 Thesis Appendices
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As presidential candidates running under traditionally labor-based parties, Carlos Menem of Argentina and Carlos Salinas de Gortari of Mexico were not the logical choice to carry out the liberalization and reform policies that the privatization process entailed in each country. Predictably, each had to fight political battles within his own party and the ruling bureaucracy, as well as across the political spectrum with competing political parties and ideologies, to carry out the reform of state-owned enterprises. Though each president played a very dominant role in the privatization process, the decision-making apparatus involved a number of bureaucratic agencies within the executive branch as well as considerable input from both the governing and opposition parties in congress. Moreover, both presidents ran on a platform that was very cautious about the privatization of state enterprises, but changed directions after the election to implement some of the most thorough reforms seen in all of Latin America. Given all these constraints on presidential policy-making, Dahl’s theories on pluralism would suggest that a domestic interest group argument based primarily on one component—labor unions—would fall far short of helping to explain the variety of results in the privatization process. However, Ben Petrazzini, Ravi Ramamurti, and numerous other Latin American theorists place labor unions as certainly providing the fiercest, if not the principle, source of political opposition early in the privatization process. (Petrazzini 1996: 79) While the purpose of this chapter is to explore the impact of electoral and political party pressures, as well as inter-party and bureaucratic politics, on the privatization decision-making process, it also serves as a defense of the assumption that labor union pressures were both the strongest and most constant source of political pressure as the direct recipient of the employment subsidies provided by state-owned firms. Electoral and Political Party Pressures The 1988 Mexican presidential election represents perhaps the first in which the ruling PRI party faced serious political opposition. A faction within the PRI itself known as the Democratic Current (la Corriente Democratica) became disenchanted with the PRI’s increasingly liberal economic stance and privatization programs and split from the party. (Perez 94) Led by Cuauhtemoc Cardenas, this group was quickly adopted by a coalition of left parties known as the National Democratic Front who endorsed Cardenas for President. Under severe (and likely valid) charges of massive vote fraud, Salinas won the election with just 50.7% of the vote, losing Mexico City and the powerful states of Michoacan, Morelos, and Baja California. Since the PRI’s liberalization and privatization policies nearly cost Salinas the election, it would be rational to assume that the PRD and PAN influenced Salinas’ privatization decisions regarding Teléfonos de México and other state-owned enterprises. Yet in constrast with the competitive party system in Argentina, opposition parties in Mexico are still extremely weak. (Petrazzini 1995: 114) Even with Cardenas’ strong showing, the left was especially unorganized at this point—consisting almost solely of ‘fragmented social organizations’ that were "unable to discuss one ideological core." (Shapiro 13) At the other end of the political spectrum is the PAN (Partido Accion Nacional), which Helen Shapiro from the Harvard Business School argues is the party that most likely affected the PRI over the course of its reforms during the late 1980's. The PAN is the oldest opposition party, the most ideological, and most likely to fully advocate the privatization process. Silva Herzog, de la Madrid’s Finance Minister, recently admitted in an interview that some of PRI’s partisan policies, including privatization, were designed to undermine the PAN’s appeal. (Schneider 44) Yet the PAN depends largely on the anti-PRI vote—even in its stronghold group of northern states—and accordingly downplayed its support of the privatization process during the 1988 presidential election and over the next few years as the actual privatization policy was implemented. (PAN 1988:13) Despite Salinas’ near loss in the 1988 elections, Ben Petrazzini asserts that by a year later, the opposition parties on both sides were retreating. (Petrazzini 1995: 114) Perhaps more importantly, Salinas was very aware of the role that the growing minority political representation in the legislature would play after electoral politics had subsided. Not only had the PAN, the PRD, and the PPS (Partido Popular Socialista) won considerable seats in congress, but members of the PRI itself were questioning Salinas’ strategy and the impending sale of the telecommunications industry. The PRD and the PPS specifically tried to block the privatization process in the congress, but Salinas was able to make ‘minor regulatory rulings’ without the consent of Congress. Salinas in effect dealt with Congress by not dealing with it at all; he avoided changes that specifically required the legislature’s approval and pursued the process through the federal agencies. (Ramamurti 1996: 20) Though the system of complete one-party rule by the PRI no longer holds true within Mexico, Carlos Salinas was able to utilize the party’s vast resources and minimize the role of other political parties—even after the PRI’s dismal performance in the 1988 elections. In contrast to Salinas’ 1988 election, Carlos Menem ran as an opposition candidate to Raúl Alfonsín’s Union Civil Radical (UCR) party—similar to the PAN in Mexico in supporting a smaller state role in the economy. Menem was certainly more emphatic that Salinas in defending his commitment to a strong state presence in vital public sectors: "we will not privatize the main state enterprises." (Petrazzini 80) Yet the net result of Menem’s conversion to the virtues of privatization after the election was to nullify much of the inter-party conflict that had killed the privatization process under Alfonsín. (US Labor Dept. 1991: 5) The Radical party was hardly able to block the very same reform that it had tried to implement only a few years earlier, and the Justicialist (Peronist) party was now the majority in Congress but remained split between its president and support for a strong central state. The Peronist party did attempt to block to the ENTel sale as it had under Alfonsín, but Menem was able to muster enough support for the passage of the ‘Economic Emergency Law’ and the ‘Public Sector Reform Law.’ These changes gave the president the power to implement privatization policy through ‘need and urgency’ decrees, which he used over 100 times over the course of two years to privatize ENTel and multiple other state firms. (Petrazzini 82) The role of Congress and competing political parties should not be underestimated in the Argentine context; competition between the Union Civil Radical (UCR) and the Justicialist (Peronist) parties, and to a lesser degree the Unión de Centro Democrático (UCD), was quite fierce and approaches a level of democratic liberalism that the Mexican state still does not possess. Combined with a Constitution that gives the president a very weak legislative power, the Argentine president has historically had to deal with Congress and opposition parties that can be characterized as adversarial at best. (Petrazzini 51) Alfonsín’s attempts to sell ENTel were protested by a broad social coalition including labor unions and the Peronist party, but was actually blocked in Congress by the Peronist majority. Menem’s ruling coalition was unique in that as a Peronist member, he was able to split loyalties from the party that played the largest role in blocking earlier reform attempts. Electoral politics played an equally vital role in both Mexico and Argentina, but on the post-electoral political level Mexico and Salinas were able to remained aloof from Congress and bypass it with much of the reform legislation. Similarly, though party competition may have dominated the process under Alfonsín, it was much subdued under Menem and further weakened with his use of ‘need and urgency decrees.’ With the new Argentine legislation that strengthened the power of the presidency, the role of political parties in Argentina regarding the privatization process came to converge with the moderate level Salinas enjoyed in Mexico. Political opposition continued to be a cause of concern for both presidents, but through a strong presidency were weakened such that primarily labor unions remained as the principle source of opposition. (Petrazzini 82) Inter-Agency and Bureaucratic Politics As a variation on the inter-party conflict discussed above, conflict among executive agencies on how to implement the form and structure of the privatization process came to represent a significant component of the decision-making process in Mexico and Argentina. Though Menem and Salinas may have bypassed Congress in their attempts to better centralize the reform process, presidents are certainly not the sole actors within the executive branch. They receive much of their information and advice from large bureaucracies, often broken down into discrete ministries or agencies that have different responsibilities and accordingly different interests. The World Bank cites control of the policy-making process—at the legislative as well as the bureaucratic level—as a key indicator in measuring the political feasibility of a given reform. (World Bank 1995: 234) In this context, this section is centered primarily around the rate of and conflicts in implementation in privatization policy, rather than why it was implemented in the first place. Within Argentina this type of conflict was most apparent as the Minister of Services and Public Works struggled to wrest control of the privatization process away from Menem’s small and personally selected privatization team. Yet Menem had learned from the mistakes of the military regime in 1980, which failed on its privatization program largely due to lack of cohesion within the regime itself, and personally saw that competing bureaucratic agencies were replaced or relegated to a much smaller role in the process. (Petrazzini 52) This analysis, however, focuses primarily on the bureaucratic conflict that occurred within the Salinas administration. The conflict between the Ministry of Finance and SEMIP (Mines and Public Enterprises) within the Mexican government is both well documented and represents the case of two bureaucratic agencies at different political extremes arguing for drastically different forms of the privatization process. Studying the impact these agencies had over the actual decision-making process helps to gauge the impact of internal party and bureaucratic conflict within Dahl’s interest group structure. From a variety of interviews with state bureaucrats in 1992, Judith Teichman argues that strong bureaucratic resistance to the privatization program was an important factor in slowing down the pace of reform. (Teichman 145) The relevance of this bureaucratic conflict can be traced back to early in de la Madrid’s term, when Finance Minister Silva Herzog resigned in part due to disagreements with other cabinet ministers over the debt negotiations with the IMF. (87) With this change came the greater dominance of budget and planning secretary Carlos Salinas, as well as a corresponding decline in the relative power of the secretaries of SECOFI (Commerce and Industry) and SEMIP (Mines and Public Enterprise)—both of which had resisted an accelerated economic liberalization campaign. Under the Salinas administration, SEMIP, as the ministry in charge of the bulk of state enterprises, continued to push for the modernization of state industry rather than simply its sale. An interview by Teichman of an anonymous SEMIP official places blame on the Finance Ministry for operating with a very short term attitude during this period, concerning itself solely with reducing the public deficit. Of course, a good part of this concern may have been simply self interest; Table 4.1 shows the impact of state divestitures on SEMIP holdings—a reduction of more than 80%. Ramamurti hypothesizes that SEMIP as well as many of the other state ministries with large losses of influence over state policy as a result of the privatization process likely provided considerable opposition to the process. (Teichman 141) Apart from simply losing influence over a large, powerful enterprise, these ministries equally saw these changes as a threat to their very existence—a theme which Salinas reinforced when in 1988 he hinted that SEMIP itself was no longer vital for the state. (La Jornada, 6 Dec 1988, 17)
