Natural Resource Boom and Institutional Curses in the New Political Economy of South America Sebastin Mazzuca1

Natural Resource Boom: a New Economy As future books on Latin American economic history will likely note, the twenty first century did not start in 2000, but in 2003. The delay, however, was more than compensated not only by the enormous growth in wealth that began in the second semester of 2002 but also by a better distribution of income. The first decade of the twenty first century arrived late, but it was one of the best periods in history, especially for South America. Measured by income growth, it is similar to both the peak decades of export-led development of the last quarter of the nineteenth century and the most dynamic years of import-substitution industrialization after WWII, including the Brazilian miracle. Contemporary South Americans can even claim that their decade is the best ever, with lower inequality than the 1880s and lower inflation than the 1960s. Sustained growth coupled with income redistribution and low inflation is a true novelty in 200 years of economic development. If it were not enough, the new economic development of South America has gone hand in hand with the consolidation of democracy throughout the region.2 The timing of the golden decade could not have been better. Skepticism, if not disappointment, pervaded South America at the close of the twentieth century. After the lost decade of the 1980s, which in addition to negative growth was marked by sky-high levels of inflation, the hopes awoken by market reforms in the early 1990s evaporated only years later with the meltdown of 1998-2002, the lost lustrum. Believing that neither the old statist model nor the new gamble on the free markets could provide a sustainable solution to the problems of economic growth, the resigned acceptance of underdevelopment became the dominant attitude among leaders, analysts and the public. Precisely in that moment China changed everything. Its rise as an industrial superpower and a voracious consumer of fuels, metals, and proteins presented South American economies with one of the biggest and easiest to capture opportunities for growth in history. In 2000, buying the most basic model of cellular phone required 15 barrels of oil. In 2011, a barrel and a half buys an iPhone. In 2002, one hundred metric tons of soybeans had the same value as a small Honda car. Ten years later, they are worth a convertible BMW. Ral Prebisch died again. To find equally favorable terms of trade for South American exports, historians have to go back to the last third of the nineteenth century when world capitalism turned Argentina, Brazil, Chile, Cuba, and Mexico into the first emerging economies ever as suppliers of raw materials for the Industrial Revolution in the North Atlantic.3 The new terms of trade are not news for economic analysts of Latin America. More importantly, lay citizens, from professionals in So Paulo to rural workers in the Bolivian Media Luna, can feel the effects in their pockets. The political repercussions of the boom are less
1

For detailed comments to an earlier version of this piece I am especially grateful to Jorge Dominguez, Steve Levitsky, and Maria Victoria Murillo. I also benefited from comments by Natalio Botana, Gerry Munck, Juan Carlos Torre, and participants at the Constructing Democratic Governance in Latin America conference organized by the Inter-American Dialogue in Washington DC on October 6th-7th, 2011. Aaron Watanabe provided superb research assistance. 2 See Graph 1 in Appendix for a comparison of economic growth across decades. 3 See Graph 2 in Appendix for growth of exports and income across countries in 2002-2010.

obvious. But they are not less crucial. The boom is tightly connected with the two big political developments of the beginning of the twenty first century: the general convergence on leftist governments and policies, and the divergence between moderate-institutional and radicalhegemonic variants of the left.4 The Natural Sources of the Leftist Convergence and the Plebiscitarian Divergence The left turn that swept across South America in the 2000s owes its consolidation, but not its origins, to the economic boom.5 The origins of the turn lie in the demographic fact that the median voter of any Latin American country is poor, which means that median income is substantially lower than national GDP per capita. Consequently, political parties or movements that campaign on the promise of redistribution from rich to poor have, in principle, a considerable electoral advantage over conservative rivals (holding constant the effects of political identities). However, only fiscal latitude makes redistribution viable and allows leftist governments to stay in power. Without growth, fiscal surpluses evaporate. Without fiscal resources, leftist governments face an iron dilemma. Either they betray their electoral mandates and rule on the right, or they risk macroeconomic instability and plunge into potentially fatal governability problems. Colombia is the only exception to the left turn. While the median Colombian voter is also poor, the intensification of guerrilla warfare during the 1990s made security rather than redistribution the top concern.6 Like the convergence on the left, the radical-hegemonic divergence has separate causes for its origins and for its consolidation. The origins lie in the bankruptcy of traditional political parties caused by the exhaustion of their political capital after decades of governments that were too corrupt to supply a minimal level of public goods, too cartelized to allow for entry of new forces, or too impotent in the face of long periods of economic deterioration. Venezuela, Ecuador and Bolivia are exemplary cases. The consolidation of radical hegemonies, however, is a repercussion of the economic boom. A fundamental intervening factor has been the rise of a social coalition that, on the basis of its source of funding and political components, can be called rentier populism. The dominance of rentier populism has re-shaped the political landscape in Venezuela, Bolivia, Ecuador, and to a lesser extent Argentina. In these four countries rentier populism has created the conditions for the persistence of the radical variant of left governments and, more importantly, of distinctly hegemonic forms of rule political regimes in which the president dominates the policy-making process and is free from institutional oversight. Rentier populism reflects the type of natural resource that drives growth, and the method the state uses to extract resource rents. In Argentina and the Andean countries except Peru and Colombia, the
4

For excellent accounts of the left turn and its two (or more) variants, see Weyland, Madrid, and Hunter (2010), and Levitsky and Roberts (2011). 5 Weyland (2009), Murillo et al. (2011), and Kaufman (2011) have produced excellent work on the relation between the commodity boom and the left turn. Their goal is to explain policy outputs, while the focus of this chapter is on regime outcomes. Murillo et al. address the left turn in general, not variations within it, whereas Kaufman and Weyland explore the sources of the divergence between populist/radical and orthodox/moderate variants of the left. The theoretical framework advanced by this chapter is designed to explain both variations over time (general turn to the left) and across cases (specific versions of the left turn). Like Weyland, this chapter borrows insights from theories of rentier state, but while his emphasis is on psychological mechanisms, this chapter highlights coalitional ones. Weyland de-emphasizes the role of party structures, which in this chapter interact with the commodity boom to generate regime variations. 6 See Posada Carbs contribution to this volume.

