the political economy of productivity
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The Political Economy of Productivity
Actors, Arenas, and Policymaking
Prepared for presentation at Brainstorming Session. IADB February 6, 2009
This research project
• Lies at the intersection of two agendas:
A. 2010 Development in the Americas Report (DIA, ex-IPES) on “Productivity in Latin America”
B. Step in Political Economy agenda at the Research Department IDB1) Political Institutions and Policymaking in L.A.
This research project
• Lies at the intersection of two agendas:
A. 2010 Development in the Americas Report (DIA, ex-IPES) on “Productivity in Latin America”
B. Step in Political Economy agenda at the Research Department IDB1) Political Institutions and Policymaking in L.A.
This research project
• Lies at the intersection of two agendas:
A. 2010 Development in the Americas Report (DIA, ex-IPES) on “Productivity in Latin America”
B. Step in Political Economy agenda at the Research Department IDB1) Political Institutions and Policymaking in L.A.
2) Actors, Institutions, and Policymaking in L.A.
• Objectives: – Provide inputs for Chapter 13 of DIA2010
Including (eventually) relevant country level recommendations
– Put together material for a book similar to
– Generate ideas and background material for academic papers
This research project
This research project
• Now at an intermediate stage in which some inputs are in place– Background paper
• Murillo, Scartascini, Tommasi (2008)
– Drafts of 8 country studies • Argentina, Brazil, Bolivia, Chile, Colombia, Costa Rica,
Mexico, Venezuela
– Other inputs (transversales)
Purpose of this meeting
• Share with a group of distinguished scholars– a sketch of our current ideas– our various doubts
• about the general agenda• about the political economy of productivity
• Get feedback– general methodological and conceptual issues– Latin American cases– broader comparative views
• special emphasis on Asian experiences
• (Possibly) set the basis for future collaborations
Structure of the meeting
• Introduction – Synthesis of framework – Snapshots of country studies
• Discussion of methodological issues– Framework in general– Specific components
• Example: – BRS might provide specifics on articulation of business actors in PMP– PK might provide specifics on clientelistic linkages
• Discussion in comparative perspective – Asian cases from the lens of this framework
• Wrap up session – General discussion of the issues– Planning of next steps
Introduction
THE FRAMEWORK
Productivity
POLICIESPOLICYMAKING INSTITUTIONS
political (State) actors
“Real” Actors
Socioeconomic Structure
PoliticalInstitutions
Inputs from previous literature
“Real” ActorsPOLICYMAKING INSTITUTIONS
political (State) actorsPOLICIES
Productivity
Socioeconomic Structure
PoliticalInstitutions
2
4
5
1. Workings of political institutions, PM, and the features of policies
2. Political institutions and policies3. Interest groups and rent-seeking4. Role of veto players in the reform process5. Organization of “real actors”6. Economic structure, interests, social cleavages7. Structure and dynamics of business-State relations
13Reduced form PI
6
7
Inputs from previous literature
“Real” ActorsPOLICYMAKING INSTITUTIONS
political (State) actorsPOLICIES
Productivity
Socioeconomic Structure
PoliticalInstitutions
2
4
5
1. Political institutions (wks), PM, and the features of policies2. Political institutions (rules) and policies3. Interest groups and rent-seeking4. Role of veto players in the reform process5. Organization of “real actors”6. Economic structure, interests, social cleavages7. Structure and dynamics of business-State relations
13Reduced form PI
6
7
Productivity
POLICIESPOLICYMAKING INSTITUTIONS
political (State) actors
“Real” Actors
THE FRAMEWORK Temporal and causal issues
The current picture
POLICIESPOLICYMAKING INSTITUTIONS
political (State) actors
“Real” Actors
Past
Inter-Temporal
Socioeconomic Structure
Productivity
THE FRAMEWORK Temporal and causal issues
THE FRAMEWORK Temporal and causal issues
POLICIESPOLICYMAKING INSTITUTIONS
political (State) actors
“Real” Actors
Past
Inter-Temporal
Political Institutions
(rules)
Productivity
THE FRAMEWORK Temporal and causal issues
POLICIESPOLICYMAKING INSTITUTIONS
political (State) actors
“Real” Actors
Status Quo
Productivity
THE FRAMEWORK
POLICIESPOLICYMAKING INSTITUTIONS
political (State) actors
“Real” Actors
Alternative arenas
Arenas
Productivity
THE FRAMEWORK
POLICIESPOLICYMAKING INSTITUTIONS
political (State) actors
“Real” Actors
Productivity
• Who are they– Where do they come from– Economic structure determinants
• How are they organized– Collective action issues– Level of aggregation and encompassingness
• Which are the instruments through which they might influence the PMP– Votes– Vote mobilization– Information– Campaign finance– Bribes– Threat to disrupt economic activity– Threat to violence
