Market Reform in Society: Post-Crisis Politics and Economic Change in Authoritarian Peru (review)

The book is a fascinating addition to the growing and important literature on the detail of the political and social consequences of market reform policies. It examines three of the pillars of the pro-market reforms of the government of Alberto Fujimori in Peru, 1990-2000: the tax reform, including that of the tax administration; the privatization of pensions, and the introduction of poverty alleviation programs. It has in addition glimpses and insights into other policies such as education reform, and some tantalizingly brief comparative references to Argentina, Brazil and Chile.

The formal focus of the study is on how the distribution of the costs and benefits of a policy reform shape political responses and with what repercussions. If both costs and benefits are widely distributed, for instance, the government is likely to have a free hand in using the policy for its purposes: this is evidenced among the cases cited by Arce in the poverty alleviation reforms. Concentration of costs but not benefits brings strongly focused opposition and successful modification (tax policies). However, the book is most interesting not for this formal 'main thesis,' but for the rich account of the detailed politics and maneuvering behind the reforms, in particular the tax reform.

The 'main thesis' is certainly worked out: Arce finds that the framework relating the costs and benefits, which he takes from James Wilson,The Politics of Regulation (1980), makes good sense though he finds need for some modifications. Arce also demonstrates his secondary thesis: that different reforms have very different political dynamics, and thus generalizations on "the political effects of market reforms" are unlikely to be helpful. But it is significant that the final pages of the book leave this analysis aside, and concentrate on what is to this reader's mind the much more interesting contribution of the work. This is the light shed on the politics of the Fujimori era, and in particular on the way different elements of the business elite are able to permeate the policy-making process, sometimes in contradictory directions, but with the end result that in the Peruvian context, market reforms led to enhanced business influence, and to outcomes not at all in line with free-market theory. At the same time the increasing elements of autocratic and personalistic political management are brought vividly to light. The tax narrative is particularly interesting for this, documenting how an initially good administrative reform was effectively undermined by Vladimiro Montesinos. (Quite fascinating, as Arce quotes Sally Bowen and Jane Holligan as showing in The Imperfect Spy: The Many Lives of Vladimiro Montesinos [2003], is the fact that it is a group of courageous tax administration officials who eventually blow the whistle on Montesinos.)

The analysis is solid and well documented. However, one cannot help but wish for more reflection on why the lack of contestation from wider society is so total. An anonymous reviewer is credited with the insight that lack of an institutionalized base of support for Fujimori was possibly responsible for his growing and eventually disastrous dependence upon Montesinos. This would merit further analysis. The presentation is also not entirely smooth. For example, new issues such as the political manipulation of GDP figures are suddenly raised in the final three pages, without the possibility of adequate discussion at that point. But the level of research is impressive and the story is well and convincingly told. This is a useful addition to any bibliography on market reforms in Latin America and a significant contribution to our understanding of the political economy of Peru.