Peru: Elite Power and Political Capture 9781783609048, 9781783609031, 9781350221758, 9781783609079

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‘An insightful and empirically rich work that makes sense of the Peruvian puzzle of economic growth contrasted with popular disaffection.’ Peter Kingstone, King’s College London ‘In this learned, elegant and very readable study of Peru, Crabtree and Durand interrogate the scholarship on political capture as well as addressing the power of corporate interests, the machinations of the governing class and the relative weakness of civil society.’ Barrie Axford, Oxford Brookes University

PERU ELITE PO WE R AN D P O L I TI CAL C A P T U RE

John Crabtree and Francisco Durand

Zed Books London

Peru: Elite Power and Political Capture was first published in 2017 by Zed Books Ltd, The Foundry, 17 Oval Way, London SE11 5RR, UK. www.zedbooks.net Copyright © John Crabtree and Francisco Durand 2017 The rights of John Crabtree and Francisco Durand to be identified as the authors of this work have been asserted by them in accordance with the Copyright, Designs and Patents Act, 1988. Typeset in Plantin and Kievit by Swales & Willis Ltd, Exeter, Devon Index by [email protected] Cover design by Keith Dodds All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying or otherwise, without the prior permission of Zed Books Ltd. A catalogue record for this book is available from the British Library. ISBN 978-1-78360-904-8 hb ISBN 978-1-78360-903-1 pb ISBN 978-1-78360-907-9 pdf ISBN 978-1-78360-906-2 epub ISBN 978-1-78360-905-5 mobi

CON TE N TS

List of abbreviations | vi Map of Peru | viii Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1 A conceptual and historical introduction to political capture . . . . 8 2 Development of the Peruvian state since Independence . . . . . . 28 3 State autonomy and Peruvian elites . . . . . . . . . . . . . . . . . . 54 4 The birth of the neoliberal state. . . . . . . . . . . . . . . . . . . . . 76 5 The power of the new elites . . . . . . . . . . . . . . . . . . . . . .

104

6 Problems of distribution, poverty and decentralisation . . . . . . . 130 7 The deficiencies of a disconnected state . . . . . . . . . . . . . . . 152 8 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178 Bibliography | 189 Index | 195

ABB RE V I ATI O N S

Adex AEF Aidesep AP APRA BBVA BCRP CADE CCP CCT CGTP CNM Confiep Conite Copri CTP ECLA Foncodes FTA GDP GyM IDB IGV ILO IMF Indecopi IPAE IPC IPE ISI IU MEF

Asociación de Exportadoress Asociación de Empresas Familiares Asociación Interétnica de la Selva Peruana Acción Popular Alianza Popular Revolucionaria Americana Banco Bilbao Vizcaya Argentaria Banco Central de Reserva del Perú Conferencia Anual de Ejecutivos Confederación Campesina del Perú Conditional Cash Transfer Confederación General de Trabajadores del Perú Consejo Nacional de la Magistratura Confederación de Instituciones Empresariales Privadas Comisión Nacional de Inversiones y Tecnologías Extranjeras Comisión de Promoción de la Inversión Privada Confederación de Trabajadores del Perú Economic Commission for Latin America Fondo Nacional de Compensación y Desarrollo Social free trade agreement gross domestic product Graña y Montero Inter-American Development Bank Impuesto General a las Ventas International Labour Office International Monetary Fund Instituto Nacional de la Defensa de la Competencia y de la Protección de la Propiedad Intelectual Instituto Peruano de Administración de Empresas International Petroleum Company Instituto de Política Económica Import Substitutive Industrialisation Izquierda Unida Ministerio de Economía y Finanzas

a bb reviat ions | vii MMG MRTA NGO Osinerg Osiptel PCP PPC Pronaa SBS SIN SNA SNI Sinamos SNIP SNMP SPCC Sunat Sunedu

Minerals and Metals Group Movimiento Revolucionario Túpac Amaru non-governmental organisation Organismo Supervisor de la Inversión en Energía Organismo Supervisor de la Inversión Privada en Telecomunicaciones Partido Comunista del Perú Partido Popular Cristiano Programa Nacional de Asistencia Alimentaria Superintendencia de Bancos y Seguros Servicio de Inteligencia Nacional Sociedad Nacional Agraria Sociedad Nacional de Industrias Sistema Nacional de Movilización Social Sistema Nacional de Inversión Pública Sociedad Nacional de Minería y Petróleo Southern Peru Copper Corporation Superintendencia Nacional de Administración Tributaria Superintendencia Nacional de Educación Superior Universitaria

PE RU

COLOMBIA 0q Equator

ECUADOR

Iquitos Tumbes

LORETO

AMAZONAS

TUMBES

PIURA Piura

Chachapoyas

CAJA LAMBAYEQUE MARCA

Moyobamba

SAN MARTIN

Chiclayo Cajamarca

BRAZIL

LA LIBERTAD Pucallpa

Trujillo

ANCASH Huaraz

HUANUCO Huanuco

UCAYALI

PASCO

Cerro de Pasco

LIMA Callao

JUNIN MADRE DE DIOS

Huancayo

Lima

Huancavelica

HUANCA VELICA

Ayacucho

Pto Maldonado

CUZCO

BOLIVIA

Pacific Ocean

Cuzco Abancay

ICA

HO CUC AYA

Ica

APURIMAC PUNO Puno

Lake Titicaca

AREQUIPA Arequipa

Land over 2,000 metres Department boundary

MOQUEGUA Moquegua

Department capital 0

100

200

TACNA 300 miles

Tacna

CHILE

INTROD U C TI O N

On 28 July 2011, Ollanta Humala was elected president of Peru having based his campaign on the need for a ‘great transformation’ from the neoliberal agenda which had prevailed for the previous two decades. Within hours of being sworn in, it became clear that the most recent advocate of the Latin American ‘pink tide’ had been advised that such a course would have pitted him against the country’s wealthy economic elites for whom such a transformation was anathema. The script suddenly changed, and for most of his subsequent five years in office, Humala back-pedalled from his original plan. Key appointments were placed safely in the hands of those who enjoyed the confidence of the all-important investor community, whether Peruvian or foreign. Five years later, in July 2016, Humala was replaced as president by Pedro Pablo Kuczynski, a former international financier, who proceeded to appoint a technocratic cabinet, most of whose members had close associations with the business community, both Peruvian and international. Peru, in recent years, thus stands out as an example of a country in which the influence of dominant elites over the political sphere has been particularly manifest and without significant opposition. The investment discourse became the main policy paradigm, echoed by opinion formers of one kind or another. Humala’s abrupt volteface raised the question of ‘political capture’ whereby, democratic institutions notwithstanding, powerful elites are able to use overwhelming political muscle to protect and project their economic interests, effectively sidelining or simply ignoring discordant voices. The election of Kuczynski appeared to confirm this trend. This is, of course, not uncommon either in the developed or developing worlds, as will become clear in the next chapter. Before proceeding to analyse the Peruvian case, it is worth looking at other instances of political capture, past and present. Although the term – and its somewhat narrower variant ‘state capture’ – has been coined relatively recently, it is a well-established phenomenon that can be found in a large number of countries around the world, not

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least in countries like the United States where the concentration of power in the hands of economic elites to influence policy making to their own benefit has long raised questions about the very meaning of democracy. Economic liberalisation in other parts of the world in recent decades, particularly in the countries of Latin America and the former Soviet Union, has led to similar sorts of inequality in the exercise of power. The concept of political capture has emerged as a counterpoint to earlier forms of political analysis in the attempt to explain inequalities of power, particularly in those countries with relatively weak or vulnerable states and highly unequal distributions of economic power concentrated in relatively few hands. The failure of democratisation since the 1980s to create more equal societies in which all sectors of the population have the power to lobby and influence decision making thus demanded a new approach. Why had market transitions gone awry? The phrase ‘state capture’ was first used to describe countries in central Asia where the World Bank detected, in the transition from Soviet communism, the appropriation of decision making by small corrupt groups determined to strengthen their own economic position through the influence they wielded over governments and decision-makers (Hellman et al., 2000). Studies thus focused on what became known as ‘oligarchs’ and had a strong emphasis on the role of corruption in public life. In Latin America, studies also came to focus on the role played by drug barons in public life, particularly in Colombia and Mexico where politics were ostensibly deformed by the power of illegal mafias operating within the orbit of the state. Two forms of analysis emerged from this. For many, ‘capture’ was seen as a dangerous deviation from the correct path, effectively a criminal aberration that could be dealt with through the right sort of institutional reforms. However, for others the problem was one related to the activities of corporations themselves which, in their natural desire to maximise profit, sought to bring influence to bear on the ‘rules of the game’ and to ensure that these continued to reflect their material interests. Such fashioning went beyond the functioning of the state as such, including a range of activities related to opinion forming, and it is for this reason we talk here of ‘political capture’. This sort of influence was not so much a matter of criminality or corruption but the protection of powerful legally constituted

i n t ro d u c t i o n | 3 economic agents. This way of looking at state functioning emphasised the relations between structures of economic and political power and how these sustained themselves over time. It focused on the ways in which pressure was brought to bear on decision makers in pursuit of the private, as opposed to public interest. They also involved issues surrounding the malleability of public opinion in fostering political support beyond the formally constituted arena of the state. This sort of capture was seen as particularly prevalent in polities in which corporate interests, whether domestic or multinational, had managed to fortify themselves economically, where state institutions lacked accountability, and where civil society was constituted in such a way as to be unable to provide a counter-weight to corporate influence. This book adopts the second of these approaches to examine the Peruvian case. Over recent decades, corporate interests have gained formidable power in Peru through processes of economic deregulation and privatisation. They have, effectively, dominated processes of decision making, particularly in the economic sphere, decision making which – broadly speaking – reflects the strategic interests of an elite in which income and wealth are highly concentrated. At the same time, civil society has proved unable to defend the interests of the wider society. Pressure from below is limited by the inability of excluded social groups to forge a unity of purpose giving rise to elaborate systems of clientelism with lines of control emanating from above. This is the ‘triangle without a base’, a useful metaphor originally deployed by Julio Cotler in the 1960s to explain the persistence of the colonial dominance in social relations in Peru (Cotler, 1967). In spite of regular and reasonably democratic elections since 2001, the power balance between different social sectors has tilted persistently in favour of elites, with the interests of other social sectors poorly or only intermittently articulated. Peru is also a country which exhibits very marked degrees of political alienation (and indeed apathy) on the part of voters and a strong distrust of political elites, itself a reflection of feelings of powerlessness to influence state policy. Successive annual evaluations of public opinion conducted by the Latinobarómetro across the region show just how deep that distrust is compared with other Latin American countries (Latinobarómetro, various years) It is furthermore a country in which the absence of strong, socially representative political parties means that popular

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pressures are not expressed forcefully at the level of the state, or at least not in an institutionalised way. However, first we need to clarify a little more what we mean by political capture. We adopt here an historical approach. The roots of state capture go back to the earliest days of the republic at the beginning of the nineteenth century, and Peru – unlike many other countries – saw the survival of an oligarchic state structure that was not effectively challenged by pressures from below, whether ‘revolutionary’ as in Mexico, Bolivia or Cuba or more ‘populist’ as in Brazil or Argentina. Peru represents an extreme example of a socially, geographically and racially segregated society in which the integration of the mass of the population into the social and political life of the nation was effectively thwarted until the last quarter of the twentieth century. Legacies from the past thus play an important role in explaining such capture. This is not to suggest, however, immutability. Patterns of control have changed greatly, depending on the social, political and economic circumstances and how these have changed relation between elites and the state. Nor do we believe, by the same token, that patterns of capture will continue inexorably into the future. Things can change to break patterns of influence, just as they have in the past. Latin American countries are not in some sort of stable equilibrium in which elites will always have things their way. We also believe that it is important not to exaggerate the extent of state capture, although the military dictatorships of the 1970s in Latin America sought to control the state as a whole as well as to police the relations between the state and civil society. For economic elites it is normally sufficient to have power of influence over decision making only over specific offices or departments, such as the finance ministry or the central bank, in which the rules of economic game are forged and from which key policies affecting business flow. Influence over other offices of state may be important, but secondary. The nature of the state in a functioning democracy we see as multifaceted, a space in which different (and often antagonistic) interests are in play and struggle for dominance. It is therefore a contested terrain in which a variety of vested interests jostle for influence. It is also a terrain in which there are frequently external influences and constraints at play, even though these may seek to shape state policies in different, and sometimes contradictory, ways.

i n t ro d u c t i o n | 5 We therefore see the ‘captured state’ as being one in which influence over the state comes overwhelmingly from one set of interests to the exclusion of others. These are not necessarily business interests; indeed in some circumstances these can be supplanted altogether by other social or political actors. Nor is it a fixed or static process; regimes come and go with greater or lesser degrees of capture. Analysis of state capture also needs to go beyond research into the workings of formal institutions by taking on board those of informal networks whose influence can be just as great as the former. This very mixture of the formal and the informal, the overt and the covert, makes political capture hard to measure in any precise fashion. Finally, we would argue that patterns of control can vary a great deal within a single country. Local politics can be very different from national politics, and political capture can reflect the dominance of specific interests which are not necessarily those that dominate in national politics. Powerful drug mafias in Colombia and Mexico provide examples of almost total state capture at the local level, whereas the direct influence of these at the national level is not so clear-cut. Arguably, this is the case in Peru where these sorts of interests influence state decisions in those parts of the country where drug manufacture and trafficking require state protection. In Peru, the writ of the centralised state does not run in the same way to every part of the country, and local elites (of various types) often enjoy considerable de facto autonomy. In some parts of Peru, for example, the state is effectively absent while its functions (or at least some of them) are undertaken by non-state actors such as mining or oil companies. And as at the national level, the strength of local elites is not fixed but subject to ebb and flow. This book therefore seeks to examine the mechanisms by which elites continue to control decision making and maintain their political dominance across time. The first chapter seeks to provide a comparative framework, showing that capture is by no means restricted to under-developed states and how it can be (and has been) used as a tool of analysis to examine power relations in the United States among other developed countries. Arguably, with the accentuation of inequality in recent decades, such methods of analysis are more pertinent than ever in describing how elites are able to stay on top. Deregulation and privatisation, whether in developed

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or developing countries, have changed the structures of economic power, tilting the balance towards private-sector actors and reducing the ability of state intervention to harmonise otherwise conflicting interests. In Latin America, already the world’s most unequal region, such changes have had a powerful imprint; and Peru is no exception to the rule. The second chapter examines elite domination in Peru in historical terms, specifically since the time of independence in the early nineteenth century through various cycles of boom and bust. The primacy of an extractive economy, we argue, has shaped the country’s institutional development, with patterns of extreme inequality underpinned by regional and ethnic differentiation. Unlike many other countries in Latin America, Peru did not undergo social revolution or bouts of populist inclusion. Elites managed to maintain their dominance, except perhaps during the military government of the 1970s when this was briefly interrupted and the state gained new-found autonomy. The impact of the military government and its legacy is examined in greater detail in Chapter 3. This was a testing time for elites, many of whom saw their assets appropriated by the state or redistributed to previously excluded sectors of the population, but it was a reform process driven more from above than below, and vulnerable to changes within the military cadres who led it. The return to democracy in the 1980s saw the reconstitution of elite power, but against a backcloth of legacies of social mobilisation and a newly empowered left-wing movement. However, the economic and political conflict of the late 1980s exposed both the weakness of the state, as well as that of the left in acting as a counterpoint to elite control. Chapter 4 examines in detail the reforms of the Fujimori government in the 1990s and their impact on structures of power. Peru underwent a process of rapid privatisation during these years, one of the most radical transformations in Latin America at the time. We examine the impact of these changes on the functioning of the economy and the wider society. Chapter 5 looks at the impact of neoliberal reforms on the Peruvian elites themselves, and their ability to influence policy making in the subsequent period (following the fall of Fujimori in 2000). What were the mechanisms used to exert influence over state decisions within the context of a more open and democratic government? How did the elites seek to influence opinion within the wider society and

i n t ro d u c t i o n | 7 thereby consolidate themselves politically? How differentiated were the new elites themselves, and how did different elites pursue their varied agendas? Key to the sustainability of the new model was the need to improve on patterns of distribution in society and to address longstanding issues of poverty and marginalisation. The following two chapters take up problems of governance affecting the Peruvian state today. Chapter 6 examines problems of distribution, poverty alleviation and the challenges of administrative decentralisation. How best to set about social welfare promotion in a context in which the state lacks the institutional capacity to provide such, particularly in the more remote areas in which extractive activity is based? How to increase the proportion of the population to receive material benefit from the model of export-led growth? How to build up decentralised administrative capacity in a country with such strong traditions of centralised control from the capital? Chapter 7 pursues the theme of policy dilemmas. Here we examine the impact of government policy in promoting extractive investment and the resistance encountered at the level of civil society. What sort of structures need to be put in place to try to deal with bouts of often violent conflict? How effective were they? How to build more effective intermediation between the centralised state and a civil society that felt unrepresented by it? And how to tackle the omnipresent problem of state corruption in a context of burgeoning and unregulated economic activity, much of it (as in the case of drug trafficking) illicit or at least at the very margins of legal activity? These problems were those that would confront the Kuczynski administration head-on. Chapter 8 resumes the general conclusions reached, providing explanation of why and how elites in Peru have proved so adept at maintaining their political influence, notwithstanding the not inconsiderable challenges they have faced in doing so.

1 | A C ON C E PT UA L A N D H I S T O R I CA L IN TROD U C TI O N T O P O L I T I CA L CA PT UR E

The study of what amounts to political capture is, of course, nothing new. It has been usefully used to examine the exercise of state power in the United States. US political scientists and sociologists have long sought to pin down and define the issue of elite power and how it is exercised in a democracy. In his landmark book of 1961, Who Governs?, Robert Dahl (Dahl, 1961) begins with a disarmingly straightforward question: ‘In a political system where nearly every adult may vote but where knowledge, wealth, social position, access to officials, and other resources are unequally distributed, who actually governs?’ Dahl seeks to answer this question with an examination into the political workings of a mid-sized New England city, New Haven, Connecticut. His response is one that upholds a pluralist vision of politics, rather than one of ‘capture’, in which political influence and agency was dispersed and the city was run not by a single unified elite but by politicians responsive to the political demands of their constituents. Political competition thus helps in keeping the majority at bay. Inequalities there certainly were in New Haven, both in economic terms and in political access, but the system of governance there in the early 1960s, Dahl thought, demonstrated a plurality of actors when analysed in terms of who makes decisions in different spheres of administration. The political system was therefore stable and conflicts were normally managed by skilful professionals without much involvement by the citizenry. Dahl acknowledges that the question of who governs in an unequal society is one ‘that has been asked, I imagine, wherever popular government has developed and intelligent citizens have reached the stage of critical self-consciousness concerning their society’, going back to Plato and Aristotle, if not before. In more recent times than ancient Greece, the issue was put perhaps most forcefully by Marx and Engels for whom the state in a capitalist society operated in line with the needs of capitalism as a mode of production and was dominated by the interests of the industrial bourgeoisie. The

i n t ro d u c t i o n to p o l i t i c a l c a p t u r e | 9 development of capitalism in nineteenth-century Europe, and then in North America, thus brought into being a capitalist state. However, it created the social struggles and class consciousness that Marx considered would lead to a socialist outcome. His analysis, of course, was underpinned by the egregious levels of social inequality in nineteenth-century Europe to which Thomas Piketty alludes in his well-known book Capital in the Twenty-First Century (2014). Nowhere was that social polarisation as evident as in the United States at the turn of the twentieth century, where society and politics were dominated by the ruling families of the so-called ‘Gilded Age’. Dahl’s approach was, in no small way, intended as a critique of the radical American sociologist, C. Wright Mills, whose work in the 1950s (Mills, 1956) provided important insights as to how power worked within a seemingly democratic framework. Mills saw the power of ‘ordinary men’ increasingly circumscribed by what he called the ‘power elite’ which controlled the state in the United States. Major national power, he wrote, ‘now resides in the economic, the political and the military domains’ (p6), meaning the corporation, the centralised state and the military order. He saw the power of ‘institutional orders’ as having increased enormously over the first half of the twentieth century, with these tightly interlinked. Inequality, he argued, was intimately bound up in the evolution of corporate structures: Wealth also is acquired and held in and through institutions. The pyramid of wealth cannot be understood merely in terms of the very rich; for the great inheriting families . . . are now supplemented by the corporate institutions of modern society: every one of the very rich families has been and is closely connected – always legally and frequently managerially as well – with one of the multi-million dollar corporations. (pp9–10) While distancing himself from what he called ‘vulgar Marxists’, Mills defined the power elite of the United States as ‘those political, economic and military circles which act as an intricate set of overlapping cliques, share decisions having at least national consequences’ (p18). He saw them as hierarchies with ‘structural coincidences of commanding positions and interests’ (p19). At the other end of the social spectrum he saw a mass-like society, politically

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‘impotent’ and which had little resemblance to the sort of American society celebrated by De Tocqueville in which voluntary associations and classic publics hold the keys to power. Contrary to what Dahl would argue, the middle groups in society ‘neither express such will as exists at the bottom, nor determine the decisions at the top’ (pp28–29). The existence of a ruling class notwithstanding, the pretensions of democratic governance in America were questioned further by William Domhoff (1996). Criticising Dahl’s methods and conclusions and siding more with Mills, Domhoff saw the managers of large income-producing property as those who exercise real power in the United States. He took up cudgels against what he called ‘state autonomy theorists’, and the sociologist Theda Skocpol in particular, who stressed the relative independence of the federal government in the United States and the responsiveness of American politics to voter leverage and competition between political parties. Domhoff maintained that it is the ruling elite, primarily business leaders, which effectively controls decision making. He, however, is no neo-Marxist, and claimed that ‘class domination theory’ does not necessarily imply acceptance of notions of historical materialism, the labour theory of value or the pervasiveness of class conflict. In an earlier work (1967), and unlike Dahl, Domhoff posited that the American ‘upper class’ is, in effect, the ‘governing class’ and that shifting political coalitions are dominated by it (p3). He viewed the American upper class as closely-knit by ‘such institutions as stock ownership, trust funds, intermarriages, private schools, exclusive city clubs, exclusive summer resorts’ etc., with well-honed methods of training and preparing new members (co-optation) (p4). The governing class was a social upper class which owned what he saw as a disproportionate amount of a country’s yearly income and contributed a disproportionate number of its members to the controlling institutions and key decision-making groups. This class, he argued, does not rule alone or exercise all power, but exercises dominance over the main controlling institutions. It is this control that is important. Members of the upper class and senior executives control foundations, elite universities, think tanks, the largest of the mass media and key opinion moulding institutions. Through its control of the executive, the power elite effectively controls the various other agencies of state, the regulatory agencies, the federal judiciary, the

i n t ro d u c t i o n to p o l i t i c a l c a p t u r e | 11 military, the CIA and the FBI etc. The power elite, in turn, influences but does not control the legislative branch of the federal government, most state governments and most city governments (p11). Domhoff’s idea of interlocking circles of influence and power relates closely to the ‘revolving door’ notion we will see in Peru, whereby elites pass seamlessly from one area of influence to another, unified by a strong esprit de corps and ideological commitment. Control in these circumstances depends on the solidity of informal elite networks. Dahl’s pluralism spawned other critics too. Bachrach and Baratz (1962) took issue with him on how elite groups influence patterns of decision making, rejecting the idea that the exercise of political power is only observable through the study of who took key decisions, when, how, and to what effect. What, they asked, if the ‘unmeasurable’ turns out to be the most significant element of how power is exercised, and whether power is only testable when there are disagreements on key issues between two or more groups, as Dahl had contended? In particular, the fact that decisions are not made can equally be the product of the exercise of power. Invisibility makes measurement problematic (not least when informal institutions prevail), but power is still being exercised nonetheless. This idea was taken further by Matthew Crenson in his important book on how he saw power exercised in two other neighbouring American cities, Gary and East Chicago on the shores of Lake Michigan in northern Indiana (Crenson, 1971). Gary was the archetypal company town, built and controlled by US Steel, where local elites were effective in keeping issues such as pollution off the public agenda. Crenson thus challenged the logic of the pluralists when they argued that any dissatisfied group will be able to find spokesmen in the political stratum. The pluralist approach, he said, may suffer from insensibility to the ‘power of obstruction – of enforcing inaction and thereby maintaining the impenetrability of the political process’ (p21). Crenson’s book has important lessons for the concentration of power at the sub-national level where corporate interests, as in some parts of Peru, may overrule state institutions. Dahl’s pluralist approach, based on a preoccupation with demonstrating the exercise of power, has also been taken to task by more recent writers. Steven Lukes (2005) took on the argument from Domhoff and Crenson, by positing that it is not simply the exercise of power that matters but the capacity or potential to exercise power, and to secure acceptance of decisions made. He identified

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three dimensions of power. One-dimensional power is where those who hold sway are those who prevail in decision-making situations. Two-dimensional power concerns ‘agenda control’, whereas three-dimensional power focuses on how the powerful secure the compliance of those they dominate. This third dimension of power, therefore, was to speak of interests imputed to but not recognised by others. Here, we are talking of political capture, not just state capture. In raising the whole issue of compliance and acceptance Lukes thus took us back to the work of Gramsci (1971) and the power of ideology to frame the lives of ordinary citizens and to engineer consent in advanced capitalist societies. Are the subordinate classes inexorably subject to domination from above and in what circumstances do people’s ‘true interests’ shine through, enabling them to overcome their subordination through resistance and rebellion? Why does civil society allow state capture to happen when it clearly is not in its interest to let it happen? The Gramscian concept of hegemony, whereby ruling elites maintain their dominance through largely consensual means, is clearly highly relevant to this discussion, as is the importance of discourse (for instance through elite dominance of the media) in creating a ‘common sense’ which encourages people, broadly, to accept their subordinate role. Unless challenged, such acceptance (and indeed apathy) helps explain the lack of social response to state capture. Gramsci’s concern with ideology and how it is formed relates to this issue of acquiescence and the establishment of hegemony through intellectual and moral leadership rather than by material force, giving rise as to how consensual ideas are formed in society as a whole. Liberalisation, globalisation and inequality: developed economies Earlier writers thus pinpointed the role of political capture and its impact on inequality in a democratic context. However, the changes that have come about in the world economy since the late 1970s are such as to have had a profound impact on the balance of political power within economies, both developed and developing, and in their relative patterns of distribution. A circularity has become marked, with political capture influencing patterns of unequal distribution (of wealth as well as income), leading in turn to greater inequalities in the distribution of power and thus further contributing

i n t ro d u c t i o n to p o l i t i c a l c a p t u r e | 13 to the phenomenon of capture. The closely connected processes of liberalisation (and in particular deregulation and privatisation), technological change and the globalisation of markets have all tilted economic and political power firmly in the direction of business elites, especially those with global reach, at the expense of organised labour. Amongst other things, these influences have made it much harder to map out how power is exercised, not just within countries but globally. We have to look beyond formal institutions and how they are run to informal institutions and networks, and how the two interact. This sort of informal behaviour (whether criminal or not) is by definition obscure. The impact on income distribution, not to mention asset ownership, has also been marked. Piketty (2014) shows us clearly how the processes of privatisation and deregulation led to further increases in degrees of income inequality in developed countries. He makes the important point that it is not a question of identifying income and wealth in the top 10 per cent of the income distribution (as many writers do) but in the top 1 per cent, or even in the top tenth or hundredth of 1 per cent, levels un- or under-reported in the official statistics owing to tax evasion. While the rise in inequality is clear from Piketty’s figures on both sides of the Atlantic, it is also evident in much of the rest of the world, notably in post-communist Eastern Europe, in Asia (especially in China), and in Latin America during the last two decades of the twentieth century. The sheer scale of income concentration over the last 30 years, along with its implications for democratic governance in the United States and other developed economies, has been the subject of much debate. Simply to take one study – that of Winters and Page (2009) – the top one hundredth of 1 per cent of the population in the United States (some 300,000 people) in 2008 enjoyed incomes of 463 times those of the average in the bottom 90 per cent of the income distribution. Narrowing that to the incomes of the richest 400 Americans, these had average incomes 22,000 times those of the bottom 90 per cent. And the top 100 individuals had incomes 60,000 times those of the bottom 90 per cent. According to another measure (Oxfam, 2015), the combined wealth of 1 per cent of the world’s population was heading for half total global wealth in 2016; of the remainder, 46 per cent was in the hands of the richest one-fifth.

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The story about how this shift in income distribution at the very top came about began in the late 1970s; authors have argued forcefully that it was not just the consequence of globalisation and technological development but the result of growing influence of private sector interests on policy making, especially with regard to market regulation. In the United States, it probably began during the Carter administration (1976–80) when business organisation first started to bring pressure to bear on government on issues like labour legislation and taxation, policies that businesses believed were detrimental to their interests. President Jimmy Carter was forced into humiliating retreats on such matters as business groups – such as the Business Roundtable – brought pressure to bear on Congress and public opinion more generally (Hacker and Pierson, 2011). The political power of business lobbies in the United States went from strength to strength in the 1980s and 1990s, especially (but not exclusively) during the Republican administrations of Ronald Reagan and George H. W. Bush. They learned to collaborate and to work in the interests of business as a whole, not just of individual companies as before. They managed to win key concessions from government that impacted directly on income distribution, lowering tax on income (at the highest levels), reducing thresholds for capital gains tax, and finally (in 2001) abolishing taxes on inherited wealth altogether. At the same time, the power of organised labour to bring pressure to bear on government declined consistently over this period, further reducing any counterbalancing effect. The growth in the power of business was thus a cumulative process: increased pressure brought changes that helped reinforce the wealth of business elites, and this increased power made business ever more capable of pursuing its own agenda, irrespective of the interests of the rest of society. Indicative here has been the cumulative growth of business donations to both major political parties, with the Democratic Party increasingly in the hands of big business and far less dependent than before on traditional union backing. And the influence of business over opinion formers – whether through financial control over think tanks and universities or through the mass media – similarly went from strength to strength. A similar picture emerged in the United Kingdom over the same period, particularly as a consequence of the liberalising economic reforms of the Thatcher era. Business power grew in its influence over

i n t ro d u c t i o n to p o l i t i c a l c a p t u r e | 15 decision making, especially in the all-important financial sector whose importance to the economy grew progressively as a consequence of financial market deregulation in the 1990s. The privatisation of key industries transferred power and influence from the public to the private sector. As in the United States, the power of trade unions to protect the interests of their members declined, particularly after the highly symbolic defeat of the mineworkers’ union (NUM) at the hands of the Thatcher government. The influence of big business over politics, the media and even education increased hugely, both under Conservative governments and Labour ones. What can loosely be called ‘the establishment’ appeared to reign supreme as indices of inequality grew almost as fast as in the United States (Jones, 2014) and as the power of countervailing forces in civil society diminished. Wherever important decisions are made that affect business or other interests, political lobbyists are likely to be found. The European Union provides graphic evidence of this. As many as 30,000 lobbyists are to be found in Brussels targeting EU decision makers, one of the highest concentrations in the world. Among the biggest of these are the carbon lobby, and those associated with finance and agribusiness. The Corporate Europe Observatory publishes a useful handbook identifying the size and activities of many of the larger lobbyists (2011) and the ‘revolving door’ practices that characterise this world. By unleashing the energy of the private sector and reducing the activities of the state, deregulation and privatisation had a strong impact on politics and society. The balance between the interests of capital and labour underwent a transformative shift, with the institutions that typified the post-war years in more developed countries – strong trade unions, high levels of direct taxation, and state intervention to protect the worst-off in society – giving way to a world in which business benefitted from the removal of what it perceived as the shackles on capitalist dynamics. Reaganomics and the economic liberalism of Thatcherism had lasting impacts, making it hard for their opponents (whether in the US Democratic Party or the UK Labour Party) to revert to policies associated with the status quo ante. The idea that the market was the most efficient mechanism for regulating the economy became a commonly accepted notion as welfare economics came to be seen as outdated and a brake on growth. The political balance had thus tilted away from the power of

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organised labour and labour-backed social democracy in decidedly more conservative directions. A corollary of the retreat from welfarism and the advance of the market economy was the introduction of reforms to provide a modicum of regulation of the private sector, particularly in those sectors that were, in effect, natural monopolies. At a minimum, consumers needed some protection from the ravages of the unbridled market. The shape and size of such regulation differed considerably, according to the political traditions of where it was introduced (Majone, 1996). In many countries, it involved the creation of new specialist institutions, such as competition authorities, supposedly isolated from political or commercial influence. Of course, the dangers of the regulators being captured by the companies or sectors they were supposed to regulate had long been recognised. Back in the 1950s, Samuel Huntington had drawn attention to how, in the United States, the regulators of the railroads had become effectively captured by the railroads themselves, to the detriment of consumers (Huntington, 1952). More recently, in the aftermath of the 2010 Deepwater Horizon oil spillage, the US Minerals Management Service (MMS), which supposedly regulated offshore oil drilling, is widely used as an example of regulatory capture. Even in countries like the United Kingdom, where regulation had a long history, the problem of making regulators publicly accountable remained a problem, involving a permanent tension between the demands of profitability and those of social accountability (Hutton, 1996, p292). It is worth asking what the implications of this growing income and wealth inequality have been for the nature of democracy in the advanced economies. The growth of business influence that had worried political analysts in the 1950s and 1960s looked like small beer compared to the growth of corporate power reached during the first 15 years of the new millennium, notwithstanding crises like those that shook the world in 2008. In his book about oligarchy, Jeffrey Winters (2011) sought to clarify what the word – frequently used to describe business power in the countries of the former Soviet bloc – actually meant. His book looked at the nature of oligarchy both ancient and modern. He distinguished between the notions of ‘elite’ and an ‘oligarchy’, defining the latter as simply the power of money, whereas elites derive power from sources other than just wealth. In search of a more analytical definition of ‘oligarchy’, he takes us back

i n t ro d u c t i o n to p o l i t i c a l c a p t u r e | 17 to the distinction drawn by Aristotle in Politics between ‘oligarchy’ and ‘democracy’, arguing that what Aristotle had meant by oligarchy was not so much the rule of the few but the rule of the rich (who were by inference ‘few’), and by democracy not so much the rule of all but rule by the poor (excepting, of course, slaves). In this sense, Winter agrees that the crude economic power of businessmen with all the influence that money can buy, rendered the United States an ‘oligarchy’, and not just rule by an ‘elite’ as writers like Mills had defined it. He sees ‘oligarchs’ in those countries where property rights are effectively guaranteed in law as being those with available material resources adequately to defend themselves from potential threats to their power and status. These are those who are able to hire, for example, the very best brains in the tax avoidance industry, or to use their money to influence research and public debate. They are able to deploy their resources in such ways as to justify to society as a whole the legitimacy of a political system in which big inequalities are a fact of life. The extent to which the elite-owned media routinely justify a system that produces such inequalities becomes an important aspect of how political capture is reinforced. So why and how does this actually work in countries like the United States founded and schooled on notions of democracy and equality between citizens? Why is there such an apparent acceptance of such extreme inequality in the ‘land of the free’? Explanations vary. For some writers, the power of ‘robber barons’ (as the nineteenth-century business grandees were sometimes known) was fleeting; a change in political circumstances (whether the result of external developments or domestic ones) will bring a change in policy responses, just as the Wall Street crash of 1929 gave way to the politics of the New Deal. Kevin Phillips, whose book The Politics of Rich and Poor (1990) was a forerunner in analysing how and why the rich get richer while other Americans look on seeing the American dream fade before their eyes, stressed how people eventually react to demand a different set of policies. What he called the 1980s ‘New Gilded Age’ would be a cyclical phenomenon giving rise to policy responses akin to those that produced the New Deal. He saw signs that the heyday of pro-business politics was about to finish with the 1988 presidential elections. Picking up his pen again in 2002 at the beginning of the George W. Bush presidency, in Wealth and Democracy: A Political History of the

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American Rich he was rather less sanguine in his predictions (Phillips, 2002). Eight years of Democratic rule under President Bill Clinton had done little to reduce the imbalance. Other writers are even more sceptical about the ability of pluralist party politics to change things, particularly in light of the 2008 crash and the ability of business to survive what was widely seen as the biggest threat to US capitalism since 1929. No New Deal was to appear from the Obama presidency, while the reliance of both Republican and Democratic parties on business donations for electioneering became higher than ever. Larry Bartels’ Unequal Democracy (2008) lamented the failure of political scientists to illuminate better the ways in which the economic and social changes of the New Gilded Age had altered American democracy. He saw the lack of responsiveness of congressmen of both parties, despite their ideological differences, in responding to the interests of millions of poor voters. It was, perhaps, the 2016 presidential election and the victory of Donald Trump that finally brought home the fact that large sectors of the population had been bypassed by the pattern of growth and offended by the behaviour of the elites in both major parties. The Trump campaign consciously drew on the support of those who had been ‘left behind’ in ways unusual in US politics. At the time of writing, it was still far from clear whether or not his election triumph betokened the introduction of policies that would substantially reduce poverty and iron out the enormous inequalities in US society. There were, indeed, large sectors of the poor (particularly blacks and Hispanics) which did not vote for Trump and which had been the targets of his often racially-inspired discourse. Bartels talks of the ‘misperceptions, myopia and missing connections’ in contemporary American political life. He concludes by pointing to the atomisation of society as a key explanatory variable: ‘It seems very likely that political pressure for redistribution is curtailed by the increasing social isolation of winners and losers in the free market economy of the New Gilded Age’ (p297), whilst also making the important point that ethnic and regional divisions make it much harder to articulate clear messages from below: ‘the losers often have different skin colours and accents’, he writes (p298). Collective interest, he maintains, is remarkably difficult to maintain in the United States, especially among the poor and least privileged.

i n t ro d u c t i o n to p o l i t i c a l c a p t u r e | 19 Liberalisation, democratisation and inequality: ‘transitional’ economies The trend towards increased inequality, political capture and the lack of societal response is not just an American phenomenon. The liberalising agenda of the 1990s also brought major changes in income distribution and access to political power in other parts of the world, where privatisation and deregulation of key industries represented a profound shift in patterns of ownership in society. Here we look briefly at the experience of the so-called ‘transition economies’ of the former Soviet Union and Latin America where the twin processes of economic and political liberalisation – aided and abetted by the United States, the EU and by multilateral financial institutions – had a major impact on the ownership of resources and the distribution of political power.

The former Soviet Union Nowhere was the political change more obvious and far-reaching than in the post-communist societies of the former Soviet Union and its allies, following the collapse of the Berlin Wall, the so-called ‘third wave’ of democratisation (Huntington, 1991). In Russia, the changes were particularly dramatic with the rapid emergence of a stratum of super-rich businessmen from the politics of privatisation that got under way towards the end of 1992. A relatively egalitarian society rapidly became much more unequal. Yeltsin’s Russia became the emblematic case of the power of the new ‘oligarchies’ of the late twentieth century, many basing their wealth on extractive industries of one sort or another. The speed at which policies of privatisation and deregulation took place surprised opponents and supporters alike. Policy makers – people like Yegor Gaidar and Anatoly Chubais – were afraid that if they did not act promptly and boldly they would lose the political initiative. As Chrysta Freeland (2000) writes in her book Sale of the Century, this was perhaps the most ambitious experiment in privatisation that the world had ever known, with the ‘oligarchs’ that emerged from it becoming what she called the ‘unofficial capitalist Politburo’ of the new Russian state (p11). Russia became capitalism’s newest frontier. However, the speed at which the reforms were implemented and the need to buy off potential opponents meant that the consequences

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were not necessarily what Russia’s small group of enthusiastic reformers or multilateral banks originally had in mind. Rather than provide the dynamic for a capitalist restructuring of a communist society, the whole experiment turned sour for the majority with a few fabulously rich businessmen lording it over a mass of impoverished Russians at the bottom of the social heap. Trickle-down distribution had little meaning here. Freeland described it as a sort of ‘capitalist dystopia’ (p16). The collapse of Soviet Russia was manna from heaven to those who had waged the ideological battles of the Cold War, signifying the definitive victory of capitalism over socialism as a system, even the ‘end of history’. It also provided potentially huge profitable opportunities for Western investors with the nerves to acquire assets at often ludicrously cheap prices. Chubais, who saw pricing of assets as less important than their speedy transfer to the private sector, quickly turned to help from the West following the initiation of privatisation. Coordinating the West’s response was the newlycreated European Bank for Reconstruction and Development which in turn acted in close harmony with ambitious Western banks, in particularly Credit Suisse First Boston which was brought in in 1992 to assist with privatisation policy. Lacking much by way of domestic support, Chubais became highly reliant on Western advisers, money and political support. Money doctors, like the New Zealander Stephen Jennings, decamped to Moscow to advise, and to make a large fortune for themselves in the process. For investors with steely nerves massive wealth was there to be made (or lost) in the chaotic political climate of the Yeltsin presidency. In this society, quite literally, the winners took all. In what had previously been a relatively egalitarian society inequality loomed large. The Russian oligarchs, however, represent a very different picture to those of the United States, who could rely on property rights to ensure the security of their material wealth. In countries where the rule of law was conspicuous by its absence, they had to rely on more forceful tactics, in particular in relation to the government and lawmakers. Under Yeltsin, they maintained an uneasy but ultimately faithful champion. With the collapse of Yeltsin’s rule and the return to a more authoritarian and ruthless style of leadership under Vladimir Putin, the risks of survival increased. Far from being a pliant pawn of oligarchic political power, Putin sought to ensure that if the oligarchs

i n t ro d u c t i o n to p o l i t i c a l c a p t u r e | 21 wished to maintain their business empires they should keep out of the political domain; otherwise they would suffer the consequences. By the early 2000s, the Russian state was no longer captured by oligarchic interests; the oligarchs became beholden to the state. State autonomy reasserted itself (Robinson, 2001) as business capture was replaced by the capture of business. Under Putin, the state reasserted control over the unbridled rent-seeking of the previous period. The situation turned out to be very different in neighbouring Ukraine, where the state remained the plaything of competing oligarchic interests – and still is. Elsewhere in other republics of the former Soviet Union, privatisation led to the creation of powerful private monopolies, as often as not owned by those that had run them previously as state managers. Indeed, the extent of a ‘transition’ is questionable: the new economic elites were, to a large extent, former public officials. Political pluralism in post-Soviet central Asia was extremely limited, with political influence revolving around informal nexuses to the president. Parties tended to be personal vehicles of vested interests, and patrimonialism all-important in the workings of the political system. Particularly in those countries like Kazakhstan or Azerbaijan, as well as Russia, with huge natural resource industries, new economic power structures arose with the business sector forging close, collaborative and often corrupt relations with those in positions of political power. Definitions of corruption and corrupt regimes (or ‘kleptocracy’) vary, as does the extent to which power is exercised in ‘illegal’ as opposed to ‘legal’ settings. The World Bank study of state capture in the post-Soviet world points to the way that public officials and politicians ‘privately sell underprovided public goods and a range of rent-generating advantages “a la carte” to individual firms’ (Hellman et al., 2000). So far as corruption was concerned, it was most common among smaller companies that had bought into these economies and which needed to secure property rights. The larger (former state-run) strategic industries, mainly in the extractive sphere, did not need to acquire such rights in order to function. They were run by oligarchs ‘who manipulate politicians, shape institutions, and control the media to advance and protect their empires at the expense of the social interest’ (Hellman et al., 2000). The approach taken by the World Bank studies emphasised the use of bribes as constituting the main mechanism of state capture;

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firms of all sizes involved in the transition to market economics were caught in the logic of ‘buying’ laws. In response, Central European writers argued the need to focus more on the ability of business organisations to use their political influence in setting the legal framework. Oleksiy Omelyanchuk (2001, p2), for instance, argued that the cases of Russia and Ukraine were better understood by considering structural variables to explain the root causes, focusing on ‘the correlation of the concentration of economic and political power and the level of development of civil society’.

