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date: 07 December 2019

The Political Economy of the Developmental State in Latin America

Summary and Keywords

The role of the state in economic development is broad, old, and metamorphic. Drawing on historical political economy and a critical reading of new institutional scholarship, our understanding of the developmental state is contextual and complex. Successful developmental state formation is the result of stable political-economic environments, cultural legacies of earlier state-making functioning as mental maps for new statecraft, coherent institutional and policy entrepreneurship, and sustained growth that gives positive feedback in state-making. Latin American state developmentalism has always been diverse, before and after the debt crisis. In the era of state-led industrialization, the Latin American developmental state “failed” because, with domestic and regional markets small and dependence on foreign markets and financial capital high, macroeconomic policymaking did not learn to deal with crises and cyclical external conditions. Developmental state success in the 21st century depends on undertaking less volatile political-economic pathways to facilitate organizational learning by doing. In exclusionary Latin America more than in other corners of the world, developmental state success also means reconciling economic and social goals.

Keywords: developmental state, state formation, institutional analysis, industrialization, economic development, Latin American politics

Is there a developmental state in Latin America? Has it survived the neoliberal turn? Addressing these questions requires a definition of developmental state. There are two broad definitions: one is ideal-theoretical and the other is fluid-historical. The ideal definition refers to a technocratic state that successfully promotes industrialization. Although Peter Evans (1995) called developmental states the result of the embeddedness and autonomy of the state’s apparatus in promoting industrialization, Atul Kohli (2004) preferred to refer to capital-cohesive states, emphasizing the role of consistent domestic politics, including tight control over labor, as well as bureaucratic competence. Developmental state analytic concepts were formulated from the comparative study of postwar East Asian experiences of high economic growth coming hand in hand with high state interventionism. East Asian states did not resemble the so-called regulatory state of the United States (Amsdem, 2001; Chang, 1994; Johnson, 1982; Wade, 1990).

The second definition of developmental state is stretchy and loose: the interventionist state built over the 20th century in the developing world in order to accelerate and/or redefine the process of economic development, regardless of its relative importance within the state apparatus, scope of action, and overall success in fostering national economic progress. This is basically what Alan Knight (2018) called a “broad model” of the developmental state. Centeno and Ferraro (2018) presented a “rise and fall” view of the Latin American developmental state, showcasing diverse historical experiences of developmental state formation and eventual decline. Latin American developmental states were not as big and sophisticated as the East Asian ones, but they shared with the latter a developmental (once understood as pro-industrialization) mindset. Under a strict ideal-theoretical definition, there was no developmental state in Latin America, as Evans (1995) and Kohli (2004) discussed for Brazil and Knight (2018) did for Mexico. By adopting a loose, fluid definition, however, it is possible to distinguish national varieties of feeble and actually not-so-feeble developmental states across Latin America and over time. In order to do so, one needs to consider that the formation of a developmental state within a state apparatus does not mean all of the state becomes developmental (Orihuela, 2019). Some of the state may be developmental, some “neopatrimonial,” and certainly some a blend; moreover, fostering economic development is certainly not all that modern states do. State developmentalism in Latin America has taken diverse forms, influencing distinct national economic systems in diverse ways, across space and over time (Anglade & Fortin, 1990; Cárdenas, Ocampo, & Thorp, 2000; Centeno & Ferraro, 2018; Ocampo & Ros, 2011; Oszlak, 1981; Thorp, 1998).

Drawing on the historical political economy of Latin America and a critical reading of new institutional scholarship, the understanding of the developmental state is contextual and complex. The global and temporal dimensions are central. State activism that aims to accelerate processes of national economic development is a fundamental feature of the modern state. In the 19th century, states in the Global South promoted the colonization of forests, the commodification of land for agriculture, and the expansion of mining, as well as early industrialization—wherever it existed—under diverse policy schemes across national space and over time. From the late 19th century on, the modern state expanded progressively into new welfare and developmental functions. Given world economy conditions and reigning policy beliefs, late-industrialization nations eventually gave birth to a state-led industrialization period, from around 1914 to 1929 until the rise of neoliberalism, post-oil and debt crises (Amsdem, 2001; Bértola & Ocampo, 2012; Cárdenas et al., 2000; Thorp, 1998).

Why did Latin America “fail” to produce developmental states à la East Asia? In the 20th century, successful developmental state formation in late-industrialization nations is the result of stable political-economic environments, cultural legacies of earlier state-building functioning as mental maps for new statecraft, coherent institutional and policy entrepreneurship, and sustained growth that positively feeds back into developmental state-making (Haggard, 2018; Orihuela, 2018). Thus, the “failure” of the Latin American developmental state during the state-led industrialization period is ultimately the result of political-economic instability and its underpinning structural features. The developmental state did not succeed because of the inability of not-so-big and exclusionary national political economies to deal with the challenges of peripheral economic dependence and national inequities, as underscored in the classic works of Prebisch (1950) and Cardoso and Faletto (1969). Disaggregating the central claim, with domestic and regional markets small and dependence on foreign markets and financial capital high, macroeconomic policymaking did not learn to cope with crises and cyclical external conditions. Furthermore, inequality defines the political economy of development, which undertook the form of social welfare early in the century and of land reform later. Within a global neoliberal juncture, the Lost Decade of the 1980s shaped the opportunity for heavy state downsizing and a deregulation institutional movement in the region. Import substitution industrialization (ISI) and state activism were blamed for all evils (Fishlow, 1990). The remainder of this article first discusses the Latin American experience while looking at the East Asian mirror; next, it introduces varieties of state developmentalism in the Latin American view (cf. Hall & Soskice, 2001); and, finally, it reflects on the problems and possibilities of the 21st-century developmental state.

