Tag Archives: Brazil

OVERVIEW OF THE BUREAUCRATIC-AUTHORITARIAN MODEL

OVERVIEW OF THE BUREAUCRATIC-AUTHORITARIAN MODEL

D. Collier

In D. Collier (ed.) The New Authoritarianism

 A Summary

In a Nutshell

Modernisation theory in development literature suggested that socio-economic modernization and democracy go hand in hand, this is why the conversion to authoritarianism in LA proposed such a challenge to academics. More generally the change happened in an era where the expectations of the 50s and 60s that greater economic and social equality would lead to a more democratic form of politics, were eroded. In place of these ideas it was now suggested that in late developing nations, more advanced industrialization may coincide with the collapse of democracy, and an increase in inequality. Indeed it was posited that the social, political and economic tensions generated by the particular type of dependent capitalist industrialization led to the collapse of the populist regimes, and hence as the popular sector as one of political strength. The elimination of the popular sector from politics, and the associated regressive move of income toward the middle and upper classes greatly increased inequality under BA.

The remainder of the chapter summarizes the key points of the O’Donnell thesis:

Political Systems and Change

  • Regime: the structure of politics – repression, representation, freedoms etc.
  • Coalition: class and sectoral composition of dominant political forces.
  • Policies: specific tools for allocating resources.

There are three types of “constellation” for O’Donnell that have different patterns of regime, coalition and policy

  1. Oligarchic: limited political competition. The elite is based upon primary product exports, and policy is geared toward this end (open economy). The system is not yet incorporating or excluding as the popular sector is not yet activated
  2. Populist: incorporating, multi-class coalition of urban-industrial interests including industrial elite and working classes. Economic nationalism is common. The state promotes industrialization based upon consumer goods.
  3. Bureaucratic-Authoritarianism: excluding systems that are non-democratic. Central actors are technocrats, military and civilian. Policy is concerned with advanced industrialization, and representation, elections etc. are eliminated.

The political transformations that move us from one to the other derive from social and political tensions produced by industrialization and by changes in the social structure. There are three particularly relevant factors:

  1. Industrialization: different phases linked to political changes as payoffs accrue to different class groups. Consumer goods production associated with the move from oligarchy to populism. This allows for the incorporation of the working class as wage setting can be generous without import competition, and also beneficial in expanding the domestic market. Thus workers receive important material benefits. Once this phase is complete, there are tensions as opportunities for expansion become more limited. The cost of importing the capital and intermediate goods is driving inflation, a balance of payment deficit, foreign indebtedness etc. Thus a shift to more orthodox policies is needed to create deepening of industry through domestic manufacturing of intermediate and capital goods. However in order to do this technology, managerial experience and capital is needed, and these things are often associated with multinational corporations. The need to attract this type of investment drives the adaptation of the move to orthodoxy.
  2. Activation of the Popular Sector: The popular sector will challenge the move to orthodoxy. There is thus a gap between demands and policies leading to strikes, and political/economic crisis.
  3. Technocratic Rules: Technocrats perceive high levels of popular sector mobilization as an obstacle to economic growth. They are thus bale to form a coup coalition.

The above process was evident in Brazil (1964), Argentina (1966, and 1976), Uruguay and Chile (1973). The case of Mex was once where phases one ISI was completed in an already fairly authoritarian society meaning the transition to advanced industrialization were accompanied by a continuity of political institutions.

The Evolution of Bureaucratic-Authoritarianism

  • Groups that initially supported the coup (entrepreneurs and middle classes) soon find themselves hurt by the orthodox polices. This means the principal class that supports the government is foreign capital. After a while there are increased called for this relationship to expand to include the middle classes.
  • This transition occurs according to the level of threat existent in the pre-coup society. i.e. the greater the threat to capitalism in the pre-coup era, the stronger the technocratic coalition will be, and so they will be better able to maintain order. This is seen in Brazil where the pre-coup crisis was severe and the subsequent regime strong, as compared to Argentina where the crisis was far less serious meaning elite cohesion post-coup was weaker which ultimately led to the regime falling.

