An East Asian Model for Latin American Success

The New Path

Anil Hira

• Publisher: Routledge
• Year: 2016
• Print ISBN: 9780754671084
• eBook ISBN: 9781351959025
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: International Relations
• Index: Politics & International Relations

Latin America is at a uniquely important juncture in its history and the history of development more generally. Neoliberal market-orientated policies are being called into question, growth has been volatile and equity has stayed the same or worsened. In Latin America there is no clear direction for change. This book presents an alternative development path for Latin America based on an East Asian model. East Asia remains the only developing region so far with high stable and equitable economic development. Based on in depth analysis and the presentation of new and unique material, this study provides a new perspective on the lessons of China's rapid development and examines relations between states and companies that have led to greater success by East Asian companies entering new international markets. More importantly, it highlights how Latin American politics can and must be transformed.

Chapter 1
Why Ideas and State Leadership are the Key Variables in Latin American Political Economy

Introduction

In the preface, we discussed the problems with the implicit foundations of the predominant approaches to LA development. Building upon the oldest story in the world, that of conspiratorial fate, the Left focuses on emotion-based critique, pointing out that misery must have some blame. As we have seen, the problem with this approach is not only is it non-productive, but it also glosses over many of the complications inherent in the LA landscape. For example, as I have pointed out elsewhere (Hira 1998), a class – and/or imperialist-based analysis not only begs the question of the haphazard nature of rebellion (leading to bringing in exogenous variables such as control through ideology), but also misses the multi-faceted aspects of individual and group identity, such as religion, race, gender, ethnicity and geography as well as the wide variety of possible reaction-interactions over time and space. On the Right, the glib faith that the only thing that matters is individual maximization of economic goods also not only misses the rich social context of development, but the fact that other goals such as domestic equity and a sense of place may also affect behavior. This leaves us with the last predominant approach of the literature, namely that of policy analysts. This group, including primarily economists in state institutions, multilateral development banks, and think tanks, is by far the most influential in setting policy, matching resources with supposed dominance by way of “scientific” expertise and privileged access to policymakers. This group creates barriers from conversing with others through its insistence that mathematically-based economic models are the only sensible way to discuss policy issues. The end result is incredibly sophisticated ways of reflecting the problems that exist, such as fiscal imbalances’ effects on growth, but no attempt to answer why or how such problems can be fixed, and certainly no sense of evaluating or assigning responsibility to agency, that is the decisions people choose to make.¹

The problem of exclusion by this group hit home to me when I had the good fortune to be invited by a multilateral development bank to give a paper I had prepared on why the FTAA (Free Trade Agreement of the Americas) was going to fail on the basis of international relations bargaining theory. My discussant, an economist from the region, stated that no commentary could be given since “there was no regression model” in the paper. As I sat through paper after paper at the conference of economic modeling I could not help but ask one of the experts what the public policy implications of his work were. There seemed to be no clear answer to this question, nor could I find a “recommendations” section at the end of most papers. To be sure, the mainstream economists who are the dominant policy advisors have had to respond to the problem of contextualizing economic policies. The initial blindness of the effects of structural adjustment policies on the poor was just one of a series of criticisms (again without suggestions for fixing fiscal problems and other vulnerabilities that led to the imposition of such policies) that have pointed this weakness out. While the World Bank and its regional counterparts have now discovered that good governance and institutions might indeed matter, at least insofar as recognizing the importance of transactions costs,² they have largely ignored the work of a rich emerging vein of political economy scholars who have been dealing with these problems in a way that pro-actively considers policy and political context in making recommendations (see Tendler 1997 for example). This work builds upon emerging work in that vein by cross-fertilizing the literature from two regions, EA and LA, with historical, policy-oriented, and statistical analysis.³ The problem again seems to center around the fact that economists are uncomfortable with the lack of a unifying theory of political and social change. More importantly, by definition as either multilateral institutions or as “neutral” policy advisors their mandate forces them to shy away from any direct political stance. Thus the policy advice of the supposed optimality of a theoretical free market remains at the most general level, progressing to an attempt to “count” the economic costs of red tape and corruption on the otherwise theoretically well-functioning market-based economy. The end result of both class-based analysis and the optimality of markets as the ultimate basis of analysis is that they squeeze out the wide variation and richness of historical experience, thus creating blinders to the huge variety of possibilities.

