic disequilibria, and particularly of this unsustainable debt situation in the context of currency overvaluation, was the December 2001 default on the foreign debt and the devaluation of the peso, despite efforts over the course of this year to avoid both

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of these scenarios. The Argentine economy remained in a state of collapse throughout 2002, and started to show signs of recovery only in mid-2003 after the election to the presidency of Néstor Kirchner in May of that year, with some resumption at this time of capital inflows (La Nación, 16 June 2003). The first distinctive feature of Argentine neoliberalism, then, relates to the high levels of external vulnerability—in both absolute and relative terms— stemming from specific economic policies (notably the exchange rate regime), from the stagnation of the external sector and, moreover, from a structural dependence on foreign capital. The elimination of monetary policy instruments renders an economy significantly more reliant on capital inflows for financing the deficit and meeting foreign debt payments. Growth consequently becomes dependent on external capital flows, especially where (as in Argentina) the local savings ratio is below the level of investment required for satisfactory economic performance. For these reasons, and also as a result of the appreciation of the currency associated with Convertibility, Argentina’s status as a net importer of capital was entrenched over the 1990s and its dependence on global capital flows enhanced. In the early 1990s, when capital inflows were abundantly available, this reliance was relatively unproblematic. In the later part of the decade, the combination of a generalised slowing of investment flows to developing countries and successive episodes of serious capital flight—in 1995 with the Mexican crisis, 1999 with the Brazilian devaluation, and 2000–2 with the economic collapse in Argentina itself—meant both that Convertibility became unsustainable and that export performance and employment growth were severely constrained. The second distinctive feature refers to the high costs, especially relative to other Southern Cone and Latin American countries, of both the financial sector and labour (Arroyo 2000), which acted to exacerbate the damage to employment growth occasioned by neoliberal restructuring. The high costs of the financial sector generated persistent problems with financing of small and medium-sized enterprises (PYMEs in Spanish), sharpening further the dislocations of industrial restructuring. High labour costs meant that the Menem government concentrated systematically on reducing these rather than the costs of the financial sector. The burden of adjustment thus fell disproportionately on labour in the interests of avoiding antagonising financial and industrial capital, resulting in the highest levels of structural unemployment in the Southern Cone by the end of the 1990s. These issues will be discussed at greater length in later chapters. In the meantime, they serve to demonstrate that proclamations of the ‘Argentine miracle’ in the early 1990s were hopelessly premature and that neoliberalism had started to falter even by the middle of the decade. Finally, the Argentine version of neoliberalism is notable for the extent of its anti-statism, which emerges from a highly orthodox conformity with the prescriptions of the Washington Consensus. This anti-statism is evident not only in the vigour of the privatisation and deregulation processes but also in the almost complete absence of active state policies, including in areas such as

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industrial policy, export promotion and social policy. The Menem government, in this sense, neglected microeconomic policy almost entirely and very few mechanisms were established by which the dislocations of neoliberal restructuring—particularly in the area of employment—might have been addressed. Brazil In Brazil, by contrast, the relatively greater success of ISI meant that the traditional priorities and structures associated with developmentalism and industrialisation came to permeate the version of neoliberalism that emerged in the 1990s. This was facilitated by the much greater abundance and avail ability of external financing to Brazil than to other economies over the course of the 1990s. Investment flowed into Brazil irrespective of conditions in which bankrupt state banks still issued credit and the Central Bank remained one of the least independent in the region. And, because the level of foreign reserves was consequently much more robust, the external constraints on fiscal management were significantly weaker here than in most other Latin American economies, where the attraction of capital was contingent on stringent fiscal discipline (Kingstone 1999a:136). As a result, a very different pattern of fiscal management prevailed in Brazil, and the impetus to neoliberal reform, pursued elsewhere for the purposes of attracting foreign capital, was much weaker. The consequence over the 1980s and 1990s was that neoliberalism was far slower to emerge and take root in Brazil than in much of the rest of the region. The first democratic government of José Sarney (1985–90) attempted a heterodox experiment similar to that pursued by Alfonsín in Argentina (see Sola 1991; also da Fonseca 1998:626–9; Baer and Paiva 1998:91–6). The 1986 Plano Cruzado (Cruzado Plan)—similarly named after the currency created by the plan —aimed to tackle inflation through a heterodox shock treatment identical, to all intents and purposes, to that attempted in Argentina. Attempts to make the shock treatment more palatable by introducing compensatory real-wage increases, however, clashed with the anti-inflationary objectives of the Plan (Panizza 1999: 20), and two further plans—the 1987 Plano Bresser (Bresser Plan, after the Economy Minister responsible) and the 1989 Plano Verão (Summer Plan) — followed hard on the heels of the Cruzado Plan in continuing attempts to regain control of resurgent inflation and manage economic recession. By the start of the short presidency of Fernando Collor de Melo (1990–2) both inflation and the fiscal deficit were escalating, along with levels of domestic public debt. The heterodox orientation was not immediately abandoned, but the new Plano Collor did involve some overtures to market reform. With its failure, mainly due to political opposition, the neoliberal dimensions of the economic strategy were strengthened in the 1991 Plano Collor II, which privileged fiscal policy over the heterodox emphasis in Collor I on wage and price freezes. However, the persistence of deep-seated political opposition—both inside and outside the state

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— implied significant legislative obstacles to the implementation of this sort of reform strategy, and the start of impeachment proceedings against the president in 1992, on the grounds of corruption, signalled its demise. Neoliberalism in Brazil was thus faltering at the same time as it was enjoying its (short-lived) heyday under Menem and Cavallo in Argentina. The point at which a neoliberal orientation found a firmer foothold was with the presidency of Itamar Franco, and specifically with the 1994 Plano Real (Real Plan), buttressed by two Brady Plan debt agreements in 1992 and 1994. The Real Plan was designed by then Finance Minister and future president Fernando Henrique Cardoso, one of the principal architects of dependency theory in the 1960s and 1970s. It emerged, as in Argentina, in a context of both economic crisis—inflation stood at over 5,000 per cent in 1994 before its implementation— and political crisis, with Collor’s impeachment for corruption. It proceeded in two stages. The first was launched in 1993 and was encapsulated in the Programa de Ação Imediata (Immediate Action Plan) and Programa de Estabilização Econômica (Economic Stabilisation Programme). These introduced some preliminary spending cuts and created the Fundo Social de Emergência (FSE, Social Emergency Fund), which raised taxes and introduced provisions which gave economic policy-makers greater control over the federal budget. The second and principal stage signalled a shift to the use of currency and exchange rate arrangements as the underpinnings of an anti-inflationary strategy. A parallel price index was established in February 1994, the so-called Unidade Real de Valor (URV, Real Unit of Value), which was replaced by the introduction in mid-1994 of the new currency, the real, pegged to the US dollar. Here, again, some similarities with the performance of Argentine Convertibility suggest themselves, first in the dramatic decline of inflation (under 10 per cent from about 1996 onwards) and second in the simultaneous appreciation of the currency. This was largely due to the government’s decision to allow the real to float in the early months of the Real Plan, as a result of which the exchange rate rose by 15 per cent between the start of July and the end of September 1994 (da Fonseca 1998:632; Fishlow 1997:53). In both the Argentine and Brazilian cases, then, success in stabilising inflation was accompanied by a significant overvaluation of the currency, rectification of which in the Brazilian case was postponed until the markets themselves occasioned a precipitous devaluation in January 1999. Market reform in Brazil, however, was not connected solely to the Real Plan, and indeed many dimensions of the abertura (opening) process were launched earlier under Collor de Melo. This was particularly the case with trade liberalisation, which received a significant push in the 1990 trade reform bill and then again in 1994 legislation, both of which aimed not only to further tariff liberalisation but also to address non-tariff barriers (NTBs) and the administrative and institutional framework which governed external trade. As in Argentina, much of the trade liberalisation process was pursued within the Mercosur framework. The result was a very significant increase in the volume of

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external trade, to the tune of 140 per cent between 1990 and 1997 (Smith and Messari 1998:6). Yet the impact of liberalisation was felt primarily in the import sector—particularly in capital goods imports—and the resulting imbalance in the trade account was evident in the sharp swing from surplus to deficit in the second half of the 1990s. The competitiveness of the export sector was constrained by the overvaluation of the currency and also by wage increases, particularly in industrial sectors, estimated at around 76 per cent for the 1990–8 period (Baumann 2001: 154). In contrast to similar situations in Argentina and Chile, the consequences of sluggish export growth were mitigated by the volume of foreign capital flows and levels of international reserves in the Central Bank. Financial deregulation similarly was initiated by various measures in the late 1980s—the most important of which was the 1988 banking reform (see Hermann 2002:91–4)—and the process subsequently accelerated through the early 1990s. Associated processes of privatisation were kick-started principally by the creation of a Privatisation Committee under Collor in 1990, concentrating in its early phases on the privatisation of enterprises in the industrial sector (Baumann 2001:155). This process was conducted more slowly than in Argentina and was not as far-reaching, but nevertheless constituted a significant retraction of state ownership in the economy. What it did not signify, though, was a retraction of similar proportions of state involvement in economic activity. Among its other provisions, the 1988 Constitution incorporated an extensive system of welfare entitlements and labour rights, entrenched fiscal and regulatory privileges, sanctioned state monopolies in oil and gas and telecommunications, and restricted foreign investment in these and other areas of the economy such as mineral extraction and health provision (Panizza 1999:19). Neoliberal restructuring under Cardoso did not overturn these biases in the model, and maintained the broad thrust of a state developmentalist approach to economic strategy. Specific export promotion policies were premised on a range of financial incentives (see Bonelli 2000); strategies for attracting FDI were premised on combining privatisation with sectoral packages that capitalised on location advantages (including the attraction of the Mercosur) combined with fiscal incentives (Flores 1997:625). The reform process, however, was also constrained by the shackles imposed by such constitutional provisions, particularly in respect of fiscal management, and it was precisely the extent of the fiscal deficit that represented the principal macroeconomic dislocation during the 1990s. An important part of Cardoso’s programme, for this reason, related to constitutional reform, starting with the submission to Congress of a series of bills in 1995 which concentrated on the section in the Constitution dealing with ‘economic order’ and aimed primarily to eliminate some of the nationalist biases in the constitutional framework in order to facilitate greater openness to foreign capital. They also overturned the constitutional protection of state monopolies in the sectors just mentioned. More politically charged issues—such as social security, tax reform, administrative reform, the federal system and judicial reform—were left for subsequent

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legislative initiatives (Flynn 1996:412–13). While the early bills were passed, the legislative process became progressively more obstructive of Cardoso’s constitutional and economic reform initiatives over the later half of the 1990s, both for political reasons and for institutional reasons that we will look at more closely later in the book. The first defining feature of Brazilian neoliberalism is thus its continuing emphasis not on the classical neoliberal objectives of retrenching the state and ‘depoliticising’ economic management, but rather on the use of economic reforms as a mechanism for restructuring, and rebuilding, the state (see Bresser Pereira 1996). This form of state activism, particularly marked from around 1995, represents an important contrast with the anti-statist thrust of Argentine neoliberalism. The second and related feature is the broadly social democratic framework that has underpinned the market reform process. Finance Minister Cardoso outlined this agenda as follows: the real goal for contemporary social democracy concerns knowing how to increase economic competitiveness—leading to increases in productivity and the rationalization of the economy—and how to make the vital decisions concerning investments and consumption increasingly public ones, that is, how to make them transparent and controllable in society by consumers, producers, managers, workers and public opinion in general, not only by impersonal bureaucracies of the state and the private sector. (Cardoso 1993:286–7, cited in W.C.Smith and Messari 1998:2) While much of the social democratic agenda was made secondary to the business of market reform over the course of the 1990s, it served both to fortify and to justify the developmentalist and statist thrust of the economic development model. Put together, these characteristics of Brazilian neoliberalism point to a model that has been significantly less orthodox in content than the Argentine version, and one which in practice has been pursued in a lukewarm fashion. In contrast with the radical overhaul of the Argentine economy, the traditional traits of Brazilian political economy have remained largely intact, and indeed the term ‘neoliberal’ remains both politically unpopular and officially rejected. As one observer puts it, ‘neoliberalism is now a dirty word, and a fighting one, which noone wants to wear on their chests (much less [Cardoso] and his entourage)’ (Fritz 1997:23). Indeed, the impact of the 1999 crises both in Brazil itself and in Asia has been an entrenchment of the residual nationalism that pervades Brazilian attitudes to globalisation and liberalisation, and this has been especially evident in the early rhetorical positions and policy strategies of the new government of Luiz Inácio ‘Lula’ da Silva, which came to power in early 2003. The restructuring which has occurred, furthermore, has been articulated explicitly as a peculiarly ‘Brazilian’ model, in which the exigencies of globalisation are to be accommodated in a manner sensitive to Brazilian interests.

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The third distinguishing trait of Brazilian neoliberalism concerns the manner of its insertion in the international economy. In terms of export profile, while other Southern Cone economies have remained to a greater or lesser extent dependent on natural resource-intensive products, a good three-quarters of Brazilian exports involve a degree of processing and value-added: consistently well over 50 per cent of total exports in the early 1990s were of manufactured products, primary (agricultural) products still account on average for less than 5 per cent of the total, and processed food products are the principal export industry (Bonelli 2000:79–80, 92). In terms of finance, the Brazilian development model, like the Argentine, has remained dependent on capital inflows and vulnerability to fluctuations in external confidence remains a pronounced feature, as demonstrated in the devaluation crisis of January 1999 and subsequently in the contagion effect of the Argentine crisis in mid-2002. It is important to note too that the 1999 crisis stemmed not from a speculative attack of the sort which a short time before had been widespread across the Asian region, but rather from political conflict between the central government and the federal states—in this case with the government of Minas Gerais over internal debt payments— which heightened investors’ concerns about the extent of the fiscal deficit and the overvaluation of the currency. The key feature of the devaluation crisis, however, was the speed of the economy’s recovery from the capital flight which ensued, reflecting the continuing appeal to investors of the Brazilian market. The vulnerability of the economy to fluctuations in both commercial and financial markets has in this sense been moderated in important respects by the distinctive features of the Brazilian development model and economic structure. Chile In contrast to the Brazilian and Argentine cases, neoliberal reform in Chile was prompted neither by the debt crisis nor by IMF conditionality, and the process began significantly earlier (around the mid-1970s) than it did anywhere else in Latin America. Both the timing and the context of restructuring, in this sense, qualify many of the dominant understandings of the stimuli to neoliberal reform that we considered at the start of the chapter, particularly those associated with globalisation and the conditionalities attached to structural adjustment loans. The Chilean case is also distinct in that it did not correspond with transitions to democracy, but rather occurred under the military dictatorship of Augusto Pinochet (1973–89). Finally, the ideological foundations of neoliberalism have come to be considerably more solid in Chile than elsewhere in the Southern Cone, to the extent that the ‘consensus’ surrounding market economics persisted here when it was being progressively questioned in those economies more affected by crisis at the end of the 1990s. This has something to do with the rather more robust free-market precedents in the Chilean case which lent some legitimacy to market reforms in the 1970s and 1980s. It also owes a good deal to the relatively superior growth performance of the Chilean economy under

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neoliberalism, which indeed has generated frequent comparisons with the newly industrialising economies of the East Asian region (as in Sznajder 1996; Hojman 1995). Certainly in this respect (although, it should be noted, not in many others), ‘often…the country seemed to have more in common with its Asian trading partners than its neighbours in Latin America’ (Financial Times, 1 October 2001). The common thread, such as it is, with the experience of the rest of the Southern Cone is that market reform emerged in Chile also in a context of crisis, specifically the economic crisis at the end of the socialist government of Salvador Allende (1970–3) which was used by the military as justification for the coup of 1973. Market reform in Chile proceeded in two distinct phases, the first from 1975 to about 19824 and the second from about 1984 to the end of the Pinochet administration in 1988/9. The first phase was conducted under the ‘economic dictatorship’ (P.O’Brien 1985:154) of the Chicago Boys, and indeed Milton Friedman himself had a significant hand in pushing the Chicago Boys’ agenda in his high-profile visit to Chile in March 1975. In its initial phases their economic strategy concentrated on a particularly drastic ‘shock treatment’ to stabilise inflation and open the economy to market forces. In this, state expenditure was cut dramatically, interest rates were freed, reserve requirements were established across the banking sector, and the foundations of trade liberalisation and privatisation put in place. The goals of opening were pursued in the Estatuto de Inversiones Extranjeras (Foreign Investment Statute) of 1974 —otherwise known as Decree Law 600/DL 600—which freed access for foreign capital to all areas of the Chilean economy and guaranteed parity of treatment for foreign capital with domestic capital, and in the trade liberalisation programme which was noted shortly after as the world’s largest ever unilateral reduction of tariffs (Congdon 1985:105). A very significant process of export diversification also took place over this time, in which government subsidies and promotion strategies shifted the emphasis to higher value-added, non-traditional export products, in such sectors as fruit, fishery and forestry. The privatisation programme was similarly extensive, with only about 10 per cent of state-owned companies and banks remaining in public hands by 1980. With these stabilisation adjustment processes well underway, in 1979 the Chicago Boys launched a strategy that came to be known as the ‘Siete Modernizaciones’ (Seven Modernisations), which constituted essentially an attempt to apply free-market principles to seven key policy areas: labour, agriculture, education, health, social security, justice and public administration (see P.O’Brien and Roddick 1983:77– 83). The result was a consumer boom in the late 1970s under the government’s ‘popular capitalism’ banner, but also, predictably, spiralling unemployment, sharp drops in wages, a severe contraction of economic activity and a particularly deleterious impact on industry. The model’s central weaknesses derived from the fact that the consumer boom was driven by private-sector credit, necessary in the absence of new productive investment for financing increased imports. From the

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end of 1977 to mid-1981, bank credit to the private sector rose by more than 11 times (Congdon 1985:107). At the same time, while inflation was falling as planned, the exchange rate was steadily rising, to the extent that attempts at monetary reform were introduced in late 1977 in the form of the so-called tablita, a proposed schedule for successive devaluations of the currency against the US dollar in order to break inflationary expectations. One of the provisions of the proposed model, indeed, was to eliminate Central Bank lending to the private sector but to leave commercial banks free to lend at will (Congdon 1985:106). In the event, the pegging of the currency to the dollar resulted in a substantial overvaluation of the peso, which had a negative effect on the competitiveness of Chilean exports, at the same time as foreign investment flows to non-traditional export sectors remained very low. The drying up of foreign capital flows with the worldwide economic recession and debt crisis of the early 1980s thus led to the resurgence of inflation, a devaluation of the currency, still higher levels of unemployment, a sharp decline in economic activity and, moreover, a thoroughgoing collapse of the financial system despite profuse government bailouts of bankrupt banks. The second phase of market reform got underway from about 1983, deriving particular impetus from the appointment of Hernán Büchi as Economy Minister in February 1985. With the state in control of around half of both the banking and the financial sectors, the sights of the new economic team were trained on eliminating the sources of vulnerability in the Chilean economy while furthering the liberalisation process. Banking supervision was tightened, along with fiscal discipline, and financial assistance from the World Bank flowed, facilitated by the continuing support for the regime of the Reagan administration in the US despite reservations in the international community about the ethics of lending to a repressive military dictatorship (Constable and Valenzuela 1991:214). The Seven Modernisations were both preserved and accelerated (see Oppenheim 1993:155–61) along with financial deregulation and privatisation, the latter being handled significantly better during this second phase, with greater attention being paid to the nature of investments and the credentials of investors. It was during this period as well that the celebrated process of export diversification received its greatest impetus, in conjunction with the resumption of FDI flows. The growth performance of the economy in the 1980s accounted not only for Pinochet’s enduring popularity but also for the maintenance of this economic orientation by the subsequent democratic administrations of Patricio Aylwin (1990–4), Eduardo Frei (1994–2000) and Ricardo Lagos (2000–). The emphasis was on the continuation of disciplined fiscal management and the privileging of the export economy as the motor of the Chilean economy, the latter pursued in mid-1991 by further tariff reductions, from 15 per cent to 11 per cent, and then by legislation in 1998 to reduce this level to 6 per cent over a period of five years. Moreover, the democratic governments perceived the onus to fall on rectifying what was recognised to be the negative social legacy of the Pinochet dictatorship

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—on the pursuit of ‘neoliberalism with a human face’, through a strategy dubbed ‘growth with equity’, as a key means of sustaining the market model. The result was a rather more sustained focus on social policy than has been the case in any of the other Southern Cone countries, although in the event this focus did not go a very long way towards rectifying key social and distributive issues. These more progressive forms of social policy were inherently subordinate to the priorities of the market model in any case, but paradoxically were also largely subverted by the interests most central to the model: opposition from business and the conservative elements of the political apparatus consistently secured repeated dilutions of the government’s aspirations and its legislative initiatives in this area, such that the government’s proclaimed attachment to a form of social democracy during the 1990s was largely more rhetorical than substantive. Despite the fact that Chile is often presented as the neoliberal success story in the region, there are nevertheless a couple of very distinctive features of the model which run somewhat counter to a ‘pure’ neoliberal orthodoxy. The first, as suggested in the comments made just now about the export economy, is the form of state activism which permeates Chilean neoliberalism. Ensuring the viability of the export economy as the foundation of the Chilean model in the 1990s meant that governments have been obliged to keep ‘tight control over domestic economic factors’ (Barton 1999:69). This control has taken both enabling and restrictive forms, the former in the shape of a Chilean version of developmentalism which rests on infrastructural development, skills and training programmes, educational reform and, in particular, export promotion (on the latter, see Macario 2000). Chilean policy-makers have sought to elaborate something along the lines of the Scandinavian model of increasing processing activities in order to develop industrial exports. Such a strategy was seen as representing ‘an intermediate option between a free-market model and a heavily state interventionist one’ which could build on the economy’s existing strengths in natural resources but develop them further and increase the value-added of export products by endowing production processes with higher levels of physical and human capital and technology (Weyland 1999:76). Small firms have received particular assistance from the state in order to facilitate the import of capital goods, the acquisition of technology, the improvement of management strategies and participation in foreign markets (Weyland 1999:68, 79). The weakness in Chilean export promotion, however, rests in a continuing specialisation in a handful of natural-resource-intensive commodities for export: in 1997 still only ten products accounted for 63 per cent of the country’s exports (refined cooper, copper ores, fish, wood pulp, meat and fish meal, wine, grapes, gold, unrefined copper and lumber), and 42 per cent of these remained copperbased (Macario 2000:51). The process of export diversification, in this sense, has not significantly relieved the dependence either on copper or on agriculturebased exports, and it has contributed to a continuing vulnerability of the Chilean economy to fluctuations in export markets and international commodity prices such as those which occurred towards the end of the 1990s.

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The ‘restrictive’ dimensions relate to the second distinctive feature of the Chilean model, namely the regulation of financial flows. This stemmed in particular from a concern about the consequences for the Chilean economy of the influx of foreign investment funds in the early 1990s, which was considered to be potentially inimical to economic stability and, moreover, likely to generate an appreciation of the currency which would impact negatively on the export economy (as indeed occurred in Argentina). The fear, in short, was of a Chilean version of ‘Dutch disease’, a situation in which excessively abundant foreign exchange—whether from export revenues or from external financial flows— creates a number of dislocations in the recipient economy, notably exchange rate appreciation, inflation and unemployment (see Hojman 1994:206; Weyland 1999:72). In response, from 1991 onwards the government imposed a system of controls on capital flows. The unremunerated reserve requirement (URR) stipulated that non-equity investment flows were subject to a no-interest oneyear deposit; other provisions established a minimum holding period of 12 months for equity investments and a reserve requirement (encaje) for foreign loans to Chilean entities of 30 per cent of the total value of the loan as a means of avoiding the accumulation of short-term debt. The nature of these capital controls was often mistaken, however, to indicate that the Chilean economy was significantly less ‘open’ than the Argentine or Brazilian economies. Over the 1990s Chile maintained no restrictions on foreign access to ownership, including in the banking sector, and the restrictions on capital flows amounted only to the levels maintained in the US (The Economist, 12 September 1998). In addition, in the late 1990s the ratio of net private capital flows to GDP in Chile, at 5.8 per cent, exceeded that of Brazil, for example, at 3 per cent (World Bank 1997b). It was because of the economy’s structural dependence on foreign financial capital that the government was obliged to restructure the URR in 1995 as the current account situation began to deteriorate. New provisions excluded FDI, lowered the maximum proportion of foreign investment projects that could be financed through debt to 50 per cent from 70 per cent, and raised the minimum amount of FDI exempted from the reserve requirement (Soederberg 2000:24). The controls were subsequently eliminated at the time of the Asian financial crises, in an attempt to counter investors’ consequent wariness of emerging economies. However, while the system of capital controls might have served the purpose of moderating the destabilising impact of capital movements, in contrast with the other countries of the region, it did not prevent a fairly significant appreciation of the peso over the latter part of the 1990s. The resulting overvaluation of the currency predictably conflicted with the effectiveness of state export promotion strategies, and many of the potential gains from trade liberalisation and export promotion consequently were dampened. By the end of the 1990s growth in non-traditional exports had visibly slowed, for reasons relating to both the global economy and domestic macroeconomic conditions, and new government strategies have not been sufficient to breathe new life into

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the external sector (see Macario 2000:68–72). These traits of Chilean neoliberalism thus reflect a good deal of common ground with Brazil and Argentina, notwithstanding its distinguishing regulatory and developmentalist characteristics. Paraguay Neoliberalism in Paraguay is really notable only for its virtual non-existence. In the absence of a significant structural crisis of the sort we identified in the other cases, the space for an abrupt imposition of a restructuring agenda did not emerge in Paraguay. Nor does the Paraguayan case fit with an emphasis on the transfer of ideas through a technocratic epistemic community. After the military dictatorship of Alfredo Stroessner (1954–89) the transitional government of General Andrés Rodríguez (1989–94) did declare itself to be in favour of neoliberal reform—or, more properly, of a free-market model—but this was largely limited to freeing the exchange rate (Thorp 19985:265) and the government failed to elaborate any coherent or overarching development project, neoliberal or otherwise. Structural reform was broached seriously by neither Rodríguez nor the elected government of Juan Carlos Wasmosy (1994–9), both of which ‘sought macroeconomic stability over economic regeneration’ (Lambert 2001:4). In part this lack of interest stemmed from the very limited size of the public sector, in the sense that there was little to privatise. Yet this did not preclude a very significant degree of inefficiency and corruption—the enduring Achilles heel of the Paraguayan system—in those public sector enterprises and institutions that did exist, reflected in the increase of around 34 per cent in central government employment between 1989 and 2000 (Nickson and Lambert 2001:4). In other part it stemmed from the lack of political impetus to privatisation on the part of government, private sector or electorate. Nevertheless, certain initiatives did emerge under Wasmosy, largely due to external pressure from IFIs and leading to the controversial and mismanaged privatisations of four of the five state-owned enterprises. Subsequently President Luis González Macchi (1999–) established a Secretaría Nacional de Reforma del Estado (National State Reform Secretariat) and secured fast-track authority to proceed with privatisations in the telecommunications and water sectors, although again this process was marked by high-level corruption and mismanagement (Nickson and Lambert 2001: 8– 10). In mid-2002 protest at the privatisation of telecommunications reached proportions that were deemed by the government to merit the declaration of a state of emergency. This, at any rate, was about the extent of neoliberal restructuring in Paraguay over the 1990s, save a half-hearted attempt at tax reform in 1994 and some trade liberalisation spurred by membership of the Mercosur. The economy remains the most ‘open’ of the Southern Cone region and retains a very pronounced dependence on exports (which account for around 20 per cent of GDP) and on the agricultural sector as the source both of those exports and of over one-quarter

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of GDP. Despite some lacklustre initiatives in the early 1990s in the realm of investment and export promotion, governments since 1989 have failed consistently to channel any investment towards agricultural production or the diversification of agricultural exports (Lambert 2001:5). The consequently extreme vulnerability of the Paraguayan economy to fluctuations in export markets was exacerbated through the 1990s by recurrent financial crisis and falling international commodity prices in the second part of the decade. However, the openness of the Paraguayan economy extends only to the external sector. In contrast to the explosion of capital flows to other Southern Cone economies in the 1990s, and indeed their continuing dependence on these flows, foreign capital has not found investment in Paraguay a particularly attractive proposition. In the late 1990s, indeed, foreign investment accounted for only around 2 per cent of GDP (INTAL 1998: appendix, 5), largely as a consequence of the extent of corruption, the deficiencies of state structures, inadequate infrastructural development and political instability, along with extremely high interest rates. Such FDI as did cross Paraguayan borders in the 1990s, interestingly, was concentrated in non-trading tertiary sectors (almost 60 per cent of the total) rather than in agriculture, and thus—in contrast, for example, to the Chilean case—did not have any important impact on the dynamism of the export sector (Lambert 2001:8). The result has been that growth figures in Paraguay have consistently been the lowest in the Southern Cone and the trajectory remains one of economic stagnation. Social indicators also exhibit the lowest overall levels of social development in the region, in contrast with the prevalence of inequality in the indicators for other Southern Cone countries. Uruguay The shift towards market reform in the Uruguayan case coincided almost exactly in its timing with that of Argentina. In both countries the collapse of military governments amidst profound economic crisis (in Argentina in 1982 and in Uruguay in 1985) produced a discrediting of market strategies which persisted through the 1980s, in contrast with the more effective implementation of such policies under military authoritarianism in Chile. Although the government of Julio María Sanguinetti (1985–90) was committed to the broad thrust of a liberalisation strategy, significant voices within the Concertación Nacional Programática (CONAPRO, National Programmatic Concertation)—the multiparty initiative aimed at building consensus and unity in the interests of preserving the then new democracy—continued to oppose neoliberalism, with the result that very little consensus on economic strategy emerged during the 1980s. Sanguinetti himself was widely seen to have failed to articulate a coherent policy direction, and, while some growth and some reform were achieved in the early years of his administration, by 1988 growth was falling, inflation rising and the fiscal situation worsening. In the 1989 elections both of the leading candidates, Luis Lacalle and Jorge Batlle—the former winning and

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taking office from 1989 to 1994 and the latter assuming the presidency later in 1999—campaigned on a neoliberal platform, perhaps surprisingly given the enduring ambivalence in Uruguay towards neoliberalism. The Lacalle government’s primary initial objective, as elsewhere, was inflation stabilisation and, again as elsewhere, the emphasis fell on exchange rate mechanisms for achieving this. These mechanisms involved a continuous process of devaluation of the dollar exchange rate, the establishment of a band of fluctuation and a lag between this rate of devaluation and the inflation of the peso (Finch 1999:86; INTAL 1999a: appendix, 15). While the inflation rate did not fall anywhere near as dramatically as it did in Argentina (figures for 1994 being around the 40 per cent mark), nevertheless the objective of stabilisation was largely achieved, growth figures for the early 1990s were respectable, and inflows of foreign capital resumed with the Brady Plan debt agreement and the imposition of tighter fiscal discipline. Trade liberalisation was pursued under the aegis of the Mercosur. The trade-off, predictably for a strategy of this sort, was that of declining industrial activity against rising consumption (Thorp 1998:249), leading to a process of de-industrialisation similar to that produced (or rather sustained) under Menem in Argentina. Structural reforms, in addition, encountered myriad obstacles and advanced very little under Sanguinetti or Lacalle, with the bulk of political opposition crystallising around the privatisation issue. The second government of Julio Sanguinetti (1994–9) sought to capitalise on this resistance and advance a social democratic rather than orthodox neoliberal agenda, emphasising the dangers of excessive consumerism, over-reliance on foreign capital and the privileging of services sectors in the economy. They sought instead to elaborate a development model which gave ‘a continuing role to the state as monitor of the free market in the interests of social solidarity and tolerance’ (Finch 1999:87). Once in office, however, the strategy fell back on the classic neoliberal tenets of structural reform, particularly privatisation, deregulation and reform of the social security system. The story was largely the same as for the early 1990s—of political resistance to privatisation but some progress in structural reform, and the continuing fall of inflation—and indeed the government of Jorge Batlle has made few inroads into structural reform. It sought in its early years to respond by emphasising greater competition in the public sector rather than eliminating public ownership through large-scale privatisation. The budget law of 2001 provided for the de-monopolisation of telecommunications and insurance, except for worker’s compensation insurance and basic telephony, and also established regulatory bodies in the telecommunications and electricity sectors (US Department of State 2002). Oil refining has also been de-monopolised but a monopoly on oil imports has been left in place. There have been some notable moves to open up certain activities to private-sector involvement—rather than full-scale privatisation—as in the case of infrastructure provision (see INTAL 1999a: appendix, 2). Yet even some of these initiatives encountered resistance in the early years of the 2000s,

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particularly those relating to the telecommunications sector, and overall there was little serious political impetus from the government to significant reform of the state and public sector. With the Argentine crisis, some political pressure arose for a more determined consideration of state reform and fiscal management, including from ex-president Lacalle, in order to avoid similar problems to those affecting the Argentine economy. Success on the stabilisation front thus did not have a significant legitimating impact on the neoliberal restructuring process, and indeed the neoliberal agenda pursued in Uruguay was notably neither orthodox nor extensive. In part this has been because of political obstacles which stem from those features of Uruguayan political culture which emphasise direct consent through referenda, in that the veto points in the Uruguayan policy-making system are consequently considerable. In other part it stems from a residual support for an active state in the development model. In this respect it has something in common with the Brazilian and Chilean cases but, rather than featuring the developmentalist traits of, for example, active export promotion or incentives policies, Uruguayan neoliberalism is more oriented towards the retention of a significant degree of state ownership in the economy. This owes much to the traditionally greater efficiency and better functioning of the Uruguayan public sector, particularly relative to the Argentine public sector in the early 1990s or the Chilean in the early 1970s. The dismantling of the state garners only ambivalent political support also because the Uruguayan record on income distribution and welfare provision has been a relatively positive one: Uruguay yielded the best social and welfare indicators during a reform process and has been the only country in Latin America to have improved income distribution since the debt crisis (Thorp 1998: 249). The commercial and financial profile of the Uruguayan economy also exhibits a number of distinctive features. The export profile demonstrates a significant degree of diversification, even though products remain primarily agro-industrial in nature. Interestingly, services—especially in energy, telecommunications and tourism—account for the bulk of GDP and an increasingly important percentage of exports. On the financial front, two features deserve mention. The first is Uruguay’s position as the regional financial centre, with substantial offshore activities. The second, and related, is the high level of capital inflows and consequently the healthy foreign reserves position, which act to offset the high foreign liabilities of the financial sector associated with its position as regional financial centre (INTAL 1999a: appendix, 6). It is for this latter reason that the external and public sector debt situation has remained significantly more manageable than in, say, Argentina, and that the fiscal record has been significantly better than that of either Argentina or Brazil. Nevertheless, Uruguayan neoliberalism rests on a familiar reliance on these capital inflows and the associated problems of currency appreciation, as demonstrated by the capital flight and devaluation crisis of mid-2002 as a knock-on effect of the instability in Argentina.

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Conclusion While in the broadest terms the Southern Cone has conformed with the widespread turn to neoliberalism in Latin America and elsewhere in the world, the neoliberalism that has emerged has exhibited important national variation in its form and substance. The five versions of neoliberalism we have surveyed here range across the spectrum from very early reform (Chile) to relatively late (Brazil); from the highly orthodox (Argentina) to the negligible (Paraguay); from the relatively stable and, judged on its own criteria, successful (Chile) to the consistently crisis-ridden (Argentina); and from significant ideological engagement with market economics (Chile) to a much more lukewarm and ambivalent approach to neoliberal restructuring (Brazil and Uruguay). We also identified key variation in a number of other areas, principally in the place of the state in the economic model and in modes of insertion into the international economy and the levels of vulnerability stemming therefrom. The extent of this nationally defined neoliberal diversity thus challenges the validity of blanket statements about the trajectory of economic management across the region in the 1990s. Moreover, it calls for a reconsideration of the assumption of convergence on a single version of neoliberalism, as envisaged by the Washington Consensus and the globalisers of the international financial community. While already widely recognised in the academic literature on these themes, the Southern Cone case serves to highlight once again the point that simplistic visions of both the direction of restructuring and the type of political economy that emerges are misleading. The extent of the constraints imposed by global restructuring on Southern Cone countries, conversely, should not be understated. In significantly different ways, and largely with the exception of Paraguay, the neoliberal agenda has been insinuated quite firmly into all of the domestic arenas of the Southern Cone countries. While microeconomic policies and structural reform processes diverged very noticeably over the 1980s and 1990s, the thrust of macroeconomic policy has been largely similar across the region, emphasising more or less fixed exchange rate regimes, inflation stabilisation and tighter fiscal discipline. All of the Southern Cone economies, save again the case of Paraguay have also been characterised by a pronounced entrenchment of their historical reliance on foreign capital. The place of foreign capital in each of the versions of neoliberalism is distinct, but each case remains marked by the economic dislocations and heightened external vulnerability associated with the resulting tendencies to currency overvaluation. This external vulnerability stems not only from a reliance on foreign capital inflows, but also frequently either from a reliance on exports or (more often) from an export profile dominated by commodities and low value-added raw-materials-based products. Finally, the adoption of neoliberalism across the board has generated a now very familiar set of regressive social consequences, felt most keenly in the areas of employment, income distribution and welfare provision.

5 The Mercosur project

Like the inward-looking development strategies of the post-war period, the neoliberal turn in the Southern Cone was accompanied by a project of regional integration. The creation of the LAIA in the early 1980s did not unleash a significant or well-defined trend towards regional economic integration, or a coherent political project aiming to establish a regional bloc. Rather, its contribution has been limited to the provision of a framework for cooperation in the Latin American region. The integration initiatives that started in the Andean, Central American and Caribbean regions during the post-war period survived, but for much of the 1980s these too went through a period of stagnation or drift, largely as a result of the economic turmoil occasioned by the debt crisis and, in some cases, the impact of military intervention and other forms of conflict. The era of so-called ‘new regionalism’ in Latin America thus began genuinely to take shape only towards the turn of the decade, notably with the establishment in 1991 of the Mercosur and in 1994 of the North American Free Trade Agreement (NAFTA), along with the relaunching of some of the existing blocs we have just mentioned. The early 1990s, indeed, were characterised by a proliferation of regional agreements across the world, which constituted key international economic strategies associated with neoliberal development projects. The spur to this latest phase of regionalist activity has been different from those we identified in the post-war period, as has been the relationship between regionalism and the central development project. Regional integration was logically compatible with the ISI model, and indeed intrinsic to its viability, inasmuch as it constituted a direct mechanism for mitigating the fetters imposed on industrialisation by limited internal demand. The central aim of the LAFTA in this sense was to substitute a protected domestic market with a protected regional one. In contrast, as Paul Bowles has observed (2000: 437), ‘there is nothing inherent in the neoliberal approach which would suggest that regional economic integration arrangements are necessary to its success’. While it is true that regional integration may not be fundamental to the viability of a neoliberal economy, the relationship between the neoliberal development project and the new regionalism of the 1990s has nevertheless been an intimate one. The first dimension of this connection, in some similarity to the ‘old’ regionalism, is that new regionalist projects represented the elevation to a regional scale of a specific

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development model, and a good part of the rationale for this has been related precisely to the need to ‘lock in’ neoliberal principles at the domestic level. This argument is a relatively familiar one and, as outlined in Chapter 2, refers essentially to the reinforcing effect of increasing the costs of deviation from a particular policy path by means of binding agreements with ‘external’ agents. In the case of the Mercosur, the initial agreements aimed specifically to facilitate and further domestic liberalisation and deregulation processes by putting in place reinforcing mechanisms at the regional level. In practical terms as well, reciprocal liberalisation processes are more easily realised in the regional context than in the multilateral arena, in which the number and diversity of interests to be accommodated are much greater and the agenda more often falls hostage to the preferences of the most powerful states. It was anticipated, in this sense, that liberalisation and deregulation would both be facilitated by being negotiated primarily at the regional level and be kept on an even keel by the resulting webs of commitments and obligations. As with the conditionalities of the IFIs, regional integration strategies thus offered policymakers a means of both ‘selling’ neoliberalism to sceptical elements of the electorate and creating an impression of compulsion in order to achieve acquiescence to the new economic orientation and its associated adjustment costs. While regionalist strategies may not be critical to the success of a neoliberal economic strategy per se, then, they have been critical to the political viability of the restructuring agenda, although this political viability has rested very clearly on a narrowing of government and state accountability. The second dimension of the connection stems from the particular linkages that obtain between dominant neoliberal strategies and processes of global restructuring, in that regionalist projects were very explicitly framed as strategic responses to the challenges presented by globalisation. The prevalent vision in the Mercosur of the early 1990s was of regionalism as a ‘building block’ which would facilitate engagement with these globalising processes. This vision derived in large part from the equation of contemporary development with, again recalling Philip McMichael’s term, ‘global positioning’. It is primarily for this reason that the principle of ‘open regionalism’ came to prevail in the Mercosur, as in the rest of Latin America and in Asia, connoting a commitment to unilateral trade liberalisation as the best means of achieving greater and more effective participation in ‘global’ economic processes. Open regionalism was also predicated on the notion that the achievement of competitiveness rested on the attraction of FDI flows. The creation of economies of scale was consequently conceived as facilitating both participation in the world economy and, according to the dominant neoliberal ‘consensus’, the achievement of economic growth and development. These competitiveness strategies then link, as we saw in Chapter 2, with a range of other opportunities offered by regionalism for responding, in a more ‘defensive’ fashion, to the pressures of global liberalisation and indeed to the erosion of some of the policy discretion formerly enjoyed by states.

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While both the Mercosur and the NAFTA were articulated as strategic responses of this nature, a different sort of regionalism emerged in each case. In the first place, the architecture of the NAFTA reflects a ‘hub-spoke’ arrangement while that of the Mercosur reflects the ‘spoke-spoke’ regionalism common in South-South integration projects (Grugel 2000:3). Indeed, the Mercosur in the early 1990s was widely held to be the most successful example of regional integration among developing countries, in which the ‘hub’ state is itself developing (in this case Brazil) rather than developed (as in the case of the NAFTA). In the second place, the NAFTA is based on a ‘free trade area’ (FTA) model of regionalism while the Mercosur is based on a ‘customs union’ model. The FTA model is driven by the negotiation of legal and policy agreements oriented to institutionalising the principle of reciprocal market access and eliminating more insidious obstacles to economic exchange in the form of, for instance, sanitary, technical, financial, customs and bureaucratic restrictions (de la Balze 2000:13). The customs union model of the Mercosur does not involve an extensive legal framework similar to that of the NAFTA, nor an agreement of comparable length and scope (Bernier and Roy 1999:72). It envisages the construction of a customs union as a prelude to the achievement of a common market, of which the most notable feature is the establishment of a common external tariff (CET) governing trade with extra-regional partners. By contrast, the FTA model does not require policy harmonisation per se beyond a commitment to the removal of barriers to market access. In this sense, the underlying design of the NAFTA model intentionally leaves almost no leeway for political discretion in its enforcement (Bernier and Roy 1999:73), whereas the road towards the customs union is defined largely by the political negotiation of policy harmonisation and (arguably) the construction of the necessary institutions to sustain such an arrangement.1 Our task in this chapter, then, is twofold. The first is to elaborate on the nature of the Mercosur project and map out its trajectory over the course of the 1990s. The second is to account for the manner in which it has evolved, and specifically in this regard to demonstrate the ways in which the distinctiveness of national development models has reverberated through the evolution and the shape of the regionalist project. The Mercosur in the 1990s: chronicle of a death foretold? The trajectory of the Mercosur project over the 1990s was fraught, ponderous and tortuous, featuring increasingly high levels of political fragmentation and economic inconsistency and marked by only meagre achievements in many basic areas of integration. By the end of the decade the project was frequently perceived to be either moribund or else drifting aimlessly. The Tratado de Asunción (Treaty of Asunción) established the Mercosur in 1991, following a period of increasing rapprochement and cooperation between Argentina and Brazil from the mid-1980s (see Manzetti 1990). Their signing in 1986 of the

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Acta para la Integración Argentino-Brasileña (Argentine-Brazilian Integration Act) established the Programa de Integración y Cooperación Económica (PICE, Integration and Economic Cooperation Programme), which represented an attempt to build on the common interests that were seen to be emerging from the new processes of democratisation and economic change underway in both countries. It aimed essentially to foster sectoral cooperation at a time when access to external markets was complicated by the fallout from the debt crisis and, in Argentina’s case, the residual isolation occasioned by the Falklands/ Malvinas episode. The subsequent Tratado de Integración, Cooperación y Desarrollo (Treaty on Integration, Cooperation and Development) of 1988 and the Acta de Buenos Aires (Buenos Aires Act) of 1990 envisaged the establishment of a common market between Argentina and Brazil and laid the preliminary foundations for this undertaking. The Mercosur itself was the result of the incorporation into this project of Paraguay and Uruguay, as transitions to democracy were effected in each country at the turn of the decade. The achievements of the first ‘transition’ phase of the Mercosur were widely hailed, especially in the area of trade liberalisation. The Treaty of Asunción laid down a timetable for tariff reduction, set out in Table 5.1. This was implemented largely as planned, despite fears throughout 1993 that the timetable would have to be revised and minor changes to Argentine trade policy in the aftermath of the 1994/5 Mexican crisis. While the tariff liberalisation was extensive and wideranging, exemptions were accorded under the Treaty for a significant number of products: 324, 394, 439 and 960 for Brazil, Argentina, Paraguay and Uruguay, respectively. These exemptions were subject to a separate timetable of tariff reductions, reflecting the early negotiation of some (minimal) differential treatment for smaller member countries. Argentina and Brazil were required to implement annual reductions of 20 per cent from 31 December 1990; Uruguay and Paraguay agreed to 10 per cent reductions in 1990 and 1991, and 20 per cent thereafter (GATT 1992: vol. 1, 67–8). The Treaty also provided for the establishment of a CET, subsequently agreed at the Montevideo Summit of December 1992 to take effect in 1995, under which most products were subject to a maximum tariff of 20 per cent, with the exception of a relatively short list of goods that operated with a maximum of 35 per cent, to be gradually reduced between 1995 and 2001. The customs union that took effect on 1 January 1995, under the Protocolo de Ouro Preto (Ouro Preto Protocol) of December 1994, was thus ‘almost’ full. It was agreed that between 5 and 10 per cent of total trade between the four countries would remain protected by national tariffs until 1999 in order to lessen the initial impact on uncompetitive industries, and a further 10 per cent of total trade composed of ‘sensitive’ or ‘strategic’ products would only adopt the CET in 2001 (or 2006 for telecommunications and information technology products). Despite some significant sectoral variation, the open regionalism model filled its brief relatively well in this first ‘transition’ period, both as a mechanism for reinforcing domestic trade liberalisation and as a spur to growth in intra- and

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Table 5.1 Mercosur: initial tariff liberalisation schedule

Source: GATT 1992, vol. 1.

extra-Mercosur trade. Tables 5.2 and 5.3 demonstrate that trade volumes increased significantly over this early phase of negotiated liberalisation, as did intra-regional exports as a share of total exports. We have already noted, in addition, that FDI flows to the region increased significantly in the early 1990s, as a result of both the accelerating reform processes taking place within Southern Cone economies and the trade liberalisation shepherded by the Mercosur process. Notwithstanding this ambitious liberalisation drive, however, one of the most notable features of the Mercosur is that it has remained significantly inward-looking, as measured by the customary indicator of trade relative to GDP and in comparison with other regional blocs in the Americas. In Brazil and Argentina, especially, the internal market has remained considerably more important than the external sector, and while their trade/GDP ratios increased consistently through the 1990s, the figures in Table 5.4 demonstrate that the impact of the open regionalism strategy was not to make the region appreciably more ‘open’ than in its pre-Mercosur days. Moreover, the much-touted early dynamism of the Mercosur was largely confined to the process of tariff liberalisation. In other areas the extent of integration remained notably shallow. By the end of the decade the Mercosur was best described as an imperfect customs union, in which precious little progress had been made beyond the reduction of tariff barriers to trade in (some) goods. In the trade arena negligible advances had been made in the elimination of NTBs such as phyto-sanitary regulations, quotas and ‘unfair’ trade practices such as government subsidisation of domestic industries or exporters. No common rules had been agreed on commercial defence mechanisms (CDMs), which encompass anti-dumping (AD), subsidies, safeguards and countervailing duties (CVDs). Agreement in these areas is important in view of the danger that gains in tariff liberalisation and reciprocal market access might easily be undercut by governments’ discretionary use of CDMs. Indeed, even in the early years of the Mercosur’s existence, frequent Argentine resort to AD measures against Brazilian imports generated significant political tension. Similarly, little progress had been made on other trade-related policy areas such as intellectual property, government procurement and competition policy. The harmonisation of customs procedures remained far from complete and there had been no easing of restrictions on the movement of workers. The slow progress towards the integration objectives of the Mercosur was accompanied from the mid-1990s by an acceleration and proliferation of sectoral conflicts, most notably in sensitive areas such as automobiles, textiles, footwear,

Source: elaborated on the basis of data from IDE 2000; INTAL 2003.

Table 5.2 Mercosur trade: exports, 1990–2001 (US $ millions)

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Source: elaborated on the basis of data from IDB 2000; INTAL 2003.

Table 5.3 Mercosur trade: imports, 1990–2001 (US $ millions)

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Source: IDB 2000.

Table 5.4 The Americas: selected trade openness measures, 1990–9 (%)

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sugar and dairy products. This accelerating pattern was intensified by the specific and cumulative impacts of recurrent economic instability, starting with the 1994 Mexican peso crisis and moving through the 1997–9 Asian financial crises and the 1999 Brazilian devaluation, to the catastrophic Argentine crisis of the early 2000s and its regional impact. As governments sought to reverse economic recession and respond to domestic political pressures, the second part of the 1990s was characterised by a progressively ad hoc approach to macroeconomic policy, particularly in Argentina and Brazil, in which governments formulated policy independently of their Mercosur partners. The consequence, inevitably, was a pattern of sharp and recurrent alterations in the balance of competitiveness between member countries, generating both economic dislocations and political tensions. This in turn exacerbated an already increasing tendency towards a lack of reciprocity between Mercosur states in the implementation of negotiated policy decisions—a situation that Roberto Bouzas (2001) has referred to as a ‘relative enforcement gap’—which increased steadily over the course of the 1990s. Even so, the period from 1995 to 1998 can be seen to represent the Mercosur’s ‘golden age’ in trade and investment activity (Bouzas 2001:6). The regional crisis from 1999 The crisis from the end of the decade exacerbated the increasing political and economic incoherence of the Mercosur and eroded the gains in intra-regional trade that had been achieved during this second phase. The resulting degree of fragmentation was such that many observers were confidently predicting the Mercosur’s imminent and final demise. In terms of the economic project, the shallowness of the level of integration achieved was thrown into sharp relief. For a start, the financial volatility of the late 1990s led to a severe contraction in net inflows of foreign capital to the tune of 18 per cent (CEPAL 2000a:1), the results of which generated an absence of growth in regional trade levels for the first time since 1991. Furthermore, the contraction of intra-Mercosur trade was significantly greater than the contraction of trade with third countries (see Tables 5.2 and 5.3). For all its weathering of the series of conflicts in the mid-1990s, and despite the relatively quick recovery of the Brazilian economy, the impact of financial instability underlined an enduring fragility in regional trade linkages which continue to be largely contingent on the conjunctural context, especially with respect to the availability of liquidity on the regional financial circuit (CEPAL 2000a:9). Moreover, until the time of the Brazilian crisis the overvaluation of the real had favoured the Argentine external sector and reinforced Argentina’s trade surplus with Brazil. The devaluation thus generated sharp difficulties for the Argentine government, constrained as it was by the limitations on available policy instruments imposed by Convertibility. The drop in Argentine exports was greater than that which occurred in Brazil, the 1998–9 variation being –11.8 per cent for the former and –6.1 per cent for the latter. Imports similarly showed respective variations of –18.7 per cent and –14.7 per

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cent, implying a fierce alteration to the trade balance between the two countries and within the Argentine economy. The figures for Paraguay demonstrate the extent of its vulnerability: the 1998–9 variation for exports was –32.8 per cent and for imports –30.6 per cent. For Uruguay the figures showed a variation in exports of –18.9 per cent and in imports of –11.9 per cent (INTAL 2000:16–17). The loudest noises in the resulting political crisis came, as always, in the disputes between Argentina and Brazil. Because of the impact of devaluation on capital flows and relative economic competitiveness, questions of Argentine competitiveness within the Mercosur were pushed to centre-stage (see Nogueira 1999a, 2000). These concerns prompted the Argentine government to press for ‘escape clauses’ and/or safeguard provisions to offset the immediate impact on the Argentine economy (such as the temporary raising of intra-Mercosur tariffs), or else for the dismantling of a significant proportion of the NTBs to bilateral and regional trade. Each of these proposals was rejected by the Brazilian government, which limited itself to offering to address specific sectoral tensions in conjunction with the private actors concerned. As a result, the first couple of months of 1999 were characterised by a spate of unilateralism in both Brazil and Argentina, a flurry of representations to the World Trade Organization (WTO) and the ever first instance of an arbitration ruling of the Ad Hoc Mercosur Tribunal in April 1999. In the meantime, in the absence of any more satisfactory options, sectoral negotiations proceeded with varying degrees of success, the principal products of concern being chicken, textiles, footwear, paper, dairy products, steel and sugar. These trends were exacerbated as the fallout from the Brazilian devaluation gave way to the Argentine crisis. Unilateral changes to the rules governing the bloc proliferated further and government responses were progressively atomised rather than collective. Among many other such measures, the Argentine government sought in late 2000 to reduce by 10 per cent the CET as it applied to a range of capital goods products, most of which were supplied to Argentina by Brazil. In early 2001 it sought to make a further series of changes to its tariffs on imports from outside the Mercosur, principally in the form of the elimination of tariffs on capital goods imports and a 35 per cent increase in those relating to a number of consumer goods. The consequence was the introduction of a strong bias in favour of extra-regional imports. The pattern in Paraguay and Uruguay was one of tariff increases, applied across the intra-regional and extra-regional board as defensive mechanisms against the impact of instability and crisis. The Paraguayan government increased tariffs on a range of imports from the Mercosur by 10 per cent, which it envisaged as continuing until the end of 2002. This was subsequently modified by the Consejo Mercado Común (CMC, Common Market Council) to restrict the range of imports to which tariffs were applied and to limit these tariffs to a maximum of 5 per cent (INTAL 2001:40). The Uruguayan government, similarly, implemented a series of countermeasures against the impact of the Argentine devaluation, the most notable of which was the imposition of extensive tariffs (around 35 per cent) on a

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range of imports in early 2002, justified in the relevant decree with reference to the ‘abnormal competitive conditions’ (La Natión, 30 April 2002). Over the course of the 1990s, as we have seen, the imposition of trade barriers had become the customary response to difficulties in the management of external accounts (INTAL 1999a:19), but this perforation of the CET was a novel and inauspicious feature of the early 2000s. The longer-term—and on the face of it equally inauspicious—consequences of the crisis were manifest in the trade data, specifically in the stagnation of intra-regional trade concurrent with a significant increase in extra-regional trade, continuing the trends of the late 1990s. Brazilian imports from extra-regional sources, in particular, grew by 16.1 per cent between the first semesters of 2000 and 2001, against the 3.7 per cent recorded for imports from Mercosur partners (INTAL 2001:30). The Argentine trade surplus, in turn, more than doubled, even in the absence of export growth. The predictable consequence was the continuation of a fierce debate about the viability and utility of the Mercosur both between and within member countries. In his second stint as Argentine Economy Minister from mid-March 2001, Cavallo expressed forcefully his views that the Mercosur should move towards an FTA model and that Argentina would be better served by developing bilateral relations with the US, even if this were to mean withdrawal from the Mercosur and its consequent collapse. In a similar vein, the abandonment or suspension of the already perforated CET received close consideration, largely for the advantages it would afford for the revival of investment into the Argentine economy (La Nación, 26 September 2001), and such ideas about cooling or suspending the Mercosur garnered strong political support in a number of Argentine industrial sectors. Although this debate died down somewhat with Cavallo’s departure in December 2001, closer economic relations with the US remained the preferred option of the orthodox liberal elements of the state. Conversely, since the late 1990s public opinion has been consistently in favour of prioritising the Mercosur, with polls recording this support at 42 per cent of the population at the height of the crisis in mid-2002 (La Nación, 6 May 2002). A similar current has thrived in Uruguay, where the Batlle government supported many of the Argentine moves to renegotiate the CET over 2001, and appeared by 2002 to have adopted a ‘Mercosur-sceptic’ position, opening a rift with a greater optimism in Brazil about the future of the regionalist project. Opinions in a number of official circles in Uruguay mirrored Cavallo’s preferences for an FTA model, Uruguayan Industry Secretary Sergio Abreu calling attention to the Mercosur’s ‘failure’ as a customs union (La Nación, 23 February 2002). Bilateral negotiations with the US were also set in train. Sectoral conflicts between Brazil and Argentina persisted, along with broader trade disputes which led to a further flurry of complaints— Brazil against Argentina, Argentina against Chile—being lodged with the WTO for arbitration.

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The upshot was the most profound political crisis in the Mercosur since its inception. An editorial in the Brazilian newspaper Folha de São Paulo in July 1999 contended: never has the integration project in the Southern Cone been as close to exhaustion as now…. Perhaps the disintegration of the process would be better for Brazil than the insupportable consequence of concessions to the Argentines that the Government has been pursuing over recent years. (cited in INTAL 2000:28) This opinion, moreover, pervaded public opinion and a range of official circles in Brazil: it was subsequently reported in early 2000 that the option of abandoning the Mercosur had been tabled for consideration before the Brazilian government (Mercopress News Agency, 8 February 2000). Similar sentiments were washing around in Argentina at the same time. Responses to the crisis of the late 1990s and early 2000s thus indicate not only a circumvention of many of the agreed provisions of Mercosur treaties, but also, more broadly, an exacerbation of the already fragile commitment to the regionalist project among and within member countries. The roots of fragmentation So what explains these patterns of political fragmentation and shallow integration in the Mercosur? Two principal issues deserve attention in this regard. The first is the issue of institutionalisation. This is not the place for a broader discussion about the importance or otherwise of institutions in regional blocs: rather, our concern here is with the ways in which the level and nature of the Mercosur’s institutional structures have contributed to the patterns of conflict that we have identified. The second concerns the impact of the diversity between national versions of neoliberalism for the shape and evolution of the regionalist project. In a nutshell, these have translated into distinctive ‘visions’ of regionalism, which in turn have given rise to distinctive sets of strategic preferences within the regionalist project. The politics of the Mercosur in the 1990s were shaped by the interplay of these distinctive visions, and indeed they lie at the root of the fragmentation and divergence that have marked its evolution. Institutionalisation The governance structures of the Mercosur have always been largely informal rather than rules-based, and to an important extent this has been the result of the Mercosur’s institutional characteristics. The level of institutionalisation has remained strikingly low and entirely intergovernmental (as opposed to supranational) in character. The Mercosur’s institutional apparatus is depicted in Figure 5.1. The Treaty of Asuncion established that the decision-making process

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would be entirely consensual and created two intergovernmental bodies, the CMC and the Grupo Mercado Común (GMC, Common Market Group). The CMC is composed of the foreign and (usually) economy ministers of each member country and is charged with providing political leadership for the integration process. The presidency of the CMC rotates on a six-monthly basis between the member countries. The GMC is the executive agency of the CMC and is composed of a total of eight representatives from each member country, which must include representatives of the foreign and economy ministries and the Central Bank. It is charged with the implementation and oversight of the Treaty of Asuncion, the enforcement of CMC decisions and the elaboration of the timetables for progress towards the common market (Bouzas 1996:91). Crucially both the CMC and the GMC are coordinated from the foreign ministries of the member countries. The GMC in turn constitutes the umbrella for a number of other bodies. The Comisión de Comercio del Mercosur (CCM, Mercosur Trade Commission) is the third key institution, created in 1994 by the Ouro Preto Protocol. It comprises ten comités técnicos (CTs, technical committees) and is responsible for the implementation and progress of common trade policies. The Foro Consultativo Económico y Social (FCES, Consultative Forum on Economic and Social Issues) channels the participation in the Mercosur of economic and social sectors, including business and labour groups. The Secretaría Administrativa del Mercosur (SAM, Mercosur Administrative Secretariat) has its headquarters in Montevideo and is charged with the provision of services and operational support to the other bodies, in addition to its documentation and information dissemination functions. The range of Ad Hoc Working Groups, Special Meetings and Subgrupos de Trabajo (SGTs, Working Sub-Groups) address structural and technical issues relating to the Mercosur negotiations. Finally, the Comisión Parlamentaria Conjunta (CPC, Joint Parliamentary Commission) is composed of 64 parliamentary representatives—16 from each member country —from both Chambers of Congress across political parties, as well as an equal number of reserves (suplentes) designated by each National Parliament. Its functions are to monitor the integration process, report to national congresses on progress, and act as a consultative and advisory body through the elaboration of recommendations and proposals. It is involved in preparing the groundwork for regional legislative harmonisation and is responsible for facilitating the immediate implementation of regional directives in the domestic setting.

