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Political Bias in Policy Convergence: Privatization Choices in Latin America

  • M. Victoria Murillo (a1)

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Since the early 1980s privatization has spread in Latin America under both right-wing rulers and populist presidents. This regional convergence toward privatization seemed to announce the end of partisan policy-making. However, not all governments implement privatization in the same way even in the context of policy convergence. Technocrats propose similar policy options in countries where capital dearth creates pressures for convergence. Yet politicians build the electoral and government coalitions that make these policies possible, and their preferences shape the institutions chosen at implementation. The “bias” introduced by politicians depends on their prior beliefs and constituencies, which shape their institutional preferences. Beliefs about economic nationalism and state intervention influence the selection of regulations at the time of privatization, whereas coalition buildingwith political constituencies shapes the definition of selling conditions in privatized companies. This “political bias,” which is contingent on the privatizing government, explains that the regional policy convergence toward privatization did not extend to its implementation. That is, although politicians may be losing influence about whether to privatize, they still have a say in the choice of how to privatize. This article analyzes the impact of this “political bias” by focusing on the choice of regulatory institutions and selling conditions in five cases of privatization of electricity and telecommunications in Latin America.

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1 See Megginson, William and Netter, Jeffrey, “From State to Market: A Survey of Empirical Studies in Privatization,” Journal of Economic Literature 39 (June 2001). According to Nancy Brune and Geoffrey Garrett, Latin America accounted for 56.4 percent of the privatization revenue in current U.S. millions of dollars for the 1988–98 period; see Brune and Garrett, “The Diffusion of Privatization in the Developing World” (Paper presented at the annual meeting of the American Political Science Association, Boston, August 31—September 3,2000).

2 “The combination of large investments in durable, specific assets and strong politicization means that utilities are particularly vulnerable to administrative expropriation of their vast quasi-rents”; Levy, Brian and Spiller, Pablo, “Introduction,” in Levy, and Spiller, , eds., Regulations, Institutions and Commitment: Comparative Study of Telecommunications (Cambridge: Cambridge University Press, 1995), 3. Technological changes, however, have recently permitted competition in telecommunications. Competition in electricity generation is therefore spreading, although investments are high, durable, and immovable. “In the cases of transmissions and distribution, economies of scales and high sunk costs create conditions of natural monopoly, where a single network of facilities can provide transmission or distribution services more efficiently than duplicative systems”; Ruffin, Carlos, “The Political Economy of Institutional Change in the Electricity Supply Industry” (Ph.D. diss., Harvard University, 2000), 113.

3 Hirschman, Albert, “The Political Economy of Import-Substituting Industrialization in Latin America,” Quarterly Journal of Economics 84 (February 1968).

4 See Evans, Peter, Dependent Development (Princeton: Princeton University Press, 1979); Haggard, Stephan, Pathways from the Periphery (Ithaca, N.Y.: Cornell University Press, 1990); and Sikkink, Kathryn, Ideas and Institutions (Ithaca, N.Y.: Cornell University Press, 1991). The national-populist and developmentalist policies differ in their support for light (horizontal) or heavy and basic (vertical) industrialization.

5 Edwards, Sebastian, Crisis and Reform in Latin America (Oxford: Oxford University Press, 1995), 71.

6 Robert Bates provides a theory about the use of state subsidies and state-owned enterprises to build governing political coalitions and applies it to Africa; see Bates, , Markets and States in Tropical Africa (Berkeley: University of California Press, 1981). Barry Ames and Barbara Geddes use arguments of this type to explain the preference of Latin American politicians for allocating resources through political bargaining to provide rents to constituencies and build political coalitions. See Ames, , Political Survival (Berkeley: University of California Press, 1987); and Geddes, , Politician's Dilemma: Building State Capacity in Latin America (Berkeley: University of California Press, 1994).

7 Armando Castelar Pinheiro and Ben Ross Schneider, Leslie Armijo, and Sylvian Turcotte and Philippe Faucher emphasize the financial urgency of governments in terms of fiscal revenue and credit availability in explaining Latin American privatization. See Pinheiro, and Schneider, , “The Fiscal Impact of Privatization in Latin America,” Quarterly Review of Economics and Finance 34 (Summer 1994); Armijo, , “Balance Sheet or Ballot Box? Incentives to Privatize in Emerging Democracies,” in Oxhorn, Philip and Starr, Pamela, eds., Markets and Democracy in Latin America (Boulder, Colo.: Lynne Rienner, 1999); and Turcotte, and Faucher, , “How Markets and Business Power Influenced Privatization in Latin America” (Manuscript, Department of Political Science, (Universite de Montreal, 1999).