The Developmental State as an Ideal Type

The developmental state as an ideal type has been conceptualized based on postwar East Asian cases of interventionist states behind successful industrialization and growth stories: Japan, South Korea, Singapore, and Taiwan. “In states that were late to industrialize, the state itself led the industrialization drive, that is, it took on developmental functions” explains the pivotal study of the “Japanese miracle” (Johnson, 1982, p. 19). For Chalmers Johnson (1982), the United States was a good example of a state in which a regulatory orientation predominated, while in Japan a developmental orientation ruled. Central for developmental state development in Japan was the continuity of industrial policy, which in turn had behind the continuity of economic policy elites. Bureaucrats, rather than politicians, directed developmental policymaking—but what allowed the continuity of industrial policy, its supremacy over other state priorities, and its success in fostering industrial economic development?

Like Johnson (1982), Peter Evans (1995) postulated that states are developmental when their ethos becomes the promotion of national economic development. According to Evans said, the conditions that explain developmental state emergence are the autonomy of a coherent bureaucracy for formulating industrial policy as well as its embeddedness in the domestic society of industrialists. Autonomy without embeddedness leads to a rent-seeking political economy; embeddedness without autonomy ends in state capture. Looking deeper into the politics of state-building, Atul Kohli (2004) preferred to refer to cohesive-capitalist states, in which the key variable is not the competence of the state bureaucracy nor the information the states gather from the business elites in which they embed their bureaucratic agency, but “how elites structure and use state power for development” (p. 386). Comparing the cases of Korea, Brazil, India, and Nigeria, Kohli identified three ideal state types: cohesive-capitalist, neopatrimonial, and fragmented-multiclass. Successful cohesive-capitalist states are competent states “run by public-spirited rather than personalistic leaders and staffed by well-educated, professional bureaucrats” (p. 381).

Overall, the developmental state literature highlights three state-formation dimensions behind the ideal-type developmental state, which have to be historicized to be fully grasped: (i) bureaucratic competence, continuity, and executive power vis-à-vis politicians, (ii) authoritarian and/or stable politics nursing developmental state-building, and (iii) synergetic business−state relationships that allow the flow of information and the building of trust. Each of these state features is subject to social construction. The quality of the bureaucracy, the stability of the political system, and the solidness of business−state relations are the result of (long and not so long) institutional processes, rather than silver-bullet policy measures.

Finally, the ideal-type developmental state implies economic “success.” Perhaps here more than in other features, Latin American cases do not resemble the ideal type. However, this perspective ends up being too narrow because developmental state formation can contribute to different kinds of economic development paths and associated successes and failures: broad and sophisticated industrialization (East Asian tigers), industrialization not as broad and sophisticated as in East Asia (Brazil, Mexico, and Argentina), and raw-materials-based productive development (Colombia, Chile, and Uruguay). In addition to its impact and scope of influence on national economic development, state developmentalism in Latin America means different historical forms of organizing state action to foster economic development.

Bureaucratic Competence and Autonomy?

State developmentalism is made not only of credit/trade/industrial laws as well as trade and tax policy regimes, but also, most critically, of state organizations. Yet, institutional —legal and organizational—development varies widely across Latin America. Two countries exhibiting sophisticated state organizational charts by the mid 20th century were Brazil and Chile. State developmentalism in Brazil included Petrobras, Compañía Siderúrgica Nacional (CSN), Compañía Vale do Rio Doce, the National Bank of Economic and Social Development (BNDES), and so on. In Chile, the state developmentalism chart included the development corporation CORFO (Corporación de Fomento, or Fostering Corporation), the Steel Pacific Company (Compañía de Acero del Pacífico, CAP), National Enterprise of Electricity, National Petroleum Enterprise, and a state-owned smelter to foster small-scale mining, because big mining had not yet been nationalized (Leão, 2018; Orihuela, 2012; Schneider, 2015). In contrast, by 1960, the Mexican state was rather small, with the big exemptions of PEMEX and electricity, consonant with a strong commitment to low taxes (Knight, 2018). Further, in the laissez-faire corner, the middle-size economy of Peru exhibited less state developmentalism and bureaucratic development than Mexico: when reformist and developmentalist President Belaúnde (1962–1968) took office, there was little of a technical bureaucracy, while oil, utilities, and even tax collection were run privately (Kuczynski, 1977; Orihuela, 2018; Thorp & Bertram, 1978). Smaller national political economies, like those of Central America, produced smaller state apparatuses and less sophisticated state developmentalism within the region (Centeno & Ferraro, 2013, 2018; Thorp, 1998). Thus, Central America teaches that the size of the domestic and regional economy matters for state institutional development, but comparable middle-size (e.g., Chile and Peru) and large (Brazil and Mexico) national political economies show diverse economic policy bureaucracies (Anglade & Fortin, 1990; Centeno & Ferraro, 2018; Thorp, 1998). Thus, Latin America displays varieties of “state capacity” and “bureaucratic autonomy” formation (Carpenter, 2001; Mann, 1993).

Authoritarian and/or Stable Politics?

According to Kohli (2004), because late-industrialization societies do not entirely support rapid industrialization, state elites devise political strategies based on material rewards, coercion, and emotional appeal. Noteworthy in East Asia, authoritarian politics appears as a response to the need to define national goals narrowly: “Since a narrow elite alliance between the state and capital is difficult to hold together, politics within these units has often been repressive and authoritarian, with leaders often using ideological mobilization (e.g., nationalism and/or anticommunism) to win acceptance in the society” (p. 10). Similarly, for Johnson (1999, p. 52), authoritarianism can be central for mobilizing the population “to work and sacrifice for developmental projects” (Haggard, 2018). The postwar era, and U.S. intervention and support in the region, configured an ideal scenario for authoritarian modernization projects.

