greig competitiveness latin america capital and class

7/28/2019 Greig Competitiveness Latin America Capital and Class

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l k s Dira IL(SiiDiniG r e i g Ch a r n o c k

AbstractThis paper subjects to critique the 'new institutionalism ' in development pol-icy literature. It highlights the way 'secondgeneration' institutional reformprocesses in the Latin American region are to be engineered through a poli-tics of global competitiveness while their success is to be gauged,fiirstandforemos t, in capital-functional terms The paper culminates in the focusedcritique of an In ter-American Bank flagship report. The Politics ofPolicies, which demonstrates the new institutionalism !r prejudice againstany form of political leadership that does not seek to guarantee a competitiveinvestment climate as well as an uncompromising commitment to a politics ofglobal competitiveness

Over the past decade, a broad consensus has anerged that'institutions matter'. (Fukuyama, 2007: xv)pJhere is an emergent consensus in development studies andI policy analysis - a 'new institutionalism'.' Its adherents andt_j proponents reject the market fundamentalism of the 1980sand early 1990s, represented by structural adjustment and shocktherapy, and with these many of the assumptions about what theuntrammelled free market can achieve. For in 'the real world', theutility m aximising individual - the keystone of neoclassicaleconomics - is too often subjected to imperfect or asymmetricalinformation, which has the effect of delimiting or 'bounding' the


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Capital & Class 98Institutions are seen as the purposive, problem-solving andcollective outcom es of rational actors' individual decisions, andtheir importance lies in the manner in which they internalise andtherefore minimise the transaction costs between economic agents.While this approach may be considered commensurate withrational-choice approaches to economics and political science ingeneral, the new institutionalism focuses in on a paradox: namelythat such bargaining on the part of individual interests can yield'irration al' results. Sometimes institutions can be dysfunctional, andthey may also exhibit 'path dependencies' which make themdifficult to reform along more functional lines, since some actor(potential 'losers') must be persuaded to act irrationally (foexample, in correcting dysfunctional outcomes despite the statuquo's being materially favourable to them ) (G rind le, zooi, 2002). Inshort, and from this essentially rational-choice and gametheoretical perspective, the new institutionalism seeks to develop comprehensive and fijnctionalist und erstanding of contem porarygovernance institutions and processes across the developing worldas a means of changing them.

The popularity of this new institutionalism is especially evidenin the current concern with 'pro-poor' reforms and the installatioof 'good governance' regimes in the global South. In order to gaugthe degree to which a 'paradigm shift' has been in process amongsdevelopm ent scholars and p ractitioners, one has only to read receneditions of the World Bank's annual World Development Repotake its former chief econom ist and Nobel laureate Joseph Stiglitseriously when he writes.

AcronymsECLAC: (United Nations) Economic Commission for Latin America & the CaribbeonGCR: G lob al Competitiveness Report (W orld Economic Forum) jGDP: Gross Domestic Product !IDB: Inter-American Development BankURSA: Integration of Regional Infrastructure in South AmericaIMF: International Monetary FundLAC: Latin America and the Caribb ean regionOECD: Organisation for Economic Cooperation & Development


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Global competitiveness and the politics of policies in Latin AmericaThe Bank has made enormous strides in its reform. Its rheto-ric has changed enormously. It now voices the need to gobeyond projects - beyond even policies - to change institu-tions. It talks not just about limiting the role of the state, butabout creating a more effective state. It discusses the impactof corruption on development, when only a few years agothis would have been viewed as crossing the dividing linebetween economics and politics. It articulates the need totake a comprehensive approach to development that seesdevelopment as a transformation of society. And it talksabout putting the country in the driver's seat, about partici-pation and ownership, about the salience of poverty. (Stiglitz,2003: I2j)While much has been written about the World Bank'sreorientation,' this paper diverts attention to a neighbouringWashington DC-based development agency - the Inter-AmericanDevelopment Bank, or IDB. In 2003, the IDB initiated a projectentitled 'Political Institutions, Policymaking Processes and PolicyOutcomes'. The purpose of the project, conducted by the IDB'sLatin A merica Research Netw ork, was to take a detailed look at 'the

institutional arrangements and political systems at work in LatinAm erica and how they shape the roles and incentives of a varietyof actors ... that participate in the policymaking process', with oneof the goals being to 'explore the way in which this processcontributes to shaping policy outcomes and the political economyof speciflc countries and sectors' (IDB, 2005a: i). Th e projectresulted in the publication of a report entitled llje Politics ofPolicies, released as the 2006 edirion of the IDB's flagship'Economic and Social Progress in Latin America' series, which ispublished annually in cooperation with Harvard University's DavidRockefeller Center for Latin American Studies.'' In this paper, I willargue that The Politics of Policies is a profoundly ideological text ontwo grounds. First, the report is rooted in a particular methodologythat can be attributed to its new-institutionalist orientation, andwhich I critique in more detail in the first section of the paper.Second, and more insidiously, while its authors state that the text isnot interested in 'policy content', a closer reading reveals asu b te r r a n e a n a g e n d a : a politics of global com petitiveness. PaulCammack describes this as:


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Capital & Class 98tem, and the disciplines those institutions bring to bear onindividuals. There is ... a commitment to the logic of pure,uncompromising, globally competitive capitalism - by \yhich[is meant] specifically a comm itment to introduce and sustainthe structures, institutions and social relationships that insti-tute a regime of competitive capitalism, place the logip anddisciplines of com petitiveness at its cen tre and oblige allactors, whether workers, capitalists, governments or interna-tional institutions, to adapt their behaviour to those disci-plines. (Cam mack, 2006:347) 'For the reader unfamiliar with the new institutionalism or'received wisdom' on the Latin American experience of politicaland economic reform since the 1980s, a synthetic exegesis of newinstitutionalist developm ent theory in general is given in sectiontwo of this article, by way of background. I suggest that theascendancy of the new institutionalism and an attendant concernwith a politics of global com petitiveness can be explained as anoutcome of economic theory's inability to reconcile a series ofhistorically specific tensions and dilemm as, some of which can begrouped under the broader heading of 'the challenge of dual

trans ition'. This applies to those areas of the world in which bothneoliberalisation and dmocratisation processes were concurrentlyimplemented.^ In this context, economists have sought extra-economic explanations for the perceived failings of market reformsacross the developing world. Institutions have entered the pictureas variables on which 'successful' transition depends. 'Success' isdefined here in capital-functional terms, the litmus test being textent to which there exists an 'investment climate' in| whichworkers ('human capital'), producers and entrepreneurs alike areequipped to compete unimpeded in a market economy, asdescribed by Cammack.' Under the terms of the newinstitutio nalism , political intere sts that stand in the way ofcompetitiveness-enhancing institutional reform are seen asstanding in the way of 'equitable growth' and the fulfilment ofpoverty eradication as envisaged, for example, in the UnitedNations' Millennium Development Goals. This conclusion, nowwidely accepted, has led to a growth in popularity of the notion ofan 'unfinished agenda' in Latin America, as demonstrated inSection 3. With all this in mind, I proceed, in Sections 4 and 5, to