Latin America As in the countries of the former Soviet Union, the ‘Third Wave’ liberalising reforms of Latin America of the 1980s and 1990s sought to combine the redrawing of the frontiers between the public and private sectors with the reinstatement of democratic regimes after the experience (in most countries at least) of lengthy military dictatorships. But while in Russia and other countries of the Eastern bloc, the transition involved huge problems of creating a system of governance based on civil society and property rights, in Latin America this was less of a problem. Here, however, reformers had to contend with problems of regime legitimation in societies in which inequality had long been much more pronounced than in any other part of the world. They also had to deal with countries in which traditional landed elites – crushed in Russia during the revolution – maintained significant power and were willing to use it to preserve their economic interests. Together, economic and political liberalisation altered the traditional power structure in important ways, but not always in quite the ways intended by their architects. Nor were they necessarily – as Peru was to show in the 1990s – mutually reinforcing. The policies of stabilisation and structural adjustment, largely designed in Washington and imposed on Latin America as a consequence of the 1980s debt crisis, brought important shifts in the structure of ownership, reinforcing the private sector at the expense of (often bankrupt) public sectors. The axis of economic activity shifted from import substitution towards export-led growth. From Mexico to Argentina, assets were transferred – often at artificially low prices – to private companies, whether locally or foreign-owned. Peru became a case in point where, with one or two exceptions, all public companies were either sold or closed down. Economies underwent

i n t ro d u c t i o n to p o l i t i c a l c a p t u r e | 23 deregulation as the activities of the state were trimmed back, price regimes liberalised, and protective barriers dismantled. Again, as we shall see, Peru was a prime example. The subsequent reforms of the Washington Consensus sought to build new institutions (or reform existing ones) with a view to providing an underpinning for the new market economy and to prevent backsliding to former statist practices. Independence of central banks, for instance, became an article of faith. New regulatory authorities came into being to curb the excesses of the newly privatised but frequently monopolistic companies; judicial reforms were brought in to improve adherence to the rule of law; labour reforms were introduced to make it easier for employers to hire and fire their workers; and land titling regimes were announced so as to reinforce property rights and their defence. The reform of state institutions, actively encouraged by the World Bank and other international financial institutions under the aegis of the Washington Consensus, was designed to provide a political underpinning for the economic reforms. The speed and depth of these changes varied depending on the conditions affecting different countries and the extent to which their economic predicament meant that they had few real alternatives. Where macroeconomic difficulties gave creditors the whip-hand (as in Peru or Argentina in the 1990s) or where those in power were firm believers in the new neoliberal orthodoxy (as with the Chicago Boys in Chile), the pace was usually rapid and radical. In large countries, less exposed to external pressure (as in Brazil, for example) the process was slower and more piecemeal. The impact of adjustment was, in most cases, severe, with the brunt falling on those least able to defend themselves economically or politically. Growth in the 1980s ground to a halt, while incomes and employment levels tended to decline. Levels of inequality in society became even greater than before in most countries. The process of democratisation that took place at much the same time during the 1980s sought to accommodate rather than alienate business and property elites. As many writers stressed during the early years of transition to democratic rule, the key to success was to avoid challenging the privileged position that traditional elites had occupied, creating broad governability pacts that would provide some guarantee against reversion either to the redistributive

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policies of the period between the 1930s and the 1960s, or to the dictatorial rule that ensued. Here, the dominant model was that of the transition in Spain from the Franco dictatorship in the 1970s, which had instated a centrist regime that successfully upheld formal democratic procedures (Higley and Gunther, 1992). Government policy therefore consciously eschewed redistributive policies of the welfarist type which, for example, used progressive taxation and social spending to iron out income inequalities. Despite what many of its advocates had hoped, democratisation would not help Latin America redeem itself as the world’s most unequal region if it meant taxing the rich on either their income or property. The extremes of social polarisation in Latin America (far greater than in Spain), however, always made it seem that democracy and inequality were poor bedfellows (Dominguez, 1996) but bedfellows nonetheless. As time went on, the contradiction between a politically empowered, affluent elite and the existence of widespread poverty and social exclusion raised fears for the future of democratic consolidation. Many of the reforms, as the 1990 Fujishock was to show in Peru, had a high social cost attached, prompting concerns among strategists in the international financial agencies to provide programmes designed to protect those most at risk. While economic liberalisation tended to favour those with wealth and influence, concentrating wealth rather than redistributing it (Oxhorn and Starr, 1999), it also undermined the power of organised labour which, in previous decades, had fought for a more equal distribution of income. The success of liberalisation thus appeared to depend on governments’ ability to reduce the power of labour unions and remove their and others’ ability to stand in the way of reform. This often demanded authoritarian practices. As we shall see, the Fujimori regime in Peru in the 1990s provided clear evidence of this, as well as other difficulties in framing a rapid process of neoliberal adjustment within formally constituted democratic rules (Crabtree and Thomas, 1998). Indeed, the commitment of elites to democratisation was not always self-evident. In many countries there was a persistence of such non-democratic practices as clientelism and patrimonialism that rendered regimes less than fully democratic and accountable in the ways they operated. Frances Hagopian (1996) argued persuasively that the participation of conservative elites actually threatened the democratic process by undermining the effectiveness and

i n t ro d u c t i o n to p o l i t i c a l c a p t u r e | 25 accountability of elected governments since elites used their power in pursuit of their own narrow interests. She noted that ‘democratic governance’ had been ‘most problematic where the opponents of traditional elites have been weakly organised’ (p65). The relative success in imposing structural adjustment appeared to be closely related to the lack of any clear political opposition and the weakening of civil society organisation. This was certainly the case in Peru under Fujimori, who used clientelistic practices – conditioning flows of state assistance to promises of political support – to create top-down mechanisms of control designed to frustrate popular organisation. This was precisely Cotler’s ‘triangle without a base’ (1967), in which there was little or no community of interest among those at the base of society, enabling elites to ‘divide and rule’. The pattern of elite-dominated democracy which had been lauded by writers on democratisation in the 1980s thus began to be severely criticised. By the end of the century, it no longer seemed so evident that the survival of democracy depended on constraining power in the hands of elites keeping the masses out of political life. Elite pacts were seen in many countries as fostering corruption and cronyism (albeit perhaps not on quite the same scale as in some countries of the former Soviet Union), whilst maintaining policies of political exclusion. Regulatory institutions proved deficient, failing adequately to protect the interests of the wider public, especially when adapted off-the-peg from models in developed economies, with little consideration as to political and social realities on the ground (Minogue and Cariño, 2006). The promised economic benefits to the mass of the population held out by the Washington Consensus had proved largely illusory. Social mobilisation became a fact of life as new groups demanded more of a say in public policy (Avritzer, 2002). Elite-based political parties came to be widely seen as selfserving mechanisms that provided little or no real choice to voters. Events during the first decade of the new millennium thus witnessed growing dissatisfaction with the sort of elite-based pacts that had prevailed in the 1980s and 1990s. In this context, studies turned increasingly towards understanding the nature of the corrupt use of access to state power. The World Bank sponsored research into this in several countries, notably in Mexico where institutionality looked most at risk from corrupt activities. But as we have noted in the case of Russia and Central

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Europe, more critical scholars stressed the need not just to look at state capture as a product of corrupt activity but as part of a more comprehensive process of privileged influence over the state, based on campaign finance, lobbies and the use of ‘revolving doors’ to explain the biased nature of privatisation policies, the problems of weak regulation and those of highly inequitable tax systems. In Colombia, Garay (2008, pp30–31) stressed the need to look at the influence of corporate actors and their influence over public policy. In Central America, Membreño (2007, p7) argued for a clear distinction to be drawn between ‘simple corruption’ (bribery) and what he called ‘legal corruption’, which leads to overbearing influence exercised by business groups. This sort of discussion took a different turn with what became known as the ‘pink tide’ (Lievesley and Ludlam, 2009; Cameron and Hershberg, 2010) during the first decade of the new millennium. Beginning with the rise to power in 1999 of Hugo Chávez in Venezuela, voters began to turn their backs on elite-dominated politics in search of alternatives to the Washington Consensus. Chávez’s election victory was followed by the ‘pink tide’ with the victory of Lula and the Workers’ Party (PT) in Brazil (2002), Nestor Kirchner in Argentina (2003), Evo Morales in Bolivia (2005), Rafael Correa in Ecuador (2006) and Fernando Lugo in Paraguay (2008). In various ways, these new left and centre-left governments sought to redefine the relationship between the private and public sectors (reaffirming the latter), attempting to introduce new forms of taxation whereby wealthy groups contributed more, adopting more overtly redistributive policies in favour of the poor and engineering political reforms that curbed the influence of old elites but fostered the appearance of new ones. However, the extent to which the ‘pink tide’ managed to break the power of business corporations is unclear. Tasha Fairfield for one (2015) argues that the process of change in these countries helped break what she called the ‘instrumental power’ of corporations, but left their ‘structural power’ largely untouched, forcing governments to negotiate investment terms in much more pragmatic terms than the discourse of statism and economic nationalism would suggest. And, as the ‘pink tide’ appeared to ebb, this raised the question of how business groups would use their power to influence government decisions in the future.

i n t ro d u c t i o n to p o l i t i c a l c a p t u r e | 27 Peru – the subject of this book – stands out as an exception to the ‘pink tide’ as we noted in the introduction to this book. Based primarily on the privatisation of mining assets in the 1990s and the inflows of foreign investment that followed, business elites in Peru amassed huge economic power in what was already a highly unequal society in terms of both income and access to political decision making. The pattern of growth that resulted from the commoditydriven ‘super-cycle’ in the years that followed further consolidated their standing. At the same time, the country’s once powerful left fragmented and dissipated, losing its capacity to orchestrate resistance to neoliberal policies. Public opinion was distrustful but largely apathetic. Supported by multilateral financial institutions and responding to business pressures, successive governments doggedly pursued liberal economic policies, irrespective of frustrated electoral mandates and bouts of sometimes violent opposition. Who, then, as Dahl would say, governs in Peru? What can be said for the ‘quality’ of Peruvian democracy? Is Peru, then, an instance of ‘political capture’?

2 | D E VE LOP ME N T O F T H E P E R UVIA N ST ATE S I N C E I N D E P E N D E N CE

In 1824, Simón Bolívar and his army defeated that of Spain at the Battle of Ayacucho. Of the 7,000 troops on Bolívar’s side, only 3,000 were Peruvian. The following year, José Paredes, a medical doctor who presided over the first constitutional congress of the new republic, suggested a design for the national shield (see map, pviii of this book). In the upper left section, a vicuña was taken to represent the animal kingdom; on the right a quinua plant, the vegetable kingdom; and in the lower section a cornucopia of gold coins, the country’s mineral wealth. For Paredes, the building of the new Peru would come about through the extraction of its natural wealth. The creole elites, in the midst of the chaos that followed Independence, saw the future in carrying on with the extractive model by exploiting the natural resources of the coast, highlands and jungle and exporting them to a world market that was then opening up. But to do so, they needed political stability, agreement between landowning and military elites, and a structure of government through which to build a state and to develop the necessary infrastructure. The idea of Peru as a source of immense wealth began back in 1531 when Francisco Pizarro captured the Inca Atahualpa, demanded a massive fortune to save him, and then brutally executed him. The country’s new colonial rulers quickly moved to reorganise the system of landholding and the country’s ethnic make-up (now known as ‘indios’) in order to keep them divided. The ill-mannered conquerors soon adopted refined aristocratic airs, concentrating property in the hands of a small elite. Land along the Pacific coast was worked by African slaves producing crops like sugar cane. In the highlands, fertile valleys became large haciendas, tilled by indigenous serfs and surrounded by peasant communities which acted as sources of forced labour for the mines and public works. Only the Amazon jungle, due to its distance and difficulty of access, remained intact. The peninsula-born Spanish themselves devoted themselves to monopolistic trading and the administration of the

t h e pe ruv i an state si n c e i n d ependence | 29 empire. The army, the Catholic Church and the judiciary were the preserves of the Spanish, with a viceroy topping the decisionmaking hierarchy. The colonial regime hit crisis with Napoleon’s invasion of Spain in 1808. The Peruvian-born creoles took advantage of this to break up the monopoly over trade and end discrimination in the distribution of offices. Peru became independent in 1821 when Chilean and Argentine navies, commanded by José de San Martín, arrived from the south, and when Simón Bolívar’s forces from the north finally defeated the Spanish royalists at the Battle of Ayacucho. The only way out of the post-Independence chaos generated by economic stagnation, banditry and power struggles between the military caudillos that emerged during the prolonged wars of Independence, as Paredes suggested in 1825, was an elite strategy to export the country’s vast and varied natural resource base. This only began to become possible in the 1840s with the advent of the guano bonanza, and it took another 30 years for the elite, organised around the Partido Civilista, to displace the military from the top echelons of power and to begin using the country’s resources for the purpose of modernisation. Narratives about the heroic struggle for Independence gave way to this new discourse as ships began to arrive from Europe laden with luxury goods. The talk was of ‘progress’, the adoption of liberal European values (as long as hierarchies were preserved) and railway building. Peru remained wedded to its extractive model thanks to the ability of elites to keep at bay reformers and revolutionaries, either through repression of parties and unions, with the support of the military, or through temporary conciliatory arrangements that did not threaten the concentration of wealth to national and foreign interests and their ability to rule the country from above. In this it differed markedly from its neighbours in the Southern Cone, even Bolivia. It bore more relation to countries like Ecuador and those of Central America which remained rooted to the past, unwilling to incorporate the masses into the political system. Peruvian elites developed a striking capacity to align themselves with the interests of foreign capital, keeping its opponents divided and – when necessary – exercising repression. Because of Peru’s fairly diversified resource base, they maintained control, overcoming periodic hiatuses in the international economy. The extractive model, in its various guises,

From post-war reconstruction to the crisis at end of First World War.

1896–1919

Aristocratic Republic

Economic re-ordering on the basis of guano extraction, up until the War of the Pacific.

1840s–1879

New cycle stimulated by second industrial revolution dynamising wide range of exports. British capital predominates at the beginning. Opening of Panama Canal and increasing weight of US capital.

Guano boom, with strong comparative advantage. But not the only export product responding to international demand.

Economic cycle

Modernisation of sugar and cotton production. Mining and commercial company towns. (Cerro Corp., IPC, Grace). Wool and rubber integrate highlands and jungle to export chains managed by haciendas and rubber barons.

Guano, and (much less important) cotton and sugar (coast), silver and wool (highlands). Foreign and Peruvian consignees of guano: the first republican elite.

José Pardo y Barreda; second civilismo; sugar, cotton and mining interests. Gendarme state. Promotion of highway investment. First mining code.

Patrimonial, elitedominated state. Elitebased liberal democracy replaces military-led regimes with José Pardo y Lavalle and the Civilista Party. Rationalisation of the state and building of railways. Dreyfus contract.

Attempt to suppress indigenous identity. First trade unions and origins of mass parties. Struggle for eight-hour day and university reform. Social exclusion and repression of dissent.

Coolies and European migration. Abolition of slavery and attempts to eliminate indigenous tribute. Social outbursts. Mass of population without rights.

Dominant raw materials Dominant alliance within Social situation, distribution and and key types of economic the state conflicts unit

Evolution of political regimes from the 1840s to 1990: economic, political and social characteristics

Guano Republic

TABLE 2.1

From Belaunde’s failed reformism to the Velasco military government, and on to return to democracy in 1980. Cycle finishes with debt crisis and Sendero.

1962–90

Pendular populism: alternation between democracy and authoritarian rule

From Leguía and the crisis of the early 1930s to ‘third wave’ of anticommunist militarism.

1919–30; 1930–62

Extractive authoritarianism

Regional integration and import substitutive industrialisation. US, European, Japanese multinationals appear on the scene. State-led development and nationalisation. Growing external indebtedness that eventually ruptures state-led development model.

Continued buoyant demand for established raw materials and some new ones. Increase in commerce, investment and borrowing. US capital displaces British.

Exports dwindle with nationalisation and ISI. Growth of public sector enterprise, with urbanbased manufacturing. Failure of cooperatives in rural sector. Attempts to produce oil and building of pipeline. Beginnings of non-traditional exporting.

Displacement of British capital by US. Development of company towns. New open cast mining (SPCC) and increased fishing exports. Growth in manufacturing and new banks.

State-led development, and growth of mass parties (centre and left). Municipal elections (1963) and universal suffrage (1980). Velasco liquidates rural oligarchy, and attempts industrialisation with redistribution. Mass politics of the 1980s, and crisis of social market economy.

Military and civilian dictatorships. Repressive state. Promotion of new exports. 1950 Mining code. Roadbuilding. Oligarchic pact with APRA (under Prado) and attempts to control democratisation.

Urban migration and urbanisation. Growth of informal sector. Redistributive struggles led by left. Improvements in social policy. Mass parties weakened by crisis of late 1980s. Appearance of SL and MRTA. Renewed authoritarian traits, and weakening of unions and mass parties.

Dictatorship closes political system, with pressure from peasants, students and workers. APRA and Socialists oscillate between revolutionary activity, conspiracies, politics and electoral participation. Some social conquests.

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managed to prolong itself up until the 1960s when, under the force of urbanisation and incipient industrialisation, Peru developed a domestic economy. Following a populist phase that lasted 20 years, a new and more dynamic extractive period began in the 1990s: more capital intensive, a little less exclusive and a little more democratic in orientation. This chapter traces the evolution of extractive industry, the development of state institutions and capacities, and the way the country has been governed since Independence (for a summary outline see Table 2.1). As we shall see, democratic institutions are thin on the ground, with government either in the hands of largely repressive military regimes or civilian governments elected on an extremely narrow franchise. There is a tight correlation between the country’s economic development and the nature of government, with periodic phases of export boom fuelling the fortunes and power resources of a narrow elite. Our story begins with the Guano Republic of the mid-nineteenth century, then moves on to what was known as the Aristocratic Republic of the late nineteenth and early twentieth century. Thereafter, a sequence of repressive regimes sought to hold increasing social pressures at bay until the 1960s when Peru tried to manage processes of reform, but with ever greater difficulty. Peru’s political development was marked by continuities rather than ruptures in elite power – that is, up until the 1970s when the reforming military government of General Juan Velasco Alvarado introduced important changes to the traditional relationships between elites and the state. The Guano Republic (1840–80) In 1840, José Paredes’ extractive ideal became reality thanks to the exploitation of guano. Francisco Quirós, with ties to French speculators and a company in Liverpool, signed the first guano contract. Others followed in his footsteps, eventually themselves displaced by large commercial firms like Gibbs (from England) and Montané (from France). These companies provided the capital and business expertise that the creole elites lacked. Foreign capitalists thus came to dominate the market, capable of providing loans and credit to the Peruvian state. Local consignees organised themselves to share in the wealth derived from this first new extractive wave. They ended up controlling the state, the owner of this resource located on the islands offshore from Peru’s desert coastline.

t he pe ru v i an state si n c e i n d ependence | 33 Initially it proved difficult to organise this highly profitable business due to shortages of manpower; at the outset the answer was to use slaves and convict labour. At one point natives from Easter Island were brought in to resolve the problem. Eventually, however, the import of coolies from China eased the labour shortage. The first batch of 75 arrived from Macao in 1853, following the passage of a law enabling them to come to Peru. Guano was a natural fertiliser that proved easy to extract and export. Guano deposits from millions of seabirds were deposited on the coastal islands, from Chincha to the south of Lima to the Lobos de Afuera to the north. Peru was the only country able to export guano in quantity, providing it with a boom commodity that neighbouring countries lacked. Because of the absence of coastal rainfall, deposits were not washed away into the sea but just accumulated. The first shipments of guano began in 1841. Its success as a natural fertiliser in Europe and the United States, facilitating food production, meant that demand was quick to build up (Ugarte, 1926, p106). The trade brought huge returns to Peru, and it provided the basis for stability of elite rule in collaboration with foreign investors. Thanks to the rents derived from guano, the Peruvian state began to develop, elaborating budgets, paying debts and constructing infrastructure like ports and railways. The guano boom helped develop other industries, such as mining and the wool industry in the south, and start to integrate the country economically; steamships and railways reduced transport times and costs. The industry also generated a plutocracy of locally-born merchants and corrupt politicians. Families like the Candamos and the Pardos soon became social reference points. Plans were developed to ‘modernise’ the country, usually along lines developed by foreign interests to further their own power. Local elites tended to associate themselves closely with foreign financiers and commercial interests, forming a ‘triangle of power’ alongside the Peruvian state (Gootenberg, quoted by Klarén, 2000, p213), generating thereby a new ruling class, a mix of colonial legacies and new actors who reflected the realities of the world market. As the boom unfolded, guano was declared a national monopoly, involving the need to develop rules and methods to administer the rents it generated. The state collected 65 per cent of the sale value, and the contract (or consignment) – awarded without tenders on a

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purely discretionary basis – enabled huge loans to be raised, largely dissipated in turn on extravagant fiscal expenditure (provoking recurrent fiscal crises), corruption and costly infrastructure. A member of parliament at the time commented that ‘corruption reached everywhere’ (quoted by Quiroz, 2013, p169). Wealthy local commercial interests in Lima and from the coast and foreign trading houses benefitted on unequal terms from the contracts signed, but there was a degree of distribution of the rents derived. Between 1840 and 1880, 11 million tons of guano were exported, valued at US$750 million. The main consignee at the beginning of this period was Gibbs and Company from Bristol, but others soon followed, such as the US American Guano Co. and Dreyfus from France. As a result of the guano boom, the first wave of European migrants, traders and workers arrived in Peru, who quickly assimilated with the white elite fascinated by all things European. The caudillo Ramón Castilla, the first president to appear something of a statesman, arranged for coolies to be brought from China and improved the way the business was organised. The guano economy and better political leadership helped Peru acquire a degree of political stability, improve its fiscal balance and modernise its defence capabilities. In 1850, a law to consolidate the debt was passed, and more than 2,000 creditors received payment of 24 million pesos (of which two-thirds was paid to a small grouping of 126 landowners, merchants and functionaries). Although this further accentuated acute divisions of wealth, it helped stabilise the government’s fiscal accounts and improved its credit-worthiness. By 1855, Castilla had come to the conclusion that at least half the debt was of questionable legality, but he did nothing to stop payment. So political and fiscal stability was achieved at the expense of corruption, but at least during this period there was some ‘democratisation of wealth’ (Contreras and Cueto, 1999, p133). The legal system also improved. In 1855 the government approved the first civil code, and two years later the first commercial code. The legal system was inspired in liberal ideas copied from Europe, but interpreted in such a way that consolidated the power of elites, generating a tradition of legal interpretation that proved unable to challenge the power of money and influence (De Trazegnies, 1979, p34 and p48). In 1869, 30 years after the guano boom began and faced with a severe fiscal crisis, the Peruvian state was obliged to refinance its

t he pe ru v i an state si n c e i n d ependence | 35 debts through a highly questionable contract with Dreyfus, which acquired 2 million tons of guano for which it paid 700,000 soles a month. By this point, all the income generated from guano was devoted to debt repayment, an indicator of how poorly the boom had been administered. But finally institutional changes were in the air: Manuel Pardo Lavalle, a consignee with political ambitions and the leader of the guano bourgeoisie, took steps to displace the military from power. He had won an important guano concession in 1850, and had then, between 1862 and 1869, become the prime mover in attempts by Peruvians to regain control over the business through the Compañía Consignataria del Guano (Deustua, 2011, p188). He then sought to gain control over the state, founding the Partido Civilista in 1871, so-called because of its aim to wrest power from the military. In 1872, he was elected president at a time when the Guano Republic was crippled by fiscal overspending and rampant corruption. The Civilistas knew that the guano boom was not just unstable but also the economy needed to be put on a broader footing. He developed a plan for railway construction, seen as the key to producing a more diversified economy. Pardo also proposed to tax the wealthy, a policy that faced strong opposition from the elite, which argued about the need to defend ‘acquired rights’. Thanks to the wealth produced during the Guano Republic there were tentative moves to tackle problems of social exclusion. In 1854, Castilla put an end to slavery, paying slave owners 300 pesos for every slave freed. Of the 25,500 thus freed, the great majority remained on the haciendas as wage labourers. His government also abolished the ‘contribución indígena’, a tax on indigenous labour, which was to reappear under different guises later on. The rents derived from guano also helped fund a civilian bureaucracy in Lima, a city which at this time became the main source of public employment. This encouraged a slow process of migration to the city, helping to accentuate the centralisation of power in the capital. There were far more employment and educational opportunities in Lima than in provincial cities, let alone rural areas. In 1876, the School for Mining Engineering was established in the city, while the first banks also appeared, helping to consolidate its economic primacy. The military authorities, no longer in power, used the guano rents to buy new armaments for the army and boats for the navy.

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Furthermore, the rents from guano helped fund infrastructure, primarily railways, potent symbols of progress at the time. Noone better represented this than Henry Meiggs, an ambitious US entrepreneur who set about building railways and ports with great energy and spent large budgets (which included payments to politicians for their role in approving projects). 1,582 kms of railways were built at this time, linking new mining centres with the ports through which minerals would be shipped. The railway fever first took root in Lima, with lines linking the city with the port of Callao and with the aristocratic seaside resort district of Chorillos. Then came the hugely expensive project to link Callao with the mining districts of the central highlands. To the south of Lima, another line linked the port of Pisco with the haciendas of the Ica region. Soon after, a line was constructed linking Puno with the port of Mollendo, via Arequipa, boosting wool exports. In the north, railways were also built connecting the ports with sugar estates, Salaverry with Ascope (in Trujillo), Etén with Ferreñafe (in Chiclayo) and Paita with the cotton estates in the interior of Piura. These public works projects set the basis for a new, more diversified phase of extractivist activity. Pardo’s developmentalist dream ‘to convert guano into railways’ in order to open up the interior and thus dynamise national output was only interrupted by the war with Chile. Pardo’s idea was that the ‘increase in material wealth . . . translates into a real increase in civilisation’ (quoted by Contreras and Cueto, 1999, p146); every boat that arrived or left thus represented progress. But by the end of the 1870s, the guano boom was coming to an end. A new product, nitrates, began to be exploited on an industrial scale in the deserts of the distant south and what was then Bolivia. Unlike guano, the nitrate business was controlled by private companies (30 per cent Peruvian, 25 per cent Chilean and 45 per cent British). Disputes over taxation with Peruvians and foreigners alike, British and Chilean among them, led to the tragic war with Chile (1879–83) by which Peru lost nitrate-rich territory in what is now northern Chile. The political vacuum that emerged in Peru brought military men back into power, notably Mariscal Avelino Cáceres, the hero of resistance to Chile. While the division of the spoils, power rivalries and wars with neighbours preoccupied opinion in Lima, in the rest of Peru the prosperity derived from guano concealed a much more sombre reality.

t he pe ruv i an state si n c e i n d ependence | 37 Extractive activity generated conflict by the changes it wrought to the lives of people with neither rights nor the ability to stage organised protest. Violent outbursts were put down by the army with great carnage. Since Lima (population of 101,408 in 1876) was the main point for consumption of imports that competed with local artisans and retailers, free trade policies led to a major conflict in 1858 when angry urban protestors sacked such symbols as French-owned shops, burned the installations on the Chorrillos railway, and then hurled imported goods into the sea at Callao. In the southern highlands, again during the boom times, there was a rebellion at Huancané, a response by indigenous communities to the inroads being made by wool-producing latifundios. An uprising by Chinese coolies on the coast at Pativilca resulted in 300 deaths. Thus by the end of the 1870s, those who had been effectively excluded from the benefits of the guano era began to make demands on the political system; from then on the ‘social question’ became part of the national agenda. The Aristocratic Republic (1896–1919) The war with Chile left Peru with its economy in tatters and its treasury empty, a situation that favoured foreign traders who had proclaimed their neutrality during the conflict and had used this to buy up landed property. Guano and nitrates were no longer the engines of growth, but new areas of export-led growth soon opened up, primarily sugar and cotton which developed mainly as a result of the civil war in the United States which interrupted US shipments to Europe. The post-Pacific War years in Peru brought a reordering in both the political and economic spheres, and somewhat more concern among elites for such social issues as wages, labour conditions, housing and access to education. The so-called Aristocratic Republic came into being, its main figurehead being José Pardo y Barreda, sugar baron and new leader of the elites. Due to the demands of the second industrial revolution in the United States and Europe and, subsequently, the impact of the First World War, Peru began to export a basket of traditional products (copper, oil, rubber, wool, cotton and sugar), applying new technologies and producing on a much bigger scale than before. Perhaps inspired by the symbols of wealth on the national shield, the country entered into a phase of more diversified output under the tutelage of the sugar and cotton barons. But the extractive model and

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the unequal pattern of wealth it brought with it came under critical scrutiny from educated intellectuals, and were increasingly being challenged by the better organised groups of workers and peasants. Social problems thus demanded answers from the state and new legislation to meet them. The Grace Contract of 1898, negotiated by the Cáceres dictatorship, helped put the economy on a new footing, but not the country’s politics. Representing Peru’s creditors, the US firm Grace and Co. paid off the debt and reopened access to foreign credit. But the price paid for this was high: the handover of railways, mountain pasture and mines to foreign capital. The giant to emerge from this was the Peruvian Corporation, whose very existence was a reminder of the country’s fiscal precariousness. As with guano, politics took longer to reorder themselves. The military ran the state for the 15 years that followed the peace agreement with Chile, until the head of the Democratic Party, Nicolás de Piérola, supported by the Civilistas, took control of Lima in 1895 and initiated a period of reconstruction. Following the end of de Piérola’s term in office, the Civilistas returned, led by José Pardo y Barreda, the son of the party’s founder. Under the ‘second civilismo’, power lay squarely in the hands of the great families with large haciendas. At the core of this oligarchy were the plantation owners, the sugar and cotton barons, who, thanks to the elitist nature of civilismo, had direct control of the state. To quote the anarchist critic Manuel González Prada, a key intellectual of the post-war period: One José Pardo in the presidency, one Enrique de la Riva Aguero as head of the cabinet, one Felipe de Osma y Pardo in the Supreme Court, one Pedro de Osma y Pardo as mayor, one José Antonio de Lavalle y Pardo as public prosecutor . . . one Felipe Pardo y Barreda in the embassy in the United States, one Juan Pardo y Barreda in the Congress . . . . (quoted by Burga and Flores Galindo, 1981, p91) The regime was powerful and legal and the economy prosperous. Yet it was fearful of criticism and protests from intellectuals and organised labour. Elections took place regularly for a while and the results respected, although suffrage was limited to the 10 per cent of

t h e pe ruv i an state si n c e i n d ependence | 39 the population who could read and write, a percentage that increased slowly thanks to the inauguration of state schools. A modicum of political stability was achieved, while the economy was placed on a more solid and diverse footing with the export of agricultural, mineral and forestry products, and integrating (to an extent) the Amazon jungle. The second extractive phase, following that of guano and based on sugar and cotton and then copper mining, generated enclaves of modernity, an incipient urban development and the beginnings of manufacturing (mainly in Lima). It also helped to integrate the peasants of the highlands and even the peoples of the distant Amazon into the extractive system. The new economy gave rise to social transformations and new bouts of tension and conflict. Peasants, agricultural labourers, industrial workers, students all became more organised and politically aware, not least in light of the regime’s exclusivity and aristocratic nature. Social problems could no longer be ignored and the state timidly began to adopt social policies. The post-Pacific War generation thus began to take on board the so-called ‘Indian problem’ and the push for land and social justice. Debates about social matters had been stimulated by the war, not least since those required to fight for their country felt nothing for the cause they helped defend. Rallied by Cáceres, himself a provinciano and Quechua-speaker, the ‘Indians’ were mobilised to oppose the advance of Chile in the highlands. As president, Cáceres was able to negotiate with the major peasant rebellion of Atusparia and Ucchu Pedro in Huaraz in 1885 against attempts to resuscitate forced indigenous labour on public works projects. Then, during the Aristocratic Republic, the ruling elites sought some sort of reconciliation with the people through educating ‘the race’ and policies to exalt racial mixing (mestizaje) whilst at the same time encouraging ‘white’ immigration and thus supposedly providing a genetic impulse to modernisation. But both the notions of Indian redemption and genetic ‘whitening’ were harshly criticised by radical intellectuals who argued that providing land and ending exploitation was the best way to integrate indigenous peoples socially. Piérola established the basis for the new extractive period in 1896 when he founded the Sociedad Nacional Agraria (SNA), the Sociedad Nacional de Industrias (SNI) and the Sociedad Nacional de Minería y Petróleo (SNMP). The government put its fiscal affairs on a firmer

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footing, presenting budgets, introducing new consumption taxes (on tobacco, salt, coca and opium) and handing over to a private entity, the Sociedad Recaudora de Impuestos, the responsibility for collecting taxes in the name of the state. Thanks to José Payán, a skilful banker, new and better banks appeared and a stock exchange was inaugurated in Lima. Among the main banks to prosper were the Banco Italiano and the Banco del Perú y Londres, both (as their names imply) with important foreign connections. In the mining sector, the government approved a new Mining Code in 1900, whilst developing related infrastructure. Copper and oil became key export products. Thanks to the Grace Contract, new railways were built to bring products to port. The Central Railway, which had reached La Oroya in 1893, was extended northwards to the great mining enclave of Cerro de Pasco. Copper production totalled a mere 275 metric tons (mt) in 1890, but – with massive investments from the United States – reached just under 33,000 mt by 1933 (Contreras and Cueto, 1999, p208). The Cerro Corporation of the United States, a syndicate of the Vanderbilt, Hearst and Morgan empires, became in 1901 the first multiple producer of ores, acquiring dozens of mines in the centre of the country from Peruvian nationals. By 1920, it had expanded its activities to other parts of the country, although some concessions (like Julcani, Antamina, Tintaya and Quellaveco) would only be developed many years later. In view of the increased scale of its production of copper and other ores in the central highlands, Cerro inaugurated in 1922 the smelter at La Oroya on the headwaters of the Mantaro river, initiating what was to become a long debate on land, water and air contamination (Mayer de Zulen, 1932, p41). Large numbers of indigenous workers were recruited forcibly to work in the mines; the number of mineworkers went from 14,500 in 1905, to 25,000 in 1915, reaching 28,000 in 1930. Just as the Cerro Corporation became a symbol of the de-nationalisation of the mining industry and the substitution of British by American capital, so too did the entry of the International Petroleum Company (IPC), owned by the Rockefellers, in the oil industry. By 1904, international demand for crude had taken off, and in 1913 IPC began production on the northern coast in Piura. A year later, the opening of the Panama Canal helped stimulate Peruvian exports by reducing their cost and delay in reaching markets in

t h e pe ru v i an state si n c e i n d ependence | 41 Europe and the United States. Oil production rose from 30,000 barrels a day in 1900 to 3 million in 1920 (Thorp and Bertram, 1978, p97). In coastal agriculture, the second extractive era saw the concentration of landownership, with the formation of huge haciendas, many in the hands of foreign companies. This gave rise to the idea of the country being run by ‘40 families’. The development of export agriculture greatly increased the influence of the SNA as the country’s most powerful gremio (business organisation). In the central highlands, in the fertile Mantaro valley, large livestock haciendas grew up, providing Lima with milk and meat. By 1920, the Sociedad Ganadera del Centro possessed 230,000 hectares; the Sociedad Junín more than 114,000. The Sociedad Ganadera of the Cerro de Pasco Corporation managed to buy up 270,000 hectares of land in record time, mostly from impoverished peasants. The railway from Puno to Cuzco was completed in 1908, helping to integrate the southern Andes into the wool nexus established by British trading houses, like Ricketts and Stafford, in Arequipa. In Puno, the main area for wool production, the number of haciendas grew from 705 in 1876 (before the War of the Pacific) to 3,219 in 1915. Valleys like those surrounding Chiclayo, Trujillo and Piura on the northern coast, and those of Cañete and Ica to the south of Lima, specialised in producing new varieties of cotton (pima and tanguis), using modern irrigation technologies, transport (private railways) and technified treatment processes. Land ownership became increasingly concentrated as commercial farmers acquired land from impoverished families and neighbouring communities. A particularly notorious case of a community claiming to have had its land plundered was that of Catacaos in Piura. Employment on sugar estates went from 23,500 in 1912 to 30,000 in 1922 and to 35,000 in 1929. Extractive activity also began to impact the Amazon, the largest of Peru’s natural areas, for the first time. In order to exploit the jungle and to ‘civilise’ its inhabitants, various governments gave vast areas in concession. By 1929, these totalled 450,000 hectares. Large tropical latifundios dedicated themselves to production of coffee, tobacco and coca (this last in big demand since the discovery of cocaine). Rubber production proved particularly frenzied and dramatic, an industry characterised by brutal labour conditions and subject to dependence on highly volatile global demand. The boom was caused by the

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development of the motor car and the pneumatic tyre, and lasted 30 years. In the 1890s, Carlos Fermín Fitzcarraldo, a Peruvian-Scottish businessman known as the ‘rubber king’, established a trust giving him exclusive navigation rights on the Amazon and its tributaries, enabling him to control the rubber trade from the Bolivian border in the south in Madre de Díos up to Iquitos in the north-east, close to the frontier with Colombia. Fitzcarraldo amassed a huge fortune, initiating the practice of enslaving indigenous peoples of the Amazon and putting them to work collecting rubber from trees in the forest. Another big figure in the rubber trade was Julio Arana who, following Fitzcarraldo’s death in 1897, obtained concessions along the Putumayo river, enabling himself to exploit 200,000 square miles of jungle. In 1905 in London, in association with Henry M. Read and Sir John Lister, he formed the Peruvian Amazon Rubber Co., adopting the worst labour practices with his indigenous workforce. In 1907 the London newspapers published articles about the atrocities committed in the Putumayo. Roger Casement was dispatched by the British parliament to investigate. He reported on his return that 30,000 natives had died, and thousands more had suffered torture and slavery. During his brief heyday, Arana exported 4,000 metric tons of rubber for a value of 1.5 million pounds. In 1914, as war began, demand dropped off and his company was wound up in 1920. As typified the Aristocratic Republic, Arana combined business with public office, becoming mayor of Iquitos in 1902 and then a senator of the republic in 1907 (Pennano, 1998, pp161–167). Mining – like wool, cotton, sugar and rubber – followed the ups and downs of the global market, contracting notably at the beginning of the First World War but recovering thereafter, but entering into decline again in 1918. The big crash took place in 1929. Exports of copper fell 69 per cent, wool 50 per cent, cotton 42 per cent and sugar 22 per cent. Nevertheless, as we shall see, the crisis of 1929 did not lead to a change in economic model in Peru. Companies and large landowners retained their control over the state, though in more indirect ways, and continued to concentrate property ownership. Following the demise of the Aristocratic Republic, they switched their support to civilian dictators (such as Augusto Leguía, 1919–30) and then to military ones. With the exception of immigrant labour from Europe, this second phase of extractivism was characterised by low wages and arduous

t h e pe ruv i an state si n c e i n d ependence | 43 working conditions. Workers found themselves bound to their employers through debts accumulated in company stores. However, the period also saw the emergence of a small, albeit atomised working class. It also witnessed the expansion of ports, shipping and railways. As such, it saw the incipient development of trade unions. The growth of Lima and other smaller cities was notable at this time. The population of the capital increased from 223,807 in 1920 to 373,875 in 1931.The centre of the city, aping Paris, saw the building of broad boulevards, parks and monuments. Construction activity, and some local manufacturing, flourished, stimulated in large part by European immigration – much of it Italian. Of the 76 founders of the SNI in 1896, 25 were Italian, 13 British and four from Spain. By 1908, Lima had a small but assertive European community of some 6,000. Of these, more than half came from northern Italy. Large textile factories developed in Vitarte. Breweries were established; Pilsen in Callao and Cristal in Rímac. Other cities, like Arequipa, Trujillo, Ayacucho and Cuzco, saw the beginnings of manufacturing, principally items of mass consumption. Although the elite tended to consume imported goods, by 1905 there were a total of 111 manufacturing firms, many of them established in the previous five years, producing goods consumed by the working class and the growing urban population. A small but concentrated industrial proletariat had thus appeared with a degree of purchasing power. In 1905, the main sources of such employment were the textile industry. Cotton factories employed 1,000 workers in 1905, rising to more than 3,000 by 1933; factories processing wool saw employment rise from 600 to 1,800 over the same period. Sawmills employed 210 workers in 1905 and 266 in 1933. Other industries employed fewer people. However, the relative scantiness of industrial development owed much to the lack of any state incentives and the prevalence throughout this period of principles of free trade rules which made it difficult for local producers to compete with imports. The rapid development of road infrastructure in the 1920s, contributed to the integration of the country (with Lima at its epicentre) and with it the flow of migrants from the interior to the capital. The coast remained the centre of economic power (sugar and cotton, banking and industry) while political power and job opportunities were concentrated in Lima, underlining the pattern of sharp regional inequalities.

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Through the Partido Civilista, Peru’s economic elite managed to exercise control over the state, directing political life over a 25year period and linking up a triangle of power made up by oligarchs (land and mine owners), the state and foreign companies. What was novel about the Aristocratic Republic, compared with the Guano Republic, was that for the first time the political system worked on the basis of free elections (even though with a limited suffrage) and regular rotation of the presidency. Repression and populism (1919–63) The person to break this power arrangement and redefine it to his own advantage, doing away with the system of oligarchic democracy for good, was Augusto B. Leguía. An ambitious and skilful operator from the ranks of the middle class, he sought absolute power. Initially, he was able to defeat the Civilistas in elections in 1919, giving way to a phenomenon (frequently repeated over the rest of the twentieth century) of right-wing populism. He thus established a new relationship between the state and non-oligarchic actors based on clientelism. His gave way to a sequence of dictatorships, backed by extractive interests, and founded on support from the military and on close ties to North American capitalists, both financiers and investors (Klarén, 2000, p241) With discontent on the increase in the wake of the First World War and amid social struggles like the battle for the eight-hour day, Leguía started off in 1919 looking to support from university students, with their links to labour unions. But unable to control them, he ended up deploying repression. Leguía then presented himself as the ‘protector’ of the country’s indigenous peoples, setting up a department for indigenous affairs within the then Development Ministry. Soon after he showed his true colours, introducing the Ley de Conscripción Vial, a law that forced indigenous people to undertake public works like road building but which ended up in serious abuses and violent bouts of confrontation. He then, with somewhat more success, turned his attention to courting the urban population with policies to improve public health, housing and education. These plans led to a rapid expansion in the size of the state bureaucracy. In 1924, trying to expand his base of support among the middle class, he enacted a public employment law.

t h e pe ru v i an state si n c e i n d ependence | 45 It was in this context of social change that the figure of Víctor Raúl Haya de la Torre first emerged in the country’s politics, the mainspring of a radical populism that sought to organise the masses in a coalition of ‘intellectual and manual workers’. Haya ended up being deported, a fate that also befell José Carlos Mariátegui, the intellectual and journalist who dedicated himself to disseminating Marxist doctrine amid Peru’s nascent working-class organisations. Both went on to establish mass-based parties, Haya the Alianza Popular Revolucionaria Americana (APRA), and Mariátegui the Socialist Party (which later became the Communist Party). They played a key role in promoting organisation in the mines, oil fields, sugar mills, ports and factories, linking up (for the first time) protest movements in urban and rural contexts. Another important personality in this respect was Hildebrando Castro Pozo, a friend of Mariátegui and outspoken critic of the system of semi-servile labour (yanaconaje) which operated in the haciendas, who began to organise indigenous peasants. In the 1930s, a strong social and cultural current associated with indigenismo, with intellectuals and artists picking up on popular culture and using it to support indigenous demands. The period of mass politics had thus begun, pushing the oligarchy and military into ever more repressive responses. This relative opening of the system was threatened by social mobilisation; Leguía and his allies chose to close it. This was also an era of ‘modernisation’. In the cities, public works were undertaken to improve drainage and sanitation. The Foundation Company, which won many contracts, played a key role here. In the area of export agriculture, Leguía improved coastal irrigation systems and constructed reservoirs, following the ideas of Charles Sutton. First up was the Olmos project in northern Peru, a major scheme that aimed to irrigate some 70,000 hectares, but was still unfinished when the 1929 crisis broke. Leguía also offered support to IPC through the 1922 Ley de Petróleo which provided the company with generous tax breaks. He also offered generous terms to US-owned mining operations, the Cerro Corporation, the American Smelting Co and Anaconda. In the highlands, the regime protected and promoted the interests of large-scale livestock farmers whose latifundios grew at the expense of indigenous communities. In the jungle, Leguía continued the practice of offering large concessions of forest in order to exploit its natural wealth.

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It was under Leguía, described by the historian Alfonso Quiroz (2013) as ‘astute and unscrupulous’, that people began to talk of a plutocracy and the ‘dance of the millions’. The three key elements of extractivismo were present with a vengeance: large contracts with foreign companies, expensive public works that supposedly symbolised ‘progress’ (and which provided employment and opportunities for political patronage), and the institutionalisation of a system of corruption by which the president, his family and ministers grew rich. Leguía’s son, Juan, became particularly wealthy from the Olmos project and the purchase of US submarines, in each case charging large ‘commissions’ for his services. The Leguía dictatorship (1919–30), known as the oncenio, collapsed as a consequence of the world financial crash of 1929 and its impact on Peru’s export industries, particularly mining, which by that time accounted for nearly 70 per cent of total exports. Foreign investment dried up. Financially bankrupt, Peru was forced to stop servicing its debts for a period. However, the relatively diversified nature of Peruvian extractive activities helped soften the blow, whilst the US Kemmerer mission helped strengthen the position of the central bank. So while countries such as Brazil, Chile and Mexico initiated policies designed to promote domestic industrialisation behind protective barriers, Peru upheld the principles of free trade and export-led growth. With Leguía removed from power, the Peruvian oligarchy used the military to defend themselves from the sort of radical policies demanded by the Apristas and Socialists. They maintained their influence over civil society largely through control of three major newspapers: El Comercio (which belonged to the Miró Quesada family), La Prensa (controlled by Pedro Beltrán and the ‘sugar barons’) and La Crónica (which belonged to the Prado family). Independent journalism faced censure and persecution. In 1930, power was seized by Col. Luis Sánchez Cerro, opening the third cycle of militarism, this time with a strong ‘anti-communist’ tilt. The military acted to protect elite interests against a wave of strikes, demonstrations and protests staged first by the Communist Party in the main mining centres, and subsequently by Apristas. Having repealed Leguía’s unpopular Ley de Conscripción Vial and imprisoned his predecessor, Sánchez Cerro, himself a person of lowly origin, became something of a right-wing populist caudillo in his own right. But the power behind the throne was the SNA, run by the

t h e pe ru v i an state si n c e i n d ependence | 47 cotton-owning latifundista Pedro Beltrán. For years Beltrán played a key role in advising the government and uniting the propertied classes behind it in response to the threat of radicalism and organised labour. In a brief democratic interlude in 1931, Sánchez Cerro narrowly defeated Haya de la Torre in presidential elections. Refusing to recognise the legitimacy of the result, APRA staged a revolt in Trujillo the following year leading to the massacre of some 5,000 supporters and the beginning of a political stand-off between the military and APRA that would last 50 years. El Comercio called the rebels ‘aprocomunistas’. With the growing influence of European fascism, a new party called Unión Revolucionaria, supported by Sánchez Cerro, appeared on the scene helping to organise a group of some 6,000 black shirts. Notwithstanding the assassination of Sánchez Cerro at the hands of an APRA militant in 1933, the tide of repression continued under the government of his successor, General Oscar R. Benavides. Yet Benavides took steps to block the path of fascists for fear that they would end up challenging the political preeminence of the military and the elite, keeping the use of violence tightly under state control. The sequence of elite-backed dictatorships was to continue from the early 1930s onwards, interrupted for a brief period after the Second World War, but with APRA and the Communist Party outlawed for most of this time. The state and ‘official Peru’, dominated by the oligarchy and the armed forces, and with the support of foreign investors, closed ranks to block the eruption of mass politics into the life of the nation. The failure of Beltrán and his followers to organise a political party with popular support meant they had to make do with military figures. At specific moments, they lost their grip. One such was in 1945, when José Luis Bustamante y Rivero was elected president in a worldwide movement of democratic affirmation. Bustamante y Rivero, an ally of APRA and supported by Christian Democrats and the Communist Party, lasted only till 1948. He was deposed by General Manuel A. Odría, backed by Beltrán, the SNA and El Comercio. The repressive rule of the military continued until 1956 when, on the fall of Odría, the banker and owner of La Crónica newspaper, Manuel Prado, was elected president with the support of APRA, ushering in a period of greater tolerance for the party. Prado represented a rather different approach, one of greater

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elite compromise based on a willingness to negotiate, since repression had proved unsuccessful in eliminating opposition parties and social movements. Following the Second World War, a period which provided a stimulus to industrialisation and following the ending of the Bustamante y Rivero interlude in 1948, the Peruvian state continued to encourage the development of extractive industries and adhere to free trade orthodoxy. At the beginning of the 1950s, with the Korean War and European reconstruction, Peru entered a fresh extractive boom. Posing as a figure of ‘national restoration’, Odría took steps to encourage new forms of open cast mining, industrialised fishing and further to develop sugar and cotton exports. At the same time, the Ley de Seguridad Interna of 1949 laid the basis for ever greater repression of Apristas and Communists, institutionalising the use of torture. Thanks to generous tax facilities included in the new Mining Code, new large and medium-sized mining projects went ahead, enabling Peru to widen the scope of mineral production to include zinc, lead and iron ore to the more traditional mining of gold, silver and copper. The then US-owned Southern Peru Copper Corporation inaugurated Toquepala in the south of the country; Marcona Mining Corporation began production of iron ore from the mining town of the same name in Ica. Cerro Corporation increased the size of its operations at Casapalca (Klarén, 2000, p304). The drive to increase mining production is reflected in the export figures, rising from 33 per cent of exports in 1948, to 50 per cent in 1960. Expanded cotton production in the coastal valleys led to the arrival of major international traders like Anderson & Clayton and Grace & Co, as well as new Peruvian producers like the Romero family. However, the expansion in the use of synthetic fibres, plus the incidence of crop disease led to a decline towards the end of the 1960s. Sugar production continued to prosper, thanks largely to the increase in US import quotas following the Cuban revolution. Industrial fishing appeared on the scene in the 1950s, growing throughout the following decade. It encouraged the development of ports and related industries, also attracting migrant labour from the highlands. In 1954, there were only 17 firms dedicated to the manufacture and export of fishmeal and supply of conserves to the local market. By 1959 their number had increased to 59, and by 1963 to 154. The fishing industry was carried out by both foreign

t he pe ru v i an state si n c e i n d ependence | 49 and local firms, with Luis Banchero taking pride of place as the fishing magnate. Finally, thanks in part to road building and penetration of the Amazon region, and responding both to demand for drugs in the United States and the migration of highland people to the jungle area, coca cultivation began to take off. New areas of cultivation included the Huallaga river valley in the centre and north, as well as La Convención in the south. The subtropical valleys of the jungle fringe also produced cocoa, coffee, tea and fruit, but by the end of the 1960s illicit coca production predominated alongside the production of coca paste used in the manufacture of cocaine. Thus illegal extractivismo took root in Peru. Both coca and cocaine had been produced from the 1920s onwards in the Huallaga area, with cocaine laboratories sited on haciendas like Vichaycoto in Huánuco. But it was only 40 years later that coca and cocaine production took off. In 1960, illicit coca plantations covered an area of 16,000 hectares, but this was to grow exponentially in subsequent years, cultivated on remote parcels of land and attracting large movements of peasant labour, mainly of Andean origin. The tide changes (1963–68) The era in which Peru was ruled, albeit indirectly, by the oligarchic elite came to an end in 1963, when the architect Fernando Belaunde, a democrat, was elected president, supported by more independentminded members of the armed forces, by Christian Democrats, by sectors of the middle class and, indeed, by peasants galvanised by promises of road and school building. The self-styled ‘architect of the new Peru’ promised rapid modernisation and some structural reforms (such as landholding) supported by the United States. Belaunde symbolised the sort of democrat and developmentalist anticipated by the Alliance for Progress, the programme designed by President John F. Kennedy to counteract the effects in the rest of Latin America of the 1959 Cuban revolution. Entering the political arena as a reforming centrist, Belaunde managed to rally support both among those who might previously have backed APRA and those who had supported the left. For its part, the left became more radical, seeking to establish a guerrilla presence (with the support of Cuba) and organising land seizures in the highlands. Both guerrillas and land occupiers were forcibly repressed.