Conclusion

  • At a general level the framework focuses on the interaction between crucial features of politics in LA – dominant collation, regime and policy.
  • At a more specific level it focuses on economic problems associated with different levels of industrialization and the perception of threat as a driving force of the evolution of BA.
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THE TURN TO AUTHORITARIANISM IN LATIN AMERICA

THE TURN TO AUTHORITARIANISM IN LATIN AMERICA AND THE SEARCH FOR ITS ECONOMIC DETERMINANTS

A. O. Hirschman

In D. Collier (ed.) The New Authoritarianism

A Summary

 

In a Nutshell

This is a very strange article indeed. Its basic function is to criticize the O’Donnell thesis and provide alternatives. The strange thing is he seems to provide three alternative theses.

  1. The need for orthodoxy – given the state of ISI, a move to orthodox policy was needed and this was achieved by BA regimes. He then dismantles this thesis by showing that Chile and Colombia managed the transition without recourse to authoritarianism.
  2. Ideological stretching – rather a bizarre argument and one which I will not further summarize below. The general idea being that LA was called to industrialize, then to plan the economy, then to integrate regionally, then to redistribute, and finally to break its dependency. This ideological explosion of demands from academics gave a general feeling that the predicament that LA was in was very serious indeed. This in some way contributed to the instability upon which the BA regimes preyed.
  3. Growth functions – growth is based on two functions, firstly entrepreneurial which is the unbalancing function, and secondly redistributive which is the balancing function. For growth to be sustainable both need to be present but their interaction determines the quality of that growth and also the social stability it produces. In the case of LA the redistributive function emerged too soon as much capital was foreign owned making the entrepreneurial function much weaker. Ideological support moved from the entrepreneurs to the reformists. If the reform drive appears too early it will paralyze the entrepreneurial forces and lead to stagnation and discontent and the attempt to accumulate capital by dint of an authoritarian government.

Economic Arguments

  • He runs through the O’Donnell thesis about deepening which I summarized in the J. Serra piece also in this week’s reading. He concludes that only in Argentina did problems of deepening occur before the first attempt to implant an authoritarian regime.
  • Nevertheless the thesis maybe should not be abandoned but broadened. Of course the great fear of Communism, the use of force by the Left, Cuba, and the wish of the US to prevent spread of the left contributed to the regimes that were installed. However, a link between this politic and economics is still relevant.

The alternative candidate would be the need for more orthodox policy. As ISI stage one ground down due to traditional exports losing ground, inflation etc. Policy makers found an ingenious cure for the structural problems associated with the early post war economy but then applied to excess the magic formula. During this period of decline of ISI there were a number of important developments:

  1. The world economy went into rapid expansion, bringing back the possibility of export led growth which were hidden from view due to the overvalued exchange rate pursued as part of the ISI policies.
  2. Industrial investment could now be financed out of profits, so the intersectoral transfers that originally performed this function (i.e. from traditional exports to manufactures) were dispensable.
  3. Industrialization and the expansion of the domestic market meant that income taxation and capital market borrowing by the government was now possible.
  • As a result it seemed that it would be profitable to dispense with the declining ISI system to ensure a non-overvalued ex-rate (which would reverse the situation whereby capital imports were cheaper to import than produce domestically, thus sending most of the backward linkages from growth abroad), realistic public service prices and capital market rather than inflationary borrowing. In other words, more orthodox, market-oriented policies.
  • This transition was by no means easy due to vested interests.
  • This is different from the O’Donnell thesis – exports is about widening not deepening. Tax, capital market reform, nothing to do with deepening.
  • The extent to which these policies motivated the coup makers is disputable. They were primarily concerned with inflation and the balance of payments problems and based on an anti-ECLA backlash. The international economic debate of the time was not focussed on deepening but on market reform.
  • Nevertheless, many of the regimes did implement these market reforms, and as such they moved toward orthodoxy and this has given the impression that it takes an authoritarian government to make these transitions. However
    • Colombia – export subsidies and several mini devaluations have promoted agricultural and industrial exports as average levels of protection were lowered. Interest rates rose and there was income tax reform, and this occurred without an authoritarian government.
    • Chile (pre-Allende) saw similar transitions policies particularly with respect to the exchange rate.

