THE HISTORY OF THE NICARAGUAN SOCIAL SECURITY INSTITUTE: AN ANALYSIS OF PATH DEPENDENCY A Thesis Submitted to the Faculty of the Graduate School of Arts and Sciences of Georgetown University in partial fulfillment of the requirements for the degree of Master of Arts in Development Management & Policy By Victor Alfonso Silva, B.A. Washington, DC July 14, 2015 Copyright 2014 by Victor Alfonso Silva All Rights Reserved !ii THE HISTORY OF THE NICARAGUAN SOCIAL SECURITY INSTITUTE: AN ANALYSIS OF PATH DEPENDENCY Victor Alfonso Silva, B.A. Thesis Advisor: Eric Langenbacher, Ph.D. ABSTRACT The use of path dependency in political science explanations of institutional development, especially social security helps us to better understand continuities and departures of a policy. The lack of theoretical work on the Nicaraguan Social Security Institute and its history, together with the country’s violent, sudden and disrupted political history that makes institutions vulnerable to arbitrary changes, were the motivation to look for an answer to the institution’s overall stickiness. This thesis examines the historical development of the Nicaraguan Social Security Institute by using path dependency theory together with an interpretation of the public policy cycle in order to mitigate the absence of influential groups as important agents of change in the process. The Nicaraguan Social Security Institute represents an interesting case of path dependency in a context in which most of the institutions would change constantly and drastically without much regard for their past. This thesis finds that this unexpected dependency was only possible because of the institution’s very peculiar origins and reinforcement processes that made the costs of changing increasingly high throughout the years. !iii Acknowledgments: I will always be indebted and grateful to the unconditional love, constant encouragement and support of my wife, Laura Ingison. Thank you for believing in me from the beginning of this project; it would never have been possible without your accurate and invaluable insights. I am also immensely grateful to Katherine Aronson-Ensign friendship and opinions on Latin America, Alan Aronson for the amazing experience during the research period in D.C. and Margee Ensign for her support, time and opinions. Thank you to my friends and family for their patience. I would like to thank Professor Eric Langenbacher, to whom I owe my deepest gratitude, as he has made available his support in a number of ways. It has been a privilege to have the love, effort, support and constancy of my parents, Alfonso and Benicia, throughout every step of my life and education. I am truly grateful for everything you have done for me. Last, but not least, thank you to my not-so-little brother, Fernando, who has always had confidence in me and has been there to listen. Victor !iv TABLE OF CONTENTS Introduction………………………………………………………………………………… 1 Chapter 1. Literature Review and Approach to Social Security in Latin America………… 4 1.1 Studies of Social Security in Latin America and Nicaragua…………………………… 6 1.2 Similar Approaches to Path Dependency in Social Security………………………… 13 1.3 Research Focus and Strategy………………………………………………………… 14 Chapter 2. Methodology and Theoretical Framework…………………………………… 16 2.1 General Concepts and Theories ……………………………………………………… 17 2.2 Weaknesses and Limitations of using Path Dependency in Political Science………… 24 2.3 Hypothesis …………………………………………………………………………… 26 Chapter 3. Nicaraguan Background ……………………………………………………… 28 3.1 The Origins of the Nicaraguan State and the Creation of the Campesino …………… 29 3.2 The Liberal Revolution, U.S. Intervention and Establishment of the Dictatorship … 39 3.3 The Sandinista’s Popular Revolution………………………………………………… 52 3.4 Democracy and Implementation of Retrenchment Policies……………………..…… 57 3.5 The Return to Power of the Revolutionary Party……………………………………… 64 3.6 Summary in the Light of Path Dependency…………………………………………… 68 Chapter 4. The Unlikely Path-Dependence of the INSS ………………………………… 72 4.1 The INSS Lock-in Moment …………….…………………………………………… 73 4.2 INSS Increasing Returns …………………………………………………………….. 81 4.3 Substantiating Dependence…………………………………………………………… 95 4.4 INSS Latest Reforms………………………………………………………………… 110 4.5 Summary …………………………………………………………………………… 121 Conclusions and the INSS’s Future Prospects………………………………………….. 123 Bibliography…………………………………………………………………………..… 130 Annexes ……………………………………………………………………………….