Such broad observations resonate when looking into the state history of Mexico, Brazil, Chile, and others, where strongman executives, authoritarianism (subtler than not having elections), and nationalism offer complex lineages. The construction of state “infrastructural capacity” has commonly taken place under authoritarian rule, or as a consequence of it. In Mexico, the caudillista and elitist Porfirian state (1876–1911) expanded the role of the state within an oligarchic political economy setup. State developmentalism was transformed under revolutionary (1920s–1930s) and priísta (1940s–1982) political cycles (Knight, 2013, 2018). According to Knight (2018), the Mexican Revolution engendered a collective commitment to work and reconstruction as well as gave place to new forms of developmentalist state action, but state developmentalism would become large-scale only during the priísta period.

In Brazil, strongman Getulio Vargas (1930–1945 and 1951–1954) upgraded and transformed the state inherited from the early republican period, promising an Estado Novo. While expanding the state organizational chart, Vargas established a bureau (Departamento Administrativo do Serviço Público, DASP) to professionalize the bureaucracy of core state institutions (Leao, 2018; Schneider, 2015). In Chile, the political arrangement that took place in the 1830s was called the conservative settlement and gave birth to the authoritarian and positivist “Portalian state.” Conservative Diego Portales was seen by 19th- and 20th-century political elites as the founder of the modern state. War (and earthquakes!) proved to be important for state- and nation-making, legitimizing the strongman, paternalistic figure. Nonpartisan state-making developed early roots. During the interwar period, the continuity of Radical Party governments (1938–1952) was important for vigorous pre-CEPAL developmental state formation (Ffrench-Davis, Ocampo, Zamagni, & Pietrobelli, 2000; Orihuela, 2018).

The volatility of economic growth is a major feature of Latin American political economy. Bértola and Ocampo (2012, pp. 17–22) compared the Latin American experience with other regions of the world, finding that, in 1961 to 2018, the region had the highest national income growth-rate volatility. The frequency and depth of currency, external debt, and banking crises have shaped domestic politics. Critical international conjunctures (1873, 1890, 1913, 1929, 1979, 1997, and 2008) led to current account crises, commonly accompanied by the closing of external finance. Because commodity prices follow different world market dynamics, oil and mineral economies have historically been the most exposed to shifting international conditions.

Synergetic Business−State Relationships?

Without the “needed” economic (i.e., domestic industrial interests), organizational (i.e., a society feeding a competent bureaucracy), and political (i.e., stable national government system) structures for developmental state formation, it seems illusory to expect industrialist, synergetic business−state relationships to develop over time. Furthermore, using strict structuralist lenses, the observer would not expect the stylized plantation or mineral economy to have the productive forces to engender industrialist bureaucratic and political dynamics. Small national political economies equipped with few staples would seem unlikely to succeed in generating active state developmentalism, unless the nature of the staple demands it. Are there identifiable thresholds of “needed” developmental state factors?

Evans (1995) theorized that developmental states were the result of “embedded autonomy,” competent and autonomous state bureaucracies embedded in synergetic business−state relationships. Evans introduced this analytic concept after comparing interventionist state-building in South Korea, Brazil, and Zaire. The latter made the predatory state case and Brazil stood in the middle between the other two. Along similar lines, while the Korean state followed more virtuously the cohesive-capitalist route, for Kohli (2004) the Brazilian state was “part Korea, but also part India and Nigeria” (p. 170). Thus, two of the most influential developmental state scholars agree that the forerunner Brazilian state has been somehow developmental, but not developmental enough. Thus, under a revisionist varieties-of-state-developmentalism view, one could argue Brazil had a particular developmental state type.

The other candidate is Chile. An early landmark of Latin American state developmentalism, comparatively smaller Chile established its national development corporation CORFO in 1939, and it was the first of the kind south of Río Grande. CORFO’s mission was to foster the national economy, translating the post-1929 Tennessee Valley Authority, a poor-region-based development corporation (the Afro-excluded South of the United States), into a national governmental apparatus. CORFO was designed to have a board of directors that included business representatives and to be immune to short-term politics. It could be argued that CORFO represented the developmental ethos of the Chilean state between the End-of-Nitrates/Great Depression/Concepción Earthquake juncture and the rise of its (also early) domestic neoliberalism under Pinochet (1973–1990). However, the political economy of development was about much more than industrializing the economy, because the problem of land distribution was salient and the “nationalization” of copper became a widely shared political demand. Developing industrialist business−state synergies is not a straightforward task in highly unequal political economies, as the case of Chile richly illustrates (Muñoz, 1986, 2009; Orihuela, 2012, 2018).

The Significance of Inequality

The Latin American experience shows that chances to develop industrialist state bureaucracies, stable polities, and synergetic business−state relationships are likely to be low when dependence on external markets and domestic inequalities are high. Not only will the political demand of national elites for an activist state be restricted, due to the “rational choice” of the owners of capital and factor endowments, but also instability will characterize both the external and domestic fronts. Low political-economic stability means there is a decreased chance for any form of sophisticated statecraft, pro-industrialization policy in particular.