These conflicts translated into a bureaucratic procedure that Salinas used to insulate the process from these outside sources. Whereas Carlos Menem struggled to keep the reform process within his appointed privatization team and out of the Ministry of Services and Public Works, Salinas relied predominantly on the Finance and the Budget & Planning ministries to accomplish this task. (Teichman 148) In practical terms, this meant transferring the industry in question from the SEMIP or other agencies’ control to the ministry of finance once the privatization process began to approach. Within the finance ministry, Carlos Salinas was able to personally influence the process and isolate the sale from other PRI members within the government. (Ramamurti 1996: 20) In the privatization of Teléfonos de México, this process involved removing the firm from under the jurisdiction of the Secretary of Communication and placing it within the finance ministry, helping to guarantee that "embedded interests would not slow down the restructuring process." (Petrazzini 1995: 130) The role of bureaucratic groups in the privatization decisions in the Mexican government does lend some credence to Judith Teichman’s claim about the return of the Ministry of Finance and the growing dominance of its neoliberal views on the state. (171) An interview by this author with a Finance official does reveal that even in the midst of opposition from the Minister of Labor, SEMIP, and other bureaucrats, the Finance Ministry pushed ahead with its program over the objections of other state actors in part because it had the authority and the backing of the president to implement its policies. (Tornell, 11 Feb. 1997) Accordingly, this chapter argues that neither the finance ministry in Mexico nor Menem’s privatization team in Argentina operated independently of the President. At the same time, both of these ‘preferred agencies’ effectively neutralized resistance from other sectors with the active cooperation of the President and as the result of the downsizing process that inevitably removed opponents within competing ministries. (Teichman 146) While bureaucratic and intra-party politics were certainly an issue of vital concern for both Menem in Argentina and Salinas in Mexico, they were issues that each president minimized the impact of and effectively overcame through strong presidential leadership and the selective pitting of certain agencies against one another in the privatization process. Conclusion Labor union opposition to the sale of state-owned enterprises certainly did not constitute the entirety of domestic group pressures surrounding the privatization process in Mexico and Argentina. Political parties and bureaucratic agents, often in conjunction with labor unions themselves, played an important role in both states in slowing and significantly changing the process of reform. Yet as opposed to the failed ENTel privatization under Alfonsín in Argentina in 1987, both Menem and Salinas were able to minimize the role that opposition parties played in the process by concentrating the reform process in the executive branch and within agencies closely linked to the advice and control of the president. In fact, in a 1995 World Bank publication, the role of political parties and agency politics are downplayed to the extent that potential opposition to state-owned enterprise privatization is said to be estimated primarily from the level of state firm over-staffing and the presence of strong labor unions. (World Bank 1995: 235) Of course, a natural extension of this enterprise-based analysis would include the role that large business played in the privatization process. Mexican state enterprises did provided a considerable subsidy to consumers who, in the case of steel, electricity, oil, and transport industries, were primarily large private firms. (Schneider 11) However, many other state firms—including the telecommunications industry—subsidized local service and did not significantly impact private business interests. Combined with a private business sector that according to Ben Ross Schneider was not particularly strong in either country, he and other Latin American theorists argue that the privatization process was simply not significantly responsive to private sector business pressures. ( Baer 79) This chapter argues for the predominance of labor union concerns under domestic interest group pressures in the privatization strategies of Carlos Menem in Argentina and Carlos Salinas de Gortari in Mexico in the years following their election to the presidency. Political party competition likely played a more vital role in Argentina than in Mexico over this time frame, but Menem’s status as a member of the party most opposed to privatization helped minimize the impact of the Peronists. Both the PRI and the Peronist party are traditionally labor-based parties, so inter-agency competition did have the potential to significantly slow and affect the reform process. Yet in both countries a bureaucratic agency was ‘sponsored’ by the president to carry out the privatization process, while opposing groups were de-funded or simply eliminated entirely from the government. Labor unions were admittedly on the decline after years of austerity policies and down-sizing practices at state firms, yet still served to offer the most significant response to government reform efforts early in the privatization process in both Mexico and Argentina. (Ramamurti 1996: 120) |
