The Political Economy of Economic Crises: Lessons from Latin America

• In Event: Poster Session: Comparative Politics I & II
  In Poster Session: Poster Session: Comparative Politics II

Abstract

The commodities-fueled economic boom of the first decade of the 21st century enabled a variety of public and private initiatives throughout the region which boosted economic growth while enabling governments to spend on a variety of social welfare programs (e.g., health, education, infrastructure, and job training). However, as the boom turned to bust beginning in 2013, both governments and the private sector have been forced to retrench. Based on case studies of six Latin American countries (Argentina, Bolivia, Colombia, Ecuador, Peru, and Uruguay), I ask how countries, and the policymakers who lead them, have responded to this dramatic reversal of fortunes. This topic has taken on added urgency as the ongoing global pandemic has put additional fiscal burdens on governments while further undermining economic activity in the private sector.

Using both quantitative economic data and interviews with key policymakers in selected Latin American countries, I investigate the possibilities for (and limits to) transformational change in Latin American economies. I define transformational change as policy changes that diverge from the economic orthodoxy of the “Washington Consensus” period. As summarized by Williamson (1993), this orthodoxy includes the following:
*Strict fiscal discipline
*Prioritization of public spending in high-impact areas such as primary health and education and away from politically sensitive areas such as defense and indiscriminate subsidies
*Tax reform that broadens the tax base while lowering marginal rates
*Financial liberalization
*Unification of exchange rates at a level sufficiently competitive to generate growth in non-traditional exports
*Trade liberalization
*Abolition of barriers to foreign direct investment
*Privatization of state enterprises
*Secure legal protection of property rights

My paper is both descriptive, documenting policy changes across six countries, and theoretical. I locate the roots of different policy choices in the structure of political institutions and the relative economic and institutional weight of different economic sectors. The paper begins by investigating what Santiso (2007) has called the “political economy of the possible” in Latin America and other developing countries. While recognizing that markets put very real constraints on government decision-makers (particularly in small economies), this approach stresses that there is room for variation and state activism within the broad contours of a market-based economy. Tellingly, the recent move towards more activist states in Latin America has not involved a wholesale rejection of capitalism. This approach is broadly consistent with the recent “varieties of capitalism” literature which explores how and why different subtypes of capitalism have emerged around the world (Schneider 2013). It is partially consistent with the argument that global capitalism has forced countries to converge around a common set of free-market policies. It is inconsistent with the “race to the bottom” literature, which argues that countries are forced by the constraints of global capitalism to adopt minimalist states and social protections or risk facing the wrath of markets.

Author

• James D. Bowen, Saint Louis University