Economic Policy Reform in Late Industrialisers: Argentina and Spain Since 1950
Total Page：16
File Type：pdf, Size：1020Kb
Economic Policy Reform in Late Industrialisers: Argentina and Spain since 1950 Thesis submitted for PhD examination By: Christopher Vellacott [email protected] Economic History Dept. London School of Economics and Political Science Supervised by: Dr Colin Lewis, Economic History Dept. UMI Number: U520627 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a complete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. Dissertation Publishing UMI U520627 Published by ProQuest LLC 2014. Copyright in the Dissertation held by the Author. Microform Edition © ProQuest LLC. All rights reserved. This work is protected against unauthorized copying under Title 17, United States Code. ProQuest LLC 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 48106-1346 Economic Policy Reform in Late Industrialisers: Argentina and Spain since 1950 Abstract of Thesis: The new institutionalist school of economics addresses the divergence between countries’ long-run economic performance by attributing it to differences in institutional heritage. Institutions which suppress the kleptocratic inclinations of governments and enshrine a ‘credible commitment’ to protect property rights encourage productive activity. But that is not to say states that cannot ensure universal property rights have not achieved economic growth. Such governments may resort to clientelist arrangements that guarantee a subset of asset holders their property rights will be protected in exchange for political and economic support. Such a system of ‘crony capitalism’ is an inefficient allocator of resources but it can ensure political stability which in turn allows an otherwise weak government to preside over sustained growth. This thesis compares the fortunes of Spain and Argentina, two ‘crony capitalist states’ characterised by distributional conflict, between 1950 and 2000. The principal hypothesis is that Spain’s economic performance far outstripped that of Argentina over subsequent decades because the web of alliances between the state and society included a greater variety of economic interests than its Argentine counterpart and consequently achieved a closer approximation of a credible commitment to universally guarantee property rights. Argentine corporatism constructed in the late 1940s by president Juan Peron failed to integrate powerful interests and Argentine society is consequently defined by a variety of well-organised and powerful economic interest groups that compete for a share of national rent. The executive is forced to negotiate directly with these groups to secure support for new economic policy rather than operate through an effective state bureaucracy. Interests left out of the alliance will act to change the policy or remove the president, resulting in Argentina’s perpetual cycle of economic and political instability. In Spain, the executive presided over a state segmented between interest groups. Each group was rewarded in return for loyalty with control over the ministry pertinent to a particular area of Spanish society. Economic interests such as labour, business and agriculture, meanwhile, were represented through compulsory membership of a monolithic syndicate. Within this bureaucracy, different factions representing a variety of economic interests engaged in a war of attrition to shape policy before the arbitrating dictator. This highly centralised state bureaucracy survived the transition to democracy and Spanish political parties abandoned their class-based identities and became mass movements organised under disciplined hierarchies of control. Thus negotiations over reform continued to operate within the state which ensured political stability which is a pure public good and encourages productive activity. Acknowledgments: The author wishes to thank Colin Lewis, who supervised the research and other members of staff at the LSE’s Economic History department whose suggestions and criticisms influenced and aided the production of this thesis. In particular, Janet Hunter, Larry Epstein and Kent Deng provided especially detailed comments at the end of two academic years which were very helpful. Outside the LSE, the author wishes to thank Ruben LoVuolo, Carlos Acuna, Martin Schorr, Hilda Sabato, Daniel Azpiazu, Aldo Ferrer, Pablo Toral, Carlos Carballo, Camila Arza, Juan Carlos Korol, Jorge Schvarzer, Roberto Cortes Conde, Enrique Kawamura, Carlos Suarez, Daniel Diaz Fuentes, Klaus Gallo and Carlos Acuna. All contributions were gratefully received and any mistakes in the resulting work are the author’s not theirs. The research was funded by the Economic and Social Research Council. James Dunkerley and Valpy FitzGerald acted as examiners. Table of Contents: Page: Introduction 1 Chapter 1: The State, Vested Interests, Political Parties and the Management of Distribution. 