Figure 5.1 Institutional structure of Mercosur

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The significance of this skeletal and intergovernmental structure for the Mercosur’s evolution has lain in two main areas. First, the lack of supranational legislative authority necessitates the transfer of legislation entirely to the national level, and consequently the process is both vulnerable to the pressures of competing domestic interests and conducive to the ‘relative enforcement gap’ mentioned earlier. Article 42 of the Ouro Preto Protocol stipulates that observance of the rules devised by the key institutions of the Mercosur is obligatory, along with their translation into domestic legislation where necessary. Nevertheless, domestic legal and constitutional structures have not been brought into line in a manner which would facilitate this translation. The Argentine constitution does grant primacy to international treaties vis-à-vis domestic laws, but the Brazilian constitution stipulates that international treaties do not prevail automatically over national laws and does not permit submission to supranational forms of legal authority (de la Balze 2000:22). The relative enforcement gap also arose over the 1990s from a deliberately slow implementation of Mercosur resolutions as well as resort to unilateral noncompliance or changes to the rules of the game within the bloc. Changes to or non-compliance with rules have also frequently taken a negotiated character, facilitated by the fact that Mercosur diplomacy has always been conducted primarily through presidential summitry—often bilaterally between Argentina and Brazil—without recourse to the more formal forums of Mercosur institutions. This practice has consistently been lamented by the smaller member countries, and indeed by associate members, as reinforcing the dominance of Brazil and Argentina over the strategic direction of the bloc and the integration process. Second, during the 1990s the Mercosur had no formal or permanent dispute settlement mechanism. The Ouro Preto Protocol ratified the transitory system laid down by the 1991 Brasilia Protocol for Dispute Settlement, but member countries also agreed at this time to delay the creation of a permanent mechanism until the CET was fully implemented (envisaged for 2006) (Leathley 2002: 7). In the meantime, throughout its first decade dispute resolution in the Mercosur was conducted entirely on an ad hoc basis and was limited to direct consultation between affected parties, the presentation of claims to the CCM or non-binding third-party arbitration under the provisions of the Brasília Protocol (Bouzas and Soltz 2001:99–100). Consequently, resolution of sectoral conflict frequently fell back squarely into the already fragmented and fractious sphere of political relations between governments. The result of these institutional traits of the Mercosur were thus, on the one hand, a highly politicised decision-making process, which left ample space for political whim, unilateral action and non-observance of agreed policy commitments, and, on the other, a situation of increasing sectoral tension that was not steered or mitigated by formal dispute settlement procedures. These trends were further facilitated by the characteristics of the customs union model, which,

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as we saw, entrench the politicised nature of the Mercosur project. The negative consequences of this particular model of institutionalisation, however, do not necessarily reflect an intrinsic necessity for extensive institutionalisation in regional integration initiatives—indeed, in the early years of the Mercosur a low level of institutionalisation afforded the significant advantages of flexibility and cost-effectiveness (Bouzas and Soltz 2001:107). But, as political conflict accelerated from the mid-1990s, the absence of robust institutional structures, and especially dispute settlement mechanisms, was increasingly felt. This was primarily because of the extent of divergence between the member countries’ visions of the regionalist project and their interests within it. In other words, the low level of institutionalisation and its intergovernmental character implied a paucity of mechanisms by which the tensions in the integration process arising from these divergences might have been mediated. Visions of regionalism Key divergences in the motivations, interests and strategies of Mercosur member countries have issued, as we have said, from the distinctiveness of national development models of each member country. These distinctive models have, in turn, given rise to specific and contingent ‘visions’ of the regionalist project and consequently to disparate approaches to participation in it. The political articulation of these visions—by interest groups, state agencies, governments and negotiators—accounts in large part for the strong fragmentary tendencies, especially as the underlying divergences were brought to the fore by repeated economic shocks. On a very basic level, these divergences lie between Brazil and ‘the rest’ as a result of the disparities primarily in market size and political weight. The Argentine, Uruguayan and Paraguayan economies retain a significant degree of dependence on the regional marketplace and specifically on the Brazilian market. This is largely because the majority of export products in these three economies do not compete effectively in world markets, and consequently participation in the Mercosur has been motivated predominantly by economic necessity. Over the 1990s roughly 30 per cent of Argentine, 35 per cent of Uruguayan and 40 per cent of Paraguayan exports were directed to Brazil. In Argentina, this so-called ‘brasildependencia’ (Brazil-dependence) has widely been seen as undesirable and deleterious, but nevertheless has dictated Argentine interest in maintaining and developing the Mercosur since its inception. In the same way, participation in the regional integration project was initially welcomed by Paraguay and Uruguay in view of their very limited options outside the regional market. Divergences in the visions of the project clearly stem in part from the contrast between these motivations for participation, but, going beyond this broad categorisation, member states’ approaches and preferences have been notably distinct. Because an important part of the member states’ strategies has

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been essentially reactive to those of the dominant partner, Brazil, it is most useful for us to start there. Brazil For most of its first decade the Mercosur was a second-order issue for Brazil. It is one of only four countries in the Americas (the others being the US, Canada and Mexico) that have a genuinely diversified export economy and geographical trade pattern (Tavares de Araujo 1998:13). Indeed, for much of the 1990s around 60 per cent of Brazil’s trade flows were with the EU and the rest of the world. In other words, Brazil is—and seeks to style itself as—a ‘global’ rather than a regional trader, which meant that commitment to the Mercosur over the 1990s was diluted by its much greater strategic concern with the multilateral trading arena and its extra-regional partners. Brazilian interest in the Mercosur thus has not been primarily commercial. Rather, its vision of the regionalist project has been related first and foremost to the national industrialisation process and the possibilities to this end that regional integration afforded for enhancing both domestic industrial competitiveness and external investment in the Brazilian economy. It should be noted, however, that the distinctive relationship of the Brazilian economy with foreign capital has meant that, in contrast with other member countries, the Mercosur has not been especially pivotal as a mechanism for FDI attraction. The Mercosur is critical to the investment strategies of Brazilian firms, as we will see later in the book, and investment flows to Brazil have undoubtedly been bolstered by the existence of an economy of scale. Nevertheless, regional integration was not absolutely crucial to the credibility and attractiveness of the Brazilian economy. In short, the options for Brazil were not limited to the Mercosur in the same way as those of smaller member countries, which accounts in part for the apparent aloofness of Brazilian elites from the project over much of the decade. The result of this specific industrialisation-related vision of regionalism was a marked degree of coincidence between the interests of state elites and those of key industrialists and business sectors. Indeed, over the 1990s considerable effort was directed by governments to ensuring that the Mercosur project remained consistent with the interests of these key groups. The Brazilian approach to the Mercosur has thus been premised, as Andrew Hurrell (2001:199) has noted and as we saw in the previous chapter, on a foreign economic policy strategy that emphasises the need for liberalisation in conjunction with the maintenance of its older developmentalist orientation. Its priorities have rested on extracting the benefits of regional integration for the pursuit of its development strategy, but at the same time on offsetting any consequent threat to domestic industry or, crucially, to its economic policy autonomy. It is primarily for this reason that for much of the 1990s the Brazilian vision of the project emphasised a rather loose economic association in which institutionalisation and

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policy harmonisation were fervently resisted, as indeed was the broader notion of ‘deepening’ integration until the end of the decade. Brazilian participation in the project—and indeed the episodes of greater distancing—corresponded closely with the trajectory of its development model. The first ‘transition’ period in the Mercosur coincided with the Collor government’s emphasis on liberalisation and privatisation, which fostered an active role in the construction of the regional bloc and the pursuit of tariff liberalisation. This relatively high level of engagement was then replaced, from around the time of the Real Plan until about 1998, by the government’s ‘freezing’ of its regional commitments and its greater detachment from the objectives of perfecting and deepening the customs union (da Motta Veiga 1999: 343). This period reflected the shift towards a more interventionist form of neoliberalism than the one which had prevailed in the early 1990s, and consequently the hallmarks of Brazilian participation in the Mercosur were unilateral action and non-conformity with negotiated commitments. These trends contributed substantially to the pattern of sectoral, commercial and political conflict which came to define the Mercosur process over this period. From the end of the 1990s, conversely, Brazilian elites favoured a much greater engagement in the Mercosur. This shift reflected a longstanding vision of regional integration as serving a range of strategic and political goals, particularly those associated with external negotiations and bargaining processes. The acceleration of the external negotiating agenda towards the end of the decade (to which we will turn in the next chapter) sharpened this element of the government’s commitment to the regionalist project. The indifference to regionalism of the mid-1990s was thus progressively replaced by an activism oriented to deepening the Mercosur and strengthening Brazilian leadership within it. What this demonstrates, in sum, is the way in which the trajectory of the Mercosur—although not necessarily its performance—has been consistently contingent on the direction of Brazilian economic policy and on the level of Brazilian engagement with the regionalist project. Argentina While Brazilian interest in the Mercosur has been primarily about industrialisation, Argentine interest has been largely about trade. The vision of the project in this sense has rested on two pillars: first, on the pursuit of increased and preferential access to the Brazilian market, given the extent of ‘brasildependencia’; second, on a classic ‘open regionalism’ commitment to unilateral and regionally negotiated tariff liberalisation as a stepping-stone to more competitive participation in extra-regional and global markets. It is for this reason, on the one hand, that Argentine engagement with the Mercosur project has remained relatively more robust and consistent than in Brazil, but also, on the other, that Argentine support for the customs union model of regional integration has been somewhat ambivalent. Especially around the time of the

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1994 Ouro Preto Protocol establishing the imperfect customs union, the reticence of Argentine negotiators stemmed from a combination of the preference for greater freedom in trade policy—at the time the government was interested in negotiating agreements with other partners such as Chile, NAFTA and Asian countries—along with concerns about Brazilian instability and fears about the consequences of the CET for trade with Brazil and third countries (Chudnovsky and López 1999: 400). For this reason, the Argentine position was that the CET should be defined within a broader package that covered the range of trade policy instruments and the treatment of policy asymmetries (Lucángeli 1998:20). At the meeting preceding Ouro Preto in 1994, in the same vein, Argentine negotiators proposed that three mechanisms should be established to coexist with the CET: Structural Adjustment Agreements (aiming to foster processes of industrial restructuring in certain sectors), Intra-Mercosur Safeguards Clauses and the establishment of the CCM. While the latter bore fruit, the first two proposals were rejected flatly by Brazilian negotiators (Lucángeli 1998:24). This reticence notwithstanding, the CET was negotiated successfully without incorporation of these stipulations and preferences because, in the event, it did not compel an increase in the protection afforded to domestic industry in Argentina (Chudnovsky and López 1999:402) and was thus largely politically acceptable. This inclination towards an FTA template for regional integration persisted through the 1990s and indeed, as noted earlier, became especially pronounced in times of economic crisis or during episodes of heightened Brazilian unilateralism. The primarily trade-related interest in the Mercosur has also meant that the Argentine vision of the project has consistently emphasised the expansion of membership and the opening of extra-regional markets by means of inter-bloc negotiations. This does not mean that it has entirely opposed the ‘deepening’ strategy that came to be favoured by Brazilian elites. Its interest in attracting FDI in fact consistently inclined negotiators towards a deepening agenda which would consolidate a regional economy of scale. Moreover, the overriding concern to tame Brazilian unilateralism and mitigate the competitive disadvantage that derived from Brazilian industrial policy has generated an insistence on the need for greater macroeconomic policy harmonisation. Along with industrial policy, the exchange rate issue has been most contentious: on the one hand, Argentine actors perceived considerable prejudice to Argentine competitiveness in the Brazilian government’s freedom to devalue at will; on the other hand, from the mid-1990s the Brazilian government viewed Argentina’s defence of Convertibility as being to Brazilian cost (INTAL 2000:27) and saw a more flexible exchange rate regime as likely to foster a more constructive interaction of regional currencies. In general, pressure for macroeconomic coordination thus emanated primarily from Argentina and for most of the 1990s met significant resistance from Brazilian—and indeed frequently Uruguayan— quarters. It should be remembered, nonetheless, that many specific moments of political crisis were occasioned by ad hoc measures decided unilaterally in Buenos Aires rather than in Brasilia.

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Finally, the contrast between the developmentalist traits of Brazilian neoliberalism and the orthodox character of the Argentine model have been reflected in approaches to the regionalist project and the domestic politics surrounding it. In both Argentine and Brazilian approaches in the 1990s institutionalisation in the Mercosur was seen as neither desirable nor necessary, but the reasons for this position were different in each case: in Brazil, as we have seen, they revolved around an anxiety to protect policy autonomy, while in Argentina they were the reflection of the anti-statist biases at the centre of the development model. Institutions were thus seen as unnecessary distortions of, or constraints on, market activity, and the rolling back of state intervention at the domestic level should not, the argument went, be undercut by the construction of state-like institutions at the regional level. Furthermore, in contrast with the convergence between the interests of state elites and industrialists in Brazil, in Argentina the politics of the Mercosur were dominated by tensions between state strategies and key industrial sectors. Consistent with the thrust of Argentine neoliberalism and the absence of an active industrial policy, the government did not take significant steps to offset the implications of Mercosur membership for the domestic private sector, and regional negotiating strategies were formulated neither in the context of an existing convergence of interests nor through a process of consultation or collaboration with domestic actors. Conversely, there were episodes where attempts to respond to industrialists’ pressures were simply thwarted in negotiations. Broadly, though, the Argentine vision of the regionalist project rested on an extension of the orthodox character of its development model, and negotiating goals during the 1990s were thus oriented to facilitating market integration and eliminating the distortions of political and policy-related asymmetries. Paraguay and Uruguay In some senses, Uruguayan and Paraguayan visions of the regionalist project have been very similar to one another. Economic necessity has been the prime motivation for participation, as a result of dependence on regional and Brazilian markets and in view of the fact that the Mercosur represents the only viable means of achieving greater engagement with global economic activity. Both countries’ positions in the negotiations have rested largely on a commitment to the principle of reciprocity established by the Treaty of Asunción and on the constructive accommodation of different levels of development within the bloc. Their insistence has thus been on the importance of special treatment for smaller economies and on the tailoring of liberalisation schedules and adjustment processes in a manner responsive to their capacities. In both countries, furthermore, the need to offset the power imbalances manifest in the regional arena—particularly Argentine-Brazilian dominance of the agenda and their unilateralist proclivities—has generated a prioritisation of legal and institutional questions, in sharp contrast with the reticence displayed in both Brazil and

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Argentina in these matters. The essence of the Paraguayan and Uruguayan position has been that a higher level of institutionalisation and a more rulesbased governance structure would allow for greater representativeness, as well as more effective implementation and enforcement of negotiated commitments. Over the 1990s the smaller countries did use their equal status in decisionmaking forums both to secure some temporary concessions and to contain the unilateral inclinations of the Brazilian and Argentine governments (INTAL 2001: 6). Nevertheless, it remains the case that they have consistently been the minor voices in the regionalist process and often the victims of the spates of reciprocal unilateralism between the two larger countries. Finally, both Uruguayan and Paraguayan interest in a regionalist project has been dictated by a set of geographical and geopolitical factors. This is particularly the case for Uruguay, where the aim has been to capitalise on the advantages of geography in order to establish the country as the region’s hub in terms of infrastructure and transport. In particular, the strategy has been to enhance Uruguay’s position as a natural point of access to and from the South American region and as a logical link for future corridors between the Atlantic and Pacific coasts (INTAL 1999b: appendix, 20–3). It is for this reason that in Mercosur negotiations the Uruguayan government has consistently stressed the need to place infrastructural development at the heart of the regionalist project While Paraguay is not in a position to pursue similar aspirations, it too has been committed to putting the regionalist project to the service of infrastructural development, largely because a high proportion of its export trade (around threequarters) relies on land transportation (INTAL 1998: appendix, 20). Notwithstanding these areas of clear similarity, visions of regionalism in the two smaller countries are also significantly different from each other. For Paraguay membership represented a reversal of the condition of progressive international and regional isolation that had prevailed in the latter years of the Stroessner dictatorship, as well as the residual nationalism which still pervaded the foreign policy establishment at the turn of the decade (Lambert 2001:2; Masi 1997:175–8). Paraguayan motivations were in this sense essentially political rather than economic and centred around the promotion of international democratic legitimacy. Indeed, the economic implications of membership were barely discussed at the time that the Paraguayan government signed the Treaty of Asunción (Masi 1997:177–9). Nevertheless, its motivations also derived from economic necessity and from the need to attract FDI and enhance access to export markets within the region. Its immediate interests thus rested largely on tariff reduction, given the disparities between the high average tariff levels that prevailed in Brazil and the low levels found in the considerably more open Paraguayan economy (Breuer 1996:230–1). In this respect Argentine and Paraguayan negotiating preferences converged, although of course significant differences emerged on questions of the schedules for tariff reductions. In the event, while Argentina and Brazil were required to effect substantial reductions,

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Paraguay was obliged to increase tariff levels in order to achieve some degree of regional harmonisation (Breuer 1996:231). The disappointing results for Paraguay of participation in the Mercosur have stemmed largely from the internal characteristics of the Paraguayan political economy that have hindered effectual participation in the process. As outlined in earlier chapters, factors such as corruption and institutional underdevelopment have been the most pivotal of these. The disappointing results have also stemmed from concrete problems in participating in Mercosur negotiations. Not only does Paraguay have negligible bargaining power, being the smallest, poorest and most dependent of the member countries, but it also suffers from a distinct lack of state and institutional capacity. The consequence has been that successive governments have been unable effectively to represent Paraguayan interests in Mercosur negotiations or to secure concessions or compromise from the larger member states. In other words, the point about the Paraguayan case is that no concrete or sustained vision of the regionalist project emerged over the 1990s, with the result that its participation in the bloc has been largely muted and marginal. For Uruguay, by contrast, participation in the Mercosur represented a logical next step in the strategy of consolidating the progressively closer integration with the Argentine and Brazilian economies that it had pursued over the 1980s. Especially for the sizeable agro-industrial sector in Uruguay, Argentina and Brazil represented both its principal export markets and its principal competitors (INTAL 1999b: appendix, 19), which meant that mechanisms to entrench cooperation were of pivotal importance. These took shape in the pre-Mercosur Convenio Argentino-Uruguayo de Complementación Económica (CAUCE, Argentine-Uruguayan Agreement on Economic Complementation) and the Protocolo de Expansión Comercial (PEC, Trade Expansion Protocol) with both Argentina and Brazil. For this reason, the appearance of a formal integration project between Argentina and Brazil alone was received in Montevideo as an ‘unwelcome development’, the consequence of which would be that Uruguay’s preferential access to the Brazilian market under the PEC would be eroded as these preferences were extended to Argentina (Abreu 2000:48). Membership of the Mercosur was thus inevitable if Uruguay was to maintain its preferences in both of these larger markets. The result was that for most of the 1990s the Mercosur became Uruguay’s ‘dominant economic project’ (Finch 1999:91), not only in order to retain and entrench its commercial interests within the region but also for the purposes of building a platform for greater participation in extra-regional and global markets. While Uruguayan interest lay primarily in commercial expansion, the strategy pursued in the Mercosur emphasised the mitigation of adjustment costs for domestic industry and business. There are some similarities with the Brazilian case in the Uruguayan state’s prioritisation of mechanisms of protection, which were concentrated in attempts to negotiate extended timescales and extensive lists of exempted products. Indeed, as we have seen, under the Treaty of

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Asunción Uruguay had the greatest number of product exemptions as well as extensions of the liberalisation timetable for a significant number of products. This strategy of negotiating exemptions also constituted, importantly, a mechanism whereby the preferences afforded under the PEC and CAUCE could be maintained under a new Mercosur regime which aimed to level the playing field (Abreu 2000:66). In this way, the Uruguayan vision of regionalism reflected the duality evident in the development model as a whole: on the one hand, participation in the Mercosur was dictated by an interest in entrenching and accelerating the liberalisation process in the domestic arena, particularly through trade expansion; on the other, its strategies were informed by the ongoing inclination towards an active role for the state in the development model. The other perceived challenge for Uruguay was to reconcile the regional agenda and the aim of greater engagement in the global economy. While in one sense the Mercosur was seen as a platform for the achievement of the latter aim, in another sense the protection of a high CET was seen as likely to erode the gains in efficiency that ‘global’ opening would afford. Uruguayan negotiating strategies thus focused on achieving a level and structure of the CET that would not act to undermine domestic efficiency or global competitiveness (INTAL 1999b: appendix, 20). With the onset of crisis at the end of the 1990s, the balance between these objectives became harder to maintain, as the possibilities for trade expansion were limited and the risk of damage to the domestic private sector increased considerably. It is for this reason that the Uruguayan government’s commitment to the Mercosur cooled so distinctly at this time and inclined progressively towards the ‘Mercosur-sceptic’ position we noted earlier on. Chile Chile’s position within the Mercosur has been dictated primarily by its associate (rather than full) membership. The agreement for its accession on this basis was signed in 1996 and was essentially for an FTA between Chile and the Mercosur. While, crucially, no products qualified for exemption (unlike in the initial Mercosur agreements), different tariff reduction timescales were agreed for different product categories (Bouzas and Fanelli 2002:175). Extended timescales applied especially to agricultural products, as a means of deflecting some of the pronounced resistance to the Mercosur among agricultural interests and concerns about the impact of the agreement on the agricultural sector. Under associate membership, Chile was not obliged to accept the CET but conversely was not entitled automatically to a seat or voice in the Mercosur decision-making forums, although it has participated in a range of GMC and CMC meetings and attended such events as the Mercosur presidential summits. Full membership of the Mercosur—involving adoption of the CET—was not in Chilean interests given the much lower tariff levels that prevailed at the time (and indeed continue to prevail) in the Chilean economy. In this sense, the benefits to Chile lay

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essentially in the area of market access, consistent with the state’s broader trade strategy. This strategy responded both to the need to open up export markets and to the fact that the low average tariff levels limited the potential gains from the unilateral trade liberalisation that the Chilean state had pursued up to that point (Bouzas and Fanelli 2002:174). Thus, in a nutshell, the Chilean trade strategy over the 1990s came to privilege a bilateral and diversified approach, and consequently state and private sector preferences lay squarely in the agreement of free trade areas with a variety of partners rather than in the construction of customs unions and common markets. Indeed, the primary interest lay not in the Southern Cone at all but, rather, with the North American region, Chile having been designated by the US in 1994 as the next in line for NAFTA membership. It was not until these negotiations were definitively shelved by the US after the Mexican peso crisis that the Chilean state came to consider an association with the Mercosur as strategically advantageous. The decision to become an associate member did make good sense in terms of the close trade and investment links that Chile enjoyed with Southern Cone partners: around 1997, exports to the Mercosur accounted for around 55 per cent of Chilean exports to Latin America, even though the US remained their principal destination overall, and Argentina and Brazil were, respectively, the second and third most important sources of imports into Chile after the US (Carnevali 1999: 15). The decision also stemmed from an anxiety about being ‘left behind’ as regional blocs proliferated in the Americas and in the global political economy. The additional motivation behind the trade strategy outlined above, in this sense, was a concern about the potential erosion by these regional integration agreements of Chilean preferences and competitive positions in its principal export markets. The point, however, is that the pursuit of a closer association with the US and NAFTA continued and associate membership of the Mercosur was seen as but one element in the complex fabric of the Chilean trade strategy. The Chilean vision of the Mercosur project has been connected, finally, with two further objectives. The first has been that of expanding trade in higher valueadded manufactured goods and moving away from its reliance on naturalresource-based export products. The achievement of this goal has been complicated by the relative lack of competitiveness of Chilean manufactures in global and North American markets. The Mercosur, conversely, represents an arena in which Chilean manufactured products do enjoy some competitive advantage, as well as an arena conducive to a process of competitivenessbuilding. So, while agricultural interests were seen in the mid-1990s to be potentially the principal losers from associate membership of the Mercosur, manufacturing sectors were seen to be those with most to gain (see Labán and Meller 1996; Carnevali 1999; Grugel 1999; Bouzas and Fanelli 2002). The second objective relates to investment—not only the attraction of foreign investment but also the importance of the Southern Cone economies as destinations for outward Chilean investment. We will return to intra-regional investment patterns later in the book, but it suffices for now to note that the

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Chile-Mercosur agreement built upon the progressively closer economic linkages in the Southern Cone and also reflected the important place of Chile within the structure of economic interaction around which the Mercosur project crystallised. Conclusion The aim of this chapter was both to provide a background account of the nature and evolution of the Mercosur over the 1990s and, more importantly, to highlight the ways in which these have been directly shaped by the specificities of national political economies and development strategies. The sharp divergences in the ‘visions of regionalism’ that have arisen from these specificities are key to understanding the Mercosur’s ponderous progress, shallow level of integration and increasingly deep political fissures. Put another way, the Mercosur of the 1990s was characterised by the absence, beyond the broad commitment to neoliberalism on which it was constructed, of an underlying convergence of domestic political economy structures from which a coherent set of international strategies might have arisen (Phillips 2003a; also see Jayasuriya 2003). It is worth pointing out that divergence arises not just between member countries but also between various sectors and interests within the respective domestic political economies. Indeed, much of the divergence between member countries stems not only from economic structures and economic orientation but from the preferences of domestic political actors and the ways that these permeate (or not) the positions of state elites. This is not simply a matter of conjunctural political management; rather, patterns of domestic social relations are decisive in shaping the international economic strategies associated with distinctive versions of neoliberalism. These social actors are often overlooked because of their relatively slight input into the formal regionalist processes of the Mercosur. Nevertheless, their input into government positions within these processes is far from negligible and indeed, as we will see later on, various new forms of participation are emerging in regional and national arenas. The important point for now is that the regionalist project that accompanied the neoliberal turn in the 1990s did not imply an erosion of the specific and historically contingent forms of domestic political economy in the Southern Cone, or of the distinctive domestic development models on which the motivations and strategies of member states in the Mercosur project have been heavily contingent. However, unlike the LAFTA project in the post-war period, the Mercosur is notable for its structural relevance to the central development project of the 1990s. Full-scale convergence remained, and remains, a fairly remote prospect. Nevertheless, while industrialisation strategies continued to be articulated almost entirely at the national level during the period of ‘old regionalism’, the regionalist project of the 1990s represented a transnational articulation of the neoliberal project and exercised an important reshaping impact on the domestic political economies of the member countries. It carried

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with it a range of imperatives for policy convergence, initially in trade and tariff policy, and progressively in a range of other areas. While some of these imperatives have not been met effectively, the extent of domestic policy change to accommodate the demands of the regionalist project has nevertheless been significant. Its evolution over the 1990s was certainly characterised by intense political conflict, but nevertheless the regionalist project unleashed a process of regularised and, in some instances, institutionalised inter-state cooperation and/ or diplomacy that was a distinctively new phenomenon in the Southern Cone. Given the disappointing achievements of the formal regionalist process over the 1990s, perhaps the most profound impact on domestic political economies was exerted by the myriad processes of regionalisation which the Mercosur unleashed and around which it proceeded to crystallise over the course of the decade. The emergence of a new regional political economy thus nests in the complex web of both regionalist and regionalising processes in the Southern Cone and has become progressively more evident with the trends of the early 2000s. It is time, then, to turn our attention to the contours of the new Southern Cone Model and, building on this chapter, to look first at contemporary regionalist dynamics.

Part III The emerging regional political economy

6 The reconfiguration of regionalist dynamics

The 1990s ended in the Mercosur with a widespread perception of a need to go back to the drawing board. While some loud voices were advocating the abandonment of the project, as we have seen, the most common argument was that of Brazilian senator Antonio Carlos Magalhaes: that ‘the Mercosur is useful, but it must be rethought’ (Folha de São Paulo, 18 July 1999, cited in INTAL 2000: 27) in order to address collectively the sources of divergence and fragility that had characterised the Mercosur’s first decade. The key issues revolved around the relative competitiveness of Mercosur economies and, to use Sylvia Ostry’s (1996) interesting formulation, around the management of ‘system frictions’ within the bloc. System frictions are seen to stem from lags in market-driven convergence, as the resulting imbalances move market interactions into the realm of domestic politics and as domestic structures of other countries consequently become stakes in local politics (Berger 1996:15). This is particularly pronounced when a balance of competitiveness between economies is disturbed—or else an existing imbalance is exacerbated—by economic crisis or unilateral policy innovation. The upshot of recurrent or prevalent system frictions is—and in the Mercosur has been—a build-up of pressures for collective and negotiated solutions and for a levelling of the competitive playing field by means of convergence in a range of key policy areas. It was in this spirit that the principal offensive to reinvigorate the regionalist project was initiated in mid-2000, in the so-called ‘relaunching’ of the Mercosur. This aimed to set in train a significant recrafting and expansion of the bloc. It had a wide variety of components, including the Chilean government’s announcement of its aim to upgrade its associate membership to full membership and Cardoso’s call for an expansion of the project’s remit to encompass such areas as scientific research, education, military and defence policy, and the manufacture of products labelled ‘made in Mercosur’. But its most important facet related to macroeconomic policy coordination, framed within the ambitious initiative to construct a so-called ‘little Maastricht’. The first public mention of this idea had been made in June 1999, and in December of that year three measures laying the foundations for a common currency had been established at a meeting in Montevideo. These were the harmonisation of national statistics (starting in

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September 2001); the establishment of common standards for ‘fiscal responsibility’ (to be announced in March 2001); and the obligation to report on efforts at achieving economic stability at future summits. Subsequently the XVI Summit of Mercosur Heads of State in Asunción in June 2000 gave rise to the ‘relaunching’ proper, laying out the preparatory framework for convergence in a range of areas, including market access, the incorporation of Mercosur norms into the legal structures of member countries, the strengthening of institutions, the perfecting of the Brasília Protocol dispute resolution system, the CET, competition policy, trade relations with extraregional parties, macroeconomic coordination, investment incentives, production and exports, and external relations (CMC 2000). The positioning of the common currency at the heart of this relaunching was intended as a reinvigoration of the commitment to the achievement of a common market, and as a means of shoring up commitment to the customs union model itself at a time when this was under challenge from emerging Argentine and Uruguayan preferences for an FTA model of integration. As we argued in the previous chapter, the relaunching project did not have a significant mitigating impact on the regional crisis, or on the crisis of the Mercosur itself. Indeed, the crisis became more profound over the course of 2001, with the strains exemplified by the perforation of the CET, the serious consideration given to suspending the Mercosur and the further proliferation of sectoral tensions. Yet, despite this acceleration of the crisis, the notable feature of 2001 was that, for the most part, the commitment to the Mercosur remained relatively intact. Debate centred principally on mechanisms of crisis management and on the virtues of maintaining a customs union model as the template for regional integration, but at the same time a series of political initiatives emerged with the aim of bolstering the Mercosur and reanimating political commitment to it. Such initiatives received impetus from the appointment of Celso Lafer as Brazilian Foreign Minister after the resignation of Felipe Lampreia in early 2001. Lafer was strongly opposed to redesigning the regionalist project as a free trade area; indeed his appointment augured a renewed Brazilian loyalty to the Mercosur project at the same time as, in something of a role reversal, various government and economic actors in Argentina displayed most ambivalence about its future. The Brazilian government’s line over 2001 was consistently that the future of the Mercosur rested on the deepening of integration and the perfection of the customs union. In this context, diplomatic negotiations yielded some important initiatives for addressing what have been identified as the three key issues in the Mercosur: the neutralisation of the effects of exchange rate disparities on intra-regional trade flows; the flexibilisation of CET and the possibility of moving towards a form of ‘variable geometry’ and multi-speed integration; and the establishment of coherent rules in the automobile sector (Peña 2001). We will look at the detail of responses to these issues later in the chapter; for the time being, the important point is that ongoing attempts were made during 2001 to find solutions to the myriad differences between Mercosur partners.

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These were accompanied by attempts to increase integration in a range of noneconomic areas, such as the signing of consular agreements facilitating movement of businesspeople and the establishment of an Agencia Brasileño-Argentina de Energía Nuclear (Abaen, Brazilian-Argentine Nuclear Energy Agency). Agreements were also made among foreign ministers to meet more often and cooperate to revitalise the ailing project, following the inauspicious suspension of Mercosur negotiations in the middle of the year, and among Mercosur governments to address collectively terrorism-related issues following the events of 11 September. Moreover, 2001 was marked by the announcement in April of Venezuela’s aspiration to Mercosur membership (which was broadly well received, particularly in Brasilia) and, perhaps most importantly of all, by the announcement at a September meeting in Washington, DC, of the so-called 4+1 initiative for a Mercosur-US FTA. Perhaps ironically, however, it was not until the Argentine devaluation that the space emerged for a genuine revitalisation of the Mercosur project. The devaluation did not mark the end of the crisis in the bloc, as demonstrated by the hardening of Uruguayan positions and the consequent suspension of free trade, as well as the continuing resort to formal representations by member countries against each other in the WTO—examples in 2002 included Brazilian representations against Argentina over chickens and the drawn-out dispute in the WTO between Argentina and Chile over the latter’s application of safeguards on imports of Argentine wheat, wheat flour and vegetable oils. But the devaluation did pave the way for more constructive considerations of how to address the project’s fundamental problems. This was facilitated by a number of factors. The first was simply that the Argentine crisis enhanced diplomatic cooperation among all five Mercosur governments with a view to supporting the Argentine government in its management of the crisis and its difficult negotiations with a frequently recalcitrant IMF and US government. In this sense the Argentine crisis was seen to have a ‘silver lining’ in the ways in which these concerted responses lent a new impetus and cohesion to the regionalist project (Financial Times, 6 January 2002). The second was that the abrupt alteration of the economic and macroeconomic environment in Argentina dissipated many of the sources of friction that had characterised the preceding years. The devaluation brought the Argentine exchange rate more closely in line with that of Brazil and the other member countries, diminishing the imbalances that had derived from the peso’s overvaluation and restoring some of the competitiveness of the Argentine economy. The result was the reanimation of many of the goals of the 2000 relaunching agenda that had been pushed on to the back burner over 2001. One of the most concrete innovations to emerge was the ‘freedom of residence’ rule, allowing citizens of Mercosur countries to reside freely in other member countries, which was ratified by Mercosur presidents on 6 December 2002 and referred for domestic legislative approval. Finally, the change of Brazilian government led to the emergence of a new drive to reconstruct the Mercosur and

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recover its dynamism, premised on a political alliance between Brazil and Argentina and propelled by Presidents da Silva (Lula) and Duhalde (and subsequently Kirchner), along with Brazilian Foreign Minister Celso Amorim. The agreement emerging from the bilateral meeting of January 2003 sought to revive the impetus towards a common currency, to lay the political ground for the coordination of defence policies and for the elaboration of common positions on the Venezuelan crisis that was accelerating at the time, to fortify the principle of collective bargaining in external negotiations and to make a number of commitments to institution-building and policy coordination. The upshot of these developments, then, has been an important reconfiguration of the form of regionalism encapsulated by and underlying the Mercosur. Our central concern in this chapter is with the nature of this emerging form of regionalism and the various processes which weave together to produce this reconfiguration. The contention is that it rests on three key pillars—namely, the articulation of the Mercosur as a ‘strategic objective’ in external negotiating arenas, developments in matters of institutionalisation, and incipient processes of policy harmonisation. It is to these that we now turn our attention. Strategic objectives and external negotiations One of the important ways in which governments sought to redefine the Mercosur was as an effective political and strategic platform for the conduct of external negotiations. From the time of the 2000 relaunching, this articulation of the Mercosur as a ‘political unit’—or, in Cardoso’s words, a ‘strategic objective’— garnered robust support from all of the member governments. In essence, the political unit cohered around the principle of collective negotiation, in which Mercosur governments would speak, as it were, with a single voice and articulate common interests and negotiating positions in a variety of arenas. This principle was first established explicitly in the 1997 ministerial meetings of the Free Trade Area of the Americas (FTAA) in Belo Horizonte, Brazil, but was intended to obtain across the spectrum of external negotiations. Four such arenas are particularly salient: the multilateral trade negotiations in the WTO; the FTAA process; negotiations with the EU; and negotiations with South American partners. Multilateral negotiations Over the 1980s and 1990s domestic trade liberalisation processes both generated and reflected key shifts in the participation of Latin American countries in the multilateral trading system. During the post-war period the prevailing development model and various nationalist ideological trends meant that trade issues occupied the heart of the North-South debate (Tussie 2003a:4), with the result that Latin American countries were both marginalised from the GATT process and resistant to participation in it. The broad shift to market economics

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in the region, however, went together with increased membership of the GATT/ WTO and active engagement in the Uruguay Round negotiations (1986–94), as central mechanisms by which governments sought to pursue both their commercial interests and broader international credibility for their domestic reform efforts. This enhanced participation in the multilateral system was especially important for Mercosur countries. We noted in the previous chapter that the region remains relatively less open than many of the other blocs in the Americas, but nevertheless its overall trade pattern is significantly more diversified in terms of export destination than that of, say, Mexico or the Central American and Caribbean blocs (see Table 6.1). It is for this reason that Mercosur countries as a group have relatively more at stake in the multilateral system than most of the other countries of the region (de Paiva Abreu 2003:23–4) and, consequently, they have sought systematically to strengthen their participation and influence in WTO negotiations. At the same time as the inclusion and participation of developing countries in the GATT/WTO system expanded rapidly, the system itself was entering a period of some disarray. From the conclusion of the Uruguay Round, the WTO process came to be marked by a degree of drift and growing political tensions, manifested in a slowing of the previous dynamism of the multilateral liberalisation process, a progressive retraction of the engagement and compliance of the US with multilateral rules (see Tussie 1998a), and a growing disillusion among developing countries with the content, conduct and implementation of WTO negotiations (see, inter alia, Finger and Nogués 2002; Laird 2002; Panagariya 2002). The subsequent launching of a ‘new’ WTO agenda at the Doha ministerials of November 2001 was hailed by United States Trade Representative (USTR) Robert Zoellick as removing ‘the stain of Seattle’ (Financial Times, 14 November 2001)—referring to the much-publicised riots and protests that accompanied the 1999 trade ministerials—and was framed as encapsulating a self-conscious ‘development’ focus for the next phase in the WTO’s evolution. Nevertheless, the post-Doha agenda by the end of 2002 remained ill defined and, moreover, its conception garnered significant opposition from developing countries. This opposition clustered around three key issues: the poor record on implementation of Uruguay Round commitments by the most powerful countries, particularly of market access agreements by the EU and US; the persistence of significant barriers to trade in sectors of key importance to developing countries such as agriculture, textiles and steel; and the ongoing failure to establish binding multilateral agreements on the use of CDMs, negotiation of which had thus far been significantly obstructed by the US government. All of these specific issues fed into a more general one, namely that developing-country governments, including Latin American ones, perceived a sharp imbalance between the costs of their compliance with WTO commitments and the benefits that would accrue to them from the implementation of agreements by the governments of the most powerful trading nations (CEPAL 1999:10).

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Table 6.1 Direction of manufactured exports by subregional grouping, averages 1990–9 (% of total manufactured exports)

Note: *Figures for NAFTA are 1990–8 averages. Source: elaborated on the basis of data from Inter-American Development Bank.

It is in this context that Mercosur countries undertook to approach WTO negotiations from a collective platform. Collective negotiation—or, in FTAAspeak, bloc bargaining—was viewed as expedient not only for the bloc as a whole, in order to strengthen its presence in the hitherto exclusionary negotiating forums and enhance the bargaining leverage of its individual members. It was manifestly so for Uruguay and Paraguay, but also for Argentina, where contrast was frequently drawn between the apparently effective negotiating strategy of the Brazilian team—leading to major concessions in Doha on intellectual property and medicines—and the apparently ineffectual participation of the Argentine delegation, which failed to secure any substantive benefits from the multilateral negotiations (Magariños and Nogués 2002). A bloc bargaining strategy, moreover, has been intended to capitalise on certain common interests between Mercosur countries, of which the most notable lies in agriculture. All of the full and associate members participate in agricultural negotiations through the vehicle of the Cairns Group of agricultural exporters,1 but at the same time a solid Mercosur platform has also crystallised around this issue area, facilitated by the importance of agriculture across the regional economies and the largely successful progress of liberalisation at the regional level. Indeed, Mercosur provisions on agricultural liberalisation came to exceed those of the WTO and in almost all sectors, with the exception of sugar, tariffs were eliminated completely over the 1990s. It should be noted that this has not involved a harmonisation of domestic agricultural support policies, for which reason the regional liberalisation process has remained ‘inherently unstable’ (Díaz-Henderson 2003: 72–3). Nevertheless, agriculture has formed the backbone of Mercosur members’ interests and participation in the multilateral process, and it is notable in this sense that Argentine actors were at the forefront of a motion to veto a new round of WTO negotiations in the absence of a satisfactory agreement at Doha on agriculture. Instances of joint Mercosur declarations and proposals have also emerged in the area of services and unified positions have been taken up on a range of

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market access issues. However, these unified positions have tended to be those that have not required purposive coordination—that is, they have been the result of already convergent positions between Mercosur governments rather than the active coordination of previously disparate strategies. Moreover, technically Mercosur members continue to negotiate separately in the multilateral arena, with alliances tending to be determined by issue rather than by bloc. Brazilian sugar producers, for instance, are the only members among Mercosur countries of the Global Alliance for Sugar Trade Reform and Liberalisation (Díaz-Henderson 2003:77), and it was in conjunction principally with the Indian government that the Brazilian government led the aforementioned charge on intellectual property and pharmaceuticals, as well as on various services-related issues. These two governments also led the broad resistance among developing countries to a new round of negotiations after Seattle (while Argentina, Chile and Uruguay participated in the so-called ‘Friends of the Round’ group formed supporting its launching) and fostered the increasingly organised and robust alliance among developing countries that crystallised around the 2003 ministerial meetings in Cancún. Conversely, Argentina and India joined forces to secure the recognition of labour as a mode of supply in multilateral negotiations, which garnered little interest from Brazil (Narlikar and Woods 2003:44), and Uruguay spearheaded the formation of the so-called Group of Seven (G-7), which included Argentina,2 and which produced a key paper setting out proposals for the Doha ministerials (see WTO 2001). Other examples abound of sectoral and issue-based alliance patterns which do not correspond with, or on occasion have been incompatible with, a collective Mercosur approach to multilateral trade negotiations.3 This underscores the broader point that, beyond an important but limited set of common interests, Mercosur countries’ objectives in WTO negotiations are frequently at variance with each other. For instance, the larger countries of Brazil, Argentina and Chile enjoy broadly convergent interests in the range of market-access-related issues, such as CDMs and services (de Paiva Abreu 2003: 31), which are not as central to the concerns of the smaller member states. Conversely, the greater degree of product diversification in Brazil has led to a greater interest than that of other partners in trade in manufactured and industrial goods, along with services and intellectual property. Chile, meanwhile, offered qualified support as a ‘long-term vision’ to the US proposal in December 2002 to eliminate all tariffs on industrial goods by 2015, which was opposed strongly by other Southern Cone, Latin American and developing countries (Financial Times, 6 December 2002). Nevertheless, although genuine bloc bargaining is complicated by these distinctive sets of interests and the pattern of alliance formation with extra-regional partners, expanded participation in the WTO has generated regularised patterns of communication between national negotiators in the Mercosur and frequent instances of unified negotiation on specific issues.

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Hemispheric negotiations The FTAA project rests on the goal of establishing by 2005 an FTA stretching ‘from Alaska to Tierra del Fuego’, as George Bush (senior) famously put it in his 1990 announcement of the FTAA’s forerunner, the Enterprise for the Americas Initiative (EAI). The initial preference of the US was to negotiate in a countrybycountry format, using the NAFTA as a template, with a view to establishing a ‘hub-spoke’ type of arrangement. This was replaced, as we have already noted, by a bloc-based approach to the negotiations, in which the principle of collective negotiation was adopted by all of the existing regional groupings except the NAFTA. Bloc bargaining was envisaged most immediately as a means of strengthening bargaining power in the FTAA negotiations and, moreover, diverting the prospect of unilateral US dominance of the agenda and the negotiations (Phillips 2003b). The Mercosur—or more specifically Brazilian— pole represents the only feasible counterweight to this dominance, given that other candidates such as Venezuela and Canada are constrained by a far greater economic dependence on the US (Mace and Bélanger 1999:42). The aim has thus been to use and reinforce the Mercosur project as a means of retaining influence over the shape of an integrated Americas and avoiding the possibility that the FTAA process would become, in Lula’s words during his presidential campaign, ‘a process of the economic annexation of the continent by the United States’ (La Nación, 23 October 2003). The significance of this strategy has been twofold. The first is that the early hemispheric process crystallised as an interbloc negotiation, dominated by the northern pole led by the US and the southern pole led by Brazil. Reflecting this format, the presidency of the final stages of the FTAA process shifted in late 2002 into the joint hands of these two countries. The second is that the new strategic agenda constituted the primary reason for the revival of Brazilian interest and leadership in the Mercosur, and indeed the mainstay of the Lula government’s active prioritisation of relations with Argentina, Mercosur and South America in early 2003. Apart from issues of negotiating leverage, however, bloc bargaining has been spurred primarily by the imperative of bolstering the Mercosur against absorption into an eventual FTAA. In contrast with the multilateral agenda, an FTAA carries with it a series of immediate threats to the integrity and survival of the Mercosur. The strong version of this argument contends that an FTAA would hollow out the economic rationale for smaller regional blocs, as their structures of preferences are erased by the provisions of hemispheric free trade. This vision of ‘hemispheric globalisation’ (SELA 1999:36–7)—favoured at least in theory by a variety of US actors, including negotiators, business interests and members of Congress—thus presages the ‘levelling’ of the hemispheric playing field and the obsolescence of its constituent regional blocs. At the very least, it is clear that an FTAA would imply that the bulk of trade-related issues would be shunted to the hemispheric negotiating arena and thus treated primarily outside the boundaries of the Mercosur. This may carry certain advantages in the sense that the

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negotiation at the hemispheric level of some of the most obvious sticking points in the Mercosur (such as services and investment) would assist in relieving some of the economic and political tensions within it. However, it is also the case that the original open regionalism project would thereby be undermined, or at least diluted, as much of the policy framework became standardised outside Mercosur borders. It is largely for this reason that a reconfiguration of the regionalist project has been seen as necessary in order for the Mercosur to retain validity in the context of an FTAA. The baseline consensus has been that if the Mercosur limits itself to being an imperfect customs union (in effect an FTA with a CET) the establishment of the FTAA and the consequent elimination of tariff differences would mean that nothing substantive would remain of the bloc (Giambiagi 1999: 60). Liberal support for the alternative—namely the conversion of the Mercosur into an FTA—indeed rests explicitly on the argument that its consequent ‘absorption’ into a wider FTA would be a desirable outcome, but conversely this has also provided the principal grounds for the more significant resistance to adoption of an FTA model and the impetus towards ensuring an appropriate reconfiguration of the project. Thus, the new emphasis has fallen on the perfection of the customs union and further progress towards deepening integration, as well as on the projection of the Mercosur as a political and strategic unit. While bloc bargaining has thus been central to the FTAA process and Mercosur’s participation in it, it has been only partial in its coverage and patchy in its implementation. A certain cohesion has emerged in those areas already characterised by common ground between Mercosur partners, with the pattern in this respect largely the same as the one we identified in the multilateral arena. Indeed, given that the WTO agenda is largely mirrored by the FTAA agenda, it is not surprising that many of the areas of convergence or divergence between Mercosur countries in multilateral negotiations should be replicated in the politics of hemispheric integration. Market access issues and agriculture thus form the backbone of Mercosur visions of and positions in the FTAA negotiations. A ‘WTO-plus’ format—in which FTAA provisions are expected to exceed those agreed at the multilateral level—was initially resisted by Latin American and Caribbean negotiators, but subsequently accepted and consecrated in the Declaration of the November 2002 FTAA ministerials in Quito, Ecuador.4 However, within this framework the guiding principle for Mercosur (and other Latin American) participants has been that the FTAA must be genuinely WTOplus —that is, including in market access and agriculture. Brazilian negotiators in particular have been adamant that an FTAA needs to be ‘comprehensive’ if it is to be either meaningful or acceptable, and that ‘Brazil can only envisage the establishment of a free trade area if it is to obtain concrete and substantial access to highly protected sectors’ (Barbosa 2001:153). As we noted in the multilateral context, market access also goes hand in hand with CDM-related issues, in that any concessions forthcoming from the US on market access might easily be

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eroded by the use of the latter discretionary instruments (de Paiva Abreu 2002: 20). On market access and agriculture-related issues, then, Mercosur negotiators have been relatively successful in elaborating and sustaining a unified front. Beyond these baseline stipulations, however, a comprehensive bloc bargaining strategy has been slow to crystallise. In the bulk of FTAA talks up to 2002, those common Mercosur positions which did emerge were adopted largely on a ‘meeting-by-meeting’ basis, rather than reflecting the prior formulation of a unified strategy. This has stemmed in part from the same internal tensions and divergent interests which complicated bloc bargaining in the WTO. In other part, it has stemmed from the nature of the negotiating agenda itself. The interest of the US in an FTAA is explained not by potential benefits in market access, as most of the barriers to trade remain concentrated in the US market rather than in Latin American markets, but rather by the possibilities it affords, in the context of a ponderous multilateral process, for pushing a range of ‘newer’ trade disciplines. The principal negotiating areas that encapsulate these disciplines find expression in the nine technical working groups established at the 1998 San José ministerials: market access; agriculture; services; investment; government procurement; intellectual property rights; subsidies/AD/CVDs; competition policy; and dispute settlement. The complications for bloc bargaining stem from the fact that, as we have seen, the internal arrangements in the Mercosur are either weak or non-existent in most of these nine areas, which has meant that the elaboration of common positions has proved premature and politically contentious. The working-group structure thus reflects and facilitates a significant degree of US leverage over the FTAA agenda and, in the frequent absence of precedent and expertise, a systematic disadvantaging of Mercosur (and other Latin American and Caribbean) parties in the negotiations (Phillips 2003b:272– 3).5 while bloc bargaining has thus been impeded in most of the nine areas, it has nevertheless been possible in those areas in which Mercosur provisions are either relatively well developed (such as market access) or already ‘WTO-plus’ (as in agriculture). Collective negotiating strategies have also been complicated, finally by the continuing and increasingly robust tendency towards bilateralism evident in all of the Mercosur countries, perhaps with the exception of Paraguay. The Brazilian government, for example, sought to negotiate separately with such partners as Mexico and South Africa around the start of the 2000s; the Argentine government similarly opened discussions with Mexico at the end of 2002 as part of a broader strategy to establish a ‘multipolar’ trade strategy intended, as one government official put it, to replace ‘or’ with ‘and’ as the basic underlying concept (Redrado 2002). The Chilean state’s strategy has consistently favoured the autonomy and discretion afforded by bilateralism and independent negotiation. In the specifically FTAA context, though, the tendency has been most notable in the pursuit of bilateral relations with the US, which has frequently perforated the commitment to bloc bargaining. Chile signed a free trade agreement with the US in December 2002 and the Uruguayan government

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since 2000 has shown itself to be committed to the FTAA and to bilateral negotiation with the US, frequently over the Mercosur. This resulted in the establishment in late 2001 of a Comisión Conjunta de Comercio e Inversión (Joint Commission on Trade and Investment) between Uruguay and the US, similar to that established in 1998 to guide the negotiations with Chile. We have also seen that the Argentine government has been anxious to open bilateral negotiations with the US, but this has been complicated by the explosion of its economic crisis from late 2001. This tendency towards ‘default bilateralism’ is important not solely for the deviation it implies from the principle of collective negotiation, but also for its implications for the FTAA process. On the one hand, as a result of the 2002 agreement Chilean interests came to approximate those of Mexico in the sense that its participation in an FTAA necessarily is premised on a certain guarding of its preferential access to the US market, and it would be expected that the anticipated bilateral agreements between the US and other regional partners would produce the same effect. On the other hand, US trade strategies have come increasingly to favour bilateral negotiations over more encompassing hemispheric ones, largely for the greater opportunities opened up by the former for the achievement of agreements in line with the strategic priorities of the USTR —that is, of obtaining access to services markets in the region in exchange for concessions on market access for a range of goods but, equally, the exclusion of significant concessions on agricultural liberalisation or modification of domestic legislation on CDMs. This, indeed, was the substance of the agreement with Chile, which also went further to include provisions limiting Chilean governments’ future ability to impose controls on capital flows. The pursuit of bilateral agreements is also useful as a mechanism for increasing the incentives of other partners (notably Brazil) to engage in similar negotiations, or else for increasing their interests in the success of the FTAA negotiations and thus encouraging a softening of negotiating positions (Phillips 2004c). Crucially, however, the coverage of these bilateral negotiations and agreements is limited to market access issues; therefore bilateralism does not stand entirely in contradiction with either active participation in the FTAA process or a bloc-based approach to this participation. While Uruguay is seeking to carve out a quasiindependent path, the commitment to bloc bargaining remains firm among Mercosur states, particularly in the respective ministries of foreign affairs. Indeed, there is evidence that collective negotiation is gaining rather than diminishing in intensity, especially in the elaboration of proposals and positions in the technical negotiations. These have included the presentation of a joint working document to the 2001 summit in Quebec City (despite the extent of the internal crisis at that time) and the successful agreement of a Mercosur CET for presentation as an ‘opening offer’ in the FTAA negotiations (Informe ALCA, November 2002). In late 2002, similarly, national consultations were underway for the formulation of Mercosur offers in the five technical groups relating to market access (market access, agriculture, services, investment

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and government procurement), although it remains probable that only individual offers will be presented in the latter three, especially sensitive, areas (Gazeta Mercantil de Brasil, 22 January 2003). Interestingly, in this respect, in January 2003 Brazilian Foreign Minister Amorim announced that the government would be ‘taking its time’ in its presentation of offers in these areas (Clarín, 22 January 2003), thereby complying only partially with the agreed deadline for these offers of February 2003.6 Moreover, largely in response to the faltering process of the negotiations and the ascendance of bilateral negotiations, the Lula government also ushered in an important redefinition of its negotiating strategies in the FTAA context, according to which the key issues of market access, services and investment will be negotiated in a bilateral 4+1 (Mercosur-US) format, leaving only ‘basic elements’ such as dispute settlement, trade facilitation and special and differential treatment on the hemispheric negotiating table (Amorim 2003). If such a format were to be adopted in the hemispheric arena, there is a sense in which this narrowing of the hemispheric agenda and the greater prioritisation of a 4+1 negotiation with the US would be likely to facilitate more effective bloc bargaining strategies among Mercosur member states, particularly as an intensification of the 4+1 process would act to bring Uruguay back into the Mercosur fold. Yet clearly it has also served to entrench doubts that had become widespread by mid-2003, including among negotiating parties and supporting institutions, about whether an FTAA would look remotely like the encompassing ‘single undertaking’ it was intended to be, or indeed whether an FTAA would come into being at all. Mercosur-EU negotiations The Mercosur-EU relationship was established in December 1995 with the signing of a Framework Agreement for cooperation, and negotiations were formally launched at a summit held in Rio de Janeiro in 1999. Subsequently, the Mercosur-EU Cooperation Council (consisting of representatives of the Council of the EU, the European Commission, the CMC and the GMC) established the Bi-Regional Negotiation Committee, responsible for the executive management of the negotiations (Devlin 2000:8). The objectives of the negotiations, however, are rather less clear-cut than those of the FTAA process. They were rather vaguely set out initially as involving an ‘interregional association’ aiming primarily to build economic and political ‘cooperation’, but in 1999 the idea of an FTA was advanced as ‘a central element in the construction of a more dynamic relationship’ (cited in Klom 2003:360). The negotiations remain characterised, nevertheless, by a failure to define precisely the parameters or the end goal of the agenda. This element of vagueness is perhaps not surprising given that EU interest in such an association emerges predominately from concerns about the implications of an FTAA and the prospect of a consolidation of US dominance of trade in the

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Americas. This unease has been reflected consistently in the statements of the likes of EU Trade Commissioner Pascal Lamy and Portuguese Prime Minister (and then president of the EU) Antonio Guterres, the latter describing an EUMercosur agricultural agreement as ‘building a new multipolar world order that can limit the United States’ natural hegemony’ (http://www.tradecompass.com, 15 May 2001). The corollary is that the EU strategy has been predominantly reactive, dictated by developments in the Americas, and thus largely one of hedging bets. In mid-2002, for instance, Mercosur negotiators failed to persuade their EU counterparts to impose a firm deadline for the conclusion of the negotiations, although the common goal is for conclusion simultaneously with an FTAA agreement in 2005. Furthermore, while Brazilian positions have also emphasised that the Mercosur’s FTAA and EU negotiations should proceed on a ‘parallel’ basis, the EU’s signing of an agreement is likely to remain entirely contingent on the successful establishment of an FTAA. The principle of bloc bargaining by Mercosur members was extended to negotiations with the EU, and indeed facilitated by the conception of the process as an instance of inter-regional, or inter-bloc, negotiation. To perhaps a greater extent than in the FTAA or multilateral arenas, Mercosur members have successfully adhered to this principle in negotiations with the EU but, as in these other negotiations, it has still constituted more of a rule of thumb than a binding commitment. Over the 1990s effective negotiation on the Mercosur side was also hampered by the contrast in negotiating styles. Whereas the EU negotiating teams have been drawn largely from specialised technical experts from EU institutions, the Mercosur team has comprised national officials and politicians, many of whom do not possess technical expertise in the various aspects of the negotiating agenda. Their method of coordinating negotiating positions has been a largely ‘top-down’ one, in which consensus is reached at a relatively abstract level and the resolution of the detail then left to technical experts later on in the process. As the third round of negotiations started in late 2000, however, the Brazilian government capitalised on its simultaneous assumption of the Mercosur presidency to rectify the problems associated with this mode of negotiation, and technical experts were thenceforth included at the forefront of the Mercosur negotiating team (Klom 2003:361–2). The internal crisis in the Mercosur, as in the other negotiations, further complicated the internal coordination of negotiating positions. Nevertheless, joint proposals and offers have on the whole been presented at the appropriate stages of the process—the odd exception including the offer in the area of government procurement required for May 2003 (Gazeta Mercantil, 29 May 2003)—and a work programme stretching to the end of 2003 was agreed in mid-2002. Chile did not approach negotiations with the EU in collaboration with Mercosur partners but, rather, as in its relationship with the US, took an autonomous path which culminated in the agreement of a Chile-EU ‘association’ in April 2002.