Inequalities and group exclusion are not central in developmental state theory because they were not central issues in the East Asian experience. Kholi’s “fragmented-multiclass state” type, built on “failing” cases, including Brazil, hides the interethnic/caste/geographical region or intergroup quality of national fragmentations and disparities (Kholi, 2004). In Latin America, exclusion involves particular skin colors and regions: indigenous-descendent and African-descendent populations, on the one hand, and the Pacific Coast of Colombia, the Andes of Peru, the South of Mexico, the Northeast of Brazil, and so on, on the other (Bértola & Ocampo, 2012; Thorp & Paredes, 2010). The concentration of economic opportunities in Latin America has also been associated with the poor integration of subnational economic geographies in the early 20th century (Thorp, 1998). Theorizing the relationship between economic deprivation of groups and conflict, rather than developmental state-building, some development economists came up with the concept of intergroup or “horizontal” inequalities (Stewart, 2002, 2008). Inequality between social groups in Latin America was not only a colonial legacy, but also a consequence and functional feature of 19th-century export-led growth (Coatsworth, 2005, 2008; Thorp, 2012).

How has inequality played into developmental state formation? The rise of the social justice question was fundamental in shaping the political economy of development in 20th-century Latin America (Kay, 2002). As Gereffi (1990) pointed out, and reviewed comparative developmental state scholars acknowledge, inequality was the one big difference between East Asia and Latin America by the mid-20th century (Bértola & Ocampo, 2012; Thorp, 1998). The politicization of such structural heterogeneity shaped economic policymaking during the interwar period. Syndical organizations and communist parties spread; ports and new urban and industrial centers remade politics. Supported by the United States, which had sponsored it in East Asia and was afraid of Cuban-style revolutions, land reform became a defining feature of Latin American politics. The Cold War juncture incentivized repressive, bloody dictatorships to contain the global spread of “socialism” (Centeno & Ferraro, 2018; Hirschman, 1963; Kay, 2002).

Arguably, high intergroup inequality means a more difficult political-economic arena for developmental state formation: no social cohesion means no inclusive development policy. The poor-regions-first developmental state championed by Celso Furtado in Brazil aimed to reconcile industrialization and subnational group inequalities (Furtado, 1959, 1961). Yet, the Brazilian Northeast would not be prioritized by urban-biased state developmentalism. In Peru, the Tennessee Valley Authority model eventually was translated into one regional development corporation per department by the 1960s (Orihuela, 2018). How could such a developmentalist institutional regime be financially viable? Would, or could, elites do something to decentralize development or would it be better to migrate to capital cities? In the postwar era, inequality and economic growth gave birth to favelas, villas miseria, and other names for marginal populations in the Latin American big city.

State developmentalism in Latin American had to deal with industrialization and inequality, which made both politics and economic policymaking complicated. In fact, under the conventional policy wisdom, rural agriculture was supposed to subsidize urban industrial progress. Moreover, national political elites thought the white industrial age would “redeem” indigenous peoples and Afro-Latin Americans (Drinot, 2011). Inequality, nation-state formation, and the rise of the social question meant and shaped different national processes characterized by political instability (Coatsworth, 2008; Hoffman & Centeno, 2003; Huber & Stephens, 2012; Thorp, 1998, 2012).

Varieties of State Developmentalism in Latin America

In this section, the term developmental state is used as an ideal type category and state developmentalism is used as an analytic concept for historical configurations of (successful and unsuccessful) developmental state formation. Institutionalist theories are useful for the historical analysis of state developmentalism. In particular, legacy and contingency matter for institutional change and continuity, situating the agency of institutional entrepreneurs and political-economic actors (Gruber & Orihuela, 2017; Orihuela, 2018). Legacy or path-dependency matters because it will be easier to build developmental state functions on the shoulders of a well-working state apparatus or on the lengthy social capital of public-minded networks of professionals, due to returns-to-scale effects as much as cognitive mechanisms (Campbell, 2004; Scott, 2008). Where there are no (proto-)Weberian bureaucrats and state-formation myths, rationalistic statecraft becomes troublesome. Contingency or timing matters, too, as evolving processes and unexpected events mean shifting opportunity structures for statecraft over time (Campbell, 2004; Pierson, 2004; Thelen & Mahoney, 2010). As diverse political economy scholarship beyond the developmental state literature shows, historical context and institutional dynamics are fundamental for state-building (Haggard & Kaufman, 2008; Hall & Soskice, 2001; Schneider, 2013).

Sometimes, by using the term institutions matter, scholars refer to path-dependence. For instance, in the experience of former Japanese colonies and Japan itself, the colonial legacies of statecraft and early state formation are highlighted. Contemporary political economy of development makes statements on the effects of the much older and longer colonization: as a result of the early distribution of resource endowments, colonial regimes implanted “good” or “bad” institutions that became persistent (Acemoglu, Johnson, & Robinson, 2000; Engerman & Sokoloff, 1994). Problems with this line of literature are that it does not really tell much about the state and its role in the big claims made, while historical cases are oversimplified to fit one narrative: “good” (“bad”) colonial institutions therefore mean success (failure). As the historical record shows, Latin America integrates diverse national political economies that do not fit into one ideal case, early postcolonial state formation and economic development also had significant influence on national economic performance down the road, and bad/rentier/exclusionary institutions were actually very good for 19th-century economic growth. Thus, history in general and colonial legacies in particular are quite important shapers of social life and economic development, as Latin American and Latinamericanist dependentista scholars theorized earlier, but the past is complex and does not affect the future in one simple way (Bértola, 2011; Bértola & Ocampo, 2012; Centeno & Ferraro, 2013; Coatsworth, 2005). For countries infested with “bad institutions,” like those of the rentier state literature, the interesting question is whether and how institutional change would be possible. For example, how do “rentier states” learn? (Orihuela, 2013).

Path-Dependent State-Building

The role of the state in economic development is broad, old, and metamorphic. At the beginning of the era of state-led industrialization, Latin American states had Ministerios de Fomento in charge of fostering the national economy. Before that, independence made liberal ideas of progress for all mainstream, shaping postcolonial state formation (Centeno & Ferrero, 2013). The same applies more broadly to protectionism: trade tariffs were high in comparative international perspective during the long 19th century. The reason behind that was that feeble postcolonial states inherited ports-dependent fiscal systems (Bulmer-Thomas, 1994; Coatsworth & Williamson, 2002). Nineteenth-century state-building situated 20th-century developmental state attempts.

