Limiting Resources: Market-Led Reform and the Transformation of Public Goods

4. The Institutionalization of Market-Led Public Goods Provision

4 the institutionalization of market-led public goods provision World Bank and Inter-American Development Bank . . . loans come with conditionalities of privatization, opening the economy, and deregulating the State. . . . It is a very powerful concept, very coherent, but it did not work here, and does not work because our society does not operate this way. —salvador arias, economist and Legislative Assembly deputy, El Salvador Why and how privatization and other market-oriented policies emerged, as discussed in chapter 3, raises questions about the effect of these policies. If they were not simply sensible solutions to terrible crises proposed by neutral technocrats, then what kinds of solutions were they? The empirical record reveals that the indiscriminant transfer of marketization policies, far from providing a general remedy to public goods failures, created new fiscal, technical, and legal barriers for countries to overcome, while, in many cases, doing little to increase state capacity to meet development objectives. Positive outcomes were far more contingent on preexisting political and institutional context than the discourse would have us believe. More deeply, the increasing institutionalization of market-oriented values in public goods sectors undermined institutional forms oriented toward meeting human rights obligations, as outlined in chapter 2. I examine the institutionalization of neoliberal norms below, and their effects on public services, regulation, and state finances. In order to test the argument ‘‘that governments perform less well than the private sector’’ (World Bank 1995, 1), I examine closely the case of El Salvador, where such arguments are most likely to be true due to its abysmal record in providing public goods. Comparisons to Costa Rica illustrate similar patterns in institutional shifts but not convergence. The implication of these similarities is not that history does not matter—it clearly does—but that neoliberal policies introduce comparable difficulties for nonmarket public goods alternatives, which must be addressed regardless of context. 122 LIMITING RESOURCES Neoliberalism: Another ‘‘Great Transformation’’? The ascendancy of neoliberal ideas in public policy represented a paradigm shift from the ‘‘development economics’’ approach, which argued that the unique needs of developing countries require distinct economic and social policies, to one in which ‘‘sound’’ economic principles were universal and would allow any economy—developing or developed—to flourish. An International Monetary Fund (IMF) promotional video with the ironic title ‘‘Ruritania: Solving Real Problems’’ reflected the latter outlook.1 In the video, we are introduced to an imaginary country, Ruritania, which has no history, culture, or politics, but for which IMF policies provide a solution to its ‘‘real’’ macroeconomic problems. This ahistorical application of cookiecutter liberalization policies led in the 1980s and 1990s to a very real neglect of state institutions and capacities that were indispensable for the success of economic development. Moreover, it ignored important pathdependent , contextual needs of countries at different levels of development . Although greater attention—at least rhetorically—has been given to state capacity and institution building in recent years, the damage done by this neglect of developing country variation was significant. The economic, political, and social transformations that accompanied the shift to neoliberalism (Burawoy 2001) were perhaps as important as the ‘‘Great Transformation’’ toward market society analyzed by Polanyi (1944). Whereas the change in Polanyi’s time operated largely at the national level, however, some of the most important contemporary shifts in economic processes occurred globally. These changing state forms wrought by globalization altered social relations and policy patterns (Jayasuriya 2001), with clear effects on the provision of public goods in developing countries: • Economic transformation. Peaks and declines in industrial production led investors to move beyond traditional profit-making strategies. Latin American countries expended extraordinary efforts to attract private investment, such as assurances regarding rates of return, indexing to the dollar, legal protections against expropriation, market (rather than state) regulation, and legal protections for investments. States pulled back from public goods sectors and reduced taxes on foreign investment. Public goods privatization under these conditions 1. California: Four Media Company, 1999. MARKET-LED PUBLIC GOODS PROVISION 123 was appealing as a source of ‘‘accumulation by dispossession’’ (Harvey 2003); privatization continued apace. • Social transformation. Lower tax revenue and lax labor standards that accompanied new models of production led to reduced state funding for social protection and weakened labor movements. Meanwhile, an ideology of retrenchment depoliticized civil society. Policy makers discounted redistribution that affected ‘‘competitiveness’’ and increasingly saw socially oriented reform as nostalgic or quaint (Torres-Rivas 1996). At the same time, ‘‘rights...