The Political Economy of Productivity

The Political Economy of Productivity

Actors, Arenas, and Policymaking

Prepared for presentation at Brainstorming Session. IADB February 6, 2009

This research project

• Lies at the intersection of two agendas:

A. 2010 Development in the Americas Report (DIA, ex-IPES) on “Productivity in Latin America”

B. Step in Political Economy agenda at the Research Department IDB1) Political Institutions and Policymaking in L.A.


• Lies at the intersection of two agendas:

A. 2010 Development in the Americas Report (DIA, ex-IPES) on “Productivity in Latin America”

B. Step in Political Economy agenda at the Research Department IDB1) Political Institutions and Policymaking in L.A.

2) Actors, Institutions, and Policymaking in L.A.

• Objectives: – Provide inputs for Chapter 13 of DIA2010

Including (eventually) relevant country level recommendations

– Put together material for a book similar to

– Generate ideas and background material for academic papers



• Now at an intermediate stage in which some inputs are in place– Background paper

• Murillo, Scartascini, Tommasi (2008)

– Drafts of 8 country studies • Argentina, Brazil, Bolivia, Chile, Colombia, Costa Rica,

Mexico, Venezuela

– Other inputs (transversales)

Purpose of this meeting

• Share with a group of distinguished scholars– a sketch of our current ideas– our various doubts

• about the general agenda• about the political economy of productivity

• Get feedback– general methodological and conceptual issues– Latin American cases– broader comparative views

• special emphasis on Asian experiences

• (Possibly) set the basis for future collaborations

Structure of the meeting

• Introduction – Synthesis of framework – Snapshots of country studies

• Discussion of methodological issues– Framework in general– Specific components

• Example: – BRS might provide specifics on articulation of business actors in PMP– PK might provide specifics on clientelistic linkages

• Discussion in comparative perspective – Asian cases from the lens of this framework

• Wrap up session – General discussion of the issues– Planning of next steps

Introduction

THE FRAMEWORK

Productivity

POLICIESPOLICYMAKING INSTITUTIONS

political (State) actors

“Real” Actors

Socioeconomic Structure

PoliticalInstitutions

Inputs from previous literature

“Real” ActorsPOLICYMAKING INSTITUTIONS

political (State) actorsPOLICIES

Productivity



2

4

5

1. Workings of political institutions, PM, and the features of policies

2. Political institutions and policies3. Interest groups and rent-seeking4. Role of veto players in the reform process5. Organization of “real actors”6. Economic structure, interests, social cleavages7. Structure and dynamics of business-State relations

13Reduced form PI

6

7

Inputs from previous literature

“Real” ActorsPOLICYMAKING INSTITUTIONS

political (State) actorsPOLICIES

Productivity



2

4

5

1. Political institutions (wks), PM, and the features of policies2. Political institutions (rules) and policies3. Interest groups and rent-seeking4. Role of veto players in the reform process5. Organization of “real actors”6. Economic structure, interests, social cleavages7. Structure and dynamics of business-State relations

13Reduced form PI

6

7

Productivity



“Real” Actors

THE FRAMEWORK Temporal and causal issues

The current picture



“Real” Actors

Past

Inter-Temporal


Productivity





“Real” Actors

Past

Inter-Temporal

Political Institutions

(rules)

Productivity




“Real” Actors

Status Quo

Productivity

THE FRAMEWORK



“Real” Actors

Alternative arenas

Arenas

Productivity

THE FRAMEWORK



“Real” Actors

Productivity

• Who are they– Where do they come from– Economic structure determinants

• How are they organized– Collective action issues– Level of aggregation and encompassingness

• Which are the instruments through which they might influence the PMP– Votes– Vote mobilization– Information– Campaign finance– Bribes– Threat to disrupt economic activity– Threat to violence

• Which are the venues through which they enter political system and stages of the PMP– Electoral connection– Political party system– The president– Congressmen– National or local level– Bureaucrats– The Judiciary– Formalized “corporatist” arrangements– Back rooms– The street

Real Actors Policymaking Institutionspolitical (State) actors

Policies

• We draw from a large and distinguished literature– Theoretical– American – Comparative– Latin American

• We “put together” country-level equilibria• Various aspects of the workings of these political

systems matter for policymaking (and for policies → productivity)– Do they “invite” encompassing or narrow articulations?– Do they provide for credible intertemporal exchanges?– Do they facilitate informed policymaking?– What type of interest do they tend to favor?– Are these outcomes stable?


