Abstract
The wave of economic and political transitions across the developing world in the 1980s and 1990s led to divergent outcomes within countries. This chapter reviews the literature on subnational variation in response to national-level economic and political reform and argues that existing research has not fully applied the lens of government-business relations to analyzing economic outcomes at the subnational level. While differences in the pattern of interactions between local authorities and firms are clearly relevant to subnational economic performance, the mechanisms are likely to differ from those at the national level. To underscore this point, this chapter proposes a set of analytical guidelines for understanding subnational government-business relations. The chapter then introduces the book’s argument, which shows how the decisions of large firms shaped the organization of the local private sector in Puebla and Querétaro, leading to different patterns of government-business relations (sometimes also including labor) and, consequently, economic divergence.
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Notes
- 1.
- 2.
The literature on subnational authoritarianism includes O’Donnell 1993; Cornelius et al. 1999; Gibson 2005; Behrend 2011; and Giraudy 2015, although some authors dispute the contention that subnational authoritarians can construct distinct local political “regimes,” preferring to speak of “illiberal practices” (see Behrend and Whitehead 2016).
- 3.
Giraudy (2015) shows how subnational authoritarians can, under certain circumstances, maintain their position via political alliances with national democratic leaders, while Gervasoni (2010) emphasizes the importance of fiscal transfers from the center in sustaining undemocratic rentier regimes at the subnational level.
- 4.
- 5.
Such opposition is generally associated with investment in the extractive industries.
- 6.
The basis for this shift is the New Economic Geography, pioneered by Helpman and Krugman (1987), which emphasizes how factors such as increasing returns and imperfect competition can generate imbalanced growth across regions.
- 7.
As discussed in Chapter 1, political institutions are defined broadly to encompass informal practices governing relations among political actors and the organizations through which they act collectively, in addition to formal rules.
- 8.
- 9.
Evans (1995) conceived of these more expansive state functions as “husbandry” and “midwife.” The term “reciprocal control mechanism” is from Amsden (2001) and refers to making subsides and other government support conditional on firms’ meeting performance requirements such as exporting or investing in new technology.
- 10.
The first debate pits what Hausmann et al. (2008) and Sabel (2009) call industrial policy “in the large” versus industrial policy “in the small.” Schneider (2015) distinguishes between “active industrial policy” (changing firm behavior) and “passive industrial policy” (changing government behavior).
- 11.
Hausmann et al., for example, equate “good” industrial policy with “those institutional arrangements and practices that organize this [public-private] collaboration effectively” (2008, 4). This statement finds support in a growing number of studies that identify collaboration between government and business as critical for successful industrial policy, broadly interpreted. See Fernández-Arias et al. (2016), Schneider (2015), Crespi et al. (2014), and Sabel (2012) for recent examples focused on Latin American experiences.
- 12.
Scholars have used a range of terms to describe these functions, such as “consultation” and “credible commitments” (Doner 2009) and “reciprocity” (Amsden 1989; Maxfield and Schneider 1997). Collaboration can also build long-term trust and credibility between government and business and promote norms of compromise (Amsden 1989; Maxfield and Schneider 1997).
- 13.
For example, Krueger (1974) warned that interaction between bureaucrats and firms would inevitably result in rent-seeking.
- 14.
Business associations are not the only lens through which business can be examined. However, business associations are relevant to any analysis of government-business relations, even if they are not the main conduit for firms to engage with officials (see Maxfield and Schneider 1997). In the latter case, the question becomes why did firms opt out of associations.
- 15.
Encompassing business associations generally have a mandate to represent firms across the economy and are therefore “economy wide,” although in practice encompassingness is an empirical question. Sector and even regional associations can function like encompassing associations when their constituencies are sufficiently broad (see Durand and Silva 1998).
- 16.
These “market-supporting activities” are a crucial function of developmental business associations according to Doner and Schneider (2000), although they have been successfully performed by sector-specific associations as well (see fn 15).
- 17.