8 See Remmer, Karen, “The Politics of Neoliberal Economic Reform in South America, 1980–94,” Studies in Comparative International Development 33 (Summer 1998); Weyland, Kurt, “Risk Taking in Latin American Economic Restructuring: Lessons from Prospect Theory,” International Studies Quarterly 40 (June 1996); and Stokes, Susan, Mandates and Democracy (Cambridge: Cambridge University Press, 2001).

9 John Williamson coined the term “Washington Consensus” to highlight the influence of ideas and multilateral organizations in policy convergence; Williamson, , The Political Economy of Policy Reform (Washington, D.C.: Institute for International Economics, 1994). Barbara Stallings and John Ikenberry emphasize policy emulation and international influence through multilateral organizations; see Stallings, , “International Influence on Economic Policy: Debt, Stabilization, and Structural Reform,” in Haggard, Stephan and Kaufman, Robert, eds., The Politics of Economic Adjustment: International Constraints, Distributive Conflicts, and the State (Princeton: Princeton University Press, 1992); and Ikenberry, , “The International Spread of Privatization Policies: Inducement, Learning, and 'Policy Bandwagoning,'” in Suleiman, Ezra N. and Waterbury, John, eds., The Political Economy of Public Sector Reform and Privatization (Boulder, Colo.: Westview Press, 1990).

10 Ikenberry (fn. 9) coined the term “bandwagoning” to explain policy emulation with respect to privatization, and Luigi Manzetti explains privatization as “policy substitution” due to the failure of the previous strategy of public enterprises; Manzetti, , Privatization South American Style (Oxford: Oxford University Press, 2000). Williamson (fn. 9) makes a case for the role of international financial institutions in spreading the ideas associated with privatization and other market reforms in what he labeled the “Washington Consensus.” Ben Ross Schneider argues that technocrats are appointed as a signal to investors and international financial institutions, which demand the market-oriented policies; Schneider, , “The Material Bases of Technocracy: Investor Confidence and Neoliberalism in Latin America,” in Centeno, Miguel and Silva, Patricio, eds., The Politics of Expertise in Latin America (London: St. Martin's Press, 1998).

11 Beth Simmons and Zachary Elkin show the effect of economic competition on capital and of religion in the diffusion of economic liberalization policies; Simmons and Elkin, “Competition, Communication or Culture? Explaining Three Decades of Foreign Economic Policy Diffusion” (Manuscript, Department of Political Science, University of California, Berkeley, 2001). Brune and Garrett (fn. 1) suggest that competitive emulation for foreign capital explains that geographic region is the strongest predictor of privatization for a sample of 148 developing countries between 1988 and 1998.

12 Referring to the adoption of Keynesian policies, Peter Hall summarizes an array of empirical studies arguing that “the orientation of the governing party appears to have been the single most important factor affecting the likelihood that a nation would pursue Keynesian policies”; Hall, , “Conclusions: The Politics of Keynesian Ideas,” in Hall, , ed., The Political Power of Economic Ideas: Keynesianism across Nations (Princeton: Princeton University Press, 1989), 376.

13 Boix, Carles, Political Parties, Growth and Equality: Conservative and Social Democratic Economic Strategies in the World Economy (Cambridge: Cambridge University Press, 1998), 8590.

14 Garrett, Geoffrey, Partisan Politics in the Global Economy (Cambridge: Cambridge University Press, 1998); and Iversen, Torben and Wren, Anne, “Equality, Employment, and Budgetary Restraint: The Trilemma of the Service Economy,” World Politics 50 (July 1998).

15 Kaufman, Robert R. and Segura-Ubiergo, Alex, “Globalization, Domestic Politics, and Social Spending in Latin America: A Time-Series Cross-Section Analysis, 1973—97,” World Politics 53 (July 2001).

16 Ikenberry (fn. 9), 95; and Edwards (fn. 5), 174.

17 Stephan Haggard and Robert Kaufman, “Economic Adjustment and the Prospect for Democracy,” in Haggard and Kaufman (fn. 9), 27.

18 The degree of executive concentration of power required for reforms was never specified but it ranged from authoritarianism to “delegative democracy”—lacking checks and balances on the power of the executive according to Guillermo O'Donnell—to strong presidents with ample decree power; O'Donnell, , “Delegative Democracy,” Journal of Democracy 5 (January 1994). When Congress was included in the picture, partisan discipline in the legislature was deemed crucial.