main economic beneficiary of the boom has not been a specific economic sector, a cluster of private firms, or a distinct social class. The big winner has been the government. The state is the main or sole owner of hydrocarbons in Venezuela, Ecuador, and Bolivia, the main producer of copper in Chile, and the largest recipient of soybean rents in Argentina. To different degrees, these countries have gravitated towards the so-called rentier state that derives its revenue from the exploitation of a single, government-owned natural resource. By contrast, Peruvian gold and copper mines are privately owned, Brazilian and Uruguayan agricultural rents remain largely in private hands, and, given the legal structure of Petrobras, Brazilian oil rents are evenly divided between the state and a pool of minority shareholders around the world. The methods and sources of fiscal extraction define what groups in society demand accountability. In the extreme case of the rentier state, the government does not owe anything to anybody, and in principle has no incentive to make deals involving taxation in exchange for representation, a canonical source of civil and political rights. Four of the five countries approaching the rentier state ideal type, Venezuela, Bolivia, Ecuador, and Argentina, in decreasing order of proximity, have experienced the rise of hegemonic forms of rule. At the same time, Chile more of a rentier state than Argentina and Ecuador has maintained, if not accelerated, its trajectory of institutional quality. Chile could consolidate a hegemonic form of rule but a strong party system prevents its emergence. Chile has additional immunity against radical hegemonies because, in contrast to other rentier states, copper was already owned by the state when the region received the first economic tailwinds in 2002. In Venezuela, Argentina, Bolivia, and Ecuador, the government fought with private firms for control of mineral and agricultural wealth. The fight exacerbated the level of political polarization that in general surrounds the emergence of radical hegemonies. For those governments that chose to fight, victory helped to consolidate power. Among non-rentier states, the effect of the natural resource boom is not as relevant in political terms. With the rise of the Partido dos Trabalhadores (PT), a moderate, programmatic left-wing party, Brazil avoided radical hegemonies. Further, the election of Dilma Rousseff after Luiz Incio Lula da Silva served two presidential terms appears to have started a transformation of the patrimonial institutions that have dominated politics since time immemorial. Uruguay, like Chile, replaced the old military dictatorship with a democracy that has improved itself through the very practice of representative government, and the victory of the Frente Amplio, another moderate and programmatic left-wing party, has only accelerated this trajectory. While an economic blessing, abundant natural resources can be a curse for political institutions.7 The risks of institutional poisoning are much higher for countries in which the physical structure of the economy allows rulers to build a rentier state without much effort. The modern state involves a fundamental political dilemma. On the one hand, the monopolistic control of the means of violence is a prerequisite for the protection of human lives and property, the most basic public good. On the other hand, the concentration of power, if it lacks strong boundaries or is captured by despots, can be the source of public evils like political oppression, economic predation, and underdevelopment traps. By strengthening the fiscal position of the state in all countries of South America, the boom of natural resources reinforced the power of national governments and made the dilemma of the modern state even more acute. The new power can contribute to the provision of the public goods still required for the economic and political development of the region the boom as a blessing but it also increases the risks of
7

The statement should be qualified, for the Dutch Disease is an economic curse. This chapter will only focus on political repercussions.

discretionary government and corruption, which would worsen the old accountability deficits of the new democracies the boom as a curse. Only under special circumstances is a more powerful state a better state. Chilean immunity against the type of poisoning that has affected other rentier countries, as well as the institutional improvements of Brazil, suggests that the physical structure of the economy and the methods of extraction are not the only causes behind divergence. Peru and Colombia, which are endowed with vast reserves of minerals and hydrocarbons but have avoided the creation of rentier states, also point to the need of extra explanatory factors. The obvious but crucial fact is that the economic boom has not worked its effects on countries as if they were blank canvasses. It hit countries at the same point in the calendar but at different junctures in their social and political trajectories. Different configurations of local conditions, in addition to the physical structure of the economy, refracted the shock into a variety of policy and institutional outcomes. Shared social and demographic conditions across South America processed the boom differently from commodity-abundant countries with higher median incomes, like Norway, Canada, and Australia. Advanced economies have emphasized redistribution across generations, whereas South America spread the new torrent of wealth across social classes. At the same time, differential conditions within Latin America, what Max Weber would call the constellation of political and economic forces, caused the commodity boom to improve the institutional quality of democracies in countries like Chile, Brazil, and Uruguay, and to dismantle the defenses against abuses of presidential power in Venezuela, Ecuador, Bolivia, and Argentina. The impact of the new economic abundance in South America has then been refracted by two types of prism, one shared by the entire region, the global features of the social structure, and one that creates divergence across countries, which, as we will see, includes a combination of constraints emerging from the structure of financial markets and the party system. Convergence across South American countries resulted from the intersection of new international prices and persistent levels of economic inequality. This intersection produced a substantial change in the parameters that had dominated political activity during the last decades of the twentieth century. It made possible the economic incorporation of informal and marginalized sectors of the population, which expanded during the long period of economic stagnation that followed the Debt Crisis of 1982 and swelled as a consequence of the market reforms of the 1990s. If the new commodity prices killed Prebischs economy, they revived Gino Germanis political sociology with the creation of conditional cash transfers (CCTs), a scheme of economic redistribution that spread like wildfire among South American countries once fiscal conditions made it viable.8 Half a century after the original wave of mass politics, the continent has embarked on the incorporation of the most vulnerable sectors in society. Like in the prior juncture, it is again the deliberate intervention of the state that extends protection from the risks that market economies present to those who did not accumulate a modicum of physical and human capital. In contrast to the past, however, the new welfare state is a minimalist one. It provides only a rudimentary safety net aimed at lifting people out of indigence, but not out of poverty. The incorporation of the structurally unemployed and informal sectors in the context of international free trade a fundamental source of revenue for the minimalist welfare state is another crucial contrast with the original incorporation wave, which generally resulted in the
8