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Negotiations with South American partners The Mercosur’s strategic agenda is also connected, finally, with its propulsion of a distinctively South American agenda. This has two principal and related dimensions. The first, and broadest, is the so-called ‘South America project’ elaborated by the Cardoso administration in Brazil. This found its first formal expression in the summit of South American heads of state in Brasília in AugustSeptember 2000, with a follow-up meeting in December in Montevideo and approximately twice-yearly meetings since then of the newly established Comité de Dirección Ejecutiva (Executive Management Committee). The second summit was convened in July 2002 in Guayaquil, Ecuador.7 The process has been oriented to the broad priorities of strengthening democratic institutions, addressing key security issues and strengthening trade links in the South American region, with emphasis on such issues as infrastructural development, physical (including energy) integration, organised crime and drug trafficking, technical standards, and information, knowledge and technology. The broader aim of the South America project, however, rests on the construction of a South American—as distinct from Latin American or hemispheric—identity and the establishment of the region as a coherent geopolitical unit led, crucially, by Brazil. This is connected with the twin strategic objectives of countering US hegemony in the Americas and levelling the uneven playing field in both FTAA and multilateral negotiations. While, as then Brazilian Foreign Minister Lampreia pointed out in an interview in 2000, this does not involve attempts to construct a South American negotiating bloc (Folha de São Paulo, 28 August 2000), the interesting point is that the substance of the first summit’s agenda was strikingly akin to the Mercosur’s relaunching agenda. Indeed, the Mercosur project was articulated explicitly as the ‘template’ for the expansion of integration in the wider region. The strengthening of the Mercosur and the construction of a South American agenda are thus interwoven, along with the management of US hegemony, in the strategic priorities of the Brazilian government. The second dimension, and the centrepiece of this broader agenda, is the tentative project for a South American Free Trade Area (SAFTA), the first step towards which is seen to be the successful negotiation of a Mercosur-AC free trade area. As in other forums, these negotiations in the late 1990s were characterised by a splintering of the Mercosur platform rather than successful bloc bargaining. Following the April 1998 signing in Buenos Aires of a Framework Agreement between the two blocs, the slow progress and myriad stumbling blocks in the negotiations put paid to the 4+4 arrangement (referring to the eight countries of the AC and Mercosur combined) which should have come into force at the start of 2000 (INTAL 2000:83). The relationship was instead advanced principally by bilateral agreements. A partial agreement valid for two years was signed between Brazil and the AC in August 1999, with the intention then to advance towards a free trade area as planned; this agenda was

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subsequently ‘deepened’ as a result of pleasing progress in July 2000. An agreement was signed between Argentina and the AC in March 2000, with Uruguay and Paraguay later following suit, and in 2001 Argentina became an associate member of the financing body Corporación Andina de Fomento (CAF, Andean Promotion Corporation). With the precarious progress of these negotiations and the prevailing economic instability in the region, scepticism justifiably came to abound about the prospects for meaningful economic integration and, in any case, Brazilian leadership pretensions received a cool reception in much of the Andean region.8 Subsequently, however, the process regained some momentum with the signing in December 2002 of an Acuerdo de Complementación Económica (Economic Complementation Agreement), which pointed towards the establishment of an FTA by December 2003.9 In each of these four negotiating arenas, then, the realisation of effective bloc bargaining strategies has been visibly patchy, and complicated by the manifestations of divergent visions of regionalism. The fragmentation of positions and priorities within the Mercosur, in other words, has been mirrored in frequently divergent sets of national negotiating priorities. Nevertheless, the commitment to constructing the Mercosur as a political and strategic unit has remained relatively solid, and the guiding principle of collective negotiation has held some water. Its importance for the Mercosur project has been felt primarily in three areas. The first is connected with its invigoration of Brazilian engagement with the regionalist agenda which, as we have seen, was maintained in the early years of the 2000s, with signs of its further entrenchment in the early months of the Lula presidency. If Brazilian reticence and the lack of political leadership were among the Mercosur’s principal constraints over the 1990s, the increased commitment to the region generated by the politics of the FTAA has lent impetus to the further consolidation of the regionalist project. In another sense as well, the tensions between northern and southern agendas in the hemispheric arena have acted to dilute—or increased political incentives to dilute —some of the internal political tensions complicating collective action in the Mercosur. The second, by extension, is connected with issues of bargaining strength and, in this respect, is perhaps especially important for the other fullmember countries given that Brazil already carries some weight in the international arena. In both of these ways, it appears that the articulation of Mercosur as a strategic and political objective in external negotiations progressively has come to constitute the new—and probably strongest—‘glue’ of the project. In this respect, we might recall Lampreia’s (1999) contention that ‘the international game, itself, is…one of the guarantees of the continuity and consolidation of Mercosul’. The third lies in the aspirations generated by the challenges of hemispheric integration to a deepening of integration in the Southern Cone. The interesting point in this connection is that these aspirations have emerged in part precisely from the Mercosur’s negotiating imperatives, which adds further substance to our claim that external negotiations constitute the new ‘glue’ of the project.

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Some of these imperatives arise from the need to enhance the strategic cohesion of the bloc—that is, they are conscious political strategies designed to this end— while others reflect the more insidious impact of engagement in the range of negotiating processes. The main imperatives for deepening integration and cooperation have been felt in the areas of institutionalisation and policy harmonisation—the other two of the three pillars which, I have suggested, define the form of ‘reconfigured’ regionalism emerging in the Mercosur. Developments in institutionalisation As detailed in the previous chapter, the Mercosur has always been styled as a regionalist project that neither features nor requires a significant level of institutionalisation. This has been largely the result of Brazilian—and to a lesser extent Argentine—resistance to the creation of formal supranational institutions, implying as it would high costs and pressures for a devolution of policy-making autonomy or a departure from an orthodox view of states and institutions, both of which were political anathema to the respective governments of Brazil and Argentina during the Mercosur’s first decade. Conversely, as we saw, greater institutionalisation was consistently favoured over the 1990s by the Uruguayan and Paraguayan governments as a means of redressing their political marginalisation in the Mercosur and diluting the bilateral dominance of the two larger members over the shape of the project and its internal agenda. The crisis from 1999, however, was seen to highlight the drawbacks of this type of non-institutionalised integration and the debate gradually shifted to a more deliberate reflection on the place of institutions in the Mercosur project. There is little doubt that the crisis was worsened by the institutional and legal holes in the Mercosur (INTAL 2000:25), something which was largely accepted within the bloc. But the most important development was the recognition that ‘juridical insecurity’ constituted one of the principal disincentives to investment in the Mercosur as a whole, reinforcing its concentration in the larger Brazilian market (de la Balze 2000:24). In this sense, deepening integration through institutionalisation came to be advocated widely in order to redress the structures of competitive disadvantage which were themselves a result of the institutional shortcomings of the bloc. It was also widely recognised that moves towards a deepening of integration themselves might necessitate the creation of institutions. Emphasis fell, as a minimum, on a more effective and permanent dispute settlement mechanism, although discussions roamed more widely over the sorts of institutions necessary to reduce the relative enforcement gap and enhance the likely success of the policy harmonisation process on which the deepening agenda rested. The consequence from the late 1990s appears to have been a softening of reticence in matters of institutionalisation. For the Brazilian part, this stemmed mainly from an acknowledgement that the resolution of key competition policy disputes with Argentina would require the construction of permanent

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institutions. Furthermore, a marked diminution in the fervour of Argentine antistatism with the end of the Menem era signified that at the turn of the decade Argentina was widely perceived in the region to be more firmly in favour than before of permanent institutions (El Mercurio, 21 January 2000). This translated into the gradual redefinition of intellectual positions on institutionalisation, the Brazilian position coming to coincide rather less with the open inclination towards supranationalism of Uruguay and Paraguay than with the new Argentine position which favoured a combination of intergovernmental and communitarian institutions (Almeida 1998:66). As a consequence of this changing climate, the 2000 relaunching was accompanied by a burst of discussions and proposals on this theme. For instance, the issue of institutionalisation became a priority agenda item in CPCs, which issued concrete proposals for the construction of institutions which would enjoy parliamentary, legislative and consultative functions. It was agreed in mid-2000 to assemble a duty roster of judges to help, in the words of Argentine Industry Secretary Debora Giorgi, to develop an early semblance of ‘jurisprudence’ in the Mercosur (The Economist, 27 May 2000) and in early 2001 an initiative emerged from members of the Argentine Congress for talks on the establishment of a permanent secretariat in Montevideo. Most of these initiatives, not surprisingly, have as yet borne little fruit, but the area in which some concrete—although still gingerly—progress has been made is that of dispute settlement. The first substantive decision in this area was taken in the Mercosur Summit of February 2002 with the elaboration of the Protocolo de Olivos (Olivos Protocol). This provided for the creation of a Tribunal Permanente de Revisión (Permanent Review Tribunal), to consist of five judges. The interesting feature of this Tribunal is that its judgements are not open to appeal and recourse to it precludes subsequent recourse to the dispute settlement system of the WTO. Where no advance was made on the Brasilia Protocol was in the area of private party disputes, which means, as Christian Leathley has detailed (2002:10–11, 13–14), that private actors in the integration process remain with no effective legal channels through which to seek representation or challenge the actions of the Mercosur’s institutional bodies. Recourse in this respect is limited to national legal systems, which have frequently issued judgements at odds with those of other national courts. There has accordingly been widespread disappointment with the failure of the Olivos Protocol, as Leathley goes on to demonstrate (2002: 14), to advance satisfactorily its stated aims of ‘depoliticis[ing] disputes among the Members, giv[ing] them a measure of institutional predictability and advanc[ing] toward a uniform interpretation of the Mercosur’s body of law and the creation of a common jurisprudence’. The other key development emerged from the Declaration following the Argentine-Brazilian meeting in January 2003, in which one of the central proposals was for the creation of a Parlamento del Mercosur (Mercosur Parliament), styled on the European Parliament and elected by popular vote. The reception of this proposal illustrated an interesting point—that the Uruguayan cooling towards the Mercosur from the turn of the decade had produced

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something of an about-face on supranational institutionalisation. The notion of a Mercosur Parliament was roundly opposed by the Uruguayan government, which argued for the prioritisation of strengthening the CPC and the legislative processes by which national parliaments converted regional agreements into domestic legislation (Clarín, 17 January 2003). Emphasis was also placed by both the Paraguayan and Uruguayan governments on the conversion of the Administrative Secretariat into a Technical Secretariat and the establishment of the common legal framework (through domestic ratification of the Olivos Protocol) as necessary preludes to the creation of supranational institutions. These issues, at any rate, were foremost on the agenda for Mercosur meetings in early 2003. While these developments remain in their infancy, they illustrate an important shift in the institutionalisation debate and a variety of concrete political initiatives which, while far from comprehensive, indicate a movement towards greater commitment to the construction of more effective institutional bodies. This judgement is warranted also, and crucially, by considerations of the impact of the Mercosur’s external negotiating processes. In one sense, the creation of a more robust institutional architecture is considered to be an important element in preserving a rationale for the Mercosur and bolstering its internal cohesion. Carrying forward the logic of avoiding absorption into an FTAA, the elaboration of solid legal and institutional structures in the Mercosur allows for the formulation and implementation of distinctively Mercosur laws and decisions which are not contingent on legal processes designed at the hemispheric level. These claims are necessarily rather tentative at this stage. However, more robust evidence of the impetus to institutionalisation that has derived from the strategic agenda is to be found in its more insidious effects on existing institutional bodies. The negotiations with the EU, for instance, have generated formalised and regularised contacts between the European Parliament and the Mercosur CPCs, whilst strong links have been established between the EU’s Economic and Social Committee and the Mercosur’s counterpart FCES (INTAL 2002:37, 41). As we will see in the next two chapters, the participation of labour and business groups in the FTAA process has also produced significant pressures for the strengthening of institutions like the FCES and their closer collaboration with their counterparts in the AC. Policy coordination Macroeconomic harmonisation The idea of a common currency for the Mercosur was seen by some to represent a thoroughgoing rethinking of the principles underlying the project. One of the key areas of debate, not surprisingly, was the extent to which the ‘little Maastricht’ represented a shift away from a ‘structuralist’ towards a ‘monetarist’

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approach to regionalism. A structuralist approach takes monetary union as the culmination of an economic integration process, echoing the ‘stages’ of regional integration advanced in Bela Balassa’s (1961) seminal work. A monetarist view, conversely, takes the establishment of a common currency as the cornerstone of the process, the rationale being a) that it eliminates the prejudicial implications of competitive devaluations for trade and investment and b) that it imposes restrictions on public spending and fiscal deficits, thereby circumventing potential for financial instability (Nogueira 1998). For most of the 1990s there were indications that the Argentine vision of regionalism approximated this monetarist orientation while the Brazilian continued to emphasise the structuralist one: indeed, calls from sections of the Argentine state for a common currency in 1998 were abruptly dismissed by the Brazilian government (de la Balze 2000:20). The latter subsequently became the prime mover behind monetary integration from the time of the 2000 relaunching. As mentioned earlier, in 2003 the Argentine-Brazilian alliance to reinvigorate the regionalist project also sought to put a common currency at the heart of the Mercosur’s future, to the extent that it was even given a putative name, the peso real. While no timescale was indicated, the agreement called for the establishment of an institute to analyse paths towards monetary union. Much of this new impetus derived, as we saw in the discussion of external negotiations, from the greater alignment of exchange rates afforded by the Argentine devaluation. There is little doubt, however, that at the start of the 2000s the idea of a common currency was implausibly ambitious, given both the shallow level of integration achieved and the demanding economic conditions necessary for monetary union in any setting. In any case, the instability in exchange rate interactions induced by the devaluations in Brazil, Argentina and Uruguay has meant that the prospect of a common currency in the short or medium term has been almost universally dismissed by observers. The Batlle government in Uruguay has also made repeated statements about the ‘impossibility’ of monetary union and indeed about its undesirability. Even in Buenos Aires, from where many of the early calls for a common currency emanated, there was considerable scepticism about the viability of such a proposal, at least until Lula’s inauguration and the new bilateral alliance.10 In any case, the nature of the required adjustments and policy measures corresponds closely with some of the most intractable domestic policy issues in the region, such as in the area of domestic and external debt, or with some of the institutional areas in which least progress has to date been made, such as Central Bank independence. The costs of adjustment for the smaller member countries would also be unsustainable in the short and medium term. The adoption of monetarist regionalism in the Mercosur is thus considerably less likely than the continuation of a structuralist approach and of the loosely institutionalised, imperfect form of integration that has hitherto prevailed (Nogueira 1998; de la Balze 2000). The important development is thus not the ‘little Maastricht’ notion itself. Rather, the key to understanding this proposal lies in the package of policy

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convergence measures that it pulls along behind it. In other words, talk of monetary union has had less to do with the end goal itself than with the immediate political and economic priorities served by the coordination of macroeconomic policy that movement in this direction entails. This movement, to be more precise, implies an extensive assortment of policy measures and adjustments, which were set out in the various declarations on this subject. They include the lowering of inflation to international levels by means of establishing Central Bank independence; the coordinated fixing of debt and debt limits in order to achieve a self-sufficient financial sector necessary to ensure this independence; legislation for the free movement of factors of production (especially labour) and greater flexibility in prices and wages, both of which are designed to eliminate the use of exchange rate modification for adjustments in relative prices; the construction of exit barriers to ensure commitment to monetary union; and the harmonisation of exchange rate policies (see INTAL 1999a:42–3; CEPAL 2000a; Giambiagi 1999:65). The substance of the ‘little Maastricht’ is thus less important than its utility in propelling the immediate priorities of addressing competitive imbalances and the tensions issuing from divergent macroeconomic structures, along with offsetting the political pressures issuing from these system frictions. The packaging of macroeconomic priorities as part of a movement towards a full common market thus constituted an important political device by which Mercosur governments sought to increase the likelihood of political and legislative acceptance of the necessary domestic adjustments, especially given existing problems experienced in Argentina and Brazil in passing key reform legislation over the latter part of the 1990s. While the relaunching might not signal a shift to monetary regionalism, and the realisation of most of the aforementioned convergence initiatives remains remote, it did indicate a key shift in the nature of the regionalist project. It indicated an incipient crystallisation of the Mercosur around a set of macroeconomic priorities and policy harmonisation issues, and the more narrowly commercial concerns that dictated the initial open regionalism orientation are showing signs of becoming less crucial to its rationale. Indeed, the substance of negotiations since the time of the Brazilian devaluation has reflected this gradual subordination of trade issues to macroeconomic policy discussions, the first obvious manifestation of this coming with the Presidential Declaration of São José dos Campos of early 1999 in which macroeconomic coordination was deemed to be the only means of maintaining a stable competitive balance between member economies (INTAL 1999a:38–9). In this spirit, various working and monitoring groups were formed for the purposes of preliminary investigation into matters of macroeconomic harmonisation, including a so-called ‘high-level’ working group of economy ministers and central bank presidents. The Grupo de Monitoreo Macroeconómico (GMM, Macroeconomic Monitoring Group) was subsequently established under its aegis and charged from April 2000 with the design and oversight of a common methodology for harmonising fiscal statistics. This methodology was agreed

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around five months later, for ‘comparison purposes’ among countries and with a view to the elaboration of common macroeconomic targets from March 2001 onwards (http:// gmm.mecon.gov.ar). Subsequently, in early 2002, the Duhalde government in Argentina issued proposals advocating the establishment of an Instituto Monetario del Mercosur (Mercosur Monetary Institute), to be charged with coordinating the fostering of harmonisation across macroeconomic, monetary and financial areas (INTAL 2003:91). The notion of macroeconomic coordination has garnered significant support from all the member governments, including those of the smaller member countries, and from important sections of private sectors. Considerable support has also emerged among academic and other observers, for many of whom it represents a mechanism ‘to promote steady and systematic policies and to reduce and diversify risk’ (Fanelli and Heymann 2002:29) in ways which would both cement the Mercosur project and contribute to the mitigation of domestic economic instability (also see, inter alia, Giambiagi 1999; Perales 2000; Redrado 2000). Nevertheless, the obstacles to the implementation of these goals are rarely underestimated and it is beyond question that the path to macroeconomic coordination will be, at best, lengthy. While some commentators have remarked on the counterproductive qualities of the articulation of this goal—to the effect that pursuit of a common currency will not encourage the closer coordination of macroeconomic and financial policies, and ‘would only distract policy makers from the issues at hand’ (Eichengreen 2002:5)—there has been widespread recognition of the impediments to its achievement stemming from institutional deficiencies at the Mercosur and national levels, the tricky balancing act required with other fiscal and monetary priorities, and the recurrence of economic turbu lence. The impact of the latter, indeed, is manifest in the slow progress towards the identification of common macroeconomic goals since the early agreement of the common methodology by the GMM, as well as in the apparent diluting of the political impetus in this direction. While early commitments to macroeconomic coordination clearly signal a very long-term horizon, nevertheless it is interesting that they have been accompanied by incipient harmonisation processes in a handful of other policy areas. Evidence of these processes—which, to reiterate, remain in their very tentative stages—adds another layer to our argument that the nature of the regionalist project is shifting away from its central open regionalism rationale towards one emphasising deeper forms of integration. Four areas stand out as illustrations: trade policy, competition and regulatory policies, investment rules, industrial policy and social policy. Trade policy Much of what needs to be said about trade policy harmonisation has already been covered in this and the previous chapter. It is the area in which much of the initial progress of integration was realised, although beyond the basic negotiated removal

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of the bulk of tariff barriers we have seen that large parts of the terrain of trade policy remained largely untouched and minimal progress was made towards the negotiation of common rules and disciplines in a range of areas and sectors. Towards the end of the 1990s, however, and particularly in the early years of the 2000s, some notable steps were taken in some of these neglected areas towards more substantive harmonisation. The elaboration of rules on trade in services was initiated relatively early, in 1997, with the adoption of a Framework Agreement on services. This constituted a direct replication of the WTO’s General Agreement on Trade in Services (GATS), which rested on a ‘bottom-up’ approach to liberalisation, in which each member specifies its commitments for each sector or activity and is not bound by any other member’s commitments that are not included in the resulting schedule.11 The Mercosur version of GATS, however, goes beyond multilateral provisions in that it stipulates the goal of full liberalisation of trade in services by 2007 and provides for universal coverage of the spectrum of service sectors, activities and modes of supply (Abugattas Majluf and Stephenson 2003:102). Along with this emphasis on reciprocal market access, the Mercosur agenda points to the gradual and eventual elaboration of ‘more harmonized normative disciplines’ in the area of services, which involves the harmonisation of rules governing key sectors, the movement of skilled personnel and the recognition of diplomas and licences (Abugattas Majluf and Stephenson 2003:106). The Argentine crisis dampened much of the dynamism of the process, but it did not alter the substance of the negotiated agreements, and indeed we have already noted the ratification at the regional level of legislative initiatives in line with the movements towards greater harmonisation of normative disciplines, such as the resolution on freedom of residence. In addition, the new collaboration drive in early 2003 featured an agreement between Argentina and Brazil in the area of telecommunications, which aimed to enhance cooperation in SGT-1 (Communications) and promote harmonisation of rules and activities. Undoubtedly the absence of common regulations on the use of CDMs has carried the most distortive consequences for Mercosur trade; indeed, it constitutes one of the most notable holes in the integration process. This is perhaps ironic given that this issue area supplies one of the firmest Mercosur platforms in its external trade negotiations. As we have seen, the already frequent use of CDMs by Mercosur members—in particular of AD measures— proliferated with the crisis at the end of the 1990s and in a number of instances their application prompted resort to the dispute settlement procedures of the WTO. Chile represents the notable exception to this generalised penchant in the region for deploying CDMs in the management of trade relations. Over the 1990s it articulated provisions in a range of bilateral trade agreements— including those with Canada (1996), Peru (1998) and Mexico (1998)—to foster the gradual elimination of AD and CVDs (Tórtora and Tussie 2003:175). This innovative pattern has not been replicated by other Mercosur members, which continue to labour under the absence of common regulations within the bloc or

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concrete binding provisions in trade agreements. Legislation was drafted in 1996 and 1997 to cover AD and safeguards applying to extra-regional imports, but to date this has not been implemented at the domestic level; similarly, announcements in 1998 of an intention to work towards a genuinely common framework in this area have borne little fruit (Tórtora and Tussie 2003:176–7). In the meantime, the use of CDMs against imports from third parties remains governed by WTO provisions agreed in the Uruguay Round. Competition and regulatory policies Rather more concrete progress has been made in the area of competition policy, which in any case is tightly bound up with the trade policy agenda. Initial parameters for the movement towards a common competition policy were laid out in the December 1996 Protocolo de Defensa a la Competencia (Protocol on the Defence of Competition), which, in tune with the Mercosur’s institutional arrangements, envisaged that the implementation and enforcement of such a policy would lie entirely at the national level. Its elaboration thus remained largely hostage to the considerable disparities in national legislation on competition policy, Uruguay and Paraguay having no relevant domestic laws and Argentina and Brazil having legislative frameworks significantly at variance with each other (Tavares de Araujo 1998:24). The 1996 Protocol was not ratified at the domestic level and thus these early advances turned out to be largely illusory A handful of subsequent domestic initiatives were rather more fruitful, most notably Argentina’s 1999 Ley de Defensa a la Competencia (Defence of Competition Law), which aligned its competition policy more closely with Brazil’s and thereby augured more promising prospects for harmonisation (Chudnovsky and López 2003:151). The spectre of an FTAA, in addition, has sharpened the perception of the need for more effective regional management of competition policy issues in order, on the one hand, to retain the economic viability of the bloc by shoring up its attractiveness to external investors and, on the other, to strengthen its political cohesion by mitigating the tensions over the competitive balance between member countries. The second area in which regulatory policies have crystallised has been in the area of fiscal regulation, although in this area the pattern has been largely one of a common movement towards the elaboration of rules-based fiscal management strategies rather than the regional negotiation of a common policy framework. The key notion in this respect has been that of ‘fiscal responsibility’. In Argentina this was elaborated into a ‘code’, agreed in mid-1999, which its architects chose to call ‘fiscal convertibility’. Its provisions established ceilings on the fiscal deficit (1.5 per cent of GDP for 2000; 1 per cent for 2001), public spending (not to exceed real GDP growth) and public debt, along with a ‘Fiscal Stabilisation Fund’ to cover the contingencies of severe international or internal crisis. Again, however, the bulk of these initiatives were thrown off course by the economic crisis of the early 2000s, with the result that by 2003 debate was only

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just beginning to turn once again to the best means of ensuring macroeconomic and fiscal stability In Brazil the elaboration of a fiscal responsibility law was one of the earliest responses of the Cardoso government to the 1999 devaluation, imposing criminal penalties for overspending and prohibiting the federal government from bailing out states and municipalities in financial difficulty. Not surprisingly, the fiscal responsibility refrain was taken up by the Lula government when it took power in 2003. The regulatory strategies of the Chilean state rest similarly on the principle of fiscal responsibility, as well as on the forms of financial regulation discussed in Chapter 4, whilst in Uruguay rulesbased forms of fiscal management have also been an integral part of the reform agenda. Apart from being politically charged, of course, the implementation of such laws of fiscal responsibility is complicated by the institutional weaknesses of Southern Cone states, to which we will return at greater length later in the book, and the political obstacles which stand in the way of other key reforms necessary for heightened regulatory activity. At the very least, the successful installation of such policies requires a strengthening of audit tribunals (and their increased independence), as well as further reforms in the areas of pensions and taxation (The Economist 2000), all of which have been especially problematic in Brazil and Argentina. Nevertheless, in the area of regulation we see a slow drift towards similar sorts of state strategies among Mercosur countries, even though their explicit casting as forerunners to regional regulatory mechanisms is undoubtedly unrealistic in the short and medium term. Investment rules As in trade and competition policy, Mercosur provisions on investment remain underdeveloped. The provisions of the two 1994 Protocols (one governing intraregional investment and the other extra-regional investment)12 ruled out discrimination in favour of extra-Mercosur investors and indeed stipulated the extension of most-favoured nation (MFN) and national treatment rights to intra-Mercosur investors at all stages preceding, during and following the establishment of investment. Such rights were granted to extra-regional investment only at the post-establishment stage. However, no provisions prevented the granting by member states of unilateral investment incentives (Chudnovsky and López 2003:148) and it has been from the imbalances occasioned by this practice that most of the tension in the area of investment has arisen among Mercosur members. The long-running disputes in the automotive sector, in particular, have derived precisely from these sorts of incentives policies and the skewing of extra-regional investment that they have occasioned. The offer of investment incentives has been a favoured strategy of the Brazilian government and, while the Argentine version of neoliberalism has generally militated against their use, it increased in tandem with demands from Argentine industrialists for reciprocal action to compensate the diversion of investment to Brazil.

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Around the turn of the decade, as in other areas, considerably more emphasis was placed on the need to address these sources of friction. The case for more robust common rules on investment was made primarily by the Argentine government, with then Economy Minister Roque Fernández making explicit calls for harmonisation as early as 1997. The 1999 Argentine Defence of Competition Law mentioned in the previous section has been interpreted as offering at the time ‘a basis from which to build regional disciplines in investment incentives’ (Chudnovsky and López 2003:150) and an ArgentineBrazilian ‘convergence agreement’ was announced in April 2000 which included a commitment to progress in the reduction of investment incentives. At the Mercosur level, in addition, a working group was established in 2000 to study paths to harmonisation in this area. The emphasis in these initiatives has fallen on the articulation of the Mercosur as a single market for investment and on the mitigation of competition for investment between member countries through their use of incentives policies. While activity in this area as well was somewhat diverted by the regional crisis, the thread was picked up again in ArgentineBrazilian efforts to reanimate the process of policy harmonisation from late 2002 onwards. Industrial policy The issue of investment incentives feeds directly into wider industrial policy issues in the Mercosur. We saw in Chapter 4 that the versions of neoliberalism that have emerged in Southern Cone countries have featured significantly divergent forms of industrial policy, particularly in the nature and extent of state support for industrial activity and export-promotion strategies, as well as tax policy and financing structures. More broadly, there has existed a sharp contrast in the sustained emphasis on developmental industrialisation and active industrial promotion strategies in Brazil, as against the sustained de-industrialisation of the Argentine economy and the systematic retreat from active industrial promotion since the latter part of the 1980s (see Sawers and Massacane 2001). Indeed, it was the extent of such institutional and policy-related disparities between these two members that generated the bulk of tensions in the Mercosur in its first decade and the substance of the fierce debates about competitive imbalances, as well as the principal source of the salient political tensions in Argentina between government and industrialists at the time of the crisis. As with trade and competition policies, the distortions stemming from these disparities, and indeed the fetters they have imposed on the regionalist project itself, have led many observers to advocate the elaboration of industrial policy at a regional rather than national level (Markwald and Machado 1999). The interesting point is that this debate has accelerated in light of the potential challenge from the FTAA. One of the key dimensions of the response to this challenge in the Mercosur has been support for a reorientation of the project towards a platform for fostering the industrial competitiveness of regional

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economies and products, in order to ensure more meaningful and productive participation in the putative hemispheric marketplace. We will look in more detail in Chapter 8 at the ways in which this goal intersects with corporate strategies, but the point for the time being is that industrial policy debates in the Mercosur have come to be increasingly oriented to the elaboration of common industrial strategies which are broadly ‘active’ and developmental. In this sense, much of this debate has reflected the attenuation of the virulent anti-statism of the Menem era in Argentina, which we noted earlier. While clearly much of this shift must be seen as rhetorical—as in any crisis, the government needed to demonstrate that it had ideas and solutions—the tenor of the debate both within Argentina and within the Mercosur nevertheless has indicated a much greater convergence than previously on an active form of industrial policy which emphasises promotion, credit and financing to PYMEs and the protection of national and regional industries. It has also signalled an important shift that responded to the pressures exerted by industrialists, illustrated in UIA SecretaryGeneral Mendiguren’s blaming of the exodus of firms from Argentina around this time on ‘the lack of interest over recent years in setting in train a policy of industrial development’ (El Mercurio, 20 January 2000). However, such moves towards a greater emphasis on the active promotion of sectoral competitiveness in Argentina have not got very far off the ground, in large part because of severe fiscal constraints. The principal body for export promotion has been the Fundación Export-Ar (Export-Ar Foundation), a nonprofit organisation set up in 1993 under the aegis of the Foreign Ministry to assist Argentine businesses to expand and diversify their exports and export markets (http://www.export-ar.org.ar). Lack of funds has meant that its activities and impact have been marginal, the overall budget of $7 million for 2001 being significantly inferior to its Chilean counterpart Pro-Chile (at $50 million) (Bouzas and Avogadro 2002:4, fn. 6). The other export financing body, the Banco de Inversión y Comercio Exterior (BICE, Investment and Foreign Trade Bank)—established in 1993 under the joint control of the Economy Ministry and the Banco de la Nación Argentina (Bank of the Argentine Nation) (http:// www.bice.com.ar)— has again been marginal in its activities and impact as a result of limited resources for loans (Bouzas and Avogadro 2002:4). The comparison in this case with the BNDES in Brazil is again unfavourable. Other sectoral competitiveness measures have included price supports for the tobacco industry under the Special Tobacco Fund, suspended in 1991 and subsequently reinstated in 1994; fiscal incentives to the mining and forestry sectors; the imposition of export taxes on rawhides and skins to encourage domestic processing; and, more recently, in 2001, the creation of mechanisms to increase export reimbursements (Casaburi et al. 2002:7). But fiscal assistance programmes were by and large eliminated by the devaluation and floating of the currency at the end of 2001. These practical difficulties have fed into a growing argument that such strategies would be more feasible and productive if approached in a regionally

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coordinated fashion. The Brazilian government, in this respect, spent much of 2000 not only pushing Argentina towards a recognition of the need for active development (and specifically industrial) strategies, but also insisting that it was time for cooperation in this endeavour. Conversations were held in March 2000 between Brazilian and Argentine officials on the possible elaboration of a development plan approximating the Brazilian plan known as Avança Brasil (Advance Brazil). The idea of an ‘Adelante Mercosur’ (Mercosur Forwards) programme was enthusiastically received, despite some concern that such a detailed analysis of a country’s development needs was unprecedented in Argentina. Cardoso’s proposals included a project of regional physical integration which would propel a new cycle of development. In statements to the press he remarked that he was ‘convinced that it is possible to do in Latin America what Juscelino Kubitschek did with the interior of our country’, referring to the developmentalist policies between 1956 and 1961 which rested on major public works projects (cited in INTAL 2000:104). The rhetoric reflects the sentiment articulated by the Brazilian Secretary of Planning that, ‘if Brazil is attractive to the world, a development plan on a Mercosur scale will be even more attractive’ (La Nación, 29 March 2000). Brazilian proposals also emphasised the need to create a Mercosur financing body, along the lines of the BNDES, oriented towards the support of development programmes, again conceived largely in terms of industrial promotion. At the regional institutional level, in addition, the work of SGT-7 (Industry) is concerned with both the analysis of industries in the Mercosur and the elaboration of proposals for the regional harmonisation of industrial and technology policies. Support for a regionally concerted approach did not always prevail over the political necessities of safeguarding specifically national industries, especially at times when the primary threat was seen to come from other Mercosur members. At the time of the 2000 relaunching, the Argentine government was insistent, in the words of then Economy Minister José Luis Machinea, on the need to ‘reconstruct and relaunch the Mercosur, but on the basis of a sustained defence of national industry and national production’ (El Cronista, 10 August 2000). Indeed, the thrust of the Argentine position at this time was, as Industry Secretary Giorgi put it, that the Menem government had been ‘excessively permissive’ in its negotiations with the Brazilians, to the extent that the compet itiveness and market share of Argentine industry had been systematically eroded (Mercopress News Agency, 17 January 2000). Similarly, over 2001 and 2002 Brazilian industrialists were vociferous in their opposition to altering industrial policy to accommodate the difficulties experienced by their Argentine counterparts: in mid-2001, for instance, the president of the powerful Federaçao das Indústrias do Estado de São Paulo (FIESP, Federation of Industry of the State of São Paulo) greeted with incredulity the Brazilian government’s announcement of its intention to reduce the CET, remarking that ‘we are making industrial policy for Argentina’ (La Nación, 19 June 2001).

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Nevertheless, as before, the Argentine devaluation appeared to generate not only more conducive structural conditions but also some political will for the collaborative resolution of key industrial issues in the Mercosur, reflected in a flurry of delegations, meetings and negotiations between Argentine and Brazilian officials. In January 2002, for instance, a Brazilian commercial mission was despatched to Buenos Aires for discussions primarily on the automobile regime and the facilitation of industrial investment within the bloc. The integration of productive chains was also addressed with the aim, no less, of facilitating import substitution with products manufactured entirely within the Mercosur, subsequently to be exported with higher value-added (La Nación, 24 January 2002). In this connection, the idea of ‘competitiveness forums’ that had found initial expression in the activities of SGT-7 (Industry) in the early 1990s was reanimated in mid-2001, with an agreement emerging in late 2002 which located a Competitiveness Forums Programme within the remit of the SGTs and other Mercosur bodies (INTAL 2003:92). The issue of mechanisms for development financing in the Mercosur was also revived with the crystallisation of the Argentine-Brazilian alliance, having been diverted for some time by the growing regional crisis. Political activity around this time, in short, indicated a new prioritisation of production and industry in the Mercosur, in terms both of joint promotion and facilitation strategies and the joint pursuit of extra-regional market access for Mercosur products. Interestingly, this has not produced progress in the elaboration of a common regime in the automobile sector: implementation of the agreement reached in mid-2000 was impeded by the impossibility of maintaining reciprocal arrangements with the collapse of Argentine demand, and the incentives for a common regime thus ‘withered away’ over 2002 (Tussie 2003b: 12). Nevertheless, again, Argentine-Brazilian talks in early 2003 sought to regain the political initiative for a common policy in this sector. Social policy Progress towards regional coordination in social policy has existed largely at the rhetorical level but, as in the AC and other regional blocs, has come to constitute an important element of the ways in which the utility of regionalism is conceived. The idea of a collective approach to social issues in the Mercosur is not entirely new. Mention of them is hardly discernible in the Treaty of Asunción and it was not until 1997 that concrete attention was afforded to the prospect of a coherent social dimension for the integration process. Early discussions were conducted primarily in the forum of SGT-10 (Labour Affairs, Employment and Social Security), but also figured prominently from this time on the agendas of the CPC, the FCES and labour organisations such as the Coordinadora de Centrales Sindicales del Cono Sur (CCSCS, Coordinating Body of Southern Cone Labour Unions). The activities of all of these bodies were oriented primarily towards the analysis of two alternatives for incorporating social issues more firmly into the Mercosur project: a Carta Social (Social Charter) concerned

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with the range of human and labour rights as well as the socio-economic implications of regional integration; and a rather narrower arrangement akin to the Agreement on Labour Cooperation of the NAFTA (Ermida Uriarte 1999: 114). In the late 1990s the GMC and SGT-10 also set in motion a project for a multilateral Mercosur agreement on social security. These promising steps were later somewhat swallowed by the regional crisis and bore few concrete results, although they did crystallise into the much more robust project for a Social Charter which accompanied the 2000 relaunching. This was the first time that the issue had found its way out of the Mercosur’s rather marginalised working groups and debating forums and into the mainstream of political negotiations between governments. The stated aim of this revitalised agenda was of reorienting the regionalist project more emphatically towards the twin goals of economic growth and social justice, with particular emphasis on the need to use the Mercosur to achieve improvements in the region’s Achilles heel, income distribution. This principle was recognised and validated by government officials in all of the member countries, as well as by legislators in the CPC, representatives of Mercosur technical bodies and regional labour organisations such as the CCSCS. Interestingly, the primary impetus and coordination for the so-called ‘social Mercosur’ came from Chile. Chile’s associate member status meant that it was excluded from the principal forums in which social and labour issues were addressed in the Mercosur, namely SGT-10 and the FCES. Consequently it had not subscribed to the Declaración Sociolaboral del Mercosur (Mercosur Social and Labour Declaration) signed in Rio de Janeiro in December 1998, which stipulated essentially that integration would not advance at the expense of workers in the region. It was for this reason that its spearheading of a Social Charter and the announcement in June 2000 of its intended adoption by all members were seen as important steps for the Chilean government and, in the Foreign Minister Soledad Alvear’s words, a clear signal of its commitment to ‘a people’s Mercosur’ rather than one simply concerned with economic and commercial matters (El Mercurio, 30 June 2000). At exactly the same time, the XV meeting of the Mercosur CPC issued its Declaración de Santa Fe (Santa Fe Declaration) on the dangers of unjust income distribution and inequality of opportunity and President Cardoso called for the regional agreement of common indicators to measure employment, poverty, education, land holding and so on, responding in part to long-standing Paraguayan calls for a recognition of the Mercosur’s ‘social deficit’ by the larger members. With the Argentine crisis, rhetorical restatements of commitment to a more socially sensitive integration project were resurgent, with considerations of such measures as the addition of a ‘social clause’ to the Mercosur’s Treaty which would afford financial assistance to member countries facing economic difficulties. The drift in the Mercosur has thus been towards a form of ‘social dialogue’, involving a wide range of representatives from governments, labour organisations, business organisations and the International Labour Organisation

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(ILO), of the kind that over the 1990s had been advancing in both the Andean and Caribbean blocs. What this has not yet involved is any notable impulse towards the harmonisation of national social policies, notwithstanding the existence of SGTs on such issues as health and education. There continue to exist large discrepancies in both social indicators and levels of social expenditure, as well as the fiscal capacities of states to engage in productive social policies. Nevertheless, as a substantive issue area, social policy has become much more firmly embedded in both the Mercosur’s negotiating agenda and visions of the regionalist project itself. Moreover, the increased preoccupation with the social and socio-economic consequences of regional integration has achieved new expression in the FTAA context, given the significant restructuring that participation in an FTAA would entail. This has acted as a catalyst to a more conscious definition of the Mercosur’s role in controlling the social impacts of the various integration projects in which it is engaged, although little advance has yet been made beyond the initiation of the relevant debates and rhetorical political commitments to these objectives. Conclusions Despite the extent of the Mercosur’s internal crisis from the end of the 1990s, contemporary regionalist dynamics indicate an important reconfiguration of the underlying principles and the orientation of the regionalist project. The incentives for this reconfiguration derive from the need not only to smooth the myriad frictions that jeopardised the project over the 1990s and continue to impede its progress, but also to ensure the retention of the Mercosur’s validity in the shadow of a putative hemispheric free trade regime. Each of the three pillars of the reconfigured form of regionalism in the Mercosur—strategic objectives in external negotiations, developments in institutionalisation and incipient policy harmonisation processes—respond closely to this latter imperative and are oriented to both strengthening the political cohesion of Mercosur members and shoring up the economic rationale and viability of the project. The result has been a movement away from a sole focus on tariff liberalisation towards policy harmonisation and the deployment of the protected regional arena as a site for the adjustment necessitated by a wider hemispheric project. Regionalist dynamics in the Mercosur, in short, cannot be understood in isolation from the context of the wider regionalist project of the FTAA. The FTAA process has acted as a catalyst to both the rethinking of the regionalist project and a visible increase in its political dynamism. The question arises, though, of why this retention of rationale, viability and cohesion is considered desirable given the alternatives proffered by hemispheric regionalism. The first reason relates to the political and strategic requirements of meaningful engagement in a range of hemispheric, international and multilateral processes, for which bloc bargaining is considered an expedient means of enhancing negotiating leverage and diverting dominance of the various agendas

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by the US and other powerful trading nations. The second refers to the policy challenges posed by both hemispheric integration and, more broadly, development objectives in the Southern Cone. These challenges encompass aspects of trade policy as well as a range of macroeconomic, microeconomic and developmental policies which are seen to be regionally specific to the Mercosur. The retention of regionalism, in short, is motivated by the pursuit of a range of policy objectives that are both threatened by a notion of ‘hemispheric globalisation’ and necessary in order to achieve greater competitiveness in the hemispheric and global arenas. It is important to recognise, in this regard, that the Mercosur and FTAA processes are completely separate and, moreover, are treated as such within the Mercosur. Their commercial aims are similar—to eliminate export subsidies and restrict the use of CDMs in trade relationships— but it is precisely these issues that might best be treated in the Mercosur, especially given the refusal of the US to open them up for negotiation at the hemispheric level. Furthermore, there is no necessary correspondence between Mercosur policy and negotiating positions in the FTAA, and the activities of the national working groups and institutions that are involved in the FTAA negotiations are focused exclusively on the hemispheric integration agenda. Consequently, in numerous areas—such as industrial policy, treatment of smaller and poorer economies, CDMs, social policy and dispute resolution—the Mercosur presents an arena in which regionally appropriate policies, or those which fill the gaps left at the hemispheric level, might be designed. A good example to draw out briefly is that of special and differential treatment. The approach has been to negotiate first as a bloc in the hemispheric arena, and then within the bloc to consider how to deal with, for example, Paraguayan interests within the agreed framework. In this sense, special and differential treatment becomes an internal affair within the Mercosur and in the context of the hemispheric process the Mercosur is progressively rearticulated as an arena in which such issues of adjustment might be negotiated between member countries. In sum, views expounding the eventual redundancy of regional blocs do not accurately reflect the nature of the relationship between the hemispheric process and existing regionalist processes (see Phillips 2003b). Nevertheless, what the discussion in this chapter has also demonstrated is that the Mercosur project remains a long way from achieving many of its central goals and continues to constitute a rather loose, informal and politically tense grouping. In this light, developments since 2000 indicate a profound rethinking of the bases of regionalism in the Southern Cone, as well as some concrete and important progress in the areas represented by the three key pillars of its reconfigured form. Of these, the articulation of strategic objectives represents the most robust area of cooperation, although the pattern of effective collective negotiation remains patchy. Movements towards greater institutionalisation and policy harmonisation are much more tentative and still clearly weighed down by the ongoing impact of the Argentine and regional crisis, as well as endemic political, economic and constitutional obstacles. In short, the formal regionalist

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processes in the Southern Cone are increasing in robustness, but the Mercosur project is still notably informal rather than rules-based, politically fragile rather than obviously cohesive, and shallow rather than thoroughgoing in the extent of the economic integration it has achieved.

7 Labour

We turn in this chapter to the first corner of the triangular structure of capitalist relations and the first dimension of the social processes of regionalisation in the Southern Cone—namely, labour. While labour-related issues lie at the heart of debates about models of capitalism, their treatment in IPE remains rather problematic, for three principal reasons. The first, and simplest, is that labour has suffered from a generalised neglect in IPE—the ‘invisibility’ of workers, indeed, has been described as a ‘serious blind spot’, which carries both theoretical and empirical implications (O’Brien 2000a:89). Second, within the scarce literature, labour is commonly represented as an interest (singular) affected by globalisation and neoliberal restructuring. This treatment of labour as an homogenous, reactive agent—and consequently as a ‘second-order’ social force in a hierarchy dominated by capital and states—underplays both its centrality in the political economy of capitalism and the reorganisation of social relationships which underpins restructuring processes. Third, labour is conceptualised predominantly as a ‘national’ social category or actor. This nationalist bias is particularly stark, not surprisingly, in the institutionalist strains of the models of capitalism debate but is also a strong leitmotif in studies of globalisation, in which a discounting of path dependency in favour of a ‘convergence’ argument also frequently leaves the nationalist bias undisturbed. That is, convergence is seen to arise from change at the national level, as economies are restructured and state-capital-labour relations redrawn in a manner conducive to the onward march of neoliberal globalisation. These three problems in the study of labour have been offered some redress by recent work on the emergence of a ‘global labour movement’. This has sought to retrieve labour from its position of invisibility in IPE primarily by charting the tentative crystallisation of a transnational labour politics (Stevis and Boswell 1997; O’Brien 2000b). Labour is thus presented as a key instance of the transformation of agency in a global political economy and of a transnational (or ‘global’) social movement of the sort that globalisation processes have been seen to engender. These perspectives are undoubtedly valuable in themselves, but they get us only so far in redressing the problems we have identified. For a start, the movement comprises a very small number of groups from a limited number of (principally OECD) countries, and without exception these groups are

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representative of the highly organised (and thus predominantly industrial) sections of the world’s labour force—and then only of a very select number of unions. Moreover, analyses of a putative global labour movement preserve the aforementioned emphasis on labour solely as agency, thereby circumscribing the applicability of these insights to the study of the political economy of capitalist development. What the focus on the transnationalisation of labour does do, however, is take some account of the changing spatial organisation of contemporary capitalism, which we have seen to be notably lacking from the bulk of the models of capitalisms literature. The social reconfigurations wrought by the underlying transnationalisation processes are associated with the emergence of ‘new’ social structures, most obviously transnational class formations and alliances, and furthermore with changes in the institutional frameworks within which social forces interact. Andreas Bieler usefully observes in this respect (2001:9) that ‘a basic distinction can…be drawn between transnational social forces of capital and labour, engendered by those production sectors which are organised on a transnational scale, and national social forces of capital and labour stemming from national production sectors’. While it can be argued that he draws this distinction too starkly, nevertheless it offers useful insights into the ways that transnationalisation—both global and regional—carries significant consequences for the nature and interactions of key social groups. Point one, therefore, is that we need to locate labour as an integral element of the structural processes of capitalist development, not simply as an actor affected by them. Point two is that we need to take seriously the transnationalising processes which characterise the contemporary political economy of development, specifically the ways in which social forces and their interactions are being reconfigured as a result. Point three is that, notwithstanding the above, we can ill afford to discount the agency of labour and need to dispense with the idea that this agency is exercised by a ‘single’ actor or group. In other words, we need to recognise that the politics of labour, particularly in national settings, is much more contingent and much more diverse in its substance than is generally conceded in the homogenising strains of IPE analysis. In this respect, it should also be noted that the emphasis on the transnational dimensions of a labour movement commonly serves to nudge states further into the shadows created for them by much of the globalisation debate, thus limiting a constructive engagement between the study of labour in IPE and in the models of capitalism literature. In short, what we need to try to achieve here—once again—is a meshing of IPE and CPE approaches to the study of labour. We start, in this spirit, with a consideration of general themes relating to labour and labour markets in the context of globalisation and neoliberalism, before moving on to examine the national and regional contours of labour organisation and labour politics in the Southern Cone.

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Labour, globalisation and neoliberalism The first of the three points outlined above indicates that the position of labour in the globalising world economy is dictated as much by the ‘logic’ of global capitalism as by state policies and corporate strategies. The march of global capitalism and neoliberal globalisation is seen to depend on the creation of propitious conditions in national and regional settings, by which is implied a purposive reorganisation of the social relations of production. In this sense, Marxist analyses conceptualise capital as inherently a social relationship, rather than simply a fetishised ‘thing’, and consequently the roots of greater capital mobility, contrary to dominant understandings in mainstream (non-Marxist) debates, are seen to be social rather than technical. As David Coates puts it nicely (2000:255–6), globalisation is ‘based less on the proliferation of computers than on the proliferation of proletariats’, depending for its momentum —that is, capital mobility—on the expansion of local and global proletarian classes. In a similar vein, Marxist perspectives on the class relations which are integral to capitalism itself also generate a persuasive argument that ‘labour has to be regarded as a fundamental actor due to its place in the capitalist mode of production’ (Bieler 2001:2). Whether or not one chooses to approach it from a specifically Marxist perspective —and reservations are also raised about Marxist understandings of ‘capital’ in the next chapter—the point is that labour constitutes an integral dimension of globalisation and neoliberal restructuring and cannot be understood simply as a reactive agent affected by them. Building on this premise, the centrality of labour in the global political economy can be seen clearly in the reconfiguration of the global division of labour that globalisation has occasioned, as a result of which a ‘new social coreperiphery hierarchy’ has emerged and become entrenched (Hoogvelt 2001: 135). The periphery is inserted into the global economy predominantly as a source of cheap, low-skilled labour, as a consequence not only of patterns of resource endowments but also of the reorganisation of production structures which has produced both a sharp polarisation and a new stratification of the global labour force. The crucial point, however, is that neoliberalism depends for this reason on a redefinition of the relationship between state, capital and labour in national settings. William Robinson (2001) has observed that, while the reproduction of capital remains dependent on that of labour at a systemic level, globalisation has at the same time created a situation in local capitalist systems in which this linkage is ruptured. According to this line of argument, the shift from Fordist to post-Fordist, flexible production regimes thus entails the de-linking of growth from the expansion of consumer markets. In other words, the emergence of a transnationalised regime of accumulation removes the domestic market and workers’ consumption from the growth equation, supplanting the national social contracts which characterised the Fordist era with a ‘new class relations of global capitalism’ (Robinson 2001:550) in which capital and states are able and compelled to abandon their commitments to labour in both employment

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contracts and policy strategies. In short, while global capitalism depends for its momentum on the organic linkage between labour and capital, the logic of neoliberalism paradoxically demands their de-linking, resulting in a systematic weakening of labour. The concrete dynamics of these de-linking and weakening processes are visible in a range of trends that we can group in the following five categories: ‘flexibilisation’; employment trends; wage levels; informalisation; trends in labour organisation; and the evolution of skill levels. Flexibilisation The social reorganisations connected with neoliberal restructuring are designed primarily to ensure that production processes and corporate activity are not hindered by a shortage of available labour or restrictive forms of labour regulation. The resulting state and corporate strategies were buttressed by the emergence in the 1980s and 1990s of a new consensus among neoliberal governments, IFIs and key business interests that high levels of labour organisation were deleterious for strong economic performance. This consensus in turn was supported in a profusion of academic studies which sought either to demonstrate the link between economic performance and labour organisation in a globalising world economy (Garrett and Lange 1996) or to explain the apparently superior performance of Anglo-American capitalist systems over their trustbased counterparts, using union activity as the central variable (see Coates 2000 for a review). As a result, ‘labour flexibilisation’ became the key mechanism by which the so-called ‘race to the bottom’ is run, propelled by the consensus, on the one hand, that tight labour market regulation repels investors and consequently is damaging to national and sectoral competitiveness and, on the other, that the reduction of labour costs is the key to corporate competitiveness. In a nutshell, then, flexibilisation strategies are premised on a shift to flexible work-forms and employment practices which allow for a significant reduction of firms’ employment costs. Flexibilisation thus involves the control of wages and wage demands, along with a reorganisation of labour relations such that welfare becomes contingent on increases in productivity rather than on political negotiation. Control over wages is typically devolved to the private sector, the role of states being limited to fixing the minimum wage and states’ welfare strategies coming typically to be pursued through social policy rather than wage negotiation (Coloma and Rojas 2000:513). Flexibilisation agendas thus feature an increase in temporary and part-time contracts and an emphasis on ‘casual’ labour, an easing of job security measures and employers’ commitments in pensions, redundancy and worker compensation packages, and a weakening of collective wage bargaining. At a corporate level, buttressed by these state policies, firms’ strategies have largely abandoned previous emphases on workers’ security and employment conditions in favour of management strategies which emphasise efficiency, flexibility and cost control. To this extent, the impact of flexibilisation underlies the four other trends we identified, which

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are discussed, with illustrations from the Southern Cone, in the subsections which follow. Unemployment Growing levels of unemployment are foremost among the social dislocations associated with neoliberal globalisation. The discourses of neoliberalism and flexibilisation rest on the understanding that liberalisation and deregulation enhance growth potential, the benefits of which will subsequently be felt—in a form of ‘trickle-down’ effect—in employment and wage levels. By the end of the 1990s, despite the widespread implementation of flexibilisation strategies, it was widely recognised that this linkage had held anything but fast. Processes of extensive liberalisation and deregulation had in any case failed to produce sustained growth in most economies, but, even where growth had occurred, the anticipated spill-over effects on welfare and employment simply had not materialised. Indeed, in most cases, the trends had run directly counter to those envisaged by neoliberal optimism. High and/or growing levels of unemployment in neoliberal economies have stemmed from several related trends. The restructuring of economic activity has meant, on the one hand, that the growth of finance capital has shifted investment profiles away from job-creating projects in the ‘real’ economy towards financial instruments as objects of investment in their own right (Scholte 2000:221). In other words, capital flows have become oriented towards ‘non-productive’ investment in ways which have limited their job-creating potential. On the other hand, while generally not as strong a trend in emerging economies as in more industrialised economies, the ‘tertiarisation’ of economic activity has tended to augment unemployment levels in traditional agricultural and manufacturing sectors which prospered under ISI. Many service sectors are capital intensive and highly automated, resulting not only in significant layoffs but also in few prospects for generating job-creating growth. In some cases, the result has been the much-noted phenomenon of ‘jobless growth’, although ‘jobless recession’ is a better label for the performance of Latin American economies over this time. At the same time, trade liberalisation processes, especially when undertaken in conjunction with privatisation and financial deregulation, have acted to expose previously protected economies to significant external competition. Liberalisation has thus favoured those business sectors with transnational linkages and those which are or could become globally competitive. Uncompetitive firms, deprived of state protection, have been forced out of business, contributing to the burgeoning ranks of unemployed workers. Other firms have adopted rationalisation strategies in order to reduce costs and increase competitiveness, with the focus falling inevitably on the reduction of labour costs. Similarly, privatisation and processes of state reform have generated massive public-sector redundancies, the consequences of which have been especially serious in the absence of retraining programmes designed to facilitate

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the reabsorption of these displaced workers into formal employment. These facets of economic restructuring have commonly been accompanied by conservative fiscal policies and spending cuts, with particularly negative consequences for investment and consumption levels, as well as employment. What is more, not only are employment levels the most visible casualty of neoliberalism, but they are also the slowest of the casualties to recover. The fact that these trends have been manifest across the world does not obscure the ways in which they have assumed specific dimensions in ‘late industri alising’ economies. They are significantly exacerbated when restructuring is conducted suddenly and rapidly, or when unemployment effects are generated by sizeable internal or external economic shocks. This is primarily because abrupt reform and successive economic shocks limit the possibilities for the re-incorporation and ‘reskilling’ of affected workers. These problems are compounded in cases where technological ‘shock’ occasions a precipitous restructuring in economies characterised by a significant lag in technological capacity and thus a reduced ability to respond effectively to the associated challenges (Diamand and Nochteff 1999:205). This clearly applies to the vast majority of developing economies, in which low levels of technological capacity constitute a significant hindrance to the achievement of global competitiveness. Similar observations might be made of characteristically low levels of institutional capacity, which obstruct the elaboration of compensation packages and social policies, of the sort implemented in the more advanced industrialised economies, to offset the socio-economic dislocations resulting from economic restructuring. Turning to the Southern Cone, high and/or growing unemployment levels have been—and remain—characteristic across the region, as shown in Table 7.1. The Argentine case is particularly instructive given both the scale and pace of neoliberal reform, especially in the area of privatisation, and the recurrence of economic shocks. Unemployment levels hovered at a rough average of 15 per cent for most of the mid-1990s, reaching a record national average of 18 per cent (with a higher figure still for Greater Buenos Aires) by the time of the default and devaluation of December 2001. In Chile, where gains in productivity— thought likely in neoliberal discourse to ease unemployment—were considerably higher, unemployment remained a key concern by the turn of the decade. Levels jumped noticeably in 1999, whilst in 2001 published figures of 13.8 per cent for Greater Santiago (9.1 per cent nationally) were received with a good deal of consternation. Figures for Brazil remained lower than the regional average by 2000, explained in part by the later initiation of neoliberal restructuring—the jump between 1997 and 1998 apparently bearing this out—and also by certain characteristics of the industrial relations system to which we will turn later in the chapter. Even where unemployment has been comparatively less severe, however, there has been a notable slowing of employment growth. In Chile, for example, employment growth fell from an average of 4.3 per cent annually during 1986–9 to 3.2 per cent for 1990–3 and 1.4 per cent for 1994–8 (Barrett

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2001:573), reflecting both the entrenchment of the neoliberal model and the failure of labour reforms, again to be discussed shortly. Table 7.1 Southern Cone: urban open unemployment rates, 1980–2001 (annual average rates)

Note: a Principal urban areas b Metropolitan region c National total d Total urban e Capital city Source: ECLAC 2002c, 2003.

Finally, unemployment growth has had an important sectoral profile, being particularly notable in more traditional sectors such as agriculture and mining, and slightly less so but still significant in most industrial sectors, even as the growth figures for tertiary sectors have shown notable increases (see Table 7.2). The decrease in the agriculture sector’s share of employment in Paraguay has been less pronounced than elsewhere, given the very limited degree of economic restructuring that took place over the 1990s. The figures for Paraguay in the first category in the table also reflect a general trend in the Latin American and Southern Cone regions, in which industrial employment in the smaller, lowerincome economies has continued either to rise or else to exhibit less precipitous declines than in higher-income economies (Gwynne 1999:88–9).

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Table 7.2 Southern Cone: distribution of employed population between 25 and 59 years of age by sector of activity, urban areas, 1990–9 (% of total employed persons and 1990–9; variation in percentage points)

Note: a Greater Buenos Aires b 1990–2000 figures c Asuncion and Departamento Central Source: adapted from ECLAC 2002b.

Wage levels As an integral component of flexibilisation strategies, downward pressure on real wages has been brought to bear across industrialised and emerging economies (see Slaughter 1999). In conjunction with declining levels of unionisation, traditional forms of collective wage negotiation have generally obsolesced and given way to measures linking wages with productivity—to the depoliticisation, if you like, of wage relations. The downward pressure on wages also constitutes an important dimension of the social map of globalisation, in the sense that it is integral to the ability of mobile capital to take advantage of concentrations of low-cost labour and to reorient or relocate productive activities accordingly. This relationship between capital and labour is further entrenched by the lack of labour mobility: the mobility of capital and the relative immobility of labour are reinforced by political intervention designed to curtail the free movement of workers, the result being enhanced opportunities for capital to ‘land’ in regions and economies offering abundant cheap labour as their chief source of competitive advantage (Hoogvelt 2001:139). While this is clearly a ‘coreperiphery’ issue, the relative immobility of labour is characteristic across the

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world economy, not only that of ‘labour-rich’ developing areas, and significant in that it facilitates further the equalisation of wage rates at the lowest common denominator. The most consistent trend in the Southern Cone in the 1990s was of a stagnation of real average wage levels, as demonstrated in Table 7.3. The exception was Chile, where by 1997 real-wage levels were over 40 per cent higher than in 1980, a deviation from the general trend which has been explained variously with reference to productivity increases, the pattern of inflation, the pattern of unemployment, a government policy of nominal wage adjustments and, crucially, the greater possibilities in the Chilean case for collective wage bargaining (see Coloma and Rojas 2000:526–7). Over the decade, there was also a slight upward movement across the board as labour markets tightened after the initial phase of restructuring (Gwynne and Kay 1999:23), but, with the exception of Chile and to a lesser extent Brazil, real industrial wage levels at the end of the decade indicated at best only a slight improvement on 1990 levels. In Paraguay real average industrial wage levels in 2000 were around 4 per cent lower than in 1990. Except in Chile, in addition, across the region wage contraction was beginning to reemerge by the end of the decade, with noticeable reductions in average real levels from points around the middle of the decade. Most notably of all, in Argentina, where the Menem government implanted the most orthodox system of labour relations, real wages remained consistently well below their 1980 levels. Table 7.3 Southern Cone: real wages in industry, 1990–2000 (1980=100)

Source: ILO 2002.

