Impasse in Bolivia: Neoliberal hegemony and popular resistance 9781350220690, 9781842777589, 9781842777596

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Tables and map

Map

2.1 Bolivia

35

Tables

2.1 Loss of Bolivian territory, 1825–1985 4.1 Major legislation of the Sánchez de Lozada administration, 1993–97 4.2 World Bank support for restructuring, 1996 5.1 Sale of capitalized firms 5.2 Composition of exports, 1992–2004 7.1 Self-identification as member of indigenous group (over 15 years) a1 Geographic, social and economic indicators, 1980–2002 a2 Income inequality, 1999 a3 Composition of Bolivian exports by sector a4 Questions for hydrocarbons referendum

43 85 87 110 122 155 197 198 198 198

Acknowledgements

This book reflects a twenty-year love affair with a people and a place – the landlocked country of Bolivia. Initially a stopover for Linda between Peru and Argentina, it quickly moved to the centre of our lives. By 1984, Linda was back, working for the Canadian international volunteer organization CUSO on community development projects in the north of Potosí and editing an English-language bulletin with the Center for Documentation and Information (CEDOIN). Ben followed at the height of the hyperinflation and chaos of the UDP government. We have returned to Bolivia ever since. With over twenty years committed to this complex, frequently contradictory and always stimulating country, it is impossible to acknowledge all the people who have generously shaped our understanding – and passion – for it. From our earliest contacts at CUSO, many of whom have remained friends and colleagues, we would like particularly to thank Juan Tellez, Jessie Robbins, Diego Laneuville, Patti Parra, Pepe Pereira, Anne Catherine Bajard, Dagoberto and Erica Trincado, Daryl Martindale, Gina Waldie, Brigitte Willame, Alfonso via Reque, Xavier Albo and Fernando Rivera. In Cochabamba, where we lived in 1984–85 and again from 1991 to 1993, we appreciate the help and friendship of Carlos and Marlen Ramos, Cathy Breen, Susan Paulson, Margarita Salinas, Pablo Regalsky, Roberto Laserna, Domitila Chungara, Filemon Escobar, Florinda Fernandez, Margarita Laime and the women of La Imilla, Max Munckel, Ana Urquieta, Ana and Carlos Aliaga, Lee Cridland, Valentin Guttierez, Luis Morato and family, Kathyrn Ledebur, Godofredo Reinicke, Linda’s home-stay family, the Ramirezes: Oswaldo, Elta and Losel, Rocio Jimenez, Jim Shultz, Monica Crespo, Tom Kruse and Pamela Calla. In La Paz, where we lived from 1987 to 1991, returning almost yearly ever since, and where we lived for six months in 2005, thanks go to comadre Reyna Ayala and family who have taken such good care of us for over fifteen years; Felix Muruchi, Emilse Escobar and Valeria and Kantuta Muruchi Escobar, dear friends and frequent

travel companions; David Colque, who has assisted innumerable times in grasping Bolivia; Susanna Rance who graciously has shared her extensive knowledge, friendship and deep love of this country; and Dick Beckett, insightful observer and companion through both adventures and misadventures. Our thanks also go to colleagues and friends past and present who contributed to understanding Bolivia, many of whom make every visit a homecoming: Waskar Ari, Ivan Arias, Denise Y. Arnold, Diego Ayo, Mauricio Bacardit, Carmen Barragán, Tony Bebbington, Gustavo Birbuet, Jose Blanes, Rossana Brinatti, Cristina Bubba, Julio Calla, Ricardo Calla, Andrew Canessa, Albertina Castro, Freddy Condo, Sonia Dávila, Teresa Domingo, James Dunkerley, Jesus Duran, Manuel de la Fuente, Bob and Angelica Finestone, Danna and Paris Galan, Marta García, Armando Godinez, Philip Withers Green, Kevin Healy, Renata Hoffman, Adalberto Kopp, Maria Lagos, Maria Lohman, Eric Marchand, Polly and Tim McFarren, Carmen Medeiros, Javier Medina, Juan Carlos Medina, Vicki Mendoza, Genoveva Hilda Miranda de Villarreal, Jose Mirtenbaum, Sergio Molina, Carlos Navia, Katy Oxton, Julieta Paredes, Perico Perez, Nancy Postero, George Ann Potter, Julio Prudencio, Mario Quintanilla, Jose Antonio Quiroga, Oswaldo Rivera, Pavel Rocha, Ricardo Rocha, Gonzalo Rojas, Rafael Rojas, Sara Shields, Wolfgang Shuler, Juancho Sorruco, Susan Spronk, Henry Stobart, Laurent Thevoz, Graham Thiele, Sinclair Thomson, Laurie Thompson, David Tuckschneider, Fernando Valdivia, Rene Vargas, Tito Vargas, Jaime Vilela, Carlos Villegas, Tim Wright and Juan de Dios Yapita. Hundreds of other Bolivians have also shaped this work: women trainers and participants in literacy programmes; dozens of labour union leaders, from the local to national, interviewed as part of an educational project for Canadian unions; campesinos and NGO staff building wells; participants in conferences from the applied to the academic; grassroots leaders in remote places all over the country in events from union and community meetings to weddings; and women teachers struggling to confront the double and often triple work day. These people, their aspirations for a better life, and their ability to enjoy the one they’ve got, we hope are reflected in these pages. This book grew out of Ben’s research in the 1990s but the material was broadly expanded in 2004 and 2005. Temple University

provided study leave during the autumn of 2004 and CIES provided a Fulbright Teaching and Research Fellowship in spring 2005. Much of the background work was done during the late 1990s with the support of Cornell University and the Department of City and Regional Planning, the Aspen Institute’s Non-Profit Sector Research Fund, and Cornell’s Peace Studies Program, Einaudi Center for International Studies, and Latin American Studies Program. At Cornell, Ben owes a special debt to Bill Goldsmith for friendship and years of critical feedback. Phil McMichael and Lourdes Beneria also provided significant intellectual support. Our comadre Elayne Zorn first made us aware of Cornell and Ithaca and Mary Jo Dudley offered ongoing support through the Latin America Studies Program. Ben would also like to recognize the friendship and support of Juan Arbona, Ana Rosa Castro, Eric Clay, Chip Gagnon, Kanishka Goornewardena, Nancy Grudens-Shunk, Rebecca Hovey, Amy Lind, Barbara Lynch, Kathy Rankin, Anindhya Saha, Manuel Sanchez, Gwen Urey, Hannah Whitman, Donna Wiernicki and Anna Zalik. Finally, we have to extend many thanks to our children, Minka and Maya, who put up with us working at odd times, in odd places, in order to put this book together. They have been remarkably patient and good-humoured about the entire process! It is important to note that this work is but a single representation of a complex reality, and while we are thankful for the comments of friends and critics, we alone are responsible for its errors, omissions, and conclusions.

Abbreviations

English ADN AFP AIPE ANMM AOP APCOB APO ASP CAEP CAF CAN CAO CEDEAGRO CEDIB CEDLA CEDOIN CENDA CEPA CEPB CIDA CIDDEBENI

National Democratic Action pension fund administrators

Spanish

Acción Democrática Nacional administradoras de fondos de pensiones Association of Educational Asociación de Instituciones de Promoción y Educación and Training Institutions National Association of Asociación Nacional de Mineros Medium-sized Miners Medianos Annual Operating Plan Plan Anual Operativo Support for Peasant-IndigenApoyo para el Campesino-Indígena ous People of Eastern Bolivia del Oriente Boliviano Annual Program of Operations Programa de Operaciones Anuales Assembly for Peoples’ Asamblea para la Soberanía de Sovereignty los Pueblos Center for the Support of Centro de Apoyo a la Educación Popular Education Popular Andean Development Corporación Andina de Fomento Corporation National Commission for Comisión Agraria Nacional Agrarian Reform Agricultural Congress of Cámara Agropecuaria del Oriente the Oriente Center for Agricultural Centro de Desarrollo de Development Agropecuario Bolivian Center for DocuCentro de Documentación e mentation and Research Investigación Boliviana Center for Development, Centro de Estudios para el Labor and Agrarian Studies Desarrollo Laboral y Agrario Center for Documentation Centro de Documentación e and Information Investigación Center for Communication Centro de Comunicación y and Andean Development Desarrollo Andino Center for Studies and Centro de Estudios y Proyectos Projects Asociativos Bolivian Private Business Confederación de Empresarios Federation Privados de Bolivia Canadian International Development Agency Beni Center for Research, Centro de Investigación y DocuDocumentation and mentación para el Desarrollo del Development Beni

CIDES

Center for Integrated Economic and Social Development CIDOB Bolivian Confederation of Indigenous Peoples COB Bolivian Workers’ Confederation CODAEC Committee for the Defense of Water and the Family Economy COMIBOL Bolivian Mining Corporation CONANational Confederation of JUVE Neighbourhood Organizations CONDEPA Conscience of the Nation COR Regional Workers’ Confederation CPIB Beni Indigenous Peoples’ Central CSUTCB Confederation of Campesino Workers’ Unions of Bolivia DDCP DNFC DS ENDE ENFE ENTEL ETARE FCA FCC FECAR

FEJUVE FNDC FNDR FTAA GDP GOB GTO

Centro Integral de Desarrollo Económico y Social Confederación de Pueblos Indígenas de Bolivia Confederación Obrera Boliviana Comité para la Defensa del Agua y la Economía Familiar Corporación Minera Boliviana Confederación Nacional de Juntas Vecinales Consciencia de la Patria Confederación de Obreros Regionales Central de Pueblos Indígenas del Beni Confederación Sindical Unica de Trabajadores Campesinos de Bolivia Desarrollo Democrático y Participación Ciudano Dirección Nacional de Fortalecimiento Comunitario Decreto Supremo Empresa Nacional de Electricidad Empresa Nacional de Ferrocarriles Empresa Nacional de Teléfonos Equipo Técnico para el Apoyo a la Reforma Educativa Ferrocarril Andina Fondo de Capitalización Colectiva Federación Especial de Colonizadores Agrícolas de Rurrenabaque

Democratic Development and Citizen Participation National Administration of Community Support Presidential Decree National Electric Company National Railroad Company National Telephone Company Technical Support Team for Education Reform Andean Railroads Collective Capitalization Fund Special Federation of Agricultural Colonists of Rurrenabaque Federation of Neighbourhood Federación de Juntas Vecinales Organizations National Fund for Community Fondo National para el Desarrollo Development de Comunidades National Rural Development Fondo Nacional de Desarrollo Fund Rural Free Trade Areas of the Americas gross domestic product producto interno bruto Government of Bolivia grassroots territorial organizacaiones teritoriales de organization base

GTZ IADB IFI IMF INE INESC INRA ISI IU LAB LPP MAS MBL MDH MDP MIR MNR

German Development Aid Inter-American Development Bank international financial institution International Monetary Fund National Institute of Statistics National Institute for Social Studies and Training National Institute of Agrarian Reform import substitution industrialization United Left Lloyd Bolivian Airlines Law of Popular Participation Movement Towards Socialism Free Bolivia Movement Ministry of Human Development Municipal Development Plan Left Revolutionary Movement

National Revolutionary Movement MSDyMA Ministry of Sustainable Development and Environment MST Movement of Landless Peasants NCDRG National Coordinator for the Defence and Recovery of Gas NEP New Economic Policy NGO non-governmental organization OC oversight committee PCB Bolivian Communist Party PGDES General Economic and Social Development Plan PIEB Intercultural Bilingual Education Program PIR Party of the Revolutionary Left POR Revolutionary Workers’ Party PRI Institutional Revolutionary Party

Instituto Nacional de Estadística Instituto Nacional de Estudios Sociales y Capacitación Instituto Nacional de la Reforma Agraria

Izquierda Unida Lloyd Aereo Boliviano Ley de Participación Popular Movimiento al Socialismo Movimiento Bolivia Libre Ministerio de Desarrollo Humano Plan de Desarrollo Municipal Movimiento Izquierdista Revolucionario Movimiento Nacional Revolucionario Ministerio de Desarrollo Sostenible y Medio Ambiente Movimiento Sin Tierra Coordinadova Nacional de Recuperación y Defensa del Gas Nueva Política Económica organización nogubermental comité de vigilancia Partido Comunista Boliviana Plan General de Desarrollo Económico y Social Programa Intercultural Educacional Bilingüe Partido de la Izquierida Revolucionaria Partido Obrero Revolucionario Partido Revolucionario Institucional

RDC

VSF YPFB

Regional Development Corporation Sub-Secretariat of Ethnic, Generational and Gender Affairs structural adjustment programme Social Emergency Fund Social Investment Fund Sectoral Regulatory System National Rural Development Secretariat National Secretariat of Popular Participation School of the Americas state-owned enterprise Union of Civic Solidarity Unit of Political and Economic Analysis Popular and Democratic Union Vice-ministry of Popular Participation and Municipal Strengthening Veterinarians without Borders Bolivian State Oil Corporation

WTO

World Trade Organization

SAEGG

SAP SEF SIF SIRESE SNDR SNPP SOA SOE UCS UDAPE UDP VFMPP

Corporación de Desarrollo Regional Sub-secretaría de Asuntos Etnicos, Generacionales y Genero programa de ajuste estructural Fondo Social de Emergencia Fondo de Inversion Social Sistema Regulatorio Sectoral Secretaria Nacional de Desarrollo Rural Secretaria Nacional de Participación Popular

Union Cívica de Solidaridad Unidad de Análisis Política y Económica Uníon Democrática y Popular Vice-Ministerio de Participación Popular y Fortalecimiento Municipal Veterinarios Sin Fronteras Yacimientos Petrolíferos Fiscales Bolivianos

Introduction: entre fiestas y bloqueos (between fiestas and blockades)

24 June, La Paz, Bolivia

We sit on the ninth floor of the Edificio Diana, a block from the university, with a view up the Prado, the main street of Bolivia’s capital La Paz, to the Plaza San Francisco, the historic centre of national protests. Beginning in the middle of May, for almost three weeks, tens of thousands of people blocked the streets demanding the nationalization of the country’s natural gas industry and a constitutional assembly. The streets grew quiet following the resignation of the second president in two years. This morning La Paz is filled with smoke, not from protesters burning tyres, but from fires that celebrated San Juan, the winter solstice. The bonfires serve to warm the Pachamama, the mother earth, on what is supposedly the coldest night of the year. People throw old clothes and broken furniture into the flames with the expectation that anything burned will be replaced during the coming year. The custom continues in urban Bolivia, even though forbidden by a municipal government trying to control air quality. Fires are common not only in the indigenous city of El Alto, on the plateau high above La Paz, but also in middle-class neighbourhoods, where no one but the poorly paid domestic servants generally claim indigenous heritage. The city gets off to a slow start as it usually does following a fiesta, but the calm is illusory, only a respite from the blockades, strikes and social protests that have racked the country sporadically, although with increasing frequency and intensity, since 1999. The new president, Eduardo Rodríguez, is sure to be enjoying the temporary peace. He faces the difficult challenge of maintaining order while guiding the country to elections within 180 days. The members of social movements, too, are appreciating the break, recovering from marches, sometimes of hundreds of kilometres, to insist on an end to the neoliberal policies they believe have impoverished the country and for a new constitution they hope will allow them a share of the country’s considerable natural resource wealth. The calm will not hold. Bolivia’s largely indigenous and workingclass movements may call time out for a religious celebration or to

Introduction

give a new president a chance to show his colours. In recent weeks blockades were lifted in La Paz for Gran Poder, the ‘largest urban indigenous celebration in the world’, as 50,000 dancers filled the streets, and for the combined religious and secular holidays of Corpus Christi and Mother’s Day. Their fortuitous timing this year allowed everyone to take the weekend off, and fill the streets with music, dance and drink instead of marches, dynamite and tear-gas. The problems that led to the protests, however, offer no ready solutions. Even a president of good-will cannot fix twenty years of neoliberal policies overlaid on 500 years of social exclusion in the forty-five days the social movements have given him to prove his mettle. A current joke goes: ‘If God could create the world in six days, Rodríguez should be able to arrange for elections in 180. But then again, God had only the Devil to deal with. Rodríguez has Congress!’ Even though the constitution calls for an early election of the president and vice-president to complete the administration formed by Goni and abandoned by Mesa, the opposition parties and the people on the street are clear they will settle for nothing less than complete congressional elections. Representatives of the traditional parties in Congress, perceived by the Bolivian public to be universally corrupt, however, are loath to sacrifice their privileges. While the immediate demands of the social movements are relatively few – early elections, nationalization of the country’s gas resources (the second largest in South America) and a constitutional convention – they fundamentally challenge the existing economic and political system. For twenty years, like countries all over the global South, Bolivia has been subject to the constraints of global neoliberalism, a system that privileges the market, reduces the ability of the state to provide social services, and simultaneously concentrates wealth among an elite minority while it reinforces poverty among the majority. Manifestations of dissatisfaction with neoliberalism and its exclusionary social and economic development patterns have grown steadily. In the last five years, socialist, social democratic and populist presidents have assumed office in Argentina, Brazil, Chile, Peru, Uruguay and Venezuela. Hugo Chavez of Venezuela has been the most active, pushing discussion of transnational trends to centrestage, calling for a ‘Boliviarian’ revolution to unite South America and reverse the tide of global neoliberalism that he describes as another manifestation of US imperialism. Other presidents have taken less radical paths: Lula, 2

3

Introduction

of the Brazilian Workers’ Party, has actually exceeded International Monetary Fund (IMF) prescriptions and fitted social democratic policies into the straitjacket of transnational conditionality. In Argentina, Nestor Kirshner, after initially meeting IMF goals, launched aggressive campaigns to renegotiate both the foreign debt and contracts with private providers of public services. The IMF responded by conditioning further credits on even more severe structural reforms that will lessen risk for transnational corporations investing in Argentina’s public services. The private corporations reacted to contract renegotiations by filing suit with the World Bank’s International Center for the Settlement of Trade Disputes. For those interested in understanding how the neoliberal system functions, Bolivia provides a particularly stark example as well as illustrating the shape that popular challenges to it take. The anti-neoliberal backlash in Bolivia is based on a profound grasp of the historical (and continuing) economic and political processes that have shaped the country. Bolivians are aware that the mines of Potosí produced over half of the world’s production of gold and silver for over 100 years, yet today the city is one of the poorest in the hemisphere. They remember that the country’s tin resources created wealth not for the majority but for a handful of families. Schoolchildren rehearse the War of the Pacific with Chile that cost them their access to the sea and rich nitrate (and later copper) deposits over 125 years ago. The memory is renewed in the national imagination every year and the slogan, ‘It is the duty of all Bolivians to reclaim their right to the sea’, is posted in public buildings, and even seen on the spine of telephone directories. After 500 years, the indigenous majority of Bolivians has had enough. Struggle in Bolivia is not new. Indigenous uprisings from Tupac Amaru, the last Inca, to the gas war of 2005, recur on a regular basis. Since the Cochabamba water war in 2000, however, these struggles have been focused specifically against neoliberalism. Victories have been won – reversing the privatization of water, the imposition of what were perceived as regressive taxes and, now, the discount sale of natural gas to multinationals. But these struggles are not simply economic, nor are they ‘rational’. In the spirit of Ricardo, economists inquire why Bolivians rise in protest to prevent the sale of gas to Chile, a nation starved of hydrocarbons and their potential best customer. They question how a nationalized gas sector would raise the resources needed for exploration, transportation and industrialization? For that matter,

Introduction

if Bolivians transformed the gas into plastics, energy and fertilizer, who would buy their products? Those questions, while sound from a liberal macro-economic stance, fail to consider the political and social context in which development takes place. In real terms, per capita income is below that of 1970; the majority of benefits from the neoliberal development model over the past twenty years have accrued to 10 per cent of the population; and the visible signs of wealth accruing to this light-skinned urban elite minority affront the poor majority who are unable to live even as well as their parents. The struggle in Bolivia is about economic and social justice. The nation is built on a fabric of exploitation and exclusion: a weft of racism and discrimination and a warp of foreign domination and despoliation. Some analysts cast the problem in terms of ethnicity, of a majority of poor ‘Indians’ confronting a minority of rich ‘whites’ (Gott 2005). But, while the poor are primarily indigenous, they are linguistically and culturally as distinct as Dutch and Bulgarian ‘Europeans’, rather than constituting a single reified group of ‘Indians’. What they have in common, more than some western label of indigenous identity, is a shared history of exclusion and a common frustration with the promises and the failures of neoliberal globalization. Protests that led hundreds of thousands of Bolivians to the streets to remove consecutive presidents are symptoms of the underlying lack of legitimacy of a neoliberal government. Carlos Mesa, who assumed the presidency in October 2003, after the first round of the gas war left over seventy dead, will be remembered, if for no other reason, as a president unwilling to order the military to fire on unarmed civilians, a novel occurrence in Bolivia. And for that he should be honoured. Yet he had neither the political expertise nor the personal power to fulfil the ‘October Agenda’ and schedule a constitutional assembly or initiate an end to immunity for politicians, widely seen as serving personal and transnational interests rather than those of the nation. In his first two weeks in office, Rodríguez appears to have brokered a deal to manage the presidential elections, but he has yet to make progress on the thornier issues of the constitutional assembly and regional autonomy. Most Bolivians realize that without a new constitution, based on a fundamentally revised social contract, the economic processes defined by global neoliberalism will continue to impoverish them. Constitu4

5

Introduction

tional reform is in vogue throughout Latin America and changes in the last decade reflect transnational processes in two important areas (Van Cott 2000b). First, they incorporate new international norms such as the International Labour Organization Covenant 169 on the rights of indigenous people. Second, they have generally mirrored the creation of neoliberal states that privilege individual over social rights, granting transnational firms the civil rights of citizens and enshrining free market ideology within a constitutional mantle. This tide may be starting to turn. In the constitutional assembly planned for Bolivia, for example, much of the debate promises to focus on whether the state will control some part of the exploitation of Bolivia’s massive resource wealth. While control over hydrocarbons has propelled the current protests, minerals, water and forest resources are also on the table. The outcome may affect projects already underway, such as in the San Cristobál mine, controlled by the US firm Apex Silver, which contains some of the richest silver, lead and zinc reserves in the world. The calls for a constitutional assembly stem from the realization that the traditional political parties never attend to the majority’s interests. A recent poll found that 75 per cent of Bolivians think the country needs a new constitution. Reformulation, however, in itself offers few guarantees, given the control traditional political parties have in determining the process. But the desire to revise the fundamental social contract through a constitutional convention indicates profound dissatisfaction. A reinvented state will be faced with the challenge of simultaneously maintaining legitimacy in the eyes of its citizens while also creating and maintaining the conditions for markets to operate. That balance can be achieved only with a more equitable division of revenues from the country’s natural resources. Nationalization of gas, the second popular demand, promises to invoke the wrath of the World Bank, the IMF and the governments of the United States, the European Community and Bolivia’s larger and wealthier neighbours with interests in the country’s resources. But many citizens in this highly indigenous country appear to be willing to risk Bolivia becoming a pariah to the international financial community rather than continue the history of exploitation that has defined it for 500 years. Their rejection of neocolonial control of resources resonates with demands by Chavez in Venezuela for a greater share of natural resources rents for national development. International observers suggest that if Bolivia nationalizes its

Introduction

gas reserves, the country will be bankrupted by legal claims filed by multinational corporations. Bolivia could also lose access to potential markets. Discussions of a gas pipeline, an ‘energy ring’ connecting gasfields in Peru to markets in Chile, Argentina, Uruguay and Brazil, dominate the front pages of Bolivian papers. Chile maintains it cannot depend on a supplier that it sees as subject to the whims of an undisciplined mob. The US ambassador warns that Bolivia will face ‘serious problems’ if it nationalizes gas (La Prensa, 21 June 2005, B 22), and the international financial community hopes that threats of closing market access will provoke a backlash from Bolivians afraid of losing the opportunity for economic growth that gas promises. Yet the majority of Bolivians favour nationalization as the only means to ensure that the resources serve national development. Proponents of nationalization suggest that the income from gas, if invested in education and infrastructure, could provide the basis for sustained development. Others suggest that as Chile needs gas, they should exchange it for access to the sea. One NGO unrealistically claims that if Bolivia industrializes gas reserves, the income could top US $7.5 billion per year (CEDIB 2005). Gas has spawned the Andean equivalent of a cargo cult, transformed from a commodity to a magical resource in the national imaginary. If international financial institutions were truly interested in sustainable development in Bolivia, they would recognize that two paths guarantee international access to gas and mineral resources. The first is to push for a government capable of imposing and maintaining order. One El Alto resident suggests: ‘It wouldn’t take much for the military to put an end to the protests. They shoot a few people, round up the leaders and ship them off somewhere, and the rest of them will fold. People here have forgotten what it’s like to be ruled by terror. And there are no real leaders here any more.’ Ruling by force, however, has its own costs, as current US policies in Iraq and Afghanistan show. The second path is to address the underlying exclusion and inequality that feed the conflict. A constitutional assembly that nationalized resources could insist that gas production serve the national as well as the international economy. While the profits accruing to transnational corporations willing to enter into joint ventures with the state might be reduced, so would the risks. This interplay between gas, governance and globalization serves to illustrate the inherent problems of neoliberalism that, while starkly 6

exposed in Bolivia, are increasingly common throughout the world. The country shows that, without a doubt, contests between transnational capital and national social movements will continue in the face of exclusionary development processes in nominally democratic states. We hope this book will contribute to the debates in current policy and academic circles, and help promote recognition of the need for a new paradigm capable of leading to socially sustainable development. Organization of the book

7

Introduction

Chapter 1, ‘Neoliberal globalization: the challenge of maintaining hegemony’, introduces neoliberalism as an economic theory and then details its programmatic practices. We draw on the concept of hegemony to discuss how, at the international level, neoliberalism functions as a hegemonic regime imposed in large part by international governance agencies and financial institutions in collusion with national elites. We describe the contradictory interplay between markets and democracy under neoliberalism and the impact of neoliberalism on the government. Finally, we discuss how neoliberalism provokes the growth of counter-hegemonic resistance movements. Chapter 2, ‘From Francisco de Toledo to Jeffrey Sachs’, describes the historical backdrop to Bolivia’s past two decades of restructuring through three recurring themes common to many countries throughout the global south: the appropriation of the country’s wealth by international and national elites, ongoing resistance by the indigenous majority, and tensions between the regions and the centre. Focusing on Bolivia’s role in the global economy illustrates how elites have juggled demands coming from international hegemonic regimes with strategies to maintain their own privileged positions. These internal processes have consistently had an impact on the broader international arena, as Bolivia has repeatedly served as a site for creating institutional frameworks later applied elsewhere. At each step, Bolivians operating within national or local arenas have resisted, both adapting the new institutions to suit their needs and actively rebelling against them. National elites, sandwiched between international and local groups, have proven incapable of constructing a strong hegemonic state given the constant need to balance the pressures, first of colonial rulers and then of international capital, with those coming from workers and the indigenous population. Chapter 3, ‘The neoliberal incursion: structural adjustment and the

Introduction

New Economic Policy’, discusses the beginnings of the neoliberal project in Bolivia which fundamentally changed the model embodied in the State of ’52 (Estado de ’52). Through a combination of consent and coercion, President Victor Paz Estenssoro, supported by reinvigorated business elites, effectively created a temporary neoliberal hegemony by stabilizing the economy and minimizing the ability of labour to contest the state. We examine how international financial institutions, principally the World Bank and the International Monetary Fund, collaborated with Bolivian elites to marshal popular aspirations for political democracy after twenty years of military dictatorship and ten years of political and economic decline. The chapter explores how the resulting drastic social impacts were cushioned by the informal and drug economy, and how civil society institutions, such as the non-governmental organizations and the Church, often inadvertently facilitated neoliberalism’s success. Chapter 4, ‘Reinventing Bolivia: the Plan de Todos’ shows how the ambitious 1994 Plan de Todos (Plan for All), which established a market democracy in Bolivia, simultaneously attempted to reconcile the demands of subnational regions for greater autonomy with international pressures for open markets and access to natural resources. The Plan, developed with the support of international financial institutions and the United States, ushered in a new citizenship regime that differentiated access to certain types of rights. A brief review of the citizenship literature frames a consideration of the impacts of neoliberal economic policies on citizen–state relationships. Using citizenship rights as a lens to understand the Plan de Todos complements specific analyses of market and democratization restructuring that we return to in subsequent chapters. Chapter 5, ‘Privatization Bolivian-style’, shows how privatization transformed a productive state into a regulatory one when it transferred control of the five largest state-owned enterprises to transnational corporations. The subsequent rapid growth in foreign direct investment failed to improve either economic growth or living standards for the poor majority. Rather than addressing endemic state corruption, privatization merely shifted the locus of rent-seeking to the private sector. The government’s inability to regulate business diminished tax revenues, as income was lost from hydrocarbon and telecommunications firms, eroding the state’s capacity to perform basic tasks. Resistance erupted across the political spectrum, fuelling nationalist, indigenous 8

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Introduction

and socialist counter-hegemonic discourses to the entire neoliberal package. Chapter 6, ‘Municipal reform, social movements and new electoral politics’ looks at the Plan de Todos’ decentralization of the Bolivian government, particularly focusing on the changes in the locus of state control, and how the expansion of citizenship rights strengthened counter-hegemonic movements. Effective decentralization was stymied by a lack of local administrative capacity, elite control of new governing institutions and widespread corruption. Nevertheless, the new law expanded public discourse concerning citizenship rights. When municipal elections in 1995 opened new spaces for the indigenous majority in rural areas, the country’s political landscape slowly transformed. Increased participation fostered new counter-hegemonic discourses from indigenous, nationalist and populist leaders. With the adoption of direct elections for half of the members of the lower house, nontraditional parties won greater representation, a process that gained momentum in subsequent elections in 1999, 2002 and 2004. Chapter 7, ‘The neoliberal wars: water, taxes and gas’, describes how the profound discontent generated by unfulfilled neoliberal promises exploded with the Cochabamba water wars of 2000, when tens of thousands of citizens fought to reverse the privatization of the water system in the country’s fourth largest city. While numerous groups had previously mobilized strikes, demonstrated and organized road blockades to protest neoliberal policies, with the water wars increasingly broad coalitions expressed explicitly anti-neoliberal and resurgent indigenous discourses. Both forced coca eradication and neoliberal policies were understood as manifestations of US imperialism. Drawing on the massive frustration generated by the ongoing economic crisis and the widespread perception that a proposed gas pipeline would primarily benefit transnational corporations and long-time enemy Chile, a ‘gas war’ finally forced Gonzalo Sánchez de Lozada (Goni) to abandon the presidency in October 2003. Less than two years later, continued struggles over gas nationalization and a constituent assembly led Goni’s replacement, Carlos Mesa, to resign as well. These events reflect the depth of Bolivia’s challenge to neoliberal hegemony. Chapter 8, ‘Global trends and local responses: contesting neoliberalism’, considers how the attempts to establish the hegemony of market democracy interact with three recurring themes in Bolivian history – international domination, indigenous resistance and regional

Introduction

pressures. We contend that national challenges to global neoliberalism’s long-term viability as an economic and political system face fundamental limitations. We examine the role of international antiglobalization movements and argue that resistance in countries like Bolivia can only succeed in the long run through the creation of a global civil society capable of re-embedding the economy into social life. This will require modifications to neoliberal practices in highincome countries, including those of capital and international financial institutions, and the decommodifying of public goods.

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1 | Neoliberal globalization: the challenge of maintaining hegemony

In June 2005, Bolivia was in an uproar as hundreds of thousands of people blockaded roads around the country, isolating the principal cities. President Carlos Mesa, in office only twenty months, decided he had no choice but to resign. On 9 June, the Bolivian Congress appointed Eduardo Rodríguez, head of the Supreme Court, to take his place. Protesters so limited access to La Paz, the seat of government since 1899, that the Congress only felt secure meeting in Sucre, the official capital. As the new president assumed office, the social movements, headed by militant neighbourhood organizations, declared a temporary truce to assess how well Rodríguez would address their two principal demands: the renationalization of gas and calls for a constitutional assembly. Mesa had failed to deal with these concerns, and when Congress passed a hydrocarbons law on 17 May widely perceived as privileging transnational petroleum corporation over national interests, protests erupted. As Mesa stepped down, the demonstrators successfully pressured to ensure that the conservative heads of the Senate and Congress did not assume office. This effort caused the mobilization to lose steam, but as the structural conditions that led to the gas war remain unchanged, social unrest in the ongoing gas war is likely to surge again. Just twenty months before, on 17 October 2003, 500,000 people, almost a third of the population of the major cities of La Paz and El Alto, took to the streets protesting government hydrocarbon policies. Then, President Gonzalo Sánchez de Lozada – popularly known as ‘Goni’ – was forced to resign and hurriedly boarded a plane for Miami. In the days before he left, the country was in the throes of the gas war that left almost seventy people dead and hundreds injured. The demonstrators, drawn from a broad coalition of social groups, vigorously opposed Goni’s proposal for private firms to build a natural gas pipeline from southern Bolivia through Chile. They took to the streets with slogans demanding ‘Gas for Bolivians, not for multinationals’ and ‘Death to neoliberalism’. When Vice-president Carlos Mesa assumed the presidency, he almost immediately announced that he would con-

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sider altering the country’s twenty-year commitment to neoliberalism. The hundreds of thousands of Bolivians who drove the president from office made it clear that they would accept nothing less. World Bank and US embassy officials, however, hastily cautioned that embarking on such a course could cost Bolivia the international support it needed for economic stability. This lightly veiled threat was a warning that Bolivia, in the midst of its longest period of democratic government, could unravel into even deeper poverty and chaos. This book places the events of October 2003 to June 2005 in the context of two decades of neoliberal globalization – policies that subordinate the broader public interest by privileging the private sector while minimizing the role of the government in production – in over 100 of the world’s low- and middle-income countries (World Bank 1990, 1996, 1997; Gill 2003; Peet 2003). The Bolivian case is of special significance as it dramatically demonstrates what can occur when the construction of what Richard Peet (2003) has labelled a ‘global hegemonic neoliberal regime’ confronts resistance in national and local arenas. Even though national governments have largely been unable to imagine alternatives to the onerous conditions laid down by international financial institutions (IFIs) and private investors, the sacrifices neoliberalism demands from the poor majorities of the global South increasingly propel them to rebel against its premises and policies. This resistance can impinge upon government’s ability to guarantee the political stability needed for private firms and markets to function (Robinson 2003; Amoore 2004; Kingsnorth 2004). Neoliberal theorists use two central arguments to support their claims that markets, not states, should determine economic investments. First, they contend that freer markets guarantee greater economic efficiency and faster growth as private firms wrest control of the economy away from governments inherently incapable of matching the efficacy of multiple individual economic actors (Friedman 1962; Fukuyama 1992; Donaldson and Wagle 1995). Second, they insist that formal western-style democracy is the only political system that ensures what they consider the fundamental goal of the state – guaranteeing individual economic freedom, an objective they maintain is best achieved by limiting the areas of government action. Such a definition of democracy orients political participation to the voting booth; freedom, therefore, becomes complete market control in the sphere of economics and electoral participation in the sphere of politics. 12

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Neoliberal globalization

Linking economic liberalization with democratization leads to the promotion of what neoliberal proponents call ‘market democracy’. In this context, markets refer to minimally regulated capitalist economies in which the economic freedom of individuals is not only ‘an end in itself’ but also ‘an indispensable means toward the achievement of political freedom’ (Friedman 1962: 8). In low-income countries, neoliberal policies encompass the privatization and reduction of public services, strengthening local and national formal democratic structures, and the devolution of central state responsibilities to the local level through administrative decentralization. Development policy-makers, especially those at institutions such as the World Bank and the International Monetary Fund (IMF), conceive free markets and democratic institutions as mutually entwined and contend that when they are combined, they lead to higher rates of growth and more stable political structures. This argument has been widely discredited by researchers, both at the theoretical and empirical level (Oxhorn and Ducatenzeiler 1998; Waisman 1999; Barrera 1999). We concur with their conclusions, and our book contributes to comprehending how liberalizing markets interact with expanding formal democratic structures. The conflation of democratic concepts with free markets, we argue, is part of an ideological project of establishing (or maintaining) a hegemonic neoliberal regime that favours the private sector over the public interest. This book examines how neoliberalism fundamentally transforms the role of the state – both in terms of the economy and in relation to its own citizens. In instituting the important neoliberal goal of shifting the state from a key player in the economy into an arbiter of its rules (Friedman 1962: 25–32), the difficulty of developing regulatory institutions is routinely underestimated. A bureaucratic transition typically occurs, as the regulatory ability of the government lags behind economic restructuring. During this period, private entrepreneurs and public officials alike create new forms of rent-seeking1 to replace the corruption previously associated with government enterprise (Feigenbaum and Henig 1994; Schamis 2002). While the connection between global economic interests and the privatization of state-owned enterprises (SOEs) is straightforward (Williamson 1993; World Bank 1996, 1997; Friedman 1999), the links between these global interests and political decentralization are not so immediately apparent. Neoliberal reformers promote decentralization

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both as a means of improving government efficiency and of increasing political stability in low-income countries by channelling dissent away from confrontational public protest and into a more manageable electoral process (Robinson 1996). These efforts, however, do not always yield tidy election-oriented politics, as new political openings can facilitate greater protest by impoverished majorities. Particularly given the increase in inequality that has universally accompanied neoliberal policies (Benería 2003; Kurtz 2004), democratic reforms can threaten the ability to implement or maintain economic liberalization (Oxhorn and Ducatenzeiler 1998; Waisman 1999; Kurtz 2004). In building a market democracy, states often face the contradictory need to maintain citizens’ rights while allowing markets a free rein (Robinson 1996; Rankin 2001). Policies that simultaneously champion the civil and political rights associated with markets, private property and electoral politics frequently undermine the social rights to education, health and welfare (Ferge 1996; Garcia 1996; Roberts 1996; Turner 1997). As international institutions such as the World Trade Organization (WTO) remove barriers to capital mobility, perhaps the greatest threats to social citizenship rights come from governments increasingly awarding firms the property rights of citizens, yet requiring them to fulfil few of the responsibilities associated with citizenship (Sassen 1995; Bakan 2004). As Bolivia has served as a social laboratory for the policies of international institutions for over twenty years, it provides an excellent case for understanding these issues. The country has often been cited as an early neoliberal success story in international development policy literature (Sachs 1987; Graham 1992). Ex-Harvard economist Jeffrey Sachs, for example, established his reputation and gained rock-star status among mainstream development economists for his role in designing Bolivia’s structural adjustment programme (SAP), which was credited with reducing the country’s annual inflation rate from 20,000 per cent to 9 per cent. Sachs’s model became the basis for SAPs implemented by the IMF and the World Bank around the world (Sachs 1987). To minimize the associated negative social impacts, Bolivia became the first country to implement social emergency funds to create temporary jobs for thousands of workers. These programmes, too, were widely copied elsewhere (Graham 1992). Following the Cochabamba ‘water war’ in 2000, Bolivia was suddenly catapaulted on to the world stage as an inspiration for opponents 14

of neoliberal globalization as it proved that popular resistance to restructuring is possible (Finnegan 2002). Neoliberalism, which had been accepted by national governments of various political stripes as ‘inevitable’ or as ‘common sense’, is increasingly widely perceived as a form of neocolonialism. Bolivia graphically illustrates how neoliberal economic restructuring can be a principal source of political instability in developing and transition economies. The inability to maintain neoliberal hegemony at the national level has been marked by the government’s steady loss of legitimacy and its growing reliance on force to maintain control. We believe that such social and political crises are the predictable result of current practices of neoliberal globalization, and that these call its long-term political viability into question. In the remainder of this chapter we describe neoliberalism as an economic theory and then as a set of policy and programmatic practices. We draw on the concept of hegemony to discuss how, at the international level, neoliberalism functions as a hegemonic regime imposed in large part by international governance agencies and financial institutions in collusion with national elites. The contradictory interplay between markets and democracy under neoliberalism is described, as is the impact of neoliberalism on the different roles played by government. Finally, we discuss how neoliberalism provokes the growth of counter-hegemonic resistance movements. Neoliberalism