CCTs are small payments to poor families in exchange for the commitment of school attendance and regular medical checkups. Germani (1971) is the source of several original insights about the transition to mass society in Latin America.

creation of formal jobs in state-protected industries and the unionization of workers. The new form of incorporation will not create new formal workers, new trade unions, or new labor parties. Incorporation through conditional cash transfers is not an invention of the new economic prosperity, but the commodity boom generated the revenue to pursue CCTs as a systematic strategy in the countries that had cautiously experimented with them, like Brazil and Chile, and spread the minimalist welfare state to the rest of the region. The boom consolidated the propagation of the new redistributive scheme. Beyond the general outcome of informal sector incorporation, different sets of South American countries depending on the structure of capital markets and party systems experienced distinct coalitional dynamics, which in turn sent political regimes into contrasting trajectories of exercise of power and structures of political accountability. Forms of Institutional Poisoning Institutional poisoning has different manifestations, depending on whether it affects the state itself (poisoning as praetorianization), the form of access to state power (autocratization), or the patterns of exercise of state power (hegemonization). Praetorianization.9 Violent conflict is the curse par excellance of natural resources. The distribution of the new wealth created under booms almost always provokes dispute, and conflict may overflow legal channels of resolution. The consequence is Huntingtonean praetorianism: widespread non-institutional mobilization. In South America, however, the commodity boom was a blessing for governability. Between 1996 and 2002, a period that roughly coincides with the lost economic lustrum, Argentina and Venezuela, two of the countries that would later benefit the most from the boom, experienced acute episodes of praetorianism, which included the twin events of general bankruptcy of traditional political parties and massive anti-establishment street protests. Bolivia, Ecuador, and Argentina became prominent examples of the syndrome of interrupted presidencies, marked by the evaporation of presidential authority in the context of intense popular mobilization.10 Everything changed a few years later thanks to the first tangible fiscal repercussions of the commodity boom. The governments of Chvez, the Kirchner couple, Morales, and Correa restored presidential authority. After demobilizing the protest, they recovered governability and soon after were re-elected or ratified with extraordinary levels of support. We had to extinguish the fire, claims Alberto Fernndez, the Cabinet Chief under the Nstor Kirchner government, and the only way we could do it was by providing social assistance, and the only money we had to do it came from the taxes on [the exports of] soybeans.11 Autocratization. Dahlian democracy is another possible victim of the curse of natural resources.12 Autocratization occurs when access to power becomes less competitive because the opposition is boycotted or banned, or less inclusive because substantial sections of the population are denied of political rights. All countries in Latin America except for Cuba entered the new century with democratic regimes of access. In South America, according to a wide scholarly consensus,
9

Huntington (1968). For the syndrome of interrupted presidencies, see Valenzuela (2004) . 11 Authors interview, June 3rd, 2001. 12 Dahl (1971) disaggregates democracy into the dimensions of competition and participation.
10

Venezuela has gradually lost democratic access due to a string of presidential blows against competition, although not against participation. The loss of competitiveness gained international attention in 2007 when Chvez closed Radio Caracas, an opposition television network, but it had already began with the constitutional reform of 1999, which eliminated official financial support of political parties and created substantial asymmetries between government and opposition in terms of ability to campaign. Even though international agencies of regime analysis continue to classify Bolivia as a democracy, the government of Morales has also fostered, although in an attenuated fashion, the autocratization of access. In contrast to Venezuela, the main victim in Bolivia has not been competition but participation, and not of voters but of opposition candidates, including the mayors of Sucre and Potos, Jaime Barrn and Ren Joaquino, who have been harassed by judges controlled by the government. In Ecuador, shortly after taking office in 2007, President Correa set in motion a process that removed 57 members of the opposition from congress, which amounted to cancelling the verdict of the ballot box as a mechanism of access. Like clones of the Chvez government, the governments of Morales and Correa have engaged in high intensity rhetorical battles against established media. But only Correa went beyond words: the indirect control of the press under threat of intervention, which began with the expropriation of Gramavisin in mid-2009, became more systematic after the constitutional reform of May 2011 granted the president permanent powers of control. Together with autocratization, however, the governments of Venezuela, Ecuador and Bolivia have intensified the mechanisms of vertical accountability by means of an extraordinary expansion of the opportunities for voters to ratify or recall presidents. In addition to standard plebiscites, Chvez, Morales, and Correa subjected themselves to indirect popularity tests by calling for referendums on constitutional reform in which approval of reform and support for the president were tacitly but irreversibly linked.13 Displaying a level of convergence that cannot be coincidental, a few months after taking office, the three presidents called for referendums on constitutional reform and for elections of the constitutional assembly (1999, 2006, and 2007). In turn, once the work of the assemblies was finished, a new round of popular consultations took place for the approval of the new constitutional text (1999, 2009 and 2008). The reforms introduced presidential re-election in all three cases, and a new clock for the presidential term in Venezuela and Ecuador, which gave Chvez and Correa the opportunity to face an early test for renewing their mandates (2000 and 2009). Chvez and Morales in addition were subject to recall consultations (2004 and 2008) and, as the veteran of the trio, Chvez faced a second test for presidential re-election in 2006. Chvez and Correa also called for referendums for a second constitutional reform (2009 and 2011), which in the case of Venezuela resulted in the authorization for a third presidential term starting in 2012 (plus the portion of the term prior to the first constitutional reform). Between presidential elections, recall consultations, referendums for constitutional reform and elections for constitutional assemblies, Chvez went to plebiscite on seven occasions, obtaining a mean support of almost 55 percent, Correa did it five times, an average of once a year, and Morales three times, once every two years. The average support for Correa and Morales has been 65 percent. Bolivia and Ecuador traded interrupted presidencies and massive social protests for strong presidents fortified by serial popular acclamation. In Argentina, which in contrast to the three Andean countries shows no signs of autocratization, the Kirchners have not called for any plebiscites. However, both government and opposition have increasingly equated mid-term elections to popular consultations about
13