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Informalisation In some ways, the generalised informalisation of labour markets has been a more important and profound trend than the reduction in formal employment. The sources of informalisation, however, are the subject of some disagreement. An orthodox diagnosis sees growing informality as the result of excessive labour market regulation, with its advocates prescribing a good dose of flexibilisation in order to remove barriers to formal employment which derive from high costs to employers (de Soto 1989). It is held that smaller firms are especially disadvantaged by onerous regulation levels, in that employment costs become prohibitively rather than merely inconveniently high. This is significant for overall economic performance in that smaller firms are seen to be the primary motor of economic dynamism as well as job creation. The opposing view is that rising informality springs from flexibilisation itself, in that there has been not only a swelling of the ranks of casual, part-time and temporary labour, but also a marked increase in illegality and informality even as regulation has been dismantled. This view is more persuasive, given that informalisation trends straddle various types of labour regulation regime, challenging the argument that they emerge as a consequence of a particular type or degree of regulation. Informalisation has been particularly conspicuous in Latin America as a consequence of both the particular challenges of competitiveness in emerging economies and the relative abundance of labour, especially of the unskilled variety. It has also been particularly evident in specific sectors such as textiles and footwear, which in any case have featured an extensive shedding of workers, and in the numbers of manual workers that are hired daily, weekly or seasonally, often in construction sectors and certain agricultural activities. These sectoral patterns also correlate strongly with the use of migrant labour. Indeed, in the large Southern Cone economies a significant percentage of those hired on a daily or seasonal basis (either legally or illegally) are migrant workers, particularly from the smaller Southern Cone countries and the Andean region. Clearly informalisation, the downward trajectory of wages and these patterns of economic migration go hand in hand, contributing to a shift in labour’s centre of gravity from strategic sectors of national production and public services to ‘the unproductive and low-income sectors of the burgeoning urban economy’ (Robinson 1999:52). The growth of underemployment, informal economic activity, and informal and illegal employment practices has been a common trend across the Southern Cone. Their specific manifestations, naturally, have been contingent on demographic trends peculiar to national cases. In this respect, Wolfram Klein (2000: 154–5) has drawn a useful distinction between Argentina and Uruguay, on the one hand, and Brazil and Paraguay, on the other. The former have seen only a moderate increase in the supply of labour as a consequence of demographic changes and the greater participation of women in the workforce, but in both countries official unemployment and informality increased sharply

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over the 1990s. In Brazil and Paraguay conversely, labour supply has increased very sharply—in both countries the population is extremely young—resulting in an explosion of informal economic activity while official unemployment figures have remained at fairly moderate levels. Inevitably, reliable figures are hard to come by on levels of informal and illegal economic activity or percentages of the economically active population engaged in such activity. Some recently available figures on numbers of workers without contracts and social security are summarised in Table 7.4. Figures on the size of informal sectors are more tentative still. It has been estimated that in 1996 only 43 per cent of 650,000 new posts in Brazil were in the formal sector; in Paraguay only about 30 per cent of the economically active population has paid employment in the formal sector (Klein 2000:155). Levels of informality in Brazil jump out as the highest in the Southern Cone: in 2001 it was estimated that around 60 per cent of the workforce was ‘informal’, double the 1991 level (Financial Times, 6 June 2001). The later implementation of neoliberal policies in Brazil meant that the initial phase of a precipitous slide in real wages and a dramatic increase in formal unemployment was still in full flow at the start of the 2000s. Table 7.4 Southern Cone: waged workers without employment contract and without social security in urban areas, selected years (% of total waged workers)

Source: CEPAL 2002.

Organisation and unionisation The goal of reducing labour costs as a prerequisite of competitiveness has also been pursued in the area of labour organisation. The disarticulation of unions is fundamental to flexibilisation in that the absence of organised influence oils the

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political wheels of the process and diverts otherwise cumbersome obstacles to the successful enactment of governments’ reform strategies and private-sector activity. The consequence has been that unions have been displaced not only from their traditional position in Fordist tripartite patterns of capitalist relations but also from their traditional political roles. Labour-based parties have become notably less constrained by unions than previously, even while many of them have continued to identify a crucial electoral base among workers and labour groups. The centre of political resistance has thus become located outside the workplace, giving rise to what has been seen as a new ‘social unionism’ (Robinson 1999:52), reflecting the rupture of traditional state-labour-capital compacts. Statistical information on union membership and density in Latin America is surprisingly scarce. Table 7.5 summarises the most recent available figures for the Southern Cone, which indicate consistently low levels of union membership across the region. The figures for formal-sector wage earners in the 1990s were relatively high, but one must bear in mind the parallel trend of high and growing levels of informalisation, such that the figures in the final column represent, in some cases, only a very small portion of the economically active population. We will look in further detail at types and levels of unionisation in the five national cases in subsequent sections of the chapter. In the meantime, it is important to underline the point that the decline of union density in much of the Southern Cone was not solely the consequence of flexibilisation or the global weakening of labour with the collapse of socialist alternatives, but, rather, was started somewhat earlier in the systematic repression and disarticulation of organised labour undertaken by authoritarian governments. With democratisation, unionisation generally resumed and increased but in most cases levels have failed still to recover their pre-authoritarian dimensions. In particular, the impact of economic restructuring has been to move the focus of economic activity towards sectors in which unionisation tends to be limited and circumscribed. Low union density levels are especially characteristic of export sectors, and consequently a shift to export-led growth strategies—and a reinforcement of this type of insertion into the global economy—has entrenched the dwindling of labour organisation. These sectoral trends have been exacerbated by movements towards flexible employment practices across economic sectors, the possibilities for effective organisation having become significantly limited by the predominance of temporary and seasonal employment, the significant movement of workers between firms and the increase in informal and illegal hiring practices. Given that such political influence as is exercised by labour is confined to organised labour groups, and even then only to some sections of it, the political as well as economic disenfranchisement of non-unionised labour has been profound across the region.

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Table 7.5 Southern Cone: union membership and trade union density, selected years

Source: ILO 1998.

Skill levels As we have seen, an analysis of the new global division of labour carves out a bifurcation between low-skilled, low-paid labour and high-skilled, high-paid workers, which reflects the highly heterogeneous nature of transnational labour markets (Robinson 2001:551). This heterogeneity is mirrored in local settings, ensuring the availability of a surplus pool of labour drawn from the burgeoning ranks of informal and casual workers, revealing its impact in the marked ‘social dualism’ in Latin America and the exacerbation of what are already the highest levels of inequality in the world. In the Southern Cone a number of broad trends were manifest over the course of the 1990s. As in the rest of Latin America, there was a significant increase in the proportion of the total population that possessed professional or technical qualifications. The percentage figures in Table 7.6 represent an even more significant increase in absolute numbers, given the rapid population growth experienced across the region. The table also demonstrates some variation across the region in the composition of this skilled sector. In Chile and Paraguay the increase in the numbers of persons with technical skills (as opposed to professional skills) was faster than in the rest of the Southern Cone, given the evolution of tertiary-level training systems (ECLAC 2002b:72). In the other three countries the growth was faster in numbers of people with professional qualifications. Even so, throughout the region the percentage of the total populations without technical or professional qualifications remained over 75 per cent by the end of the 1990s, despite advances in education systems which had allowed for some improvement on 1990 levels. The other related trend in Southern Cone economies, and elsewhere, has been a significant migration of skilled labour to the tertiary sectors of the economy, thereby increasing the sectoral polarisation noted earlier.

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The combination of these trends has produced a progressive skewing of demand towards workers with more skills, more years of schooling and more qualifications, and consequently a marked process of social polarisation. This is evident in the breakdown of unemployment figures: negative variations on employment figures between 1990 and 1999 were common to both higher- and lower-skilled sections of workforces, but the growing demand for skills is clearly revealed when overall population growth is factored into the equation. For instance, in Argentina the variation of the share of employed persons operating in agriculture, mining, industry and construction sectors was –5.0 per cent over the 1990s (Table 7.2), but this variation was significantly larger for low-skilled workers (–5.3 per cent) than for those with technical or professional qualifications (–1.5 per cent). Figures for other countries broadly follow a similar pattern, except in Paraguay, interestingly, where the variation in the agricultural sector was positive for skilled workers (1.6 per cent) and negative for unskilled workers (–0.1 per cent) (ECLAC 2002b:83). Less-skilled or lessqualified workers across the region have consequently faced increasing difficulties in finding wage employment, with an increasing number moving to work in nonwage occupations (Weller 2000:40). Table 7.6 Southern Cone: distribution of population between 25 and 59 years of age, by level of qualification, urban areas, selected years (% of total population)

Note: a Greater Buenos Aires b Asunción and Departamento Central Source: adapted from ECLAC 2002b.

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National labour politics This broad-brush sketch has identified the principal trends associated with labour flexibilisation and its broad manifestations in the Southern Cone. What it has not yet taken sufficient account of, however, are the ways in which these restructuring processes have taken contingent and specific forms in the various national settings of the Southern Cone. We turn, then, to a consideration of the ways in which structural trends have been shaped by distinct institutional and political environments, and of the distinctive forms of politics which have conditioned processes of domestic labour reform. Argentina As we saw in Chapter 3, one of the principal legacies of Peronism in Argentina was the creation of the most militant trade unions in post-war Latin America, contributing to enduring patterns of trenchant political polarisation and distributional conflict which stunted the state’s capacity for coherent macroeconomic policy management. This pattern persisted, despite the disabling efforts of the ‘dirty war’ of 1976–82, into the Alfonsín administration, resulting in 13 general and 72 sectoral strikes between 1983 and 1989 (see McGuire 1992). Under the Menem government from 1989, however, labour militancy was subdued and unions were largely disarticulated by a combination of the impact of structural reform and purposive government strategies. Why this process became possible under Menem is explained by a number of interlocking factors. The first is ideological. Considerable discontinuity between Menemism and Peronism notwithstanding, the fact that the former was a Peronist party—known as the Partido Justicialista (PJ)—government meant that the traditional Peronist electoral base among workers and unions remained largely intact. The second relates to the labour movement’s traditional dependence on the state for its political status and economic viability. Both of these granted the Menem government a degree of leverage over the unions, reflected in the range of subsidies and incentives designed to leave their financial basis intact in return for their acceptance of economic change. The result was that the cooptation of unions was significantly more feasible in Argentina than in Brazil, in spite of the historically higher levels of militancy in the former. Indeed, what is interesting about the disarticulation of Argentine labour is that it was achieved at least as much through cooptation tactics as through marginalisation. Third, the reorganisation of labour relations was facilitated by the comparatively heterogeneous and consequently fragmented nature of the Argentine labour movement and by the opportunities thereby made available to the government to exploit the fissures within it. In any case a sizeable union grouping already existed by the early 1990s which was oriented towards cooperation with the government and business. This segment was associated with the so-called ‘Comisión de los 15’ (Commission of 15) which had also

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maintained dialogue with the military government of 1976–82 and committed itself under Menem to putting aside wage demands and accepting labour flexibilisation in the interests of facilitating growth and investment (Palermo and Novaro 1996:344–5). The line-up in Menem’s first Labour Ministry was consequently drawn from the leaders of this segment of the labour movement, two of whom (Jorge Triaca and José Rodríguez) were members of Menem’s first Cabinet, the former being his first Labour Minister. The passage of far-reaching early reform legislation, especially a 1990 decree restricting rights to strike, was thereby eased considerably. The effects of these policies were exacerbated by internal tensions in the largest union, the CGT. These culminated in its split in October 1989 into the pro-Menem ‘San Martin’ and the opposition ‘Azopardo’ factions, headed, respectively, by CGT Secretary-General Guerino Andreoni and Saúl Ubaldini. The split dented the bargaining power of each faction until the reunification of the union in 1992, creating a vacuum which enhanced the government’s ability further to weaken the influence of the CGT–Azopardo and coopt the CGT–San Martín. The fact that the leadership was won by Andreoni was also important in this respect. In August 1990 the CGT–San Martín was officially recognised as the only legal union in Argentina and was rewarded with a range of concessions which included changes in the pensions reform package, social security benefits, subsidies for health funds and the maintenance of existing legislation on unionisation and collective bargaining (Murillo 2000:157). On several occasions during this period, in addition, legislation was modified according to the reception of bills or initiatives by the CGT. The influence of Ubaldini and the hostile factions began to decline and their appeal became limited to the most radical elements of the union movement, even though Menem’s attempts to remove Ubaldini by offering him various positions outside Argentina failed. The government also managed to secure the support of sections of the labour movement by appealing to the financial self-interest of their leaders. The health insurance system, Obras Sociales (Social Works), constituted the financial basis of the labour sector and was financed through obligatory annual payroll and employer contributions. However, the system suffered from a substantial deficit, which was covered by the state through the Administración Nacional del Seguro de Salud (ANSSAL, National Health Insurance Administration). This had two principal implications: first, that the unions had less room for disagreement with the state or government as long as they remained in need of subsidies to cover the deficit; and, second, that the government became able to exert significant leverage based on this relationship of patronage. In any event, decree legislation in 1991 prevented unions from collecting contributions under the Social Works system, although control of ANSSAL and further health subsidies were afforded, as noted above, to the pro-Menem factions of the CGT. Proposals in 1992 to privatise at least part of health-care provision led to a general strike, prompting the government to shelve its plans to introduce competition from the private sector.

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The government’s reform agenda was received with considerable wider opposition as well. This came from those sectors most affected by liberalisation, especially the textiles, metallurgical and automobile sectors, and from publicsector employees affected by privatisation and government wage policies (Murillo 1997:82). From around 1994 union militancy increased quite significantly as unemployment growth began to gather pace and the impact of the tequila crisis was felt through 1995. While an agreement on labour reform between the government and the CGT in July 1994 was seen to be the high point of the latter’s cooptation, it came in the same month as the so-called Marcha Federal (Federal March), organised by opposition factions of the union movement in protest against government policies and rising unemployment levels. This was significant for its bringing together of an enormous variety of groups from all over the country, including trade unions, teachers, public employees, trade organisations and representatives of PYMEs (Palermo and Novaro 1996:431–2). In short, by the time of Cavallo’s departure from the Economy Ministry in 1996 the Menem government and its policies had effectively lost much of the proreform consensus evident in the early part of the decade. The labour reform initiatives of 1997 were reflective of the consequently louder voice of labour in the political arena, in that the government was compelled actively to mediate between labour and business on key components of the reform package. The initiatives were partially successful in establishing, for the first time, a negotiated compromise between business and labour, although the lines of communication were routed through government rather than involving genuine tripartite dialogue. Business interests made a number of concessions to labour rights in agreeing to the government’s package, but these constituted only slight concessions which were spliced into the Menem government’s overall flexibilisation drive. In exchange, business demanded various assurances from government, particularly on its tax policy, in order to ‘promote stability, investment and further deregulation’ (El Cronista, 6 June 1997). Business actors— grouped informally in the ‘Grupo de los 8’ (Group of 8) —thus found themselves able to flex their muscles and strengthen their influence over the policy agenda in exchange for supporting ‘labour reform’, while in reality deviating hardly at all from their own commitment to the decentralisation of collective bargaining. In its final negotiated version, the reform bill incorporated only negligible provisions on workers’ rights and, furthermore, left the union movement even more fragmented than previously: the CGT splintered again in June 1997 as the Movimiento de Trabajadores Argentinos (MTA, Argentine Workers’ Movement) broke away in protest at the ‘tripartite’ agreement, its difficulties being compounded by the government’s recognition of the opposition Congreso de Trabajadores Argentinos (CTA, Argentine Workers’ Congress) as an official union in the same month. The 1997 flexibilisation bill did very little to implant a genuinely tripartite foundation for the development strategy. Even by the early part of the

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administration of Fernando de la Rúa, from December 1999, labour relations had not become significantly more participatory or transparent. Indeed, the Argentine system was criticised by the ILO as ‘limited’, particularly in its observance of the right to free choice of union association (La Nación, 30 January 2001). The upshot was a persistence of vocal demands for a strategy of consultation with organised labour, generally known as ‘social dialogue’ or variants thereon. In early 2001, in response, the government set up a Comisión Tripartita Mixta (Mixed Tripartite Commission) for discussion of key labour issues—such as the level of the minimum wage, social security reform, state-sector salaries and health-care deregulation—but this failed to provide a headwind against accelerating labour mobilisation, manifested in repeated large-scale protests (such as the provincial protests in May 2000) and the ongoing threat of general strike. ‘Triumphs’ for this type of activism included announcements of new antipoverty funds and ‘make-work’ schemes in various provinces, increased unemployment benefits and the shelving of the deregulation of the Social Works system, to which union representatives had mounted the most combative opposition. More broadly, despite some significant movements towards compromise in its negotiations with the CGT, the overall tenor of the government’s reform agenda remained stridently opposed across the labour movement: Rodolfo Daer, the head of the CGT, claimed that ‘labour reform is aimed at smashing union structures, which is workers’ only form of democratic participation’ (La Nación, 9 February 2000). Nevertheless, acceptance of the subsequent 2000 labour reform bill was secured through a deal with union leaders which prevented the government from making any inroads into some of the most protected perks of their office. By the start of the 2000s, then, labour politics in Argentina had come to be marked by a degree of union muscle that, to a certain extent, gave the lie to the early 1990s academic consensus that labour was no longer a notable political force. The change of government to a non-Peronist administration is one obvious reason for the tortuous trajectory of labour reform from the late 1990s. Another is the sharp deterioration of the economic situation from the mid-1990s, especially in the area of unemployment. Apart from producing a rash of violent riots and massive protests in the early 2000s (in which workers and labour groups played a fundamental role), this meant that the labour reform process effectively stalled, buckling still further under the tension between the Labour Ministry’s priorities and those of the beleaguered Economy Ministry, where attention was fixed on macroeconomic and market confidence issues. The Labour Ministry’s plans in early 2001 to put together a new reform package privileging the elimination of special statutes for certain unions and the replacement of apprenticeships with instruments similar to earlier work-creation schemes were generally seen as a throwback to the agenda of the mid-1990s and consequently unlikely to garner much support. More ‘contemporary’ concerns, such as reducing informality, were seen to be political non-starters in light of the more pressing concerns of lifting the economy out of recession and dealing with

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unemployment. The crisis in the early 2000s did nevertheless generate some tentative innovations which included potentially important legislation in mid-2001 in the form of the Ley de Defensa del Trabajo Argentino (Law on Defence of Argentine Labour), which sought to promote job creation through a package of active public policies aimed at invigorating PYMEs, and the establishment of the tripartite Diálogo Argentino (Argentine Dialogue) in 2002, in which labour issues featured strongly as themes for consideration. If such initiatives are sustained, they conceivably herald important modifications to the landscape of Argentine labour politics. Brazil Traditionally Brazilian labour has been significantly more autonomous of government than labour in Argentina, or indeed in Chile, and has occupied a position of influence as a result of the robust legal regulation of industrial relations. This system of regulation rested on three basic institutions—the 1943 body of labour laws known as the Consolidação das Leis do Trabalho (CLT, Consolidated Labour Laws), the network of labour courts and the social security system—and the primary means of regulating industrial relations over this time was legal action rather than collective bargaining (de Souza 1999:67). The thrust of the CLT was to establish unions as ‘organs of collaboration with the government for the promotion of social peace’, establishing a notable body of social welfare programmes which, while affording the government significant corporatist control over trade unions, also moved labour to an integral position within the system (Keck 1989:253). The political weight consequently accruing to labour was not significantly dismantled under the authoritarian regime of 1964–85, and much of the system was in fact preserved by the package of labour rights subsequently enshrined in the 1988 Constitution, under which employment costs increased to the tune of 40 per cent, with firms obliged to pay a minimum of 102 per cent of salary in social contributions for each legal employee. While labour’s centrality has waned along with post-war ISI, this legal and constitutional protection, together with the continuing predication of the development model on industrialisation, has favoured labour influence to a greater extent than the versions of neoliberalism pursued elsewhere. The constitutional strengthening of unions was supplemented by the unique place of inflation in the Brazilian political economy. In contrast to Argentina, where the weakening of labour owed much to successive hyperinflationary episodes, the Brazilian economy traditionally escaped the logic that tied inflation to stabilisation; rather, as Philippe Faucher has observed (1999:115), ‘the strongest coalition has long been the one composed of those sectors that thrive on high inflation’. The ability of key sectors to remain insulated from its effects— or indeed to benefit from it—derived from the policy of wage indexation which favoured both financial capital and wage earners, the latter being additionally protected by powerful trade unions. The effects of indexation

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thus arrayed a formidable set of key interests against stabilisation initiatives and diluted political support for the sorts of extensive neoliberal reform that were instigated elsewhere in the region. Nevertheless, these broad features of Brazilian labour tempered rather than prevented a generalised process of weakening over the 1990s. Novo Sindicalismo (New Unionism) was relatively strong in the period following the restoration of civilian government in the mid-1980s but, especially from the mid-1990s, has seen a disintegration of its influence under the weight of growing unemployment, industrial restructuring and the pervasive crisis of the public sector (Panizza 1999:15–16; see also Keck 1992; Barros 1999). The successful implementation of the Real Plan, in this sense, owed a good deal to economic deterioration and the emergence of hyperinflation immediately prior to Cardoso’s election in 1995, which diminished the protection afforded by wage indexation and facilitated acceptance of stabilisation measures. In particular, the elimination of indexation in 1995 and specific events such as the government’s defeat of the oil workers’ union in May of that year contributed to the dilution of union influence. The impact of the 1988 Constitution was also mixed and in reality did little to offset the progressive enfeeblement of Brazilian unions. For all that it enshrined workers’ rights at the centre of the economic model, it also entrenched a range of the corporatist characteristics of the Brazilian political system which over the post-war period had been effective in sustaining a highly fragmented labour movement. These included provisions which perpetuated a marked autonomy of union leaders from union members, restricted the geographical area of base organisations and granted unions monopoly representation in their territorial domain (Weyland 1996a:67). Democratisation’s assault on state corporatism in Brazil and elsewhere did not attenuate this fragmentation. While it facilitated the creation of new overarching union bodies, it also opened up new divisions. These were especially salient between the principal unions that relied on corporatist mechanisms of mobilisation—namely the Confederação General dos Trabalhadores (CGT, General Workers’ Confederation) and the newer Força Sindical (FS, Union Force), established in 1991—and those that would benefit from the dismantling of corporatist structures—notably the Central Unica dos Trabalhadores (CUT, United Workers’ Central) (see Weyland 1996a: 67–9). From the mid-1980s the CUT occupied a position of ‘near-hegemony’ in the union movement, having a genuinely national reach (as opposed to the regional concentration of the CGT in the southeast) and functioning, as one commentator has put it, ‘like a virtual political party’ (Botelho 2002:3). Economic restructuring exacerbated these divisions. In some similarity to the Argentine case, its impact was felt particularly in the political divisions that emerged on the matter of neoliberal reform. While the FS adopted a position of broad support for the neoliberal and privatisation agendas, the CUT traditionally defined itself in opposition to them, advocating a suspension of foreign debt repayments, full-scale agrarian reform and a reversion to state

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ownership and control of the financial, health, public transport and education systems (Boito 1998:75). The hard line adopted towards the CUT by state and business in the mid-1980s softened in the early 1990s into an ‘emerging institutionalised dialogue’, which heralded a shift towards what has been called ‘innovative militancy’ rather than ‘oppositional militancy’ (Martin 1997:68). This gradual accommodation of the reform process by the CUT was partly a result of its progressively pronounced internal divisions on the issue of neoliberal reform (see Riethof 2001:23–4), but the emerging pattern of tripartism was also facilitated by unionists’ and business officials’ ties to key reformists in the Economy Ministry and the Secretariat of Industry and Commerce, and by organisational shifts within the capital-labour relationship independently of state actors (Martin 1997:69–70). It was also facilitated by the creation in 1991 of the Câmaras Setoriais (Sectoral Chambers) for the tripartite negotiation of wages and prices, of which the only, but nevertheless notable, outcome was the various automobile agreements of the early to mid-1990s (da Motta Veiga 2002:15). These were subsequently disbanded by the Cardoso administration. From the early 1990s the CUT thus oriented its activities towards elaborating policy proposals and fostering tripartism, with the broader objective of achieving its own incorporation into the development model rather than maintaining its position of antagonism to it. Its positions in dialogue and debate came to emphasise the strategic importance of foreign investment and conform substantially with neoliberal trends in education and health policy (Boito 1998: 83). Such a strategy was reinforced with the change of CUT leadership in 1994, Vicente Paulo da Silva replacing Jair Meneguelli, and was reflected in the CUT’s prominent role in negotiations surrounding the 1996 social security reform process. This shift did not, however, constitute a full acceptance of the government’s neoliberal agenda, and indeed, while the CUT came to support many of the government’s social and economic goals, substantial disagreement was aired on the desirable manner of their achievement (see Riethof 2002:6–7). One of the interesting features of Brazilian labour reform, then, is that it has taken a much more negotiated form than in Argentina. In broader policy terms, the pattern has been of largely typical flexibilisation strategies designed to reduce labour costs and decentralise collective bargaining, with all the customary accoutrements. Unions’ strategies over the 1990s shifted away from an emphasis on wages and conditions towards a much greater focus on issues of job security, and the latter have formed the backbone of their demands in negotiations over flexibilisation. The crucial point, though, is that the bulk of flexibilisation measures since the mid-1990s have been initiated and negotiated by individual unions and firms and then been transferred for legislative action to the federal level. Examples include concessions on job security in exchange for wage and benefit cuts in the automobile sector, and labour’s acquiescence to the 1998 reforms (aimed at increasing firms’ discretion over working hours, working conditions and contractual arrangements) in an effort to avert the prospect of mass dismissal (Riethof 2002:12–14).

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This pattern of negotiation, however, did not eliminate traditional activist forms of labour opposition. In contrast to the affinities between the PJ and the unions in Menem’s Argentina, both Collor and Cardoso had defeated the candidate of the Partido dos Trabalhadores (PT, Workers’ Party) and consequently did not enjoy a natural constituency in the labour movement (Cook 2002: 10–11). A notable example of collaborative opposition was that attracted by the 1996 social security reform from the two worker-based political parties—the PT and the Partido Democrático Trabalhista (PDT, Democratic Labour Party)—and from all three of the umbrella union organisations. In response, the congressional Comissão de Constituição e Justiça (Committee on Constitution and Justice) saw fit to break up the bill, against the president’s wishes, passing those less controversial elements of it while shelving its more sensitive components, especially those that dealt with the link between pensions and the minimum wage (Kingstone 1999a: 148). Later in the 1990s, interestingly, the CUT and the FS were starting to join forces to quite significant effect around the issue of wages (Riethof 2002:9–10), suggesting some revival of these traditional issues in labour relations. The apparent political reanimation of labour actors towards the end of the 1990s thus bears some resemblance to the pattern we observed in Argentina. In both cases, this tentative revival can be explained by trends in the political context of neoliberal restructuring, but also, crucially, has roots in the greater international and regional engagement of unions, reflected in their greater assertiveness in the domestic context. We will come to those issues, in any case, later in the chapter. Chile In Chile the state-capital-labour relationship has traditionally been significantly more ‘concertationist’ in its orientation than in Argentina or Brazil. As we saw in Chapter 4, the post-war political landscape until the election of Allende in 1970 was rather less turbulent than in Argentina. The subsequent Pinochet dictatorship unleashed a vehement campaign to eliminate leftist forces from the political scene, and its Plan Laboral (Labour Plan) effected a thoroughgoing ‘decentralisation’ of labour relations and a systematic weakening of organised labour through a combination of physical repression and economic liberalisation. In this sense, the fate of labour in authoritarian Argentina and authoritarian Chile was largely similar. The difference in Chile, as noted, was the residual pinochetismo generated by economic growth in the 1980s, in view of which the incoming democratic government in 1989 deemed a broad continuation of the economic model to be politically expedient, moderated only by the odd rhetorical flourish about giving it a ‘human face’. Two key agreements in 1990—the Marco de Referencia para el Diálogo (Reference Framework for Dialogue) and the Acuerdo Marco Tripartito (Tripartite Framework Agreement), of January and April, respectively—were intended to smooth the political path for the pursuit of the threefold priorities that underlay the Aylwin government’s labour policies: namely, the

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consolidation of a market economy, the necessary investment in human resources and the establishment of labour laws affording acceptable levels of protection and stability (Montero 2000:86). These early reforms left the union structure largely untouched but established a range of more innovative provisions, which included limiting employers’ rights to dismiss workers without stated reason (these rights having been expanded under Pinochet), introducing the requirement that necessary dismissals be justified to the Labour Inspectorate, increasing workers’ entitlements in cases of dismissal and redundancy, and easing the restrictions on rights to strike and, significantly, collective wage bargaining such that the latter was no longer limited to the level of the individual firm. On the specific points, however, the criteria acceptable as reasons for dismissal were captured in the phrase ‘necesidad de la empresa’ (needs of the company), the right to strike carried the rider that firms were permitted to hire replacement labour for that period, and collective bargaining was prohibited above the level of the individual union vis-à-vis the firm in question, severely circumscribing the status of encompassing labour organisations such as the principal Central Unitaria de Trabajadores (CUT, Unitary Workers’ Central) (Taylor 2002:9–10; V.Frank 2002:39–42).1 While the Frei government (1994–2000) made significant strides in respect of training and skills programmes, and also in strengthening institutional bodies concerned with labour issues (specifically the Labour Directorate), entirely negligible progress was achieved in all other areas of labour reform, including those concerned with strengthening job security, workers’ rights and collective bargaining (Montero 2000:89). Reforms over the 1990s were thus at best partial, inconsistent and riddled with loopholes, and their impact generally insubstantial. What they do signal, though, is a contrast with the Pinochet dictatorship and some other Southern Cone regimes in the 1990s, in that the Chilean state continued to undertake important functions in the management of labour relations rather than absenting itself from the business-labour relationship. Tripartism and ‘concertation’ were significantly more effective in postauthoritarian Chile than in either Argentina or Brazil, a difference explained partly by the absence of significant inflation, which in Argentina and Brazil threw labour on to the defensive (Drake 1996:187), and partly by the prevailing spirit of a form of ‘pacted democracy’ which characterised the transition to civilian government. In the same way as political parties agreed to collaborate in order to promote democratic stability, resulting in the Concertación government structure, so unions undertook to exercise a degree of restraint in order to ease the transition, in contrast to the relatively more militant (and certainly less pluralistic) unions in Argentina and Brazil. The strategy of social concertation did not entirely work, however. It was successful in the sense that labour militancy never became a real problem in Chile, but the task of achieving consensus between business and labour on key policy issues remained enormously problematic and close labour-business relations failed ever to take serious root. ‘Concertation’ in practice meant enhanced communication between

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government and interested corporate and labour actors rather than genuine dialogue, with the emphasis falling on the content of reform policies rather than the construction of a genuinely consensual model of capitalist relations (see Montero 2000:87). Consequently, much of the labour reform agenda over the 1990s was approached not through genuine tripartite political dialogue but rather by means of parallel government-business and government-labour negotiations. These political constraints weighed heavily upon the Lagos administration’s attempts to clear the perceived ‘backlog’ in labour reform from 2000 onwards. Its 2000 reform project entailed extensive proposals for a expansion of workers’ rights, aiming, among other things, to facilitate collective bargaining across firms, limit employers’ ability to replace striking workers, guarantee and regulate union rights and reduce the minimum number of employees required to form a union, flexibilise working hours, regulate seasonal and part-time employment, and generate new forms of contracts and training opportunities. The latter component was aimed particularly at young people and women. In order to facilitate implementation, the package granted enforcement capacities to the Labour Directorate and sought both to improve and expand labour courts and to gain legislative approval of a new Código Laboral (Labour Code). The detail of the package highlights that what was at stake here was not so much a clearing of the decks in the sense of wide-scale ‘flexibilisation’—in any case, extensive ‘deregulation’ might well be a more accurate description of the evolution of labour reform in Chile (Montero 2000:104). Rather, it reflected an increased emphasis on the ways in which a failure adequately to deal with labour issues was both incompatible with the ‘growth with equity’ strategy and inimical to the pursuit of competitiveness. With this in mind, the Lagos government sought to advance in a spirit of tripartism and to bring union and business leaders together around the negotiating table in order to limit the need for government intervention on behalf of one or other contingent (V.Frank 2002:51). Nevertheless, the thrust of reform brought the government into conflict with the neoliberal right of the governing coalition, as well as with business interests, and Lagos quickly abandoned the agenda in mid-2000. He proceeded to announce several more variations on the theme over the following year, none of which succeeded in garnering their support. Their opposition drew upon the archetypal neoliberal arguments we outlined earlier: that increases in employment costs are detrimental to employment itself and inimical to the private sector’s pursuit of competitiveness in the world economy. The 2001 package was thus seen, in the view of one of the chief advisors to the Sociedad de Fomento Fabril (SFF or SOFOFA, Society for Manufacturing Promotion), to limit entrepreneurial capacity and to obstruct firms’ ability both to respond in flexible fashion to peak demand and to continue operations in the event of strikes and similar industrial action (El Mercurio, 11 April 2001). Business, the argument went, was left hostage to workers’ demands and, even worse, to striking workers’ demands. Interaction between the Lagos government and business interests on labour issues was thus far from harmonious at the start of

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the administration, to the extent that by mid-2001 the president apparently felt compelled repeatedly to proclaim the opening of a new chapter in business-state relations. The weakening of Chilean labour can also be seen in the area of labour organisation. As we mentioned earlier, reform legislation passed in the early 1990s by the Aylwin government gave priority to unionisation issues, but the detail and outcome of these reform efforts acted merely to generate a fragmentation of the labour movement. The fact that around 44 per cent of the unions in existence in 1994 had been formed since 1990 is, in this sense, often mistakenly taken to indicate greater strength and a more permissive union environment. Rather, it constitutes a manifestation of this fragmentation and the disarticulation of the principal umbrella organisations. In fact, levels of unionisation by 1997 represented only the same percentage of the workforce as in the final years of the Pinochet dictatorship (around 11.5 per cent of the total population and 17 per cent of wage earners) (Montero 2000:85). In more general terms, finally, the weakening of labour was a direct consequence of the state’s priority of constructing a strategic nexus with business as a key dimension of its neoliberal economic strategy. This was reflected in a relatively swift movement away from the centre-left’s strategy of social mobilisation, remnants of which were still visible as it took power in 1989, towards an electoral strategy which facilitated the continuation of a neoliberal economic model and the prioritisation of business (Barrett 2001:565). The politics of labour reform in Chile have therefore been consistently skewed to accommodate the interests and preferences of business, even while the spirit of reform efforts was, purportedly, one of cementing labour rights in the economic model. Paraguay In complete contrast to the other cases, Paraguayan unions have virtually no political presence at all. Their weakness originates in the absence of an ISI experiment and consequently in the absence of the post-war socio-economic and political processes that were formative of contemporary labour movements elsewhere in the region. Over this period the viability of the union movement was also sapped considerably by its physical repression under the Stroessner regime and the highly restrictive forms of labour legislation that the regime put in place. The provisions of the 1967 Constitution prohibited strike action in the public sector, and the 1970 civil service code in turn prohibited unionisation and simply ignored issues of collective bargaining (Céspedes 1997:107). Over the 1990s this weakness was exacerbated by the lack of the stimulus to opposition that was generated elsewhere by privatisation and other neoliberal restructuring processes, by which, as we know, Paraguay was again largely bypassed. The very high levels of informality and underemployment in the Paraguayan economy are also crucial to explaining the absence of a significant union movement and its very weak political position, in that, as we saw earlier in the

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chapter, they have together fostered by far the lowest level of unionisation in the region. The figures are especially low for agro-industrial sectors, which still account for the bulk of Paraguayan economic activity. Labour policy following the transition to democracy in 1989 aimed to be more permissive. Early reform was oriented towards establishing what have been identified as the four prerequisites for the creation of a national union structure (Céspedes 1997:108): the development of unionism on a company basis; a national organisation providing a link between the capital city and the rest of the country; the political recognition of unions by government; and an elected representative leadership. While the union movement derived some strength from the new regime, nevertheless the union structure itself continued to comprise a very small number of organisations. The bulk of the unionised workforce clusters in the two principal unions, the Central Unitaria de Trabajadores (CUT, Unitary Workers’ Central) and the Central Nacional de Trabajadores (CNT, National Workers’ Central). There also exists a third, the Confederación Paraguaya de Trabajadores (CPT, Paraguayan Workers’ Confederation), which became largely obsolete during the first part of the 1990s, and a handful of other, almost invisible, smaller ones. The interesting feature of the Paraguayan case, in this respect, is the homogeneity of the labour movement (in striking contrast with Argentina, for example), and by extension the absence of the sort of competition between unions that we have seen in other cases, particularly in Brazil and Argentina (Klein 2000:97). Nevertheless, their organisation from 1993 on a purely company basis did foment a high level of fragmentation that was not significantly mitigated by the existence of national union federations (Céspedes 1997:108–9). Subsequent reform efforts have been few and far between, and limited both by the failure to dismantle the labour legislation of the Stroessner era and the robust opposition of business groups to any semblance of cooperation with labour. Moreover, in contrast to the Brazilian and Chilean cases, government and state actors have been largely absent from labour relations in Paraguay. The political subordination of unions to business interests has therefore remained largely intact, reflected in the prevalence of severe obstacles to collec-tive bargaining (Klein 2000:95–6). It is hard, in this sense, to talk about a ‘weakening’ of labour in the Paraguayan case in the same sense as it occurred elsewhere, but the Paraguayan political economy has nevertheless been charac-terised by the subordination of workers in industrial relations and by only infrequent and insubstantial forays into labour reform. Uruguay The Uruguayan case, finally, is notable for the historical strength of a peak organisation established in 1966, the Central Nacional de Trabajadores (CNT, National Workers’ Central), which in 1984 became the Plenario Intersindical de Trabajadores-Central Nacional de Trabajadores (PIT—CNT, Inter-Union

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Workers’ Plenary/National Workers’ Central). It is also notable for an historical degree of tripartite cohesion, exemplified in the so-called Consejos Salariales (Wage Councils) set up in the aftermath of the Second World War. In the immediate post-authoritarian period from 1985, concertation was facilitated not only by the existence of generally pluralist and gradualist unions, but also by the persistence of a semblance of a welfare state (Drake 1996:186). Indeed, the transition to democracy, in part as a result of the strength of the PIT-CNT, was characterised by a relatively rapid recovery of wage levels and working conditions, assisted by the existence and activities of the Wage Councils (Klein 2000:99). Both of these sources of historical strength were assailed by the onset of neoliberalism from the late 1980s. Flexibilisation strategies in Uruguay implied the dismantling of traditional forms of concertation, as a result of both the decentralisation of wage bargaining and the government’s withdrawal of its participation in the Wage Councils (Finch 1999:93). Some half-hearted attempts at tripartism did emerge in the early 1990s—such as in the establishment in 1990 of the Comisión de Integración y Reconversión Productiva (Commission for Integration and Productive Reconversion) (Klein 2000:99)—but such initiatives were not sustained and in any case were largely ineffective given the gulf between government and labour on key issues of labour reform. In the early 1990s, for example, opposition to privatisation legislation was mounted by unions and the left-wing Frente Amplio (FA, Broad Front) political party, and the government was also obliged to retreat from its plans to use incomes policy to control inflation and to move instead to use exchange rate policy (Finch 1999: 86). The second Sanguinetti government (1994–9) also struggled against union opposition to its proposed social security reform package in 1996, although in each of these cases reform went ahead with only minimal concessions to such opposition. Not much had changed by the early 2000s: the unions still occupied the forefront of opposition to a range of reforms, such as the Batlle government’s plans for the liberalisation of telecommunications in 2002. Strike action in April 2002 pressed more general demands for government action to redress economic recession, launched by trade unions in conjunction with agricultural producers, PYME sectors and an array of political actors, grouped in the so-called Concertación para el Crecimiento (Concertation for Growth). Nevertheless, as elsewhere in the Southern Cone, economic restructuring and flexibilisation knocked the wind out of the union movement and exacerbated the process of fragmentation that had been underway since the mid-1980s. The main fault-lines, again as elsewhere, lay between those unions which adopted largely pro-reform positions—particularly in manufacturing sectors—and those which remained committed to radical opposition, such as state and municipal employees, teachers and health workers (Finch 1999:93). These fractures were reflected in internal battles in the PIT—CNT, which found itself struggling to retain its legitimacy given both its undemocratic internal structures and the weakening occasioned by the decentralisation of collective bargaining. By the

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end of the 1990s many of the radical groups had splintered away from the peak association. The combination of these specific and structural trends thus precipitated a decline in unionisation levels: although the extent of labour organisation remains comparatively high in Uruguay, between 1985 and 1997 membership of the PIT—CNT was estimated to have fallen by about 40 per cent (Klein 2000:102–3). The regionalisation of labour politics Alongside these nationally specific forms of labour politics, attention to the regional setting is crucial to our understanding of labour in the Southern Cone. Regionalism, as we have seen, represents both a response to the challenges of globalisation and a mechanism for furthering the attendant economic and social restructuring processes. The restructuring of social relations underpinning capitalist development in the Southern Cone has thus been pursued in important ways through the restructuring mechanisms of the regionalist project, which has mirrored domestic biases towards flexible labour markets, downward pressure on wages and control of wage demands, along with the subordination of labour to the demands of capital accumulation. This said, one of the noteworthy manifestations of regionalisation in the Southern Cone has been the emergence of a regionalised labour politics. This is not intended to suggest the emergence of a regional regime of labour regulation, but rather to observe that regional integration has opened up the space for new forms of politics, both at the regional level and in domestic settings. First, labour actors in the Southern Cone have engaged in increasingly visible forms of collaboration which have been channelled into the formal regionalist processes of the Mercosur. Second, a ‘regionalisation’ of labour interests and labour politics has emerged parallel to those regionalist negotiations and in important respects has acted to offset the ongoing marginalisation of labour (and other civil society actors) in the Mercosur process. Third, this articulation of regionalised forms of labour politics has started to generate some redefinition of state-labour-capital relationships in domestic political economies, within the dominant neoliberal frameworks but in ways which appear to be propelling a greater emphasis on consultation and developmental tripartism than previously has been in evidence. The contours of regional labour politics In the hierarchy of relevant actors in the early years of the Mercosur, labour groups were decidedly ‘second order’. Along with political parties and PYMEs, labour was largely insignificant as a shaping force in the project, lacking the organisational capacity to participate meaningfully and exercise decisive influence (M.Hirst 1996:197). The Mercosur has been distinct in this respect from the EU, where forms of labour market regulation made labour much more central to the integration process, and also from the NAFTA, in which input from

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unions coalesced around the negotiation of the side-agreement on labour standards. Given that the Mercosur has not included any such negotiations or agreements, and that the Treaty of Asunción made no explicit provision for social issues, labour actors have been largely secondary to the main business of trade negotiations between member countries. Aside, however, from their exclusion from participation in the project, what is notable is that labour actors were slow to respond to growing cooperation in the Southern Cone, despite the existence of regional forums for dialogue and cooperation between unions. The principal forum was the CCSCS, established in 1986, comprising unions from all of the countries which later became full and associate members of the Mercosur. By 1991 it had met relatively few times and did not enjoy particularly high levels of participation (Klein 2000:89). So, in light of this slow start, what have been the main contours of labour involvement in the Mercosur? At a formal level, the participation of labour groups has been channelled principally through national governments, which has meant that their direct influence on the process has consequently been circumscribed. Their participation has also been channelled through parts of the Mercosur’s institutional apparatus, specifically the FCES and SGT-10 (Labour Affairs, Employment and Social Security). Both of these forums were designed to integrate business, government and labour representatives, and the FCES was designed explicitly as the (only) forum in which a range of civil society actors could be active in the Mercosur process. Over the course of the 1990s various unions also became active in other SGTs, such as those on industry (SGT-7), agriculture (SGT-8), transport and infrastructure (SGT-5) and energy (SGT-9). There is, in addition, a quasi-formal forum within the Mercosur for interaction between labour ministers, which issued the 1991 Montevideo Declaration calling for greater consideration of the labour-related aspects of the integration process and the creation of more robust institutional channels through which labour issues might explicitly be addressed, and making the first mention of a Social Charter (Ermida Uriarte 1999:105–6). The Declaration also established the SGT on labour relations, at the time known as SGT-11 and subsequently reorganised into SGT-10 in 1995.2 The early agenda of the then SGT-11 was dominated by technical issues relating to labour legislation, notably labour costs (this discussion being pushed primarily by business interests), migration, employment and informality, and social policy (Klein 2000:180–1). Crucially, it was within these institutional structures of the Mercosur that regional labour groups first began to find their feet (M.Hirst 1996:202). The formation of the Mercosur noticeably breathed life into the CCSCS, albeit rather gently at first, and the FCES became the focal point for the articulation of the interests the CCSCS encompasses. It produced a declaration in the first summit meeting of the Mercosur, held in Foz de Iguazú in December 1991, and established its Comisión Sindical del Mercosur (Mercosur Trade Union Commission) to coordinate strategy within the regionalist framework. This gave rise in 1993 to the Carta de Derechos Fundamentales (Charter for Fundamental

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Rights) and subsequently to sustained advocacy of its conversion into a Social Charter. The CCSCS also consistently pushed for the enhancement of institutional channels which would permit more effective participation for labour and other non-governmental actors, particularly the activation of the FCES. The ‘political leap’ that regional labour coordination made with the establishment of the Mercosur was thus palpable (Portella de Castro 1996:165), but early formal labour engagement in the Mercosur process remained strikingly limited. For one thing, the institutional channels which facilitated the participation of labour groups were slow to develop, the FCES being established only in 1994 with the Ouro Preto Protocol. Meaningful labour participation in the Mercosur process, already limited by its reliance on national government channels, was further constrained by its circumscription within the structures of the FCES and the various SGTs, in that these elements of the Mercosur’s institutional structure were (and remain) purely consultative and advisory in character, with no legislative authority. It is notable, in this sense, that the CCSCS and its Trade Union Commission have failed to achieve a status beyond merely ‘instances of coordination’, the former remaining some way from becoming a genuinely international organisation with its own structures and authorities (Ermida Uriarte 1999:117). Apart from participation through formal institutional channels, however, there has been a process of progressive coordination between labour actors in the Southern Cone, rather than specifically within the Mercosur. In other words, a form of labour politics has emerged which responds to and crystallises around the Mercosur project but nevertheless exists outside the formal regionalist process. In many ways, indeed, these processes of regionalisation involving labour actors are notably more robust and effective than the processes of their limited participation in the Mercosur arena itself. In the early 1990s this incipient labour politics manifested itself in growing levels of coordination between national labour organisations in both the full- and associate-member countries. This coordination resulted in the issue of various joint declarations, directed both to national presidents and to the institutional bodies of the Mercosur, and moreover in the establishment of a structure of meetings ‘parallel’ to the formal intergovernmental negotiations which gathered notable momentum over the course of the decade. High-profile instances of these parallel meetings included a trade union conference on the democratisation of the Mercosur, held in São Paulo in December 1994 with the participation of more than 100 union leaders, political parties, democratic organisations from member countries and international observers, and a similar meeting in Montevideo in 1998 following the Santiago Summit of the Americas. The latter, significantly, was convened jointly with counterpart EU groups. Such activities led to analysis and proposals —as well as political pressures subsequently brought to bear on the formal intergovernmental negotiations—across a range of issue areas, including the retraining and reskilling of workers, health and labour security, unionisation rights, the employment effects of integration, the strengthening of the CPC and

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the establishment of two additional Mercosur committees on productive policies and the labour market and on social, regional and environmental issues (Alimonda 2000:35–7). Much of this regionalised political activity has been moderately effective in achieving concrete and substantive results in the formal regionalist arena. Most notably, an Observatorio del Mercado del Trabajo (Labour Market Observatory) was established in late 1997 as a tripartite consultative body dedicated to analysis of regional and national labour markets, and the Mercosur Multilateral Agreement on Social Security was signed in December 1997, in large part as a consequence of the proposals emanating from the various forums of coordination between labour actors. This was ratified first by Uruguay in 1999, but still has not been uniformly ratified across the Mercosur. A year later the four presidents signed the Mercosur Social and Labour Declaration and by the time of the 2000 relaunching project long-standing pressure from coordinated labour actors for the collective ratification of ILO conventions as the basis for regional labour legislation and standards had begun to bear fruit. So-called ‘joint operational labour inspection plans’ also took root towards the end of the 1990s, oriented to tripartite discussions on legal, institutional and procedural aspects of labour inspection systems in the Mercosur and to the implementation of concrete labour inspection processes (International Labour Office 2000:3). Largely as a consequence of these processes of regionalised coordination, labour groups’ participation in the formal Mercosur arenas has gained in momentum and efficacy, notably in the influence that labour actors have been able to exert over the shape of the Mercosur agenda. Activity in various SGTs has been increasingly and visibly effective in insinuating more general macroeconomic issues into the labour agenda—such as discussions of the CET, legislation on rules of origin and strategies for retraining—thus increasing the extent of integration between specific labour-related concerns and the broader trade and macroeconomic project of the Mercosur. More generally, labour responses to the Mercosur have clearly been responses to the internationalising dimensions of the neoliberal project, especially to the issues of ‘social dumping’ and social adjustment that neoliberalism and its regionalised manifestations have generated. It is thus not surprising that emerging regionalised forms of labour politics should have derived additional stimulus from the acceleration of broader regionalist processes in the Americas, given the sharpening and magnification that they imply of these key issues of concern. Indeed, the onset of a ‘third phase’ of collective labour organisation around the end of the 1990s occurred largely as a concrete response to the quite suddenly increased visibility of the FTAA on the public agenda, as well as the acceleration of projects such as the Mercosur-AC free trade area. The result was the emergence of new forms of coordination and convergence between labour and social organisations at a variety of levels. At the Mercosur level, collaboration between national labour organisations was further strengthened, which became especially visible in their activities at the Cumbre Sindical del

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Mercosur (Mercosur Trade Union Summit) organised by the CCSCS in 2000, and the World Social Forum in Porto Alegre in the same year (see Guiñazú 2001). The most notable convergence in these forums emerged between the positions of the Argentine CTA, Brazilian CUT, Paraguayan CUT and Uruguayan PIT-CNT (Barbiero and Chaloult, cited in Falero n.d.). Significantly, however, patterns of coordination have reached beyond the confines of the Southern Cone to acquire a more ‘South American’ reach, something which has been particularly manifest in cooperation between Mercosur and AC-based organisations. These have been grouped primarily in the CCSCS, the Consejo de Trabajadores del Cono Sur (CTCS, Council of Southern Cone Workers) and the Consejo Consultativo Laboral Andino (CCLA, Andean Consultative Council on Labour Issues). A Mercosur-AC Union Declaration on ‘Integration with Social Development, Sovereignty and Democracy’ was issued at the Brasilia Summit in August/September 2000 by these three groups in conjunction with organisations from the wider region—namely, the Organización Regional Interamericana de Trabajadores (CIOSL/ORIT, InterAmerican Regional Workers’ Organisation) and the Central Latinoamericana de Trabajadores (CLAT/CMT, Latin American Workers’ Umbrella Organisation). This declaration advocated collective action to address these issues, in both regional and multilateral forums, along with policy coordination in areas such as industrial promotion, tax and fiscal policy, and the need to strengthen the participation of labour and national parliaments in regional processes, as well as in the FCES and its counterpart in the AC (the CCLA). Perhaps most interestingly, it emphasised the importance of strengthening existing regionalist projects in order to provide counterweights to the hemispheric integration process and was strident in its advocacy of the case for establishing a hemispheric-level body to channel participation by labour and civil society actors in the FTAA process, given the imbalance in this respect with business actors who benefit from the existence of the officially recognised Americas Business Forum (ABF/FEA, Foro Empresarial de las Américas).3 The establishment of a similar body for labour and civil society representation had thus far been opposed by governments. Despite the absence of a comparable and recognised institutional expression, however, the hemispheric process has generated a very notable—albeit rather unstable—convergence between a heterogeneous core of social organisations and (largely opposition) labour unions (Guiñazú 2001:3). Their mobilisation has been largely in order to mount a coherent opposition to the FTAA process, but groupings have also emerged which aim more to consider and respond to the implications of an FTAA than thwart its successful negotiation. Apart from instances of bilateral cooperation, the FTAA process has catalysed the formation of new networks for collective action among regional unions and civil society actors. The most salient of these is the Hemispheric Social Alliance (HSA/ASC, Alianza Social Continental), which was the principal driver behind the organisation of the so-called ‘People’s Summits of the Americas’ held in

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Santiago and Quebec City parallel to the formal summitry process.4 The important point about these wider alliances and networks— both at the hemispheric level and at a Latin or South American level—is that they have propelled a significant strengthening and vitalisation of the CCSCS and other regional umbrella bodies, at the same time as they have enhanced dialogue and collaboration between individual trade unions both within and across national settings. In the same way as the necessities of engagement with the hemispheric integration process have provided impetus to the articulation of collective negotiating positions between governments, so labour organisations have been impelled to strengthen cooperation and coordinate positions in order to enhance the effectiveness of their participation. This has been evident in the coordination of protest at the various ministerial meetings of the FTAA, in bodies like the HSA and, crucially, in the Mercosur process. While this coordination is still fragile and fragmented, the politics of wider regional integration projects has thus propelled an acceleration of union activity in Mercosur countries and strengthened collective labour organisations as vehicles for negotiation and participation. Regional concertation, nonetheless, remains constrained by a range of organisational and other difficulties. The first of these relates to the diversity of labour groups that bodies like the CCSCS and the CTCS—not to mention the HSA— seek to bring together, along with the nationally distinctive forms of labour relations and sets of interests that dictate member countries’ participation in the Mercosur and hemispheric projects. Reflecting the ways in which collective negotiation among Mercosur governments has been complicated by divergence between the interests and preferences which stem from disparate visions of regionalism, nationally specific forms of labour relations and interests have complicated the identification of common ground between national labour groups. Brazilian unions traditionally have prioritised and continue to prioritise the domestic market, mounting weighty political opposition to more orthodox forms of neoliberalism. The consequent dominance of protectionist and developmentalist unions in Brazil has been reflected in the nature of their participation in the SGTs and the FCES (da Motta Veiga 1999:356; Klein 2000: 209). Union movements in Argentina and Uruguay, by contrast, have been— and, again, remain—significantly more dominated by neoliberal unions, and once more these predilections have been reflected in the substance of their input into the Mercosur process. A second obstacle to regional concertation was particularly notable in the early days of the Mercosur, and derived from the focus of Mercosur negotiations on trade and tariff issues and their conduct since then on a predominantly sectoral basis. This has curtailed the capacity for national labour groups to represent workers’ interests in the Mercosur; moreover, sectoral unions and single-firm unions have been far less interested in the Mercosur than their ‘national’ counterparts (Klein 2000:204). The agenda did begin to widen in the later 1990s, in good part, as we established earlier, as a consequence of pressure from these

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interests, with the result that the highly sectoral traits of the negotiations became more muted as the decade progressed. However, this period was also marked by growing financial instability and economic difficulty, along with prevalent political dissonance among Mercosur members, which exacerbated the divisions between national labour movements as questions of relative competitiveness moved to centre-stage and perceptions of ‘unfair’ commercial and macroeconomic policies proliferated. Crucially also, much of the political conflict revolved around the form of sectoral disputes, further complicating the identification of common ground between national labour groups and diminishing both inclination and incentives to collaborate. Political and sectoral conflict between Mercosur member countries, in other words, found direct expression in domestic and regional labour politics. Interestingly, ‘sectorally’ defined participation in the Mercosur has thus far been very limited, although there have been some early examples of sectoral cooperation in the hemispheric context, such as between Volkswagen workers in the Canadian Labour Congress and the Brazilian CUT (Botto 2001:29). Third, these patterns of participation are clearly limited to organised labour actors, and even then only to some of these. Given the precipitous decline in levels of unionisation, and given that the average levels for Southern Cone countries hover around only 15–20 per cent, this new ‘regionalised’ form of labour politics thus gathers together only a fraction of the total labour force in the region. Furthermore, formal representation in the Mercosur—that is, in the FCES and SGTs—is limited to officially recognised and large national union organisations. A handful of examples will suffice to illustrate this point. In Argentina participation is dominated by the CGT, although the legal recognition of the CTA in 1998 meant that both of these unions came to participate in the FCES and in bodies like the CCSCS and the HSA. Other labour organisations, such as the MTA and the Marxist Corriente Clasista y Combativa (CCC, Classist and Combative Current), remain excluded from these forums (Guiñazú 2001:14). In Brazil, for most of the 1990s only the CUT took any kind of proactive interest in the Mercosur, the CGT and the FS having made little contribution of any significance (Klein 2000:208). Similarly, in the Paraguayan case only the CUT had any formal representation in Mercosur institutions, albeit with the consent of the other official unions (Klein 2000:216). To the patterns of polarisation and stratification we identified earlier in the chapter, then, we can add the polarisation between some of the larger organised labour groups (with much stronger political presence in regional, and therefore national, political forums) and non-organised labour actors, along with ‘opposition’, sectoral and smaller unions, which have been even further disenfranchised by the emergence of regionalised forms of labour politics.

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Regionalised labour politics and the redefinition of domestic labour relations Instances of regionalised labour coordination and the impact of labour on the Mercosur process nevertheless constitute only one part of the picture. The other part concerns the ways in which regional and regionalist processes in turn act, gradually and subtly, to redefine the contours of labour relations at the national level. On the one hand, both participation in the Mercosur and the management of the impact of regional integration have shaped the concerns and agendas of labour actors in their domestic settings. Given that effectiveness at the regional has largely depended on the unions’ capacity to lobby national governments at the national level (da Motta Veiga 1999:357), much of labour’s agenda has been articulated and pursued in the domestic political setting. Indeed, most of the economic issues relating to integration have been negotiated at the national rather than the regional level, especially those issues connected with the ‘new’ demands of competitiveness, in ways which propelled processes of policy change across a range of issue areas (Klein 2000:237). We have seen this to be particularly evident in industrial, trade and macroeconomic policy agendas, which became much more central to labour groups’ concerns over the course of the 1990s. On the other hand, the broader consequence of regionalisation has been to mould and alter patterns of domestic labour relations. These processes have been rather more tentative and insidious than the trends noted in the previous paragraph. In the Brazilian case, as we mentioned earlier, unions’ vision of the Mercosur has been shaped largely by their concern to moderate the expansion of neoliberal forms of labour relations at the regional level, consistent with the central characteristics of the Brazilian development model (M.Hirst 1996:202). Reflecting this, their growing engagement with the Mercosur— especially that of the CUT—has generated a situation in which their interaction with state institutions has been enhanced. This interaction has frequently been conflictive in that union opposition to the neoliberal agenda has generated positions on Mercosur issues which have been frequently at odds with the government’s position. In the early and mid-1990s, for instance, the government’s resistance to institutionalisation was attacked by the CUT as reinforcing the exclusion of labour and social issues from an agenda dominated by economic aspects of integration (Klein 2000:209). However, the sea-change in government positions vis-à-vis the Mercosur from the late 1990s, particularly on issues such as institutionalisation and regional policy coordination, facilitated greater cooperation on regional issues between labour and government actors. One imagines that this rapprochement is likely to be enhanced under Lula, given his own union background (as leader of the metallurgical workers’ union) and party affiliation (as candidate of the PT). Certain institutional innovations relating to the FTAA process have also been important in this respect. We will return to these issues in greater detail in Chapter 9, but for now it is enough to note

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that the Seçao Nacional de Coordenação dos Assuntos Relativos al ALCA (SENALCA, National Section for the Coordination of FTAA-Related Matters), established in 1996 within the Foreign Ministry, has involved the incorporation of a number of non-governmental actors—from the labour sector, the CUT and FS—in the process of formulating official positions for the negotiations (Casaburi and Quiliconi 2001:19). The relationship between Uruguayan unions and government has been rather more cooperative. It is noteworthy that, among Southern Cone countries, the debate surrounding regional integration has been most active in Uruguay in the sense that the government has facilitated much greater participation in this debate by labour, business and other societal actors. This was partly due to the creation of institutions such as the Comisión Sectorial (COMISEC, Sectoral Commission), established in 1991 as a government advisory body incorporating representatives from government and business association as well as labour (see Quijano 2002:81), but was facilitated principally by the combination in Uruguay of better communications, a more established culture of debate and the extent of concerns generated by the Mercosur membership (Klein 2000: 238). The Uruguayan government was also the prime mover behind the formation of the FCES. In response to the opening of this political space, the unions’ strategy has focused on lobbying the national government in order to ensure representation of their interests in the intergovernmental negotiations (M.Hirst 1996:202–3). The ability of Argentine unions to lobby government effectively has been more limited than in the Uruguayan case, except perhaps in conjunction with industrial organisations such as the UIA, and there have been no formal channels established in Argentina for consultation on matters relating to FTAA negotiations. Some degree of greater engagement at the national level between state and labour did also emerge over the 1990s—the Argentine government’s eventual support for the establishment of the FCES, for instance, was in large part due to pressure from unions (Klein 2000:194). The prevailing pattern over the 1990s, nonetheless, was one of tense labour relations which, along with the fragmentation and organisational weaknesses of the Argentine labour movement, have impeded unions’ ability to direct effective participation in the Mercosur through governmental channels. Similarly, in Paraguay there were some early attempts to create tripartite forums for consultation on the regional project— notably the Comisión Nacional de Integración (National Integration Commission), established in 1995—although here such endeavours were minimal and had little coherence or concrete impact (Klein 2000:217). In Chile, finally, the Dirección General de Relaciones Económicas Internacionales (DIRECON, General Directorate of International Economic Relations), established within the Foreign Ministry, aspires to give representation to civil society concerns, including those of labour, by establishing mechanisms of ‘permanent dialogue’. One of the notable results has been the relatively robust institutionalisation of collaboration with the CUT under its aegis (http://www.direcon.cl/frame/ sociedad-civil/f-sociedad-civil.html).