Policies

• Can be described by a number of “economic” and “political” characteristics

1. Aggregate effects Productivity enhancing/reducing (Y+/Y-)

2. Its distributional features (who gains/loses)3. Its temporality (how early benefits and cost accrue)4. Other exhange properties5. (Un)certainty about their effects6. Easiness to sell7. Other features

• Are “chosen” in different polities taking these various considerations into account (varying degrees)

Impact on productivity Across countries Across policy areas


Policies Productivity

Different Hypotheses / Theoretical Constructs provide some (partial?) answers:

1) Winners / losers and correlation with Y+/Y-1) Intersectoral2) Interest groups vis a vis “general public”

2) Intertemporal story: longer horizons → Y+3) Status quo properties (Y+/Y-) and veto players4) Certain Y+ public goods may need coordinated action

to be demanded• Economic / geographic structure (and its institutional mediation)

will facilitate that or not

5) Some arenas facilitate exchanges of some policies6) Some political institutions (and modes of organization

of actors) 1) provide more internalization2) more stable arenas of exchange

Another angle of entry

• Country “scripts”• Stories can be told (in principle) from several

angles.• If President is the dominant agenda setter, can

start from there– Preferences– (Stability)– How does put together “real coalitions”– How does he/she exchange with other institutional

players

Introduction to country scripts

• We have tried to come up with some leading questions that may provide hints to more commons scripts

• We have also tried to use graphical representations to put together the stories in a way that is more natural for thinking in terms of equilibrium outcomes

• Some caveats are in order:– We have prepared the following slides based primarily on the country

studies we have, which are still in their infancy– In general, we are taking snapshots at the current situation

• Mexico after democratization• Colombia under Uribe• Recent events in Bolivia• Venezuela under Chavez

– We are highlighting those issues that are more relevant for the comparative exercise and reflect better some of the entry points and doubts we have on the framework

President

Congress

Policies

Actors /

Aggregation

Parties /

Coalition Institutions / Formal Arenas

Status quo

Judiciary

Bureaucracy

Other

Alternative Arenas

Y + Y-

Transaction mechanisms

Articulation

Actors

• Economic structure– How is the economic structure (e.g., concentrated or diversified)?

• Actors– Who are they (e.g., business, unions)?– What are their preferences?– What are their endowments/technologies (e.g.., votes, lobbying,

riots)?• Aggregation

– How are actors aggregated (e.g., are there any peak organizations)?

• Articulation– Do they enter through formal or informal channels (e.g.,

Consultative groups or back rooms)?– How do they influence and at what level (e.g., national/sub-

national level, President, Congress)?

Institutions

• President– What are his/her preferences? What is his/her horizon?– Is he/she the agenda setter?

• Congress– What is the degree of fragmentation and particularism?– Who do they respond to?– What are the preferences of the legislators?

• Political Parties– At what extent are they natural aggregators of the programmatic

interest of the relevant actors? • Other institutional actors

– What is the role of the judiciary?– What is the role and characteristics of the bureaucracy –including

regulatory agencies?– What other actors are important (e.g., Governors, other

subnational agencies, local parties)?

Policies

• Status quo– Is there a relevant status quo?– What is its origin (e.g., previous policies, constitutional

reform)?

• Policies– Are they volatile or stable?– Are they vertical or horizontal?– Are they of national or local scope?– What is their specific content?

Argentina

• Economic structure– Economic structure is diversified. Rural and industrial groups, and

labor unions have had their voice heard over time.

• Actors– Rural associations, Industry, Banks, Unions, Movements

(piqueteros)– They usually demand sectoral benefits (in a reactive fashion)– They cater some money (specific large groups) and lobbying

(associations). Most of them use alternative arenas (e.g., protests)

• Aggregation– Peak associations have seen better days…

• Articulation– Most of the influence is through alternative channels– The Executive is the main point of entry. There is also some

subnational lobby for certain issues.