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Global competitiveness and the politics of policies in Latin AmericaMarxism against the new instituHonalism

The case for a critical engagement with the new institutionalismbegins with important methodological objections. As is the casewith economics in general, this approach to development rests onthe reduction of socially constituted political and economicinstitutional forms to their material-technical content, therebyahistoricising two central institutions in particular - the nation-state and the m arket - and presen ting them both as universal,supratemporal and immutable. The new institutionalism acceptsthe horizon of capitalist social relations between alienatedindividuals as its methodological points of departure and arrival,and therefore either fails to grasp, or knowingly ignores, the extentto which contemporary concern with institutions and theassociated keyword 'governance' reflects contradictions that arehistorically specific to capitalism.' This outcome is symptomatic ofapproaches that take the view, identified by Oilman (2003: 65), that'things exist and undergo change. The two are logically distinct.History is something that happens to things; it is not part of theirnature. Hence the difficulty of examining change in subjects fromwhich it has been removed from the start'. For Marx, the hallmarkof ideology is precisely the manner in which it presents particularmodes of production - and constitutive institutional forms - inahistorical abstraction from their social constitution." In theGrundrisse, Marx explains how the vulgar economy of his day wasable to attest to 'the eternity and harmoniousness of the existingsocial relation s' (1973 ['857]' ^j) by elid ing the question of socialconstitution. Production, in this account, appears 'encased ineternal natural laws independent of history, at which opportunitybourgeois relations are then quietly smuggled in as the inviolablenatural laws on which society in the abstract is founded' (1973: 87).The internal and historically specific relationship betweenbourgeois society and the state form within capitalism is thereforeonly brought 'into an accidental relation, into a merely reflectiveconnection' (1973: 88). In Capital, Marx sought instead to reveal thehuman content of economic and political forms (Bonefeld, 2001),while developing an immanent critique in which the crisispropensities of the capitalist mode of production are revealed.The immutability of the capitalist world market for vulgareconomy obscures the historical specificity of its supporting


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Capital & Class 98that when political institutions are seen as having autonomy in thisway, the social rela tions that make sense of the sta te as ahistorically developed moment in the totality of capitalist socialrelations are obscured, and 'shocks to the system' - economic orpolitical - are seen as external variables rather than in dialecticalterms as mom ents of internal relations in movem ent. '

From this general objection, there stem at least four reasonswhy social theorists, and Marxists in particular, should take thenew institutionalism seriously. First, and notwithstanding the factthat in several key respects it should be seen as a conterriporaryvariant of the 'vulgar economism' taken to task by Marx andothers, the new institutionalism has ascended to the status of'received wisdom', and as such it should receive critical attentionSecond, as Fine has argued, the new institutionalism 'literallysocializes economics, rend ering a semblance of reasonableness -as markets and the economic are perceived to be imperfect andcomplem ented by the non-market and the non-economic. Indeed,othe r than within the technical virtuo sity of mairistreameconom ics itself with its formal, axiom atic and dete rm inisticmodels, a veil tends to mask the origins of the new econom icsimperialism in its dependence upon the rational choice approach(Fine, 2004: 21718). In other words, the institutionalism is offeringitself as an alternative to social theory - one tha t stresses theexplanatory importance of extra-economic, social variables butwithout departing from the foundational and anti-socialprinciples of methodological individualism.' This developmentcompounds the third reason, which concerns the way in which thenew institutionalism adopts an unas ham edly functionalistorientation - it seeks to unde rstand institutions as a means ofchang ing them. In so doing, it can adopt the m antle of a benignform of progressivism and therefore present a real challenge tocritical social theory through, for example, the 'pro-poorinstitutional reform agenda which pervades the literatureemanating from various development policy agencies. The fourthreason follows from this and informs my focus on The PoliticsPolicies report. For what the new institutionalism is advocating ias Stiglitz has put it, 'a transformation of society', and thistransformation is towards competitive capitalism, pure andsimple. On close reading. The Politics of Policies betrays overriding concern with this social transformation, as I will show


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Global competitiveness and the politics of policies in Latin Americacriteria which together indicate the degree to which politicalinstitutions can guarantee competitive capitalist social relations.Before focusing on the report, however, it is worth considering theregional context in which a politics of global competitiveness isenvisioned.

Dual transition and institutional challenges in Latin AmericaThe ascendancy of the new institutionalism coincides with thefailure of preceding orthodoxies in economics, and theWashington consensus in particular, to adequately account for theproblems associated with a series of wo rld-historic events (Fine,2001: 135) - pa rtic ula rly 'thi rd w ave' dm ocratisa tion s (seeHuntington, 1991) on the one hand, and the global implem entationof structural adjustment policies and market reforms in the wakeof the crises of the 1980s on the other." The challenges associatedwith managing both transitions simultaneously have beenespecially palpable in the former communist states of the SovietUnion and central and eastern Euro pe, and also in much of LatinAm erica (Rodrik, zooo: 4). In the case of the latter, econom icreforms which closely conformed to a 'policy menu' prescribed bythe Washington-based development agencies were largelyintroduced by fledgling civilian governments in the context ofrecent transition from authoritarian rule and the renaissance ofcivil society after years of state repression (see Weyland, 2002)."Lijphart and Waisman (1996) identify the problematic clash oflogics that have characterised such dual transitions:

Privatisation, deregulation, and the opening up of the econ-omy are impelled by the logic of differentiation. Their firstimpact is to increase social differentiation in both the ve rti-cal and the horizontal senses: polarisation between the richand poor as a whole intensifies, and so does polarisationbetween 'winners and losers' within each social class andalso between sectors of the economy and regions of thecountry ... The consolidation of democracy, on the otherhand, is governed by the logic of mobilisation. The politicalcontext of a new dem ocracy rende rs the mobilisation ofthose affected by economic liberalisation more likelybecause of the lowering of the costs of political action in


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Capital & Class 98The challenging tensions brought to bear on young democraciesby structural adjustment have been especially evident ih LatinAmerica." A recent study found that, in a sample of twenty-fourcountries in which dmocratisation had occurred since 1974, eight o

the twelve countries that experienced growth declines in thelprocesswere in this region (Rodrik & Wacziarg, 2005-: 54-5).''Today, a quarteof Latin Americans live on less than US$2 a day, and the region hasthe highest levels of inequality in the world (Perry et al., 2006: xiCrises like those that hit Mexico in 1995, and later Brazil andArgentina, further compounded disappointing economicperformance in the region overall."* After the so-called 'lostidecadeof the 1980s, when per capita GDP in the region declined annuallyby 0.9 per cent, GD P growth picked up to an annual rate of 2 percent, only to decline again by 0.3 per cent per annum between 1998and 2002 (Ocam po, 2004: 67-68). In the con text of ensuing|'reformfatigue' and a drop in the proportion of Latin Americans wh'o, whesurveyed, said they supported the m arket economy - from 77 percenin 1998 to 18 percent in 2003 (Forteza & Tom masi, 2006:10) - the buof the region has witnessed the sheer legislative inefficacy o'mod erate' leaderships, on the one hand, and the electoral triumph o'dysfunctional' political leaders and coalitions who have openlydeclared their antipathy towards the free-market economy andglobalisation as they interpret it, on the other (see Lora & Panizza2002; Kaufmann & Kraay, 2002; and The Economist, 2006). Moreoand even though 'm oderates' have carried the majority of recenelections in the region, populist misgovernance remains a concernfor the global business community (Lapper, 2006). The threat o'neo-populism ' is further com pounded by a lack of publicl faith inthe region's fragile systems of government: only 31 percent of LatiAmericans recently surveyed expressed satisfaction with the presenfunctioning of their respective democracies (CorporacinLatinobarmetro, 2005: ^i)" 1

In this context, it has been observed of the region tha t 'economireforms could only succeed if democratic contestation was, to somdegree, limited and contained by legitimate forms of governanceCivil society was both welcomed and feared, as the polarization osocial demands could undermine the ability of governrnents tgovern' (Foweraker, Landman & Harvey, 2003: 74). In short, a'inventory of grievances' has tended to be translated into an oftenpopulist political agenda in Latin America's democracies, posing


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Global competitiveness and the politics of policies in Latin AmericaStiglitz recognises that representation is indeed a key aspiration inthe majority of Latin Am erican democracies: 'today, through out theregion, those who have been disenfranchised in the past aredemanding a voice. Th e electoral democracies of the past, whatevertheir merits, have not improved their plight. This is what they know'(Stiglitz, 2002: 40)." Few would disagree with this diagnosis of theproblem of representation, but this raises questions about theproprieties of expressing disenchantment in Latin America'sdemocracies. For Smith (2005: 209), 'democracies need to providecitizens with the opportunity to express their grievances and holdleaders to account; in practical terms, this means tying their handsand/or voting them out of office'. There is, however, a trade-offhere. Most commentaries on post-transition Latin America agreethat governments which have been held closely accountable tovoters and their legislative representatives have been renderedinefficient." Recent history shows, for instance, that Latin Americanpresidents who exploited institutional imbalances or used extra-constitutional powers so as to bypass institutional checks andbalances were responsible for many of the region's major marketreform episodes in the 1990s (Barczak, 2001; Treism an, 2003)."

Today, however, commentators hold that the key to reconcilingefficiency and representation in Latin America lies in responsibleleaders' abandonment of the tried and tested paths of populism ormarket fundamentalism for more pragm atic goals (see, for exam ple.Castaeda, 2006).' For example, Jav ier Santiso, chief developmenteconomist for the OECD and one-time consultant for the IDB,argues that the integrity of democratic institutions in LatinAm erica will be uphe ld by governments that eschew utopianism for'possibilism' (Santiso, 2006). Paraphrasing Karl Popper, he writesthat 'open societies emerge ... politically and economically fromsocieties that give preferred place to the vices and virtues ofdemocracy and free-market principles' (2006: 8). All well and good,but what is missing from this 'political economy of the possible' isa practical guide resolving the governance challenge in the region.Enter the new institutionalism.

The new inst i tut ional ism responds: Lat in America's 'unf inished agenda'The negative experiences of dual transition in Latin America havebeen used by new institutionalists to substantiate the case for


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Capital & Class 98such poor reform outcomes through a view which, 'much iti voguerecently, argues that the agenda of market liberalisation and strongmacroeconomic frameworks was laudable but incomplete, andj shounow be complemented with a "secondgeneration"o reforms bason strengthening domestic institutions and more active socialpolicies' (Ocampo, 2004: 84, emphasis added)." The World Bank hasevidently embraced the logic of this second-generation ireformagenda, as demonstrated in research conducted and published byits Office of the Chief Economist for the Latin American andCaribbean (LAC) region. In a series of flagship Viewpoints XQippublished since 1996 by that office, the authors consistently refer toan 'unfinished agenda' requiring a second generation of reforms inorder to complete the market-reform process (see Charnock, 2006see also Cam eron, 2004). Th e th rust of this agenda is that the initiaphase of reform needs to be consolidated while fresh efforts aremade to move beyond the shallow objective of achieving m acro-economic stability across the region, this time paying heed to theinstitutional determinants of 'equitable' and 'pro-poor growth'The objective of reforms is to realise a better investment climate'in short ... to create the framework that will allow investors andworkers to operate efficiently and harmoniously, while permittingthem to compete successfully in the world economy' (Burki &Edwards, 1996a: 11). The means by which this objective is to beaccomplished is institutional, entailing nothing less than the'dismantling of the populist state' and the replacement of itanachronistic institutions and regulatory practices with those of a'modern, efficient, administrative state' able to guarantee a goodinvestment climate (Burki & Edwards, 1996b: 25) Alsorecommended are 'policies to improve the functioning of laboumarkets, including sound regulations and institutio ns',| which'should facilitate productivity growth while guarding equity in thelabour market' (Perry et al., 2006: 146). Only in this future settingwill an overriding pover ty-reducing goal be attained: 'the ability othe poor to use their labour (their most abundant a.sset) in wagjobs, self-employment, or their own microenterprises' (2006: 147).

