Motivation Economists, IFIs emphasize policy recipes to achieve development goals. Eg: Washington Consensus reforms. IPES: Potential of policy recipes depends on quality of policymaking process (PMP) through which policies are discussed, approved, and implemented. Improvement and better understanding of PMPs key in order to improve the quality of public policies.

Motivation Even within LAC, substantial differences in the quality of public policies. Policies differ in several dimensions: –Stability. –Adaptability. –Quality of implementation and enforcement. –Orientation to public interest. What determines the capacity of countries to design, approve and implement good public policies?

Beyond technocratic approach to policymaking In technocratic approach, public policies are objects of choice. Policymakers just need to adopt those that lead to best outcomes. Actual policymaking involves a multiplicity of political actors interacting in a variety of arenas. Policies are outcome of inter-temporal transactions among them. IPES: less emphasis on content of policies, more on process of policymaking (PMP), and some resulting policy features. These processes differ across countries, can be traced back to each country’s political institutions. While institutions are also endogenous, depend on culture and historical legacies, in IPES we treat them mostly as exogenous. –Focus on impact of existing institutions on policy outcomes, not on the dynamics of institutional change.

Systemic approach with country focus Policy outcomes do not depend on any single institutional dimension but rather on many factors, and their interaction. We adopt systemic approach, which requires deep knowledge of institutional details of the countries under study. Phase I of research agenda focused on detailed country studies, produced by local teams of economists and political scientists. Argentina, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay and Venezuela. We have added Costa Rica, Guatemala and Jamaica.

Key features of public policies The focus of the approach is in explaining certain common features of public policies: –Stability. –Adaptability. –Coordination and coherence. –Quality of implementation and enforcement. –Orientation to public interest (public regardedness). –Efficiency. These features may be more naturally linked to the institutional environment than the content of policies themselves.

Measuring key features of policies Two main sources of data Global Competitiveness Report (GCR). Our own State Capabilities Survey, responded by more than 150 experts in 18 countries in Latin America. Time frame: last two decades (or since return of democracy). Thus, our indices do not reflect quality of policymaking under current administrations, but during this longer period.

Example: Measuring policy stability Volatility of Fraser index of Economic Freedom. GCR question regarding cost of legal and political changes for firm’s planning capacity. GCR question on the extent to which new governments honor contractual commitments and obligations of previous regimes. SC Survey question on capacity of the State to set and maintain policy priorities among conflicting objectives. SC Survey question on extent to which governments ensure policy stability so that policies have time to work. SC Survey question on extent to which the State makes and maintains international commitments.

1234 Venezuela Argentina Ecuador Guatemala Nicaragua Bolivia Paraguay Dominican Rep. Peru Panama Honduras El Salvador Mexico Colombia Brazil Costa Rica Uruguay Chile Stability Index (1-4 scale) Source: Authors’ compilations. Policy Stability index

1234 Venezuela Argentina Ecuador Guatemala Nicaragua Bolivia Paraguay Dominican Rep. Peru Panama Honduras El Salvador Mexico Colombia Brazil Costa Rica Uruguay Chile Stability Index (1-4 scale) Source: Authors’ compilations. Policy Stability index High Low Medium

Key features of public policy since 1980s

LLMLMLLVenezuela HMMMHHHUruguay MMMMMMMPeru LLLLLLMParaguay LLLLMLMPanama LMLLMMMNicaragua HHMMHMHMexico MMLMMMHHonduras LMLMLMMGuatemala HHMMHHHEl Salvador LLLLLMLEcuador MMLMMMMDominican Rep HHHMHMHCosta Rica HMMMHHHColombia VHHHHHHHChile HMMHHHHBrazil MMMMMHMBolivia LLMLLMLArgentina Policy Index EfficPublic RegCoord / Coherence Impl/EnfAdaptStabCountry

Key features of public policy since 1980s LLMLMLLVenezuela HMMMHHHUruguay MMMMMMMPeru LLLLLLMParaguay LLLLMLMPanama LMLLMMMNicaragua HHMMHMHMexico MMLMMMHHonduras LMLMLMMGuatemala HHMMHHHEl Salvador LLLLLMLEcuador MMLMMMMDominican Rep HHHMHMHCosta Rica HMMMHHHColombia VHHHHHHHChile HMMHHHHBrazil MMMMMHMBolivia LLMLLMLArgentina Policy Index EfficPublic RegCoord / Coherence Impl/EnfAdaptStabCountry

The Policymaking Process (PMP) Within our approach, the PMP takes center stage. Characterizing PMP in each country: –Which are the key actors that participate in it? –What powers and roles do these actors have? –What preferences, incentives and capabilities do they bring to the table? –What are the characteristics of the arenas in which they interact? –How frequent are these interactions? –What is the nature of the transactions they engage in?

Actors and arenas in policymaking Background papers study role of various actors and institutions in Latin America’s PMPs. –Political parties and party systems. –The legislature (and the legislators). –The president and his cabinet. –The bureaucracy and the judiciary. –Sub-national actors. –Business organizations, unions, social movements. –Articulation of technical expertise into the PMP. Studies discuss formal and actual roles, interaction with other actors, incentives, policymaking capabilities.