• Which are the venues through which they enter political system and stages of the PMP– Electoral connection– Political party system– The president– Congressmen– National or local level– Bureaucrats– The Judiciary– Formalized “corporatist” arrangements– Back rooms– The street
Real Actors Policymaking Institutionspolitical (State) actors
Policies
• Who are they– Where do they come from– Economic structure determinants
• How are they organized– Collective action issues– Level of aggregation and encompassingness
• Which are the instruments through which they might influence the PMP– Votes– Vote mobilization– Information– Campaign finance– Bribes– Threat to disrupt economic activity– Threat to violence
• Which are the venues through which they enter political system and stages of the PMP– Electoral connection– Political party system– The president– Congressmen– National or local level– Bureaucrats– The Judiciary– Formalized “corporatist” arrangements– Back rooms– The street
Real Actors Policymaking Institutionspolitical (State) actors
Policies
• Who are they– Where do they come from– Economic structure determinants
• How are they organized– Collective action issues– Level of aggregation and encompassingness
• Which are the instruments through which they might influence the PMP– Votes– Vote mobilization– Information– Campaign finance– Bribes– Threat to disrupt economic activity– Threat to violence
• Which are the venues through which they enter political system and stages of the PMP– Electoral connection– Political party system– The president– Congressmen– National or local level– Bureaucrats– The Judiciary– Formalized “corporatist” arrangements– Back rooms– The street
Real Actors Policymaking Institutionspolitical (State) actors
Policies
• We draw from a large and distinguished literature– Theoretical– American – Comparative– Latin American
• We “put together” country-level equilibria• Various aspects of the workings of these political
systems matter for policymaking (and for policies → productivity)– Do they “invite” encompassing or narrow articulations?– Do they provide for credible intertemporal exchanges?– Do they facilitate informed policymaking?– What type of interest do they tend to favor?– Are these outcomes stable?
Real Actors Policymaking Institutionspolitical (State) actors
Policies
• Can be described by a number of “economic” and “political” characteristics
1. Aggregate effects Productivity enhancing/reducing (Y+/Y-)
2. Its distributional features (who gains/loses)3. Its temporality (how early benefits and cost accrue)4. Other exhange properties5. (Un)certainty about their effects6. Easiness to sell7. Other features
• Are “chosen” in different polities taking these various considerations into account (varying degrees)
Impact on productivity Across countries Across policy areas
Real Actors Policymaking Institutionspolitical (State) actors
Policies Productivity
Different Hypotheses / Theoretical Constructs provide some (partial?) answers:
1) Winners / losers and correlation with Y+/Y-1) Intersectoral2) Interest groups vis a vis “general public”
2) Intertemporal story: longer horizons → Y+3) Status quo properties (Y+/Y-) and veto players4) Certain Y+ public goods may need coordinated action
to be demanded• Economic / geographic structure (and its institutional mediation)
will facilitate that or not
5) Some arenas facilitate exchanges of some policies6) Some political institutions (and modes of organization
of actors) 1) provide more internalization2) more stable arenas of exchange
Another angle of entry
• Country “scripts”• Stories can be told (in principle) from several
angles.• If President is the dominant agenda setter, can
start from there– Preferences– (Stability)– How does put together “real coalitions”– How does he/she exchange with other institutional
players
Introduction to country scripts
• We have tried to come up with some leading questions that may provide hints to more commons scripts
• We have also tried to use graphical representations to put together the stories in a way that is more natural for thinking in terms of equilibrium outcomes
• Some caveats are in order:– We have prepared the following slides based primarily on the country
studies we have, which are still in their infancy– In general, we are taking snapshots at the current situation
• Mexico after democratization• Colombia under Uribe• Recent events in Bolivia• Venezuela under Chavez
– We are highlighting those issues that are more relevant for the comparative exercise and reflect better some of the entry points and doubts we have on the framework
President
Congress
Policies
Actors /
Aggregation
Parties /
Coalition Institutions / Formal Arenas
Status quo
Judiciary
Bureaucracy
Other
Alternative Arenas
Y + Y-
Transaction mechanisms
Articulation
Actors
• Economic structure– How is the economic structure (e.g., concentrated or diversified)?