19 Manzetti (fn. 10) points to five key factors regarding government capabilities for privatization: a cohesive economic team, technical and administrative capabilities, bureaucratic cooperation, concentrated executive authority, and speed (p. 13). Ana Margheritis makes a case for strong presidential leadership as a key variable in explaining the Argentine privatization process in general; see Margheritis, , Ajuste y reforma en Argentina (1989–1995) (Buenos Aires: Nuevohacer, 1999). Walter Molano and Ben Alfa Petrazzini also emphasize this variable to explain the success of telecommunications' privatization in their comparison of Argentina, Mexico, and Brazil; Molano, , The Logic of Privatization: The Case of Telecommunications in the Southern Cone of Latin America (Westport, Conn.: Greenwood Press, 1997); and Petrazzini, The Political Economy of Telecommunications Reform in Developing Countries: Privatization and Liberalization in Comparative Perspective (Westport, Conn.: Praeger Publishers, 1995).

20 The literature on privatization in the former socialist countries arrives at a similar conclusion regarding the concentration of benefits from privatization. See, in particular, Joel Hellman's provocative argument about how the sequencing of reforms generates arbitrage opportunities between the reformed and unreformed sectors. These opportunities allow winners to take large rents, thus provoking their later opposition to the continuation of reforms that would reduce such rents; Hellman, , “Winners Take All: The Politics of Partial Reform in Postcommunist Transitions,” World Politics 50 (January 1998).

21 Teichman, Judith, The Politics of Freeing Markets in Latin America (Chapel Hill: University of North Carolina Press, 2001); and Schamis, Hector, Re-Forming the State: The Politics of Privatization in Latin America and Europe (Ann Arbor: University of Michigan Press, 2002).

22 Murillo, Maria Victoria, Labor Unions, Partisan Coalitions and Market Reforms in Latin America (Cambridge: Cambridge University Press, 2001).

23 On partisan coalitions and market reforms, see Gibson, Edward L., “The Populist Road to Market Reform: Policy and Electoral Coalitions in Argentina and Mexico,” World Politics 49 (April 1997). Teichman (fn. 21) discusses “policy networks” with regard to privatization in Latin America.

24 Gibson (fn. 23) and Javier Corrales claim that party concessions and the resulting “illiberal lacunae” are necessary for the occurrence of market reforms; Corrales, , “A Theory on the Politics of Economic Reform in Latin America,” Comparative Politics 32 (January 2000).

25 See Hall (fn. 12); and on the relationship between parties, interests, and ideas, see Peter Gourevitch, “Keynesian Politics: The Political Sources of Economic Policy Choices,” in Hall (fn. 12).

26 Gómez-Ibáñez, José, “The Future of Private Infrastructure: Lessons from the Nationalization of Electric Utilities in Latin America, 1943–1979,” Working Paper (Cambridge: John F. Kennedy School of Government, Harvard University, January 1999).

27 See Boix (fn. 13); and Garrett (fn. 14).

28 For the argument about delegation and electoral competition, see Moe, Terry, “The Politics of Structural Choice,” in Williamson, Oliver E., ed., Organization Theory: From Chester Barnard to the Present and Beyond (Oxford: Oxford University Press, 1990). D. Michael Shafer argues that in sectors with high sunk costs, the specialization of the regulators tends to align their interests with those of the industry. If the winners of privatization are government allies, the creation of separate regulators also furthers their common interests with privatizers after the latter leave power; Shafer, , Winners and Losers: How Sectors Shape the Developmental Prospects of States (Ithaca, N.Y.: Cornell University Press, 1994).

29 Whereas some of the winners take advantage of the opportunity based on their economic positioning at the time of privatization, other “unexpected” winners are not strong enough to extract concessions in all cases but only when they belonged to the government coalition.

30 In denning class constituencies of political parties, Edward Gibson differentiates voters from core constituencies. He notes that “a parry's core constituencies will be more important to the shaping of the party political agenda, particularly for high-stake issues, than noncore constituencies. They will also play a more important role in the provision of financial and ideological resources . . . its relationship with its core constituency is the most important of its capacities for becoming a viable political contender”; Gibson, , Class and Conservative Parties (Baltimore: Johns Hopkins University Press, 1996), 10.

31 For a view of populist parties as multiclass coalitions, see Conniff, Michael, “Introduction,” in Conniff, , ed., Populism in Latin America (Tuscaloosa: University of Alabama Press, 1999). See Gibson (fn. 23) for an application of these coalitions to the studied period.

32 Scott Mainwaring and Timothy Scully analyze the weak institutionalization of party systems; Mainwaring and Scully, “Introduction: Party System in Latin America,” in Mainwaring, and Scully, , eds., Building Democratic Institutions (Stanford, Calif.: Stanford University Press 1995).

