3. Economic Governance in Latin America

Perspectives that consider Latin American capitalism as lagging behind in any of a number of dimensions (stages, institutions, completeness, and so on), normally measure capitalism in the region according to a set benchmark, therefore do not consider it as a different entity. Examples of such perspectives are modernization theory (Rostow 1971) and the Washington Consensus (Williamson 1990).

This is epitomized in the concept of emerging markets that attempts to roughly characterize those economies not belonging to the Organization for Economic Cooperation and Development—OECD. Some exceptions apply even to this characterization, such as Turkey. However, most interesting for the present work are Chile and Mexico, which are already members, and also Brazil, which, after the election of Jair Bolsonaro as president in 2018, courted the US Administration of Donald Trump to receive approval for its bid to enter the OECD (Boadle 2020). China is another exception since its status as emerging economy is debatable despite not being in the OECD (Barth, Caprio, and Phumiwasana 2009).

The vastness of the continent, with hundreds of millions of inhabitants and a dozen and a half countries, reveals the challenges of classification and abstraction. Generalizing categories might help to grasp big trends, but one should not overlook the fact that such exercises are incomplete, inasmuch as they cannot account for the differences and nuances that exist within the Latin American capitalist context.

About the left turn in Latin America and its consequences in different spheres, see Levitsky and Roberts (2011) and Cameron and Hershberg (2010).

Even if it is tempting to assert that the Developmental State was a phenomenon of the Global South, its main example is Japan (Johnson 1982), which does not belong to that group of countries.

Fajardo (2015), on whom the next paragraph relies, offers an in-depth discussion of how such intellectual and policy endeavors were linked. The wider literature on development is vast, covering several disciplines and years. Unfortunately, to do it full justice is well beyond the scope of the present work.

Development is often associated with industrialization even if the existence of capitalist activities transforming inputs goes back to at least the late nineteenth century in Latin America. Rents also existed in countries that were rich in mineral resources and enclaves were pervasive in many countries, e.g., the Caribbean. These are also capitalist activities but differ qualitatively from the process of industrialization. One difference is their respective impact in the possibility of democratization (Rueschemeyer, Stephens, and Stephens 1992) as well as the type of incorporation of the labor force into the political systems (Collier and Collier 1991). Capitalist development in Latin America is said to depend on the economic structures put in place during colonial times, which is the traditional structuralist view epitomized in the classic works of Cardoso and Faletto (1976) and Furtado (1970). Moreover, in the mid-twentieth century, industrialization represented a substantial increase in the rate of economic growth, which would later become more important in the understanding of development.

A closed economy or the existence of a state monopoly on a given industry represent practices that structure agents’ actions since the conditions to operate businesses with an open economy or competing in a market with a prevalent state presence modify the behavior of economic and political agents. These policies fit within the definition of institutions advanced by Hall (2010, 204).

Sampaio Jr. (2012, 674) asserts, from a critical perspective, that developmentalism was “an ideological weapon of social and economic forces that, at the moment of crystallization of the structures of the bourgeois economy and society, struggled for the utopia of a domesticated capitalism, subordinated to the interests of the national society” (Author’s translation).

Critical studies on development consider these interventions as attempts to “Westernize” Latin American societies while disregarding their particularities (e.g., Escobar 1995).

Currently, structuralism is the label attached to the intellectual and policy efforts of Latin American policymakers to elucidate a model that would explain the conditions of Latin American economies and strategies for change. However, the term first appeared in the debates around the causes of Latin American inflation and its connection with industrialization and agrarian transformation. It was opposed to monetarism, which claimed that inflationary problems were more often linked to monetary issues than to the broader process of development (Boianovsky 2012, 284–286).

ECLA has retained significant influence in several countries over the years. The organization successfully shifted its emphasis from the early years of industrialization in order to show stronger concern about inequality and its impact on growth (Love 2019). Following Stone (2008), we could argue that ECLA has played a significant role as a depository of ideas and information for economic policymaking in Latin America, even in more recent times, despite its diminished influence.