• Actors– Who are they (e.g., business, unions)?– What are their preferences?– What are their endowments/technologies (e.g.., votes, lobbying,
riots)?• Aggregation
– How are actors aggregated (e.g., are there any peak organizations)?
• Articulation– Do they enter through formal or informal channels (e.g.,
Consultative groups or back rooms)?– How do they influence and at what level (e.g., national/sub-
national level, President, Congress)?
Institutions
• President– What are his/her preferences? What is his/her horizon?– Is he/she the agenda setter?
• Congress– What is the degree of fragmentation and particularism?– Who do they respond to?– What are the preferences of the legislators?
• Political Parties– At what extent are they natural aggregators of the programmatic
interest of the relevant actors? • Other institutional actors
– What is the role of the judiciary?– What is the role and characteristics of the bureaucracy –including
regulatory agencies?– What other actors are important (e.g., Governors, other
subnational agencies, local parties)?
Policies
• Status quo– Is there a relevant status quo?– What is its origin (e.g., previous policies, constitutional
reform)?
• Policies– Are they volatile or stable?– Are they vertical or horizontal?– Are they of national or local scope?– What is their specific content?
Argentina
• Economic structure– Economic structure is diversified. Rural and industrial groups, and
labor unions have had their voice heard over time.
• Actors– Rural associations, Industry, Banks, Unions, Movements
(piqueteros)– They usually demand sectoral benefits (in a reactive fashion)– They cater some money (specific large groups) and lobbying
(associations). Most of them use alternative arenas (e.g., protests)
• Aggregation– Peak associations have seen better days…
• Articulation– Most of the influence is through alternative channels– The Executive is the main point of entry. There is also some
subnational lobby for certain issues.
Argentina• President
– The president usually has a short term horizon which determines her preferences (build political support fast)
– She is the agenda setter• Congress
– Congress is relatively fragmented across parties and subnational constituencies
– They respond first to the governor– They have local preferences (ensure the highest $$ for their state). Party
discipline is higher when president losses popularity and is in free fall.• Political Parties
– Peronist brand relevant across several margins. Political parties (in general) do not aggregate preferences, have low institutionalization and are generally non programmatic
• Other institutional actors– The judiciary has generally been not independent and has not worked to
enforce transactions– The bureaucracy is not professional and volatile– Governors are highly influential in the political game, particularly regarding
fiscal issues
President
CongressPolicies
Actors /
Aggregation
Parties /
CoalitionInstitutions / Formal Arenas
Status quo:
fiscal federalism
Judiciary:
Not independent Bureaucracy:
Unstable
Governors
Alternative Arenas
Y +?
Y-Highly volatile
Vertical (favor those in the changing coalitions)
Uncoordinated
Expropriate those with sunk investmentsArgentina recent
Agenda setter
Ability to transact cheaply unless:Fiscal federalismThey want to throw him out
Short term horizon
FragmentedAllegiance to governorsNon inst and non program
Diversified economic structure
Used to have strong peak associations
Coalitions change:
i) At the President’s whims
ii) Exchage rate policy
Usually reactive
Winners and losers according to relative prices and sunk investments
Voter’s preferences are highly volatile
Peronist
Other
Last ditch veto
U
P
Rural
Ind
Small Bus
urban
Argentina• Policymaking
– Policymaking is very volatile. No intertemporal transactions– Each president builds a different coalition with political and real actors– Use of popular opinion to build support.– Extraction of rents from real actors according to relative prices and sunk
investments.– Real actors not coordinated and volatile. Organizations’ influence
change frequently. Last ditch veto: go to the streets• Status quo
– There is no relevant status quo in most policy domains. • Policies
– Policies are highly volatile– Policies tend to favor those in the coalitions and affect those outside.