My contention here is that understanding the historical context of the problem is the essential starting point for a solution-oriented empirical analysis. Therefore, before getting to a direct argument of how a “new path” to equity and growth could be found in Latin America, we must first demonstrate the overall feasibility of change in historical context. In this chapter, I build upon the ideas approach to Latin American economic history that I have suggested elsewhere in order to demonstrate two key planks of this foundational argument.⁴ First, I wish to show that ideas have had the ability to influence economic decision-making throughout Latin American history.⁵ Second, I endeavor to demonstrate that the Latin American state has always been the key actor in economic decision-making (for background discussion see Vellinga 1998). Third, I begin the argument, which I finish in the final chapter, that the timing and politics currently in LA lend themselves to a paradigm shift in the EA direction I am proposing. This means that a move towards an EA-style development model is not only timely, but eminently possible, once the battle of ideas is won. Hopefully, this book will be a first salvo in that battle.

The foundation of my own approach to explaining Latin American political economy lies in building my policy-oriented decision-making framework upon the “historical-structural” approach laid out 30 some years ago by Fernando Henrique Cardoso and Enzo Faletto (Cardoso and Faletto 1979). The basic idea behind this approach is to look at the importance of historical relationships and circumstances in constraining and promoting certain types of economic decisions. By structures, I refer here to sets of relationships among powerful political actors, as well as norms and ideas about acceptable behavior and shared goals that are embedded in a culture. “Structures” guide but do not determine behavior. Structures are multi-layered, and include actors, ideas, and norms at the international, regional, domestic, and/ or local level. In short, structures are relationships between important entities that seem to have some lasting value and staying power. Practically speaking, structures are always changing, both in evolutionary and revolutionary terms. In any given structure, moreover, there are multiple possibilities for achieving an equilibrium (stable situation) among the different powerful actors.

Similarly, while the Cardoso and Faletto approach implies “path dependency,” in the sense that historical patterns tend to have a staying power, by no means does history determine decisions. If anything, I would argue that the array of choices always available is vastly underestimated because of the cognitive “semi-blindness” that the sway of a particularly strong set of ideas has in different historical periods. One example is the academic literature that arose in the 1960s surrounding “bureaucratic authoritarianism” in Latin America. This literature was created in the wake of a series of military takeovers of democratic governments throughout Latin America. In general, the literature linked the military takeovers to an economic growth crisis in the region, partly by relating the need to suppress skilled wages in order to improve trade and savings balances. Both this and the related literature on authoritarianism that emerged at the time were strongly pessimistic about the chances for restoring democracy in the short-run. In fact, the literature underplayed the political factors of anti-Communism, which was a key motivator behind the coups (the military seeking to restore power relationships). The revival of democracy in the region throughout the 1980s and 1990s was as surprising to many Latin American specialists and policymakers as the “fall” of the Soviet Union was to international relations theorists. The point is that the operating ideas about the region, which worked in synergy with the policies adopted and political developments, were much more controlling of the possibilities for action than was realized at the time.

Ideas and cultural values are perhaps the most underestimated factors in explaining economic decision making. They do not fit neatly into any economics framework, yet they are transcendent in explaining not only why some policy choices are made at certain times, but also the general trajectory of policy choices over long periods of time. Moreover, as we explained in the preface, neoliberalism is currently confronting a major crisis – so the timing is right for a paradigm change in the region. Nonetheless, academics tend to be very skeptical about the power of ideas – much of social science work is based on more easily followed interests and constraints related to the use of coercion and/or allocation of resources. There is therefore a general under-appreciation for how ideas can shape coercive and allocation-based decisions. It is absolutely vital, therefore, to make the case that ideas can make a difference in order to argue that the set of ideas the follow in this book can change Latin American economic policies.

