Resource Booms and Institutional Pathways

This introductory chapter presents a theoretical proposal to explain the patterns of institutional state construction during the recent commodity boom in Peru. To do so, this chapter is organized into five sections. The first one describes the new cycle of economic development based on natural resources and the main conflicts/tensions that it has produced in Peru. The second section documents the significant institutional state change produced in the country during the boom thanks, we argue, to the abundance cycle. This section shows how some institutions have emerged to manage the (distribution of the) benefits of resource extraction, while other institutions have emerged to manage the (distribution of the) cost of resource extraction. These institutional developments have different timing, and some are considerably more contested than others. The third section introduces the research questions and literature that explain the relevance of resource abundance cycles for institutional state development. The fourth section, the main one of this chapter, presents the arguments developed in conjunction with our findings. We propose that three dimensions explain these different pathways of institutional development in resource-abundant Peru: (a) preceding power distribution of state and society actors, (b) historical repertoires (legacies) of state and society action, and (c) the entrepreneurship of actors embedded in transnational networks. This framework aims to provide a comparative road map for similar analysis in Latin American countries affected by the recent commodity boom. The final section describes the book’s methodology and organization.

In Peru’s contemporary political economy of development, a central rule of the game is canon minero, a law that requires national government to give back 50% of mining’s income taxes to the producing regions. Three analytical dimensions help us to tell the story of canon: legacy, contingency, and agency. By legacy, we mean the long-nurtured institutional regime in which canon minero’s short history unfolds, defined by the decentralization grievance and state weakness. Secondly, by contingency, we refer to the historical events exogenous to the canon political process that contribute to the creation of “political opportunity” for changing rules: from the shaping processes of Velasco and Fujimori to a series of international economic crises and natural disasters. Thirdly, in our reading of the canon’s history, while as legacy and contingency set the context, agency has to be considered for a complete analysis. Within the structural features of Peru’s politics of decentralization, at particular historical contingencies, institutional entrepreneurs proposed a wide array of meanings to the label canon, which began as a legal term for an obscure tax and became the banner-word for regionalism.

Why the percentage of the canon allocated to research in state universities is not being used for its proposed objectives? How can millions of soles not be properly used by public universities in desperate need of resources? Based on two case studies (San Agustín University in Arequipa and San Antonio de Abad University in Cuzco), we argue that these poor results are due to institutional characteristics and legacies involved in the approval and implementation of canon legislation. We propose that increasing state income, and the fact that this expansion of the public budgets did not mean a significant cost for other groups through tax expansion, helped to activate the formation and approval of research canon in Congress. Nonetheless, three factors are key for understanding weak implementation straying far from the law’s objective to promote research: weak political parties in Congress, weak and clientelist state universities, and a strong MEF more worried about irresponsible expenditure than about institutional weakness or more efficient expenditure.

This chapter explains the rise and evolution of environmental regulatory institutions for mining in Peru. The collected evidence shows that without the forging of bureaucratic autonomy, formal rules do not become “institutions” as defined by the canonical work of Douglass North. The forging of bureaucratic autonomy is a self-reinforcing process in which the activism of institutional entrepreneurs within specific organizations and crosscutting epistemic networks, and at particular junctures and contingencies, matters for the chances of the state activism that follows. Layer by layer, institutional entrepreneurs build bureaucratic autonomy, translating globalized blueprints and reinventing old state action.

This chapter explores institutional changes that developed in Peru with the explosion of civil unrest related to extractive industry expansion. The chapter explains that extractive laws were modernized, but the opposition of strong extractive interest and weak grassroots actors prevented the building of meaningful institutions of local participation and consultation. The authors argue that the state had to acknowledge the public agenda of building these institutions little by little. In this gradual process, the Ombudsman’ Office, became a crucial and authoritative actor driving the agenda of institutional development to manage the cost of conflict created by the commodity boom.

This chapter analyzes “the ups and downs” of the process of identity construction in times of commodity boom looking at the region of Espinar in Cuzco. The authors propose as their main argument the idea that the construction of K’ana indigenous identity in Espinar is developed in relation to a process that concerns the development of institutions to manage the cost of the boom in Espinar: the prior consultation. In a detailed analysis of how local people in Espinar recognize that they are the heirs to the K’ana nation, the authors discuss the indigenous policy and how this acted as a strategy in a community, which found itself in the eye of the storm of social unrest in Peru.

Three dimensions help to explain institutional development in Peru: (a) preceding power distribution of state and society actors, (b) historical repertoires of state and society action, and (c) the institutional entrepreneurship of actors embedded in transnational networks. The book gives an overview of the general pattern of state action in Peru during the resource boom: a state directing considerable funds to public works, such as roads and buildings, what we call the “cement state,” while facing serious constraints for investing in plans, policies, and agencies to manage abundance and foster development effectively. We highlight the need to embrace the complexity of institutional development and call for developing a comparative political economy research agenda of resource-dependent institutional development. Finally, we expect our work will contribute to nurture a much absent public debate on the centrality of institutions.