See Corraless contribution in this volume for an account of the recent wave of constitutional reforms in Lain America.

presidential performance, providing Argentine democracy a functional substitute of the plebiscitarian pattern in the three Andean countries. Hegemonization.14 Despite the visible signs of autocratization in Venezuela and the more tenuous ones in Bolivia and Ecuador, the main victim of the natural resource curse in South America has not been the form of access to power but the form of exercise. In Argentina, Bolivia, Ecuador and especially Venezuela, presidents dominate the state.15 They have concentrated policy-making power at the expense of the congress and their performance has been subject to only nominal scrutiny by legislatures, courts, and nonpartisan agencies of oversight. A plebiscitarian hegemonic presidency is the extreme case combining maximum decision-making power, minimum oversight, and indefinite reelection. Although no real case shows the three attributes in full degree, Chvez, Correa, the Kirchners, and Morales have come closer to the ideal-type than any other elected president in the history of their countries. If recurrent plebiscitarian ratification furnished governments with a strong majoritarian tone, hegemonization has made them distinctly anti-minoritarian. The conventional way of measuring hegemonization, the tally of presidential decrees, supports the notion that presidents Chvez and Nstor Kirchner governed without the congress. However, qualitative assessment of executive-legislative relations provides more valid measures of hegemonization. In Venezuela, Ecuador and to a lesser extent Argentina, congress has delegated the governance of the national economy to the president. The cause of power delegation has not been executive coercion against legislators, which would have actually involved the autocratization of the regime, as it occurred in Peru under Fujimori in 1992. The proximate sources of hegemonization have been varied: lack of interest on issues of national scope among members of the ruling party, inability of the opposition to solve collective action problems, and a general shortage of appropriate technical background. In Venezuela, delegation occurred through three Leyes Habilitantes (2000, 2001, and 2007) that allowed Chvez to decide on his own the nationalization of hundreds of economic assets and re-define a substantial number of budget allocations. Almost no important economic policy decision has been shared with the opposition. Year after year, the Argentine congress has granted Nstor and Cristina Kirchner extraordinary powers despite the extinction of any indications of social or political emergency. In the preparation of the national budget, the keystone of Argentinas economic legislation, congress has repeatedly approved presidential proposals with artificially low projections of economic growth and revenue. Similarly, Chvez sends barely credible estimates for the price of oil. Since the congress cannot attach strings to revenues that exceed estimations, national budgets approved by the Argentine and Venezuelan legislatures leave the presidents ample room for discretionary spending. Between 2004 and 2009, the Argentine president allocated an average $18 billion a year without legislative oversight (about twice the size of the budget for the Ministry of Public Works). In Venezuela, such discretionary spending amounted to 20 percent of total revenues.16 The decision to use the Central Banks international reserves to repay foreign debt, one of the three most important economic decisions of the Cristina Kirchner government, was made by presidential decree (December 2009). However, Argentina under the Kirchners is a case of moderate hegemony. For
14 15

For hegemony as used in this section, see Botana (2006). Corrales (2010), Conaghan (2011), and Madrid (2011) provide excellent descriptions of political regimes in Venezuela, Ecuador, and Bolivia, respectively. 16 Corrales (2010: 35).

instance, the nationalization of pension funds in 2008, one of the other key decisions, was extensively debated in congress and approved with support from the Socialist party. In debating the 2009 law creating the Universal Family Allowances, the Argentine CCT program, minority parties showed a capacity to participate in law-making unparalleled in Chvezs Venezuela. In March 2008, President Cristina Kirchners attempt to further raise export duties on soybeans by presidential decree provoked such resistance that she had to transform the decree into a legislative proposal. Congress rejected the proposal by one vote, handed a tough defeat to the government, and in the process discovered that it could limit presidential authority. The ultimate source of these limits was rooted in society, although the congresss greater ability to echo social resistance is an indication of hegemonic moderation that sets Argentina apart from the three Andean cases. Plebiscitarian Hegemony, Delegative Democracy, Classical Populism, and Neo-Populism Due to their regimes of access and exercise of power, Venezuela, Ecuador, Bolivia, and Argentina form a special group of countries in South America. They are, to different degrees, plebiscitarian hegemonies. In the polar type of plebiscitarian hegemony, mechanisms of vertical accountability, by which citizens ratify or revoke the presidential mandate, operate with maximum frequency, whereas horizontal controls the oversight by legislatures, courts and comptrollers are suspended indefinitely. Plebiscitarian access and hegemonic exercise are functionally connected. From the perspective of the plebiscitarian presidents and their supporters, the continual acclamation of presidential performance has logical and political priority over any other form of accountability. The electorate is the ultimate political tribunal and its ongoing support makes the judgments of other branches of government irrelevant. With seven plebiscitarian ratifications and almost complete presidential control over the economy, Chvezs regime in Venezuela is the closest to the polar type. Argentina under the Kirchners, who have relied on informal substitutes for plebiscites and gained control over only a portion of economic policymaking, is the most moderate case in the group. Ecuador under Correa and Bolivia under Morales are intermediate cases. Despite obvious similarities to delegative democracies, plebiscitarian hegemonies are a different type of regime.17 Delegative democracies, which in Guillermo ODonnells original conceptualization were exemplified by the regimes of Menem in Argentina and Collor in Brazil, were above all democracies. Plebiscitarian hegemonies, by contrast, may not be democratic. In Venezuela access to power has become less competitive over time and has been classified as a case of electoral authoritarianism.18 The concept of plebiscitarian hegemony characterizes mainly a form of exercise of power and deliberately contains minimal information about the form of access, which refers only to the nature and intensity/frequency of presidential elections. That single attribute about access is included in the concept because, hypothetically, the plebiscitarian component is functionally linked to the hyper-presidential form of exercise that defines the hegemonic type. Both attributes, hegemony and plebiscitarianism, are either complementary or have a common cause. Regime competitiveness, by contrast, has a separate source. Delegative democracies, originally associated with large-scale market reforms, included two attributes that marked a strong contrast with classical populism: they de-mobilized popular
17 18