Two countries exhibiting comparatively strong processes of state formation by the late 19th century were Brazil and Chile, two very different national political economies, encompassing contrasting territorial and population sizes, ecology, economic geography, colonial history, political regimen, and intergroup inequalities. What the countries have in common are comparatively more solid (or less feeble) processes of state formation than their Latin American neighbors in the 19th century. State-building is reflected in their positivistic and authoritarian national mottos: the Brazilian national flag says Ordem e Progresso [Order and Progress], and the Chilean national shield says Por la razón o por la fuerza [By reason or by force]. Is there a general model for state-building success then? Hardly so. For Brazil, 19th-century state-building success basically boiled down to holding the national territory together and settling a federal system of government, which are not minor undertakings considering Brazil constitutes the largest federal experience in the developing world (Love, 2013; Needell, 2013). For Chile, it meant expanding nation-state control north (the Atacama Desert, then held by Bolivia and Peru) and south (the forests, then held by Mapuches) of the Central Valley, cementing a centralized political system (Collier & Sater, 2004; Ortega, 2005). Two “success stories,” two pathways.

Taken that the broad process of state-building matters for crafting new state action, how exactly would that work for state developmentalism in specific historical cases? In the case of Brazil, state-building during the Getulio Vargas era, from 1930 to 1945, signified institutional change as well as continuity. The Brazilian state gained autonomy throughout the 19th century: it was not “the executive committee of the ruling class” (Love, 2013, p. 115; Needell, 2013). Moreover, unlike during the monarchy period (1822–1889), characterized as hostile to capitalist entrepreneurship, the state during the early republican years (1889–1930) focused on creating a national market (Dean, 1989; Love, 2013; Needle, 2013). Some indicators of state-building are the expansion of the tax base, to twice as much as that in the Mexico of Porfirio Díaz in 1890–1910 according to some accounts, the expansion of railway construction, and the new banking system of the 1900s (Love, 2013, pp. 108–115; Triner, 2000). In short, the post-Great Depression Estado Novo did not start from scratch. In the case of Chile, legacies of 19th-century state-building included the myth of the Portalian state and the habit of hiring nonpartisan expertise to run state affairs, engineers being a prestigious para-state army by the time the national development corporation CORFO was established (Jaksić, 2013; Orihuela, 2018; Silva, 2008).

Recent and seminal path-dependency arguments on Latin American economic development and state-building include Engerman and Sokoloff (1994), Mahoney (2001, 2010), Kurtz (2013), and Soifer (2015). While welcoming the return of big questions in contemporary political economy and the renovated interest on historical analysis, Coatsworth (2005, 2008) and Drinot (2016) exposed the dangers of oversimplifying history and searching for silver-bullet explanations for persistent political economy phenomena.

Contingency Matters

New state-making is not just shaped by old state-making. State institutions are historically contingent, and it is better to think of them in evolutionary terms, as organisms that evolve subject to changes in the environment that embeds them as well as to changes in interplaying social phenomena. Contingent processes and events decisively contribute to shifting opportunity structures for institutional change. In particular, state-making is shaped by the international diffusion and domestic translation of new policy paradigms and institutional blueprints, with international crisis creating big windows of opportunity for radical state institutional change, as in the critical juncture view (Campbell, 2004; Collier & Collier, 1991; Orihuela, 2018).

From 1914 to 1945, passing by 1929

The global political economy changed to favor higher and wider state interventionism toward the end of the “long 19th century” (1914, according to Hobsbawm, 1987), with the closing of markets and economic instability brought by World Wars. The Germany of Bismarck had previously fashioned a modern policy imagination on the socioeconomic possibilities of nationalism and state activism. Unions, communist parties, and the Russian Revolution progressively activated welfare state-building in Europe. Financial crises and World War I shaped the writings of Keynes. The Great Depression brought the Export-Import Bank, the Tennessee Valley Authority, and across-the-board upgrading of state developmentalism within the “regulatory state” of the United States. Moreover, early industrialized Germany created synthetic substitutes for nitrates that eventually ended Chilean exports, imperial England subsidized plantations in its tropical East Asian colonies that finished the booming Amazonian rubber economy, the Great Depression created crises and mega-crises across Latin America depending on “the commodity lottery,” and World War II imposed war prices for commodities (Díaz-Alejandro, 1988; Thorp, 1998). The Latin American state went into wider and higher state developmentalism because that is what the practice of industrialized states taught the world to do (Chang, 1994, 2002) and because the contextual international political economy did not provide other options (Cárdenas et. al., 2000; Ocampo & Ros, 2011).

In a popular narrative, East Asian state developmentalism was successful because of its outward orientation, while Latin American state developmentalism failed because it ran Prebisch’s prescribed import substitution industrialization (ISI). Economic historians have richly documented that it is inaccurate to use ISI to refer to industrialization and industrialization policies in pre-debt-crisis Latin America (Bértola & Ocampo, 2012; Cárdenas et al., 2000; Ocampo & Ros, 2011; Thorp, 1998). ISI was an industrial policy stage at which different countries arrived through idiosyncratic processes and at different times. According to Love (1994, p. 395), “industrialization in Latin America was fact before it was policy, and policy before it was theory,” way before Prebisch established CEPAL and published the “Latin American manifesto,” in 1948. Thus, when Hirschman (1968) discussed “the exhaustion of ISI” and the switch to outward policy orientation, as well as fracasomanía among Latin American policy elites, oil-rich Venezuela and primary-exports-booming Peru were just embarking on “phase 1,” while Central American and Caribbean economies constituted much smaller domestic economies and were less industrialized, and therefore followed a different economic policy path (Thorp, 1998).

