The Political Economy of Sub-National Democracy

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The Political Economy of Sub-National Democracy Institut d'Études Politiques de Paris ÉCOLE DOCTORALE DE SCIENCES PO Programme doctoral Amérique latine Centre d’études et de recherches internationales [CERI] Doctorat en science politique The Political Economy of Sub-National Democracy Fiscal rentierism and geography in Argentina Matías Federico Bianchi Thèse dirigée par M. Olivier Dabène Soutenue le 21 mai 2013 Jury : M. Olivier Dabène, Professeur des universités, Sciences Po Paris M. Carlos Gervasoni, Profesor, Departamento de Ciencia Política y Estudios Internacionales, Universidad Torcuato Di Tella (rapporteur) M. Gérôme Sgard, Professeur FNSP, Sciences Po Paris M. Laurence Whitehead, Senior Research Fellow in Politics, Nuffield College, University of Oxford (rapporteur) Matías F. Bianchi – « The Political Economy of Sub-National Democracy» - Thèse IEP de Paris – 2013 2 PREFACE "Un intelectual debe ocuparse de cosas que lo conmueven moralmente." - O´Donnell (Página 12, 14 Sept 2003). This dissertation is about a deep moral preoccupation that has almost monopolized my intellectual energy since a teenager. With different questions, levels of complexity and approaches, the goals have remained unchained: the paradoxical political dynamics of Argentina´s provinces. I come from San Luis, the province whose politics is the main driver of this work. In high school I already could not understand how people from San Luis would vote, in increasingly higher percentages in every subsequent election, for politicians who were openly corrupt, that changed judiciary authorities when they did not like them, and spent public funds on building the best basketball team on the country while having one of the worst education and health systems. Those questions led me to study political science, to approach the theories of development and democracy of Guillermo O´Donnell, Amartya Sen and others, who gave me hints about the centrality of citizenship and the factors that could hinder their capabilities. Then, with a higher degree of complexity in my understanding, I understood that what happened in San Luis was not unusual and there was something in the institutional dynamics of Argentina´s federal arrangements that could explain this tragedy that seemed to condemn millions in my country. This was the focus of study of my master's degree in Oxford. Then, while working at the Development Center of the OECD, I learned through the experience of oil exporting countries, that there was a common causality that was hindering the process of democratization of my province and others. This has been the path I have taken in my doctoral dissertation but I am confident that new perspectives will continue to emerge. Over the years I have evolved my questions and approaches and I have even learned the broader scope of my very basic preoccupations. The main goal of this work is not academic, but moral and political: to strengthen the capacity of citizens to decide what to do with their lives. Ultimately, I hope, I can help to shed light for decision makers on an agenda for change. Matías F. Bianchi – « The Political Economy of Sub-National Democracy» - Thèse IEP de Paris – 2013 3 ACKNOWLEDGEMENTS I am grateful to my supervisor Olivier Dabène who has supported me from the beginning in this lonely and sometimes bitter adventure that is a doctoral dissertation. I am also grateful to the The Graduate School at Northwestern University, where I was a fellow during the 2010-11 academic year. My time there represented a crucial period for advancements in my research. Also to my colleagues who have helped me in one way or the other, providing ideas, references, sharing their data sets and even commenting on drafts of my work. I hope I remember them all: Jennifer Cyr, Marcelo Escolar, Hugo Rodriguez, James Mahoney, Carlos Gervasoni, Sebastián Barros, Sebastián Lew, Carlos Freytes, Lucas González, Julieta Suarez- Cao, Nicolás Caputo, Alejandro Groppo, Ramiro Berardo, Omar Samper, Néstor Menéndez, Roberto González Espíndola, Agustina Giraudy, Mariana Rulli, Natalia Zuazo, Charles Oman, Enrique Elorza, Ignacio Lara, Sebastián Freille, Victor Mazzalay, and Julio Esteban Vezub. To my friends, Ignacio Lara, Jacqueline Behrend and Julieta Suarez-Cao, who read drafts of my work and encouraged me in moments of uncertainty. My family has also played an immense role. To my brothers, Guillermo, Pablo, Andrés, and my sisters, Laura and Eugenia, with whom I have endlessly discussed the topics of this dissertation and with whom I share the same moral concerns. To my father who showed me the questions, and, especially, to my mother who taught me how to find the answers. To my daughter, Morena, my source of inspiration and the reason I hope for a better world. And last, but not least, to Jennifer. Without her love, intellectual support, proofreading skills and patience I would have been unable to finish this dissertation. Matías F. Bianchi – « The Political Economy of