For the concept of delegative democracy, see ODonnell (1992). For a characterization of Venezuelas regime type, see Corrales (2010), and for the theory of competitive authoritarianisms, Levitsky and Way (2010).

sectors, and dismantled the redistributive schemes created in the state-led development era. Plebiscitarian hegemonies, by contrast, have strong empirical connections both with the remobilization of popular sectors and economic redistribution, especially of the wealth created by the commodity boom.19 Precisely because delegative democracies lacked the attributes of classical populism, ODonnell rejected the characterization of the Menem, Collor, and Fujimori regimes as neo-populists.20 Delegative democracies also included rule by technical experts. By contrast, the plebiscitarian hegemonies of Venezuela, Bolivia, Ecuador, and Argentina have militated against technocrats. A common denominator between these cases has been the gradual depletion of human capital and technical knowledge in finance ministers, statistical agencies, central banks, and state-owned firms, which is opposite to the trend in Chile and Brazil. Two forms of conceptualizing populism have dominated the literature on Latin American politics. Accordingly, the relation between plebiscitarian hegemony and populism depends on the type of populism. Classical populism is a socio-political coalition, a set of economic policies, or a combination of both, whereas neo-populism refers almost exclusively to a type of political leadership.21 Neither variant of populism is a type of regime, whereas plebiscitarian hegemony is only a regime type. Despite the absence of analytical connections between plebiscitarian hegemony and populism, empirical relations are crucial. According to the definition of neopopulism, which centrally includes a political leader who mobilizes large-scale popular support from the top-down, Bolivia under Morales is clearly not a case of neo-populism. Most social movements that joined the Movimiento al Socialismo (MAS) had become active years before the emergence of Evo Morales. These movements autonomously coordinated the selection of a common leader, and preserved their identities under the new leadership. The role of MASs electoral base in the rise of Morales is much closer to that of active citizens than to passive followers. The other attribute of neo-populism, the use of a high-voltage antiestablishment rhetoric as a mobilization strategy, is in fact shared by all four empirical cases of plebiscitarian hegemony. From Correas pelucones and Chvezs burguesa pro-yanqui to Morales oligarquas and the Kirchnerss grupos concentrados, all plebiscitarian presidents give their audiences an enemy who is the source of the countrys evils, leaves no room for negotiation, and has to be engaged in a fight to end. Intense anti-establishment appeals are so systematic within each case and so common across cases that the possibility of random coincidence should be ruled out. However, in the context of the explanation that will be advanced in the following sections, neo-populist rhetoric is largely superstructural. While interesting for its recurrence over time and repetition across cases, neo-populist rhetoric plays only an accessory role in the underlying political dynamics and can be placed at the very end of a long causal chain made of more fundamental factors. No definitional connections exist between classical populism and plebiscitarian hegemonies, for the former is a type of coalition and economic policy, and the latter is a form of political regime. They are phenomena of different orders. Precisely for that reason it is possible to study causal relations between them and, in particular, to assess whether coalitions and policies similar to those of classical populism are the causes behind the rise and consolidation of plebiscitarian hegemonies. Classical populism was a state-sponsored coalition of the first generations of factory workers and national firms producing consumption goods. Redistributive
19

These connections are strictly empirical and subject to test; they are not analytical because mobilization strategies and economic policy are not part of a purely institutional definition. 20 ODonnell (1995). 21 For conceptualizations populism centered on leadership, see Weyland (2001) and Barr (2009).