Coalitions change frequently, so do the policies.– Fiscal, exchange rate, trade, industrial, and social policies change
frequently and do not necessarily favor productivity gains.
Bolivia• Economic structure
– The economy has been traditionally concentrated in a few sectors– Most labor is in agriculture (40%). The non-labor intensive sectors use
only 10% of workers to generate 50% of GDP. Public monopolies were privatized.
– Reforms promoted wealth in some regions and K-intensive sectors• Actors
– Labor unions, social movements, business associations, and K-intensive businesses
– A high percentage of population used to have no voice• Aggregation
– There are peak associations for labor (strong) and businesses (used to be strong). The last has lost its influence. Eastern (more prosperous) businesses do not participate.
• Articulation– For those “inside” it used to be formalized through the parties and the
coalitions.– Nowadays, influence is mostly through alternative channels– Increasing use of referendums (e.g., change in the hydrocarbon sector
policy)
Bolivia• President
– The president has a short term horizon– He is the agenda setter (nowadays, usually circumventing the formal
channels)• Congress
– Congress used to be the arena of negotiation. It had the ability to decide elections and block initiatives. Presidents had to built coalitions within Congress
– Congress is now more fragmented across parties and subnational constituencies
– Congress has lost its role to the street• Political Parties
– Political parties used to be instrumental for coalition building• Other institutional actors
– The judiciary has generally been not independent– The bureaucracy is in general volatile and non professional– Decentralization has increased the number of actors with influence in
policymaking. Prefectos have gained power as well as root organizations.
President
CongressPolicies
Actors /
Aggregation
Parties /
CoalitionInstitutions / Formal Arenas
Status quo:
Judiciary:
Not independent Bureaucracy:
Unstable
Alternative Arenas
Y +Wash ConsensusReforms
Y-Pre-crisis policies
Bolivia before Evo
Agenda setter
Ability to make coalitions
Short term horizon
FragmentedCoalitions (Congress pacts)
Low diversificartion
Business and unions are strong before crisis; weak after crisis
U
Bus
Veto
IFIs (post-crisis)
President
CongressPolicies
Actors /
Aggregation
Parties /
CoalitionInstitutions / Formal Arenas
Status quo:
Distribution of rents
Judiciary:
Not independent Bureaucracy:
Unstable
Alternative Arenas
Y +Social ?
Y-Highly volatile
Uncoordinated
Expropriate
Barriers
Distortions
Bolivia recent
Agenda setter
Low ability to transact
Short term horizon
FragmentedAllegiance to regionsNon inst and non program
Low diversified economic structure
Coalitions are social and geographic
other
MAS
U
Referendum
Bus
Bolivia• Policymaking
– Policymaking has moved from the more formal arenas (particularly Congress) to alternative arenas such as the streets
– There is no ability to conduct transactions among antagonistic groups– Senate tries to block laws put forward by the government– The president circumvents Congress by bringing people to the streets,
calling referendums and constitutional assemblies, and issuing decrees.• Status quo
– Distribution of rents; political organization of the country. • Policies
– Policies are highly volatile– Policies generate distortions and reduce investments:
• Change of contracts and re-nationalization of various previously privatized companies
Brazil
• Economic structure– The economy is highly diversified. Even the large conglomerates
(world scope) are small in Brazil.• Actors
– Big businesses, local business associations, unions … – “Industrial” policy has been always important.– Existence of many entry points. They are now mostly lobbying at
the local level and at the ministries.• Aggregation
– Business actors tend to be associated at the local level (e.g., Sao Paulo manufacturers)
• Articulation– Formal channels are not generalized– They tend to lobby the governor and use certain judiciary venues.