The Revolutionary 1960s

In 1961, President Kennedy promised a 10-year plan “to complete the revolution of the Americas,” the Alliance for Progress. By the 1960s, some countries had headed into outward orientation, while others were just fervently experimenting with the forbidden, and the smaller ones were not really part of the industrialization crusade. Yet, all Latin America went developmental, discursively at the very least. It was a different political- economic juncture than a decade before. Pope John XXIII wrote encyclicals that directed Catholics to recommit to “social progress” (Karl, 2018). CEPAL cadres and Chilean structuralist economists (CEPAL was established in Santiago) had built networks of intellectual exchange with Brazilian social scientists (Fajardo, 2018; Love, 1994, 2018). The Cuban Revolution (1959) gave an alternative political model for some, allowing young leftists to become guerrilleros, and incarnated fear itself for others. The Cold War also reached Latin America, which is commonly forgotten in conventional economic policy narratives of “what went wrong” in the region. As a matter of fact, Latin American states began establishing national planning bureaus and drafting national development plans incentivized by Alliance for Progress developmental conditionality (Thorp, 1998). National development planning, land reform, the green revolution, industrial policy, and so on, was at one point a U.S.- government-sponsored crusade (Centeno & Ferraro, 2018).

Cold War, Debt Crisis

The international context for domestic state developmentalism changed rapidly with a succession of events. Instead of the “alliance for progress,” the United States engaged in “regime change” to extirpate the danger of communism from the region. Right-wing, bloody dictatorships became the norm. In most countries, the economic crises of the 1970s and 1980s eventually contributed to democratic transitions. The magnitude of the debt crisis, along with the global triumph of laissez-faire ideology (with Thatcher in the United Kingdom and Reagan in the United States), as well as the fall of the communist bloc in Eastern Europe and the consequent discredit of “state planning,” meant opportunity for radical institutional change. In pendular fashion, the era of high state interventionism was replaced by the era of neoliberalism. In the 1980s and 1990s, with the debt crisis and its aftermath, Latin American economists blamed the state for economic disappointment (Cárdenas et al., 2000; Fishlow, 1990; Thorp, 1998). It didn’t matter that neoliberal Chile was among the countries that suffered the most or that interventionist Colombia produced another episode in a long history of macroeconomic prudence. In fact, that state intervention had to be blamed is what neoclassical economics that ignores problems of information and coordination, and market failures more broadly speaking, teaches—or used to teach—economists and policy practitioners to think (Hoff & Stiglitz, 2001; Rodrik, 2004; Stiglitz, 1996). Precisely as Johnson (1982) and Wade (1990) documented, U.S.-trained economists were not behind the East Asian miracles. Then who ran state developmentalism, and its dismantling, in Latin America?

Institutional Entrepreneurs and Their Belief Systems

Ideas and rhetorical exchanges matter a great deal in the political economy of statecraft and economic development (Gruber & Orihuela, 2017; Hirschman, 1963; Love, 1994; Schdmith, 2008). In her insightful Ideas and Institutions, Kathryn Sikkink (1991) highlighted the importance of political and economic ideas, national institutions, and the ability of political leaders to mobilize resources and support. In turn, Albert Hirschman (1963) observed the key role of “reform-mongers” in economic development, such as Carlos Lleras Restrepo in Colombia and Celso Furtado in Brazil, who persuaded political authorities to carry out large-scale policy change. Contrary to the “rhetoric of reaction,” the conservative call for leaving markets and things to be fixed by themselves, the rhetoric of social and/or state activism involves synergies, the urgency of change, and being on the correct side of history (Hirschman, 1991).

Institutional entrepreneurs are passionate believers. Yet, the times, states, and societies they are part of enhance and constrain policy agency. Within a global critical juncture that favored an institutional switch to a free-markets belief system, a deregulation movement (Polanyi, 1944), Latin American economists trained in U.S. universities seized the opportunity and came out with a reactionary “Latin American manifesto.” The result of workshops held in Washington D.C. by Latin American macroeconomic policy practitioners and international development economists, the Washington Consensus was shaped by strong beliefs in “structural reforms” of laissez-faire persuasion (Rodrik, 2000; Williamson & Kuczynski, 2003). Society embeds statecraft, both its liberalization movements and its protectionist countermovements (Evans, 2008; Hochstetler & Keck, 2007; Orihuela, 2019). The post-1980s decline of critical economics epistemic communities facilitated the expansion of the neoliberal creed in Latin America.

Assorted National Trajectories

In Chile, early 20th-century modernization forces included industrialists, engineers, and a new middle class of public servants, defying an oligarchic polity (Collier & Sater, 2004). Post-Great Depression industrial policies, revolving around the development corporation CORFO, were given in exchange for prohibiting unions in the countryside (Muñoz, 1986). Trade and exchange-rate policy was very incoherent, but it was only one of the various forms of developmental state action (Ffrench-Davis, 1973; Ffrench-Davis et al., 2000; Orihuela, 2012). The social question became the question of land, which eventually gave birth to land reform under the 1960s government of the Christian Democrats, the Revolución en Libertad or Revolution in Freedom (Collier & Sater, 2004). In this period, that the Right supported the nationalization of the three large-scale copper mines held by U.S. capital was seen as the vengeance of landowners against the U.S. government’s support of land reform (Collier & Sater, 2004). What the government of Allende brought was not state activism, but economic crisis and fear of Cuba-style socialism among elites and the military. Conservative economists contributed to, and took advantage of, Pinochet’s window of opportunity, but eventually had to negotiate with the military the dismantling of the developmental state. CORFO remained in place, copper mines were upgraded into the Copper Corporation (CODELCO), and the National Petroleum Company (ENAP) was not privatized and nowadays carries out exploration in Ecuador and Argentina, and so on (French-Davis et al., 2000; Orihuela, 2012).