policies, especially from rural to urban sectors, expansion of social rights, and tariff protection would create the conditions for semi-autarchic development. Economic winners of the model would secure the political success of the populist leaders. The source of classical populism was the intersection of large social and economic processes, both national and international. The slow but steady deterioration of the terms of trade for Latin American exports, combined with demographic, industrial, and urbanization trends that reached politically critical thresholds, created new coalitional possibilities, including certainly the populist one. Plebiscitarian hegemony is the political regime that reflects the emergence and domination of a new type of social coalition. Like classical populism, the new coalition pivots around a social sector that is the creature of a long accumulation of economic and social processes, the incorporation of which depends on an inflection point in export prices. However, the macro-processes that came together to create the political room for new coalitions have very little in common with those of classical populism. Classical populism was an industrial coalition. The coalition behind plebiscitarian hegemonies is that of rentier populism. Rentier Populism: the Theory In the extreme case of rentier populism, a caricature with no empirical instances in any place of the world or moment in history, only two actors form the ruling alliance: the government and the informal sectors. The government is the only owner of a natural resource that commands a high price on international markets. The government distributes the revenue from the natural resource to the informal sectors, which comprise a majority of the population. Exploiting the resource requires no substantial investments within the politically relevant time horizon. Either the necessary technology and physical capital are not expensive or they had been expropriated from a private investor. In exchange for redistribution, the informal sector provides votes to secure political victories and street mobilization to intimidate economic and political losers. The rentier populist coalition fully integrates itself into the international market for goods but it refrains from participating in financial markets. It needs the former as much as it can dispense with the latter. Foreign trade is the fundamental source of rent, whereas international capital is an unnecessary source of conditionalities. The economic and political bases of rentier populism define its structure of accountability. Vertical accountability is the most affordable way of staying in power because the informal sector vote is the least expensive to buy. The alternative of ignoring the majority and ruling through repression has higher costs with more uncertain political benefits. Like any other dominant coalition, rentier populism has no spontaneous reasons to set checks and balances on presidential authority. The groups most interested in horizontal accountability are those least likely to become partners in the dominant coalition and are most worried about discretionary use of political power. These include individuals who have made heavy investments in physical and human capital, require long maturation periods, and present the most appealing targets for expropriation. The effectiveness of groups demanding horizontal accountability is a function of their relevance within the political economy of the dominant coalition. When rentier populism rules, the effectiveness of demands for horizontal accountability is negligible. Rentier populist rulers do not need the minorities in the formal economy to sustain themselves, and the informal majority only requires the plebiscitarian mechanism to secure the uninterrupted flow of transfers. Plebiscitarian hegemony is a structure of accountability that is tailor made for rentier populism: complete deactivation of horizontal controls (the hegemonic component) and high frequency of
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vertical ratifications (the plebiscitarian component). The rentier populist coalition causes plebiscitarian hegemonies. Rentier populism and plebiscitarian hegemonies appear undefeatable. They are, so long as initial conditions remain: high prices for the natural resource, low exploitation costs, and substantial size of the informal sectors. A small change in any of these conditions places a lot of pressure on the viability of the coalition and can provoke the collapse of the regime. If the international prices of the commodity fall below the threshold required for revenues to match the costs of the coalition or the size of the informal sectors shrink so that they can no longer secure electoral success, it will be the end of the political regime. A new coalition replaces the old one, or the hegemonic president expands the coalition to sectors in the formal economy that demand institutional insurance against predation, for instance, effectiveness of legislatures in the economic policy process. Finally, if the costs of the technology for exploiting the natural resource become higher than the savings rate of the economy, rentier populism will be forced to end its isolation from international financial markets and, in exchange for fresh capital inflows, accept conditionalities that will curb the hegemonic features of the regime. Strong while the conditions for rentier populism last, plebiscitarian hegemonies are extremely fragile in the face of small variations in the parameters of its political economy. Rentier Populism II: Comparative Political Origins At the end of the twentieth century rentier populism was an unimaginable phenomenon in Latin America. One of its components, the informal sectors, was available, but the other, the rent from natural resources, was politically irrelevant. The commodity boom of the early twenty first century contributed the remaining piece of the rentier populist alliance. However, only Venezuela, Bolivia, Ecuador, and Argentina built it. The reason for the divergence is that between the availability of the basic economic and demographic inputs and the effective construction of a new dominant alliance, a constellation of local economic and political conditions refracted the coalition-building process, preventing populism in some cases and encouraging it in others. The critical political decision in the process of building a rentier-populist coalition is whether or not to expropriate the booming natural resource. In the rulers cost-benefit analysis, the international price of the commodity, the scale of the national endowment, and the size of the informal sector define the potential reward. The costs, on the other hand, are determined by the damage to the countrys reputation in international capital markets, and the resistance of national political forces that fear the risks rentier populism involve for their survival. These costs are shaped by financial markets and part systems, which are also structural constraints. These structures, however, are substantially more malleable and unstable than the ones that define the incentives, the rather fixed physical structure of the economy and the slow-moving social structure of the underlying population. Party system volatility in fact became endemic in the Andes and Argentina by the turn of the century. Financial reputation costs are especially high in countries with a long track record of receptiveness to foreign investment and debt repayment. All Andean countries are endowed with enough reserves of mineral wealth for expropriation to be a tempting political option in boom times. In three of them, Colombia, Peru, and especially Chile, the financial reputation costs have provided anti-populist immunization: flows of foreign investment are considerably higher than the expected gains of capture. This condition has been crucial in the Peruvian case, for in
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contrast to Colombia and Chile it meets all the other requirements for the rise and consolidation of the plebiscitarian hegemonic variant of the left. President Humala, who would otherwise be a natural architect of a rentier populist coalition, probably concluded that he had received too precious a legacy of financial reputation from the orthodox governments of Alejandro Toledo (2001-2006) and Alan Garca (2006-2011), which managed to achieve and keep investment grade status. In the opposite extreme, the physical structure of the Argentine economy is considerably less attractive for rentier political ventures. Nevertheless, by the time commodities started to boom, the financial reputation costs of capture had become negligible. In 2001 the Argentine government defaulted on a gigantic volume of foreign debt and doomed the country to years of abysmal credit ratings. For Nstor Kirchner, refraining from the rentier populist temptation would have only meant taking the first steps in a necessarily long process for rebuilding reputation, the dividends of which would have started to flow well beyond the politically relevant horizon. When Morales and Correa became presidents, credit ratings in Bolivia and Ecuador fell to all-time lows. For the fiscal needs of their coalitional projects, expropriation was much more effective than patient reconstruction. Party systems, the other source of costs for the leader considering the construction of rentier populism, prevent expropriation if the incumbent party has a solid constituency in the formal economy or the opposition parties have enough organizational strength.22 The economic recession of 1998-2002 was a watershed moment for party systems in South America. The political parties that had implemented neoliberal reforms lost vital reserves of political capital. Only two established left wing parties had remained in the opposition during the era of market reforms: the Brazilian PT and the Uruguayan Frente Amplio. Free from the blame for economic pains, they supplied a fresh but institutionalized post-neoliberal option to the public. In Chile the economic crisis was very mild (the recession was over by 2000), neoliberal reform did not cause disappointment and, although they were partners in the ruling coalition, Socialistas also became a credible post-neoliberal choice. Once the PT, the Frente Amplio, and the Chilean Socialists gained power, the price for the creation of a rentier populist alliance would have been the destruction of their historic ties with formal labor. A more profitable course of action was the gradual incorporation of the informal sectors as an extra layer to their established constituencies. In Venezuela, Bolivia, and Ecuador, when the economic slowdown began, party systems were already experiencing a deep and protracted crisis caused by cartelization and corruption. In Argentina, the representation crisis actually followed economic recession. In all four cases, however, party system volatility peaked and, with the exception of the Argentine Peronistas, stable political parties virtually disappeared.23 From that moment on, whoever became president would rule without organized opposition. Political barriers to the emergence of rentier populism vanished as parties lost the strength to resist expropriation. In Argentina, Bolivia, and Ecuador, the flip side of party de-institutionalization under economic dislocation was mass praetorianism, especially informal sector mobilization. Massive street protests presented Kirchner, Morales, and Correa with a unique opportunity for moving beyond the strictly economic incorporation adopted in Brazil, Chile, and Uruguay, to try the political incorporation of the informal sectors. Informal sectors became key allies in the electoral coalition, providing the base for plebiscitarian
22

