The Political Economy of Productivity

The Political Economy of Productivity
Actors, Arenas, and Policymaking Prepared for presentation at Brainstorming Session. IADB February 6, 2009

Lies at the intersection of two agendas:
This research project Lies at the intersection of two agendas: 2010 Development in the Americas Report (DIA, ex-IPES) on “Productivity in Latin America” Step in Political Economy agenda at the Research Department IDB Political Institutions and Policymaking in L.A.

Lies at the intersection of two agendas:
This research project Lies at the intersection of two agendas: 2010 Development in the Americas Report (DIA, ex-IPES) on “Productivity in Latin America” Step in Political Economy agenda at the Research Department IDB Political Institutions and Policymaking in L.A. Actors, Institutions, and Policymaking in L.A.

This research project 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

This research project 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 Political Socioeconomic Structure Institutions
POLICYMAKING INSTITUTIONS political (State) actors “Real” Actors POLICIES Productivity

Inputs from previous literature
“Real” Actors POLICYMAKING INSTITUTIONS political (State) actors POLICIES Productivity Socioeconomic Structure Political Institutions 2 6 3 Reduced form PI 5 1 7 4 The framework uses a number of building blocks Some pre-existing ones Studies of the PMP and the features of policies Role of political institutions in the determination of policies Models of interest groups behavior (Olsonian) and rent-seeking A bit US centered Some good applications in trade policy (ignores political institutions) Some interesting findings (derived from econ structure) Agriculture Taxed in LDC’s Subsidized in DCs Role of veto players in the reform process Organization of “real actors” (businesses, unions, etc) Economic structures / interests / policy cleavages Workings of political institutions, PM, and the features of policies Political institutions and policies Interest groups and rent-seeking Role of veto players in the reform process Organization of “real actors” Economic structure, interests, social cleavages Structure and dynamics of business-State relations

Inputs from previous literature
Socioeconomic Structure Political Institutions 2 6 3 Reduced form PI 5 1 POLICYMAKING INSTITUTIONS political (State) actors “Real” Actors 7 4 POLICIES The framework uses a number of building blocks Some pre-existing ones Studies of the PMP and the features of policies Role of political institutions in the determination of policies Models of interest groups behavior (Olsonian) and rent-seeking A bit US centered Some good applications in trade policy (ignores political institutions) Some interesting findings (derived from econ structure) Agriculture Taxed in LDC’s Subsidized in DCs Role of veto players in the reform process Organization of “real actors” (businesses, unions, etc) Economic structures / interests / policy cleavages Political institutions (wks), PM, and the features of policies Political institutions (rules) and policies Interest groups and rent-seeking Role of veto players in the reform process Organization of “real actors” Economic structure, interests, social cleavages Structure and dynamics of business-State relations Productivity

THE FRAMEWORK Temporal and causal issues
The current picture POLICYMAKING INSTITUTIONS political (State) actors “Real” Actors POLICIES Productivity

Socioeconomic Structure Inter-Temporal POLICYMAKING INSTITUTIONS political (State) actors “Real” Actors POLICIES Productivity Past

Political Institutions (rules) Inter-Temporal POLICYMAKING INSTITUTIONS political (State) actors “Real” Actors POLICIES Productivity Past

POLICYMAKING INSTITUTIONS political (State) actors “Real” Actors POLICIES Productivity Status Quo

THE FRAMEWORK Arenas POLICYMAKING INSTITUTIONS “Real” Actors
political (State) actors “Real” Actors POLICIES Alternative arenas Productivity

THE FRAMEWORK POLICYMAKING INSTITUTIONS “Real” Actors
POLICIES POLICYMAKING INSTITUTIONS political (State) actors “Real” Actors Productivity

Policymaking Institutions political (State) actors Policies
Real Actors Policies 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

Policymaking Institutions political (State) actors Policies
Real Actors 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

We draw from a large and distinguished literature
Policymaking Institutions political (State) actors Policies Real Actors 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?