This logic extends beyond the Bank's headquarters and intoneighbouring office complexes in Washington DC. The IDB, foexample, agrees that

Ibad policies and weak institutions too often limit vibrant


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Global competitiveness and the politics of policies in Latin Americagrowth, since it reduces domestic market potential andsquanders the skills, energy, and ambition of the population.(IDB, 2006: 7)For IDB economists, 'building better institutions is the realchallenge for the future of Latin Am erica' (Lora & Panizza, 2003:136). And even the IMF, criticised in the past for a particula rlydogmatic 'market fundamentalist' stance on the determinants ofgrowth, now also concurs with the new institutional orthodoxy:"In many countries in Latin America, growth has been con-strained by a weak state: poor government services, a weakjudiciary, high crime, corruption, tax evasion, and informali-ty. Many of these w eaknesses have shown themselves resist-ant to reform specific institutions. Making institutionalreform more successful and lasting will likely require effortson several fronts, including: increas ing the level of humancapital in the region (both within the government, and insociety at large); changing key rules and incentives in thepolitical process that are likely to enhance the quality ofpublic policymaking; and building constituencies that sup-port institutional reform. In this context, measures that leadto greater openness and competitiveness might be importantnot just in themselves but because they create a demand forbetter institutions and arther reforms. (IMF, 2006: 39)''If such com mentaries are indicative of a new developm entalorthodoxy, it seems plausible to deduce that the market-reformagenda is moving markedly beyond the neoclassical rationality of

structural adjustment. Now, there is recognition that a secondgeneration of institutional reform is central to the engineering ofa more competitive investment climate in Latin America.Underlying the analyses contained in these new institutionalistcommentaries is the emergent commitment to a politics of globalcompetitiveness - one that highlights the institutional pathdependencies which make the transformation of the state a highlycontingent and difficult process.'^ A decade ago. World Bankeconomists warned that dismantling the populist state entails 'bothpolitical will and social sensibil ity' (Burki & Perry, 1997: 57). Awhole chapter of the 1998 Viewpoints repor t . Beyond the Washington


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Capital & Class 98account, can enhance both the analysis and the undertaking osuch change' (Burki & Perry, 1998: 25). In short, the authors proposa careful consideration of the politics of winners and loset;s in thebuilding of coalitions essential to the implementation of second-generation reforms. They offer a comprehensive range ofconsiderations that should be kept in mind by players tacticalin theinstitutional reform game, from the carefully calculated tuning oelections and the manipulation of constitutional loopholes to'viable' compensation for losers should the need arise. Thisdiscourse of winners and losers appears throughout the Viewpoinseries.'' Echoing, again, the preoccupation with this politics, the2004 rep ort accuses potential losers of resisting reforms and o'opportunity hoarding' (de Ferranti et al., 2004: ij)."' This has theeffect of disempowering other individuals and impeding theirability to invest productively, to compete, and to secure sustainableincomes. According to this report, the completion of the reformprocess in LAC implies a fundamental shift in the 'politicalequilibrium' - one in which 'the forging of alliances betweenpoorer and middle groups, and with progressive elements of eliteswill be essential. A key consequence of such alliances will be theequalising of economic and political opportunity, includingmoving toward societies with more open elite structures' (2004: 23In summary, the politics of institutional reform in LatinAmerica is at once a political economy of winners and losers and apolitics of global competitiveness (see also Cam mack, 2004b). Thepreceding review of significant commentaries on Latin America'sunfinished agenda demonstrates the extent to which extraeconomic, institutional factors have been incorporated intoeconom ic theory. It is not unreasonable to suggest, as does ArmenioFraga, former pres iden t of the Central Bank of Brazil, thasupporters of market reforms now acknowledge that the questionof how best to explain and remedy the disappointing and unevenperformance of Latin American economies since theimplem entation of structural adjustment policies in the 1990s 'ireally one of political econom y' (Fraga, 2004: 104). In his decryingthe enduring prevalence of populism and special-interestin Latin America, which, upon being threatened 'then gang groupup andobstruct the path of development-friendly reforms' (2004), Fragafurther swells the ranks of new institutionalists committed tounearthing the institutional determinants of pro-poor growth


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Global competitiveness and the politics of policies in Latin Americaagencies heavily involved with national reform projects. One suchinstitution is the IDB.

The Inter-American Development Bank, poverty and global competitivenessThe IDB was created in 1959 as a multilateral financial institution,with a mandate to assist the acceleration of the economic growthand social development of twenty-six client countries in the LACregion. During the period of 'redefining the role of the state' in the1990s, the IDB 'supported these efforts by helping countries in theirreform processes and adapting its instruments to respond to theirneeds in the areas of policy reform, governance, technicalassistance and financial support'; and it is estimated that in recentyears, it has lent US$6-8 billion annually to the region (US$8.4billion in 2003) (IDB, 2oojb: 8). In addition to its lending andfinancing activities, the IDB also conducts 'research and know ledgedissemination' through in-house research, publishing, trainingprogramm es, conferences and seminars; one of its aims being to'inform and advise policymakers in the region'.