Levitsky and Roberts (2011b; 2011c), Madrid (2011), and Flores-Macas (2010) have also traced variations within the left turn to differences across parties and party systems. They explain policy variations, not coalitional or regime outcomes. 23 For measures of party system volatility in the 1990s and 2000s see Flores-Macas (2010: 423) and Coppedge (2007). Calvo and Murillo (this volume) provide an in-depth analysis of party system volatility in Argentina.

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ratifications, as well as in the government coalition, supplying control of the streets and intimidation of the opposition. Cases and Mechanisms of Rentier Populism In 2001 the Chvez government decided that the state-owned Petrleos de Venezuela (PDVSA) should be the majority shareholder in all Venezuelan oil fields, which affected thirty three multinational companies with operations in the Orinoco Basin. Two of them, Total and Eni, left the country. A year later, Chvez raised royalties on private oil companies from 1 percent to 30 percent and taxes from 34 percent to 50 percent. A presidential decree of 2007 raised the floor of PDVSAs share in exploitation joint-ventures from 51 percent to 78 percent. Increased control over the flow of oil rents allowed for the creation of the Misiones Bolivarianas, Chvezs strategy of informal sector incorporation. In fact, PDVSA, rather than other state ministries, has administered the missions. The programs created between 2003 and 2004 included Misin Robinson and Misin Ribas to target literacy and basic education, Misin Barrio Adentro to provide health services, and Misin Mercal to provide subsidized food. In Bolivia, Morales nationalized the countrys hydrocarbon resources four months after assuming the presidency. In a primarily symbolic action, he sent troops to occupy the Tarija gas fields, the second largest reserves in Latin America. Petrobras, the Brazilian oil giant, was the most affected firm as its facilities came under the control of the Bolivian state company Yacimientos Petrolferos Bolivianos (YPFB). At the same time, Morales repurchased the remaining privately held shares of YPFB and transformed the various drilling projects from joint ventures, in which private firms received a proportion of profits, to service contracts based on flat fees. Taxes also rose from 18 percent to 82 percent, reversing the division of earnings between the state and private firms. In relative terms, no government benefited from nationalization and the commodity boom as Bolivias. Revenues from mineral royalties grew 929 percent from 1997 to 2007, and hydrocarbon taxes 626 percent. The key political consideration behind hydrocarbon nationalization was the incorporation of the informal sector. Revenue from gas rents has financed the creation of the Bono Juancito Pinto, a family allowance of $29 for each child enrolled in primary school (October 2006), the Renta Dignidad, a payment of $340 to all seniors (April 2007), and the Bono Juana Azurduy, which gives $257 to pregnant women and mothers who undergo periodic medical checkups (May 2009). Despite the countrys large oil deposits, the government of Ecuador was not dependent on mineral rents in the 1990s. Oil companies paid an average 20 percent of their revenues in taxes, which was far from enough to sustain a populist coalition. Yet, first as Finance Minister of Alfredo Palacios transitional government (2005-2006) and later as president, Correa raised hydrocarbon taxes, which reached 50 percent in 2006 and 80 percent in 2007. As a result, Petrobras decided to gradually leave the country and almost every other multinational firm stopped new investment. The new taxes strengthened Correa governments fiscal position and allowed it to launch the Bono de Desarrollo Humano, a redistribution program that covers 1.5 million households or 45 percent of the population. With much smaller reserves, Bolivia and Ecuador cannot reach the degree of rentierism of Venezuela. With an economy that is more diversified than Venezuelas and larger than those of Bolivia and Ecuador, Argentina remains the least dependent on rents. Further, its resource, land, has natural barriers against state expropriation and exploitation. Yet the state can still extract massive rents by setting up a monopsony for agricultural products, as it did under Pern
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in the late 1940s, or by taxing exports. Although President Carlos Menem eliminated export taxes in the 1990s, transitional president Eduardo Duhalde reinstated them in March 2002 under the name retenciones. Originally set at 5 percent for processed soybeans and 10 percent for unprocessed, the retenciones quickly rose to 20 percent in order to fund unemployment benefits for almost two million people. President Nstor Kirchner maintained the tariff levels and the allocation of revenues almost until the end of his term. Ahead of the 2007 presidential elections, Kirchner raised duties to 24 percent for processed soybeans and 27 percent for unprocessed to subsidize consumption in low income sectors. After his wife Cristina won the race in October, tariffs rose again to 32 percent and 34 percent to cover the debts incurred during the campaign. Soybean rents, which the central government has refused to share with the provinces, have brought Argentina closer to a rentier state than ever before. No case perfectly fits the ideal type of rentier populism. During the commodity boom, however, Argentina, Bolivia, Ecuador, and Venezuela have moved closer to the ideal type, while Chile, Brazil, and Uruguay have moved away. Argentina, Bolivia, Ecuador, and Venezuela also differ amongst themselves in terms of proximity to the extreme case. The key point from the perspective of causal inference is that the degree of rentier populism in each case is concomitant with the extent of plebiscitarian hegemony. Venezuela, the case that best approximates rentier populism, is also the closest to plebiscitarian hegemony. Argentina is the case with the most tenuous attributes of both types, while Bolivia and Ecuador are intermediate cases. But correlation is not causation. Since the number of cases is too small for statistical analysis, it is crucial to find causal mechanisms, that is, processes that connect rentier populist coalitions to the generation of the institutional features of plebiscitarian hegemony. Mechanisms that generate plebiscitarian hegemony can be distinguished into two types, depending on whether the rentier populist coalition is still fighting to control natural resources, or it has already consolidated as the dominant group. If rentier populism is in the formative process, rulers will treat institutions legislatures, courts, laws that block their path as an enemy threatening the coalitions viability. Although the Argentine constitution grants taxation power only to congress, the two increases in export duties on soybeans in 2007 were decided by presidential decree. The economic crisis was over, but the financial needs of a plebiscitarian year persuaded the president to resort to emergency powers outlined in the Cdigo Aduanero, a