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Neoliberal globalization

Neoliberalism, with roots in the classical liberal political economy of Adam Smith, is based on a particular set of ideological assumptions about the relationship between the individual and the state. In classical liberal theory, written 200 years ago, the state’s coercive power was interpreted as the primary threat to individual freedom. Peet, in a broad-brush definition, writes that neoliberalism ‘is an entire structure of beliefs founded on right-wing, but not conservative, ideas about individual freedom, political democracy, self-regulating markets and entrepreneurship’ (2003; 9). Neoliberalism changes the accepted terrain of state activity and reduces social spending as the state abdicates its formal responsibility for providing certain services and/or transfers responsibility to the private sector (Feigenbaum and Henig 1994). While numerous scholars have contributed to the formulation of neoliberal theory, Frederick Hayek (1944), Milton Friedman (1962) and, more recently, Francis Fukuyama (1992) are generally recognized

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as articulating its theoretical foundations. These neoliberal theorists contend (i) that the ideal society is composed of utility-maximizing individuals with perfect information who engage in free exchanges in free market democracies; (ii) that free markets, which they also call competitive or capitalist markets, need democratic governments to operate most efficiently; and (iii) that the combination of a free market economy and a democratic government is not only more economically efficient but also socially desirable. They link personal freedom with progress and economic development, and privilege economics over politics as the primary organizing force in society. While democratic government is necessary for capitalist markets to function freely, free societies should limit the sphere of government. Hayek describes the purpose of democracy as ‘essentially a means, a utilitarian device for safeguarding internal peace and individual freedom’ (1944: 70). In Hayek’s seminal work, written towards the end of the Second World War, western society is seen as, ‘above all, an individualist civilization’ (ibid.: 14). He contends that during the ‘modern period of European history the general direction of social development was one of freeing the individual from the ties which had bound him to the customary or prescribed ways in the pursuit of his ordinary activities’ (ibid.: 15). This increasing economic freedom, he argues, led not only to rapid economic growth and the development of science and technology but also to ‘the undesigned and unforeseen by-product of political freedom’ (ibid.). Hayek equates all governmental planning with socialism (ibid.: 33–6) and maintains that, through planning, government exerts a coercive power that poses the greatest single threat to individual freedom. He argues that even minimal infringements of property rights represent a step on the Road to Serfdom, the title of his widely-cited work. Friedman, in one of his key works, Capitalism and Freedom (1962), posits that competitive capitalism, ‘as a system of economic freedom and a necessary condition for political freedom’ (ibid.: 4), provides the only guarantee for a free society. As does Hayek, Friedman maintains that government regulations – whether limiting economic activities or requiring contributions to social security – deprive citizens of some ‘essential part’ of this freedom (ibid.: 9). He defines political freedom as ‘the absence of coercion of a man by his fellow men’ and suggests that ‘[b]y removing the organization of economic activity from the control of political authority, the market eliminates this source of coercive 16

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power’ (ibid.: 15). For Friedman, government should restrict its role to that of ‘rule-maker and umpire’ of productive activities rather than that of participant. A market orientation serves not just to increase overall economic efficiency but also provides the more crucial function of limiting the scope of government action, thus reducing the chance that a majority can exercise tyranny over a minority. Francis Fukuyama asserts that market-driven, western-style democracies form part of ‘a coherent and directional History of mankind that will eventually lead the greater part of humanity to liberal [capitalist] democracy’ (1992: xiii). He converts the fundamental goals of neoliberalism – a competitive market economy wedded to a representative democratic political system – from simply representing a superior system to marking the end goal of human development. While Hayek opposes planning because it leads to restrictions of individual freedom, Fukuyama maintains that planning limits innovation. He argues that the inferior macro-economic growth in socialist, state interventionist and social democracies explains the worldwide drift towards competitive capitalism. However, Fukuyama believes that the parallel trend towards increased formal democracy around the world cannot be understood by a causal link between economic and political freedom alone. In contrast to Friedman and Hayek, he contends that ‘democracy is almost never chosen for economic reasons but rather stems from a totally non-economic drive, the struggle for recognition’ (ibid.: 135). This struggle is headed by what Fukuyama calls the ‘thymotic man’, an individual committed to political freedom and dignity. This freedom, according to Fukuyama, can be fully experienced only in a democratic society.2 In practice, the prerequisite of a western-style democracy for free markets to function appears tenuous at best, especially given that one of the earliest neoliberal regimes appeared in Chile under a military dictatorship. Even researchers generally supportive of neoliberal reforms have discovered no causal links between market liberalization and democracy (Starr and Oxhorn 1999). The privileging of capital, beholden to shareholders rather than to citizens, leads to the privatization of profit and the socialization of risk, as dramatically demonstrated, for example, in the 1980s Savings and Loan scandal in the United States, which is estimated to have cost American taxpayers $500 billion.3 When public services and natural resources are privatized, the private sector competes willingly in lucrative markets, whether urban water systems

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or parcel delivery. They are, with some exceptions, under no obligation to subsidize less lucrative markets, either in poor or widely dispersed areas.4 The decline of government’s ability to subsidize basic services is one of neoliberalism’s universal outcomes and represents one of its principal hidden costs, contributing to increasing the divide between the rich and the poor (Benería 2003; Gelinas 2003). Neoliberalism in practice: structural adjustment and the Washington Consensus

In Chile following Pinochet’s 1973 military coup, Milton Friedman, then at the University of Chicago, long a bastion of neoliberal economics as well as a training ground for Latin American elites, directed the design of new economic policies instituted by the dictatorship (Dezalay and Garth 2002; Gelinas 2003). The well-documented results reveal that a regime willing both to repress dissent and to transfer resources to the private sector did generate macro-economic growth for an extended period (Kurtz 2004). This growth, however, did not improve the overall standard of living; during Pinochet’s regime, ‘free market policies raised rates of poverty and indigence to nearly triple and quadruple their 1970 levels’ (ibid.: 9). Neoliberal policies were also embraced early on in another nondemocratic setting in South America’s southern cone. The military dictatorship that came to power in Argentina in 1976 was able to negotiate an IMF stabilization loan only after promising to liberalize the economy. In practice, this meant reducing export taxes, deregulating financial markets and creating high real interest rates. International banks supported the fundamentally unsustainable system based on low tariffs and high interest rates that ‘led to a severe contraction of production and to de-industrialisation’ (Lopez-Levy 2004: 31). The long-term effects outlived the 1983 return to democracy: in 2001 wages, employment and living standards were below 1970 levels. Argentina provides one of the starkest examples of how structural adjustment can hamper a country’s long-term economic prospects. A few years later, high-income countries adopted neoliberal policies during the administrations of Maggie Thatcher in Great Britain and Ronald Reagan in the United States (Vickers and Yarrow 1995; Young 2001; Blyth 2002). Thatcher privatized gas, power, public housing, railroads, telecommunications and water services ‘from 1984 to 1991 [which] represented a major realignment of the boundaries between the 18

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Neoliberal globalization

state and private sectors of the UK’ (Young 2001: 1). The process was not based on any well-developed, preconceived plan, as Oliver Letwin, an economic adviser to Thatcher, explained, ‘We had no coherent policy … it came upon us gradually and by accident and by a leap of faith’ (cited in Young 2001: 10). Neither had privatization been a key issue in the 1983 election. Thus, with neither a clear justification nor a public mandate, the Thatcher government wrought changes that will affect Britain well into the twenty-first century. Mark Blyth traces the rise of neoliberalism in the United States to combined concerns about ‘inflation and taxation [that] formed the fulcrum around which the disparate ideas of monetarists, supplysiders, rational expectations and public choice theorists were brought together’ (2002: 126). Blyth explains that these ideas created a new critique of government interventionism that suggested that governments ‘cause recession and depression by their very action. Left on its own, the economy would not, and indeed could not, produce longterm slumps. Government is not part of the solution. Government is the problem’ (ibid.: 144; emphasis in original). Shortly after Reagan took office, these ideas were translated into an economic programme through the new administration’s principal policy document, America’s New Beginning: A Program for Economic Recovery. Known as the ‘Reagan Revolution’, it called for cuts in federal spending, massive tax cuts for corporations and wealthy individuals, deregulation to promote investment, and tighter monetary controls to ‘predictably increase money supply’ (ibid.: 172). At the same time, defence spending remained high even though the federal budget was slated to be balanced by 1985. The federal deficit, however, surged in the face of billions of dollars of tax cuts, with social spending blamed as the cause of the growing deficit. Subsequent deep cuts in social spending changed the federal government’s allocation of funds to the states, allowing federal block grants to replace individual funding for many programmes. States protested this change, which, although it gave them far greater discretion in allocating funds, reduced total spending for social welfare by 17 per cent (Conlan 1998). Neoliberal ideas spread into international financial institutions through key Reagan administration appointees ‘who forced Hayekian principles on the Fund [the IMF] and the [World] Bank on threat of withdrawal of US funding’ (Gill 2003: 13). This signalled a change in international development policy from state- to market-guided

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principles. Elite universities in both the United States and Britain, where future leaders from low- and middle- income countries are imbued with the latest western economic and political orthodoxy, played a key role in the diffusion of neoliberal ideology (Dezalay and Garth 2002). The process accelerated with the widespread economic crisis in developing countries during the late 1970s provoked by massive loans pegged to the US dollar, followed by a period of inflation that boosted interest rates to almost 20 per cent. The international debt crisis, dramatically highlighted when Mexico defaulted on its international debt in 1982, provided the IFIs with the leverage they needed. By the early 1980s, the World Bank and the IMF aggressively pursued policies, known as structural adjustment programmes (SAPs), to reduce the economic role of national governments and to open economies to international capital (Benería and Mendosa 1995; Goldfrank 1999; Peet 2003). Countries dependent on development aid had little choice but to accept these conditions. The unequal power relationship, along with the exercise of hegemony through national elites who consider collusion with global economic orthodoxy in their best interests, ensured that neoliberal practices spread through finance ministries around the world and deepened their influence within international development organizations (Dezalay and Garth 2002; Peet 2003). By 1993, neoliberal policies came to be called the Washington Consensus, a term coined by World Bank economist John Williamson: [T]he ‘Washington consensus’ is the outcome of worldwide intellectual trends to which Latin America contributed (principally through the work of Hernando de Soto)5 and which have had their most dramatic manifestation in Eastern Europe. It got its name simply because I tried to ask myself what was the conventional wisdom of the day among economically influential bits of Washington, meaning the US government and the international financial institutions. (Williamson 1993: 1329)

Williamson identifies ten defining principles of the Washington Consensus: 1. fiscal discipline with deficits of less than two per cent 2. a change in public expenditure priorities that reduces subsidies for special interests 3. tax reform that includes cutting marginal tax rates, especially on overseas investments 20

4. financial liberalization, with market-determined interest rates, or, minimally, the abolition of subsidized interest rates for special interests 5. unified exchange rates 6. trade liberalization and the replacement of trade restrictions by tariffs, not to exceed 10 per cent, or at worst 20 per cent 7. increase of foreign direct investment through abolishing investment barriers in order to ‘level the playing field’ 8. privatization of state enterprises 9. deregulation and abolition of regulatory barriers to entry to all industries 10. guarantees of secure property rights. (ibid.: 1332–3)

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Devoid of any social or political context, many of these policies make considerable sense. However, promoting fiscal discipline and opening economies to foreign investment have proven neither as universally applicable nor as successful as their proponents hold (Banuri 1991; Brohman 1996; Soros 1998; Stiglitz 2002). In a period when the ease and speed of international communications have accelerated rapidly, reducing barriers to foreign investment often exposes economies to the whim of what Thomas Friedman (1999) has called the ‘electronic herd’: international investors with the ability to destabilize markets that lack currency controls. The increased mobility of speculative capital makes governments ever more dependent on following neoliberal policies in order to keep notoriously fickle investors happy. Hedge-fund billionaire George Soros (1998) describes how fundamentally misdirected IMF policies sparked international investors to initiate a flight of capital from Thailand that in turn provoked the 1997 Asian economic crisis. Nobel laureate economist Joseph Stiglitz (2002) blames this crisis – which subsequently led to a worldwide recession – on IMF adherence to Washington Consensus policies. The empirical evidence clearly shows that the majority of citizens in countries that have undergone neoliberal restructuring – often in the form of IMF SAPs – have seen their standard of living fall (Benería 2003; Kurtz 2004). One of the most dramatic examples is Russia where life expectancy declined precipitously after the adoption of neoliberal policies in the 1990s (Notzon et al. 1998). Many researchers argue that the rapid economic takeoff in Asian countries such as Indonesia and South Korea during the 1980s was due to government protection of national

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industries as well as public investment in both education and infrastructure – all actions that run counter to reducing the state’s economic role (Gelinas 2003; Walton 2004). Neoliberal restructuring in South Korea after the 1997 Asian crisis increased dependency on exports and domination by foreign capital while simultaneously lowering wages and internal consumption (Hart-Landsberg and Burkett 2001). The awareness that free markets can have a negative social impact is not new: much of the extensive critical literature on unrestrained markets finds its roots in The Great Transformation, Karl Polanyi’s (1957) classic study of the rise of capitalism in England. Negative social impacts are not unexpected by neoliberal theorists; yet they argue that society as a whole will ultimately benefit from the faster economic growth that an unfettered private sector brings and that the ‘social responsibility of business [is] to increase its profits’ (Friedman 1984, cited in Gelinas 2003: 109). Critics counter that the single-minded pursuit of corporate profit creates pathological organizations willing to devastate ecological, social and cultural systems (Bakan 2004). In practice, attempts to create a globally competitive market economy in low-income countries have excluded the majority of citizens who lack access to the human and financial resources, technology and political power of multinational firms. As a result, the new global economy creates relatively few winners – multinational corporations and national elites – and an increasingly marginalized majority (Benería 2003; Gelinas 2003; Bakan 2004). Neoliberalism as a hegemonic system

To understand how neoliberalism has become conventional wisdom in policy arenas, Gramsci’s concept of hegemony provides a useful conceptual framework even if, as Perry Anderson (1976) notes, at various times the Italian political philosopher gives hegemony different and even contradictory meanings. In early writings, Gramsci refers to hegemony as how elites exercise social control, primarily through civil institutions, in order to obtain the consent of the governed. He contrasts hegemony, which achieves consent through a form of ‘intellectual and moral direction’, with domination, which requires the use of force. Gramsci identifies different locations for these forms of control indicating that ‘hegemony (direction) pertains to civil society, and coercion (domination) to the State’ (cited in Anderson 1976: 21). As Anderson notes, Gramsci’s understanding of hegemony changed as 22

he shifted his focus from an analysis of Russia to western democracies where he ‘speaks of hegemony, not as a pole of “consent” in contrast to another of “coercion”. But rather as a synthesis of consent and coercion’ (ibid.: 22; emphasis added). Not only does this expand the location of hegemony to encompass both the state and civil society, but it also transforms hegemony from a single concept to a multiple one that incorporates the separate categories of political and civil hegemony (ibid.: 25). Peet argues that, for Gramsci: ‘ideological hegemony was established mainly by civil rather than state institutions. In this formulation, hegemony is a conception of reality, spread by civic institutions, that informs values, customs and spiritual ideals, inducing, in all strata of society, “spontaneous” consent to the status quo. Hegemony is a world view, so thoroughly diffused that it becomes, when internalized, common sense’ (2003: 15). The process of internalizing a hegemonic world view – ‘the sociocultural production of the way people think’ (ibid.: 17) – of course, is never complete, but is an ongoing effort by elites to define conventional wisdom. Hegemony is fluid, constantly challenged by social movements, the independent media, opposition parties in government and intellectuals. As important, because hegemony is never total, ‘counterhegemonic discourses’ that challenge the conventional wisdom constantly arise.6 In a 1993 article, Williamson demonstrated how a classic hegemonic discourse is constructed when he wrote that the ‘Washington Consensus’:

Williamson is not only promoting a specific set of policies but also attempting to imbue his analysis with the force of natural law. Peet 23

Neoliberal globalization

seems to me to be in some sense the economic equivalent of [prohuman rights and anti-racist issues] (hopefully) no longer political issues … [T]he sooner it wins general acceptance … the better for all concerned … [T]he superior economic performance of countries that establish and maintain outward-oriented market economies subject to macroeconomic discipline is essentially a positive question. The proof may not be quite as conclusive as the proof that the Earth is not flat, but it is sufficiently well established as to give sensible people better things to do with their time than to challenge its veracity. (Williamson 1993: 1330)

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suggests that applying ‘Michel Foucault’s notion of “discourse” linked to a “Marxian-Gramscian” analytical framework to analyze efforts to create a neoliberal hegemonic discourse’, clarifies that ‘economic policy does not come from science’s ability to mirror the exact structure of social reality in a structure of truthful statements called exact theories. Instead, policy is socially produced by a community of experts who agree, more by convention of political persuasion than factual backing, to call a certain type of thinking and speaking “rational”’(Peet 2003: 16–17). Complementing and competing hegemonic discourses not only operate in different arenas (the family or the economy) but also on different scales. Much of the challenge to the ‘common sense’ of global neoliberalism stems from the contradictions between differing neoliberal hegemonic regimes at the transnational scale and the national scale – in our case, within the boundaries of a small, landlocked, Andean country. According to Stephen Gill: hegemony is not to be understood as simply a relation of dominance between states in the inter-state system; it involves the construction of a relatively consensual form of politics within its sphere of reference, with its combination of power and leadership giving due weight to subordinate forces in a series of institutionalized political settlements. Hegemony is forged in a complex set of historical blocs that link public and private power within and across nations in transnational political networks that seek to sustain, regulate and rule an increasingly global capitalist order. (Gill 2000: 69)

The enormous power of this transnational hegemony explains how the World Bank and the IMF have successfully convinced even progressive but financially strapped governments from the Workers’ Party in Brazil to the United Marxist-Leninist Party in Nepal (Rankin 2004) that they have no alternative other than to adopt neoliberal policies. Neoliberalism faces different challenges at the national and subnational scales where the expectations it creates of a better life confront the reality of ongoing hardships for the majority. As a result, neoliberalism’s most serious challenges stem not from national governments but rather from social movements confronting those national governments. This reveals that the ability to construct hegemony at one scale does not automatically transfer to another. Gill points out that neoliberalism lacks the integrated support from civil society to 24

create a ‘strong’ hegemonic system in developing countries. He holds that this has meant the imposition of ‘disciplinary neoliberalism’ that combines coercion with consent. As the increasing use of force signals the loss of consent and a shift to coercion, a hegemonic regime loses its legitimacy. Gill maintains that ‘whilst there has been a growth in the structural power of capital, its contradictory consequences mean that neo-liberalism has failed to gain more than temporary dominance over our societies’ (2003: 120).7 As seen the world over, the IMF is often better able to persuade a government minister of the inevitability of cutting funding to reach a deficit target than to convince a crowd protesting increased water or food prices that these cuts are in their long-term interest. Market democracy

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While neoliberal theorists and practitioners largely agree on the nature of a free market, there is less concurrence on the meaning of democracy, in part because they pay it less attention. For neoliberal proponents, democracy can mean the traditional concept of representative democracy, or what Guillermo O’Donnell refers to as ‘delegative’ democracy in which ‘whoever wins the election to the presidency is thereby entitled to govern as he or she sees fit, constrained only by the hard facts of existing power relations and by a constitutionally limited term of office’ (cited in Oxhorn and Ducatenzeiler 1998: 235). The neoliberal theorists Hayek, Friedman and Fukuyama all express concern that in a democracy the majority can impose its will on a minority, whether by coercing individuals to contribute to social security, limiting their property rights through zoning regulations, or appropriating individual wealth through taxation. This dilemma creates the problem of what they call ‘too much democracy’ (Crozier et al. 1975) which they propose be addressed in two ways. The first restricts the areas that fall under state control by separating the economy as much as possible from the political process and the second mandates decentralizing governmental functions in order to disperse political power and opposition. Some critics see neoliberalism as promoting a kind of democracy in which the real decision-making takes place in the private, not the public sector. Defining democracy as ‘the right of all citizens to vote and participate in politics’ (Fukuyama 1992: 43) says little about the substance of political rights, such as who votes, which votes get counted and who

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runs for office. William I. Robinson argues that spreading western-style formal democratic structures seeks a ‘low-intensity’ means to guaranteeing political stability for economic globalization. The impulse to ‘promote democracy’ is the rearrangement of political systems in the peripheral and semi-peripheral zones of the ‘world system’ so as to secure the underlying objective of maintaining essentially undemocratic societies inserted into an unjust international system. The promotion of ‘low-intensity democracy’ is aimed not only at mitigating the social and political tensions produced by elite-based and undemocratic status quos, but also at suppressing popular and mass aspirations for more thoroughgoing democratization of social life. (Robinson 1996: 6)

Despite these limitations, democratization initiatives can plant important seeds that grow into counter-hegemonic resistance. Previously disenfranchised groups internalize new attitudes about their citizenship rights; for example, the right to receive services from the state or the right to a better standard of living in ways not anticipated by neoliberal practitioners. With their new (albeit limited) sense of entitlement, these groups’ increased demands often crystallize around the negative impacts of neoliberal economic and social policies such as the higher costs of basic services and commodities, job losses, price hikes that accompany privatization and the new taxes demanded by IFIs (Gills 2002; Finnegan 2002; Robinson 2003). At the same time, linking markets to democracy has provided politicians and practitioners alike with a tool to expand neoliberal hegemony. Powerful assumptions, which maintain that free markets create economic growth and encourage the liberal individualism necessary for democracy to take root, underlie current neoliberal policies (Oxhorn and Starr 1999). In countries struggling to restore or establish democratic governments, as well as in wealthy industrialized countries, the ‘democracy’ side of the neoliberal equation has enormous appeal. Savvy politicians have promoted privatization of resources and enterprises and the reduction of the public services under the guise of bringing ‘freedom’ to low-income countries. Democratic discourse has effectively made neoliberalism more palatable to national elites, local populations who perceive democracy as the key to improving their lives and to people in western industrialized countries. In some sense, this has been a classic bait and switch tactic: engender support for neoliberalism by 26

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Neoliberal globalization

tapping into desires for democracy while privileging wealthy elites, both national and international, at the expense of the majority. In general, while substantially more literature exists on either economic or democratic restructuring than on the interaction between the two, predictably, among those who study both there is little agreement. Pamela Starr and Philip Oxhorn contend that for neoliberal theorists markets and democracy ‘are inherently so compatible that the success (or failure) of one will ultimately lead to the success (or failure) of the other’ (ibid.: 2). Other authors insist, although for different reasons, that rather than being inherently complementary, they are contradictory (Smith et al. 1994; O’Donnell 1994; Gill 2003; Peet 2003). In Nicaragua, Cruz Feliciano (2002) found through a national opinion survey that the values underlying neoliberalism had a negative impact on the development of a democratic political culture. Jelin argues that while democratic discourse has become hegemonic, ‘the reality of economic relations is in contradiction with it’, resulting in ‘a double discourse: a discourse of participation and a non-discourse of economic exclusion’ (cited in Ejdesgaard Jeppesen 2002: 28). Starr and Oxhorn, for their part, take a middle road between these different interpretations, stating that ‘political and economic liberalizations are characterized by autonomous logics that in any given context can be complementary, contradictory or even directly unrelated’ (1999: 4). They identify five factors (an ‘extreme socio-economic inequality, a socio-political matrix that is in flux, the degree of economic crisis, the character of ruling coalitions and the nature of political institutions’) that determine the relationship between political and economic restructuring. They recommend that sustaining democratization requires strengthening political parties, civil society and the regulatory power of the state. While they recognize that these interactions are so complex that predicting the outcomes of restructuring is virtually impossible, they argue that ‘the success of economic liberalization appears to depend on limiting either the ability or the willingness of those affected most negatively by economic reform to influence policy’ (ibid.: 244). By this argument, then, neoliberalism’s success in limiting the poor from affecting policy is tightly linked to its ability to construct a national-level hegemonic regime. Starr and Oxhorn unfortunately constrain their analysis with the implicit assumption that the fate of market democracies is determined by endogenous processes. Our research suggests that not only must

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we examine the interaction between liberalizing markets and democratic reforms within a particular country but that it is imperative to locate both within a transnational system that so powerfully dictates the prospects for a national economy. By incorporating exogenous factors to the mix and considering neoliberalism’s impacts on individual countries within a global system, we add a layer of complexity that permits a deeper understanding of these interrelated social, economic and political processes. Neoliberalism and the state

Neoliberal theorists argue that only by reducing the reach of the government and transferring the responsibility for the economy to the private sector is it possible to maximize economic growth. Their argument is often built on Hernando de Soto’s (1989) critique of the Kafkaesque regulatory structures that frequently plague low-income countries, a focus that masks neoliberalism’s principal goal of privatizing the economy in order to shrink the state (Feigenbaum and Henig 1994; Strange 1996). To shift towards greater private control, current international development agencies seek to establish ‘new constitutionalist’ limits that ‘mandate the insulation of key aspects of the economy from the influence of politicians or mass of citizens by imposing, internally and externally, “binding constraints” on the conduct of fiscal, monetary and trade and investment policies’ (Gill 2003: 132). This strategy is reflected in practices that range from World Bank programmes to privatize public services and sell state-owned enterprises (SOEs), to programmes that strengthen subnational governments and break down concentrations of political power (World Bank 1996, 2000), to international trade treaties that limit national sovereignty. In lower-income countries, many governments have privatized stateowned enterprises with promises of faster economic growth (Kohl 2004). While increases in the efficiency of individual firms are common, after privatization average GDP growth from 1989 to 1995 was negative throughout Eastern Europe and inflation exceeded 1,000 per cent per year in some countries (World Bank 1996: 18). Privatization has typically resulted in net job loss, which should not be surprising as managers strive to cut costs. In Mexico, for example, hundreds of thousands of jobs were lost after the sale of SOEs (Ramiréz 2000). As privatization fails to generate employment, governments often shift their emphasis to local economic development and micro28

29

Neoliberal globalization

enterprise initiatives. This approach, consistent with de Soto’s call to reduce regulation and increase investments in the informal economy, faces serious limitations because small firms face overwhelming competition from global producers with better access to technology and capital (Arbona 2003; Rankin 2004). As a result, micro-enterprises remain at the bottom of the global production chain and their failure worldwide to move up into the formal economy is testimony to the neoliberal inability to solve fundamental economic problems. Privatization frequently occurs in an environment with weak supporting legal and political institutions, and this has led, in the case of Russia and China, to what some authors call predatory or gangster capitalism (Holmstrom and Smith 2000). As the government relegates increasing parts of the economy to the private sector, typically, its regulatory capacity lags significantly. Often the private sector has drawn on international expertise to benefit from this situation, such as when consultants to specific industries write regulations for those industries (Manzetti 2000; Young 2001). This regulatory transition contributes significantly to the common failure of privatization programmes to reach their broader social and economic objectives. Neoliberal policy-makers often argue that as SOEs are such renowned sites of corruption they should be privatized. Abuses of personal political power to win governmental subsidies and jobs are legion in all countries. Yet privatization alone does not address the fundamental issues underlying corruption; instead, it transfers its sphere from the public to the private sector, creating different opportunities for similar kinds of rent-seeking behaviour (Schamis 2002; Transparency International 2004). This can be seen most starkly in Pinochet’s Chile and Russia’s ‘nomenklatura privatization’. Other scholars concur, drawing on cases from Latin America (Ramirez 2000) and Eastern Europe (Tarkowski 1990; Nellis ND). International financial and development institutions maintain that democratic restructuring associated with neoliberalism offers the best way to improve both macro-economic performance and political stability, and thus alleviate poverty, all of which figure among their principal goals.8 These policies often combine administrative decentralization, local participation in decision-making and increased funding for local and regional governments (Blair 1998: 23). Neoliberal theorists assume that decentralizing government will attain three goals: (i) increase efficiency; (ii) reduce the power of any single government

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office, thereby reducing its potential coercive power; and (iii) allow for improvements in service delivery, as decentralized offices are generally more responsive to local pressure. Scholars have by and large found these assumptions to be unsubstantiated (Oyugi 2000; Bolton and Farrell 1990; Wunsch 2001). Neoliberal restructuring significantly affects the composition of citizenship rights as free markets which privilege the property rights of firms and substantive social citizenship rights are inherently at odds with each other. This tension reflects what Marshall describes in his classic studies of citizenship in Great Britain (1964), which suggests that pitting civil against social citizenship rights within a democratic state produces growing inequality, a result that is legitimized as the inevitable consequence of competition. Yashar (1999: 84–7) refers to this as the spread of neoliberal citizenship regimes, which, she argues, has occurred throughout Latin America. These processes are visible around the world, perhaps most obviously in countries making the transition from socialist to market economies where striking increases in inequality have mushroomed as services are slashed and wealth is concentrated (Ferge 1996). Resistance to neoliberalism and challenges to hegemony

Resistance to neoliberalism rises from a number of fronts – from organized labour, a factory owner unable to compete in the global economy, an opposition political party, or a nationalist candidate for political office – and can occur at either national or subnational levels. Resistance can stem from either what Carolyn Moser (1989), in her analysis of gender planning for development, identifies as ‘practical’ or ‘strategic’ needs. Practical needs are the demands of daily life, for example the water supply, while strategic needs challenge the more fundamental structures of social power.9 Practical demands take place within a normal hegemonic relationship while those that address a strategic need reflect counter-hegemonic pressure. A labour union’s call for increased wages operates within an existing hegemonic structure, according to rules that define as reasonable demands to improve working conditions and job security. The moment structures are questioned, such as the concept of private property or the right of capital to profit from labour, these demands form part of a counter-hegemonic discourse. In many countries, for over 100 years, pressure for more equitable 30

31

Neoliberal globalization

income distribution and other social needs has originated with labour unions. As attacks on organized labour constitute an integral part of neoliberal policies under the rubric of labour flexibilization, new social movements have taken up the banner for many struggles, including those based on gender, ethnic, religious or other identities (Tarrow 1998). Some of these movements are local: urban social movements, typically focused on geographically bounded issues (Castells 1983; Finnegan 2002); some are regional, like anti-dam movements in India (Roy 1999); and others are global, like the anti-globalization movement commonly recognized in the United States to have been initiated with the 1999 World Trade Organization protests in Seattle (Gill 2000). While some existing trade unions, such as those that represent the elite of labour in the United States, have reached an understanding with capital so that negotiations fall within existing hegemonic relationships, changing conditions frequently lead new groups to make counter-hegemonic demands. On occasion, national elites contribute to a nationalist counter-hegemonic discourse in an effort to protect their privileged position when neoliberal policies threaten the basis of their wealth by eliminating tariff protections for local industries. During the last ten years, new organizing tools such as the internet have allowed local groups to extend their reach, creating hybrid movements and alliances across regions and national borders (McMichael 2004). Counter-hegemonic demands can develop due to tensions from new forms of marginalization or as the trappings of new wealth accruing to a successful minority become increasingly visible. Of course, in countries with a colonial past, especially among people aware of this legacy, the distribution of benefits from processes such as natural resource extraction or the lack of opportunities for an ethnic majority, provide multiple opportunities for the contradictions between hegemonic ideologies and material reality to surface. As disparities grow, people increasingly question neoliberalism not only as a specific set of policies with different effects according to class, gender and ethnicity, but also as an ideology that justifies inequality. This questioning spreads counter-hegemonic discourses and the resulting confrontations are often far more significant than the relatively weak challenges national governments mount to conditionalities imposed by an overpowering combination of international financial institutions (IFIs) and investors in international capital markets (Friedman 1999). Where resistance to neoliberal policies grows, whether through the

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institutions of electoral representative democracy or through direct action, the political stability needed for markets and, in some cases, for liberal democracy to operate may be threatened. As these challenges increase, the government typically responds by an increasing use of force. Anderson, in his discussion of Gramsci, notes: the development of any revolutionary crisis necessarily displaces the dominance within the bourgeois power structure from ideology to violence. Coercion becomes both determinant and dominant in the supreme crisis … Capitalist power can in this sense be regarded as a topological system with a ‘mobile’ center: in any crisis, an objective redeployment occurs, and capital reconcentrates from its representative into its repressive apparatuses … In fact, any revolutionary crisis within an advanced capitalist country must inevitably produce a reversion to the ultimate determinant of the power system: force. (Anderson 1976: 44)

By definition, the need to resort to force is an indication that hegemony is failing (or has failed), and that the system is experiencing a crisis of legitimacy. At the national level, rule by force often continues until a new hegemony is established, or until the government changes and a new hegemonic coalition develops. With globalization, to maintain control, the international financial community needs no army, it can exercise its power by simply abandoning a country as has been the case in Haiti and some African states. Such outcomes beg the question of how much success a counter-hegemonic (anti)neoliberal regime can achieve in any single country. Notes 1 Rent-seeking refers to efforts by public or private actors to take advantage of their position for financial gain or profit beyond what is accepted in their society as fair compensation or normal profit. It encompasses activities that include but are not limited to taking or paying bribes and using influence to shape regulations or avoid oversight. 2 See Anderson (1992: 279–375) for a detailed critique of Fukuyama. 3 The Savings and Loans scandal followed the deregulation of the financial industry during the 1980s. Subsequent fraud, mismanagement and non-payment of loans precipitated widespread failure of saving and loan institutions. 4 Privatization of monopolies may require cross subsidies in regulated environments. See Young (2001) for a discussion of what occurred in Britain. 5 Hernando de Soto (1989), a Peruvian economist, posited that excessive

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government regulation crippled the entrepreneurial spirit of the poor, forcing them into the informal economy. This, he contended, was largely responsible for slow economic growth in Peru. 6 For example, while in the United States conventional wisdom held that racial discrimination was a normal part of race relations, counter-hegemonic discourses that challenged that idea formed the ideological core of the civil rights movement. In a similar fashion, the feminist movement grew as individuals questioned the male hegemony that limited options for women. In recent years, the religious right has developed an increasingly powerful set of counter-hegemonic discourses on issues that range from abortion to school prayers. 7 We maintain that even a ‘weak’ hegemonic system, although unstable, retains hegemonic control as long as it maintains some level of legitimacy. 8 The World Bank (www.WorldBank.org), the Inter-American Development Bank (www.IDB.org), USAID (www.USAID.gov), and the IMF (www.IMF.org) all describe poverty alleviation as one of their key missions. 9 In terms of gender, Moser explains that strategic needs ‘are those needs which are formulated from the analysis of women’s subordination to men’ (1989: 1803).