PMP  Policy outcomes Key insight: features of public policies (such as stability, adaptability, etc) depend crucially on the ability of political actors to strike and enforce inter-temporal deals, and thus achieve cooperative outcomes. Cooperation, in turn, depends on factors such as: –Number of actors with substantial impact on policy. –Temporal horizon (or discount rate) of actors. –Existence of well functioning arenas for political exchange (eg: institutionalized parties, a well-functioning legislature). –Credible enforcement technologies (eg, independent judiciary).

Political Institutions  PMP In turn, key aspects of the PMP are determined by the nature of the political institutions such as constitutional rules, electoral rules, etc, which determine (among others). –The number of actors and their roles –Their incentives –The rules of engagement among them –The nature of the arenas in which they interact

Different looks at policymaking IPES looks at links between political institutions, policymaking processes and policy outcomes from different angles. Cross-sectional analysis (chapter 6) Policymaking in action in specific countries (chapter 7) –Chile: Policymaking in an institutionalized setting –Colombia: the 1991 Constitution and the policymaking process –Brazil and Ecuador: Policymaking in fragmented party systems Policymaking in specific sectors (chapters 8 – 11) –Tax policy –Public services –Education –Decentralization, budget processes, and feedback effects

Some results from cross-section analysis Partial equilibrium view, just to establish some associations between certain features of policy outcomes and certain institutional characteristics. High-quality policies are associated with: –Congress with good policy capabilities –Political parties that are institutionalized and programmatic –Independent judiciaries –Strong bureaucracies

Congressional Capability Index (1-3 scale) Policy Index (1-4 scale) Source: Authors' compilation. Congressional Capabilities and the Quality of Policies

Party System Institutionalization, Programmatic Orientation and the Quality of Policies Venezuela Uruguay Peru Paraguay Panama Mexico Honduras Guatemala El Salvador Ecuador Dominican Rep. Costa Rica Colombia Chile Brazil Bolivia Argentina Institutionalization Index (0-100 scale) Programmatic Index (0-8 scale) Policy Index = 2.06 Policy Index = 2.57 Policy Index = 2.04 Note: Boxes show the average value of the Policy Index for the countries in each quadrant. Source: Authors' compilation and Jones (2005). Policy Index = "High"Policy Index = "Low"Policy Index = "Medium"Policy Index = "Very high"

Judicial Independence and the Quality of Policies Judicial Independence Index (1-7 Scale) Policy Index (1- 4 Scale) Source: Authors' compilation and World Economic Forum (2004).

Development of Civil Service and the Quality of Policies Development of Civil Service System Index (0-1 scale) Policy Index (1- 4 scale) Source: Authors' compilation and Iacoviello and Zuvanic (2005).

Source: Stein and Tommasi (2005) and authors' compilation. Congressional Capabilities Policy Stability Congress Capabilities Index (1-3 scale) Policy Stability Index (1-4 scale)

Party System Institutionalization, Programmatic Orientation and Policy Stability Venezuela Uruguay Peru Paraguay Panama Mexico Honduras Guatemala El Salvador Ecuador Dominican Rep. Costa Rica Colombia Chile Brazil Bolivia Argentina Institutionalization Index (0-100 scale) Programmatic Index (0-8 scale) Policy Stability Index = 2.43 Policy Stability Index = 3.03 Policy Stability Index = 2.25 Note: Boxes show the average value of the Policy Stability Index for the countries in each quadrant. Source: Authors' compilation and Jones (2005). Policy Stability = "High"Policy Stability = "Low"Policy Stability = "Medium"

Source: Stein and Tommasi (2005), World Economic Forum (2004) and Feld and Voigt (2003). Judicial Independence and Policy Stability Judicial Independence Index (1-7 Scale) Policy Stability Index (1-4 scale)

Source: Stein and Tommasi (2005) and authors’ compilation. Development of Civil Service and Policy Stability Index of Civil Service Development (0-1 scale) Policy Stability Index (1-4 scale)

Policymaking in fragmented party systems: Brazil and Ecuador Most fragmented party systems in Latin America

Source: Jones (2005). Political Party Fragmentation Chile Honduras Nicaragua Dominican Republic Paraguay Uruguay Mexico Panama Costa Rica Argentina Guatemala El Salvador Peru Venezuela Colombia Bolivia Ecuador Brazil Effective Number of Legislative Parties

Brazil and Ecuador: party system fragmentation Argentina Honduras Chile Costa Rica El Salvador Colombia Bolivia Brazil Ecuador Uruguay Venezuela Paraguay Panama Nicaragua Guatemala Dominican Republic Mexico Peru Effective Number of Parties President's Chamber Contingent Source:Jones (2005), Saiegh (2005).

