Challenges For Latin American states and public enterprises at the turn of the new millennium.

Author:Vargas Hernandez, Jose Gpe.


This article acknowledges that the last decades of the 20th century have seen the institutions of governance in Latin American countries affected by small macroeconomic achievements and reduced economic growth, and the development of an extremely fragile democracy. The implanting of the new model of neoliberal state consolidation has come at high cost, and has not produced either the expected strengthening in the political, economic and social spheres, or the expected gains in efficiency, equity and freedom. This so-called economic liberalization has generated instability in the structure and functions of the state and public enterprises, limiting the reaches of democracy and legality, and ensuring that the effects of the associated managerial orientation which has transformed public administration are largely negative. Looking forward into the 21st century, a pessimistic prediction is that these tendencies will continue, producing similar unstable mixes of democratic populism and oligarchic pragmatism. More optimistically, the Latin American states may come to see that genuine social development is necessary for sustained economic growth, and introduce policies to achieve that outcome.


Simon Bolivar's early 19th century dream of forming a great nation uniting all Ibero-Americans was the first great Latin American utopian vision. The wave of democracy it produced loaded Latin America with the hope of making one part of the dream a reality. However, recurring economic crises have thwarted that hope. Over two centuries they have hindered the development of the Latin American people and deepened the inequalities and iniquities they suffer.

In the last two decades, Latin America has been passing through a period of multiple transition that affects alike economic, political, social and cultural institutions, all of which are internalizing social costs and the costs of charity, and the values they represent. Decades of external influence in a variety of forms have weakened the institutions associated with the model of the "interventionist state". The outcome has been the conversion of modern institutions into islands that turn out to be inefficient, in part because they are distanced from the society they are supposed to serve and the character and values of that society.

The Public Enterprise Tradition

Two points need to be made immediately about the areas which are of primary concern to this symposium. First, there has been a long public enterprise tradition in Latin America. Second, the nearly world-wide privatization movement has certainly made itself felt in most countries in the region. While the public enterprises have been among the principal targets of the wielders of external influence, it has to be conceded that at least one of the Latin American states needed little persuading to join this movement--indeed, the relevant international literature often points out that the initiatives of the dictator Pinochet in Chile actually preceded those of the Thatcher government in Britain.

In a fairly recent general survey of the pre-privatization public enterprise experience in Latin America, Hopkins (1996: pp. 87, 89, 91, 102; see also 1991) records that, viewed across the region, public enterprises have done practically everything--they have been involved, frequently in commanding positions, in every area of economic activity. Mostly they have taken one or other of the two major forms of corporate organization, the autonomous public corporation or the government-owned company. While Hopkins found it difficult to make generalizations about them, he indicated that many operated with a high degree of autonomy, their managers behaving in most respects like private enterprise managers. Moreover and significantly, "with some exceptions, there is little evidence that state-owned enterprises have been subsidy-supported parasites. On the contrary, many public enterprises have been extraordinarily productive and successful operations and have functioned as dynamic forces in the development process". So, he asked, why sell them off? His answer: he had reason to believe that "some of the movement for privatization was driven politically and ideologically, with minimal analysis of the actual advantages and disadvantages or the costs and benefits", and that, "in several instances, public enterprises were privatized at unrealistic 'bargain basement' prices". He expressed doubts about the outcome of the selling frenzy: "It remains to be seen whether the widespread privatization of state enterprises in Latin America will lead to the economic growth that has been predicted."

The history and condition of Latin American public enterprise has attracted many other scholars, and attention is drawn here to the works of just a few: Boneo, 1983; Cleaves and Scurrah, 1980; Colburn, 1990; Escobar, 1982; Larrain and Selowski, 1991; Saravia, 1987; Saulniers, 1984, 1985; Trebat, 1983. The autonomy of the enterprise managements has been a recurring theme. It was noted by Hopkins and is often connected to notions of cronyism through presidential control of appointments to corporate boards, though it may serve other important purposes. Thus Seidman (1954: p. 184) wrote, at a time when the United Nations was just beginning to note the important role of public enterprises in economic development, that

The theory of the autonomous corporation was seized upon in Peurto Rico and many Latin American countries as a method for solving a number of practical financial and budgetary problems. The fiction that public enterprises were somehow extragovernmental provided a convenient device for avoiding statutory or constitutional limitations on the government's borrowing authority and restrictive budget laws requiring that revenues and expenditures be balanced in any given fiscal year. In addition, public corporations engaged in revenue-producing enterprises often had a better credit standing than the government itself and could more readily borrow funds from foreign sources at reasonable rates. In return, lenders generally insisted as a condition of the loan that the corporation be given a high degree of autonomy so as to protect it against "political" interference and any diversion of corporate funds. Sometimes profligacy resulted and the activities of the public corporations led to dramatic increases in public debt; also, by Western standards, there may often have been insufficient accountability. But there were also significant achievements: thus a study of the Nicaraguan situation published with the Hopkins survey noted above points to an innovative, society-centered and participatory approach to public enterprise by the Sandanista regime in that country which had some impressive results and deserves further study as we contemplate the future, but which was thwarted by US President Reagan's determination to destroy the Sandinistas (Riposa, 1996).

Through the early 1990s, Galal of the World Bank coordinated a project to undertake case studies of privatizing action in four countries, and several significant publications resulted (Galal and Shirley, 1994; Galal, Jones, Tandon and Vogelsang, 1994). Mexico and Chile were among the countries studied, and close attention was given to three privatized enterprises in each of them. For Mexico, divestiture was seen as an instrument to promote stability. But for Chile, the study highlighted the political agenda involved, for the enterprises sold by the Pinochet regime were judged to be efficient in public ownership and already operating in well-regulated markets. Generally the case studies demonstrated the great difficulty in measuring outcomes of the public-to-private ownership change: while suggesting that the outcomes were probably beneficial overall to the countries concerned, they highlighted the problem that there were significant losers among the various stakeholder groups.

Some economic indicators of the scale of the privatizing movement in Latin America are provided below, along with comments on its social effects.

The Neo-Liberal Transition

The traditional Latin American state was a beneficent state, seeking to offer protection to its people by designing successive answers to problems arising from the changing requirements of the international capitalist environment. The external hegemonic capitalist interests were powerful in influencing the strategies and policies of development of the Latin American states; these influences were defined in a model of industrial import substitution financed by private investments and public indebtedness, with the local state making much use of the public sector to play its part. The public enterprises thrived in this model of the Latin American state based on political populism, economic commercialism and a dual society formed by the dominant Conquistadores (the Conquerors and their descendents) and the indigenous people, displaced from their land, poor and without possibility of participating in government and economic development. Towards the end of the 20th century, however, this state model was evidencing its exhaustion, its weakness marked by excessive bureaucratization, corruption and inefficiency of the administrative apparatus, deficit budgets and macroeconomic instability. In particular, the subordinate part played by the Latin American state in the emerging globalization processes was producing brutal external indebtedness.

Latin America was subordinated consciously to the politics of the Washington Consensus, to the processes of economic integration and the opening-up of markets under the pressure of foreign debt. Under the ideology of neoliberalism, this Consensus prescribes commercial and financial liberalization, the privatization of public enterprises, balanced budgets, floating exchange rates, etc., all as an assumed base for economic growth. The neoliberal model constrains the state to a new function of facilitating...

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