Neoliberal globalization

33

2 | From Francisco de Toledo to Jeffrey Sachs

The three interrelated and recurring themes central to Bolivian history generally identified by historians – the appropriation of the country’s wealth by national and international elites, ongoing resistance by the indigenous majority and tensions between the regions and centre (de Mesa 1999: 101) – are not unique to Bolivia but are common colonial and postcolonial processes. They are part of the shared experience that defines the ‘Third World’ (Hadjor 1992). The Bolivian state has almost invariably served the needs of either foreigners or a national minority, often in partnership with or employed by international elites. The legacy of colonialism has created one of the most extreme cases of economic dependency in Latin America (Galeano 1973; Malloy and Gamarra 1988). Ruling classes have guaranteed their control through strategic alliances with local and international elites, resorting to coercion as necessary. While shaped by global colonialism and capitalist expansion, Bolivians have always contested these processes, which have in turn affected the centres of northern power. These mutual, although asymmetrical, influences – between peripheral countries and the international system – constitute essential elements in the formation of the global economy (Wallerstein 1979; Wolf 1982; Stern 1988; Chase-Dunn 1989). In Bolivia’s case, the enormous wealth of silver deposits at Potosí, crucial for sixteenth-century Spain and the emergence of European capitalism, provoked the reorganization of Andean society, just as the depletion of easily accessible silver deposits in the eighteenth century weakened Spanish power both in the colonies and in Europe. Like other countries that supply primary materials to international markets, foreign control over Bolivia has not been constant but rather has paralleled resource boom-and-bust cycles centred on silver, tin, quinine, rubber, coca and, most recently, natural gas. Consistent with experiences throughout the global South, international interest and intervention at any moment has reflected the value of particular resources at that time (Frank 1967; Morales 1992). The resistance of the majority indigenous population to domination is constant throughout Bolivian history, as is the case everywhere in

International boundary

BRAZIL

Department boundary

Riberalta PA N D O

Road Kilometres 0

100

200

Santa Ana

PERU BENI

Trinidad

L A PA Z

BRAZIL

La Paz Viacha

COCHABAMBA

S A N TA CRUZ Montero

Colquiri Cochabamba

Santa Cruz

Oruro

San Ignacio De Velasco San Jose De Chiquitos

Vallegrande

O R U RO

Sucre

CHILE

Potosí CHUQUISACA

POTOSÍ

Tarija

P A R A G U AY

TA RI J A

ARGENTINA

Map 2.1 Bolivia (source: lib.utexas.edu/lib/PCL/map_ collection/americas/Bolivia)

35

From de Toledo to Sachs

the Americas with significant First Nations populations. Under Spanish colonial rule, indigenous people had few rights and little place in society other than as a source of labour (and tax revenues), a status that hardly improved under nineteenth- and early twentieth-century republicans (Barragán 1998; Rivera Cusicanqui 1989). Both the early Republican Law of Communities (1866) and the Law of Disentailment (La Ley de Exvinculación [1874]) sought to reduce native control of land. These direct attacks ended with the revolution of 1952, which brought indigenous people the first promise of citizenship. Yet, while they certainly improved their situation, the dominant minority of criollos, who

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claimed pure Spanish ancestry, combined with urban mestizos to create an exclusionary society that never permitted indigenous peoples to integrate fully socially, economically or politically.1 The power struggle between the centre and the regions, the third theme, reflects the country’s incomplete geographic integration. Consequently, colonial and subsequent republican control was strongest close to valued resources and transportation corridors. At the margins, emerging elites were able to avoid the most rigorous aspects of central government control (Larson 1988; Thomson 2002). Whenever there was an economic downturn, ongoing regional power struggles boiled over to fill the vacuum created by faltering central rule. Weakened Spanish colonial administration also fomented eighteenth-century uprisings by indigenous peoples (Stern 1987). When these rebellions failed, elites, whether of traditional indigenous nobility or of Spanish descent, invented new methods to control the rural hinterland (Thomson 2002).2 Calderon and Laserna (1983) argue that the rulers of Bolivia never had a hegemonic political and economic project that would permit the construction of a unified nation. The result is a country that remains one of the least integrated in Latin America (US Department of State 2004). Since the 1825 formation of the Republic, local or regional elites have tried to decentralize state power and devolve public investment to either municipalities or departments (a political unit roughly equivalent to states, provinces or English counties). Given western Bolivia’s mountainous terrain and the orientation of transportation infrastructure towards export markets, interregional communication has been poor, contributing to a stronger sense of regional rather than national identity among both isolated indigenous peoples as well as mestizo city dwellers. Urenda Diaz (1987) contends that, since 1825, Bolivia has maintained its limited internal cohesion more through force than through the legitimacy of its national government, a situation that presents a continual challenge to hegemonic state formation. Despite constant pressures for greater autonomy, regional disputes have ended in compromises. The 1899 revolution, for example, began with demands by liberals in La Paz to reconstitute the nation from a unitary state, centred in Sucre, to a federal one in order to recognize La Paz’s growing economic importance. The uprising ended with an agreement that moved the seat of government to La Paz, creating a second capital but leaving the unitary governing structure intact (Klein 1992: 163–4; de Mesa et al. 1999: 491–5). 36

These three tensions have generated extreme political instability in Bolivia, demonstrated most dramatically by the country’s dubious distinction of holding the world record for coups d’état: over 150 since 1825. Change in Bolivia has always occurred through confrontation rather than negotiation. Democratic government transitions – the past twenty years represents a record – have been the exception rather than the rule. As Rice (2003) points out, Latin American countries with solidly institutionalized political systems, such as Chile and Uruguay, are better equipped to address popular demands through electoral and legal means than countries with weak ones, such as Bolivia and Brazil, where change often occurs through radical mobilization. Other researchers concur and argue that domestic political institutions are determinant in shaping the form and substance of both political resistance and social movements (Haggard and Kaufman 1995). Since 1985, subsequent administrations have sought in neoliberal policies the mechanisms to create a modern state capable of confronting Bolivia’s recurring difficulties: attracting the investment needed to drive economic growth; addressing indigenous demands for basic rights and a share of the nation’s resources; and developing an administrative apparatus capable of balancing the regions against the centre. While the definition of ‘modern’ has shifted from the colonial era through the nineteenth- and twentieth-century republics to present-day neoliberalism, Bolivia’s enduring challenges have not. Reshaping the Andes: the Spanish invasion

37

From de Toledo to Sachs

Prior to the early sixteenth-century European invasion, sophisticated Andean civilizations had existed for centuries with the best-known empire, the Incas, only the last in a series of regional kingdoms. In the territory that later became Bolivia, the Tiwanaku civilization dominated for hundreds of years, only to fall in the late eleventh century during a seventy-year drought (Binford et al. 1997). After the weather stabilized, the Aymara, who succeeded the Tiwanaku, expanded their kingdom throughout much of what is now southern Peru and Bolivia. By the middle of the fifteenth century, the Incas, headquartered in Cuzco, had expanded rapidly and, by conquering the Aymara, almost doubled the size of their empire. When the Spaniards arrived in 1532, the Inca were on the brink of a civil war, which led their highly centralized yet fragile empire that ruled over 10 million people to collapse in the face of an invading force of less than 200 (de Mesa et al. 1999).

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After the Spanish conquest, Upper Peru, as Bolivia was then known, was ignored until 1545 when Diego Huallpa discovered the world’s richest silver deposits at what was to become the city of Potosí.3 Cerro Rico in Potosí provided more than half of world production of silver and gold from the mid-sixteenth to the mid-seventeenth centuries (Klein 1998: 13). The explosive growth of the silver mines in highland Bolivia and Peru required an increasingly complex colonial bureaucracy, and the Spanish crown appointed Francisco de Toledo the first viceroy in 1569. He became arguably the most important Spanish colonial administrator in history, as all over the continent Spanish governors incorporated norms that he designed (Zimmerman 1968; Larson 1998). By 1581, Toledo had reorganized Andean life through melding Spanish social institutions with indigenous ones. Through Reducciones, a resettlement programme based on previous practice in Spain, Toledo forced dispersed indigenous households into concentrated communities. While this allowed the Spanish to tax labour for the mines, the Reducciones dismantled a productive system that had integrated agricultural production and trade through complex kinship networks, from the semi-tropical valleys to highland pastures. The operation was massive: in five districts, 900 communities of 129,000 people were marshalled into only forty-four towns, a process that made indigenous communities easier to tax both in specie and in labour (Zimmerman 1968; Spaulding 1984). The mita, based on an Incan labour levy system, was adapted to force one of every ten adult men to work in the Potosí mines.4 The resulting death toll was huge and, combined with the spread of European diseases, decimated 75 per cent of the population within forty years of conquest (Spaulding 1984: 137). As elsewhere in the Americas, this was only the beginning of the price colonialism would extract from the native population (Galeano 1973). While Toledo was successful in increasing silver flowing to the crown, Kenneth Andrien maintains that his reforms were doomed from the start: [Toledo’s] entire program revolved around retaining the already wavering Andean system of production and controlling its surplus labor and wealth. To achieve this end, the state had to operate at a level of honesty and efficiency unprecedented in the early modern era. Within a few years after their implementation, the Toledan reforms began to fail, as the corruption and inefficiency of colonial officials undermined

38

the smooth operation of government. Regional European elites abetted this process by forging economic and social ties with these dishonest officials to block or alter objectionable crown policies. (Andrien 1991b: 146)

39

From de Toledo to Sachs

While sabotage by regional elites reflected growing tensions with the centre, Spain’s indigenous subjects also actively resisted Toledo. In 1572 Túpac Amaru I, the last Inca, tried to escape Spanish rule and re-create the Incan state near Cuzco in Peru. A military force sent by Toledo massacred him along with his supporters (Stern 1993). The Spaniards set up large agricultural estates to supply the needs of the mines, and many indigenous people were forced into bonded labour on these haciendas, which expanded throughout the highlands during the second half of the sixteenth century, absorbing about onethird of the population. Toledo’s failure to understand the nature of traditional indigenous organizational structures, called ayllus – a nested kinship structure that persists to the present (Platt 1982) – meant that large numbers of people successfully escaped the settlements which had ‘disrupted established patterns of production and exchange’ (Andrien and Adorno 1991: 285). Others fled to avoid being sent to the mines, and became forasteros (outsiders) not subject to forced labour. For over 250 years of colonial rule, the Spaniards taxed the indigenous population, stole their lands and coerced them to work in mines, textile workshops or agricultural plantations. Despite this revenue, the Spanish still needed a continual flow of income from minerals to absorb the costs of administrating the colony. As silver production fell in the eighteenth century, the empire was less able to cover administrative costs and Spanish control steadily eroded. During the period from 1742 to 1782, which Steve Stern (1987) has called the ‘Age of Andean Insurrection’, a series of indigenous uprisings on the highland plateau known as the altiplano5 climaxed in 1781 with the six-month siege of La Paz by tens of thousands of Aymara warriors. The rebellion ultimately failed and Túpaj Katari, the leader of the revolt, was captured and subsequently quartered. He later became an important figure in the narrative of indigenous resistance, and protests against neoliberal policies frequently invoke his name. The uprising he led, in contrast to the independence movement that followed in the early nineteenth century, sought to create an indigenous, rather than a western liberal nation (Thomson 2002).

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As Thomson (2002) points out, the leaders of the eighteenth-century indigenous insurrections often were community members rebelling, not directly against the Spanish, but against the caciques, descendants of Incan nobility, who ruled for them. When the Túpaj Katari uprisings destroyed cacizcagos, many communities instituted new systems of selfgovernment based on rotation, in which men assume the obligation of negotiating with the government or with adjoining communities. These authorities, in contrast to local urban elites, remain subject even today to community oversight and their agendas often clash with those of urban mestizos and criollos. Republican heritage: the legacy of liberalism

Bolivia, the first South American country to rebel against Spain and the last to achieve liberation, won independence in 1825 after a sixteenyear war that decimated the country. Unlike the revolution in the United States, which was clearly a nationalist revolt against foreign rulers, the uprising by Upper Peru criollos and mestizos was characterized as much by indecision about whether or not to support the regime installed by Napoleon in Spain as by a desire to win independence (de Mesa et al. 1999: 310–14). Most of the war took place between Peruvian royalists and Argentine revolutionary armies. Desperate and losing, royalists armed the indigenous populations, a strategy that backfired, providing indigenous peoples an opportunity to revolt and sack the city of La Paz in 1814. Once more, rebellion paralleled economic decline as silver production in Potosí had dropped, accompanied by a precipitous decline in the city’s population from a peak of 160,000 in the seventeenth century, to only 6,000 in 1825 (ibid.: 337). The creation of Bolivia as a separate country was a complex and flawed process that is at the heart of many of the country’s present difficulties. Pressures to separate Alto Peru stemmed from a compromise between Peru and Argentina to create a buffer state between them. But the drive for a separate Bolivia also originated from the ambitions of Bolivian criollos, who saw the opportunity to derive personal benefits from forming their own state. These founders, however, had little grasp of the geopolitical problems that forming a highly dispersed, weakly consolidated state would engender. From these shaky beginnings, not unlike other countries patched together from former colonies, Bolivia has struggled to establish internal cohesion and a national identity in the face of considerable ethnic and geographic diversity. 40

41

From de Toledo to Sachs

When Simon Bolívar drafted the first constitution in 1826, he promised that the country would ‘be known as an independent nation’ with ‘the world’s most liberal constitution’ (cited in Felix Tiro 1958: 40). As Tiro wryly notes, Bolivia has done better at writing constitutions – sixteen of them plus six constitutional reforms between 1826 and 2004 – than living by them. He describes a banquet held by General Melgarejo (1864–71), one of Bolivia’s most notorious presidents, where the dictator ‘said that the 1861 [constitution] was good and put it in his left pocket. He took the 1868 [constitution], which according to the lawyers who accompanied him at dinner was better, and put it in his right pocket, making it clear that he ruled Bolivia with nothing other than his will’ (ibid.: 59; our translation). Until 1945, all constitutions made a distinction between being a Bolivian – a person born in the country or married to a Bolivian – and being a citizen: a status restricted to literate, propertied men that specifically excluded domestic servants, regardless of income. Citizens were allowed civil rights to property although other rights, such as to free speech and assembly, were limited in practice. Rights to political representation were limited constitutionally to male citizens although the frequent rule of de facto military governments made this privilege of questionable value. Taking their lead from the other newly independent countries of Latin America, the republican rulers set about to create a unitary liberal state on the ruins of a Spanish colony. Some in the new government believed that dismantling the remaining indigenous communal landholdings would modernize agriculture by allowing for the development of land markets, a move met by steady indigenous resistance. Others, with a more democratic bent, advocated replacing communal with individual holdings in order to create a class of yeoman farmers to serve as the backbone of republican society along Jeffersonian lines ( Jackson 1997: 3). Tristan Platt (1987: 43) writes: ‘The idea of abolishing the Andean ethnic groups … was a policy of enlightened liberalism, designed to transform Indian tributaries into propertied Citizens, subject to the same tax systems as all other Bolivians.’ This implied reordering indigenous communal landholding systems in which access to land was mediated by community membership These plans were by and large unsuccessful for both ideological and practical reasons. For one thing, the restricted definition of citizen in the 1826 Bolivian constitution provided no place for Jeffersonian

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citizen-yeoman farmers. Just as important, the financially strapped government depended on the indigenous communal landholding structure for half of its tax revenues, assessed on a community rather than individual basis. Unable to overcome resistance to a progressive tax structure by urban criollos and mestizos, when combined with falling revenues from mining, gave the government no option but to depend on the Indian head tax as its most important income source (Klein 1992: 112). While they were a considerable burden, these taxes provided indigenous landholdings some level of legitimacy and protection (Langer and Jackson 1997: 172). By the 1860s, income from other sources, mostly import duties and taxes from silver and nitrate-rich guano,6 substantially increased. As the government became less dependent on community revenues, they renewed attacks on indigenous landholdings. The 1866 Ley de Comunidades (Law of Communities) mandated the sale of communal lands to raise government funds while also creating the beginnings of a land market, paralleling similar laws targeting indigenous communal landholdings in Mexico during the same period (Ducey 1997: 65–93). In Bolivia, indigenous resistance was widespread and occasionally aggressive, leading some communities and ayllus to participate in the overthrow of General Melgarejo, who had implemented the law at the behest of the criollo elite. After a brief restoration of many indigenous lands, the 1874 Ley de Exvinculación attempted once more to transfer communal land titles to individuals (Langer and Jackson 1997: 183). Indigenous groups again actively resisted the sale, yet between 1880 and 1930 the amount of communally held rural lands fell 40 per cent (Klein 1992: 152). Some communities, principally those farther from potential markets with less productive land, were better able to protect their holdings as well as their ayllus, often through violent resistance to government surveying (Platt 1987).7 Just as national elites sought the lands and resources of indigenous peoples, international elites appropriated those of the newly formed republic. The infamous General Melgarejo signed treaties ceding 300,000 square kilometres to Brazil and 171,000 square kilometres to Argentina. In 1879, Bolivia’s resource wealth precipitated a proxy war for British and Chilean firms interested in valuable guano deposits. Chile annexed Bolivia’s Pacific coastline, leaving the country landlocked and increasingly isolated from outside influences (de Mesa et al. 1999: 42

410–15; Klein 1992: 145–8). The peace agreement required Chile to construct a railway for exporting Bolivian silver as well as the production from increasingly important tin mines.8 On the other side of the country, at the height of the Amazon rubber boom, Brazil annexed the rubber-rich Acre after a brief war, paying £2 million for the territory in a 1903 treaty (see Table 2.1). Combined with losses in territory to Paraguay following the Chaco War and Peru, Bolivia today has less than half the territory it claimed at independence in 1825. table 2.1 Loss of Bolivian territory, 1825–1985 km2

Lost to Argentina Brazil Chile Paraguay Peru Total area

170,758 490,430 120,000 234,000 250,000 1825 1985

2,363,769 1,098, 581

Source: Atlas Geográfico de La República de Bolivia, Barcelona, 19859 The resurgence of silver and the rise of tin

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From de Toledo to Sachs

Bolivian silver production surged between 1873 and 1898 with the introduction of steam-powered pumps that allowed miners to resume operations in flooded mines. A new class of mine owners in the northern part of the country, known as the Liberals, built such fortunes in tin mining and related trade that they successfully wrested control from the southern Conservatives, whose wealth was built on silver mining (once again in decline) and on hacienda agriculture. This political shift reflected the burgeoning world demand for tin and, with the completion of the Chilean-financed railroad in 1895 to the northern city of Oruro, reduced tin export costs. A parallel decline in demand for domestic agricultural products undercut the power of hacienda owners as the new railroad facilitated importing wheat from the expanding agricultural production in other parts of the world. With La Paz’s growing importance, the Liberals objected to having the government seat in the southern city of Sucre and insisted on a

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federalist system to allow greater local autonomy and a larger share of government resources. Consistent with Bolivia’s tradition of nondemocratic political transitions, in 1899 the Liberals seized power. Initially fearing defeat, the Liberals armed the indigenous population, who rallied behind them in an attempt to improve their desperate situation. Once assured of victory over the Conservatives, however, the Liberals formed a new alliance with their former enemies against an indigenous population that had begun to show signs of uniting in a generalized rebellion. Clearly, the gulf between Liberals and Conservatives was easier to negotiate than that between criollos and indios. The revolution ended with the agreement to transfer the seat of government from Sucre to La Paz, while maintaining, by a margin of one vote, the unitary state (Urenda Diaz 1987). Although they formed the core of the new government, the Liberals adopted the same general policies as the Conservatives: they kept mining taxes low, borrowed to build railroads and drew on their power to provide government jobs for the party faithful. During the early 1900s, three tin mining firms consolidated control over the export economy and in turn over the country’s political apparatus. In 1905 Simon Patiño, a mestizo of humble origins, owned the country’s largest mine; by 1920 he controlled 50 per cent of national tin production. Known as the ‘Bolivian Rockefeller’, Patiño became one of the richest men in the world with mines, smelters and banks throughout South America and Europe (Albarracín Millán 1995). The firms of Mauricio Hochschild and the Aramayo family, the one silver mining firm that successfully made the transition to tin, divided the other half of tin production. Together, the Tin Barons comprised a powerful mining oligarchy that effectively ran the country and controlled the export economy. In the 1930s, after production peaked in 1929, the falling demand for tin hit the Bolivian economy hard. A belligerent President Daniel Salamanca chose this moment to attack Paraguayan forts in the disputed Chaco region, which provoked the disastrous War of the Chaco (1932–35). The war not only cost the country about one-fifth of its territory but, by bringing workers, students and peasants together, set the social and political groundwork for the revolution of 1952 (Malloy 1970: 95–164; Dunkerley 1984). Although it is still popularly believed in Bolivia that the Chaco War was a proxy war between Standard Oil and Royal Dutch Shell for oil and gas reserves, historians generally agree 44

that it reflected an attempt by Salamanca to divert attention away from Bolivia’s internal economic and political crises (Klein 1992: 183–200; Mesa et al. 1999: 466). This conviction – that foreign interests were to blame – was used by a left-leaning military government, briefly in power at the end of the 1930s, to justify the world’s first confiscation of a major US multinational, Standard Oil (Klein 1992: 190). The Chaco War and the 1952 revolution

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The Chaco War draft turned the trenches into a breeding ground for a new sense of ‘Bolivian’ identity coupled with a well-articulated contempt for the rule of the landed and mining oligarchy (Klein 1992: 42). Four key social movements arose, which, despite their differences in vision, were united in opposition to an oligarchy they considered parasitic, neither capable of defending nor worthy of ruling the country. First, university students, the sons of the elites, generally abandoned the politics of their parents, to form what became known as the Chaco generation. They later constituted the core of the National Revolutionary Movement (Movimiento Nacional Revolucionario – MNR) that eventually spearheaded the 1952 overthrow of the mining oligarchy. Junior military officers, split between military socialists and nationalist fascists, formed a second group, and from these ranks emerged the key leaders of later military dictatorships between 1964 and 1982. Third, the labour unions, based in the mines, the railroads and urban printshops, mushroomed with strong influences from left-wing political parties. In 1936 the printers’ union, affiliated with the newly formed Trotskyite Revolutionary Worker’s Party (Partido Obrero Revolucionario – POR), called for the country’s first general strike. The strike was not powerful enough to overthrow the government but was successful enough to spark a military coup (Dunkerley 1984: 17). Fourth, the highland indigenous population comprised of the country’s two largest indigenous groups began to organize. The Quechua are descendants of ethnic groups incorporated into the Inca empire, while the Aymara, who were conquered by the Inca, have managed to retain their own language and identity.10 In the 1930s, free indigenous peasants ( piqueros) in Cochabamba organized into expanding rural unions were able to take advantage of the global economic crisis by buying and leasing land from increasingly cash-poor agricultural elites. Under the military government of Major Gualberto Villarroel, the first national indigenous congress took place

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in La Paz in 1945 attended by over 1,000 highland and valley, community and ayllu leaders (Ari Chachaki 2004). Villarroel promised to establish schools in free communities and abolish pongueaje (bonded labour), which provided labour for the large agricultural estates. While these reforms were implemented only after the 1952 revolution, Villarroel’s promises legitimized indigenous claims, and these became the rallying cry of an increasingly militant rural populace (Ranaboldo 1987; Gotkowitz 2003). After more than a decade of instability, uprisings and military coups, the most moderate and middle class of the left-wing parties, the National Revolutionary Movement (MNR), took power after a brief revolution in 1952. The coalition behind the leadership of the MNR was both ideologically and socially heterogeneous, united by nationalism, opposition to the oligarchy and a populist–modernist orientation (Grindle and Domingo 2003). While the support and leadership of the small but emerging middle class was crucial for the profound upheaval the revolution represented, it also served to prevent more radical change. Despite its populist rhetoric, over time the MNR abandoned the interests of any social sector beyond the middle class (Kelley and Klein 1981). The MNR was decidedly anti-communist, implementing the most radical changes only in the face of sustained pressure from revolutionary union and rural indigenous movements. While the MNR supported the formation of the Bolivian Workers’ Confederation (Confederación Obrera Boliviana – COB), it was the COB leadership that forced the MNR to nationalize the mines. The 1953 Agrarian Reform, which destroyed the power of the 6 per cent of landowners who owned 92 per cent of cultivated land, became law only after indigenous people drove them off their estates in Cochabamba and La Paz (Kelley and Klein 1981; Dunkerley 1984: 72–3). The MNR, in essence, led from behind, constructing a new hegemonic pact by consenting to the demands of the unions and campesinos. MNR reluctance to deepen reforms is most clearly seen in the lowland departments of Beni and Santa Cruz, where the peasants never took up arms to force reforms and land ownership remains highly concentrated. Latin America’s second revolution (after Mexico) wrought profound changes in a dependent and virtually feudal country economically and politically controlled by a tiny mining oligarchy. Oriented more to the nationalist model instituted by the Institutional Revolutionary Party 46

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From de Toledo to Sachs

(Partido Revolucionario Institucional – PRI) in Mexico than to the revolutionary regimes in Moscow or Peking favoured by Bolivia’s labour movement, the nationalist MNR sought to transform the country into a ‘modern’ nationalist state (Malloy 1970; Dunkerley 1984). Despite the political differences, a unifying hegemonic discourse developed based on a strongly centralized state administration, state control over natural resources, and state responsibility to serve the interests of ‘the people’. As Medeiros explains, ‘While the meanings of “the people” oscillated between the revolutionary and nationalist poles, the vision of a nation-building project requiring a strongly centralized state and implying a homogenous “modern, national culture” remained unchallenged across the spectrum’ (2001: 404). In what Whitehead describes as a ‘chaotic and revolutionary upheaval’ motivated in part by the cathartic experience provoked by Villarroel’s failure to institute reforms in the 1940s, the new government quickly moved to bring about significant changes in citizenship rights (2003: 31). Pressure from the majority indigenous and working-class populations, as well as middle-class women, extended suffrage to all Bolivians over twenty-one, which expanded the voting base from 200,000 to one million people, and a broadening of social rights through the establishment of national education and healthcare systems. Social rights to a ‘reasonable living’, however, were limited in practice by a state that promised universal education and healthcare but did not have the resources to deliver them. Although literacy rates rose from 31 per cent (Klein 1992: 227) to around 80 per cent (World Bank 2000: 270) between 1950 and 1990, the government did not have the resources to build sufficient schools. The revolutionary government both broadened political and social citizenship rights and curtailed certain civil citizenship rights – specifically the ownership of property by the country’s richest families – as they nationalized the mines and legitimized campesino land invasions with the 1953 agrarian reform. When formal citizenship rights were granted to Bolivia’s indigenous population, official discourse transformed indios (a pejorative term for non-citizen indigenous people) into citizen campesinos. Before 1952, indigenous pongos, bonded agricultural labourers and piqueros, free peasants who owned some land but also sold their labour, were all denied citizenship rights. These categories, however, only pertained to areas controlled by haciendas. The creation of campesinos – literally people who live in the countryside – as a social category after the 1952

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revolution, reflected the hegemonic modernist discourse that sought to overcome the ‘backwardness’ of indigenous people in order to create a mestizo nation. The concept of campesino eventually extended its reach to incorporate most of the indigenous small farmers who make up the rural majority.11 The MNR took over a government in shambles. Patiño, owner of the largest tin smelters in the world, initially refused to buy Bolivian tin until he received compensation for his properties. The United States undermined what it saw as a potential communist threat by selling off tin reserves built up during the Second World War, causing prices to fall from US $1.20 to US $0.80 per pound three months after the mines were nationalized (Dunkerley 1984: 59). Campesino seizures of hacienda land disrupted the national food system and cities experienced shortages of staples (Malloy 1970). Over time, as the public sector expanded in order to serve ‘as an engine of growth that would be more broadly based and equitable’ (Morales and Sachs 1989: 177), the MNR government developed into a clientelistic political machine built on a growing and costly patronage system, rather than the envisioned stimulant to national development. This corporatist political machine, designed along the lines of the PRI in Mexico, was in fact quite different because, unlike in Mexico, the union movement remained beyond government control (Kruse 1994: 44). The COB emerged as a counterbalance to the state: while it co-governed with the MNR in a minority position immediately after the revolution until 1956, achieving the revolution’s most radical changes, it was also capable of bringing more conservative government initiatives to a halt. Unlike the labour movement in many countries, the COB’s role in Bolivia extended far beyond mere work-related issues and, despite frequently fractious internal divisions related both to politics and to turf, it provided the principal opposition movement to government policies for over forty-five years. The COB served to fuse demands for labour rights in Bolivia with the struggle for civil and social rights (García Linera et al. 2001). Following the lead of other Latin American countries, Bolivia adopted the import substitution industrialization (ISI) economic development model that dominated the region from the 1950s until the 1980s. ISI protected local industries with tariff barriers, placed resources under state control, controlled strategic sectors and improved productive infrastructure. This fundamental change, combined with efforts to 48

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From de Toledo to Sachs

broaden civil, social and economic citizenship rights, generated alterations so profound in Bolivia that the society it created was known as the ‘State of 52’ (Estado de ’52). In 1956, the MNR returned to power following a democratic election. Faced with declining revenues, rampant inflation and a food crisis, the government had little choice but to turn to the recently formed International Monetary Fund (IMF) and the United States. The country received an IMF bailout with many of the same conditions of the 1980s structural adjustment programmes (SAPs): reductions in government spending and tariff protection, a unified foreign exchange rate, and deficit elimination in state-owned firms through the removal of price controls and subsidies (Dunkerley 1984: 87). Unlike the 1980s, however, the IMF in 1956 did not push privatization of state-owned enterprises, a testament to the strength of the miners and the COB. Nevertheless, the adjustment did bring the most conservative, pro-business sectors in the MNR to the fore, sharpening the divide between the government and the labour movement, which significantly contributed to instability. Tensions between the regions and the centre within Bolivia arose again after the 1952 revolution, particularly among the business class in Santa Cruz, where political opposition to the changes wrought by the revolution was strong. Largely abandoned and isolated until the mid-nineteenth century, Santa Cruz emerged as the locus of regional demands beginning in the late nineteenth century and, in 1876, had declared itself a federalist state. Rebellions against central authority demanding federalism occurred again in Santa Cruz in 1891 and 1957, as well as in La Paz during the Liberal rebellion in 1899 and Potosí in 1928 (Urenda Diaz 1987). During the 1950s, local elites created a Pro-Santa Cruz Civic Committee to further their interests (Klein 1992: 215). Despite the gradual emergence of similar demands in other regions, in general, after the 1952 revolution, the left focused on national-level, workplace organizing and, therefore, initially paid regional concerns little attention. According to Flores (2002), the growth of civic committees as political actors originates with the weakness of political parties, local governments and national state institutions as vehicles to channel local demands. Although its economic interests in Bolivia were limited, at the height of the Cold War the United States undertook an explicitly political foreign aid programme to counter the possible spread of communism in Latin America. By 1958 Bolivia was ‘receiving the highest rate of

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food aid per capita in the world and becoming dependent on US funds for a third of her total budget’ (Dunkerley 1984: 18). Disturbed by the formation of civilian militias that for a period were better equipped than either the army or the police, the USA made rebuilding the Bolivian military a condition of aid, a requirement that had tragic consequences for the fledgling democracy (Brill 1967; Cornet 1972). Military rule

The movement towards broader and deeper citizenship rights, which had substantially raised the population’s expectations, came to an abrupt halt in 1964 when the military overthrew the MNR government and began eighteen years of military rule (Malloy 1970). Between 1964 and 1982, de facto governments denied civil rights, most notably to free speech and assembly, as well as political rights to democratic elections (Barrios de Chungara 1978; Dunkerley 1984; Malloy and Gamarra 1988). During this time, however, social rights to education and healthcare, although not universally provided, were unquestioned. The first dictatorship, under General Barrientos, accelerated state involvement in the economy, essentially continuing the statist-oriented ISI economic policy established by the MNR (Conaghan and Malloy 1994: 13). The military justified their coup by asserting that duty required them to ‘restore order’ and protect the country from the threat of the communist labour movement. The de facto military governments received direct US support, including the training of 1,200 officers at the School of the Americas (SOA) (Brill 1967; Cornet 1972). The CIA and US Special Forces also provided tactical assistance, playing a key role, for example, in the 1967 capture and execution of Ernesto ‘Che’ Guevara (Debray 1975). A brief rupture from the essentially pro-business military came in 1969–71, when a progressive government took power, modelling itself on the radical populist military dictatorship in neighbouring Peru headed by General Velasco. With the support of the COB, the shortlived government nationalized Gulf Oil (a bold move that infuriated the United States), but was too weak to maintain control. General Hugo Banzer (1971–78) seized power in 1971 and ruled with US technical assistance, complemented by special military attachés from the repressive dictatorships in Chile and Argentina, who assisted the Ministry of the Interior to control labour and campesino activists. In the early 1980s, the brutal Luís García Meza had overtly fascist advisers, 50

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From de Toledo to Sachs

including Klaus Barbie, the escaped Nazi known as the ‘Butcher of Lyon’. The military governments attacked the COB ferociously, killing, exiling and torturing labour, Church and student leaders, responding to demonstrations and strikes with military force (Dunkerley 1984: 292–339; Malloy and Gamarra 1988: 143–9).12 Bolivia’s boom-and-bust cycles continued. Tin prices rose during the late 1960s and ’70s, and in 1966 the state-run Bolivian Mining Corporation (Corporación Minera Boliviana – COMIBOL) began a decade of profitable operation. State mine infrastructure none the less declined because reinvestment was ignored, and numerous other investments were ill-advised, providing benefits under the ever-growing patronage system that propped up Banzer’s regime. Increasing petroleum production through the nationalized oil and gas company (Yacimientos Petroleros Fiscales Bolivianos – YPFB) bolstered government revenues, especially after the takeover of Gulf Oil’s holdings in 1969 (Dunkerley 1984: 226–9).13 These advantageous market conditions, combined with a small share of the petrodollars that flooded into Latin America in the 1970s, permitted reasonable economic growth. This temporary prosperity relied on a shaky foundation; the economy had structural problems that Banzer and subsequent military governments failed to address, and these came to a head in the 1980s. Like other countries throughout Latin America the infusion of petrodollars dramatically increased Bolivian debt, from US $500 million in 1971 to US $2.5 billion by 1978. Many of the government-backed loans that aimed at modernizing agricultural production favoured export-oriented agricultural elites in the eastern lowlands near Santa Cruz, General Banzer’s home and strongest base of support. The majority of agroindustrial borrowers, foreshadowing Mexico a decade later, defaulted. Some loans did actually finance agricultural projects but repayment never occurred, while others financed Bolivia’s entry into the nascent coca-cocaine trade. Still other creditors simply turned the loans around and deposited them in Miami banks (Malloy and Gamarra 1988: 106–8). The prominent positions held by the Santa Cruz civic committee leadership under Banzer facilitated this process. Initially, the military dictatorships believed that civic committees could serve as better mechanisms for regional control than political parties (US Department of State 2004). While the newer committees that began forming in the early 1970s were inspired by the Santa Cruz model, however, other regions lacked the strong local oligarchy that

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dominated Santa Cruz (Calderon and Laserna 1983). As a result, the political orientation, social base and demands of most civic committees slowly became far broader and in some cases, notably Potosí and Cochabamba, they emerged as significant forces supporting the demands of progressive social movements, especially during the 1970s when other opposition groups went into hiding (Quiroga Blanco 1987; Pittari 1991). Public support for the military regimes was highest between 1966 and 1974, when the dictatorships could count on campesino acquiescence in exchange for the support of peasant agrarian claims and rights to education. Campesinos agreed to ‘put themselves under military orders, against the subversive maneuvers of the left’ (Mitchell 1977: 98). In 1966, General Barrientos won elections with 63 per cent of the vote, largely with support of the rural population. The military–campesino pact lasted until 1974, when General Banzer ordered troops to fire on a campesino protest over price hikes outside Tolata, Cochabamba, massacring more than 200 people. Banzer’s miscalculation moved campesinos into the opposition camp and, once again, the indigenous majority proved decisive, as their change of allegiance contributed to his eventual downfall. After Tolata, an indigenist movement consolidated in the highlands, under the leadership of the Aymara Katarista movement (named for eighteenth-century leader Túpaj Katari), whose strength was ‘to articulate the class dimension of peasants’ economic exploitation and the ethnic dimension of the oppression of indigenous people’ (Medeiros 2001: 407; Riviera Cusicanqui 1987). This rearticulation of the exclusion that has dominated Bolivian history since colonial times linked the new movement clearly to the COB. By 1979, a newly unified Bolivian Peasants’ Confederation (Confederación Sindical Unica de Trabajadores Campesinos de Bolivia – CSUTCB) began to play an increasingly important role within the labour movement even though they were marginalized from assuming leadership (ibid.). The military governments depended on the support of about 20 per cent of the civilian population that represented the most conservative elements of the middle and upper classes, including three major national business groups (Mitchell 1977: 121–2).14 The private sector group with the highest political profile in the 1960s was the mining companies, represented by the National Association of Medium-sized Miners (Asociación Nacional de Mineros Medianos – ANMM) and centred on three companies, EMUSA, COMSUR and ESTALSA, all of which increased their 52

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influence and production under Banzer. The second were importers and manufacturers, focused around the La Paz-based Bolivian Private Business Confederation (Confederación de Empresarios Privados de Bolivia – CEPB), which eclipsed the ANMM in the late 1970s to emerge as the national voice of the country’s business interests, pushing an agenda of strictly controlled wages, lowered import duties and an end to the nationalization of private businesses. Finally, the Santa Cruz regional elites, based in agribusiness and independent gas and oil production, supported Banzer, who was one of their own (ibid.: 121–4). The increasingly powerful Santa Cruz Civic Committee pushed for retaining the profits from the region’s growing oil and gas industry while making constant demands for decentralization (Molina Monasterios 1997). In general, the left continued to pay little attention to civic committees and the military dictatorships largely left them alone as well (Pittari 1991: 69). Overall, these business alliances were fragile. In the late 1970s, the CEPB, paralleling the antipathy that business elites throughout the continent developed towards military regimes, announced their commitment to democracy at the same time that popular protest against the dictatorship mounted under the leadership of the COB. The CEPB concluded that the rapid expansion of state enterprises, necessary to fulfil the dictatorships’ political patronage obligations, reduced private business’s field of action. As Banzer refused to work directly with business sector representatives but rather preferred clientilistic relationships with individual executives, the sector as a whole had difficulty accessing decision-making circles, leaving them frustrated and uncertain about the future. This contradictory position – simultaneously benefiting from the dictatorship while having little influence over policy – led them to reject the military model as antithetical to a stable business climate and as bolstering corruption to such an extent that they were unable to manage their companies efficiently. Their growing pressure to remove the military from politics forged greater cohesion among various elite sectors around the country centred in the CEPB (Conaghan and Malloy 1994: 64–71). By 1978 the bubble generated by the easy loans from petrodollars burst: production in state-owned mines and oilfields plummeted, economic growth stagnated and debt service spiralled upwards. US President Jimmy Carter’s focus on human rights brought new pressure to bear on the Banzer regime. Just as the withdrawal of US support for

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the Somoza administration in Nicaragua helped create the conditions for the 1979 Sandinista victory, US pressure pushed Banzer to hold elections in 1978. The regime was so fragile that a hunger strike initiated by the wives and children of four miners provided the spark for the COB to force the government to free political prisoners and begin the transition to democracy (Mansillo 1978; Barrios de Chungara 1978). Colonel Juan Peredo, Banzer’s handpicked successor, lost the 1978 election, but immediately seized power anyway. This marked the beginning of four years of civil and political upheaval that saw eight governments, including two brief periods of civilian rule. By consistently demanding that election results be respected, the COB emerged as the champion of democracy and as ‘the articulating core for an alternative political project’ (Medeiros 2001: 406). As the economic crisis worsened, both state-controlled mining and gas and oil production fell. Governments were increasingly corrupt, particularly the one-year rule of García Meza, whose regime benefited from illegally marketing cocaine, land and precious stones. Pressure to end military rule came not only from students and labour, but also from segments of Bolivia’s military and from the CEPB. In late 1981, a transitional government was recognized by the British and then by the United States. Finally, on 10 October 1982, Hernán Siles Zuazo, who had won the popular vote in both 1978 and 1980, was sworn into office as president at the head of the Popular and Democratic Union (Unión Democrática y Popular – UDP), a coalition of twenty political organizations, made up of the majority of left parties and of non-party groups. The UDP’s goal was to resume the nationalist economic and political project begun in 1952 (Tapia 2004). Return to civilian rule and economic crisis

At the beginning of what is often called the lost decade in Latin America, the Bolivian economy was in complete disarray. GDP declined every year between 1981 and 1986, with a 9.2 per cent drop during 1982 alone (Malloy and Gamarra 1988: 235). The country suffered from a large debt burden, uncontrolled government spending to support patronage and growing capital flight. Despite the left’s preference for new elections in 1982 in order to strengthen its plurality, the right wing, including the business elite, carried out what Conaghan and Malloy (1994) called a ‘high risk and Machiavellian’ scheme by insisting that the UDP assume power. This strategy recognized that the UDP’s elec54

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toral victories made it the only coalition with political legitimacy and that the first democratic government would necessarily be weak, paving the way for a legitimate and strong conservative win (ibid.). While the return to democracy in 1982 signalled the return of civil and political rights, the UDP’s democratic political opening coincided with a period of reduced economic choice throughout Latin America, which meant that expanding social rights would be close to impossible. The right’s calculation was correct: internal political wrangling, tremendous pressure internally from both the left and right as well as from international financial institutions (IFIs) beset the fragmented UDP coalition (Dunkerley 1990). By 1982, the foreign debt had grown to US $3.8 billion, and in 1984–85 inflation raged as high as 20,000 per cent, one of the highest rates the world has ever seen (Sachs 1987). As the currency collapsed, GDP dropped from US $5.99 billion to US $4.79 billion (UDAPE 1996: 21). When the government realized that its debt interest payments to a consortium of private banks led by the Bank of America exceeded export income, it struggled to regain control by suspending service payments and limiting payments to 25 per cent of export income (Bolivia Bulletin 1985: 1). The outraged response by banks and the international press, out of proportion to the relatively small size of the country’s debt, clearly reflected a fear that Bolivia’s initiative could spread to other countries. When the banks threatened to freeze Bolivia’s assets abroad, President Siles Zuazo’s administration had little option but to back down and resume payments. But even this was not enough to stabilize the economy, as there was little faith that the Siles Zuazo administration could enforce the measures needed to address fundamental economic problems (Sachs 1987). Initially, the Siles Zuazo government was able to rely on the full support of the COB, which argued that its role in returning the country to democracy gave it the right to some form of co-government with the UDP. Unlike 1952 when it was content with a minority position, this time the COB wanted 50 per cent (Laserna 1985; Tapia 2004). The inability to reach agreement fractured both the COB and the UDP, rupturing their alliance. As a result, the Siles Zuazo government found itself negotiating with a COB unaccustomed to functioning under democratic conditions and deeply entrenched in the confrontational politics it had employed during the dictatorship. Its role as the defender of democracy gave the COB tremendous popular legitimacy, but the institutional structure it had inherited from the past made it unable to compromise

