The London School of Economics and Political Science Explaining Success and Failure of Rules-Based Distributive Policies Eduardo Mello A thesis submitted to the Department of International Development of the London School of Economics for the degree of Doctor of Philosophy, London, March 2017 Declaration I certify that the thesis I have presented for examination for the PhD degree of the London School of Economics and Political Science is solely my own work other than where I have clearly indicated that it is the work of others (in which case the extent of any work carried out jointly by me and any other person is clearly identified in it). The copyright of this thesis rests with the author. Quotation from it is permitted, provided that full acknowledgement is made. This thesis may not be reproduced without the prior written consent of the author. I warrant that this authorisation does not, to the best of my belief, infringe the rights of any third party. I declare that my thesis consists of 64370 words. 2 List of Acronyms and Abbreviations BPC ........... Benefício de Prestação Continuada (Continued Assistance Benefit) CCT .......... Conditional Cash Transfer FNAS ......... Fundo Nacional de Assistência Social (National Fund for Social Assistance) FNS ........... Fundo Nacional de Saúde (National Health Fund) FP ............ Fundação Palmares (Palmares Foundation) IBGE ......... Instituto Brasileiro de Geografia e Estatística (Brazilian Institute of Geography and Statistics) INCRA ........ Instituto Nacional de Colonização e Reforma Agrária (National Institute for Colonisation and Land Reform) IPEA .......... Instituto de Pesquisa Econômica Aplicada (Institute for Applied Economic Research) MDS .......... Ministério do Desenvolvimento Social (Ministry for Social Development) MPF .......... Ministério Público Federal (Federal Prosecutor’s Office) NGO .......... Non-Governmental Organisation PFL ........... Partido da Frente Liberal (Party of the Liberal Front) PNAE ......... Programa Nacional de Alimentação Escolar (National Programme of School Lunches) 3 PNRA ......... Programa Nacional de Reforma Agrária (National Programme of Land Reform) PRI ........... Partido Revolucionario Institucional (Institutional Revolutionary Party) PROGRESA ... Programa de Educación, Salud y Alimentación (Programme for Education, Health, and Feeding) PRONAF ...... Programa Nacional de Fortalecimento da Agricultura Familiar (National Programme to Strengthen Family Agriculture) PRONASOL ... Programa Nacional de Solidaridad (National Solidarity Programme) PSDB ......... Partido da Social Democracia Brasileira (Party of Brazilian Social Democracy) PT ............ Partido dos Trabalhadores (Workers’ Party) STN ........... Secretaria do Tesouro Nacional (Secretariat of the National Treasury) SUS ........... Serviço Único de Saúde (Single Healthcare System) TSE ........... Tribunal Superior Eleitoral (High Electoral Court) UCR .......... Unión Cívica Radical (Radical Civic Union) 4 The following images have been redacted. Page 55 Fig.1 Page 90 Fig.4 Page 127 Fig 6-7 Abstract Some governments tackle poverty and inequality by creating well-functioning, rules-based distributive programmes. Others redistribute selectively, showering their loyal supporters with goods, services, and money while denying these things to other citizens, even when those other citizens are very poor. What explains this contrast? Why do some governments prefer politically neutral rules-based forms of redistribution while others prefer highly selective clientelistic redistributive arrangements? This dissertation answers the question by developing a new line of theory. I also test that theory against evidence from a number of Latin American countries, most notably Brazil. Although rules-based social policies are a cornerstone of the modern welfare state, we know surprisingly little about the politics behind these policies. In this dissertation I show how, in much of Latin America, the development of rules-based programmes can be traced to the electoral incentives of politicians, and of presidents in particular. Forging clientelistic deals with favoured constituents may be a winning strategy for legislators and local officials, but presidents cannot play that game as well and so tend to prefer less particularistic forms of redistribution. Over the past few decades, rules-based social programmes have emerged for the first time in much of Latin America. However, the reason why these countries have been embracing programmatic redistribution now is not yet clear. Some studies have stressed that the spread of electoral democracy has created incentives for politicians to shift distribution away from powerful groups and towards the poor. For these scholars the emergence of rules-based programmes