Argentina• President

– The president usually has a short term horizon which determines her preferences (build political support fast)

– She is the agenda setter• Congress

– Congress is relatively fragmented across parties and subnational constituencies

– They respond first to the governor– They have local preferences (ensure the highest $$ for their state). Party

discipline is higher when president losses popularity and is in free fall.• Political Parties

– Peronist brand relevant across several margins. Political parties (in general) do not aggregate preferences, have low institutionalization and are generally non programmatic

• Other institutional actors– The judiciary has generally been not independent and has not worked to

enforce transactions– The bureaucracy is not professional and volatile– Governors are highly influential in the political game, particularly regarding

fiscal issues

President

CongressPolicies

Actors /

Aggregation

Parties /

CoalitionInstitutions / Formal Arenas

Status quo:

fiscal federalism

Judiciary:

Not independent Bureaucracy:

Unstable

Governors

Alternative Arenas

Y +?

Y-Highly volatile

Vertical (favor those in the changing coalitions)

Uncoordinated

Expropriate those with sunk investmentsArgentina recent

Agenda setter

Ability to transact cheaply unless:Fiscal federalismThey want to throw him out

Short term horizon

FragmentedAllegiance to governorsNon inst and non program

Diversified economic structure

Used to have strong peak associations

Coalitions change:

i) At the President’s whims

ii) Exchage rate policy

Usually reactive

Winners and losers according to relative prices and sunk investments

Voter’s preferences are highly volatile

Peronist

Other

Last ditch veto

U

P

Rural

Ind

Small Bus

urban

Argentina• Policymaking

– Policymaking is very volatile. No intertemporal transactions– Each president builds a different coalition with political and real actors– Use of popular opinion to build support.– Extraction of rents from real actors according to relative prices and sunk

investments.– Real actors not coordinated and volatile. Organizations’ influence

change frequently. Last ditch veto: go to the streets• Status quo

– There is no relevant status quo in most policy domains. • Policies

– Policies are highly volatile– Policies tend to favor those in the coalitions and affect those outside.

Coalitions change frequently, so do the policies.– Fiscal, exchange rate, trade, industrial, and social policies change

frequently and do not necessarily favor productivity gains.

Bolivia• Economic structure

– The economy has been traditionally concentrated in a few sectors– Most labor is in agriculture (40%). The non-labor intensive sectors use

only 10% of workers to generate 50% of GDP. Public monopolies were privatized.

– Reforms promoted wealth in some regions and K-intensive sectors• Actors

– Labor unions, social movements, business associations, and K-intensive businesses

– A high percentage of population used to have no voice• Aggregation

– There are peak associations for labor (strong) and businesses (used to be strong). The last has lost its influence. Eastern (more prosperous) businesses do not participate.

• Articulation– For those “inside” it used to be formalized through the parties and the

coalitions.– Nowadays, influence is mostly through alternative channels– Increasing use of referendums (e.g., change in the hydrocarbon sector

policy)

Bolivia• President

– The president has a short term horizon– He is the agenda setter (nowadays, usually circumventing the formal

channels)• Congress

– Congress used to be the arena of negotiation. It had the ability to decide elections and block initiatives. Presidents had to built coalitions within Congress

– Congress is now more fragmented across parties and subnational constituencies

– Congress has lost its role to the street• Political Parties

– Political parties used to be instrumental for coalition building• Other institutional actors

– The judiciary has generally been not independent– The bureaucracy is in general volatile and non professional– Decentralization has increased the number of actors with influence in

policymaking. Prefectos have gained power as well as root organizations.

President

CongressPolicies

Actors /

Aggregation

Parties /


Status quo:

Judiciary:


Unstable

Alternative Arenas

Y +Wash ConsensusReforms

Y-Pre-crisis policies

Bolivia before Evo

Agenda setter

Ability to make coalitions

Short term horizon

FragmentedCoalitions (Congress pacts)

Low diversificartion

Business and unions are strong before crisis; weak after crisis

U

Bus

Veto

IFIs (post-crisis)

President

CongressPolicies

Actors /

Aggregation

Parties /


Status quo:

Distribution of rents

Judiciary:


Unstable

Alternative Arenas

Y +Social ?