Policymaking Institutions
political (State) actors Policies Productivity Real Actors Can be described by a number of “economic” and “political” characteristics Aggregate effects Productivity enhancing/reducing (Y+/Y-) Its distributional features (who gains/loses) Its temporality (how early benefits and cost accrue) Other exhange properties (Un)certainty about their effects Easiness to sell Other features Are “chosen” in different polities taking these various considerations into account (varying degrees) Impact on productivity Across countries Across policy areas

Different Hypotheses / Theoretical Constructs provide some (partial
Different Hypotheses / Theoretical Constructs provide some (partial?) answers: Winners / losers and correlation with Y+/Y- Intersectoral Interest groups vis a vis “general public” Intertemporal story: longer horizons → Y+ Status quo properties (Y+/Y-) and veto players Certain Y+ public goods may need coordinated action to be demanded Economic / geographic structure (and its institutional mediation) will facilitate that or not Some arenas facilitate exchanges of some policies Some political institutions (and modes of organization of actors) provide more internalization 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

Y + Y- Institutions / Formal Arenas Status quo President Policies
Actors / Aggregation Parties / Coalition Articulation Institutions / Formal Arenas Status quo President Transaction mechanisms Policies Congress Y + Y- Judiciary Other Bureaucracy Alternative Arenas

Actors Economic structure Actors Aggregation Articulation
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 Congress Political Parties
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 Policies 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 Actors Aggregation Articulation
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 Congress Political Parties
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

Y + Y- Argentina recent Institutions / Formal Arenas President
Actors / Aggregation Parties / Coalition Institutions / Formal Arenas Agenda setter Status quo: fiscal federalism President Short term horizon Diversified economic structure Used to have strong peak associations Coalitions change: At the President’s whims Exchage rate policy Usually reactive Winners and losers according to relative prices and sunk investments Voter’s preferences are highly volatile Other Rural Ability to transact cheaply unless: Fiscal federalism They want to throw him out Ind Policies Congress Peronist Small Bus Fragmented Allegiance to governors Non inst and non program urban Y + ? U Judiciary: Not independent Governors Y- Highly volatile Vertical (favor those in the changing coalitions) Uncoordinated Expropriate those with sunk investments Bureaucracy: Unstable P Last ditch veto Alternative Arenas Argentina recent

Argentina Policymaking Status quo Policies
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 Actors Aggregation Articulation
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 Congress Political Parties
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.

Y + Y- Bolivia before Evo Institutions / Formal Arenas President Bus
Actors / Aggregation Parties / Coalition Institutions / Formal Arenas Status quo: Agenda setter President Short term horizon Low diversificartion Business and unions are strong before crisis; weak after crisis Bus Ability to make coalitions Policies Congress U Fragmented Coalitions (Congress pacts) Veto Y + Wash ConsensusReforms IFIs (post-crisis) Judiciary: Not independent Bureaucracy: Unstable Y- Pre-crisis policies Alternative Arenas Bolivia before Evo

Y + Y- Bolivia recent Institutions / Formal Arenas President Bus
Actors / Aggregation Parties / Coalition Institutions / Formal Arenas Agenda setter President Status quo: Distribution of rents Short term horizon Low diversified economic structure Coalitions are social and geographic MAS Bus Low ability to transact Policies Congress U other Fragmented Allegiance to regions Non inst and non program Y + Social ? Judiciary: Not independent Y- Highly volatile Uncoordinated Expropriate Barriers Distortions Bureaucracy: Unstable Referendum Alternative Arenas Bolivia recent

Bolivia Policymaking Status quo Policies
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 Actors Aggregation Articulation
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 Congress Political Parties Other institutional actors
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.

Y + Y- Brazil recent Institutions / Formal Arenas President BB SP1
Actors / Aggregation Parties / Coalition Institutions / Formal Arenas Agenda setter President Fiscal imperative Status quo: Constitution of ’88: entitlements everywhere 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 BB Ability to transact cheaply: High budgetary powers SP1 Policies Congress SP2 Fragmented Local interest Y + Fiscal sustainability Stable policies U Judiciary: Independent Local and national Governors Bureaucracy: Mixed across sectors Y- Highly taxes Low infrastructure Alternative Arenas Brazil recent

Brazil Policymaking Status quo Policies
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 Actors Aggregation Articulation
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.

Chile today Y + Y- Institutions / Formal Arenas President Congress
Actors / Aggregation Parties / Coalition Institutions / Formal Arenas Agenda setter Policies t-1 President Long term horizon Diversified economic structure Peak organizations Coalitions internalize demands Bus right High transaction ability Bus Policies Congress V R Low fragmentation Institutional V L Programmatic Y + Almost every policy Y- Only in some margins when the “wrong” group is over-represented: Education reform Corporate governance left U Judiciary: Independent Bureaucracy: Professional and technical U Alternative Arenas Chile today

Chile President Congress Political Parties Other institutional actors
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

Y + Y- Chile today Institutions / Formal Arenas President Congress

Chile Policymaking Status quo Policies
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.