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with the government or make viable alternative proposals (Ibañez Rojo 2000). At the other end of the political spectrum, a reinvigorated and increasingly cohesive CEPB exerted substantial pressure on the weak coalition government. It pushed for the implementation of free market principles and removal of the state from the economy, an approach that signalled a shift to neoliberal economic positions in the thinking of many business leaders (Conaghan and Malloy 1994: 5). The CEPB increasingly represented a new generation of entrepreneurs in Bolivia, generally better educated, often bilingual and US-trained, as well as more closely tied to international business interests (Dunkerley 1990: 30). While Siles Zuazo bounced ineffectually between the demands of the COB and those of the CEPB, Bolivia was racked by 3,500 strikes and work stoppages in three years, and generals took out ads in national newspapers reminding the military of their patriotic duty to ‘restore order’. Siles Zuazo was reluctant to unleash repression on the popular sectors, while the incessant unrest cost the COB a great deal of its political capital and eventually the confidence of much of the population as well (Gamarra 1993: 107; Dunkerley 1990). The Roman Catholic Church played an important role in mediating these confrontations and pushing the UDP government to call for early elections. Until the 1960s, the Church, in Bolivia as in other Andean countries, was ‘small, tradition-laden and conservative’ (Klaiber 1993: 351). However, the progressive ideas of the 1952 revolution and the Second Vatican Council in the early 1960s combined with an inordinately high number of foreign priests – 80 per cent by the 1970s – increased its sympathy with the tremendous poverty of the population. Although the Church is not as powerful in Bolivia as it is elsewhere in Latin America, in part due to anti-clerical reforms instituted at the Republic’s beginnings and because of strong indigenous religious traditions, it has mediated between disputing factions in almost every major national clash since the late 1960s. This role is unparalleled elsewhere in Latin America. The Church gained acceptance as a mediator because it had ‘sympathy for the religious traditions of the peasants and miners and their demands for social justice but symbolized tradition and stability’ (Klaiber 1993: 352). The government for its part looked to the Church for social stability. What is most telling is that of all the public institutions in Bolivia, the Church eventually became the one with the 56

greatest legitimacy, and its ongoing role as mediator reflects the lack of mechanisms for resolving government disputes. Under the UDP, the only sector of the economy that thrived was cocacocaine production, which at one point almost equalled legal exports (de Franco and Godoy 1992). Unable to solve the country’s problems and without the support of the international financial community, the Siles Zuazo government had little option but to call for elections in 1985, one year ahead of schedule. Global pressure and local response

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Often when international economic and political interests focus on Bolivia – because of silver, gold, guano and rubber or, later, because of the debt owed to international banks, fear of communism (and now terrorism), hydrocarbons and coca-cocaine – the unequal power relationships between a small country and global interests erode national sovereignty. The country has repeatedly accepted the conditions imposed by foreign interests to end conflict, as occurred during the War of the Pacific, or in order to stabilize the economy, as happened in 1956 and 1985. While international firms or institutions are often successful in gaining government concessions, they must be able to operate within a weakly governed territory where the national state struggles to construct and maintain hegemony. The ebbs and flows in attention from the outside do not determine the specific outcome of Bolivian social and political processes but rather are crucial elements that shape local events. Very often international demands stand in direct opposition to the conflicting interests of various indigenous, mestizo or criollo ‘locals’. The result is a political process that Dunkerley calls ‘a continuity of ruptures’ and which Conaghan and Malloy argue resulted in civilian rule characterized as ‘neither clear-cut democracy nor authoritarianism but an unsettled regime type and unsettling style of policy making’ (1994: 6). Although small, landlocked and poor, Bolivia has contributed to moulding global trends since the Spanish conquest. In its simplest form this means, for example, jump-starting capital accumulation for industrialization in Europe in the sixteenth and seventeenth centuries when revenues from Bolivia’s silver flowed to northern Europe to pay the debts of the Spanish crown (Klein 1992). As the world’s leading tin producer in the early twentieth century, Bolivian resources contributed to reductions in food costs in the United States and Europe, much as

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increases in nineteenth-century Caribbean sugar production, to some degree, lowered wage demands by northern factory workers (Mintz 1985). Bolivia has also served as the setting for the development of institutions replicated in other parts of the world. Toledo’s reforms provided the framework for Spain’s colonial administration throughout Latin America; those brought by the IMF and the World Bank developed the structure used for the economic administration of many developing countries today. In the following chapters, we show how the interactions between neoliberal restructuring and patterns established during the past 450 years have shaped both the neoliberal regime and the resistance to it. Notes 1 Criollos are Spanish immigrants and their descendants, who make up approximately 5 per cent of the population. Mestizos stem from mixed ethnic heritage of both Spanish and indigenous stock. In Bolivia, the term mestizo often also includes urbanized indigenous people who have adopted western dress, customs and language. 2 Caciques were the native lords who traditionally exercised authority in communities. The Spaniards adapted this system to ensure their control and, over the centuries, it evolved into what Thomson calls ‘a very distinctive arrangement of community political power’ (2002: 9). 3 Inca mines at Potosí predated the Spanish discovery of silver. The colonial legend of Huallpa’s discovery has been descibed as a means to legitimate Spanish control of an indigenous resource. We thank Sinclair Thomson for clarification of this and other points in this chapter. 4 Brading and Cross (1972: 558) use a different figure and say that one in seven men between the ages of fifteen and fifty were subject to the mita. 5 The altiplano is a high flat plateau between a split in the Andean mountain range. Most of it is higher than 3,600 metres (11,880 feet) above sea-level. 6 Guano is seabird manure found along what for most of the nineteenth century was Bolivia’s sea coast. Its high nitrogen content made it important for agriculture (as a fertilizer) and in explosives production. 7 Many indigenous communities remain suspicious of governmentauthorized land surveys and refuse to allow surveyors to map their land. 8 As Chile controlled the railway for fifteen years following its construction, it recouped most of the associated construction costs. 9 Analysis of maps from neighbouring countries reveals inconsistencies in figures. For example, some Paraguayan maps show that the Chaco region was always part of Paraguay. The war, according to Paraguayan historical accounts, simply served to codify what had been a poorly defined boundary. Peruvian records show that the land Bolivia claims to have lost in the Amazon was part of an area where the border had never been delineated.

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10 Bolivia’s third principal indigenous group, the Guaraní, found in the southeastern Chaco area and in neighbouring Paraguay, have a social structure distinct from the Andean groups. Over thirty-five other smaller groups live principally in the eastern lowland areas, where they have long survived at the margins of rubber tapping, cattle ranching and most recently gold mining (Albó et al. 1990). 11 The use of the term campesinos to infer indigenous people has become increasingly complex as much of Bolivia’s rural Quechua and Aymara population regard the term indigenous as having negative connotations and often use it pejoratively to refer to the ‘less civilized’ scattered tribes of Bolivia’s tropical lowlands. In the last ten years, however, the resurgence of an indigenous nationalism has removed much of the term’s negative connotations. 12 Escobar (1984) and Barrios de Chungara (1978) detail the experience of a mining leader and a leader of the Bolivian miners’ women’s movement during this period. 13 In nationalizing Gulf Oil, Ovando argued that the oil company had assumed the same position as the tin oligarchy in pre-revolutionary Bolivia, and that it was his government’s duty to protect the interests of the country. Banzer felt no such compunction and offered favourable concessions to mining and oil and gas companies throughout the 1970s. 14 It is worth noting that Banzer maintained that level of support – winning between 20 per cent and 28 per cent of the vote – in five democratic presidential campaigns between 1980 and 1997.

From de Toledo to Sachs

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3 | The neoliberal incursion: structural adjustment and the New Economic Policy

In 1985, when elections were called one year ahead of schedule by the failing Siles Zuazo government, the Bolivian economy was in complete disarray. GDP had declined every year since 1981 and hyperinflation raged at some of the highest rates the world has seen (Sachs 1987). The only successful economic enterprise was the mushrooming cocacocaine trade centred in the semi-tropical region east of the city of Cochabamba, which at one point almost equalled legal exports (de Franco and Godoy 1992). After the votes were counted, the party that governed after the 1952 revolution, the National Revolutionary Movement (MNR), under Victor Paz Estenssoro, its leader from the early 1950s, was able to form a coalition government with a social democratic party, the Left Revolutionary Movement (MIR). Within three weeks of taking office, in a dramatic reversal of many of the principles he had championed in 1952, Paz Estenssoro initiated South America’s second most radical neoliberal restructuring programme (after Chile) called the New Economic Policy (NEP) (Conaghan and Malloy 1994). Although it incorporated a structural adjustment programme (SAP) similar to the stabilization plan Bolivia underwent in 1956, and reflected continuity with centuries of international intervention, the NEP none the less represented a profound change in direction. Its success was made possible by the strong support of the business sector and absolute public weariness after years of political instability and economic chaos, backed by a military largely committed to remaining in its barracks. The NEP, introduced with Presidential Decree 21060 (Decreto Supremo – DS),1 reflected a seachange occurring throughout Latin America as the import substitution industrialization (ISI) model in vogue since the 1940s was increasingly discredited. Assigning the state an interventionist role, ISI policies typically included preferential treatment for national industries, often stateowned, through regulatory and tariff barriers that protected them from foreign competition, combined with investment tax breaks, low-interest loans and strict controls on foreign exchange. ISI policies had proven

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most successful in Japan and Korea where governments more effectively disciplined the business sector and promoted exports (Wade 1996; Singh 1994). In Latin America, however, ISI policies, generally more limited than those of the Asian tigers, ran into difficulties because they tended to exacerbate inflation and generate frequent balance of payment crises, compounding existing economic weaknesses (Weyland 2004). ISI failed to lessen dependency on northern countries for manufactured goods and capital and proved unable to limit the repatriation of profits by multinational corporations. By the late 1970s, critics created an alternative economic model that adhered to a logic of trade liberalization and globalization. Later known as the Washington Consensus, this policy orientation included ‘free’ trade, privatization, opening national markets and resources to international capital, and instituting floating rather than fixed exchange rates (Williamson 1993). In Bolivia, the NEP led to the closing of the state mines – the most potent symbol of what had become known as the State of ’52 (Estado de ’52) – allowed the currency to float against the US dollar, privatized state-owned enterprises (SOEs), opened the country to direct foreign investment and ended protectionist policies. Bolivia was one of the first countries where this bundle of policies, which became known as a structural adjustment programme (SAP), was applied. Such packages quickly became the preferred instrument of international financial institutions (IFIs) led by the International Monetary Fund (IMF) in Eastern Europe, Africa and other parts of Latin America (Sachs 1987; Aguirre et al. 1992). The NEP’s impact on controlling hyperinflation verged on the miraculous as inflation plunged from an annual rate of 20,000 per cent to 9 per cent in a matter of months. Quickly touted as a success story, Bolivia became a potent symbol of neoliberalism’s ability to achieve macro-economic stabilization. But this success came at an enormous cost to Bolivia’s workers: over 20,000 miners lost their jobs in the first year and manufacturing jobs fell by 35,000 over five years (Crabtree et al. 1987: 8; Farthing 1991: 18). By 1988, the informal economy had expanded to include almost 70 per cent of the urban workforce. As unrest spread, the Paz Estenssoro government declared two states of siege, resorting to imprisoning union leaders in remote locations in the eastern tropics. To critics, the country became emblematic of the disastrous effects of SAPs. When reports surfaced that one of the NEP’s principal architects, Jeffrey Sachs, then a Harvard economist, was on

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his way to Poland to apply similar policies there, one Pole told a New Yorker staff writer, ‘I would love to see Bolivia: I just don’t want to see Bolivia here’ (Weschler 1991: 28). To counter the social devastation, the World Bank created a Social Emergency Fund (SEF) that invested in projects which over four years directly benefited 1.2 million people in a country of 6.3 million. The SEF supported hundreds of small projects in areas of ‘economic infrastructure, social infrastructure, social assistance – such as school feeding programs, and productive support – such as credit groups’ (Graham 1992: 1234), many administered by the burgeoning number of non-governmental organizations (NGOs) that expanded exponentially in response to the influx of new funds (Duran B. 1990). The SEF’s success in reaching large numbers of people prompted its rapid spread in other countries undergoing structural adjustment. This chapter discusses the introduction of the neoliberal project in Bolivia. Through a combination of consent and domination, the government of Paz Estenssoro, with the support of reinvigorated business elites, effectively created a temporary neoliberal hegemony through the successful economic stabilization of the country and by attacking the ability of labour to contest the state. We examine how IFIs, principally the World Bank and the IMF, collaborated with Bolivia’s elites to marshal popular aspirations for political democracy after twenty years of military dictatorship and ten years of political and economic decline to create the necessary support for the NEP. The chapter explores how the resulting drastic social impacts were cushioned by the informal and drug economies, and how civil society institutions, such as the NGOs and the Church, often inadvertently facilitated neoliberalism’s success. Bolivia’s economy before neoliberalism

Like many resource-rich, low-income countries, the Bolivian export economy has always relied on raw materials produced by a fraction of the workforce. But this income has never supported the country’s population, about half of whom live on a combination of subsistence and market agriculture, a figure that has changed little during the past twenty years. (Table A.1, in the Appendix, provides basic economic and social information on Bolivia when the neoliberal project began.) For twenty-five years, the World Bank has categorized Bolivia as a lower middle-income country which in 1980 ranked 79 out of 125 62

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market economies around the world in GDP per capita. A 2003 UNDP study puts the country at about the same human development index as Tajikistan and Honduras, at the bottom of the list for South America. It also ranks among the top third of the world’s most unequal countries (UNDP 2003) with among the highest rates of rural poverty in the world (Gamarra 1994). While agriculture accounted for only 22 per cent of GDP in the early 1980s, it employed 44 per cent of the economically active population; the majority engaged in labour-intensive production on smallholdings. Unjustly termed subsistence farmers, these campesino producers grow 70 per cent of the country’s food supply (Rance 1991). As in other countries with dispersed and therefore politically weak rural populations, Bolivia historically implemented policies with an urban bias that kept food prices for city dwellers low rather than guaranteeing farmers fair prices (Lipton 1977). This serves to lower urban unrest at the cost of rural economic development. Most of the rural population is concentrated on the altiplano, the high, dry inter-Andean plateau between 3,500 and 4,200 metres above sea-level, and in dry intermontane valleys between 2,000 and 3,500 metres. Campesinos received small landholdings granted following the 1953 Agrarian Reform, which have been divided among their heirs for two or three generations creating a patchwork of often tiny holdings known as minifundios that are too small to sustain the population. Around Lake Titicaca or in the Cochabamba valley, a share of a family’s land can be as little as 300 square metres, the size of a city lot. Pressure on the land has meant a steady increase in migration to the cities and the tropics since the 1960s and a third of campesinos migrate temporarily to urban areas, to harvests in lowland export agriculture, and to work as labourers in other countries, particularly Argentina, Brazil and Chile. Two-thirds of urban workers are employed in family firms or firms with fewer than five employees (World Bank 2001). The majority of the country’s manufactured goods, with jewellery, wooden furniture and textiles the most important, are labour-intensive and require low levels of investment. Within the export-oriented hydrocarbons and mining sector, the great majority of workers, some 25,000, work in about 350 small cooperative mines characterized by outdated technology and what for the industrialized world are nineteenth-century conditions. In 1985, 70 per cent of Bolivia’s economy was in government hands

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through 158 state-owned enterprises (SOEs), from mining to airlines to telecommunications. The state sector expanded during the period of military dictatorships when it became an important source of political patronage. Several of these SOEs produced significant revenues for the state, particularly the increasingly important oil and gas company, founded in 1937 when Standard Oil was nationalized following the Chaco War.2 The largest SOE, the Bolivian Mining Corporation (Corporación Minera Boliviana – COMIBOL) produced over 50 per cent of the country’s minerals at the beginning of the 1980s, while 22 per cent were mined by medium-sized private mine owners and 26 per cent by cooperative mines. COMIBOL faced significant difficulties right from its founding shortly after the 1952 revolution, as the mineral content of tin reserves had been dropping since the 1920s. The situation deteriorated further as successive governments siphoned off profits rather than reinvesting in infrastructure or exploration. Because the tin barons controlled contracts with international markets and foreign smelters, COMIBOL’s initial marketing capacity was severely limited. The enterprise soon became a channel for the largesse of the government in power, with the ratio of underground to surface workers shifting from over two-to-one in 1952 to one-to-two by the 1960s. Since 1952, not one new state mine has opened and by 1985, COMIBOL reported losses of $300 million, all in a country that still contains some of the world’s richest mineral deposits (Dávila 1991; Altamirano 1995). Private Bolivian-owned mining from the mid-1960s on was dominated by three companies: COMSUR (largely owned by two-time President Sánchez de Lozada until 2005), EMUSA and International Mining, which together account for 80 per cent of total private production. By 1977, 34 per cent of all mining was private, an increase due in part to diversification away from tin into zinc, gold and silver (Conaghan and Malloy 1994: 44–63). While gold mining mushroomed, beginning in the early 1980s, most of the work, with the exception of a few large companies, is done in rudimentary conditions, and 90 per cent of small mine production leaves the country as contraband through Brazil, providing the government no tax revenue at all. Large doses of state protection built a fledgling industrial sector that was largely uncompetitive and extremely vulnerable to economic change. Industry has always been hampered by a small internal market, aggravated by the poverty of the average consumer, the preference of 64

wealthier consumers for foreign goods, and low levels of internal and regional integration that have made market expansion difficult. The result is an industrial sector that has exercised less political influence than in other Andean countries (ibid.). The other main area of Bolivian private investment is in exportoriented agriculture. As early as 1955, despite the 1953 Agrarian Reform, agricultural estates in the eastern lowlands received over 50 per cent of all credits from the state’s Agricultural Bank. In the 1970s, General Banzer aggressively funnelled credits to lowland export crops, encouraged by high cotton and sugar prices. These loans strengthened eastern elites, who frequently reneged on their obligations when international prices fell, in the process making a major contribution to the country’s spiralling debt to commercial banks. The emphasis on export agriculture led Bolivia to import an increasing amount of food, a paradox in a sparsely populated country with significant ecological diversity and over a third of its inhabitants employed in agriculture (Farthing 1991). Chronic political instability, hazardous terrain and poor transport infrastructure have made foreign investors leery and efforts to garner new international investment have repeatedly floundered since 1952. Though dependent on primary material exports for 500 years, until the 1990s, landlocked Bolivia did not have a single paved road linking it to any of its five neighbours. Even during the 1970s, when Banzer courted international investors awash with petrodollars, the country captured only US $96.1 million in investment over seven years. Within the country, national business elites generally focus on speculative investments capable of generating short-term gains, rather than on long-term commitments to build infrastructure and productive capacity. The New Economic Policy (NEP) and Presidential Decree 21060

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While many of the policies of the NEP were similar to those in the 1956 stabilization plan, the principal difference in 1985 was the proposal to shrink significantly the size of the state by diminishing its role in the economy, reversing basic policies of the State of ’52. The initial programme, launched through Presidential Decree 21060, was largely designed by Bolivian technocrats, with strong support from sectors of the business community. By specifically introducing neoliberal language and principles, DS 21060 had the explicit intention of regaining the support that the IMF, World Bank, Inter-American Development Bank (IADB) and United States withdrew during the UDP

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government (1982–85). Embarking on such a radical economic change did not necessarily represent a wholehearted embrace by Bolivia’s elites of market control as the guarantor of improved macro-economic performance. Instead, as Juan Antonio Morales, who served as Minister of Economics, argues, neoliberalism’s architects believed that a smaller state would control the country’s endemic political patronage and corruption, and address chronic instability by improving governability (1993: 134). The reluctance to privatize SOEs by the first two neoliberal governments gives Morales’s assertion credibility and demonstrates that the discursive hegemony of the entire neoliberal package among political elites was far from total, particularly at the earliest stages. According to Jeffrey Sachs, the NEP ‘contained an enormously ambitious agenda, that went beyond macroeconomic stabilization’ (1987: 281). It was able to achieve so much because of a combination of factors that included the crash of the tin market a few months after the MNR took over in 1985, the support of the private sector, the collective exhaustion of the public after almost a decade of political and economic chaos, the legitimacy and skill of MNR leadership, and the cushioning provided by the informal economy (Kruse 1994: 52). The October 1985 tin crash provides a powerful illustration of how international speculation, in this case through the manipulation of prices on the London metals market, can have a disastrous impact on low-income countries. As an international commodity, tin becomes a good to be bought and sold, divorced from either production or consumption. In this case, the individuals who participated in those markets probably had little knowledge of the havoc their actions wrought, but instead focused on the profits (and losses) from exchanges of a fictitious commodity. Yet the economic fortunes of thousands of miners hung on the results of deals made halfway across the world (Crabtree et al. 1987). The Paz Estenssoro administration floated the peso (which was later converted to the Boliviano, removing six zeros in the process), indexed petrol prices to the US dollar, thereby increasing government revenues, and instituted export taxes on state-controlled oil and gas. The government reduced expenditures by freezing or cutting public sector salaries, firing some 35,000 state workers, closing unprofitable state businesses, and subjecting the rest to a strict market logic that prohibited any further investments. To reactivate the economy, the NEP reduced import–export regulations and tariffs on private businesses. 66

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‘Dollarization’, which tied the currency to the US dollar, was linked to the end of price controls, the removal of restrictions on currency exchange and international commerce. The government also offered new guarantees to protect foreign investment (Sachs 1987). Although additional revenues did come from the newly instituted taxes, the key element in the decline of fiscal deficits was a seven-fold rise in the price of domestic petroleum products, increasing the share of government revenues from hydrocarbons from 12.7 per cent in 1983 to 55 per cent in 1986. This revenue stream predictably became unreliable as hydrocarbon prices fluctuated on the world market (Dunkerley 1990: 213). The actual implementation of neoliberalism was carried out by a weak coalition of capitalists, technocrats and politicians (Conaghan and Malloy 1994: 214). Paz Estenssoro, however, was a forceful politician who found an important ally in Gonzalo Sánchez de Lozada (Goni). Goni, raised and educated in the United States, was principal owner of the largest private mining company, COMSUR, and had an unwavering commitment to neoliberalism. His forceful personality and astute political skills turned him into one of the NEP’s chief architects and proponents. Jeffrey Sachs, then a Harvard economist and professor of Ronald Maclean, one of Banzer’s advisers, came to Bolivia several months after the NEP was introduced. He assumed a leading role in advocating on behalf of the government to the IMF, requesting support for the NEP even before the thorny issue of reinitiating Bolivia’s debt repayment had been broached (Conaghan and Malloy 1994: 196). In March 1986, the Paz Estenssoro government achieved international legitimacy when the IMF concurred with Sachs’s positive assessment by renewing credit arrangements, largely because it recognized that this would increase the possibility of debt repayment. The United States went along with the IMF, in part because it wanted Bolivia to mount a militarized offensive against rapidly expanding coca and cocaine production. Soon after, the World Bank and the IADB followed suit. During negotiations in 1987, Paz Estenssoro’s economic team accepted IMF guidelines that left two-thirds of export income available for foreign debt payments. Subsequently, Bolivia was granted the ‘Toronto treatment’, previously reserved for sub-Saharan countries. This condoned a third of the country’s bilateral debt and reprogrammed remaining loan schedules and interest rates. Concurrently, the economic team initiated creative approaches to debt reduction, by negotiating for half the commercial debt to be paid at 11 cents on the dollar, and

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arranging for debt swaps, most notably to fund environmental projects (Conaghan and Malloy 1994: 196–9). The carrot and stick approach of the IFIs and the United States proved essential to ensure both the initial success of the NEP and the hegemony neoliberalism achieved among Bolivia’s political classes through five successive governments.3 For the most part, once the country decided to conform to IFI expectations, it had little room to manoeuvre in terms of negotiating conditions. IFI funding became (and continues to be) essential for the government to meet its basic obligations. Since 1985, roughly half of Bolivia’s public investment has been supported by international aid, averaging about 9 per cent of the Gross Domestic Product (GDP) annually (World Bank 2003). This dependency has ensured an almost slavish following of IFI prescriptions in order to guarantee a steady flow of funds. An unusually self-critical World Bank report suggests that so strong was donor belief in neoliberal principles that markets are benevolent mitigators of poverty and governments are harmful, that the financers ‘deluded themselves by faith, [that during] the initial years of democracy and several years of reasonable growth’ they could completely reinvent the country (World Bank 2004b). Such ‘faith’ was widely accepted by the IFIs worldwide, and illustrates the discursive hegemony neoliberal ideas have achieved. The World Bank’s funding of Bolivian ministries was decisive in the widespread embrace of neoliberalism. Fernández describes how this ideological preference spread among most Bolivian intellectuals: More than a just a coarse parroting of current orthodoxy, phrases such as ‘neoliberalism with a human face’, ‘social-neoliberalism’, ‘protect governability’, ‘it’s the only path, there is no other’, ‘get on the train of globalization’, and ‘modernize the country’ were coined by many intellectuals seduced by the logic of power and the ‘magic of the market’. At the same time as they took public jobs, they were well paid consultants … or served in public office. It’s almost certain that very few understood the principles developed by neoliberal thinkers of the 1930s, such as Hayek and von Mises, and merely limited themselves to repeating, like a distorted echo, supposedly modern values of an old neoliberal discourse. (Fernández 2003: 114; our translation)

The MNR used its symbolic capital as architect of the 1952 revolution to re-establish state authority after a lengthy period of instability while 68

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introducing policies that fundamentally undermined the revolution’s achievements. The MNR had to rein in both the military and the COB, control regional aspirations for greater autonomy and resist private business demands for special treatment, all while containing a revived and radical indigenous peasant movement that had taken form at the end of the 1970s. To enforce the NEP, Paz Estenssoro forged a pact with the ADN that resembled the historic alternate power-sharing agreement in Colombia between Liberals and Conservatives from 1953 to 1974 (Gamarra 1993). This pact, which the MNR breached at the first opportunity (during the 1989 elections), ensured a government majority capable of effectively isolating the opposition and marginalizing the legislature from policy-making. This weakened the parliamentary and judicial branches of government to the benefit of the executive, a common pattern throughout Latin America during neoliberal restructuring (Smith et al. 1993: 1). Paz Estenssoro built on the military authoritarianism he had inherited to create an exclusionary policy-making environment that blurred distinctions between authoritarian and democratic regimes (Conaghan and Malloy 1994: 163). This isolated political parties from the construction of public policy, a tendency also consistent with other parts of Latin America where parties are seen primarily as campaign vehicles. The increased presidential power allowed Paz Estenssoro to avoid compromising on the NEP’s content (ibid.: 214). Within the cabinet, internal struggles over ideology and power were frequent. Paz Estenssoro astutely formed a political and economic team, with Guillermo Bedegral, who represented the more traditional MNR, to lead the political unit, and Goni, the neoliberal fundamentalist, to lead the economic unit. The economic team predominated and, consistent with the neoliberal philosophy of privileging economics over politics, limited participation in public policy-making to economic experts. With an enormous personal and ideological commitment to most aspects of neoliberalism, the team was impervious to criticism and external pressure (Gamarra 1993). In 1986, a new Electoral Law was introduced to streamline the political process and diminish political fragmentation by reducing the number of minority parties. Law-makers argued that this would improve democratic functioning but, in fact, it directly benefited the ruling coalition as it meant that politics were funnelled through the three major political parties. The attempt to consolidate hegemony through

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controlling politics demonstrates that, despite neoliberal rhetoric, the new system was part of a political project: what Conaghan and Malloy call ‘an act of political construction’ (1994: 168). The Electoral Law also signalled a rise in importance of political parties, as these sought ‘to substitute the old style of political mediation carried out by the unions … Party systems, elections, and representative democracy are today the mechanisms that have prescriptively defined the exercise of citizenship’ (García Linera 2004: 37; our translation). Bolivia’s bourgeoisie for the most part voiced strong commitment to the NEP, as it represented its views on the economy. Conaghan and Malloy describe the elite’s position in 1985 as similar to that of the Chilean business class after the military overthrow of Allende, where the fear of the left overrode all other concerns (1994: 199). Most national businesses had been decapitalized as a result of hyperinflation and capital flight, even though some individuals made a windfall in currency speculation. The NEP failed to spark significant growth in private investment, and Bolivian business leaders, represented by the La Paz-based Bolivian Private Business Federation (CEPB), made it very clear that they believed the primary responsibility for economic revitalization lay with the government, not the private sector. Despite their neoliberal rhetoric, they pressed for public, rather than private, investment to overcome the deep recession (ibid.: 199–219). The NEP set the stage for subsequent deepening of neoliberal policies, culminating in the 1993 Plan de Todos (Plan for All). As Minister of Planning under Paz Estenssoro, Goni had envisioned a sweeping change to replace the state capitalist system with a neoliberal market system and, when he came to office in 1993, he undertook this programme in earnest. Impacts of the NEP, 1985–93

Deflationary stabilization was spectacularly successful and inflation remained low after 1985. This remarkable feat was quickly dubbed the ‘Bolivian miracle’ and was largely achieved by modifying the exchange rate policy through the dollarization of domestic bank accounts (Dunkerley 1990: 31). The NEP’s strong and visible support from the IFIs also increased its validity in the eyes of a population long accustomed to thinking of northerners as more competent, more ‘developed’ and more ‘modern’. These factors together created a discursive hegemony in support of neoliberalism among certain sectors of the population. 70

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The most emotionally potent NEP policy was the closure of the large state mines, the key symbol of the 1952 revolution. The closures were catastrophic, as 23,000 out of 30,000 miners lost their jobs (Crabtree et al. 1987). However, the government was unable to shut down or privatize COMIBOL completely as it had been created by the constitution that emerged from the revolution. Instead, the government simply stripped its assets and discontinued subsidies, which achieved the same goal. By 1986, real wages throughout the country had fallen to less than two-thirds of 1985 levels and open unemployment soared. Gas prices went up by a factor of seven from one day to the next (Dunkerley 1990: 33–6). Within a year, about 10,000 public administrative employees and almost 25,000 rural teachers lost their jobs (ibid.: 212). Efforts to further reduce education expenditures through decentralization by turning this responsibility over to local governments met with stiff resistance from the Civic Committees concerned about who would pay for schools. In 1985, in a move consistent with the IFI push for political decentralization, municipal elections were introduced after an almost forty-year hiatus, which heralded a revival of local politics that the traditional parties would soon find themselves unprepared for. The New Electoral Law was successful in temporarily containing the rise of smaller political parties, and these responded by forming multiple party alliances to participate in elections. Even so, during the 1989 elections, the three leading candidates accounted for less than two-thirds of the total votes cast, leaving no candidate with a clear majority. Consequently, the need to govern by pact extended into the Paz Zamora administration (1989–93). Gamarra (1993: 107) points out that while these political alliances ensured stability, they made cutting government patronage impossible as the ADN collaborated with the MNR and later the MIR precisely in exchange for patronage. The reforms reduced the ‘lumbering Frankenstein’ (sic) of a state (Conaghan and Malloy 1994: 82), but did not eliminate patronage, petty corruption and widespread inefficiency. As a result, the fundamental neoliberal goal of limiting the size of the state, for the most part, proved impossible. When the NEP withdrew state subsidies, the tiny industrial sector, based on textiles and food processing, went into severe crisis and over 120 factories closed. These businesses began vociferously but ineffectively to protest the NEP, as their political clout was small even though they did generate a large number of jobs. The NEP’s advocacy of export-

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led development was quickly confronted by what Carreón and Pinto de Loza (1997) call Bolivia’s asymmetrical insertion in the global market: through the 1990s the formal exports that grew were raw materials, and goods with little value-added, most notably tropical hardwoods. A series of creative measures, such as debt swaps, reduced the debt load, with the share of loans from private banks falling from a peak of 23 per cent to almost nothing. Bilateral debt also fell, with Japan remaining the single largest creditor. Multilateral debt, however, increased considerably, particularly with the IADB. Fourteen per cent of the 1991 budget was destined for combined interest and principal payments. During the 1980s, like other countries in Latin America, Bolivia was a net exporter of capital, and neoliberal policies guaranteeing debt payments ensured that this would continue (Kruse 1994: 118–19). By the measure of the IFIs and the US government, Bolivia was a success – debt obligations were fulfilled, the country’s economy stabilized, exports increased and, during the late 1980s and early 1990s, GNP per capita increased even though income distribution worsened. IFI support for government social programmes was crucial in containing resistance to restructuring within manageable limits, a role they have played worldwide (Adams 1995). The long-term prognosis, however, was not positive, given that the assumptions of the NEP were based on classic neoliberal theory which relied on private actors, unfettered by government control and intervention, to become the motor behind economic growth. In Bolivia, despite its rise in importance and renewed commitment to democracy, the mature national business sector the NEP envisioned simply did not exist. The business sectors in a position to gain the most were those best integrated into international trade, but these were precisely the elites that historically had been least likely to promote economic growth through reinvestment. Consistent with the situation prior to the NEP, and in keeping with its long tradition of seeking short-term gain, most investments after 1985 had little impact on job creation and were speculative in nature (Carreón and Pinto de Loza 1997). New employment was subject to labour flexibilization practices, whereby employers hired short-term workers in order to avoid paying benefits. By 1990, private investment had risen only 5 per cent over the amounts registered in 1987 and most of the productive investment in Bolivia was from foreign companies and joint ventures (Kruse 1994: 115). 72

Bolivia’s neoliberal transition included an important innovation that set it apart from other countries: the Social Emergency Fund (Fondo de Emergencia Social – SEF). Financed by the World Bank to limit the NEP’s negative social impacts, the SEF spent US $239.5 million over four years, culled from a combination of low-interest World Bank loans and bilateral donations. The SEF supported hundreds of small projects in areas of ‘economic infrastructure, social infrastructure, and social assistance – such as school feeding programs, and productive support – such as credit groups’ (Graham 1992: 1234). The projects largely provided thousands of short-term, sub-minimum-wage jobs in construction, an increasing number of them administered by the escalating number of NGOs. Architects and local planners frequently pointed to problems with the construction quality of many schools and health clinics, and questioned who would assume responsibility for maintaining the new public infrastructure. After four years, the programme was renamed the Social Investment Fund (SIF). Although apparent that it is incapable of creating long-term job growth, it has become a semi-permanent fixture in Bolivia, and the World Bank deemed the programme so successful that it was integrated into other SAPs implemented in Latin America and Africa (Graham 1992; Beneria and Mendoza 1995; Mohan 1996; Peet 2003). Constructing hegemony: cocaine, contraband, the informal economy and remittances

73

The neoliberal incursion

A major, if unstated, reason for the NEP’s ability to stabilize the country so rapidly was the government’s tacit legalization of laundering cocaine profits by allowing US dollar accounts at the central bank, no questions asked. To cater to the immediate influx, the bank instituted short-term certificates of deposit (CDs), which quickly became the most important source of national reserves. These CDs succeeded in repatriating a quarter of the estimated US $2 billion which had fled the country between 1980 and 1985 (Farthing and Villegas 1991). Combined with the informal economy and remittances, this income dwarfed the contributions of the Social Emergency and Investment Funds and was instrumental in dissipating large-scale resistance to the NEP. By 1994, the informal economy – including coca-cocaine, contraband and remittances – was estimated to account for as much as half of all economic activity (Baer 1994: 98). This informal sector employs as many as two-thirds of Bolivians; therefore, although it may

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be ‘notoriously difficult’ to estimate, it simply does not make sense to ignore it, as some researchers have done.4 From the mid-1980s to 1997, coca leaf and semi-processed cocaine paste provided an estimated US $500 million a year or between 5 and 8 per cent of GDP, exceeding all other agricultural products both in terms of value as well as in provision of jobs (Kohl and Farthing 2001). These revenues, while only a fraction of the billions US consumers spent on cocaine, had a significant impact on the regional economies of Cochabamba and Santa Cruz. Coca income from peasant producers supported around 50,000 families – equal to the number of families directly displaced by the NEP. Overall estimates of the number of people working in coca cultivation during this period ranged between 120,000 and 500,000 (Léons and Sanabria 1997: 18–20). In addition, the USfunded War on Drugs, which began in earnest in 1989 with George H. Bush’s Andean Initiative, brought in over US $100 million per year, mostly in police and military aid; a far smaller amount was channelled to funding largely unsuccessful alternative development projects in coca-producing regions (Farthing and Ledebur 2004). In Bolivia’s cities, the street seller became ubiquitous. Often selling tiny quantities of agricultural produce or manufactured goods, this largely female population eked out a sparse living, frequently spending as many as fourteen hours a day on the streets. In La Paz, over 30,000 vendors filled the streets daily, one vendor for every thirty people. By 1991, over 60 per cent of Bolivia’s urban population was engaged in the informal sector characterized by its small scale, lack of access to capital and training, and low productivity (Farthing 1995: 18). Through the 1990s, contraband smuggled from neighbouring countries and sold in street markets equalled all legal imports (Nueva Economía 1997: 10). During the late 1980s, remittances, also a common source of income in Mexico and Central America, flowed from the one million Bolivians in Argentina – of a total population that had reached 8 million – and provided the primary source of cash in some areas. By the end of the 1990s the number had risen to an estimated 1.5 million (La Razón, 24 January 1999). These income sources also provided the largest sources of new jobs and capital for investment. They funded a construction boom in the wealthy areas of Bolivia’s largest cities, particularly in Cochabamba whose richer citizens thrived from the nearby coca-cocaine economy, with new buildings and services catering to the well-to-do springing up 74

everywhere. Ironically, some of these houses, constructed in a garish style we call narco-baroque, were later rented to the US employees of the drug war agencies. Constructing hegemony: debilitating the COB