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Belaunde was the first president to encourage industrialisation, build industrial estates and to promote development banking, but without confronting the oligarchy as such. He devised an agrarian reform based on a plan voluntarily to divide land into privately owned plots, a scheme that ultimately had little impact. The large landowners maintained their properties intact. In 1961, shortly before Belaunde was elected, a study showed that 0.1 per cent of landholders possessed haciendas accounting for 11 million hectares. In the central highlands, 16 families and the Cerro Corporation owned 93 per cent of the available arable land and pasture. Latifundismo, for Belaunde, for the United States and for different radical groups had converted itself into a national problem, an obstacle to development that had to be removed. Both Peruvian and foreign-owned companies took root in the 1960s, 80 per cent of them in Lima. They produced not just traditional consumption products but new ones, such as household goods for the domestic market, cement, chemical products and even assembled motor cars. The pace of change was rapid during the Belaunde administration which promulgated the first industrial promotion law. Other industries, such as telephones and electrical energy, established themselves, not to mention the construction industry stimulated by urban growth and public works. Manufacturing demonstrated a high degree of wealth concentration, with families of European origin (for example the Brescias, Nicolinis and Piaggios) taking the lead, but also with Peruvian elite families seeking to diversify into new profitable markets (such as the Bentíns, the Grañas and the Ferreyros). Newly enriched members of the upper middle class also emerged into business activities (a hopeful sign of economic democratisation), helped by the expansion of university education between 1950 and 1970. And in rural Peru, despite the high concentration in land owning, the growth of the urban market encouraged production of food (although Peru remained dependent on food imports). The phenomenon of belaundismo was also closely related to the huge social changes brought about by the improved integration of a country divided by its difficult geography. In the 1960s, the social aspect of Peru had changed radically because of the scale of migration from rural areas to the cities, the process of demographic growth that prompted new policies in the area of health, and the eruption of a

t h e pe ruv i an state si n c e i n d ependence | 51 new urban middle class that struggled to access university education. There were also new areas of poverty; a phenomenon that began to be perceived with the opening of the wholesale market in Lima in 1945 which attracted migrant populations from all over the highlands. Shortly after, one such migrant, Poncho Negro, organised the first land invasion on state-owned property in El Augustino to resolve ‘informally’ the housing problem afflicting migrants to the city unable to purchase or rent a home. Peru thus became a predominantly urban country, and Lima a giant, sprawling metropolis, ‘invaded’ by provincianos from the Andes, breaking the chains that tied them to the oppression and lack of opportunity of the hacienda and seeking to profit from city life in terms of employment and education. In 1940, the country had a population of 6.2 million, of which 2.2 million lived in towns and only 65 per cent able to speak the official language Spanish. By 1961, with a total population of 9.9 million, nearly half (4.7 million) was urban. Lima was home to 1.6 million. Such changes, and with them the desire for modernity, had thus reached the mass of the population. But still illiterates were barred from voting. Even so the number of those eligible to vote had risen because of the increase in access to public education, the expansion of a network of schools across the whole country, and the growth in the number of national universities. Although education was free, access to a degree or professional qualification was restricted by entrance examinations. Job seekers in traditional firms were often required buena presencia, that is, fitting in with elite standards of appearance, an indication of a deep-rooted racial bias. Greater opportunity was usually available in the market place where people would compete by setting up small businesses, both formal and informal, concentrating on areas such as transport, commerce and the sale of food and services. Lima, along with other cities, came to be surrounded by what were called ‘belts of misery’, which little by little managed to improve conditions through the establishment of public services and small-scale business development. From the time of Odría (1948– 56) onwards, when land invasions began and new informal markets started to appear, successive governments have sought to build up political clienteles, providing these communities with land titles, introducing at least basic services, and building schools and health facilities.

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However, in spite of Belaunde’s ability to build a modernising coalition with external support, the old elite managed, in the end, to frustrate his reforming efforts, leading the country to a division of the ways. From the very start, the oligarchy harassed the government through its control of the press and the SNA to stymie its land redistribution plans. According to François Bourricaud (1967), Belaunde adopted a ‘centrist strategy’ designed to ‘avoid letting down his more progressive supporters and so as not to upset the conservatives’. He managed neither. The 1964 Agrarian Reform began slowly on unproductive land in the highlands, whilst allowing ‘parcelling by private initiative’ on the coast, the heartland of agrarian oligarchy’s economic power, a policy that never in fact materialised. By 1968, only 195,000 hectares had been expropriated to the benefit of no more than 30,000 peasants. The conservative opposition proved highly effective in Congress, where the APRA-UNO (Unión Nacional Odriista) controlled 61 per cent of the seats in the Chamber of Deputies and 56 per cent in the Senate. Ministers faced constant votes of censure, and key legislative initiatives (like the 1967 tax hike) were blocked. Frustration with Belaunde reached a new pitch when he failed in his attempts to negotiate a resolution of the dispute with the International Petroleum Company (IPC) and nationalise the oil industry. His more progressive allies abandoned him, opening the way for a far more radical outcome. To the surprise of many, it was the more radical wing of the armed forces, allied with progressive intellectuals, which finally took the initiative. Conclusions The extractive model proved long-lived, spanning limited types of democracy and repressive dictatorships alike, right up until the 1960s. It had begun with the extraordinary era of guano extraction in the 1840s, and – following the War of the Pacific – had recovered on the basis of a much more diversified pattern of production in the late nineteenth century, including agro-industrial activities (mainly sugar, cotton and fishing on the coast, but also wool in the highlands and coffee, cocoa and coca in the jungle) and mining (gold, silver, copper, iron ore, zinc) plus oil. It managed to avert attempts at reform, overcoming both external and fiscal crises, albeit with ever less wind in its sails.

t he pe ru v i an state si n c e i n d ependence | 53 According to the economic historians Thorp and Bertram (1978), the Peruvian economy from the end of the nineteenth century until the mid-twentieth century showed major weaknesses. Dominated by the oligarchic elites, the route towards a gradual and negotiated form of modernisation proved highly problematic. First, ‘failure to achieve independent self-sufficient growth within the framework of the capitalist system’ (p321). Indeed, from the outset, the economic weakness of local businessmen was offset by alliances with ever more powerful and dynamic foreign capitalists. The former proved unable to develop a national plan and ended blocking efforts to industrialise the country. The state, itself unequally developed, worked to the benefit of extractive industry and as a gendarme rather than as provider of welfare. Second, ‘failure to distribute the gains from growth outside the “modern” sector to the impoverished mass of the population’ (p321). In spite of the country’s extraordinary wealth and the rents produced from such a diversified resource base, profits remained concentrated among the owners of haciendas, extractive industries and banks, or were dissipated in recurrent waves of corruption. Belatedly and slowly a small salary-earning middle class began to appear, but with only limited negotiating capacity. But the vast mass of peasants remained isolated from any incipient modernisation. Frustrated by the lack of opportunity, rural radicalism became more widespread among the peasant population, while large numbers migrated to the cities producing new forms of poverty in the urban context. In the political domain, state development was also slow and unequal. The oligarchy managed the state directly up until 1919 and then by more indirect means through the military. State management oscillated between periods of repression of popular political parties and social protest, allowing occasional and limited periods of more open government but refusing to allow the passage of social legislation or moves to end the pattern of political exclusion with its roots in colonial times. The urban poor, indigenous groups and the peasantry were the main victims of such exclusion. Despite the enactment of various constitutions, the right to vote (which increased along with internal migration and the spread of education) was restricted to those who could read and write. Although this became less of a limitation as time passed, it stood as a symbol of political exclusion and elite power.

3 | S TATE AUT O N O M Y A N D P E R UVIA N ELIT ES

In the early hours of 3 October 1968, a military coup led to the ousting of Fernando Belaunde Terry from the presidency and his substitution by a military junta led by General Juan Velasco Alvarado. Belaunde was led unceremoniously from the government palace in Lima and bundled aboard a plane to the United States. Five days later, troops took over Peru’s oil installations in Piura, as the government nationalised the assets of the International Petroleum Company (IPC), a subsidiary of Standard Oil of New Jersey. Although this was the culmination of a long-simmering dispute, the move represented a new departure in Peru’s relations with foreign extractive companies, indeed with the private sector as a whole. The Velasco government, or the Revolutionary Government of the Armed Forces as it liked to call itself, was to be very different in orientation to the military dictatorships that had preceded it. In its reformism, its nationalism and its leftward leanings, it was also very different from most of the other military dictatorships that typified much of Latin America at the time. The Velasco government, which lasted until 1975, proved a pivotal period in Peruvian political history, casting a long shadow over the period which followed. As well as IPC, it nationalised most other major extractive industries; it introduced a far-reaching agrarian reform which quickly and effectively broke the power of the country’s old landed oligarchy, creating a system of peasant and worker cooperatives; it brought in novel forms of worker participation in the manufacturing industry; it banished traditional political parties; it greatly expanded the scale of state involvement in the economy; it gave precedence to a new degree of state planning; it actively promoted industrialisation behind high protective tariffs; and pursued policies in foreign relations designed to curtail Peru’s traditional dependence on the United States (Lowenthal, 1975). Although it failed to realise many of these objectives (and many of those it did were reversed subsequently), it represented a clear break with Peru’s past history and the long-lasting pattern of elite domination that we identified in the previous chapter.

s tat e au to n omy a n d p e ru v i a n e l i t e s | 55 Although the thinking behind velasquismo appeared at times inconsistent – and was the subject of bitter controversy both at the time and subsequently – it involved a new conception of the role of the state and its relationship with the wider society, particularly with the private sector and the sanctity of private property. The state, it argued, was there to serve the public interest, not simply the interests of a narrow (and wealthy) minority. In the velasquista vision, the state was to exercise autonomy from traditional elites (Cleaves and Pease García, 1983), holding the balance in society; famously ‘neither capitalist nor communist’ (Mauceri, 1996). Further, the state was to be the principle agent of economic development, helping to overcome Peru’s perceived backwardness and forge a different future based not just on extractive activity but on industrial growth. In line with the experience of other countries in South America over previous years, the state was to be reconstituted along corporatist lines in which the interests of different social groups would be reflected within and finally reconciled by the state. While the business sector would have influence within the state (so long as it played by the rules), so too would other authorised sectors: organised labour, peasants and even the migrant populations who at the time were producing an explosion in the size of Peru’s cities. This sort of ambitious state-building project proved difficult to realise in practice. As we shall see in this chapter, the nature of ties between the state and business, on the one hand, and with the popular movement, on the other, were nothing if not ambiguous. We will also see how fragile the experiment in state-led development proved to be. Velasco’s ouster in 1975 ushered in a decade in which there was liberalisation, both in the political and economic sense, and during which Velasco’s main policies were reversed and many of his institutional innovations abandoned. Economic liberalisation gave rise to a more intimate relationship between elites and the state; it also led to a contentious relationship with popular organisations which had been much empowered by the Velasco experience and whose significant influence arguably peaked in the late 1970s and early 1980s. Velasco and the elites Velasco and his advisors pursued a differentiated strategy in their dealings with business sectors, profiting from the advantage of

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having an iron grip over the workings of the state. But despite this, the regime failed to build stable alliances with investors, and the local business community ended up dividing into opponents and allies. To subdue the old oligarchy, Velasco used the advantage of surprise. First he seized the land, closed down the Sociedad Nacional Agraria (SNA), took control of what remained of the Prado empire (the Banco Popular, the La Crónica newspaper) and shut down the La Prensa of Pedro Beltrán. This was accomplished speedily and irrevocably. With other business groups, the government used different approaches. These were unsure how to respond to a state both autonomous and militarised, which imposed its own rules of the game without consultation. In the case of foreign companies, Velasco nationalised a number of large foreign-owned enclaves. He began, as we have seen, with IPC, following on with the haciendas that belonged to W. R. Grace and Co. and the Banco Continental, then giving way to a more negotiated approach (Goodsell, 1974). To avoid US sanctions and to maintain credit lines open, the government signed the GreenMercado Accord, paying US$76 million in compensation. At the same time, it negotiated pragmatically with Southern Peru Copper Corporation (SPCC) and AT&T in order to secure investment, in the case of the former in the giant Cuajone copper mine, and the latter the Sheraton Hotel in Lima. With the Cerro de Pasco Corporation, it pursued a similar strategy, but in the end the company refused to invest in Antamina, and its Peruvian assets were expropriated with compensation. Pursuing this differentiated policy – known by local industrialists as the ‘salchicón’ – Velasco sought to build an alliance with those businesses in the more modern sectors of the economy whose support he needed to push ahead with a strategy of industrialisation (Durand, 1983). Believing initially that the government would limit itself to tackling the property of the oligarchy and a number of old extractive enclaves, the Sociedad Nacional de Industrias (SNI) supported the agrarian reforms and other nationalist measures. Taking advantage of this, the military sought to form a group of ‘empresarios dialogantes’ willing to cooperate with the government. These approximations led to the formation of alliances and the creation of both formal and informal mechanisms of coordination. The informal included the formation of a group known as Alteco (Almuerzo, Té, Comida)

s tat e au to n omy a n d p e ru v i a n e l i t e s | 57 in which important businessmen and generals would meet all day Sunday to talk about politics and business. This private rapport was strengthened with the participation of industrialists like Eduardo Dibós in the municipality of Lima, of Dionisio Romero on the board of the Banco Industrial del Perú and in the recently-established Industries Ministry, and other important business figures in the Consultative Council of the Ministry of Economy and Finance headed by General Francisco Morales Bermúdez. On the side of the business community, channels of communication were established through the Annual Conference of Executives (CADE) organised by the Instituto Peruano de Administración de Empresas (IPAE). Regularly each year, civilians and military officers met to discuss the reforms under way, turning CADE into (as one of its organisers put it) ‘a substitute parliament’. This alliance was not solely, or even mainly, political. Interests were cemented as a result of generous incentives (monetary, tax and credit) and moves like bank nationalisation that reduced foreign shareholdings to under 50 per cent, enabling local businessmen to increase their holdings and to exercise control over strong banks like the Banco de Crédito del Perú. However, these appointments, instances of dialogue and subsidies failed to dissipate the climate of fear engendered by an excess of interventionism which might eventually be used against the business class. If the landowners had lost their land and lobby organisation, who was to say that the same might not happen to them? Confirming these fears, in July 1970, and without prior consultation, the government approved a law creating the Industrial Communities, obliging industrial companies to share 25 per cent of their profits with their workers: 10 per cent in cash and 15 per cent in shares up to a maximum of 50 per cent and thereby allowing them to co-participate in management (Alberti et al., 1977). This reform, presented as a proposal to produce ‘labour peace’, was enacted at a moment when radical trade unionism was in the ascendant. It was not well received. In 1972, following a tough internal debate, the SNI elected as its president Raymundo Duharte, a hard-liner. Duharte condemned the government’s ‘communist’ objectives and criticised those businessmen it had appointed to different roles. The SNI also attacked the government’s corporativist attempts to create a new business organisation composed of employers and workers

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(Sociedad Nacional de Industrias, 1977). Duharte and his group not only moved to overt opposition but actively engaged (unsuccessfully) with civilians and military officers to oust Velasco and to stem the growth in popular organisation before it was too late. In 1973, Duharte was deported to Ecuador. However, this more hard-line group coexisted with one more open to dialogue, seeking a way to involve itself in the design of public policy. The day Duharte was deported, the Asociación de Exportadores (Adex) was founded. Alejandro Tabini, an industrialist and its first president, supported the government consistently, defending in particular the subsidies paid to exporters (Certex). For its part, IPAE kept up its annual conference and, tensions notwithstanding, dialogue with the military and civilian development technocrats. As Tabini himself put it at CADE in 1974, some business people wanted to derail ‘the train of the revolution’, others sought to jump aboard, while a third group (in which he placed Adex) sought to give advice and succour to the ‘crew driving it’ (la tripulación). By the beginning of 1975, with Velasco increasingly isolated, most business leaders preferred to lend support to the rightwards drift led by Morales Bermúdez. Morales Bermúdez was guided by the advice of the business sector in seeking to reduce the extent of state autonomy, reverse some of the more nationalist policies, curb the power of the trade unions, and resolve the government’s growing fiscal problems. Still, they lacked a political project of their own. Velasco, social organisation and the left The Agrarian Reform of 1969 was one of the most radical anywhere in the Americas, involving as it did the transfer of around half of Peru’s total farm area to around a third of its total rural workforce in the form of worker-managed cooperatives. It effectively killed off the old semi-feudal system of landholding (known as gamonalismo) in the highlands (Caballero, 1981), while also taking over the highly profitable sugar and cotton-producing estates in the irrigated valleys of the coast (Mayer 2009). While far from resolving the problems of rural poverty and marginalisation, the reform helped mobilise new forms of organisation and participation. In the highlands, the so-called SAIS (Sociedades Agrícolas de Interés Social) included massive extensions of landholding, given over in the main to the

s tat e au to n omy a n d p e ru v i a n e l i t e s | 59 former workers on the old haciendas; in the coastal valleys the profitable sugar plantations of the northern coast region were turned into CAPs (Cooperativas Agrarias de Producción). Between the two, these represented three-quarters of the land redistributed, the rest awarded to individual peasant producers and communities (Klarén, 2000, pp346–349. Many rural producers were, in effect, excluded from the effects of the reform, in particular indigenous communities in the highlands whose land had been taken over during previous generations by the gamonales. The Agrarian Reform provided a key stimulus to the integration of Peru’s large peasant population into the life of the country. It also provided a source of political support for the military government. The Confederación Nacional Agraria (CNA) came into being as a conduit for support to the government, its strength mainly located in the coastal cooperatives. The reform also greatly boosted the numbers involved in the Confederación Campesina del Perú (CCP), first established in 1947, whose strength was concentrated in the highlands. By 1977, it claimed to have 200,000 affiliates. The cooperatives were formally administered by the beneficiaries of the land reform, but in practice management was also exercised by stateappointed agronomists and other technical people, with whom the beneficiaries frequently quarrelled. Tensions also developed between the cooperatives and the communities excluded from the provisions of the Agrarian Reform. This exercise in top-down state-oriented reform was, it has long been argued, a pre-emptive move to prevent Peru going down the same road to ‘communism’ pioneered only a few years previously in Cuba (Stepan, 1978). The growth of rural agitation and land occupations had become increasingly pronounced since the late 1950s. During the 1960s, guerrilla groupings, chiefly in the jungle fringes (ceja de selva) in Cuzco and Junín began operations that emulated the tactics used by the Castro brothers in the Cuban Sierra Maestra. Hugo Blanco had sought to raise the standard of peasant revolution in La Convención in the early 1960s (Renique, 1991), and in 1965, during the Belaunde government, there had been three separate instances of guerrilla insurgency, swiftly (as it happened) suppressed by counter-insurgency forces. More important was the process of land occupations stimulated, in large part, by Belaunde’s timid programme of land reform of the mid-1960s.

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In the urban sphere, too, there were reasons to believe that the old structures of domination were no longer able to contain social pressures, and that new initiatives were required. Although Peru lagged far behind some other South American countries in terms of industrialisation, this had begun to accelerate as of the end of the 1950s, and with it the activities of trade unions. Unionisation had also begun to take root in the public sector, which also expanded at this time. Imbued with ideas about worker participation, the Velasco government, as we have seen, introduced the Industrial Community. At the same time, it tried to create a parallel union structure, the Confederación de Trabajadores de la Revolución Peruana (CTRP), to rival the pro-APRA Confederación de Trabajadores del Perú (CTP) and the more radical pro-Communist Party Confederación General de Trabajadores del Perú (CGTP). Velasco’s policies to encourage worker organisation had the effect of strengthening union structures, although the CRTP venture failed to gain much traction. The scale of rural–urban migration, from the late 1940s, led to the development of large squatter settlements in the periphery of most Peruvian cities, creating a further source of potential social pressure on the state. The Velasco government’s creation of Sinamos (Sistema Nacional de Movilización Social) was designed to channel popular support towards the government and to control the effects of mobilisation. Although it acted in the rural as well as the urban sphere, its most important work was in the shanty towns where squatters settled on private land. In Lima, by 1970, roughly a third of the population was reckoned to have been inhabitants in what were euphemistically called ‘young towns’ or ‘pueblos jóvenes’. Sinamos, which helped organise local self-help communities, played a significant role in building up the organisational capacities of the pueblos jóvenes in ways that were often more about ‘mobilisation’ than ‘control’. Whether or not Peru’s military leaders were right in thinking that the country was on the cusp of revolution was, of course, another matter. Although there were signs of growing militancy in certain areas, there was little to bring together individual outbursts into a wider, more unified social movement capable of challenging the status quo. There remained a wide gulf between incipient instances of urban or trade union-based organisation and what was going on in the rural sector. Ideological differences permeated the Peruvian

s tat e au to n omy a n d p e ru v i a n e l i t e s | 61 left, particularly after the Sino-Soviet split in 1964 divided the Communist Party in two, with frequent subdivisions in the years that followed. Rural insurgencies had been, in the main, poorly equipped and largely led by middle-class intellectuals with little in common socially or linguistically with those they sought to mobilise. However, it was also clear by the late 1960s that the old system of landholding was no longer viable, particularly as new ideas about development began to permeate the minds of Peru’s military hierarchy. What did become clear during the Velasco period was that the change in regime towards one more accommodating towards social reform had a major impact in stimulating popular organisation on the ground. As we have seen, the onset of a more radical agenda of agrarian reform prompted peasant federations and individual communities to take matters into their own hands. The process of change gained a dynamic of its own, forcing peasants to organise to push for and defend the advances open to them. In spite of the attempts of Sinamos and other initiatives to build bridges between the popular movement and the state, the system of control envisaged swiftly broke down. Those groups whose ‘mobilisation’ Sinamos sought to channel and control quickly became autonomous actors with political agendas of their own, stimulated by the radicalsounding rhetoric of official discourse. The period also saw the growth of left-wing Marxist-orientated parties keen to take advantage of this social effervescence and lend it political direction. Established in 1928 by José Carlos Mariátegui as the Socialist Party and renamed in 1930, the Peruvian Communist Party (PCP) had remained a relatively small organisation, circumscribed by the country’s scant industrialisation and bitter rivalry from APRA. In the 1960s, it underwent a number of schisms, initially as a consequence of the Sino-Soviet split in 1964 and then within the pro-Maoist factions that would eventually lead to the formation of Sendero Luminoso. Divisions within APRA also led to new groups emerging on the left. During the Velasco period when other parties were banned, the parties on the left began to take on a much more active role within popular organisations. For its part, the PCP managed to take advantage of the marginalisation of APRA from the political scene to expand its influence. At the same time, new and more radical parties, whose roots went back to the 1960s, emerged, not least those of the ‘new left’ like Vanguardia

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Revolucionaria (VR), the Movimiento de Izquierda Revolucionaria (MIR) and the Ejército de Liberación Nacional (ELN). The ‘new left’ developed a generally hostile critique of the Velasco reforms and what they saw as ‘fellow travellers’ in the PCP. VR, in particular, developed a powerful peasant base within the CCP, helped along by frustration with the limitations of the agrarian reform. Although fear of left-wing agitation helped prompt the 1968 coup, the policies of the Velasco era (and their limitations) did much to encourage the development of a strong, militant left, whose influence was to flourish in the ten years that followed. Though left-wing parties grew because of disaffection with the achievements of velasquismo, it was the return of economic liberalism and the dismantling of many of the reforms associated with it that heightened their influence in Peruvian politics over the following ten years. Liberal revival (1975–85) The August 1975 coup that ousted Velasco, and his death shortly after, ushered in a return to more liberal policies in the economic sphere, while in the political domain it began a protracted transition back to civilian government in 1980 with the return of Belaunde to the national palace in Lima from which he had been unceremoniously ejected 12 years before. As a key part of that transition, Peru saw the election (in 1978) of a Constituent Assembly which, over the following year, rewrote the country’s constitution (the previous one dated from 1933). Belaunde served a five-year term (1980–85), in which the country’s business elite, badly mauled under Velasco, clawed back much of its lost power and influence as a result of policies designed to benefit the private sector. The left, in turn, managed to transform its insurrectionary belligerence into more conventional forms of party politics, involving itself in various rounds of elections (to the Constituent Assembly in 1978, to the presidency in 1980, in local elections in 1980 and 1983, and with the next round of presidential polling in 1985). On taking power in 1975, General Francisco Morales Bermúdez – previously Velasco’s rather conservative finance minister – showed few signs of wanting to preside over an about-turn in the policies of his predecessor. But the economic situation, and in particular a dire balance of payments crisis, gave him little alternative. Having borrowed heavily from international commercial banks, especially

s tat e au to n omy a n d p e ru v i a n e l i t e s | 63 in the wake of the 1973 petrodollar glut, Peru’s creditors shifted their ground as dollar interest rates rose and commodity prices fell. Together, the banks and the International Monetary Fund (to which Morales Bermúdez was forced to turn), demanded an end to interventionist policies, a rebalancing of public finances and a devaluation of the currency. These standard conditionalities thus forced the new government to begin to liberalise trade, encourage foreign investment and adopt austerity policies that would involve big reductions in public spending. Such policies were naturally welcomed by most in the business community, at least those whose businesses had survived intact. The agrarian reform was brought to an end, and with it the Industrial Communities which had been a particular bugbear for manufacturers adamantly opposed to allowing workers and union representatives a role in managing their companies. The new government quickly suspended the modus vivendi established under Velasco with the Communist Party and the CGTP labour federation. The Sinamos programme was wound up, and the new government introduced changes to the labour code which reduced labour stability, making it easier for employers to hire and fire at will (subject to continuing legal constraints). Some of those businessmen who had fled or been forced into exile returned to Peru. But for most, the ‘second phase’ of the military government was neither chalk nor cheese; they increasingly pushed for a full return to civilian government as the answer to their problems. By 1977, politically isolated, the Morales Bermúdez administration opted for the transition strategy which would pave the way to both economic and political liberalisation whilst maintaining the institutional guarantees sought by the military hierarchy. The Belaunde government, which took office in July 1980, was a far cry from the reformist administration he had initiated in 1963 inspired by the ideas of the Alliance for Progress and the ECLA doctrine of import-substitutive industrialisation (ISI). In the driving seat at the Ministry of Economy and Finance was the millionaire businessman and financier Manuel Ulloa, who also doubled until 1982 as prime minister. Around him were a hand-picked team of neoliberals – the self-styled ‘Dynamo’ – mostly US-trained economists, some from the University of Chicago, as well as some Peruvian acolytes. Their policy preferences quickly became clear: export-led growth and an end to ideas of ISI, trade liberalisation, promotion of foreign

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investment, privatisation and financial deregulation. Among the most striking features of the ‘new’ economic policy was to remove import prohibitions and tariff barriers, alongside labour market deregulation and the scrapping of all vestiges of the Industrial Communities. It was a policy package that was enthusiastically endorsed by the IMF and World Bank, with which Peru entered into a series of new financial assistance programmes. It was also welcomed by the business sector, keen to free its activities from state interference and regulation and to reorganise itself as an effective lobby organisation through such institutions as the SNI, Adex and the Sociedad Nacional de Minería y Petroleo (SNMP), the last of which had found itself politically neutered during the Velasco government. The reconstruction of business power took time to achieve, but the second Belaunde government provided ample facilities. In 1984, a new business umbrella group came into being, the Confederación de Instituciones Empresariales Privadas, better known as Confiep. Ulloa’s economic liberalisation strategy was largely abandoned by the end of 1982 when its promises of growth and job-creation proved unachievable and when the economy was heading for deep recession. Peru’s negative international position, from which it had recovered following the 1975 crisis (largely through the opening of the huge new Cuajone mine in Moquegua), returned to deficit following the 1982 Mexican debt crisis which effectively cut all new commercial bank lending. But it was also a consequence of changing political conditions, and the consolidation of the left as a major political actor. So far as the left was concerned, economic liberalisation and the abandoning of velasquista policies, along with the opening up of the political system under a new constitution (which introduced universal suffrage for the first time) provided electoral opportunities. The Velasco era, with its reformist agenda, had exacerbated deep ideological divisions within the left, with many parties and groupings vehemently opposed. The 1975 coup and the structural adjustment policies that followed it helped heal some of these differences and forge more unity of purpose against the policies of austerity and liberalisation. The two general strikes of 1977 and 1978 underwrote this move towards greater collaboration, as did the Morales Bermúdez government’s response of large-scale sackings. Yet tactical as well as strategic differences remained, particularly over the importance

s tat e au to n omy a n d p e ru v i a n e l i t e s | 65 afforded to democracy as a viable route forward. While parties that had been sympathetic to the Velasco regime took a more moderate stance, there were important sectors of the left that resisted this approach, advocating bottom-up militancy as the way to accumulate strength prior to a final assault on the capitalist state (refusing to rule out armed struggle as the chosen method to attain power). But the dismissal of workers following the strikes of 1977 and 1978 weakened the union movement and the left more generally. This helped shift the balance towards acceptance of an electoral strategy, beginning in 1978 with the election of the Constituent Assembly. Although divided into various competing factions, the left as a whole won 36 per cent of the vote, and 34 of the 100 seats in the Assembly. This also helped rally support within the left for a mass-based electoral strategy. But this positive result was assisted by the fact that Acción Popular (AP), Belaunde’s party, did not take part. The left-wing presence in the Assembly was split between no less than six factions. Meanwhile APRA emerged as the biggest bloc with its now aged founder and leader Víctor Raúl Haya de la Torre elected as president. In the 1980 elections, in which AP did take part, the left (with no fewer than five rival slates) polled only 14 per cent, with Belaunde pulling off an impressive victory with 45 per cent of the valid vote and APRA failing to clinch the presidency. It was only in September 1980, in the build-up to nationwide local elections at the end of the year, that the left came together to form the Izquierda Unida (IU). By that time the majority of parties on the left had reached the conclusion that the electoral road offered the best chances of success in winning power, although many factions remained ideologically committed to armed struggle. In the 1980 municipal elections, the IU won 24 per cent of the vote, a far better result than in the presidential elections earlier in May. The decision to engage in electoral politics thus brought some difficult decisions for the leaders of Peru’s left-wing parties, particularly those furthest to the left. Electoral politics implied involvement in the politics of compromise and alliance-making within formally constituted institutions. For the more ‘revolutionary’ parties and groups, there was distrust of those whom they considered ‘reformists’. But the attractions were clear: it provided the opportunity to build up organisational strength at the local level without the immediate threat of state repression. The fate of other left-wing movements in

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Latin America at the time – especially in Argentina and Chile – also provided clear examples of the vulnerability of left-wing parties to governments whose prime objective was to destroy all vestiges of leftwing politics; Peru remained something of an exception to the rule at the beginning of the 1980s. Subsequent elections provided further evidence that there was mileage in the electoral road. The municipal elections of November 2003 saw the IU increase its share of the vote to 29 per cent across the country. The victory of Alfonso Barrantes in becoming mayor of Lima and that of Daniel Estrada in Cuzco, among others, confirmed a belief that it was possible to gain state power, albeit at the municipal level. The declining popularity of the second Belaunde administration and the role of the left in challenging its neoliberal, IMF-backed agenda in both Congress and the media provided added political space. The main rival for the left, especially as the 1985 elections approached, was APRA, a party that, since Haya’s death in 1979, appeared rejuvenated under the leadership of Alan García. Ever since its formation at the beginning of the 1930s, APRA had represented the main intellectual challenge to the left, offering a multiclass, populist politics that vied with the revolutionary orthodoxy of the Communist Party (Stein, 1980). The rightward drift of the party, especially in the 1950s and 1960s, towards avowedly anti-communist positions had provided space for the emergence of the left, although bitter struggles characterised relations between it and APRA at the local level. García provided a dynamic new leadership which, in the build-up to the 1985 presidential elections, eclipsed the collective leadership of the IU and stole much of its thunder in opposing Belaunde’s pro-market policies. The García years: managing the political divide The 1985 elections represented a humiliating reverse for Belaunde and Acción Popular, whose liberalising agenda had largely been thwarted by growing opposition and policy incoherence at the government level. The two traditional parties of the right, AP and the Partido Popular Cristiano (PPC), paid the price for leading what had swiftly become a very unpopular government. Having won 45 per cent of the vote in 1980, AP won a mere 7 per cent in 1985. The PPC, which had been AP’s junior partner for most of Belaunde’s

s tat e au to n omy a n d p e ru v i a n e l i t e s | 67 second term, won 12 per cent. By contrast, the IU won 25 per cent of valid votes, but the big winner was APRA, which won 53 per cent. In the preceding years García had sought to revamp APRA’s image as a left-of-centre social-democratic party, casting aside its earlier strongly anti-communist image. He fought the election campaign with strident criticisms of the effects of liberalising economic policies on the welfare of the poor and against Belaunde’s apparent predilection for keeping abreast of debt commitments while cutting social expenditure. In office, García set about governing by adopting some of the key policies of the left in the election, in particular casting aside IMF conditionalities and announcing a partial moratorium on debt payments by limiting these to 10 per cent of the value of exports. At least at the outset, its programme seemed successful in stimulating growth and employment and lowering dangerously high levels of inflation. The results of the November 1986 elections seemed to validate this shift to the left: while APRA won 48 per cent of the vote, the left polled 31 per cent, its highest level up to that point (and since). The parties of the right polled only 15 per cent. No president previously, with the possible exception of Velasco Alvarado, gave as much emphasis as García to the need to address Peru’s highly skewed income distribution. The need to reduce social inequality permeated his speeches, both before and after taking office. His concern was not just rhetorical; he saw this as a source of social and political instability. But the problem was how to engineer such a change in a country with a weak (and fairly corrupt) state administration and an elite which had never showed any enthusiasm for the politics of distribution. The heterodox formula adopted focused on stimulating domestic demand in the belief that this would increase prices for agricultural goods, while at the same time focussing assistance to those living in poverty in the country’s most impoverished regions. By 1987, however, the heterodox formula showed clear signs of exhaustion. But in spite of his left-wing headline policies, García sought to keep the business community onside. He did so in the knowledge that his short-term reactivation policies would work only if investment kept up with demand. To this end he sought to develop a personal relationship with the country’s main business groups. The so-called ‘Twelve Apostles’, with whom he sought to build this

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special relationship, represented the heads of the country’s largest economic groups. This relationship is examined in more detail in Chapter 5. Suffice it to say here that García sought to avoid using as intermediaries precisely those business lobby groups like the SNI and Adex which had reappeared during the previous decade, and in particular the more recently-constituted Confiep which he considered to be more interested in the partisan politics of the right than assisting the government with its plans (Crabtree, 1992, pp84– 85). In his speeches, García avoided criticism of the business class, and indeed some of the larger groups, fearful of the left, appear to have supported financially his campaign for the presidency. This relationship with the Twelve Apostles lasted only so far as the return to growth in 1986 fed into corporate balance sheets. By 1987, further growth looked improbable. Then, angered by their failure to invest in the economy, García resorted to his ill-conceived and ill-prepared attempt to nationalise the country’s main commercial banks, aware that these were crucial to the economic circuits on which the business groups depended. The results of this were to lead to overt political defiance on the part of Peru’s business community. Together with right-wing parties, the business community took to the streets. On 21 August 1987, a massive meeting held in Lima’s Plaza San Martín gave birth to a new political movement based on popular mobilisation against the government. At the head of this was Peru’s famous writer, Mario Vargas Llosa, who would go on to be the candidate of the right in the 1990 elections. On the left, García treated the parties of the Izquierda Unida, with their strong presence in Congress, with caution. APRA’s traditional opponents were by no means reconciled to his return to the sort of state-centred politics that had characterised the Velasco period. While the more moderate parties of the left were open to dialogue with the government, its more radical factions (which were politically more powerful) were opposed, particularly the more overtly ‘revolutionary’ ones like Patria Roja and the Partido Unificado Mariáteguista (PUM) which had brought together the remnants of VR with other more radical parties. Within this ever-present tension, the Communist Party played a balancing role. García found himself well-placed to exacerbate such tension by his courting of Barrantes (who had been the IU presidential candidate in 1985, remained mayor of Lima until the end of 1986 and headed the IU’s less radical wing). While

s tat e au to n omy a n d p e ru v i a n e l i t e s | 69 the ‘moderates’ emphasised the need to preserve democracy at all costs, the more radical parties still stressed the need to use the space offered by democratic politics to build up popular organisation, politicise it and prepare for subsequent battles to win state power. This strategic dilemma was, of course, deepened and dramatised by the rapid growth of Sendero Luminoso during these years and the expansion of its area of influence from remote areas of the highlands to metropolitan Lima, as well as by the consequent spread of states of exception that closed down areas of political competition in large parts of the country, notably ones where the left had organised bases of support. The growth in electoral support for the left, or its component parties, also raised the question as to the solidity of its organisation at the local level. While control over the union movement was not much in doubt – the Aprista CTP confederation had all but vanished by the 1980s supplanted by the CGTP – in other spheres grass-roots organisation proved to be much more precarious. The growth of the comedores populares and milk distribution committees (comités del vaso de leche) in the early 1980s in low-income urban settlements had given rise to new forms of organisation, particularly in involving women in political decision making far more than in the past. But, as the García boom gave way to bust, these became much less political in their role, simply helping people to survive. Left-wing control over neighbourhood organisation in the shanty towns of Lima and elsewhere proved very far from complete, while the APRA government had considerable success in bringing this sort of organisation under its political wing through the use of state resources to provide temporary employment and other social benefits to otherwise beleaguered populations. In rural areas, too, it proved hard for the left to expand its influence when confronted by, on the one hand a government that vied to build its own organisation for electoral ends and, on the other the growth of Sendero Luminoso, which dealt mercilessly with those in its area of influence who refused to accept wholeheartedly its dogmatic and fearsome political project. Breaking point for the Peruvian left It was in the holiday centre of Huampaní, in the outskirts of Lima, that in January 1989 some 3,500 delegates belonging to the United

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Left coalition (or Izquierda Unida, IU) came together for the political movement’s first-ever party congress. The mood at the congress was one of optimism that the splits and recriminations that had long dogged what was at the time one of Latin America’s most significant left-wing organisations could be overcome. The First Congress was the consequence of a process that had begun two years earlier whereby IU supporters, irrespective of individual party affiliation, would register themselves and become card-carrying members (carnetización), district by district, province by province throughout Peru. More than 130,000 people came forward to do so. Although party membership at the time was hard to measure, this suggested that the IU was probably by far the country’s largest member-based political organisation. However, in the weeks and months that followed Huampaní, the IU largely dissolved as an electoral force, its new membership drive proving a fleeting and ultimately doomed exercise. In the build-up to the presidential election of 1990 which brought to power the hitherto largely unknown Alberto Fujimori, the IU split in two, each faction sporting its own candidate. Together, they polled a meagre 11 per cent of the national vote, whereas in 1985 the IU had won just under a quarter of the vote and in the 1986 municipal elections it garnered more than 30 per cent. And in the years that followed under Fujimori, the left saw its electoral presence further eclipsed, losing much of its support in civil society and therefore its ability to orchestrate opposition to the neoliberal revolution initiated by Fujimori. Further, during the ten-year fujimorato (1990–2000), those on the left found themselves marginalised, deliberately squeezed out of positions of any power and influence. Although some leaders maintained a voice in the legislature for much of the Fujimori era, they were a small minority, powerless to oppose neoliberal reforms or to stop what rapidly turned into a right-wing authoritarian dictatorship. At the same time, Alberto Fujimori proved agile at building up his own rapport with civil society, using the resources of the state to that end (Conaghan, 2005; Carrión, 2006). The reasons for the decline in the political profile of the IU (and its component parties and factions) are, of course, not hard to find. In addition to internal rifts and distrust, they were in large part a consequence of the dual traumas that Peru underwent in the late

s tat e au to n omy a n d p e ru v i a n e l i t e s | 71 1980s to which left-wing parties proved incapable to offer convincing solutions. The first of these was that of the hyperinflation that overtook Peru in the 1987–90 period, which – in the public mind at least – was a consequence of precisely the sort of policies with which the left had been most closely associated. The second, which emerged with force earlier under the Belaunde government, was the problem of Sendero Luminoso, which seemed by 1989 to be coming perilously close to what it termed a position of ‘strategic equilibrium’, the ability to take on the Peruvian state and win (Stern, 1998). More generally, the left was identified in the public mind with a statist approach which, by the end of the García administration, appeared to have run out of steam. Both hyperinflation and the Senderista insurgency exposed the weakness of the state, opening the way for market-inspired alternatives. García’s last two years in office were ones of an economic crisis unparalleled in a country well-accustomed to periodic bouts of boom and bust. Balance of payments difficulties in 1987 and 1988, worsened by the inability to draw on foreign lending and resulting in the speedy exhaustion of international reserves, made it increasingly difficult to manage the exchange rate. Declining tax revenues brought a deteriorating fiscal balance. Successive economic ‘packages’ failed to stabilise prices which began to skyrocket (1,722 per cent in 1988) and real wages to plummet. At the same time, output contracted (by nearly 9 per cent in 1988), and with it employment levels. Average real income per head of the population slumped by 22 per cent between 1987 and 1989, down to a level not seen since the beginning of the 1960s (Crabtree, 1992, pp141–147). According to Labour Ministry household surveys, there was an overall contraction of real incomes (in both the formal and informal sectors of the economy) of 64 per cent in 1989. Employment in the formal sector of the economy, termed ‘adequate employment’ in the surveys, fell from 52 per cent of the labour force in 1986 to 11 per cent in 1990 while informal employment (or ‘sub-employment’) leapt from 43 per cent to 81 per cent over the same period. By 1990, inflation is thought to have risen to 8,000 per cent. But at that level of hyperinflation, it became impossible to measure prices with any accuracy. The impact of this on trade union membership is not hard to grasp as unionised workers in manufacturing and service industries lost their jobs en masse. Unions proved incapable of protecting

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the interests of those who managed to hold onto their jobs, and successive one-day protest strikes against government policies became little more than futile exercises in gesture politics. Attempts in some sectors, including the public sector, to negotiate indexation arrangements proved fruitless. The speed at which family incomes declined made workers unwilling to sacrifice what little they were earning to attend demonstrations and protest marches. Contrary to orthodox explanations, there appeared to be little correlation between falling living standards and the willingness of workers to adopt radical responses. Formal sector workers were prepared to accept lower wages as the price paid to keep their jobs. In such circumstances, then, unions lost all negotiating power and their relevance as political actors diminished as a consequence. Meanwhile, the incursion of Sendero Luminoso into the urban sphere – the appearance of the so-called ‘armed strike’ (‘paro armado’) – made it easier for the government to clamp down on what protest could be organised, claiming that it was being perpetrated by ‘terrorists’. The urban informal sector, into which many of the previously employed fell, was a workforce with inherently atomised interests. This was particularly the case after neighbourhood settlements had achieved the conquest of basic urban services, like electricity and water, which had in the 1970s provided common collective interests and the spur to mobilisation. In the rural sphere, the impact of recession and hyperinflation is harder to discern from official data, but there can be no doubt that the collapse of urban demand for food led to depressed agricultural prices and made for increased hardship that was equally damaging to grass-roots organisation. But it was the war against Sendero that was more deleterious, especially in the south-central part of the country where Sendero was most entrenched and where the full brunt of counter-insurgency was heaviest. In Ayacucho, for example, most pre-existing peasant federations were simply wiped out as a consequence of the killings, the massive outflow of refugees and the militarisation that went with states of exception. While there is evidence of protest against government elsewhere, this was not such as to be orchestrated – as previously – by parties of the left. Most were sporadic and uncoordinated, defensive reactions to government failures to protect agricultural prices or maintain flows of credit. The CGTP and the parties of the left were conspicuously absent in seeking to mobilise popular discontent towards the APRA

s tat e au to n omy a n d p e ru v i a n e l i t e s | 73 government and its increasingly neoliberal policies designed to appease the IMF. The left thus found itself poorly placed to take the political initiative, increasingly immobilised by internal wrangling, especially between the centre-left (which came to be known as the Convergencia Socialista) and the more radical parties. On one level, an immediate issue was over who should be candidate for the 1990 elections (the more radical left rejected the proposal it should be Barrantes), but more substantively there was a disagreement over the purpose of the IU and – in the last analysis – over involvement in ‘bourgeois’ democracy. Should the priority be to mobilise against the APRA government and to unmask its reformist pretensions, or to seek to create a broad front (as the supporters of Alfonso Barrantes argued) to maintain democratic governance threatened by Sendero? On the issue of Sendero, the centre-left was clear on the need to build bridges with the military; for others on the left there was a reluctance to condemn Sendero outright for its pursuit of armed struggle, albeit a misguided one based on an ‘incorrect’ political calculus. Notwithstanding Huampaní and the process of carnetización, the prospects for creating a single entity on the basis of a shared vision and political strategy seemed distant as 1989 progressed. The links tying the parties of the left to an organised social movement across the country had dissipated, and the appeal of a left-wing alternative to the status quo had diminished. In the event, failure to agree on a common presidential candidate led to the open split in the runup to the 1990s elections. The Convergencia Socialista, renamed the Acuerdo Socialista with Barrantes as presidential candidate, won a meagre 4.7 per cent of the vote, and IU with Henry Pease the candidate won 8.2 per cent. By contrast, APRA, so widely discredited because of the record of the García government and with the lacklustre Luis Alva Castro as its presidential candidate, won 22.5 per cent, in part because of superior organisation but also because of its use of clientelistic policies of temporary job creation among people desperate for work. The demise of the left in Peru, which was to last for the next quarter century, was therefore in evidence well before the election in 1990 of Alberto Fujimori, although the Fujimori decade would further weaken its electoral performance and its ability to orchestrate opposition to the neoliberal revolution that was to come. Although

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left-wing candidates took part in elections, their performance was consistently mediocre. Moreover the left’s critique of neoliberalism and its shortcomings failed to have much echo in the wider society. Despite the return to a more pluralist system of government after the fall of Fujimori in 2000, the left failed to profit from the more open democratic environment. Politics were dominated by inchoate, personalist groupings, lacking in ideology, acting as electoral machines and devoid of organised rooting in society (Taylor, 2006). Civil society remained fragmented, lacking – with one or two notable exceptions – strong leadership capable of overcoming sectional interests and building a movement that was more than just the sum of its parts. Although public dissatisfaction with the workings of democratic institutions had proved profound, this had failed to turn into a movement capable of voicing demands for a radical change in direction. The ability of elites to control the policy agenda, we would argue, was thus greatly assisted by the inability of civil society, and concretely the left, to mount a coherent and sustained opposition to the policies of neoliberal transformation that had begun to take place by the late 1980s and which would accelerate during the 1990s. While there was clearly opposition to specific policies and projects, such opposition – as we shall see in Chapter 7 – tended to be fragmented, localised and had relatively little resonance at the level of national politics. Conclusion The coup of General Velasco in 1968 represented a decisive break with the past as the military government, in its attempt to build a degree of state autonomy, sought profoundly to alter the previous pattern of elite predominance over the workings of the state and to build a ‘new’ Peru. The economic power of the old agrarian oligarchy was largely destroyed, while the nationalisation of powerful foreign companies gave way to a greatly enhanced role for the public sector. At the same time, new forms of participation were opened up to groups which previously had had little voice in national political decisions. However, as Martín Tanaka has argued (2002) the Revolutionary Government of the Armed Forces proved more efficacious in destroying elements of the old order than building a new institutionality that would survive its tenure of office. The period after 1975 saw the re-emergence of private sector business and an

s tat e au to n omy a n d p e ru v i a n e l i t e s | 75 increase in its ability to influence decisions in the realm of politics. Even the return to a more interventionist mode of government under Alan García after 1985 was premised on a negotiation with the country’s major private sector business groups that they would play a key role in sustaining economic growth. The same period saw the growth – seemingly at the time – of one of Latin America’s more powerful left-wing political movements, which came together at the end of 1980 to form the Izquierda Unida. Nurtured by the participatory politics of the Velasco era and by widespread feelings of frustration with its shortcomings, Peru’s left appeared strongly rooted in the country’s peasant and labour unions as well as in its burgeoning shanty towns. The size and strength of the left posed a key obstacle to the policies of economic liberalisation initiated by the Morales Bermúdez government and subsequently by that of Fernando Belaunde after 1980. But, as we have seen, its power, possibly overestimated at the time, proved unable to survive the twin effects of hyperinflation and political violence at the end of the 1980s. The collapse of the left as an electoral force helped pave the way to the implementation of the 1990s neoliberal ‘revolution’ under the authoritarian aegis of Alberto Fujimori.