The IDB embraced the overarching goal of poverty alleviation- alongside the promotion of environmental sustainability - in themid-1990s. Echoing the pro-poor market approach that haspervaded the World Bank literature for almost twenty years now,the IDB's 1997 'Strategy for Poverty Reduction' pronounced that'the basic strategy of poverty elimination is to help the poor earntheir way out of poverty. To do that the econom y must generate anexpansion in the number of jobs available to the poor and anincrease in the productivity or earning power of the poor in thesejobs' (IDB, 1997: 2; cf World Bank, 1990: 1). The IDB has thereforeplaced emphasis on the need to help individuals in Latin Americaenhance their capabilities as human capital, and to createopportunities to use them productively (IDB, 2003: 9).More recently, and in keeping with the new institutionalZeitgeist, the IDB has recognised that enhancing competitivenessnecessarily complements three other priorities: those of socialdevelopment, modernisation of the state and regional integration,while it also intersects with constitutive themes such as education,public-sector reform, infrastructure development, and science andtechnology developm ent, amongst others. Attesting to this, the IDBpublish ed a 2001 rep ort entit led Com petitiveness: The B usiness of


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Capital & Class 98reached the levels required to achieve long-term sustainablegrowth and contribute to poverty reduction. The development ofothe r attractive em erging m arkets and the lack of reliablesuppo rting institutions in the region have made it difficult to attractinvestment' (IDB, 2005b: 10). As a result, the IDB has corrimitteditself to enhancing competitiveness across the region by focusingon the modernisation of financial legislation and regulation, thedeep ening of capital markets, the strengthening of propert)^ rights,reform of training systems and modernisation of labour legislation(IDB, 2Qojb: 11) - a commitment dem onstrated , in p art, by a newmode of funding 'productive integration projects' in individualclient countries. These projects or 'PIPs' are designed to promotecompe titiveness through the strengthening of pub lic-pr ivateinstitutions in specific national, provincial or local areas that showcompetitive promise as clusters or productive chains I (DinGuaipatin & Rivas, 2005). On a grander scale, the IDB has assumeda leading role in promoting and financing transnational'megaprojects' such as the Plan Puebla Panama and the Integrationof Regional Infrastructure in South America (URSA), 'whichprovide institutional frameworks for region-wide investment andpolicy reforms that promote competitiveness' (Chrisney, 2002: 10While doing so, it has recognised that both piecemeal reforms andreforms implemented under its auspices on a 'one-size-^fits-allbasis have produced disappointing results (2002; IDB, 2003). Inrecent years, the IDB has therefore turned its attention to acomparative analysis of the institutional determinants ofsuccess/failure, acknowledging that

the next generation of policy and institutional reforms

policy

willrequire more detailed local knowledge and effective collabo-rative processes. Piecemeal approaches to changing society'sinstitutional arrangements may no longer be an effectiveoption, especially when there are clear trade offs and vestedinterests. Using its experience and com mitm ent to the region,the Bank can convene the private sector, public sector, civilsociety, and international institutions in dialogues that iden-tify a common vision for competitiveness, the barriers thatimpede progress, the gains from change, and the needed pol-icy and institutional reforms. (Chrisney, 2002: 15)


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Global competitiveness and the politics of policies in Lafin Americomultidisciplinary nature of its collaborators, said that the projectwas to be oriented towards finding 'common metrics and tools' tofacilitate d iscussion (Spiller, Stein & Tom masi, 2003: j). Theindication was thus that, despite there being an emphasis on the'systemic' analysis of political institutions, the discussion would becentred on 'the ability of political actors to strike and enforceinter-temporal agreements' in order to investigate the centralquestion of 'whether the workings of the policymaking process(PMP) tend to facilitate or hinder cooperative outcomes in thepolitical transactions gam^ (^3: ^> emphasis added). In short, politicsis analysed in game-theoretical terms from the outset of theproject, and according to the methodological principles of generalequilibrium. Methodologically, these contributors view broaderconsiderations - such as deep-rooted ethnic cleavages or endemicpolitical violence, as in Colombia - as potentially 'interactive' butultimately separate 'policy issues' (2003: 30). From a criticalperspective, this is a significant foundational characteristic of theproject, a lbeit, I wish to argue , it is not as significant as the project'sprivileging of certain 'outer features' of policies that are a prioripresumed to be universally functional and desirable (2003: 6-10).The project and The Politics of Policies, which was published as itsfinal outcom e, are, I now argue, highly represen tative of the newinstitutionalism, its methodological assumptions, its character asideology, and its determined championing of competitive globalcapitalism.

Form without content? The polit ics of policies in Latin AmericaThe Politics of Policies is essentially a study by a team of economists'crossing the dividing line' into political science (to paraphraseStiglitz, 2003: 125) by looking into the 'institutional arrangementsand political systems at work in Latin America, as they shape theroles and incentives of a variety of actors . .. that participate in thepolicy-making process'. The rationale was that it might contributeto an understanding of 'the dynamic between politics andeconomics that is so central to a nation's deve lopm ent' (Stein et al.,2005: 4), and to the improvement of 'the apparently simple recipeof the Washington consensus'." Yet desp ite its inten tion toinnovate, the re por t can be seen to rest on a series of assumptionsthat can be contested. First, as the latter quote illustrates, the


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Capital & Class 98the subject matter is unquestioned. Second, the analysis islrationaactor and incentive focused. The quotation from FernandHenrique Cardoso, former president of Brazil, on page i of threport is telling insofar as it illustrates game-theory logic ati work iwhich 'interests' vie for utility-maximising outcomes in animmutable institutional context: 'Decisions grow out of negotiated equilibrium of interests; they conform to transparenrules; and they are made in the public arena ... Policies do noreflect the supposed omniscience of illuminated technocratsinstead, they represent the harmonisation of legitimate interests, ina concert of wills, including that of the government itself (2005: iChapter 2 of Part I of the report, on methodology, attests to thiand to the game-theory foundations of the study in particular:

The process of discussing, approving, and implementingpublic policy is collectively referred to as the policymakingprocess (PMP). In democratic systems such as those in LatinAmerica, these processes play out on a political stage fea-turing a variety of political actors {or players, in the parlanceof game theory). Players in this game include official Stateactors and professional politicians ... as well as busmessgroups, unions, the media, and other members of civil soci-ety. These actors interact in different arenas, which may beformal ... or informal ('the street'), and may be more or lesstransparent ... The PMP can be understood as a process ofbargains and exchanges (or transactions) among politicalactors .. . The type of transaction that political actors areable to engage in will depend on the possibilities providedby the institutional environment .. . The behaviour of polit-ical actors in these exchanges, and the nature of theexchanges themselves ... depend on the actors' preferences,on their incentives, and on the constraints they face. They lalsodepend upon the expectations these actors have regardingthe behavior of other players. These interactive patterns ofbehavior constitute what in the parlance of game theory arecalled equilibria. Thus the characteristics of public policiesdepend on the equilibrium behavior of policy actors in' thepolicymaking game ... PMPs, like policies, are very com-plex ... The institutional setup must be understood in a sys-temic way (or, in economic jargon, in general equilibrium),