75

The neoliberal incursion

Workers and campesinos immediately responded to the NEP with a round of strikes and riots and the government countered by declaring martial law, known as a state of siege (Estado de Sitio). Destroying the power of the COB and popular resistance was one of the unstated but principal aims of the NEP. Leaders such as Paz Estenssoro saw the powerful labour movement, the principal opposition since its founding in 1952, as an obstacle to economic development and understood that restructuring the economy required removing labour’s ability to challenge the neoliberal vision of the state. As Medeiros points out, the abolition of many hard-won workers’ rights under DS 21060 redefined ‘the terms in which the labor movement could frame their claims’ (2001: 408). The administration did not hesitate to use force. ‘Rather than a strictly economic program, the New Economic Policy is a political plan’, Goni, then Finance Minister, wrote in 1985. ‘The first political task consists of restoring the state’s authority over society at large’ (Sánchez de Lozada 1985: 5; our translation). No one who read these words doubted that he was referring to the COB. From 1952 to 1985, the COB had wielded greater influence over national political life than had any other independent trade union movement in Latin America, and perhaps the world. In the years immediately after the 1952 revolution, it co-governed with the MNR, exercising veto power over policy. The COB and the revolution are inextricably linked. Throughout the period of military dictatorship (1964–82) it was the focus of struggle for a return to democracy and, in 1978, it brought down the Banzer dictatorship. The COB also played a decisive role during the tumultuous four-year transition to democracy from 1978 to 1982 (Dunkerley 1984; Medeiros 2001). It had never limited itself to salary or other immediate economic concerns, but rather embodied a vision of a just, egalitarian society, defending national interests in the face of corrupt regimes. The COB drew its strength from its ability to unite most sectors of society into organized labour, incorporating, sometimes with great difficulty, a myriad of economic sectors, ideological currents and political parties. After the NEP, protests against the increasing reduction of social

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services and massive firings were almost daily phenomena in the nation’s capital. The streets around government offices hosted marches as groups of ex-miners, teachers, retired workers, or transport drivers demanded greater support or the reversal of some neoliberal policy. During the first state of siege in the autumn of 1985, Paz Estenssoro shipped 143 strike leaders to internal exile in a remote area of the Amazon. The government immediately took advantage of their incarceration to lay off thousands of workers. Economist Pablo Ramos (1986), who became rector of La Paz’s public university, maintained that these firings were not just economically motivated, but rather indicated the government’s decision to destroy the labour movement. Coming at a time when the COB had expended a great deal of its political capital struggling with the previous centre-left UDP government, the NEP was effective in fragmenting the workforce and popular organizations. Using a mix of repression and cooptation, and often acting as if the popular movement did not exist, the government neutralized opposition both on the streets and through the political pact between the MNR and ADN in Congress (Conaghan and Malloy 1994: 151). According to Rivera (1993: 109), the new economic policy disciplined peasants and workers’ unions through the harsh realities of the market while orienting their demands for participation towards the sphere of electoral clientilism of new and old political parties. The labour ‘flexibilization’ brought by the NEP and 21060 produced a ‘white massacre’ that allowed employers to hire and fire at will, ridding themselves of the most active unionists and depriving workers of the protections that had been won at great cost over the previous three decades. As the number of unionized workers fell, the number of informal workers, many of them women, rose sharply, further undermining the COB’s importance (Arbona 2003). As self-employed workers are notoriously difficult to organize, and deeply ingrained sexism isolates most women from political participation, many of these workers had limited political awareness and little experience of collective protest. The formerly mighty COB, structured to draw its leadership from the mines, was thrown into disarray. The arrangement that guaranteed the miners a vanguard and dominant role within the COB led to increasing tensions with both the important teachers’ union and the confederation of campesinos (CSUTCB), whose increasingly independent voice was ‘poorly suited to operating according to the norms of industrial syndicalism’ (Dunkerley 1990: 52). In each Congress of the 76

COB, the campesinos represented by the CSUTCB have struggled, so far unsuccessfully, to overturn the traditional balance of power that favours workers (Tapia 2004). Within the CSUTCB, the dominant role played by the Aymara Katarista movement diminished, but their ideas spread throughout the country, invigorating a vibrant indigenous movement from the eastern lowlands to the Quechua and Aymara-speaking highlands (Medeiros 2001). The acute crisis in mining meant that the COB’s leadership struggled to hold on to power at the same time that unemployed miners – dispersed to shanty towns in Cochabamba, in El Alto high above La Paz, or to the coca fields of the Chapare – scrambled to find enough to eat. An internal struggle within the miners’ union, over whether to concentrate on defending jobs or negotiate for the best termination deal from the government, further debilitated the union and therefore the COB. The COB had always proved to be most united and coherent in opposition, and its disastrous experience with the UDP government undermined not only its internal unity but much of its high public standing. The COB tended to react to each new blow with the same tactics that, over time, became less and less effective. Paz Estenssoro declared a second state of siege in August 1986, which spelled the beginning of the end as resistance was limited, largely because the urban population had wearied of the continual calls for strikes and protests. By 1987, the COB’s head since 1952, legendary mining leader Juan Lechín, was forced to step down, accused of causing the failure of the UDP government and, therefore, permitting the onslaught of neoliberalism. Constructing hegemony: NGOs and the Church

77

The neoliberal incursion

Non-governmental organizations (NGOs) became active in Bolivia beginning in 1970s, often funded by the Roman Catholic Church. As young professionals returned from European exile after the dictatorships ended in the early 1980s, they utilized their contacts to secure funding for new NGOs that explicitly supported education and communications projects. The NGOs often coordinated with local levels of the labour and peasant movements and served as brokers between the grassroots and the left political parties that had been banned under the dictatorships (Arellano-Lopez and Petras 1994; Medeiros 2001). As in other parts of the world, NGO growth was propelled by increased funding availability during the early 1980s when they achieved preferential status with many international donor agencies. Funders perceived them

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as more honest and efficient, more responsive to agency agendas, and more capable than governments of embarking on short-term projects that could show results in tune with agency funding cycles (Korten 1990; Fisher 1993; Lehmann 1990: 181). In Bolivia, NGOs expanded to become the most important rural development agents, from an estimated 100 in 1980 to over 1,000 by the end of the 1990s (Duran 1990; Arellano-López and Petras 1994; van Niekerk 1994; Bebbington 1997). The lack of precise figures reflects the limited ability of successive governments to coordinate their activities, as they have successfully insisted on running their programmes independently – essentially implementing their own development strategies. While NGOs are located in each of the country’s nine departments, most of their project sites are within a three-hour drive of the nation’s largest cities. This concentration has led to NGO turf wars in some areas while remote parts of the country remain underserved (Duran 1990; Kohl 2003a). After the NEP was instituted in 1985, many NGOs were initially highly suspicious of the SEF’s role as a short-term palliative to garner support for neoliberal policies. But the ready availability of SEF funding went a long way to convince them of the new ‘common sense’ embodied in neoliberal policies. Over 80 per cent of the participating organizations in the SEF were NGOs, some of them created explicitly to garner the funds. NGOs were crucial in extending the reach of the SEF to remote communities, often supplanting the state’s role in the construction of infrastructure and in social investment (Graham 1992). Critics maintain that these NGO projects served as a tool to stabilize poverty, destroy the gains made by labour since the 1930s, and facilitate neoliberalism, as the wages paid were insufficient to feed a family and the short-term jobs did not offer workers any benefits. NGOs responded that the funds allowed them to achieve programmes in remote areas and build new spaces for resistance to the model, but critics insist that the process coopted most of them and that they have succumbed to the inevitability of neoliberalism (Arellano-López and Petras 1994). As NGO funding shifted increasingly from European NGOs to bilateral and multilateral donor agencies, the sector was essentially reinvented, as their dependency made them increasingly less likely to question fundamental inequalities (Kruse 1994: 141–2). The change also affected the nature of NGO interaction with the state, generally making that relationship less antagonistic. By 1992, fully one-third of all 78

social spending was channelled through NGOs that often inadvertently became important actors in ensuring neoliberal hegemony at the local level. According to Kruse, as the market system increasingly impacts on local life, NGOs played a part in shaping ‘the power effects that produce market logics and practices locally’ (ibid.: 181). The Roman Catholic Church’s legitimacy as an institution and its historic role as a mediator between the government and popular movements proved critical to the government’s ability to weather the early resistance to neoliberalism. By the early 1980s, the Church wielded regular influence through its own highly influential newspaper and radio station, but was careful to strike a politically neutral tone (Dunkerley 1990: 28). With the NEP, the Church continued its role as a reluctant mediator begun in the 1960s. But many members of the religious hierarchy contended that the Church should intervene in conflictive situations only as a last resort. Critics, from both within and outside the Church, argued that on occasions the Church may have stepped in too rapidly, reflecting a legacy of clerical paternalism and truncating a process that could have actually strengthened democracy (Klaiber 1993: 365). Under Paz Estenssoro, as the government was unwilling to negotiate on fundamentals and preferred repression over compromise, the Church was put in the awkward position of facilitating the imposition of the NEP and DS 21060 in the name of preventing confrontation. The MIR–ADN coalition, 1989–93

79

The neoliberal incursion

In 1989, the MNR lost the election as Goni reneged on the powersharing deal with the ADN, resulting in one of the most bizarre coalitions of Bolivian political history. Former leftist Jaime Paz Zamora of the centrist MIR, persecuted under the Banzer dictatorship, formed a ruling coalition with Banzer’s National Democratic Action (ADN). Reflecting the hegemony neoliberalism had achieved among the political elites, Paz Zamora continued his predecessor’s economic policies, ensuring the stability and low inflation neoliberal policies are known for. This finally produced some macro-economic improvement as annual GDP growth reached about 4 per cent by the time his term ended. The underlying economic situation, however, remained unaffected. The country continued dependent on commodity exports, with oil and gas gaining importance in the formal sector. Coca and cocaine exports, along with remittances from Argentina, continued to prop up

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the balance of trade. Over 70 per cent of new jobs were in the informal economy. Real wages fell even as GDP grew, leaving 70 per cent of the population living in poverty. Relying on political pacts to ensure political control meant that patronage remained the system’s Achilles’ heel, despite the stated intent of neoliberal architects. Paz Zamora’s government created three new ministries and sixteen vice-ministries, creating a total of 20,000 new jobs in the public sector (Conaghan and Malloy 1994). Consequently, corruption continued to siphon off a sizeable percentage of national resources, by some accounts reducing economic growth by almost 40 per cent between 1990 and 1997 (Los Tiempos 1997: A9). As ineffective and regressive tax policies provided insufficient revenue for the government, income from hydrocarbons played an increasingly important role in financing state operations, as did international assistance. In 1989 bi- and multilateral development assistance, not including the international support received by some 500 NGOs, almost equalled all government spending (López Montaño 1997: 78). A substantial portion of bilateral aid came from the United States, which conditioned its funds on coca reduction (Painter 1994). Between 1989 and 1993, IFI pressure to decentralize government increased, with debate focused on whether Bolivia should become a federalist country and create democratic departmental governments or whether it should retain its unitary nature and transfer responsibilities to municipalities. No conclusions were reached (ILDIS 1991; Molina 1994; ILDIS and Cámara de Diputados 1995). Paralleling the struggle between La Paz and Sucre almost 100 years before, much of the decentralization push came from Santa Cruz, the principal site of new economic growth thanks to the combination of growing oil and gas production, industrial agriculture, and revenues from the coca-cocaine trade. Conclusions

The NEP and DS 21060 liberalized the Bolivian economy under the ascendance of a newly invigorated private sector reasserting control over enterprises and demolishing left-wing opposition rooted in the powerful COB (Gamarra 1993: 104). The skill of Paz Estenssoro and his team must not be underestimated, nor the importance of the IMF, the World Bank and the IADB, as well as the all-important role played by the United States. Paz Estenssoro knew that ensuring this support 80

81

The neoliberal incursion

depended on adherence to and deepening of neoliberal policies, and his team and their allies believed that a small, relatively poor and dependent economy like Bolivia’s had no option but to attach itself to the dominant economic paradigm and hope that riding its coattails would benefit their own social class and trickle down to the rest of the country. Bolivia emerges as such a dramatic case because it undertook one of the most extreme neoliberal reform programmes the world has seen at the same time as undertaking a simultaneous transition to democracy. Huber and Solt (2004: 143) have demonstrated that countries that undergo radical economic restructuring have grown slower than countries that implemented economic reforms gradually. Waisman (1999) found that in countries attempting democratization at the same time as market reforms, the potential for conflict between the contradictory logics that govern the two processes is highest. These findings place Bolivia, a country of dramatic extremes, once again at the cutting edge – this time of the neoliberal experience. In Bolivia, as elsewhere, neoliberalism’s greatest achievement was attaining economic stability. This was no small feat in a country in such complete chaos as Bolivia in 1985, and is certainly essential for any type of sustained economic growth. However, the downside of neoliberal policies, wherever they have been applied, is to widen the gulf between rich and poor. In Latin America, the world’s most unequal region where often, as in Bolivia, there is only a tiny middle class, neoliberalism exacted a terrible price. In addition, the modest economic reactivation primarily benefited those at the top while the rest scrambled to survive. Following a long established government tradition of dividing popular forces by cutting separate deals with indigenous campesinos and more westernized urban dwellers, Paz Estenssoro decided that the new property tax introduced by the NEP would not be applied to the countryside. This diminished the NEP’s most negative impact on rural areas, which were still recuperating from devastating floods and droughts in 1982–83, and unsuccessfully muted initial campesino criticism. The cheap food imports that the NEP allowed to flood into the country, however, soon took a tremendous toll, speeding rural to urban (and international) migration and fuelling indigenous resistance to neoliberalism (Rance 1991). As has occurred around the world, the negative effects of neoliberal policies have fallen hardest on low-income women and children, always

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the most vulnerable sectors of the poor. During the 1980s, the number of urban women able to remain at home to care for children dropped, and everywhere small children played in city streets while their mothers worked (Farthing 1991). Rural women, who average less than five years of formal education, increasingly found themselves with almost all the farm responsibilities as their partners, fathers and sons were forced to migrate seasonally in order for families to survive (Rance 1991). Large numbers of young rural women moved to the cities as well, often to work in what amounts to semi-slavery as domestic workers (Gill 1994). Virtually none of these women had formal representation in the maledominated COB. In the political sphere, the attempt, through the 1986 electoral reform and reintroduction of municipal elections in 1987, to establish the foundations for a market democracy in which political participation is funnelled into a neater and easier to control electoral process, had unanticipated results. Bolivia’s long history of confrontational politics and its active narrative of resistance were not so easily channelled into these new, more ordered forums. First, new urban-based political parties, most notably Conscience of the Nation (Consciencia de la Patria – CONDEPA) and Union of Civic Solidarity (Unidad Cívica de Solidaridad – UCS), centred on populist figures not from the traditional elites, sprang up (Gamarra 1993: 120). By 1993 these new parties accounted for one-third of votes cast. Second, while the shift to local politics initially dampened national-level resistance to neoliberalism, Bolivia’s historic tensions between the central government and multiple peripheries made this arena fertile terrain for future resistance. The NEP began the process of redrawing the boundaries between the state and the market, slowly retracting the state from the economy while privileging the economic in policy-making (Gamarra 1993). As we shall see, this process culminated in the 1994 Plan de Todos which put the final nails in the coffin of the State of 1952 through the privatization of the largest state industries. The public sphere’s steady contraction was paralleled by a shift in the balance of citizenship rights as well as in the type of demands populations can make on a government, a topic we discuss in the next chapter. Paz Estenssoro and his allies were far more successful than any government since 1952 in creating a new paradigm for Bolivian society. At least temporarily, through balancing consent and coercion, they moulded a highly heterogeneous and contentious society to the emer82

ging international neoliberal hegemony. Dunkerley argues that their ultimate failure to establish a stable hegemonic regime stemmed from an inability to institutionalize and control the new order (1990: 4–5). During this period, three key weaknesses surfaced. First, the system of government by pact required dividing political patronage among ruling parties. This modus operandi was in direct contradiction to neoliberalism’s push to shrink state size. Second, in practical terms, the success of neoliberalism rested on the coca-cocaine economy. US drug control agencies invested considerable economic and political resources in pressuring Bolivia to destroy coca production, even as the CIA played a significant role in opening massive markets for Bolivian cocaine (Webb 1998). Third, perpetuating the long history of indigenous exclusion, the NEP did nothing to incorporate Bolivia’s rural and indigenous population into sharing even the limited fruits of neoliberal market development. These groups emerged as an increasingly potent force in both the countryside and urban shantytowns. As Bolivia moved into the second half of the 1990s, these three weaknesses contributed to the fragility of neoliberalism’s national hegemony. Notes 1 In Bolivia’s presidentialist system, Presidential Decrees (Decretos Supremos – DSs) are often used to complement laws passed by the legislative branch. In some cases, the executive will also use DSs to supplant the role of the legislative branch. 2 This was not the last nationalization of oil companies: Gulf Oil was nationalized in the late 1960s.

4 Baer (1994), while acknowledging the size of the informal economy, ignores it in her analysis of the regional economy of Cochabamba. Bolivia is not the only country marked with a large, hard-to-define informal economy. Johnson et al. (1997: 185) estimate that including informal economic activity in official accounts would increase estimates of the 1995 Russian GDP by almost 50 per cent.

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The neoliberal incursion

3 As they do throughout the world, the IFIs and the United States supported different components of a single policy agenda, which generally conform to US foreign policy goals. The United States essentially created the World Bank, while the IMF was the outcome of intense negotiations at the end of the Second World War between Britain and the United States. The ability of the United States to appoint the president of the World Bank, combined with its large bloc of votes on bank policy, has ensured its power over the institution (Gwin 1994; Peet 2003). The United States exercises less direct control over the IMF, as the Europeans choose its director.

4 | Reinventing Bolivia: the Plan de Todos

Without a doubt, Goni came up with some of the most brilliant ideas in the world. His vision had extraordinary breadth … and [his] ideas were more advanced than almost anyone because he saw that Bolivia needed to be fundamentally reinvented, as he frequently said during those years. I give Goni credit and I have frequently said in many places that he is one of the most extraordinary political figures in the world today. His vision is so forceful that he has gained recognition on a worldwide scale. ( Jeffrey Sachs, 19 August 1997, thirteen days after the end of Goni’s first administration; our translation, from the published transcript of a televised interview with Carlos de Mesa)

Four decades after the National Revolutionary Movement (Movimiento Nacional Revolucionario – MNR) political party oversaw the 1952 revolution that profoundly transformed the Bolivian state, a new generation of party leaders, neoliberals this time, again reinvented the country with an all-encompassing programme that fully fleshed out the neoliberal policies introduced during the 1985 New Economic Policy (NEP). President Gonzalo Sánchez de Lozada’s (Goni) ambitious 1993 Plan for All (Plan de Todos) promoted a market democracy characterized by a minimally regulated capitalist economy with a smaller, limited and formally democratic state (MNR-MRTK-L 1993). The largest state-owned enterprises (SOEs), with the exception of the mines (which were largely shut down), were sold to multinational corporations. Economic policy aggressively pursued international capital to invest in the country’s rich natural resources. In only four years, Goni’s administration (1993–97) reformed the constitution, the judiciary and the pension and education systems. His administration introduced administrative and fiscal decentralization, a ‘new agrarian reform’ and privatized the largest SOEs. Although consistent with global trends designed to improve global capital’s access to natural and human resources, Goni’s creative Plan introduced significant innovations to neoliberal restructuring, some of which were

later introduced to other countries. The Plan went further than a simple continuation of the NEP goals of shrinking government spending and opening limited sectors to private capital. The Plan aimed to ‘deepen and broaden’ market democracy (Brada and Graham 1997) by altering the role of the state, its relationship to its citizens, and the nature of citizenship itself. Table 4.1 shows the legislative achievements of the Plan. table 4.1 Major legislation of the Sánchez de Lozada administration, 1993–97 Date

Title

7/9/94 21/3/94 20/4/94 7/7/94 2/8/94 29/10/94 15/12/94

Law of Executive Ministries Law of Capitalization Law of Popular Participation Law of Education Reform Constitutional Reform Creation of National Regulatory System Law to Abolish Imprisonment for non-payment of debts Law of Electricity Reform of Tax Law 843 of May 20, 1986 Telecommunications Law Law of Administrative Decentralization Law of Administrative Division of the Country Law of the Central Bank Domestic Violence Law Law of Disabilities Hydrocarbon Law Forestry Law National Agrarian Reform Service Law Modification of Tax Law 843 and Hydrocarbon Law 1689 Pension Law Freight Transportation Law Mining Code

21/12/94 22/12/94 7/5/95 28/7/95 31/10/95 31/10/95 15/12/95 15/12/95 30/4/96 12/7/96 18/10/96 25/11/96 29/11/96 10/3/97 17/3/97

Number of law 1493 1544 1551 1565 1585 1600 1602 1604 1606 1632 1654 1669 1670 1674 1678 1689 1700 1715 1731 1732 1769 1777

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Reinventing Bolivia

The Plan sought to establish a neoliberal hegemonic regime at the national level to mediate between the global economy, specifically international financial institutions (IFIs) and private firms on the one hand, and the nation’s citizens on the other. A new postmodern, decentralized, and multicultural state was designed to replace the 1952

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modernist mestizo state, as the 1994 government plan clearly delineates: ‘The state, in its new role, will be excluded from productive enterprises and direct financial investment, concentrating on creating the conditions to allow the smooth operation of markets in the development of infrastructure that may induce the growth of private investment and social investment in primary education, health care and the improvement of living conditions’ (GOB 1994: 10–11, PGDES; our translation). The new vision was not unique to Bolivia but part of the accelerating pace of worldwide neoliberal globalization during the 1990s (Beaucage 1998; Gelinas 2003), promoted with the active support of loans and concessional aid from multilateral and bilateral agencies led by the World Bank. The Bank’s strong commitment to Bolivia’s SOE privatization led it to approve US $357 million in credits: $126.4 million for political-institutional reforms, $103.6 million for economic reforms (including establishing regulatory structures), $90 million for education decentralization and reform, and $40 million for social investment funds to ameliorate the social costs of structural adjustment (see Table 4.2). The Dutch funded most of the National Secretariat of Popular Participation (Secretaria Nacional de Participación Popular – SNPP) and fully financed the Sub-Secretariat of Ethnic, Generational and Gender Affairs (Sub-secretaria de Asuntos Etnicos, Generos y Generacionales – SAEGG). USAID paid for judicial and regulatory reforms; the Germans for administrative decentralization at the departmental level. Internally, support came from two centre-left parties that joined Goni’s coalition government and had a greater impact than their small congressional contingent would otherwise have merited. In a largely symbolic move, Goni drafted Victor Hugo Cárdenas, of the Aymara Katarist party (MRTK) to serve as the country’s first indigenous Vicepresident. Cárdenas played a vital role in education reform and in enhancing indigenous citizenship rights. The second party, the Free Bolivia Movement (Movimiento Boliviano Libre – MBL), had previously split from Paz Zamora’s more conservative MIR, and had a strong presence among middle-class intellectuals and non-governmental organizations (NGOs). Goni actively recruited social-democratic party militants, who had previously formed an articulate core of the opposition, to staff rural development and social policy agencies. Effectively incorporating this opposition immobilized much of the resistance to the new policies, especially as Goni deliberately excluded the labour movement from assuming any proactive role within his administration, fragmenting 86

Fondo de Inversion Social La Paz Municipal Government Hacienda, Controlaria General

FNDR, SNPP

Ministry of Capitalization

Education Reform Support Unit Ministry of Justice Land Reform Capitalization

YPFB (Gas and Oil) SNDR (Rural Development) National Pension Funds

Secretariat of Energy Civil Service Administration Education Reform

2532-2–BO 1842-BO 2279-BO

2565-BO

2647-BO

2650-BO 2705-BO 2742-BO 2761 (1)-BO

2762-BO 2772-BO 2789-BO

2790-BO

30/11/95 31/12/98

5/12/95 31/12/97 22/12/95 30/6/99 30/11/95 31/12/98

18/4/95 31/1/02 24/7/95 30/9/99 24/7/95 31/12/01 12/1/95 31/7/97

1/4/95 30/6/98

8/11/94 31/12/99

26/5/94 28/1/88 30/10/96 16/12/91 31/12/97

Effective date Closing date

Amount (millions US$)

Utility privatization and industry regulation Civil service reform programme Pedagogic decentralization

5.1 23.0 50.0

Ameliorate structural adjustment 40.0 Municipal administrative, training and infrastructure 15.0 Financial management and control, institutional 11.3 strengthening Municipal training, institutional support and investment 42.0 infrastructure Institutional support, regulatory support for telecom14.7 munications and aviation Technical assistance and training materials 40.0 Institutional strengthening, courtroom administration 11.0 Land titling, institutional strengthening 20.4 Capitalization of six industries, financial sector reforms 50.0 (+8 IDA reflow) Regulatory framework for hydrocarbon sector reform 10.6 Participative planning and institutional development 15.0 Pension fund reform and regulation 9.0

Purpose

Source: World Bank Bolivia Resident Mission, unpublished document, 14 December 1996

Counterpart

Credit

table 4.2 World Bank support for restructuring, 1996

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the left (Medeiros 2001). Tapia (2004: 169) argues that separating the middle class from the popular classes in part explains why the emerging left parties during the late 1990s, unlike their predecessors, had working-class and campesino leadership. The relative economic growth during the first half of the 1990s, which, in retrospect, were the golden years of neoliberalism in Bolivia, also facilitated the Plan’s implementation. International aid levels were high, the growth in the debt had slowed, the fiscal deficit had dropped, and growth rates per capita, while not as high as the IFIs predicted, were reasonable (World Bank 2001). Income distribution became increasingly more unequal as the higher incomes of the well-off fostered conspicuous consumption. The neoliberal promise that this wealth would trickle down to the poor went unfulfilled as incomes for most of the population stagnated. This chapter outlines the new citizenship regime brought by the Plan, an approach that complements the analysis of specific market and democratization restructuring we return to in subsequent chapters. As the conception of citizenship shifted, differential access to certain types of citizenship rights resulted. Considering the Plan through the lens of citizenship broadens the analysis of neoliberalism to encompass the entire society and the changes neoliberalism brings to the relationship between the state and its citizens. We utilize T. H. Marshall’s classic work on citizenship (1964) and subsequent scholarship to frame these issues (Turner 1990, 1997; Sassen 1995; Garcia 1996; Shafir 1998). We then turn to how the Plan’s individual programmes affected both the state and citizenship rights, incorporating the importance of the IFIs and the United States in instituting Bolivia’s market democracy. Citizenship

T. H. Marshall’s (1964) classic essay tracing the gradual achievement of three elements or dimensions of citizenship rights – civil, political and social – over the course of three centuries in Great Britain remains relevant to contemporary discussions of citizenship rights. Marshall clearly distinguished between civil rights, individual rights to freedom of speech, property and equality before the law; political rights, participation either directly or indirectly in local or national government; and social rights, ranging from ‘the right to a modicum of economic welfare and security to the right to share to the full in the social heritage and to live the life of a civilized being according to the 88

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standards prevailing in the society’ (ibid.: 71–2). Marshall argues that in Britain these were attained in sequence: civil rights, guaranteeing property and free speech, provided the foundations for later citizen demands for political rights. Once these were secured, citizens used their new-found political power to demand social rights. Marshall attributes the inequality that persisted, even as citizenship rights broadened, to the tensions inherent between the civil right of individuals to hold property and the social rights to basic economic security – a conflict that, he argues, legitimated the British class structure. Scholars subsequently considering citizenship (Turner 1990, 1997; Ferge 1996; Garcia 1996; Roberts 1996; Sieder 1999) built on Marshall’s research even as they criticized his evolutionary approach as analytically vague and ethnocentric. Roberts (1996: 38), for example, observes that in Latin America, despite the presence of the formal rights that Marshall identifies, these have, however, rarely been of practical value to the majority as the state lacks the resources to meet its formal commitments in any substantive way. Garcia (1996: 11) is troubled that Marshall neglects to discuss how limiting citizenship by race or religion has led to exclusion.1 In the transition to market economies in Eastern Europe, Ferge (1996: 104) demonstrates that the conception and evolution of citizenship rights followed a fundamentally different pattern than Marshall describes for the UK. In socialist societies during the twentieth century, civil rights to property and political rights to democratic representation were essentially void, while social rights to education and health services were typically universal, though imperfect. With the transition to market democracies, civil and political freedoms were won as rights to social services diminished, in a reversal of the sequential process described by Marshall. Fraser and Gordon (1998) contend that social citizenship, as defined by Marshall, never fully took hold in the United States. The neoliberal policies of the past twenty-five years have eroded even limited social rights as successive US governments have aggressively moved to displace the ideology that ensures the state’s commitment to social rights with one that privileges individual autonomy and property rights. The fundamental tension between civil and social rights that both Ferge and Marshall identify is reflected in the ongoing assault on governmentfunded social programmes (Turner 1993, 2000; Benería 1998). George W. Bush’s attack on social security following the 2004 election – perhaps

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the country’s most important social entitlement programme – in the name of creating an ‘ownership society’, simply continues this trend. Recently, increasing numbers of scholars have considered how neoliberal policies specifically affect citizenship rights (Roberts 1996; Schild 1997, 1998). Marshall’s description of how civil citizenship rights actually reinforce inequitable social structures has frequently proven a useful starting point (Sassen 1995; Smith and Blanc 1996; Turner 1997; Holston and Appadurai 1999). Turner (1997: 16) argues that as citizenship historically emerged on the basis of membership within a certain physical space, in a completely globalized economy the challenge will be to substitute human rights – basic rights regardless of nationality – for nationally based citizenship rights. Other authors suggest that the surge in demands for identity or cultural rights under neoliberalism can provide the basis for expanding a still evolving set of citizenship rights (Kymlicka 1995; Triadafilopoulos 1997). Our analysis of the changes in Bolivian citizenship aims not to locate a developing country on an evolutionary continuum, but to examine how economic and political restructuring degrades citizenship by privileging the property rights of firms over the social rights of individuals. The exacerbation of tensions between the rights of firms and those of individuals, we contend, is a fundamental characteristic of market democracies. As Yashar (1999: 84–7) explains, this process, what she calls ‘neoliberal citizenship regimes’, has occurred throughout Latin America. Deepening citizenship rights: constitutional reform

The 1994 Bolivian constitution’s aim to create a ‘post-modern, multicultural and pluriethnic’ state, attempted to address two of the three underlying and ongoing tensions in the country’s history: regional autonomy vs. centralized government, and indigenous vs. elite demands.2 In response to mounting regional pressures, the reforms simultaneously set the groundwork for municipal decentralization, while limiting future departmental autonomy as the president retained the right to appoint departmental prefects (Harb and Moreno 1995: 92–3). By consolidating presidential powers and confirming Bolivia’s status as a unitary state, the constitutional reform sought to make formal democracy more orderly, a process initiated with the 1986 Electoral Law. At the same time, however, it modified the proportional representation system in the Chamber of Deputies, the lower house of Congress. Instead of 90

political party lists determining all seats, one-half of the deputies were to be elected by district, following the German model.3 The impact of this change on the country’s political landscape was immediately apparent after the first district elections held in 1995, when coca growers in Cochabamba elected five deputies from their own ranks. Perhaps the best publicized of the 1994 reforms, however, was the explicit recognition of indigenous cultural rights, including limited self-government, as fundamental to Bolivian citizenship (GOB 1994: 25). The first and third paragraphs of Article 171 specify: I. The government recognizes the social, economic, and cultural rights of indigenous peoples who live within the national territory, especially those relating to the communal origin of their lands, guaranteeing the sustainable use of natural resources, their identity, values, language, customs and institutions … III. The traditional authorities of indigenous and campesino communities may exercise administrative functions and apply their own norms that conform to their customs and procedures to find solutions to conflicts, as long as they do not conflict with the Constitution and other laws. (Harb and Moreno 1995: Article 171; our translation)

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The indigenous Vice-president, Victor Hugo Cárdenas, was largely behind this new emphasis on cultural rights. Such discursive recognition occurred in other parts of Latin America during the 1990s as well, propelled by the adoption of International Labor Organization (ILO) Convention 169 (van Cott 2000). As in Bolivia, however, formal recognition very often is limited in practice; indigenous people’s rights to control their resources have largely been subsumed to national laws governing hydrocarbons and minerals, which make no allowance for local control, indigenous or otherwise. As Medeiros (2001) explains, the focus on indigenous identity put the fundamental issues of redistribution at least temporarily on hold. The Plan de Todos also expanded human rights protection, by creating an independent office of the Public Advocate (Defensor del Pueblo) mandated to protect citizens ‘in relation to administrative actions of the public sector. It shall also serve to defend, promote, and publicize information on human rights’ (Harb and Moreno 1995: 114–15, Article 127; our translation). This office has played an increasingly important role in documenting, if not preventing, human rights abuses committed by the state, particularly in the conflictive coca growing regions.

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Civil rights: agrarian and judicial reform

The 1996 Law of the National Agrarian Reform Institute (INRA) offers an exemplary case of the contradictory impact of Goni’s policies on the balance of citizenship rights. Although the 1953 agrarian reform disbanded most valley and highland haciendas, transferring land ownership to those who actually worked it, land reform affected only western Bolivia. Government or large property owners continued to control the lowlands, and land distribution inequality has grown even more pronounced as the agricultural frontier has expanded east and north. The government body overseeing the agrarian reform, the National Commission for the Agrarian Reform (CAN), steadily evolved into a vehicle for concentrating land in the hands of a few, as military personnel were awarded land grants during dictatorships or in exchange for political favours during democratic rule (Arrieta 1996; AOS/AIPE 1996: 11). By 1989, 1.8 per cent of property owners owned 85.3 per cent of the country’s privately owned land (Flores 1997). The 1996 INRA Law, referred to as the ‘second agrarian reform’ nominally provides for the protection of campesino and indigenous landholdings while simultaneously promoting the creation of ‘efficient’ land markets. INRA exempts subsistence farmers and indigenous communities from paying property taxes; creates titles to eight semi-autonomous indigenous territories (Disposiciones Transitorias, Article 2, para. 3); allows women equal rights in property inheritance and ownership, regardless of their civil status (Article 3, para. 5); deems only individual campesino and indigenous communities eligible for future donation of public land (Article 43);4 and requires that abandoned land parcels revert to government ownership (Article 51). While these appear significant, as has been the case with so many legal attempts to improve the lot of impoverished rural people, they have generally failed in practice. INRA’s paucity of resources and campesino, and particularly women’s, inability to access its benefits have together meant that the potential of the law to serve the poor has been largely unrealized (Solón 1997). The real beneficiaries have proven to be large landowners who can lose their land only if they ‘abandon’ their property by failing to pay taxes. Previously, the law considered land abandoned once it was idle for a certain period. The new provision has protected absentee landowners by allowing them to pay annual taxes of 1 per cent of the value that they establish themselves through a ‘self-assessment’ provision in the law.5 Critics claim that this has turned one of the fundamental 92

Political rights: popular participation and administrative decentralization

The 1994 Law of Popular Participation (LPP), discussed in depth in Chapter 6, also dramatically demonstrates the basic contradictions 93

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principles of the 1952 revolution on its head, changing the rallying cry from, ‘Land to tiller!’ to ‘Land to the taxpayer!’ (ibid.). The law has shifted the balance from privileging the social value of land, explicit in the 1953 agrarian reform, to privileging the importance of individual property rights mediated through the market. Rural women, the country’s poorest sector, often have usufruct rights to land, although this varies considerably between different regions. Most decisions about usufruct are reached in community assemblies where women rarely have input. Urioste reports that in the almost ten years since it was enacted, the INRA law has had little impact on customary practices that exclude women from equal land ownership. He argues that the common altiplano discourse of complementarity and reciprocity between men and women is not the same as equality. For Urioste, the issues of women’s land tenure remain unresolved and he recommends further laws to make titling to both husband and wife obligatory (2004: 27). Indigenous and communal lands must now be titled, generating two kinds of difficulties. First, many communities lack the resources or community leadership to meet titling requirements. In some cases, this leads to competing land claims or to displacing colonizers as individuals and firms with greater ability to navigate government bureaucracy are awarded legal titles (Loayza 2001). Second, as Postero reports (2001), communal lands have been sold without the consent of community members. In this case, the very existence of a title turns land into a commodity rather than a community resource. The judicial reform, another major piece of civil rights legislation, sought to correct some of the worst problems of the legal system and strengthen civil rights. Unfortunately, just as with the INRA law, the new legal protections it created have largely remained abstract. Streamlined judicial procedures created a special court to hear constitutional issues, and established a degree of social protection for the rights of women, children and the disabled. In practice, those with resources either hire lawyers or activate their social connections, achieving through their privilege what the law in theory guarantees for all (Arrieta 1996).