33 In contrast to the telecommunications case, President Salinas did not intend to privatize electricity because of an electoral agreement with his labor allies in the electricity sector who opposed privatization. PRl ideological resistance to energy privatization was still reflected in its electoral platforms for the 1994 and 2000 presidential campaigns. This article focuses only on privatization that has already occurred, thus excluding this case.

34 “Countries from the Americas were among the first to sell state-owned carriers to foreign investors, and among these, developing nations such as Argentina, Chile, and Mexico sold controlling share of incumbent carriers to strategic investors”; Trends in Telecommunications Reforms (Geneva: International Telecommunications Union, 1998), 9.

35 Ruffin (fn. 2) also finds a strong regional effect for electricity privatization in Latin America for a sample of seventy-five countries.

36 The Pedersen index measures the volatility of the vote of parties and provides some idea of the links between them and society. The party systems of Argentina, Chile, and Mexico, however, are among the most institutionalized in the region. Their lower levels of electoral volatility since their democratic transition reflect their strong links with societal constituencies; Mainwaring and Scully (fn. 32), 17.

37 Weldon, Jeffrey, “Political Sources of Presidencialismo in Mexico,” in Mainwaring, Scott and Shugart, Matthew S., eds., Presidentialism and Democracy in Latin America (Cambridge: Cambridge University Press, 1997).

38 Mark Jones, “Evaluating Argentina's Presidential Democracy,” in Mainwaring and Shugart (fn. 37). The privatization of telecommunication was done by decree based on a law approved by the Peronists with quorum of the main opposition party (the Radical Civic Union or UCR) resulting from a pact between the outgoing president Raul Alfonsin and the incoming president Menem. This pact moved up the inauguration date due to a hyperinflationary crisis. The privatization of electricity was approved by Congress in 1992 despite the opposition of UCR and left-wing legislators.

39 “Privatization was not carried out because of a need to relieve the burden of state enterprises' deficits; that problem was resolved relatively quickly after the 1973 coup. Rather, the Chicago Boys were committed to a vision of a decentralized and privatized economy as morally, politically, and economically superior to the long Chilean tradition of state intervention”; Paul Sigmund, “Chile: Privatization, Reprivatization, Hyperprivatization,” in Suleiman and Waterbury (fn. 9), 359–60. See also Silva, Patricio, “Technocrats and Politics in Chile: From the Chicago Boys to the CIEPLAN Monks,” Journal of Latin American Studies 23 (May 1991); and Aldunate, Arturo Fontaine, Los Economistas y el Presidente Pinochet (Santiago: Zig-Zag, 1988).

40 Eduardo Silva describes the rise of the Chicago-trained economists, supported by the three largest conglomerates (Banco Hipotecario, Cruzat-Larrain, and Matte), to the top of economic policymaking in Chile; Silva, , The State and Capital in Chile (Boulder, Colo.: Westview Press, 1996).

41 Carlos Huneeus shows that the civilians in Pinochet's coalition included not just the technocrats and conglomerates but also the gremialistas of the traditional right, whose common project with the technocrats was established at the Catholic University. The main leader of the gremialistas was Jaime Guzman, the main adviser to Pinochet on legal and political issues; Huneeus, , “Technocrats and Politicians in an Authoritarian Regime: The 'Odeplan Boys' and the 'Gremialists' in Pinochet's Chile,” Journal of Latin American Studies 32 (May 2000).

42 When Pinochet was president, the coalition was political rather than partisan. However, the coalition resulted in a revamping of right-wing parties in Chile with the creation of UDI and emergence of National Renovation out of the traditional right. If the right-wing coalition of UDI and National Renovation wins the next presidential elections in Chile, their political bias in policy-making should have similar institutional preferences but would be of clearly partisan character.

43 Schamis (fn. 21) argues that the ideas of the Chicago Boys facilitated Pinochet's consolidation of his internal rule within the armed forces, thereby increasing their influence in defining policy-making. Their main economic program, labeled “the brick,” was strongly antistatist and pro-free markets. See Elladrillo: Bases de lapolitica economica delgobierno mihtar chileno (Santiago: Centro de Estudios Publicos, 1992).

44 Hachette, Dominique and Luders, Rulf, Privatization in Chile (San Francisco: International Center for Economic Growth, 1993), appendix A.

45 Ibid., 117.

46 Cortázar, René, “Chile: The Evolution and Reform of the Labor Market,” in Edwards, Sebastian and Lustig, Nora, eds., Labor Markets in Latin America (Washington, D.C.: Brookings Institution Press, 1997).