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Global competitiveness and the politics of policies in Latin Americafrom an early stage of the rep ort (200J: 12). Shortly afterwards, theauthors further explain their intentions:

The authors of this report recognize that institutions areendogenous to past arrangements and occurrences, and tosome extent to more recent configurations of political power,socioeconomic structures, and other deep determinants. Thisstudy focuses on the impacts of particular configurations ofpolitical institutions on policymaking processes, and hence onpolitics ... This study tries to ... increase awareness of theimportance of political practices and institutions in the poli-cymaking process - without falling into a totally deterministicmode in which everything that happens is determined byforces absolutely beyond the control of individual or collectiveactors. Leadership can sometimes be an extraordinary force inthe political process, but its possibilities and implications areclosely intertwined with the institutional setting, (ibid.)In other words, the authors share the conviction that although theinstitutional context matters, particular actors can help shape andreshape this context to produce a more desirable and

institutionalised governance system. The authors are eager tohighlight the importance of leadership in this regard, and inexplicitly functionalist terms: 'fianctional leadership facilitatescooperation and inter-temporal bargains that improve the quality ofpublic policy', while dysfunctional leadership '"de-institutionalises"as the personal accumulation of power weakens institutions' (2005:145). Brazil, Mexico and Uruguay are cited as countries in whichfunctional leadership has emerged (presumably 'Lula', Fox andTabar Vzquez, respectively), and while no names are mentioned,the authors' antipathy toward other leaders in the region is apparent:In time of crisis, dysfunctional leaders can hold an irresistibleattraction for the public. Leaders can present themselves ashaving the answer to all problems, while promising to sparesociety as a whole and individual citizens from confrontingtheir own problems and taking responsibility for them. Thisinteraction between a leader's charisma and a follower'sescape from reality has historically been the route to a dan-gerous brand of politics. (2003-: 14-5)


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Capital & Class 98already discussed - is intended as a guide for political strategy asmuch as anything else: 'these chapters constitute an important steptoward one of the main purposes of this report: to provide someguidance and orientation toward understanding the policymakingprocess surrounding particular reform initiatives in particula r areasin particular countries at particular points in time' (2005-: ui).

The remainder of the report consists of three further parts: Par2 explains in greater detail the roles played in the P M P by !a rangeof actors, from presidents and political parties to the media andcivil society; Part 3 synthesises the general characteristics of thePMP that contribute to quality public policy, before examiningseveral countries' experiences of the PM P; while Part 4 looks aspecific policy sectors such as tax policy, public services andeducation . I wish to focus here on the main messages of the]reportwhich are summarised in Box i (See page 85).These main messages, once again, affirm the core methodologicaltenets established earlier (messages i, 2, and 4); highlight theconstant need to contextualise PMP analysis (messages j and' 6); andestablish the core features of a fiinctioning system of governance inwhich actors cooperate and certain institutional features prevail(institutionalised parties, etc), and in which actors - especially

leaderships - accept that institution-bu ilding requires a long-termcom m itment and confers a particular kind of responsibility(messages 7, 8, 9 and 10, respectively). But I wish to argue that themost significant aspect of this report is summarised in message 3,message that is reiterated in the concluding chapter in terms thatecho Smith's general concern with Latin America's governancedilemma: 'Political processes in a democracy must incorporate thedual requirement of representativeness and effectiveness. This mindispensahle to develop certain institutions and processes thatgenerate the qualities of stability, adaptability, coherence, pregardedness, and effectiveness in policies' (2005: 256, emphasis adThe meaning of these characteristics is clarified at points within therepo rt, and they are: 1 Stability- the extent to which policies are stable over time Adaptability - the extent to which policies can be adjusted whethey fail or when circum stances change ICoherence and coordination the degree to which policie

consistent with related policies and result from w e l l -coordinated actions among the actors who participate in their


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Global competitiveness and the politics of policies in Latin America

1. Processes matter! The process by w hich policies are discussed, approved, and implemented(the policymaking process) has an important impact on the quality of public policies, includingthe capacity o f countries to provide a stable policy environment, to ad apt policies whenneeded, to implement and enforce policies effectively, and to ensure that policies are adoptedin pursuit of the public interest.2. Beware of universal policy recipes that are supposed to work independently of the time and

place in which they are adopted. On e of the pitfalls of advocating the ado ption of universalpolicy recipes - and one of the driving motivations for this report - is that policies are notadopted and implemented in a vacuum. Rather, they must proceed within the context of acountry's political institutions.3. Certain key features of public policies may be as important in achieving development goalsOS their content or orientation. The impact of public policies depends not only on their specificcontent or particular orientation, but also on some generic features of the policies ... This studyexamines six such key features: sfability, adaptability, coherence and coordination, the qualityaf implementatian and enforcement, pub/ic-regordedness (public orientation), and efficiency.

4. The effects of political institutions on PMPs can be understaod only in a systemic monner.PMPs are very complex, as a result of the multiplicity of actors with diverse powers, timehorizons, and incentives that participate in them; the variety of arenas in which they play thegame; and the diversity of rules of engagement that can have an impact on the way the gam eis playe d ... In order to understand them more fully, the institutional setup needs to beaddressed by a systemic or 'general equilibrium' approoch.5. Political and institutional reform proposals based on broad generalizations are not a soundreform strategy. A corollary of the previous point is that the merits of potential changes inpolitical and institutional rules must be considered carefully, with an understanding of howthese rules fit within the broader institutional configuration .. Policy or institutional reforms that have important feedback effects on the PMP should be

treated with special care, and with an understanding of the potential ramifications. Policyreforms often have feedback effects on the policymaking game. In some sectors, thesefeedback effects are likely to alter the specific sector's policy game by creating new actors orchanging the rules of engagement am ong them.7. The ability of political actors to cooperate over time is a key determinant of the quality ofpublic policies ... In systems that encourage cooperation, consensus on policy orientation andstructural reform programs is more likely to emerge, and successive administrations are morelikely to build upon the achievements of their predecessors.8. Effective political processes and better public policies are facilitated by political parties that

are institutionalised and programmatic, legislatures that have sound policymakingcapabilities, judiciaries that are independent, and bureaucracies that are strong.