Structure, Actors, and Discourse: Three Frameworks for Explaining Latin American Economic Ideas

In order to understand how ideas affect economic policy, we need to move beyond merely stating the content of the ideas and explain exactly how and why certain ideas became important at certain times, and the exact ways in which they influence economic policy at the time. In order to accomplish this task, I will build upon two frameworks that I developed in my previous work,⁶ adding a third and new framework for this project (rhetoric and interests). We can then apply these to Latin American history to set up the context for our enquiry as to how to move forward.

How the Frameworks Work Together

An oversight of most social scientists, and perhaps the weakest point of theorizing in either the social or natural sciences, is the inability to incorporate multiple levels of analysis simultaneously. By multiple levels of analysis, I refer not only to the spatial interaction of the international, domestic, and local levels, but also to the interweaving of one temporal period with another. To state it simply, it is easy to see that the past is involved in the present, if nothing else through shaping perceptions, and the future (possibilities) also figures into present decisions. I would add to this a third step of sophistication that we need to move forward in our understanding, that is, the interaction of ideas, culture, and political action. These three aspects are the source of the frameworks I propose here. Now, let’s look at how each framework operates separately, and then we shall review how they all fit together in more concrete terms in Latin American economic history.

Framework 1: Moving Beyond Economic Knowledge Networks

It goes without saying that ideas are important. While we would not say that ideas are everything, since action also matters, without ideas, no actions would be purposeful or meaningful. Ideas, whether we are talking about general frameworks, such as monetarism, or specific questions, such as the value of a progressive tax system to social harmony, are the definers of the context, tools and substance with(in) which political action can take place.

However, we also need to concretize ideas into political action. In order to understand how ideas become policy, we need to isolate empirical referents, including actors and institutions that can act either for or against certain economic ideas. Ideas can exist as a casual conversation, an intellectual exercise, or a work of art, but when we are examining the nexus between ideas and policy, we will look to the actors that create, promote, disseminate, and fight for or against certain sets of ideas in the policy arena.⁷ Ideas exist in every stratum of society, but the main conversations that matter to economic policy tend to be concentrated among an élite set of actors. Economic policies are in and of themselves intricate, requiring an advanced knowledge of macro – and microeconomics. Moreover, unlike social policy issues, such as abortion rights, economic policy decisions, particularly on the macroeconomic level, may seem more remote to the general population. Lastly, when we think of the main institutions of economic policy in most countries these days, we think of large businesses or coalitions of businesses or unions that can lobby the government, and, more importantly, top-level government agencies. In general, the decision makers in these agencies, such as in central banks, tend to be relatively insulated from direct reclamations from the public, absent crisis conditions.⁸ Thus we can see that economic policy decisions are largely made by a network of public, private, and academic, and domestic and foreign actors who advise and influence political decision-makers.

This is not to say that the public has nothing to say about economic ideas. We know from our own experience that in economic hard times, such as hyperinflation, people often mobilize for demonstrations in reaction against a perceived failure of government policy. Much rarer, however, is a pro-active and well-organized message from the public at large. In collective action terms, the public as a whole is too diverse a group and the stakes of everyday economic policy action are perceived (mistakenly) as too remote from daily lives to warrant active political stances. The possible counter-argument that there are numerous citizens’ advocacy groups lobbying for specific issues, such as consumer Rights, ignores the elitist nature of those efforts. That is, the efforts of lobbying groups are quite often one step removed from their general constituency, and carried on by staff members who live in a capital city, have upper-level educational credentials, and generally come from an above average class background. In Latin America, most well-organized non-governmental organizations (NGOs) usually depend upon funding from outside, primarily US or European funding. Perhaps a good way to differentiate this is to say that the public at large has “notions,” or much more basic understandings and ideas about economic policy, than those close to decision makers.