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inherent in neoliberal citizenship. By turning over a significant portion of the national budget to municipal governments, the LPP sought to keep governing institutions close to the people, so that citizens can assure greater accountability, reducing both corruption and abuses by anonymous bureaucrats sitting in distant offices. In many cases, both formal and substantive political participation increased by allowing for direct elections of governing councils in small municipalities and mandating participatory budgeting. Taken together, these significantly expanded the spaces for political participation and both formal and substantive political and social citizenship. In practice, these rights vary greatly between municipalities (Booth et al. 1996; VMPPFM 1998a, 1998b; Ayo 2003). In some, local elites have occupied the new democratic spaces (Booth et al. 1996; Blanes Jiménez et al. 2000); while in others, grassroots organizations have participated in budgetary planning, but political parties controlled programme execution. Other municipalities, especially those with strong indigenous organizations, have been able to use the LPP to institute their own local development agenda. In the tropical Chapare, when representatives of well organized, coca-growing campesinos won control of local governments following the 1995 municipal elections, they applied the new resources reasonably effectively to developing urban and rural infrastructure (Farthing and Kohl 2005). In rural Santa Cruz, leaders of the largest indigenous group, the Guaraní, won several municipal elections and aggressively, if not particularly efficiently, promoted an indigenous development agenda (Benería-Surkin 1999). Laserna argues that strengthening political representation at the municipal level while ignoring it at the departmental level, as the 1994 Law of Administrative Decentralization does, can actually limit substantive political participation. He contends: [I]f there is not a movement to form departmental governments, then, in the near future, we will have a system that is open [to participation] at the bottom, but also very far from the center of power. This will give the central powers a large space to maneuver that will only be contested through social conflict … Although the model of [popular] participation has a decentralizing dimension, it is so marginal and dispersed that we can anticipate that the final result will be greater centralization. (Laserna 1995: 223–4; our translation)

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By sidestepping departmental governments and focusing participation strictly at the local level, the Plan effectively achieved what has proven to be a key goal of neoliberal decentralization – reducing the degree to which subnational governments can interfere with the functioning of the market (Warner and Gerbasi 2004). The LPP sought to channel Bolivia’s traditionally unruly political protest to a local level and contain it within prescribed limits. Medeiros argues that the LPP embodied a ‘highly regulated construction of a modern participatory citizenry’ as part of a hegemonic project that sought to ‘predefine the limits to what can be achieved’ (2001: 401). Social rights: education reform

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Universal public education, a key component of the 1952 revolution, came relatively late to Bolivia. Before the revolution, 60 per cent of the population had no access to schools (Anaya 1996: 4). The 1955 Education Code followed close behind legislation that abolished bonded labour, instituted the agrarian reform and established universal suffrage. Universal educational access was conceived as part of a citizencreating, nation-building project to ‘incorporate into national life the great majority of campesinos, craft workers and the middle class, with the full enjoyment of their rights and duties through mass literacy and a basic education’ (Berríos Gosálvez 1995: 10; our translation). The 1955 Education Code called for education that was ‘universal, free and obligatory, as well as national, democratic, revolutionary, antifeudal, anti-imperialist in nature; progressive, co-educating, globalizing and scientific’ (Serrano Torrico 1995; emphasis in the original, our translation). Despite these lofty aspirations, Bolivia still has the highest adult illiteracy rate in South America (17 per cent), with women’s illiteracy two and a half times that of men, and the figure for rural women much higher (World Bank 1997: 227).6 While the 1955 Education Code understood education as the means to create citizens, the 1995 reform forty years later conceived it as a mechanism to give Bolivians ‘the basic skills and technical knowledge to develop their capacities to be able to place themselves most appropriately in the labor market’ (GOB 1994: 27; our translation). In some cases students were to develop these capacities upon finishing primary school at the age of ten or upon completing middle school ‘technical’ training at fourteen. Like other parts of the Plan, educational policy was influenced by international as well as national trends, shaped in

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large part by the 1990, UN-sponsored World Conference on Education for All in Jontien, Thailand, where many low-income nations committed to educational reforms similar to Bolivia’s with financial support provided by multilateral and bilateral aid agencies (World Bank 1995; Martínez 1995). Many of the changes proposed for the education reform were fundamentally progressive. The reform was to make education bilingual and multiethnic and transform both pedagogical style and curriculum. The old model, based on rote learning of nationally standardized materials in teacher-centred classrooms, was supplanted by one designed to incorporate student participation, a continuous (rather than graded) curriculum, parental participation in teacher and curriculum evaluation, the use of culturally appropriate materials, and a focus on learning processes as much as on curricular content. With these changes, Bolivia’s traditional educational system shifted to encompass a progressive western educational philosophy with a multicultural component (CEDIB 1994a, 1995a; Berríos Gosálvez 1995; Anaya 1996; Arispe 1996). In theory, this type of education could serve to increase cultural citizenship rights (Kymlicka 1995; Triadafilopoulos 1997). In practice, most of the education reform has not been implemented, in no small part because 96 per cent of budget allocations have been slated for administrative restructuring, leaving little for teacher training and new curricular materials (Arnold and Yapita 2000). Additionally, teachers, who mostly come from the cities, have resisted adopting the new educational model for political as well as cultural and linguistic reasons (CEDIB 1995b; Luykx 1999). Marshall (1964) recognized that equal access to education could broaden social citizenship rights by extending equality of opportunity to individuals of different class backgrounds, even though he recognized that not all schools are equal, and that education is only one of a number of determinants of class and opportunity. The stark reality of the Bolivian public education system shows that given current resource levels, the right of universal access to quality education is woefully unrealistic. Income and place of residence, among other factors, effectively limit substantive access to schools designed to serve as social levelling institutions. As well, the Education Reform affected only public schools. In Bolivia, just as in many other countries, a two-tier educational system prevails: public schools serve those who cannot afford private schools, which remain the first choice of middle- and upper-class families. 96

Social and economic rights: privatization and the Law of Capitalization

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The 1994 Law of Capitalization, discussed in detail in Chapter 5, responded in no small measure to the pressure that IFIs and the United States brought to bear on Bolivia to privatize its SOEs. Unlike previous efforts that had privatized a number of small companies since 1985, capitalization, touted as privatization with a social content, partially sold off five of the largest SOEs accounting for about 60 per cent of government revenues (Peirce 1997; Roca 2000). In an innovative twist, the government kept half of the partially privatized firms under Bolivian ownership. Income generated by these shares was initially slated to cover a deficit in the pension fund and introduce the BONOSOL, an annual social security payment of US $250 to Bolivians over sixty-five years old. Privatization, therefore, would not only improve social citizenship rights through an old age pension but also create vested interests in maintaining neoliberal policies among a population concerned with continuing their social security and pension payments. The impressive social goals of capitalization prompted Oxford scholar Laurence Whitehead (1997: 72) to inquire optimistically whether the Bolivian model of privatization could offer a strategy to ‘underwrite universal entitlements and substantive citizenship rights, thereby taking us beyond neo-liberalism’? The proceeds from capitalization were expected to bail out the national pension system, covering 300,000 workers between thirtyfive different funds, and in severe crisis when Goni came to office in 1994. The 1980s hyperinflation had rendered the fund’s investments worthless and massive layoffs lowered the number of contributing workers. Their estimated total obligation exceeded US $3.5 billion, and the government’s debt to the pension system in 1997 was almost US $1.3 billion (Fundación Milenio 1997: 2). Goni consolidated the plans and introduced a three-tier pension and social security system to provide at least minimum coverage for all Bolivians over the age of sixty-five. Drawing heavily from Chile’s experience (CEDLA 1996; Cajías 1996; CEDIB 1996, 1997; von Gersdorff 1997; Weyland 2004), the pension fund reform had three distinct agendas: reduce the system’s long-term costs, create a national stock market and increase the national savings rate (MNR-MRTK-L 1993: 19). The reform was financed by transferring US $1.67 billion in government shares of the five capitalized firms to two

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pension funds. A key and unrealized assumption was that international investors would flock to La Paz to buy shares of Bolivian oil, pipeline and telephone companies and drive share prices up. To regulate the newly privatized firms, Goni’s government established a regulatory framework, the Sectoral Regulatory System (Sistema de Regulación Sectorial – SIRESE), which coordinated the activities of five regulatory agencies in the areas of transportation, water and sanitation, hydrocarbons, telecommunications and electricity. SIRESE has a mandate to follow market principles in regulating the individual sectors, and, following World Bank guidelines, promotes economically sustainable systems that allow for full cost recovery. Regulatory agents in confidential interviews openly acknowledge the weakness of the regulatory structure and its inability to compete with either the political power of special interests or the short-term agendas of politicians. This economic restructuring has had contradictory effects on both social and economic citizenship rights. On one hand, the old age payment, BONOSOL, did expand social rights, yet the concurrent loss of revenue from telecommunications and oil and gas production devastated the national budget and, consequently, negatively affected all Bolivians (Villegas Quiroga 2002). The loss of oil and gas revenues contributed to a US $470 million public deficit in 1997 (La Razón, 25 November 1997), which led to reduced government spending, including important cuts in health and education. Revenue-sharing payments, the source of almost all income in small municipalities, dropped by approximately 20 per cent in real terms in 1999. Not only did it lose revenues, but the government also gave up much of its ability to control energy prices. The subsequent price hikes in the costs of cooking gas and public transportation disproportionately affected the poorest Bolivians. Banzer’s administration cancelled the BONOSOL payment shortly after it took office in 1997. According to then Vice-president Quiroga, the country could ill afford to spend an estimated US $65 million per year of government funds on a programme that would ‘be used for consumption and not investment’. Although Banzer later made a reduced social payment, the ‘Bolivida’, and Goni reintroduced a diminished BONOSOL on returning to office in 2002, this on again, off again scenario shows just how fragile citizen claims to social rights can be. 98

Social responses to the new laws

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At the head of a strong coalition between 1993 and 1997, Goni had sufficient control of the national Congress to bring about transformations in almost every aspect of Bolivian life. The small strikes, protests and roadblocks, organized by a fragmented and ineffective COB, barely slowed the Plan’s implementation. Its core programmes – Education Reform, Capitalization and the Law of Popular Participation – were called the ‘three damned laws’ (las tres leyes malditas) by the opposition (Vargas 1994: 2). The most violent resistance, led by urban and rural teachers’ unions, targeted the education reform. Teachers objected to changes in work rules that obliged them to assume new duties with no additional pay, required them to take classes to upgrade skills in multicultural and bilingual teaching, and pressured them to develop a new curriculum based on local cultural practices with virtually no support from the education ministry. Teachers’ unions also questioned changes in the school administration, particularly the formation of local parent-directed school committees to evaluate teachers’ performance and new regulations that require teachers to pass competency exams. More radical union leaders objected to the reform’s educational philosophy which, they claimed, focuses on training workers rather than educating citizens and does not equip students to question the exploitation prevalent in Bolivian society (ibid.). Opposition to capitalization was also widespread but initially not as strong. Public protest primarily consisted of daily marches and demonstrations, with the members of each union striking or marching in protest as their firm was sold (CEDOIN 1996). While union members regularly clashed with riot police, the constant demonstrations became part of daily life in La Paz and halted neither the sale of state firms nor the 14,795 layoffs that followed (Torres O. 1997: 21–3). The Union of Pensioners demonstrated against the new pension laws through the end of Goni’s term, arguing that the privatization of the pension system would lead to its bankruptcy. The pensioners marched, usually at lunchtime, blocking the most important traffic corridor in downtown La Paz. These protests achieved little more than preventing workers from returning home at midday for the most important shared time among Bolivian families. Popular opposition to the LPP and administrative decentralization, never as fierce as resistance to the other measures, usually stemmed

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from narrowly defined sectoral interests and was unable to affect its content or implementation. The Confederation of Campesino Workers’ Unions of Bolivia (Confederación Sindical Unica de Trabajadores Campesinos de Bolivia – CSUTCB) initially opposed the LPP because the law did not recognize campesino unions as grassroots territorial organizations (GTOs), given an important role in municipalities under the law. Leaders were afraid that the LPP would undermine the CSUTCB by creating government-controlled parallel organizations reminiscent of MNR-run unions after the 1952 revolution.7 The national leadership of neighbourhood organizations took a similar view, arguing that the MNR was promoting the LPP to retain power by creating local organizations indebted to the party. Critics also attacked the LPP on technical and economic grounds. Some, including the COB and the CSUTCB, argued that the LPP used a democratic and participatory discourse to transfer tax burdens from central to municipal governments (ILDIS and Cámara de Diputados 1995). Others maintained that the LPP would serve simply as a vehicle to ‘decentralize corruption’ as municipalities lacked the administrative oversight to protect public interests. They contended that the creation of over 300 municipal governments was highly inefficient, given Bolivia’s limited human and financial resources.8 Long-term supporters of regional movements complained that the LPP would kill any attempt at real decentralization, which they believed should include the transformation of Bolivia from a unitary to a federal state. The biggest immediate losers, however, were the approximately 6,000 employees of the nine departmental development corporations who lost their jobs (Pelaez 1996). Four years restructuring Bolivia: ‘If-then’ policies in ‘Yes-but’ environments The Law is an abstract construction and our history is full of abstract rights and concrete violations. (Arrieta 1996: 10; our translation)

Very few presidents carry out programmes as ambitious as those Goni undertook with the Plan de Todos that succeeded in turning the State of ’52 on its head. The Plan consciously sought to create a new class of neoliberal citizens, who did not depend on the state to provide, even if inadequately, the benefits of social citizenship but rather counted on the government to facilitate their participation in markets. However, its 100

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attempt simultaneously to cut back the role of government from one of ‘economic player’ to that of ‘arbiter’, satisfy the demands of international financial and aid institutions, appease desires for greater local autonomy, while also ameliorating poverty, produced a fundamentally contradictory project. These contradictions are found at the heart of every major piece of legislation. The educational reform aims to promote a bilingual, multiethnic curriculum, yet simultaneously undermines the rights of teachers and their unions and provides few teacher training resources. It formally respects local knowledge, but in practice seeks to prepare children to become workers in the global economy rather than literate citizens. The Law of Popular Participation transfers resources to municipalities, while limiting local government autonomy through restricting spending and, as a result, will eventually decentralize tax collection. The INRA law recognizes the rights of indigenous communities, yet it also grants fundamental protections to large landholders. The Law of Capitalization attempted to guarantee social security payments, but it placed the nation’s largest industries under the control of multinationals whose fundamental interests conflict with those of the Bolivian shareholders. The LPP allowed for decentralization of government revenues, while capitalization reduced the amount of revenues the state could generate. Many of the Plan’s individual initiatives were sabotaged by weak regulations or unclear legislation. As a result, the Plan has enabled the central government to divest itself of responsibility for both economic development and, to an increasing degree, the provision of basic services. Economic development has been transferred primarily to global capital, the provision of basic services to privatized utilities, and a large part of social services to underfunded and underskilled municipal governments. The Plan altered the composition of citizenship rights, diluting incomplete social rights while reinforcing the civil property rights of firms. While the new constitution paid lip-service to the rights of indigenous people, the INRA law also allowed for the privatization of land. This increased the vulnerability of indigenous communities as lands that had been owned communally were subject to sale. As well, the LPP allowed for the creation of indigenous districts at the municipal level which provide for greater autonomy but it also removed the protection of more powerful national support networks.

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The Plan’s inherent contradictions reflect the attempts of Goni’s administration to simultaneously adhere to the hegemonic pressures of the global neoliberal regime through privatization, while increasing government legitimacy and diffusing counter-hegemonic resistance through popular participation measures and decentralization. This strategy was fairly successful over the short run in part due to the massive economic boost provided by international financial support, the coca economy, remittances and contraband, but ultimately it contributed to the rise of counter-hegemonic forces that eventually caused the neoliberal model to unravel. Notes 1 We would add gender and ethnicity to Garcia’s list. 2 The third, the appropriation of the country’s wealth by international and national elites, was not considered in 1994 but promises to be a central issue in the next constitutional assembly. 3 Neoliberal theorists consider elected officials are more responsive to their constituency when they are directly accountable to local populations (Friedman 1962). 4 Since the 1960s, various governments have pushed the colonization of tropical lowlands, allotting between 10 and 50 hectares (25 and 125 acres) to individual families. Colonization aimed to ease population pressure on the highland plateau and valleys, promote economic growth and increase the occupation of the tropics in an attempt to counter their exploitation by foreigners, particularly Brazilians (Hess 1980). 5 For example, owners of a 50,000-hectare ranch could assess their own land at US $20,000 and therefore pay an annual tax of only US $200 to protect their title (Solón 1997: 19). 6 As Denise Arnold and Juan de Dios Yapita point out, the functional literacy rate may be much lower given the official definition of literacy, which is based on school attendance rather than the ability to read. See Arnold and Yapita (2000) for a complete discussion. 7 Creating parallel organizations has been used to control radical labour movements throughout the world. The best-known example is that of the American Institute of Free Labor Development (AIFLD), which traditionally has been closely linked with the US Central Intelligence Agency. For an account of AIFLD see Sims (1992). 8 Even supporters caution that excessive decentralization can lead to inefficient public planning and spending. For an example of this type of argument, see Bolton and Farrell (1990).

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5 | Privatization Bolivian-style

President Gonzalo Sánchez de Lozada (Goni) often cited his inspiration for capitalization as stemming from a conversation with a peasant who lived on what had been his family’s traditional landholdings in the Cochabamba valley. Goni asked the campesino how the 1953 agrarian reform, which granted him his own land, had changed his life. The man responded: They gave us the land, but no financing or technology to do much with it. I had three choices: to sell the land, but at the end of the day, I’d have nothing. I could borrow from a money-lender, but there are three things that grow while you sleep – children, crops and interest. So you can’t borrow money, you just become a ‘peon’, a serf. If I’d done that, I’d be working now for the money-lender woman. Now I’ve got a godfather: he puts up the money, I put up the land, and buy the seed and fertilizer. We split the crop 50–50. If we have a bad year, we just recover our investment. A good year and we live well. (Bauer and Bowen 1997: 9)

Drawing on a form of sharecropping – a semi-feudal relationship between capital and labour – as the model for a national economic development strategy is not a prescription likely to produce equitable development in a country plagued by historic inequalities. However, this was exactly what Goni utilized as the basis for the partial privatization with a ‘social content’, embodied in the 1994 Law of Capitalization, that formed the economic core of the Plan de Todos and constituted the ‘market’ in ‘market democracy’.1 In an effort to launch Bolivia into an increasingly competitive global environment, the government auctioned half of the five largest state-owned enterprises (SOEs) to multinational firms with the remaining 50 per cent committed to financing a social insurance payment for a new class of Bolivian shareholder-citizens over sixty-five (Peirce 1997; Whitehead 1997). In promoting capitalization, Goni argued that the sale of the SOEs would attract international investors to Bolivia, fuel economic growth, and create hundreds of thousands of jobs (MNR-MRTK-L 1993). He assured

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his critics that tax revenues from these increased investments would more than replace the income lost from SOEs. The outcome was not what Goni predicted. Rates of foreign investment did grow, especially in oil and gas exploration and pipeline construction following the breakup and sale of the state-owned oil and gas company, the Bolivian State Oil Reserves (Yacimientos Petrolíferos Fiscales Bolivianos – YPFB); but this injection of funds provided little stimulus to the broader economy. The informal sector continued to be the primary sink for labour, workers lost jobs in the privatized industries, and economic growth remained sluggish. Although the government increased energy consumption taxes significantly, provoking considerable social unrest, it still only partially replaced the 60 per cent of its revenues that had previously come from telecommunications and YPFB (Villegas Quiroga 2002). Capitalization’s outcomes more closely match those predicted by scholars and activists who warn that ‘disciplinary neoliberalism’ is part of a ‘long range political project to “lock in” the power gains of capital on a world scale’ (Gill 2000: 6). Unregulated markets have never fomented equitable development, which challenges neoliberal discourse that ‘market democracy’ marks an advance for most societies (Polanyi 1957; Gill 2003). What capitalization did achieve, however, was the redesign of the state, fulfilling a principal goal of the architects of the 1985 New Economic Policy (NEP). Capitalization diminished the government’s role as a productive economic actor, a change neoliberal proponents argued would increase allocative economic efficiency and reduce the endemic problem of political patronage. While the post-1985 coalition style of government made ending such patronage impossible, both the NEP and capitalization successfully shrank the public sector, as state employees first lost jobs during the mine closings and later as firms came under private management. The state’s orientation shifted from a corporatist, developmental model to a neoliberal regulatory one. The Bolivian government, unfortunately, as common among low-income states, had neither the institutional maturity nor the regulatory capacity to fulfil this new role (Guasch and Spiller 1999). Using a comparative framework focused on recent research worldwide, this chapter describes the implementation and impacts of privatization on Bolivia’s economy, society and government. We specify capitalization’s innovations and demonstrate how the lack of regulatory control combined with a poor understanding of the logic of the private 104

firm contributed to the country’s worsening economic position. Rather than reduce corruption, capitalization shifted the locus of rent-seeking from the public to the private sector. The move to a market-dominated economy increased political instability as government resources shrunk and mobilizations against economic restructuring grew. We argue that privatization’s failure to meet its social and political goals is unsurprising, and can be anticipated in countries undergoing similar transitions (Kim 1999; Nef and Robles 2000; Kurtz 2004). Privatization and the practice of neoliberalism

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Since the mid-1980s, privatization has figured as the linchpin of mainstream international development policy in Eastern Europe and low-income countries (Feigenbaum and Henig 1994; Appel 2000). Beginning with the massive privatization drive in Great Britain under Margaret Thatcher and in the United States under Ronald Reagan (Vickers and Yarrow 1995), and driven by international financial institutions (IFIs), more than 100 countries have privatized their SOEs representing, as of 1998, a market value of US $735 billion (Nellis ND: 1). The economic rationale is that private firms have greater incentives to operate efficiently and, therefore, can process information, respond to markets and allocate resources better than public ones (Vickers and Yarrow 1995). When translated to a national economy, this efficiency should lead to faster economic growth. Proponents contend that private firms operating in a competitive free market are not susceptible to the corruption that plagues SOEs and that privatization will cut off the opportunities for government employees to enrich themselves at public expense. Privatization, then, should perform the triple function of creating firms that are more efficient, reducing corruption and leading to faster economic growth (World Bank 1996). To date, liberalizing state-controlled economies around the world has not spread benefits uniformly to the broader society. During the transition from state to market economies in Eastern Europe, increased efficiency at the level of the firm was common, yet average annual GDP growth from 1989 to 1995 was negative and inflation exceeded 1,000 per cent per year in some countries (ibid.: 18). A common justification for privatizing firms is to reduce the burdens poorly managed SOEs place on public budgets. Indeed, private firms can be managed more ‘rationally’ as managers strive to cut costs, but these typically result in net job loss generating a different set of problems for governments.

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Hector Schamis’s study of five Latin American and European countries found that privatization failed to eliminate political patronage and corruption. New opportunities for rent-seeking arise when firms with political connections acquire public assets at a discount or buy inadequately regulated monopolies that provide public services (Schamis 2002: 4). Rather than reducing corruption, privatization shifts it into the private sector, as has been the case in Chile and Russia. Other researchers agree, pointing to examples from Latin America (Ramirez 2000) to Eastern Europe (Tarkowski 1990; World Bank 2004a). In a more nuanced analysis, Harvey Feigenbaum and Jeffrey Henig argue that what they refer to as systemic privatization occurs along three dimensions. First, ‘power shifts’ cause ‘a substantial and not readily reversible decrease in the power of working classes relative to that of economic elites’ as the wealthy take control of public assets (1994: 51). Second, a ‘perceptual shift’ changes the arenas that citizens consider proper for state intervention. This ‘delegitimize[s] the public sector’ and breaks down bonds of class solidarity (ibid.). Third, an institutional shift moves policy decisions from the public to the private sector and from the political to the economic sphere. For example, a state-owned water company can choose to subsidize water as a social good – a political choice – whereas a privately owned company sets higher tariffs based on marginal cost of service – an economic decision. While the state, through its regulatory role, can impose price structures to protect basic services, World Bank policy guidelines that promote full cost recovery discourage these practices following privatization in low-income countries (World Bank 2004a: 219–58). The World Bank is perhaps the greatest booster of privatization at a global level and, although it acknowledges the inherent problems, accepts them as a necessary cost of achieving broader political agendas (Nellis ND; World Bank 1996, 2002). The Bank identifies the rewarding of ‘insider stakeholders’ as a key difficulty. Nellis, an ex-bank staffer, writes that in Eastern Europe this was accepted ‘for what seemed excellent political reasons … The reasoning was that one needed to cut the links between the enterprises and the state, and to create swiftly a mass of private property owners; and that the only feasible way to do this was by offering substantial ownership stakes to workers and managers in the firms being privatized’ (ND: 3). In many cases, this concentrated ownership as a few individuals accumulated massive economic power (Holmstrom and Smith 2000). Nellis explains that the Bank believed a 106

problematic transition, with regressive redistributive aspects, was preferable to the continuation of a communist-controlled eastern bloc. Some scholars perceive privatization as a means to ‘shrink’ the state (Feigenbaum and Henig 1994; Strange 1996). Schamis (2002) argues that, in fact, as privatization is consolidated, states expand their role in protecting private property, enforcing contracts, collecting taxes to pay for services and controlling economic policy. He maintains that this ‘can hardly be associated with “less” state but, rather, with “more”’ (ibid.: 177–8) as state institutions expand their role in enabling the market to function. In this context privatization is one component of an ‘institution building’ project (ibid.: 178), although it is unclear if this is really ‘more’ state or simply a ‘different’ one. Turning over control of investment from the public to the private sector may not so much shrink the state as fundamentally reorient its mission. The institutional shift in policy decision-making from the political to the economic sphere discussed by Feigenbaum and Henig (1994) fits with the ‘re-formed’ state Schamis describes. Privatization fosters new institutional arrangements needed not only to protect certain types of property but also to limit the areas deemed appropriate for state intervention. Privatization and capitalization in Bolivia

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Bolivia deliberately attempted to avoid some of the rent-seeking and regressive redistributionary aspects associated with privatization elsewhere. Rather than simply replace the government as the economy’s primary actor, the innovative 1994 Law of Capitalization sought to distribute widely the proceeds from the sale of SOEs and create a new class of Bolivian citizens loyal not only to the political party of the day, but also to market democracy in general. Pressure to privatize Bolivian SOEs, led by the World Bank and the International Monetary Fund (IMF) and backed by the United States, began soon after the 1985 NEP. While privatization of SOEs is a fundamental pillar of neoliberal orthodoxy, Paz Estenssoro successfully resisted it throughout his administration. The IFIs did not back off, despite obvious Bolivian reluctance to dismantle state income sources, and, in 1992, the Paz Zamora government (1989–93) passed the Law of Privatization, authorizing the sale of thirty small state firms. Typically, national investors purchased these companies (Villegas Quiroga 1997: 48). Paz Zamora’s move clearly represented an attempt to mollify the

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IFIs, as he carefully avoided selling the largest and most profitable SOEs. During his administration, however, partial privatization was discussed as a potential mechanism to attract private capital while maintaining domestic control (ILDIS 1992: 89). The IFIs, the United States and other bilateral and multilateral funders, along with some members of Bolivia’s centre-right political parties, made it abundantly clear they would not be satisfied until the largest SOEs were privatized. This pressure did not simply reflect ideological preferences. A study conducted by the Washington consultancy firm Core International in 1994 for the US Trade and Development Agency, revealed that capitalization would ‘benefit US investors, create demand for equipment, open new markets, and create jobs’ (Hindery 2004). These potential benefits meant the US government, the World Bank and the InterAmerican Development Bank (IADB) played important roles in implementing capitalization. Goni, an ardent supporter of privatization, originally proposed the partial sale of the six largest state-owned firms during his 1993 presidential campaign. He hoped his plan for the government to retain 51 per cent of the shares and distribute them to Bolivian citizens over twenty-one would win public support (MNR-MRTK-L 1993; GOB 1994). The government proposed selling the remaining 49 per cent of the shares to international firms. Rather than directly pay the government an estimated US $2 billion, the purchasers would commit to double the book value of each business within seven years. Having brought the firms’ value to a total of US $4 billion, the Plan assumed that the new owners would leverage these funds to borrow an additional US $6 billion dollars on international financial markets (MNR-MRTK-L 1993: 19–21). Increasing working capital from US $2 to $10 billion in less than seven years more closely resembles a pyramid scheme than a coherent economic plan. Yet Goni’s neoliberal economic policy hinged on its success. The Plan de Todos projected that the flood of capital would drive GDP growth from 4 per cent in 1993 to 11 per cent by 1997, as private investment expanded to 24 per cent of GDP (ibid.: 23). The Plan predicted the rapid growth would create 287,000 new jobs and improve another 212,000. These optimistic projections also assumed that domestic investment fuelled by contributions paid into newly created pension plans would complement foreign funds. 108

Implementation

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The Law of Capitalization, signed in March 1994 with little debate in Congress, authorized the sale of the government’s oil and gas, telecommunications, airlines, smelter, power generation and railroad companies.2 At the time, the capitalized industries accounted for about 12.5 per cent of GDP and 60 per cent of government revenues – oil and gas alone were 50 per cent. The initial proposal for the government to retain the majority of the stock was abandoned as the bidding companies insisted on majority ownership and complete control, with the result that 50 per cent not 49 per cent of the stock was sold. The five firms, divided into ten independent units, were auctioned publicly between 1995 and 1997 (see Table 5.1). (The Banzer administration from 1997 to 2001 later privatized YPFB’s refineries.) In all, the bids totalled US $1.67 billion, in a combination of commitments for future investment and cash. The remaining shares were distributed between the pension fund administrators (AFPs) and workers who decided to convert their pensions to stock. The winning bids typically required purchasers to pay only a fraction of their investment commitment at the time of the sale. For example VASP (Viacao Aérea Sao Paulo), the second largest Brazilian airline company, took control of Lloyd Aero Boliviano (LAB), with a payment of US $5 million and a commitment to invest an additional US $42.5 million over five years (Prefectura de La Paz 1995). During the drafting of the Capitalization Law, debates raged in Bolivia on how to distribute the proceeds from privatization. The initial idea of distributing the shares directly to all citizens along the lines of the Russian model or transferring the funds directly to individual retirement accounts was quickly discarded (Bauer and Bowen 1997). Instead, the government decided to direct the revenues to funding the BONOSOL, an annual social security payment of about US $250 for Bolivians over the age of sixty-five (Estellano 1995; CEDIB 1996, 1997). Two private pension fund administrators (AFPs), each comprised of a consortium of foreign firms with minority Bolivian partners, won the management contracts. To protect the investments of Bolivia’s citizens, the private AFPs assigned members to the board of directors of the newly privatized firms. The government estimated that the AFPs initially required between US $60 and $75 million a year for the BONOSOL. As dividend income alone was insufficient to make the payments, a percentage

Petrolera Chaco Transredes Empresa Petrolera Andina

ENTEL

LAB (airlines) ENFE (railroads) Andina Oriental

Corani Guaracachi Hermoso

Hydrocarbons (YPFB)

Telecommunications

Transportation

Electricity (ENDE)

Source: Villegas (1997: 33–4)

Firm

Sector

table 5.1 Sale of capitalized firms

Dominion Energy Energy Initiatives Constellation Energy

Cruz Blanca Cruz Blanca

3/96 3/96 7/95 7/95 7/95

VASP

STET

Amoco Enron, Shell YPF, Perez, Pluspetrol

Principal shareholders

10/95

11/95

4/97 4/97 4/97

Date of transfer

USA USA USA

Chile Chile

Brazil

Italy

USA USA, Holland Argentina Spain

Country of origin

33.0 35.0 30.0

13.2 25.9

47.5

610.0

306.7 263.5 264.8

Bid for 50% of firm (US $ millions)

of government shares was slated for sale through the newly formed Bolivian stock market. Stock sales were to continue until the fund was depleted in 2050 when it was anticipated that all Bolivians would be covered by individual pension plans. Impacts

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Not only did the government lose revenue, it also largely relinquished the ability to use price structures as a policy tool. For example, before capitalization, telephone and electric companies did not maximize profits but rather kept the cost of the telephone service and electricity affordable to urban consumers. Since selling the oil and gas company, special taxes on gasoline and diesel have partially replaced much of the income that YPFB contributed to the treasury, but at the cost of almost continuous social unrest.3 Capitalization was built around five basic assumptions. First, that investments made by the capitalized companies would, by themselves, have a multiplier effect on the rest of the economy and lead to faster growth. Second, that Bolivian entrepreneurs could absorb the available investment capital and use it to create jobs. Third, that the AFPs would initially use the income from dividends and share sales to finance the BONOSOL. However, over time, as the newly privatized pension funds accumulated capital, the resources from the AFPs would promote economic development and increase the national savings rate. Fourth, that the share price of the capitalized firms would increase due to the ongoing investments and increases in productivity. Finally, that taxes generated from rapid economic growth would compensate for the immediate loss of oil and gas revenues. None of these assumptions has proven correct. The nature of these failures gives practical and theoretical insights into market restructuring, privatization programmes and the changing nature of the state. Capitalization achieved part of the first assumption: new owners met, and often exceeded, investment quotas. Villegas estimates foreign direct investment before capitalization at US $169 million (Villegas Quiroga 1997: 52); in 1996, a single firm, the Italian-owned STET, invested that much in the phone company alone. By June 2000, the capitalized firms had invested about US $2 billion, the lion’s share in the hydrocarbon sector (Barja and Urquiola 2001; Villegas Quiroga 2002). The majority of these investments, however, are in capital-intensive goods of foreign manufacture with little multiplier effect. In 1996, four of

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the capitalized firms were among the top six largest importers in the country (Villegas Quiroga 1997) and the oil and gas producers continue among the country’s largest importers. As in other parts of the world, neoliberal policy-makers failed to consider that the quality of economic growth, as much as the quantity, determines job creation (Ramiréz 2000). Villegas Quiroga (1997) contends that even if the capitalized firms increased production and efficiency, they would not generate new jobs. In the case of the airline LAB, the company’s largest single investment, the 1996 purchase of a Boeing aircraft, probably created more employment in Seattle than in Bolivia. Steel pipe for the construction of the Brazil–Bolivia gas pipeline came from Argentina, Brazil and Korea, and the US $435million-dollar investment directly created fewer than 600 permanent jobs. This should come as no surprise; forty-five years ago, Hirschman (1958) observed that resource extraction is a poor growth engine as it has limited forwards and backwards linkages, a finding confirmed by Sachs and Warner (1999). A rise in GDP from an increase in natural gas production creates far fewer jobs than the same growth from labourintensive activities such as, for example, the transformation of tropical hardwood into furniture. Capitalization led to massive firings of unionized workers on a scale not seen since the state-owned mines closed in the mid-1980s, although in some cases, notably the railroads, many of the jobs lost were linked to political patronage. YPFB went from a high of 9,150 workers in 1985 to around 600 by the end of 2002. The railroad Cruz Blanca slashed the workers in its two companies from 5,424 to 855 by 1999 while increasing the tonnage shipped (Antezana Ergueta 2001). Union leaders at ENTEL, ENDE and YPFB all explain that under government ownership the union was able to protect workers’ rights, and management found it difficult to discipline or fire employees. Since capitalization, anti-union practices have grown, as Perry Jacobs of the LAB union explains: Before [capitalization] the union had an office at the airport, but they took that away from us and went after the union officials … They demand that workers put in overtime and then don’t pay them for it. If workers refuse they get fired … Before, there were clear job descriptions. Now they want the workers to do more than just one job to have fewer people on the payroll. ( Jacobs, 10 December 1997)

National economic growth hovered around 4 per cent throughout 112

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1998, well below the government’s optimistic projections.4 Revenues from a new gas pipeline to Brazil, which came on line in 1999, provided an important cushion for an economy reeling from the fallout of Argentina’s severe economic crisis in 1998 that decimated the greatest single demand for Bolivian labour and its principal source of remittance income. Bolivia was also suffering from the destruction of thousands of hectares of coca as a result of Banzer’s US-supported war on drugs. GDP grew at around 1 per cent in 1999 and 2000, rising slightly in 2001 and 2002. Poor global economic conditions have generally curtailed economic expansion, and growth was under 3 per cent in 2003 rising only to 3.5 per cent in 2004 (INE 2004).5 Capitalization’s second supposition, that national entrepreneurs would use the increased capital available due to privatization to drive job growth, assumed that private sector entrepreneurs would automatically step in to harness the energy of an unfettered market (de Soto 1989). The limitations of a small national market, the open borders that resulted from the 1985 NEP, the high cost of investment capital, the country’s landlocked status, and the perceived high risk of doing business combine to prevent national manufacturers from successfully competing in a global market. Unsurprisingly, the demand for national investment capital has remained low. In part, this is due to the nature of the country’s investment opportunities, which are primarily capital intensive, in mining, oil and gas, electrical energy generation, agriculture and timber extraction. In most of these industries, the companies with the necessary technical expertise and financial and managerial capacity are foreign (Villegas Quiroga 1997: 55–60). In a country as historically unstable as Bolivia, national investors look to the short term and expect to earn risk premiums, as much as 3–5 per cent per month. This expectation is incompatible with the kind of investments – either in human resources or the physical infrastructure – required for long-term productivity increases. The third assumption – that the AFPs would pay the BONOSOL with cash dividends from the capitalized firms and the sale of shares on the Bolivian stock market – may have been the most unrealistic of all. Due to the difficulties in establishing the stock market, the AFPs had to borrow about US $44 million at 11 per cent interest in order to make the first BONOSOL payment in 1997. As capitalized companies are under no obligation to distribute dividends, they can partially pay off loans or reinvest revenues instead, and the AFPs, as minority share-

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holders, have no voice in management decisions. Unlike publicly held companies in North America and Europe, company accounts remain confidential, with key information inaccessible even to shareholders. Even though the AFPs assign just under half of the board of directors for the capitalized firms, they are prohibited from publicly disclosing company business. The concept that publicly owned and traded firms must be transparent clashes with traditional business practices in Bolivia and many other Latin American countries. As one executive explained in a confidential interview, ‘almost every business in Bolivia keeps a triple set of books: one to show the government to avoid taxes, one to show minority partners to avoid paying them, and one to show what is really happening’ (our translation). Such practices are not conducive to the public trading of stock, which relies on earnings and expenses information that is public, credible and accessible. While the government realized that dividend income would be insufficient for the BONOSOL, it expected that the AFPs could make up deficits through the sale of company stock. But an active stock market has yet to take hold. The stock market trades primarily in government and private bonds – fewer than twenty stocks in all – making it impossible for the AFPs to raise the necessary cash without borrowing against capital. While employees exchange shares of stock by taking cash from their pension savings, these exchanges are done informally, and no matter how much is paid, these transactions do not affect the ‘market price’ (Hauscherr 2002). Investors have little interest in shares with prices artificially inflated by the AFPs, which can manipulate share prices because, as the principal stock source, they control availability. To complicate matters further, the AFPs are primarily charged with administering individual retirement accounts. Therefore, they seek domestic private sector investments for the individual pension accounts they manage for more than 500,000 workers, making public confidence that stock prices reflect true values even more critical. A common fear is that the AFPs will transfer shares at inflated prices from the capitalized firms to the new pension funds. This would provide them with a source of capital to address solvency issues as well as a sink for current pension fund contributions. As of July 2004, however, 68 per cent of AFP investments remained in government bonds (FIAP 2004), which not only provided a relatively meagre return but also added to the national internal debt. As the AFPs failed to generate the predicted cash surplus, the government 114

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was neither able to use the influx of cash to reduce the deficit, as was done in Mexico and Brazil, nor able to count on future earnings, which were committed to pay the BONOSOL.6 The notion that increases in productivity brought about by foreign investments would increase share value, the fourth assumption, has also proven false. A February 2001 study revealed that the combined share prices of the capitalized firms, held in what is called the Collective Capitalization Fund (El Fondo de Capitalización Colectiva – FCC), have fallen from US $1.67 billion at the time of capitalization to $774 million, with the majority of the losses split between ENTEL (US $329 million) and the oil and gas firms (US $377 million) (CEDIB 2001: 3). According to AFP Futuro, in January 2004 the total value of the FCC prices still remained around half of their initial value (Futuro de Bolivia 2004). The actual losses are probably much higher than these estimates, which are based on AFP figures rather than market prices.7 Analysts suggest that the low prices reflect an inability to attract the attention of international investors, who are shy of developing economies with international risk assessments as high as Bolivia’s. Finally, the government loss of oil and gas revenues has not been compensated by tax revenues from increased production, nor by the gains from foreign investment, nor by unloading the burden of the airlines and railroads (both losing money at the time of their sale), but primarily by special energy taxes. Beginning in 1997, a 25 per cent increase in energy consumption taxes led first to strikes by transportation drivers and then, after fares rose, to protests by poor Bolivians (La Razón, 10 December 1997, p. A11). By the end of 1997, the drop in oil and gas revenues combined with the US $200 million cost of implementing capitalization contributed to a $430 million budget deficit (La Razón, 25 November 1997, p. B7). Government revenues continued to fall throughout 1998, leading Banzer to impose across-the-board budget cuts of 5 per cent in 1999 with some sectors targeted for larger cuts (La Razón, 16 December 1998). While income recovered somewhat during the following years due to moderate economic growth, the government continues to rely heavily on international assistance to cover basic spending. High budget deficits continued, with each deficit bringing another round of negotiations with the IMF (IMF 2003). Any further restructuring was rejected by a large and increasingly vocal segment of the Bolivian populace. In early 2003, the IMF demanded the Bolivian

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government cut its fiscal deficit by US $240 million, from 8.5 per cent to 5.5 per cent of GDP. The government agreed to reduce spending by US $30 million, and to raise $80 million from additional hydrocarbon taxes and $90 million from a new income tax (La Razón, 11 February 2003). The new taxes led to a wave of uprisings, known as the ‘tax war’. New opportunities for rent-seeking

The newly installed private owners all used similar strategies to increase profitability: they cut or rebalanced the workforce; increased capital investment; introduced new management techniques and productive technologies; and raised rates for basic services. Unlike the government, private companies had the freedom to focus on the economic maximization of the firm as an independent unit, rather than on the need to negotiate with diverse political actors demanding job security, low-cost services, or revenues for the treasury. While the government had used its ownership as a way to subsidize electricity and water for urban consumers and rail service for miners and agricultural exporters, private firms were under no such obligation. In some cases after capitalization, in telecommunications for example, the government specified service goals and rate-setting formulas. In others, such as the transportation sector, the government was unable to provide adequate regulatory provisions to protect people dependent on these services.