4 | TH E B I RT H O F T H E N E O L I B E R AL S T A T E

On 11 June 1990, the very day after he won the presidential election, Alberto Fujimori received a telephone call from the economist Hernando de Soto. Fujimori immediately agreed to meet him; de Soto and a group of Peruvian bankers and economists working in the United States offered to organise an international tour for him (Boloña, 1993). Shortly after, Fujimori met with Confiep (the confederation of private businessmen), offering its president, Jorge Camet, a seat in his future cabinet. Meanwhile, Vladimiro Montesinos – cashiered army captain, lawyer to drug traffickers, advisor to Fujimori and future boss of the National Intelligence Service (SIN) – arranged for Fujimori to move into the Club Militar for ‘security reasons’. Thus, in a short space of time, the president-to-be appeared to turn his back on campaign allies and enter into alliance with those who wielded real power in Peru: the business sector, the international financial institutions, the military. This was an alliance that was to last a decade and one which enabled him to transform the nature of the state into one fully functional to the market economy. The governments that came after Fujimori in 2000 followed suit in economic policy, but without being able to overcome the country’s chronic social and security weaknesses. Before travelling to New York, de Soto prepared a fax for Fujimori laying out policy plans for the new government. On receipt of this fax, IMF Managing Director Michel Camdessus, expressing his full agreement with its contents, is said to have commented that it sounded to him like ‘heavenly music’ (Boloña, 1993). On arrival in New York, Fujimori met with the IMF and the Council of the Americas, the latter representing the 200 US largest investors in Latin America. Following his trip to the United States and to Japan (where he – a first generation migrant or nisei – met with the emperor) Fujimori became convinced that his administration would need to integrate Peru fully into the world economy if it was to receive external assistance. An about-turn in economic policy was under way; to restart growth it was necessary to change the rules of the game and the state institutions that administered them.

th e bi rth of th e n e oli b eral stat e | 77 The Fujimori decade was to bear more than a passing resemblance to that of Leguía, 70 years before. Both were based on support from established de facto powers and both successfully pursued a sort of right-wing populism; both suppressed opposition; and both finally came to grief on a wave of corruption scandals, external financial difficulties and hostility to their plans to remain in office indefinitely. Moreover, both were the only presidents to end up in jail. Fujimori’s legacy was to construct a neoliberal state functional to the market, thus helping to pave the way to a lengthy period of growth based on the export of extractives. In 2000, following Fujimori’s and Montesinos’ flight, the neoliberal era continued under freely-elected governments which, amongst other things, helped to lock in pro-market reforms through agreeing free trade agreements with, amongst others, the United States. Why was this? Three reasons help explain why Peru ended up following a very different course to countries like Venezuela, Bolivia, Ecuador and those of Mercosur. The first was that in the first decade of the new millennium the close alliance with the business elite was maintained, enabling the latter effectively to ‘capture’ the state through the funding of political campaigns and successful lobbying. Economic management remained safely in the hands of technocrats. Second, the power and influence of that elite was greatly reinforced by the extraordinary ten-year export-led bonanza that followed on from 2002, and with it a model of consumerism based on imports. Third, social organisation, particularly trade unions and left-wing parties, had been gravely weakened, while the power of right-wing groups and media had been strengthened. In this context, the state remained under the aegis of a neoliberal hegemony, constantly reinforced by legislative initiatives and institutional reforms. At the beginning of the 2000s, it was the new political class and neoliberal technocrats, supported by the owners of business and the international financial set-up, who pulled the strings. Still, it became clear that the neoliberal transformation had not been complete, leading to institutional heterogeneity. The biggest and most successful institutional changes had taken place in the economic bureaucracy of the state. These helped promote the so-called ‘islands of efficiency’ among institutions favouring private investment while reforms in the social and security spheres languished for lack of political and economic support. The edifice of the state was thus

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constructed in such a way that it was supported by strong pillars on one side but was poorly held up on the other, thus debilitating the social pact. The population remained distrustful of state institutions, and it proved impossible to close the social divisions inherited from the past and accentuated by the crisis of the 1980s. Economic reform: step by step Following the basic neoliberal precept of ‘saying no to the state and yes to the market’, enjoying the technical assistance of the IMF, and supported by the business sector and the military, Fujimori set out to change the old statist paradigm. He began by applying shock treatment to reduce inflation and recover fiscal balance. As Carlos Boloña, one of the economists recommended by de Soto and who was to become Fujimori’s second economy minister, remarked, this first step was in effect an ‘operation without anaesthesia’ stoically endured by a long-suffering population. From this point on, Fujimori became the Peruvian Pinochet, emulating the former Chilean dictator’s radical transformation of rules and institutions in the bid to achieve an extreme but durable form of neoliberalism. Some million workers lost their jobs as a consequence of the 1990 Fujishock, mainly in the public sector. Those lucky enough to keep their jobs saw their real incomes halve. The removal of price controls triggered a massive increase in the cost of fuel and other basic goods from US$0.25 a litre to $3.00 overnight. The numbers of those living in poverty, officially defined, rose to almost half the population. However, the government avoided a social explosion by distributing food with the help of the Catholic Church through soup kitchens and popular dining facilities (comedores populares). Relatively quickly Fujimori managed to meet the targets he had agreed on his trip overseas. Indeed, the shock was the proof demanded abroad as a condition for the renewal of credit, following repayment of debts renegotiated with foreign bankers. It was also the quid pro quo for multinational firms to invest in privatisations and mining projects and for Peruvian businessmen to begin repatriating capital lodged abroad during the turbulent 1980s. With the return of capital flight and on the back of price stabilisation, it was hoped that economic growth would get going, particularly if the internal war waged against Sendero Luminoso could be won. In both spheres, decisive leadership was required. Having

th e bi rth of th e n e oli beral stat e | 79 concentrated more and more executive power in his own hands, Fujimori seemed to have stabilised the economy in short order. Inflation, estimated at the end of 1990 at 7,649 per cent, fell to 15.4 per cent in 1994 according to central bank (BCRP, 1999, p15). GDP growth rates also showed a remarkable recovery, having contracted by 5 per cent in 1990, this grew by 12.3 per cent in 1994 according to the World Bank. This about-turn in economic performance won him the support of the business sector and the right, as well as reassuring international financial institutions. Like Pinochet, Fujimori had taken the first step to re-founding the state. The second step, market liberalisation, came in 1992, following the reduction in inflation and the closure of the fiscal deficit. The aim was to transform Peru into an open economy in which large corporations could take advantage of its natural resource wealth and its domestic market. The measures to this end were overseen by the Ministry of Economy and Finance (MEF) and enacted by decree. The MEF quickly became a ‘super-ministry’ enjoying the full support of the president and benefiting from advice from Confiep and the IMF. A legislative tidal wave took place between May and November 1991 with the publication of 61 supreme decrees and 117 legislative decrees. The second such wave began in June 1992, shortly after the autogolpe and the closure of Congress and the judiciary. Under Boloña’s rule in the MEF, which began in 1991, hundreds of decree laws were published, accelerating the structural reforms recommended by the Washington Consensus. This legislative blitzkrieg was made easier both by a tradition of legislating by decree and by the concentration of executive power in the office of the presidency, the MEF and the SIN. The third step came about with the promulgation of the new constitution in 1993, when private investment was beginning to pick up and the government had successfully captured Abimael Guzmán along with the other key leaders of Sendero Luminoso. The new constitution facilitated legislation by decree. It enabled the executive to legislate when given permission to do so by a more pliable singlechamber Congress and by means of presenting ‘emergency bills’ – ‘proyectos de urgencia’ – for fast-track approval. This practice of governing ‘from above’ became institutionalised, lasting well beyond the fall of Fujimori in 2000. The new constitution provided a handy instrument to promote the consolidation of the market economy. It

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specifically proclaimed equality of conditions for foreign and Peruvian firms, while setting out measures that gave full judicial protection to investors. Under the new dispensation, the state was to perform a subsidiary role and employee social protection was downgraded. The fourth step came later, after the fall of Fujimori. It consisted in the signing of a number of free trade agreements, beginning with a bilateral agreement with the United States, and other measures designed further to consolidate the economic model by promoting large-scale investment and further limiting the role of the state. An example of this was the so-called ‘Obras por Impuestos’ scheme, introduced by Alan García, enabling firms to invest their tax obligations in infrastructural works planned and executed by the private sector. This was a move that helped buttress the power of extractive enterprises in the areas over which they held sway and where natural resources were concentrated. The Humala administration went further in this direction in authorising the building of infrastructure through public–private partnerships. Thus the withdrawal of the state continued. The liberalisation of the Peruvian state was taken to extremes in order to promote private business, more so than in almost any other Latin American country. Although it managed to stabilise itself financially, keeping deficits under control and paying the foreign debt, the country’s institutional development proved highly skewed – strong in the economic sectors but much weaker in the social sphere, and especially with respect to justice and security. Privatisation and concentration Among the most significant features of the new dispensation were the privatisation of state companies and the closure of staterun development institutions. Inefficiencies apart, one of the main reasons for selling state enterprises to the highest bidder was that by 1990 these were generating annual losses of around US$2.5 billion. Selling them meant staunching fiscal outflows and creating a fund that would alleviate the finances of the state. But more important was the fact that it would bring an end to the interventionist state which was seen to have impeded the full development of the private sector over preceding decades. During the course of the 1990s more than 150 state companies were sold off to the tune of US$9.2 billion. All that was to remain in state

th e bi rth of th e n e oli beral stat e | 81 hands were a handful of companies, such as Petroperú (but deprived of its ability to exploit crude), Sedapal (the water company in Lima) and some hydroelectric plants like the Mantaro facility in the central highlands. Sectoral development banks were closed down, including the Banco Agrario, the Banco Hipotecario, the Banco Industrial and the Banco Minero. So too were the Instituto de Comercio Exterior and the Instituto Nacional de Planificación. As a consequence, the public sector share in GDP, which had increased considerably in the 1970s and 1980s, fell back to its 1950 level. Perhaps even more important was the shift of personnel: out went those who had been imbued with the developmentalist ideas prevalent since the 1960s, and in came new cohorts of technocrats versed in the neoliberal model of development through free and unfettered markets. The majority of those who bought former state companies were transnationals or at least joint ventures, indicative of the longstanding weakness of national capital with respect to foreign capital in evidence ever since the guano era of the mid-nineteenth century and even more so in the era of globalisation. Thus, it was not just a change in the role and preponderance of the state, but also that of local capital. The most spectacular privatisation was doubtless the purchase in 1994 by Telefónica de España of the merged national telecoms companies for the sum of US$2 billion. This prompted a privatisation fever, the signal to global markets that Peru had become a country safe for investment. Of the 16 largest privatisations, headed by Telefónica – representing 50 per cent of total sales revenue – 15 were bought by multinationals and only one – Cementos Lima – by a Peruvian company – in this case headed by the Rizo Patrón family group. By promoting large-scale investments that began with privatisation and by refusing to regulate mergers (except where firms were unabashedly abusing their market position), the government prompted not only a transfer of property to the private sector but also a concentration of property ownership. Following this logic, hundreds of mining and hydrocarbons permits were sold in concession, and thousands of hectares of forest. Privatisation also included activities that had never before been in private hands, such as pension funds, the administration of ports/airports, concessions to manage highways and even the ownership of cemeteries. Not only did the state withdraw from productive activity during this period, but communal property – protected previously by

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legislation that dated from the Velasco era – came under attack from this privatising impulse. Although the 1993 constitution talked of protecting communities, in practice their lands were substantially reduced, whether through the multiplicity of new concessions to companies, by the expansion of the urban frontier, the privatisation of peasant land or because of inroads made by migrant colonos seeking to acquire private property. For the first time in Peruvian history, private property prevailed in every part of the country, replacing forms of communal property that had existed for millennia. Still, the modern economy proved unable to provide decent employment to the majority of the population. Large investments in extractive activities were highly capital intensive, providing scant direct or indirect employment benefits for local people. The loss of employment openings in both the private and public sectors, along with the impact of economic globalisation, pushed the poor increasingly towards illicit forms of extractive activity: coca, timber and gold. By 2012, the state had awarded 23 million hectares in concession to mining companies, 17 per cent of the country’s entire land surface. In 2014, at the end of the export bonanza, this had risen to 25 per cent. At the regional level, 23 per cent of the surface area of Cuzco had been concessioned, 27 per cent in Junín, 32 per cent in Piura, 45 per cent in Cajamarca and as much as 64 per cent of Apurímac (Durand, 2015, pp223–234). All of these regions are home to a high proportion of rural and indigenous people. Much the same was taking place in the Amazon, where 65,800 hectares had been given in concession to oil and gas companies, and 7 million to timber extraction firms. In this way, and through the development of road infrastructure linking Peru to Bolivia and Brazil, the Amazon region became finally integrated into the rest of the continent and into the global market place, but at a high human and environmental cost. New agricultural property regime While these trends towards private ownership took root in the highlands and Amazon jungle, similar developments were taking place on the coast. Under Fujimori, there were three key changes to the agrarian property regime that led to the privatisation of land and re-concentration of ownership in new latifundios. This new property regime was progressively reinforced during the sequence of governments that followed Fujimori’s fall in 2000.

th e bi rth of th e n e oli beral stat e | 83 First, land was privatised at a rapid pace. When Fujimori took office, there remained 12 sugar cooperatives in the coastal valleys. The rest had disappeared as a result of the sub-division of cooperative lands in the 1980s, creating small units of landholding (minifundios) typically of 5–7 hectares in size. The Fujimori government enacted measures to liberalise the markets for land and water, eliminating the upwards legal limit on land tenure, and transferring part of the land that had formerly belonged to the cooperatives to private firms. More important still were the measures to privatise the 12 remaining sugar cooperatives which occupied some of the best land in the country. This was done by capitalising the debts owed by the cooperatives to the state for non-payment of taxes and turning these into tradable shareholdings. These were then sold to private investors who proceeded to acquire the shares still belonging to the cooperatives at knock-down rates, thereby achieving majority ownership and wresting administrative control. Peru once again became an important producer of sugar. Second, large state-funded irrigation projects were re-started once there was the fiscal capacity to do so. This made investment by private interests particularly attractive. Such investments were well under way by the end of the Fujimori period. The giant Olmos irrigation project, which first started during the Leguía administration, was finally completed. It followed the same logic of ownership concentration of earlier forms of extractivism: two investors, Coazúcar (belonging to Grupo Gloria) and Odebrecht, the giant Brazilian construction company in charge of the project, bought 25,000 hectares and 11,000 hectares each out of a total of 43,000 hectares. The government’s agrarian policy thus favoured large-scale acquisitions, reversing the policies of agrarian reform initiated in the 1960s. A further factor was the establishment of regional governments in 2001 which sold off uncultivated land to private interests. This took off rapidly, prompting accusations of collusion and corruption. Between 1996 and 2011, no less than 160,000 hectares of newly irrigated land was acquired by private owners, while a further 190,000 hectares were sold off by regional governments (Eguren, 2014, p134). Third, the state abandoned giving credit to small-scale agricultural producers with the closure of the Banco Agrario, thus providing a further stimulus to private ownership and concentration in

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landholding. Private commercial lenders took over the role of funding agriculture, but focusing lending towards larger and more profitable units of landholding. Recognising this as a problem, the Toledo government subsequently set up Agrobanco in 2001. Municipal and rural credit agencies (cajas municipales and cajas rurales) were also established to provide some credit to smaller and poorer farmers sidelined by private banks. The results, however, were far from dramatic. By 2015, Agrobanco had provided loans of 2.2 million soles to 98,000 producers, 4.5 per cent of their total number. Eguren (2014, p146) calls this process of privatisation and concentration one of ‘exclusive modernisation’ in which small-scale family farming and peasant/indigenous communities were effectively marginalised. Sunat and tax reform One of the few institutions to be completely overhauled under Fujimori was the national tax authority, the Superintendencia Nacional de Administración Tributaria (Sunat). This reform began in 1991 when Congress, with executive backing, authorised a complete reorganisation in order to raise the tax take, improve efficacy and curb corruption. At the same time, in close coordination with Sunat, the MEF took steps to simplify the tax system and make it serve better the needs of a globalised market economy. This dual reform, achieved with striking speed, helped turn Sunat into an ‘island of efficiency’ (Durand and Thorp, 1998a). The thrust of this early legal and institutional reform – reforms to the rest of the administrative apparatus took longer and lacked the same striking results – was the realisation that to raise the tax take it is not just a matter of changing laws but of overhauling administration. Furthermore, this was a key reform in as much as without putting the fiscal accounts in order little else of lasting value in state reform would be achieved. Sunat managed to achieve a degree of autonomy from the MEF. No longer housed within the ministry itself but in the former building of the Banco Minero, it established its own ground rules (albeit in coordination with the MEF) and became financially independent. From 1991 onwards, the head of Sunat was appointed by the president and it funded itself from the tax take it administered. The so-called ‘tax revolution’ was led by a team of high-level economists

th e bi rth of th e n e oli beral stat e | 85 and lawyers and counted on advice and assistance from the IMF and Inter-American Development Bank (IDB). Led by Manuel Estela, it aimed to achieve rapid and wholesale rather than incremental and partial change. It proved a success-story for Peruvian reform efforts, albeit one helped along by international technocracy. The Sunat reform involved changes of personnel and an increase in remuneration, both aiming to improve human capital. In 1990, the tax authority employed 6,000 administrators whose monthly average wage was just US$50. Roughly half of those on the payroll were dismissed, either for corruption or incompetence. By 1994, the average monthly wage had risen to US$890. Sunat also set about recruiting a new generation of administrators selected from top universities. Once up and running, it began systematic campaigns to oversee massive tax evasion, levying large fines and closing down hundreds of tax-dodging businesses. It worked in part by setting new standards; its closure of Caesar’s Hotel in Miraflores, a luxury establishment and high-profile tax evader, led to a sudden jump in those making tax declarations. At the same time, it made it easier for taxes to be paid through the private banking system. As a result of Sunat’s efforts, Peru’s total tax revenues as a percentage of GDP rose from an abysmal 4.9 per cent in 1990 to 14.1 per cent in 1995 (Durand and Thorp, 1998b, p144). On the advice of the IMF, the tax system was greatly simplified and its basic premises changed. The number of separate taxes was reduced from 180 to four: sales tax (IGV), income tax, consumption tax and excise taxes. Following the logic of the market economy that aimed to encourage private investment and free trade, the brunt of taxation fell on IGV, raised to 18 per cent as part of the Fujishock measures. Rates at which income tax and tariff duties were levied were reduced, as were unpopular consumption taxes like that levied on gasoline. The tax system thus became easier to manage and more efficient, but it also became much more regressive. The sales tax (IGV) became more important as a source of fiscal revenue, together with ‘sin’ taxes – alcohol, tobacco and gasoline – since various administrations reduced taxes on income and imports. Compared with other countries in Latin America, the sales taxes are higher and corporate taxes are lower. As an organisation, Sunat came quickly to be respected and admired, even feared.

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From 2000 onwards, there were further incremental reforms, with the customs administration being incorporated into Sunat which helped it coordinate both internal and external tax administration. At the height of the export bonanza, Alan García reduced IGV to 18 per cent from the 19 per cent to which it had risen in 2001. But given the continuation of the basic neoliberal paradigm and the continuity in office of technocrats, the most important change was the decline of taxes derived from tariffs and the rate of income tax. The latter was lowered three times in the period between 2004 and 2016. As a result of the reforms of the 1990s and changes to the tax system in a more regressive direction since then, the tax burden as a percentage of GDP remained at around 16.3 per cent (lower than the average for Latin America as a whole) in spite of the fact that Peru is one of the countries which saw its GDP grow fastest. As of 2011, as Table 4.1 indicates, Peru’s value added tax rate was higher than those of the rest of the region and the world. TABLE 4.1

Value added and corporate income tax rates Personal income tax

VAT

Corporate income tax

Minimum rate

Maximum rate

Peru

19.0

30.0

15.0

30.0

Latin America (average)

14.4

28.7

13.5

29.4

World (average)

15.7

25.3

11.7

29.7

Source: Luis Alberto Arias, 2011. Política tributaria para el 2011–2016. Lima: Consorcio de Investigación Económica y Social and INDE Consultores, p18.

Regulation and deregulation Like Sunat, the central bank (BCRP) gained institutional autonomy and control of its own budget in 1991, and initiated an internal reorganisation to cleanse itself of officials appointed by the previous APRA administration and to regain its reputation as an ‘island of efficiency’. There were other changes too. The BCRP liberalised the system of monetary controls, allowed the exchange rate to float, and adopted prudential policies on reserve requirements and the setting of interest rates. Its overall policy priorities, conducted in coordination with the MEF, were to maintain low rates of inflation and to encourage the accumulation of reserves as a positive signal to the market.

th e bi rth of th e n e oli beral stat e | 87 Within this new remit, the BCRP’s role in the sphere of economic planning was very limited, with the MEF taking the lead. Previously, the BCRP had been one of the few institutions capable of producing economic blueprints; for instance it had elaborated the 1961 Development Plan, back in the era of the Alliance for Progress when US policy favoured economic planning, a role formally assumed by the Institituto Nacional de Planificación (INP) founded in 1962. In 1990 Fujimori abruptly closed the INP, signalling a rejection of any form of long-term planning or ‘statism’. From 1990 onwards, the state’s role in policy formation was limited to evaluation, while the MEF became a super-ministry in the economic sphere. This period also saw the increased role of the banking superintendency, the Superintendencia de Banca y Seguros (SBS). This adopted internationally accepted regulatory functions in the financial sector although preferring to adopt a ‘light touch’ in its relationship with banking institutions, especially in the area of credit card management. The BCRP, alongside the MEF and the SBS, were the trio which regulated the economy as such, adopting internationally-respected norms of institutional autonomy that represented something of a change from the state interventionism that had characterised the previous 30 years. These three ‘islands of efficiency’ were soon to be accompanied in their regulatory functions by a number of new entities. With the privatisation of the economy, it proved necessary to create new, more specialist institutions to regulate and promote investment. In the telecoms sector, for instance, Osiptel was set up as regulator; in energy, Osinerg; for pensions, the Superintendency of Pensions (subsequently incorporated into the SBS); and in the area of competition and intellectual property, Indecopi. Another significant institution was Copri, whose prime function was originally to organise the sale of public companies and subsequently to stimulate investment in extractive industries. Following the Sunat example, these were organisations whose employees were well paid, recruited from the best universities and who formed part of the new technocracy. But the institutions’ main function was to stimulate private investment, more so than just protecting the rights of consumers or pensioners. Their management boards were carefully handpicked by the president from those whose ideas chimed with the free market ideology. Many manifested the

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characteristics of state capture, whether ‘cognitive capture’ – people who associated themselves closely with the need for a modern and prosperous private sector – or ‘corporate capture’ – people selected from the private sector with a view to exercising benign regulatory oversight. In her study on the reconstruction of the neoliberal state, Carol Wise (2003, p234) describes these supposedly autonomous institutions adopting a management style ‘as if they were private entities’. In his study on Osiptel, José Távara (2006) points out that at the very end of the Fujimori regime a law was passed to curb the use of ‘revolving door’ practices by which public sector regulators were hired from the private sector only to return to the private sector afterwards. This established that public employees could not enter private employment in those sectors they had regulated until at least a year had elapsed. But the law had little practical impact. According to Távara, it ‘effected no changes whatsoever with respect . . . to autonomy of their regulators and their transparency’ (Távara, 2006, p219). The primacy of the MEF From 1990 onwards, the MEF became a ‘super-ministry’, concentrating powers of decision making and creating a powerhouse of technocrats in top positions recruited primarily from international financial institutions and private sector corporations. As such it provided a sort of transmission belt between the state and an array of established economic interests sharing an interest in the preservation of the new neoliberal status quo. The degree of autonomy enjoyed by the MEF is illustrated by the fact that – although cabinet coordination was the function of the president of the Council of Ministers – in practice the minister in charge at the MEF had wide discretional powers and direct access to the president of the republic, as well as effective dominion over a variety of regulatory agencies and control over the distribution of resources within the state as a whole. The MEF also receives delegations from investors, coordinates with the IMF and World Bank, and directs foreign policy on economic matters. This therefore was the power base on which policies were designed to demolish the statist legacy of the past and to build a new system serving the interests of private investors. At the outset, policies were devised and implemented by a small group of highly-trained and well-

th e bi rth of th e n e oli beral stat e | 89 paid technocrats and foreign consultants who, as well as their regular remuneration, received significant extra income from the United Nations Development Programme (UNDP) (Durand, 2003, p430). As well as coordinating closely with the IMF, the MEF maintained a close working relationship with Confiep and private-sector law firms who helped devise pro-market legislation. This transmission belt between the public and private sectors was further strengthened by the creation, in 1994, of the Instituto de Política Económica (IPE), a think tank funded by the MEF, Confiep and the World Bank to provide advice and orientation to the MEF in matters relating to commerce and taxation. A select grouping of powerful corporations, Peruvian and foreign, were represented on the board of IPE (Durand, 2010, p176). From 1994 to 2000, IPE was run by Roberto Abusada, a World Bank consultant and board member of several private sector companies. IPE thus became the brains behind many reform initiatives and a stolid defender of the neoliberal model. After 2000, it became a private consultancy, but it maintained its role in influencing state policy through its research documents, lobbying activities and its advisory role to the MEF. Abusada and the IPE were key defenders of the idea that liberalising reform needed to continue, advocating the need for ‘deepening’ through the elimination of inflated costs, removal of bureaucratic barriers to investment, lowering of income tax rates, and – above all – protecting the model through the negotiation of free trade agreements with a range of countries, beginning with the United States in 2006. The MEF played a central role in the beginning of the 1990s in restoring Peru’s relations with foreign creditors, disrupted since 1985 when the country first defaulted on its loan obligations. In 1992, it played a key role in renegotiating US$8 billion of foreign debt to the Paris Club of sovereign creditors and US$9 billion to commercial banks. One of its most important decisions was the sale of public sector foreign debt bonds and their subsequent repurchase. The bond sale began in 1992, and institutional purchasers rapidly emerged such as the Peru Privatization Fund (PPF) in which Peru’s Banco de Crédito – controlled by the Romero family – was a participant. The Peruvian state only entered the repurchase market belatedly, after the prices of bonds had risen because of the strength of international and domestic private sector demand for them.

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The person in charge of the operation was Jorge Peschiera, who hailed from the Banco de Crédito and would subsequently return to his former employer. The legal advisor to the MEF, Francisco Moreyra, also worked for a while for the PPF (Durand, 2010, p139). The bond scheme provided further evidence of the ‘revolving door’ syndrome initiated under Fujimori and continued by his successors. Investors like Nicholas Brady, the author of the Brady Plan that involved the securitisation of Latin American debt, were able to buy bonds cheaply and then sell them at a profit as their prices rose. Purchasers provided quick profits and, in some cases, could be used to finance privatisation deals on the basis of a law passed to this end. This was how Brady became a shareholder in Interbank, one of Peru’s privatised commercial banks (Caretas, 1995). The MEF also played a key role behind the scenes in negotiating so-called Tax Stability Contracts, alongside Conite, the commission set up to attract foreign investment and technology. These contracts, which had the force of law, were designed to provide guarantees against any changes to the tax regime and against possible nationalisation. They put companies on the same level as the state, and obliged the latter to take disputes to local or international arbitration tribunals. Between 1990 and 2000, Peru signed 332 such contracts, the great majority – 286 of them – with multinational companies. The fall of the Fujimori regime made little difference to appointments to the MEF. During the 1990s, the pattern was to appoint economists or business leaders for lengthy periods, something welcomed by the business community and Confiep. Jorge Camet, a former president of Confiep and construction sector leader, served from January 1993 to June 1998. He was replaced by IPE economist Jorge Baca. Toledo appointed Pedro Pablo Kuczynski, the international financier, in 2001. He stayed for a year, but returned to the post in 2004. When Kuczynski became prime minister in 2004, his vice-minister Fernando Zavala replaced him. The next minister, under García after 2006, was Luis Carranza, an economist who previously worked in the Spanish bank BBVA and had been vice-minister to Kuczynski. He was eventually replaced in 2008 by Luis Valdivieso, previously an IMF economist. Under Humala after 2011, the pattern continued. Luis Miguel Castilla, Carranza’s vice-minister, took over. Previously an economist at the Andean Development Corporation (CAF), he continued as minister

th e bi rth of th e n e oli b eral stat e | 91 until August 2014, when he was replaced by Alonso Segura, his viceminister and formerly from the Banco de Crédito del Perú. When Kuczynski became president in 2016, Zavala was appointed prime minister and Alfredo Thorne, a former JP Morgan bank manager and corporate director, took charge at the MEF. Thus the pattern was reinforced. There were some advances in institutional transparency, such as publicising the annual framework budget, the Presupuesto Anual Marco. This was a practice that began in 1997 but was revamped after 2000, giving details of those firms with which the Peruvian state entered into contractual dealings. But the way the MEF was run, its style of bureaucratic centralisation and its relationship with established private-sector interests remained unaltered. From 1990 onwards, it was the practice of the MEF to discuss the budget and the overall orientation of economic policy with the president, negotiate it with Congress (admitting a few minor concessions) and then to assign resources in a highly discretionary manner. According to Wise (2003, p263), the degree of bureaucratic isolation and the accumulation of power within the MEF ‘was without parallel in Latin America’. The creation of decentralised government in 2001, but without the granting of powers to levy taxes, meant that these remained dependent on the budget assignations authorised by the MEF. As of 2003, some regional governments began to receive resources derived from the canon system once new extractive industries came on stream and began to generate profits. This is discussed further in Chapter 6. Public spending itself became ‘privatised’ from 2008 onwards with the law introducing Obras por Impuestos. This scheme enabled private companies to fund and execute infrastructure works by deducting the cost of these from their corporate tax obligations. This reinforced the social role of companies at the local level, most notably those engaged in extractive activities. This privatisation of spending was taken a step further in 2014 with legislation of private– public partnerships in which firms would carry out infrastructural projects planned by the state. With the exception of Sunat, institutional reforms designed to improve human capital across the state were an aspect conspicuously absent from this transformation of the Peruvian state. A reform of bureaucratic procedures was attempted in 1995 at the instigation of

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the World Bank, but Fujimori, concerned at the time to maintain himself in power, gave it scant priority. The economic downturn in 1998 finally put this initiative to rest. The teams of ‘state reform’ technocrats in the MEF fell short in implementing these plans. The problem of institutional reform continued for more than a decade. Only in 2014 did the MEF come forward with reform proposals, the so-called Ley Servir, which attempted to introduce meritocratic principles across the whole public administration, including incentives to improve remuneration for the higher echelons of the bureaucracy, regular training courses and better management practices. In rewarding the higher levels, this followed the example of the Sunat reform. Additionally, the Ley Servir made it more difficult for public sector workers to organise and engage in collective bargaining. The results of this reform remained unclear at the time of writing. There was resistance to its application, a problem usually underestimated by reformers, and it seemed to be losing impetus. Trade policy, meanwhile, rested on three basic principles over this period: the reduction of tariffs, the modernisation of commercial procedures and the signing of free trade agreements (FTAs). In 1990, there were no less than 56 different tariff rates, varying between 10 per cent and 110 per cent. There were also 539 prohibited import items. In 1991, the list of prohibitions was eliminated, and the tariff scales were reduced to between 15 per cent and 25 per cent. The customs administration and systems used for imports were modernised in tandem, with help from an IDB mission, allowing for external supervision of the companies evaluating import prices and encouraging the import of improved technology. The privatisation of ports, which began in 1994 with Matarani (in the south) and then moved northwards to include Callao (the port of Lima) and Paita (in the northern department of Piura), improved the workings of foreign trade by upgrading procedures for handling cargo. In 2006, following lengthy negotiations, Peru signed an FTA with the United States, an agreement designed by the MEF but formally negotiated by the Ministry of Foreign Trade, sidestepping the Ministry of Foreign Relations whose role was thus restricted to formal diplomatic matters. Signing the deal was by no means easy, and only came about on the last day of the legislature of García’s second term in office owing to resistance from agricultural producers who complained about the export subsidies offered by

th e bi rth of th e n e oli beral stat e | 93 developed countries. To calm opposition, a number of safeguards were introduced to protect four products – sugar, milk, rice and maize. Nevertheless, in 2015 the MEF, keen to push ahead with trade liberalisation, decided to impose a sharp reduction in levels of protection for local producers, arguing that this was simply generating rents for a small group of agro-industrial enterprises, forgetting the thousands of small-scale indigenous producers of maize. In the wake of the US FTA, governments pushed ahead with further trade liberalisation. Between 2010 and 2016, Peru signed a total of 13 FTAs, including those with the United States, Chile, China, India and the European Union. Peru became one of Latin America’s most open and lightly regulated and taxed economies. The rules of the game were thus highly favourable to investors, notwithstanding the failure to overcome old institutional and social problems. Social provision Unlike economic institutions, those involved in social provision were reformed late in the day and/or only in part. For the most part, beginning with that of Fujimori, governments saw social policy as a tool for creating political clienteles. At the same time as contributing to modernisation in some respects through social targeting and educational reform, governments were able to benefit from international assistance. Here we limit ourselves to a brief summary of institutional developments since we return to the issue of social policy and its achievements in Chapter 6. So far as social expenditure is concerned, following World Bank advice and taking advantage of concessional loans, the Fujimori government established the Fondo Nacional de Compensación y Desarrollo Social (Foncodes) in 1992. Its first two directors were policy experts who devised targeted social assistance schemes in order to attack the problem of poverty. Just prior to the 1995 elections in which Fujimori sought re-election, Foncodes, along with other organisations, was brought under the aegis of the Ministry of the Presidency (Mipre). Fujimori took personal control and turned it into a clientelistic machine designed to develop a social base for the government in rural areas where poverty was most acute. By 1995, Mipre accounted for a quarter of all government spending (Wise, 2003, p261)

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Because of its clientelistic nature Mipre was abolished following the fall of Fujimori in 2000, and control over Foncodes was given to people with expertise in social policy. Programmes were devised to support working mothers with child crèches, and to distribute cash to peasant families living in rural poverty. As of 2001 a Women’s Ministry came into being, leading campaigns to sensitise people to problems of household abuse and femicide, recurrent problems in Peru. Under Fujimori, the World Bank technical missions played an important role in reforming both the Ministry of Education and the Ministry of Health. These teams acted almost as institutions apart, enjoying high salaries and support from the authorities, but working with bureaucracies that were poorly paid and lacking in motivation. If we want to highlight the positive, it was a period in which successive governments managed to extend services such that the great majority of the population enjoyed access to education and health, albeit of greatly varying quality. Reflecting the privatising drive within the state, public education received less priority and reform efforts centred on a reduced state role and the adoption of an individualistic philosophy to encourage entrepreneurship in state schools (Cuenca, 2016, pp447–476). The government preferred other agents to fill the breach, authorising privately run schools and universities that worked for profit. All sorts of new colleges and universities sprung up prompted by official policy and with the backing of the World Bank. While supposedly opening the sector up to competition, the quality of the education they provided varied greatly. The emphasis fell on technical training, knowledge of foreign languages to prepare ‘successful citizens’, educational access more to the middle and upper classes than to the poor. This continued well after 2000, and it was only in 2014 – amid scandals surrounding the poor educational standards of profit-making universities – that a supervisory body, Sunedu, came into being to regulate higher education. Although public universities outside Lima gained access to resources from the canon – the system for channelling part of the proceeds from extractive activity to sub-national government – this did little to improve standards. In many state universities, appointments were controlled by local mafias acting in their own interests rather than stemming the tide of institutional decay. Only a few universities, usually with foreign

th e bi rth of th e n e oli beral stat e | 95 assistance, managed to improve standards. Most public universities lagged far behind the standards of a handful of private ones – such as the Católica, the Pacífico and the Cayetano Heredia – which required competitive entry examinations. But even these were superior to the free-access private universities, like the César Vallejo and Alas Peruanas, where educational levels were dismal and research non-existent. Repeated reform efforts at the level of primary and secondary education led to improvements in the curriculum and provision of materials. There were also renewed efforts to improve teaching standards through teacher evaluation and training. Successive governments sought to introduce competitive examinations and performance indicators to foster a teaching elite. In tune with the times, courses were introduced that sought to impart entrepreneurialism and business culture. Teachers’ unions, not surprisingly, resisted these initiatives, but while they were unable to prevent reform taking place they made it harder and slower to achieve. By 2014, on the basis of tests for reading and numeracy, modest improvements in educational quality had begun to make themselves felt, although standards remained well below the Latin American average. Bilingual education had had a chequered past ever since it was first introduced in the 1970s, but there was a more consistent effort from 1990 onwards to train bilingual teachers and provide education to indigenous communities in the highlands and Amazon jungle. Peru’s signing up to ILO Convention 169 on indigenous rights in 1995 provided a fillip to bilingual education. In 2000, an evaluation undertaken by Madeleine Zúñiga and Modesto Gálvez (2001) concluded that ‘changes in educational practice have been the result of an accumulation of modifications and the inclusion of some innovations’ but not such as to overcome the traditional failings of a system that sought to ‘modernise’ and ‘Peruvianise the Indians’. The establishment of a new office within the ministry dedicated to bilingual education in 2012 brought some bureaucratic changes. The philosophy of ‘inter-culturality’ was adopted, recognising the contribution of each and every culture. More bilingual teachers were taken on, which helped reduce somewhat the school desertion gap between those whose mother language was indigenous as opposed to Spanish. But such innovations did not go hand-in-hand with policies to improve teachers’ pay or school infrastructure. Bilingualism

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prospered better in the Amazon than in the Andes because more teachers were themselves indigenous. Thus educational conditions remained poor in the neoliberal state. The average salary of teachers was the second lowest in all Latin America. As regards infrastructure, 56 per cent of school buildings required improvements, and 15 per cent needed to be wholly rebuilt. Such problems were particularly acute in rural areas, where three-quarters of all schools lacked running water, electricity and proper drainage, and where 92 per cent had no access to the Internet (Instituto de Estudios Peruanos, 2015, p10). What changes there were tended to favour urban areas, an age-old bias that simply provided greater incentives for migration, even though education in marginal city areas was also very poor. In healthcare, too, conditions remained precarious. Governments provided little by way of regulation of imported drugs, keeping costs down but doing little to ensure quality. Wage policy for doctors and nurses kept their incomes very low, frequently putting public health at risk through frequent strikes. But there were some advances. During the economic bonanza years between 2002 and 2012, the municipality in Lima installed ‘solidarity hospitals’ to provide consultations and treatment in neighbourhoods that lacked provision. The Toledo administration introduced a system known as the Seguro Integral de Salud (SIS) which extended healthcare attention in rural areas. Social security hospitals, funded by contributions deducted from the payroll, as well as national hospitals and clinics built by regional governments from 2001 onwards, benefited from improvements. However these were largely infrastructure improvements that did not necessarily improve service quality. At the same time, private health care improved. Old clinics were bought by insurance companies, such as those owned by the Brescia (Fénix) and Romero (El Pacífico) groups, and new ones built, improving services for the upper and middle classes. In line with the pro-market orientation under Fujimori, the Labour Ministry changed its name to the Ministerio de Trabajo y Promoción del Empleo. Within it a tripartite National Labour Council (Consejo Nacional del Trabajo, CNT) was set up in which the combined weight of the state and business effectively stymied unions in defending labour rights. Even so, most labour legislation was designed in the MEF and implemented via decree, thus bypassing the CNT.

th e bi rth of th e n e oli beral stat e | 97 An important aspect of the reforms included the extension of temporary employment contracts, the practice of subcontracting and the proliferation of special labour regimes in sectors designed to promote non-traditional exports (textiles) and agro-exports (fruit and vegetables). These sectors generated large-scale temporary employment, but at very low wages. In the agro-industry sector, unionisation was prevented by the ability to terminate contracts and arbitrarily dismiss would-be union leaders. Peru, according to Wise (2003, p270), thus moved from being ‘one of the most regulated markets to one of the most deregulated’. According to Francisco Verdera (2000, p61), the percentage of the workforce that was unionised fell from 12.4 per cent to just 1.5 per cent between 1976 and 1996. This progressive weakening of the union movement, which had begun at the end of the 1980s, was reinforced by the massive dismissals of 1990–91. In 1992, Decree Law 25593 sought to regulate union activities, making it harder to set up trade unions. The banking industry, for example, in which the Bankworkers’ Federation (FEB) had been one of the country’s most powerful unions, became a sector with scant union presence. Indeed, in some cases – like that of Peru’s biggest bank, the Banco de Crédito – the labour union disappeared entirely. Due to the reforms introduced under Fujimori to make labour legislation consistent with investment promotion, the number of collectively negotiated contracts fell from 2,015 in 1990, to 1,350 in 1994, to 846 in 1997. As of 2000, this labour policy continued, albeit in spite of a more democratic political framework. In 2014, after the approval by Congress of a youth employment law – introducing a special regime akin to that of non-traditional and agro-industries – it took large-scale protests by young people on the streets of Lima to force the Congress to backtrack in January 2015. This was one of the very few organised protests to have any success in forcing a retreat on policies euphemistically referred to as ‘labour flexibilisation’. Security and justice Reform to the systems of security and justice was intermittent and never received high priority. In spite of a number of attempts, by 2016, the apparatus of the state was its weakest in this area and the most prone to inefficiency and corruption. To understand the

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stop–go nature of reform it is worth distinguishing three areas: the military, the police and the justice system. Perhaps one of the most significant changes to take place in recent times has been the growing degree of civilian control over the armed forces and their political neutralisation. Since Independence, the military has exercised a pivotal role in politics, whether under dictatorial or elected regimes, a ‘state within a state’. This reached new heights during the 1990s as a consequence of the internal war against Sendero Luminoso and the conflict with Ecuador in 1995. In both cases, the state found itself dependent on the military, reinforcing its repressive capabilities, strengthening and coordinating its intelligence functions, and renewing the purchase of arms as soon as the budget allowed it to do so. At the same time, however, a number of factors reduced the political importance of the armed forces. Thanks to the 1993 constitution, the president gained control of the system of military promotions by abolishing the Senate, which had had responsibility in this area. In his personalistic way, Fujimori came to insist on ‘loyalty rather than quality’, a practice that continued under his successors (Obando, 1998, p365). In spite of the continuing internal war, there was a change in the structure of power that came about during the 1990s. Vladimiro Montesinos, Fujimori’s chief security advisor and a former army captain, managed to achieve a greater measure of control through his role in coordinating the autogolpe of April 1992 and through his subsequent role after 1995 in the large-scale purchase of arms through corrupt procedures. At first the army tried to resist, but with the forced retirement of General Nicolás Hermoza as army chief in 1998, greater presidential control was achieved. As of 2000 and in view of the fact that the military had been a key factor in the increasingly dictatorial regime of Alberto Fujimori, it proved impossible to maintain that predominance; the military had to be neutralised and officers put on trial for the corruption and the human rights violations of the Fujimori years. International pressure made it difficult to brush aside the military’s role in the internal war, including the use of death squads. Such pressures were difficult to ignore for a neoliberal government. Unlike earlier times, the killings that took place were monitored internationally, and if Peru wanted to be part of that new international order it could ill afford to discard such claims to justice. Fujimori’s

th e bi rth of th e n e oli beral stat e | 99 attempts to protect the military from such claims through the 1995 Amnesty Law ran into strident criticism from international human rights organisations which pressed their own governments to take steps to condemn Peru. During his second term, Fujimori tried to withdraw Peru from the jurisdiction of the Inter-American Court of Human Rights, but had to jettison the idea when to do so risked further international criticism and isolation. This external criticism of illiberal behaviour was blunted somewhat by his successful freeing of hostages taken by the MRTA in the Japanese ambassador’s residence in 1997, although it was to arouse complaints later over the extrajudicial killing of prisoners. But it picked up again towards the end of Fujimori’s government as repression intensified and with the accusations of fraud associated with the 2000 elections. Democratic governments took steps after 2000 to neutralise military power and bring senior officers to justice in unprecedented ways. The political power of the various armed forces was reduced through the formation of the Ministry of Defence and the appointment of civilians to run it (Chiabra, 2014, p285). At the same time, military spending was cut and the size of the armed forces reduced by the introduction of voluntary recruitment. In spite of this return to the barracks, the armed forces continued to exercise pressure on such matters as arms purchases; they remained closed entities which, while accepting civilian authority, did so reluctantly and without much respect. The ending of the war with Sendero and the settling of frontier disputes with Ecuador and Chile helped further to reduce its influence. During García’s second term, the armed forces regained some political clout with the election of Luis Giampetri, a former admiral, as vice-president. Even so, the military never regained the status it enjoyed in the past. The police force (PNP) underwent a similar process having been also previously controlled and corrupted by Montesinos from his position as effective boss of the powerful and feared SIN. Montesinos, for example, made use of police social security funds (the Caja Policial) to buy property and to provide his henchmen with unguaranteed credit and thus keep them loyal. One of the few achievements of the PNP during this period was the capture of Abimael Guzmán in September 1992 and the dismantling of Sendero’s leadership through the painstaking work of a specialist police unit, but one linked more to the presidency than to Montesinos.

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The police force remained underfunded throughout the period. This chronic lack of resources led different governments to allow the police to work as private security agents in order to complement their meagre wages. This only came to an end in 2015. Police units also were allowed to be seconded to protect the private installations of mining companies, a policy consistent with the pro-investment thrust of successive governments and the salience of social protests to which this helped give rise. This was a policy position that was only finally formalised in 2009 with the Ley de Servicios Extraordinarios a la Acción Policial. Mining companies were thus allowed to sign contracts enabling them to host special police units within mining camps, with extra pay, to reinforce security. Discretionary ‘donations’, that is monetary payments, were made to the Interior Ministry to sponsor ‘research activities’. As regards institutional reform, several attempts were made but the results were distinctly underwhelming. As with the military, the collapse of the Fujimori regime brought initiatives to modernise the police, to reduce corruption and to improve efficiency in dealing with organised crime. One important attempt was to ‘restructure the pyramid’, reducing the excessive number of police generals and colonels. Initiated in 2002 by a civilian, Fernando Rospigliosi, 600 of the top brass were dismissed and more meritocratic procedures for promotion introduced. But this reform was truncated, and the ‘inflation of senior appointments’ renewed (Rospigliosi, 2006, p87). A strengthening of police capacities to deal with increased criminal activity and resulting citizen insecurity proved tardy and half-hearted. By 2016, a newly-appointed interior minister tried once more to ‘restructure the pyramid’ that had developed during the Humala administration, retiring 36 generals and promising to continue by trimming the number of colonels. The need to do so showed how easily such reforms can be reversed. The justice system followed a rather similar path, undergoing a major crisis in the 1990s and recovering only partially in the years since then. During the 1990s, the system was focused on judging cases of terrorism using ‘faceless judges’ (jueces sin rostro) to impart sentences, with all the negative implications for due process. Again, Montesinos was the key figure in the manipulation of the justice system. The 1992 autogolpe led to the temporary intervention of the judiciary and the dismissal of 134 judges, supposedly ‘corrupt’ and ‘politicised’,

th e bi rth of th e n e oli b eral stat e | 101 among them defenders of human rights. The government then tried to create a system of internal control in order to give the impression of reform to a sceptical international opinion. The 1993 constitution introduced an entity, the Consejo Nacional de la Magistratura (CNM), to evaluate judges, as well as the new post of ombudsman (Defensor del Pueblo). However, this did little to stem the problem of judicial corruption. Supported by the World Bank, the IDB and the UNDP, an attempt was made in 1995 to create an executive commission to spearhead reform, but this too came under the spell of Montesinos. It appointed 400 new judges and temporary courts (salas transitorias), themselves controlled by temporary judicial appointments that made it easy to influence them. Montesinos demonstrated extraordinary ability to manipulate the justice system, both to reward powerful personalities and economic interests as well as to punish perceived enemies who dared challenge the regime. His motto was ‘for my enemies, the law’. The CNM, one of the few judicial bodies with professional staff and ethical standards, clashed with Fujimori in 1997 when it claimed his second re-election in 2000 was unconstitutional. Its members resigned and were replaced by Fujimori loyalists. Following the fall of Fujimori and Montesinos, an Organization of American States (OAS) mission sought to help ‘re-institutionalise’ the system. Fujimori’s executive commission was eliminated, the CNM recomposed, and the number of provisional judges reduced to 35 per cent in 2000. The Paniagua administration, which took over from Fujimori at the end of 2000, created anti-corruption tribunals which were a significant advance but limited in terms of their eventual impact. The Toledo government raised the remuneration rates for judges and took steps to improve training. A commission was established to suggest further judicial reforms. However, in practice, judicial corruption continued unabated, though not quite so brazenly as under Fujimori. Accountability institutions, such as the Defensoría and the CNM – now in the hands of honest and competent officials – fulfilled an important regulatory role. Perhaps the most striking example occurred in 2015 when the CNM managed, for the first time, to force the resignation of the chief public prosecutor, the Fiscal de la Nación, for his role in blocking investigation into extensive corruption in Ancash where the regional president was accused of bribery and homicide.