In fact, Olson (1982) predicted that encompassing associations would be rare and short-lived.
- 18.
Access to decision makers thus constitutes a valuable selective benefit that helps overcome free-riding.
- 19.
Perspectives on MNC participation in collective action are mixed. MNCs may not participate actively in business associations for fear of encroaching on politically sensitive territory or because high turnover among expatriate managers prevents sustained engagement (Schneider 2004), although examples of MNCs playing an active role in public-private councils certainly exist (see Palacios 2008; Moran 2015).
- 20.
Moran (2015), for example, suggests foreign investors care most about the availability of infrastructure and skilled human capital to facilitate integration of local operations into global supply chains and they are disposed to work with governments to create these conditions. On the other hand, Schneider (2014) shows that the focus of large domestic business groups in Latin America on natural resources and heavily regulated utilities tends to undermine such pro-development preferences. Taken together, these findings imply the participation of MNCs in business associations and government-business collaboration is all the more important in the region.
- 21.
Coordination is the defining feature of the “coordinated market economies” of Northern Europe (see Hall and Soskice 2001). While the VoC literature initially focused on advanced industrial economies, Schneider (2014) examines Latin America through the VoC lens, concluding capitalism in the region is defined by hierarchical relations among economic actors, which helps account for the region’s low levels of productivity, skills, and innovation.
- 22.
In the developmental state and business politics literatures, organized labor tends to play a secondary role at best, as the authoritarian contexts in which most of these studies are situated generally limited labor’s scope for independent action.
- 23.
- 24.
- 25.
See Schneider (2015) for some discussion of these issues. There are several well-studied examples of government-business collaboration at the subnational level, but research on these cases has generally said little about the underlying local political dynamics (see Palacios 2008; Sabel 2012). McDermott (2007) emphasizes the importance of participatory institutions in successful policies to upgrade in the wine sector in Argentine provinces.
- 26.
As Doner and Schneider (2016) suggest, the literature has only begun to grapple with the implications for government-business relations of current political dynamics in most middle-income countries.
- 27.
- 28.
This idea mirrors Behrend and Whitehead’s (2016) admonition that subnational variation in levels of democracy is more likely to be a question of “practices” rather than formal institutions given the embeddedness of subnational units in a common institutional framework.
- 29.
This is not to imply that factors such as strong leadership and technical capabilities in subnational bureaucracies do not matter. The point is a relative one. Compared to the national level, the relative influence of formal state institutions versus characteristics of the private sector in shaping subnational government-business relations will be more weighted towards the latter.
- 30.
Hall and Soskice (2001) make a similar point, suggesting that important subnational differences may exist within a given variety of capitalism due to the influence of large firms in regional economies.
- 31.
Although large firms, and especially multinationals, face strong incentives to pursue individual strategies instead of collective action, this result is not inevitable and may depend on factors such as industry concentration (see Schneider 2004). The case studies in this book also illustrate the importance of economic concentration in shaping firms’ incentives to engage in collective action.
- 32.
This is a main feature of the neo-corporatist literature on state-labor relations. See Schmitter 1985.
- 33.
It is important to clarify that this statement refers to the position of industrial unions. Public sector unions, such as teachers’ unions, and unions in sectors that continued to be protected from economic competition remained strong. See Murillo (2001) on the evolution of unions in Latin America.
- 34.
See Leftwich (2007) for a review.
- 35.
The patterns of interaction between government and business are not shaped by formal laws or regulations but rather by “socially shared rules” whose formulation and enforcement occurs outside of officially sanctioned channels (Helmke and Levitsky 2006, 5).
- 36.
Coparmex is Mexico’s National Employers’ Association, a voluntary, independent association of mostly small and medium-sized firms. Canacintra, the National Chamber of Manufacturing Industries, was the official chamber of manufacturing firms under Mexico’s state corporatist system. Both organizations maintained local affiliates in states and cities throughout Mexico, and they developed very different profiles in Puebla and Querétaro. See Chapter 3 for a discussion of the evolution of organized business in Mexico.