They are not very successful at the national level
Brazil• President
– Presidents care about the “fiscal imperative” and some long term policies– He is the agenda setter and has a medium term horizon– He has strong budgetary powers that make transactions easier and
cheaper.– Hence, he dominates the policymaking process
• Congress– Congress is relatively fragmented. Governing party has to form coalitions – Legislators respond usually to their constituency and try to cater pork
• Political Parties– They aggregate some preferences as they tend to have more natural
ideological constituencies. They are not neither highly institutionalized nor programmatic
• Other institutional actors– The judiciary has become independent and is a good enforcer of the status
quo– The quality of the bureaucracy is mixed across sectors– Governors play a very relevant role at the local level. Similarly, courts and
the tribunais de contas enforce some of the transactions.
President
CongressPolicies
Actors /
Aggregation
Parties /
CoalitionInstitutions / Formal Arenas
Status quo:
Constitution of ’88: entitlements everywhere
Judiciary:
Independent
Local and national
Bureaucracy:
Mixed across sectors
Governors
Alternative Arenas
Y +Fiscal sustainability
Stable policies
Y-Highly taxes
Low infrastructure
Brazil recent
Agenda setter
Ability to transact cheaply:High budgetary powers
Fiscal imperative
FragmentedLocal interest
Highly diversified economic structure
Large groups are still relatively small
Organized at the state level
Usually reactive
Voters care about fiscal sustainability and “pork”
Longer term horizon
U
BB
SP1
SP2
Brazil
• Policymaking– President has incentives for financial stability and some long run
policies– Legislators care about pork for locality– Hence, given the president’s tools in the budget process
(contingenciamento) relatively cheap to buy some policies– Business actors are decentralized (Lijphart). Can’t counteract
presidents policies. They act at the local level.• Status quo
– Constitution of ’88 generated a lot of entitlements, hence, huge fiscal burden
– Checks and balances work, hence, no way to evade the constitution
• Policies– Some good policies for productivity: macro stability, better access
to K, trade– Some bad policies: high taxes, low infrastructure
Chile
• Economic structure– The economy is diversified
• Actors– Businesses, unions, etc– Each has their own preferences but they get filtered in the
coalitions– Votes, mobilization, and lobby (policy advice) are their main tool
• Aggregation– Actors are articulated in peak organizations which are part of the
political coalitions
• Articulation– Groups, as part of the political coalitions, are part of the formal
decision making– Their influence goes through the governing coalition and the
opposition in Congress.
President
CongressPolicies
Actors /
Aggregation
Parties /
CoalitionInstitutions / Formal Arenas
Policies t-1
Judiciary:
IndependentBureaucracy:
Professional and technical
Alternative Arenas
Y +Almost every policy
Y-Only in some margins when the “wrong” group is over-represented:
Education reform
Corporate governance
Chile today
Agenda setter
High transaction ability
Long term horizon
Low fragmentationInstitutionalProgrammatic
Diversified economic structure
Peak organizations
Coalitions internalize demands
Bus
Bus
V R
U
U
V L
right
left
Chile
• President– The president is the agenda setter and has long term preferences
which are those of the governing coalition– She has extensive powers
• Congress– Fragmentation is low (at the coalition level)– Legislators respond to the party but have some geographical
allegiance– They tend to internalize the long term preferences of the coalition
• Political Parties– Parties are institutionalized and programmatic
• Other institutional actors– Independent judiciary– Stable and capable bureaucracy– Think tanks provide sound (even if bias for their cause) advice
President
CongressPolicies
Actors /
Aggregation
Parties /
CoalitionInstitutions / Formal Arenas
Policies t-1
Judiciary:
IndependentBureaucracy:
Professional and technical
Alternative Arenas
Y +Almost every policy
Y-Only in some margins when the “wrong” group is over-represented:
Education reform
Corporate governance
Chile today
Agenda setter
High transaction ability
Long term horizon
Low fragmentationInstitutionalProgrammatic
Diversified economic structure
Peak organizations
Coalitions internalize demands
Bus
Bus
V R
U
U
V L
right
left
Chile
• Policymaking – History, institutions, and transitional issues lead to very
institutionalized PMP– Real actors are part of the governing coalitions– Mostly, business are in one coalition and labor in the other.– Most transactions take place within the coalitions, which
internalize the benefits and costs. – Then, it is easy to make transactions across coalitions
• Status quo– Previous policies matter (as long as there is no clear consensus
that they have to be changed).• Policies
– Very good for most policies Y+ over the last several years (number 1 in comparative perspective)
– Limits seen today in some policy margins in which winners of the status quo are overrepresented within each coalition, becoming veto players.
