Creative Destruction?: Economic Crises and Democracy in Latin America

8. Interests: Capital Flight, Pressures from Below, and Democracy

In analyzing the relative costs of pressures in favor of and against democracy, a key change in international and domestic interests in the Southern Cone countries led to mixed outcomes, particularly given the different fate of pressures from below in Chile during the external debt crisis (1982–84), and in Argentina (2001–2) and Uruguay (2002–3) in the more recent emerging markets crises. 1982 crisis: bailout and triumph of pragmatic neoliberalism in chile The military regime under General Pinochet engineered a U-turn in terms of the growth in political weight of different economic interests in Chile. Between the start of the presidency of Eduardo Frei Montalva of the Partido Democracia Cristiana (PDC) in 1964 and the coup against President Salvador Allende of the Socialists and his multiparty left-wing coalition, the Unidad Popular (UP), on September 11, 1973, domestic interests decidedly took the upper hand over international ones. In Chile, as well as in Argentina and Uruguay, notonlydidtheproportionoftheagriculturelaborforcedecreasesignificantly, but the total rural population also fell in absolute terms after 1960.1 Partly as a consequence of the growth in political weight of urban, industrial, and servicebasedinterests ,particularlysincetheSecondWorldWaryears,governmentsin these three countries privileged domestic industrial interests and those of the middle and working classes in urban settings, particularly in the big cities, which became the centers of gravity for modern mass politics. The losing interests were rural, particularly those of the traditional economic elites, focused around the major landowners who relied on strong export-led growth for their Interests Capital Flight, Pressures from Below, and Democracy chapter eight commodities. Between the Great Depression and the late 1960s, the increase in Chile’s agricultural exports was below average, compared with the country’s urban, industrial-based growth.2 In sharp contrast, the military regime under Pinochet restored primacy to the interests of the international and domestic elites after he implemented a free market revolution, starting in 1975, through his technocrat economists knownastheChicagoBoys.3 Themilitaryjuntaanditstechnocratsdidnotsimply return economic power to the traditional elites, a small group with a longstanding reputation for exclusivism and a sense of entitlement over the country ’s fixed wealth.4 Instead, the main pillars of early neoliberal policy, such as privatization and financial liberalization, benefited a small group of outwardoriented capitalists whose wealth was concentrated in liquid (financial) assets. These capitalists organized around the conglomerados (corporations) and grupos económicos (groups of firms)—which included banking, industrial, service, agricultural , and raw-material-exports firms—holding ownership of them under a singlelegalliability.Theirownersanddirectorssharedcommonsociallinkswith the Chicago boys, some of whom had employment and/or family histories that linkedthemtotheconglomerados.5 Atatimewhenthemilitaryjuntaanditstechnocraticalliesfacedinternationalcondemnationandsanctions ,aninformalalliance with the country’s most dynamic economic groups made sense. These groups were therefore allowed to engage in massive foreign borrowing to help prop up the economy. This process led, among other things, to a huge concentrationofwealth .Whiletwelvegroupscontrolledaround52%oftheassetsofChile’s 250 largest firms and banks in 1970, by 1978 three conglomerados controlled 40% of these assets.6 Still, economic recuperation between 1976 and 1980 permitted the state-conglomerados alliance to claim a “Chilean economic miracle.” As long as international credit remained cheap and was readily available, this alliance was mutually beneficial: “Pinochet’s protection boosted the internationalists’ economic power . . . and the dynamic economy created by them boosted Pinochet ’s political power.”7 As it turned out, access to low-interest international creditfromthebanksallowedthelargerindustrialfirmswithintheseconglomeratestoin flatetheirreportedprofits,evenifsuchloanswereusedforconsumption ratherthanraisingtheratesofcapitalformationintheChileaneconomy. In addition to the Chicago boys and the conglomerados, the military junta led by General Pinochet consolidated the neoliberal refashioning of the economy and created the bases for a restricted democracy by prompting a group of conservative lawyers, known as the gremialistas, to draft what became the 1980 166 l at e t w e n t i e t h c e n t u r y i n t e r e s t s : c a p i ta l f l i g h t, p r e s s u r e s f r o m b e l o w 167 constitution. The gremialistas were the midwives for the birth as well as the backbone of the development of Chile’s more conservative right-wing party, the UDI, since 1983 (see chapter 9).8 From the perspective of competing economic interests, the reason why Chile experienced different political regime outcomes in 1931–32 and post-1982 is connected with Pinochet’s U-turn in economic policy. The...