Political Economy in a Time of Capital Outflows: Theory, Historical Analysis, and Prescriptions

Capital Flows, Capital Controls, and Currency Crises: Latin America in the 1990s. Edited by Felipe Larraín. (Ann Arbor, MI: The University of Michigan Press, 2000. Pp. 330. $62.50 cloth.)

Banking and Economic Development: Brazil, 1989-1930. By Gail D. Triner. (New York: Palgrave, 2000. Pp. 330. $59.95 cloth.)

Capital Markets, Growth, and Economic Policy in Latin America. By Antonio Jorge, Jorge Salazar-Carillo, and Bernadette West. (Westport, CT: Praeger, 2000. Pp. 226. $69.50 cloth.)

Developments in Latin American Political Economy: States, Markets and Actors. Edited by Julia Buxton and Nicola Phillips. (New York: St. Martin's Press, 1999. Pp. 241. $24.95 paper.)

Capital Flows and Financial Crises. Edited by Miles Kahler. (Ithaca, NY: Cornell University Press, 1998. Pp. 368. $49.95 cloth, $19.95 paper.)

Modern Political Economy and Latin America: Theory and Policy. Edited by Jeffrey Frieden, Manuel Pastor Jr., and Michael Tomz. (Westview Press, 2000. Pp. 348. $65.00 cloth, $24.00 paper.)

George Santayanna quipped that those who do not study history are condemned to repeat it. A wealth of literature and empirical evidence suggests a similar caveat for economists who do not study politics. Similar warnings should be heeded by political scientists who are reluctant to delve beyond the textbook channels of politics. Although it is conventional wisdom to say that it is impossible to separate the two fields, in practice, political scientists have traditionally been ill informed about economics, and economists have generally seen politics as being a set of obstacles that demand rent and distort ideal policies. Fortunately, this has changed, evident by an ever-growing body of serious literature of political economy. This review examines six volumes which contribute to the development of political economy as a discipline. The review hopes to convince the reader that political economy explanations are a very appropriate means to address contemporary problems in Latin America, that they can help explain the problems associated with liberal reforms and the possibility of future reforms.

All six volumes reviewed here contribute to the literature on political economy, but there are considerable differences in terms of the specific areas that they address and the type of public for each book. Gail Triner's Banking and Economic Development: Brazil, 1889-1930 is the only single author volume reviewed here. Jeffrey Frieden, Manuel Pastor, Jr., and Michael Tomz's Modern Political Economy and Latin America; Julia Buxton and Nicola Phillips' Developments in Latin American Political Economy: States, Markets and Actors; and Miles Kahler's Capital Flows and Financial Crises are most appropriate for classroom use. The others are destined to be used as complementary readings or for specialists.

Since many of the books are edited volumes covering more than one theme, this review will be organized by theme, allowing complementary chapters to lead the discussion. The first two sections will discuss general questions in political economy and historical patterns in Latin America, respectively. It will draw heavily on comments from the Frieden, Pastor, and Tomz and Triner volumes. The third section focuses on capital flows and the repercussions of the Mexican and Asian crises, reviewing the books edited by Felipe Larraín; Miles Kahler; and Antonio Jorge, Jorge Salazar-Carillo, and Bernadette West. The final section examines the contemporary, incomplete reform agenda. It uses the Buxton and Phillips volume as well as chapters from the others to explain contemporary problems of political economy, giving particular attention to the collapse of the Argentine economy in 2001 and the stagnation in Brazil in 2002.

Political Economy

Political economy is preoccupied with the choices that actors face based on incentives provided by institutional contexts, given a situation of asymmetrical information. A quick survey of countries, developed or developing, reveals a considerable amount of diversity in terms of tax structures, administrative capacities, monetary regimes, fiscal...