Policymaking in fragmented party systems: Brazil and Ecuador Most fragmented party systems in Latin America Strong presidential constitutional powers (to compensate for weak partisan powers)

Source: Payne and others (2002). Presidential Legislative Powers Nicaragua Paraguay Costa Rica Bolivia Mexico Honduras Dominican Republic Guatemala Venezuela El Salvador Uruguay Panama Argentina Peru Colombia Ecuador Brazil Chile Presidential Legislative Powers index (0-1 scale)

Policymaking in fragmented party systems: Brazil and Ecuador Most fragmented party systems in Latin America Strong presidential constitutional powers (to compensate for weak partisan powers) Legislators elected under similar electoral rules: open list, PR, incentives to deliver benefits to their jurisdictions.

Policymaking in fragmented party systems: Brazil and Ecuador Most fragmented party systems in Latin America Strong presidential constitutional powers (to compensate for weak partisan powers) Legislators elected under similar electoral rules: open list, PR, incentives to deliver benefits to their jurisdictions. Yet completely different political and policy outcomes

Key features of public policy and overall index LLMLMLLVenezuela HMMMHHHUruguay MMMMMMMPeru LLLLLLMParaguay LLLLMLMPanama LMLLMMMNicaragua HHMMHMHMexico MMLMMMHHonduras LMLMLMMGuatemala HHMMHHHEl Salvador LLLLLMLEcuador MMLMMMMDominican Rep HHHMHMHCosta Rica HMMMHHHColombia VHHHHHHHChile HMMHHHHBrazil MMMMMHMBolivia LLMLLMLArgentina Policy Index EfficPublic RegCoord / Coherence Impl/EnfAdaptStabCountry

How can these differences be explained? Substantial differences in capabilities of key institutions.

Source: Saiegh (2005) Lower House Reelection Rates Rates of Immediate Reelection to the Lower House (percentage) Peru (2001) Argentina ( ) Guatemala ( ) Venezuela ( ) Bolivia (2002) Ecuador ( ) El Salvador (2003) Colombia ( ) Paraguay ( ) Brazil ( ) Panama (1999) Uruguay ( ) Chile ( )

Judicial Independence Index Venezuela Paraguay Nicaragua Bolivia Argentina Ecuador Honduras Peru Guatemala Panama El Salvador Colombia Mexico Dominican Rep. Costa Rica Brazil Chile Uruguay Source: World Economic Forum (2004).

Index of Development of the Civil Service Panama El Salvador Honduras Paraguay Peru Ecuador Nicaragua Guatemala Bolivia Dominican Rep. Venezuela Mexico Colombia Uruguay Costa Rica Argentina Chile Brazil Source: Iacoviello and Zuvanic (2005).

How can these differences be explained? Substantial differences in capabilities of key institutions. Presidents in Brazil have necessary tools to engage in political exchanges with other parties, and sustain coalitions in Congress.

How can these differences be explained? Substantial differences in capabilities of key institutions. Presidents in Brazil have necessary tools to engage in political exchanges with other parties, and sustain coalitions in Congress In Ecuador, coalitions are unstable, and tend to collapse as presidential terms progress and elections approach.

Brazil: building coalitions President needs to rely on coalition to pass his agenda. Legislators need to deliver benefits to their communities, add budget amendments involving programs with local benefits. Strong presidential powers, include discretional capacity to impound budgetary amendments. President holds key for the legislators to deliver “pork”. Key exchange is small investment projects in exchange for political support to pass the president’s agenda. One of several inducements president uses to pass agenda in a fragmented system. Other is the allocation of ministries to coalition partners.

Ecuador: ghost coalitions Legislators have incentives to deliver pork to their communities, but geographically based items not allowed in the budget. Ministries not a very valuable inducement, particularly toward end of the presidential period. Being perceived as “gobiernista” is politically costly. Agreements between parties are viewed with distrust by society. Politicians engage in “ghost coalitions”, provide legislative support in narrow set of issues in exchange for immediate benefits They avoid visible and politically costly commitments, particularly towards the end of the presidential term.

Ecuador: Size of Government’s Coalition in Congress over the presidential term ( ) Administration's months in office Size of the President's coalition (percent) Source: Mejía-Acosta (2004).

Ecuador: ghost coalitions Legislators have incentives to deliver pork to their communities, but geographically based items not allowed in the budget. Ministries not a very valuable inducement, particularly toward end of the presidential period. Being perceived as “gobiernista” is politically costly. Agreements between parties are viewed with distrust by society. Politicians engage in “ghost coalitions”, provide legislative support in narrow set of issues in exchange for immediate benefits They avoid visible and politically costly commitments, particularly towards the end of the presidential term. Result: unstable coalitions, conflict between the executive and the legislature, and a great deal of political instability.

Ecuador: ghost coalitions Legislators have incentives to deliver pork to their communities, but geographically based items not allowed in the budget. Ministries not a very valuable inducement, particularly toward end of the presidential period. Being perceived as “gobiernista” is politically costly. Agreements between parties are viewed with distrust by society. Politicians engage in “ghost coalitions”, provide legislative support in narrow set of issues in exchange for immediate benefits They avoid visible and politically costly commitments, particularly towards the end of the presidential term. Result: unstable coalitions, conflict between the executive and the legislature, and a great deal of political instability. Short time horizons, government interruptions reflected in quality and stability of public policies.