In Argentina, an active policy regimen of exchange-rate controls and pro-industry imports policy was first introduced in the 1930s. The Banco de Crédito Industrial and large state enterprises were set up in the 1940s, although Yacimientos Petrolíferos Fiscales (YPF) had been created in 1907. The developmental state grew under the rule of Mussolini-inspired General Perón (1940s–1955), who rose with La Revolución del 43 and reinvented Latin American populism for the world, and it further expanded during an intricate political saga that lasted until the oil crisis, full of military interruptions and always revolving around peronismo (Katz & Kosacoff, 2000; Sikkink, 1991). Beginning in the 1940s, multinational corporations made their way into Argentina, thinking of it as a focal point for penetrating Latin America and, in 1953, a foreign investment law offered foreign firms import permits and various government incentives. Chemical and metalworking production expanded (Katz & Kosacoff, 2000). Peronist economic policy was harshly criticized by Prebisch himself, who was commissioned to write a report by General Lonardi and his Revolución Libertadora in 1955, although the report was not heeded (Sikkink, 1991). Export incentives began in the early 1960s; at first they were constrained to tax exemptions and fiscal incentives, but a decade later they grew into an incoherent, large web of regulations. In the 1970s, dictatorships carried out neoliberal reforms before neoliberal policies became mainstream (Katz & Kosacoff, 2000).

Political instability and personalistic politics are also central features of revolutionary Peru, but Peruvian state developmentalism needs to be qualified. The main political actor, aprismo, resembled peronismo, despite the APRA (Alianza Popular Revolucionaria Americana) party waited until 1985 to come to office, with a young president García, who left the country in hyperinflation and ready for radical across-the-board liberalization by Fujimori (Contreras & Cueto, 1999). While the government of General Odría (1948–1956) untied the economy from growing yet incoherent protectionist policies, General Velasco (1968–1975) moved the pendulum back to state interventionism. Structural reforms of the military in the 1970s included ISI-Peruvian way, the nationalization of oil and part of mining, and a radical land reform in favor of peasant communities. In Peru, the social question was “el problema del indio” (Rénique, 2015). The self-proclaimed Revolutionary Government of the Armed Forces, afraid that rising guerrillas could seize power, implemented so-called structural reforms against the “oligarchic state.” Land reform by reformist President Belaúnde (1962–1968), who wanted in turn “to develop” the Amazon forests with roads and land-conversion incentives, was seen as too weak and slow (Aguirre & Drinot, 2017; McClintock & Lowenthal, 1983).

Colombia is a much less unstable political economy, despite old and new violence. According to Ocampo and Tovar (2000), state developmentalism in Colombia did not become as “inward-looking” as in other Latin American countries, nor was it too indebted to foreign capital (Thorp, 1998). While Urrutia (1991) referred to the absence of economic populism, Thorp (1991) found Colombia’s economic policy much more cohesive and pro-industry than that of its Andean neighbor Peru. The Colombian pre-debt-crisis economic policy consisted of active intervention in the external sector and in credit markets, but “great conservatism in fiscal and monetary policies,” which can be traced back to the 1930s (Ocampo & Tovar, 2000, p. 246). Colombia stands out as the one economy that learned to deal with volatile external conditions during the interwar period. Colombia’s post-Great Depression policy repertoire included countercyclical policies and various financial-market interventions, in particular to defend the coffee industry. Developmental state banking was made up of the Caja Agraria in 1931 and the Banco Cafetero and Banco Ganadero in the 1950s, which a decade later gave place to a more sophisticated Agrarian Development Fund, Fondo Financiero Agrario. By the late 1950s, Colombia had adopted a policy package combining protectionism with foreign-exchange management and export promotion (Ocampo, 1987; Ocampo & Tovar, 2000; Thorp, 1998). However, sociodevelopmental achievements are not as celebrated as macroeconomic ones (Karl, 2018).

Twenty-First-Century Developmental States?

After post-debt-crisis state downsizing, Latin American societies have continued building diverse “infrastructural capacity” and “bureaucratic autonomy” in order to enhance national economic development in its many meanings (i.e., growth, equitable growth, green growth, and human development, to name the most established). While developmental state scholar Peter Evans calls for 21st-century developmental states to adopt the development-as-freedoms approach (Evans, 2010; Evans & Heller, 2015; Sen, 2000), Latin American economists trained with neoclassical economics textbooks advance diverse productive and human-development policy agendas, in the state and in international development institutions (Crespi, Fernández-Arias, & Stein, 2014; UNDP, 2016). There was industrial policy and state developmentalism in Latin America not only before the era of state-led industrialization, but also after it (Anglade & Fortin, 1990; Hochstetler & Montero, 2013; Ocampo & Ros, 2011; Schneider, 2015; Thorp, 1998).

The “long 21st century” could be said to have begun in the 1970s and 1980s, with Thatcher, Reagan, and the fall of the Berlin Wall presaging a new era for statecraft and economic life. The world went neoliberal, but not in one uniform way. As seen, the 1973 oil crisis and 1982 debt crisis hit diverse national political economies. In turn, 1990s market liberalization and state downsizing followed different neoliberal pathways. Moreover, since 2000, new state rhetoric and actions have emerged, from failing 21st-century socialism in Venezuela and resource nationalism in Bolivia to renewed and still big Brazilian state developmentalism and market-friendly and fragmented innovation policy in Chile. With a new commodity cycle pulling national economic growth in the 2000s, resource governance has become a defining feature of Latin American state developmental (in)action (Barandarián, 2018; Dargent, Orihuela, Paredes, & Ulfe, 2017; Haslam & Heidrich, 2016; Singh, 2014).