Y + Y- Chile today Institutions / Formal Arenas President Congress

Colombia Economic structure Actors Aggregation Articulation
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 Congress Political Parties
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

Y + Y- Colombia before Institutions / Formal Arenas President Congress
Actors / Aggregation Parties / Coalition Institutions / Formal Arenas Status quo: Agenda setter President “Medium term” horizon Low diversification Small number of peak associations Fedecafe had formal gravitas ANDI Executive Higher transaction ability Coffee Policies Congress SMB Lower fragmentation Institutionalized parties Y + Judiciary: Independent Bureaucracy: Professional and technical Y- Alternative Arenas Colombia before

Y + Y- Colombia today Institutions / Formal Arenas President Congress
Actors / Aggregation Parties / Coalition Institutions / Formal Arenas Agenda setter President Status quo: Entitlements and fiscal policy “Medium term” horizon 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) Econ Groups Councils Limited transaction ability Coffee Policies Congress SMB Increasingly fragmented More competitive U Campaign contrib matter Y + Horizontal policies Generalized trade agreements Deregulation Judiciary: Independent Bureaucracy: Professional and technical Y- Vertical policies Sector specific tariffs and subsidies Import quotas Tax exemptions Armed conflict Alternative Arenas Colombia today

Colombia Policymaking Status quo Policies
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 Actors Aggregation Articulation
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 Congress Political Parties
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

Y + Y- Costa Rica recent Institutions / Formal Arenas President
Actors / Aggregation Parties / Coalition Institutions / Formal Arenas Agenda Setter President Status quo: Constitutional Court (1989) Multiparty system Parties don’t internalizes demands Medium term horizon Foreign Business Control of agenda Limited ability of legislative approval Others V Policies Congress Fragmented Minorities empowerment V PLN Veto Players Independent voters Y + Stable CAFTA V PUSC V PAC Judiciary: Constitutional Court Decentralized Institutions Bureaucracy: ↑ bureaucratic agencies Y- Rigid Less Oriented to Public Ineficient public monopolies Bureaucracy financing led to deficit and crowding out investment U Alternative Arenas Costa Rica recent

Mexico Economic structure Actors Aggregation Articulation
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 Congress Political Parties Other institutional actors
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 Status quo Policies
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

Y + Y- Mexico today Institutions / Formal Arenas President PRD PAN
Actors / Aggregation Parties / Coalition Institutions / Formal Arenas Agenda setter Status quo: Previous policies President “Medium term” horizon High relevance of large economic groups Peak organizations go through parties Actors are usually reactive Econ Groups PRD Limited transaction ability Med PAN Policies Congress Increasingly fragmented PRI U Y + Trade agreements Fiscal stability Stability of policies Governors Judiciary: Independent Bureaucracy: Mix across sectors Reg Agcies Weak Y- Low reforms High barriers to entry Monopolies Social policy (clientelism) Alternative Arenas Mexico today

Venezuela Economic structure Actors Aggregation Articulation
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 Congress Political Parties
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 Status quo Policies
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.

Y + ? Y- Venezuela today Institutions / Formal Arenas President
Actors / Aggregation Parties / Coalition Institutions / Formal Arenas Agenda setter President Status quo: There isn’t, everything can be change Fedeindustria “Short term” horizon Relevance of economic groups Decay of political system Low number of Key players “Boliburguesia” Absolute control of power Empreven High transaction ability PSUV V Policies Congress Discipline within the government party members Rejection of political negotiation with minorities Armed Forces Y + ? Judiciary: Not Independent U Media: Conflict relation with president Bureaucracy: ↑ loyal dissidents vertical Y- Trade barriers Tax exemptions Highly volatile Appreciation of RER Expropriation Price controls Alternative Arenas Venezuela today

Some conceptual messages and tentative ideas
Taking a picture (today) is not enough for understanding the reasons behind Y+ / Y- 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)

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

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)
What are the main political/institutional constraints that may limit the adoption of policies that are productivity enhancing 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 Suggestions to the Bank on how to facilitate the conditions in 2. 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. Suggestions on pending work that may be warranted to fully understand the full scope of the phenomena.

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The Political Economy of Productivity

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