… 136 !v Introduction Social security means different things in different contexts. According to Barr and Diamond, “in the United States, social security refers to government retirement and disability benefits only, in the United Kingdom to all cash benefits provided by the government, and in mainland Europe to all cash benefits and health care” (2008, Loc. 385). In Nicaragua, social security refers to: a) government retirement, disability and survivor pensions; b) professional risk coverage1; and c) sickness and maternity benefits, as well as health care provision, social assistance, family allocations and other social benefits2 (Mesa-Lago et al. 1997, 9). The first social security program was founded in Germany in 1889 by conservative Otto von Bismarck, providing retirement and disability benefits. After several years of implementation, other countries in Europe followed. Once World War I ended and the International Labour Organization (ILO) was founded in 1919, social security programs began to take shape within an international consensus. Modern social security as we understand it today was developed by Sir William Beveridge in his report Social Insurance and Allied Services, published in 1942, which “proposed a ‘social security plan’ integrating social insurances, social assistance, and voluntary supplementary insurances” (Mesa-Lago 2008, 3). At the end of World War II, “the ILO Declaration of Philadelphia raised social security to the category of international instrument”(Ibid.), providing guidelines and standards for social security systems to which countries are legally bound upon signature and ratification. In 1948, the Universal Human Rights Declaration defined social security as an individual right. These events in history 1This benefit covers any kind of accident that may occur while working as well as when going or coming from the work place. For a full explanation of the institute’s programs see chapter 4 !2 The last two benefits are in the law but they are not provided in practice !1 promoted the creation of social security systems around the world, as well as the categorization of it as a basic need. The Nicaraguan Social Security Institute (Instituto Nicaragüense de Seguridad Social, henceforth referred to as INSS) was founded in 1955 during an authoritarian and dynastic dictatorship, in which the dictator ruled for a certain period of time while planning to pass incumbency to a son or other dynastic successor (Bar-El 2009, 5). The INSS developed further in the same direction during the second successful people’s revolution in Latin America and is now functioning in a neoliberal democracy. Even taking into consideration that social security “represents perhaps the purest case of a policy prone to path dependence” (Hacker 2010, 55), one would predict that such an institution would have changed arbitrarily or deviated drastically from its path during these dramatic political processes with such different ideological justifications. The fact is, however, that it not only remained relatively unchanged and on track, but its principles were reinforced, increasing the number of stakeholders and reinforcing path dependence. This path dependency approach let us better identify continuities and departures in the Nicaraguan case. It would be difficult to understand the development of the INSS and explain its path dependency without looking at the country’s political and social evolution throughout history, considering that partisan politics play one of the most important roles in shaping the development of welfare states through time ( Huber and Stephens 2001, Loc71-72). This study is not about the INSS’s social righteousness, political interest, economic logic or financial feasibility. This work intends to explain the INSS’s unexpected path-dependence and certain moments of departure in a country whose “history is among the most turbulent and interesting in !2 all of the Americas” (Walker 1986, 9). Given this upheaval, the creation of an institute with grand and unreachable objectives was probably unavoidable. This thesis is divided into five chapters. The first and second chapters review the existing literature on the study of social security, as well as the theoretical foundations, methodology and limitations of this study. I will discuss various theories that influence my argument. The main theory I will utilize is that of path dependency and increasing returns, which argues that self- reinforcement dynamics, or positive feedback processes, explain how, at a moment of inter- temporal choice, an institution’s future alternatives are affected throughout the course of history. The third chapter addresses the Nicaraguan context. I will give an overview of the political evolution of the country. The objective of this chapter is to present key variables for the interpretation of the development of the INSS given its historical context. In Chapter Four, I identify, order, describe and explain the different outcomes that, “at a ‘critical juncture,’ trigger feedback mechanisms that reinforce the recurrence of a particular