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Also important, finally, have been the ways in which unions’ participation in the Mercosur has pushed them to seek closer relations with business groups, at least in the Brazilian and Argentine cases. This is likely to become yet more significant in the context of the emerging projects of macroeconomic and sectoral policy coordination. In Brazil convergence has progressively been sought with small- and medium-sized firms, on the one hand, and Brazilian industrial and agricultural sectors which are oriented towards the domestic market, on the other (da Motta Veiga 1999:356). The Argentine CGT has consistently followed the lead of Argentine business representatives in SGT-10 and, as mentioned, closer relationships have developed particularly with the UIA, oriented towards increasingly hostile forms of lobbying government over national and regional policy issues. In sum, while the disarticulation of labour has clearly been the dominant trend in the Southern Cone, nevertheless the Mercosur process and wider regionalist projects, along with the regionalisation of labour politics, have started to push labour relations towards more collaborative forms. At the very least, they have acted to increase the political incentives for governments to elaborate tripartite consultative mechanisms to ensure some degree of representation, and for business and labour groups to achieve a greater degree of cooperation in the management of key issues within the various regionalist projects. Regionalisation processes, in short, have not erased key areas of national contingency and specificity, but have started to propel an incipient redefining influence on domestic labour politics. Conclusion Our analysis of labour in the Southern Cone has had to consider a range of transnationalising trends while taking due account of the strongly contingent characteristics of national labour politics. On the one hand, the restructuring processes associated with neoliberal globalisation have compelled attention to the ‘global’ division of labour and the emergence of transnationalised forms of labour politics. These structural and agency-centred transnationalising trends have been manifest at a ‘global’ level, but have also found specific expression in the regional political economy of the Southern Cone. On the other hand, with respect to systems of labour regulation and labour relations, there is a clear tension between the national and the inter- or transnational contexts, which is manifested most commonly in political resistance to international or transnational forms of labour market regulation. In other words, labour regulation remains articulated largely at the national level, with transnational systems of regulation generally and widely resisted by governments, business and labour interests. This remains the case even in the EU, where transnational regulatory structures have been most advanced, but is also pronounced in the Mercosur and reflected in the traditionally strong—and more recently residual— scepticism about supranationalism and institutionalisation (Portella de Castro

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1996:171). A regional system of labour regulation is, in any case, a very distant proposition in the Mercosur and there is no evidence of convergence towards a model of regulated, as opposed to flexible, labour markets. What we have seen in the Southern Cone, nonetheless, is the emergence of a ‘regionalised’ labour politics which reflects new types of relationships between labour actors, the growth of regional labour organisations and a redefinition of labour groups’ political activity in their respective domestic spheres. Lacking the catalyst to greater transnational cohesion that regionalised forms of labour regulation would represent, labour politics in the Southern Cone is likely to remain rather ad hoc in nature, forming, as has been the pattern to date, as political responses to particular trends in external negotiations and integration processes and the impact of neoliberal restructuring across the region. This form of labour politics, while constituting a novel and crucial dimension of the regional political economy, is very different from a truly regionalised form of labour relations, involving the articulation at the regional level of a single state-capital-labour relationship. However, in a slightly looser sense the place of labour in the regional political economy does reflect a particular ‘model’ of labour relations consistent with that which has come to prevail across Southern Cone countries. That is, it reflects a broadly neoliberal model of flexible labour markets, within which labour is disenfranchised by its subordination to capital and business and disarticulated by the impacts of the state and corporate flexibilisation strategies that we have surveyed. Thus we have on our hands an intriguing duality in the regional political economy. On the one hand, the regionalist project in the Mercosur has represented a means of furthering the imposition of ‘financial discipline on labour and capital’ (Burnham 1999:45)—or, in another formulation, ‘bourgeois hegemony’ (Cammack 1999:96)—and the attendant neoliberal model of labour relations has consequently found regionalised as well as domestic expression. Yet within this model, on the other hand, the Mercosur project has acted as a direct catalyst to the regionalisation of labour politics as a defensive response to the domestic and internationalising dimensions of neoliberal restructuring, including those represented by the wider South American and hemispheric projects. The result has been not a redefinition of the neoliberal form of labour relations, but, rather, the initiation of some incipient shifts in its domestic and regional political environments, as new forms of political activity have opened up new forms of participation in both domestic and transnational contexts.

8 Business

Our job in this chapter is to look in greater depth at business within the statebusiness-labour relationship and the contours of its organisation in the regional political economy. The first thing we need to do, therefore, is clarify precisely what is understood by the term ‘business’. It is deployed here as an umbrella term which includes a conception of what is generally referred to in the models of capitalism and globalisation literatures as ‘capital’. Our understanding of ‘capital’ refers broadly to sets of assets, encompassing both industrial and financial capital and the range of associated investments. The term ‘business’ is used to encompass the people that represent and act on behalf of capital —in effect, the political organisation of business interests. Capital, that is, is not an actor and cannot ‘act’, and this is why we need to direct our focus more broadly to ‘business’ in order to accommodate and further our concerns with agency, interests and politics. To be more precise about what the term ‘business’ encompasses, then, we can draw usefully on a fivefold analytical schema proposed by Stephan Haggard, Sylvia Maxfield and Ben Ross Schneider (1997), set out thus: • • • • •

business as capital; business as sector; business as firm; business as association; business as network.

In such a schema, a ‘business as capital’ approach, as just indicated, is concerned primarily with the study of the investment behaviour of capital and financial agents, and by extension with the ways in which the functions of states are necessarily oriented to the attraction and facilitation of capital flows. This approach has found a particular foothold in IPE in the study of the ‘structural power’ of mobile capital (Gill and Law 1989) and the disciplining influence exerted by the exercise of its exit options. A ‘business as sector’ approach offers a more ‘political’ and pluralist understanding of business dynamics, focusing on the ways in which the sectoral composition of an economy and political competition between sectoral interests feed into domestic policy-making and

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political processes. The emphasis thus falls on the formulation of business preferences, the potential for collective action and the mediation of sectoral competition by states. The ‘business as firm’ approach takes the individual corporation as the starting point, rather than the sector in which it is located, and seeks to explain preferences with reference to the structure and organisation of the firm in question. Of particular relevance would be the size, level of diversification of the firm, extent of conglomeration, degree of technology or capital intensiveness, and so on. The ‘business as association’ approach seeks to address questions of political organisation which are lacking from the first three approaches, and focuses on both the dynamics of organisation and voluntary association and the political influence of business associations on policy-making processes. Finally, the ‘business as network’ approach seeks to dispense with assumptions that business politics occurs through formal institutions and systems of representation, and instead to understand the role of individual businesspeople and personal relationships in defining the parameters of state-business relations. Each of these five categories is manifestly useful in the broadest descriptive sense and crucial to a thorough mapping of business politics. Taken in isolation, each is also deficient. The last four approaches rely on a form of conjunctural political analysis, which draws most of its premises from a broadly pluralist understanding of the dynamics of business-state interaction, the nature of the state and the underlying determinants of the behaviour of associations, firms, individuals and sectoral actors. Such approaches fail to take adequate account of the structural questions that are central to the ‘business as capital’ approach, and moreover rely on an essentially nationalist frame of reference that stems from their privileging of CPE—predominantly institutionalist—approaches to the study of business and business politics. The nationalist bias is evident not only in the assumption that policy-making is a domestic affair (Grugel 1998:225), but also in the assumptions that the majority of relevant business actors are national units whose political expression is found in their interaction with a particular state or government within national boundaries. This problem can be moderated by accommodating a focus on the first category—business as capital—which necessarily implies a focus on transnationalisation and globalisation processes, the insertion of national economies into ‘global’ financial markets, and the dominance of transnational capital in development strategies and trajectories. Yet, because of the progressively globalised organisation of capital, this approach is deficient in its inattention to nationally contingent and specific forms of business politics and business-state relations, and thus equally benefits from integration with the other four approaches proposed by Haggard, Maxfield and Schneider. More fundamentally, however, this approach suffers from the limitation which we highlighted right at the start of the chapter—that is, that capital is not itself an actor, and thus a conception of ‘business as capital’ is misleading in that it elides capital (defined as a set of assets) and the agents (business) acting on its behalf. Rather than thinking about business ‘as’ capital, then, what we need to do in this

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approach is examine the manner in which capital and investment are organised by business interests, and the resulting patterns of capital and investment flows that underpin and condition political economies. Broad global and Latin American patterns, in this latter sense, are the subject of the first section of this chapter, as a prelude to the subsequent discussions of business politics and the contours of corporate organisation at the national and regional levels. Capital flows and restructuring processes A handful of key qualitative shifts characterises the contemporary period of ‘globalised’ finance, unleashed with the floating of the US dollar in 1971 and accelerated by progressive deregulation over the 1980s and 1990s.1 The most obvious is found in the explosion of transnational capital flows to emerging economies. Between 1990 and 1996 developing countries’ share of total world FDI rose from 14.8 per cent to 37.8 per cent, of which the East Asian region took the largest share, followed by the Latin American and Caribbean region. The latter accounted for 29 per cent of total flows to the developing world in 1995 and 37 per cent of this total by 2000. At the same time its share of total global FDI flows registered a fall—from an average of 11 per cent for 1995–9 to an average of 6 per cent in 2000—but this figure for 2000 still represented a tripling of the average annual flows for the period 1990–4. It should be noted that the relatively healthy figures for 1999 are accounted for by a handful of isolated acquisitions—of the Argentine state oil firm YPF by Repsol of Spain and of the Chilean firms Endesa and Enersis by Endesa España. If the flows associated with these acquisitions are discounted, there is almost no difference in total FDI flows to Latin America between 1999 and 2000 (see ECLAC 2001: 35–6). Taking the 1990s as a whole, finally, the dominance of Mexico and Brazil as destinations for FDI is striking, as demonstrated in Table 8.1. Apart from the increase in the volume of cross-border capital flows into Latin America and the Caribbean, their composition in the 1980s and 1990s was restructured in line with trends in global financial markets: first, towards the dominance of private forms of capital over public ones; second, towards the importance of financial capital as distinct from direct productive forms of investment; and, third, towards private-sector over public-sector destinations, particularly in the close association of these capital flows with privatisation processes. In Latin America this link with privatisation can be seen in the ebb and flow of capital inflows over the 1980s and 1990s, specifically in the heightened volumes for the early 1990s, when the bulk of these processes were initiated, and in their slowing from the middle of the decade with the gradual exhaustion of targets for such investment. The comparatively marked retention of dynamism in Brazil relates to the importance of new services sectors— particularly telecommunications (accounting for approximately one-third of total investment in 2000), electricity and financial services—which explains both Brazil’s overtaking of Mexico as the principal Latin American recipient of FDI

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(as shown in Table 8.1) and the economy’s resilience in the crisis of 1999. Elsewhere in the Southern Cone, with the exception of Uruguay, the limited opportunities for investment in services have meant that a good amount of the previous attractiveness of these economies had started to dissipate by the end of the 1990s (see Table 8.2). Table 8.1 Latin America: net FDI inflows, 1990–2001 (US $ millions)

Note: a Argentina, Brazil, Bolivia, Colombia, Chile, Cuba, Ecuador, Paraguay, Peru, Mexico, Uruguay and Venezuela. b annual average. Source: elaborated on the basis of data from ECLAC 2001, 2002a.

The implications of these trends have been manifold. The first has been felt in new and/or heightened forms of vulnerability and instability that have emanated from the explosion of unregulated capital flows. While vulnerability to trends in world markets is by no means a novel feature of late industrialisation, nor indeed of capitalism itself, in the later part of the twentieth century the greater mobility of capital magnified the ‘exit options’ of mobile capital asset holders, and the consequences of exit in turn were magnified for the countries in question (see Andrews 1994; Milner and Keohane 1996). The financial crises of the late twentieth century are often seen thus to exemplify the volatility of deregulated capital movements and its disastrous consequences for specific economies.2 In the case of Latin America, though, this line of interpretation can be rather misleading. Despite an enormous real increase in the volume of speculative capital flows to Latin America, some two-thirds of the capital flows to the region in 1997 constituted long-term direct investment. In addition, while the Mexican, Russian and Asian crises were caused principally by the dislocations associated

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Table 8.2 Southern Cone: net FDI inflows, 1990–2001 (US $ millions)

Note: a annual average. Source: ECLAC 1999, 2001, 2002a.

with the surge of private capital flows, the 1999 Brazilian crisis was unleashed largely by fiscal problems and difficulties in the public sector (see Higgott and Phillips 2000:365). Although Latin American stock and bond markets did indeed suffer an exodus of capital immediately following the Brazilian devaluation, the resumption of capital flows in the Brazilian case occurred more quickly than it had in Asia over the preceding couple of years, largely because of the relatively greater emphasis on FDI as opposed to portfolio investment. The second set of implications has been related to a reconfiguration of ownership structures, of both financial and productive assets. This has been largely the consequence of a new phase in the activity of TNCs, spurred by widespread privatisation and deregulation processes in emerging economies. Tables 8.3 and 8.4 give an impression of the extent of these shifts in Latin America and the Caribbean over the 1990s, demonstrating marked increases in the extent of foreign ownership at the same time as marked declines in both state ownership and the proportion of firms owned by private domestic actors. TNC participation in national economies, however, has been marked not only by the extent of their investments but also by a notable trend towards the amalgamation of foreign and local capital in many of the consortia undertaking purchases of state-owned enterprises. Illustrative examples from Argentina would include the privatisation of the airline Aerolíneas Argentinas (purchased by a consortium headed by the Spanish airline Iberia), of the largest electricity companies SEGBA and Agua y Energía (in which foreign investors accounted for the acquisition of around 61

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per cent and 65 per cent, respectively, of shares) and of the gas company Gas del Estado (in which foreign investors accounted for around 64 per cent). The third set of implications has been felt in a reconfiguration of the overall profile of economic activity, already highlighted in our discussions of labour. At a global level this has involved a shift towards tertiary and technology- and capital-intensive sectors, to the detriment of many traditional manufacturing and agricultural activities. However, the impacts of these broad ‘global’ shifts have manifested themselves in very different ways in different parts of the world, and indeed within Latin America and the Caribbean. In South America, including the Southern Cone, the overall profile has become progressively dominated by capital-intensive industries associated with the processing of natural resources, such activities uniformly being of low domestic value-added (Katz 2000:5). At the start of the 2000s natural resources and natural resource-based manufactures still accounted for around 70 per cent of South American exports, even though the span of industrial activity associated with natural resources had widened quite considerably. The contrasting emphasis on maquiladora industries in Mexico, Central America and the Caribbean meant that non-resource-based exports had increased from 29.9 per cent of total exports in the mid-1980s to 71. 9 per cent by 1998 (ECLAC 2001:57). The two parts of the region had thus diverged considerably by the end of the 1990s in their modes of insertion into the international economy, having been largely similar in this respect in the 1980s. Table 8.3 Latin America and the Caribbean: composition of largest manufacturing firms, 1990–9

Source: ECLAC 2001.

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Table 8.4 Latin America and the Caribbean: composition of largest exporters, 1995–9

Source: ECLAC 2001.

Fourth, the combination of these processes has acted to generate a marked fragmentation of private sectors, and consequently national economies. The faultlines have lain predominantly between big business sectors dominated by TNCs or national firms with significant transnational connections, on the one hand, and those sectors oriented primarily to production for a domestic market, on the other. This fragmentation has been of structural consequence in the sense that ‘big business’ has become progressively divorced from the fabric of the domestic economy as a result of its transnationalised profile, evident not only in the organisation of production but also in the areas of taxation, fiscal situations and redistributive issues. It has also been of political importance in the difficulties it poses for business associations in the aggregation and representation of interests, and thus in the pursuit of effective political and lobbying activity. This brings us to the final set of implications of the trends we have highlighted, which refers to their political impact. The globalisation of financial markets, the changing composition of financial flows and the increased salience of private finance and private-sector destinations have combined to constrain significantly the possibilities for meaningful political control of financial activity, not least in the sense that the bulk of strategies adopted to attract capital flows have entailed the retraction of tax-related and other disincentives to investment. The result, as Leslie Elliott Armijo points out, has been that the political benefits accruing to governments from capital flows have sharply diminished (Armijo 1999a:1). These same trends have also propelled the owners of mobile capital assets—big business—to a position of political influence from which they have been able to define the limits of what is and is not politically expedient. In other words, at the same time as political control over financial flows has been retrenched, the political sway of mobile capital holders and big business, particularly over governmental policy-makers, has been augmented very considerably. This progressive merging of economic power and political power has been reflected in the construction of the strategic ‘business-state’ alliances that we highlighted in the previous chapter as central to neoliberalism. Furthermore, especially in Latin

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America these political alliances frequently have been intensely informal, personalist, and clientelist in character, crystallising not around business associations or individual firms, but around individual business leaders who exercise influence through webs of personal ties with key politicians. This has implied a further blurring of the dividing lines between business and state, as well as a range of deleterious consequences for participatory, representative and accountable forms of democratic government (see Grugel 1998; Armijo 1999b). Business in national political economies Argentina In line with the wider trends surveyed just now, neoliberalism in Argentina fostered a sharp polarisation of the business sector into ‘winners’ and ‘losers’ from restructuring processes. Those sectors most associated with ISI—ranging from steel mills to small textile producers—were largely dismantled along with the development model under which they were prominent. The traditional agricultural oligarchy, having been simultaneously indispensable to post-war ISI and systematically disadvantaged by it, was presented with opportunities to ‘cash out’ profitably through privatisation and economic restructuring. Against this backdrop, the new ‘business oligarchy’ that emerged in the 1990s comprised those sectors and firms which adopted offensive strategies to increase asset values through opportunities provided by privatisation and deregulation, whether through direct asset acquisition or by styling themselves as ‘state contractors’. Bernardo Kosacoff’s (1999) detailed research locates such firms in principally four areas of activity. The first is connected with the transformation of basic goods industries, such as iron and steel, petrochemicals, cement, oil refineries and aluminium. The second comprises sectors linked to natural resources, and specifically industries—such as agro-industrial plants and petrochemicals— oriented towards final processing activities to increase the value-added of natural resource-based products in international markets. The third area is the automotive sector, and the fourth is a heterogeneous group of sectors which supply the domestic market, notably the dairy industry, sweets, telephone exchanges and others. The participation of transnational firms in these restructuring processes was pivotal in constituting this new business oligarchy. Towards the end of the 1990s just over one-third of the 1,000 largest corporations in Argentina were transnational firms, accounting for 53.2 per cent of their sales, 54.5 per cent of their shares and 46.7 per cent of their employment. In contrast, 75 national economic conglomerates find their way into this group of 1,000, and in turn account for 22.3 per cent of sales, 29.1 per cent of shares and 20.6 per cent of employment (Kosacoff 1999:88). The dominance of foreign-owned business interests has been further entrenched given that most of these national

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conglomerates pursued active internationalisation strategies through strategic alliances and joint ventures with foreign corporations. Indeed, consistent with the general trend noted earlier, virtually without exception the most influential businesses in the new oligarchy were dominated by consortia of foreign and local capital. But it is worth remembering that internationalisation strategies had been characteristic of a handful of Argentine firms before the onslaught of restructuring in the 1990s. The most important of these in the earlier part of the twentieth century were, not surprisingly, agro-exporters—notably the giant Bunge y Born, along with Alpargatas and Siam—which incidentally were also the first firms not native to advanced industrialised economies to pursue internationalisation strategies (Chudnovsky et al.1999:73). Other later examples also stand out: Pérez Companc, for example, bought General Electric’s Latin American Construction Company in 1976 and then ventured into more nontraditional sectors in the 1980s, bringing Carrefour to Argentina and entering into joint ventures with NEC; and the natural gas company Bridas similarly engaged in a number of joint ventures in the 1970s. Even at the end of the 1990s, however, the only genuinely transnational companies in Argentina remained those with interests in the energy sector (such as the state oil company YPF and Pérez Companc), although industrialists like Techint and IMPSAT had also become notably active in their internationalisation strategies. The group of national economic conglomerates has remained dominated by a handful of firms, mostly family-owned, which at the end of the 1990s accounted for around 85 per cent of the total sales of this group (Kosacoff 1999: 96). The most prominent examples are the empires of the Pérez Companc, Macri, Pescarmona, Bagó and Soldati families, and enterprises such as Techint, Comercio La Plata, IMPSA, SOCMA (Sociedad Macri) and ARCOR. Yet, despite the dominance of these families, the Argentine business elite has displayed both a striking level of ‘rotation’—in 1995, for example, of the 200 largest companies (measured according to annual revenues), 97 did not exist four years earlier or alternatively ranked below the 200 mark (Azpiazu 1996)—and a strikingly wide sectoral span. The latter has derived largely from the steadily wider diversification of conglomerates’ interests, primarily as a result of the possibilities for acquisitions and contracting afforded by privatisation. SOCMA, for instance, classifies its activities principally in the fields of public services and infrastructure, automobiles, construction, food and information technology; Pérez Companc’s activities span industrial engineering, oil and construction.3 The other striking point is that this sectoral diversity ranges overwhelmingly across productive activities, with some representation in the commercial sector, while Argentine conglomerates’ incursions into tertiary, financial or technologyintensive sectors have been negligible (Kosacoff 1999:98–9). The picture, then, is of a progressive and marked concentration of ownership and economic activity over the course of the 1990s, with strong evidence of the uprooting of the associated big business sectors from the fabric of the national economy. During the 1995 recession precipitated by the Mexican peso crisis, for

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instance, the largest 200 firms increased their revenues by around 11.3 per cent on the previous year and their aggregated utilities by 29.9 per cent, even while the level of activity in the Argentine economy fell by 4.4 per cent and aggregated industrial output by some 8 per cent (Azpiazu 1996:30; Kosacoff 1999:93). These firms were clearly the winners from neoliberalism. The losers, conversely, were not only those firms most associated with ISI, as noted at the start, but also PYMEs, which suffered a generalised crisis in the 1990s under the destructive impact of increased competition and the increased dominance of large consortia and conglomerates, as well as pervasive problems of access to credit under the Menem government. This fragmentation of the private sector carried significant political implications for business organisation, exacerbating a long-standing tendency towards atomisation, particularly in industrial sectors. Collective action within Argentine industry had long been complicated in any case by the sustained postwar deindustrialisation of the economy and by the absence of a ‘hegemonic’ group in industry (in contrast to the agriculture sector) around which various groupings could coalesce into organised activity (Acuña 1998:59). In the 1990s still only about one-sixth of firms were estimated to be affiliated to a business association (Klein 2000:87), and despite several post-war experiments there remains a notable absence of encompassing peak organisations in Argentina. This absence has stemmed in large part from the continued successful assertion of hegemony by the most powerful elements of the business sector over the state, labour, PYMEs and neo-corporatist institutions (Acuña 1998:68), the upshot being both the removal of any need for an encompassing peak organisation and resistance to the creation of a representative body which might dilute the influence of these powerful interests. The landscape, in this sense, has remained one in which business interests are largely articulated on an atomised sectoral basis and, moreover, on an individual firm basis in which the interests of the firm are dissociated from the economic sector in which it is located (Tedesco 2001:8– 9). The UIA remains the principal representative body of industrialists. Throughout the post-war period it was strongly linked to political Peronism, and consequently both highly politicised and highly vulnerable to the political upheavals associated with this period. The UIA was also dominated historically by an oligarchy of large, foreign-owned enterprises and business interests connected with the rural and agricultural sectors rather than by interests drawn from industrial or PYME sectors, and its articulation as an effective industrial lobby was therefore very limited (C.M. Lewis 1999:41). Efforts to generate a more inclusive membership in the 1980s produced a ponderous internal structure, which has remained in place and rests on a separation of the liberal and protectionist factions. The result has been some capacity for mediation of internal conflicts in the UIA, but at the same time a striking inability to generate agreement between members (Schneider 2001:179). The political influence of the UIA has thus been limited by the obstacles posed by its internal organisation

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to both effective representation and unified participation in policy debates. It was mainly as a result of these limitations that the Asociación Empresaria Argentina (AEA, Argentine Business Association) was created in May 2002 by a group of business leaders, with the stated aims of representing and prioritising the general interests of a market-led economy over sectoral interests and building the consensus in Argentine politics deemed necessary for addressing the pervasive economic crisis (La Nación, 31 May 2002). PYMEs, meanwhile, are organised in primarily two bodies—the Consejo Argentino de la Industria (CAI, Argentine Industrial Council) and the Confederación General de la Industria (CGI, General Confederation of Industry). The former has adopted a broadly neoliberal stance, the latter a ‘neoindustrialist’ orientation which favours active industrial policy and some level of protectionism (Klein 2000:79–81). The generalised crisis of Argentine PYMEs in the 1990s diminished the economic importance of the CAI and the CGI, but conversely strengthened their political cohesion. Entrenched by the progressive concentration of economic power over this decade, the influence of the UIA remained consistently much greater than that of these smaller industrial organisations. In the agricultural sector, the SRA is a voluntary association which, as a result of its greater resources and more specific sectoral membership than the UIA, has traditionally been a rather more cohesive business association than its counterparts in industry. The overall weakness of business organisation has had an important moulding effect on the shape of state-business relations. We saw in Chapter 3 that post-war Argentina was characterised by trenchant oppositions between capitalism and democracy, and Peronism and business. The Alfonsín administration ended in 1989 having failed to improve its tense relations with the private sector or to divert recurrent confrontation with business interests.4 Economic and political restructuring under Menem, however, marked a new chapter in the state-business relationship, which in turn acted significantly to dilute the traditional tension between capitalism and democracy. Business interactions with the Menem government were on the whole cooperative and took a form consistent with a typical neoliberal business-state nexus. Menem’s principal task, in view of the private sector’s ingrained suspicion of Peronism, was one of credibility-building —hence the strategy of populating government offices with key business representatives, and particularly the seduction of Bunge y Born. The choice of Economy Minister in 1989 was Miguel Roig of Bunge y Born, who died several days after his appointment. His replacement, Nestor Rapanelli, was appointed very publicly on the advice of Jorge Born himself (Acuña 1995:271) and relations between Juan Born and Menem in the early days of the administration were very close. Given that for much of the post-war period Bunge y Born was the ‘incarnation of evil’ in Peronist folklore (Tedesco 2001:8), this rapprochement represented a thorough reworking of the Argentine political landscape and, indeed, of the foundations of political Peronism.

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Nevertheless, this new business-state alliance represented more a reconciliation with President Menem than with Peronism itself. The business circle which constituted the new nexus with government was very small and relations with business during the Menem administration were largely conducted on a personalist, semi-formal or wholly informal basis, with Menem holding personal weekly meetings with business leaders and consulting them regularly on economic policy issues. The influence of already enfeebled business associations (particularly in the agricultural sector) thus became much less significant than that of individual business leaders, as well as a handful of informal and highly exclusive business groups which came also to hold some sway over the Menem government. These included the Consejo Empresarial Argentino (CEA, Argentine Business Council), which brought together the presidents and chief executives of the very largest companies, and the so-called Grupo de Exportadores (Group of Exporters), established in 1990 (see Guiñazú 2001). As a result of these informal patterns of business politics, both formal lobbying channels and mainstream business associations became largely circumvented under Menem. This legendary alliance between Menem and business was struck on the basis of the economic stability, low inflation and relatively healthy growth afforded by the Convertibility Plan in 1991. While broadly supportive of neoliberalism, the persistence of inflation in the first couple of years of the Menem government generated opposition from business interests to a range of specific policies, and various instances of strike action by exporters and other key business actors rendered Menem’s early days somewhat reminiscent of the 1980s. At the same time the government had come to perceive its policy-making autonomy to be as suffocated by its close relationships with business interests as it had been previously by labour unions, and took two specific steps to increase its breathing space. The first was to replace Economy Minister Rapanelli with Erman González, who was not tied to any specific economic or political interest. The second was to effect a policy shift towards increased monetary restriction, which had the effect of making the state less permeable to the demands of business interests. Fiscal orthodoxy, in short, was deployed as an instrument of political control (Palermo and Novaro 1996:157–65), and subsequently enshrined in the Convertibility Plan. It was thus largely the arrival of Cavallo, rather than Menem, that created a legitimacy for the economic model and a confidence in the government’s commitment to liberalisation. For the remainder of the 1990s business relations with the state were cooperative, if not exactly harmonious. Any tensions tended to arise in connection with the recurrence of economic crisis, which, until the ‘internal’ crisis from 2000 onwards, was largely the result of external shocks. For those sectors with significant commercial activities or internationalised production structures, devaluations in Mexico and Brazil were costly in terms of the contraction of markets and import sectors in those economies; for those sectors oriented to the domestic market, competition from consequently cheapened

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imports from those economies was similarly prejudicial. The de la Rúa government sought to appeal to those business interests which had been marginalised under Menem, particularly PYMEs and industrialists, the latter organised in the new ‘Grupo Productivo’, which included the UIA and associations representing the construction and agricultural sectors (Teichman 2002:502). It also sought by extension to address demands for government policies to enhance competitiveness, particularly in the industrial and export sectors. This led to a flurry of announcements of competitiveness plans and initiatives over the government’s time in office, the bulk involving new ‘partnerships’ between government and the private sector, and some targeting specific sectors (such as textiles or PYMEs).5 None got very far off the ground before de la Rúa’s resignation and the disintegration, with the explosion of the crisis, of most of the institutional mechanisms and fiscal resources needed for such initiatives to thrive. At the same time, de la Rúa’s overtures to previously marginalised business interests created bitter divisions in the private sector and vehement hostility from the CEA to the government’s management of the floundering economy and its prioritisation of industry over services, as well as to its attempted moves towards interventionist industrial and employment policies noted in previous chapters. While business-government relations had been much more tense during the 1980s, this personal and informal pattern of interactions nevertheless represented a continuation of Alfonsín’s decision largely to bypass business associations in favour of consultation with a number of the most powerful individual entrepreneurs (see Teichman 2002:501–3). The Duhalde administration had not, by early 2003, managed to mitigate this atmosphere of warfare between the Grupo Productivo and the CEA, nor that between the CEA and government. At a broader level, finally, the organisation of capital in the Argentine economy presents significant obstacles to the development of competitive business sectors. The problem of credit and long-term financing is one which affects both the larger economic conglomerates and the PYMEs. The Argentine stock market is not a viable source of financing: very few shares are traded on it, new issues are rare, and indeed stock market activity commences only after lunch (The Economist 2000:7). Thus the Argentine model in theory is one of bankrather than stock-market-based financing, in a context where the banking system has been strikingly fragile and lacking almost any form of effective supervision or regulation. The manifest weaknesses of the banking system, exacerbated in the 2000/1 crisis to the point of full-scale collapse, mean not only an absence of viable foundations for financial and business activity but also a significant tension in the central relationship between state and business. While the businessstate nexus became a hallmark of Argentina in the 1990s, it did not come to reach beyond a set of consultation mechanisms on the direction of economic policy. The political relationship, in other words, has not translated into an economic model, in a structural and institutional sense, which is conducive to long-term capital accumulation.

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Brazil Brazilian industry is notable first and foremost for the extent of its diversity, which in large part derives from the particular political economy of ISI and its relative success. In contrast with the sustained post-war de-industrialisation of the Argentine economy, the Brazilian economy entered the 1990s with a complex and diverse industrial base, stemming from the protection and promotion of key economic interests traditionally afforded by the state. Neoliberalism, as we have seen, did not produce a significant retraction of this protection. Electronics, automobiles, capital goods, information technology, footwear, textiles and numerous agricultural sectors stand out among the beneficiary sectors, and at the end of the 1990s export promoting financing strategies were estimated to offer benefits to exporters equivalent to a subsidy of around 10 per cent of the exported product (de la Balze 2000:19). In short, the role of the state in shaping industrialisation in Brazil has had significant consequences for the sectoral profile of investment in the Brazilian economy. Foreign interests, as we have also seen, have traditionally been pivotal in the Brazilian economy, although state strategies in the later post-war period had come to be oriented much more systematically to the promotion of national capital. This was manifest in a number of government economic initiatives in the 1970s and in various sectoral policies such as those applying to the information technology sector (Evans 1995). What is notable in this sense, as demonstrated systematically by Chudnovsky, Kosacoff and López (1999), is that there was quite a clear sectoral division in post-war Brazil between national firms, state enterprises and TNCs. National firms were associated mostly with traditional and natural-resource-intensive industries—such as food, textiles, paper and plastics, wood, cement and so on —with some making incursions into more technologyintensive and high-skill sectors such as capital goods, information technology and car parts. State firms were most associated with heavy industry, and TNCs with durable consumer goods and capital goods sectors along with some participation in the chemicals industry Changes in the 1990s started to soften the starkness of these divisions. TNC activity in Brazil received an injection of vigour from the mid-1990s with privatisation processes and the attendant easing of restrictions on the participation of foreign capital, with over half of total FDI being directed to manufacturing industries and the bulk of the remaining half to services sectors. National firms’ responses to economic restructuring have centred largely on increasing integration into international financial markets, given the partial retraction of state financing, and on participation in the privatisation process. However, the so-called ‘Brazil cost’—referring to the various structural barriers to competitiveness in the Brazilian economy (notably exchange rate, taxation and interest rate issues, currency overvaluation, infrastructural weaknesses, bureaucratic obstacles and high additional salary costs)—pushed many investors and industrialists faced with competition from imports to exercise the ‘exit

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options’ with which they were presented. These options were essentially those of selling firms to TNCs, merging with TNCs or becoming licensed distributors for TNCs (Kingstone 1999b:167). The results have been similar to those identified in Argentina, namely a meshing of foreign and national capital and a notable sectoral diversification of interests of the large conglomerates. For instance, the Grupo Vicunha, previously Brazil’s largest textiles company, has become Brazil’s largest business group, with operations in steel, iron ore and various utilities sectors, through strategies of shared control and borrowing in order to profit from privatisation processes (Goldstein 2001:12). There are two crucial points to highlight, however, about business and capital in Brazil. The first is that the level of internationalisation of the Brazilian economy remains comparatively low, in that the participation of a good number of TNCs features a high level of orientation purely to the local market. This has been shown to be particularly the case among Japanese firms (Oliveira Holzhacker and Guilhon Albuquerque 2002). Second, there exists an entrenched preference in the Brazilian economy for ownership of physical rather than liquid capital assets (Palermo 1998:112). This preference has acted to lessen the vulnerability of the Brazilian economy to financial shocks and capital flight problems that have been so much more troublesome in neighbouring countries,6 and has been reflected clearly in the structure of the financial system. Capital inflows have been and remain largely confined (at least in comparative terms) to industrial and non-financial services sectors. While privatisation in Argentina and elsewhere produced a near-colonisation of finan cial sectors by foreign interests—Spanish banks in Argentina being the most salient case in point—in Brazil foreign banks lay claim to only about one-quarter of the local banking market. Aggressive acquisitions strategies by the ‘big three’ banks (Bradesco, Itau and Unibanco), along with the hefty returns offered by government bonds in a situation of high public-sector debt, have quite effectively squeezed foreign banks out of the picture, leaving domestic banks as the ‘kings of the jungle’ (The Economist, 16 March 2002). In view of the centrality of industry and production in the Brazilian development model and the emphasis even among TNCs on the domestic market, it seems somewhat paradoxical that Brazilian business should be notable for the extent of its political disarticulation. The most salient symptoms of this weakness are the absence of an encompassing peak business association and the ineffectiveness of the principal industrial organisation, the Confederação Nacional da Industria (CNI, National Confederation of Industry). The limitations imposed by the CNI’s internal organisation and voting structures on its effective aggregation of interests have been exacerbated by the fact that its presidents have usually been politicians, such that during the 1990s a good part of the leadership was more loyal to its party and political base than to industrial interests (Schneider 1997/8:102). In addition, given the predominance within it of small and mediumsized enterprises and marginal sectors, its elected presidents are not generally seen as representative of the broader interests of industry and are therefore

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largely marginalised at the national level (Schneider 1997/8:102–3). The weaknesses of this national-level organisation have implied a much greater weight for regionally based business associations, particularly those in the principal industrial states. The CNI has been largely displaced in this way by the strength of the São Paulo-based FIESP, encompassing as it does about 50 per cent of Brazilian industry and consequently occupying a position of considerable influence in national business politics. Also influential are the Federaçao das Indústrias do Estado de Rio Grande do Sul (FIERGS, Federation of Industries of the State of Rio Grande do Sul) and a handful of others, each of which is effective in representing the interests of industries in their respective federal states. There is a small number of associations which aim to represent PYMEs, but these are largely politically irrelevant in view of their links with the state through incentives programmes, as well as the fact that many operate in the nonorganised informal sector (Klein 2000:92). This fragmentation of organised business stems in a structural sense from the removal by the 1964–85 military regime of the conditions in which a class-based identity for business could be articulated (Schneider 1997/8:166). That is, Brazilian business has never encountered a significant threat from labour, the state or other interests, and as such the defensive catalyst to the formation of an effective encompassing association (such as that evident in Chile or Mexico) did not emerge in post-war Brazil (Weyland 1998b:75–6). Other explanations lie in the institutional make-up of the Brazilian political system—specifically in the federal system, which accounts for the relatively greater weight of the FIESP and other associations, and in the legacy of state corporatism. Under Vargas in the 1930s and 1940s, a handful of associations were established representing, separately from each other, industry, commerce, agriculture and other branches of economic activity, all of which drew together sectoral associations and granted them equal representation regardless of the size or weight of the sector in the economy (Weyland 1998b:77). The conjunction of developmentalism and state corporatism thus weakened the incentives for collective action and laid the ground for a lasting fragmentation of the private sector. As just noted, however, patterns of business organisation are defined more along internal regional lines than along sectoral lines, and the strength of the federal system has produced both obstacles and resistance to the collective articulation of national or encompassing expressions of business interests. Fragmentation has also stemmed, finally, from the diversity of Brazilian industry and has been entrenched by the polarising impact of economic restructuring. While this atomisation has posed challenges for the aggregation of interests by business associations, the pattern in Brazil has been one in which, even where collective interests have been effectively articulated, the influence of that articulation has been frail. At least until the Real Plan, governments did not engage in any sustained offensive to persuade business and industry of the virtues of market reform. The Sarney government in the mid-1980s engaged in the usual tactical diplomacy of appointing business leaders to key government

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and congressional positions, but their careers were generally short lived and their participation in the business of government was not oriented to the representation of business interests (Schneider 1997/8:105). On those occasions from the late 1980s when business groups organised around a legislative issue, they failed almost entirely to exert any critical leverage over the outcome of congressional deliberations (Kingstone 1999a:143). Interestingly, those occasions on which business did achieve some degree of coordination corresponded with episodes of actual or proposed constitutional revision, in 1988 and then again in 1993/4. Yet in both instances the alliances between interests were temporary rather than subsequently institutionalised, and the results were not noteworthy. Government-business relations were generally cooperative under Cardoso from the mid-1990s, although they remained marked by the inability of business organisations to translate collective interests into collective action. While the Cardoso government clearly favoured a turn to market economics, his party, the Partido da Social Democracia Brasileira (PSDB, Brazilian Social Democratic Party), was distinctly equivocal. This was significant given the historically strong ties between the PSDB and the rust-belt industries of São Paulo state (Roett 1997: 28), the latter organised in the FIESP. Shaky economic performance in Cardoso’s early days did generate significant business pressure for a change of economic tack, and the government’s liberalisation agenda was accompanied by a sustained insistence across the domestic business spectrum on the negative consequences of the ‘Brazil cost’. This constituted the focus of lobbying efforts in the 1990s. A good part of this activity emanated from the largest industrial groups, organised primarily in the Instituto de Estudos de Desenvolvimiento Industrial (Institute of Industrial Development Studies), a think-tank on industrial policy, and the FIESP. The former was the more vocal in its reservations about liberalisation and thus took up positions of more pronounced ‘opposition’, but pockets of the FIESP and also TNC sectors joined the chorus while maintaining a broadly pro-liberalisation position (Schneider 1997:208–9; Kingstone 1999a: 156). The critical positions adopted by key business groupings, in this sense, were rather less about the virtues of liberalisation itself than about the ‘Brazil cost’, although anti-liberalisation positions certainly gained a good foothold in parts of the private sector. Responses to this lobbying activity were largely incremental and facilitated by the cautious progress of liberalisation over the 1990s. Government strategies crystallised most notably in the area of export promotion and, above all, in export financing. The key here has been the progressive construction of a dual publicprivate approach and the increasingly central position of the private sector as a source of financing. Especially since the mid-1990s, the state has sought to bolster its strategies in these areas, notably in a 1996 legislative package of export incentives, tariff increases, export financing and the purchase of capital equipment (Kingstone 1999a:154). Its financing strategies have been channelled from that time primarily through the BNDES, along with other institutions such as the Banco do Brasil (Bank of Brazil). The Central Bank around the same time

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started to put in place financing strategies that operated independently of the BNDES, relying on external sources of funds. It is interesting, in addition, that regulation of export financing was not put in place until the end of 1995, and since that time has been coordinated jointly by the Central Bank and the Ministry of Industry, Trade and Tourism, involving a raft of new rules concerning eligibility and terms of financing agreements (see Bonelli 2000:84–6). Strategies also began to crystallise in the financial and banking arenas for the purpose of strengthening financing and credit to productive sectors. In 2001 the structural disadvantaging of minority shareholders in Brazilian corporate governance lay at the heart of new legislation designed to bolster the domestic equity market and the rights of minority investors. As in Argentina, investment in the Brazilian economy is driven by bank lending rather than stock market lending, and indeed stock market activity declined precipitously over the mid-1990s. Financial regulation has, however, been reasonably robust—banks are obliged by law, for instance, to lend 65 per cent of their savings deposits as mortgages— and, comparatively speaking, the Brazilian banking sector is ‘wellcapitalised, profitable and technically advanced’ (The Economist, 2 June 2001). One of its principal weaknesses, though, lies in the continuing underdevelopment of a private credit system: credit operations constitute less than half of total assets in the banking system (Hermann 2002:103). The 2001 reform legislation therefore aimed to improve lines of financing for domestic companies and divert a growing dependence, noted earlier, on international capital markets. Early statements by the incoming Lula administration also emphasised the need to strengthen capital markets and make them the primary source of financing for production (La Nación, 18 October 2002). The Cardoso government also sought to manage its relations with business through a sectoral and ‘productive chain’ approach to the construction of consultative and negotiating mechanisms. Resulting initiatives included the 1998 Programa Especial de Exportaçãos (PEE, Special Export Programme) and the 2000 Foros de Competitividade—Diálogo para o Desenvolvimiento (Competitiveness Forums —Dialogue for Development) initiative (da Motta Veiga 2002). In general, however, this strategy of public-private collaboration has been largely ineffective and the influence of business interests—particularly business associations—remained distinctly insipid during the Cardoso administration. Both the impetus for policy reform and the determination of its course, as well as initiatives to foster collaboration such as those just mentioned, have come from government rather than business actors, in distinct contrast with the Argentine case. On issues ranging from tax reform to interest rates and constitutional reform, business interests have by and large been secondary to government and state preferences, the former generally having more to say about what was emphatically not acceptable than about what might be. Crucially, however, the root of this apparent weakness of business vis-à-vis the state lies not in the relative strength of state actors but rather in the state’s weakness. While the sustained de-industrialisation of the Argentine economy had eroded the influence

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of key private-sector actors, in Brazil the longer duration and greater coherence of the industrialisation project bequeathed a much more complex political landscape with which successive governments in the 1980s and 1990s had to grapple. We will return to these issues in the next chapter, but for now it suffices to note that the consequent weight of societal and economic interests on the political system contributed to the situation of ‘legislative paralysis’ that was characteristic of the 1990s. Conversely, however, these same traits have acted to dampen the influence on the policy-making process that might be exercised by these interests. In view also of the insulation of the legislative branch and the prevalence of patronage politics, lobbying is an activity to which the Brazilian political system is not well disposed, and consequently the opportunities for business associations to exercise effective or decisive influence have been notably limited. The combination of these factors, in short, has meant that there was no real emergence in Brazil of the sort of ‘new policy coalition’ around neoliberalism that was characteristic of other Southern Cone cases in the 1990s. Chile Much of the distinctiveness of the Chilean case derives from the considerably more solid ideological engagement of the Chilean private sector with market economics than elsewhere in the Southern Cone (see E.Silva 1996; Grugel 1998). This was manifest in the Pinochet era, as well as through the 1990s, and indeed stemmed in good part from the earlier onset and greater success in implementing neoliberal reform in Chile than elsewhere. We recall from Chapter 4 that financial liberalisation was premised on Pinochet’s 1974 Foreign Investment Statute (DL 600), which not only guaranteed parity between foreign and domestic capital but, in the event, afforded various benefits to the former which were not extended to the latter (see Ffrench-Davis et al. 1995). DL 600 thus entrenched foreign capital at the heart of the economic strategy. In the first part of the Pinochet government, the conjunction of financial reform, economic restructuring and privatisation resulted in the overhaul of the Chilean business oligarchy. The dominance over the post-war period of large family-owned conglomerates—the so-called grupos económicos (economic groups)—was displaced by the emergence of new groups which profited from DL 600 and participation in early privatisation in the financial sector. These comprised a small number of large banks and economic conglomerates connected with international capital, such as Cruzat-Larraín, Banco Hipotecario de Chile, Banco de Concepción and Edwards. By 1979 these new economic groups controlled 80 per cent of banking sector equity, as opposed to 40 per cent in 1970, and 53 per cent of the capital of the largest 250 Chilean firms was controlled by just five financial conglomerates. To illustrate: the two largest of these new groups in the 1970s were headed by Manuel Cruzat Infante and Javier Vial Castillo. The former, in partnership with Fernando Larraín, owned the Banco de Santiago, 26 investment and real estate companies and 5 other insurance and finance

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companies; the latter owned the Banco Hipotecario de Chile, around 30 per cent of the shares in the Banco de Chile and controlling stakes in 7 other banks, finance agencies and assorted industries (Hastings 1993:216). This progressive concentration of wealth is entirely in keeping with the trends noted in other cases, as is the emergence of a new elite on the back of privatisation opportunities. The difference is that this new elite was generally less dominated by large family-led interests and, critically, far more linked to the financial sectors of the economy than was the case in Brazil or in Argentina. The collapse of the banking sector in the early 1980s and the consequent state intervention inevitably meant critical losses, and indeed extinction, for many of these financial conglomerates, as well as a sustained drift towards reregulation of the financial system. The new system of capital controls outlined in Chapter 4 acted to entrench both the transnationalisation of the Chilean economy and the dominance of large financial interests, even while it discouraged certain types of speculative capital and diverted some of the difficulties with capital flight experienced by, among others, Argentina. Banking supervision was also more extensive and effective than elsewhere in the region. Capital market operations in Chile are conducted primarily within the banking sector— one-third being conducted within the subsystem of pensions administration— and these banking sector operations are supervised by the Central Bank and the Superintendencia de Bancos (Superintendency of Banks) operating under the aegis of the Treasury. The reform of the Banking Law in 1997 was the turning point in the ‘internationalisation’ of the Chilean financial system in that it both permitted banks and financial institutions a greater engagement in globalised markets by authorising foreign investment on the same basis as domestic investment and raised the minimum capital requirement in order to increase the competitiveness of Chilean banks (Budnevich 2000:214–15). The key point in this, however, is that regulatory activities are undertaken in connection with key private-sector institutions and actors, with the result that the Chilean banking structure has been far less vulnerable to shock than its counterparts elsewhere, as well as far more ‘internationalised’ in the scope of its financial operations. As privatisation targets were progressively picked off, the sectoral profile of FDI in the 1990s to Chile shifted from a concentration of FDI in mining sectors (58 per cent of the total in 1990–5) to a concentration in services sectors (64 per cent of the total in 1996–2000), the latter concentrated in the utilities and financial sectors (ECLAC 2001:93). By the end of the decade FDI accounted for majority holdings in 9 of the 20 largest Chilean firms, services companies had become significantly more important among foreign firms operating in Chile, and foreign firms were especially prominent in exporting sectors—14 of the 20 largest exporters were foreign-owned firms, nine of these in the mining sector (ECLAC 2001:93–5). This latter point itself is significant in its indication that, the importance of services sectors notwithstanding, the primary destinations for ‘productive’ investment (and consequently the sectors in which exports have

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grown most rapidly) remain those in which international trade is stagnant or sluggish. Turning to business-state relations, the shift in the state’s approach to foreign capital was part of a broader restructuring of the relationship with business after the crisis of the early 1980s. With the start of the new phase of liberalisation, the government adopted a markedly more ‘pro-business’ stance, in contrast with the dominance of financial sectors in the 1970s (Chudnovsky et al. 1999:263–5). The close links between government and private bankers were progressively dismantled and the government instigated a systematic (although partial) retraction of the system of state-driven credit allocation in favour of a new emphasis on market-driven financing. Yet, despite this scaling back of the state’s developmentalist role in the economy, export promotion strategies were sustained as a central part of the economic model and it was during this period, as we have seen, that much of the vaunted diversification of the export economy took place. The state development agency CORFO remained the principal coordinator of these policies. According to data compiled by Alvarez Vouillieme (cited in Chudnovsky et al. 1999:273), of the 30 largest companies in Chile in 1988, CORFO had intervened significantly in 17 and had been pivotal in the initial establishment of 12. Five of the six national fishing-related companies and all of the chemical pulp factories in the 1980s had been established with the participation of CORFO, and similar patterns prevailed in a number of other sectors. In the 1990s CORFO export promotion activities coalesced predominantly around two pillars: the Fondo de Asistencia Técnica (FAT, Technical Assistance Fund) and Proyectos de Fomento (PROFO, Promotion Projects). Exportpromotion strategies were also channelled through the Foreign Ministry in the form of the Dirección de Promoción de Exportadones (Directorate of Export Promotion), commonly known as ProChile, which operates within the DIRECON and coordinates with the associated bodies such as CORFO (http://direcon.cl and http://www.prochile.cl). The primary objective of the industrial policy coordinated by these agencies has been to propel PYMEs towards a point at which the accrued levels of competitiveness would reduce dependence on the state. In direct similarity with the Pinochet government’s strategy in the 1980s, the emphasis has rested on promoting market mechanisms with only indirect state intervention in the provision of financing and technical support, and encouraging collective approaches to competitiveness-building among firrns, the latter principally in the form of greater productive specialisation (Montero 1997: 132). The associated strategies have encompassed various forms of state assistance in order to facilitate capital and technology accumulation, such as technical assistance on management and strategies for participation in external markets, financing subsidies operated through private banks and subsidisation of worker training programmes (see Maggi 2000). Despite significant changes over the 1990s, then, the engagement between state and private sector in Chile has remained significantly stronger than in

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Argentina or Brazil. The state strategies detailed above are one reason for this; another is the solidity and ideological cohesion of the business-state nexus. A third relates to the distinctive mode of business organisation in Chile. Comparisons with Argentina and Brazil reveal a considerably higher level of political and associative cohesion in the Chilean business sector, crystallising in the existence of a single encompassing peak association, the Confederación de Producción y Comercio (CPC, Confederation of Production and Commerce). Under the umbrella of the CPC are grouped numerous sectoral associations, of which the most visible are the SFF, the Sociedad Nacional de Agricultura (SNA, National Agricultural Society), the Asociación de Exportadores de Manufactura (Asexma, Association of Exporters of Manufactured Products) and the Sociedad Nacional de Minería (SNM or SONAMI, National Mining Society). Yet the CPC’s ability to aggregate business interests has been, typically, ambiguous. Its political weight has been diluted by perceptions that sectoral peak associations are more effec-tively representative of key interests, and the wide variety of positions and interests within the private sector has meant that state-business relations have commonly been conducted outside the umbrella associations and on a more individualist basis, notably through direct contacts between state actors and key actors in export businesses and agro-industrial sectors (Grugel 1998:231). Nevertheless, the CPC’s existence has without doubt enabled a general pattern of consultation and cooperation between government and business actors, which has been reinforced by government strategies. Following the relative marginalisation of business associations during the 1970s, a strategy of cooperation reached a high point after the recession of the early 1980s in the shift away from the dominance of the Chicago Boys in the policy process. The Consejo Económico y Social (CES, Economic and Social Council) was established in 1984 as a consultative body to the executive branch, ostensibly incorporating both business and labour actors but centring almost exclusively on the former. Business influence also found its way into government corridors with the appointment of the majority of economic ministers from the ranks of business leadership: Economy Ministers Collados and Délano, for example, were, respectively, presidents of the Cámara Chilena de la Construcción (Chilean Chamber of Construction) and the Cámara Nacional de Comercio (National Chamber of Commerce) prior to their appointments. Likewise, the Agriculture and Mining Ministries were headed around the same time by leaders of the respective sectoral business associations (E.Silva 1998:232). In the early 1990s this emergent cooperation was reinforced by two factors. First, Pinochet’s constitutional amendments in 1980 stipulated that nine seats in the Senate were to be reserved for representatives of the conservative right (including the Armed Forces), thereby establishing an ‘artificial’ Senate majority which lent a substantial veto power to interests with significant business connections in the policy-making process (Weyland 1999:70). Second, and most importantly, the privileging of external economic relations in the strategies and

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institutions of the state compelled new initiatives to institutionalise cooperation. A handful of new forums were established to facilitate the participation of the private sector in trade negotiations: the Comité de Participación del Sector Privado en las Relaciones Económicas Internacionales (Committee for PrivateSector Participation in International Economic Relations) in 1993 and the Comité de Iniciativa Público-Privada para las Relaciones Internacionales (Committee for Public-Private Initiative in External Relations) in 1995. In addition, DIRECON officials worked closely with specialists from the main business associations, such as the CPC and SFF, on both the details of agreements and the general orientation of government strategies (Montero 1997:129; see also E.Silva 2002). These initiatives went along with broader initiatives—including the Reference Framework for Dialogue and Tripartite Framework Agreement—to create a system of business-state relations that was far less informal and personal, and significantly more institutionalised in character, than those prevailing in Argentina and Brazil. Beyond these broad lineaments of cooperation, political changes over the 1990s induced important changes in the functions of business actors, especially business associations. These crystallised in their assumption of a significantly more technical role oriented towards the provision of specialist services, such as the elaboration of reports and proposals or technical input into trade negotiations (Montero 1997:123, and fn. 3). This drift towards a particular role in the provision of technical expertise was also fostered by the government’s continuing centrality in managing and steering social relations. Relatively high levels of state cohesion in Chile, on which we will elaborate in more detail in Chapter 9, have permitted a close management of business representation; equally, the strength of certain agencies, such as the General Secretariat of the Presidency and the Finance Ministry, has insulated the state from lobbying activities. The upshot has been the maintenance of a technocratic rather than politically driven policy-making process (Weyland 1999:71), with the role of business associations adapted accordingly With democratisation, as well, the strength of state actors vis-à-vis business has been enhanced as the legitimacy of the government no longer rests entirely on its relationship with the private sector (Grugel 1998:232). In other words, while the attempt to build tripartism in the 1990s yielded only partial results, the state has come to constitute the pivot of social relations to the extent that it is not hostage to the interests of any single group, including business. The result has been some important leverage and discretion for the government in its dealings with business interests. On occasion this leverage has been used to overcome initial opposition to legislative initiatives, most particularly those of the early 1990s oriented towards redistribution. One such example was the tax reform bill of 1990 and associated labour reform efforts, which penalised business and the middle classes but to which business consented in order to enhance the legitimacy of market economics in the new democracy (Weyland 1999:73–4).

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However, as noted in the discussion of labour politics, state-business relations under the centre-left Lagos government took a turn for the worse. The freeing of capital markets from 1999 had appealed to key business interests and to an extent had diluted the political tensions with government that had been gaining ground from the middle of the decade. Nevertheless, business opposition to the Lagos government has been described as ‘reminiscent of the Allende period’ (E. Silva 2002:340), especially in the mass mobilisations launched by landowners’ and truckers’ employers associations. Eduardo Silva (2002) has attributed this downturn to a combination of three factors: first, the shift in the centre of gravity within the Concertación away from the Christian Democrats (where it had been located under both Aylwin and Frei) towards the so-called ‘renovated socialism’ represented by the Partido por la Democracia (Democracy Party) and the Partido Socialista (Socialist Party); second, the Lagos government’s weakness, stemming from the lingering economic recession as well as his own narrow electoral margin; and, third, the strengthening of hard-line neoliberal positions in the context of the electoral ascent of the Unión Democrática Independiente (UDI, Independent Democratic Union)—the party of the technocrats operative under the Pinochet regime—to become the principal right-wing party, as well as a movement towards hard-line leadership in key business associations. In this latter respect the SFF first broke with the CPC in 1999 (being dissatisfied with its apparent concessions to the government’s agenda) and then rejoined it to assume a position of dominance within it. Increasingly vehement business opposition to a range of issues in the government’s policy agenda—notably labour reform, tax policy and environmental regulation—has resulted in the halfhearted and ineffective record on key reforms noted earlier, and movements towards progressive social policies have been quickly stymied. Despite these manifest tensions, however, important channels of consultation and collaboration were preserved under Lagos, largely on broad issues relating to growth policies (E.Silva 2002: 353). The dominant political influence of business and its place at the heart of the Chilean model have thus remained largely intact. Paraguay As we saw in Chapter 4, Paraguay has been notable for the scarcity of inward investment. The reasons for this lie in the nature and profile of the domestic private sector, as well as in institutional, infrastructural and political weaknesses and the absence of serious privatisation in the 1990s. The Paraguayan case has been distinguished in this respect by the absence of a private sector ideologically in favour of liberalisation. In good part, this absence has stemmed from the historically dependent relationship of the private sector and the Paraguayan state, in which the most powerful industrial groups have accrued wealth directly through their connections with the state. As Nickson and Lambert observe (2001:7), the Paraguayan state has historically been captured by private interests for the purposes of appropriating resources, and consequently

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privatisation has widely been seen to be linked with corruption and to involve ‘relinquishing ownership (as well as control) to a corrupt private sector’. In other part, it has stemmed from the profile of business itself. During the Stroessner regime, the domination of the private sector by a powerful rural elite resulted in the entrenchment of both a reliance on agro-exports and political resistance to ISI. In the same way as the absence of a post-war industrialisation experiment implied the absence of socio-economic and political changes that elsewhere facilitated the emergence of labour movements, it also ensured the ongoing weakness of industrialists in the Paraguayan private sector. The powerful agro-industrial exporters are grouped in their Federación de Exportadores Agroindustriales (FEDEXA, Federation of Agro-Industrial Exporters), while the Unión Industrial Paragaaya (UIP, Paraguayan Industrial Union) brings together business interests connected entirely with the domestic market. Membership of the UIP, or indeed of other business associations such as the Federación de la Producción, la Industria y el Comercio (Production, Industry and Trade Federation), has remained strikingly low among industrialists. By the end of the 1990s it was estimated that less than 10 per cent of industrial firms belonged to a business association, and only the smallest sectoral groupings have engaged in training programmes or technical evaluations worthy of mention (Klein 2000: 98). The explanation lies not only in the traditional strength of agro-exporters but also more broadly in the negligible influence of labour unions and the low profile of labour issues. In other cases, new businessstate alliances have coalesced at least in part around the changes in labour relations deemed necessary for the advance of neoliberal reform, involving political strategies to weaken organised labour and to decentralise collective bargaining. That these issues have not been of particular concern in Paraguay is important in explaining the relatively low profile of business interests and formal business associations and the reasons why business-state relations have remained largely informal and personal in character. For much of the 1990s the government sought to enact business-friendly reforms, including the early appointment of businessman and ex-president of the UIP Ubaldo Scavone as Minister of Industry in 1993, and made concessions to the UIP’s nervousness about liberalisation. Nevertheless, given the absence of significant economic reform over this time and the lack of impetus deriving from strategies to attract FDI, business-state relations never assumed the urgency or the central importance that they manifested in other Southern Cone cases. Uruguay The implications of the high degree of diversification in the Uruguayan economy —featuring a very strong agricultural sector and a notable degree of industrial development and sectoral diversification—have been not only the fragmentation of the labour movement that we identified in the previous chapter but also the wide variety of positions on liberalisation and reform held by the private sector.