legacy of the military dictatorship. The construction of rentier populism requires hegemonic powers. Once rentier populism has consolidated in power, two mechanisms generate the features of plebiscitarian hegemony. The rising living standards of the informal sectors made possible by the boom and redistribution encourage presidents to intensify the use of plebiscites. In turn, popular ratification emboldens presidents to wrest remaining powers away from the other branches of government and portray resistances to hegemony as anti-democratic conspiracies. The string of ratifications dispels any doubt about the validity of the majoritys verdict. Frequent plebiscitarian consultations extend a blank check for the use of hegemonic powers. The other mechanism is fiscal. When prices are sufficiently high, rents from natural resources cover all the coalitions expenses. State-ownership means the government has to negotiate with no one to secure the flow of revenue, and grants rulers independence from any group, national or international, that might otherwise demand for institutional quality in exchange for taxation. The relative simplicity of the rentier populist coalition and political economy explains the absence of demands for checks and balances on executive authority. The coalition of classical populism was a more heterogeneous construction and its partners were more organized. Its political economy encouraged more institutional and policy-making sophistication. The factory workers of classical
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populism were incorporated into unions that organized them along functional lines and on a permanent basis. The solidarity of the informal sectors is intermittent and, at most, territorially based. Organization provided industrial workers with tools, like strikes, that could inflict real damage on the political economy. The informal sectors can, at most, take to the streets, but not threaten the exploitation of natural resources or the fiscal position of the government. To maintain power, classical populist governments had to worry about productivity while balancing the interests of workers and national industrial firms. To survive, classical populism developed complex institutions labor codes, collective bargaining mechanisms, technical institutes, and the expanded welfare state. In contrast, rentier populism relies only on plebiscites and the minimalist welfare state. Venezuela, Bolivia, and Ecuador are more extreme cases of plebiscitarian hegemony than Argentina precisely because of differences in the complexity of the underlying coalition and political economy. While Chvez and Morales have organized their supporters along territorial lines, the Kirchners revived collective bargaining between management and formal labor, thus enhancing institutional quality. While traditional political parties disappeared in the Andean countries, Peronism in Argentina survived the 2002 crisis and maintained its dominance. The crisis, however, marked the beginning of the partys incorporation of the informal sector as a central partner. Under Menem, the informal sector was a peripheral, purely electoral member of the coalition and incorporation was based on decentralized clientelism. Under the Kirchners, the party has become an amalgamation of classical and rentier populism. Due to the diversity of the economy and the strength of unions, Peronism has retained some of its industrial character, an antibody against extreme forms of plebiscitarian hegemony. Further, the fact that the natural resource in Argentina is land, which is privately held and very fragmented, has forced the Peronists to engage in battles over rents that the Andean rentier populists could avoid. With the stroke of a pen, Chvez and Morales gained full control of hydrocarbon rents by converting joint venture drilling contracts into service contracts with fixed payments. The functional equivalent in Argentina, the 2008 presidential decree raising export duties on soybeans, not only met with a level of resistance that the Kirchners could not overcome but reinvigorated the congress, which until then had been a rubber stamp for the executive by the admission of Peronist and opposition legislators alike. Conclusions The price boom of natural resources in the first decade of the twenty first century has been a blessing for all South American economies. For some political regimes, however, it was an institutional curse. In Venezuela, Ecuador, Bolivia, and Argentina, the boom prompted the emergence of rentier populism, a new type of political coalition based on the economic and political incorporation of the informal sector and funded by windfall gains from commodity exports. Based on a new fiscal structure, rentier populism in turn fostered the intensification of plebiscitarian mechanisms of vertical accountability and neutralized constraints of horizontal accountability. At the end of the twentieth century, Latin American countries faced the twin challenges of economic growth and poverty reduction. The left turn in South America has centered on the incorporation of informal sectors through minimalist welfare states based on conditional cash transfers. Incorporation marks the recovery of social rights that had been lost during long decades of crises and structural reform. The transfers of the minimalist welfare state partially
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address the problem of growth by incentivizing education and health, thus raising productivity. These improvements, however, are not sufficient to achieve sustained economic growth. Growth requires large investments in infrastructure, modern technology, and physical capital. In Brazil, Chile, and Uruguay, the left turn, in addition to minimalist welfare states, sponsored institutional improvements to attract the necessary investments. In contrast, in the cases of rentier populism, the commodity boom has enabled governments to ignore the complex task of institution building. Venezuela, Bolivia, Ecuador, and to a lesser extent Argentina, have constructed minimalist welfare states without addressing the problem of productivity. Barrels of oil and good harvests have postponed the agenda of sustainable growth. In the process, they shut off one of the most powerful sources of political accountability. Rentier populism also endangers the long term prospects of social citizenship. Under rentier populism, social rights last only as long as the boom. And if economic history has taught anything, it is that no boom lasts forever.

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Appendix

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Weyland, K, Clarifying a Contested Concept: Populism in the Study of Latin American Politics, Comparative Politics, vol. 34, no. 1, 2001, pp. 1-22. , The Rise of Latin Americas Two Lefts: Insights from Rentier State Theory, Comparative Politics, vol. 41, no. 2, 2009, pp. 145-64. Weyland, K, RL Madrid & Wendy Hunter (eds), Leftist Governments in Latin America: Successes and Shortcomings, Cambridge University Press, Cambridge, 2010.

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