President
CongressPolicies
Actors /
Aggregation
Parties /
CoalitionInstitutions / Formal Arenas
Policies t-1
Judiciary:
IndependentBureaucracy:
Professional and technical
Alternative Arenas
Y +Almost every policy
Y-Only in some margins when the “wrong” group is over-represented:
Education reform
Corporate governance
Chile today
Agenda setter
High transaction ability
Long term horizon
Low fragmentationInstitutionalProgrammatic
Diversified economic structure
Peak organizations
Coalitions internalize demands
Bus
Bus
V R
U
U
V L
right
left
Colombia• Economic structure
– Increasingly diversified economic structure • Actors
– Big economic groups, peak associations, Fedecafe, ANDI, unions (5% of labor force), think tanks, universities, armed groups.
– In general, they tend to look for long term economic prosperity and sectoral benefits
– They are increasingly using direct lobby and campaign financing (senators).
• Aggregation– Actors are articulated in peak associations. The number has grown
substantially. Economic groups have relevance in the associations. Fedecafe maintains differential access
• Articulation– They enter through two main channels: i) consultative groups; ii) direct
contact with president and/or legislators– Best entry point: the President.
Colombia
• President– He has a medium term agenda– He is the agenda setter– He has limited currencies for making transactions with Congress
• Congress– It has become increasingly fragmented and more competitive– Legislators tend to have a regional interest– As campaign contributions have become more important their
allegiance has shifted• Political Parties
– They used to be more institutionalized• Other institutional actors
– The judiciary is independent and enforces the status quo– The bureaucracy is generally competent and stable– Think tanks are very relevant and provide HK for the technocracy
President
CongressPolicies
Actors /
Aggregation
Parties /
CoalitionInstitutions / Formal Arenas
Status quo:
Judiciary:
IndependentBureaucracy:
Professional and technical
Alternative Arenas
Y +
Y-
Colombia before
Agenda setter
Higher transaction ability
“Medium term” horizon
Lower fragmentation
Low diversification
Small number of peak associations
Fedecafe had formal gravitas
Executive
Coffee
SMB
ANDI
Institutionalized parties
President
CongressPolicies
Actors /
Aggregation
Parties /
CoalitionInstitutions / Formal Arenas
Status quo:
Entitlements and fiscal policy
Judiciary:
IndependentBureaucracy:
Professional and technical
Armed conflict
Alternative Arenas
Y +Horizontal policies
Generalized trade agreements
Deregulation
Y-Vertical policies
Sector specific tariffs and subsidies
Import quotas
Tax exemptionsColombia today
Agenda setter
Limited transaction ability
“Medium term” horizon
Increasingly fragmentedMore competitiveCampaign contrib matter
Increasingly diversified economic structure
Increase number of peak associations
Increasing relevance of economic groups vis a vis peak organizations
Group sector-region matters
Fedecafe still has formal gravitas and HK (3000 people)
EconGroups Councils
Coffee
SMB
U
Colombia
• Policymaking – The relationship between businesses and the governments had
been highly institutionalized. – Big plan OK– Starting after the constitutional change (‘92): Fragmentation of
politicians, reduced mechanisms of exchange, increase of independence of judiciary
– It generated: Multiple entry points, increase of vetoes• Status quo
– The Constitution generated big entitlements• Policies
– Several sectoral policies Y+– High rigidity of the budget (they can’t increase T so increased
deficit)– In some sectors, they can’t make reforms– Some good intentions get lost during implementation
Costa Rica
• Economic structure– Economic structure has become more diversified.