46 Chapter 2: A Comparative History of Economic Policy in Argentina and Spain 1950-2000. Industrialisation and the Demise of Populism. 81 Chapter 3: The Crisis of Autarkic Exhaustion 1957-1960 119 Chapter 4: Crisis, Transition and Frustrated Markets 1976-80 175 Chapter 5: The Push for International Integration: Argentina 1989-96, Spain 1982-89 225 Conclusions: Different Qualities of Crony Capitalism in Late Industrialising Economies and Management of Social Conflict 278 Sources and Bibiliography: 291 Introduction 1 In the mid twentieth century many underdeveloped economies embarked on state-led drives to industrialise and renegotiate their status on the periphery of the world economy. In its early stages forced industrialisation through fiscal expansion is redistributional and transforms society. It empowers a new industrial bourgeoisie to challenge old, land based elites and encourages such processes as urbanisation and the growth of a proletariat to eclipse the peasantry. Later in the cycle, the expansionism characteristic of this model proves inflationary, puts a strain on reserves and the increased instability creates the need for an orthodox stabilisation.1 Yet in the newly industrialised economy, fiscal restraint and deflationary structural adjustment will meet stiff opposition from groups associated with or nurtured by industrial growth. The prescribed austerity will be resisted at popular levels because reduction in excess demand to curb inflation translates into reduced purchasing power for urban waged labour. Meanwhile, the elite ideologues who elaborated the model as a blueprint for modernisation will consequently reject a change in policy direction in the name of order and progress. In short, rapid economic change necessarily creates tensions that threaten political and, by extension, economic stability.2 Political order is commonly identified as a public good and an economy’s long-term path dependence is defined as directly influenced by a state’s capability to provide it. This depends in turn on whether the state has the capacity to convince its citizens that it would fastidiously enforce their property rights which means a robust set of institutions are required as a foundation of secular success.3 But what if the state is unable to make this ‘credible commitment’ on account of institutional shortcomings? The argument suggests progress will necessarily be pedestrian yet strong economic growth rates sustained over decades are by no means exclusive to countries with a tradition of unconditional protection of property rights. More recent work suggests governments that cannot universally enforce such rights adopt clientelist arrangements to protect the interests of a subset of asset holders in 1 See for example, Alesina, A. ‘Political Models o f Macroeconomic Policy and Fiscal Reform,’ in: Frieden, J., Pastor, M. and M. Tomz,Modem Political Economy and Latin America: Theory and Policy, Boulder, 2000, or Haggard, S. ‘Inflation and Stabilisation,’ in: Frieden, J and Lake, D, International Political Economy, London, 1995. 2 Huntington, S.Political Order in Changing Societies, New Haven, 1968. 3 North, D.Institutions, Institutional Change and Economic Performance, Cambridge 1990; North, D. Summerhill, W. Weigast, B. ‘Order, Disorder and Economic Change’, in Bueno de Mesquita, B and Root, HGoverning for Prosperity, New Haven, 2000; North, D.C. ‘The New Institutional Economics and Third World Development’ in Harriss, J, Hunter, J, Lewis, TheC, New Institutional Economics and Third World Development, London, 1995 2 exchange for political and economic support. This ‘crony capitalism’ is an inefficient allocator of resources but can ensure political stability, which in turn allows an otherwise weak government to preside over sustained growth.4 The literature is less clear, meanwhile, on what determines divergence in long-term economic performance between crony capitalist systems. This study uses a comparison of two such state systems, Spain and Argentina, to show that the greater the variety of economic interests ‘vertically integrated’ into the web of clientelism, the closer the approximation to a credible commitment regarding universal property rights. The state is thus able to exist more autonomously and is less prone to capture by specific interests. If a government forms an alliance with a narrower range of interests, then groups excluded from the embrace of that credible commitment may mobilise against it. If they are sufficiently organised they will exert economic