August 7th, 2021

Blast Off

US-MEXICO ARMS FLOWS

This week, the Mexican government sued eleven major US arms manufacturers, alleging that they facilitated the illegal flow of guns into the country. The proliferation of US-manufactured guns in Mexico during recent years has been well-documented, but their presence precedes the twentieth century.

In a 2013 text, BRIAN DELAY investigates how the newly-independent Mexican state navigated wars while lacking capital to purchase arms, leading to a reliance on US creditors.

From the piece:

"During the 1850s and 1860s, in response to demand created by several coups and regional rebellions, more than a decade of civil war, and a foreign occupation, ammunition would pour into Mexico by the tons and firearms by the many tens of thousands. Most of this material came from the United States, most of it came on credit, and mostly the terms were ruinous. During the French Intervention of 1862–1867, Mexico’s conservatives conspired with Napoleon III to install Archduke Maximilian as Mexico’s king. Mexico’s president-in-exile, Benito Juárez, dispatched scores of agents to US cities in search of capital and weapons with which to retake control. Existential desperation encouraged them to make fantastical promises, and to sell more than thirty million dollars in bonds at steep discounts.

Historian John Hart has sleuthed out the list of buyers, and it reads like a who’s who of America’s incipient Gilded Age. These men were not so naïve as to expect prompt repayment on the bonds. They expected the bonds to give them not scheduled returns so much as leverage to secure land deals, mining concessions, commercial privileges, and, above all, railroad projects. The creditors clamored for repayment as soon as the liberals retook the capital. Finally in 1876, despairing of ever recouping their investments, these bondholders conspired with colleagues in the railroad business to fund and arm a coup by Mexican General Porfirio Díaz."

Link to the text.

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January 23rd, 2021

Luxor

SOCIAL POLICY IN BRAZIL

Outside of Brazil, the Bolsa Familia is known as the hallmark social policy of the former President Lula and remains the world's largest conditional cash transfer program. Less well known is the history of Brazil's social policy in the early decades of the twentieth century.

In her 1996 book, BARBARA WEINSTEIN examines how industrialists influenced the nation's social programs from 1920 to 1964.

From the book:

"Although the industrialist proponents of rational organization did aspire to remake the workplace and the workforce, their concern in the first instance was to remake themselves, or at least their class image. By identifying with new currents in rational organization and scientific management, these industrialists, engineers, and educators claimed for themselves the professional authority and technical expertise necessary to modernize Brazilian society. In contrast to the 'arbitrary' authority of the old-style planter or mill owner, these new industrial owner-managers defined a wide variety of problems affecting the organization of production in the workplace, and even life beyond the factory walls, as technical, not social, questions to be resolved on a systematic, scientific basis. Such an approach, they claimed, would not only increase productivity but also promote social peace.

This effort by certain industrialists and their allies to capture the discourse of technical competence had formidable implications for labor relations and the work process, but workers were not the industrialists' sole concern. The industrialists also sought to change the perception of industry among politicians, professionals, and middle-class reformers who harbored doubts about the industry's contribution to economic progress and social peace. By asserting the centrality of technical expertise as well as their privileged access to it, industrialists attempted to protect and expand their authority within the factory and claim an authoritative role in the making of public policies and programs."

Link to the book.

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December 5th, 2020

Idyl

OIL POLICY

This year's turbulent oil market, in combination with the Covid-19 pandemic, has threatened the financial outlook of several Latin American nations. With many governments dependent on oil revenues, the issues of public ownership of the oil sector and financial liberalization are subject to intense political debate. But given the fluctuations of the market and national responses over the past three decades, some have called into the question the ideological nature of oil policy in the region.

In a chapter from the 2019 volume The Political Economy of Taxation in Latin America, FRANCISCO MONALDI examines oil expropriation and taxation across Latin America, arguing that oil policy is determined less by political ideology and more by structural factors of the oil sector and investment cycles.

From the chapter:

"In 2013–2015 Mexico opened up its oil industry to private investment, following seventy-five years of exclusive state control. Other Latin American governments, including Argentina, Brazil, Colombia, Ecuador, and even Venezuela, covering all political tendencies, are also enthusiastically courting foreign investment in oil, offering increasingly attractive fiscal conditions, with lower government-take. This trend would seem to proclaim a new liberalization cycle in the industry. In contrast, during the previous decade, under an oil price boom, the region had witnessed a resource nationalism cycle. Most countries in the region significantly increased the government-take on hydrocarbons and the government control over the industry. What are the determinants of these swings in oil policy, and in particular in hydrocarbon taxation policy? This chapter argues that structural factors, such as the characteristics of the oil sector (rents, sunk costs, risk profile of projects), the countries’ geological endowments, and price and investment cycles are key determinants of oil taxation policy. These factors interact with the broader institutional environment of a country to define oil policy. Ideology usually plays a role in how policy change is enacted, particularly regarding the degree of government control, but the general direction of oil taxation policy is largely determined by the incentives provided by structural factors and market conditions.

To understand the dynamic of resource nationalism it is important to focus on the deeper determinants of the historical cycles of private opening and expropriation. These are the incentives faced by political leaders under different scenarios of international prices, stages of the investment cycle, production and reserve tendencies, and size of net exports (imports). Expropriation in its different forms, including significant tax increases, tends to occur when prices rise substantially – that is, when its benefits increase significantly for the government. Expropriation is also more likely to occur in an environment of high and increasing reserves and production, and when the country becomes a large net exporter. Thus, after a cycle of significant and successful private investment, the probability of expropriation paradoxically increases. Given the amounts of the oil rents, which can be as high as 90% of revenues, the fiscal benefits can be politically irresistible. Most relevant petroleum exporters are fiscally reliant on oil. Thus, in this so-called high-sunk-cost sector, the effects of a decline in investment can take years to lead to the consequent decline in production. Therefore, government leaders with short-term horizons may be tempted to obtain high current benefits while deferring costs, leaving future leaders to bear the political consequences of declining production and revenues."

Link to the text.

  • "The scaling-up of NAFTA to the SPP (Security and Prosperity Partnership of North America)—which bolstered U.S. national security—is the basis for changes in the Mexican energy sector." Alejandro Alvarez Béjar's account of NAFTA's implications for energy policy challenges Monaldi's framing. Link.
  • "Contrary to an explanation based on rentier state theory, Chavez's proclivity for state intervention, both as a candidate and as president remained constant regardless of significant changes in oil prices." Gustavo Flores-Macías' study of Latin American leftism sheds light on Chavez's resource nationalism. Link.
  • "Compared with high-income resource-abundant countries, Latin American & Caribbean commodity exporters have much lower (known) natural resource endowments per capita but are much more dependent on natural resource revenues." Emily Sinnott, John Nash, and Augusto de la Torre's World Bank report provides an overview of commodity dependence in the region. Link. And Maristella Svampa examines the tensions between commodity dependence and indigenous rights. Link.
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