• Actors– Political parties, unions, foreign business– Their main tools are law, decentralized institutions, riots and
political agreements
• Aggregation– Multiparty political system, non aggregation
• Articulation– Most of the influence is through Congress, Decentralized
Institutions and the streets– The Executive, Congress and the Decentralized Institutions are
the main point of entry.
Costa Rica
• President– The president usually has a medium term horizon which determines
his preferences– He is the agenda setter
• Congress– Congress is fragmented across parties and minorities representation– Growing number of veto players
• Political Parties– Political parties do not articulate the general preference of the people.
• Other institutional actors– The judiciary through the Constitutional Court enforce the individual
rights and increase the financial responsibilities of the State– A growing number of public and private bureaucracy
Costa Rica
• Status quo– Constitutional Court (1989)
• Policies– Policies are rigid– Policy financing is limited by constraints– The existence of a growing number of veto players
has made harder to reach agreements
President
CongressPolicies
Actors /
Aggregation
Parties /
CoalitionInstitutions / Formal Arenas
Status quo:
Constitutional Court (1989)
Judiciary:
Constitutional
CourtBureaucracy:
↑ bureaucratic agencies
Alternative Arenas
Y +Stable
CAFTA
Y-Rigid
Less Oriented to Public
Ineficient public monopolies
Bureaucracy financing led to deficit and crowding out investment
Costa Rica recent
Limited ability of legislative approval
FragmentedMinorities empowermentVeto PlayersIndependent voters
U
V Decentralized Institutions
Agenda Setter
PLN
PUSC
PAC
Multiparty system
Parties don’t internalizes demands
V
V
OthersV
Medium term horizon
Control of
agenda
Foreign Business
Mexico
• Economic structure– The economy is diversified but with a high level of concentration in
some sectors
• Actors– Big business groups, multiple business associations, unions– Keep their benefits– They tend to use several strategies such as votes, mobilization,
money and lobby
• Aggregation– There are peak organizations. They are usually associated to the
parties
• Articulation– Influence tend to go through the parties and directly with individual
legislators. They do also use the judiciary
Mexico
• President– President is not the agenda setter and can mostly act reactively– He has few exchange mechanisms– He has a medium term horizon
• Congress– Congress has become increasingly fragmented– There aren’t intertemporal commitments– Politicians’ preferences are shaped by parties’ incentives, which
favor short-term rewards.• Political Parties
– Political parties have tended to form around and represent particular groups (e.g, businesses in the PAN, union in PRI)
• Other institutional actors– The judiciary enforces the status quo– The bureaucracy is mixed. Regulatory agencies tend to be weak– Governors have gained importance
Mexico• Policymaking
– During the PRI era, both big business and organized labor were part of the PRI
– Policies did favor both, with a low productivity bias (high level of protectionism, etc)
– Reforms after the crisis had two effects:• Big business received the benefits of privatization• Fragmentation of political actors increased veto players
– Big business demand “low productivity” policies: entry barriers, etc– Small guys do also benefit from “low productivity” policies such as
transfers that favor small vs larger– They use the system (judiciary, etc) in their favor
• Status quo– Previous policies
• Policies– Pro-productivity reforms are hard to pass– Plenty of vertical policies with sectorial benefits that affect productivity
negatively
President
CongressPolicies
Actors /
Aggregation
Parties /
CoalitionInstitutions / Formal Arenas
Status quo:
Previous policies
Judiciary:
Independent
Bureaucracy:
Mix across sectors
Reg Agcies
Weak
Alternative Arenas
Y +Trade agreements
Fiscal stability
Stability of policies
Y-Low reforms
High barriers to entry
Monopolies
Social policy (clientelism)Mexico today
Agenda setter
Limited transaction ability
“Medium term” horizon
Increasingly fragmented
High relevance of large economic groups
Peak organizations go through parties
Actors are usually reactive
EconGroups
U
PAN
PRI
Med
Governors
PRD
Venezuela• Economic structure
– Economic structure is concentrated in oil extraction. Voice exclusion in the policymaking process.