9. Mast of these 'institutional blessings' are not granted overnight. Building them, and keepingthem in place, depends an the political incentives of key political actars.

1 0. Leadership, if functional, can be a vital force for institution-building ... Functional leadershipcan encourage deliberative processes that allow policies and institutions to adapt to the needs


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Capital & Class 98 Efftciency - the extent to which policies reflect an allocation scarce resources that ensures high returns. (2005:17,130)'

The report makes much of these characteristic qualities opublic policies, devoting C hap ter 6 to a full exposition of theirelative importance. Here, and again reiterating a point made inChapter i, the authors distance themselves from existing studies opolicy reform in Latin America: 'Normally the political economyliterature concerns itself with the content of public policies: wexports be subsidized or taxed, which sectors get more or lesprotection, who benefits from and who pays for incomredistribution, and so on. Instead, this study focuses on some kefeatures of pub lic policies' (2005: 130). It is these features tha t foran essential part of the conclusions of the report, for they attest tothe degree to which functional institutional arrangements andPMPs can be said to be in place in a particular system ogovernance, regardless of the content of particular policies (2005: 256emphasis added). In other words, these characteristics arepresented as being universally desirable and essentially apoliticalit is implied that with such features institutionalised, the policypreferences of different 'interests' can be dealt with exogen'ously that is, without jeopardising the institutional form of a staterestruc tured according to a politics of competitiveness. I

The key to recognising the ideological character of Th Politof Policies lies in the provenance of these criteria as acknowledgin the report, and in the background papers produced during theearly stages of the project (2005: 130; Spiller, Stein & Tommasi2003; also Mejia Acosta et al., 2006; Aninat et al, 2006; Lehoucq eal., 2005; and Monaldi et al., 2006). The functionality of the cr iteriais underpinned by the 'Executive Opinion Survey' carried ouannually by the World Economic Forum in preparation for thepublication of its Global Competitivaiess Report (GCR), in addition an infiuential opinion survey on 'State Capabilities' carried ouunder the auspices of the Brookings Institution (Weaver &Rockman, eds., 1993) and an index on 'Economic Freedomproduced by the Fraser Institute.'' The GCR 2003-4, on whichStein et al. draw, affirms that 'in a market economy, wealth isultimately created by private businesses. However, these businesseshave to operate within a country and have to deal with itsinstitutions ... Thus the Global Competitiveness Index measures


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Global competitiveness and the politics of policies in Latin AmericaNorth, it has championed the competitive free market and 'limitedconstitutional democracy' over 'unconstrained majoritariandemocracy' (G wartney & Lawson, 2006: 7):

Governments promote economic freedom when they estab-lish a legal structure that provides for even-handed enforce-ment of contracts and the protection of individuals and theirproperty from aggressors seeking to use violence, coercion,and fraud to seize things that do not belong to them.Governments also enhance freedom when they allow citizensaccess to sound money ... It must refrain from actions thatinterfere with personal choice, voluntary exchange, and thefreedom of individuals and businesses to compete. Whentaxes, government expenditures, and regulations are substi-tuted for personal choice, voluntary exchange, and marketcoordination, economic freedom is reduced. Similarly,restrictions that limit entry into occupations and businessactivities also ttard economic freedom. (2006: 5-)I deduce from the provenance of the key features that theirtechnical anctionality is far from 'content-free'; rather, it lies in

their functionality for capital. So, for example, 'stability' is deemedessential since 'a state must have certain capabilities to performcertain essential functions. It must have the capacity to maintainmacroeconomic stability and ensure economic growth; to makelong-term policies credible, and implement and enforce policiesover time; and to ensure that policies are not captured by specialinterests' (Stein et al., 2005: 132). This concern with establishinggenuinely competitive political processes reflects the newinstitutionalism's preoccupation with institutionalising equality ofopportunity in market economies; so that when 'public-regardedness' is to be taken into account, it is on the basis that 'thosefavoured by private-regarding policies tend to be the members ofthe elite, who have the economic and political clout to skew policydecisions in the ir favour' (2005:136). The Politics of Policies recognisesthat in Latin Am erican countries currently, the state tends to imposelimits on the creation of a competitive investment climate; such aclimate requires a deeper interventionism so as to recompose thestate in a more inctional form:


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N o t e s _ \1 While 1 recognise that variants of a 'new institutionalism' have

existed across the social sciences (Reich, 2000), the focus of thispaper conce rns a sufficiently cohere nt and consensual approach todevelopment economics and also the politics of development.

2 The work of Ronald Coase (1937, i9j'o), Oliver Williamson (1975-,1985), and Nobel laureate Douglass C. North (1981, 1990a, 1990b, 1991are seminal 'new institutional' economics texts. For exegeses on thisapproach, see Andersen & Bregn (1992), Bardhan (1989), Dequech(2006), Dorward et al. (2005), Faysse (2005), Hodgson (2oo i),|Richter(200J), Shirley (2005), and Spruyt (2000). See also the InternationalSociety for New Institutional Economics, online at.

3 For exam ple, Cam mack (2004a); Fine (2001); Fine, Pincus &'Lapavitsas (2003); Pender (2001); and Taylor (2005).

4 Th e project also yielded The State of State Reform in Latin Americ(Lora, 2007).J A criticism of the focus adopted in this paper m ight be that itdubiously 'suggests that capitalist states' primary occupation in thepast was not to ensure economic competitiveness' (Bonefeld, 2006:45). However, my stress is on a politics of competitiveness that canonly be understood conjuncturally and with reference to the recenthistory of capitalism and elements such as the globalisation(universalisation) of wage labour; the unabated discursivetriump halism of neoliberalism but increasingly in a newinstitutionalist form; and an unprecedented degree of collaborative


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Global competitiveness and the politics of policies in Latin America7 Williamson (1975: 21) builds upon the open ing gambit: 'I assume, for

expositional convenience, that "in the beginning there were markets'"(see Ankarloo & Palermo, 2004).

8 Marx & Engels (1967 [1848]: 100) lambasted the politica l economists oftheir day for being bourgeois ideologists, and for 'transform[ing] intoeternal laws of natu re and of reason, the social forms springing fromyour present mode of production and form of property - historicalrelations that rise and disappear in the progress of produc tion'. Onthe question of social constitution, see also Bonefeld (1992).