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As elsewhere, industrialists’ positions have been more equivocal than those of more traditional exporting sectors, but the strength of the latter in Uruguay has meant that the political negotiation of liberalisation has been a particularly fine balancing act. This tug of war between traditional agricultural and industrial interests has been reflected in the evolution of business associations. The Cámara de Industrias del Uruguay (CIU, Chamber of Uruguayan Industry) is notably strong in that approximately 90 per cent of large Uruguayan firms are affiliated to it. While other business associations exist —such as the Unión de Exportadores (Exporters’ Union) or the Cámara Mercantil (Mercantile Chamber), which brings together a range of agricultural and agroindustrial interests—they have not rivalled the CIU in membership, representation or aggregation of interests. The important point, however, is that the evolution of the CIU’s membership profile over the course of the early and mid-1990s gave rise to an important increase in the relative weight of exporting firms within the organisation (Klein 2000:105). Both the strength of these interests and the ways their influence has crept into the organisations representing industrialists have contributed to the broadly hospitable stance to liberalisation that has been adopted by Uruguayan business and to their broad support over the 1990s for the thrust of government policy. An important parallel with the Argentine case in this respect is that the traditional party allegiances of business were abandoned as business actors sought alliances with electoral candidates and subsequent governments perceived to be of a more liberalising bent (Klein 2000:108). The Radical Party in Argentina and the Colorado Party in Uruguay, having been traditionally the parties of business, were replaced, respectively, by the Peronist Party and the Liberal Party in the affections of important business actors. This is significant in an assessment of the ways in which business preferences shape not only government policies but also the political landscape itself. In Uruguay the upshot of this shift of allegiances was a broadly cooperative relationship for much of the 1990s, but one in which business actors wielded some significant influence over incumbent governments in exchange for their political loyalty. The stipulated quid pro quo for support for liberalisation was twofold: on the one hand, business demanded reform of the public sector (Finch 1999:92), which it saw as essential for competitiveness and efficiency in the economy; on the other, it demanded that the state involve itself in the resolution of social conflicts, in marked contrast with its support for the retraction of state involvement in the economy (Klein 2000:103). Some more radical forms of opposition were visible in the private sector, particularly from interests in the PYME sector, but the broad picture over the 1990s was of a fairly functional business-state alliance. This was also reflected in a fairly robust government supervision of the banking sector, which in Uruguay is dominated by public-sector banks to which regulatory supervision is less strictly applied but which have an explicit governmental guarantee on their operations (IMF 2001:3–4). With the economic crisis in the early 2000s, however, relations between business interests and the

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Lacalle government predictably became somewhat strained, with business organisations joining forces with the PIT-CNT in the various forms of organised protest that emerged over 2002, largely under the aegis of the Concertation for Growth. Business in the regional political economy The articulation of business in the regional political economy takes two forms. The first relates to a process of market-led regionalisation and specifically to the emergence of a regional market structure, propelled both by foreign investors aiming to erase the limitations to investment posed by national boundaries within the Mercosur and by the transnationalisation strategies of domestic firms in the region. The second relates to the crystallisation of a regionalised form of business politics, pushed forward, as with labour, by new forms of participation at both the regional and the hemispheric levels. These aspects of the regional political economy constitute the focus of the remainder of the chapter. The contours of market-led regionalisation Corporate strategies linked to the Mercosur divide into two groups, the first relating to purely commercial strategies and found particularly in capital goods sectors, the second to more direct productive strategies. The latter strategies have been most characteristic of TNCs with operations in Argentina and Brazil, while complementation between domestic firms in these two countries has been concentrated in production activities linked with consumer and intermediate goods (López and Porta 1995:255–6). In many respects it has been the market strategies of TNCs that have been pivotal in carving out regionally defined modes of business organisation in the Southern Cone arena, and in turn the investment strategies of these corporations have largely been shaped by the existence of a regional bloc. While foreign investment in Mexico, Central America and the Caribbean over the 1990s was directed predominantly to generating international competitiveness, particularly in firms and sectors exporting to the US, across the Southern Cone the consistent target of capital inflows was local and regional markets, constructed—and comparatively protected—by regional integration projects (ECLAC 2001:55). In other words, transnational capital in the Southern Cone has become progressively organised around the possibilities afforded by investment in local markets for making inroads into the Mercosur itself, along with the advantages proffered by the regional economy of scale. In some cases, in addition, TNCs have sought to take advantage of the special provisions afforded to certain sectors in the Treaty of Asunción, most notably the automotive sector. The strategies of foreign-owned TNCs have thus moved consistently away from a national focus to a more regional one. Recent survey data gathered by Oliveira Holzhacker and Guilhon Albuquerque (2002) suggest that about 85 per

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cent of EU TNCs (and 63 per cent of the largest Brazilian firms) have elaborated strategies aimed specifically at the Mercosur market. The clearest dimension of this shift is reflected in the rationalisation of operations in the Southern Cone, in terms of both activity and management structures. The result has been that the subsidiaries of TNCs in various parts of the region have become significantly more specialised, with intra-firm trade becoming a partic-ularly important dimension of this reorganisation. Examples include firms such as Nestlé, Unilever, General Motors, Coca-Cola and Procter & Gamble (ECLAC 2001:96). Similar processes have been visible in the restructuring of the pharmaceuticals industry, for instance, and especially in the automobile sector. Along with rationalisation strategies, investment strategies over the 1990s also became more conditioned by the notion of regional expansion, and thus became styled in national markets as ‘stepping-stones’ to the rest of the Southern Cone and Latin America. The example of services markets in Chile stands out in this regard (ECLAC 2001:100), as does that of the telecommunications sector, which constituted one of the earliest examples of this sort of regionalised strategy (Flores 1997:623–4). Conversely, the appeal of a Mercosur market has bolstered the appeal to TNCs of maintaining a presence in various national economies. This has been especially the case for Argentina and evident above all in the Argentine automobile, capital goods and household appliances sectors (López and Porta 1995:258). The transnationalisation strategies of Southern Cone firms, in turn, have been focused to a preponderant extent on the regional marketplace and have only exceptionally been more globally oriented. These regionalisation strategies have been particularly pronounced among Argentine firms, Mercosur countries (including Chile and Bolivia) constituting the primary destination for their foreign investment strategies. A good example is the Argentine firm SOCMA. While its activities have remained concentrated in Argentina, its presence in Brazil increased steadily and significantly from about 1994 onwards (becoming the strongest presence among Argentine firms operative in the Brazilian economy), to the extent that by the end of the 1990s its organisational and management structures were gradually being reconfigured to take account of this ‘bi-national’ profile.7 Its operations in Uruguay have similarly gained in prominence across a number of sectors.8 The automotive sector, however, has been dominant in SOCMA’s regional expansion as well as in the broader processes of corporate regionalisation that have crystallised in the Mercosur arena. Other Latin American markets have also been important for Argentine firms, but there has been a clear distinction between firms’ commercial strategies and investment strategies involving the physical establishment of industrial operations. Destinations for the former have become more regionally diversified than for the latter. Companies such as Bagó, IMPSAT and YPF have established industrial operations in North America (mainly in Mexico) and the latter two might indeed be classified as active on a ‘global’ stage. Yet an altogether much greater number of firms (including Arcor, IMPSA, Pérez Companc, Sancor and

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SOCMA) have retained an almost exclusively ‘South American’ profile in terms of physical operations, in which Southern Cone countries again are overwhelmingly preponderant (see Chudnovsky et al. 1999:123–4). While in Argentina the focus has fallen emphatically on Mercosur markets, the profile of Chilean firms’ strategies has been dominated rather more by the wider Latin American market, although within this more diversified structure Southern Cone economies still stand out. The Latin American market has been especially pivotal in the turn towards non-natural resource-based exports, encompassing both manufactured products and non-financial services (Chudnovsky et al. 1999: 266). The Mercosur market in turn has been crucial in view of these products’ relative lack of competitiveness in wider regional and global arenas. With regard to Chilean investment, moreover, Southern Cone economies—especially Argentina— have continued to overshadow destinations in both Latin America and the rest of the world. These patterns are not the consequence of the existence of the Mercosur and it is notable in this regard that the greater diversification of destinations for Chilean FDI does not correspond closely with the existence of formal trade or cooperation initiatives (Daher 1999:128). But these patterns are nevertheless pivotal in constituting and shaping a regional market structure. Regionalisation strategies have been less common in Brazil, where TNCs remain significantly more dominant and the majority of domestic firms have been absorbed by transnational interests (Chudnovsky et al. 1999:9). We recall also that the activities of a good number of these interests are oriented towards the domestic market rather than towards external trade. One side-effect of this comparatively low level of internationalisation, as demonstrated by Oliveira Holzhacker and Guilhon Albuquerque’s data, has been that the onslaught of competitive pressure for Brazilian firms has been considerably less prejudicial than for Argentine firms, and indeed those of the smaller member countries. As we saw in Chapter 5, in addition, the attraction to Brazil of Mercosur economies as trading partners has been significantly less than the attraction of the Brazilian market for other Mercosur members. Even so, looking at growth rather than volume, the Mercosur market was the most dynamic destination for Brazilian exports over the 1990s, growing at an annual average of 26.9 per cent against only 6.3 per cent for total exports. Exports to Mercosur countries have also been concentrated in manufactured products, which accounted for about 70 per cent of exports to these destinations in 1998, and Southern Cone economies have been important as sources of imports, particularly of Argentine agricultural products, along with cars, footwear and food products (see da Motta Veiga 1999:315, 325). Brazilian foreign investment in services has become concentrated overwhelmingly in Mercosur markets, and conversely Brazilian investment in Mercosur economies has been dominated by investment in services sectors, accounting by the start of the 2000s for two-thirds of total Brazilian investment in Uruguay and almost 100 per cent of the total directed to Paraguay. Argentina has been the preponderant destination for investment in financial services (Page 2001:56). Crucially, taking us back to earlier remarks in this section, this

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expansion of both commercial and investment engagement with the Mercosur arena has been notable for the growing participation in it of TNCs, which increased by an annual average of 56 per cent over the 1990–7 period (da Motta Veiga 1999:329). The response of PYMEs to the Mercosur has inevitably been mixed across the region. On the one hand, the threat from imported goods has produced a caution and in some cases a hostility to the liberalisation of regional trade and the construction of a regional marketplace. This has been particularly the case where mechanisms of compensation or active state promotion strategies have been lacking, or alternatively in situations in which the liberalisation of regional trade has entailed the likely or actual retraction of state promotion mechanisms. Antipathy to the Mercosur over the 1990s was also found predominantly in those national firms that were not regionally competitive in their particular sector. This wariness found special expression, not surprisingly, in those firms and sectors faced with significant competition from their Brazilian counterparts. For many— perhaps most—PYMEs, the extraction of meaningful value from the Mercosur was thus extremely difficult. On the other hand, many PYMEs over the 1990s saw the Mercosur as offering important opportunities for the expansion of their commercial activities and, consequently, their competitiveness. Given that participation in the international economy was not a feasible option for the vast majority, the Mercosur was both a logical strategic focus and a springboard for the future development of more active internationalisation strategies. Francisco Gatto’s (1995) surveys of Argentine PYMEs in the mid- 1990s revealed that over half were committed to such an expansion of their exchange with Mercosur countries, above all with Brazil, although proactive strategies of this sort remained in short supply. He also detected, moreover, a generalised perception of the potential benefits to be derived from cooperation between PYMEs, particularly for enhancing productive specialisation. Notwithstanding such perceptions, corporate strategies aiming at the Mercosur market have remained the preserve of larger regional and multinational firms; similarly, the process of market integration, while still in its early stages, has remained driven by big business, often to the exclusion of smaller firms. We should take care in any case not to exaggerate the extent of inter-firm cooperation, whether we are talking about PYMEs, domestic firms or TNCs. Corporate strategies of this sort remain largely nascent. Certainly the sorts of regional production networks that had emerged by the end of the 1990s in the NAFTA have not been mirrored in corporate development in the Mercosur (UNCTAD, cited in Klein 2000:141). The point, nevertheless, is twofold: first, the attraction of FDI is vital for the emerging internationalisation strategies of local firms, the regional market constituting a central incentive to inflows of FDI; and, second, the Mercosur arena is utilised increasingly as a ‘steppingstone’ towards more global production strategies and styled as an ‘incubator’ of industrial competitiveness for this purpose.

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With the launching of the FTAA project, this notion of the comparatively protected regional market has become particularly important. This is so primarily because the lack of industrial competitiveness in the Southern Cone brings with it very considerable adjustment costs for almost all economies. In Brazil hemispheric free trade is seen by a variety of business sectors and the state as representing a sizeable threat. Polls conducted in 2002 in São Paulo indicated that 52 per cent of executives surveyed had not yet taken a firm view of the FTAA, with 22 per cent in favour of extending the 2005 deadline in order to allow potential losers to adjust to the impact of increased competition (Tussie 2002:10–11). In Argentina, as well, the emphasis has fallen on the costs of adjustment implied by hemispheric free trade for domestic and regional economic interests. A survey by the UIA in 1998 suggested that 70 per cent of Argentine firms did not feel prepared for an FTAA, and one assumes that the medium-term fallout from the economic crisis will have increased that proportion. While these are issues that are central to current domestic policy debates, they have also become the crux of regional debates in the Southern Cone. More importantly, as we argued in Chapter 6, the Mercosur project has been redefined as the vehicle through which these challenges of adjustment might most profitably be met, and the perception of the Southern Cone market as an ‘incubator’ of competitiveness has become central to the new regional political economy. Business politics in the Southern Cone Business attitudes to the Mercosur have, not surprisingly, mirrored the range of positions on liberalisation in domestic settings. At the time of the signing of the Treaty of Asunción very few business sectors in the four full-member countries were fully behind regional integration and there was little engagement with the project in its early stages. Brazilian industrialists’ attitudes become generally more positive as the decade advanced, illustrated in the late 1990s by the CNI’s advocacy of the consolidation and deepening of the customs union, which was notably more robust than the Brazilian government’s (da Motta Veiga 1999: 354). Argentine industrialists’ attitudes went by and large in the opposite direction, largely in response to perceptions of their competitive disadvantage vis-à-vis Brazil. The same pattern is discernible in the Uruguayan case. In Paraguay a broad position of cautious indifference appears to have been maintained, business offering neither overt support nor serious opposition to continued membership of the Mercosur. The Chilean private sector was considerably more ‘on message’ in the liberalisation drive than its counterparts elsewhere in the region, but sceptical about Mercosur membership because of differences in tariff levels. Sectoral differences have also been important. The actors with most weight and lobbying power have been, and remain, the most consistently ‘proMercosur’, located predominantly in the car industry, the energy sector and the Argentine agro-business sector. More sceptical positions on the spectrum have been occupied, inevitably, by those sectors most supported by

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state incentives and subsidies, particularly in Brazil but also by those in other economies that have been most threatened by this form of competitive advantage. As with labour actors, the bulk of business interests’ participation in formal Mercosur negotiations have been filtered through the channels of national governments, especially given the absence of strong Mercosur institutions as an alternative route for input. The nature of this participation has thus been conditioned by the distinctive modes of business-state relations that we have identified in the different national contexts. Chilean business actors have been significantly more central to trade negotiations than their Brazilian or, especially, Argentine counterparts. Their participation has been facilitated by the various state initiatives for a public-private partnership for trade negotiations and by the relatively greater organisational cohesion of the private sector. In both Brazil and Argentina over the 1990s, business participation in Mercosur negotiations remained limited and both governments’ approach to coalition-building around the Mercosur project was half-hearted. In the Brazilian case, indeed, the approach was to divert the emergence of an anti-Mercosur coalition through the extension of exemptions and concessions, rather than a conscious political strategy to bring business alongside (Schneider 2001:177). The absence of strong business associations in both cases hampered the emergence of serious challenge to the lack of consultation on the part of government negotiators and effective debate of the issues generated by the regional integration project. The Uruguayan government, as we have seen, took significant steps to foster tripartite debate and consultation on Mercosur issues over the 1990s, with the creation of such institutional bodies as the COMISEC, but, unlike their Chilean counterparts, Uruguayan business interests have participated only indirectly in trade negotiations through their relationship with government. With the exception of the Chilean case, then, none of these modes of businessstate linkage gave rise to direct participation in the Mercosur process over the 1990s, which was further impeded by the exclusionary apparatus of the Mercosur itself. This does not mean that business actors have been inactive. Rather, their efforts have been oriented to influencing national governments on issues of domestic policy, responding to issues thrown up by regional integration but largely leaving the regional integration project itself to governmental actors. The principal reason for this is that business interests’ vision of the Mercosur is as a market, not as a political arrangement: as one Argentine business leader put it in 2000, ‘Mercosur exists. It has happened’.9 If this is so, issues of institutionalisation are largely irrelevant and undesirable to the extent that they increase the costs of market transactions, the broadening of membership is far more important than deepening integration, and government’s principal job is to ensure the elimination of political conflict which would prejudice a freer trading and investment environment. Business participation in the Mercosur, aside from in certain sectoral negotiations, has thus broadly been focused on lobbying at the domestic level on a range of issues connected with this last priority, with demands clustered around the establishment of domestic macroeconomic

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conditions and microeconomic policies perceived to be conducive to internal and external competitiveness. There is, however, a contrast in types of participation within this broad pattern. The primarily domestic-oriented and/or less competitive firms and sectors are those which most readily correspond with this picture of domesticlevel lobbying in response to regional integration. A similar focus on domestic lobbying (as opposed to direct participation in the regional negotiations themselves) has been adopted by TNCs, although naturally their lobbying concerns have revolved less around national competitiveness than around the issue of the stability and predictability of the internal ‘rules of the game’ (Mayoral 1999: 463), along with the regional rules which condition the outcomes of rationalisation strategies. But the political activities of TNCs, along with more competitive domestic firms and sectors with important transnational linkages, have focused more notably on the construction of informal networks oriented not only to lobbying national governments but also, increasingly, to lobbying at the intergovernmental level and in neighbouring countries (Botto 2001:17). The Grupo Brasil, the Grupo Argentina and the Grupo Cordillera, for example, were established over 1994 and 1995 to represent groupings of business actors with interests in other Mercosur countries: the first comprises Brazilian business actors in Argentina, the second Argentine firms in Brazil, and the third Chilean business actors in Argentina. Other informal cross-national networks are sectorspecific, such as in petrochemicals and steel (Sánchez Bajo, cited in Botto 2001: 17). Certain arenas were also created at the Mercosur level in which business actors sought to enhance links with their counterparts across the region, but business cooperation emerged more slowly than it did among labour groups (Klein 2000:176). The FCES constitutes the principal ‘formal’ channel through which business interests have been fed directly into the regionalist process, but the formation of the Consejo Industrial del Mercosur (CIM, Mercosur Industrial Council) in the early 1990s—comprising the Argentine UIA, Brazilian CNI, Uruguayan CIU and Paraguayan UIP—gave rather more concrete shape to linkages across the member countries. The CIM was conceived largely as a mechanism for the exchange of information between these groups and in this respect achieved some success. Its political influence was for the most part singularly unimpressive, and Mercosur negotiators have been reported as viewing the CIM as largely ineffective (Schneider 2001:177). While the influence of industry and business on intra-Mercosur negotiations has on the whole been scanty, participation in the Mercosur’s external agenda has been much more robust, spilling over from and in turn reinforcing the acceleration of collaboration within the Southern Cone region. Da Motta Veiga (1999:353) highlights an example of the pressure brought to bear on the Brazilian government by around 30 sectoral associations organised in the Sistema de Coordinación de la Industria para el Mercosur (Mercosur Industrial Coordination System) when it was leaning towards a trade agreement with

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Mexico in 1998, as a result of which these negotiations were terminated. Aggressive rather than defensive strategies have been evident in, for example, the presentation to the WTO of joint proposals by Argentine and Brazilian trade associations in 1998 in respect of the new automotive regime in the region (Casaburi et al. 2002). But impetus for accelerated business collaboration has come primarily from enhanced activity in the hemispheric integration process, in which business participation has outstripped that of labour actors. Its most obvious expression has been in the ABF, which was first convened in 1995 to coincide with the first FTAA Ministerial Meetings in Denver, and has since run parallel to the formal intergovernmental process. It is designed princi pally as a mechanism for sharing and disseminating information and formulating proposals for input into the formal negotiations, although, interestingly, when it comes to lobbying with concrete proposals business actors have usually resorted to domestic lobbying of their national governments (Casaburi and Quiliconi 2001:14). The Red Empresarial para la Integración Hemisférica (REIH, Business Network for Hemispheric Integration) was established in 1996 as the principal umbrella grouping for business actors in the wider region, and brings together other hemispheric private sector associations such as the Consejo Interamericano de Comercio y Producción (CICYP, Interamerican Council for Trade and Production) and the Council of the Americas. It is interesting in the light of our earlier comments that the REIH includes neither TNCs nor small firms, the former not standing in need of intermediary organisations and the latter being largely oriented to the domestic (and occasionally regional) market (Botto and Rodríguez López 2001:8). The third major forum in the FTAA context is the Comité de Representantes Gubernamentales sobre la Participación de la Sociedad Civil (CRG, Committee of Governmental Representatives on Civil Society Participation) established at the 1998 San José ministerials, in which civil society representatives are drawn primarily from business sectors. Much of the input channelled through this mechanism by civil society actors has also come from business associations (see http://www.ftaa-alca.org/SPCOMM/COMMCS—E.ASP). Although remaining at the perimeter fence of the formal governmental negotiations, these forms of business participation have exerted an important impact on regional business politics in the Southern Cone and indeed on the articulation of business associations at the national level. The activities of a good many associations, especially the more encompassing ones and those representing the more ‘transnationalised’ sectors, have reoriented their activities towards a stronger focus on trade and integration issues. We have seen this to be the case particularly in Chile, but it has also been salient elsewhere in the region. In Argentina, for instance, the UIA has established departments which deal specifically with the ‘integration of Argentina in the world’, encompassing Mercosur, FTAA and other external relations, along with its existing departments of economics, PYMEs, technology and environment, and so on.10 Engagement with the hemispheric process has also resulted in a greater level of

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political activity within existing national business associations, again oriented primarily to advancing recommendations, and moreover in increased collaboration between national associations. In Argentina, as just one example, joint positions between the Cámara Argentina de Comercio (Argentine Chamber of Trade) and the Cámara Argentina de Construcción (Argentine Chamber of Construction) were elaborated for the Toronto ABF meeting, and many other such collaborations were evident in the 2001 Buenos Aires meetings. New domestic networks have also been formed, such as the Coalizão Empresarial Brasileira (CEB, Brazilian Business Coalition) in 1996. This was established under the coordination of the CNI for the specific purpose of involvement in the FTAA process, and since then has been active in producing recommendations and proposals in ABF meetings relating to all nine negotiating areas (CEB 2001; Botelho 2002). Such an instance of domestic-level collaboration is unique in the Southern Cone. These forms of business sector activity have also been reinforced in some cases by enhanced channels of collaboration with governments and states, such as SENALCA in Brazil and DIRECON in Chile. Finally, a similar increase in collaboration has been evident at the regional level, with some support for the establishment of broad ‘Mercosur’ positions or at least for consistent and coordinated government-business positions which would reinforce the cohesion of the Mercosur platform in the FTAA negotiations. Bodies like the Fórum de Líderes Mercosur (Forum of Mercosur Leaders) and the CIM not only reflect this enhanced collaboration but also have made the consolidation of the Mercosur integral to their proposals at the hemispheric level. This was central, for instance, in their contributions to the workshop on Market Access in the Buenos Aires ABF meeting (see, respectively, http:// www.vi-fema-abf.org.ar/flm.html and http://www.vi-fema-abf.org.ar/flm.html pon 105.html). In the context of negotiations with the EU, the Mercosur-EU Business Forum (MEBF), launched in 1998 by the respective business communities, has similarly encouraged the elaboration of a collective ‘Mercosur’ approach to business participation and closer collaboration with associated government negotiators. Conclusions Despite the highly distinctive characteristics of business politics and the organisation of capital in the five Southern Cone countries, there are a number of clear similarities between them. First, in each case the model is one of bank financing rather than stock market financing, and stock markets, except possibly in the Chilean case, suffer from very significant under-capitalisation.11 The fact that banking systems across the region have tended to be relatively weak, with inadequate supervision and low levels of central bank independence, has meant that Southern Cone economies have been both prone to major financial and banking crises and characterised by ineffective credit systems and an absence of robust foundations for business and financial entrepreneurship. While in the

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1990s Chile did not exhibit these vulnerabilities to such an extent, and indeed the productive and financial infrastructure benefited from more effective bank financing systems, it too was beset by such problems in the 1970s and early 1980s. Uruguay also exhibited a comparatively stable banking sector, but again this did not entirely withstand the economic crisis of the early 2000s. Second, foreign capital has been—and remains—decisive in shaping both the economic structure and the macroeconomic environment across the region. Privatisation processes in the 1990s generated marked trends towards amalgamations of foreign and local capital, and consequently towards an acceleration in the transnationalisation of domestic economies. This has resulted, third, in a steady and massive concentration of both wealth and economic activity, which in turn has given rise to a fragmentation of national economies, particularly along sectoral lines and between big business and PYMEs. Transnationalised business sectors have tended to become uprooted from the productive and financial structure of the national economy, with implications not only for the distribution of resources and income but also for the fiscal base. Fourth, except possibly in Chile, business associations have remained relatively weak, and business-state relations more informal and personal than institutionalised. This is the primary reason why mainstream understandings of business-state relations travel with difficulty to the Southern Cone context. They assume for the most part the existence of institutionalised frameworks for business-state/government interactions, which feature developed Weberian bureaucracies, strong business associations and other attributes which are rarely found outside the advanced industrialised democracies, and are certainly not characteristic of the Southern Cone. Important regionalisation processes have emerged in the areas of corporate organisation and business politics. The former has related to the gradual construction of a regional marketplace and a regionalised form of corporate governance, underpinned by both the activities of TNCs and the incipient transnationalisation strategies of domestic firms. These market-led regionalisation processes are significant not only in themselves but also in the ways that they have become progressively constitutive of the Mercosur region and the regionalist project. Given the limitations of the formal intergovernmental process, it has been the dynamics of these market processes that have lent rationale to the ailing regionalist project and have shaped the domestic and international strategies it represents. The sorts of state strategies that we outlined in Chapter 6, in this sense, have been oriented primarily to providing a conducive underpinning for market-led regionalisation processes and a rules-based governance foundation for the emerging regional marketplace; hence the shift towards a redefined set of regionalist strategies attuned to the attraction of investment flows and to industrial strategies oriented to fostering the competitiveness of indigenous firms. The emergence of a regionalised business politics, finally, shares with its labour-based counterpart a focus on collaboration for participation in the

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Mercosur, FTAA and other regionalist processes. Collaborative and concerted participation has been most evident at the Mercosur level, where certain regional business forums have emerged to facilitate this form of activity, but on the whole business influence has been routed through national government channels. Government efforts to construct viable consultation mechanisms with business have, not surprisingly, been rather more robust than in the case of labour and other civil society actors, and this is also important in explaining the relatively fewer regionalised business forums than equivalent labour-based ones that have been established in the Southern Cone arena. At the Mercosur level, then, the pattern has been one of active and relatively effective engagement. In contrast, as Casaburi, Quiliconi and Tussie have interestingly observed (2002:16), business participation in the WTO (whether by domestic interests in isolation or by regionalised business groupings) has been negligible: business interests view the WTO negotiations themselves as largely inaccessible and impermeable to influence, and the customary form of participation through lobbying is also obstructed by difficulties in procuring information on the negotiations from government. The FTAA negotiations, as Casaburi et al. go on to argue, have fallen somewhere in the middle, in that business participation has been encouraged and facilitated but remains at a high level of aggregation in the ABF, CRG and REIH. Yet participation at the hemispheric level has acted as an important catalyst to collaborative business politics at the domestic and Mercosur levels, and in some cases to processes of redefining business-state relations.

9 States

The key thread that pulls together the four debates underlying our analytical framework is the centrality of states. The models of capitalism debate is concerned with the position of states within the triangular state-labour-capital/ business relationship, and with the appropriate agency of states in generating robust economic performance. Various strands of early and later development theory likewise focus on development models and strategies conceived primarily within a national framework, articulated and propelled by states. In globalisation debates within IPE, a crucial place is afforded to discussions of the evolution of states and the redefinition of state strategies and competencies in a situation of high capital mobility. The study of regionalism, finally, is concerned by definition with the study of state-led projects and with the evolution of political authority within and as a result of them. This is not intended necessarily to characterise any of these four debates as intrinsically ‘statist’ in their conceptual apparatus, or their empirical scope. Rather, it is simply to point out that questions about the nature and role of states lie at the heart of the contemporary political economy of development and the key debates that have emerged for the purposes of understanding it. As with labour and business, an examination of Southern Cone states reveals both important similarities and significant areas of diversity in their institutional forms and strategic orientation, as well as in their adaptations to the contemporary structural context. The nature of these adaptations is conditioned both by historical institutional factors that reside at the domestic level and by the specific insertion of political economies in the globalising world economy. Processes of state adaptation, in other words, will vary in form and substance according to the particular national and regional settings in which they unfold. For this reason, attempts to define what happens to ‘the state’ under the impact of globalisation—very commonly found in the globalisation-state debate in IPE— are intrinsically futile. Recognition of this futility had become quite commonplace by the end of the 1990s, especially with the emergence of what we earlier called the ‘transformationalist middle ground’ of the associated globalisation debate in IPE. As they are especially central to this chapter, it is perhaps useful to pause at this point to recall from Chapter 2 the key principles of this position. It rests on an understanding of the impact of globalisation as

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diverse, uneven and complex, and emphasises the patterns of ‘global stratification’ that are emerging as a consequence of this unevenness. It consequently envisages states as engaged in processes of adaptation which are diverse, distinctive and contingent, encompassing a wide range of development strategies and institutional forms that are not captured in a notion of convergence on a single, Anglo-American form of political and economic organisation. Lastly, it recognises states as fundamentally constitutive of both globalisation and the world order with which it is associated, rather than simply as entities affected by structural trends in a one-way chain of influence. Adopting these principles as the pillars of an approach to studying contemporary states, then, our task is usefully encapsulated as involving the ‘comparative analysis of state forms and the way they are being reorganised in different ways in different parts of the globe’ (A.Payne 2000:204), and this is the spirit in which we will proceed here. This chapter is about the institutional structures of states. We have already addressed questions of state strategies in earlier chapters, along with states’ relations with labour and business. So, building on all of these discussions, our purpose here is to put in place the final piece of the jigsaw and consider the nature and architecture of state institutions, the consequences of restructuring for institutional configurations, and the ways in which new forms of state might be emerging in both national and possibly transnational contexts. We start, as before, with a discussion of the challenges posed by structural change for the study of states and the broad reconfigurations of states that globalisation processes have been seen to propel. Globalisation and the study of states The various perspectives we outlined in Chapter 2 as falling within a ‘hyperglobalist’ school—which together constitute what we can loosely term a ‘globalisation orthodoxy’—cohere in their presentation of globalisation as standing fundamentally in opposition to states and their understanding of the associated processes of change as implying an assault on states’ capacities, options and integrity. The primary foundations for these arguments, outlined in Chapter 4, rest on the problems perceived to be associated with sustaining macroeconomic divergence in conditions of high capital mobility and the policy imperatives created by the threat of exit by capital asset holders. The result, it is held, is necessarily a prioritisation at the domestic level of constructing the policy and social conditions necessary to sustain globalisation processes (to which capital mobility is fundamental) and achieve the competitive ‘global positioning’ (recalling, once again, McMichael’s turn of phrase) that rests fundamentally on the attraction of capital flows. These imperatives are seen to have spurred a process of convergence on a particular, neoliberal, policy model inasmuch as capital is understood to respond, in largely mechanistic fashion, to a very particular and well-defined set of macroeconomic and policy conditions. The maintenance of such conditions is rewarded; their absence is punished.

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Our discussions of the Southern Cone have indicated that these arguments hold some water, as over the 1990s most governments were involved in elaborating versions of the neoliberal project which, in the broadest terms, responded to the imperatives perceived by the globalisation orthodoxy to have become embedded in the global political economy. If there are generalisations to be made about the consequent evolution of states, they are neatly captured in Peter Evans’ (1997a) idea that the new ‘stateness’ is of a ‘leaner, meaner kind’. This for Evans is pursued primarily as a means of addressing the ‘capacity gap’ generated by states’ post-war assumption of unsustainable welfare commitments under the post-war regimes. The ‘social compacts’ between states and societies in which liberalism was embedded and made politically manageable—the core of Ruggie’s (1982) seminal concept of ‘embedded liberalism’—were specific to the European context, this being the only part of the world in which meaningful welfare states emerged. But the notion of a capacity gap stemming therefrom is equally valid in the Latin American context of inward-looking industrialisation, in which states assumed very sizeable stakes in their countries’ productive structures, the running of the national economy and the corporatist management of sociopolitical relations, and bequeathed highly politicised, bloated and inefficient states and public sectors. Whichever the specific context, the movement towards a ‘leaner, meaner’ form of state is thus a response to the demands of competitiveness in the global economy and a response to the overload on states. The general picture, in this sense, is of the erosion of traditional state-society compacts, as restructuring processes act to reconfigure state-capital-labour relationships and undermine the possibilities for governments to pursue welfare-enhancing expansionary strategies in such areas as social and employment policy. Notwithstanding the broad relevance of these arguments, the key problems with this globalisation orthodoxy are, I suggest, twofold. The first is that it assumes uniform outcomes from uniform structural pressures, and consequently a process of convergence on a single policy framework and institutional configuration across states and regions. The argument, in short, is an homogenising one, which attempts to offer a single, condensed interpretation of how ‘the state’ is affected by globalisation and what the outcomes of that are and will be. A related problem is that it fails to recognise that not all states are engaged by globalisation processes. Contrary to homogenising interpretations of the ‘integrative’ aspects of globalisation processes, many states—particularly those of sub-Saharan Africa, for example—have been excluded from the economic transformations these processes have wrought and thus have become more, rather than less, marginalised from the global economy (M.Moore 2002). This problem is perhaps not as relevant in the Latin American case, where, as we saw in the chapters in Part II, post-war and contemporary development models have meant that economies have historically rested on a significant insertion into the structures of the world economy. But it does nevertheless force us to recall that there are important cases—including Paraguay, for example—in which there

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have not occurred the sorts of thoroughgoing policy shifts that we associate with the neoliberal restructuring of other economies in the region. The second problem is one we remarked upon earlier: that these arguments suggest that states are, generally speaking, in a process of decline. In the strong hyperglobalisation thesis, this might be the result of the dispersion of their authority and the eradication of national boundaries by the supposed globalisation of trade and finance; in the other perspectives we outlined under the ‘orthodox’ heading, it is considered to be the result of complex constricting influences on states’ policy autonomy and the parameters of viable development strategies. Either way, trends underlying the contemporary structural context are perceived to exert an intrinsically negative impact on states and state capacities, to the extent that states are perceived now to be engaged in a battle to avoid their own obsolescence under the weight of transnationalising forces. Critical responses to these problems with the globalisation orthodoxy have been oriented primarily to disputing the twin contentions that states’ responses to globalisation are uniform and essentially convergent in their manifestations (including that states are uniformly integrated into patterns of globalising economic activity) and that states are by and large in decline as a result of associated processes. Taking the first of these, recent scholarship has mobilised a good deal of evidence to dispute these homogenising understandings of the sorts of policy landscapes that emerge as a consequence of the changes wrought by globalising processes. Geoffrey Garrett (1998), for instance, has demonstrated using data from the OECD countries that there remains a significant divergence among EU countries in fiscal and tax policies, and patterns of expenditure remain significantly more expansionary than would be anticipated by orthodox understandings of the sources of competitiveness. Moreover, neither the level of variation nor the persistence of expansionary fiscal policies has made these economies any less attractive to global capital. Conventional arguments in the globalisation debate about the severe contraction of policy alternatives, based on excessively mechanistic understandings of the behaviour of capital, are thus shown to be misplaced and misleading. Other work on Europe, particularly that of Martin Rhodes (2001), has demonstrated that national governments remain able to pursue policy agendas consistent with a range of priorities (such as regulation initiatives and welfare and employment policies) that are not incompatible with the maintenance of an open economy. Similar evidence has been mobilised to demonstrate that ‘old’ forms of state-society compact are not necessarily washed away and that an enormous variety of state-society relationships continue to manifest themselves, contrary to contentions that globalisation produces a uniform set of social relations. In this connection Rhodes goes on to demonstrate in the European context that ‘not only do open economies seem able to sustain strongly unionised environments, but corporatist bargaining structures remain important in those economies increasingly exposed to international forces’ (2001:113).

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Such arguments are indeed forceful and persuasive in a European setting, but are problematic when they are made, as they very often are, as general contentions regarding the nature and implications of globalisation. It has been pointed out, for instance, that it is only in those capitalist systems in which these styles of state-society linkages are already established that such forms of political management are viable: that ‘where social democratic institutions are in place, social democracy is viable; where they are not, neoliberalism is the best that can be done’ (Hay 2000:146). In other words, while globalisation has not generated a uniform pattern of social relations and has not necessarily eroded the corporatist and social democratic characteristics of social relations in Europe, the spaces for innovation in institutional structures or state-society compacts are squeezed by the impacts of globalisation. Perhaps the more important point still is that the implications of globalisation look very different in Europe from in regions like Latin America, where foreign capital occupies a very different place in economic development processes, issues of credibility and competitiveness present much greater challenges, and other constraining conditions are put in place by the much greater prominence of multilateral agents such as the IMF and the World Bank. Most importantly of all, states themselves look very different in Latin America than they do in Europe, or indeed any other part of the world. The starting point—the nature of the state itself—carries crucial implications for the ways in which the impacts of globalisation can be understood. Yet the challenges to the notion of convergence and uniformity, based on the European case or otherwise, are important here primarily for the ways in which they direct us again to the ‘middle ground’ that we sought earlier to establish between the two poles in the globalisation debate, and indeed between IPE and CPE perspectives. They indicate that we need seriously to consider the reconfigurations of state forms and state—society linkages propelled by globalisation, at the same time as recognising that these processes of reconfiguration are mediated by existing institutional and social structures. Closely linked with these arguments disputing the contention of uniformity in responses to globalisation are those which contest the idea that states are necessarily (or indeed uniformly) in decline. This element of the orthodoxy springs in good part from the theoretical licence afforded by its neoliberal foundations— that is, from the ability (and imperative) to distinguish clearly in analytical terms between the public and the private, or the political and the economic, but also to advocate their separation in ideological terms. In other words, the argument that states are generally in decline as a consequence of processes associated with globalisation is equally an argument that they should be in decline. What Evans (1997a:70) identifies as the ‘pervasive belief that the institutional centrality of the state is incompatible with globalisation’ is thus essentially an ideologically founded contention that this incompatibility is desirable in order to ensure the primacy of markets and maintain the constellation of social forces appropriate to sustaining their free and effective operation. Exposing the ideological under-pinnings of the globalisation

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orthodoxy in this way lends itself to critical endeavours to dispute its central arguments regarding the contemporary evolution of states, especially given that much of the empirical evidence flies in its face. The European case is taken to indicate the ways in which both state corporatism and relatively high levels of social expenditure can be maintained under conditions of high capital mobility, contra the orthodox arguments which posit the retreat of the state from its welfare and spending commitments or from regulatory activity. Asian cases provide grist for the same mill, demonstrating that developmental states have been and remain at the centre of the prevailing development model despite shifts towards a greater emphasis on the market in organising economic activity. Such comparative empirical investigation, conducted largely from what we have identified as the transformationalist middle ground, does not necessarily contradict Evans’ vision of contemporary stateness as of a ‘leaner, meaner’ variety. Nor does it ignore the thoroughgoing changes and constraints that the contemporary world order poses for states. Rather, it offers two central insights. The first is that the questions posed by orthodox studies of the ‘decline’ of states are effectively the wrong ones inasmuch as they are ones of degree: they posit (and advocate) the erosion of ‘active’ or ‘interventionist’ state strategies, and comparative empirical study in this vein is oriented to studying the degree— rather than type—of state intervention in various systems. This orientation, it should be noted, is shared by those more prescriptive strands of the models of capitalism literature which tend to concern themselves rather more with the appropriate degrees than types of ‘institutionalisation’, taken frequently to mean state intervention in national economies. The problem with this orientation has been summarised neatly by Mark Beeson (1999:23) in his statement that ‘there is no such thing as a non-interventionist state’. All markets are ‘governed’ by states, and all policies, including ones stipulating ‘inactivity’, are inherently active as political decisions. More fundamentally, recalling the seminal arguments of Karl Polanyi (1944) and others, they are political and social constructs constructed and maintained by political action, operating within established institutional configurations. The notion of the ‘strong state’ as necessary for constituting markets and for achieving competitive advantage in the global economy is in any case well established, notably at the more CPE end of the literature (see, among many others, Katzenstein 1985; Gamble 1988; Wade 1990; Evans 1995). In sum, the questions to ask about contemporary states are not about how much ‘stateness’ exists, but rather what sorts of stateness emerge as a result of the different sets of binding and enabling implications that globalisation carries for different countries and regions. The second insight builds on this premise, and forms the cornerstone of the ‘middle ground’ in the globalisation debate: that states must be analysed as undergoing processes of adaptation and transformation rather than decline (Weiss 1998), and that our task is to understand the specific and contingent forms that these processes of adaptation take.

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These twin insights have found useful synthesis in recent currents in critical IPE, in a manner which also provides a useful corrective to a tendency to lose sight of structural forces in an effort to achieve appropriate comparative disaggregation. Given that globalisation processes are both the manifestation and the primary vehicle of the neoliberal ideological foundations of the contemporary world order, what Gill (1998) has called the ‘new constitutionalism’ of neoliberalism is oriented to ‘separat[ing] economic policies from broad political accountability in order to make governments more responsive to the discipline of market forces and correspondingly less responsive to popular-democratic forces and processes’ (1998:5). The thrust of the neoliberal agenda, propelled in neoGramscian understandings by the formation of a ‘transnational historic bloc’, is thus to ‘restructure and consolidate state forms so that they become internally and externally more hospitable to the dominant forces in modern capitalism (notably large transnational corporations, financial services firms and institutional investors)’ (Gill 1998:11). Gill’s central intellectual project is thus to identify the sweeping reach of the ‘market civilisation’ and its structural centrality to the evolution of capitalism, and to this extent there are entirely valid generalisations to be made about the broad processes of adaptation in which states are engaged. The key questions then become those of how these restructuring and consolidation processes are driven, and which state forms emerge as a consequence. Robert Cox’s response to these questions has been encapsulated in the key notion of the ‘internationalisation of the state’. By this he seeks to connote ‘the global process whereby national policies and practices have been adjusted to the exigencies of the world economy of international production’ (Cox 1987:253), in which precedence is granted to ‘certain state agencies…which are key points in the adjustment of domestic to international economic policy’ (Cox 1981:146). It should be pointed out that Cox’s formulation of this notion suggests that all states are undergoing such a process, ignoring the point we highlighted earlier that many states are significantly marginalised from globalisation processes and thus not subject to the consequent reconfiguration or adjustment implied by the internationalisation of the state. Nevertheless his key contribution is to advance a framework within which to understand the processes of state adaptation occasioned by changes in the global economy. Moreover, his formulation takes us away from the restrictive focus solely on state capacities and state strategies that we have identified as characterising much of the debate, instead highlighting the key issue of state ‘forms’. It is not sufficient simply to think about which policy options are or are not available to states, or simply to examine the state strategies developed in order to meet the requirements of competitiveness and the attraction of investment capital. Rather, processes of adaptation and transformation require attention to institutional structures and arrangements, the ways in which globalisation might compel their reconfiguration, and the forms of state that consequently take shape.

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Crucially, however, Cox nowhere suggests that this evolution is uniform in character. While the notion of the internationalisation of the state offers a broad framework for understanding processes of state transformation, the outcomes of these processes are contingent and diverse. In a manner which coincides very usefully with the platform we have constructed in this book for understanding patterns of contemporary capitalist development, Cox elaborates: The process [of the internationalisation of the state] results in different forms of state corresponding to the different positions of countries in the world economy. The reshaping of specific state structures in accordance with the overall international political structure is brought about by a combination of external pressures…and realignments of internal power relations among domestic social groups…. Changes in forms of state will be conditioned by both the social structure of accumulation (including in particular the social relations of production) and in the structure of world order. (Cox 1987:253, 298) Cox’s conceptualisation of the internationalisation of the state, in this way, offers a neat theoretical elaboration of the basic analytical principles of the transformationalist middle ground of the globalisation debate. Where it does slightly less well is in recognising the patterns of global stratification that issue from the exclusionary dimensions of globalisation processes, but when the two sets of perspectives are combined the result is a useful initial framework within which we can move to considering the evolution of national states in particular regions and particular contexts. We turn again, then, to the Southern Cone. State reform in the Southern Cone Processes of state reform in Latin America, as elsewhere, were catalysed by a complex combination of external and internal forces. In the most general terms, the administrative reform of the state apparatus was conceived as part and parcel of the neoliberal restructuring project—naturally so, given that this in itself was driven by perceptions of the disabling ‘capacity gaps’ generated by inwardlooking development. It was also driven and characterised, as we have signalled many times already, by ideological shifts premised on a qualitatively different relationship between state and market from that which had prevailed over much of the post-war period. ‘Effective’ states were conceived in this ideological frame of reference as ‘nightwatchmen’ states, with little or no direct economic or social role. As the 1990s unfolded, however, this neoliberal orthodoxy was jettisoned even by its initial champions, the IFIs, as perceptions mounted of the failures of first generation reforms and, moreover, of the failure of ‘minimalism’ to redress many of the governance problems associated with Latin American states (see, inter alia, IDB 1997). Corruption continued to be pervasive across

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the region, inefficiency and ineffectiveness continued to be characteristic of even the more rationalised bureaucratic structures, transparency and accountability remained in very short supply. In George Philip’s pithy turn of phrase (1999c: 76), ‘the problem is that a nightwatchman state can also be a biased state, and that this bias still matters’. Around the mid-1990s, consequently, the World Bank’s agenda of state reform was pushed around an important corner. The core concept to arise from this shift in thinking was that of ‘good governance’, which we flagged up in the discussion of neoliberalism in Chapter 4. It embodied the new belief in significant parts of the international financial community that economic growth was dependent not solely on an observance of the ‘rationalities’ of markets but also on the quality of governance thus defined—or, put another way, a recognition that a ‘quantitative reduction [of state apparatuses] might end up in qualitative deterioration’ (Welsch and Carrasquero 2000:34). Perception of actual qualitative deterioration —that quantitative reduction had, in fact, resulted in this deterioration—was of course the key point of departure in this rethinking of the reform agenda. Its essence was consequently an acknowledgement of the centrality of national states and their importance in pushing forward the sorts of reforms deemed conducive to the improved governance of economies and societies. This inclusion of institutions and governance in the Bank’s reform agenda found clear expression in successive titles of its annual World Development Report— from The State in a Changing World in 1997 to Building Institutions for Markets in 2002. In this light the emphasis came to fall on the construction of an ‘effective’ state rather than on a minimal one, effectiveness now understood as involving on the one hand enhanced technical and institutional effectiveness, a special place being afforded here for the issue of judicial independence and the rule of law, and on the other a ‘corresponding liberal public sphere’ characterised by an increasingly empowered civil society (Williams and Young 1994:93–4). Administrative, legal and institutional structures and practices thus came to be seen as integral parts of the economic reform process, and state reform became oriented to the enhancement of states’ abilities to discharge a range of governance-related functions, understood mostly as the provision of key public goods. The revamped reform agenda, and the measures included under its rubric, came in turn to be captured under the general heading of ‘second generation’ reforms. The distinction between the first and second generations lies not only in their substance but also, moreover, in evolving ideas about the appropriate role and structure of states and their appropriate relationship with markets. Put simply, the first generation of structural reforms in Latin America and elsewhere was about the reduction of the size of national states and public sectors, the retraction of their involvement in economic activity, and the ‘rationalisation’ of their administrative and bureaucratic functions—entirely in tune with the ‘antistatist’ logic of the neoliberal orthodoxy. Second generation reforms were premised on a very different set of objectives captured in notions of ‘rebuilding’

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national states, constructing functioning and viable institutions, and strengthening states’ institutional and policy-related capacities. The important point about this transition, however, is that the Bank’s formulation of its governance agenda was predicated on a continuing overriding concern with markets: that is, institutions are of interest purely for their functions in creating the economic conditions in which markets could flourish and investments prosper, and for their potential utility in deflecting political impediments to effective liberalisation and deregulation. The substance of the second generation reform agenda reflects this continuing economism in the Bank’s approach to key development questions, and thus it continues to formulate its prescriptions primarily in technical terms which reflect a set of ‘rational’ criteria for the achievement of ‘effective’ and ‘efficient’ states. On this understanding, the objectives of second generation reform fall broadly into three categories: • ‘market-completing measures’ which aim to carry forward and/or complete the liberalisation processes initiated by first generation reforms; • ‘equity-oriented programmes’ relating to redressing the region’s pervasive distributional problems; • good governance-related ‘institution-building initiatives’ for the purposes of enhancing state and institutional capacities and drawing civil society into policy-making processes.

(Pastor and Wise 1999) Typical instruments of second generation reform include the restructuring of the government apparatus (especially of ministries related to social policy), civil service reform, judicial reform, labour reform, strengthening of regulatory capacities, ‘complex’ privatisations, export promotion strategies, and the refashioning of relations between central and provincial governments (Oszlak 1999:87). While both generations of structural reform have thus arisen as reflections of phases in thinking of the IFIs and related intellectual currents—and in this sense state reform in Latin America needs to be understood as having become, since the early 1980s, a significantly ‘external’ agenda—the elevation of a concern with governance and the movement towards a second generation of state reform also had domestic roots. The associated shifts in thinking at a domestic level arose from similar perceptions of the failures of first generation reform and the qualitative deterioration of institutions, but also from growing recognition of the need to mediate and channel the deleterious consequences of global liberalisation. By the end of the 1990s, as we have seen, political landscapes had come to be dominated by discussions of the necessary and appropriate role for governments and states in producing a more socially acceptable version of the economic model, propelled by perceptions of rising levels of popular mobilisation (in countries like Chile), increasingly salient social inequities (such as in Brazil) and persistently high levels of unemployment (most obviously in

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Argentina) (Phillips 2000a:389). Even in Argentina, where anti-statism had become most pronounced in the Southern Cone, opinion polls conducted in late 2000 identified a sharp change since 1995 in attitudes to the state’s role in economic matters. 77 per cent of the public were reported in 2000 (as opposed to 35 per cent in 1995) to hold the opinion that the state should play a greater role in regulating the economy, and only 32 per cent (as opposed to 60 per cent in 1995) agreed that service companies should be privately owned (Financial Times, 26 September 2000). The danger, in short, had come to be seen across the region as one of too little government rather than too much (Philip 1999b:40), and, consistent with the good governance agenda promoted by the Bank and other agencies, ‘second generation’ focus consequently fell on the policy responsibilities of national governments and on the task of rebuilding and redefining the state as an institutional entity (Bresser Pereira and Nakano 1998: 27). Yet the fact that both external and domestic policy debates were turning to reemphasise states and institutions does not mean that there was a single hymn sheet, so to speak, of state reform. Experiences in Latin America and elsewhere have revealed a profound tension between the good governance agenda promulgated ‘externally’ by the World Bank and both the agenda and the realities of state reform in the political economies in which it is intended to take root. Coming back to the arguments advanced in the framework for this book, ‘governance’ agendas—particularly the ‘good’ variety—have been elaborated not only upon the basis of the experiences of advanced industrialised economies but consequently also in a manner which assumes a type of institutional, socioeconomic and political context that is quite simply at odds with the conditions prevailing in Latin America and the other regions that have been the targets of the good governance agenda. These conditions relate primarily to the distinctive historical institutional structures of specific national and regional settings, and the patterns and modes of governance that they in turn engender. In East Asia the primary obstacle to the successful implantation of this agenda has been the developmental state model and the impossibility its existence implied of ‘neoliberalising’ the very specific relationship between state and market that historically it encapsulated. Established political practices and ideological resistance to the erosion of a peculiarly ‘Asian way’ of organising socio-political relations also have militated against the adoption of a ‘Western’ template for development in this region (Beeson 2001). Likewise, in the Latin American region the good governance agenda has found little in the way of fertile soil for the same broad reasons—that an agenda for state reform which isolates its technical prescriptions from any consideration of institutional or political context is unlikely anywhere to prosper (Philip 1999a:227). In one sense, this is because the broad institutional requirements for the successful implementation of governance reforms as formulated by the Bank are simply not in existence in the vast majority of Latin American and Southern Cone states. This is not necessarily a function of the ‘under’-development of

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state institutions, although in some cases this is manifestly a problem. The real issue lies in a central inconsistency in the good governance agenda: that its success depends on a level of institutional and political capacity that frequently is only available to precisely the sorts of state that the agenda aims to dismantle or reconfigure. Most Latin American and Southern Cone states have shown themselves to lack the necessary levels of institutional and political capacity for successful judicial reform, for example, or labour reform, in contrast with the patterns of capacity deriving in Asia from forms of ‘embedded autonomy’ (Evans 1995). As indicated in Chapter 2, this concept refers to a situation in which states enjoy a degree of autonomy that derives from a coherent bureaucratic structure but at the same time are ‘embedded’ in a web of social ties which connect them to societies in a manner conducive to the elaboration of developmental strategies. Certainly, no Latin American state has ever approximated the ideal-type Asian developmental state (see Leftwich 2000:152– 70): there has existed no endogenous technological core; developmental capacity was not developed prior to or independently of foreign capital flows; there has been no consistent pattern of developmental institutionalisation within the state; elites have not been consistently nationalist, nor of a determined developmental persuasion. Nor have Latin American states on the whole enjoyed the sorts of autonomy found in their Asian counterparts, given that institutional structures remain generally weak and underdeveloped. At the same time, ‘state bias’, to recall Philip’s phrase, persists as their dominant and pervasive trait. Historically this bias has been essentially ‘pro-elite’ (see Philip 2003), which both reflects and stems from the other dominant characteristics of states in the region— clientelism as the organising principle of the institutional and political system, corruption, patronage politics, patrimonialism, personalism and presidentialism. Apart from their consequences for fiscal resources and overall macroeconomic stability, these traits—which, it should be said, are deliberately being generalised for the moment—have consistently obstructed the construction of democratically accountable, technocratic states which conform to the criteria of effectiveness and efficiency contained in the World Bank’s good governance agenda. On the one hand, they translate into the frequent absence of a technocratic reforming elite possessed of both the political capacity and the political will necessary to advance an agenda of this sort. The pro-elite bias, in other words, removes many of the incentives that would need to be present in order for there to take place a radical reorientation of the prevalent political culture— from a clientelistic, personalist and biased one to a technocratic, meritocratic and intrinsically accountable one. This might seem a paradoxical claim given that there is a general movement in political debate across the region towards the importance of constructing effective institutions and states for the purposes of providing a range of public goods. The point, however, is that the tension in this respect with the good governance agenda is essentially one of values: that in most of the region there does not exist a robust consensus on the virtues of majoritarian forms of democratic government or on the technocratic modes of institutional

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organisation that the good governance agenda demands. The pandering to elite interests during the initial phases of neoliberal reform— particularly those of politically influential business sectors—acted to divert further the emergence of any significant incentive to modify the pro-elite bias. It is thus not simply a case of good governance reforms not being feasible or attainable because of weak institutions, although this is clearly important, but also a case of there being no ‘value consensus’ which would facilitate their implantation (Philip 1999a:226– 8). This feeds into the second key inconsistency in the good governance agenda: the sorts of state which have enjoyed higher degrees of reformist capacity in Latin America have usually been those possessed of a range of other attributes considered ‘undesirable’ in dominant understandings of what ‘good’ governance looks like, such as the very significant centralisation of power in the executive branch, corruption, clientelism, quasi-authoritarian styles of governance and the relegation of state institutions. In such systems the legislature is commonly marginalised, judicial independence is rare (as is Central Bank independence) and the development of transparent, accountable bureaucracies is significantly impeded. Put another way, any ‘effectiveness’—understood as the capacity for the consistent implementation of reform initiatives—has traditionally derived precisely from conditions of institutional weakness. We stumble in this sense across an interesting anomaly: while the fragmentation of states may be useful in constructing governments’ capacities to implement a number of first generation reforms, at the same time it significantly impedes the meaningful reconstruction of the state and the development of the institutional capacity necessary for second generation reform. Many Latin American states also display a contradictory blend of ‘omnipotence and impotence’ (Faucher 1999:110)—in which the accretion of executive power is accompanied by a marked weakness of the state vis-à-vis civil society—and consequently enjoy neither the ‘autonomy’ nor the ‘embeddedness’ that successful developmental states, and by extension effective state reform, have elsewhere exhibited. The historically important result has been something of a trade-off in Latin America between a state capable of reform and a democratically accountable one. While state effectiveness and accountability might be conjoined in theory, and indeed are so in the good governance agenda, they are by no means unequivocally linked in the Latin American setting (see Philip 1999a, 2003). There is, in sum, a manifest and problematic breach between good governance-related visions of a desirable state and the historically entrenched characteristics of Latin American and Southern Cone states, and consequently the externally propelled state reform agenda has travelled into this regional setting with distinct difficulty. Before we move on to look at how this tension has manifested itself in the five Southern Cone cases, the final general point to make about the trajectory of second generation reform in Latin America concerns the remarkable variety of agendas that have emerged under its aegis. The mix of such reforms, their stated aims and the success of their implementation have varied widely between