is a reflection of weakening clientelistic linkages between politicians and voters. Others have argued that, as societies get wealthier, voters have the means to rebel against clientelistic schemes and vote for politicians that favour programmatic distribution. Others still make the point that the rise of left-wing parties is what is driving these transformations. Leftist parties organise and mobilise the poor, who in turn pressure for effective, rules-based distribution. In contrast with these explanations, my analysis attributes the new emphasis on rules to the shifting balance between the powers of legislators and those of presidents in much of Latin America. My argument is that clientelism remains a useful electoral strategy mainly for legislators and in local politics, where the support of well-organised networks of clients can make a difference between winning and losing public office. Presidents, on the other hand, have much larger and more heterogeneous constituencies, which makes investing in small networks of clients prohibitively expensive for them. Furthermore, presidents strive to be seen as strong leaders that are capable of designing effective policies that will be considered fair by the majority of citizens. In the case of presidents, creating 5 rules-based social programmes is the most efficient way to redistribute income in a way that is compatible with their political priorities. I test this theory using a unique dataset of social spending in each of Brazil’s 5,570 municipalities. Employing different identification strategies, I find broad support for the argument that legislators and presidents prefer very different kinds of social policies. These differences are systematic and do not depend on a legislator’s or on the incumbent president’s party affiliation. Even legislators who hail from ‘pro-poor’ parties on the left of the political spectrum seem to prefer clientelistic forms of redistribution, despite the fact that clientelistic practices can be quite regressive. At the same time, presidents almost always prefer programmatic distributive policies, which are famously progressive, even when they hail from parties on right of the ideological spectrum. These results – the product of numerous interviews and extensive fieldwork conducted in four states over the course of two electoral cycles – help explain why Brazil and other young democracies in Latin America have seen conditional cash transfer programmes and other rules-based income distribution schemes proliferate in the recent decades. As my analysis reveals, these schemes were largely driven by presidents. As presidents gained control over the design and the funding of social policies, they used these powers to create the kinds of programmes that furthered their own electoral interests. That said, inefficient spending on clientelistic arrangements remains a problem in Brazil, as it does in much of the region. This, too, can be explained by my theory: clientelism’s staying power reflects the fact that, despite recent reforms, legislators remain powerful. Exploiting that power, legislators have continued to do what they always do, rewarding clients and punishing dissenters, as illustrated by my analysis of the case of Argentina. Latin American presidents may now be gaining the upper hand, but until the power balance shifts decisively in their favour, we are unlikely to see rules-based distribution completely replacing traditional clientelistic arrangements in Latin American or, for that matter, anywhere else. 6 Table of Contents Chapter 1: Introduction 11 Chapter 2. A Theory of Programmatic Distribution 47 Chapter 3. The Electoral Consequences of Programmatic Distribution 79 Chapter 4: Taming Clientelism: the Rise of Rules-Based Policy Making in Brazil107 Chapter 5: Conclusion 152 Appendices 174 Appendix A List of Presidents of Brazil, 1889-2016 174 Appendix B Variables used in Chapter Three 175 Appendix C List of Open Interviews 176 Appendix D Programmes’ Legislation 177 Appendix E Full specifications of OLS regressions 182 References 214 7 List of Tables 1 Descriptive statistics of variables measuring the vote share of incumbents and incumbent supported candidates and parties (2002-2014) . 93 2 Descriptive statistics of variables measuring spending per capita for each anti-poverty programme of interest (2002-2014) . 94 3 Effects of CCT spending on incumbent party’s presidential and legislative vote share (2002-2014). See appendix for full regressions. 95 4 Effects of Saúde da Família spending on incumbent party’s presidential and legislative vote share (2002-2014). See appendix for full regressions. 96 5 Effects of FNAS spending on incumbent party’s presidential and legislative vote share (2006-2014). See appendix for full regressions. 97 6 Effects