• Actors– Leaders of PSUV, “Boliburguesia” (business actors connected with
president), militaries and Unions.– The decisive factor is to have access to the President– They usually demand for distributing rents– They cater some money and lobbying
• Aggregation– Creation of alternative business association (Empreven and
FEDEINDUSTRIA)• Articulation
– Most of the influence is individually or through lobby, political and financial support to the President
– The Executive is the main point of entry.
Venezuela
• President– The president usually has a short term horizon – He is the agenda setter
• Congress– Weakening of the legislature, stronger role of the President – Strong discipline within the government party members
• Political Parties– One relevant political party, PSUV. Exclusion of voices in the policy
making process
• Other institutional actors– Weakening of institutions, transparency and accountability– The bureaucracy is not professional and volatile, increasing of loyal
dissident – Conflict relation between the media and the President
Venezuela• Policymaking
– The Venezuelan PMP has changed dramatically in the last 40 years– However, oil remains the main source of financing and the main product in
the economy• Status quo
– During oil booms, its natural to let the B$ appreciate and protect the national industry. This becomes the status quo policy
– During bust, it’s very difficult politically to revert these and pursue productivity enhancing policies
• Those who gained before remain powerful• Population associates bonanza with the policies pursued and not
necessarily with oil revenues• Policies
– Policies are highly volatile– Policies tend to favor those actors allied to the President and affect those
outside. – Strong deficit bias and pro-cyclicality in fiscal policy– Trade barriers, tax exemptions, appreciation of real exchange rate,
expropriation and nationalization and price control do not necessarily favor productivity gains.
President
CongressPolicies
Actors /
Aggregation
Parties /
CoalitionInstitutions / Formal Arenas
Status quo:
There isn’t, everything can be change
Judiciary:
Not Independent
Bureaucracy:
↑ loyal dissidents
vertical
Media:
Conflict relation with president
Alternative Arenas
Y +
?
Y-Trade barriers
Tax exemptions
Highly volatile
Appreciation of RER
Expropriation
Price controls
Venezuela today
Agenda setter
High transaction ability
“Short term” horizon
Discipline within the government party membersRejection of political negotiation with minorities
Relevance of economic groups
Decay of political system
Low number of Key players
“Boliburguesia”
U
Empreven
Fedeindustria
VPSUV
Armed Forces
Absolute control of power
Some conceptual messages and tentative ideas
1. Taking a picture (today) is not enough for understanding the reasons behind Y+ / Y-
2. Specific policies should be interpreted in the context of the overall “vector of policies” and political equilibrium
• Inefficiencies in some policy areas may be the price to pay for not so bad policies in other fronts.
• Consequently, it is not a good idea to look only at marginal policies and reforms (or lack thereof)
Some conceptual messages and tentative ideas
3. Different countries have (not) achieved stability at different levels/domains
• In some countries, the relationship between real and political actors is sustained by the institutional framework– E.g., Chile’s electoral system favors transactions within the coalition
• In some countries, the relationship is independent of the institutional framework (institutions change but the outcomes are similar)– It may be the case in Mexico and Venezuela
• In some countries, the relationship is unstable– E.g., Argentina
• In some countries, transactions have moved from the institutionalized arenas to non-institutionalized ones.– E.g., Bolivia
– This might matter for the type of suggestion we should focus on
Some conceptual messages and tentative ideas
4. Multi-level (of government) arenas
Some groups say at national level (finance) demand macro Some groups say subnational (industries) demand
• local tax exemptions• infrastructure
If interest groups and political structures differ in their level of aggregation, efficient exchanges difficult
Practical messages (chapter)
1. What are the main political/institutional constraints that may limit the adoption of policies that are productivity enhancing
2. Suggestions on how to put together public policy packages that:– Are productivity enhancing– Take into account the desires of certain key actors who may
otherwise block the reforms, or affect their implementation and sustainability
– Have a positive probability of being implemented
3. Suggestions to the Bank on how to facilitate the conditions in 2.4. Suggestions about potential institutional changes that may
facilitate the adoption of a vector of policies that is more favorable for productivity within the logic in 2.
5. Suggestions on pending work that may be warranted to fully understand the full scope of the phenomena.
The End
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