47 Pinochet abolished nontariff barriers, reduced tariffs to an average of 10 percent, and cut tariff dispersion; Meller, Patricio, Un sigh de economía político chilena (1890–1990) (Santiago: Editorial Andres Bello, 1996), 63. Conservative president Jorge Alessandri (1958–64) had already attempted a modest process of trade liberalization and state retrieval, showing the long-term commitment of the Chilean right to the market as the best method for resource allocation.

48 Hacherte and Luders (fn. 44), 104–5.

49 Cited in Bitrán, Eduardo and Sáez, Raúl, “Privatization and Regulation in Chile,” in Bosworth, Barry, Dornbusch, Rudiger, and Labán, Raúl, eds., The Chilean Economy: Policy Lessons and Challenges (Washington, D.C.: Brookings Institution, 1994), 342.

50 In his electoral program, Lineamientos Fundamentales del Programa de Gobierno (Santiago, 1989), Pinochet's former finance minister and presidential candidate Hernan Büchi emphasized the achievements of the military regime in terms of expanding economic freedoms and efficiency based on the development of the market economy and found no fault in the regulation and privatization of public utilities despite the criticisms in the electoral program of his main contenders; Concertación de Partidos por la Democracia, “Programa de Gobierno” (Santiago: Documentos La Epoca, 1989).

51 Gibson (fn. 23); Leon, Samuel, “Del partido de partidos al partido de sectores,” in El partido en El poder (Mexico City: Iepes, 1990).

52 Collier, Ruth and Samstad, James, “Mexican Labor and Structural Reform: New Unionism or Old Stalemate?” in Roett, Riordan, ed., The Challenge of Institutional Reform in Mexico (Boulder, Colo.: Lynne Rienner, 1995); Bruhn, Kathleen, “Social Spending and Political Support: The 'Lessons' of the National Solidarity Program in Mexico,” Comparative Politics 28 (January 1996); Vega, Carlos Alba, “Los empresarios y el estado durante el Salinismo,” Foro International 36 (January 1996).

53 Lustig, Nora, “Equity and Growth in Mexico,” in Teitel, Simon, ed., Towards a New Development Strategy for Latin America (Washington, D.C.: Inter-American Development Bank, 1992), 244.

54 This legislation makes Mexico one of the most rigid labor markets in Latin America (the fifth most rigid) according to the index presented in Heckman, John and Pages, Carmen, “The Cost of Job Security Regulation: Evidence from Latin American Labor Markets,” Economia, the Journal of the Latin American Economic Association 1 (Fall 2000).

55 Lustig (fn. 53), 244; and Gereffi, Gary and Evans, Peter, “Transnational Corporations, Dependent Development and State Policies in the Semiperiphery: A Comparison of Brazil and Mexico,” Latin American Research Review 16, no. 3 (1981).

56 Aspe, Pedro, El camino mexicano de la transformatión económica (Mexico City: Fondo de Cultura Económica, 1993), 137–39; Gereffi and Evans (fn. 55).

57 Between 1980 and 1982 the transfers from the federal budget to the state-owned enterprises were 3.6 percent of GDP. The pressure from the fiscal deficit along with the decline in oil prices in 1981 and the end to foreign financing in 1982 brought about the decision to start privatizing; Rogozinski, Jacques, La privatizatión en México: Razones e impactos (Mexico City: Trillas, 1997), 101–2,110.

58 Cited by Centeno, Miguel A., Democracy within Reason (University Park: Penn State University Press, 1994), 194–95.

59 Ibid., 195.

60 Gibson (fn. 23); Murillo (fn. 22).

61 Petrazzini (fn. 19), 111.

62 During Perón's administration (1945–55) the national civil service expanded from 203,300 to 394,900; McGuire, James, Peronism -without Perón (Stanford, Calif.: Stanford University Press, 1997), 58. The IADB index mentioned in fn. 54 ranks Argentina's labor laws as more rigid than those of Mexico.

63 “He expanded credit to industry, raised tariffs, nationalized foreign trade, and directed foreign exchange to industry through a state agency called the Argentine Institute for Trade Promotion (iAPl)”; McGuire (fn. 62), 58. Yet Perón also tried to attract foreign capital to promote the development of an automotive industry and also signed petroleum exploration contracts with Standard Oil in 1955, which were highly criticized by nationalist groups (pp. 71–72).