Inequality

  • Hirschman deals briefly with the idea that when countries with income distributions such as LA move into the industrial phase whereby consumer durables are relied upon as the engine of growth, the natural result is authoritarianism. This is because of the need to bolster the incomes of the middle classes who are the natural consumers of these products, and this means both a transfer of wealth to them, and a compression of the wages of the lower classes. In order to achieve this type of consumption profile political repression and authoritarianism are needed. [This is different from the Shliefer hypothesis that in order to expand the market for durables you need to raise the incomes of the agricultural sector such that they can enter the durables markets….]
  • This is intriguing, but none of the regimes were established with this motive. Additionally, there have been boom of durables sector before the BA regimes came to power.
  • This pattern does describe quite well what happened in Brazil: wages were compressed and they gave lots of credit to consumers to buy durables. However, this is not an economic explanation of authoritarianism, but a political explanation of Brazilian economic policy.

The Entrepreneurial and Reform Functions

Growth creates inequalities, sectoral, geographic, and social and income. In time pressures arise to correct these imbalances. Indeed the continuation of growth requires they be corrected in part because they bring with them social and political tensions, protest and action.

  1. Entrepreneurial Function: domestic enterprise, foreign capital, and the state. After this function has run its course there will be attempts by the sectors/regions/groups that lag behind to catch up. Those performing this function are often unaware and opposed to the reform function being performed.
  2. Reform Function: the drive by the lagged groups to improve their welfare via social programmes and redistribution in particular. This function is essential for growth to be sustained after a powerful by disequlibrating drive by the entrepreneurs. It is likely that these groups will be hostile to the entrepreneurs.
  • It is the interaction of these functions that determines both economic and political outcomes of the growth process.
  • The strength of the entrepreneurial function depends both upon the opportunities for profitable investment and the pull of ideological forces. The force of ideology was far weaker in LA than it had been in Europe during its industrialization. There was 10 years of support for industrialization, but then there was a dramatic shift, and those same intellectuals who had called for industrialization now called for reform. This may have had something to do with the leadership assumed by foreign capital in the industrialization process. The shift in thinking was particularly evident in Chile, Argentina and Brazil.
  • The weakness of the entrepreneurial function allowed demands for reforms and redistribution to be heard sooner, than had the economy been in the hands of domestic producers. E.g. foreign ownership of mines in Chile led to early calls for tax on foreign investors.
  • Other weaknesses came from the closed nature of those benefiting from the ISI system. If development was broad based there would have been more tolerance for the inequalities produced. This tolerance was short lived when much of the economy was either in foreign hands, or in the hands of a very small elite such as was the case with land owners in Uruguay, and mine owners in Chile.
  • A common dialogue or history such as war can often extent the tolerance for inequality. E.g. Mexico where Cardenas was associated with the revolution, meaning unequal development could be pursued with relative stability.
  • The breakdown of pluralist forms may be related to the degree and nature of the hostility between the two functions [this is very similar to the Huntington hypothesis which I have included in the readings for this week].
  • In Colombia the success of pluralism could be attributed to the elite being able to assume both functions, as reformers and entrepreneurs. The individual identities were different, but the class structure was the same, meaning that plurality rule could be maintained.
  • In Venezuela because of the oil wealth, the state could play both roles, as entrepreneur, but at the same time improving social services, education and instituting agrarian reform.

ELECTORAL ACCOUNTABILITY AND CORRUPTION

ELECTORAL ACCOUNTABILITY AND CORRUPTION: EVIDENCE FROM THE AUDITS OF LOCAL GOVERNMENTS

C. Ferraz & F. Finan

NBER Working Paper 14937

A Summary

 

In a Nutshell

Variation in electoral systems is thought to explain differences in corruption practices, so electoral rules that enhance accountability should constrain the ability of politicians to be corrupt. The model developed by Tim Besley states that where politicians seek re-election incentives in a two period setting, they face incentives not be corrupt in the first period in order that they might be re-elected to the second period. The lack of re-election constraint in the second period likewise indicates that the incentive not be corrupt is absent. Thus the paper tests empirically the hypothesis that flows from this i.e. that there will be on average more corruption in the second terms of elected officials relative to first terms even when controlling for other factors that may affect corruption such as experience of the individual politician. Using data from municipal governments drawn from anti-corruption audits undertaken by the Brazilian central government, they find that mayors with re-election incentives are significantly less corrupt that mayors without such incentives. The effect of these incentives varies according to local institutional settings that govern information that is available to voters, the likelihood and consequences of detection, and how competitive the political environment is in that locality. In other words, electoral accountability acts as a powerful mechanism to align the actions of politicians with the preferences of voters.