Asset-stripping: railroads and airlines In Bolivia’s weak regulatory environment, the government has proven incapable of defending the interest of the ‘public shareholders’ in the privatized firms who are now represented by the private sector AFPs. Some actions by the new private owners, such as selling or transferring assets from the capitalized firm to the parent firm, could be interpreted as illegal under Bolivian law as they defraud the shareholders. If regulatory and judicial agencies fail to act, or the costs of legal actions are less than repatriated profits, then avoiding taxes and regulations is simply good business practice given a firm’s imperative to maximize profits (Bakan 2004). A good example is the national railroad company, which had been losing US $4 million a month at the time of the sale. The company was split in two but both bought by Cruz Blanca, a Chilean firm. They began to show a profit shortly after their sale. The rapid turnaround was heralded as a dramatic example of privatization’s success, overlooking 116

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the fact that profitability had been achieved by firing 80 per cent of the workforce. To its credit, the new management also improved operations, including refurbishing maintenance shops, cancelling subsidies for agricultural producers and private miners, and closing unprofitable passenger services. The success was short-lived. By the end of the decade, Ferro Carril Andino (Andino), operating in the western half of the country, had begun to decapitalize, selling assets including land and even the railway stations themselves. The company failed to maintain the roadbed and removed sections of track between Cochabamba and Oruro, closing service to over fifty stations in communities that had no road access. They dismantled railroad bridges, reportedly transporting the materials to Chile to build spur lines to mines. As the railroads were divided in two, it was possible for Cruz Blanca, the parent corporation, essentially to abandon Andino while continuing to operate and then selling the profitable rail lines in the eastern lowlands. Without an adequate regulatory structure, Bolivia’s government had no mechanism to protect the public interest. Lloyd Aero Boliviano (LAB), the national flagship airlines, suffered a similar fate. VASP integrated LAB’s international operations into its own, expanded maintenance capacity to take advantage of Bolivia’s low labour costs, reduced national service, fired Bolivian managers and, within months of taking over, stripped over US $13 million from LAB’s parts inventory. The Bolivian press accused VASP of using the LAB parts to refurbish jets in its other companies. The ‘just too late’ inventory style of the new owners had disastrous effects on the quality of service for Bolivians dependent on the airline for national travel and on its international reputation (Los Tiempos, 12 May 1997). A commission investigating the performance of capitalized firms found that for six years LAB paid VASP US $265,299 a month rent for offices in Miami, even though LAB already owned offices there. The payments, totalling US $11.5 million, represented nearly a quarter of VASP’s $47.5 million capital ‘contribution’ to LAB. Critics argue that VASP’s underlying strategy was first to sell off LAB’s parts inventory to pay for the acquisition and then sell off stock to raise cash ( 30 Días, 14–27 October 2001). LAB began to report losses in 1999 and bordered on bankruptcy by 2001 (La Razón, 4 April 2001). In November 2001, VASP management, while under criminal investigation for malfeasance in Bolivia, sold its interest in LAB to Cochabamba

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brewery owner Ernesto Asbún. While the airline appears to be recuperating under the new management, as of 2005, it had paid no dividends to the AFPs.

Transferring profits: telecommunications The case of ENTEL is slightly different. The Italian company STET took over ENTEL, one of the best managed and the second most profitable of the SOEs, bringing in Italian management, rebalancing the workforce, and undertaking an ambitious investment plan to meet its contract obligations of US $610 million over four years. The company invested heavily in cellular telephones, the fastest growing sector of the telecommunications market. ENTEL also expanded international service by linking Chile and Brazil with fibre-optic cable. Revenue grew at double digits through 1999, but profits, which had been about 16 per cent when the company was state-owned, have been low. Accusations that the company has shifted profits from ENTEL to wholly owned subsidiaries outside Bolivia are widespread. While existing laws theoretically control such behaviour, in practice, regulatory agencies have been unable to do so. The lack of investor confidence in regulatory control is reflected in a consistently low share price. At one point the total value of the stock was less than the company’s cash reserves.

Buying discounted assets: hydrocarbons Even though the Bolivian oil company, YPFB, was the most profitable SOE before capitalization, its growth was limited because the government siphoned off its earnings rather than reinvesting in exploration (Villegas Quiroga 2002). With capitalization, YPFB split into three companies (Empresa Petrolera Chaco, Empresa Petrolera Andina and Transporte Boliviano de Hidrocarburos [Transredes]), all purchased by multinationals (see Table 5.1). Before YPFB was sold, Goni passed a new hydrocarbon law and, later, in 1997, signed a presidential decree days before leaving office, both written with technical assistance from oil industry representatives. Well-head royalties were reduced from 50 to 18 per cent, despite the proven willingness of international firms to invest at higher rates as Bolivia enjoys some of the lowest natural gas production costs in the world. The lower royalties, to promote exploration, were to apply only to ‘new hydrocarbons’. However, even fields that had been proven but not put into production were also defined as ‘new’ (Mariaca Bilbao 2000; 118

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Villegas Quiroga 2002). While reducing the exploration risk for the oil companies, the new laws heightened the political risk as the Bolivian public have reacted furiously to what they see as a giving away of the country’s natural resources. An increasingly important component of international development assistance includes ‘institutional capacity building’ – creating the environment needed for markets to operate. Included is technical assistance to construct ‘competitive’ regulatory frameworks. In Bolivia’s case, some of the hydrocarbons regulations were written with assistance from PriceWaterhouseCoopers, awarded a five-year C $8.25 million contract by the Canadian Agency for International Development (CIDA). PriceWaterhouseCoopers interests are clearly allied with industry, as its webpage explains: ‘We help organizations large and small by providing industry-focused assurance, tax, and advisory services to build trust and create value’ (PriceWaterhouseCoopers Canada 2004). Rather than working for the interests of Bolivia, ‘assistance’ was designed by the international agency (in this case bilateral) to serve the interests of either international corporations or those based in their own countries. A CIDA (2004) report clearly demonstrates that the generosity of the Canadian government provided about an 800 per cent return to Canadian businesses: ‘The project was successful in linking Canadian petroleum companies to Bolivia’s oil and gas sector … more than $70 million of commercial spin-offs for Canada have been achieved as a result.’ This type of development ‘aid’, common throughout the world, illustrates how the international experts, who designed laws in the interests of international firms, have significantly contributed to the ongoing conflict raging in Bolivia over control of hydrocarbons. Private hydrocarbon companies, without the demands of a revenuehungry government, invested quickly after capitalization and together account for over half the investments made in Bolivia since 1996. Transredes, owned by a consortium of companies including Enron and the Brazilian national petroleum company, Petrobras, used loans provided by the Inter-American Development Bank (IADB) and Andean Development Corporation (Corporación Andino de Fomento – CAF) to complete the Bolivian side of a gas pipeline to Brazil by 1999. Exploration and production companies discovered immense quantities of gas, with estimates of reserves soaring from 7 trillion cubic feet (TCF) to 55 TCF. Suddenly Bolivia had the second largest gas reserves in South America after Venezuela, with much territory still

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unexplored. Markets and transportation infrastructure for gas, however, are lacking. Oil and gas privatization have had tragic implications for the country’s economy and government functioning. Even though state-owned oil companies have a global reputation for being corrupt, in OPEC countries they have served as important sources of revenue for national development. In Bolivia’s case, YPFB was on the verge of completing a contract to build a pipeline to connect Bolivian gasfields to Brazilian markets before capitalization (Calle Quiñonez 2000: 247). Revenue from this single pipeline could have increased its profits by at least US $50 million a year for forty years. Instead, these earnings benefit private firms, severely limiting the country’s capacity to develop throughout the twenty-first century. Social responses to capitalization

Capitalization evoked a visceral political, popular and intellectual response from across the society that expanded steadily as its failures became more apparent (Torres Obleas 1997; Altos Estudios 2000). From the beginning, the traditional left called the government’s handing over of the country’s wealth to transnational corporations unconstitutional (Vargas 1994; El Mundo, 5 February 1994, p. 57). The right also opposed the sale of enterprises it considered strategic. The military, remembering the defeat by Chile in the War of the Pacific (1879–84), took special offence at selling the railroads to the Chileans, arguing that it was a threat to national security as well as an insult to the country’s honour. Economists of both the left and the right questioned the assumptions underlying capitalization and argued that 12,000 jobs would be lost, and the government’s ability to direct long-term economic development hindered (CEDIB 1994). Public opposition began even before Goni took office in 1993, primarily consisting of almost daily marches and demonstrations in La Paz by affected union members. The majority of the population, most of whom earned less than the fired unionized workers, expressed only limited sympathy. Attacks on capitalization continued during the Banzer and Quiroga administrations (1997–2002). The Banzer administration declined to reopen any contracts, claiming their validity under international (if not Bolivian) law, but did cast some blame for its reductions in social spending and municipal revenue sharing on capitalization. Government investigations showed irregularities in the contracts; the most 120

flagrant were the closed-door deals made by the now bankrupt Enron with government officials before the bidding process even began.8 While blaming the previous administration afforded Banzer some legitimacy, it also weakened the belief that privatization policies would create economic growth, serving to undermine neoliberal hegemony. The Bolivian economy after capitalization

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Between 1989 and 1996, average annual growth slightly exceeded 4 per cent, but fell to 2 per cent on the heels of the global economic crisis in the late 1990s and growth has only barely reached the levels achieved in the early 1990s (World Bank 2004b). Hydrocarbons and minerals still account for 52 per cent of legal exports, even though agriculture became the fastest growing export sector between 1992 and 1997 (see Table 5.2). Mining and hydrocarbon exports accelerated after 1999 when the new natural gas pipeline to Brazil came on-line. Due to mining privatization, less than 20 per cent of mineral revenues now flow to the national treasury, compared with 80 per cent before the NEP (Anderson and Osvaldo 2001). As mineral prices remained relatively low throughout 2003, mining investment has increased slowly, although Bolivia’s rich reserves guarantee ongoing interest by international companies. In hydrocarbons, even though exports to Brazil and Argentina have grown, current pipeline infrastructure is still below production capacity. Agricultural exports, primarily soybeans and vegetable oils from the eastern lowland areas, have increased tenfold since 1990. As commercial agriculture in the eastern lowlands continues to attract further investments from Brazilian soybean producers, further growth is expected. With the lost SOE revenues and the inability to achieve what the World Bank (2004: 9) now recognizes as ‘excessive’ growth projections, Bolivia’s fiscal debt, which had dropped propitiously after 1985, took off again. Debt composition, however, had changed dramatically since the early 1980s when the majority was owed to private banks. By 2000, private bank lending was less than 1 per cent of the total international portfolio and has been replaced by multilateral and bilateral debt with the IADB, the United States and Japan as the most important lenders. Unlike private debt, multinational and bilateral debt cannot be reduced by selling it at a discounted rate on the secondary market,9 making Bolivia more dependent on donor decisions to permit debt

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table 5.2 Composition of exports, 1992–2004 (US$ millions) 1990

%

1996

%

2004

%

634 407 226

69 44 25

619 478 141

51 39 12

1,303 456 847

60 21 39

Non-traditional (soy, jewellery, cotton, timber, other) 288 Soy 40

31 4

595 201

49 17

881 424

40 19

Total

100

1,214

100

2,184

100

Traditional (minerals & hydrocarbons) Minerals Hydrocarbons

922

Source: accessed 14 May 2005

relief and more vulnerable to conditions imposed by the IFIs and the international donor community (Escóbar de Pabón 2002). More significant is that internal debt to the pensions funds is expanding at a significant rate (Weyland 2004). Conclusions

Bolivia’s capitalization scheme clearly illustrates what Brenner and Theodore call a ‘political practice [that] has generated pervasive market failures, new forms of social polarization and a dramatic intensification of uneven development at all spatial scales’ (Brenner and Theodore 2002: 352). It did indeed attract foreign investment capital and reduce the government’s role both as an economic actor and as a provider of public services. However, its broader economic, social and political agendas failed. The influx of foreign investment capital has not generated the hundreds of thousands of anticipated jobs. While firm efficiency increased, government revenues dropped without income from YPFB and ENTEL. Moreover, projected increased tax revenues have yet to materialize as companies reinvest or transfer earnings out of the country rather than distribute profits and pay taxes in Bolivia. As with privatization in other countries, the absence of regulatory and market infrastructure generated unanticipated problems. Unsophisticated pension fund managers and a weak regulatory structure made honest accounting and profit distribution from petroleum firms like Enron and Petrobras highly improbable. The lack of market infrastructure made the AFPs’ task almost impossible, as they were 122

unable to sell shares to diversify and ensure reasonable returns on their investments. The redistributive component of privatization, designed to extend social citizenship rights, was sacrificed in part because of the economic crisis brought on by capitalization itself. Instead, as the locus of rent-seeking shifted from SOEs to private firms, capitalization became an exercise in creative profit maximization in the face of a regulatory vacuum. Capitalization’s principal legacy, however, is likely to be how it has redefined the mission of the state. The 1952 revolution began the transformation of Bolivia’s government from one controlled by a handful of elite mining and agricultural families to one with a responsibility to a broader citizenry. Though it remained an ‘uncompleted’ revolution (Malloy 1970), the state successfully extended universal citizenship rights and, by nationalizing the mines, declared natural resources part of the country’s patrimony. Capitalization served to truncate the social goals of the State of ’52. The decline in government revenue that privatization has occasioned exacted its greatest cost on government stability. Fiscal deficits have risen to levels the IFIs consider untenable. IFI pressure to reduce public services has magnified, making it difficult for ministries to fulfil their mandates, and, more immediately critical, fomenting greater public unrest and making Bolivia increasingly ungovernable. The new role capitalization imposed on the state will be difficult to reverse. Instead of balancing the contradictory goals of maintaining a legitimate state and creating a stable market economy, capitalization has threatened the viability of both, highlighting the fundamental contradiction of market democracies. Notes

2 Vinto, the national smelter, the sixth industry on the block, had no bidders in the first round of capitalization. The British firm Allied Deals finally purchased it for US $14 million in December 1999, but it reverted to government control in 2002 after going into receivership (Rubín de Celis 2001). COMIBOL, the national mining corporation, was the one large firm exempted from capitalization; its sale or transfer is constitutionally prohibited, as it is seen as the country’s patrimony. All new activity in mining, however, passed to the private sector after NEP implementation in 1985.

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1 Capitalization is in fact a form of privatization, even though the government retained minority public ownership. The new owners had complete control over investment and management and all employees were contracted by private rather than public employers.

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3 At the same time, due to increases in world oil prices, the government froze domestic fuel prices in 2003. Since then it has subsidized the price of petrol, diesel and liquid natural gas (LNG), which has added significantly to the government deficit with the spike in oil prices in 2004–05. The IMF has pressured unrelentingly to eliminate this subsidy. 4 As the informal economy equals the formal economy in size, official numbers are of dubious value, but they still serve to indicate the general direction of economic growth. 5 Given the costs of political unrest, growth is unlikely to go over 4 per cent in 2005. 6 The BONOSOL was paid only once during Goni’s first administration. Banzer eliminated it and introduced a reduced Bolivida, which was disbursed once before Goni returned to office and reinstated the BONOSOL at rates well below those promised. 7 In 2005, following Mesa’s resignation, stocks were available through informal markets at a discount of up to 50 per cent of their ‘market’ price. Shares of Entel, with a stated valued of around US $21, could be purchased for between $11 and $15. 8 This appeared to have been standard operating procedure for Enron, recognized as one of the most corrupt firms in recent history (McLean and Elkind 2003). 9 It should be noted that the buy-back of Bolivia’s debt owed to commercial banks came entirely from aid budgets destined for Bolivia in any case (Lamdany 1989).

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6 | Municipal reform, social movements and new electoral politics

One of the biggest problems is that the Agrarian Reform didn’t reach the entire country so that people here have only a half or quarter hectare. With Popular Participation we have some resources, but it can’t solve all our problems – but people are beginning to talk about their rights and the role of campesinos has changed. We need to think about how to build on that to get land in Santa Cruz and the Beni to have a real impact. (Esteban Ramírez, President of the Municipal Council and representative of the Departmental Federation of Campesinos, Mizque, Cochabamba. Personal interview, 31 October 1997)

Studies of neoliberalism frequently analyse economic restructuring to the detriment of its political counterpart. Whether shrinking or reforming the state, however, political restructuring is central to the global neoliberal regime. Often called ‘democratization’, this process includes two potentially contradictory trends. Efforts to decentralize the functions of government not only transfer obligations to subnational units and reduce the size of the central state, but also fragment the potential opposition to cuts in government services. At the same time, decentralization programmes can make citizens more aware of their rights and create new opportunities for local counter-hegemonic movements, some of which expand to national prominence. In Bolivia, during most of the twentieth century, labour unions furnished the training ground for political activists and formed the core of the traditional opposition to urban elites. Neoliberal policies effectively decimated the unions, leaving the labour leadership squabbling over how to cope with their declining power base. Decentralization and political restructuring have fostered the emergence of new local leaders – ‘organic intellectuals’ to use Gramsci’s term. This has transformed formal politics in Bolivia as, for the first time in history, indigenous grassroots leaders have been elected to municipal and national offices. Adapting the strategies employed by class-based union movements to new arenas, they have redefined opposition to incorporate a greater emphasis on identity and territorial demands.

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Three primary changes in Bolivian administrative structure, two of them found in the 1994 Law of Popular Participation (LPP), facilitated this resurgent opposition. Prior to the LPP, municipal elections, held every five years since 1987, had taken place only in the largest cities, where candidates were routinely affiliated with traditional parties dominated by urban political elites.1 With the LPP, suddenly the more than 250 new, small and largely indigenous municipalities required thousands of council representatives. As the indigenous and urban poor increasingly assumed office, they acquired a modicum of the formal skills associated with western-style government. To fund the new municipalities, the LPP assigned them 20 per cent of the national budget, requiring municipal oversight committees (Comité de Vigilancia – OC) to monitor spending. Over 15,000 grassroots territorial organizations (Organizacaiones Teritoriales de Base – GTOs) were authorized to participate in local planning. This process fundamentally changed the discourse on citizens’ rights in rural areas long abandoned by the state. Finally, electoral reforms improved indigenous and campesino representation in the national Congress. In the 1993 national elections, a proportional representational system which drew on lists determined at the departmental level elected both houses of Congress. Consequently, political parties fielded complete lists of candidates, freezing rural political leaders out of meaningful political participation. This tightly controlled political structure, the modern manifestation of centuries of exclusion, meant that rural communities carried on their long history of the contentious and confrontational politics generally associated with social movements (Tarrow 1998). The 1996 Electoral Law switched the election of one-half of representatives to district-level contests, in a hybrid proportional representation system based on the German model (Domingo 2001). During the 1997 national elections, political parties, most without any formal organizations outside the major cities, had to field district-level candidates. While only four indigenous candidates reached Congress, all from the coca growers’ movement, this was enough to convince relatively small political parties to ‘loan’ their party slates to campesino organizations during the 1999 municipal elections. By 2002, the social movement that began with the Chapare coca growers had grown into the country’s second largest political party, winning almost one-quarter of seats in both houses of the national Congress (Van Cott 2003). 126

This chapter examines worldwide debates on decentralization and development before shifting to the LPP. Although the law focused on local politics, the new understanding of citizenship rights it provoked ultimately affected national-level political discourses. With the 1999 municipal elections, individuals who previously had been seen simply as local indigenous leaders assumed broader, national-level roles. In the process, counter-hegemonic discourses opposing neoliberal policies reached wider audiences, setting the stage for the victories that began with the 2000 Cochabamba ‘water war’. Decentralization, participation and development

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Municipal reform

During the past forty years, both high- and low-income countries have embarked on decentralization projects that transfer responsibilities from national to local government (Samoff 1979; Oyugi 2000; Wunsch 2001). Since the 1980s, many have been linked to market liberalization, assuming an important role as the democratization component inherent in the concept of market democracy. Promoters argue that decentralized governments are not only more efficient and less corrupt, but can better contribute to economic development and democracy than centralized ones (World Bank 1997). As Wunsch points out: ‘[n]umerous scholarly studies have come to this conclusion: the centralized, hierarchical, bureaucratic administrative model has failed … [as] … it is a primary instrument of an urban/wealthy biased political economy which rests heavily on rural dwellers and the poor’ (Wunsch 1991: 432). As with other concepts in the neoliberal lexicon (Escobar 1995; Sachs 1992), decentralization embodies several meanings. Rondinelli’s (1981) commonly cited description identifies four primary elements: the devolution of powers from central to local government; deconcentration of government offices and functions by physically dispersing them; the delegation of government functions to parastatal organizations and the privatization of state-owned enterprises. While such a functional definition facilitates an understanding of decentralization’s administrative features, this typology does little to illuminate the broader social and political processes affected by decentralization (Slater 1989; Doan 1995; Mohan 1996). Slater (1989: 519) argues that the study of decentralization should be linked to ‘more theoretical concerns relating to development, democracy, social struggle and state power’ (ibid.: 502).

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We apply this broader perspective to Bolivia through considering the goals of decentralization at three intersecting levels. Decentralization first sought to establish effective and efficient government by standardizing municipal planning and administrative functions. It also aimed to increase infrastructure investment in the country’s dispersed, mostly rural, municipalities. Finally, it hoped to increase political accountability, particularly through greater citizen participation, in order to reduce corruption. Bolivia’s mixed experience in achieving these goals is instructive wherever decentralization policies are touted as a panacea. Decentralization has been popular in both high- and low-income countries for the past thirty years. In the United States since the 1970s’ Nixon administration, successive waves of decentralization have transferred numerous programmes to states and localities. This has increased levels of inequality within states, as the federal government historically had assumed the greatest responsibility for redistributive funding (Donahue 1997). Decentralization has also reinforced inequality in the provision of public services across states, most critically in the areas of health and education, which can have a cumulative negative effect on a region’s developmental potential (Warner 2001). In the 1960s, decentralization programmes were widely applied to francophone African countries as a corrective to the highly centralized French colonial system. In English-speaking African countries, decentralization lagged a full two decades behind, but by the 1980s, 71 per cent were onboard (Doan 1995: 126). Oyugi (2000) argues that many of the assumptions underlying African decentralization are unwarranted. Local government problems tied to limited abilities to raise tax revenues, combined with inadequate or slow central government transfer payments, have not been ameliorated by decentralization (Willis et al. 1999; Wunsch 2001). Decentralizing economic development programmes have often improved the ability of local elites to capture benefits more effectively than if they are administered by a central government, as Bienen et al. (1990) found rich farmers do in Nepal. As a result, decentralization can create new opportunities for corruption with a regional flavour (Rondinelli 1990; Wunsch 1991, 2001; Werlin 1992). Local elites in the Ukraine, India and parts of Africa have successfully captured newly privatized state enterprises and evaded local taxes through bribes, influence peddling and intimidation (Khan 1999; Blair 1998: 25). While 128

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such regional patterns are common, the trend may not be universal: Fisman and Gatti (1999), using a different methodology and looking at national-level data, found, in a worldwide study, that greater levels of decentralization actually reduced corruption. Oyugi contends that the idea that decentralization is a prerequisite for economic development and good governance is unfounded. Instead, he maintains that good governance – defined as ‘the rule of law; a fair and efficient system of justice; broad popular involvement in political, social, and economic processes; the capacity to manage development and accountability and transparency in the management of public affairs’ (Oyugi 2000: vi) – is crucial if decentralization programmes are to be successful. In five African countries, Wunsch reports that attributing increased democratic participation to decentralization is largely unsubstantiated. Local participation in national planning processes ‘was always for naught, and, there is instead a top-down process through which national ministries … determine what will be done at localities … This erodes local authority, its access to resources appropriate to its needs, and the credibility of a local “political process”’ (Wunsch 2001: 278). In other instances, decentralization has been manipulated politically to reinforce the power of the central government and its allies. Bienen et al. (1990) suggest that administrative decentralization programmes in Nepal have actually worked to consolidate support for the national government and isolate political opposition because local allies of central government leaders were put in charge of implementation. For some critics, decentralization is primarily intended to serve the ideological role of freeing the invisible hand of the market from the bonds of political interference. Slater sees decentralization as ‘a rolling-back of many of the economic and particularly social functions of the state’ (1989: 516). He notes as well that decentralization is also utilized by national governments to extend their control ‘through a spatial strategy of spreading means of transport and communication and fortifying the informational nexus of government, and to establish a more effective administrative machinery for surveillance’ (ibid.: 523). Even the fiercest critics, however, recognize that decentralization programmes can promote broader goals of democratic participation, especially when there is a conscious commitment to do so (Slater 1989: 523). Samoff, for example, points out that ‘for decentralization to be empowering, it must be linked to the broader goals of political and

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economic democracy, and participation must not be “functionalized” as an element of planning’ (1990: 524). Decentralization is understood as a blunt instrument that must be honed to address specific social and political goals. But even when adopted in response to pressures from regional elites, as is the case in Bolivia, it can initiate a process that not only increases awareness of citizenship rights and diminishes local elite influence, but also affects national political processes. To Gills (2002), this illustrates the paradox of neoliberal economic policies – they both debilitate and simultaneously activate resistance. Decentralization’s role in challenging established power structures is nowhere truer than in Brazil, Latin America’s best known case of the transfer of authority and budget to the municipal level. More than 700 left-wing local governments have utilized decentralization, promoted decades earlier by regional elites to consolidate their power in the face of a modernizing military, to institute participatory budgeting (Goldsmith 2003). Porto Alegre, one of Brazil’s wealthiest cities, successfully promoted increased citizen involvement in decision-making over about 15 per cent of the municipal budget, and now serves as a model for these efforts all over the world (Abers 2000). Bolivia’s Law of Popular Participation (LPP)

In a poorly integrated country where pressures for government decentralization are a historic constant, the LPP reflected long-standing regional efforts to attain a greater share of government resources. It also built on NGO efforts to shift resources to long-neglected, impoverished rural communities (CIPCA 1991; Medina 1997b; Molina Monasterios 1997). Miguel Urioste, Minister to the President in 1984, points to two important antecedents to the LPP: the 1984 Fundamental Agrarian Reform Bill and the 1994 new Law of Communities Bill, neither of which was signed into law. Together, they contained four measures that became the heart of the LPP: (i) the legal recognition of peasant and indigenous communities; (ii) the legitimization of their traditional governing structures; (iii) the acknowledgement of their territorial rights; and (iv) the transfer of 10 per cent of the national budget to these communities (Urioste 2002: 159–60). Before the LPP, most of the country fell outside any municipal jurisdiction. Municipal governments encompassed only towns and cities, whose formal boundaries were never registered nationally and often fluctuated in accordance with the interests of the mayor in office. 130

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The national government often treated the rural areas as a ‘no man’s land’, leaving campesino communities to assume the functions of local government, disarticulated from nearby municipalities (Ejdesgaard Jeppesen 2002: 36). The LPP committed 20 per cent of national tax revenues to municipal governments to be utilized for the maintenance and construction of schools, health clinics, secondary roads and plazas, micro-irrigation systems and sport facilities. As 85 per cent of revenue-sharing funds had to be spent on construction, only 15 per cent remained for maintenance and administration. Before the law, urban development funds were channelled directly to departmental capitals or indirectly through Regional Development Corporations (RDCs). As a result, the three cities on the central axis (La Paz, Cochabamba and Santa Cruz) captured 93 per cent of national funding specifically destined for municipalities.2 Critics argued that it shifted responsibilities and taxation from the national to the local level as a pretext for reducing public services. Yet, over time, most Bolivians welcomed the LPP’s principal innovations: the combination of mandating participatory planning and fiscal oversight by neighbourhood and indigenous organizations. The LPP’s designers assumed that effective participatory planning would be embodied at the municipal level in annual operating plans (AOPs)3 and five-year municipal development plans (MDPs). They further, and correctly, assumed that non-governmental organizations (NGOs) would provide technical support to develop the plans in small municipalities lacking the capacity to write their own (Kohl 2003a). The reliance on NGOs as development agents continued a pattern that began with the first SAP in 1985 when millions of dollars were channelled through NGOs for projects to lessen restructuring’s negative impacts (Bebbington 1997; Graham 1992). On the one hand the LPP promoted decentralization, while on the other it reinforced the centralized political system as the president still appointed departmental prefects. This was roundly criticized, in particular by the business-controlled Santa Cruz Civic Committee which considered devolving powers to municipal governments an inadequate response to their demands for greater autonomy, and argued that Popular Participation represented another effort to keep the dynamic economy of Santa Cruz department shackled to the central government in La Paz (ILDIS 1994; Mariaca 1995). As these regional elites

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have shown little interest in decentralization and increased democratic participation within their respective departments, Goudsmit and Blackburn (2001) argue that the LPP enabled the central state to dissipate separatist tendencies by forcing these elites to confront the growing demands of increasingly active local populations. New roles for local actors

Grassroots territorial organizations (GTOs) The LPP represented the first time the government formally recognized community organizations including urban neighbourhood associations, pre-Hispanic indigenous groups, and modern campesino unions.4 The government registered almost 15,000 of these GTOs between 1994 and 1997, granting them responsibility for creating community development plans, ensuring local oversight and mobilizing community labour for public works. In rural municipalities, GTOs have as few as sixty members while in the country’s largest cities they number as high as 3,000. Although a large urban neighbourhood organization can mobilize its members for demonstrations or public protests, it rarely plays an influential role in their daily lives. In contrast, rural GTOs demand far more of their members whose relationships and obligations often extend across generations. In small communities with populations between 100 and 500, communal work responsibilities frequently serve as the most important form of taxation, and individuals are subject to intense social pressure if they shirk these obligations (Albó et al. 1990). In the cities, GTO effectiveness, as measured by involvement in a neighbourhood group, is low when compared to rural participation. The Federation of Urban Neighbourhood organizations (Federación de Juntas Vecinales – FEJUVE) have a mixed history in Bolivia, sometimes functioning as grassroots associations pursuing a territorial agenda and sometimes as organizations that primarily serve a particular political party. Beginning in 2002, FEJUVE in El Alto emerged as a significant political player, leading opposition to government policies in both 2003 and 2005 (Garcia Linares et al. 2004; Gomez 2004). During the design of the LPP, conflicts arose about which organizations would be counted as GTOs. Labour unions were conspicuously absent from consideration, reflecting continued government determination to prevent any legitimate role for the Bolivian Workers’ Confederation (COB) (Medeiros 2001; Ejdesgaard Jeppesen 2002). As the law specified that no particular territorial area could have more than 132

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a single GTO, intense debates arose about organizational legitimacy. The national Confederation of Campesino Workers’ Unions of Bolivia (Confederación Sindical Unica de Trabajadores Campesinos de Bolivia – CSUTCB) initially opposed the law. They saw the LPP as an attempt to ‘decentralize poverty’ and reduce government responsibility for rural investment. But the CSUTCB also resisted the recognition of non-union GTOs as governments had historically created parallel organizations to undermine the campesino unions to control rural areas. The abrupt shift in government discourse that transformed campesinos into ‘subjects of participation’ was understandably greeted with mistrust, as the state has historically been an enemy rather than an ally (Ejdesgaard Jeppesen 2002). Formal union opposition weakened steadily, however, as the CSUTCB realized that the law indeed offered them new opportunities. At their seventh congress in 1996, they announced that they would ‘radicalize popular participation to the extreme’, heralding how popular organizations would occupy the new political space to pursue their own counterhegemonic agendas (ibid.: 37). By 1997, 11,577 campesino unions had petitioned departmental authorities for GTO recognition, even though, given Bolivia’s history of exclusion and marginalization, they entered this new political space on clearly unequal terms (SNPP-DNFC 1997: 19; Ejdesgaard Jeppesen 2002: 47). Recognition of campesino unions as GTOs, however, has proven problematic in other ways. Although the LPP formally commits itself ‘to promote equal access of women and men’ (Ley 1551, Article 8), it contains a structural bias against women. Grassroots Bolivian women’s organizations, which began during the 1960s with the formation of housewives’ committees in the mines, have organized around sectoral issues such as supporting male-dominated unions, receiving food aid and participating in drinking water and income-generating projects. Consequently, they do not qualify as GTOs. Even when women’s organizations have a territorial basis they are subordinate to male-dominated unions. This has meant a systematic exclusion of women, even as other laws attempt, with limited success, to increase their political participation.5 An additional complication occurs when more than one type of traditional indigenous organization exists, most notably in the north of Potosí, one of the most traditional areas in the Andes. The ayllu, a preColumbian form of social organization, exists in the same communities

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as the unions, sometimes serving complementary and in other cases conflicting functions and, to some degree, providing benefits to different sectors of the community. Generally, while the campesino unions, which began to displace the ayllus in importance following the revolution of 1952, assumed responsibility for relationships with the government, the ayllus control internal community affairs. The ‘community’, as defined by the union, is not coterminous with the territory of the ayllu, a much larger polity. To complicate matters even further, both cross the new municipal boundaries.6 Denise Arnold (ND) argues that the availability of new resources linked to population size has inflamed historic territorial conflicts. She contends that the spark that set off the 2000 war between the north of Potosí ayllus, which caused over twenty deaths, was municipal pressure to redraw boundaries to increase funds from revenue-sharing. Finally, where urban development encroaches on rural communities, tensions have erupted between organizations representing different sectors in the same physical space. For example, in the city of Santa Cruz, the capitanías of the indigenous Guaraní share many peripheral neighbourhoods with recent migrants to the city. Before the LPP, the separate organizations representing Guaraní and urban residents coexisted peacefully, but tensions grew as each group formed a GTO that asserted claims on revenue-sharing resources (Postero 2000). Issues concerning the composition, legitimacy and representation of GTOs reflect the difficulty of legislating democratic participation among highly heterogeneous populations (Kymlicka 1995). While these problems remain unresolved, the LPP broadened local political participation, representing a significant shift in the character of politics in Bolivia. Before popular participation, grassroots groups and unions had few options but to engage in confrontation; now groups make some of their demands through formal political channels. The shift in political culture, however, has only just begun: grassroots groups continue to rely on the oppositional techniques they developed centuries before the LPP. It is still common to see 50 or 100 members of a neighbourhood organization at the entrance to a municipal building demanding attention from their representatives.

Oversight committees (OCs) A frequent concern among the LPP’s authors was that resource transfer to local governments could simply 134

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‘decentralize corruption’. To avoid this, the law created oversight committees (comités de vigilancia – OCs) of between three and ten members drawn from the leadership of GTOs. With veto power over municipal budgets and financial reports, they serve both to ensure that funds are well spent and to prevent local elites from capturing the new resources. While not authorized to audit municipal books, the OCs should guarantee that municipal spending is equitably distributed and that at least 85 per cent is spent on new construction rather than operating costs or maintenance. When problems arise, OCs file a complaint which can result in the freezing of municipal accounts, a fairly common occurrence. In 1995, only sixty OCs were operating, forcing the national government to declare that funds would be cut to non-complying municipalities. Two hundred and fifty-one OCs formed in two weeks, hardly the sign of a well conceived and organized oversight mechanism (Ayo 2003a). A 2003 USAID/Bolivia study described the OCs as demonstrating ‘a mediocre performance due to resource scarcity, lack of technical expertise, a tendency to concentrate tasks onto the OC President, or over-adherence to central political power’ (DDCP 2003). Additional government funds have alleviated some of these difficulties, but this has created enormous dependency, almost turning OCs into state agencies (ibid.). Antezana (2003) argues that the entire OC structure is doomed to failre as it is an outside imposition rather than a mechanism developed independently by community organizations. In the Chapare, where five municipalities controlled by coca growers are generally recognized as among the best in the country, almost all observers agree that the OCs fail to provide independent oversight because one political party (MAS) controls all but one of the municipal seats. They also note that OC members are often financially dependent on the municipality, and many grassroots representatives lack the necessary skills to fulfil their functions (Antezana 2003; Ayo 2003b; Hoffman 2003). Instead, in these municipalities, campesino unions serve the function of the OC. Because union leadership chooses both the mayor and the president of the OC, some observers see them as co-opted, but note that a reasonable degree of union democracy does ensure transparency. However, the logic of the union’s role and a budgetary oversight role are very different, although the actors may not always be cognisant of the difference (Castro 2003).