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In the penal sphere, the 2004 penal code was also an important step forward. This sought to bring some order to the scale of penalties imposed and bring the list of crimes up to date and relate them to the scale of penalties. This also meshed with efforts to improve training for judges and police so as to reduce discrimination against women and indigenous people in the treatment they received. However, 12 years later, in 2016, the new code had yet to be fully implemented; it was still not applicable to Lima and Callao, where four out of ten Peruvians resided. The state continued to battle against gender discrimination and to reduce levels of femicide and sexual violence. Finally, the Instituto Nacional Penitenciario (INPE), which runs the prison system, continued to be one of the country’s most corrupt institutions, in spite of occasional attempts at reform that had little effect. ‘Golden cells’ with luxury facilities became commonplace, and prisoners would plan crimes using mobile phones to organise kidnappings, for example, while the guards looked the other way. Indicative of the limitations of reform was the fact that the police, judges and prison personnel continued to be regarded by the general public as corrupt and untrustworthy. Conclusions The construction of the neoliberal state began in 1990 in different spheres and at different rhythms, creating a bureaucratic machine of hybrid and unequally developed features. The reforms began in the economic sphere on the basis of a shock treatment, backed by international organisations, with assistance from technocrats and supported by the business elite. The state quickly became an entity dedicated to pro-market reform, seeking to attract investment and liberalise trade. It eschewed ideas of state planning, and did little either to promote the human capital required to ensure greater efficiency or to create greater transparency. Some changes were successful, others only partially so. Institutional reforms were frequently reversed. As a consequence of these trends, a quarter of a century after they began, the Peruvian state revealed a marked heterogeneity. Further, it was viewed negatively by the general public as distant, self-serving, often corrupt and far removed from their everyday concerns. For some, it was perceived as ‘the enemy’; for others, it took on the role of popularising a bad example (‘if they steal, then why shouldn’t we’?).

th e bi rth of th e n e oli beral stat e | 103 Probably the most drastic changes were in the economic sphere. The transformation of social provision remained far from complete, the most positive changes taking place after 2000 when the country underwent a process of re-democratisation. Nevertheless, human capital in this area was still lacking. The security services and the justice system, which suffered from the corruption and manipulation of the Fujimori period, was probably the most damaged institutionally in the long run. From 2000 onwards, reforms were broached whose main achievements were the neutralisation of the armed forces as a political force and the creation of some accountability in the judicial system. But neither the police nor the judiciary were subjected to root-and-branch reforms to make them more efficient and less corrupt. The net result was the creation of a state primarily functional to the interests of business, domestic and international corporations which required state assistance in creating an appropriate business environment. But it remained dysfunctional socially and from the point of view of providing law and order. The neoliberal state was characterised by the isolation of a technocratic elite in the economic ministries and regulatory agencies, with power centralised in the hands of the MEF, the ministry most closely linked to big business and run by well-trained officials but distant from concerns about social development, political decentralisation and improved citizen security. The creation of some sort of social pact, necessary to sustain the model over the long run and not based on clientelism, was thus largely missing. Reforms had not been designed in a comprehensive way, and little heed had been paid to improving human capital or tackling criminality, except in those areas most closely tied to promoting the free market. Comparative public opinion surveys support this view. The 2014 Latinobarómetro, for example, confirmed that ‘trust in institutions’ in Peru was among the lowest anywhere in South America and in the case of the judiciary it was bottom of all. Peru came fifth in the table of those countries where ‘corruption is generalised throughout the state’, with only three out of ten Peruvians satisfied with the performance of the police in urban neighbourhoods (Latinobarómetro, 2014).

5 | TH E P OWE R O F T H E N E W E L I T ES

In June 1986, President Alan García convened the heads of the country’s main financial and industrial business groups to persuade them to ‘invest in Peru’. From that moment onwards this select band came to be known as the ‘Twelve Apostles’. García needed their help. His own policies were such as to dispel foreign investment, while the state itself, due to the fiscal difficulties it found itself in, was poorly placed to act as the motor of development. The president attempted to establish a personal, intimate relationship with the heads of the twelve business groups and to monitor investment projects closely. In July 1987 the alliance broke apart, and García presented a bill to Congress to nationalise the banking system. He was angry because, far from investing, the main groups had speculated with the cheap dollars they acquired from the Central Bank to indulge in massive capital flight. But, as in Mexico, where President López Portillo had tried to punish the bankers for the same reason in 1982, García failed in his bid to win control over the banks. The bankers, supported by the right and the media and, coordinated by Confiep, mounted a campaign that thwarted García’s planned state takeover. It was to be the last such nationalisation attempt of the twentieth century, a sign that business in Peru, as well as in Mexico, had acquired both political and economic power, a trend reinforced in the following decades. Organised business rebelled against the interventionist state, revealing its willingness to engage in politics to prevent nationalisation and pursue a free-market agenda. The strength of private business and the weakness of the interventionist state would become ever more manifest as time went on. By the end of the 1980s a ‘new oligarchy’ had accumulated sufficient power to defy a populist president. However, it was no easy matter for it to bring about an about-turn on economic policy in support of the free market. The Twelve Apostles, some highly dependent on a system of protective tariffs, took a risky gamble since they would have to adapt to new rules and compete with both foreign capital and/or imported goods. But they convinced

t h e p ow e r o f t h e n e w e l i t e s | 105 themselves, confronting as they did a combination of terrorism, trade union power and statist policy, while also realising that the winds of change were blowing towards the free-market, globalised economy. Once again, as with guano in the nineteenth century and the mining industry at the beginnings of the twentieth century, the local business elite needed allies in the world market. They could offer the wealth of the country’s natural resources – as Paredes had sought to do when he designed the national coat of arms in 1824 – and a domestic market that had been growing since the 1960s as incentives to global investors. Perhaps the most notable example of this new association between domestic and foreign interests was Minera Yanacocha, a consortium made up by the Peruvian Benavides group and owners of Minas Buenaventura (with 43.6 per cent of the shares), Newmont Mining from the United States (with 51.3 per cent) and the World Bank’s International Finance Corporation (with 5 per cent). These three partners produced their first gold ingot in 1993. Yanacocha was quickly to become the largest single producer of gold in South America, as well as one of the first mining operations to arouse protest over its social and environmental impacts. In the years that followed, many other mining ventures producing gold, copper and a diversity of other minerals would begin to raise the quantum of Peru’s mining exports. The cornucopia on the shield became truly emblematic. But investment and business success was not just confined to the mining sector. New local and foreign business elites – emboldened by the defeat of García and his statist policies in 1987, in alliance with Fujimori after 1990, and empowered by the governments elected after 2000 – developed an economic structure much more complex and diversified. In addition to minerals such as gold, iron ore, copper, lead, silver and zinc, there was natural gas, fishmeal and timber. Peru also started to export a range of raw materials from agriculture (asparagus, paprika, avocado pears, flowers, fruit, coffee) and manufactures and semi-manufactured goods (textiles, clothing, craftwork, cement, beverages). At the same time, and in part as a consequence of the export boom, there was the development of an urban-based semi-industrialised economy capable of providing inputs and goods for the domestic market, a property boom and the development of transport and logistics (warehousing, cargo management, ports and airports).

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Mapping Peru’s wealthy From 1990 onwards we can discern the rapid modernisation of Peru’s economic elite. In some cases, well-known and wellestablished Peruvian groups were bought by multinationals or by stronger local competitors. A new generation of local business interests also appeared on the scene, along with fresh investment by a range of multinational companies. Several of the Twelve Apostles ended up being bought up. Such was the case, for example, of the two former rival beer manufacturers, Bentín (Cristal) in Lima and Lanata Piaggio (Pilsen) in Callao, both acquired by the US multinational SAB Miller. Similarly, the Nicolini group was forced to sell its milling business to the Romero group to clear the debts that it had with the Romero-controlled Banco de Crédito. The fusion of Nicolini with other firms in the food sector, such as Perú Pacífico and La Fabril, led to the birth of the gigantic Alicorp consortium, a key component of the Romero business group. The owners of famous trademarks like Inka Kola, which had belonged to the Lindley group, were forced to associate with CocaCola which thereby gained control over its historic rival in the market for fizzy drinks. Other groups, financially stronger and better equipped, managed to re-engineer themselves, first winning control over niches within the local market and then expanding outside Peru as global players (Vásquez 2000). They included the Romeros (of the Banco de Crédito as well as the food-processing conglomerate Alicorp), the Benavides group (of Minas Buenaventura) and the Brescias (of Inversiones Breca and BBVA). Meanwhile, new groups appeared, some with their origins in Lima, like the Rodríguez Pastor of Intercorp, a group formed after the purchase of a formerly state-owned bank and dedicated to financial, commercial and educational activities. Others were of more modest origins. For the first time in Peru’s history, family groups emerged from sectors that were previously poor and excluded; such was the case of the descendants of Asiatic immigrants like Wong (from China) and Ikeda (from Japan). Perhaps even more significant was the appearance of what is sometimes called ‘cholo capitalism’ with businessmen whose origins were among Peru’s own internal migrants. Such were the Flores family from Huancavelica, who established Topitop (clothing), the Huancaruna family from Cajamarca (coffee) and the Acuñas (in

t h e p ow e r o f t h e n e w e l i t e s | 107 the newly-established market in tertiary education). Also important were the Rodríguez brothers from Arequipa (Gloria), who grew their businesses and diversified such as to become new members of Peru’s business top table. With the return to economic growth after 1992, there were two major waves of private investment. The first was between 1992 and 1997, prior to the onset of the Asian crisis, and the second between 2002 and 2012, the decade of the international commodities boom. Within these growth cycles, the largest business groups saw their property and profits mushroom. This restructuring of the business class thus took place as a new generation of multinationals appeared on the scene. The result was the consolidation of a new, more powerful, modern and better-organised elite with a presence throughout the country and with projection into the markets of surrounding countries. It has been estimated that in 1986 the fixed assets of the Twelve Apostles, including Bentín, Nicolini and Lanata Piaggio, were worth an average of US$200 million; by 2016 the fortunes of the new ‘apostles’ were put at US$2 billion, ten times more (Campodónico et al., 1993, p120; Peru Top Publications, 2014, p493). The new map of economic power in post-oligarchic and postpopulist Peru shows elements of both continuity and change. Points of continuity include the degree of concentration of wealth and property in very few hands; the coexistence of national elites with foreign capital as junior partners; and the return of extractive industries – principally mining – as the locomotive of export-led growth. But in other ways there are some marked changes. The country’s economy in the twenty-first century is being directed by modern corporations led by managers and specialists educated in the best universities. Growth is based not just on mining, natural gas and a variety of agricultural products for export, but also on a stronger and more integrated domestic economy. Foreign capital no longer comes overwhelmingly from the United States or from Europe, but from a multiplicity of sources of which China, Brazil and Chile are the most conspicuous examples. A new batch of businessmen of lowly origins has emerged, helping to develop a new culture of popular capitalism. To borrow the phrase used by the journalist Jaime De Althaus (2008), this constituted a ‘capitalist revolution’. To measure these changes, it is useful to provide a brief historical view comparing the evolution of the private sector to that of the public

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sector, cooperatives and both traditional and modern small-scale productive units (micro-enterprises). As we can see in Table 5.1, in 1950, the state sector represented just 7 per cent of GDP when compared to other forms of property. Thanks to the nationalisations of the Velasco years, this increased from 11 per cent in 1968 to 21 per cent in 1975 when the first phase of the military government came to an end. Again, largely as a consequence of the Velasco land reform, the cooperative sector went from zero to 8 per cent of GDP in 1975. By contrast, the private sector, which represented 43 per cent in 1950 and 34 per cent in 1968, saw its participation fall to 27 per cent by 1975 thanks to the growth of the public and cooperative sectors. Foreign investment maintained its position, its share rising slightly from 10 per cent of GDP in 1950 to 11 per cent in 1975. Although it suffered expropriations under Velasco, these were offset by new investments in oil and copper mining as well as in manufacturing sectors like autos and chemicals. The remainder was classified as the ‘non-business sector’ made up of small-scale businesses, independent workers and household workers, whose contribution changed little over these years. TABLE 5.1

Different types of capital and their per cent share in GDP (1950–2000)

Type of capital

1950

1968

1975

2000

7

11

21

6

Foreign capital

10

22

11

28

Domestic capital

43

34

27

28

Cooperatives

–

–

8

–

Public sector

Total business sector

60

67

67

62

Total non-business*

40

33

33

38

100

100

100

100

Total GDP

* The non-business sector is made up of small-scale enterprise, independent workers and household workers. Source: Humberto Campodónico, updating data from FitzGerald (1981). La economía política del Perú: desarrollo económico y reestructuración del capital. Lima: Instituto de Estudios Peruanos (Table 19, p50 for the years 1950, 1968 and 1975). For 2000, the source is ‘Perú 1950–2000: el péndulo de las inversiones’. La República, 30 November 2009, p7.

By 2000, following the crisis years of the 1980s and the Fujimori decade in the 1990s, economic power had become concentrated in the private sector as a whole, and within it in large-scale corporations which, by that time, had greatly increased their share of GDP.

t h e p ow e r o f t h e n e w e l i t e s | 109 National capital and foreign owned capital accounted for 28 per cent of GDP each. The cooperative sector had disappeared by this time, and the public sector only represented 6 per cent of GDP. Within rural Peru, we see the expansion of private property and the reduction in communitarian ownership. This trend towards privatisation took place at the same time as a concentration of economic power in a small nucleus of large national and multinational companies as a consequence of their acquisition of previously stateowned assets, mergers and/or the aggressive purchase of other assets, with most of the best agricultural land ending up in the hands of large companies. The same process was evident as a result of concessions in mining, energy, oil and gas and in forestry. These concessions were underpinned by contracts that provided guarantees of juridical stability and were given added protection by the investment clauses contained in free trade agreements. A glance at the economic power structure in Peru today shows the weight and structural characteristics of the business sector. Table 5.2 shows the large differences between different sectors according to size, highlighting the asymmetries between them. Large-scale and medium-sized firms (those with higher productivity and the only ones to export) represent 12 per cent of the total, whereas smallscale firms (with low productivity) account for 81 per cent.1 This number is much larger if we take into account small-scale firms in the informal sector of the economy, household-based production and the street sellers who form part of that human agglomeration officially dubbed the ‘enterprising’ (emprendedores). TABLE 5.2

Firms by size (2014)

Business segment

Number 2014

Percentage of total

Total

95,674

100

Small-scale firms

77,503

81

Medium and large firms

11,380

1

6,791

7

Public administration

Source: Instituto Nacional de Estadística e Informática, 2015. Directorio central de empresas y establecimientos. Lima: INEI, September, p64. 1 Out of a total of 8,000 exporters in 2015, 464 large firms accounted for 80 per cent of the total, mainly in the mining sector (La República, 24 February 2016, p15).

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And within the segment of large and medium-sized firms, there is also a great deal of differentiation between them. Of the largescale firms, the most important are the national and foreign-owned conglomerates that dominate the main areas of the Peruvian economy. These are listed in Table 5.3. There are a total of 42, led by those in the banking and mining sectors (in other words extractive and financial elites). There are, indeed, ‘super groups’ that own hundreds of companies. Of these, only one – the Fondo Nacional de Financiación del Estado, Fonafe – is state-owned. It tops the list because it includes large companies in the oil and gas, water and energy sectors, as a holding company for those state companies that escaped privatisation. Of the remainder, 23 are Peruvian-owned and 18 are foreign-owned or joint ventures, as in the case of the Banco Bilbao Viscaya Argentaria (BBVA) from Spain, which has an equal share in the Grupo Brescia. The latter group are shaded grey in the table. TABLE 5.3

Ranking of economic groups to 2014, with income generated in Peru In thousands of dollars or soles 2012

Rank

Group

2013

Income S/.

US$ (*)

Exports

Imports

US$

US$

1

FONAFE

23,156,927

8,767,540

14,445

30,618

2

REPSOL

21,368,100

8,100,114

901,373

3,446,163

3

ROMERO

12,232,677

4,525,592

235,446

928,023

4

BRECA

10,387,890

3,914,305

579,276

138,466

5

TELEFÓNICA

10,211,225

3,870,821

1,292

353,097

6

GLENCORE XSTRATA

9,847,768

3,733,043

3,648,757

347,224

7

CREDICORP

8,466,438

3,190,620

0

3,997

8

BUENAVENTURA

8,418,102

3,191,093

1,726,898

81,026

9

GRUPO MÉXICO

7,788,212

2,952,317

2,196,234

310,734

10

GLORIA

7,661,599

2,904,321

222,196

416,615

11

FALABELLA

6,966,166

2,640,700

3

446,398

12

BBVA

5,497,942

2,034,015

32

79,334

13

BACKUS (SAB MILLER)

5,380,498

2,039,613

13,994

154,711

14

INTERCORP

5,098,150

1,932,581

4

37,137

t h e p ow e r o f t h e n e w e l i t e s | 111 15

CENCOSUD

4,731,150

1,793,444

0

84,805

16

PLUSPETROL

4,702,999

1,782,790

2,050,557

21,700

17

VOTORANTIM

4,567,762

1,731,525

840,033

44,332

18

AMERICA MÓVIL

4,430,191

1,679,375

4,736

372,916

19

FERREYCORP

4,391,107

1,664,559

20,575

971,180

20

SCOTIABANK

4,384,296

1,661,977

0

4,290

21

PECSA

4,116,336

1,560,400

2,530

81

22

ENDESA (ENEL)

3,935,086

1,491,693

959

50,924

23

BARRICK

3,758,580

1,424,784

902,891

28,540

24

HOCHSCHILD

3,314,266

1,256,356

253,119

63,125

25

UNACEM

2,953,933

1,119,762

218

143,004

26

GRAÑA Y MONTERO

2,306,991

874,523

5

158,127

27

SAN FERNANDO

2,238,395

882,637

29,280

242,357

28

RIPLEY

2,282,005

865,051

14

140,732

29

LINDLEY

2,059,123

780,562

6,176

197,342

30

D&C

1,404,774

532,515

373,466

8,101

31

EL COMERCIO

1,377,831

522,301

6,081

69,141

32

SURA

1,088,569

412,649

0

0

33

ISA

812,019

307,816

12

28,513

34

SANDOVAL

779,892

295,638

0

41,711

35

HUANCARUNA

674,380

255,641

144,737

17

36

AJEGROUP

627,075

237,708

3,266

79,745

37

WIESE

194,773

56,634

0

1,110

38

AB-INBEV

531,000

201,289

80

16,813

39

WONG

435,946

165,256

34,399

3,047

40

TOPYTOP

283,777

107,573

68,005

994

41

ISM

154,013

58,382

4,409

2,383

42

MARCAN

43,605

16,530

0

0

Source: Peru Top Publications, 2014. Peru: The Top 10,000 Companies 2014. Lima: Peru Top Publications, p613. Foreign companies and joint ventures are shaded grey.

A recent unpublished study by Francisco Durand on the top 12 conglomerates in 2014 provides further important information on the business elite. This dozen controls 501 firms between them, with each having (on average) 35 subsidiaries. This is where

112 | fi v e

financial power is to be found, exercised by the groups that control three of the four largest banks (Banco de Crédito, BBVA and Interbank), the largest two insurance companies, two of the five pension funds and the country’s main producer of vegetable oils and fish products. We also find here five of the conglomerates that monopolise the best land in the country (sugar, coffee, fruit and palm oil), mining companies, oil and gas companies and those that dominate the energy sector. Also here we see the country’s main importer of heavy machinery, its largest producer of dairy products as well as cement and soft drinks. Furthermore, the list includes the country’s largest construction company, its main owner of urban real estate, its largest hotel chain and one of the main owners of for-profit universities (a new source of wealth stemming from the privatisation of much higher education). In three of these groups – namely Credicorp, Holding Continental and Graña y Montero – foreign shareholders have 50 per cent or more of the capital, but they are managed by Peruvians. In three other cases – Intercorp, Ferreycorp and Alicorp – they have between 34 per cent and 40 per cent of the shares. Finally, it is worth pointing out that, of these 12, six have their origins in Lima and tend to be those with the best political connections: Romero, Brescia, Benavides, Ferreyros, Graña y Montero and Rodríguez Pastor. A novelty in this list, when compared with the Twelve Apostles of 1986, is that we find six groups whose origins are quite humble. The Gloria group of the Rodríguez family stands out here. This is composed of four sub-groups in the dairy industry, cement, paper and agro-industry (with almost 100,000 hectares of planted land, it is the country’s largest landowner). The list also contains two large ‘emerging’ business groups: Huancaruna (which exports coffee beans) and Flores (a leading garment exporter). We also find the agro-industrial concern Dyer y Coriat (D&C), which originally hailed from Huánuco and now owns large stretches of land on the northern coast where it produces fruit and vegetables. Finally, there is the Ajegroup, owned by the Añaños brothers from Ayacucho who produce fizzy drinks (Kola Real) and mineral water (Cielo). They have factories in other Latin American countries and on other continents, having become the most globalised Peruvian company of them all.

t h e p ow e r o f t h e n e w e l i t e s | 113 Consultancies, lawyers and lobbying From the mid-1980s onwards, an influential set of entities began to appear whose main function was to support Peru’s major economic groups, their number including lawyers, business consultancies (specialists in market measurement, natural resource evaluation, tax, public relations, advertising, security, social responsibility and environmental matters), and public opinion polling agencies. At the same time, an army of lobbyists has emerged, hired directly by the business groups themselves or as a consequence of them forming their own lobbying firms. They tend to work mainly in the shadows. Those working in this sector form part of an income stratum equivalent to the upper levels of company management (whether recruited locally or abroad), but below the heads and senior managers of the main business groups and multinationals present in Peru. The latter tend to be high-level professionals, educated in the best Peruvian universities and many having received postgraduate qualifications in business administration abroad, particularly in the United States and Europe. For the most part, they hail from the old Lima and urban middle-class which has managed to globalise itself both in terms of education and professional qualifications. But it also includes new recruits from lower-income social sectors who have successfully managed to rise professionally on the basis of educational success and/or their own merits in business and among international financial institutions. This is another aspect of the ‘democratisation’ of capitalism. The three main consultancy groups are Apoyo, Macroconsult and the Instituto Peruano de Economía (IPE). The three provide advisory functions and undertake specialist research on behalf of large corporations, international organisations and the state. They are closely integrated into the world of large business and multinationals through interlocking directorships. Apoyo was established in 1986 by Felipe Ortiz de Zevallos, linked at the time with the Twelve Apostles. A pioneer in the consultancy field, it made a name for itself through its Corporate Advisory Service (Servicio de Asesoría Empresarial, SAE) which produced reports and organised an annual meeting that brought together managers and specialists in both politics and public opinion. Through Apoyo and SAE, the heads and senior managers of the main companies could track developments in public opinion (often through bespoke

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studies) and take part in discussions with specialists in the area of political science. In 1987, in association with the French firm Ipsos, Apoyo began to undertake opinion polling surveys. Years later, Ipsos Apoyo was set up as a separate entity, while Apoyo continued to provide clients with microeconomic consultancy services. It also entered into the field of business journalism. Its Semana Económica publication became a key source of business news and comment. As its range of services became more diverse, it formally reorganised itself as the Grupo Apoyo. Grupo Apoyo distinguished itself not just through its policy analysis, opinion polling and in business journalism, but through its advisory services to the Ministry of Economy and Finance (MEF), particularly during the Fujimori and Toledo governments. It grew substantially in influence under Fujimori, and was invited to organise the international road shows that accompanied the privatisation of state companies, a highly remunerative activity. Its relationship with the MEF was particularly close under Toledo. Ortiz de Zevallos was named by Toledo ambassador in Washington, while one of its top managers, Fernando Zavala, became vice-minister of finance and finally minister in 2005. When Kuczynski became president in 2016, Ortiz de Zevallos was appointed presidential advisor and Zavala became his first prime minister. The directors of Apoyo participate as board members of a number of large companies, subsidiaries of multinationals and banks. Zavala highlights another instance of the world of consultancy. Having originally emerged from the public sector he joined the private sector, an example of the ‘revolving door’ syndrome. In 2006, he became vice-president of the Backus Corporation and in 2010 was named president of the Cervercería Nacional – SAB Miller in Panama. In 2013, he returned to his former job as president of Backus and remained in that position until assuming the premiership in July 2016. Macroconsult is the second major consultancy. It was founded in 1985 by four top-level former officials at the Central Bank: Manuel Moreyra, Drago Kisic, Raúl Salazar and Elmer Cuba. It based itself on its experience in macroeconomic diagnostics and specialist economic research in order to break into the increasingly competitive consultancy world. This group of economists also set themselves

t h e p ow e r o f t h e n e w e l i t e s | 115 apart through their interest in involving themselves in party politics. Under Kuczynski, Gonzalo Tamayo, Macronsult’s general manager, became minister of energy and mines. As of 1990, Macroconsult undertook a series of studies on how to liberalise the Peruvian economy for the World Bank, the InterAmerican Development Bank and the US Agency for International Development (USAID). It was also one of the two consultancies (with Apoyo) that organised the road shows that accompanied privatisation. For instance, in 1992 it was put in charge of selling the state telephone company, the divestment that was to lead to privatisation fever in the years that followed. From 1990 onward, it was given an important advisory function for Peruvian state companies, fulfilling a key role in the sale of mining companies like Hierroperú (Marcona), Cobriza and the La Oroya metallurgical complex, as well as of mining concessions such as Antamina, Toromocho, Michiquillay, Las Bambas and others. Macroconsult had strong institutional connections with the major business groups too. For example, Salazar, one of its founders, had a seat on the board of Scotiabank, Química del Pacífico, British American Tobacco, Pesquera Diamante and the Profuturo pension fund managers. Its founders also played a conspicuous role in the political realm. Apart from Moreyra, who was one of the founders of Fredemo, the coalition that backed the conservative campaign of Mario Vargas Llosa in the 1990 elections, Salazar became a top economic advisor to this grouping. After the fall of Fujimori in 2000, Macroconsult became an advisor to a number of presidential candidates but failed to back winners. In 2006, it supported the losing candidacy of Lourdes Flores of the right-wing Partido Popular Cristiano (PPC). In 2011, it launched its own candidate, Drago Kisic, also without much success. In 2016, it supported the candidacy of Julio Guzmán, who was ruled out of the contest by the electoral authorities. Macroconsult is the only consultancy that maintains a vocation for public service, but its main area of success has been its business advisory. Elmer Cuba became Keiko Fujimori’s main economic advisor in the 2016 election. IPE is the third of the trio. It is possibly the country’s most influential consultancy firm, reflecting its close linkages with the economic elite and the professional networks that came into being during the 1990s, particularly through its ties to the media. IPE was

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formed in 1994 by the economist Roberto Abusada, appointed viceminister of commerce in 1980 under the Belaunde government. As such, he played a leading role in the first attempt to liberalise foreign trade. He then became a consultant for the World Bank. Thanks to his good connections locally and abroad, he was successful in persuading the World Bank, the MEF and local Peruvian business groups to fund IPE, establishing it as a sort of ‘transmission belt’ between these three. From 1994 to 1998, with Jorge Camet as finance minister, it undertook an advisory role to the MEF in matters to do with taxation and trade. It enjoyed close ties to Camet, who, on retiring as minister, became a board member of both IPE and the Banco de Crédito. Camet was replaced by Jorge Baca, an IPE economist who, prior to this, had been head of the tax authority, Sunat. When Camet retired, Fritz Dubois, who had been the leading advisor to the MEF, became one of IPE’s managers. Like other consultancies, IPE provides a good example of the ‘revolving door’ syndrome. In 1998, when the Asian financial crisis erupted, IPE helped the government organise the financial rescue of Peruvian banks that found themselves in difficulties. It managed, for example, to save the Banco Wiese, one of the original Twelve Apostles. From 2000 onwards, it withdrew as principal advisor to the MEF, shifting towards work with the private sector but maintaining influence in the economic ministries of successive governments. In 2005 and 2006, it was one of the firms given the task of preparing the free trade agreement (FTA) with the United States. Abusada played a particularly important role in arguing that FTAs provided a key defence against backtracking on the liberal economic model, helping to ‘lock in’ its achievements, and making it more difficult to change or adjust it. On the back of Abusada’s international reputation, IPE became an associate of Global Source Partners in 2014, a specialist in investing in Latin America. Abusada, too, is a member of various corporate boards, among them Graña y Montero (G y M), Peru’s largest construction company. He also enjoys close ties with the El Comercio media group, for which he has worked as one of its most important editorialists and as a TV commentator. The conservative El Comercio daily newspaper was also edited at this time (2013) by Dubois. Among those also linked to IPE is Martín Pérez, a senior manager within the Romero group

t h e p ow e r o f t h e n e w e l i t e s | 117 who, in 2015, was elected president of Confiep. Pérez had been minister for foreign trade during the second García administration, becoming a member of the IPE board in 2016. The Fujimori regime’s frequent use of the ‘revolving door’ led to legislation in 1998 to ensure that outgoing top-level public officials had to leave a year before they could enter into private-sector employment. The case that led to this law being passed was that of the lawyer Jorge Melo Vega. For years, he was a high-level official at Osiptel, the entity charged with regulating telecommunications, only to move to being the manager in charge of regulatory matters at Telefónica. Such was the uproar that the new law – which has had little impact in practice on restraining use of the revolving door – became known as the Melo Vega Law. Many of these support institutions undertake lobbying activities within the state in the name of clients or the boards of companies on which their leading lights are members. This sort of influence gave rise to regulations being introduced but, as with the Melo Vega Law, these have had little effect in practice. In 2003, the Toledo government introduced the Law of Registration of Special Interests (Ley de Gestión de Intereses) which obliged individual and institutional lobbyists to join a registry of interests. As of 2013, ten years on, only ten such interests had been registered. Lobbying activity continued to be conducted largely in the shadows. Such is the power and influence of Peruvian and foreign business elites that analysts frequently subscribe to the idea of ‘state capture’ (López, 2010; Alarco, 2012, pp57–68). As well as constituting a dense network of family and friends and enjoying close ties to business think tanks, this elite of property owners, managers, experts and opinion formers constitutes, as we have seen, a network of interlocking memberships of boards and institutions. An example here is that of G y M, the largest constructor of public works in Peru and local partner of the Brazilian Odebrecht construction company. G y M is a shareholder in other large companies. Abusada has been on its board since 1986. Because of family ties, the head of G y M, José Graña Miroquesada, is an important shareholder in the El Comercio group, long controlled by his family. El Comercio controls over three-quarters of the market for written news, as well as owning two important TV channels, Channel 4 and Canal N. As such, El Comercio is considered one of Peru’s most important powerbrokers

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given the influence it exercises over public opinion and the pressures it can bring to bear on the organs of the state (executive, legislative and judicial) in setting the political agenda. There have been many complaints registered about its overbearing influence, and a case was before the Inter-American Court of Human Rights in 2016 about its role in limiting press pluralism.2 At the same time, El Comercio and its head have taken a leading role in IPE, the country’s most influential think tank on economic matters. The new economic elite may be considered more plural because of the way it has incorporated managers and experts who work in the network of institutional support organisations and because of the presence of representatives of socially emergent groups within the national economy. But it remains the largest corporate groups that have greatest economic clout, the best international connections and the highest-level political contacts. The managers and professionals who work in these groups and within multinationals occupy a second-tier status, along with those who have managed to make it up the social ladder. These lack the social standing and international connections of those at the very top, a hierarchy that is also present among private sector business organisations or gremios. Private sector gremios and outreach The new business elite, led by the 42 largest corporations, is organised around Confiep, the top business organisation, the gremio de gremios. Confiep is composed of 23 business organisations, chambers of commerce and federations, of which the most influential are those that represent extractive industries (mining, energy, agro-industry and fishing) and financial entities (banks, insurance, finance houses and brokers). Though Confiep is the strongest and best organised 2 La República (11 September 2015) outlined how this suit began in the Lima High Court, then proceeded up to international jurisdiction. ‘On August 22, 2013, the El Comercio Group informed the Superintendency of Shareholdings that, on August 21, 2013, companies belonging to the group had acquired shares to the effect that they controlled 54% of the social capital of EPENSA and 54% of Alfa Betas Sistemas . . . . This purchase has had the effect of increasing the degree of market concentration in the sale of newspapers and in the capture of advertising revenue, since . . . the first direct consequence of this controversial purchase is that now this group accounts for around 81% of newspaper circulation and 80% of advertising revenues.’ http:// larepublica.pe/impresa/en-portada/702670-demanda-ante-la-cidh-busca-proteger-lapluralidad-informativa (accessed 22 September 2015).

t h e p ow e r o f t h e n e w e l i t e s | 119 institution, it has the deficiency of not representing the middle and lower echelons of the business pyramid. Second, in order of influence, are three business gremios that abandoned the ranks of Confiep in 1998. Despite having been among Confiep’s founders, they found themselves losing influence. These are the Sociedad Nacional de Industrias (SNI), the Cámara de Comercio de Lima and the Asociación de Exportadores (Adex). This trio represents, and at times coordinates, large and medium-sized companies in their respective sectors. However, they lack weight at the national level. Confiep and this trio follow different strategies in their relations with the state according to how their leaders decide to pursue the agendas of the bankers and mining companies, those of a more general nature and those of particular sectoral interests. In third place are the gremios of the small and medium-sized enterprises like the Asociación de Pequeños y Mediano Industriales del Perú (Apemipe) or the Federación Nacional de Parques Industriales (Fenapi). Divided and poorly organised, they lack the negotiating capacity of the larger gremios, both with the largest corporations and with the state. On occasions they have managed to gain political representation by winning elections to Congress and other posts as leaders of ‘emerging’ sectors, but not such as to link up their own segment or to achieve a permanent political voice. Both Confiep and the ‘trio’ are run by the longest-established firms and by businessmen (owners and managers) who hail from the upper end of the Lima (or Arequipa) elites. What therefore impedes better coordination are the longstanding prejudices that separate the European-descended limeño elites and those of mixed blood from the provinces. Also relevant is the fact that these new arrivals into the elite – beyond mere prejudice and lack of social contacts – prefer to keep their distance and organise themselves separately. To this end they established their own organisation, the Asociación de Empresas Familiares del Perú (AEF), which is separate from Confiep and does not coordinate with the ‘trio’ or the small and medium-sized business organisations The aim of AEF is to close ranks in such a way as to maintain the family ownership of their businesses. Among its leaders is Angel Añaños, the founder of Aje, and Aquilino Flores, the founder of Topitop. According to its webpage, AEF

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was founded in the year 2010 by a group of enterprising businessmen (emprendedores) of great vision, all prominent leaders of successful family businesses, of well-known professional merit and social responsibility. They have proved their ability to overcome difficulties and make optimum use of the strengths and opportunities that arise within family-led businesses and even to have success abroad. (www.aef.org.pe, accessed 2 February 2015) It is worth noting their self-identification as emprendedores and their feelings of pride in their achievements, among them ‘having success abroad’, in other words being successful even in the toughest conditions of market competition. In spite of its isolation from the top elites, they are of popular extraction and see themselves as having a better rapport with the population as a whole. For example, the AEF and the Fundación Añaños organised a national event of emprendedores in a football stadium, attracting no less than 60,000 spectators, to which Angel Añaños and Aquilino Flores recounted their successes to encourage the others present. The formal system of business interest representation is thus stratified by both economic cleavages (size and sector) and social (origin and culture) ones. Confiep and both the smaller gremios and the AEF are headed by Peruvians, but within Confiep and the independent associations and cámaras, there is a strong presence of foreign capital. This helps to highlight the ‘Peruvianess’ of the AEF, even though foreigners by tradition do not accept elective posts within the larger gremios. Other gremios, in parallel to the Peruvian gremios, exist, organised in function of specific external markets in which both representatives of foreign companies (from those countries) and Peruvian ones (which sell into those countries) take part. The oldest and most important of these is the American Chamber of Commerce (Amcham), but it now works alongside a new generation of similar organisations depending on the country concerned. Due to the diversification in the sources of investment, there are similar organisations to Amcham that reflect the interests of companies from Spain, Brazil and North America (Canada and Mexico as well as the United States). These are run by both Peruvians and nationals of the countries concerned. However, they tend to keep a low profile, avoiding too much of a

t h e p ow e r o f t h e n e w e l i t e s | 121 public presence but seeking to work in close coordination with the relevant embassy. But within this world of business organisations, Confiep stands out. Established in 1984 (oddly with a grant from USAID since the US government at the time was very concerned about the existence of Sendero Luminoso), Confiep gained nationwide recognition in helping quash President García’s attempted bank nationalisation in 1987. From 1990 onwards, it played a key part in changing the dominant economic model in favour of a free-market one. It also played a crucial political role in supporting Fujimori in the wake of the 1992 autogolpe, during the formulation of the new constitution in 1993, in the elections of 1995, and indeed – in spite of the fraud committed – in those of 2000. At the beginning of the new millennium and in spite of its authoritarian leanings, Confiep had to reach an accommodation with the new more democratic conditions that prevailed, forcing it to lobby hard in the new Congress elected in 2001 and support a number of political parties. Its main strategic objective has been defence of the free-market economy, ensuring not only that successive governments maintain this orientation but also in influencing the choice of ministers and technocrats who share its view on the economy and society. This it has managed to uphold through four successive administrations – those of Toledo, García, Humala and Kuczynski – notwithstanding the fact that every election since the return to democracy in 2001 has produced political forces that question the model, mobilise against the environmental damage it produces, seek to change the constitution, and protest against a state whose main concern appears to be to protect the interests of large-scale investors. This close relationship between the state and the business sector also involves personal relationships between those at the helm of corporate interests and both the MEF and the other sectoral ministries. When a large investor shows interest in entering the Peruvian market, he (or she, but usually he) is likely to be received at Government Palace and at the MEF, both keen to foster a personal relationship. The system of interest representation works through individual actions as well as collective ones; indeed, the latter may be much more important than the former. The occasional recourse to collective but more regular individual action by the large business

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groups, backed up by a dense network of personal and institutional relationships, is presented in Figure 5.1. As can be seen, such recourse is extensive and suggestive of the fact that, if it moves in a coordinated way, there are multiple ways of exercising pressure to gain access to and influence the state apparatus and, indeed, civil society. The power of the new economic elite is unprecedented, even when compared to the oligarchic period, in view of the amount of property, land, concessions and wealth involved, its control over a handful of powerful extractive and financial-urban conglomerates, and its presence across Peru through a range of individual companies and even beyond its frontiers. No social group has the power to mobilise such resources or to compete with the instrumental power of major economic interest groups that work through Confiep. Figure 5.1 enables us to distinguish the multidimensional way in which such power is wielded: economic, political, discursive and even social (in as much as the modern corporation thus projects itself towards society through social assistance programmes). It consists therefore of a complex system of influence, in part hidden from view and private, but in part public. Taken as a whole, it shows the extent of the influence wielded by the economic elites. This goes beyond ‘state capture’ as such in that it has developed what might be described as a ‘system of domination’ or ‘political capture’. When compared with the old oligarchy, this is a system that is much more extensive, better organised and professionally managed. The fact that this is more private than public in the way it works is possibly a reflection of the social opprobrium of a state that inclines itself so markedly towards large investors (whether local or foreign) and the apparent privileges and favouritism they appear to receive. At the same time, the more this seems to be the case, the more suspicion that arises about the ways in which the new elites manipulate the strings of power. This is in spite of democratic elections that express, notwithstanding the asymmetries of power, results that can bring unexpected surprises. The governments freely elected from 2001 onwards ended up supporting the thesis developed by Alejandro Toledo in the campaign against Fujimori in 2000. Toledo had argued that Fujimori had built a ‘ground floor’ (meaning a solid economic base) and that what was needed was to construct the ‘first floor’ (meaning democracy),

Think tanks

Advertising companies

Public relations firms

Consultancies

Multinational corporations

Social action

SOCIAL POWER

Oligopolies

MARKET POWER

Indirect action Collective and individual action

DISCURSIVE POWER

Collective action (mainly Confiep)

Individual direct action

POLITICAL POWER

‘Obras por Impuestos’ private–public partnerships

Foundations

Corporate social responsibility

State dependency on capital, labour dependency on capital, consumer dependency on capital

Mass media (Advertising)

Spokespersons

Campaign finances (Party dependence on capital)

Lobby

Political parties

Civil society

STATE

Revolving door

Executive power Legislative power Judicial power

Multilateral financial organisations

5.1 Power of economic elites and their projection towards state and society (source: Francisco Durand.)

Embassies

Business groups

ECONOMIC POWER

‘F connection’: friends and family

Law firms

SUPPORT NETWORKS

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implying that there was no need to change the economic model. To him, at least, there was no problem in combining democratic governance with an economic model that tended to encourage concentration in ownership and business power. The governments elected subsequently followed this maxim, either out of conviction or as a consequence of their negotiations with the economic elite. They thus governed without seeking to interfere with the dynamic of the market, defend labour rights, legislate against (increasingly evident) monopoly abuse, and without seeking to strengthen the regulatory or tax-gathering powers of the state. The primary duty of the state, it was assumed, was to promote large-scale investment in extractive industries and the financial sector. At the beginning of this more democratic period, and with growth falling because of the results of the external shock of 1998–99, it was argued that it was indispensable to continue giving full support to the private sector to restore growth. Then, with the export price bonanza beginning in 2002 and lasting until 2012, the argument was that Peru needed to profit from this to continue growing and (eventually) cross the development threshold and become a ‘First World’ country. This ideology provided the basis for maintaining the closest possible relations with business elites. These, in turn, pushed to ensure that key ministries (notably the MEF) were run by technocrats or businessmen able to calm the fears of potential investors by isolating the economic management from political pressures. Congress, dominated by parties that supported this alliance, helped with legislation to ‘deepen’ and protect the model: approving free trade agreements, limiting the oversight role of the Sunat in rooting out tax evasion, and seeking to contain union demands and those emanating both from urban and rural-based movements. This alliance between the business elite and the state, as we will see in more detail, set the pattern for nominating officials to the MEF, the super-ministry with its many ‘revolving doors’. Under Toledo, for instance, the ministry was led (July 2001 to July 2002) by Pedro Pablo Kuczynski, previously a director of the Toyota Motor Corporation. He then went on to be a director of Southern Peru Copper, returning to the MEF between February 2004 and August 2005 when he was replaced by his vice-minister Fernando Zavala of the Apoyo Group. Kuczynski then became president of the council of ministers up until the end of Toledo’s term in July 2006. A quintessential financial

t h e p ow e r o f t h e n e w e l i t e s | 125 and business insider, he was thus the dominant figure in the cabinet for much of Toledo’s five years in office whose appointment was deliberately designed to appeal to market sentiment. During García’s government (2006–11), the MEF was run first by Luis Carranza, formerly a top Latin American executive of the Spanish BBVA bank before becoming vice-minister in the MEF under Kuczynski for a year. Carranza served first between July 2006 and July 2008 when he was replaced by Luis Valdivieso, formerly an official at the IMF, at the point when the global crisis of that year erupted and with it fears about inflation. Carranza returned to the MEF for a year between January and December 2009, replaced in turn by Mercedes Aráoz, a liberal economist who had previously been minister of both foreign trade and production. It was she who had been one of the main proponents of the FTA with the United States. In 2011, Kuczynski made a bid for the presidency of the republic, coming third. Under Humala (2011–16) control of the MEF was given first to Luis Miguel Castilla who, having originally been brought in from the Andean Development Corporation (CAF), had been vice-minister of finance during the previous government. His appointment was thus a guarantee of continuity. It was he who promoted Alonso Segura, previously with the Banco de Crédito del Perú (BCP). Castilla was in charge at the MEF from July 2011 to July 2014, and replaced by Segura, his confidante, for the remainder of Humala’s term until July 2016. After his narrow election victory in 2016, Kuczynski filled his first cabinet with pro-market technocrats, bankers and entrepreneurs. As we have seen, Zavala (previously of the Backus Corporation) was appointed prime minister and the MEF was led by Alfredo Thorne (formerly from the Lima office of JP Morgan Chase). All these ministers enjoyed the support of Confiep and remained in post for longer than most other ministerial appointments thanks to support from business and the understandings built up between business and the president. The MEF needed leaders with corporate experience and (depending on the moment) a track record in international financial institutions. They were able to ‘provide confidence’ and, by so doing, help further embed the free-market economic paradigm as the only show in town. By the 2011 elections, such was the apparent control of economic elites that the notion of ‘state capture’ became more widespread as the

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state retreated in the face of such pressures. At the beginning of the Humala administration, it seemed for a moment that his presidency, which enjoyed support from sections of the left both at home and abroad, would curtail the influence of the elites and modify the economic model. Humala had channelled protest movements during the 2006 elections in which he had won a significant proportion of the national vote (47.2 per cent of valid votes in the second round) against Alan García (with 52.8 per cent). His radical language prompted comparisons with Hugo Chávez and twenty-first-century socialism in Venezuela. Then in 2011 he came to office with 51.4 per cent of the vote in the second round against Keiko Fujimori (with 48.5 per cent) who had advocated continuing with the legacy of ‘order and progress’ initiated by her father in the new, more democratic setting. While Humala won the second round on a platform of much more moderate social change than in 2006, on reaching office he switched abruptly to the right. The clearest sign of this was when he accepted the suggestions of Confiep in appointing to the MEF and Central Bank (BCRP) stalwart defenders of the free-market paradigm. He also shifted his ground in relation to social and environmental protest movements. During the campaign, in 2010, he had promised the peasants of Conga in Cajamarca, as well as farmers in the region of Tía María in Arequipa, both highly contentious mining disputes, that ‘water came first’, not mining. By the end of 2011, only four months into his presidency, Humala’s discourse changed to being in favour of both ‘water and gold’. As the conflict at Conga spread in the weeks that followed, Humala sought first to repress it (alienating himself from local populations) only to enter into negotiations which ended in deadlock about the project going ahead. Tía María, a project to expand the operations of Southern Peru Copper in the province of Islay, followed a similar trajectory; Humala’s promises of support to local farmers proved illusory in practice, leading to a major conflict in 2014. Police repression furthered local resistance, leading to negotiations that led nowhere. As we shall see in Chapter 7, Humala’s administration saw other conflicts erupt with peasant communities seeking to negotiate a more favourable distribution of rents (Tintaya, 2012, Quellaveco, 2014, Las Bambas, 2015). The trend towards regionalised protest thus became more engrained. But also during his government, other more urban-based mobilisations began to take place (especially in Lima)

t h e p ow e r o f t h e n e w e l i t e s | 127 around other disputes, including labour ones. This was at a time when the export bonanza was petering out and the pro-private sector policy orientation was attracting more by way of vehement criticism. On the suggestion of Confiep, the government came up with policies to reactivate economic growth in 2013, policies that attracted widespread hostility. Such was the case of legislation to liberalise employment conditions for young people (Law 30288), measures to water down environmental protection and tax oversight (Law 30230) and laws to help promote private pension funds (AFPs). In each case, political opposition forced Congress to abandon policies that seemed to favour economic elites at the expense of the wider public. The shelving of large mining schemes, alongside these setbacks in Congress and the growth of a climate of protest, suggested that the ability of the elites to maintain their control over policy was beginning to falter. Then the 2016 presidential elections saw the appearance of a new generation of the left, organised around the candidacy of Verónika Mendoza of the Frente Amplio. The left staged its best electoral performance in 30 years, winning 19 per cent of the vote and securing 20 seats in Congress. Even though the left failed to win power and the elites were set to retain their influence in Congress, it was no longer quite so clear that the economic ‘ground floor’ was ‘safe’ while democracy continued to function well on the ‘first floor’. Demands for political reform seemed likely to escalate while the economic paradigm appeared prone to become the focus for greater criticism. Yet, Kuczynski’s narrow victory in the first and second round guaranteed the continuity of elite influence over the state and at the same time helped to accentuate its entrepreneurialtechnocratic character. Conclusions The economic foundations of the new elite are more diverse than in the past, and operate alongside a large number of private enterprises of all sizes, a pyramid with a broad base. At the top of the pyramid are the mining companies and the financial community, and in both there is a strong presence of multinational companies from a variety of continents. The large limeño business groups and multinationals constitute the economic hub of this power bloc, while the large parvenu groups of a lower social origin occupy a slightly

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inferior position. In the middle of the pyramid there are numerous large and medium-sized firms working in diverse economic sectors. Lower down, the pyramid widens out considerably due to the existence of hundreds of thousands of small and medium-sized operations alongside those labouring in the informal sector of the economy. Union presence is also weak at all levels and, where it does exist, it is in the upper strata of the pyramid in large companies. Today’s workforce is an undifferentiated mass, much more dispersed than before. These structural and social divisions, alongside organisational weakness at the lower end of the pyramid, help explain the power and influence that Confiep has acquired, directed as it is by Peruvians who represent the top elite. Rather more surreptitiously, the gremios linked to foreign markets also carry weight. The economic groups of more popular origin have their own organisation and are not yet a major factor in political decisions. The remaining gremios represent sectoral interests both in the higher and intermediate parts of the pyramid. At the bottom, few business interests are organised and their access to, and influence over decision making is strictly limited. This system of interest representation works both through individual influence by the largest business groups, as well as through collective action. In the former, these manage to establish a close rapport with top-level decision makers in the political world, a relationship sometimes brokered by gremios; in the latter, such influence is wielded mainly through Confiep. It is a system at once elitist and only semi-institutionalised. The corporate elite works thus through a ‘triangle without a base’. This is a metaphor which was used by Julio Cotler (2005, p18) to explain the system of domination exercised by landowners (hacendados) over their indigenous peons whose organisation they prevented. On the basis of this, analysts like Sinesio López (2010) have advanced the idea that twenty-first-century Peru works like a ‘captured state’. Capture is facilitated by the fact that the elite has no-one with which to compete, or therefore negotiate, within other business groups and social sectors. This is because the ‘base’ is unable to use its numerical advantage because it is so weakly organised. The state, in turn, is not organised in such a way that these different interests enjoy formal representation. The game of influencing is therefore one between the economic elite and the political class, one

t h e p ow e r o f t h e n e w e l i t e s | 129 in which the rest of society has little voice (despite having a vote) and in which occasional outbursts of street protest become an alternative (though fairly ineffectual) mode of exercising political pressure. This is capable of blocking mining projects and rallying opposition to laws promoted by Confiep, for example, but the overall orientation of state policy is much more responsive to elite influence and pressure from business consultancies.