64 See Sturzenegger, Federico, “Description of a Populist Experience: Argentina,” in Dornbusch, Rudiger and Edwards, Sebastian, eds., The Macroeconomics of Populism in Latin America (Chicago: Chicago University Press, 1990). The previous military government showed a higher level of economic nationalism by passing a “buy Argentine” law, which required that the public sector buy goods of local origin and discriminated against foreign-owned companies; Schenone, Osvaldo, “Public Sector Behavior in Argentina,” in Larraín, Felipe and Selowsky, Marcelo, eds., The Public Sector and the Latin American Crisis (San Francisco: International Center for Economic Growth, 1991), 15.

65 Although Peronist legislators had opposed previous privatization attempts under a Radical president, the economic crisis reached a peak in 1989, when the GDP dropped by more than 6 percent and the annual rate of inflation surpassed 3,000 percent. Menem's electoral program did not announce his intention to implement market reforms, including privatization.

66 Menem, Carlos and Dromi, Roberto, Reforma del estado (Buenos Aires: Ediciones Ciudad Argentina, 1997), 109, emphasis in the original; translation by the author.

67 Ibid., 42–43.

68 Justicialista, Partido, “Plataforma electoral: 10 compromisos y 100 medidas para una Argentina mejor” (Buenos Aires: Partido Justicialista, 1999). Yet there were no explicit links to national sovereignty as in Mexico.

69 The 1978 Supreme Decree 423 of the Ministry of Transportation and Communications explicitly guaranteed the participation of foreigners in the industry.

70 Bernstein, Juan Sebastian, “Establecimiento de una política energética basada en el funcionamiento de los mercados competitivos y en la participatión privada,” Working paper (Santiago: CEPAL, 1995).

71 The 1987 telecommunications law gave ten years before the application of maximum terms of two years to provide services in the self-defined areas of concession for providers, although they could charge customers in advance for the cost of investments necessary for the installation of the service. The pending demand for telephone services increased after privatization, in particular between 1988 and 1992; Jose Ricardo Melo, “La liberalization y la privatizatión de las telecomunicaciones” (Manuscript, University of Chile, 1993).

72 The SUBTEL was created in 1977 and the CNE in 1978 as part of the restructuring of industries that preceded privatization. Both were part of executive ministries. The new telecommunications regulations of 1987 did not establish an independent regulator either, although the United Kingdom had already created OFTEL, providing some international experience in this area. The antiregulatory stance was maintained by right-wing legislators who hindered the efforts of subsequent center-left administrations to create separate regulatory agencies in these industries.

73 These mutual funds had emerged from Pinochet's privatization of social security, thus Unking the outcomes of both reforms.

74 These three corporations emerged from the division of the state-owned distribution company Chilectra before privatization. Enersis also acquired control over Endesa, in charge of 60 percent generation and 100 percent transmission in the interconnected central system (sic), which accounts for 80 percent of installed capacity in the country. Mutual funds had the majority of shares but lack voting rights, whereas the small percentage of stockholders with voting rights were mostly former government officials and managers. The head of the Enersis group, José Yuraszeck, had been in the government planning agency and was then appointed as CEO of Chilectra before its privatization. The head of Gener, Bruno Phillipi, had led the National Energy Commission in charge of electricity privatization; Moguillansky, Graciela, La inversion en Chile: el Jin de un ciclo en expansion? (Santiago: CEPAL, 1999), 190. Gonzalo Ibañez Langlois from Chilquinta collaborated with Jaime Guzmán in the drafting of the 1980 constitution. Other former government officials also joined the boards of these companies: former minister José Piñeira became the president of Chilectra, former minister Hernán Errázuriz was on the board of Enersis, and former minister Eduardo Undurraga was on the board of Entel; Schamis (fn. 21), 66.

75 A former minister of Pinochet calculated the subsidy implicit in the privatization of electricity distribution as 32 percent for Chilmetro (Enersis), 25 percent for Chilquinta, and 22 percent for Gener, Hachette and Luders (fn. 44), appendix 2. Robert Devlin and Rosella Cominetti calculate for the sale of Endesa subsidies ranging from 7 to 20 percent for public employees, military, small investors, and company employees; Devlin and Cominetti, “La crisis de la empresa publica, las privatizatiories y la equidad social,” Working Paper (Santiago: CEPAL, 1994). The former head of the Mexican Privatizing Unit, Jacques Rogozinski (fn. 57), criticizes the system, arguing that the poor did not receive ownership under “popular capitalism” and explained that for that reason it was not used in Mexico (p. 122).