Y-Highly volatile

Uncoordinated

Expropriate

Barriers

Distortions

Bolivia recent

Agenda setter

Low ability to transact

Short term horizon

FragmentedAllegiance to regionsNon inst and non program

Low diversified economic structure

Coalitions are social and geographic

other

MAS

U

Referendum

Bus

Bolivia• Policymaking

– Policymaking has moved from the more formal arenas (particularly Congress) to alternative arenas such as the streets

– There is no ability to conduct transactions among antagonistic groups– Senate tries to block laws put forward by the government– The president circumvents Congress by bringing people to the streets,

calling referendums and constitutional assemblies, and issuing decrees.• Status quo

– Distribution of rents; political organization of the country. • Policies

– Policies are highly volatile– Policies generate distortions and reduce investments:

• Change of contracts and re-nationalization of various previously privatized companies

Brazil

• Economic structure– The economy is highly diversified. Even the large conglomerates

(world scope) are small in Brazil.• Actors

– Big businesses, local business associations, unions … – “Industrial” policy has been always important.– Existence of many entry points. They are now mostly lobbying at

the local level and at the ministries.• Aggregation

– Business actors tend to be associated at the local level (e.g., Sao Paulo manufacturers)

• Articulation– Formal channels are not generalized– They tend to lobby the governor and use certain judiciary venues.

They are not very successful at the national level

Brazil• President

– Presidents care about the “fiscal imperative” and some long term policies– He is the agenda setter and has a medium term horizon– He has strong budgetary powers that make transactions easier and

cheaper.– Hence, he dominates the policymaking process

• Congress– Congress is relatively fragmented. Governing party has to form coalitions – Legislators respond usually to their constituency and try to cater pork

• Political Parties– They aggregate some preferences as they tend to have more natural

ideological constituencies. They are not neither highly institutionalized nor programmatic

• Other institutional actors– The judiciary has become independent and is a good enforcer of the status

quo– The quality of the bureaucracy is mixed across sectors– Governors play a very relevant role at the local level. Similarly, courts and

the tribunais de contas enforce some of the transactions.

President

CongressPolicies

Actors /

Aggregation

Parties /


Status quo:

Constitution of ’88: entitlements everywhere

Judiciary:

Independent

Local and national

Bureaucracy:

Mixed across sectors

Governors

Alternative Arenas

Y +Fiscal sustainability

Stable policies

Y-Highly taxes

Low infrastructure

Brazil recent

Agenda setter

Ability to transact cheaply:High budgetary powers

Fiscal imperative

FragmentedLocal interest

Highly diversified economic structure

Large groups are still relatively small

Organized at the state level

Usually reactive

Voters care about fiscal sustainability and “pork”

Longer term horizon

U

BB

SP1

SP2

Brazil

• Policymaking– President has incentives for financial stability and some long run

policies– Legislators care about pork for locality– Hence, given the president’s tools in the budget process

(contingenciamento) relatively cheap to buy some policies– Business actors are decentralized (Lijphart). Can’t counteract

presidents policies. They act at the local level.• Status quo

– Constitution of ’88 generated a lot of entitlements, hence, huge fiscal burden

– Checks and balances work, hence, no way to evade the constitution

• Policies– Some good policies for productivity: macro stability, better access

to K, trade– Some bad policies: high taxes, low infrastructure

Chile

• Economic structure– The economy is diversified

• Actors– Businesses, unions, etc– Each has their own preferences but they get filtered in the

coalitions– Votes, mobilization, and lobby (policy advice) are their main tool

• Aggregation– Actors are articulated in peak organizations which are part of the

political coalitions

• Articulation– Groups, as part of the political coalitions, are part of the formal

decision making– Their influence goes through the governing coalition and the

opposition in Congress.