Sub-National Democracy» - Thèse IEP de Paris – 2013 4 TABLE OF CONTENTS Figures 8 Tables 10 Acronyms 11 I The Political Economy of Subnational Democracy 13 A) The Redistributive Argentine Federalism: history, structure and dynamics 16 1) Political Federalism 17 2) Fiscal federalism 18 3) Political and economic inequalities 19 B) Looking for causal mechanisms: The Rentier State 21 1) Rents and politics 24 2) Rentier State 25 3) Sub-national Rentier states 26 C) Geography and politics 27 D) Methodological approach 30 1) Lack of reliable cross sectional data 30 2) Mechanisms 32 3) Variance 34 E) Selection of Case Studies 34 F) Organization of chapters 35 II The Different Argentinas 38 A) Geographical distribution of socio-economic resources 40 B) Argentina´s redistributive federalism 46 1) Decentralization of political resources 47 2) Redistributive fiscal resources 53 C) The Puzzle of Power Decentralization and Political Underdevelopment 63 1) Persistence of heterogeneity of political development in provinces 65 2) Heteregeneity of political regimes and institutions 67 D) The rising power of Governors 70 E) Conclusion 74 III Subnational Rentier States and Democracy: Looking for Mechanisms 76 A) Explanation of the puzzle: fiscal dependence 77 1) The workings of “The paradox of plenty” 83 2) Comparing attributes: Can natural resources be compared to subnational fiscal rents? 87 B) The perverse mechanisms of the resource “curse” 94 1) The Dutch Disease 94 2) The Rentier State 97 C) Resdistribution of power within provinces. 113 D) Conclusion 119 IV Rentier Provinces in Argentina: the case of San Luis 121 A) San Luis: A “Traditional Province” 122 1) Politics as a family affair: From “el Pampa” to “el 126 Adolfo” B) Return to Democracy 128 1) The 1983 Elections 128 2) The Economic Miracle: Industrial Promotion Law 129 C) Subsidized industrialization as a subtype of fiscal rentierism 134 1) External source 134 2) Not linked to production 135 3) Poor people, Rich State 136 D) The Workings Of A Rentier State 138 1) Weakens institutions 139 2) Weakening citizenship 149 3) White elephants – the GEPU syndrome 156 E) “El Alberto” 160 1) Social Inclusion Plan 162 2) White elephants 166 F) Conclusion 167 V Geography and Democracy 169 A) Regional development in Chubut 171 1) A New Province 171 2) Economic spaces 173 3) Spatial socio-economic differentiation 178 B) Space, identity and politics: tripartite dynamics in Chubut 180 1) Inter-spatial dynamics 183 C) Geography, rentierism and democracy in Chubut since 1983 185 Matías F. Bianchi – « The Political Economy of Sub-National Democracy» - Thèse IEP de Paris – 2013 6 1) Regime 187 2) State 190 3) Society 193 D) Geography and Democracy 196 1) Geography and Democracy in other provinces 197 E) Conclusion 205 VI Conclusion 207 Bibliography 214 Matías F. Bianchi – « The Political Economy of Sub-National Democracy» - Thèse IEP de Paris – 2013 7 LIST OF FIGURES Figure 1.1. Simplified diagram of causal relationships between the variables 27 Figure 1.2. Geographical competition of space as a causal variable 30 Figure 2.1. Difference in income per capita between poorest and wealthiest regions in selected federal countries (by factors) 41 Figure 2.2. Map of Argentina – grouping provinces per region. 43 Figure 2.3. Fiscal Structure per Level of Government (in percentages) 55 Figure 2.4. Composition of the pool of shared taxes by origin – 2009 (in percentages) 57 Figure 2.5. Subnational fiscal dependence – 2005 (in percentages) 60 Figure 2.6. Fiscal resources by origin: national transfers, individual provincial collection, mineral royalties - 2005 (in percentages) 62 Figure 2.7. National transfers and mineral royalties by population (left) and by gross geographical product (ggp) per capita (right) 63 Figure 2.8. Evolution of the participation in the national economy per regions 1983 – 2005 (in percentages) 66 Figure 2.9. Comparison of Gervasoni´s and Giraudy´s indexes of democracy. 69 Figure 3.1 - Fiscal dependence – 1983 and 1988 (in percentages) 78 Figure 3.2 - Average fiscal dependence per decade (in percentages) 80 Figure 3.3 - Net fiscal transfers per capita 2005. (in pesos) 81 Figure 3.4 - Fiscal rentierism (transfers + royalties /GGP) - 2005 82 Figure 3.5. Mineral royalties as a share of fiscal revenues per decade (in percentages) 93 Figure 3.6. Share of national industrial production by group of provinces (in percentages) 107 Figure 3.7. Diagram with causal mechaninsms of subnational rentierism 117 Figure 4.1: Rural population in San Luis and Argentina (in percentages) 123 Figure 4.2: Population of San Luis as a share of the national (in percentages) 124 Figure 4.3: Electoral results 1983 129 Figure 4.4. Composition of provincial economy by activities (constant 1970 prices) 131 Figure 4.5. Industrial jobs 1983-1994 in San Luis 132 Figure 4.6. Population of San Luis (numbers), as share of Argentina (percentages). 132 Matías F. Bianchi – « The Political Economy of Sub-National Democracy» - Thèse IEP de Paris – 2013 8 Figure 4.7.
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