6 | P ROB LE MS O F D I S T R I B UT I O N , P OV ER T Y AND D E C E N T R A L I S A T I O N

Antamina in Ancash is one of Peru’s largest and most productive mines, playing an important part in raising the quantum of the country’s exports in recent years and in providing fiscal revenue to the state. A massive open-cast pit, it is clearly observable as a scar on an otherwise bleak and arid landscape from an aeroplane flying at 35,000 feet. It is located on the eastern flank of the Cordillera Blanca at an altitude of 4,300 metres above sea level, where little grows other than the ichu on which llamas and alpacas feed. When development of the mine began in 1997, its advent was seen by many in the surrounding communities as a blessing (Salas, 2008, p200) bringing welfare and employment, and raising demand for goods and services produced locally. For the Fujimori government, it was also seen as clear evidence of the government’s success in attracting foreign investment. Estimated to be the world’s seventh largest copper mine at the time, it was expected to raise Peru’s annual GDP by as much as 1.8 percentage points. Antamina thus would provide living proof of the potentially large social benefits to be derived from the extractive model of development. It would provide the state with the fiscal resources necessary to channel into social spending programmes to alleviate poverty and to provide the wherewithal to stimulate local and regional development in places like rural Ancash with its very high indices of poverty and deprivation. Although Antamina, a joint venture between UK registered BHP-Billiton and Swiss-owned Glencore (with other minority shareholdings of Teck and Mitsubishi), was a particularly large extractive project, the development of mining projects across the Andes would, it was hoped, be a game-changer for provinces and districts in highland Peru which included many of Peru’s most impoverished populations, stimulating development more generally. In practice, this has proved to be something of a forlorn hope, although Antamina has probably been more successful than

d i s t r i b uti on , pov e rt y a n d de c e n t ral isat ion | 131 many mining schemes in avoiding the sorts of conflicts with local communities that have plagued Peru over the past two decades. The extent to which extractive development would stimulate economic and social development would hinge, crucially, on the ability of the state to act as an effective conduit in channelling the funds raised by these activities into socially-useful and economically-productive purposes. As this chapter will show, its ability to realise this potential has been limited by its own institutional weaknesses, most particularly at the level of sub-national government through which the benefits of social welfare spending as well as the regional division of tax revenues (through the canon system, a type of royalty) are distributed. Though the story is by no means one of total failure, the full potential has not been realised by a long shot. The period since the Fujimori era has seen a variety of approaches that have sought to tackle the two key and interconnected distributive issues in Peru: a highly-skewed structure of income distribution (accompanied still by widespread poverty) and a highly centralised system of government that has acted as a disincentive to local development and policies to reduce (especially) rural poverty. On both scores, the policies introduced by successive governments to tackle these problems have been inconsistent and have suffered from improvisation. They have also lacked impetus from below, from civil society, itself an indication of the weakness of institutional links between the state and society. Society has remained atomised and politically disorganised, with social organisation capable of registering protest (sometimes on a large scale) but unable to structure and orchestrate demands from below through a system of representative parties, a point developed more fully in the next chapter. Social policy, as we shall see, has become a more mainstream preoccupation for governments concerned to claim that liberal economic policies can bring social benefits to vulnerable populations. Advances have been made, largely by trial and error, and poverty rates have fallen overall. State capacities have also improved. The success of programmes in other countries, like Bolsa Familia in Brazil, has been influential in terms of the design and delivery of social programmes. Efforts at decentralisation, beginning in the wake of the Fujimori regime’s collapse, have made their mark, as have the channels for distributing the rents from extractive industries through the canon system. But mechanisms for public participation

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remain weak and wastage (both through inefficiency and corruption) widespread. The ability to sustain the neoliberal model of economic development will inevitably be judged, in the last analysis, by its ability to generate tangible benefits and therefore through political endorsement on the part of a country’s citizens. Where those benefits depend on such a volatile variable as world prices for minerals like gold and copper, their lasting effects may prove fleeting. Social policy The need for government policies to tackle ingrained patterns of poverty and to deal with Peru’s highly skewed income distribution had long been recognised. For much of the twentieth century these had been based on charitable giving (beneficiencias públicas) aimed primarily at those (such as the elderly poor) unable to look after themselves (Francke, 2006). Government involvement in social provision picked up at around mid-century. However, even when attempted, policy remained inconsistent and suffered from a good deal of improvisation. In the 1960s, the first Belaunde government at least recognised the need to reform the system of landholding which was seen as sustaining a grossly inequitable pattern of distribution and keeping a large proportion of the rural population in conditions of dire poverty. It also introduced a system of state-led rural development assistance at the community level known as Cooperación Popular. The Velasco government, as we have seen, went much further than this, with its radical land redistribution policies, although its achievement in terms of reducing social inequality is open to question. During the second Belaunde government, new programmes were introduced aimed at dealing with urban deprivation, such as Lima’s ‘Glass of Milk’ (Vaso de Leche) programme which provided nutritional assistance to those of school age. The García government in the latter half of the 1980s adopted some new state-led initiatives designed to tackle social issues, but its record in this direction was largely obliterated by the twin impacts of guerrilla violence and macroeconomic chaos. It was only in the 1990s, under Fujimori, and subsequently after 2000, that government social policy gained greater salience in dealing with problems of poverty and deprivation, particularly (but by no means exclusively) in rural parts of the country where these were most evident.

d i s t r i b u ti on , pov e rt y a n d de c e n tr al isat ion | 133 The impact of economic stabilisation spearheaded by President Alberto Fujimori in the early 1990s brought major social costs and the realisation that steps would be needed to mitigate it to avoid potential political upheaval. The impecunious nature of the regime at the outset meant that it was not until two years had passed that initiatives were taken to this end with the establishment of Foncodes (the Fondo Nacional de Compensación y Desarrollo Social). As the name implied, Foncodes was designed, primarily, to offset the social costs of stabilisation. It counted on financial support from multilateral donors, primarily the World Bank, which saw the need for an organisation in Peru which would target social assistance towards those deemed most ‘vulnerable’, along lines practised in several other Latin American countries. Foncodes, the spearhead of social policy during these years, came under the direct aegis of the president (through a newly established Ministry of the Presidency) and therefore was less trammelled than other public sector organisations in the ways in which it worked. It became the main actor in a network of institutions that reinforced the clientelistic nature of the Fujimori regime; aid was targeted to small-scale projects to carefully selected communities in return for political support. It spurned contacts with locally based municipalities, community organisations and NGOs, creating a direct dependency of vulnerable communities on the benevolence of the presidency. Nothing could be further removed from the development of local capacity-building required to make projects sustainable in the longer run. The system of top-down assistance was also designed in such a way as to further fragment cohesion between communities and other recipients, accentuating control within the ‘triangle without a base’ and facilitating manipulation. The extent of political manipulation became particularly evident at election times (Schady, 1999). Other organisations also came into being during the Fujimori period designed to improve levels of nutrition, promote agricultural development and improve road communications. While enjoying ample funding from the proceeds of privatisation, most of these proved highly inefficient and lacking in any sort of transparency in the ways they operated. Coordination and linkage between programmes was also weak or non-existent. Typical was Pronaa (Programa Nacional de Asistencia Alimentaria), a programme devoted to providing food aid which, like Foncodes, served to reinforce the relationship

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between the presidency and client populations, supplanting many of the community-based and locally run comedores established under previous governments (Conaghan, 2005). Through various social programmes, conducted in such a way as to identify them closely with the figure of the president, Fujimori was able to build up strong grass-roots support, particularly in rural areas of the country. His energy expended in visiting communities and inaugurating projects was closely calibrated to this end. The political importance of social spending became increasingly marked during his second term in office (1995–2000) when the initial popularity caused by his success in subduing Sendero and controlling hyperinflation began to wane and the necessity of perpetuating himself indefinitely in office became more pressing. Under Fujimori, then, social policy became increasingly important as a tool of legitimation. The collapse of the Fujimori regime at the end of 2000 led to important changes in the ways in which social assistance schemes were administered, with the accent less on building regime support and more on building notions of citizen rights and improving effectiveness. Social policy was supposed to dovetail with policies of decentralisation, with municipalities taking a more significant role. Together, such programmes, it was hoped, would boost the low levels of popularity of the Toledo administration However, as this progressed, these principles diminished as cornerstones of policy, with programmes increasingly subservient to the political interests of the ruling Perú Posible party. As Toledo’s popularity in the polls dwindled, it became increasingly necessary to use such programmes as tools to build support in advance of elections, whether local or national. However, Toledo’s ability to engage in clientelistic practices was never as well-honed as Fujimori’s, and he lacked Fujimori’s single-minded persistence and his authoritarian streak that had made social policy such a successful tool of political dominance. Toledo also held back from introducing the sort of progressive tax policies required to fund a more ambitious plan of universal social rights that would have brought him popularity in the forlorn hope that international donors would help fund the necessary expenditure (Francke, 2006). The main innovation introduced was a modest version of the sort of the Conditional Cash Transfer (CCT) scheme that had proved successful in Brazil and Mexico at the time, the Juntos programme. This came into being only in Toledo’s last full

d i s t r i b u ti on , pov e rt y a n d de c e n tr al isat ion | 135 year in office under the auspices of the Prime Minister’s office. Peru was one of the last major Latin American countries to institute a CCT programme, and its scope was initially restricted to the three regions which had borne the brunt of political violence in the 1980s (Ayacucho, Huancavelica and Apurímac). With a mere 25,000 beneficiaries in 2006, it was to have little impact on the election results that year in which Toledo’s Perú Posible party was trounced at the polls. The main elements of social policy remained intact under the subsequent García administration, but the impetus towards decentralisation in the provision of social policies (especially in education) diminished, largely as problems of local management and delivery became more evident. Problems of corruption – due in large part to the absence of mechanisms for oversight at the local level – pushed policymakers back into a much more centralist mode. The Ministry of Economy and Finance (MEF), controlled by those orthodox and fiscally prudent technocrats, was a major influence here. Individual social programmes were reduced in number, and placed under tighter centralised coordination. A new programme called Crecer was set up to provide coordination and to promote improvements in infant nutrition. The Juntos programme was radically expanded to cover ten administrative regions, involving a direct subsidy to those in extreme poverty. By 2011, there were some 400,000 beneficiaries. This did not involve sub-national tiers of government, except in so far as these had a role to play in providing the educational and health services which beneficiaries were obliged to access as a condition for receiving payment. The poor quality of such services constituted a major obstacle for the success of Juntos. In some localities, mayors sought assistance from NGOs in providing social assistance programmes, but this was by no means universally the case. In certain areas, mining companies ended up providing services to local communities, as was the case at Antamina before the introduction of the canon in 2006. Prior to this, social spending by the mining company tended to be piecemeal and subject to the demands of surrounding communities. Programmes often worked through specially established NGOs and Foundations, but suffered innumerable problems as to project design and priorities, ‘ownership’, geographical scope, lack of transparency and inadequate consultation. In many places, including Antamina,

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companies effectively replaced the state in providing services that would otherwise have been the responsibility of the state. They were further encouraged to do so by García’s voluntary Fondo Minero scheme (see below, p145). The striking reduction in poverty levels achieved under the García government was far more the consequence of economic growth (and consequently employment) than that of social assistance policy as such. Official figures (INEI, 2016) show that those estimated to be living in poverty fell from 58.7 per cent of the population in 2004 to 23.9 per cent in 2013, with a large fall also in those living in extreme poverty in rural areas. Richard Webb has argued that the latter hinged greatly around the building of roads, especially in the highlands, helping peasant communities access the market more effectively (Webb, 2013). However, social programmes had an important impact on helping those in extreme poverty sustain at least a very basic standard of living. This was to continue being the case during the Humala government after 2011, when existing programmes (like Juntos) were expanded further and a number of new programmes introduced, such as Qali Warma (directed at providing school meals), Cuna Más (providing day care for small children) and Pensión 65 (a payment to the elderly living in poverty). Under Humala the average annual economic growth rate began to decline as of 2014 but social spending tended to rise. Even so, the impact of social spending on poverty rates appears to have been marginal. As previously, its main positive impact was among those living in extreme poverty, especially those living in rural areas of the Andes where programme coverage tended to increase after 2011. One of the main challenges facing policymakers was to ensure that social spending reached those it was intended to reach and was not siphoned off by intermediaries. Among the more drastic steps taken by the Humala government when it came into office in 2011 was to do away with Pronaa. According to Carolina Trivelli, the minister responsible for social policy in the first two years of Humala’s government, Pronaa was ‘riddled with corruption’ (interview, December 2015). The main beneficiaries, she claimed, were the intermediaries that supplied food to the programme, both big (such as Leche Gloria) and small. Much of the food provided was of poor quality. Much was also deliberately over-priced when sold to the government for distribution. As a consequence, there was fierce

d i s t r i b uti on , pov e rt y a n d de c e n tr al isat ion | 137 opposition to the closure of Pronaa precisely from these intermediaries who used their lobbying power to defend a programme from which they made a great deal of money at the government’s expense. The most important programmes under the Humala government (in terms of spending) were Juntos and Qali Warma. By the last year of the Humala government, the Juntos programme was reaching around 840,000 households, with these receiving payments of 200 new soles every month. As elsewhere in Latin America, the efficacy of CCT programmes such as this was much debated and hard to demonstrate statistically. Studies suggest that it had limited impact on malnutrition and cognitive development of children; much appears to have depended (as we have seen) on the quality of health and educational services provided and the ability to combine Juntos with other social programmes such as Qali Warma in improving nutritional benefits to very poor families through the school system. Indices of anaemia and child nutrition generally have remained stubbornly high in rural parts of Peru, even increasing in recent years in some places. Qali Warma, introduced to overcome the deficiencies exemplified by Pronaa, was by 2015 allegedly reaching 3.4 million school children, close to the estimated numbers in primary education. Those involved in the programme argued that the quality of the food supplied had improved but that the impact on educational attainment had been fairly limited; those who derived most benefit were those in urban areas, whereas the obstacles to reaching rural communities (where the need is greatest) had been difficult to overcome. According to Alvaro Monge, a researcher at Macroconsult (the consultancy organisation profiled in Chapter 5), the most difficult problem to overcome was to ensure proper coordination from those involved in the delivery of the programme at the local level. The extent to which social spending helped legitimate the succession of governments from Alberto Fujimori onwards is, of course, difficult to assess with any precision. It is probably clearest in the case of Fujimori whose democratic credentials were most in question and whose popularity appears to have been directly related to his own personal involvement in delivering social benefits to carefully targeted populations; his electoral popularity (and subsequently that of his daughter, Keiko) in deprived parts of the highlands and jungle seems to bear this out. His re-election victory in 1995, in particular, appears to have been – at least in part – a validation of the growth

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of clientelistic spending during the previous two years. The speed at which the popularity of Toledo and García fell following their election in 2001 and 2006 respectively, would seem to suggest that increased social provision had a relatively limited impact, even in those parts of the country to which they were targeted. As we have seen, the main driving force behind the sharp decrease in poverty rates since 2000 had much more to do with the positive effects of growth on employment and incomes than social policy per se. It may have been the case that under Humala, when social policy became more widespread, this had an effect on sustaining his otherwise dwindling ratings, especially in the more deprived parts of the highlands where his popularity tended to be higher than in urban areas of the country. According to Trivelli, social policies probably constituted an area where the Humala government’s record was rather more successful than in other spheres. However, the extent to which social policy successfully helped build a culture of rights, in which recipients were able to make demands on the state, is very questionable. Although some programmes were universal in their application (such as the pension scheme introduced by Humala) this was not the case for most, which remained targeted at poor communities and subject to a number of conditions imposed on the beneficiaries. In the last analysis, it proved largely assistentialist, contributing little to reinforcing civil society and its ability to make demands on the state. Problems of targeting and implementation remained pressing ones as the Kuczynski administration took over the reins of government in 2016. Decentralisation Peru’s centralised system of administration has long historical roots with Lima, since colonial times, the seat of government and the residence of dominant political and economic elites. This predominance of Lima over all else contrasts with the situation in some of Peru’s neighbours, such as Bolivia, Ecuador and, indeed, Brazil, where patterns of political and economic development led to two or more cities vying for supremacy and where the country’s capital city was not necessarily at the same time its main economic and commercial hub. The degree of centralisation in Peru, however – and the difficulties involved in attempts to break this mould – became ever more

d i s t r i b uti on , pov e rt y a n d de c e n tr al isat ion | 139 pronounced during the second half of the twentieth century; regional elites found themselves increasingly on the margins of the country’s power structure while rapid migration to the capital reinforced both its demographic and economic weight. This was particularly the case of the Velasco government which, in spite of rhetoric about ironing out the country’s deep social and regional imbalances, reinforced patterns of centralisation, destroying the power of landed elites in the ‘provinces’, cutting off channels of political representation and concentrating decision making among a narrow bureaucratic and authoritarian (and military-led) political elite. Much the same could be said about the Fujimori regime in the 1990s, which reversed incipient attempts at decentralisation in favour of a top-down system of political management, focused on the office of the president in Lima. Reflecting reactions against authoritarian centralism, the discourse about democratisation in Peru carried with it an important component with respect to decentralisation. Such was the case in the late 1970s, with the 1979 constitution envisaging a gradual transition to a much more decentralised mode of government. It was also the case after the fall of Fujimori in 2000, when the Paniagua and Toledo administrations (2000–01 and 2001–06 respectively) initiated new schemes designed to foster decentralisation. Democratisation, it seemed, was intrinsically connected to notions of subsidiarity, relocating decision making to levels closer to the people, increasing the transparency of administration, and making those in power more accountable to those who elected them to office. Decentralisation was, at the same time, a policy much favoured (as elsewhere in Latin America) by multilateral lending institutions, particularly the World Bank. It formed part of their portfolio of ‘second generation’ reforms, designed to help provide a political underpinning to moves to liberalise the economy and to reduce the scale of state intervention in favour of the private sector. Although the 1979 constitution had mandated decentralisation, it was not until late on in the first García administration (1985–90) that anything was done about it. Even though the return to civilian government in 1980 brought with it the restoration of local elections of mayors and municipalities (suspended since the Velasco coup in 1968), the Belaunde government (1980–85) blithely ignored the prescriptions of the constitution, preoccupied more with

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structural adjustment and security issues at the national level than with devolving power to lower echelons of government. In 1987, the decentralisation agenda was taken up by Alan García with the creation of 12 elected regional governments based on ‘macroregions’. However, the initiative was not to last long: the 1992 palace coup by Fujimori, justified by the need to clamp down on inefficiency and corruption in government (local as well as national), abruptly dismissed the regional assemblies, replacing them with unelected administrations, the so-called Consejos Transitorios Administrativas Regionales (CTARs). It was only with the return to more open, democratic government in the new millennium following Fujimori’s fall that steps were taken to resume the decentralisation agenda with reforms introduced by Toledo: the Framework Law on Decentralisation (Ley de Bases de la Descentralización) and the Organic Law on Regional Governments (Ley Orgánica de Gobiernos Regionales). However, the decentralisation agenda was dealt a devastating blow in 2005 when the recommendation that departments again join together in a number of ‘macro-regions’ was voted down (with one solitary exception) in referendums across the country. Departments were unwilling to join forces in a process that many perceived to be directed from above without preparation or consultation. The new system of regionalisation was therefore based on the 25 existing departments, with each department thus becoming a ‘region’ and having its own elected authorities, headed by a regional president (now called a ‘governor’). As well as enhancing the powers of the old departments, decentralisation involved the transfer of some functions (notably health and education) from central government to the local level. It also involved the transfer of fiscal resources, although not without plentiful strings attached in terms of the uses to which these were to be put. The reintroduction of the canon system, as we shall see below, also increased the volume of resources available to local authorities, or at least some. Finally, the legislation – in large part inspired by experiences outside Peru (particularly in Brazil) – introduced mechanisms of public participation in certain areas of administration, notably in the preparation of budgets and in the setting of development priorities (Ballón, 2011). This is the system that existed as of 2016, and it has been much criticised, both in terms of design and in terms of how the system has

d i s t r i b uti on , pov e rt y an d de c e n tral isat ion | 141 evolved over more than a decade. The scale of corruption that has characterised local administration in many parts of the country has acted as a powerful counter-argument to those who posit that the process needs to be consolidated before it can be properly appraised. Since the time of Toledo, successive governments have wavered in terms of continuing to support the decentralisation project initiated in the first years of the new millennium. In particular, enthusiasm for decentralisation has been probably most muted within the allimportant Ministry of Economy and Finance (MEF) where all important decisions regarding the economy and budget flows are made. While advocates of decentralisation, especially among regional governments, argue the need to deepen the process, they lack the political power to make it happen. In principle, the legislation on decentralisation had two overriding objectives: (i) to create a more democratic and participative system of government with local accountability and (ii) to foster regional economic development thus helping to integrate the country economically and reduce the extreme regional imbalances in social provision that had for so long characterised Peruvian development. As we have seen, the demand for decentralisation came about not, primarily, from the regions themselves or local elites within them demanding a larger slice of the political and economic cake. The response, as so often in the past, has come from above, from administrations in Lima concerned to pursue a more balanced path of development and to reduce glaring social and regional inequalities. Weakened politically and economically by centralising regimes, not least that of Velasco but also that of Fujimori, local elites – like many others from the provinces – tended to migrate (with their business interests) to Lima. Such was clearly the case in the area around Antamina, where the absence of traditional families since the time of the agrarian reform (if not before) reduced the possibilities for any intermediation between the state and society, leaving behind isolated peasant communities with only very limited linkage into the wider economy. Albeit with some exceptions, the lack of buoyant regional economies reduced the potential of local elites to foster virtuous circles by which local development contributed to the creation of strong regional political movements capable of propagating viable local development initiatives independently from Lima. This was a trend that accelerated during the course of the 1980s as a

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consequence of the political and economic dislocations of the time, not least with a large part of the country living under conditions of virtual civil war. The traditional imbalances of power became ever greater as the twentieth century came to an end. As Alberto Vergara (2015) has shown, the weakness of local governance in Peru overall contrasts with the relative strength and assertiveness of local demands against centralising states in neighbouring countries like Bolivia and Ecuador. With the development of local government – even when formally elected – restricted traditionally to only very basic functions, the danger of any decentralisation effort was the lack of expertise and the administrative structures at the local level able to respond to functions devolved from the centre. Even in the best of circumstances, it was going to take a long time for these to consolidate themselves and develop local capacities. In practice, many of the better educated functionaries at the local level looked to Lima to improve their job chances or to improve their education. The migration effect tended to further weaken administrative capacities at the local level. Also, critically, the weakness of organised civil society, particularly after the traumas of the late 1980s and the effects of the Fujimori regime, made it difficult to exercise public oversight in the way in which money was spent. Without proper scrutiny, there would be little control over corruption and the misuse of decentralised fiscal spending. Of course, the situation in this respect varied considerably from one part of the country to another, but even in Peru’s second city, Arequipa, the impact of the 1980s and 1990s was such as to create obstacles to the development of administrative capabilities. Distributing the benefits of extractives Arguably, the Peruvian model of decentralisation is something of a misnomer in that it is essentially a model of de-concentration of previously centralised governmental functions. The difference between de-concentration and decentralisation resides in the effective constraints imposed by the centre on the application of funds at the local level, reducing thereby the autonomy of locally elected governments to apply the funds available to them. De-concentration implies that central government effectively defines priorities and manages (albeit indirectly) how money is spent. Regional governments, more so provincial ones, are highly dependent on transfers

d i s t r i b u ti on , pov e rt y a n d de c e n tr al isat ion | 143 from central government and have limited capacity to generate fiscal resources of their own. The most obvious mechanism of central government control over the application of transfers has been the SNIP (Sistema Nacional de Inversión Pública), a system of approvals administered centrally by the Ministry of Economy and Finance (MEF) and much criticised by local-level administrations as highly discretional in its criteria for authorisation and overly bureaucratic in the way it is operated. Other than the MEF, other ministries, while ceding functions to regional and local tiers of government, maintain a high degree of intervention in the way their resources are used. Regional government, and still more so provincial and district mayors, are thus subject to controls that reduce their autonomy of action and their ability to satisfy competing pressures for public spending at the local level. The canon system was re-formulated at much the same time as the moves towards decentralisation but without much thought as to how these two policies would combine. The law was approved in 2001, though the legislation was not fully regulated until 2004. Amongst other things, the objective of the legislation was to discourage communities in the areas around extractive industries lodging objections by providing communities with a strong financial incentive to support such projects (Arellano-Yanguas, 2011). The mining canon (canon minero) is not a local tax as such, but a transfer from central government of half the income taxes received from mining. In the case of hydrocarbons, the canon includes half the tax paid plus half of the royalties paid by firms to the state. Canons exist for some other activities (such as forestry and fishing) but these are of little consequence. The canon system thus privileges those regions, provinces and districts in which such industries are located. The legislation establishes that ‘the regional and local governments should enjoy an effective and adequate share of the income and rents obtained by the state in the exploitation of natural resources’. However, use of the canon is largely restricted to the construction of infrastructure, and projects submitted for funding by the canon must necessarily have the prior approval of the MEF through the SNIP. Because of the priority given to channelling canon money to those areas producing minerals and hydrocarbons (mainly gas), the system is highly inequitable in that these regions receive most, while others receive very little, if any at all. It was, indeed, a system designed

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to forestall potential protest than to enhance inter-regional equality. Between 2007 and 2010, Ancash received more than any other, mainly from Antamina, flows boosted by the high prices paid for mining commodities. In 2012, Cuzco region overtook Ancash receiving nearly 30 per cent of the total distribution of combined canon funds that year owing to an increase in output at Camisea, Peru’s main source of natural gas, located in the jungles of northern Cuzco region. Also within regions, in the distribution of canon money between regional, provincial and district tiers of government, the same distortions arose with those residing nearest to extractive industries receiving the lion’s share. Certain districts, such as Echarate in Cuzco and San Marcos in Ancash (in which Camisea and the Antamina respectively are located), received huge funds which they were at pains to spend. At the same time, other regions without either large mines or sources of oil and gas, received virtually no canon money at all. Although there were certain compensating mechanisms introduced, these did little to reduce the gross inequalities that resulted. As well as incorporating large inequalities into the distribution of fiscal resources, the canon system also tied local administrations tightly into the purview of the MEF, the gate-keepers of the system. It thus tended to reinforce centralised control over spending, relegating the importance of sub-national tiers of government. While it increased the amounts of money available to the latter, it did so in ways that contributed little to decentralisation understood as a process of enhancing the autonomy of these with respect to the resources available to them. Regional governments might be free to evolve their own priorities in government over their respective jurisdictions, but they were largely tied to transfers of central government money whilst raising only fairly small amounts from their own resources through local taxation. Indeed, the ability to receive such transfers made for few incentives to pursue the difficult path of levying local taxes, whether on sales, incomes or property. Lack of financial autonomy thus reduced the real meaning of decentralisation. Apart from the canon, there are various other ways in which extractive operations impact on those areas in which they are situated. These include specific forms of corporate social responsibility, either delivered through the company itself, through foundations set up for this purpose, or through NGOs. These cover a wide range of activities, but a large part is accounted for in programmes designed

d i s t r i b u ti on , pov e rt y a n d de c e n tr al isat ion | 145 to enhance local employment or to boost the local economy in a variety of ways. There has been little of systematic research on the impacts of such programmes, but their net effect appears to have created a high degree of dependency on the operation concerned, particularly in those areas, like Antamina, where the presence of the state is weak or non-existent. The amounts involved were never very large. A second mechanism was through voluntary agreements with the state. In 2006, the García government set up Fondo Minero, instead of a windfall tax, under which companies would pay a small proportion of their net profits (between 1 per cent and 3.75 per cent); being a voluntary arrangement, unsurprisingly, the amounts paid were fairly modest, mainly by the largest companies. The largest slice of the money raised was used for education and infrastructure. The Fondo Minero was replaced in 2011, at the beginning of the Humala administration, by a windfall tax. The yield from the windfall tax was much less than at first anticipated. The third mechanism is known as Obras por Impuestos, introduced in 2008, by which extractive companies could deduct from their income tax obligations money spent in their area of operations on health, education, water provision, infrastructure, irrigation etc. The supposition here was that private firms would oversee project execution more efficiently than the relevant state bodies. In 2014, public–private partnerships were introduced for similar reasons. The main criticism here was that private companies were able to use public money to design programmes that corresponded to their own corporate strategies, further weakening the presence of the state. Moneys administered under the Fondo Minero and Obras por Impuestos tended to lack transparency in the ways they were used. The introduction of public– private partnerships coincided with the decline in mineral prices after 2012 and therefore the fall in tax contributions. With 11 of the regional presidents elected in 2006 either having been jailed for corruption or in hiding by the time of the 2014 local elections, the exercise in decentralisation has been judged by many to have been an evident failure. The scale of devolved public funding, coupled with the absence of effective oversight either by central government or by civil society actors on the ground, is seen as an invitation to corrupt behaviour, either on the part of local politicians and administrators or on that of contractors hired to provide services for them. With disproportionate flows of funds to often remote

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localities (where many of Peru’s extractive industries are sited) which had previously received little or no government funding, it was perhaps hardly surprising that managing such flows proved (to say the least) problematic. The case of Cuzco is indicative of the poor, if not corrupt use of moneys transferred to sub-national government. A study carried out in 2012 (Crabtree, 2014) compared the use of canon funds in four provinces of this region (La Convención, Anta, Paucartambo and Espinar), analysing both the size of the flows involved and the uses to which they were put. La Convención, in which Camisea is located, one of the provinces of Cuzco region with the lowest levels of poverty, received nearly four times as much canon per head than the region as a whole in 2012, itself the region to receive more canon money than any other in Peru. Echarate (population 45,000 in June 2013), the district of La Convención where Camisea is sited, was one of those receiving more than any other in Peru. And while large amounts were spent on building infrastructure in the capital of the district (including a magnificent town hall and an Olympic size swimming pool) little was spent on tackling social deprivation in surrounding rural areas. Civil society organisations in Echarate accused the authorities of widespread corruption, but had been unable to do much to counteract it. Participative mechanisms by which civil society was actively involved in helping decide budgeting priorities were largely inoperative or, where they did exist, ignored by local mayors. Of the four provinces, only in Espinar – a mining area with a relatively tightly organised civil society, and one which received less than La Convención – was there some sort of effective oversight in the way that the local mayor and his colleagues used the funds at their disposal. The case of Ancash is another in which decentralisation appears to have encouraged widespread corruption. As we have seen, this is the region which has received most in terms of money from the mining canon, derived almost entirely from Antamina. The impact of Antamina on neighbouring communities in this previously remote and desolate part of the country has been dramatic. Prior to the introduction of the canon in 2006, Antamina was the one and only provider, assuming many of the functions of the local state, as well as being the main source of employment in an otherwise impoverished corner of the country (Salas, 2008). The introduction of the canon

d i s t r i b u ti on , pov e rt y a n d de c e n tr al isat ion | 147 turned the regional, provincial and (in particular) district councils into the main conduit of funds. Like Echarate in La Convención, San Marcos (population 15,000 in 2013) in Ancash gained the distinction of the wealthiest district in the whole of Peru, although, unlike Echarate, it did not result in much even by way of improvements in urban infrastructure. Salas (interview, November 2015) claims that Echarate was ‘like San Borja’ (a high-income district of Lima) when compared to San Marcos, where standards of living appear not to have improved among inhabitants, despite Antamina. However, flows of money greatly increased levels of political competition among local politicians keen to profit from the funds available. Between 2009 and 2014, there were five local mayors elected, and then almost immediately removed in recall referendums (revocatorias), indicating both the degree of competition and the lack of public confidence over the fund management abilities of incumbents. The regional government in Ancash after 2006, likewise benefitting from the mining canon, became notorious for the degree of corruption, leading – eventually – to the arrest and imprisonment of the regional president, César Alvarez. Indeed, the regional government was effectively captured by a political mafia which used all the means at its disposal – in the judiciary, the public prosecution system and indeed within the national Congress – to protect its operations. According to Salas (interview, November 2015), Ancash was ‘like the 1990s in miniature’, referring to the way in which Vladimiro Montesinos managed the Peruvian state to foster his own nefarious interests. ‘It was as if a criminal organisation basically took over the state at the regional level, while the central government [under Alan García] did very little to stop it.’ The development of regional politics in Ancash under Alvarez invites comparison with the sort of sub-national state capture experienced in parts of Mexico, though the prime source of funding was the canon, not drug trafficking. As in many other parts of provincial Peru, there is little by way of a strong local elite in Ancash, capable of managing the large flows of money in ways that could encourage a developmental virtuous circle; the agrarian reform, coupled with the disastrous earthquake of 1970, caused an exodus to Lima and the coast with no subsequent return. Traditional systems of elite control thus broke down, leaving little or nothing by way of social intermediation between state and society, other than mining companies like Antamina.

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However, it would be wrong to suggest that the effects of decentralisation have all been negative. Some regions have shown that, given the right conditions, virtuous circles can be created and that mutually supportive relations built between state and civil society at the local level are possible. The cases of San Martín, in and around the Huallaga valley in north-eastern Peru, and Moquegua in the south, provide counter-examples. San Martín is recognised as having the most honest regional government by far; according to a ranking in a congressional survey in 2014, 76 per cent of those interviewed considered the government there to be ‘honest’ or ‘very honest’ (Congreso de la República, 2014). During his period in office (2007–13), the regional president César Villanueva oversaw considerable institutional advance on the ground, and it was in large part on account of his record that Villanueva was appointed prime minister in 2013 (although he did not last long in that job). San Martín stands out as one of the regions that receives very little from the canon system (although it benefits from foreign aid and crop substitution money). Indeed, it is possible that the very absence of canon money has been a cause of its success, obliging the regional administration to get rid of tax exonerations in order to raise the revenues of the regional government. Other local tax-raising initiatives proved less successful, such as the attempt to introduce a variable VAT regime to curb conspicuous consumption. The economy of San Martín has doubtless benefitted in recent years from the development of agro-industries, such as palm oil, which has brought inward investment and new sources of revenue (although also bringing with it unwanted environmental liabilities). San Martín has also seen a sharp reduction in cultivation of coca, along with the nefarious activities of drug trafficking intimately associated with it (Grupo Propuesta Ciudadana, 2015). Like San Martín, Moquegua is also cited as an example of successful decentralised governance, but one where money from the mining canon was far more plentiful. This relatively small region in the south of Peru combines irrigated coastal agriculture with a long tradition of mining, based largely on the long-established Cuajone mine, but with important new projects in prospect like Quellaveco. The key variable in Moquegua appears to be a relatively strong civil society capable of having a say (if not a veto power) on decision making at the local level, obliging local authorities to enter into

d i s t r i b u ti on , pov e rt y an d de c e n tral isat ion | 149 dialogue over local priorities. The regional president of Moquegua (2010–14) was Martín Vizcarra, who was able to prioritise four locally important projects and use these as a bargaining chip in negotiations with central government and local civil society over Quellaveco, one of Anglo American’s key projects in Peru. By associating Quellaveco with concrete development spin-offs – including agricultural development schemes, road building to isolated parts of the region, educational improvements and a new regional hospital – it proved possible to combine local demands with a major mining investment. ‘By linking Quellaveco with projects with a major social spin-off, it got the go-ahead’, he is quoted as saying, but only before any problems have arisen. After that ‘it’s too late’ (Ames, 2015). The experience of Moquegua thus stands in contrast to that of Cajamarca, where local opposition to the huge Conga project left the regional president, Gregorio Santos (subsequently arrested for alleged corruption), no option but to side with the protesters. Although Quellaveco has not gone ahead as originally planned because of the collapse in mineral prices, the region has benefitted substantially from the development projects selected for priority by Vizcarra. Vizcarra’s reputation also benefitted: he was selected as Kuczynski’s running mate in the 2016 elections and subsequently became the country’s first vice-president. These two cases, San Martín and Moquegua, highlight the critical importance of competent, honest and good political leadership, factors missing in much of the rest of the country. Lambayeque also falls into this category. Conclusions The commodities super-cycle that began in earnest around 2002 and lasted for 12 years (except for a short interruption in 2009) helped Peru reduce substantially the numbers of people living in poverty. The boom it helped generate had a powerful effect in lifting levels of employment, especially in urban areas of the country. Levels of poverty in Lima, and in urban Peru more generally, fell more rapidly than the national average (INEI, 2016), the former from 44.6 per cent in 2004 to 12.8 per cent between 2004 and 2013. It provided, too, a large increase in the resources at the disposal of the state to invest in much needed physical and social infrastructure. As such, it provided a welcome change to the traditional situation of

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fiscal restraint imposed either by the paucity of tax revenues or by the dictates of the IMF and other multilateral funding agencies. It also provided an opportunity for Peru to tackle some of the deep-rooted inequalities (social, ethnic and geographic) which had affected its development over the previous century, if not more. Here we have looked at two specific areas, both closely interrelated and of key importance to Peru’s longer-term economic and political development: one, social policy and the attempt to tackle deprivation in an aggressive way; and two, decentralisation with the attempt to breathe new life into sub-national governance. The overall record in these two areas is not very encouraging. Social policy has certainly evolved a long way from the patrimonial policies that characterised the Fujimori government in the 1990s. However, its main achievement has been to provide something of a safety-net to those living in extreme poverty rather than providing a sustainable strategy for people to work their way out of poverty. Urban poverty appears to have fallen more than rural. The economic downturn which began in 2013 and intensified in the years that followed seemed likely to force many of those whose incomes had risen above the poverty line to fall back beneath it again, particularly as lower growth cut into employment rates in an economy in which nearly three-quarters of the labour force worked in the so-called informal economy. Cutbacks in social spending because of lower tax revenues also seemed likely to lead to increased hardship, especially among the poorest. Policies of decentralisation have waxed and waned, but the net effect of efforts to date have not led to the reversal of the hypercentralisation that has for so long been a characteristic of the Peruvian state. The central government, and in particular the MEF, has maintained tight control over the resources that have been put at the disposal of local government. The extent of corruption in sub-national government and the failure to build transparent and accountable structures at the local level has certainly not helped. In many places, there remains a glaring gap between regional and even local bureaucrats and those they are supposed to serve. Only in a few places is civil society sufficiently strong and well-developed to be able to exercise the oversight role theoretically afforded to it in the decentralisation legislation. The local-level institutional capacity to manage large inflows of funds, particularly from the canon

d i s t r i b uti on , pov e rt y an d de c e n tral isat ion | 151 system, remains woefully inadequate, although there are – as we have seen – instructive counter-examples that show that (in certain circumstances) this is not the case. As the super-cycle ended, most Peruvians were scarcely more enamoured with the role played by their government and democratic institutions than they were before it started (Latinobarómetro, various years), and degrees of dissatisfaction with the workings of democracy remained one of the most pronounced anywhere in Latin America. In 2015, 68.1 per cent of those consulted by Latinobarómetro were either ‘rather’ or ‘very’ dissatisfied, compared with 70.5 per cent in 2002. Adding these two variables, Peru was third from the bottom of the ranking of 18 countries surveyed by Latinobarómetro (after Paraguay and Brazil). Political elites did not inspire confidence, and most Peruvians believed that policy was geared more to the interests of self-serving business groups than to the wider society. Ten years (or more) of strong economic growth rates, and with them timid attempts to redistribute wealth and power had thus done little to bolster democratic legitimacy in the country.

7 | TH E D E F I C I E N CI E S O F A D I S CO NNEC T ED ST ATE

In June 2009, indigenous protesters – armed with wooden spears and other rudimentary weapons – confronted police just north of the town of Bagua in Amazonas region, a showdown in which 33 people (many of them members of the police force) lost their lives. The baguazo, as the incident subsequently came to be known, was a response to policies pursued by the then government of President Alan García to facilitate foreign investment, particularly in hydrocarbons, in the indigenous territories of the northern Amazon area of Peru. The baguazo opened up a strident debate about the right of indigenous peoples to be consulted prior to the development of concessions granted by the state to extractive companies. As such, it showed that local people had the capacity to confront government and influence policy in ways that belied their small numbers, limited offensive capabilities and their lack of clout within the formal political system. The baguazo was only one of a sequence of protests in these years against the inroads made by investors to take advantage of Peru’s mineral wealth, whether in mining or hydrocarbons. Anxious to promote foreign investment in crude oil production and so reduce Peru’s dependence on imports, García had written an article at the end of 2007 in the conservative El Comercio newspaper in which he criticised those he saw as encouraging indigenous protest. The article used as its title Aesop’s fable about the ‘dog in the manger’ (‘El perro del hortelano’) who would neither eat nor would let others do so. García argued that such protests militated against the growth of Peru’s economy and therefore the welfare of its people. The neoliberal model was premised on the need for export-led economic growth and the crucial role of investment (and in particular foreign investment) to that end. As such it was grounded on the sanctity of contract and the rule of law, which in turn hinged around private ownership of property. Without such guarantees, foreign companies could not be expected to invest in Peru.

t h e d e f i c i e n c i e s o f a d i s co n n e c t e d s tat e | 153 From the indigenous perspective, the granting of concessions to extract crude oil (or other minerals) was seen as a violation of ancestral territory and damaging to their habitat both environmentally and socially. Extractive industries had brought few benefits to communities like those of the northern Peruvian jungle. The employment gains from such capital-intensive activities were negligible, and there were few other backward linkages to other sectors of the local economy. Previous experience had shown that companies (including public ones like Petroperú) had shown scant regard to the avoidance of pollution while intrusion into the rain forest upset traditional ways of life and patterns of economic subsistence. García’s second period in office (2006–11) saw rapid acceleration in the awarding of concessions, both in the highlands and in the Amazon jungle, but with little thought as to the interests of local inhabitants, except where they organised protest movements. Although Peru had previously signed up to the International Labour Office’s Convention 169 on prior consultation with indigenous people, in practice it did nothing to implement this commitment. Indeed, García personally vetoed legislation passed by Congress to install prior consultation (consulta previa). This chapter looks at the lack of communication between state and society (or important groups within it) and the lack of institutions capable of bridging that gap. We see this as a major limitation on the workings of Peruvian democracy, and one which helps explain why – as with the case of Bagua – local protest so often took violent form. Not only did the state routinely ignore the interests of its citizenry in its quest for investment, but there was a lack of institutional capacity to relay such protest from the local level upwards to spheres of decision making. As we shall see, Peru lacked even a semblance of a system of representative parties over this period. Similarly the state lacked a presence on the ground in large parts of the country, effectively ceding power and authority to extractive industries. Within this gap between state and society, we see the emergence of a range of illicit activities, taking advantage of the lack of an effective state presence to corrupt those state authorities which (potentially at least) stand in the way of their various business interests. Although drug trafficking looms large in this respect, there are many other activities (such as uncontrolled deforestation and unregulated mining) which endanger the livelihoods of vulnerable peoples which the state should help to protect.