76 The navy received shares in the local company CTC and the army in the long-distance one ENTEL; Melo (fn. 71), 93.

77 In 1996 the largest twenty public companies of Chile included Endesa (second), CTC (fifth), Enersis (sixth), Chilgener (seventh), and Entel (eighteenth). Fazio, Hugo, Mapa actual de la extrema riqueza en Chile (Santiago: Lorn, 1997), 31.

78 The privatization limited foreign capital control of telecommunications and endowed the controller of 20.4 percent of Telmex shares, labeled double A, with management voting rights requiring that 51 percent of those should be Mexican-owned. This restriction on foreign capital also gave an advantage to Mexican business sectors. The 1995 Federal Telecommunication Law also restricted foreign ownership to 49 percent.

79 Judith Mariscal argues this point, that in addition to the fiscal arguments supporters of a national monopoly and restriction to foreign control believed in the idea of a “national champion”; Mariscal, , Reform in Mexico Unfinished Business: Telecommunications (Westport, Conn.: Greenwood Press, 2002). My own interviews with supporters and opponents of the idea confirm this theory.

80 Personal interviews with former secretary of communication and transportation, Carlos Ruiz Sacristan, Mexico City, January 18,2001; Undersecretary Carlos Cassassus, Mexico City, December 8, 2001; and their main economic adviser, Rafael Del Villar, Mexico City, December 6, 2001. Although the law was passed during the administration of PRI president Ernesto Zedillo, it was drafted under Salinas.

81 Although Cardenas was the candidate of the FDN (National Democratic Front), his positions still commanded PRI support. Salinas thus had to demonstrate the electoral popularity of his promarket policies to his own party activists. According to Kessler, Salinas also used the financial resources of banking privatization for social policies that would give him electoral returns; see Kessler, Timothy, “Political Capital: Mexican Financial Policy under Salinas,” World Politics 51 (October 1998). The instrument was the National Solidarity Program (Pronasol), which was targeted at competitive districts. The returns of Telmex's sale in 1990 were 1.19 percent of GDP and were used to pay internal public debt, thus liberating resources for social spending. Rogozinski (fn. 57), 150; Mariscal (fn. 79), 74.

82 In addition to the nationwide local concession, TELMEX was given a nationwide mobile concession, a long-distance monopoly until 1997, and the microwave company Telex of Mexico, thus increasing the value of the company. According to personal interviews with the officials involved in the sale both in the secretary of finance and in the secretary of communications and transport, the maximization of fiscal revenue explains this arrangement.

83 Rogozinski (fn. 57), 126.

84 CARSO CEO Carlos Slim ranked as the fifty-fourth wealthiest person in Mexico during the 1980s; by 1999, according to Forbes magazine, he had become the wealthiest person in Mexico and Latin America and the seventeenth wealthiest in the world; Mariscal (fn. 79), 75. Originally a broker, his fortune grew by selling dollar-denominated government bonds during the 1980s.

85 The union leader Francisco Hernandez Juarez was a supporter of privatization and a close ally of Salinas. Murillo (fn. 22), 117–19; Clifton, Judith, The Politics of Telecommunications in Mexico (London: Macmillan Press, 2000), chap. 5.

86 In spite of the autonomous institutional design described by Santiago Urbiztondo, Daniel Artana, and Fernando Navajas, the agency was often put into receivership due to regulatory conflicts with the executive in the postprivatization period; Urbiztondo, Artana, and Navajas, “La autonomía de los entes regulations argentinos: Aguas y cloacas, gas natural, energía electrica y telecomunicaciones,” Working Paper no. 340 (Washington, D.C.: Inter-American Development Bank, 1998).

87 The tender terms included a bid for sovereign debt besides the cash requirements. This debt swap contributed to improve the credit rating of Argentina and facilitate its access to private capital markets.

88 The value of sovereign bonds in secondary markets had grown from 12 percent in 1989 to 70 percent its nominal value in 1994; Statistical Abstract of Latin America 29, 31 (1995), pt. 2. By contrast, the public foreign debt increased from 61.3 million dollars in 1991 to 99.7 million dollars in 1995, when Menem ended his first term, and 148.2 million in 1999, at the end of his second term. These funds, in addition to the revenue from privatization, paid for the increase in provincial expenditures and personnel, which sustained Menem's political coalition. See Werner Baer, Pedro Elosegui, and Andrés Gallo, “The Achievements and Failures of Argentina's Neo-Liberal Economic Policies,” Oxford Development Studies (forthcoming); and Gibson, Edward and Calvo, Ernesto, “Federalism and Low-Maintenance Constituencies: Territorial Dimensions of Economic Reform in Argentina,” Studies in Comparative International Development 35 (Fall 2000).

