Mexico and Brazil in Comparative Mexico and Brazil in Comparative Perspective: Two Import-Substituting Perspective: Two Import-Substituting

TrajectoriesTrajectories

(Haggard)(Haggard)

WHY ISI?WHY ISI? 30s & 40s30s & 40s Twin Shocks: Elites response = expansion Twin Shocks: Elites response = expansion

50s Secondary ISI:50s Secondary ISI: Economic Motivationsexternal shocks, size, resource Economic Motivationsexternal shocks, size, resource

endowment, balance of payments problems, FDI & borrowing endowment, balance of payments problems, FDI & borrowing Social/Political Motivations: Pressure of urban political Social/Political Motivations: Pressure of urban political

sectors, Business support, manipulation of ISI for political sectors, Business support, manipulation of ISI for political gains, intellectual rationale.gains, intellectual rationale.

70s Debt Led ISI:70s Debt Led ISI: supplement ISI with non traditional exports. supplement ISI with non traditional exports. Euromarket credit, FDI & oil boom.Euromarket credit, FDI & oil boom.

The Primary-Product Growth PhaseThe Primary-Product Growth Phase

Exporters of Primary Goods: coffee, many cropsExporters of Primary Goods: coffee, many crops

Agro Export Sector: Coroneis – CaciqueAgro Export Sector: Coroneis – Cacique

30s: Social Adjustment - Mexican Revolution30s: Social Adjustment - Mexican Revolution

Difference with Taiwan and Korea: political independence, Difference with Taiwan and Korea: political independence, diversified economies and decentralized politics. diversified economies and decentralized politics.

External Shocks, Political Consolidation and External Shocks, Political Consolidation and the Origins of ISIthe Origins of ISI

BRAZILBRAZIL Twin Shocks: Policy experimentation by Fed. Deficits, Twin Shocks: Policy experimentation by Fed. Deficits,

expansive monetary policy, trade and exchange control.expansive monetary policy, trade and exchange control. Political Motivations: Authoritarian Government, bourgeoisie Political Motivations: Authoritarian Government, bourgeoisie

ascendance and coffee planters declineascendance and coffee planters decline

MEXICOMEXICO Depression: end of orthodoxy.Depression: end of orthodoxy. Expanionary monetary and fiscal policies, Expanionary monetary and fiscal policies, Political Consolidation (post revolution), reconstruction of Political Consolidation (post revolution), reconstruction of

financial system, centralization of the tax systemfinancial system, centralization of the tax system Cardenas 20s: Populist government. Cardenas 20s: Populist government. Nationalist development > Strong UnionismNationalist development > Strong Unionism

Secondary ISISecondary ISI

Increased role of GovernmentIncreased role of Government

Assumption: Due to comparative adv. in agriculture, Assumption: Due to comparative adv. in agriculture, protectionist measures for industrialization. protectionist measures for industrialization.

Coalition Factors: Correlation of forces: support for technocratsCoalition Factors: Correlation of forces: support for technocrats

Brazil: cross-class electoral allianceBrazil: cross-class electoral alliance

Mexico: Organizational efforts of a dominant partyMexico: Organizational efforts of a dominant party

Towards Secondary ISITowards Secondary ISI

BRAZILBRAZILInitial Liberal modifications Initial Liberal modifications

50s Industrialization support: emergence of a labor, 50s Industrialization support: emergence of a labor, professional, managerial and bureaucratic middle class.professional, managerial and bureaucratic middle class.

Kubitschek Regime: expansion of state roleKubitschek Regime: expansion of state role Need for FDI and preferencial exchange ratesNeed for FDI and preferencial exchange rates MEXICOMEXICO Reversal of Cardenismo: greater support for industryReversal of Cardenismo: greater support for industry Containment of labor demands Containment of labor demands Creation of Central Bank, anticipatory devaluationCreation of Central Bank, anticipatory devaluation Orthodox Macroeconomic policies – Activist industrial Orthodox Macroeconomic policies – Activist industrial

policiespolicies

The Third Path of ISIThe Third Path of ISI

From mid 60s and early 70s to the debt crisis 80sFrom mid 60s and early 70s to the debt crisis 80s New Balance of payments constraints: oil shocks and New Balance of payments constraints: oil shocks and

inherent vulnerabilities of the model. inherent vulnerabilities of the model. Response: expansion of non traditional exports – Response: expansion of non traditional exports –

contradiction with macroeconomic policiescontradiction with macroeconomic policies Political pressures to maintain high economic growth Political pressures to maintain high economic growth

introduction to democracy; opposition forces within PRIintroduction to democracy; opposition forces within PRI 80s collapse of external financing: real devaluations, wage 80s collapse of external financing: real devaluations, wage

cuts cuts State response to shocks – function of political institutionsState response to shocks – function of political institutions Constrains of new social groups after democratization over Constrains of new social groups after democratization over

economic policy Mexico: regional leader on outward looking economic policy Mexico: regional leader on outward looking policiespolicies