Besley Model (2006)

  • A political agency model whereby voters decide whether to re-elect an official but are unable to observe his type or actions leading to an information asymmetry which can be exploited by the corrupt such that they pose as good politicians in period 1 in order to maximise rent-seeking possibilities in period 2.
  • Based on state of the world S, which is only revealed to the politician, not the voters, a politician can set policy E such that S=E in which case the voters get a payoff, V. Alternatively, the politician can set policy such that S≠E in which case the voters get a payoff of 0 and the politician receives a payoff of R. After the policy is set voters observe their payoff and re-elect accordingly. All politicians that set policy such that S=E are re-elected.
  • In the second period clean politicians set the policy such that S=E and corrupt politicians set policy such that S≠E and he gets his payoff. Thus the voters are better off re-electing only clean politicians so they want to maximise the likelihood that only non-corrupt politicians are elected in the second period.
  • In the first period clean politician behave in accordance with voter preferences. Corrupt politicians face a trade off: be corrupt today and don’t get re-elected, or be good today and get re-elected to reap the benefits from corruption in the second period. Thus they will pretend to be good politicians if the discounted present value payoff from period 2 is greater than the payoff receivable in period 1.
  • When faced with the possibility of re-election corrupt politicians have the incentive to reduce rent seeking in period 1 and provide more public goods. Rents, then will tend to be higher in the second period, absent this incentive, and this is the testable proposition of this paper.

The Setting and Data

  • Municipal governments in Brazil are responsible for a great amount of public good provision and it is funded by transfers from the central government.
  • There is widespread corruption: phantom firms, uncompetitive bids, over-invoicing etc.
  • The central government does random audits on municipal governments in order to expose such practices. The data are drawn from these reports.
  • Corruption is defined as the resources diverted for corrupt activities expressed as a fraction of the total amount transferred. Other studies use subjective measures, but this measure is somewhat objective (absent bribery of the auditors).

Method

  • Y = corruption level, X = 1st term, + municipal characterises + mayoral characteristics.
  • Political ability and experience could affect both re-election and corruption. They control for this using an RDD specification i.e. by comparing elections where the incumbents just lost, or just won, this controls for unobserved characteristics. They also compare second term mayors with first term mayors that had previously been elected who would be as politically able.
  • To control for experience (i.e. learning-by-doing) they make the same comparison as above, but also compare second term mayors who then went on to national politics. Theory suggests that they will have similar concerns as first term mayors and will act accordingly (i.e. lower corruption) which is inconsistent with the story whereby corruption increases as leaning-by-doing increases.

Results

  • The basic results are that 1st term mayors are associated with a 27% decline in corruption. This is impervious to controls added. The result is also consistent with other specifications such as the RDD specification and also to different definitions of corruption.
  • This indicates that mayors who still face the possibility of re-election engage in less corrupt activities than mayors who have a shorter political horizon.
  • Experience control: first term mayors previously elected do not have similar corruption levels compared with second term mayor, indicating that corruption is not driven by experience (i.e. having well established networks of corruption).
  • Future careers: politicians that go on to future roles nationally etc. have lower 5% lower levels of corruption in the second terms than other second term mayors.

Local Context

  • The presence of media outlets in the locality may reduce the ability of the politician to exploit the information asymmetry that lies at the heart of the agency model, as voters are more likely to observe the type of the mayor if he is exposed by the press. As the likelihood that a corrupt politician is discovered in period 1, corrupt politicians will be less likely to pool with clean politicians so discipline will be reduced (i.e. corruption in period 1 will increase as they try to extract as much rent as possible). Conversely it also means that the such politicians are less likely to survive into period 2 so corruption will decrease in the second period. Thus the difference in the two periods should be smaller with local media. This is confirmed in the results.
  • The cost of corruption should increase if there is a local prosecutor who is willing to punish those caught being corrupt. This reduces the benefits of future rent seeking. This increased corruption in period 1 and reduces it in period 2. i.e. the gap should be smaller. This is found to be the case.
  • If political support is such that the mayor enjoys much legislative support then he can afford to be less disciplined, so again the difference between periods should decrease. This is found to be the case. Municipalities with low competition exhibit no differential effect between first and second term mayors.

Conclusions

  • The findings support a political agency model where mayors with re-election incentives refrain from rent extraction in order to increase their likelihood of re-election.
  • Assuming that absent the re-election incentive 2nd term mayor behaved like first term mayors US$160m would have been misappropriated.
  • Re-election has both discipline and selection effects.