Argentine Democracy: The Politics of Institutional Weakness

3. Old Actors in New Markets: Transforming the Populist/Industrial Coalition in Argentina, 1989–2001

3 Old Actors in New Markets: Transforming the Populist/Industrial Coalition in Argentina, 1989–2001 Sebastián Etchemendy INTRODUCTION: RECASTING THE POPULIST/INDUSTRIAL COALITION Dominant approaches to the study of the political economy of marketization have to a great extent overlooked the role that traditionally protected actors in industry and labor have played in shaping emerging market economies . Indeed, we know little about the transformation of the old populist/ industrial coalition in cases of sweeping economic liberalization such as Argentina during the 1990s. Why were the ‘‘insiders,’’ that is to say, union leadership and workers who remained in the formal sector, rather than laid-off workers or the rising mass of unemployed, the most privileged by governmental attempts to lessen the costs of reform? Why were some industrial interests, and not others, able to gain crucial government concessions ? Even a government that has forsaken traditional macroeconomic tools for favoring domestic actors in industry and labor can still resort to a variety of compensatory policies, such as the awarding of state assets, tariff regimes, direct subsidies, or the granting of specific protections in future markets. Thus, rather than being unambiguous losers from market reThe author thanks David Collier, Ruth Berins Collier, Candelaria Garay, Steven Levitsky, Victoria Murillo, and the members of the Latin American Politics Group at Berkeley. Old Actors in New Markets 63 form, some key industrial and labor actors within the old isi coalition1 can and do preserve their existing market power in the new ‘‘liberal’’ order. Moreover, a salient, though often neglected, aspect of Argentina’s marketization is that main actors of the ‘‘old order’’—such as powerful industry -based groups and mainstream union leadership—were favored by the government and brought into the liberalization coalition. This pattern of compensations bestowed on old powerful isi actors was not replicated in other experiences of sweeping market reform such as Chile from 1973 to 1989, Spain from 1982 to 1995, Peru in the 1990s, or Brazil under President Fernando Henrique Cardoso. In Argentina, I argue, dominant unions and certain established industrial players were part of the reform coalition. Not only were they favored by government policies, they were actively involved in the drafting of the deregulatory frameworks that affected their business and sectors. Crucially, the alliance with protected actors of the old order, based on compensations such as the partial deregulation of specific markets and targeted privatizations, facilitated rather than obstructed the general process of market restructuring in Argentina. Toward the late 1980s, Argentina appeared to be an unlikely case for radical and sustainable neoliberal reform. Traditional Peronist unions and powerful and protected industry-based conglomerates had thwarted liberalization attempts by the democratic administration of President Raúl Alfons ı́n (1983–89). Indeed, the political viability of the market reforms that President Carlos Menem carried out in the 1990s cannot be understood without focusing on the politics of compensations to these traditional actors. However, this chapter will argue that the political deals built around compensatory policies in the early 1990s had a double-edged nature: they made sweeping economic liberalization politically feasible in a context of a democratic regime and powerful antireform actors, yet at the same time they undermined the governance and economic sustainability of the neoliberal model in the long run. This chapter has two main goals: first, to explain why the Menem government chose to compensate some specific labor and industrial interests, and not others, in crafting its coalition for reform; and second, to assess the consequences of this pattern of transformation of the populist/industrial coalition in Argentina for the eventual crisis of the neoliberal order in late 2001. The first part of the chapter explains what interests in the domain of business and labor were brought into the reform coalition in Ar1 . By isi (import substitution industrialization), I refer to the semi-closed economy in place before the sweeping liberalization of the 1990s. The old coalition consisted of unions and the manufacturing industry, which were the main beneficiaries of the protection of domestic markets and of the inward-oriented pattern of development. 64 Argentine Democracy gentina, and in what way. In the case of business, firms in four of the formerly protected industrial sectors—oil, autos, steel, and petrochemicals —can be defined as political winners. These firms were deliberately favored by some kind of governmental compensatory policy—a targeted privatization, a special tariff regime, or some other form...