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national contexts. There has been, in short, no sign of a ‘standard’ reform package and very little uniformity in the goals pursued and understandings of how to attain them. In part, this wide variation flags up an important attribute of the good governance agenda itself: that the template for institutional reform is a template of outcomes, offering little if anything in the way of a roadmap for their achievement. In other part, the variation derives from the different starting points from which reform processes depart, and in previous chapters we gained a preliminary impression of the significant variation between institutional structures of Southern Cone states. Different levels of capacity, the different trajectories and outcomes of first generation reforms, different levels of institutional cohesion and different political contexts necessarily influence both the nature of second generation initiatives and their fate. Argentina We recall from Chapter 4 that one of the most salient features of Argentine neoliberalism has been its anti-statism. In this context, administrative and political reforms during the Menem administrations were oriented towards the introduction of a strongly anti-institutionalist bias in the architecture and deployment of state power, a highly centralised and presidentialist political system, and a reorganisation of the state bureaucracy to privilege those elements of it that were most pivotal in the management of the new economic model. The anti-institutionalist path to centralised and presidentialist government was pursued primarily by two means. The first was the systematic marginalisation of the legislature and the erosion or elimination of the bulk of checks and balances on both formal and discretionary executive powers. The first Menem government was notable for its para-constitutional interpretation of constitutional provisions on executive and legislative powers, and for the frequency with which presidential veto and decree powers were deployed. Resort to total vetoes increased markedly, but resort to partial veto was the preferred strategy: 25 per cent of the laws vetoed by President Alfonsín in the 1980s were partial vetoes, while for Menem the figure stands at 56 per cent (Mustapic and Ferretti 1997:1–2). These partial vetoes were not strictly constitutional or legal as they were permitted only by a loophole in the provisions of the 1853 Constitution (Mustapic and Ferretti 1997:5); indeed, the 1994 constitutional reform aimed to formalise this loophole in order to open up the full range of total and partial veto of legislation to the executive branch. The deployment of presidential decree powers by Menem was yet more salient. The 1853 Constitution provides for ‘delegated’ decree powers (that is, in which Congress delegates its legislative authority to the executive in specific cases), and the two most important instances of their deployment were the 1989 LEE and Reform of the State Law. These in turn granted the president further authority to issue delegated decrees on certain policy matters (such as privatisation) within a specified period of time (Jones 1997:286). But Menem’s

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use of decree powers relied most heavily on an essentially extra-constitutional format known as decrees of ‘necesidad y urgencia’ (necessity and urgency), in which the executive appropriates powers constitutionally reserved for the Congress on the grounds that situations of crisis, such as the one prevailing in Argentina at the end of the 1980s, demand extraordinary legislative solutions. Argentine presidents had issued around 35 decrees between 1853 and July 1989; Menem had passed 336 decrees of necessity and urgency in his first five years in office (Ferreira Rubio and Goretti 1996:444). The vast majority of these related to economic issues such as privatisation and government spending, and furthermore acted to appropriate the powers constitutionally reserved for Congress over external trade matters. The ‘extraordinary situation’ rationale was also applied to the government’s consistent favouring of omnibus legislation— again, the LEE, Reform of the State Law and the DDE are the most obvious examples— the advantage being that it avoided lengthy and cumbersome processes of revision by the legislature and circumvented the possibilities for societal and party pressures to be brought to bear through congressional channels on the policy-making process. The fact that the PJ did not have a majority in Congress until 1995 provides a further explanation for the use of such tactics: once the possibility of closing Congress had been considered and discarded, along with the short-lived idea of creating an alliance with the Radicals, the executive saw itself compelled to resort to decree and veto powers in order to overcome the legislative difficulties that resulted from its minority in the legislature (Palermo and Novaro 1996:257). Without a doubt, practices such as these served consistently to undermine the authority and effectiveness of Congress by weakening both its capacity to fulfil its legislative functions and the internal dynamics of legislative bargaining. Even so, the first Menem government was characterised by an important increase in the level of executive-legislative conflict,1 and from about 1994 heightened congressional belligerence necessitated a much greater degree of negotiation, despite the party’s congressional majority and the manifest structural and political weakness of Congress at this time. The executive had had a largely free hand when dealing with macroeconomic issues such as privatisation, economic liberalisation and government spending, but tensions increased when attention turned to issues such as labour reform, tax reform and fiscal policies towards the provinces, and were exacerbated by the unwillingness of the executive to modify its approach in response (Palermo and Novaro 1996:260–1). The second Menem administration, in this sense, struggled to a much greater degree against congressional opposition and indeed this was in large part responsible for its repeated legislative frustrations. It is interesting that this extended to traderelated matters. The 1994 constitutional reform curbed the authority of the executive in this area and imposed more explicit conditions on the executive’s deployment of its emergency powers (Bouzas and Avogadro 2002:2). Congress nevertheless remained able, and moreover inclined, to delegate responsibility for trade negotiations and strategies to the executive. This is the pattern which has

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prevailed, including in the Mercosur context. Yet, consistent with the increase in executive-legislative tensions from the mid-1990s, there were instances in which the legislature exercised decisive influence in trade-related matters as a result of strong lobbying pressures from affected interests, the most important relating to the ratification of the Trade-Related Investment Measures (TRIMS) agreement following the Uruguay Round and the handling of the Mercosur sugar dispute in 1997 (Bouzas and Avogadro 2002:2). This process of consolidating executive power, however, required the support and approval of the Supreme Court, and thus a reorganisation of the judiciary was the second means by which the anti-institutionalist bias was entrenched in the Argentine political system. Attempts were made in the first instance to force the resignation of ‘hostile elements’ in the Court, but when this failed Menem instead sought congressional approval for the expansion of its members from five to nine (Ferreira Rubio and Goretti 1996:447). This was approved by Congress despite numerous resignations, the protestations of the Supreme Court itself and the vehement opposition of the Radical Party. Six new ministers were appointed, transforming the Supreme Court into a staunchly Menemite institution with six of the nine justices appointed by the president. The immediate consequence was the so-called Peralta decision of 1990, which authorised presidential resort to decrees of urgency and necessity and built further obstacles to congressional appeal against resulting legislation (Jones 1997:286). Around this time, Menem also removed ‘by constitutionally questionable procedures’ the Attorney-General and members of the Audit Tribunal (which controls the allocation of public funds), the legal representation of the Treasury, the General Inspectorate of Justice and the National Office of the Public Prosecutor of Administrative Investigations (Smulovitz 1995:79). The lower courts were also populated by a great influx of new federal judges appointed by Menem, including in the courts of appeal handling economic issues (Manzetti 2002:14). Judicial and executive power thus became intrinsically linked in the Argentine system. Turning to the public and bureaucratic apparatus of the Argentine state, the early years of the Menem government featured a process of extensive ‘rationalisation’, much of which was designed to concentrate policy-making functions in the Economy Ministry. The systematic enhancement of its budget and management supervision was accompanied by the withdrawal of budgetary authority for all other government entities in January 1991; in May 1991 the government approved plans for new administrative structures in which 97 out of 185 national directorates were disbanded and the Ministry of Public Works was subsumed into the Economy Ministry (becoming the Ministry of Economy and Public Works and Services). Responsibility for international economic matters, previously held solely by the Economy Ministry, ended up divided between the Economy Ministry and the Foreign Ministry—curiously named the Ministry of Foreign Relations, International Trade and Worship (MRECIC)—the former having authority over trade strategy design and implementation and the latter

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over the conduct and coordination of trade negotiations (Bouzas and Avogadro 2002:3). Future plans for decisions affecting the Secretariat of the Presidency and the Ministries of Education, Defence and Justice were also laid out at this time (Ministerio de Economía 1991) and proceeded over the course of the first Menem administration. The result was that the number of national government employees decreased by two-thirds between 1990 and 1997. The interesting feature of this reduction was the displacement of the traditional concentration of employment at the national level to a concentration at the provincial level as the reform process propelled an extensive decentralisation of service and welfare provision (Oszlak 1999:90). These functions were assumed predominantly by provincial governments, increasing their political influence as well as the tensions with central governments on such matters as budgets and tax reform, but also by a range of non-state and private actors. Their cooperation with the government, however, was secured in the early 1990s through the use of federal funds to construct clientelist webs of political patronage with provincial politicians. The Federal and Fiscal Pacts, both of 1993, sought to institutionalise the system of discretionary federal transfers that had been established under the Alfonsín government and to increase these transfers in exchange for provincial support for the government’s economic reform programme (Manzetti 2002:14–16). The allocation of federal funds for this purpose was made on explicitly political criteria, concentrating funds in pro-Menem provinces and in the hands of individual politicians in the form of political favours. The resulting laxity in provincial spending levels, together with the fact that the decentralisation of service and welfare provision was enacted without endowing the provincial governments with the financial and organisational resources necessary for their effective management (Oszlak 1999:92), are important in explaining the massive accretion of provincial debt and the eventual explosion of fiscal crisis. Given all these characteristics of first generation reform, the prospects for second generation reform were significantly complicated in the Argentine case. The agenda was launched in 1996 with fairly conventional content along the lines outlined in our earlier descriptions. It was directed to redressing some of the atrophy that had arisen from the rationalisation of the institutional structure in the early 1990s, advocating further reform designed to streamline the bureaucratic apparatus of the state. Interestingly, this was largely in response to the fact that the early 1990s had seen a proliferation, rather than a reduction, of secretariats and subsecretariats within the rationalised ministerial structure. These had, in fact, reached record levels by 1996 (Oszlak 1999:93, fn. 10). Yet second generation reforms did not act significantly to rationalise the state structure and did not afford noticeably greater levels of state efficiency For one thing they focused rather less in practice on administrative or judicial reform issues than on the various dimensions of the governance agenda that are connected with fiscal management. But the roots of their ineffectiveness lie also in the ways in which

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the first generation reforms acted precisely to increase the obstacles to effective administrative reform. On the one hand, the massive centralisation of power deemed necessary to advance the reform agenda entrenched clientelism and presidential discretion as the basis for state management, exacerbating problems with corruption. These were further entrenched by the less than transparent manner in which privatisation was managed in the early 1990s and the lack of regulatory mechanisms for post-privatisation oversight of competition and service provision. On the other hand, the allocation of institutional briefs under first generation state reforms generated a need for inter-agency cooperation—for instance between the various departments of the Economy and Foreign Ministries on trade issues, or between the Industry and Economy Ministries on industrial policy issues—which has been a notably absent facet of policy-making processes. The coordination problem has been particularly evident in the handling of negotiations in the Mercosur and FTAA arenas, prompting the establishment in 2000 (by the de la Rúa government) of a Comisión InterMinisterial de Comercio Internacional (CICI, Inter-Ministerial Commission on International Trade) to coordinate all the various agencies in the executive branch involved in these processes. By early 2002 this commission had fallen into dormancy (Bouzas and Avogadro 2002:5). On this note, most of the institutional innovation that occurred over the period of second generation reform was connected crucially with the administrative management of trade-related matters, rather than state reform for the purposes of more efficient and transparent government. The creation of institutions to manage trade-related issues was precipitated largely by the acquisition of enhanced commitments under the Uruguay Round agreement, as well as the increasingly complex commercial relationship in the Mercosur. Not surprisingly in light of our previous discussions, the institutional impetus crystallised around the issue of unfair trade practices and CDMs. The Comisión Nacional de Comercio Exterior (CNCE, National External Trade Commission) was established in 1994, under the aegis of the Ministry of Production’s Industry, Trade and Mining Secretariat, as the executive body responsible for the application of trade rules and the handling of injury claims made by Argentine business stemming from unfair trade practices by trading partners (http:// www.mecon.gov.ar/cnce/ cnce.htm). While technically independent, the board is appointed by the Economy Ministry and consequently the CNCE is ‘highly susceptible to political pressure’ (Bouzas and Avogadro 2002:4), although its two-track procedure modelled on that of the US—the CNCE assuming responsibility for investigating injury while leaving the business of establishing the existence of unfair practices to the Trade Secretary—was established as a way of defusing lobbying pressures on these political appointees (Casaburi et al. 2002:9). Management of the trade agenda also prompted the creation in 1997 of the Administración Federal de Ingresos Públicos (Federal Administration of Public Revenue), again an executive body charged with administering the

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customs service and levying legal duties on international trade in goods, along with its responsibility for the internal revenue service (Bouzas and Avogadro 2002:4). The important point with which to conclude the discussion of the Argentine case is that the crisis of the early 2000s was not merely an economic crisis but rather, as in 1989, a crisis of the state. The electoral platform of de la Rúa in 1999 and public political debate as the crisis accelerated through 2001 reflected the central concern in Argentina with the functioning of the state, and specifically with the issues of corruption and accountability. This was not simply a matter of public opinion but rather a topic of serious discussion in the corridors of government, and indeed the result of significant pressure from the World Bank, which in the late 1990s had generated some largely ineffective overtures to anti-corruption programmes. These issues were central to the de la Rúa government’s Programa de Modernización del Estado (Modernisation of the State Programme) in 2000; in April 2001 proposals were tabled to elevate the Oficina Anticorrupción (Anti-Corruption Office), established in 1999, to ministerial status as a Ministry of Transparency and Public Ethics (La Nación, 4 April 2001). This move was, nevertheless, opposed by the Cabinet Office and diverted by the accelerating crisis to the extent that its future was deemed highly uncertain by mid-2003. Corruption scandals continued to emerge despite these stated priorities, and there were no significant initiatives to democratise the Argentine state. In sum, the launch of second generation reform in 1996 had, by 2003, borne little fruit. While the agenda was encompassing, very few of its elements had received any significant or sustained attention. Its implementation had been hampered by the absence of serious political incentives and the severe institutional weakness that derived from bureaucratic incapacity, lack of funding and organisational expertise, and the persistence of corruption and clientelism. The collapse of public confidence that accompanied the crisis reached across all the political institutions of the state, including Congress and the judiciary, and extended to the bureaucratic agencies, which were seen as at best ineffective and at worst corrupt. The early actions of the Kirchner government were thus oriented strongly to addressing the institutional roots of the crisis and restoring public confidence, and in this sense sought to revive and accelerate important elements of the second generation reform agenda. The initial focus fell on the judicial system, resulting in initial steps to reorganise the judiciary and, moreover, imbue both the selection of members of the Supreme Court and the judicial process more broadly with a much greater degree of transparency than had hitherto obtained. Brazil The Brazilian political system is characterised by a very distinct version of presidentialism. This is encapsulated in the provisions of the 1988 Constitution,

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which, while granting the legislature greater powers than it had enjoyed previously, also significantly augmented presidential control over the legislative agenda. The executive branch was granted the exclusive right of legislative initiation in a range of areas, notably relating to the armed forces, public sector employment and salaries, administrative and judicial organisation, budgetary issues and the bureaucratic apparatus of the state (Mainwaring 1997:61). These powers are considerably more sweeping than those reserved for the Argentine president and indeed for the majority of other executives in the region. Presidential decree powers were afforded in the 1988 Constitution primarily through the so-called medidas provisórias (PMs, provisional measures), essentially the counterpart of the Argentine decrees of urgency and necessity. The provisions watered down the decree powers prevailing under the previous Constitution and were intended for use only in exceptional circumstances; in practice, given the latitude afforded by the prevailing climate of crisis in the mid-1990s, PMs permitted a significant accretion of presidential discretion in the legislative process and were routinely deployed. Instances of their use included Collor’s Economic Plan in 1990 and the Real Plan in 1994 (Mainwaring 1997: 63). Presidential control over the legislative agenda was further enhanced by the right to declare ‘urgent’ legislation originating in the executive branch. The systematic deployment of this technique effectively allows the executive to control what is on the legislative agenda and expedite consideration and approval of its own proposals, and thereby frustrate possibilities for sustained consideration of proposals emanating from the legislature. This does not mean that the legislature became marginal or irrelevant. Indeed, under the terms of the 1988 Constitution it saw a strengthening of its powers in a number of areas, notably in its prerogative of override over presidential veto. Overall, the structure of executive-legislative relations thus tips clearly in favour of the former. Yet, while the legislative agenda has been dominated by the executive branch as a result of systematic recourse to the above mechanisms, this has not translated into the capacity for policy implementation and reform exhibited by the Menem government in Argentina. On the contrary, one of the notable features of governance in Brazil has been the difficulty encountered by successive presidents in pushing through key reformist legislation. The primary reason for this has been the difficulty of assembling the necessary majorities and coalitions in the legislature as a result of the highly fragmented party system. Political parties in Brazil have historically been both weak and ineffective in aggregating interests sufficiently to afford themselves an adequate level of universal representation (see Mainwaring 1991, 1992/3, 1995). The electoral and party laws institutionalised by the 1988 Constitution in turn facilitated a situation in which parties with minimal electoral weight have been able to acquire congressional power (de Souza 1999:51). The result has been a distinct absence of any solid party base for governments in the legislature to the extent that coalition government has consistently been the norm. Such a situation contrasts with, for example, the strong PJ base for the Menem administration, which

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constituted a crucial source of legislative support both through representation in the legislature and through the pervasive clientelist mechanisms deployed to secure political and legislative loyalty. When taken together with the terms of the 1988 Constitution granting Congress more leverage over the policy process, the consequences for policy-making have crystallised in the much-noted ‘hyperactivity’ of the Brazilian state, or rather its peculiar ‘hyperactive paralysis’ (Lamounier 1994b)—a situation of a progressive and disabling overloading of the political agenda simultaneously with a dramatic increase in the political manoeuvring necessary to construct supportive coalitions and legislative majorities. Not surprisingly, given this context, clientelism and patronage politics have been a particularly entrenched feature of the Brazilian system and have been especially salient as the basis for the distribution of government offices and federal funds. The pattern, for this reason, has been one of what we might call ‘multi-party clientelism’, in contrast to the exclusive pattern of patronage extended by Menem to the Peronist faithful. Even so, the presidentialist rather than parliamentary characteristics of the system mean that loyalty to the president is not guaranteed even from those in key government positions, with the result that presidents frequently have found themselves at odds with their own government and the rate of turnover in Cabinet positions has been high (see Mainwaring 1997:74–80). The extent of corruption and patronage is also exacerbated by the ‘localism’ which traditionally has pervaded Brazilian politics. Most legislators only spend a short period in the Congress, with the express aim of ‘funnel[ling] as much patronage—or pork—back home as they can in four years in Brasilia’ (Roett 1997:32). The result has been a marked predisposition to corruption and rent-seeking and the primacy of local over national politics and parties, but also a mitigation of the deployment of congressional powers granted under the Constitution. Overriding presidential veto, for example, is fully within the constitutional capabilities of the legislature, but in practice was an extremely rare occurrence over the 1990s, given both the difficulties of assembling the necessary majorities and the generalised reluctance to do so given the dependence on federal funds of many legislators’ political careers (Mainwaring 1997:60–1). In this sense there is something of a paradox at the heart of the Brazilian political system: while the pervasive clientelism and patronage politics both reflect and stem from the institutional and political weaknesses of governments (and more generally the executive branch), at the same time they can act to exacerbate the extent of centralisation and the discretionary, often quasi-legal deployment of presidential powers. Turning to the bureaucratic apparatus, the defining characteristics of the Brazilian state are its size and the extent of what Kurt Weyland (1997/8, 1998a) has referred to as its ‘organisational fragmentation’. The systematic post-war expansion of state intervention during ISI and the centrality of state corporatist strategies gave rise to a state which not only features one of the largest public sectors in Latin America—accounting by the late 1990s for 31.2 per cent of GDP

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(Smith and Nessari 1998:11)—but also is one of the least internally cohesive and most vulnerable to capture by particularistic interests. The state structure has remained characterised by multiple overlapping jurisdictions among state agencies and ministries, along with a particular profusion of veto points in the political process. The latter are represented by both institutions (Congress, political parties) and by private interests (a range of industrial, business and labour actors) with comparatively clear roads into the heart of the legislative process. It is for these reasons that the pace of both first and second generation reforms in Brazil has been at best faltering, and that success in securing their legislative passage and subsequent implementation has been meagre. It is also for these reasons that the developmentalist capacity of the Brazilian state has been systematically compromised, in that the associated strategies—including, for example, export promotion and export financing— have been hampered by the dispersal of authority and oversight among several state institutions with little inter-agency cooperation. Overtures to administrative reform were made by the Collor government at the start of the decade, broadly designed to centralise power in the presidency. For a short time state cohesion was enhanced and rivalries between ministers were diluted (Weyland 1996a:75), but the reorganisation of the state ran quickly into disabling opposition and many of these early initiatives were dismantled by President Franco only a couple of years later. In this context, one of the most striking features of the early Cardoso administration was the president’s success in garnering legislative support for a number of his key reform initiatives and congressional acquiescence to the substance of the Real Plan. This had a good deal to do with Cardoso’s political skill, but also with his ready willingness to deploy presidential decree powers and PMs, the huge majority of which were simply accepted by the legislature in the early days of the administration. The most salient achievement of first generation reform was the 1995 constitutional reform, outlined in Chapter 4, which dismantled the state monopolies in oil and gas and telecommunications and paved the way for privatisation in these sectors. Second generation-style reforms, however, were instigated fairly soon after the first generation ones associated with the Real Plan, with social security, tax, judicial and administrative reform initiatives announced in 1996. The administrative reform of the state aimed to cut the size of the public sector, reduce the extent of public sector employment and tackle corruption. As in Argentina these second generation initiatives faced a bumpy legislative and political trajectory. The legislative process became heavily encumbered by congressional foot-dragging and confrontation, and this period was characterised more by stalemate than by the legislative dynamism of the first couple of years of the Cardoso government. The principal reason was that the proposals for second generation reform ran directly against vested interests within the state structure, auguring a dismantling of many of the perks of office as well as challenges to the interests of private sector actors. The 1996 social security bill, as we know from earlier chapters, was emphatically rejected by Congress, as

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were a number of other bills relating to such areas as civil service reform and public sector employment practices. Legislative proposals in these areas were significantly diluted in the subsequent 1998 bill approved by Congress. The bulk of the system of patronage and clientelism has remained largely untouched, and the Cardoso administration itself was repeatedly suspected of using clientelist (and at times corrupt) mechanisms to ease the passage and implementation of its legislative initiatives. Judicial reform remained neglected in the second generation reform agenda. As in Argentina, attention was focused primarily on fiscal issues rather than on the reform of state institutions. The judiciary in Brazil is independent of government under the Constitution but nevertheless remains recognised as a considerably politicised institution, given that all judges (at both federal and state levels) are appointed by the president for life. Although instances of corruption in the ranks of the judiciary frequently came to light over the 1990s and indeed were the subject of a number of (largely ineffective) government investigations, the judiciary still remains almost immune from external forms of monitoring and control. The judicial system has, however, distinguished itself as one technically independent enough to impeach a president (Collor), and its remit extends to cases involving the president and other government leaders (http:// jurist.law.pitt.edu/world/brazil.htm). The most serious weakness of the Brazilian judiciary is thus not so much one of capture by the executive branch but rather one of overall politicisation and overload, exacerbated by cumbersome procedural norms and problems of staffing and expertise. There has been no substantive reform initiative aimed at addressing these issues of judicial weakness, or indeed at constructing viable mechanisms of supervision which would enhance its impartiality. The federal system, however, was an area which did receive some sustained attention following the 1999 devaluation. We mentioned in Chapter 6 that new laws on fiscal responsibility introduced sweeping changes in the fiscal relationship between states and the federal government. Up to that point, the 1988 Constitution had provided states with a significant degree of fiscal and political autonomy from central government, and they were also endowed with the right to own commercial banks and utilise them as a source of borrowing, although the Central Bank remained responsible for rescuing defaulting state and local banks (de Souza 1999:51). The upshot of these federal arrangements has been highly circumscribed central government control over the budgetary, borrowing and spending activities of states and municipalities, and the consequences were manifest in the crisis of the late 1990s, sparked by default on the internal debt in the state of Minas Gerais. Interestingly, prior to the postdevaluation legislation restructuring this relationship, the government had also sought to enhance its capacity for fiscal management by diverting the myriad political pressures on budget and fiscal processes, and did so by introducing new procedures for budget management and insulating the key players—the Finance

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Minister and the governor of the Central Bank, and their staffs—from lobbying and pressures from other political institutions of the state (de Souza 1999:56). The management of trade policy, finally, has prompted the creation of a raft of new institutional bodies in Brazil. The coordination of debate on FTAA-related matters and coordination of national positions in the negotiations were placed under the control of the SENALCA, already mentioned several times in previous chapters, which exists within the Foreign Ministry (customarily known as Itamaraty). The SENALCA holds monthly meetings attended by representatives from a range of ministries, the Foreign Trade Chamber of the Office of the Presidency, the Central Bank and other state institutions (da Motta Veiga 2002: 16). This was subsequently supplemented by the creation of inter-ministerial groups to address issue-specific matters relating to the negotiations which, as in Argentina, constituted an attempt to maximise the degree of inter-agency cooperation and minimise the incoherence that resulted from dispersed responsibility between state institutions. These inter-ministerial groups, in any case, are largely composed of technical representatives from ministries and other state institutions and, unlike the SENALCA, conduct their business largely without input from the private sector (da Motta Veiga 2002:16). The interesting feature of these new institutional forums has been the ways in which the remit of these issue-specific groups has extended beyond the FTAA negotiations to other arenas, including the WTO, Mercosur and EU negotiations—a process which Pedro da Motta Veiga (2002:16) has characterised as ‘institutional spillovers from the FTAA process’. Rather than a centralisation of responsibility for trade negotiations in Itamaraty, then, what we have been seeing in Brazil is an increasingly diverse array of state actors dealing with matters relating to the external agenda, but at the same time the construction and supervision of a reasonably striking degree of inter-agency cooperation by the Foreign Ministry and the SENALCA. Chile An anti-institutionalist bias has been a manifest feature of political organisation in Chile, but here it has related primarily to political institutions rather than to the institutions of the state bureaucracy. The sorts of neoliberal state reforms associated with a ‘first generation’ agenda occurred under the Pinochet regime from the early 1970s, featuring a reworking of the institutional landscape in order both to facilitate economic change and to consolidate the primacy of the executive branch. The difference, of course, lay in the authoritarian nature of the Pinochet regime, which facilitated a desecration of political institutions of a sort constrained elsewhere in the Southern Cone by anxieties to retain a semblance of procedural democracy. The Chilean Congress was dissolved a week after the coup in September 1973 and was not reconvened until March 1990. The 1980 Constitution subsequently entrenched the presidentialist characteristics of a system which was already one of the most presidentialist in Latin America,

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successive constitutional amendments over the twentieth century having generated a systematic accretion of executive power and marginalisation of legislative authority (see Faundez 1997). Despite the return to democracy, the extreme presidentialism of the Chilean system has remained intact. Constitutional reforms by the new Aylwin government in 1989 and 1991 included a handful of provisions which mitigated the control of the executive over the legislature—eliminating the executive’s constitutional prerogative of dissolving Congress once in a president’s administration and its possibility of restricting civil rights during states of siege— and increasing the number of elected senators in order to dilute, but not substantially modify, the constitutional reservation of nine seats in the Senate for representatives of the conservative right (Siavelis 1997:323). Nevertheless, there has been no constitutional revision which has dismantled in any serious way the form of executive-legislative relations prescribed in the 1980 Constitution. The systematic relegation of the legislature continued from the time of its reconstitution in 1990, physically and symbolically manifested in its continuing location in the coastal city of Valparaíso, about an hour from the capital Santiago. This relegation, as in the Argentine and Brazilian cases, has been permitted by a range of mechanisms through which the presidency is able control the legislative process. The most commonly used has been that of ‘declared executive urgencies’ (working on the same principle as the Brazilian equivalent), deployed in around 40 per cent of the proposals sent to Congress by the Aylwin government (see Siavelis 1997:325–7). Along with the customary raft of veto and amendment powers, the executive also retains the authority of ‘exclusive initiative’ over a range of areas, defined by the 1980 Constitution as covering ‘the political or administrative division of the country [and] the management of the state’s financial or budgetary administration’ and extending to a host of other areas such as wages, pensions, retirement funds, collective bargaining rules and social security rules (Sáez 2002:35–6; Siavelis 1997:327–8). As in the other cases, in addition, trade policy-making authority has traditionally been largely the preserve of the executive branch, as a result of both the delegation of authority by the Congress and constitutional provisions which proscribe the legislature’s ability to amend international agreements signed by the executive. The consistent deployment of these powers in the early post-Pinochet period, however, is only part of the explanation for the Aylwin government’s legislative success. As noted in previous chapters, the transition to democracy in Chile took place under negotiated conditions in which parties and institutions agreed to cooperate in the interests of preserving the new democratic regime. Cooperation to maintain the economic dynamism established during the 1980s was in turn deemed crucial to this purpose of democratic survival and consolidation. While it might be a step too far to claim a consistent coincidence of interests between the executive and the legislature, nevertheless a prevailing impetus for cooperation meant that key legislation relating to economic policy and institutional reform was passed quickly and comprehensively. The contrasts here

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with the Brazilian case are self-evident. Yet, crucially, few radical alterations were proposed to the economic model, or indeed to the key provisions of the 1980 Constitution. The fact that legislation was consistently swift stemmed in large part from the proposal of only moderate reforms oriented broadly to the economic and institutional reforms necessary for affording the economic trajectory a more ‘human’ and democratic face. The key virtue was seen to be continuity in both economic policy and key political relationships, including with the military and the powerful business interests that were crucial to the coalition sustaining the neoliberal economic orientation: as Aylwin himself declared unequivocally in 1989, ‘the institutions of state have a mission to guarantee the historical continuity of the nation’ (La Epoca, 16 December 1989, cited in Barton 2002:360). There are parallels to be drawn with the Argentine case, nevertheless, in the intensification of congressional input into the policy-making process as second generation-type reforms began to take hold. Early second generation initiatives were connected with the Seven Modernisations launched by the Pinochet administration from the early 1980s and consequently were not subject to congressional input. During the 1990s executive-legislative antagonism was also much less pronounced overall in Chile than elsewhere, largely because of the much greater consensus within the structures of the Chilean state on the neoliberal economic model and the orientation of international economic strategies. Nevertheless, increased congressional participation in the policy-making process has been evident in habitually fraught second generation areas such as tax and labour policy, as well as, interestingly, in the area of trade policy. The latter we identified a moment ago as largely the preserve of the executive branch, and Congress generally has not been disposed to challenge this arrangement. Nevertheless, it has played an important role in initiating and channelling political debate on trade strategies and agreements. As in Argentina, the assumption of much more extensive multilateral commitments has propelled a greater congressional concern with the implications for the Chilean economy of WTO provisions and, despite the strong consensus in favour of a ‘global’ trade strategy, legislators on an increasing number of occasions have been either slow or reticent in approving the associated changes to domestic laws (Sáez 2002:41). The proliferation of trade agreements negotiated from the mid-1990s—including associate membership of the Mercosur and bilateral free trade with the US, along with FTAA and EU negotiations and a plethora of bilateral agreements—has meant that this congressional concern to monitor and exercise greater control over the outcomes of the trade strategy has moved increasingly to the fore. Despite the significant concentration of power in the executive branch, however, various bureaucratic arrangements in the Chilean system have afforded it a notable degree of institutional strength and cohesion, and indeed these set the Chilean state apart from the other cases in the region. The aforementioned climate of inter-party and inter-branch cooperation was facilitated by mechanisms to minimise partisan rivalry and include the various political groupings in the

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policy-making apparatus, one such being the practice of staffing each ministry with an undersecretary belonging to a different party from that of the minister (Siavelis 1997:351). The bureaucratic apparatus of the Chilean state has also exhibited a striking degree (by regional standards) of inter-agency cohesion and cooperation. The General Secretariat of the Presidency has been the principal mechanism of coordination within the executive branch and between the branches of government, largely through its Division of Inter-Ministerial Cooperation, and was granted ministerial status early in the Aylwin administration. As Peter Siavelis has detailed (1997:352), proposals from all of the ministries are channelled through the Ministry of the General Secretariat and then passed to the Division of Legislative Relations which communicates with other ministries on their involvement and elaborates the proposed legislation in a manner which ensures its compatibility with the goals of the president and the Constitution. Input from other political and social institutions—such as parties, unions, the Church and others—is invited and conveyed through the channels of the General Secretariat’s Division of Political Relations. This does not mean, however, that the Chilean state is open and permeable to interest representation. Rather, its institutional structure has been designed with the aim of channelling and managing the input from societal interests—in other words, of maintaining a very significant degree of social control through the construction of effective and viable institutions. The coordination of the state apparatus by the General Secretariat as well as, increasingly, the Finance Ministry has in fact been pivotal in insulating markets from lobbying pressures (Weyland 1999:71), generating a form of controlled representation which rests on very selective consultation procedures. Nor does it mean, of course, that the democratic credentials of the Chilean state are necessarily more robust than elsewhere in the region: the system of checks and balances is both underdeveloped and biased systematically towards the centralisation of power in the executive branch, and specifically in the hands of the president. Participation in the political process is channelled through the structures of the executive branch rather than through the legislature, which remains marginalised from the policy-making process and has seen its functions of representation significantly diminished by the steady accretion of control over state institutions by the General Secretariat. To this we must add the continued centrality within the institutional structure, as well as the political process, of non-elected elements of the state—most notably the military. The provisions of the 1980 Constitution ensured the continued presence of military interests at the heart of the political and institutional system and entrenched the powers of Pinochet himself both during his presidency and subsequently. These provisions remained largely untouched by constitutional revisions over the 1990s despite successive governments’ rhetorical commitment to their amendment in the name of democratic credibility: they settled instead for introducing a greater degree of civilian (presidential) control over the military institution. Pinochet was thus permitted to remain a firm

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fixture in the structures of the democratic state until the declaration that he was mentally unfit in July 2001 following his arrest in London (Barton 2002:359; Barton and Murray 2002:331). It is also noteworthy in this respect that the Chilean judiciary has not been subject to significant reform since the return of democratic government. While it is constitutionally independent of the executive and legislative branches, it remains vulnerable to political pressure and more politicised than good governance prescriptions would deem desirable. This is largely the result, like in the Brazilian case, of continuing presidential authority over the appointment of all judges and magistrates, as well as the fact that appointments to the Supreme Court are for life. Presidential appointments are made from lists supplied by the Supreme Court itself. A number of internal mechanisms have been developed to address issues of corruption and investigate irregularities, notably the Commission of Ethical Control, created in March 2000 within the Supreme Court. Judicial reform did also begin to pick up speed with the creation in 1999 of the autonomous and independent Office of the Public Prosecutor and the associated new laws on Criminal Procedure, Tribunals and Public Penal Defence (see International Commission of Jurists 2002). But, despite the steady decline in military influence within the structures of the Supreme Court, the system of military courts remains intact and retains its independence from the Supreme Court, such that significant areas of partial or complete impunity persist within the legal system. The constant element in notions of second generation state reform was the intimate link with the neoliberal model, the state being put entirely to the service of ensuring its survival and performance. Both the structures and strategies of the state and the ‘dimensions of democracy’ in Chile have in this sense been consistently defined by ‘the requirements of the economic system and the open economy development strategy’ (Petras and Leiva 1994:75). The understanding of what these requirements are has been key to defining the structure of the Chilean state over the 1990s and 2000s. It has rested on three pillars. The first relates to the pivotal importance of distributional issues and to the role of institutions in pursuing articulated social goals in order to ‘democratise’ the economic model. This constituted the thrust of the Aylwin government’s agenda for the ‘modernisation’ of the Chilean state. The shift in the early 1990s from a repressive state apparatus towards a more social democratic orientation featured the creation of several institutions with direct supervisory and oversight functions: in 1990 the Ministry of Planning and Cooperation (MIDEPLAN) was established, with responsibility for the coordination of the International Cooperation Agency, in turn responsible for obtaining international funding for social programmes, and the much-touted Fondo de Solidaridad e Inversión Social (FOSIS, Solidarity and Social Investment Fund), responsible for the coordination and funding of self-help projects (Petras and Leiva 1994:119). The modernisation of the state assumed a somewhat different thrust under the subsequent Frei government, moving towards a more technocratic, managerial

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approach to state reform which emphasised the enhancement of participation (Barton 2002:368–9). Yet this and subsequent governments continued to emphasise state reform as a distributional issue and remained concerned with the construction of viable institutions to endow the economic model with more equitable characteristics. The second pillar, as we have seen, has been the notion of regulation. The key institutional characteristic in this regard is the fully autonomous Central Bank— the only one in the Southern Cone, although in early 2003 the Lula government in Brazil made certain initial movements in this direction. The full independence of the Chilean Central Bank was granted in 1989. The third, finally, has been the developmentalist deployment of the state, primarily in the area of export promotion, to the extent that we can talk in the Chilean case of a form of ‘state developmentalism without a developmental state’ (Kurtz 2001). The particular institutional foundations of this developmentalist model in Chile constitute an important part of the reason for the state’s much higher level of developmental capacity than that of its Brazilian counterpart. The entrenchment of the economic model was served, finally, by a process of institution-building in those sectors of the state most concerned with international economic and trade policy. We noted in earlier chapters the plethora of institutional structures established for the purposes of enhancing consultation and participation, particularly of business interests, in the policymaking process. A process of bureaucratic reorganisation was designed further to increase the coherence of the process. Responsibility for trade policy and trade negotiations had formerly resided with a range of bodies, most notably the Foreign, Economy and Finance Ministries, but in 1994 was assumed by the Foreign Ministry and coordinated through the DIRECON within its recently established Inter-Ministerial Committee on International Economic Relations. This forum draws together the foreign, finance, agriculture and economy ministers along with the SecretaryGeneral of the Presidency (Sáez 2002:39). The DIRECON and other forums, as we have detailed in other chapters, have also been notable for their fairly systematic inclusion of private sector representatives and the centrality of consultation mechanisms in their activities. These characteristics of the institutional apparatus, along with the striking ideological consensus, have together given rise to a much more cohesive trade strategy and a much more consistent set of negotiating strategies than have been evident in other Southern Cone cases. Paraguay In similarity with the Pinochet legacy in Chile, the political landscape in Paraguay bears the imprint of the institutional reorganisation conducted by the Stroessner dictatorship. The 1967 Constitution established the absolute primacy of the executive branch, declaring the president eligible for indefinite re-election from 1977, and granting the executive the authority to dissolve Congress at will,

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appoint all of the judges in the Supreme Court and circumvent the provisions of the Constitution by declaring states of emergency that could be continuously renewed (Lambert 1997:12–13). The 1992 Constitution overturned the most overtly authoritarian provisions of its predecessor and established a separation of powers between the executive and the legislature. Yet presidential powers remained generally consistent with the patterns we have noted in other countries, relating to exclusive right of legislative initiative in a number of areas, the ability to earmark bills as ‘urgent’ and thus control the legislative agenda, and so on. As in Brazil, the Congress retains the right to override presidential veto, but in Paraguay this has been used considerably more frequently. Support for neoliberal reform in Brazil might have been tenuous in the 1990s but in Paraguay was more tenuous still, reflected both in explicit opposition to privatisation and the reform of the state and, more broadly, in the absence of any elite group seriously committed to neoliberalism. The fact that the Congress was controlled by opposition parties for the bulk of the 1990s, in addition, meant that most of the overtures to reform that were made by President Wasmosy were more often than not rejected, along with a frequent overriding of presidential veto and the reversal of legislation passed under the previous government The executive branch sought to re-establish its primacy from 1998 when the Colorado party regained its majority in Congress, but this has been constrained by factional tensions within the party itself, such that legislative initiatives from the executive branch have remained subject to frequent rejection and opposition (Polity IV Project 2001). Judicial reform was also a feature of the 1992 Constitution, crystallising around establishing substantial judicial independence. Measures included granting judges security of tenure (against their removal by the president for political reasons) and securing independence from executive discretion by stipulating the proportion of central government spending that should be directed to the judicial branch. A new legal body was established to oversee the judiciary with the powers to dismiss judges for corruption, and the new Consejo de la Magistratura (Council of Magistrates) assumed control for appointments of judges, magistrates and members of the Supreme Court (Nickson 1997b:33). The new Supreme Court was appointed in March 1995 following the creation of the Council, its composition reflecting a balance of political affiliations which was trenchantly opposed by members of the ruling party (Nickson 1997c:189). Nevertheless, despite significant reform to the organisation and nature of the judiciary, it remained administratively weak and ineffective and, moreover, made little progress in escaping the aura of corruption which hung over it. This aura has traditionally hung over the spectrum of political and public sector institutions in Paraguay, and, as already noted at several points in our discussions, constitutes perhaps the defining feature of the Paraguayan state and political process. The transition to democracy did feature some significant attempts to instil greater accountability and transparency in the Paraguayan system, but along with other first and second generation reform efforts these bore

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little concrete fruit, often precisely because of the extent of corruption in the state apparatus. Administrative reform was hampered by both the underdevelopment of institutions and their striking levels of inefficiency and corruption, the latter obviously constituting one of the main reasons for the former. Nickson and Lambert (2001:6) have pointed to a range of organisational characteristics in the public administration which have stemmed from a ‘culture of informality’ and a ‘lack of institutionalisation’: a lack of appropriate qualification and training among public employees; widespread clientelism and the determination of salaries, promotions and working conditions according to political and personal loyalties; a lack of transparency in recruitment and operational procedures; and an extremely high turnover of senior and middle-ranking personnel. When these are put together with the high levels of politicisation in public sector agencies, the size of the informal economy and the chronic underdevelopment of political and bureaucratic institutions—all of which have been noted in previous chapters —the picture that emerges is one of a system resistant to significant reform and in any case ill equipped to achieve it. State reform, premised on the elimination of corruption and clientelism, was not a priority for state elites or private sector actors during the 1990s and, indeed, was opposed by many of these, including the armed forces. However, it may not come as much of a surprise that the thrust of Paraguayan state reform has gone against many of the common trends noted in other Southern Cone systems, in the sense that it was not oriented to bureaucratic rationalisation and efficiency objectives. Whereas these have gone together with anti-corruption priorities in most other cases, in Paraguay the emphasis fell on expanding the population of the public sector in order to address the social deficit bequeathed by the Stroessner regime. Consequently, the pattern in the 1990s was of a significant increase in the number of central government employees (by 34 per cent between 1989 and 2000), the bulk of which related to the creation of new posts in the areas of health and education (Nickson and Lambert 2001:4). As noted in Chapter 4, attempts to advance with privatisation did gain some impetus under the government of González Macchi at the end of the 1990s, notably with the establishment of the National Secretariat for State Reform. But these initiatives met with widespread opposition and did not, in any case, look likely to do other than further entrench the endemic corruption and clientelism in the public sector. Other preliminary reform efforts, including in the area of regulation, have been significantly weighed down by the extent of political influence in the process and have not advanced to any visible extent (Nickson and Lambert 2001:10). Civil service reform initially showed some signs of faring somewhat better, a new reform law being approved in December 2000 aiming primarily to address key problems in the appointments, evaluation and promotions systems and extend the working week. Within a few months, however, the Supreme Court had adjudged the law unconstitutional, and consequently no progress has been made towards its implementation (Nickson and Lambert 2001:11). Decentralisation similarly received a boost with the

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establishment in 1995 of a Comisión Nacional para la Descentralización del Estado (National Commission for the Decentralisation of the State), but this subsequently floundered once again at the implementation stage and suffered from a lack of resources and the hangovers of the politicised administrative system bequeathed by Stroessner (see Nickson 1997a). The striking underdevelopment of state institutions, finally, has been manifest in Paraguay’s participation in the Mercosur and other external trade negotiations. Whereas elsewhere in the region there has been some degree of institutional reorganisation and at times innovation in order to meet the demands of effective negotiation, in Paraguay there has been little sign of a similar trend. The problems of inter-agency coordination were addressed in 1994 when responsibility for the conduct of regional trade negotiations, up to that point held by the Ministries of Integration, Trade and Industry, Foreign Relations and Finance, was shifted exclusively to the Ministry of Integration (Lambert 2001:10). The latter’s closure in 1999, however, created a vacuum which has not yet been filled, despite the acceleration of the Mercosur agenda and the solidification of the collective negotiation strategy in the FTAA, Mercosur-EU and WTO arenas. Uruguay Historically, Uruguayan political institutions were organised in a system that gave significant weight to the legislature and proscribed the power of individual presidents by means of various collective forms of executive power. The contemporary situation rests, conversely, on the terms of the constitutional reform of 1966, which brought the Uruguayan system much more closely into line with the types of presidentialism we have described elsewhere in the region. The system introduced at this time was one which concentrated executive power in the hands of the president, limited the ability of Congress to remove him or her from power for political reasons, and expanded presidential control over autonomous parastatal organisms and the budgets of other state agencies, at the same time as it introduced prerogatives of ‘urgency’ into the legislative powers of the executive similar to those outlined in other cases (González and Gillespie 1994:157–8). The legislature retains a range of constitutional prerogatives, such as the ability to censure ministers of state, but many of these are subject to subsequent presidential override, and the overall thrust of the 1966 provisions was to weaken the checks and balances on presidential power that formerly had been limited by the parliamentary characteristics of the Uruguayan system (González and Gillespie 1994:159). Nevertheless, Uruguay is distinctive as an exception to the patterns of presidential decree powers noted in much of the rest of the region, and, as in the Chilean system, the president is linked to Congress and to the party system in ways which dilute the overall level of presidentialism (Philip 2003:29, 32). The legislature is also considered to be one of the stronger ones in Latin America.

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The Uruguayan judiciary is generally deemed to function quite effectively as an independent body; indeed, it recently joined the ranks of those sufficiently independent to imprison a number of government officials—including a former finance minister—on charges of corruption. The judiciary thus enjoys a significant degree of public confidence, bolstering a reasonable structure of checks and balances on presidential power notwithstanding the overall presidentialism of the political system. While technically independent, however, it is not fully autonomous in the sense that appointments to the Supreme Court are made by the president, but the fact that these appointments are for five-year terms renders the system rather more transparent and independent than many of the others that we have considered. The membership of the Supreme Court also includes two military justices, but their participation extends only to cases involving the military. The legal system otherwise suffers from some overload but nevertheless is deemed to function relatively effectively. Reform of the Uruguayan state proceeded along much the same substantive lines as elsewhere—that is, with the goals of achieving greater administrative efficiency, and the rationalisation and decentralisation of state functions— although with the unusual characteristic of a greater emphasis on referenda in order to legitimise the government’s proposed measures. The implications of state reform for national employment were, as elsewhere, controversial. The Sanguinetti government in the mid-1990s chose to sugar the pill by proceeding with a three-year freeze on new appointments, rather than the sorts of large-scale redundancies we noted in the Argentine case, along with programmes designed to secure a significant number of early retirements (around 11,500 among central administration and public sector employees). The latter were funded in part by the IDB, and were announced in early 1997 (Finch 1999:89). Sanguinetti was also at some pains to lend a legitimacy and coherence to the privatisation process, first by subjecting key legislation to public referenda, but also by introducing some regulatory mechanisms to ensure an adequate level of competition. We saw in Chapter 4 that the state retained a more significant role in ownership of enterprises than was the case elsewhere, such as Argentina, but it also sought to put in place anti-monopoly legislation at a relatively early stage. Competition regulations have been compiled and coordinated by the Executive Committee for State Reform, established for this purpose. Finally, activity in a growing number of negotiating arenas has, as in other Southern Cone cases, led to some degree of institutional innovation in Uruguay. Again, the conduct and substance of trade negotiations lies largely in the hands of the executive branch, and, although there was rather more input into the Mercosur process from non-state actors in the Uruguayan case than in others, this concentration of authority remains a marked feature of trade-related negotiations. The assumption of Uruguay Round commitments and participation in subsequent WTO meetings in Seattle prompted the creation in 1999 of an inter-ministerial committee to coordinate positions and negotiating strategies at the multilateral level, and a couple of years later a National FTAA Commission

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was established to guide and coordinate the negotiations at the hemispheric level. Towards a regionalised form of state? Finally, then, it remains to address the question of whether these institutional reorganisations within national states have found expression at the regional level. Put simply, the ‘states’ dimension of the triangle has been distinct for its lack of regional articulation. We saw in Chapter 6 that there has been a degree of incip ient regional convergence in state strategies, but this is not the same as either a convergence in national state structures or an emergence of a state-like structure at the regional level. We have seen in this chapter the continuing diversity in the ways in which states are organised and the nature of state institutions in the Southern Cone countries. Our discussions in previous chapters have also remarked at length upon the very loose and informal institutional structures of the Mercosur project, which remain entirely intergovernmental rather than supranational in any meaningful sense. Indeed one of our central arguments has been that political institutions at the regional level have not kept pace with increasingly dense ‘regionalised’ networks of labour and business actors, and that associated processes of regionalisation have been far more robust than the stateled political process and its attendant institutional innovation. Mercosur institutions, such as they are, have no legislative authority and none of the legitimate authority (including the Weberian monopoly over the legitimate use of violence) which in theory is possessed by national states over the societies which they are seen to govern. In short, there is no sign of a ‘regionalised’ form of state or indeed the imminent construction of one, given the absence of both an institutional structure approximating a state apparatus and the polity which defines a state’s existence. What we can perceive, however, is a process by which a form of political authority is crystallising and being articulated at the regional level. This ‘regionalised’ form of political authority is visible most obviously in the Mercosur project, as a state-led regionalist process driven primarily by diplomatic negotiation between presidents, government officials and other state actors. While this has certainly contributed to the notable fragility of the political process, nevertheless it has gradually produced a generalised recognition of the need for collective consideration of key policy issues. It has also become visible in the coordination—albeit imperfect and frequently perforated—of positions and strategies in various negotiating forums. These have remained largely informal, such as in the decision to participate collectively in key negotiations, and therefore highly vulnerable to the whims and ‘defections’ of specific actors. Nevertheless, the collective consideration of key policy issues has shown signs of becoming firmer and more ‘institutionalised’ as the agenda for deepening the regionalist project has started to take root, particularly in the early agreements on policy harmonisation and the demands of coordination in order to present

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internally agreed ‘offers’ on behalf of the Mercosur in FTAA, WTO and other negotiations. Conclusions Two broad conclusions stand out from our sketches of Southern Cone states, both of which substantiate the contentions advanced at a more abstract level earlier in the chapter. The first is that the agenda of state reform encapsulated in notions of good governance has undergone a rocky trajectory in the Southern Cone, largely as a consequence of the clash between normative notions of what an ‘effective’ state looks like and the historically salient characteristics of states and institutions in the region. Among the most ‘generalisable’ of these characteristics, we would highlight high levels of presidentialism and the highly discretionary deployment of presidential authority, the centralisation of power in the executive branch, and the prevalence (to varying degrees) of clientelism and corruption within state structures. In the absence of significant incentives for reform of these features of political and institutional systems, and indeed in light of the formidable vested interests arrayed in favour of their maintenance, idealistic notions of effective, accountable and transparent governance have travelled very uncomfortably to the Southern Cone context. Moreover, these three adjec-tives—effective, accountable and transparent—have been consistent bedfellows in the conceptual frameworks adopted by the World Bank and other such agencies, but the experiences of state reform that we have just reviewed indicate that effectiveness in Southern Cone states has rarely gone accompanied by account-ability and transparency. Whether this represents some kind of direct trade-off between effective and accountable governance is open to debate, but at the very least we see clearly that these attributes have been far from synonymous, or perhaps even compatible, in this particular regional context. The second conclusion is that, in broad terms, the evolution of Southern Cone states has been largely consistent with the processes described as the ‘internationalisation of the state’. Paraguay has been largely an exception and it must again be pointed out that the five states remain highly distinctive and nationally contingent in their structures and characteristics. An internationalisation of states has not unravelled these forms of national diversity, but certain common traits are in evidence. The most notable would be the reorganisation of institutional authority towards a concentration in Economy, Finance and Foreign Ministries, the increased responsiveness of state institutions to the demands of participation in the global economy (including institutional innovations for the purpose of managing trade agendas and external negotiations), and frequently a heightened insulation of these parts of the state apparatus from both societal participation and domestic forms of accountability. Of course these traits have assumed different forms and are manifest to different degrees in each of the national cases, but the overall concept is broadly useful in

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understanding the processes of institutional adaptation which have occurred as a result of the pressures of global restructuring. The most we can say about the regional dimensions of ‘states’ in the Southern Cone, finally, is that there has been a notable articulation of a form of political authority at the regional level and some convergence in state strategies. We have seen as well that regional and regionalist processes in the Southern Cone have been integral to the sorts of adaptations that have taken place within national states, and this evolution in turn has been crucial in creating the conditions in which the regionalist project has taken shape. But the emergence of regional political institutions has been tortuous and the internationalisation of national states has generated neither institutional convergence between them nor any form of state-like structure at the regional level.

Part IV Conclusion

10 The Southern Cone Model

Our remaining task now is to address the core question of what, in concise summary, we should understand to be the core characteristics of the ‘Southern Cone Model’. This involves accommodating the range of very distinctive national political economies, which I have sought consistently to emphasise as we have advanced through the pages of the book, within a contention that they fit into, and indeed constitute, a structure that is sufficiently coherent to approximate a distinctive ‘model’ of regional capitalist development. Such a challenge is inherent in any form of comparative analysis that undertakes to identify a group of national political economies with sufficiently similar characteristics that they might be collected together as a group, and obviously the models of capitalism literature constitutes a prime example of this sort of enterprise. In this debate, a notion of a model or variety of capitalism rests on no more than a set of characteristics shared by the capitalist systems of two or more countries. It is nowhere claimed that systems grouped together in the various ‘models’ are identical to each other, or conversely that certain identified characteristics are exclusive to the group of national political economies in question. In this sense, the identification of a model of capitalist development demands appropriate attention to diversity between the national political economies that are grouped together in a particular model, while setting out sufficiently solid evidence of commonality between them to substantiate the claim that they can indeed be deemed collectively to comprise an identifiable model. Our identification of a Southern Cone Model, in this spirit, rests in the first instance on a set of nation-level similarities between the five political economies which comprise the region, whilst nevertheless recognising the important areas of diversity and divergence between them. No doubt there will be people who instinctively object to thinking about countries as manifestly different as Brazil and Paraguay, for example, as part of the same single ‘model’; comparative exercises of this sort are frequently (and, in my view, often unhelpfully) subject to protestations of the ‘uniqueness’ of an individual system, country or political economy. Each political economy is indeed unique, but this by no means precludes comparison or invalidates the identification of a ‘model’ or variety of

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capitalist development constituted by a collection of systems with appropriately similar sets of characteristics. The foundation of comparative analysis is generalisation, but equally this needs to be based on the elaboration of what Katzenstein (2003:13) has described as ‘properly contextualised generalisations’, which allow us to say something meaningful about a collection of countries or political economies and the sets of variables that draw them together into a distinctive ‘model’ while remaining sensitive to their historical contingencies and distinctiveness. Yet the fact that models of capitalism are taken in the associated debate to represent, as we said a moment ago, ‘no more than’ a collection of shared national-level characteristics is problematic and, I have suggested, something of an indictment of much of mainstream CPE. Models of capitalist development are not and cannot be conceived as purely national in nature, and one of the central weaknesses of the models of capitalism literature is precisely that it goes about constructing its models without regard to the regional and global political economies into which its constituent national units are inserted. Thus, as noted in early chapters, its advocates find themselves able to consider exemplars of the continental European model of capitalism, for example, entirely in isolation from the regional European context. Equally, though, transnational political economies cannot be divorced from a sensitivity to the historical distinctiveness of the national political economies which necessarily exist as dimensions of them. In other words, the important and essential project of understanding transnational forms of political economy— dispensing, recalling Robinson’s phrase from earlier, with the tenacious nation-state-centrism that has permeated CPE—should not be interpreted as a licence to dispense with the analysis of states and national political economies. This twin contention has formed the foundation of our analysis here of the Southern Cone, and indeed lies at the heart of our central argument that there is such a thing as a Southern Cone Model, located at the interface of national models of capitalist development and the emerging regional political economy, and characterised by a particular mode of insertion into the global political economy. The point to emphasise about the Southern Cone Model, in this light, is that it is a model of regional capitalist development. In the first instance, it does indeed arise from the collection of similar traits shared by the five national political economies which comprise the region, combined with their collective insertion into a new transnational political economy crystallising at the regional level. Yet it is also more than this: it represents a model of distinctively regional capitalist development that is not simply ‘regional’ because it is occurring in the countries of a particular region of the world. Rather, the Southern Cone Model rests on and is defined by a number of emerging structures and processes which are intrinsically regional in character, and coheres around the complex and dynamic relationship between the resulting regional political economy and the national political economies which form a crucial dimension of it.