89 Each company was granted half of the country for local communications, and they shared a common company for long distance (Telintar) and another for mobile communications (Miniphone) until the opening of the market. Their monopolies were established for seven years with three additional years if the companies complied with investment targets.

90 Law 23,696 of 1989 and decrees 59 and 62 of 1990 established transfer of companies to the provinces, as well as subsidies for cooperatives, for programs of employee-owned stock, user-owned stock, and for producers of products or services in the industry of the state-owned company. The union charged a fee for the administration of workers' shares.

91 Murillo (fn. 22), 160–64.

92 The Argentine companies diversified to various industries in addition to public utilities. In the studied privatizations, Astra participated in electricity, Techint in telecommunications and electricity, Perez Companc in telecommunications and electricity, and Clarin in telecommunications. The former three had been traditional state suppliers, whereas the last one originated in a newspaper that had received subsidized paper from the state. The thirty conglomerates emerging from privatization (mostly transnational) represented 17.7 percent of sales and 34.3 percent of benefits of the largest two hundred companies in 1995. Within those, the nine domestic conglomerates that participated in privatization accounted for only 4.3 percent of the sales, but 14.6 percent of benefits; Azpiazu, Daniel, “Elite empresaria en la Argentina,” Working Paper no.7 (Buenos Aires: Flacso, 1997), 53.

93 For the role of the provincial bosses on the Peronist coalition, see Gibson and Calvo (fn. 88).

94 Diffusion and technology arguments assume an effort to improve efficiency by attracting capital and taking advantage of technological changes. Thus, they resonate with the “public interest” theories of regulation based on the solution of market imperfections to improve economic efficiency. See, for instance, Baumol, William, Bailey, Elizabeth, and Willig, Robert, “Weak Invisible Hand Theorems on the Sustainability of Monopoly,” American Economic Review 67 (June 1977).

95 Delia Boylan explains the logic of “institutional insulation” as a strategy taken by authoritarian rulers to ensure policy continuity after they leave office; Boylan, , Defusing Democracy: Central Bank Autonomy and the Transition from Authoritarian Rule (Ann Arbor: University of Michigan Press, 2001). This argument resonates with Moe's (fn. 28) view of insulation as a protection from future policy change in contexts of high party competition.

96 Schamis (fn. 21). His argument resonates with the literature on regulatory capture started by Stigler, George, “The Theory of Economic Regulation,” in Stigler, , ed., Chicago Studies in Political Economy (Chicago: University of Chicago Press, 1988).

97 Alan Gerber and Donald Green discuss the debate between Bayesian learning and selective perception and find more support for the former than for the latter. However, they do not discard the effect of different starting points on the opinions of voters. For instance, Democrats and Republicans systematically have different levels of presidential approval rates even if they all move in the same direction; Gerber, and Green, , “Misperceptions about Perceptual Bias,” Annual Review of Political Science 2, no. 1 (1999).

98 These implications are consistent with the view that regulatory votes in the U.S. Congress are more influenced by party and ideological scores than by interest groups; Noll, Roger, “Economic Perspectives on the Politics of Regulation,” in Schmalensee, R. and Willig, R. D., Handbook of Industrial Organization (Amsterdam: Elsevier Science Publisher, 1989.)

99 “Plantean acotar el dominio de Telmex,” El Universal, April 23,2002.

* I acknowledge the financial support provided by the Junior Faculty Fellowship, the Yale Center for International and Area Studies, the Leitner Program in Political Economy, and the Social Science Research Fund at Yale University. I thank the CEPAL in Santiago, the CIDE in Mexico City, and Universidad de San Andres in Buenos Aires for institutional support. Previous versions of this article were presented at the 2001 annual meeting of the American Political Science Association, the David Rockefeller Center at Harvard University, the Kellogg Institute at the University of Notre Dame, the Institute for Latin American Studies at Columbia University, the Program in Latin American Studies at Johns Hopkins University, and the faculty colloquium at Yale University. For their research assistance, I thank Constanza Di Nucci, Andira Hernandez, Barbara Murphy, Pablo Sandoval, and Catalina Ruiz. For their comments, I thank Arun Agrawal, Robert Bates, Carlos Boix, Ernesto Calvo, Javier Corrales, Keith Darden, Jorge Dominguez, Eduardo Engel, Stephan Haggard, Frances Hagopian, Pauline Jones-Luong, Alvin Klevorick, Margaret Levi, Ellen Lust-Okar, Susan Rose-Ackerman, Carlos Ruffin, and three anonymous reviewers.

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