Chile has been commonly portrayed as a free-market miracle, as the country famously pioneered liberalization reforms. However, such stylized narrative does not survive historical inquiry. On the one hand, the Chilean national economy was one of the most severely affected by the debt crisis precisely due to ruling belief in self-regulating markets (Edwards & Cox Edwards, 1987). The poor management of external shocks brought changes in the economic team and a more pragmatic view on industrial and R&D policies. On the other hand, post-debt-crisis economic success was associated to pre-Pinochet state activism: at some point, all new exports were CORFO or state-subsidized. CORFO was re-engineered and downsized, but it was not erased from the Chilean state. Moreover, main state companies were privatized, but the important ones in copper (CODELCO and ENAMI) and oil (ENAP) remained state-owned (Ffrench-Davis et al., 2000; Muñoz, 2009; Orihuela, 2012). This meant more fiscal income to redistribute. Copper governance has experienced the re-regulation of labor practices and a royalty for innovation policy (Orihuela, 2012; Singh, 2010, 2014).

Brazil also enjoys economic benefits that resulted from state-sponsored industrialization policies. As in Chile, liberalization reform was big, including the privatization of most state-owned enterprises. However, also as in Chile, the state kept the most important organizational pieces, Petrobras and BNDES. The latter continues to represent the main export credit source for the private sector, has increased its small-loans portfolio, and is increasingly going international (Hochstetler, 2014; Hochstetler & Montero, 2013; Schneider, 2015). Moreover, the state kept golden shares of privatized companies, including the major firms Embraer (aircraft) and Vale (iron mining), which grant it veto power over changes in ownership and strategy (Montero, 1998; Schneider, 2015). The “developmental state” that survived state downsizing has adapted to the challenges and opportunities of a more market-oriented economy (Hochstetler & Montero, 2013; Montero, 1998; Singh, 2014).

In 21st-century Latin America, embeddedness of state developmentalism means something different from what it meant in postwar East Asia. Regional development corporations in Colombia offer an illustration. Once designed by, and embedded in, regional economic elites (e.g., the 1954-established Corporación del Valle del Cauca, or CVC), 1990s reforms required regional development corporations to respond to a more democratic network of stakeholders, including representatives of deprived groups, such Afro-Colombians and peasants. Therefore, according to the elites, state development corporations have become less “technical” and more “political” (Orihuela, 2018). Similarly, all around Latin America, the rise of the environmental question has meant the diffusion of participatory rules, which in principle—we still know little about practice—embed developmental state action in more extended civil society networks (Barandarián, 2018; Hochstetler & Keck, 2007; Hochstetler & Tranjan, 2016). On top of new environmental regulation, prior consultation with indigenous peoples further transforms what embeddedness means in development policy practice.

Argentina continues to reinvent instability and makes a difficult case for clear-cut definitions. The 2001 crisis meant the end of the neoliberal turn and the return of left-wing peronismo with the rise of the Kirchners. Economic policy switched toward the pursuit of redistribution, public works programs, a competitive exchange rate for exports, and a new industrial policy revolving around tax breaks, subsidies, credit, and technical assistance. Once again, positive external economic conditions were enjoyed for more than half a decade however, history repeats itself the second (third, fourth, fifth) time as farce, fat cow years eventually reversed. Cristina Fernández de Kirchner’s increase of export taxes led to widespread farmers’ unrest in 2008 and the beginning of a new cycle of economic crisis, putting into question new state developmentalism (Wylde, 2018). Under the Kirschners, patronage and corruption seem to have reached improbable new forms. Businessman Mauricio Macri came into office in 2015 and undertook new political and policy processes, the latter including the elimination of agricultural export taxes and exchange-rate liberalization.

How could Latin American state elites have called for scaling down the developmental state in the 1960s? By the same token, how could they undertake upgrading state intervention in the 1990s? Looking into history leads the observer to conclude state developmentalism is a time-and-place-contingent phenomenon. State developmentalism expanded around the world in the 20th century and contracted with the debt crisis and the triumph of Pinochet, Thatcher, and Reagan. In the 21st century, state developmentalism can be expected to expand as a response to late 20th-century liberalization. The expansion and contraction, and renewed expansion, of state action ultimately are global stories of policy diffusion and translation, of Polanyian movements and countermovements that bring about uniform-yet-diverse institutional regimes.

Will renewed Latin American state developmentalism be “successful” this time? Leaving fracasomanía and neoliberal conventional wisdom behind, that would first depend on undertaking less volatile political-economic pathways to facilitate developmentalist learning by doing. Policy coherence means reconciling experimentation and caution (Hirschman, 2015). In exclusionary Latin America more than in other corners of the world, developmental state success also means reconciling economic and social goals. GDP growth is not all that counts, as new development economics, human development, and environmental knowledge have taught us over the last half century.

Further Reading

Centeno, Miguel A., & Ferraro, Agustin E. (2013). State and nation making in Latin America and Spain: Republics of the possible. New York, NY: Cambridge University Press.Find this resource:

Centeno, Miguel A., & Ferraro, Agustin E. (2018). State and nation making in Latin America and Spain: The rise and fall of the developmental state. New York, NY: Cambridge University Press.Find this resource:

Dornbusch, Rudiger, & Edwards, Sebastian. (1991). The macroeconomics of populism in Latin America. Chicago, IL: University of Chicago Press.Find this resource:

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