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From this platform, then, we can now proceed to pinpoint the core distinguishing characteristics of the Southern Cone Model before going on to unfold each of them in more detail. The model is fundamentally neoliberal in character, although its traits are not necessarily consonant with conventional understandings of the Anglo-American variety of capitalism. At the national level, the model features the following: • a structure of capitalist relations which systematically privileges capital and the interests of capital asset holders, with strong (but typically informal and personalist) forms of business-state nexus which act to the exclusion and generalised weakening of labour; • ‘flexible’ labour markets and/or ongoing processes of labour flexibilisation, with high levels of informality in the labour sector and frequently high levels of structural unemployment; • bank-based rather than stock-market-based financing systems; • a conception of states as ‘market facilitators’, often combined with quasidevelopmentalist export-promotion strategies and industrial policies; • institutional structures which reflect the outcome of the ‘internationalisation’ of states; and • production and export structures dominated by natural resources and naturalresource-based manufactures, and by capital-intensive industries. The five national political economies are in turn inserted collectively into an emerging regional political economy, which: • reflects the neoliberal organisation of capitalist relations; • is underpinned by a loose and ponderous regionalist project which is gradually being reconfigured primarily as an arena for the strategic management of the external negotiating agenda and the implications of associated international economic agreements; • is constituted by a set of regional social processes which outpace the formal regionalist process in momentum, resting primarily on new forms of regionalised business and labour politics, new regional production structures and regionalised modes of corporate organisation; and • features a certain articulation of a form of political authority at the regional level, arising primarily from a greater emphasis on coordination and collaboration in the management of key policy issues. Finally, the model features a particular mode of insertion into the global economy characterised by the following: • high levels of dependence on inflows of foreign capital, and consequently high levels of vulnerability to internal and external shocks;

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• a preponderance in regional and domestic corporate structures of transnational firms and consortia of foreign and local financial and industrial interests; and • comparatively low levels of openness to extra-regional trade flows, but at the same time a reliance on trade and on domestic external sectors for the achievement of developmental and strategic objectives. National-level characteristics of the Southern Cone Model The Southern Cone Model rests fundamentally on neoliberal forms of capitalist organisation. The fervour with which Southern Cone countries have adopted the tenets of neoliberalism and the extent of their success in doing so have varied considerably between countries, Chile setting the pace as the early starter, Brazilian reform processes being both comparatively late and tepid, and Paraguay bringing up the rear with still only slight movement to date in that direction. Within the broad neoliberal development model there is also a notable degree of diversity in the ‘versions’ of neoliberalism pursued within the region. The Brazilian version represents an amalgam of the broad principles of neoliberalism with a continued commitment to developmentalist and industrialisation objectives; the Argentine version represents the most orthodox of the neoliberal experiments undertaken in the region; the Chilean and Uruguay versions combine neoliberal forms of economic and political organisation with an emphasis on active state developmentalist strategies, in the case of the former, and on the state as a stakeholder in the economic structure, in the case of the latter. The Paraguayan version, conversely, is notable largely for the lack of significant restructuring and the maintenance of one of the most open and vulnerable economies in the region. Yet there has been a broad convergence on neoliberalism as the overarching framework within which these historically contingent versions are elaborated, the Southern Cone Model resting on the individualist and market-oriented principles of the neoliberal ideology and the particular set of capitalist relations which underpins it. Thus the model is characterised by a structure of social relations which privileges the interests of business and the demands of capital. It is reflected in the processes of deregulation and liberalisation, the restructuring of patterns of taxation, the construction of strong political networks between governments and business actors, and, more broadly, the construction of strategic business-state nexuses—all of which are designed to attract investment capital, mitigate the threat of exit by capital asset holders and elevate private sectors to primacy as the motors of the economic model. The prevalence of strong business-state nexuses is not the same thing as political harmony, and indeed the relationships between business interests and governments were frequently tense over the 1990s, even in conditions of close ideological identification between them. Rather, the nexuses represent an arrangement of a more structural nature that is consistent with the particular set of social relations on which neoliberalism rests. However, the

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political manifestations of these arrangements do not correspond very comfortably with patterns of business-state relations prevalent in conventional— or, perhaps, idealised—understandings of Anglo-American systems, in that they are premised predominantly on informal and personalist links between government officials and business leaders rather than being driven by strong business associations and institutionalised forms of interaction. Indeed, one of the interesting facets of the Southern Cone Model is that across the region business associations—and particularly peak or encompassing business associations—are strikingly weak, both organisationally and politically. The political ‘inside track’ is occupied by individual business leaders with close personal ties to key politicians and state officials. Furthermore, it is limited to representatives of ‘big’ business, PYMEs being to a greater or lesser extent marginalised within the priorities of neoliberal agendas and associated strategies. A fundamental dimension of this political and economic project, and a key mechanism by which business-state nexuses are facilitated, is the generalised and systematic weakening of labour. The Southern Cone Model conforms tightly with the neoliberal emphasis on flexible labour markets, and across the region over the 1990s systems of labour regulation and political relationships were reoriented to prioritise this core principle. The mechanisms by which this was pursued were the largely classic ones associated with, inter alia, wage restraint and the suppression of wage demands, the disarticulation of collective bargaining capacities, the establishment of a tight linkage between welfare and productivity, and a reorganisation of employment practices and conditions. The model is thus one of weak government regulation of industrial relations, the disarticulation of organised labour within patterns of industrial relations as well as in the wider political arena, low levels of trade union membership, pervasive informality and strikingly high levels of un- and underemployment. Again, we can point to certain contingencies and variations between countries within these broad regionwide trends: for example to the comparatively more extensive system of labour regulation in Brazil, the higher structural unemployment figures and more precipitous declines in real wages in the Argentine case, and the differences in levels of informality between, say, Paraguay and Brazil on the one hand and Chile on the other. In the organisation of social relations the Southern Cone Model is thus manifestly neoliberal in its foundations, but at the same time it departs from many of the other conventional characteristics usually attributed to AngloAmerican capitalism. Corporate structures in Anglo-American systems rest on the twin pillars of a commitment to shareholder value and what is generally termed an ‘arm’s-length’ approach to ownership in which corporate managers are accountable to the stockholders or owners of the firm in question. This type of business system contrasts with the Asian and, to an extent, continental European models, which feature a form of ‘stakeholder’ capitalism that dilutes the individualist bias of the Anglo-American privileging of shareholders. Business systems in these models consequently operate primarily according to the

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principles of ‘trust’—hence the label ‘trust-based capitalism’, which is frequently used broadly to denote systems other than the Anglo-American. Conversely, the Anglo-American model rests fundamentally on the importance of contracts, and thus on the legal and institutional mechanisms of law enforcement necessary for the protection of the contractual basis of corporate organisation and business activity. In other words, Anglo-American capitalism depends on extensive networks of regulation designed to underpin this particular sort of market organisation, and on the institutional means by which a highly juridical approach to economic governance might be sustained. Despite its much closer affinities with Anglo-American capitalism than with the trust-based capitalisms of European and Asian models, the Southern Cone Model does not exhibit many of these—again, idealised—characteristics of Anglo-American systems. Among the most salient features of national political economies in the Southern Cone are the generalised weakness and politicisation of judicial systems, the absence (except to an extent in the Chilean case) of the regulatory and legal institutions necessary to enforce contracts and perform the necessary supervisory functions, and consequently the absence of the environment of transparency that is, in theory, integral to the form of capitalism encapsulated in the Anglo-American model. Attempts to install comparable sorts of regulatory and judicial structures have been integral to the World Bank’s good governance agenda of administrative reform, which both explicitly and implicitly establishes the idealised characteristics of Anglo-American capitalism as benchmarks against which other systems are to be measured. The implementation of this project has been complicated by the highly specific social, political and institutional characteristics of Southern Cone political economies— in a nutshell, by the range of historically contingent factors which both preclude and caution against slotting Southern Cone neoliberalism straight into one of the models advanced by conventional tripartite classifications of models of capitalism. Divergence from the Anglo-American model is also evident in other dimensions of the Southern Cone Model. In all of the five Southern Cone cases bank-based rather than stock market-based financing systems prevail—or, better said, financing systems are by default ‘bank-based’ because of the significant under-capitalisation of stock markets and their comparatively marginal role in economic activity. But in fact one of the notable features of the Southern Cone model is the inadequacy of financing systems because of the generalised weaknesses and vulnerabilities of banking sectors. The Chilean and, to a lesser extent, Uruguayan banking systems are comparatively more robust, with more effective levels of supervision, regulation and capitalisation. Yet common traits across the region are the marked vulnerability of financial sectors to external and internal shocks and the underdevelopment of effective credit systems to underpin private-sector activity and entrepreneurship. The marginalisation of PYMEs in the economic model owes much to difficulties in the availability of credit and access to credit lines where they do in fact exist. In Brazil and Chile such

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difficulties have to some extent been mitigated by the existence of state financing bodies and the greater commitment to developmentalist strategies of export promotion. This last point leads us into a related area of difference from the conventional Anglo-American model—that of the state-market relationship which underpins the model. While the Southern Cone Model cannot be seen as other than neoliberal and market-oriented in character, this coexists in interesting ways with a continued commitment to various forms of active state involvement in market structures and economic activity. In Brazil and Chile, as mentioned earlier, the orientation is a quasi-developmentalist one, resting in the Brazilian case primarily on industrial promotion strategies and in the Chilean case on export promotion. In Uruguay the state retains a role of some importance in the ownership of key economic assets, with anti-monopoly legislation in the public sector being systematically preferred over full-scale privatisation. In Paraguay— again the exception—no extensive process of privatisation has taken place, even though a number of attempts were made by governments over the 1990s to set such a process in motion. While the anti-statist tenets of neoliberalism have been internalised to the greatest extent in Argentina, there was a significant movement over the course of the 1990s to an emphasis—albeit largely still rhetorical, especially in view of the constraints arising from economic collapse—on more active industrial and export promotion strategies. The picture, in short, is not one of a movement towards Anglo-American forms of ‘regulatory state’, but rather one in which quasi-developmentalist orientations coexist with—and are put directly to the service of—neoliberal market strategies. Yet this does not obscure the ways in which the state-market relationship has been thoroughly reworked in a manner consistent with neoliberal conceptions of states as ‘facilitators’ of market activity, with an emphasis on the correction of market failures and the provision of the institutional and macroeconomic policy environment in which market activity can most profitably flourish. This reworking has also propelled their retrenchment in a range of other areas, notably those associated with the provision of a range of public and welfare-related goods. Notwithstanding rhetorical commitments to social democracy in Brazil or ‘neoliberalism with a human face’ in Chile, states have retreated from functions associated with the provision of welfare and services and frequently have divested themselves of the bulk of their oversight and management functions. The Uruguayan case stands out for its relatively robust welfare system and the better social indicators than those found in much of the rest of the Latin American and Southern Cone regions, but it too fits with the general reorientation of state functions towards the facilitation and underpinning of the market model. States in the Southern Cone Model take a form consistent with the process denoted by Cox as the ‘internationalisation of the state’. State bureaucracies feature a significant concentration of policy-making functions in Economy, Finance and Foreign Ministries and other state agencies that are ‘key points in

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the adjustment of domestic to international economic policy’ (Cox 1981:146). These key parts of the state tend to be dominated by technocrats and, moreover, to be significantly insulated from societal and political pressures. The consequences of the internationalisation of the state are also evident in the ‘internationalisation’ of many of the key policy management functions that formerly fell within the jurisdiction of national states. The range of policies relating to trade and finance are progressively ‘locked in’ at the international level and coordinated outside the structures of national government; control over exchange rates and interest rates is exercised primarily at the global level by ‘market-type forces’ (Hollingsworth 1998:502); and, more generally, states have ‘internationalised’ their lines of responsiveness and accountability towards global financial agents, multilateral and international financial institutions, and key trading partners, among others, to the extent that policy autonomy is subject to considerable constraint and democratic forms of state-society linkage are eroded. Policy landscapes have thus become notably fragmented, as a range of areas of policy authority have been transferred to the international/global levels and others remain articulated primarily at the national level. The consequence of the internationalisation of the state in this respect is a decline in the overall coherence of policy agendas, even while governments’ capacity to implement certain reforms is significantly enhanced by the ‘locking in’ effect of internationalisation. In a nutshell, states have been reorganised and reconfigured in a way captured nicely by the notion of ‘modernisation through internationalisation’ (Petras and Leiva 1994:75), with a range of unhappy consequences for their democratic accountability These, then, are the key contours of the social relations and institutional structures on which the Southern Cone Model rests. They exist within broader structures of production which continue to be based on natural resources and their processing, featuring a preponderance of capital-intensive industries. Export profiles are thus dominated by products of low value-added, Southern Cone economies having generally made relatively slight inroads into tertiary economic activity or high value-added manufacturing activity. Again, within this broad characterisation there are a number of variations: Chile and Uruguay, for instance, have constructed some advantage in services sectors; industrial manufactures feature much more strongly in the Brazilian export profile than elsewhere in the region; the dependence on traditional agriculture and agricultural exports in the Paraguayan economy remains much more undiluted. The Chilean economy is considerably ‘diversified’, but this diversification remains concentrated in sectors involved with the processing of natural resources and is associated with a movement away from the export of raw materials to the export of higher (but still comparatively low) value-added resource-based products. Brazil is perhaps the most notable ‘special case’ in terms of the size of its industrial structure and its profile as an industrial exporter active in global markets. Still, its profile of competitiveness resonates more with patterns

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characteristic of South American economies than with the overwhelming dominance of non-resource-based exports in North American economies. The emerging regional political economy The other key national-level similarity is, of course, the collective insertion of these national political economies into what I have identified as an emerging regional political economy. I have argued that the Southern Cone Model is located at the intersection of regional and domestic political economies, and that these exist in a relationship of mutual conditioning in which the regional political economy is both constituted by and in turn exercises an important constitutive influence on the contours of the domestic political economies which it accommodates. The regional political economy is organised in the first place in a manner which entrenches and furthers the neoliberal structure of capitalist relations, reflecting the broad state-labour-business/capital relationship that we have identified as underlying the various distinctive forms of neoliberalism in particular Southern Cone countries. It emerges from the social restructuring processes that emphasise flexible labour markets and the primacy of transnationalised corporate and financial structures; indeed, its construction represents one of the primary mechanisms by which the internationalisation of states has been facilitated, along with the attendant ‘locking in’ of neoliberal structures and rules. We need to be clear, however, that the regional political economy does not represent an independent arena in which there exists a ‘separate’ state-labour-business structure. Systems of industrial relations remain articulated at the national level and no ‘regionalised’ system of labour regulation has emerged; nor is there any ‘regionalised’ form of state evident in the Southern Cone beyond a certain (but important) articulation of political authority and a heightened emphasis on coordinated forms of policy-making. Rather, the regional political economy constitutes an elevation of the structure of neoliberal social relations to a regional scale but also, moreover, a transnationalised ‘regime of accumulation’ (Robinson 2001:550) which facilitates the abandonment by states and business of their commitments to labour and consequently the ‘de-linking’ process set out in Chapter 7. By the same token, the regional political economy rests on a transnationalised form of the production structures we outlined just now, that set of generalisations about the profile of national economies being equally applicable to the production structure and economic profile of the region as a whole. The specifically regionalist project underpinning the regional political economy represents a central mechanism by which states have sought to further and solidify the neoliberal project as the basis of political, social and economic organisation. In other words, recalling that regionalism is fundamentally a ‘stateled project’, its reflection of the social relations and production structures just mentioned is to an important extent the result of active and purposive state strategies aimed at the reorganisation of the region in a manner consistent with

264 CONCLUSION

and conducive to the neoliberal model. Yet one of the striking characteristics of the regional political economy in the Southern Cone is the fragility of the formal regionalist project, which since its inception in 1991 has been loose, ponderous and politically tense, remaining relatively shallow in both the extent of economic integration achieved (at least in relation to stated aspirations) and the level of institutionalisation on which it rests. This has been the result of a set of very disparate ‘visions of regionalism’ among member countries, manifested in divergent sets of motivations, interests and objectives. Recurrent economic crisis did not help either: as much of the region slipped into recession or collapse at the end of the 1990s and the start of the 2000s, the Mercosur also slipped into a period of profound crisis. The result has been the emergence of a tentative but important reconfiguration of the regionalist project, premised on a shift away from the ‘open regionalism’ agenda that had prevailed over the 1990s towards a project which emphasises the strategic and political articulation of the bloc, along with its utility as an ‘incubator’ of industrial competitiveness and an arena in which to manage the demands of adjustment stemming particularly from participation in a putative FTAA. The consequent movements towards a greater commitment to policy harmonisation and collective negotiation, and some steps towards greater institutionalisation, have become notable and important features of the formal regionalist process. The rather large ‘but’ that must be entered here is that these movements remain tentative and in their very early stages. Collective negotiation has some significant momentum and substance, albeit still patchy and inconsistent, and policy harmonisation has started to take some concrete shape, although still complicated by the management of economic crisis and political tensions. In short, the Mercosur’s reconfiguration has been important and substantive but nevertheless the project continues to lack depth and solidity. Yet one of my key contentions in the pages of this book has been that one should not associate the regional political economy of the Southern Cone solely with the Mercosur. The formal regionalist project occupies a crucial position with the regional political economy, but has lagged behind and been outpaced in momentum by a set of regional (rather than regionalist) social processes. These crystallise around the Mercosur and have derived impetus from it, but nevertheless exist ‘outside’ the formal regionalist process and do not correspond with the strict boundaries of the bloc’s membership. Among the myriad dimensions of these regionalisation processes, two in particular stand out. The first is the emergence and solidification of new forms of regionalised business and labour politics, which are interesting for the ways in which they have derived momentum and substance not only from the Southern Cone project but also from the wider contexts of negotiations at the hemispheric, multilateral and interregional levels. They rest on a form of ‘inter-national’ political activity, in which there is enhanced communication and cooperation between national labour and business actors in the individual countries of the region, but also, most interestingly, have started to assume important ‘transnationalised’ expression at

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the regional level in their political organisation and activity That is, a number of political networks and structures have started to emerge which do not merely reflect coordination between national actors but, rather, are distinctively regional in character. They also exist in a relationship of mutual conditioning with political and social relations at the domestic level, giving rise to interesting redefinitions of the ways in which state-labour-business relationships are articulated and states conduct their participation in the Mercosur and other international economic processes. The second is the emergence of a regional production structure and regionalised modes of corporate organisation, which we can group together in a conception of a regionalised market structure. This is manifest in strategies and patterns of investment by TNCs which increasingly are articulated with reference to the regional marketplace rather than the individual national ones within it, and in the investment and productive strategies of a range of indigenous firms which deploy this regional marketplace as a primary arena for a range of internationalisation strategies. It is also evident in the ways in which modes of corporate organisation, especially among TNCs, are based progressively on the rationalisation of operations, management structures and production processes in the regional context. Insertion into the global political economy The third layer of the model relates to a particular mode of insertion into the structures of the global economy. The Southern Cone region as a whole, and indeed the national economies within it, are inserted into these structures on the basis of a reliance on foreign capital inflows, which are central to the pursuit of the neoliberal development model in the region. The high levels of dependence on foreign capital across the region have produced a generalised vulnerability to internal and external shocks, especially in a global environment of highly mobile capital and highly volatile financial markets. The extent of this vulnerability has been slightly more pronounced—and indeed of more profound developmental consequence—in some parts of the region than others; equally, the ways governments and states have sought to manage it have taken various forms. Strategies of economic and political governance everywhere have been designed to minimise the very significant risks associated with capital flight, but these risks have been mitigated in the Chilean case by specific forms of financial regulation and banking supervision developed for this purpose. Episodes of capital flight were, by contrast, recurrent and serious in Argentina over the 1990s and integral to the Brazilian and Uruguayan crises of 1999 and 2002, respectively. The attraction of foreign capital flows, similarly, entails rather different challenges in different parts of the region. Investment in Argentina and Paraguay has been significantly complicated by an array of disincentives, ranging from economic instability and core economic governance problems in the former to the extent of the corruption and the lack of economic infrastructure or

266 CONCLUSION

investment opportunity in the latter. Conversely, the Brazilian economy has continued to attract capital flows despite the continued prevalence of many of the governance-related, macroeconomic and institutional conditions that what we identified as the ‘globalisation orthodoxy’ would consider repellent to investment. The common thread, at any rate, is a consistently high level of dependence on foreign capital and vulnerability to economic and financial instability, the national variations lying in the specific problems associated with this dependence and the ways in which, and the success with which, this vulnerability is managed. The dominance in the region of both TNCs and consortia comprising foreign and local interests (both financial and industrial) represents a further important facet of the region’s relationship with the global economy. It constitutes the principal mechanism by which the national and regional economies are integrated into the structures of global production, consistent with the ways in which production patterns in general have become progressively more ‘global’ in their reach and with the global social restructuring with which this process has been associated. We noted above, moreover, that the economic profile of the Southern Cone is dominated by natural resources and processing industries associated with natural resources. As such, the region’s insertion into global production struc-tures occurs overwhelmingly at the low value-added points of production chains. It is perhaps useful to point out the contrast with the manner in which, say, the Caribbean and Central American regions have been drawn into global production structures—that is, a manner premised to a much more pronounced degree on labour supply and export-processing activities associated with maquila industries and export-processing zones, and of course on their progressive integration into the concrete structures of the US economy on that basis (Phillips 2004c). Finally, the Southern Cone region is characterised by its comparatively low levels of openness to extra-regional trade. By the start of the 2000s ratios of both exports and imports to GDP for the Mercosur bloc remained under 10 per cent— considerably lower than the ratios pertaining to the AC, CACM and CARICOM. Yet these comparatively low levels of openness coexist with a marked reliance on trade, and we have already noted the prioritisation in the prevailing development models of domestic external sectors and regional export structures as motors of capital accumulation. The strategic dimensions of this reliance are evident in the very significant increase in participation in the WTO, the region’s stake within the multilateral trade process and the vigour with which trade agreements have been pursued with a range of partners inside and outside the Americas. These forms of participation in wider trading agendas have been undertaken at both the national level and, collectively, at the regional level. Both the structures of trade and strategic priorities in trade-related negotiations in turn reflect the production structures on which the Southern Cone Model rests.

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Revisiting the political economy of capitalist development We started in the opening paragraphs of the book from the basic premise that, in isolation from one another, neither the conceptual frameworks nor the empirical focus of mainstream CPE or IPE were adequate for understanding the contemporary political economy of capitalist development. Thus at the core of the book has been an argument for a meshing of CPE and IPE perspectives and a consideration of how we can most fruitfully go about this task. We also started from the premise that the study of the political economy of capitalist development in areas outside the triad of advanced industrialised economies required a refashioning of many of the dominant frameworks on offer to us. The closer integration of CPE and IPE perspectives is an essential first step in such an enterprise, along with an expansion of the frequently restricted empirical scope of many of the relevant debates in each of these traditions. But many of the core concepts and approaches which underpinned these debates came necessarily to require sustained reconsideration in order adequately to capture the political economy of capitalist development in different parts of the world. These final paragraphs can usefully turn to the broad theoretical and conceptual conclusions that can be drawn from the ways we have advanced with these central projects. The first returns to the issue of meshing CPE and IPE perspectives and advances the suggestion that this project crystallises, when taken to its logical conclusion, into a case for a broader conception of ‘political economy’ than that which currently prevails in the context of the territorial boundaries that are drawn anxiously by members of the various disciplinary constituencies. This is not to be interpreted as a negation of CPE or IPE, nor of the importance of the concerns and approaches on which each of these disciplinary endeavours is constructed. Rather, it represents a call for much greater cross-fertilisation between them and a more constructive recognition of their shared location in the broader intellectual tradition and enterprise of political economy. Recent processes of structural change have rendered purely comparative and purely international perspectives both frustratingly myopic and inadequate to the task of understanding the contemporary political economy— not ‘international’ political economy or ‘comparative’ political economy—of capitalist development. One frequently hears assertions that all good political economy is necessarily ‘international’ in any case, and undoubtedly Marx and other members of the classical political economy tradition have had a considerable hand in fostering this recognition. Yet all good political economy is also comparative. It thus seems to me that the attachment of the ‘C’ and the ‘I’ to a term that already by definition encompasses both of these is, in the first place, unnecessary and, in the second, counterproductive in that it has occasioned an unhelpful disciplinary fragmentation and a range of unhappy consequences for the theoretical and empirical study of contemporary political economy. A second broad conclusion, carrying these arguments into the realm of concrete analytical strategies, is that the study of political economy demands

268 CONCLUSION

attention to both its national and its transnational dimensions—to both the national units that traditionally have been the focus of comparative analysis, and the transnational structures which have constituted the primary concern of international political economists. This contention is important not only for its theoretical implications, captured in the need to integrate comparative and international approaches to studying political economy, but also for the ways in which it guides our empirical investigations. This in turn feeds into a third key conclusion, which can be stated quite briefly: that the ‘transnational’ is not necessarily ‘global’. The spatial organisation of contemporary capitalist systems is increasingly complex, and processes associated with globalisation represent only one dimension of this complexity. The regional dimensions of capitalist development are equally central to our understanding of contemporary structural processes, and require far more careful consideration in the relevant debates in both IPE and CPE. In short, notions of regional political economy need to be accommo-dated far more visibly within dominant understandings of transnational political economy and contemporary capitalist development. A fourth broad conclusion concerns the implications of these arguments for the core notion of path dependence. I have alluded at various points in the book to the need to dispense with the stricter forms of adherence to this notion that one finds in a good deal of CPE, of both the institutionalist variety (where path dependence arises from historical institutional structures) and the Marxist variety (where path dependence arises from nationally specific class configurations). Another dominant leitmotif has been, conversely, that attempts in large parts of mainstream IPE to dispense with notions of path dependence in favour of a hypothesis of convergence, or in favour of an argument that forms of national diversity are being substantially eroded by the impact of globalisation, are excessively cavalier and equally inappropriate. What the analysis here has shown, it is hoped, is that transnationalisation (globalisation and regionalisation) processes exist in a relationship of mutual influence with national political economy. That is, robust forms of national contingency and distinctiveness persist at the same time as the contours of national political economies are profoundly influenced and moulded by the impacts of structural change. What we need, therefore, is a revised or modified understanding of path dependency which leaves appropriate room for understandings of the very complex interaction of continuing national specificity and the reconfiguring influences of structural change, and for the central argument that the particular adaptation of particular national political economies to new structural contexts is fundamentally conditioned by their distinctive sets of historical institutional and social configurations. For this, I suggest that the term ‘path conditioning’ offers a considerable improvement on the excessively determinist connotations of path dependence. Processes of adaptation are, however, conditioned not only by institutional structures but also by politics, and indeed a reaffirmation of the fundamental and intrinsic centrality of politics emerges as the most forceful conclusion of all from

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our analysis. It constitutes the reason why highly contingent and specific forms of national political economy will continue to exist even within a set of broader transnationalising processes. Adaptation to new structural environments will likewise be conditioned by distinctive sets of political and policy choices on the part of governments, states and myriad social actors, even while these processes act in turn to condition—and in many senses restrict—the landscape of choices available to these actors. Structural trends are inherently political, driven by politics and fundamentally constituted by complex webs of political choices at both the transnational and national levels. The future of the Southern Cone Model, in this light, is best understood as comparable to Vivien Schmidt’s (2002:309) characterisation of that of European capitalism—‘not as one future but as several’—in which different paths will continue to be pursued towards accommodation with the emerging regional political economy and the wider structural, and political, context.

Notes

1 Introduction 1 The term ‘South America’ is understood in this book to refer to the collection of Southern Cone and Andean countries that occupy the stretch of mainland continent south of the Panama-Colombia border. ‘Latin America’ denotes the parts of the Americas located south of the US-Mexico border, which comprise the countries of South and Central America, Mexico and, where indicated, the Caribbean.

2 The political economy of capitalist development 1 It is interesting to note in this context that Katzenstein’s (1985) work on small states sought explicitly to rectify what he acknowledged to be an overemphasis on the ‘domestic determinants of policy’ in his earlier (1978) work, by means of a much more considered focus on the influence of international variables on national policy (Katzenstein 2003). Of course, his dominant concern remained with national policy and national models, but his work was important as an early statement of the need to build bridges between international and comparative political economy. 2 Hall and Soskice (2001a, 2001b) offer a rather different twofold classification, in which they distinguish between ‘liberal market economies’ and ‘coordinated market economies’. While the former category seems relatively unproblematic in its correlation with the ‘Anglo-American’ model in the bulk of the literature, the utility of deploying a single category for the study of ‘the rest’ is open to considerable question. Its analytical value for understanding the differences between the German, Swedish and Japanese models seems to be minimal, as indeed it also is, as Katzenstein has recently observed (2003:26), for any more considered analysis of the regulatory and constitutive aspects of institutions. 3 ECLA became ECLAC (United Nations Economic Commission for Latin America and the Caribbean) in 1984.

3 Post-war development and regional integration

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1 The extent of the participation of TNCs in Latin America marks one of the key differences between Latin American and Asian industrialisation, and also between versions of the ‘developmental state’ which emerged in these regions. The usual comparative cases in Latin America are Brazil and, to a lesser extent, Mexico. For a comparative analysis of Asian and Latin American industrialisation, see the contributions to Gereffi and Wyman (1990). 2 A regional cooperation scheme was also established in Central America at the end of the 1950s with the aim of constructing a Central American Common Market (CACM). Its agenda reached beyond that of the LAFTA to feature cooperation in a variety of policy areas and an active process of regional institutionbuilding. 3 Membership: Argentina, Brazil, Bolivia, Colombia, Chile, Cuba, Ecuador, Mexico, Paraguay, Peru, Uruguay and Venezuela. 4 Subregional integration was also taking shape at the time in the Caribbean: the Caribbean Free Trade Association (CARIFTA) was established in 1968, which then became the Caribbean Community (CARICOM) in 1973. 5 The BNDE became BNDES (Banco Nacional de Desenvolvimiento Econômico e Social/National Economic and Social Development Bank) in 1982.

4 Versions of neoliberalism 1 The Brady Plan was instigated in 1989 by US Treasury Secretary Nicholas Brady, and was oriented to the reduction of debt and debt-service levels. 2 Author’s interviews, Buenos Aires, July 1995. 3 Author’s interview, Buenos Aires, 31 July 1995. 4 It should be recalled that Pinochet himself only took over the presidency in June 1974, some time after the military coup, and that the Chicago Boys and their doctrine became ascendant from this time. 5 In conjunction with Andrew Nickson.

5 The Mercosur project 1 This is not to suggest that the FTA model or North American regionalism are in some way ‘apolitical’, but rather that the nature of the project demands a different sort of political activity. The contrast between the NAFTA and the Mercosur, in addition, is also stylised and should not be over-drawn—in many senses the NAFTA arrangement goes beyond the traditional FTA model in that it involves a wide range of issue areas which go beyond trade and involve real pressures towards the de facto establishment of a common external tariff (see Wilkinson 1996:30–2).

6 The reconfiguration of regionalist dynamics

272 NOTES

1 The Cairns Group was established in 1986 and has 17 members: Argentina, Australia, Bolivia, Brazil, Canada, Chile, Colombia, Costa Rica, Guatemala, Indonesia, Malaysia, New Zealand, Paraguay, Philippines, South Africa, Thailand and Uruguay. See http://www.cairnsgroup.org. 2 Other members of the G-7: Morocco, New Zealand, Norway, Switzerland and Thailand. 3 For a useful and detailed breakdown of Latin American countries’ membership of coalitions in the multilateral system, see V.Silva (2001:58). 4 Paragraph 14 reads: We also recognize the progress achieved in the implementation of the obligations assumed by our governments within the context of the Uruguay Round of multilateral trade negotiations, as well as the activities associated with the work program agreed at the Fourth Ministerial Conference of the World Trade Organization…. We reaffirm our commitment to complete the negotiation of the Doha Development Agenda by January 2005. Given that the FTAA will be compatible with and will build on the WTO, where possible, our negotiations must take cognizance of the ongoing developments in the WTO, which constitute part of the Doha Agenda. In this regard we attach importance to achieving the objectives of particular interest to FTAA countries. (emphasis added)

The full text of the Declaration can be found at http://www.ftaa-alca.org/ ministerials/quito/minist—e.asp. 5 It should nevertheless be noted that the initial definition of this structure was in part the result of Latin American influence. In talks preceding the 1994 Miami Summit, Brazilian negotiators failed to win support for their argument that it was premature to define the nature and coverage of the free-trade agreement. Latin American negotiators opted instead, on the basis of a Mercosur proposal, to include on the USTR’s initial list of disciplines those areas in which the US was seen to contravene the principles of free trade: namely, agriculture and CDMs (Feinberg 1997:137; also Svarzman 1998:53). 6 Interestingly, this strategy was received sceptically by a number of Brazilian industrialists’ organisations, which feared this would fuel the bilateralist momentum of the US (Clarín, 22 January 2003). 7 A third summit will be held in Bolivia in 2004. 8 Author’s interviews in Lima, September 2001. 9 For the text of this agreement, see http://www.comunidadandina.org/documentos/ actas/CanMer6-l2–02.htm. 10 Interviews in Buenos Aires, June-July 2000. One official saw the ‘little Maastricht’ as offering far more potential for entertaining academics than for becoming a priority in the Mercosur! 11 The ‘bottom-up’ approach to liberalisation of trade in services contrasts with the ‘top-down’ approach adopted in the NAFTA and in the AC. The latter approach is premised on the ‘liberalisation of all forms of discriminatory treatment in all service sectors’ through a process by which members compile a ‘negative listing’

NOTES 273

of all areas which do not yet conform with these principles (see Abugattas Majluf and Stephenson 2003:103–6). 12 Respectively, the Protocolo de Colonia para la Promoción y Protección Recíproca de Inversiones en el Mercosur (Colonia Protocol on the Reciprocal Promotion and Protection of Investment in the Mercosur) and the Protocolo sobre la Promoción de Inversiones Provenientes de Estados no Partes del Mercosur (Protocol on the Promotion of Investment from Non-Mercosur States).

7 Labour 1 Chile and Venezuela are the only countries in which labour has continued to coalesce under a single peak organisation (Weyland 1996a:69). 2 An SGT-11 was subsequently recreated in 1996 and covers health issues. 3 The text of the Declaration is available at http://www.comunidadandina.org/ documentos/actas/dec31–8–00.htm. 4 For excellent detailed analyses of these civil society networks, see Botto and Rodríguez López 2001; Casaburi and Quiliconi 2001; Guiñazú 2001; and Korzeniewicz and Smith 2001.

8 Business 1 For accessible analyses of the process and significance of financial globalisation, see, inter alia, Cerny 1994b; Helleiner 1994; Cohen 1996; Eichengreen 1996; Germain 1997; and Underhill 1997. 2 For detailed analyses of the financial crises of the late 1990s, see, among many others, Haggard and MacIntyre 1998; Gills 2000; Higgott and Phillips 2000; and Jayasuriya and Rosser 2001. For discussions of vulnerability and the management of capital flows, see Kahler 1998; and, on Latin America, Ffrench-Davis and Griffith-Jones 1995; and Hausmann and Rojas-Suárez 1996. 3 See, respectively, http://www.socma.com.ar and http://www.pecom.com.ar. 4 It should be remembered, however, that business did derive certain benefits in the 1980s from the Alfonsín government, the most important of which were the electoral defeat of the Peronists and the policy of confronting the unions, even though this was ultimately unsuccessful (Acuña 1995:270). 5 See ‘Se anunciarán medidas para la reactivación textil’ [Measures to be announced for reactivation in the textiles sector], La Nación, 2 May 2001; ‘Plan de la Cancillería para impulsar las exportaciones’ [Foreign Ministry plan for export promotion], La Nación, 11 February 2002; ‘Buscan promover la competividad de las pequeñas empresas’ [Intentions to promote competitiveness of small and medium-sized firms], La Nación, 14 April 2001. 6 A number of other factors have also traditionally shielded capital from these sorts of vulnerability in comparison with other regional economies, including indexation, import restrictions and the lesser weight of the external debt relative to GDP, internal debt and export capacity (Palermo 1998:112–13).

274 NOTES

7 ‘SOCMA: Taking Mercosur Seriously’, Argentina Monthly, August 1999, http:// www.invertir.com. 8 See the interview with Francisco Macri (president of SOCMA) for the Uruguayan radio station Radio El Espectador, 6 October 1999, at http://www.espectador.com/ text/especial/macri.htm. 9 Interviews with business leaders in Argentina and Chile, July 2000. 10 Interview with UIA president José Ignacio de Mendiguren, World Investment News (WINNE), 24 April 2001, http://www.winne.com/argentina. 11 In the early 1990s the size of the Chilean stock market, measured by the ratio of capitalisation to GDP, exceeded that of the US and the UK (Welch 1993:15).

9 States 1 Legislative relations during the 1980s, conversely, were characterised by conflict between the government and the opposition (see Mustapic and Ferretti 1997:10– 12).

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Index

Abaen (Agencia Brasileño-Argentino de Energía Nuclear, Brazilian-Argentine Nuclear Energy Agency) 115 ABF (Americas Business Forum) 174, 212, 213, 216 Abramowitz, Moses 17 AC (Andean Community of Nations, Comunidad Andina de Naciones) 50, 264 Acta de Buenos Aires 88 Acta para la Integración ArgentinoBrasileña 88 Acuerdo Marco Tripartito (Chile) 164 Adelante Mercosur 138 Administración Federal de Ingresos Públicos (Argentina) 234 AEA (Asociación Empresaria Argentina, Argentine Business Association) 190 ALADI, see LALA ALALC, see LAFTA Alfonsín, Raúl 66, 71, 157, 230, 232 Allende, Salvador,56, 75 Amorim, Celso 115 Anglo-American capitalism 18, 61, 218, 257–8 ANSSAL (Administración Nacional del Seguro de Salud, National Health Insurance Administration) (Argentina) 159 APEC (Asia Pacific Economic Cooperation) 35 Argentina 53–54, 66–70, 102–3, 157–61, 188–93, 229–35, 259; business in 188–93, 207–8; and developmentalism 54; GATT membership 49;

industrialisation, post-war 53–4; labour in 149–50, 152, 153, 155, 157–6; LAFTA membership 49; neoliberalism in 66–70; Peronism 53–4, 66, 157; privatisation in 68–69; and the Mercosur 102–3; state reform in 229–35 Argentine-Brazilian Integration Act, see Acta para la Integración ArgentinoBrasileña ASC, see HSA ASEAN (Association of South East Asian Nations) 35 Asexma (Asociación de Exportadores de Manufactura, Association of Exporters of Manufactured Products) (Chile) 201 Austral Plan (Argentina), see Plan Austral Aylwin, Patricio 65, 77 Banco de la Nación Argentina 137 Bank of the Argentine Nation, see Banco de la Nación Argentina Battle, Jorge 81 Beeson, Mark 27, 222 Bell, Stephen 27 BICE (Banco de Inversión y Comercio Exterior, Investment and Foreign Trade Bank) (Argentina) 137 Bieler, Andreas 145 bloc bargaining 121, 125, 118–9, 126–7 BNDE (Banco Nacional de Desenvolvimiento Econômico, National Economic Development Bank) (Brazil) 55

303

304 INDEX

BNDES (Banco Nacional de Desenvolvimiento Econômico e Social, National Economic and Social Development Bank) (Brazil) 138, 197 Bolivia 6–7 Boyer, Robert 17, 31, 33 Brady Plan 64, 68, 71,81 Brasília Protocol for Dispute Settlement, 129 Brazil 54–6, 70–5, 100–2, 161–4, 193–8, 235–9, 256, 257, 258, 260; business in 193–8, 208; and clientelism 236, 238; and developmentalism 55, 56; GATT membership 49; industrialisation, postwar 54–6; labour in 149–50, 151, 152, 153–4, 155, 156, 161–164; LAFTA membership 49; neoliberalism in 70–5; and the Mercosur 100–3; state reform in 235–9; trade liberalisation in 72 Bresser Plan (Brazil), see Plano Bresser Broad Front (Uruguay), see Frente Amplio Büchi, Hernán 76 Buenos Aires Act, see Acta de Buenos Aires business 181–216; and capital flows 183–7; and market-led regionalisation 206–10; and the Mercosur 210–2; and the FTAA 211–2; in Argentina 188–93, 207–8; in Brazil 193–8, 208; in Chile 198–203; in IPE 181–2; in Paraguay 203–4; in Uruguay 203–6 CACM (Central American Common Market, Mercado Común de Centroamérica) 267n5, 264 CAF (Corporación Andina de Fomento, Andean Promotion Corporation) 126 CAI (Consejo Argentino de la Industria, Argentine Industrial Council) 190

Cairns Group 118 CAN (Comunidad Andina de Naciones, Andean Community of Nations), see AC capital controls (Chile) 78–9, 199 Caracas Protocol 50 Cardoso, Fernando Henrique, 25, 26, 71, 73, 74, 138, 162, 237–8 CARICOM (Caribbean Community) 268n7, 264 CARIFTA (Caribbean Free Trade Association) 268n7 Carta de Derechos Fundamentales 171 Carta Social 139 CAUCE (Convenio Argentino-Uruguayo de Complementación Económica, Argentine-Uruguayan Agreement on Economic Complementation) 105, 106 Cavallo, Domingo 65, 67 CCC (Corriente Clasista y Combativa, Classist and Combative Current) (Argentina) 176 CCLA (Consejo Consultativo Laboral Andino, Andean Consultative Council on Labour Issues) 173 CCM (Comisión de Comercio del Mercosur, Mercosur Trade Commission) 98 CCSCS (Coordinadora de Centrales Sindicales del Cono Sur, Coordinating Body of Southern Cone Labour Unions) 140, 171, 172, 173, 174, 175 CEA (Consejo Empresial Argentino, Argentine Business Council) 191, 192–3 CES (Consejo Económico y Social, Economic and Social Council) (Chile) 201 CET (common external tariff) 88, 102 CGE (Confederación General Económica, General Economic Confederation) (Argentina) 53 CGI (Confederación General de la Industria, General Confederation of Industry) (Argentina) 190 CGT (Confederación General de Trabajadores, General Workers’ Confederation) (Argentina) 53, 158, 159, 160, 178

INDEX 305

CGT (Confederação General dos Trabalhadores, General Workers’ Confederation) (Brazil) 162 Charter for Fundamental Rights, see Carta de Derechos Fundamentales Chicago Boys, 65, 74, 75, 77 Chile 56–7, 75–9, 106–8, 164–7, 198–203, 239–44, 256, 258, 260; ‘estado de compromiso’ (compromise state) 56; financial regulation 78–79; GATT membership 49; industrialisation, post-war 56–7; labour in 149–51, 151, 152, 153, 155, 156, 164–7; LAFTA membership 49; and Mercosur, 106–8; neoliberalism in 65, 75–79; ‘Siete Modernizaciones’ (Seven Modernisations) 76, 77; state reform in 239–44 Chudnovsky, Daniel 194 CICI (Comisión Inter-Ministerial de Comercio Internacional, InterMinisterial Comisión on International Trade) (Argentina) 233 CICYP (Consejo Interamericano de Comercio y Producción, Interamerican Council for Trade and Production) 213 CIOSL/ORIT (Organización Regional Interamericana de Trabajadores, InterAmerican Regional Workers’ Organization) 174 CIU (Cámara de Industrias del Uruguay, Chamber of Uruguayan Industry) 205 classical political economy 3–4, 265 CLAT/CML (Central Latinoamericana de Trabajadores, Latin American Workers’ Umbrella Organisation) 174 CLT (Consolidação das Leis do Trabalho, Consoliated Labour Laws) (Brazil) 161 CMC (Consejo Mercado Común, Common Market Council) 96–8 CMG (Grupo Mercado Común, Common Market Group) 96–8 CNCE (Comisión Nacional de Comercio Exterior, National External Trade Commission) (Argentina) 234

CNI (Confederação Nacional da Industria, National Confederation of Industry) (Brazil) 195 CNT (Central Nacional de Trabajadores, National Workers’ Central) (Paraguay) 168 Coates, David 17, 19, 31, 33, 146 Código Laboral (Chile) 166 Collor de Melo, Fernando 71–2, 237–8 Colonia Protocol on the Reciprocal Promotion and Protection of Investment in the Mercosur, see Protocolo de Colonia para la Promoción y Protección Recíproca de Inversiones en el Mercosur Colorado Party (Uruguay) 205 COMISEC (Comisión Sectorial, Sectoral Commission) (Uruguay) 177 Comisión Conjunta de Comercio e Inversion 122 Comisión de Integración y Reconversion Productiva (Uruguay) 169 Comisión de los 15 (Argentina) 158 Comisión Nacional de Integración (Paraguay) 178 Comisión Nacional para la Descentralización del Estado (Paraguay) 246 Comisión Sindical del Mercosur 171 Comisión Tripartita Mixta (Argentina) 160 Comissão de Constitução e Justiça (Brazil) 164 Commission for Integration and Productive Reconversion (Uruguay), see Comisión de Integración y Reconversión Productiva Commission of 15 (Argentina), see Comisión de los 15 Committee on Constitution and Justice, see Comissão de Constitução e e Justiça Comparative Political Economy, see CPE ‘competition state’ 30 Concertación (Chile) 165, 203 Concertation for Growth (Paraguay), see Concertación para el Crecimiento Concertación para el Crecimiento (Paraguay) 169, 206

306 INDEX

CONAPRO (Concertación Nacional Programática, National Programmatic Concertation) (Uruguay) 81 Convertibility Plan (Argentina), see Plan de Convertibilidad CORFO (Corporación de Fomento de la Producción, Corporation for the Promotion of Production) (Chile) 56, 200 Cox, Robert 223–4, 259 CPC (Comisión Parlamentaria Conjunta, Joint Parliamentary Commission) (Mercosur) 98, 140 CPC (Confederación de Producción y Comercio, Confederation of Production and Commerce) (Chile) 201, 202, 203 CPE (Comparative Political Economy) 3– 7, 9–11, 145, 181, 182, 221, 222, 254, 264–6 CPT (Confederación Paraguaya de Trabajadores, Paraguayan Workers’ Confederation) 168 CRG (Comité de Representantes Gubernamentales sobre la Participación de la Sociedad Civil, Committee of Governmental Representatives on Civil Society Participation) 213, 216 Crouch, Colin 32 Cruzado Plan (Brazil), see Plano Cruzado CTA (Congreso de Trabajadores Argentinos, Argentine Workers’ Congress) 160, 173 CTCS (Consejo de Trabajadores del Cono Sur, Council of Southern Cone Workers) 173, 175 Cumbre Sindical del Mercosur 173 CUT (Central Unica dos Trabalhadores, United Workers’ Central) (Brazil) 162– 3, 173, 175, 176 CUT (Central Unitaria de Trabajadores, Unitary Workers’ Central) (Chile) 165 CUT (Central Unitaria de Trabajadores, Unitary Workers’ Central) (Paraguay) 168, 173, 176 da Silva, Luiz Inácio (‘Lula’) 115, 120, 177 Declaración de Santa Fe 188

Declaración Sociolaboral del Mercosur 140 Democracy Party (Chile), see Partido por la Democracia desarrollismo, see developmentalism DDE (Decreto de Desregulación Económica, Economic Deregulation Decree) (Argentina) 67, 68, 230 Decree Law 600/DL 600, see Estatuto de Inversiones Extranjeras Defence of Competition Law (Argentina), see Ley de Defensa a la Competencia dependency theory 23–7, 48, 52 ‘dependent development’ 56 development theory 22–8 developmental states (Asia) 222, 227–8, 229 developmental states (Southern Cone) 54– 5, 57 developmentalism 27, 44, 70, 78 DIRECON (Dirección General de Relaciones Económicas Internacionales, General Directorate of International Economic Relations) (Chile) 178, 202, 214,244 Duhalde, Eduardo 115 EAI (Enterprise for the Americas Initiative) 119 ECLA (United Nations Economic Commission for Latin America) 23, 46– 8, 51 ECLAC (United Nations Economic Commission for Latin America and the Caribbean) 62 Economic Stabilisation Programme (Brazil), see Programa de Estabilização Econômica EEC (European Economic Community) 44, 47, 48 ‘embedded autonomy’ 17, 227 ‘embedded liberalism’ 219 Estatuto de Inversiones Extranjeras (Chile) 76 Europe: post-war growth patterns 18; globalisation and European states 220– 1

INDEX 307

EU (European Union) 35, 37, 38, 124–5, 170, 179, 206, 220, 239, 241, 247 Evans, Peter 17, 219, 221,222 Export-Ar Foundation (Argentina), see Fundación Export-Ar Faletto, Enzo 25, 26 FCES (Foro Consultativo Económico y Social, Consultative Forum on Economic and Social Issues) 130, 171, 175, 176, 177 FDI (foreign direct investment) 45, 89 FEA, see ABF Federal Administration of Public Revenue (Argentina), see Administración Federal de Ingresos Públicos FEDEXA (Federación de Exportadores Agroindustriales, Federation of AgroIndustrial Exporters) (Paraguay) 204 Fernández, Roque 65, 136 FIERGS (Federaçao das Indústrias do Estado de Rio Grande do Sul, Federation of Industries of the State of Rio Grande do Sul) 195 FIESP (Federaçao das Indústrias do Estado de São Paulo, Federation of Industry of the State of São Paulo) 139, 195, 196 Foreign Investment Law (Argentina), see Ley de Inversion Extranjera Foreign Investment Statute (Chile), see Estatuto de Inversiones Extranjeras Foreign Trade Law (Argentina), see Ley de Comercio Exterior FOSIS (Fondo de Solidaridad e Inversión Social, Solidarity and Social Investment Fund) (Chile) 243 Foxley, Alejandro 65 Franco, Itamar 71 Frank, André Gunder 25 Frei, Eduardo 77 Frente Amplio (Uruguay) 169 Frieden, Jeffry 57 Friedman, Milton 75 Frondizi, Arturo 44, 54 FS (Força Sindical, Union Force) (Brazil) 162

FSE (Fundo Social de Emergência, Social Emergency Fund) (Brazil) 72 FTAA (Free Trade Area of the Americas) 119–25, 173, 174, 177, 178, 210, 212, 213, 214, 215, 216, 233, 239, 241, 247, 248, 249, 262 Fundación Export-Ar (Argentina) 137 G-7 (Group of Seven) 119 Garrett, Geoffrey 220 GATS (General Agreement on Trade in Services) 133 GATT (General Agreement on Tariffs and Trade) 48, 49 Gerschenkron, Alexander 23 Gill, Stephen 222–3 Giorgi, Debora 128, 138 globalisation 28–34, 61–66; and the state 29–33, 217–24 GMM (Grupo de Monitoreo Macroeconómico, Macroeconomic Monitoring Group) 132, 133 good governance 63, 224–9, 258 Group of 8, see Grupo de los 8 Group of Exporters (Argentina), see Grupo de Exportadores Gourevitch, Peter 14 Grupo de Exportadores (Argentina) 191 Grupo de los 8 159 Guilhon Albuquerque, José Augusto 206, 208 Guterres, Antonio 124 Haggard, Stephen 181 Hay, Colin 15–6 Held, David 28, 29 Hettne, Björn 27 Hirschman, Albert 15 Hirst, Paul 60 Hollingsworth, J.Rogers 17, 31, 33 HSA (Hemispheric Social Alliance) 174, 175 IDB (Inter-American Development Bank) 68, 248 IFIs (International Financial Institutions) 18, 29–30, 63–4, 224–7

308

ILO (International Labour Organisation) 141, 160 IMF (International Monetary Fund) 36, 54, 63, 68, 75, 115, 221 Immediate Action Plan (Brazil), see Programa de Ação Imediata Industrialisation 43–4, 46–58 Instituto Monetario del Mercosur 132 International Political Economy, see IPE ‘internationalisation of the state’ 223–4, 255, 259 inward-looking development strategies 8, 43, 46–52 IPE (International Political Economy) 3–6, 9–11, 144, 145, 181, 217, 221, 264–6; critical approaches 27, 222–4 ISI (Import Substituting Industrialisation) 43–6, 58–9, 188, 189, 193, 237 Joint Commission on Trade and Investment, see Comisión Conjunta de Comercio e Inversión July Plan (Argentina), see Plan de Julio Katzenstein, Peter 254 Kirchner, Néstor 69, 235 Klein, Wolfram 146 Kosacoff, Bernardo 188, 194 Kubitschek, Juscelino 44, 55, 138 Labour 144–80, 257; in Argentina 157–61; in Brazil 161–4; in Chile 164–7; and (post) Fordism 146, 154; and globalisation 145–7; and informalisation 152–4, 255; in IPE 144–5; labour flexibilisation 147–8, 255; in the Mercosur 170–76; and migration 153; and neoliberalism 145–7; in Paraguay 167–8 ; and regionalised labour politics 170–80; and skills levels 155–7; in the Southern Cone 149–52, 153–7, 178–80;

and transnationalisation of 145; and unemployment 148, 255; and unionisation 154–5; in Uruguay 168–9; and wage levels 151–2 Labour Code (Chile), see Código Laboral Labour Market Observatory, see Observatorio del Mercado del Trabajo Labour Plan (Chile), see Plan Laboral Lacalle, Luis 81 LACM (Latin American Common Market) 49 Lafer, Celso 114 LAFTA (Latin American Free Trade Association) 8, 48–52, 58–9, 109 Lagos, Ricardo 77, 65 LAIA (Latin American Integration Association) 49 Lambert, Peter 246 Lamy, Pascal 65 Lampreia, Felipe 114, 127 Latin America: industrialisation in 43–4, 46–52; regional integration in 46–52 Law on Defence of Argentine Labour, see Ley de Defensa del Trabajo Argentino Leathley, Christian 129 LEE (Ley de Emergencia Económica, Law of Economic Emergency) (Argentina) 67, 68, 230 Ley de Defensa del Trabajo Argentino 161 Ley de Comercio Exterior (Argentina) 67 Ley de Defensa a la Competencia (Argentina) 134 Ley de Inversión Extranjera (Argentina) 68 Ley de Reforma del Estado (Argentina) 67 Liberal Party (Uruguay) 205 ‘little Maastricht’ 113, 130–1 López, Andrés 194 McMichael, Philip 33, 35, 218 Macchi, Luis González 80, 246 Machinea, Luis 138 Magalhaes, Antonio Carlos 113 Magariños, Carlos 48 Marco de Referencia para el Diálogo (Chile) 164

INDEX 309

Marxism 17–20, 146 Maxfield, Sylvia 181 Menem, Carlos 65–6, 70, 157, 158, 191, 229–30, 236 Mercosur 7–9, 85–109, 113–143, 261–2; Argentina in 102–3; Brazil in 100–2; Brazilian unilateralism 102, 103; Chile in 106–8; industrial policy 136–9; institutionalisation 96–9; investment rules 135–6; macroeconomic harmonisation 130–3; Paraguay in 104–5; ‘re-launching’ of 113–4, 116; social policy 139–4; trade policy 133–34; Uruguay in 104–6 Mercosur Monetary Institute, see Instituto Monetario del Mercosur Mercosur Social and Labour Declaration, see Declaración Sociolaboral del Mercosur Mercosur Trade Union Commission, see Comisión Sindical del Mercosur Mercosur Trade Union Summit, see Cumbre Sindical del Mercosur Mercosur-EU negotiations 124–5 Mercosur Parliament, see Parlamento del Mercosur Mexico 44, 45, 50, 51, 57, 183, 185, 212 Mixed Tripartite Commission, see Comisión Tripartita Mixta models of capitalism 9–11, 16–22, 254 Moore, Barrington 23 MTA (Movimiento de Trabajadores Argentinos, Argentine Workers’ Movement) (Argentina) 160 multi-level governance 38 NAFTA (North American Free Trade Agreement) 85, 87, 102, 107, 120, 140, 170 National Commission for the Decentralisation of the State (Paraguay), see Comisión Nacional para la Descentralización del Estado

National Integration Commission (Paraguay), see Comisión Nacional de Integración neo-Gramscian approaches in IPE 14, 223 neoliberalism 61–6; in Argentina 66–70; in Brazil 70–5; in Chile 75–9; and IFIs 63, 64–5; in Paraguay 79–80; and regional integration 85–7; in Uruguay 81–3; versions of 60–84 new political economy 13–4, 27–8 Nickson, Andrew 246 NIEO (New International Economic Order) 48 Obras Sociales (Argentina) 158, 159 Observatorio del Mercado del Trabajo 172 OECD (Organisation for Economic Cooperation and Development) 17, 144, 220 Oliveira Holzhacker, Denilde 206, 208 Olivos Protocol, see Protocolo de Olivos Onganía, Juan 54 open regionalism 37, 86, 261 Ostry, Sylvia 113 Ouro Preto Protocol, see Protocolo de Ouro Preto Paraguay 57–8, 79–80, 104–6, 167–8, 203– 4, 244–7, 256, 257, 259, 260; business in 203–4; industrialisation, post-war 57; labour in 149, 150–1, 153, 154, 155, 156, 157, 167–8; LAFTA membership 49; neoliberalism in 79–80; in the Mercosur 104–5; state reform in 244–7 Parlamento del Mercosur 129 Partido por la Democracia (Chile) 203 ‘path conditioning’ 266 path dependence 14, 18–9, 265–6 Payne, Anthony 14, 39

310 INDEX

PDT (Partido Democrático Trabalhista, Democratic Labour Party) (Brazil) 164 PEC (Protocolo de Expansion Comercial, Trade Expansion Protocol) (Uruguay) 106 PED (political economy of development) 23, 26, 27 PEE (Programa Especial de Exportaçãos, Special Export Programme) (Brazil) 198 Permanent Review Tribunal, see Tribunal Permanente de Revisión Perón Juan 53–4, 157 Philip, George 224, 228 PICE (Programa de Integración y Cooperación Económica, Integration and Economic Cooperation Programme) 88 Piñera, Sebastián 65 Pinochet, Augusto 56, 75, 77, 164, 167, 198–9, 239–40, 241, 242–3 PIT-CNT (Plenario Intersindical de Trabajadores-Central Nacional de Trabajadores, Inter-Union Workers’ Plenary-National Workers’ Central) (Uruguay) 168–9, 173 PJ (Partido Justicialista, Peronist Party) (Argentina) 157, 230, 236 Plan Austral (Argentina) 66 Plan BB II (Argentina) 67 Plan Bunge y Born (Argentina) 67 Plan de Convertibilidad (Argentina) 95 Plan de Julio (Argentina) 66 Plan Laboral (Chile) 164 Plan Primavera (Argentina) 65 Plano Bresser (Brazil) 71 Plano Collor 71 Plano Collor II 71 Plano Cruzado (Brazil) 71 Plano de Metas (Brazil) 55, 138 Plano Real (Brazil) 71, 162, 235, 237–8 Plano Verão (Brazil) 71 PMs (provisional measures, medidas provisórias) (Brazil) 235, 237 Polanyi, Karl 222 political economy of development, see PED Prebisch, Raúl 23–4, 44, 45 Programa de Ação Imediata (Brazil) 72

Programa de Estabilização Econômica (Brazil) 72 Protocol on the Defence of Competition, see Protocolo de Defensa a la Competencia Protocol on the Promotion of Investment from Non-Mercosur States, see Protocolo sobre la Promoción de Inversiones Provenientes de Estados no Partes del Mercosur Protocolo de Colonia para la Promoción y Protección Recíproca de Inversiones en el Mercosur 269n26 Protocolo de Defensa a la Competencia 134 Protocolo de Olivos 129 Protocolo de Ouro Preto 88, 105 Protocolo sobre la Promoción de Inversiones Provenientes de Estados no Partes del Mercosur 269n26 PSDB (Partido da Social Democracia Brasileira, Brazilian Social Democratic Party) 196 PT (Partido dos Trabalhadores, Workers’ Party) (Brazil) 164 PYMEs (pequeñas y medianas empresas, small and medium sized firms) 137, 159, 161, 190, 192–3, 209, 213, 257, 258 Radical Party (Argentina) 53, 205 Radice, Hugo 34, 35 Real Plan (Brazil), see Plano Real Reference Framework for Dialogue (Chile), see Marco de Referencia para el Diálogo Reform of the State Law (Argentina), see Ley de Reforma del Estado regionalisation 35–9 regionalism, 35–9; in European Union 38; in IPE 40; in Latin America 46–52; in Mercosur 88–96, 108–9; and multi-level governance 38; and neoliberalism 85–7

INDEX 311

REIH (Red Empresial para la Integración Hemisférica, Business Network for Hemispheric Integration) 213 Rhineland capitalism 18 Rhodes, Martin 220 Robinson, William 15, 146, 153, 254 Rodríguez, Andrés 79 Roig, Manual 67 Ruggie, John Gerard 219 SAFTA (South American Free Trade Area) 125–6 SAM (Secretaría Administrativa del Mercosur, Mercosur Administrative Secretariat) 98 Sanguinetti, Julio María 81 Santa Fe Declaration, see Declaración de Santa Fe Sarney, José 71 Schmidt, Vivien 266 Schneider, Ben Ross 181 SENALCA (Seção Nacional de Coordenação dos Assuntos Relativos al ALCA, National Section for the Coordination of FTAA-Related Matters) (Brazil) 177, 214, 239 SFF (Sociedad de Fomento Fabril, Society for Manufacturing Promotion) (Chile) 166, 202, 203 Siavelis, Peter 242 SNA (Sociedad Nacional de Agricultura, National Agricultural Society) (Chile) 201 SNM (Sociedad Nacional de Minería, National Mining Society) (Chile) 201 Social Charter, see Carta Social Social Works, see Obras Sociales SOFOFA, see SFF SONAMI, see SNM Soskice, David 16 Sourrouille, Juan 66 Spring Plan (Argentina), see Plan Primavera SRA (Sociedad Rural Argentina, Argentine Rural Society) 53 states 217–50; Argentina 229–35;

Brazil 235–9; Chile 239–44; and globalisation 217–24; and internationalisation 259–60; Paraguay 244–7; regionalised forms of state 148–9; and regionalism 248–9; second generation reform 225–7; Uruguay 247–8 Strange, Susan 4, 12 Stroessner, Alfredo 79, 244–5 structuralism 23–4, 43–6 Summer Plan (Brazil), see Plano Verão Targets Plan (Brazil), see Plano de Metas ‘tercermundismo’, see Third-Worldism Thatcher, Margeret 64 Third-Worldism 49 Thompson, Grahame 60 TNCs (transnational corporations) 45, 56, 194–5, 206–8, 215, 262–3 Tratado de Asunción 88, 170 Tratado de Integración, Cooperación y Desarrollo 88 Tratado de Montevideo 49, 50 Treaty of Asunción, see Tratado de Asunción Treaty of Montevideo, see Tratado de Montevideo Treaty on Integration, Cooperation and Development, see Tratado de Integración, Cooperación y Desarrollo Tribunal Permanente de Revisión 129 TRIMS (Trade Related Investment Measures) 231 Tripartite Framework Agreement (Chile), see Acuerdo Marco Tripartito trust-based capitalism 18, 33, 257 UDI (Unión Democrática Independiente, Independent Democratic Union) (Chile) 203 UIA (Unión Industrial Argentina, Argentine Industrial Union) 53, 137, 177, 178, 190, 213 UIP (Unión Industrial Paraguaya, Paraguayan Industrial Union) 204

312 INDEX

UNCTAD (United Nations Conference on Trade and Development) 48 United States/US 17, 23, 24, 29, 44, 47, 49, 61, 65, 77, 79, 95, 100, 107, 115, 117, 119, 120, 121, 122, 123, 124, 126, 142, 206, 234, 241 Uruguay 57–8, 81–3, 104–6, 168–9, 204– 6, 247–8, 256, 259, 260; business in 203–6; GATT membership 49; industrialisation, post-war 57–8; and regional integration 43–6; labour in 149, 150, 152, 153, 155, 156, 168–9; LAFTA membership 49; neoliberalism in 81–3; in the Mercosur 104–5; state reform 247–8 Uruguay Round 116–7, 119 Vargas, Getúlio 44 Wallace, Helen 39 Washington Consensus 18, 27, 60, 70 Wasmosy, Juan Carlos 79, 245 welfare capitalism 18, 60 Weyland, Kurt 237 Williamson, John 61 World Bank 63, 65, 68, 77, 221, 224–5, 228, 258; and state reform 224–9, 250 World systems theory 25 WTO (World Trade Organization) 94, 95, 115, 116–9, 121, 133, 134, 212, 215, 239, 241, 247, 248, 249; Cancún ministerials 119; Doha ministerials 117, 119 Zoellick, Robert 117 Zysman, John 30