Creative Destruction?: Economic Crises and Democracy in Latin America

4. Interests: Foreign Capital and Domestic Coalitions against Democracy

The second factor to examine is the way international and domestic interests raised or lowered the likelihood that actors organized and exercised pressures in favor of and against democracy during the Great Depression in the Southern Cone countries. My comparative historical analysis explains their political regime outcomes in a way that is generally consistent with that of contemporary political economy scholars, who have emphasized that conflict over alternatives to political regimes are—first and foremost—part of a redistributive struggle among competing economic interests.1 Nonetheless, my argument qualifies the perspective of these authors. The cases of Argentina and Uruguay intheearly1930scanbeseenasillustrationsoftheirviewpoint:capitalists,particularly those tied down by fixed assets (the bulk of foreign investment in the Southern Cone countries in the 1920s and 1930s was in fixed assets, such as infrastructure , utilities, mining, and energy), decide to cast their lot against democracy when, in their perception, the risk of nationalization or confiscation increases (the situation with energy policy and foreign companies operating in that sector in both Argentina and Uruguay). On the other hand, what happened in Chile is at odds with that story. Foreign investors and the domestic elites and middle classes supported General Ibáñez’s dictatorship during good economic times, but they surprisingly did not back his reinstatement after spreading urban protests in the midst of the 1930–31 economic meltdown forced Ibáñez’s fall from power in July 1931, despite the fact that a large proportion of the capitalists’ investments were held in fixed assets, particularly mining. Starting in 1927, foreign and domestic capitalists supported dictatorial rule in Chile as long as it yielded control and profits , but they stood on the sidelines when the tide decidedly turned and social Interests Foreign Capital and Domestic Coalitions against Democracy chapter four i n t e r e s t s : f o r e i g n c a p i ta l a n d d om e s t i c c o a l i t i o n s 79 mobilization threatened to become widespread in the summer of 1931. The key difference with Argentina and Uruguay was not so much a predominance of capitalists with fixed or liquid assets per se, but rather the foreign and domestic elites’ perception of great danger in Chile, due to the threat of a left-wing military revolution from above, particularly when the Socialist Republic was installedinJune1932 .Giventhatsuchanoutcomewasarealpossibility,theelites casttheirlotwiththereturnofdemocracyandofArturoAlessandritothepresidency in October 1932, despite the fact that less than a decade earlier he had seemed to them to be a radical populist whose progressive reforms had to be resisted at all costs. Organized labor was relatively weak in Argentina and Uruguay at that time, and it did not play a role in trying to defend democracy in those countries in 1930and1933,respectively.Incontrast,inChileorganizedlaborandthemiddle classes mobilized, and the protests and violence that ensued forced the fall of General Ibáñez. international sphere: american and british economic competition The Iberian countries had held the biggest economic stakes in Latin America since the establishment of the Spanish and Portuguese colonies in the sixteenth century. After Spanish-American and Brazilian independence in the 1820s, however, the expanding British Empire became the dominant foreign economic force south of the Rio Grande. A subsequent change took place as a consequence of the rise of US hegemony in the Western Hemisphere after the Spanish-American war of 1898, although British foreign investment continued todominateinArgentina,Brazil,andUruguayuntilthe1930s.Attheturnofthe twentieth century, British and American private businesses, and support from their national governments, were the main foreign sources of economic competition throughout the subcontinent (the British in South America and the Americans in Mexico, Central America, the Caribbean, and western South American countries like Chile and Peru), although by then and until the First World War, Germany and France also had a substantial banking and direct investment presence in the region.2 The competition among British and American investors for this Latin American economic activity was fierce in the years leading up to the Great Depression , yet American foreign investment grew much more rapidly than British investment in every country in the region. Figure 4.1 shows the ratio of US foreign investments to the sum of US plus UK investments in the years 1913— the year before the First World War started—and 1929, the year of the Wall Street crash. In Thorp’s words, “British investment barely...