Stephan Haggard 423Recognizing that economic circumstances vary across cases as well, what
political factors help account for these long-term patterns? The new political
economy would suggest that differences in the density and composition of interest
group organization should be a starting point. Through most of the postwar
period, the Latin American countries can be differentiated from the Asian cases
in terms of the size and organization of urban-industrial interest groups, including
the so-called popular sector, which has played a crucial role in Latin American
politics.
Mexico, Brazil, and particularly the countries of the Southern Cone had longer
histories of industrialization, larger urban-industrial populations, and comparatively
small agrarian sectors at the outset of the borrowing boom of the 1970s than the
East and Southeast Asian countries. These conditions have implied denser and
more established networks of unions, white-collar associations, and manufacturers’
groups linked to the import-substituting industrialization (ISI) process in Latin
America.
This density of urban-industrial groups, in turn, had two implications for
economic policy. The first concerns overall economic strategy. There have
been important economic barriers to shifting the pattern of incentives toward
export-oriented strategies in Latin America, including the problem of setting
exchange rates where there is a strong comparative advantage in natural resource
export. The number and extent of groups linked to import-substituting
industrialization have also been significant factors. Even authoritarian
governments with preferences for market-oriented policies, such as Brazil after
1964, faced constraints from groups linked to the ISI process. The well-known
balance of payments problems associated with ISI were, in turn, one factor in
the expansion of foreign borrowing during the 1970s and the subsequent
macroeconomic policy problems.
In South Korea and Taiwan, by contrast, industrialization, and particularly ISI,
were of shorter duration, and there were consequently fewer interests opposed to
the crucial exchange rate and trade reforms that launched export-led growth. Elite
concern with rural incomes may also have had some effect on policy, constituting
a political counterweight to ISI forces. This constellation of interest groups may
help explain the ability of the Philippines, Thailand, Malaysia, and Indonesia to
maintain realistic exchange rates and to shift, though to varying degrees, toward
the promotion of manufactured exports.
The second consequence of the density of urban-industrial groups relates
more immediately to macroeconomic policy. The political mobilization of urban
groups and unions, particularly in a context of high income inequality, is an
important factor in explaining the appeal of populist economic ideologies in
Latin America.... [T]here is a remarkable similarity in populist economic programs
across countries. Their main political objective is to reverse the loss in real
income to urban groups that results from traditional stabilization policies or
simply from the business cycle.
Populist prescriptions include fiscal expansion; a redistribution of income through
real wage increases; and a program of structural reform designed to relieve
productive bottlenecks and economize on foreign exchange. Populists reject the