President

CongressPolicies

Actors /

Aggregation

Parties /


Policies t-1

Judiciary:

IndependentBureaucracy:

Professional and technical

Alternative Arenas

Y +Almost every policy

Y-Only in some margins when the “wrong” group is over-represented:

Education reform

Corporate governance

Chile today

Agenda setter

High transaction ability

Long term horizon

Low fragmentationInstitutionalProgrammatic


Peak organizations

Coalitions internalize demands

Bus

Bus

V R

U

U

V L

right

left

Chile

• President– The president is the agenda setter and has long term preferences

which are those of the governing coalition– She has extensive powers

• Congress– Fragmentation is low (at the coalition level)– Legislators respond to the party but have some geographical

allegiance– They tend to internalize the long term preferences of the coalition

• Political Parties– Parties are institutionalized and programmatic

• Other institutional actors– Independent judiciary– Stable and capable bureaucracy– Think tanks provide sound (even if bias for their cause) advice

President

CongressPolicies

Actors /

Aggregation

Parties /


Policies t-1

Judiciary:



Alternative Arenas



Education reform


Chile today

Agenda setter


Long term horizon



Peak organizations


Bus

Bus

V R

U

U

V L

right

left

Chile

• Policymaking – History, institutions, and transitional issues lead to very

institutionalized PMP– Real actors are part of the governing coalitions– Mostly, business are in one coalition and labor in the other.– Most transactions take place within the coalitions, which

internalize the benefits and costs. – Then, it is easy to make transactions across coalitions

• Status quo– Previous policies matter (as long as there is no clear consensus

that they have to be changed).• Policies

– Very good for most policies Y+ over the last several years (number 1 in comparative perspective)

– Limits seen today in some policy margins in which winners of the status quo are overrepresented within each coalition, becoming veto players.

President

CongressPolicies

Actors /

Aggregation

Parties /


Policies t-1

Judiciary:



Alternative Arenas



Education reform


Chile today

Agenda setter


Long term horizon



Peak organizations


Bus

Bus

V R

U

U

V L

right

left

Colombia• Economic structure

– Increasingly diversified economic structure • Actors

– Big economic groups, peak associations, Fedecafe, ANDI, unions (5% of labor force), think tanks, universities, armed groups.

– In general, they tend to look for long term economic prosperity and sectoral benefits

– They are increasingly using direct lobby and campaign financing (senators).

• Aggregation– Actors are articulated in peak associations. The number has grown

substantially. Economic groups have relevance in the associations. Fedecafe maintains differential access

• Articulation– They enter through two main channels: i) consultative groups; ii) direct

contact with president and/or legislators– Best entry point: the President.

Colombia

• President– He has a medium term agenda– He is the agenda setter– He has limited currencies for making transactions with Congress

• Congress– It has become increasingly fragmented and more competitive– Legislators tend to have a regional interest– As campaign contributions have become more important their

allegiance has shifted• Political Parties

– They used to be more institutionalized• Other institutional actors

– The judiciary is independent and enforces the status quo– The bureaucracy is generally competent and stable– Think tanks are very relevant and provide HK for the technocracy

President

CongressPolicies

Actors /

Aggregation

Parties /


Status quo:

Judiciary:



Alternative Arenas

Y +

Y-

Colombia before

Agenda setter

Higher transaction ability

“Medium term” horizon

Lower fragmentation

Low diversification

Small number of peak associations

Fedecafe had formal gravitas

Executive

Coffee

SMB

ANDI

Institutionalized parties

President

CongressPolicies

Actors /

Aggregation

Parties /


Status quo:

Entitlements and fiscal policy

Judiciary:



Armed conflict

Alternative Arenas

Y +Horizontal policies

Generalized trade agreements

Deregulation

Y-Vertical policies

Sector specific tariffs and subsidies

Import quotas

Tax exemptionsColombia today

Agenda setter

Limited transaction ability


Increasingly fragmentedMore competitiveCampaign contrib matter

Increasingly diversified economic structure

Increase number of peak associations

Increasing relevance of economic groups vis a vis peak organizations

Group sector-region matters

Fedecafe still has formal gravitas and HK (3000 people)

EconGroups Councils

Coffee

SMB

U

Colombia

• Policymaking – The relationship between businesses and the governments had

been highly institutionalized. – Big plan OK– Starting after the constitutional change (‘92): Fragmentation of

politicians, reduced mechanisms of exchange, increase of independence of judiciary

– It generated: Multiple entry points, increase of vetoes• Status quo

– The Constitution generated big entitlements• Policies

– Several sectoral policies Y+– High rigidity of the budget (they can’t increase T so increased

deficit)– In some sectors, they can’t make reforms– Some good intentions get lost during implementation

Costa Rica

• Economic structure– Economic structure has become more diversified.