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We have already discussed some of the efforts made to improve the workings of the state, particularly at the local level. However, its failure to deliver services to vulnerable communities and the absence of an effective machinery through which to distribute the benefits of growth to the mass of the population offer powerful explanations as to why (as we saw in the conclusion to the last chapter) opinion polling places Peru near the bottom of the league of Latin American countries in terms of its extreme levels of public distrust in democratic institutions. Extractives and resistance The monthly statistics on political protest produced by the Peruvian Ombudsman’s Office (the Defensoría del Pueblo) since 2006 bear testimony to the frequency and widespread nature of protest movements (Defensoría del Pueblo, various months). While the Defensoría charts all forms of protest, the figures show how, in the majority of cases it tracks, these have their origins in social and environmental disputes between communities and extractive industries. Many such instances relate to claims about usurpation or contamination (or both) of water resources. Peru, of course, is not alone in this respect; protest against extractive investment has become a common occurrence along the whole Andean chain from northern Colombia down to southern Chile, particularly reflecting the resistance of ethnically defined communities to inroads by investors from extractive enterprises, producing clashes between perceived rights: the rights of investors to land and the subsoil in areas in which they have acquired concessions; and the rights of communities – whether formally conceded by state authorities or ancestral in nature – to the resources on which (as often as not) their survival as peoples depends (Bebbington, 2012). In the case of Peru, instances of violent confrontation usually fall into a number of distinct categories, often depending on the geographical nature of the terrain in question. Conflicts involving mobilisation of indigenous tribes in the Amazon region to inroads made by newcomers of varying sorts (oil and gas companies, loggers, migrant peasant farmers, mineral prospectors etc.) have a long history, although documentation of such indigenous resistance is often sketchy. The creation in Peru of a pan-Amazonic indigenous organisation in the 1970s, the Asociación Interétnica

t h e d e f i c i e n c i e s o f a d i s co n n e c t e d s tat e | 155 de la Selva Peruana (Aidesep) was among the first instances of organised political resistance that managed to override localised ethnic differences. Although Aidesep was always stronger in the northern jungles and specifically among the Awajún (or Aguaruna) people, its lengthy history has given it legitimacy elsewhere. It was Aidesep that played a key role in the conflict at Bagua in 2009, albeit depending a great deal on international and local NGOs. The activities of oil companies in prospecting, building installations and extracting crude (and latterly gas) have given rise to innumerable complaints from indigenous organisations, in particular over instances of poor maintenance of installations leading to serious oil spills. These have been frequent, for example, along the course of the Northern Peru Pipeline through which crude produced in Loreto region is pumped westwards 1,100 kms to the coast for refining and shipment at Talara on the coast of Piura region. Such spills can have devastating impacts on livelihoods, particularly through contamination of rivers. Usually such complaints receive little attention from central government or from Petroperú, the state oil company responsible for maintaining the pipeline. The costs involved in remediation are high and the political pressure from Amazonian indigenous groups and their advocates in Lima weak and intermittent. Only in 2015 – with the expiry of Pluspetrol’s concession in the northern jungle, the political row over who should take it over, and with mass-mobilisation of indigenous peoples blocking river access to the source of most of Peru’s onshore oil – did indigenous demands gain traction among policy makers in Lima. Although suffering from mutual differences and rivalries, indigenous organisations on occasions showed their ability to make their views felt at the highest levels of government. But such opportunities for this sort of political leverage were uncommon. The discovery of large reserves of natural gas in the remote jungles in south-eastern Peru, at Camisea in Cuzco region, created new tensions between indigenous groups and their advocates on the one hand and companies and the state on the other. The economic importance of gas outweighs that of crude, providing a key domestic source of energy as well as (in recent years) export income. It is also, as we saw in the last chapter, a key source of state revenue, distributed (in part) through the canon system. The discovery of gas at Camisea was initially made by Royal Dutch Shell, but since

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1999 its production has been in the hands of a consortium led by Pluspetrol. Brian Pratt (2012) has detailed the way in which the state, the consortium, NGOs and the local Machiguenga ethnic tribe negotiated the Camisea contract. He concludes that the Lima elite and with it the state (in particular under the government of Alan García) won out over the NGOs and indigenous organisations, even though the two latter experienced some disagreements and divergences over how best to proceed. However, the Machiguenga, who pursued a canny and pragmatic line in their negotiations with the Camisea consortium, emerged with their organisation intact and, indeed, strengthened. A second broad category of protest referred to responses to extractive projects whose development threatened other, sometimes well-organised, groups – and in particular farming interests. The expansion of exploration and mining activities in the Peruvian highlands since the 1990s has led to mining projects taking place in areas of the country without much tradition of such activity and where community organisation, based on agriculture, found itself threatened. Exemplary of this was the case of Tambogrande in Piura, a gold mining project that threatened the demolition of a large part of a medium-sized town. But it also endangered a thriving local agriculture based on export-crops like lemons and mangoes in the nearby San Lorenzo valley; contamination from open-pit mining threatened the marketability of such crops on which large numbers of small-scale farmers depended for their livelihoods. In the end, after strong local mobilisation and the assassination of a key community leader, Manhattan, the Canadian junior that sought to develop openpit gold mining at Tambogrande, was forced to throw in the towel (Crabtree, 2002). Resistance to mining further south, in Cajamarca, also raised strong opposition because of the threat it posed to agricultural activities. Although mining in Cajamarca went back to pre-colonial times, the activities there of Yanacocha – a consortium made up by Newmont Mining (of the United States), Buenaventura (a wellestablished Peruvian company) and the International Finance Corp. (a branch of the World Bank) – triggered widespread opposition throughout much of the region. Opposition to the expansion of Yanacocha’s activities with the giant proposed open-cast copper and gold mine at Conga was such that it blocked it from going ahead. The

t h e d e f i c i e n c i e s o f a d i s co n n e c t e d s tat e | 157 Conga project, which enjoyed the committed support of the García and Humala administrations, foundered on its plans to divert water supplies from communities in Celendín province. Local groups, with the support of NGOs, showed themselves able to stop the plans of a major multinational juggernaut. A further example of farmers uniting to block a mining project that they considered harmful to their interests was the dispute over Southern Peru Copper’s plan to build a giant open-cast copper mine at Tía María in Arequipa region. Following massive demonstrations of opposition in the most affected parts of the province of Islay, SPC was obliged to suspend the development of its proposals in 2015. Local communities feared that their crops would suffer from contamination from the mine as well as the diversion of allimportant water resources in this irrigated coastal valley, a complaint that harked back to the 1970s when locals had also complained about contamination from the Toquepala mine. In many cases, the willingness of mining companies to give way probably had more to do with the decline in copper and gold prices after 2012, making the projects much less attractive to them. A third category relates to protests in areas with a long history of mining and where other economic activities (apart from subsistence agriculture) play a less prominent role. This is the case, for example, of Tintaya, a mine that began operations in the 1980s but was privatised in the 1990s, and was acquired by BHP Billiton, the London-based international conglomerate of Australian-South African origin that acquired a share in Antamina. In 2006, it was bought by Xstrata and then became part of Glencore, another partner in Antamina, following the merger of these two companies in 2013. Located at 4,100 metres above sea level, Tintaya is the main source of employment in this otherwise bleak and remote part of Cuzco region. Relations between the mine and surrounding communities (including the neighbouring township of Yauri) deteriorated badly when Xstrata took it over, leading to charges of wanton contamination of water supplies in the vicinity. A lengthy tradition of mining trade unionism provided the base for a strong social movement suspicious of the motives and actions of the companies running Tintaya. In May 2012, with the mayor of Yauri siding with those protesting against Xstrata, a mass demonstration led to his temporary arrest and detention, a move that did nothing to reduce animosities. Subsequent investigations

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into the extent of water contamination led to persistent accusations of prevarication on the part of state authorities amidst charges that these are in the pocket of the mine owners. A similar, albeit less intense dispute erupted in 2015 in the nearby Las Bambas mine across the border in Apurímac region, a new project initiated by Xstrata and then sold by Glencore to MMG, a Chinese firm. Local communities mounted vigorous protests after it became clear that the company had changed plans previously agreed in the Environmental Impact Assessment (EIA) by moving the location of a processing plant without prior consultation. Like Tintaya, this was not a protest against mining per se, rather one against the methods used by companies to conceal their activities and potentially cause unnecessary environmental degradation in order to cut costs. As the reports of the Defensoría show, such disputes have become commonplace across the southern highlands in the last 20 years, particularly in Cuzco, Apurímac and Puno regions. In Puno, scores of conflicts are reported, in which local communities take up cudgels against mining operations for failure to take their interests fully into account. These were not anti-mining movements as such (although some became so) since mining offered gainful employment in areas where this was scarce. Mining operations, indeed, frequently ended up dividing communities with some in favour (for employment reasons) and others against (usually for environmental reasons). A fourth variant of protest was that between different districts, provinces and even departments, prompted mainly by disputes over the distribution of extractive rents. These have been analysed by Javier Arellano-Yanguas (2011). Perhaps the most emblematic of this sort of conflict was the ‘war’ between Moquegua and Tacna regions in 2008 over the distribution of the mining canon. The canon was based on the volume rather than the value of mining production by SPC, a system that favoured Tacna (where the mineral content in the ore was lower). The conflict between Moquegua and Tacna arose because the government of Moquegua considered that Tacna received a disproportionate amount of canon revenue, and so decided to mobilise in defence of its rights, cutting vital road links for weeks on end. When the government responded by changing the system, it was Tacna’s turn to mobilise. Such rivalries also existed between regions because of disputes over water resources, such as the dispute between Cuzco and Arequipa over the use of water for

t h e d e f i c i e n c i e s o f a d i s co n n e c t e d s tat e | 159 the giant Majes II irrigation project. Conflicts between neighbouring jurisdictions over the use of natural resources (land, water, minerals etc.) are common throughout the Andes, but sudden increases in the value of such resources have had important impacts in increasing the vehemence with which such conflicts are conducted. This sort of typology of conflict of course provides only a rough-and-ready guide to analysis of the conflicts over extractives for which Peru became well-known in the first years of the new millennium. In many cases, instances of conflict involved more than just one pattern of causation, and often they evolved in terms of the different claims made by perpetrators as time went by. However, in all cases they reveal the weakness of the state – both the central government in Lima and tiers of sub-national government – to negotiate solutions that were seen as even-handed and reasonable by those involved in such protests. Although some conflicts took on an ‘anti-extractive’ characteristic opposed to all sorts of mineral activity, this was by no means the case for the great majority. Communities were usually prepared to negotiate. The problem was that, increasingly, they lacked faith and trust in those with whom they were obliged to bargain, whether the companies themselves or the intermediaries provided by state institutions to resolve the issues in dispute. Where such trust had broken down, it proved extremely difficult to repair. The ability of communities to mobilise, to build alliances and to sustain conflicts over time has varied a great deal between one instance and another. One of the overall characteristics of conflict in Peru over this period is its geographical fragmentation and the absence of locally grounded, representative political parties capable of providing such mediation, able to aggregate such varied claims and provide them with a strong voice in national politics. This is a point to which we will return later in this chapter. The fragmentation of political representation has only been enhanced by the impact of decentralisation and the canon with the emergence of literally hundreds of regional parties competing in sub-national elections and seeking to take advantage of the influx of such large amounts of money (INFOgob, 2015). Such regional parties have little influence in national politics and help to accentuate a dispersion of influence that helps sustain Lima’s dominance. This lack of parties, capable of bringing together disparate voices and

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providing a unified platform to confront the state, is precisely the base of Cotler’s triangle (1967), still missing nearly a half-century after he coined the phrase. Local interests thus rarely receive strong articulation in national politics, in spite of the efforts of ‘defence fronts’ of one sort or another to project the interest of specific geographical regions. As we shall see below, this has a great deal to do with the absence (at least since the late 1980s) of a system of parties through which demands from below can be transmitted and represented at the level of the central state. Peru stands out among other Latin American countries in this respect and, as we have seen, was a notable absentee in the so-called ‘pink tide’ by which social movements and popular organisations in other countries in the region gained protagonism against the postulates of neoliberalism and the Washington Consensus. Peru, for instance, stands in striking contrast to neighbouring Bolivia where, in the years following the new millennium, a new left-wing party, the Movimiento al Socialismo (MAS) emerged to give political expression to a range of heterogeneous social movements. Peru’s social movements, at least those involved in contention against extractive projects of one sort or another, thus stand out for their lack of coordination and the weakness (or non-existence) of political alliances capable of backing them up and giving them force beyond the immediate locality. In spite of the similarities as to their origins and demands, such conflicts were largely localised affairs, sometimes involving only a handful of individual communities. As Aldo Panfichi has argued (2011), such conflicts are defined by territorial concerns and limited by their own frontiers. As such, it is difficult to aggregate demands and to create a wider community of affected interests. Panfichi argues that a new sort of representation has emerged, different from electoral representation, in which local leaders take up cudgels in defence of perceived local interests. The representation is of a local community only, united in opposition to a specific project that affects local interests. Here the role of leadership in mobilising that geographically confined unity is key, often adopting uncompromising rhetorical positions which help solidify local support around specific demands. But such leadership is not driven by sensitivity to wider public opinion or the need to address political concerns beyond the area in contention. And, lacking negotiating power, dissidence can quickly turn violent.

t h e d e f i c i e n c i e s o f a d i s co n n e c t e d s tat e | 161 Such movements are typical of the sort of formations to which Charles Tilly draws attention in his many writings on the subject. In one of his more recent works (2004), Tilly identifies three crucial attributes: a sustained, organised public effort making collective claims on target authorities; the use of a repertoire of types of political action including demonstrations, vigils, rallies etc.; and the involvement of people who are ‘worthy’, act in a unified way, involve substantial numbers and display strong commitment. But the strength of such movements is also their weakness. They tend to be fluctuating, poorly institutionalised and difficult to sustain over longer periods of time. Also, they tend to be distrustful of political intermediation and, focused on single issues, they find it difficult to seek out and build political alliances with potential allies and thus contribute to a wider political movement. The responses of government to these challenges varied considerably according to the specific political circumstances of each. However, in spite of such variations, a common pattern tends to emerge. The first response is usually to ignore a challenge of this sort until it builds up momentum and (frequently) takes violent form, possibly with fatalities among those most directly involved. The state machinery for identifying potential sources of violence and neutralising them before they mature is deficient in Peru, reflecting the fact that state institutions in large parts of the country where such conflict arises are conspicuous by their absence. The institutional development of the Defensoría del Pueblo, with the spread of decentralised offices into almost all of Peru’s 26 regions, has been a move designed to mitigate this problem. However, within regions the gap between regional capitals and outlying provinces and districts is often as great, or even greater than the gap between Lima and the regional capitals themselves. In Lima, a special unit was established in the prime minister’s office to provide national oversight on potential sources of conflict. But the ‘eyes and ears’ of the state in detecting potential sources of conflict are still notoriously deficient. The response is almost always reactive rather than proactive. The total failure of intelligence to identify the potential of Sendero Luminoso to become a major strategic threat in the late 1970s was an early but particularly glaring example of this. And once an intelligence service was created in the 1990s, under the aegis of Vladimiro Montesinos, much of its efforts were directed towards other objectives.

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Once a violent, localised challenge is mounted, the usual response has been to dispatch police to deal with what is routinely described as a ‘public order’ problem. Generally recruited from places distant from where the conflict is taking place, police authorities are poorly briefed on the nature of the conflict and the appropriate tactics to deal with it. The conventional response is to react with equal, if not greater violence, using live ammunition, tear gas and other strong-arm tactics to break up what is regarded as unreasoning and unreasonable opposition. Fatalities and arrests just serve to harden confrontation, creating local martyrs and making negotiated settlements more difficult to achieve. On occasions, such as at Tía María in Arequipa in 2015, where the police offensive seemed likely to be overwhelmed by fierce local opposition from angry farmers, the army was brought in to supplement the police in the vain attempt to restore law and order. The military authorities, given the accusations of human rights violation dating from the war with Sendero Luminoso, have been usually unwilling to involve themselves in confrontational situations, unless as a last resort. In cases where police action fails to quell protest, other more conciliatory responses may be called for. A standard one is to establish some sort of mediation, a ‘round table’ (mesa de diálogo) to discuss with local leaders solutions to the problems that have emerged. In recent years, these have often been under the auspices of the special unit in the Prime Minister’s office already referred to. However, the history of success of such negotiations has been very mixed. In some cases (Conga, Tía María and Quellaveco) the mesas led to protracted negotiations that delayed investment but contributed to a wider debate about regional investment priorities. But such discussions have just as often proved unfruitful. The lack of any institutionalised existence among social movements also makes it difficult to guarantee their adherence to agreements once reached; at the same time political pressures within the state apparatus and pressures from the companies affected make for vacillating positions on the part of government and the non-fulfilment of agreements previously reached. Víctor Caballero (interview, 11 December 2015), who worked both under the García government as an advisor to the prime minister’s office on social conflict issues, and again under Humala, underlines the problems of working with movements that lack organisational structure and

t h e d e f i c i e n c i e s o f a d i s co n n e c t e d s tat e | 163 a bargaining mindset. But at the same time he points to the way in which pressures from elite power groups made it impossible to honour commitments made at the time of the baguazo to introduce a system of prior consultation. He also claims that post-Bagua indigenous communities were promised 10 per cent of the revenues generated by the canon. ‘Not a single sol was ever paid’, he says. Such vacillating behaviour had the effect of compounding distrust and making it ever harder to strike lasting agreements. Thus some demands may be met, but others are simply postponed and become the subject of renewed conflict on future occasions. The long saga of indigenous groups in the four river valleys of north-eastern Peru referred to above (Corrientes, Pastaza, Tigre and Marañon) to achieve remediation of the environmental damage arising from oil production since the 1970s is a good example of the way that promises were made under pressure, then forgotten, only to see conflicts flare up again, new promises made, and then broken once again. Although some advances have been achieved in terms of institutional capacities to manage conflict, there is no sign that the problems giving rise to conflict have been overcome. While the decline in prices for minerals and oil as of 2012 made it less urgent for companies to access new resources, the overlapping systems of land rights that gave rise to conflict between communities and the owners of concessions remained in place, with little or no attempt by the Peruvian state authorities to determine which parts of the country would remain off-limits to extractive industry. As of 2016, the mechanisms for consulta previa, conceded in principle under the Humala government, were far from being adequately put into practice. As Humala’s term ended, five years after the original legislation had been promulgated, there were only a few instances of consultation with indigenous groups in the Amazon area, but mining lobby groups remained adamant in their opposition to their extension to communities living in the Andean highlands, with government officials arguing that these were not sufficiently ‘indigenous’. However, communities had shown their muscle in some places in rendering unviable major projects where these had failed to win their consent. The list included Tambogrande in Piura, Rio Blanco in Piura, Conga in Cajamarca, Tía María in Arequipa, Santa Ana in Puno among many other smaller mining operations. Conflicts over mining on occasions could also have major ramifications in national

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politics; the dispute over Conga for instance forced Humala to sack two consecutive prime ministers: Salomón Lerner in late 2011 and Oscar Valdés six months later. Such conflict promised to loom large again during the government of President Pedro Pablo Kuczynski. The corrosion of corruption The weakness of the state and its inability to mediate properly between diverse interests, specifically those of investors as against other interests in society, also reveals itself in another sphere: in the prevalence of corruption and crime. Problems of public corruption have a long history, as Alfonso Quiroz has demonstrated masterfully in his key work (2013) which traces the history of corruption from late colonial times up until the Fujimori years in the 1990s. Problems of corruption were one of the justifications for the privatisation of public companies; not only would privatisation render them more efficient but it would root out endemic corruption in a bloated public sector in which public officials were wont to take advantage of their position for private gain. But as the Fujimori period was to show, privatisation was far from being the golden key to end corruption in government. As Quiroz argues, and in spite of the obvious difficulties in quantifying corruption, the Fujimori regime was among the most corrupt administrations in the history of republican Peru, possibly exceeded in the twentieth century only by that of Leguía (Quiroz, 2013, p399). The Fujimori regime came to be built around a system of state-led clientelism with little or no accountability from which the president and his immediate entourage enriched themselves. As Quiroz’s work shows, there was always a close link between the extent of corruption, the presence of clientelism and the degree of authoritarianism in government. In the wake of Fujimori’s downfall in 2000, new attempts were made to tackle corruption, involving for example proposals to reform the public administration and justice systems. However, the return to more democratic systems of governance failed to rid the state of corrupt influences, even though the removal of eminently corrupt figures like Fujimori and Vladimiro Montesinos helped spark new public interest in tackling the problem. The return to democracy did little to suppress the links between the public sphere and a range of private interests, whether legal or illicit; both in their way sought to win favourable treatment at the expense of third parties or to seek

t h e d e f i c i e n c i e s o f a d i s co n n e c t e d s tat e | 165 the support of public institutions to enable them to pursue lucrative activities. In the case of illicit operations, these included contraband, illegal mining, unauthorised deforestation in the Amazon jungle and – of course – drug trafficking. As became clear, these surpassed the abilities of the state to control them. In practice, legal and illicit activities were closely linked. Perhaps the most flagrant case of the abuse of political power to sustain a range of business interests was, as we have seen, that of César Alvarez, elected regional president in Ancash in 2007. He used his leverage over the political and judicial world in his native region to protect his interests and to stem all attempts by adversaries to remove him from power. He was involved in the sacking of magistrates who threatened to expose his activities, and in 2014 was accused of having a political opponent assassinated. He was arrested in May 2014 and committed to jail the following month, accused of corruption, homicide and drug connections. However, the problems at the level of regional administration in Ancash were far from being an isolated instance. At the time of the October 2014 election for regional presidencies, as many as 22 of the 25 incumbents faced questioning with respect to the probity of their administrations, while two (Alvarez in Ancash and Santos in Cajamarca) were in jail, and the governor of Tumbes was on the run. As we saw in the previous chapter, the increase in the budgets at the disposal of sub-national governments, alongside poorly supervised public works projects, created strong incentives for corruption of one sort or another. The proliferation of drug money in the economy was also a major corrupting influence. The ever increasing costs of running for election in a political system which provides little proper oversight over how funds are raised is a further factor exacerbating corruption, linking politicians to criminal activities – in particular drug trafficking and the sale of government contracts – to fund election campaigns. Lacking systems of membership and without government funding, party leaders are often obliged to fall back on business and/or criminal sources to fund election expenses. This was all much in evidence during the 2016 election campaign. Such funding, of course, does not come without conditions attached, since donors buy politicians to secure political favours in return. There have been many accusations that the Fujimorista party, Fuerza Popular (FP), has received such

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payments, but it is almost certainly not alone. Other parties and political groupings have been penetrated by those looking for political favours. The system by which political parties are supposed to register the sources of their funding to the electoral authorities is woefully inadequate when it comes to investigation and enforcement. The expansion of the drugs complex – which includes agriculture (coca growing), manufacture (cocaine production), trading (‘narcotrafficking’) and banking (money laundering) – has been particularly notable since the beginning of the new millennium. In large part, the collateral effect of Plan Colombia’s success in that country has been to push cocaine manufacture southwards into Peru and Bolivia, with drugs increasingly shipped out of Peruvian ports or dispatched by plane through Bolivia to Brazil. This means that the money generated from drug trafficking has increased immensely, with much more pure cocaine now being shipped to Mexico and other intermediate countries from Peruvian ports. The arising increase in drug-related cash flows demands that those involved in this hugely lucrative trade need to buy protection for their activities. Drug trafficking therefore impacts directly on the state, and in particular those parts of it – whether at local or national level – most closely involved in policing it. The first evident signs of drug-related corruption in Peru go back to the 1960s but it had become a major problem by the early years of the 1980s when demand for cocaine (and therefore supply) was rapidly in the ascendant. As well as officials in the police and military, drug traffickers had established close ties with political figures. A Senate report into violence and pacification, published in 1989 stated that ‘the power of money promotes corruption in society, including those charged with repressing it, the public administration, and leads to unexpected complicity on the part of senior figures’. It goes on to attribute this to the lack of social cohesion within the country and an over-centralised and poorly institutionalised state apparatus (Senado de la República, 1989, pp48–49). Not much appears to have changed in this respect. A more recent parliamentary report (Soberón Garrido, 2015) adduces three main reasons why drug traffickers need to influence state decisions: (i) to guarantee free transit of drugs along the chain from coca production to export of cocaine; (ii) to enable the money generated by trafficking to be ‘laundered’ through the formal financial system; and (iii) to obtain judicial benefits, favourable investigations on the part of the

t h e d e f i c i e n c i e s o f a d i s co n n e c t e d s tat e | 167 authorities and to achieve impunity. Narco-traffickers thus need to have influence in the Congress through the support they can provide to specific congressmen and (in particular) providing resources they require for ever more costly election campaigns. They also need to be able to buy off officials at particular stages along the marketing path from coca plantations through to the points of cocaine embarkation, and they need to be able to secure impunity through their influence in the justice system. As the amounts of money involved in drug trafficking have increased hugely, the resources available for bribing officials or elected politicians have increased in direct proportion. The imperative for those involved is to ensure, by whatever means, that shipments are made and then paid for, and that the profits are then dispersed through the financial system. This implies effective control over significant geographical areas in which production of coca and cocaine is concentrated (principally the regions of Amazonas, Ayacucho, Huánuco, Pasco and Ucayali) but also over the ports and airstrips through which cocaine is dispatched abroad. The clan-type structures which operate in these areas thus require the collaboration and connivance of authorities, elected or otherwise, or – at the very least – their willingness to turn a blind eye for a price. The extent to which politics are effectively financed by drug trafficking mafias is difficult to establish with precision because of the clandestine nature of the links involved. The identities of the politicians who receive most tend only to become clear as a consequence of specific scandals and/or media investigations. However, there has been a long history of involvement by people in the APRA party, at least stretching back to the late 1970s (Soberón Garrido, 2015, p60). The same may have been true of other parties. The degree of influence within APRA became clear under the second government of Alan García when the president personally signed pardons for hundreds of convicted drug traffickers or commuted their sentences. APRA appears to have become a target for infiltration by drug trafficking interests, in part, because of the number of APRA sympathisers occupying important positions in the judiciary in recent years. However, it was under the aegis of Montesinos in the 1990s that drug-related corruption reached the very highest levels of government, with the 2015 parliamentary report citing ‘the highest [level] of convergence between political power and military corruption’ (Soberón Garrido, 2015, p74). Montesinos was

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personally involved in skimming off money from drug traffickers along with military commanders supposedly fighting Sendero Luminoso in the so-called ‘emergency zones’ of the jungle fringe (ceja de selva). A number of politicians elected on the Fujimorista ticket in various elections are also thought to have been recipients of drug money, with this practice continuing well after the fall of Fujimori in 2000. In the 2016 election, Keiko Fujimori’s legal representative and top officer in her Fuerza Popular party, Joaquín Ramírez, was under investigation by the US Drug Enforcement Administration (DEA) in Miami for suspected involvement in money laundering. The shortcomings in the systems of oversight of how politicians fund their campaigns make it relatively easy for drug money to enter into the formal political system without adequate detection, except in cases where this comes to light as a consequence of criminal and other investigations. Forms of illicit activity other than drug trafficking (while often linked to it) also require protection in order for them to be carried out. Illicit logging in the Amazon area of Peru has long been a highly profitable business carried on at the margins of state regulation. The high premiums paid for Amazon hardwoods mean that this business, with all its devastating effects on the environment, carries on despite half-hearted attempts to outlaw it. Regions like Loreto, Ucayali and Madre de Díos are probably the worst affected by an activity carried on in places where the ability of the state to control them – let alone tax them – is minimal. This is an activity which cannot take place without the knowledge and acquiescence of local (or even national) authorities. The extent of complicity among local politicians and officials has been made clear by recent investigations in Madre de Díos in the south-east of the country. In spite of the creation of a multisectoral commission to fight illegal logging in 2015, government action to clamp down on this has been conspicuous by its absence. (Revista Poder, 2015) Similarly, informal mining – mainly for gold – carries on unabated in Madre de Díos and elsewhere with major negative environmental consequences. The high price paid for gold over the first dozen years of the new millennium made this hugely attractive for both unscrupulous business interests as well as poverty-stricken workers attracted by the relatively high wages paid. Clandestine mining operations have involved sophisticated and heavy machinery working

t h e d e f i c i e n c i e s o f a d i s co n n e c t e d s tat e | 169 on an industrial scale to dredge the rivers of this region, an activity working in tandem with illegal logging interests. Illegal gold mining is thought to represent a significant proportion of Peru’s total gold output, generating sums that made bribing local officials a relatively easy matter. Attempts by the central government to repress this activity have proved fleeting and largely ineffectual, whilst those involved have shown themselves capable of wielding significant political influence at the local, if not national level. Cross-border contraband activities also generate high returns for those involved, in particular across Peru’s porous frontiers with Bolivia and Ecuador, both difficult for the state to control. Threequarters of all contraband is channelled through Puno, one of Peru’s poorest regions where smuggling is a key mainstay of the local economy. Massive transhipments of goods ply their way to and from Bolivia, usually by night. The ‘culebra’ or ‘snake’ is so-called because of a seemingly endless convoy of trucks transiting the Bolivian frontier through clandestine crossing-points around Lake Titicaca in Puno region, taking advantage of large price differentials that have emerged between the two countries. In all these cases, economic activity requires the connivance of local officials, politicians and judges to operate smoothly and without hindrance. Large amounts, as much as US$35,000, are routinely paid to the local police and other officials in Puno to cast a blind eye towards a single convoy. Finally, the links between the world of politics and those of corrupt business activities are evident in the ways in which public contracts, especially in the lucrative area of large infrastructure projects, are awarded. The scale of business manipulation on an industrial scale became clear in Brazil in 2015 with the so-called Lava Jato (or ‘Car Wash’) scandal involving most (if not all) of Brazil’s large construction companies. As the details became clearer in 2016, Lava Jato appears to have had knock-on effects in Peru, with construction companies seemingly using their influence to secure favourable treatment from all three post-Fujimori governments, those of Toledo, García and Humala. The demise of political parties As we have seen, the disconnects between an atomised civil society and an overly centralised state are amply illustrated by the lack of a system of representative parties. As democratic theory would have it,

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parties play a critical role in mediating and structuring relations between society and the state, providing fluid channels of communication and thus underpinning democratic governance. They play a special role in democratic societies in bringing together communities of political actors, processing their demands and in building an ideological space in which those demands can be harnessed. As Sartori has it (1976), political parties are eminently ‘channelling’ institutions, channelling the demands of electors upwards to the level of the state, aggregating social demands, and helping to order the political domain in terms of policy implementation. Many would argue that it is difficult to talk about a fully working democracy in the absence of representative parties (Crabtree, 2010). Although party systems have suffered badly in Latin America and elsewhere in the last quarter of a century, in few countries has this been more patent than in Peru. The political scene has been dominated by what Roberts (1995) has called ‘pseudoparties’ that do not represent people in any real way, provide no real mechanisms for accountability, and do little to legitimate the actions of the state among the mass of electors. They are essentially inchoate political organisations, established by a variety of political leaders in order to pursue their own personal quest for political office, which do not operate in anything like an accountable or transparent manner and which lack a permanent and organised presence in society or any real system of internal democracy. Given its authoritarian political experience through much of the twentieth century, it is fair to say that Peru had never developed a fully fledged party system, even though there have been mass parties (like APRA) with a long track record. A party system of sorts had emerged in the 1960s under Belaunde, only to be swallowed up in 1968 by the armed forces and during the 12 years of military rule that ensued. The 1980s saw the reappearance of a party system with at least four substantial parties or alliances of various ideological complexions occupying the political stage: Acción Popular (AP) and the Partido Popular Cristiano (PPC) on the right of the spectrum, APRA on the centre-left and the Izquierda Unida (IU) on the left. By the late 1980s, this party system had largely disappeared, its leading lights discredited and its organisational base badly undermined by the crisis years. As we saw in Chapter 3, the political and economic dislocations of the late 1980s had had a devastating effect on people’s

t h e d e f i c i e n c i e s o f a d i s co n n e c t e d s tat e | 171 faith in traditional political elites, particularly those of the left. The effects of the crisis – mass unemployment, migration and informality – had the effect of eroding the traditional class base of Peru’s existing political parties. While conditions in the late 1980s dealt a devastating blow to Peru’s weakly-constituted party system, the Fujimori regime in the 1990s greatly exacerbated this deep distrust in representative institutions more generally. A political outsider, Fujimori quickly recognised that his wholly unexpected election in 1990 was a direct consequence of this distrust. He turned this to his advantage. His discourse in the years that followed repeatedly honed in on the disastrous record of the ‘partidocracia’ and the need for honest government by a disinterested technocracy. The media, which mainly supported Fujimori during these years, echoed such sentiments. His palace coup (autogolpe) in 1992 and the rewriting of the constitution that followed were largely justified by the need to remove corrupt politicians and others from the locus of policy making. The lack of any strong protest against the autogolpe and his redesigning the political system revealed his strong political instincts: most people believed that the political system had become inoperative and that the costs of this had been unacceptably high. Fujimori constantly railed against the old political class as the enemies of true democracy, thereby preventing them articulating effective opposition. Sensing that the hyperinflation and the climate of fear created by Sendero in the late 1980s had undermined the social bases of the old party system, Fujimori instituted a new set of relationships between the state and society, based fundamentally on clientelism and a blithe acceptance among large sectors of the population that the old political rules were no longer valid. While maintaining the trappings of formal democracy, he emptied them of meaning. His style was to bypass political institutions and forge a direct rapport between himself and the mass of the population, taking full advantage of an obsequious media to justify his actions. He even did away with the need for a party of his own, discarding his party label after each successive electoral contest. In such circumstances, parties became largely superfluous, unable to exercise their dual function of representing popular interests and participating in decision making. The political system thus became atomised and easily manipulated by a president concerned to perpetuate himself in office.

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What is remarkable in the Peruvian story is that the return to more democratic forms of government and more prosperous times after 2000 did not bring the party system back to life. The 2003 Law on Political Parties failed completely in its attempt to build a party-based political system with democratic and accountable parties with a strong organised presence in the country as a whole. In the years that followed 2000, parties multiplied in number in successive elections, but were no more than electoral machines at the disposal of the leaders. The 2016 presidential election began with no fewer than 21 candidates, of which the great majority had been created simply with a view to fielding candidates for the presidency. Even APRA, Peru’s oldest mass-based party, became little more than the plaything of Alan García in his unrequited ambition to reoccupy the presidential palace. Parties found it difficult to distinguish one another in terms of their appeals to public opinion. The atomisation of the party system was even more in evidence at the local level with the multiplication of regional and provincial parties purporting to stand up for local interests. The lack of any ideological cohesiveness at the national level is reflected in Congress where individual politicians routinely swap party affiliations at the drop of a hat. Party groupings lack internal democracy in the way they conduct their affairs and choose their leaders. Despite efforts to the contrary, party finances remain opaque. Accusations of corruption are commonplace, with proven links between some parties and organised crime. Finally, as repeated municipal and regional elections show, national parties are largely absent in local politics, suggesting that their roots in society, especially outside the capital, are extremely shallow. In the 2016 elections, only the pro-Fujimori Fuerza Popular (FP) showed that it could rally opinion, using its new-found organisation in the regions. At the same time, as opinion poll surveys confirm, Peru’s political leaders, their parties and democratic institutions as a whole are widely discredited in the eyes of the public, creating repeated opportunities for antisystem candidates to emerge with a strikingly populist discourse. The breakdown of party politics proved particularly damaging for the parties of the left. During the first years of the new millennium, most countries in South America saw the revival of left-wing politics, the so-called ‘pink tide’ (Cameron and Hershberg, 2010; Lievesley and Ludlam, 2009). To varying degrees, this involved a reaction against

t h e d e f i c i e n c i e s o f a d i s co n n e c t e d s tat e | 173 the policies of neoliberalism and the Washington Consensus and, in particular, a re-evaluation of the role of the state in development. Some countries saw the election of well-established leftist parties (as in Brazil); others saw new parties emerge to challenge traditional ones (as in Bolivia). Some saw the election of moderate left leaders (as in Chile under Michelle Bachelet), while others witnessed the full blast of ‘twenty-first century socialism’, as in Venezuela under Hugo Chávez. Peru stands out as an outlier from the ‘pink tide’, where despite significant popular reaction to the policies associated with neoliberalism, left-wing parties conspicuously failed to mount a convincing political challenge to the hegemony of the Washington Consensus, both during the Fujimori years and thereafter. The three governments that followed the downfall of Fujimori – those of Alejandro Toledo (2001–06), Alan García (2006–11) and Ollanta Humala (2011–16) – remained wedded to the policies associated with the Consensus. Toledo, with his close links to the World Bank, introduced some democratising reforms in the political sphere but adhered closely to neoliberal policy prescriptions in the economic sphere. García returned to the political limelight a transformed figure, casting aside the heterodox policies of his first administration and donning the mantle of economic liberalism with even greater conviction than Toledo. Humala, elected on a nationalist leftwardleaning ticket, staged an immediate volte-face, implementing a business-friendly agenda while paying a little more attention than his predecessors to social policy. As this book has sought to show, the stranglehold of Peru’s business elites over policy making remained almost complete, opposition movements failing to articulate grass-roots grievances and to turn these into viable currents of opposition in national politics. However, Peru’s left-wing parties have proved unable to provide the political leadership to turn these social movements into more than just the sum of their parts. The Peruvian experience in this regard contrasts strikingly with that of Bolivia, where the left-wing Movimiento al Socialismo (MAS) managed to provide the linkage between disparate social movements to forge a ‘political instrument’, providing an overarching ideological framework and creating a national electoral force capable of landslide victories in national elections. In Peru it proved exceptionally difficult for parties of the left to join up the dots

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of highly atomised political protest, even in areas – like opposition to mining – with a clear community of interest. And as an electoral force, the left’s weakness has been manifest in successive elections. In 2001, only a tiny number of left-wing deputies were elected; in 2006 the picture was much the same, although a number of leftists stood alongside Ollanta Humala’s Partido Nacionalista Peruano (PNP) and won seats because of Humala’s electoral surge. In 2011, again, some prominent leftists decided to run with Humala, but the number of left-wing candidates (whether with Humala or not) was small in the parliament elected in that year. It was only in 2016 that the left, running as the Frente Amplio, managed to recover some of its former voting prowess, attracting 18 per cent of the vote in the first round and becoming the second-largest party bloc in Congress with 20 (out of 130) seats. However, it remained to be seen whether the Frente Amplio would have staying power to override internal divisions and to become the main opposition to the policies of the pro-business Kuczynski administration. Conclusions This chapter has drawn attention to the deficiencies of the Peruvian state, as it has evolved over the last three decades, in arbitrating between competing interests and generating policies based on consultation and consent. While the deficiencies of the Velasco regime drew attention to the lack of an efficient and capable state apparatus back in the 1970s, these problems have not been resolved in the years that have followed. Indeed, it could be argued that, because of the havoc wrought by hyperinflation and Sendero Luminoso in the 1980s, followed by the state reduction policies of the Fujimori era in the 1990s, state capacities have been further cramped. More democratic governments since then have done little to build an effective state that is responsive to the needs of all sectors of society in ways that counteract deep asymmetries of power. So far as many foreign investors are concerned, the Peruvian state has shown itself unable to guarantee the rule of law and the property rights required to create an environment benign to business. Multinational companies, particularly in the extractive sector, have found Peru a difficult environment in which to operate, although other inducements to invest have been strong. The lack of state presence

t h e d e f i c i e n c i e s o f a d i s co n n e c t e d s tat e | 175 at the local level, coupled with the problems encountered in dealing with populations living close to or on mining concessions, has been manifest. The difficulty has been magnified by the fact that frequently it has fallen to companies to exercise state-like functions, especially those operating in more remote areas. As private entities, they find themselves having to provide public services such as infrastructure, education, social services and even security. This further exacerbates the asymmetries of power. They perform this role, ultimately, to maintain themselves as profitable businesses, but they find they have to fend for themselves in dealing with an often hostile public opinion at the local level. Mining companies have had to climb a steep learning curve in dealing with communities, and while there have been some examples of success in this respect, much of Peru is today littered with examples of failure. And one of the lessons learnt has been that once conflict has arisen, it is extraordinarily difficult to put the clock back and erase that legacy. For communities affected by extractive industries, the state appears as an actor that is far from one that defends their interests; rather it appears to be in open alliance with those in business rather than acting in the defence of their interests as citizens. Those who dare to challenge this alliance between the state and business are pejoratively referred to (at best) as ‘standing in the way of progress’ or (at worst) acting as ‘terrorists’. The first response to legitimate protest is almost always to deploy the police (if not the army) in seeking to deal with what is seen in Lima as a ‘public order’ problem. In such circumstances, violent confrontation – like that which occurred at Bagua in 2009 – quickly arises. Recourse to more conciliatory tactics in dealing with such problems only comes once it becomes clear that force does not work. The problem is maximised by the absence of alternative paths to protest, with indigenous communities lacking the means to influence political decision making at the centre by means of representative institutions. With rare exceptions, political parties and their leaders fail to respond to such complaints, interceding between communities and the state. This pattern of elite influence in what we might call the ‘legal sphere’ is mirrored by patterns of influence by those involved in illicit activities. The state is swayed not only by business elites but also by criminal organisations or by elites that seek to influence through corrupt means. Such pressures further distort decision

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making away from what we might call the ‘common good’, in favour of the pursuit of private interests. The regulatory functions of the state, which should be exercised to defend the public interest end up being manipulated by those they seek to regulate whether in the legal or illicit spheres. Manipulation is particularly in evidence in local politics, where oversight is weak and mechanisms for redress largely absent, but it is also in evidence in national politics where, for example, the influence of drug interests is perceptible at the highest levels of government, the judiciary and legislature. Here too, the lines that distinguish legal from corrupt corporate activity are often blurred, as the Lava Jato allegations suggest. The disconnects between state and society have been underwritten by the absence of political parties that actively represent the interests of citizens as a whole, as opposed to those of investors. This has contributed to the crisis of confidence in democratic institutions. Peru’s political institutions are perceived by people as reflecting the interests of wealthy groups in society to the exclusion of others. The degree to which this is so is more marked in Peru than in most other countries of Latin America. The absence of parties, particularly those that have been prepared to criticise neoliberalism, is partly a consequence of the institutional reforms perpetrated by the Fujimori government. But more importantly, they reflect a process of atomisation of collective identities within Peruvian society that began before Fujimori was even elected. They are a legacy of the economic and political melt-down which took place in the late 1980s under the first García administration, a twin crisis which other Latin American countries managed to evade. Moves to improve the workings of the state and to make it more democratically accountable have been tried, but they have had to contend with strong countervailing influences, interested less in the res publica (or the public realm) than with the res privada (or narrow private interest), whether formal or informal, whether legal or illicit. This touches the centre of the problem of state capture. A porous, inefficient state, led by political leaders whose election depends on subventions from those with deep pockets, is one more easily captured. Once captured, the politicians and state officials who form part of private networks of interest (whether legal or not) are motivated primarily by economic gain. They are therefore hardly likely to support attempts to reform the system, to make it more

t h e d e f i c i e n c i e s o f a d i s co n n e c t e d s tat e | 177 robust and socially equitable for fear of losing the rents that derive from influence and corruption. The lack of strong representative institutions means that political decisions will tend to be driven by private interests motivated primarily by self-interest and taking little heed of the wider social good.

8 | C ON C LU SI O N S

‘Perú, país minero’ is a slogan widely used by the press, experts and politicians as if the mineral wealth of the country, rich in resources but weak in institutions, defined its very existence. As we saw at the beginning, that mineral wealth is ostensibly represented in the country’s national coat of arms. The phrase ‘país minero’ is used to justify the primacy of extractive industry, no matter what the negative social, environmental, economic or political consequences. This book has sought to explain the resilience of the extractive model, and to show how the country’s elites have managed to exercise control over the political process in what is still a highly unequal society, and use the capture of key institutions to prevent the emergence of alternative development paradigms. Of course it remains to be seen whether these elites will continue to do so in the future and whether the model based on the extraction and export of raw materials will hold up in spite of its limitations. We have seen how in Peru, unlike most other South American countries, traditional power elites managed to maintain their dominance over a deeply divided polity until the end of the 1960s. Initiatives to promote social reform and import-substitutive industrialisation were taken much later than in most other countries, such as Brazil, Argentina and even Bolivia. In spite of repeated attempts, the opportunity to close the chapter on extractive-led development (which began with guano in the 1840s and later expanded to cotton, sugar, oil, minerals and fish) presented itself only in 1968 with the military coup of General Juan Velasco. Then, following two decades of ‘populist’ experimentation – which failed to consolidate a solid new economic paradigm based on an alliance between a new bourgeoisie, middle class and workers – the extractive economy was reborn in the 1990s on more modern foundations. The year 1968 thus proved to be a point of rupture in Peruvian history, but it was the military – not mass-based parties or trade unions – that spearheaded this first attempt at industrialisation and social reform. The coup provided the means to do away with the old

co nclusions | 179 landed oligarchy and renegotiate terms with foreign investors, but the state proved insufficiently strong and well-organised to provide a viable means to achieve industrialisation. Even though it enjoyed a degree of autonomy, a government which originated in a highly secretive conspiracy and lacked its own bases of support (in spite of attempts to organise these) proved unable to build a solid alliance with a new, more modern bourgeoisie, or to launch a state-led process of industrialisation (as in Brazil) that could meet the employment and other needs of a fast-growing and increasingly urbanised population. The triangle lacked a social base. Nor did the political parties that won elections after the end of the military government have much success. The government of Alan García and APRA (1985–90) – the party that had challenged the elite-led extractive model back in the 1920s, but failed to replace it – sought to build a ‘social market economy’ based on an alliance with the new bourgeoisie, specifically the ‘Twelve Apostles’. But it also proved fruitless. A combination of economic mismanagement and the negative economic environment globally at the time generated the most serious economic crisis of the twentieth century. As under Velasco, policies of interventionism (such as the 1987 bank nationalisation attempt) and economic nationalism, policies that sought to regulate markets, generated deep distrust in the business sector. An anti-statist current of opinion emerged which gained traction with an embattled middle class and even amid the rapidly growing mass of informal workers. The violent insurgency of Sendero Luminoso during these years also undermined the capacities of the state to manage the situation. By the end of the 1980s, Peru seemed to be close to the verge of collapse as a viable state. By 1988, with terrorism in the ascendant and the economy undergoing a combination of rampant inflation with deep recession, an alliance between the business class and freemarket technocrats was taking shape. The left proved itself unable to sustain its support and provide durable linkages with the popular sectors. It seemed that there was little alternative but to accept the dictates of the Washington Consensus. This meant controlling the fiscal deficit, restoring credit lines abroad, and opening the economy up to the global market. This, it was hoped, would create the climate of business confidence that would help attract both private domestic and foreign investment flows. Thus it was that economic

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liberalisation took root in the early 1990s and the return to a model based on primary exports. While the activities of extractive industries began to surge, private-sector banking was modernised and a new era began in the consumption of imported goods. Alberto Fujimori, a political outsider whose election in 1990 revealed the extent to which the old political parties had collapsed, played a crucial role in this transition to the new, free-market, extractive economy. No sooner had he won power, than he ditched election promises to avoid shock treatment and embarked on a radical policy of stabilisation and the dismantling of the ‘populist’ legacies of the past, aims he achieved in association with pro-market technocrats who soon became an integral part of the new elitist power equation. At the same time, he forged a strong alliance with the armed forces to defeat the armed insurgency. Fujimori’s objective was not just to overcome the crisis and win himself sufficient political backing so as to remain in office. While the military and the police did battle with Sendero Luminoso in a more organised and determined fashion, the neoliberal elites empowered by Fujimori launched a legislative blitzkrieg which did away with interventionist and promotional laws and various forms of labour protection. The 1992 autogolpe and the closure of Congress gave way to a rewriting of the country’s constitution the following year. The 1993 constitution – still in force today – provided the institutional and juridical underpinning for the extractive economic model. Having stabilised the economy and removed the constitutional bar on his immediate re-election, Fujimori set about organising his political support. But neoliberal economic restructuring proved much more effective than changes in the political/social domain. He did so by creating a system of clientelistic linkages with the mass population through the inauguration of public works (roads, schools etc.), personal helicopter visits to (often) remote communities and the distribution of food and medicines to vulnerable populations. This sort of ‘direct democracy’ sought to avoid use of political intermediaries. But it harvested votes, giving his government a popular veneer. Arguably, such clientelistic methods were not dissimilar from those employed by earlier forms of authoritarian rulers like Leguía in the 1920s. The return to relative peace and economic stability, coupled with opportunities to buy privatised state assets, led to a surge in private

conclusions | 181 investment and a period of low-inflation economic growth. Old and new mining projects, the sale of agricultural cooperatives, the opening up of concessions for oil and gas exploration, the scope to use rivers to develop hydro projects, as well as the sell-off of state assets to the highest bidder all provided opportunities for private investors. It was the consequence of a major shift of a structure of power. The authoritarian nature of the Fujimori government and its attempts to retain political power beyond established term limits, coupled with problems of corruption and human rights abuse, finally led to the regime’s collapse in 2000. However, the free-market, extractive model and the political influence of business elites over the state and the nation, that is, the reinforcement of the apex of the pyramid over a disorganised civil society, was not only to outlast Fujimori but was to be refined and further developed by his democratically-elected successors. How do we explain this outcome? First, from 2000 onwards, the largest economic business groups, both domestic and foreignowned, organised themselves in an extremely effective manner in capturing the state. They did so either though individual actions or through collective action centred around Confiep. The mechanism of the ‘revolving door’, initiated in the 1990s under Fujimori, was maintained. Media support also became a critical part of this system of enhanced business influence. This capacity of control and persuasion ensured that the amorphous political class and social organisations did not meddle with economic decision making, ensuring that the economy was kept on ‘automatic pilot’. Because of domestic and foreign pressures to keep promoting ‘sound policies’, trusted technocrats continued to be a critical part of the governing alliance, keeping exclusive control over institutions like the Ministry of Economy and Finance (MEF) and the central bank. Such influence was also complemented by the persuasive use of money in elections. Naturally, such methods of interest representation proved polemical at times, raising questions about the ‘buying’ of politicians, interest peddling and conflicts of interest. A second factor that helps explain the persistence of the model was the onset of the export bonanza in 2002 and its continuance of this extraordinary super-cycle, comparable only to that of the guano era of the mid-nineteenth century, for more than a decade. Helped by demand from China, global markets for a wide range of commodities

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experienced historically high prices. These included products such as minerals, timber and fish products for which Peru enjoyed a strong comparative advantage. The price boom also produced plentiful resources for sub-national tiers of government for the first time through the canon. While the bonanza encouraged corruption, it also helped generate local consumption and employment because of the spending by regional and municipal authorities. It is worth recalling that by 1990, with the exception of Southern Peru Copper Corporation at Cuajone and Oxy in oil in the Amazon, there had been no other major extractive investments in well over 20 years. Beginning with Minera Yanacocha in 1992, such investment picked up rapidly. The super-cycle expanded greatly the fortunes of asset holders, both new and old, compounding the effects of the privatisation of the previous decade. Mining came to be seen as the guiding star for the Peruvian economy and the source of its success. As Dionisio Romero, perhaps Peru’s top business magnate, put it in an interview in El Comercio (16 July 2011), if the country was enjoying such an economic miracle, if it had proved itself as a ‘país minero’, the best thing that governments could do was to continue with ‘successful economic policies’. In sum, the price boom – combined with the existence of a ‘pro-mining’ political class, the assimilation of business culture and the continued bias against state involvement in the economy – gave the extractive model renewed dynamism. The notion that the country should not return to the ‘failed policies’ of the past, and that it was important to follow the ‘path of progress’, became a highly influential and widely held view. The free-market view appeared to inspire a new generation of government officials, while in civil society, aided and abetted by the media, a new vision of progress, grounded in personal success, took root. A new ‘common sense’, a sort of ‘cognitive capture’, emerged. Third, we should not forget the effects of the crisis of the 1980s on the structure of employment in the country and the existence of a massive informal sector which impeded the development of a strong civil society capable of challenging the new status quo. Deindustrialisation, the growth of highly capital-intensive extractive industries, the way in which different sectors of the workforce labour under different employment regimes, and the fact that the state is no longer a major employer all contributed to the growth of an informal sector, among the largest in Latin America as a proportion of the

conclusions | 183 total workforce. This included those working in ‘illegal’ occupations such as cocaleros and those involved in illegal logging. Despite the decade of rapid economic growth, two-thirds of both businesses and employees remained in the so-called informal sector. At the same time, as a result of high mineral prices and an abundance of labour, a large illegal sector grew in the mining sector (mainly gold) employing many more people than the formal mining industry. Such a fragmented civil society, one of the foundations of the ‘triangle without a base’, thus helped maintain the prevalence of business influence. Finally, partly as a consequence of this growth of informality, but also a result of labour market liberalisation and ideological divides, the virtual disappearance of a left-wing alternative helped the continuation of economic policy. The parties of what had been the Izquierda Unida conspicuously failed to regroup and provide a strong united front in this new context. The persistence of Sendero Luminoso in some parts of the country made it even harder for the left to present itself as a viable political force. Peru was thus a notable absentee from the Latin American ‘pink tide’. It was the absence of a strong, organised and independent left that made it possible for Humala to shift his ground so quickly once elected in 2011. These four conditions made it much easier for elites to manage politics. Such management neither begins nor ends with ‘state capture’ understood simply as penetration of the state by economic interests so as to pass laws that benefit them. The image of the triangle without a base helps us explain this complex situation more fully as we move to close the main arguments of this book. If we view the structure of society as a pyramid, in Peru this is fragmented between rich and poor, rural and urban, formal and informal. There is an asymmetry from the very start. Within this structure, the business elites – at the apex of the pyramid – increasingly concentrate economic power, establishing agreements with successive governments and capturing control over those parts of the state that promote and regulate largescale investments. By contrast, at the base of the pyramid, the lower middle class, blue collar workers, the poor and indigenous are poorly placed to organise the defence of their interests or to put pressure on government to change policy direction. As a consequence, society has been effectively managed from above on the basis of agreements between the business sector and political elites, preventing those at

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the base linking up and developing social organisations capable of mobilising to support radical alternatives. This system of domination with its long and uneven history, however, may not be as solid as it seems. This is particularly evident in a post-boom period in which the rents derived from extractive industries may be less than in the past, with unrest possibly increasing in the regions as a consequence of a fall in the income derived from the canon. Social, regional and ethnic divides persist, and the political system remains weakly constituted and poorly institutionalised. So how sustainable is this system? In spite of the progress made in integrating the country (through road building and improvements in telecommunications), in reducing poverty levels, and in the construction of schools, universities, hospitals and clinics, Peru still remains a highly unequal country and the quality of basic services as well as the state of citizen (in)security leaves much to be desired. Today, as in the past, it is those who originally peopled this ancient country who possess least and have the greatest unmet needs. Poverty is most acute in those parts of the country where indigenous peoples predominate. It is in these places – and it is no coincidence – that the most violent episodes of social and environmental confrontation occur and where informality and illicit activities flourish. If the centralised state is weak and heterogeneous in its presence, this is even more the case of local and regional government. Although important material advances occurred during the commodity super-cycle, the poor, as a whole, remain largely unempowered. At the same time, uneven state reforms have failed to build the rule of law and strengthen institutions, a factor which remains a problem for investors, particularly those from abroad. Finally, wealth is still concentrated in an extreme form in the hands of a small but powerful and resourceful business elite. The 2016 elections provide some clues as to sustainability. They show how politics is evolving and what the main issues in debate are as Peru approaches its bicentenary as a republic in 2021. Although these were the fourth democratic elections in a row, nominal political rotation in itself is insufficient to guarantee longer-term stability. The party system fails to represent the interests of the broad masses of the Peruvian population. The great majority of parties to emerge in the twenty-first century are personalist groupings that only come into action at election time. Candidates for president – which numbered

co nclusions | 185 some 20 in both the 2011 and 2016 elections – offer all sorts of promises, the better funded among them assiduous practitioners of vote-buying. Once governments are formed, the pull of private business tends to take precedence over electoral concerns, as do the personal ambitions of those in Congress, about resolving matters of priority to the public as a whole. However, as the Humala administration showed, non-fulfilment of election promises can quickly turn into feelings of rejection towards state institutions, creating spaces in turn for new political figures and parties to profit from the sense of frustration at the failure of governments to honour their commitments to the electorate. In 2016, the past-master of this sort of vote-buying approach was Keiko Fujimori, the leader of Fuerza Popular (FP) and daughter of the disgraced Alberto Fujimori. She managed to secure a strong parliamentary majority (73 seats out of a total of 130) and was only pipped at the post (and by the very narrowest of margins) by Pedro Pablo Kuczynski. Kuczynski, for his part, a leading proponent of the Washington Consensus (and co-author with John Williamson of an important book on the subject (Kuczynski and Williamson, 2003)), undertook some ideological summersaults to clinch the election by developing his own relationship with the mass voting public including electoral commitments to peasants, small-scale entrepreneurs, trade unionists and indigenous peoples. Other parties and groupings imitated Fuerza Popular in dishing out gifts to potential voters, such as food parcels, clothing, cash – even offers of university scholarships on the part of one candidate – in spite of these being expressly prohibited by law. Keiko Fujimori was probably the candidate to take fullest advantage of the wave of criminality sweeping the country in demanding tough measures (mano firme). By so doing, she sought to promote the more authoritarian version of the extractive model, rather as her father had done in the 1990s. The fact that leading mining and agro-exporting companies supported her candidacy is indicative of their concern to maintain business control, by force if necessary, over protest movements. To buy support, she also did deals with coca farmers and informal mining interests. She thus tried to link key business interests at the apex of the pyramid with formal and informal interests at the base, also appealing to the new ‘middle class’, not forgetting some FP candidates with ties to drug trafficking mafias.