The most salient issue around industrialization was that it resonated with political and economic concerns in the middle of the twentieth century. Industrialization fitted within nationalist policies seeking more political autonomy as well as with the disruption to international trade caused by world conflicts, which forced many countries to create industrial sectors. In later years, the political weight of developmental policies waned with what were perceived as the flaws of inward-looking policies that governments across the political spectrum implemented indistinctly.

The option for economic growth was not politically neutral. Instead, the argument in many countries was that policies had to focus on growth instead of redistribution, equality being another desirable outcome of development, since no distribution could take place without an available surplus. Besides the traditional view of modernization, other contemporary scholarship that explains the relation between growth and inequality includes the work of Kuznets (1955), with his idea of the inversed “U,” meaning that inequality would increase in the first phases of economic growth, only to decrease later. An example of a statement on the secondary character of the inequality by a senior policymaker is that of Ortiz (1970). More recent research in the field of development (Sen 2000) has questioned that assumption, with mild success in influencing public policies.

The evidence as to whether foreign direct investment and multinational corporations produce a positive or negative net effect is context-dependent. A middle ground has emerged on the role of these companies, since a catch-all category does not do full justice to the broad range of experiences (Lipsey and Sjöholm 2005).

Some debates remain in that field since economic growth does not account for all possible dimensions of development—e.g., fighting inequality (cf. Duflo 2010).

Relying on the market while sidelining the state would imply a reversal of the process of development; this means that these authors’ concept of development encompasses much more than economic growth or industrialization.

Variedades de Capitalismo, Política e Desenvolvimento [Varieties of Capitalism, Politics, and Development] tries explicitly to engage in a debate with the work of Schneider and Soskice (2009) and Schneider (2009), who had as their goal to incorporate Latin American economies into the framework of Varieties of Capitalism (Hall and Soskice 2001; Hancké, Rhodes, and Thatcher 2007). Although the references to complementarities are scarce in this volume (Almeida 2011, 172; Santana 2011, 122), their efforts speak to the common ground between both literatures and the attempts to reinforce their dialogue.

Diniz (2011, 36, 41) cites Krueger (1974) on her work concerning rent-seeking. However, the latter published during the 1990s on economic reform in developing economies (Krueger 1993).

For an assessment of the traditional ISI model from the point of view of intellectual history in the light of the current model, see Kuntz Ficker (2005) and Love (2005).

Emphasis added.

This portrayal of such a change is oblivious to the fact that both Venezuela, with Hugo Chávez (1998–2013), and Chile, with Ricardo Lagos (2000–2006), elected presidents who tried to rebalance the relation between the state and the markets, although to different degrees depending on the circumstances of their respective countries, before Lula was elected in late 2002. This narrative reflects the way in which this account of the supposed debate between comparative capitalisms and development is centered in Brazil. For detailed analyses of the implications of Chávez’s election, see Corrales (2010) and López-Maya (2011). In addition, for detailed analyses concerning Lagos’s election, see Huber, Pribble, and Stephens (2010) and Roberts (2011).

Nowhere is this clearer than in the doctoral dissertation of Mercadante (2010, 9–10), a politician from the Partido dos Trabalhadores—PT (Workers’ Party) and candidate for the vice-presidency in 1994, who asserts that the notion of new development synthetizes the economic policies of the Party during Lula’s tenure as president. Others would disagree with such position arguing that neo-developmentalism is a theoretical framework rather than a set of policies or political program (Bresser-Pereira 2016). Moreover, an all-encompassing evaluation of Lula’s government as neo-developmentalist tends to downplay the different policy priorities and instruments used during those years. In the first term (2003–2006), there was continuity with the previous government (Ban 2013), and only after a series of political and economic changes was neo-developmentalism given a new opportunity (Barbosa and Souza 2010). An account of neo-developmentalism and its connection with populism is provided by Bresser-Pereira and Theuer (2012).

This idea of the multiplicity of ways in which capitalism is organized as a response to a presumably unique approach is reminiscent of the seminal arguments in Comparative Institutional Analysis concerning the comparison between European or Asian economies with that of the US, discussed in the previous chapter.

In principle, the rationale of state intervention is to create the appropriate conditions (like innovation and investment) for the strengthening and correct functioning of the market, not to replace it (Bresser-Pereira 2010, 80).

An excellent online dossier on the years of Kubitschek’s presidency is offered by Ferreira (2002).