• Actors– Political parties, unions, foreign business– Their main tools are law, decentralized institutions, riots and

political agreements

• Aggregation– Multiparty political system, non aggregation

• Articulation– Most of the influence is through Congress, Decentralized

Institutions and the streets– The Executive, Congress and the Decentralized Institutions are

the main point of entry.

Costa Rica

• President– The president usually has a medium term horizon which determines

his preferences– He is the agenda setter

• Congress– Congress is fragmented across parties and minorities representation– Growing number of veto players

• Political Parties– Political parties do not articulate the general preference of the people.

• Other institutional actors– The judiciary through the Constitutional Court enforce the individual

rights and increase the financial responsibilities of the State– A growing number of public and private bureaucracy

Costa Rica

• Status quo– Constitutional Court (1989)

• Policies– Policies are rigid– Policy financing is limited by constraints– The existence of a growing number of veto players

has made harder to reach agreements

President

CongressPolicies

Actors /

Aggregation

Parties /


Status quo:

Constitutional Court (1989)

Judiciary:

Constitutional

CourtBureaucracy:

↑ bureaucratic agencies

Alternative Arenas

Y +Stable

CAFTA

Y-Rigid

Less Oriented to Public

Ineficient public monopolies

Bureaucracy financing led to deficit and crowding out investment

Costa Rica recent

Limited ability of legislative approval

FragmentedMinorities empowermentVeto PlayersIndependent voters

U

V Decentralized Institutions

Agenda Setter

PLN

PUSC

PAC

Multiparty system

Parties don’t internalizes demands

V

V

OthersV

Medium term horizon

Control of

agenda

Foreign Business

Mexico

• Economic structure– The economy is diversified but with a high level of concentration in

some sectors

• Actors– Big business groups, multiple business associations, unions– Keep their benefits– They tend to use several strategies such as votes, mobilization,

money and lobby

• Aggregation– There are peak organizations. They are usually associated to the

parties

• Articulation– Influence tend to go through the parties and directly with individual

legislators. They do also use the judiciary

Mexico

• President– President is not the agenda setter and can mostly act reactively– He has few exchange mechanisms– He has a medium term horizon

• Congress– Congress has become increasingly fragmented– There aren’t intertemporal commitments– Politicians’ preferences are shaped by parties’ incentives, which

favor short-term rewards.• Political Parties

– Political parties have tended to form around and represent particular groups (e.g, businesses in the PAN, union in PRI)

• Other institutional actors– The judiciary enforces the status quo– The bureaucracy is mixed. Regulatory agencies tend to be weak– Governors have gained importance

Mexico• Policymaking

– During the PRI era, both big business and organized labor were part of the PRI

– Policies did favor both, with a low productivity bias (high level of protectionism, etc)

– Reforms after the crisis had two effects:• Big business received the benefits of privatization• Fragmentation of political actors increased veto players

– Big business demand “low productivity” policies: entry barriers, etc– Small guys do also benefit from “low productivity” policies such as

transfers that favor small vs larger– They use the system (judiciary, etc) in their favor

• Status quo– Previous policies

• Policies– Pro-productivity reforms are hard to pass– Plenty of vertical policies with sectorial benefits that affect productivity

negatively

President

CongressPolicies

Actors /

Aggregation

Parties /


Status quo:

Previous policies

Judiciary:

Independent

Bureaucracy:

Mix across sectors

Reg Agcies

Weak

Alternative Arenas

Y +Trade agreements

Fiscal stability

Stability of policies

Y-Low reforms

High barriers to entry

Monopolies

Social policy (clientelism)Mexico today

Agenda setter

Limited transaction ability


Increasingly fragmented

High relevance of large economic groups

Peak organizations go through parties

Actors are usually reactive

EconGroups

U

PAN

PRI

Med

Governors

PRD

Venezuela• Economic structure

– Economic structure is concentrated in oil extraction. Voice exclusion in the policymaking process.