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For his part, Kuczynski – leader of a party called Peruanos por el Kambio (sic) adopting his own initials (PPK) – represented the more ‘democratic’ but essentially elitist option initiated by Mario Vargas Llosa in the 1990 elections. This had been characterised by the sort of ‘second-generation reforms’ favoured by the international financial institutions designed to harmonise liberal democracy with liberalising economic policies. Kuczynski was keenly supported by the banking community and the new professional middle class (beneficiaries of the extractive-led growth) with his promises to ‘modernise’ the country. Although Kuczynski’s party was a new creation, he himself had a long career in government starting as general manager of the central bank in Belaunde’s first administration in the 1960s, returning to ministerial office with Belaunde’s return in 1980 and playing a key role under Toledo as economy minister and prime minister. He played a leading role as a proponent of privatisation and free trade accords. The narrowness of the final result of the 2016 election (50.1 per cent for Kuczynski versus 49.9 per cent for Fujimori) seemed to indicate polarisation around these two different approaches to protecting the future of the free-market extractive model: between a more liberal, consensual approach in the case of Kuczynski, and a more authoritarian, populist approach in that of Fujimori. However, despite such differences, the business community was broadly happy with whoever won, since the left-wing alternative had been ruled out by the first round of voting. Confiep, that bellwether of business opinion, gave both sides its enthusiastic support. Whoever won, the business community would close ranks and give him or her its backing. Kuczynski’s first cabinet repeated the practice of naming liberal-minded technocrats with close ties to the private sector to those key posts responsible for managing economic policy. However, politics in Peru – fragmented and fractured with a predominance of weak, personalist parties – is not just limited to these two options. If this was the case, it would suggest that the neoliberal model had acquired hegemony in the Gramscian sense of the term. But such hegemony is absent in as much as successive governments, the state apparatus itself and the corporate elite lack the legitimacy or generalised acceptance for this to be so. Although ideas about wealth creation on the basis of private property and private enterprise had been widely assimilated – a sort of new

conclusions | 187 ‘common sense’ (Guadalupe, 1992) – the Peruvian public remains highly distrustful of the neoliberal state and resentful of the privileges and protection it offers to elite groups and large corporations which believe that the main role of the state is to encourage investment and private profit. Opinion polls suggest that public distrust in institutions is particularly closely related to ideas about the intrinsic ‘unfairness’ of the way in which the economic system works to the advantage of the elite (Latinobarómetro, various years). Moreover, there exist a large number of voices – including those of ecologists, supporters of indigenous rights, trade unionists, the Frentes de Defensa, feminists and all those who believe in a democracy of opportunities and not just votes – who demand a ‘state for all’, a more autonomous state in which a plurality of interests make themselves felt. They view with concern the way in which politics remains dominated by opportunist figures operating in the thrall of corporate interests. Perhaps the most striking development in the 2016 elections was the appearance of a young figure on the left, Verónika Mendoza, the candidate for the Frente Amplio. She entered the contest with 1 per cent support, and ended up in third place in the first round with 18 per cent of the vote, only narrowly behind Kuczynski. The election ended with the left having the second largest block in parliament with 20 seats, its best performance in a general election since 1985. Mendoza’s progress on the left coincided with the emergence of new forms of social mobilisation. The threat of a return of Fujimoristas stimulated the formation of a nationwide protest movement, ‘No a Keiko’, which organised two large protest marches in Lima and elsewhere in the build-up to the elections, activated in large part by social media. Mendoza was among those who led this mobilisation in many ways reminiscent of the campaign of the ‘indignados’ in Spain. It followed major protests by youth groups opposed to the Humala government’s plans for labour law liberalisation, mobilised largely by social media which is becoming a new and significant factor in political mobilisation. Such protests pressed for better public policy decisions which work to the benefit of all. First elected to Congress in 2011, Mendoza played an important role in helping shift the terms of debate on the left towards women’s rights, better environmental standards and indigenous rights for communities on matters related to extractive industries.

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Opposition to the neoliberal policy paradigm may become more strident if – as seemed likely when writing these lines – growth slows in response to lower international demand for the minerals and other products that Peru produces. With minerals prices low, mining companies in difficulties, several projects suspended because of local opposition and unusually high levels of corporate foreign indebtedness, new investment had tailed off by 2016. Lower growth would make it harder for a government to reduce poverty further and stop unemployment (and informal employment) from rising. And, as we have seen, less government income means there would be less to spend on public investment in the medium term. Increased opposition could also be expected to the monopolistic behaviour by private companies (at the expense of consumers), the ever-growing problem of environmental degradation by extractive companies, and by further attempts to ‘liberalise’ the labour market to make it easier for employers to hire and fire at will. The outlook in the wake of the 2016 elections did nothing to alter the overall picture as analysed in this book. There was no suggestion that the system of domination, as depicted by the triangle without a base, had been supplanted; nor that the sort of ‘capture’ by privatesector elites, insistent on defending the free-market model, had come to an end. Indeed the Kuczynski administration seemed to typify these characteristics. While it lasted, the 2002–12 export boom super-cycle had done little to lead to a more equitable pattern of growth, and its exhaustion threatened to plunge many back into poverty. The vast majority of the population looked on quizzically to the accumulation of extreme wealth and privilege, while not being among its beneficiaries. Their commitment to the model could not be taken for granted. Meanwhile growing criminality and corruption further undermined feelings of social cohesion and wellbeing. As we have seen from the Latinobarómetro, Peru’s democratic institutions continue to display alarming levels of distrust amid the public as a whole. The chances of inverting these trends prior to Peru’s entering its third century of independent republican life in 2021 seemed somewhat remote.

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IN D E X

Abusada, Roberto, 89, 116 Acción Popular (AP), 65, 66, 170 accountability, 176 Acuña family, 106 Acuerdo Socialista, 73 agrarian reform, 50, 54, 58–9, 61, 62, 141, 147 Agrarian Reform (1964), 52 agricultural goods, export of, 105 agricultural property, new regime of, 82–4 agricultural sector, resistance to free trade agreements, 92 agro-exports, 97 Agrobanco, 84 Aje company, 112, 119 Alianza Popular Revolucionaria Americana (APRA), 45, 46, 49, 52, 61, 65, 67, 68, 72, 73, 86, 170, 172, 179; members involved in drug trafficking, 167; outlawing of, 47, 48 Alicorp company, 106, 112 Alliance for Progress, 49, 87 Alteco group, 56–7 Alva Castro, Luis, 73 Alvarez, César, 147, 165 Amazon region, 28, 39, 152, 163; construction in, 49; education in, 95; impact of extractive industries on, 41; oil and gas development in, 82 American Guano Company, 34 American Smelting Company, 45 Amnesty Law (1995), 99 American Chamber of Commerce (Amcham), 120 Anaconda company, 45 Añaños brothers, 112 Añaños, Angel, 119, 120 Ancash region, 144, 146–7, 165 ancestral territories, violation of, 153 Andean Development Corporation (CAF), 125

Anderson & Clayton company, 48 Anglo American company, 149 Annual Conference of Executives (CADE), 57 Antamina mine (Ancash), 130–1, 135–6, 141, 144, 145, 147, 157; impact of, on surrounding communities, 146 anti-communism, 46, 66 anti-corruption tribunals, 101 Apoyo group, 113–14, 124 Aráoz, Mercedes, 125 Argentina, 26 Aristocratic Republic, 30, 32, 37–44 Aristotle, Politics, 17 armed forces: brought into conflict situations, 162; civilian control over, 98; neutralisation of political influence of, 103; political importance of, 98; role of, in industrialisation, 178; size of, reduced, 99 Asociación de Empresas Familiares del Perú (AEF), 119 Asociación de Exportadores (Adex), 58, 64, 68, 119 Asociación de Pequeños y Mediano Industriales del Perú (Apemipe), 119 Asociación Interétnica de la Selva Peruana (Aidesep), 154–5 AT&T company, 56 Atahualpa, 28 Atusparia, peasant rebellion of, 39 autogolpe of 1992, 98, 100, 121, 140, 171, 180 Avelino Cáceres, Mariscal, 36 Ayacucho: battle of, 28, 29; destruction of peasant federations in, 72 Baca, Jorge, 90, 116 Bachelet, Michelle, 173 Bachrach, Peter, 11 Backus Corporation, 114, 125

196 | i n d ex Bagua, conflict in, 152–3, 155, 163, 175 baguazo, use of term, 152 Banchero, Luis, 49 Banco Agrario, closing of, 83 Banco Bilbao Viscaya Argentaria (BBVA), 110, 112, 125 Banco Continental, nationalisation of, 56 Banco de Crédito del Perú (BCP), 57, 89, 90, 97, 106, 112, 116, 125 Banco del Perú y Londres, 40 Banco Italiano, 40 Banco Popular, 56 Banco Wiese, 116 banking sector, 110, 166; control of, 104 see also nationalisation, of banks Bankworkers’ Federation (FEB), 97 Bantin company, 107 Baratz, Morton S., 11 Barrantes, Alfonso, 66, 68, 73 Bartels, Larry, Unequal Democracy, 18 Belaunde Terry, Fernando, 67, 75, 170, 186; administration of, 59, 63, 116, 132, 139; election of, 49–52; ousting of, 54; returns to presidency, 62 belaundismo, 50 Beltrán, Pedro, 46, 47, 56 Benavides, Oscar R., 47 Benavides group, 105, 106, 112 Bentín company, 106 BHP Billiton company, 130, 157 Blanco, Hugo, 59 Bolívar, Simón, 28, 29 Bolivia, 26 Boloña, Carlos, 78, 79 Bolsa Familia (Brazil), 131 Bourricaud, François, 52 Brady, Nicholas, 90 Brady Plan, 90 Brescia group, 96, 106, 110, 112 breweries, establishment of, 43 bribery, 21, 169 buena presencia, 51 bureaucracy, 139, 150; reform of, 91 Bush, George H. W., 14 Bush, George W., 17 business lobbies, political power of, 14 Business Roundtable, 14 Bustmante y Rivero, José Luis, 47–8

Caballero, Victor, 162 Cáceres, Avelino, 38, 39 Caesar’s Hotel, closure of, 85 Cajamarca, mining project in, 156 cajas municipales, 84 cajas rurales, 84 Callao, 102; port, 92; rail link, 36 Cámara de Comercio de Lima, 119 Camdessus, Michael, 76 Camet, Jorge, 90, 116 Camisea region, 144, 146; extraction of natural gas in, 155–6 canon system, 131, 140, 146–7, 148, 150, 184; mining canon, 135, 143 (disputes over, 158); reformulation of, 143–4 capital flight, 78, 104 capture: cognitive, 88; corporate, 88; in USA, 5, 8; of the state see state capture; political, 1, 12 (concept and history of, 8–27; emergent concept, 2; hard to quantify, 5; Peru as instance of, 27); regulatory, 16 Carranza, Luis, 90, 125 Carter, Jimmy, 14 Casement, Roger, 42 Castilla, Luis Miguel, 90, 125 Castilla, Ramón, 34, 35 Castro Pozo, Hildebrando, 45 Catholic Church, 29, 78 Cementos Lima company, 81 Central Bank of Peru (BCRP), 86–7, 126 Cerro de Pasco Corporation, 40. 45, 48, 56 Cerro de Pasco mining enclave, 40 Chávez, Hugo, 26, 126, 173 Chile, conflict with, 36, 37, 99 China: demand from, 181; import of coolie labour from, 33, 34 Chinese coolies, uprising of, 37 cholo capitalism, 106 Christian Democrat party, 49 Chubais, Anatoly, 19, 20 civil code, approval of, 34 civil society, fragmentation of, 74 civilismo, 38 clientelism, 3, 24, 25, 44, 73, 93, 134, 138, 164, 180

index | 197 Clinton, Bill, 18 Coazúcar company, 83 Cobriza, 115 coca, cultivation of, 41, 49, 82, 148, 166–7, 183, 185 Coca-Cola, 106 cocaine, production of, 49, 166–7 coffee, production of, 41 collective bargaining, decline of, 97 comedores populares, 69, 78, 134 Comercio, El, 46, 116 comités del vaso de leche, 69 commercial code, approval of, 34 commodity super-cycle, 27, 107, 149, 181–2, 188 Communist Party of Peru see Peruvian Communist Party (PCP) Compañia Consignataria del Guano, 35 concentration, 80–2 Conditional Cash Transfer (CCT), 134–5, 137 Confederación Campesina del Perú (CCP), 59 Confederación de Instituciones Empresariales Privadas (Confiep), 64, 68, 76, 79, 89, 90, 104, 117, 118–19, 120, 121–2, 126, 127, 128, 129, 181 Confederación de Trabajadores de la Revolución Peruana (CTRP), 60 Confederación de Trabajadores del Perú (CTP), 60, 69 Confederación General de Trabajadores del Perú (CGTP), 60, 63, 69, 72 Confederación Nacional Agraria (CAN), 59 Conga mining project, 149, 156, 162, 163–4 Conite agency, 90 Consejo Nacional de la Magistratura (CNM), 101 Consejo Nacional de Trabajo (CNT), establishment of, 96 Consejos Transitorios Administrativas Regionales (CTAR), 140 Constituent Assembly, 62, 65 constitution (1979), 62, 139 constitution (1993), 79, 82, 171 consulta previa, 152, 163

consultancies, 113–18 consumers, protection of, 16 contraband activities, 169 contribución indígena, 35 Convergencia Socialista, 73 Cooperación Popular, 132 Cooperativas Agrarias de Producción (CAP), 59 cooperatives, 83, 108; creation of, 54; disappearance of, 109 copper: exports of, 37, 40, 42; mining of, 39, 105, 130, 156, 157 Copri agency, 87 Corporate Europe Observatory, 15 corporate interests, power of, 3 corporate social responsibility, of extractive sector, 144 Correa, Rafael, 26 corruption, 2, 25, 34, 67, 83, 84, 85, 97, 98, 100, 103, 132, 135, 136, 141, 142, 146, 147, 149, 150, 153, 164–9, 172, 175, 177, 181, 182, 188; at state level, 7; definition of, 21; in judiciary, 100, 101, 102; in police, 102; in prison system, 102; legal, 26; simple, 26; World Bank study of, 25 see also anti-corruption tribunals and bribery Cotler, Julio, 3, 160 cotton: exports of, 37, 42; production of, 39, 41, 43, 58 Council of the Americas, 76 coups, military, 74, 98, 178–9 Crónica, La, 46, 56 Crecer programme, 135 Credicorp company, 112 Credit Suisse First Boston, 20 Crenson, Matthew, 11 creole elites, 28 criminality, 188 Cuajone mine, 64, 148 Cuba, 59; revolution in, 49 Cuba, Elmer, 114, 115 Cuna Más programme, 136 Cuzco region, 144; case study of, 146 Dahl, Robert, 10, 11; Who Governs?, 8 Da Silva, Inácio ‘Lula’, 26 death squads, 98

198 | i n d ex debt, 43, 46; consolidation law, 34; sovereign, 62–3 (crisis of, 64; default on, 89; refinancing of, 34–5; repayment of, 78, 80 (moratorium, 67)) decentralisation, 7, 91, 138–42, 150, 159, 161; problems of, 130–51 de-concentration, distinct from decentralisation, 142 decree, governing by see legislation by decree Decree Law 25593, 97 Defensoría del Pueblo, 101, 154, 158, 161 deforestation, 153, 165 de-industrialisation, 182 democracy, 122, 127, 153, 172; direct, 180 Democratic Party (USA), 14 democratisation, 19–27, 103, 139; failure of, 2; of capitalism, 113; of wealth, 34 deregulation, economic, 3, 5–6, 23, 64, 86–8 De Tocqueville, Alexis, 10 devaluation, 63 Dibós, Eduardo, 57 dictatorships, 4, 42, 46, 74, 170 discrimination, legal, against women and indigenous people, 102 distribution of income, 131; inequity of, 132 distribution of wealth see wealth, distribution of distribution, problems of, 130–51 distrust of political elites, 3 Domhoff, William, 10–11 Dreyfus company, 34, 35 drug barons, role of, 2 Drug Enforcement Agency (DEA) (USA), 168 drug industry, 176 drug mafias, 5 drug trafficking, 147, 148, 153, 165, 166–8, 185 Dubois, Fritz, 116 Duharte, Raymundo, 57; deportation of, 58 Durand, Francisco, 111 Dyer y Coriat group (D&C), 112

earthquake (1970), 147 economic crisis, in García period, 71 economic power structure of Peru, 109 economic reform, 78–80 Ecuador, 26, 29; conflict with, 98, 99 education, 113, 137; access to, 51, 94–5; bilingual, 95; building of schools, 184; private schooling, 94 see also universities Ejército de Liberación Nacional (ELN), 62 El Comercio group, 116, 117–18 elections, 38, 44, 65, 122, 127, 133, 135, 137; accusations of fraud in, 99; alienation among voters, 3; costs of, 167; costs of running in, 165; of 2016, 184–5; of mayors, 147; regional, 165 electrical energy industry, 50 elites, 17, 54–75; creole, 28; distinct from oligarchy, 16; domination by, 6–7; new, 104–29; of Lima, 119; pacts between, 25 see also power elites emergency bills (proyectos de urgencia), 79 emprendedores, use of term, 120 Engels, Friedrich, 8 Environmental Impact Assessment (EIA), 158 environmental protection, watered down, 127 Estela, Manuel, 85 Estrada, Daniel, 66 ethnic issues, 155 European Bank for Reconstruction and Development (EBRD), 20 European Union (EU), 19 exchange rate, floating of, 86 extractive model, 28, 29–30, 37, 179, 181; authoritarian version of, 185–6; longevity of, 52; resilience of, 178; social benefits of, 130 extractive sector, 37, 48, 53, 54, 55, 80, 91, 107, 110, 118, 124, 146, 153, 154, 174–5, 180; conflicts in, causation of, 159; disputes over rents, 158; distributing benefits of, 142–9; environmental degradation associated with, 188;

index | 199 illegal activities in, 82; investment in, 82; primacy of, 6, 178; resistance to, 154–64; second phase, 39, 41, 42 extractivismo, 46; illegal, 49 ‘faceless judges’, (jueces sin rostro), 100 Fairfield, Tasha, 26 fascism, 47 Federación Nacional de Parques Industriales (Fenapi), 119 femicide, 94, 102 Fermín Fitzcarraldo, Carlos, 42 Ferreycorp company, 112 Ferreyros group, 112 finance sector, 110, 118, 124, 127 fiscal crises, 34 fishing industry, 48–9, 182 flexibilisation of labour, 97 Flores, Aquilino, 119, 120 Flores, Lourdes, 115 Flores group, 106, 112 Fondo Minero, 136, 145 Fondo Nacional de Compensación y Desarrollo Social (Foncodes), 93–4, 133 Fondo Nacional de Financiación del Estado (Fonafe), 110 forced labour, 28, 39; indigenous, 40, 44 forests, exploitation of, 45 Foundation Company, 45 fragmentation: of civil society, 169; of political representation, 159 France, 32, 34 Fredemo coalition, 115 free trade agreements, 80, 89, 92–3, 116, 125 Freeland, Chrysta, Sale of the Century, 19 Frente Amplio, 127, 174, 187 Frentes de Defensa, 187 Fuerza Popular (FP), 165–6, 172, 185 Fujimori, Alberto, 25, 70, 73, 75, 76–103 passim, 105, 108, 114, 122, 133, 134, 137, 174, 176, 180; administration of, 24, 117, 130, 132, 141, 142, 150, 171, 181; (corruption of, 164; reforms of, 6); election of, 76; goes to Japan, 76; goes to New York, 76; ousting of, 6, 100, 115, 131, 134, 164, 168, 173

Fujimori ‘shock’, 78, 85 Fujimori, Keiko, 115, 126, 137, 168, 185 Fundación Añaños, 120 Gaidar, Yegor, 19 Gálvez, Modesto, 95 gamonalismo, 58, 59 García, Alan, 66–9, 75, 80, 86, 92, 99, 104, 121, 125, 126, 138, 140, 147, 153, 156, 157, 172, 173, 176, 179; administration of, 132, 136, 139, 145, 152; pardons drug traffickers, 167 Gary, Indiana, study of, 11 Giampetri, Luis, 99 Gibbs and Company, 32, 34 Glencore company, 130, 158 Global Source Partners, 116 globalisation, 12–18 Gloria group, 112 gold, mining of, 82, 105, 126, 156–7; informal, 168–9, 183 governance, problems of, 7 Graña Miroquesada, José, 117 Grace & Co, 38, 48; nationalisation of, 56 Grace Contract, 38, 40 Gramsci, Antonio, 12 Graña y Montero group, 112, 116, 117 Green-Mercado Accord, 56 gremios, 118–27, 128 guano: declared national monopoly, 33; export figures for, 34; extraction of, 29, 52, 105, 178, 181 Guano Republic, 30, 32–7 guerrilla insurgency, 59 Guzmán, Abimael, 79; capture of, 99 Guzmán, Julio, 115 haciendas, 50; formation of, 41 Hagopian, Frances, 24–5 Haya de la Torre, Victor Raúl, 45, 47, 65 healthcare, 96; access to, 94; private, 96 hegemony, 186; concept of, 12 Hermoza, Nicolás, 98 Hierroperú company, 115 Holding Continental company, 112 hostages, freeing of, 99 Huancané, rebellion in, 37 Huancaruna group, 106, 112

200 | i n d ex Humala, Ollanta, 125, 126, 174, 183; administration of, 100, 136–7, 138, 157, 163–4, 173, 185, 187; elected president, 1 human rights, violation of, 162, 181 Huntington, Samuel, 16 hyperinflation, 71, 72, 75, 134, 171, 174 Ikeda family, 106 illiterate people barred from voting, 51, 53 immigrant labour, from Europe, 42, 43 see also China, coolie labour from import-substitutive industrialisation, 63, 178 income concentration, patterns of, 13 Indecopi agency, 87 ‘Indian problem’, 39 indigenous peoples, 44, 82, 163, 175; discrimination against, 102; education of, 95–6; organisation of, 45 (pan-Amazonian, 154); protests of, 152–3 indigenismo, 45 indignados (Spain), 187 Industrial Communities, creation of, 57 industrial proletariat, 43 industrialisation, 48, 50, 53, 55, 60, 178, 179 inequality, 15, 38, 184; growth of, 13; in developed economies, 12–18; in transitional economies, 19–27; of wealth distribution, 67; relation to corporate structures, 9; relation to democracy, 24 inflation, 86; fall in, 79 see also hyperinflation informal sector, 71, 72, 182–3, 184; illegal, 183 Inka Kola, 106 Instituto de Politica Económica (IPE), 89 Instituto Nacional de Planificación (INP), closure of, 87 Instituto Nacional Penitenciario (INPE), 102 Instituto Peruano de Administración de Empresas (IPAE), 57 Instituto Peruano de Economia (IPE), 113, 115–16, 118

Inter-American Court of Human Rights, 99, 118 Inter-American Development Bank (IDB), 85, 101, 115 inter-culturality, concept of, 95 Interbank, 90, 112 Intercorp company, 106, 112 International Finance Corporation (IFC), 105, 156 International Labour Office, Convention 169, 153 International Monetary Fund (IMF), 63, 64, 73, 76, 78, 79, 85, 88, 125; conditionalities of, 67 International Petroleum Company (IPC), 40, 52; nationalisation of, 54, 56 internet, access to, 96 interventionism, policies of, 179 investment: capital, sources of, 107; discourse regarding, 1; foreign, 152 Ipsos Apoyo agency, 114 irrigation systems, 41, 45–6, 83 ‘islands of efficiency’, 77, 84, 86, 87 Izquierda Unida (IU), 65–6, 67, 68, 73, 75, 170, 183; Huampani meeting, 69–70; membership of, 70; splitting of, 70 Jennings, Stephen, 20 job creation programmes, 73 job losses in the public sector, 78 judges: remuneration of, 101; suspension of, 100–1 Juntos programme, 134–5, 137 justice, reforms in, 97–102, 103 Kemmerer mission, 46 Kennedy, John F., 49 Kirchner, Nestor, 26 Kisic, Drago, 114, 115 Kuczynski, Pedro Pablo, 7, 90–1, 114, 115, 124–5, 149, 185, 186; administration of, 7, 138, 164, 174, 188; elected president, 1, 127 labour law, liberalisation of, 187 labour code, 63 labour reforms, 23 labour regimes, special, 97

index | 201 La Fabril company, 106 Lanata Piaggio company, 106, 107 land: acquired from impoverished families, 41; invasions of, 51; occupations of, 59; privatisation of, 83; redistribution of, 132 land reform, 108 landholding, systems of, 58 Las Bambas mining project, 158 latifundios, 41, 50, 82 Latin America, liberalising reforms in, 22–7 Latinobarómetro, 103, 151, 188 Lava Jato scandal, 169, 176 Lavalle y Pardo, Antonio de, 38 Law of Registration of Special Interests (2003), 117 Law on Political Parties (2003), 172 lawyers, 113–18 Leche Gloria company, 136 left: breaking point of, 69–74; coalitions of, 65; dissipation of, 27; elimination of alternatives, 183, 186; parliamentary representation of, 187; weakness of, 174 legislation by decree, 79, 96 Leguía, Augusto B., 44, 45–6, 180; administration of, 77, 83, 164 Leguía, Juan, 46 Lerner, Salomón, 164 Ley de Bases de la Descentralización, 140 Ley de Conscripción Vial, 44, 46 Ley de Petróleo, 45 Ley de Seguridad Interna, 48 Ley de Servicios Extraordinarios a la Acción Policial, 100 Ley Orgánica de Gobierno Regionales, 140 Ley Servir, 92 liberalisation: economic, 12–18, 19–27, 55, 63, 79, 179–80; of labour market, 188; of trade, 93 see also labour law, liberalisation of Lima, 102, 161; belts of misery in, 51; business groups in, 127; civilian bureaucracy in, 35; dominance of, 159; Glass of Milk programme in, 132; growth of, 43; population of, 51;

predominance of, 138; shanty towns in, 69; urban mobilisations in, 37, 126; wholesale market in, 51 see also pueblos jóvenes Lindley company, 106 Lister, John, 42 literacy, 39 livestock farming, 41 lobbying, 113–18; in European Union, 15 logging, illegal, 168, 183 López, Sinesio, 128 Lugo, Fernando, 26 Lukes, Steven, 11–12 Machiguenga people, 156 Macroconsult group, 113, 114–15 Madre de Dios, illegal logging in, 168 Majes II irrigation project, 159 Manhattan company, 156 mano firme, 185 Mantaro hydroelectricity plant, 81 Marcona Mining Corporation, 48 marginalisation, 7 Mariátegui, José Carlos, 45, 61 market, assumed efficiency of, 15 Marx, Karl, 6–7 Marxism, 9, 10, 45, 61 mayors, elections of, 147 Meiggs, Henry, 36 Melo Vega, Jorge, 117 Melo Vega Law, 117 Mendoza, Verónika, 127, 187 middle classes, 113; urban, 51 migration: of highland people to jungle, 49; to cities, 35, 43, 50, 53, 55, 60 militarisation, 72 military coups, 54 military government, impact of, 6 military see armed forces Mills, C. Wright, 9–10 Minera Yanacocha, 105, 182 mineral commodities, prices of: declining, 163; high, 182 minifundios, 83 Mining Code, 48; approval of, 40 mining industry, 33, 39, 40, 42, 48, 82, 105, 107, 110, 112, 127, 182; blocking of projects, 129; contamination from

202 | i n d ex mining industry (cont.): open-pit mining, 156; disputes concerning, 126; exports of, 46; growth of production of, 48; illegal, 165; informal, 168–9; labour organising in, 45; list of conflict areas, 163; open-cast, 130–1, 156; privatisation in, 27; relations with communities, 175; resistance to, 156–9; sale of permits, 81; social provision by, 135; special police units, 100; unregulated, 153 see also gold, mining of Ministry of Economy and Finance (MEF), 79, 84, 87, 103, 114, 121, 124, 125, 126, 141, 143, 144, 150, 181; primacy of, 88–93 Ministry of the Presidency (Mipre), 93–4, 133 Mitsubishi company, 130 MMG company, 158 money laundering, 166, 168 Monge, Alvaro, 137 Montané company, 32 Montesinos, Vladimiro, 76, 98, 100, 101, 147, 164; associated with drug-related corruption, 167 Moquegua: decentralised governance in, 148–9; dispute over mining rents, 158 Morales, Evo, 26 Morales Bermúdez, Francisco, 57, 58, 75; election of, 62–3 Moreyra, Francisco, 90 Moreyra, Manuel, 114, 115 Movimiento al Socialismo (MAS), 160, 173 Movimiento de Izquierda Revolucionaria (MIR), 62 National Intelligence Service (SIN), 76, 79, 99 nationalisation, 108; of banks, 68, 104, 121, 179; of extractive industries, 54; of foreign-owned enclaves, 56 natural gas, extraction of, 155–6 Negro, Poncho, 51 neoliberalism, 6, 23, 73, 75, 76–103, 152; opposition to, 173, 188

New Deal, 17 ‘New Gilded Age’, 17–18 New Haven, Connecticut, study of, 8 Newmont Mining company, 105, 156 Nicolini company, 106, 107 nitrates, production of, 36 non-governmental organisations (NGOs), 135 Obras por Impuestos, 80, 91, 145 Odebrecht company, 83, 117 Odría, Manuel A., 47, 51 oil, exports of, 37, 40 oil industry, 40–1, 52; activities of, 155 (pollution arising from, 163); sale of permits, 81 oligarchy, 38; in Russia, 19–21; landed, 54 (elimination of, 74, 179); new, 104; use of term, 2, 16–17 Olmos irrigation project, 45–6, 83 ombudsman see Defensoría del Pueblo Omelyanchuk, Oleksiy, 22 oncenio, 46 organised labour, declining power of, 14 Organization of American States (OAS), 101 Ortiz de Zevallos, Felipe, 113, 114 Osinerg agency, 87 Osiptel agency, 87, 117 Osma y Pardo, Pedro de, 38 Oxy company, 182 palm oil industry, 148 Panama Canal, opening of, 40 Panfichi, Aldo, 160 Paniagua administration, 101, 139 Paraguay, 26 Pardo Lavalle, Manuel, 35 Pardo, José, 37 Pardo y Barreda, Felipe, 38 Pardo y Barreda, José, 38 Pardo y Barreda, Juan, 38 Paredes, José, 28, 29, 105 paro armado, 72 participation of public: in administration, 140; in budgeting, 146 Partido Civilista, 29, 35, 37, 44 Partido Nacionalista Peruano (PNP), 174

index | 203 Partido Popular Cristiano (PPC), 66–7, 115, 170 Partido Unificado Maráteguista (PUM), 68 partidocracia, 171 parties, political: absence of, 160, 169, 176 (from local politics, 172); banning of, 54; demise of, 169–74; see also pseudoparties Patria Roja, 68 patrimonialism, 24 Payán, José, 40 peasantry, 53; as political base, 62; organisation of, 61 (destroyed, 72) Pease, Henry, 73 penal code (2004), 102 Pensión 65 programme, 136 Pérez, Martín, 116–17 Perú, país minero, use of phrase, 178, 182 Perú Pacifico company, 106 Perú Posible party, 134–5 Peru Privatisation Fund (PPF), 89 Peruanos por el Kambio (PPK), 186 Peruvian Amazon Rubber Co., 42 Peruvian Communist Party (PCP), 45, 46, 61–2, 63, 66, 68; division of, 61; outlawing of, 47, 48 Peruvian Corporation, 38 Pesciera, Jorge, 90 Petroperú company, 81, 153, 155 Phillips, Kevin: The Politics of Rich and Poor, 17; Wealth and Democracy, 17–18 Piérola, Nicolás de, 38, 39 Piketty, Thomas, 13; Capital in the Twenty-First Century, 9 pink tide, 1, 26, 160, 172; Peru absent from, 27, 183 Pizarro, Francisco, 28 Plan Colombia, 166 Plaza San Martín meeting (Lima), 68 Pluspetrol company, 155–6 police (PNP): reform of, 99–100, 103; response of, to conflict, 162; work in private security, 100 political power, exercise of, 11–12 political regimes, evolution of, 30–1 pollution: of air, 40; of rivers by oil spillages, 155

populism, 44–9 ports: construction of, 33, 36, 48; privatisation of, 92 poverty, 7, 78; problems of, 130–51; reduction of, 7, 18, 93, 136, 138, 149, 184, 188; rural, 94; urban, reduction of, 150 power elites, 9, 10 Prada, Manuel González, 38 Prado, Manuel, 47–8 Pratt, Brian, 156 presidency, rotation of, 44 Prensa, La, 56 price controls, removal of, 78 prior consultation to extractive projects see consulta previa private pension funds, promotion of, 127 private property, protection of, 55 privatisation, 3, 5–6, 15, 64, 80–2, 91, 94, 109, 115, 133, 180, 182; in Latin America, 22; in Russia, 19; of communal property, 81–2; of higher education, 112; of land, 83; of mining assets, 27; of ports, 92; of sugar cooperatives, 83; relation to corruption, 164 profit-sharing, law regarding, 57 Programa Nacional de Asistencia Alimentaria (Pronaa), 133–4; abolition of, 136 protest, political, 154–64 passim; statistics for, 154 pseudoparties, 170 pueblos jóvenes in Lima, 60 Putin, Vladimir, 20–1 Pyramid without a base, metaphor of, 122, 127–8 Qali Warma programme, 136, 137 Quellaveco mining project, 149, 162 Quirós, Francisco, 32 Quiroz, Alfonso, 46, 164 racial mixing (mestizaje), 39 railways, building of, 29, 33, 35, 36, 40, 41 Ramírez, Joaquin, 168 Reagan, Ronald, 14 regional government, 144

204 | i n d ex regionalisation, system of, 140 regulation, 86–8; of mergers, 81 Revolutionary Government of the Armed Forces, 54, 74 revolving doors, system of, 26, 88, 114, 116, 117, 124, 181 right to vote, 53 Rio Blanco mining project, 163 Riva Aguero, Enrique de la, 38 roads, building of, 49, 82, 136, 184; by forced labour, 44 Rodríguez brothers, 107 Rodríguez Pastor group, 106, 112 Romero, Dionisio, 57, 182 Romero group, 48, 89, 96, 106, 112 Rospigliosi, Fernando, 100 round table, form of mediation, 162 Royal Dutch Shell, 155 rubber: exports of, 37; production of, 41, 42 rural radicalism, 53 SAB Miller company, 106, 114 salaries: of doctors, 96; of teachers, 96 Salazar, Raúl, 114 salchicón policy, 56 San Marcos district, 147 San Martín, regional government in, 148 San Martín, José de, 29 Sánchez Cerro, Luis, 46–7; assassination of, 47 Santa Ana mining project, 163 Santos, Gregorio, 149 School for Mining Engineering, establishment of, 35 security, reforms in, 97–102 Sedapal company, 81 Segura, Alonso, 91, 125 Seguro Integral de Salud (SIS), 96 Semana Económica, 114 Sendero Luminoso, 61, 71, 73, 78, 79, 98, 99, 121, 134, 161, 162, 168, 171, 174, 179, 180, 183; growth of, 69; incursion into urban sphere, 72 Servicio de Asesoría Empresarial (SAE), 113 shanty towns, growth of, 75 SIN see National Intelligence Service (SIN)

Sistema Nacional de Inversión Pública (SNIP), 143 Sistema Nacional de Movilización Social (Sinamos), 60, 61; termination of, 63 Skocpol, Theda, 10 slavery, 28, 33; of indigenous peoples, 42; termination of, 35 smuggling see contraband activities social policy, 132–8; becomes mainstream government concern, 131; evolution of, 150; reform of, 93–7 Socialist Party, 45, 61 Sociedad Nacional Agraria (SNA), 39, 41, 46, 47; closure of, 56 Sociedad Nacional de Industrias (SNI), 39, 43, 56, 57–8, 64, 68, 119 Sociedad Nacional de Minería y Petróleo (SNMP), 39, 64 Sociedad Recaudora de Impuestos, 40 Sociedades Agrícolas de Interés Social (SAIS), 58 solidarity hospitals, 96 Soto, Hernando de, 76 Southern Peru Copper Corporation (SPCC), 48, 56, 126, 157, 182 Spain, 28–9, 43; transition from dictatorship in, 24 Spanish language, 51 Standard Oil company, 54 state: absence of, 5; autonomy of, 54–75; development of, 28–53; disconnected, deficiencies of, 152–77; distrust of, 187; for all, 187; in capitalist society, 8; institutional changes in, 77–8; lacks presence on the ground, 153; manipulation of, 176; neoliberal, birth of, 76–104; no longer major employer, 182; role of, 55, 80, 102, 124 (reduction of, 94); weakness of, 6, 164 state capture, 4, 5, 12, 26, 77, 88, 117, 122, 125–6, 128, 176, 181, 183, 188; postSoviet, 21–2 state of exception, 72 state sector, percentage of GDP, 108 strikes, 46, 65; against government policy, 72; general strikes, 64; in health sector, 96 see also armed strike

index | 205 structural adjustment, 22, 25, 64 sugar: exports of, 37, 42; production of, 28, 39, 48, 58 (cooperatives in, 83) Superintendencia de Banca y Seguros (SBS), 87 Superintendencia Nacional de Administración Tributaria (Sunat), 84–6, 116, 124 Sutton, Charles, 45 Tabini, Alejandro, 58 Tacna, dispute over mining rents in, 158 Tamayo, Gonzalo, 115 Tambogrande mining project, 156, 163 tariffs, 104; reduction of, 92; removal of, 64 Távara, José, 88 Tax Stability Contracts, 90 taxation, 14, 71, 143, 148; collection of taxes, 40; disputes over, 36; income tax, 89; of the wealthy, 35; oversight of, watered down, 127; reform of, 84– 6; regional division of revenues, 131; sales tax (IGV), 85, 86; tax evasion, 13, 17, 85, 124 see also windfall tax teachers, 95; salaries of, 96 Teck company, 130 Telefónica de España company, 81 telephone industry, 50 terrorism, 179; use of term, 175 Thatcher, Margaret, 15 Thorne, Alfredo, 91, 125 Tía María mining project, 126, 157, 162 Tilly, Charles, 161 timber, extraction of, 82 Tintaya, mining proect, 157 tobacco, production of, 41 Toledo, Alejandro, 122, 138, 140, 141, 173, 186; administration of, 134–5, 139 Topitop company, 119 trade unions, 14, 43, 44, 57, 75, 157; declining power of, 15; membership of, 71–2; of teachers, 95; prevention of unionisation, 97; unionisation in public sector, 60; weakness of, 65, 77, 128 transitional economies, 19–27 transparency, lack of, 145

‘triangle without a base’, 3, 25, 128, 133, 183, 188 Trivelli, Carolina, 136 Trump, Donald, election victory of, 18 Twelve Apostles, 67–8, 104, 106, 107, 113, 116, 179 Ucchu Pedro, 39 Ukraine, 21 Ulloa, Manuel, 63–4 unemployment, 71, 78, 85 Unión Nacional Odriista, 52 Unión Revolucionaria, 47 Union of Soviet Socialist Republics (USSR), 19–22 United Kingdom (UK), 32, 36, 43; power of business interests in, 14–15 United Nations Development Programme (UNDP), 89, 101 United States of America (USA), 19, 40–1, 49; civil war in, 37; defined as oligarchy, 17; dependence on, 54; distribution of wealth in, 14; elite power concentration in, 2; trade agreement with, 77, 80, 92–3, 116, 125 universities, 94–5, 184; expansion of, 50; for-profit, 112 US Agency for International Development (USAID), 115 US Minerals Management Service, 16 Valdés, Oscar, 164 Valdivieso, Luis, 90, 125 Vanguardia Revolucionaria (VR), 61–2, 68 Vargas Llosa, Mario, 68, 186 Vaso de Leche programme, 132 Velasco Alvarado, Juan, 67, 108, 139; administration of, 32, 54, 64–5, 132, 139, 141, 174; and elites, 55–8; coup of, 74, 178–9; ousting of, 55, 62 velasquismo, 55; abandonment of, 64 Venezuela, 26 Villanueva, César, 148 violence: against women, 102; domestic, 94; of police, 162; of political conflict, 160, 161; Senate, report of on, 166 Vizcarra, Martín, 149 vote-buying, 185

206 | i n d ex wages, 97 see also salaries Washington Consensus, 23, 25, 26, 79, 160, 179, 185; challenge to, 173 water resources: contamination of, 157–8; disputes over, 158–9; diversion of, 157; primacy of, 126 wealth, distribution of, 13–14, 38, 67 wealthy Peruvians, mapping of, 106 welfare policies, 24 whitening of populations, 39 Williamson, John, 185 windfall tax, 145 Winters, Jeffrey, 16 Wise, Carol, 88 women: discrimination against, 102; involvement in political decisionmaking, 69; rights of, 187 Women’s Ministry, 94 Wong family, 106

wool: exports of, 37, 42; production of, 33, 43 Workers’ Party (PT) (Brazil), 26 World Bank, 64, 88, 89, 92, 94, 101, 105, 115, 116, 133, 139, 173; study of corruption, 25; study of post-Soviet state capture, 21–2 Xstrata company, 157, 158 Yanacocha, expansion of, 156 yanaconaje system, 45 Yeltsin, Boris, 20 young people, employment conditions for, 127 Zavala, Fernando, 90–1, 114, 124, 125 Zúñiga, Madeleine, 95

A B OU T TH E A UT H O R S

John Crabtree is a research associate at the Latin American Centre, University of Oxford, a senior member of Saint Antony’s College, Oxford, and (currently) a visiting researcher at Oxford Brookes University. His most recent published books are Bolivia: Processes of Change, co-authored with Ann Chaplin (Zed 2013), and Fractured Politics: Peruvian Democracy Past and Present (2011). Francisco Durand is a research associate at DESCO-Centro de Estudios de Promoción del Desarrollo and professor of politics at the Catholic University of Peru (PUCP). His books in English include Business and Politics in Peru (1993) and Organized Business, Democracy and Economic Change, co-authored with Eduardo Silva (1996).