We therefore might find that our framework should be one that explains how élite groups affect economic policy action. I have set up a preliminary framework elsewhere (Hira 1998) that makes a suggestion in this direction. The framework basically posits that “experts” are often well-organized into groups that share common principles and beliefs about economic policy. They help to justify and take responsibility for politicians’ economic policy decisions, and so receive the support of political groups in return. They also help to articulate and formulate the recommendations of interest groups, such as large businesses, that have strong opinions on economic policy in terms of the national interest. In return for this service, they often receive financial support (directly or indirectly) from lobbying groups. I feel now that this framework, which I sketched out in 1998, may be a bit too limited to explain the variety of ways in which experts can influence economic policy. I think the framework works very well in many situations, such as Chile under General Pinochet, or on certain issues in which the level of policy sophistication required is very high, such as the US Government effort to bail out the semiconductor industry in the 1980s.

However, as I will explain in Framework 3 below, the way that an economic issue is portrayed more widely, not just the sophistication of the ideas themselves, may be crucial in opening up the dialogue about policy to a wider audience.⁹ Thus, as Ravi Roy has pointed out, economic notions can be carried not only in élite economic knowledge networks, but also in situations of active political parties or public interest groups, by advocacy coalitions.¹⁰ These coalitions have a different type of conversation than the high-level sophisticated conversations that I have so far explored, but one that is important to include in order to increase the scope of our analytical framework. We can broadly call these “ideas coalitions,” for simplicity, though they are really ideas-interests coalitions. We will include this level of analysis in Framework 3, which I present below.

Framework 2: Historical-Ideological Periods

Experts in the guise of economic knowledge networks do not act in a vacuum. Rather, they work within an existing palette of widely accepted perspectives and “facts” that guide economic behavior. These perspectives inform the economic policy conversation or discourse about what a country’s economic policy ought to be. The notion of a discourse in development policy, marked by distinct historical-ideological periods, and Thomas Kuhn’s framework of paradigmatic change can be used to understand how the ideological frameworks behind development policies change over time.¹¹ By using a discursive framework, we can explain the evolutionary trajectory as well as the ongoing dynamic of ideas over time and space.

In some historical periods there may not be a government capable of setting an economic policy agenda, or there may such divisions among the population so that no one side can “win” the argument about which economic policy paradigm is best. By paradigm, I mean a certain perspective on economic policy that has a meta-level diagnosis of causes, effects, and opportunities that explain the current situation and future possibilities. For example, one school of Latin American thought, dependency, sees attempts by the developing world at cooperation with the First World as not only futile but counter-productive. Thus, the dependency paradigm set a context of inevitable exploitation that guided economic policy prescription by those in that camp and in strong opposition to the Latin American policies of Import Substituting Industrialization (ISI) during the late 1960s and early 1970s, which they correctly saw as simply changing the nature of the dependency. The problem, being, of course, that they offered no alternative. Development paradigms, whether neoliberalism or dependency, have tended to paint the world in stark conditions, perhaps exaggerating and over-simplifying in order to push forward new action. We also find certain historical periods, on the othe...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Table of Contents
• The International Political Economy of New Regionalisms Series
• List Figures and Tables
• Preface
• Acknowledgements
• List of Acronyms
• 1 Why Ideas and State Leadership are the Key Variables in Latin American Political Economy
• 2 Why an Active Industrial Policy is Needed for Development
• 3 Industrial Policy Lessons for Latin America from East Asia
• 4 Lessons from the Rise of China: The Continuing Relevance of the East Asian Model for Latin American Industrial Policy
• 5 Sectoral and Political Foundations for a New Industrial Policy Path for Latin America
• 6 Putting Institutions and Sectoral Policy to Work: Lessons from Success Stories in East Asia and Latin America
• Bibliography
• Index