• Actors– Leaders of PSUV, “Boliburguesia” (business actors connected with

president), militaries and Unions.– The decisive factor is to have access to the President– They usually demand for distributing rents– They cater some money and lobbying

• Aggregation– Creation of alternative business association (Empreven and

FEDEINDUSTRIA)• Articulation

– Most of the influence is individually or through lobby, political and financial support to the President

– The Executive is the main point of entry.

Venezuela

• President– The president usually has a short term horizon – He is the agenda setter

• Congress– Weakening of the legislature, stronger role of the President – Strong discipline within the government party members

• Political Parties– One relevant political party, PSUV. Exclusion of voices in the policy

making process

• Other institutional actors– Weakening of institutions, transparency and accountability– The bureaucracy is not professional and volatile, increasing of loyal

dissident – Conflict relation between the media and the President

Venezuela• Policymaking

– The Venezuelan PMP has changed dramatically in the last 40 years– However, oil remains the main source of financing and the main product in

the economy• Status quo

– During oil booms, its natural to let the B$ appreciate and protect the national industry. This becomes the status quo policy

– During bust, it’s very difficult politically to revert these and pursue productivity enhancing policies

• Those who gained before remain powerful• Population associates bonanza with the policies pursued and not

necessarily with oil revenues• Policies

– Policies are highly volatile– Policies tend to favor those actors allied to the President and affect those

outside. – Strong deficit bias and pro-cyclicality in fiscal policy– Trade barriers, tax exemptions, appreciation of real exchange rate,

expropriation and nationalization and price control do not necessarily favor productivity gains.

President

CongressPolicies

Actors /

Aggregation

Parties /


Status quo:

There isn’t, everything can be change

Judiciary:

Not Independent

Bureaucracy:

↑ loyal dissidents

vertical

Media:

Conflict relation with president

Alternative Arenas

Y +

?

Y-Trade barriers

Tax exemptions

Highly volatile

Appreciation of RER

Expropriation

Price controls

Venezuela today

Agenda setter


“Short term” horizon

Discipline within the government party membersRejection of political negotiation with minorities

Relevance of economic groups

Decay of political system

Low number of Key players

“Boliburguesia”

U

Empreven

Fedeindustria

VPSUV

Armed Forces

Absolute control of power

Some conceptual messages and tentative ideas

1. Taking a picture (today) is not enough for understanding the reasons behind Y+ / Y-

2. Specific policies should be interpreted in the context of the overall “vector of policies” and political equilibrium

• Inefficiencies in some policy areas may be the price to pay for not so bad policies in other fronts.

• Consequently, it is not a good idea to look only at marginal policies and reforms (or lack thereof)


3. Different countries have (not) achieved stability at different levels/domains

• In some countries, the relationship between real and political actors is sustained by the institutional framework– E.g., Chile’s electoral system favors transactions within the coalition

• In some countries, the relationship is independent of the institutional framework (institutions change but the outcomes are similar)– It may be the case in Mexico and Venezuela

• In some countries, the relationship is unstable– E.g., Argentina

• In some countries, transactions have moved from the institutionalized arenas to non-institutionalized ones.– E.g., Bolivia

– This might matter for the type of suggestion we should focus on


4. Multi-level (of government) arenas

Some groups say at national level (finance) demand macro Some groups say subnational (industries) demand

• local tax exemptions• infrastructure

If interest groups and political structures differ in their level of aggregation, efficient exchanges difficult

Practical messages (chapter)

1. What are the main political/institutional constraints that may limit the adoption of policies that are productivity enhancing

2. Suggestions on how to put together public policy packages that:– Are productivity enhancing– Take into account the desires of certain key actors who may

otherwise block the reforms, or affect their implementation and sustainability

– Have a positive probability of being implemented

3. Suggestions to the Bank on how to facilitate the conditions in 2.4. Suggestions about potential institutional changes that may

facilitate the adoption of a vector of policies that is more favorable for productivity within the logic in 2.

5. Suggestions on pending work that may be warranted to fully understand the full scope of the phenomena.

The End

The Political Economy of Productivity

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Transcript of The Political Economy of Productivity