9 Social categories such as class are fiindamentally incom patible withany methodologically individualist approach. For instance,Schum peter - recently rehabilitated by the new institutionalism -rejected social categorisation {'soziale Betrachtungsweise) preciselybecause it has little utility for economics: 'that social influencesdetermine the conduct of the individual, and that the individual is amicroscopically small factor, is all admitted but entirely irrelevant forour purposes. W hat m atters to us is not how these things really arebut how we m ust schematise or stylise them in order to serve best ourpurposes' (in Machlup, 1951: 150). For more on this foundationalprejudice in new institutional economics, see Ankarloo (2002);Ankarloo & Palermo (2004); Fine (2002b); and Palermo (1999).

10 For a Marxist discussion of dmocratisation processes in general, seeSmith (2000).11 An exceptional case is Chile (and to a lesser exten t M exico), where

wholesale market reforms were introduced prior to a substantivedemocratic transition.

12 For earlier critical commentaries on dual transitions in the region, seeRobinson (1996, 2003); Cypher (1998); and Petras, Veltmeyer & Vieux(>997)-

13 The other four countries (Romania, Spain, Portugal and Hungary)were already upper-middle-income economies at the time ofdmocratisation.

14 The Mexican case is indicative of the failures of market reforms:successive governments since the debt crisis of 1982 pursu ed wide-reaching reforms, only for the Zedillo administration to devalue thenational currency in December 1995, prompting a second devastatingeconomic crisis which resulted in an estimated loss of 16 percent ofG DP (US$45 billion) over the next two years (Morris & Pass-Smith,2001: 135). T he crisis was exacerbated (or, some argue, p recip itated) byan armed popular insurrection in the poverty-stricken state of


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Capital & Class 98I15 Weyland (2003) attempts to outline the specific charac teristicslof 'ne o

populist' presidentialism.16 Th e experience of Chile is often used as a case in point. Imp ortan t

market-reform processes were implemented much earlier here thanelsewhere in the region, and under a brutal military regime whichcontained any threat of popular opposition to structural adjustmentthrough state repression, murder and the suspension of political andcivil rights. Chile's record of growth, combined with events after 1988(when the Pinochet regime accepted the outcome of a speculativeplebiscite rejecting the continuation of military rule), a comparativelylate and negotiated transition toward civilian government, and thecontinuing political deactivation of Chilean civil society (Silva, 2004)meant that the problem of dual transition has been deemed lessprofound here than elsewhere in the region (for a critical reading ofthe Chilean transition, see Taylor, 2006). Compare the Chilean casewith that of neighbouring Argentina, where the rapid withdrawal of athoroughly illegitimate and discredited military regime deferred theresponsibility of overcoming hyperinflation and economic crisisthrough structural adjustment to civilian-controlled state institutionsthat were susceptible to elite manipulation and corruption, and underthe constant critical scrutiny of civil society.

17 See, for example, the discussion of Bolivia's protracted crisis inSalman, 2006. I18 Witness the 'lame duck' presidency of Mexico's Vicente Eox (2000-6)

rendered ineffective by an opposition-controlled legislature for muchof his ten ure in office (Ch arno ck, 2006: 86-91). Por further criticalcommentary on Mexico's dual transition, see Morton (2005). j

19 An often cited example is Argentina's Carlos Menem (president,1989-1999) who exploited the dom inant position of the executive vis--vis other branches and sought constitutional reform to enhance theprospects for market reform (see O'Donnell, 1994). The presidency ofPeru's Alberto Eujimori (1990-2000) stands out as a hybrid ofdemocratic and authoritarian elements, as shown when he suspendedthe constitution in the autogolpe of 1992, and subsequently reformed to allow his re-election for a second term in office (see Crabtree, 2001

20 Moris & Saad-Eilho (2003, 2005) highlight the inconsistencies andcontradictions inherent in the current Brazilian government's projectaimed at maintaining popular support as well as a commitment tomarket-led economic policy.

21 Ocampo was, until recently, und er-secreta ry general of the United


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Globo/ competitiveness and the politics of po licies in Latin Am erica22 Th e IM F held an in te rna t ion a l conference on second genera t ion

reforms in November 1999.23 Foo tnotes in this text ackn ow ledg e th e s imilar findings of W orld Bank

studies, as well as The Politics of Policies repor t f rom the IDB.24 Hence the widespread preoccupat ion wi th ' s ta te capture ' dur ingtrans i t ion (see Hel lm an, Jon es & Kaufmann, 2000) .25 See, for exam ple, the discussion of poli t ical dece ntrali sation in Burki,

Perry & Dillinger (1999: 1-7).26 Oth er rep ort s in the series , om itted from this discussion, inc lud e d e

Ferranti et al. (2000, 2002, 2003).27 Co ats w or th (2005: 137) ci tes Fraga 's art ic le in ord er to sup po rt t he

cons ens us tha t La t in Amer ica ' s e conomic p rob lems can be a t t r ibu tedto a f a i lu re to imp lemen t s t ruc tu ra l ad jus tmen t r e fo rms ' fu l ly ' .

28 G u i l l e r m o C a l v o , I D B c h i e f e c o n o m i s t , a n d C a r l o s M . J a r q u e ,m a n a g e r o f t h e I D B ' s S u s t a i n a b l e D e v e l o p m e n t D e p a r t m e n t , i n t h ePr efa ce to Stein et a l . (2005: v).

2 9 S e e t h e W o r l d E c o n o m i c F o r u m w e b s i t e a t < w w w . w e f o r u m . o r g > , t h eB rook ings Ins t i tu t ion a t , and the webs i t e o ft h e E c o n o m i c F r e e d o n N e t w o r k a t < w w w . f r e e t h e w o r l d . c o m > ,respec t ive ly .

30 C f the Wor ld B ank 's webs i t e : ' cou n t ry ow ne rs h ip does no t r equ i r e fu llcons ens us w i th in a coun t ry . I t means tha t the gove rnmen t canmobi l i se and sus ta in suff ic ient pol i t ica l support to adopt andimplemen t the de s i red p rograms and po l i c i e s even in the p re s ence o fs ome oppos i t ion ' ( , a cce s s ed i March 2007) .


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greig competitiveness latin america capital and class

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