Debt Led Growth and Export PromotionDebt Led Growth and Export Promotion BRAZILBRAZIL Replacement of FDI with foreign borrowing 60s military’s Replacement of FDI with foreign borrowing 60s military’s

economic strategy: political repressioneconomic strategy: political repression 67 Need of support from domestic private sector and middle 67 Need of support from domestic private sector and middle

class.class. 68-73 Brazilian Miracle: outward looking First Oil Shock: non 68-73 Brazilian Miracle: outward looking First Oil Shock: non

heterodox approach heterodox approach MEXICOMEXICO Response to social unrest: redistributive measures, education Response to social unrest: redistributive measures, education

and welfare incentives, + control over FDIand welfare incentives, + control over FDI Response to ISI vulnerabilities: incentive for non traditional Response to ISI vulnerabilities: incentive for non traditional

exports exports Contradition with continued support for capital-intensive Contradition with continued support for capital-intensive

industries = Increased Borrowingindustries = Increased Borrowing Oil Boom: expansion of ISI & social expendituresOil Boom: expansion of ISI & social expenditures 1982: Mexico announces it can’t pay its debt1982: Mexico announces it can’t pay its debt

Big Business and the Politics of Economic Big Business and the Politics of Economic Reform: Confidence and Concertation in Reform: Confidence and Concertation in

Brazil and MexicoBrazil and Mexico

(Schneider)(Schneider)

Economic Reform VariationsEconomic Reform Variations

Similar Development Strategies Similar Development Strategies

Argument: variations depended on relations between Argument: variations depended on relations between business & governmentbusiness & government

A- Deeper A- Deeper financial crisisfinancial crisis in Mexico in Mexico

B- B- ConcertationConcertation sped reform implementations sped reform implementations

Investment Crisis and Radical ReformInvestment Crisis and Radical Reform

Investment CrisisInvestment Crisis: contraction of capital flows from abroad, : contraction of capital flows from abroad, public savings and private investmentpublic savings and private investment

Reform initiatives: Investment Crisis vs. Political ChangeReform initiatives: Investment Crisis vs. Political Change Mexico: falling oil prices, 13% public deficit = borrowingMexico: falling oil prices, 13% public deficit = borrowing

greater capital flight, need to restore business confidence greater capital flight, need to restore business confidence

CONCERTATIONCONCERTATION Mexico (CMHN) > Brazil (ISID)Mexico (CMHN) > Brazil (ISID)

Stabilization through ConcertationStabilization through Concertation

MEXICOMEXICO 87 Pacto de Solaridad Economico: coordinated expectations87 Pacto de Solaridad Economico: coordinated expectations 87 Stock market crash87 Stock market crash 95 Crisis: end of pacto 95 Crisis: end of pacto

BRAZILBRAZIL Social Pacts: could not set an income policySocial Pacts: could not set an income policy

Negotiation in Trade LiberalizationNegotiation in Trade Liberalization

MEXICOMEXICO COECE influence on NAFTA negotiations COECE influence on NAFTA negotiations Benefits: Info flow, governmentBenefits: Info flow, government

BRAZILBRAZIL Concertation vs. Consultation: never institutionalizedConcertation vs. Consultation: never institutionalized Radical market oriented reform: IEDI creationRadical market oriented reform: IEDI creation Sectoral Arrangements: adjustment to Intl. competitionSectoral Arrangements: adjustment to Intl. competition Concertation Auto Industry successConcertation Auto Industry success

Benefits and sources of ConcertationBenefits and sources of Concertation

BENEFITSBENEFITS Concertation is not indispensable Concertation is not indispensable Concertation is preferableConcertation is preferable Flexible nature Flexible nature Vulnerable nature Vulnerable nature

COSTSCOSTS Greater rigidity on the implementation of reformGreater rigidity on the implementation of reform Delay on implementationDelay on implementation

Further ImplicationsFurther Implications

Business Elites – State Elites: Exit & Voice Business Elites – State Elites: Exit & Voice State dependence in Private InvestmentState dependence in Private Investment Business influence: function of degree they can limit Business influence: function of degree they can limit

government policiesgovernment policies State influence: sets the AgendaState influence: sets the Agenda State weakness: exitState weakness: exit Business Weakness: ambiguity for neoliberal reformBusiness Weakness: ambiguity for neoliberal reform

““State actors trade some autonomy for greater capacity”State actors trade some autonomy for greater capacity”

QuestionsQuestions

1)- In which ways does ambiguity for the neoliberal 1)- In which ways does ambiguity for the neoliberal project work against businesses? project work against businesses?

2)- Why do you think countries with small markets 2)- Why do you think countries with small markets and more limited resource endowments and more limited resource endowments (Uruguay and Costa Rica) adopted ISI? (Uruguay and Costa Rica) adopted ISI?

3) - Do you think concertation has a real effect on 3) - Do you think concertation has a real effect on economic policy or is it a tool for the national economic policy or is it a tool for the national government to manipulate business behavior?government to manipulate business behavior?