- 37.
In this way, business chambers in Querétaro acquired the characteristics associated with encompassing associations in the academic literature.
- 38.
As detailed throughout the book, the firm did indeed engage directly with the highest political authorities in the state, who were generally quick to respond to the firm’s preferences. At the same time, other major MNCs and national manufacturing firms in Puebla—such as Hylsa, Grupo Bimbo, Pelican, Chiclets Adams, and a host of MNC auto parts producers—likewise did not actively participate in business associations.
- 39.
Interview, 26 January 2016. See Chapter 3 for more discussion of the firm’s attitude towards local business associations.
- 40.
As Falleti (2010) shows, the underlying motivation for decentralizing policy authority to state governments was to forestall demands for more fundamental political change. In a similar vein, other authors have argued that national officials hoped decentralization would ease pressure on federal budgets, deflect blame for flagging services onto local governments, and reduce the power of public sector unions, especially in the case of education (see Beer 2004 for a review of these arguments).
- 41.
While the initiation of market reforms in 1985 helped win back the support of elite business associations, representatives of smaller firms producing for the domestic market continued to criticize the government over the fast pace of trade liberalization and the recurrent crises that beset the Mexican economy in the 1980s and 1990s (Shadlen 2004; Schneider 2004). See Chapter 3 for more discussion of the political activities of organized business during this period.
- 42.
As Snyder (1999, 2001) illustrates, PRI governors had distinct ideological and policy preferences, which shaped their responses to national reforms. However, they were also constrained in their choices by factors such as economic structure and the presence of viable political allies for their policy projects.
- 43.
Twelve interviews with individuals who participated directly in the Tripartite Commission form the basis for the discussion of this institution and its role in Querétaro’s development.
- 44.
Loyola himself was a businessman who had been the president of Coparmex, a leading business association, before entering politics.
- 45.
The PAN candidate, Ricardo Villa Escalera, was a textile businessman with close links to the local business leadership.
- 46.
This remains the case even though both San Luis Potosí and Zacatecas have experienced faster than average growth for Mexican states over the past decade.
- 47.
The precise relationship between democracy and development remains a matter of debate, however. See Acemoglu et al. 2014.
- 48.
In addition to these local factors, events such as the 1995 economic crisis and an electoral reform passed the following year also contributed to the PRI’s defeat in Querétaro in 1997 (see Chapter 8).
- 49.
This figure includes both untied transfers, called participaciones, and transfers earmarked for particular policy areas that fall under state government responsibility (aportaciones). The source for this data is the Centro de Estudios de las Finanzas Públicas of the Cámara de Diputados (2017).
- 50.
Interviews with business owners in Puebla, 13 November 2015 and 25 January 2015; Interview with Ignacio Loyola Vera, 22 April 2016.
- 51.
The comparison between the 1990s and 2000s suggests that Querétaro did not enjoy especially favorable treatment during the years when both the state governorship and presidency were occupied by the PAN (2000–2009). In fact, Giraudy (2015) and Rebolledo (2012) report that Puebla’s PRI-led governments managed to maintain close alliances with PAN presidents during this period.
- 52.
In the first half of the 1990s, for example, federal transfers made up just over half of the states’ income on average (see Ibarra Salazar et al. 1999).
- 53.
Querétaro ranked 21, while Puebla ranked 30 out of 32 federal entities. Calculations are based on data from Secretaría de Hacienda y Crédito Pública, Estadísticas Oportunas de Finanzas Públicas.
- 54.
Puebla received an average of 1,310 pesos/capita of federal public investment during these years, compared with 3,110 for Querétaro. These calculations are based on data from federal Informe de Gobierno statistical annexes for various years and are based on 2008 prices.
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Kahn, T. (2019). Governing Subnational Economies. In: Government-Business Relations and Regional Development in Post-Reform Mexico. Latin American Political Economy. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-92351-2_2
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