The construction of the new capital was symbolically important in gaining support for the government’s program. Kubitschek was clever in crafting coalitions in both the political arena and in society at large; however, a favorable economic environment helped.

Indeed, these attempts to avoid confrontation were limited. In fact, rather than continuing with the politics of compromise, new leaders sought to foster the tensions between political groups, which gave authoritarian groups within each society the opportunity to take power, successfully most of the time, in the name of stability and social order. In Brazil and Chile, coups d’état were made against João Goulart (Skidmore 1967), in office from 1961 to 1964, and Salvador Allende (Angell 1993), in office from 1970 to 1973, respectively, who embraced a more confrontational way of dealing with the contradictions created by the development process and its consequences. The case of Mexico also reveals similar confrontations, ever since the government of Luis Echeverría (1970–1976) took a populist turn in part as a response to the events of Tlatelolco in 1968, where police clashed violently with protesting students.

Path dependency is part of the explanation, but there were also mitigating factors such as a favorable international credit market that, at first, eased the restrictive conditions of the oil shocks.

This trend will be analyzed at length in each empirical chapter. Briefly, in Brazil, the favorable conditions to borrow in international markets allowed companies, public and private alike, to make big investments that would mature in the middle of the crisis. In Chile, by contrast, a boom in consumption, fueled by the flow of international capital, caused a serious exchange rate crisis and forced a change in economic policy within the bureaucratic-authoritarian regime. Mexico’s overreliance on oil exports with the subsequent fall in oil prices in 1981 also forced desperate measures such as the nationalization of banks, among others. In Argentina, meanwhile (though this case is not analyzed at length in the present study), when the military took power in 1976, they justified a change in the economic policy matrix by claiming that it was a way to discipline business through market forces (Canitrot 1981); these attempts to reshuffle the principles orienting economic policymaking were among the causes of the debt crisis of the early 1980s (Kaufman 1988).

The obvious counterfactual would be the case of Brazil, which even suffered a process of impeachment in 1992. Despite such a traumatic political experience, however, the process of liberalization was not derailed and continued throughout the government of a president who was largely considered to be against such policies. Even in the 2000s when both countries elected a left-leaning government, Brazil’s new government continued to follow the economic policies of its predecessor while Argentina changed them substantially. Thus, the evidence supports the claim that Brazil shows a stable pattern of economic governance whereas Argentina does not. About Argentinean economic policies and their frequent reforms, see Canitrot (1994) and Acuña, Galiani, and Tommasi (2007).

The changes in the international environment affected countries across the board, but given the particularities of each country and the way in which each one was affected, is preferable to talk about a plurality of crises.

I concur with Taylor (2009, 500 fn. 47) concerning the difficulty in pointing to a critical juncture, because it can only be labeled as such with reference to some other phenomenon of interest. However, these crises triggered a long process of institutional reform that transformed Latin American economies and, in some cases, led to the consolidation of economic governance.

However, as Moe (2015, 289) contends, a more precise definition is a collective effort and should include different dimensions, however elementary, in order to advance theory.

A classic example in the literature on policy feedback is that of the American Civil War Veterans (Skocpol 1992). More recent work has focused on businesses and their influence on policy, which derives from the ways in which they profit from the implementation of a given policy (e.g., Ledbetter 2011).

This characteristic can even appear simultaneously and embody the main struggles in the process of reform. Nóbrega (2005, 298–302) shows how in the 1980s different groups of bureaucrats within the same institutions were both for and against the reform of the Banco do Brasil, the biggest state-owned retail bank in the country.

Given that several institutional arenas are in play when we consider the consolidation of economic governance, depending on the country in question or the sectors under consideration, the political struggles leading to its consolidation will likely be different in each context. Attempting to define a certain type might prevent us to grasp processes of consolidation of economic governance that do not necessarily fit within a theoretically expected pattern.

On threshold effects, see Pierson (2004).

Because the analysis by root is presumably well known, it is not analyzed in Lindblom’s article. This analysis corresponds to the perfect rational agent as used in microeconomics and public choice.

This is also the case with the supreme audit institutions (Saint-Martin and Rothmayr-Allison 2011).