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Non-governmental organizations (NGOs) NGOs played a central role in LPP implementation, providing important technical advice to the newly formed municipalities in preparing and administering their plans. Generally, where NGOs had long-standing, successful relationships, they served a constructive role in training and empowering local participation. As funders increasingly directed resources through the municipalities, NGOs lost direct institutional support and found themselves in competition for project funds. In response, some NGOs have become consultants who sell services to municipal governments (Bebbington 1997). This profoundly affected them: whereas before the LPP, despite their dependence on international financing, NGOs still could negotiate a shared agenda, afterwards, they found themselves as government subcontractors. Municipalities with active NGOs have generally fared much better under the LPP than those without them. In Uncia, for example, CIPE, an NGO working in the region for over twenty years, won the contract to write the Municipal Development Plan. The thorough planning undertaken by CIPE educated communities about their rights and empowered them to confront corrupt local officials. Other municipalities often cited as successful examples of the LPP, such as Mizque or Pucarani, also greatly benefited from ongoing NGO support (Gannitsos 1998; de la Fuente 2001). In some cases, however, where NGOs have worked in one area for years, municipal governments remain overly dependent on them. Partially, this is because NGOs can pay wages high enough to retain professional personnel, who typically maintain a primary residence in the nearest urban centre and commute to rural areas. In other cases, hastily formed NGO consultancies worked in communities where they were unknown. Municipalities with strong NGOs and weak local organizations offer particularly challenging environments due to the slow pace of building grassroots administrative and decision-making capacity. The tendency is for even the best-intentioned NGOs to dominate the process. At an extreme, the NGO can fall into the role of a new patron for campesinos, replicating the previous subservient relationships they had with landowners under the semi-feudal hacienda system (Kohl 1991). The best of the NGOs, as the case of CIPE shows, have nurtured local leadership and continued the supporting role they have long played, enabling local grassroots organizations to take advantage of the new resources (Kohl 2003a). However, many other NGOs fit the 136

criticism made by Arellano-López and Petras (1994: 567) that they have ‘usurped political space that once belonged to grassroots organizations’ by employing much of the same discourse as social movements. Their assumption of leadership has undermined political movements that oppose neoliberal policies by focusing their target populations on small-scale, local improvements, rather than addressing the structural issues that social movements often confront. Impacts of the LPP

Government efficiency and planning Proponents of administrative

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reform often argue that decentralization leads to a reduction in the size and the cost of government as well as to improved efficiency (Rondinelli et al. 1989; Oyugi 2000: 5–6). In Bolivia, the overall size of the government has actually increased since the LPP as municipalities hire staff and begin to develop local bureaucracies. In fact between 1994 and 1996, decentralization created 30,000 new jobs, twice the number eliminated within the national government’s administration (MDH-SNPP 1996a: 119–22).7 The LPP sought to limit the government’s economic role by reconfiguring and circumscribing its responsibilities. By limiting how resources can be spent, the LPP overlooked the fact that infrastructure investments inevitably bring increases in maintenance and administrative costs. In the country’s largest cities with proven capacity to establish property tax rolls and collect substantial transfer or value-added taxes, this has had little effect. Increased maintenance costs, however, quickly outstrip the resources of small municipalities. Although related legislation allowed municipalities to raise local revenue through property, vehicle and transfer taxes, most rural municipalities have neither the infrastructure nor the skills to put tax systems in place. This has undermined one of the indirect goals of the LPP: to create a new class of ‘citizen taxpayers’. Early critics of the LPP pointed out that perhaps its greatest impact would be to create a local bureaucracy whose principal role was simply to collect taxes, but in fact most municipalities have lagged significantly in developing this capacity. The creation of a local bureaucratic apparatus has two significant implications. First, access to local revenues is subject to the internalization of certain standardized and westernized notions of development and government procedures. Potentially dissenting voices are channelled into this process and thereby controlled, as they must use the language

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and tools of dominant groups, gradually incorporating themselves into a formal ‘democratic’ procedure (Escobar 1995; Rose and Miller 1992). Democratic participation, then, can become focused on competition for limited local revenues. Second, as the now more powerful localized government undertakes new projects with revenue-sharing funds, it must eventually increase local tax collection to cover maintenance. This new role immediately ran up against the strongly held Bolivian resistance to all taxes, which are seen as providing income only for corrupt government officials. In December 1997, tax hikes in El Alto, the country’s third largest municipality, led to a week of violent confrontations. In February 2003, the military clashed with police who went on strike to protest new taxes. The conflict, one of the first indicators that the neoliberal hegemonic regime was collapsing, led to thirty-three deaths, hundreds of injured and two days of looting (La Razón, 15 February 2003). The decision to increase revenue-sharing for municipalities from 10 to 20 per cent wrought significant changes by 1997. Some rural municipalities, however, were worse off because of their new responsibility for roads, bridges, schools, clinics and sports facilities. This was mostly evident in smaller municipalities that generally could not afford the machinery necessary for secondary roads or flood protection levies, supporting Bolton and Farrell’s (1990) findings that decentralization can introduce inefficiencies as administrative units are fragmented.8 Revenue-sharing failed to compensate for the ability of larger, more urban municipalities to draw on their greater tax bases. This phenomenon is not limited to countries like Bolivia. Warner (2001) shows that counties in US metropolitan areas with a population of over one million raise about 50 per cent more tax revenue per capita than smaller urban and rural counties. In La Paz, the city with the greatest revenuegenerating ability, less than 20 per cent of municipal income comes from revenue-sharing funds, whereas these funds account for almost 100 per cent of income in the vast majority of municipalities throughout the country (). The problem of unequal access to resources has been recognized by international donors who have directed large social investments at the poorer municipalities (IMF and World Bank 2001). Nevertheless, sharing 20 per cent of the national budget among municipalities remains an estimable political feat. Municipalities that 138

had never received any funding at all from central government suddenly had accounts in La Paz. Javier Medina describes the initial disbelief common in rural municipalities: The mayor of one municipality in Oruro had a hard time convincing the community to do the Annual Operating Plan. No one wanted to do it because it was a lot of work and they believed nothing would come of it. So the mayor went to the bank, took out all the money, brought it back to the community to show them it was really there. Only then did they start to work together (Medina 1997a; our translation).9

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This response reflects the historic relationship between urban and rural populations, common in many low-income countries: the urban world is tied to global markets and the rural world is locally rooted in mostly marginal production (de Janvry and Garramon 1997; Lipton 1977). This second Bolivia, which provides the labour and much of the food needed by the first, historically has received virtually nothing in return. A survey of the municipal plans conducted by the National Secretariat of Popular Participation (SNPP) identified fifteen principal planning problems (VMPPFM 1998b). Some resulted from a lack of coordination between municipal, departmental and national organizations. A second SNPP study found that in 80 per cent of the municipalities, the OCs did take part in writing the five-year plans (MDPs) (VMPPFM 1998a). In half of the municipalities, neither the OCs nor the GTOs contributed to the annual operating plans. Community organizations or unions in these municipalities were typically weak and lacked the capacity to wrest power away from local elites and political parties. Instead, municipal budgets and operating plans were formulated by the municipal council or the mayor.10 In practice, only 33 per cent of the time do AOPs reflect the long-term planning represented by the five-year MDPs (Antezana 2003; DDCP 2003). In almost all cases studied, inadequate provisions were made to meet the needs of women and indigenous groups. Less than one per cent of funds go to gender-related projects, almost all of which are directed to a mother–child health programme (Arnold 2005). Limited administrative capacity reduces the effectiveness of the LPP and has led the World Bank, the United Nations, the United States, the Netherlands and Germany to fund projects, mostly directed by NGOs and consultants, to train qualified professional administrative staff (USAID 2002). These programmes have had limited success in

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improving administration, bookkeeping, and personnel and project management. As one NGO trainer explained: ‘a few workshops over one year isn’t enough to turn a public official into an accountant, something that takes five years in university’ (Valdez 1997). The gap has led to the creation of a number of masters programmes in public administration, the most conservative and prestigious being the ‘Harvard program’ at the Catholic University of La Paz. This programme, associated with a top-ranked US university, demonstrates clearly how neoliberal hegemony is constructed. The high status attributed to the Harvard brand sanctifies its approach to public policy and produces a managerial class with the ‘right’ training. Not only does it train professionals with a background in US-style public policy analysis, but its high cost also serves to select students from uppermiddle-class families or from those who already hold government jobs. Students who do well are those willing to apply the premises of neoliberal economics to public policy. Even when individual workers in small municipalities do gain necessary administrative skills, this rarely translates into fully competent municipal administrative teams. In common with many low-income countries, public administration in Bolivia is frequently more political than professional. Municipal employees, often hired on the basis of family or party connections, change with each election and provide little administrative continuity. Outgoing employees usually do little to ensure a smooth administrative transition for their political rivals. Newly elected officials commonly ‘enter bare offices, stripped of all records’ (Peralta 1997). Another problem comes from the brain drain, a chronic problem in economically depressed areas, where the training programmes in administration may provide an individual with the skills needed to find a job in a city. Finally, many municipalities lack the basic physical infrastructure to run an office. Some municipalities have ‘no filing cabinets, bookshelves and keep the records in boxes in the corner’ (Valdez 1997). Others are without electricity, a prerequisite for keeping computer records. In practice this results in small municipalities having offices in departmental capitals and mayors spend considerable time in their urban offices, replicating the patterns of rural elites of previous generations. Many of these problems are to be expected as more than 250 of the country’s 327 municipalities are new.11 The creation of municipal140

ities has outstripped the training of professional public servants and few grasp that introducing new forms of local government should be considered a generational rather than a three-year project.

Development While economic development was not a primary LPP goal, it was commonly believed that improving rural infrastructure would lead to economic growth. Some argue that in a country as poor as Bolivia, the municipality should play an explicit economic role as a ‘productive municipality’ (Antezana 2003; Tellez, personal communication, 2005). Others reject this as impractical or impossible, given the limited funds at the disposition of municipalities, amounts which have declined since 1998 (Hoffman 2003). Ayo (2003a) argues that municipalities can not effectively promote economic development as they lack integrated relationships with the private sector.12 In general, projects attempting to integrate economic and municipal development have not had much success. Javier Medina says that the economic limits of the LPP can easily be understood in light of the failure of many of the economic development projects of both multilateral institutions as well as NGOs over the past decades. The language of the LPP was clear. We said that we wanted to improve the quality of life – we never supposed that LPP was an economic development project … Of course, there was a group – many of them from the NGO sector – that really believed that popular participation should also meet economic development goals, but to date they don’t have much to show for their efforts. (Medina 2003; our translation)

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Project evaluations generally agree. Anecdotal accounts of nineteen municipalities supported by German development aid reported few or no benefits resulting from combining the two agendas. A review of a multiyear project in nine municipalities supported by the Swiss development agency COSUDE, in collaboration with the Vice-Ministry of Rural Development, reported more ‘lessons’ than ‘successes’.13 Typically, municipal development requires that public resources be directed to promote private economic development. This can be difficult to achieve in poor municipalities as representatives of municipal governments may refuse, with good reason, to direct subsidies for economic development to the most privileged community members who own businesses.14 In other areas the underlying reasons for the historic lack of economic development – relative isolation, minuscule

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local markets and inadequate basic infrastructure – make economic development extremely difficult. In the few cases identified as successful, resources from government, NGO and bilateral programmes were employed, not just those of the municipality. The intense support required does not bode well for the model’s wider replication.

Political accountability In Bolivia, as in other parts of Latin America, clientelistic politics and payoffs are the norm in both the public and private sectors and have significant economic impact. A 1997 study by the College of Bolivian Economists estimated that corruption reduced GDP growth by 40 per cent (Los Tiempos 1997). In such an environment, beautifully crafted participatory plans are often elaborated only to be ignored by city hall. The criticism that the Law of Popular Participation would serve to ‘decentralize corruption’ (Booth et al. 1996: 26–30; Molina 1994) has proven true. Between 1995 and 1999, about 120 mayors were replaced every year, the majority after votes of censure by the municipal council (DDCP 2003). In interviews with municipal officials, commonly accepted figures for kickbacks ranged from 10 to 25 per cent. Accounting irregularities remain a significant problem. In May 2003, twenty-five municipalities had their accounts frozen by the national treasury and another 185 had failed to file one or more required financial reports (La Razón, 30 May 2003). In some cases outgoing mayors refused to provide the necessary receipts and account statements. Richard Beckett (personal communication, 2005), who has installed water and power systems in over fifty rural municipalities throughout the country, suggests that some mayors would rather have municipal accounts frozen than face criminal corruption charges. He also notes that, given reporting requirements, in many situations, it is difficult to differentiate between corruption and incompetence. While the LPP cannot be blamed for the country’s endemic corruption, neither has it been able to affect an institutional culture in which kickbacks are an accepted part of government business. Signs of a growing intolerance for corruption are mounting. In one municipality in Potosí, for example, the council removed four mayors from office between 1995 and 1999. A former member of the OC commented: ‘It sounds bad, but actually we keep pressure on them and the mayors are learning. Each time we kick someone out for corruption, the next one steals a little less.’ In this context, perhaps the removal 142

of one-third of the country’s mayors each year can be construed as a sign of progress. Yet, in some cases, the intolerance of corruption has had extreme consequences. On 14 June 2004, the mutilated body of Benjamín Altamirano, the mayor of Ayo Ayo, an indigenous altiplano community, was found in the town plaza after he was repeatedly accused of corruption (La Razón, 16 June 2004). In areas without NGO involvement, local elites have frequently successfully co-opted popular participation (Blanes et al. 2000), much as they have done repeatedly with reforms since the 1952 revolution (Kelley and Klein 1981; Healy 1983). For example, in Rurrenabaque, the expressed needs of rural communities for drinking water systems, schools and health clinics have been largely ignored by municipal authorities. Instead, the lion’s share of investment has gone to provide services and infrastructure for the urban centre of Rurrenabaque. Recent mayors have treated NGOs working in rural communities with suspicion, going as far as attempting to ban one group from working in the municipality (Domingo 1999). This began to change after one mayor was removed from office for corruption, and, in much the same fashion as in Uncia, residents, educated by NGOs, made increasingly vocal demands for their share of resources. Although NGOs must negotiate difficult terrain, in some cases they are more likely than government to recognize that western public administration and governance styles are embedded within cultural as well as technical systems (Rose and Miller 1992). This is a crucial consideration in a country controlled by the urban descendants of Spanish elites, but where three-quarters of the rural population are indigenous. In this setting, NGOs have often pushed the government to a greater recognition of indigenous rights and cultural practices.

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The LPP, electoral politics and social movements Between 1995 and 1999, the LPP reoriented the direction of much popular resistance to neoliberal programmes, through allocating enough resources to municipalities to attract the attention of local populations while simultaneously redefining the spaces for opposition. Before 1985, resistance to economic restructuring and austerity plans was national and classbased. Due to structural adjustment’s weakening of the COB, by 1995 labour actions primarily followed sectoral lines. Such fragmentation rendered the union movement largely ineffectual. In its place, rural social movements, most notably coca growers in the Chapare region

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east of Cochabamba, became the most important opposition force in country.15 As the national labour movement disintegrated and the LPP offered a new space for political action, the focus turned to local processes and opposition centred on grassroots territorial organizations and municipal struggles. During the first five years of the LPP, indigenous groups and ayllus that had commanded attention through national protests generally did not register the same gains within municipal borders where they confronted entrenched local elites. There were, however, some important exceptions where grassroots groups successfully instituted a municipal agenda that in turn galvanized national movements: the coca producers, the highland Aymara and, to a lesser degree, the Guaraní, Bolivia’s third largest indigenous group. Their ability to reach beyond municipal boundaries to build political alliances along ethnic lines formed the basis for broader formal and contentious political activity. When the GTOs began demanding resources, the LPP became a site for confrontation, as the widespread tensions that exist in rural Bolivia between townspeople and rural indigenous people surfaced (Zorn 1997; Medeiros 2001; Farthing and Kohl 2005). At the extreme, in some parts of the country, social relations involving unpaid service by campesinos for townspeople had continued well into the 1980s, dramatically demonstrating that their second-class status remains ubiquitous. Because of the LPP, local power relations are being contested in much of Bolivia (Ejdesgaard Jeppesen 2002). With the introduction of municipal elections, popular movements gained entry to formal political spaces for the first time. Gray Molina argues that the LPP fundamentally changed the political landscape: ‘The LPP … restructured the rules of the game for political intermediation and policy making in rural areas. State patronage and political clientelism, which had relied on national to local networks of redistribution and reciprocity, increasingly competed with newly established local networks’ (Gray Molina 2003: 351). In 1995, the first year that elections were held in all of Bolivia’s 311 municipalities, campesino and indigenous representatives were elected to 29 per cent of seats (464 of the 1,624) in 200 municipalities (MDH-SNPP 1996c). But most represented traditional rather than populist parties. However, because so many parties contested the 1995 municipal elections, competition increased, making it attractive for 144

smaller parties without a national organization to open their doors to indigenous and rural people. This encouraged a steady increase in local electoral participation, especially among rural voters, and a process that led to party politics complementing union or ayllu politics at the local level (Gray Molina 2003). The success of some of the smaller parties, especially the Assembly for [Indigenous] Peoples’ Sovereignty (Asamblea de Soberanía de los Pueblos – ASP) and the MBL, in winning seats in rural municipalities alerted the traditional parties to the necessity of a stronger rural presence. The trend continued in 1999 as the MAS (the successor to the ASP), led by Evo Morales, cemented its hold on the Chapare and won a total of seventy-nine councillors in seven of the country’s nine departments, although ‘indigenous’ parties together won less than 5 per cent of the vote (Van Cott 2003: 763). Conclusions

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Although the LPP was widely touted as a revolutionary change equal to that of the 1952 revolution, the law was fundamentally a reform measure, incapable of changing the basic material conditions of the majority of Bolivians. Medeiros (2001) argues that while the law provided increased spaces for campesino participation, these spaces are largely controlled by development actors – such as NGOs or government officials – through a discourse in which the fundamental issues of land tenure and agricultural prices are ignored in favour of a focus on purely de-politicized technical problems and solutions. As a result of the LPP, the central state actually extended rather than reduced its control over national territory, as government presence was often felt in remote rural areas for the first time. Miró (2000) reports that in the province of Mizque, Cochabamba, popular participation was far closer to a cooptation/clientilistic model than to democratic empowerment. As Medeiros (2001: 413) points out: ‘in the movement of shrinking its responsibilities and enlarging civil society participation, the state ended up enlarging the sphere of its hegemonic control’ through expanding its geographic reach into rural areas. The LPP was also successful over the short term by channelling opposition political attention to the local arena and in defining both the terms and the content of how citizens participate in local development. Similar to the 1952 revolution that failed to completely transform the country, yet offered more freedom and power to the majority post-1952,

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the LPP, despite its mixed results and initial setbacks, has increased democratic practices and empowered rural and indigenous groups. Clearly, as seen by the myriad problems in financial management and continued corruption, just as Oyugi (2000) observed in Africa, the decentralization programme embodied in the LPP has yet to create transparent, efficient local governments. Early supporters envisioned that the LPP would strengthen rural municipalities through NGO collaboration. Where local organizations are strong and backed by technically competent NGOs supportive of grassroots leadership, the LPP has, to a limited degree, functioned as hoped. But much of the country possesses neither well articulated grassroots organizations nor proficient NGOs, and, as a result, the basic conditions necessary for the LPP to transform rural municipalities, even in a limited fashion, have yet to be met. Where well organized local unions took control of the municipality, however, the structural limits of how much the LPP could achieve quickly became apparent. Nowhere does the law address the more generalized problems of land tenure and economic development. This failure has led some observers to lament that the LPP’s legacy will be one of lost opportunity (Arnold 2005). A fundamental mismatch exists between the goals of the LPP and its resources, which peaked at US $31 per capita in 1998. Whether small municipalities will be able to maintain the infrastructure built with revenue-sharing funds remains to be seen. In this sense, the LPP has indeed ‘decentralized poverty’ as it has shifted the responsibility for the lack of basic infrastructure from the central to the local government. Nevertheless, the LPP brought government resources to large areas of the country for the first time. Perhaps more significant than these limited resources, however, are the ways that it has affected the expectations that many Bolivians have of their government. The LPP and the accompanying decentralization have turned municipal electoral politics into a proving ground for a grassroots democratic opposition to the traditional urban political parties. Much like the Brazilian Workers’ Party, which built on electoral and administrative successes at municipal and state levels, Bolivian opposition movements, centred on the coca producers, consolidated a hold on a small territory before looking outwards to form alliances. Building on initial successes in 1995 and 1999, the opposition movements expressed growing self-assurance in proposing a counter-hegemonic agenda that united indigenous and 146

nationalist anti-neoliberal discourses. In the following chapter we show how these more articulate social movements, led by a heterogeneous coalition of indigenous people, labour movements, impoverished urban residents and coca producers came together to challenge an increasingly fragmented neoliberal hegemony. Notes 1 As the majority of the population lived outside established municipalities, rural areas were administered by officials appointed at the departmental level. Changes in the electoral law meant that for the first time candidates in the December 2004 municipal elections could be listed on the ballot independent of national political parties. While this has permitted greater indigenous participation, it has also facilitated the rise of local caudillos (political bosses). 2 This figure is commonly cited to show the significance of the LPP in redistributing resources to municipalities but ignores the fact that the RDCs financed many of the public works throughout the country’s smaller municipalities. 3 These plans are alternatively called Plan de Acción Operativa (Annual Action Plan) or Programa de Operaciones Anuales (Annual Operating Programme). 4 See Platt (1982, 1999) and Albó et al. (1990) for discussions of these and other indigenous organizational forms. 5 While electoral laws call for including higher percentages of women, and indeed more women appear on ballots, they do not specify how women are to be ranked on electoral lists; of key importance in determining who actually enters office in a proportional electoral system. The number of women mayors and municipal council presidents declined in the 2004 election. 6 Campesinos and indigenous peoples became adept during colonial and neo-colonial governments at adopting practical strategies to deal with new institutions (Rivera and Equipo THOA 1992). This has included asserting the centrality of their ethnicity when, in certain cases, they can receive benefits from programmes available exclusively to indigenous communities (Calla, 1997, personal communication, Rivera and Equipo THOA 1992). In practice, this has meant that in some areas ayllus rather than unions are recognized as GTOs. 7 Some of the jobs created have been short-term jobs tied to municipally funded construction projects.

9 This story is part of LPP folklore. We have heard it repeated (and seen it cited) many times from different sources but have not been able to verify either the name of the municipality or of the mayor.

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8 Proponents of decentralization often ignore questions of scale, failing to differentiate between devolving control of a federal programme to a state like California, with a population of 30 million, and decentralizing to a municipality with a population of 5,000.

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10 In a later study, VMPPFM researchers found that, in some cases, members of an OC were replaced just before a plan had to be approved. As funding depended on their signatures, new members of the OC, under pressure from the mayor or the council, signed off on a plan or approved a budget that they had no role in either developing or monitoring. 11 After the LPP was passed in 1994, the country had 311 municipalities. By December 2004 that number increased to 327 as municipalities divided, usually because of demands by minority or indigenous groups for their own municipal infrastructure, often in an effort to acquire more government resources. 12 Another concern is that, since 1994, Bolivia’s municipalities have been assuming debt to cover recurrent expenses. 13 The PADER-COSUDE project has done an admirable job of documenting their efforts. See their website, (accessed 22 June 2003) for details. 14 For example, in one municipality efforts to promote tourist development were proposed by a mayor whose family owned two local hotels. His administration was accused of a rather transparent conflict of interest and removed from office amid accusations of fraud. 15 The constant repression, associated with the US-financed drug war, which fell most heavily on campesinos combined with false economic development promises, forged them into a powerful political movement (Farthing and Kohl 2001, 2005).

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7 | The neoliberal wars: water, taxes and gas

Between the end of 1999 and October 2003, Bolivia reeled from one economic and political crisis to another, as the neoliberal hegemony unravelled. Four factors made for a perfect economic storm: the inability of two successive governments to generate jobs and significant economic growth; an aggressive coca eradication programme that destroyed the regional economy of Cochabamba; the collapse of the Argentine economy, eliminating Bolivia’s largest labour market and, as important, terminating workers’ remittances; and the decline in government revenue occasioned by privatization of the state oil company. While social unrest accompanied each crisis, complex political configurations permitted Bolivia to mount a growing challenge to basic neoliberal policies. By 1999 a new constellation of oppositional social movements had emerged: three major ‘indigenous’ groups from across the country; the teacher’s union which became the backbone of the much diminished Bolivian Workers’ Confederation (the Confederacíon Obrera Boliviana – COB), in its heyday arguably the strongest independent labour movement in the world; urban social movements organized round both ‘tactical’ and ‘strategic’ claims (Moser 1989) in the nation’s largest cities; and ad hoc committees that arose to defend the rights of Bolivians to water and natural gas. In addition, the 1997 adoption of district elections for one-half of the members of the House of Deputies opened the formal political process to well organized indigenous groups which elected their own representatives for the first time. By 2002, the Movement Towards Socialism (Movimiento al Socialismo – MAS), formed by indigenous coca growers, had grown to become the country’s largest opposition political party, controlling almost 25 per cent of the national Congress. In this chapter, we trace the burgeoning strength of these diverse social and political movements, which together share a common rejection of neoliberal policies. Given the broad spectrum of their political perspectives, organizing platforms and strategies, their ability to transcend differences and form national coalitions is testimony to Bolivians’ remarkable capacity to draw on 500 years of struggle to construct a

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resistance narrative that resonates through each succeeding period of heightened conflict. At the same time, the frequent focus around a single strong male leader, or caudillo, common throughout Latin America, led to competition, infighting and a fragmented opposition that also prevented them from achieving decisive political control of the country. The setting

In 1997, former dictator General Hugo Banzer won the national election with 22.3 per cent of the popular vote, at the head of a weak coalition that became the fourth successive government to embrace neoliberal policies.1 Given the often brutal dictatorship he had headed from 1971 to 1978, his win was a puzzle to many outside Bolivia, but he drew on the same support that had kept him in power during the relative economic prosperity of two decades earlier.2 Rather than a sudden surge of popularity, Banzer’s 1997 victory reflects the capture of around 33 per cent of the vote by two new populist parties. They largely drew voters away from the other two traditional parties, the MNR and the MIR. Lacking a coherent economic strategy, Banzer pushed two policy pillars: micro-enterprise development and coca eradication. Both reflected the loss not just of state sovereignty but also of the ability to imagine a proactive role for a neoliberal government – in stark contrast to Goni’s ambitious, if flawed, capitalization programme. During the 1990s, neoliberal policy-makers, convinced by the work of Peruvian economist Hernando de Soto (1989), promoted micro-enterprise development programmes. They argued that overzealous regulatory states squashed people’s innate entrepreneurial spirit. Banzer sought to institutionalize micro-credit support, in an attempt to turn street sellers and artisans in family workshops into the prime movers behind economic development. In Bolivia, considered one of the world’s most bureaucratic countries, reducing paperwork and providing small business assistance make a great deal of sense but hardly constitute a viable macro-economic development strategy. Instead, they indicate a state fundamentally incapable of envisioning policies to absorb the country’s labour force (Arbona 2003). Critics pointed out that while microenterprises offer a survival strategy in an urban economy with few jobs, they could never be the basis for a modern, productive economy. Soon after taking office, Banzer succumbed to the pressure the 150

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United States had constantly applied since the mid-1980s to step up coca eradication efforts. In 1998, he promised the US Embassy that, by the end of his presidency, he would use Bolivia’s military to destroy all coca beyond the 30,000 acres in the Yungas region east of La Paz deemed ‘legal’ for traditional Andean daily ritual and medicinal use.3 As Banzer’s military background meant his administration tended to rely on a firm hand to generate ‘consent’, this meant an aggressive and often violent coca eradication programme, known as Coca Zero. This policy fostered low-intensity conflict, directed at the roughly 45,000 coca grower families living in the Chapare, the semi-tropical lowland east of the city of Cochabamba. The coca growers had successfully resisted previous attempts at military incursion but, despite continual confrontations, could not force the Banzer administration to back down. The ensuing repression brought widespread human rights violations and the successful forced eradication virtually destroyed the Cochabamba regional economy, with effects that rippled through the entire country (Ledebur 2002). Unfortunately for Banzer, the timing could not have been worse. In 1999, Argentina went into economic collapse, and many of the 1.5 million Bolivians living there (of a total population now numbering almost 9 million), were no longer able to send home the remittances that sustained their communities. Many headed home to a country battered by Coca Zero. Banzer’s pleas to the United States for support to wean the country’s export economy off coca-cocaine revenues were met with vague and unsubstantial responses and, by 2001, extensive replanting was underway (Kohl and Farthing 2001). The national economic crisis – and Banzer’s desperate need for increased foreign assistance – deepened due to the loss of government oil and gas revenues because of the sale of the state hydrocarbons company (YPFB) to multinationals (Villegas Quiroga 2002). The reduced income provided by taxes paid by the newly privatized firms meant less revenue-sharing funds slated for the municipalities. This drop slowed investment in the largely rural municipalities, which in turn contributed to growing frustration with the central government. Beginning in the late 1990s, the international debt to Gross Domestic Product (GDP) ratio began to rise again, as did Bolivia’s significant interest payments on its debt; the $544 million paid in 1982 equalled that paid in 2001, although debt servicing had dropped to $288 million in 1992 (World Bank 2004b: 51). The debt continued its upward climb

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despite repeated debt relief in 1986 and 1996 that reduced the roughly US $3.3 billion 1985 debt by half (Escóbar de Pabón 2002: 6). From 1996, Bolivia also received debt relief (the first recipient outside Africa) under HIPC I and II,4 totalling 30 per cent of the outstanding amount (ibid.: 12). Recipient countries were required to compose detailed Poverty Reduction Strategy Papers (PRSP) and spend HIPC funds only on IFI-approved projects. The sections of these PRSPs that focused on stimulating the economy favoured the private (and particularly foreign) sector. In 1999, debt relief funds provided 83 per cent of government social programme financing (ibid.: 8). Economist Silvia Escóbar de Pabón observes that ‘the annual reduction in public debt servicing achieved with HIPC I is less than the transfer of resources abroad caused by the deterioration of the terms of trade (higher prices for imports and lower prices for exports)’ (ibid.: 9; our translation). By this time, the World Bank and other IFIs began modifying their discourse, in no small part in response to mounting international criticism by activists, NGOs, church groups, academics and journalists. The new orientation included the specific goal of poverty reduction in combination with the standard neoliberal package. Peet argues that, in practice, the IFIs ‘have simply repackaged the structural adjustment policies of the past into the new poverty reduction programs’ (2003: 100). The Bank’s new rhetoric, Pithouse (2003) contends, does not represent real change as it describes impoverished people as political, passive and largely responsible for their circumstances. In Bolivia, the World Bank, in particular among the IFIs, has engaged in a ‘mea culpa’ process belatedly recognizing that its macro-economic orientation has failed and that much of the social unrest since 1999 could have been avoided if specific poverty reduction initiatives were incorporated earlier. It acknowledged that ‘income equality increased over the 1990s, making growth translate into even less poverty reduction’ (World Bank 2004b: 6).5 As the economic crisis deepened, social upheaval expanded exponentially. In a pattern repeated all over Latin America, other social groups increasingly supplanted the labour unions, whose resistance had weakened steadily since 1985. Indigenous people from the lowlands, coca producers, Quechuas and Aymaras from the valleys and highlands formed ad hoc groups organized around specific issues from their different but overlapping perspectives. The growing presences of indigenous people and displaced miners in the cities, for example, 152

affected the form and functioning of neighbourhood organizations. Similar synergies were evident in the newly formed political parties of the MAS and the MIP. Two large indigenous movements played a key role, maintaining constant pressure on the government. These were coca growers from the semi-tropical lowlands east of Cochabamba and La Paz as well as Aymara campesinos from the highland plateau surrounding La Paz. Their challenges to neoliberal ideology focused on the predatory privatization of resources and basic services, forced the eradication of coca, and increasing investments throughout rural Bolivia. They formed broad coalitions with urban social movements, sometimes working in coordination, but just as often mobilizing independently and sometimes competitively. By freely combining indigenous, nationalist and anti-neoliberal discourses, they often incorporated the demands of other groups to broaden their base of support or increase their legitimacy. Reformulating opposition in the 1990s

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From the 1950s until the mid-1980s, an explicitly class-based labour movement, centred on the COB, furnished the traditional opposition to government.6 Even with tremendous organizational strength across Bolivian society, the COB’s greatest success was in opposition. The COB’s ability to capitalize effectively on its political opportunities was less than optimal, as its inability to create an effective coalition with the social democratic UDP in 1982 demonstrates. The rigidity of its internal structure and the Marxist orthodoxy of its almost entirely male leadership rendered it incapable of successfully navigating the 1985 structural adjustment programme (SAP). Traditionally led by the miners, long considered the vanguard of the working class by the Bolivian left, the COB’s institutional structure prevented its adjustment to the changed dynamics (Dávila 1991). As it lacked the flexibility needed to promote new leadership from stronger labour sectors, such as the largely female teachers’ union as well as campesinos, its influence progressively weakened. The growth of an increasingly heterogeneous, informal and female workforce on the one hand, and the crisis of the left worldwide after the collapse of communism in the USSR in 1989 on the other, hastened the COB’s decline (Rice 2003). Even this debilitated COB, however, remained capable of mobilizing considerable national and regional support, extending the confron-

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tational political style that has characterized Bolivia since its founding. Efforts to shift protest through neoliberal decentralization measures to formal channels had limited impact, and political parties, although increased in importance, had not succeeded in becoming effective mechanisms of political mediation (Garcia Linera 2004). Weakening class-based struggle combined with the crisis of the political left to create a void that was steadily filled by other social actors – many of whom lacked well established institutionalized organizational forms – including campesino and indigenous organizations, urban social movements and universities (Rice 2003). Like social movements elsewhere, a strong sense of identity was central to making these movements viable and coherent (Morris and Langman 2002). While these groups increasingly assumed the vanguard of social resistance, each followed its own agenda, organizing strategy and rationale for action although at times they united in what appeared unlikely coalitions. For example, in 2000, coca producers and highland Aymara joined forces during the water war with the rural and urban population of Cochabamba. At other times, competition meant that natural allies failed to support each other. These rivalries are no less fierce than those in the formal political sector as the ongoing disputes over resources and legitimacy between indigenous leaders Evo Morales and Felipe Quispe illustrate (Albó 2002).

Indigenous movements Bolivia’s indigenous social movements are recognized as the most radical and powerful in the Americas (de Cordoba 2004). With over thirty-five cultures, ranging from a handful of semi-nomadic Yuki in the eastern lowlands to the powerful highland Aymara who have fiercely defended their culture for over 500 years, the country’s complex indigenous cultures represent a wide variety of socio-economic positions in (increasingly) urban as well as rural settings (Albó et al. 1990). The recent resurgence of indigenous identity as an organizing strategy attests to how cultural cohesion can function as an important source of resistance (Wise et al. 2003). This identity builds on a resurgent indigenous rather than Bolivian nationalism, as the first name chosen by coca growers for their political party, Asamblea para la Soberanía de los Pueblos (Assembly for [Indigenous] Peoples’ Sovereignty – ASP) demonstrates (Tapia 2004). Indigenous identity is fluid in modern Bolivia and has long been a social rather than a racial category. In remote areas, male campesinos 154

often abandoned their indigenous clothing when they went to market towns because they would be treated better if they presented themselves as less ‘indian’, demonstrating the multiple dimensions of ethnic identity, which go beyond skin colour or racial characteristics (Zorn 1997, 2004). Historically, upward mobility was achieved by moving from rural to urban areas and, in the process, assimilating into mestizo society. This traditional progression is undergoing a metamorphosis, mirroring the powerful resurgence of indigenous identity. According to the 2001 census, 62 per cent of the population over fifteen years old self-identified as indigenous (INE 2004) (see Table 7.1). Seventy-eight per cent of the rural population and 53 per cent of the urban population claim indigenous ethnicity.7 The urban indigenous population is concentrated in the poor neighbourhoods and the largely indigenous city of El Alto. In some urban areas, repeating what has occurred throughout Bolivia’s history, different indigenous groups have started to blend together: in Cochabamba, while some neighbourhoods are almost entirely Quechua or Aymara, in others, people speak both languages and claim dual identity. table 7.1 Self-identification as member of indigenous group (over 15 years) Pop

Bolivia Per cent Urban Per cent Rural Per cent

Population Quechua over 15 (000s) 5,065 100 3,269 65 1,796 35

Aymara

Other native

None

1,278 25 762 60 516 40

309 6 194 63 115 37

1,922 38 1,522 79 400 21

1,556 31 790 51 765 49

Source: , Census 2001

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Bolivia’s first post-1985 social movement specifically focused on indigenous citizenship rights arose from an unexpected quarter – the plethora of indigenous groups in the eastern lowlands, totalling over 300,000 people, roughly equal to the indigenous population of Brazil.8 Almost two-thirds of them live in the southern lowland department of Santa Cruz and most of the remainder in the Amazon department of Beni. Their first organization, the Bolivian Confederation of Indigenous

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Peoples (Confederación de Pueblos Indígenas de Bolivia – CIDOB), formed in Santa Cruz in 1981, and while it nominally incorporated northern indigenous peoples, it was concentrated among the Guaraní in the south. In the late 1980s, five northern groups consolidated the Beni Indigenous Peoples’ Central (Central de Pueblos Indígenas del Beni – CPIB) and, in July 1990, this group embarked on an ambitious 600-kilometre March for Dignity and Territory (La Marcha por la Dignidad y el Territorio). The marchers demanded formal land rights as well as an end to the constant appropriation of their traditional territory by outsiders; common government practice was to grant logging concessions without consulting the affected indigenous groups. Three hundred people, many of whom were living in a modern form of debt bondage on large ranches and estates, marched to La Paz and captured the urban public imagination, particularly as their demands required no concessions by Bolivians outside the Beni (Bolivia Bulletin 1987). In an historic encounter, Aymara and Quechua leaders from the CSTUCB welcomed the march at the Andean pass into La Paz at 5,000 metres above sea level; in the city itself, residents lined the streets to cheer their arrival. With popular support running high, President Paz Zamora accepted most of the demands, provoking the immediate ire of logging and cattle ranchers in the Beni, who largely refused to comply. With little enforcement, the situation of indigenous lowland peoples did not improve as much as the march’s initial success suggested it might (Lijerón Casanovas 1993).

Coca producers Much of the 1990s’ resistance was headed by coca producers (cocaleros) from Cochabamba’s Chapare region, where escalating human rights abuses and unfulfilled promises of alternative development made for an explosive situation. Numerous factors, starting with the decline of the COB, forged the coca growers into the country’s most powerful social movement. Beginning with 1960s’ colonization schemes that promised more land per family, the Chapare grew rapidly during the 1980s’ boom in northern demand for cocaine. The growers’ backgrounds were mixed: most were rural Quechuas from Cochabamba valley regions, others were Aymaras from the altiplano, displaced miners, other indigenous peoples and the urban poor who realized that the Chapare offered the possibility of making a living (Sanabria 1993). As they colonized the tropics, often without government support, the growers built strong local organizations. Like campesinos in much 156

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of Bolivia, the unions act as local government, assigning land and mediating disputes both within and between communities. Unions assessed taxes, typically in the form of labour, for the construction of schools, health clinics and community projects as the national government had virtually no presence in rural areas (Sanabria 1993). The local unions joined to form federations, and these gained even greater legitimacy when they acquired democratic control of the new Chapare municipal governments following the 1995 elections. Since then, almost without exception, Chapare mayors, council members and congressional deputies have come from the coca grower unions (Farthing and Kohl 2005).9 The coca growers’ rising strength largely consolidated in response to US insistence on coca eradication, despite extensive evidence that measures to reduce coca supply have little effect on the flow of drugs northwards. US policy, driven by a domestic agenda requiring progress in the war on drugs, has consistently favoured repression (Pettersson and Mackay 1993; Farthing 1997; Ledebur 2002). Since the late 1980s, coca growers have been pressured to replace coca in an approach called alternative development. But the poorly conceived and executed projects, funded principally by the US Agency for International Development (USAID), have been largely unsuccessful, with the coca grower ‘beneficiaries’ losing money and time planting crops from passion fruit to citrus. These shortcomings, together with the external attacks, which increased in intensity after George H. Bush announced his Andean Initiative in 1989, forged enormous solidarity and determination among the coca growers, shaping them into a national force with increasingly sophisticated leadership united under Evo Morales (Kohl and Farthing 2001; Farthing and Kohl 2005). Through 1997, subsequent Bolivian administrations effectively vacillated in their commitment to the war on drugs. The accusations of corruption linked to the drug trade date back to the 1970s with links to family members of key figures in each administration.10 Ironically, given his later role as an aggressive drug warrior, the trade grew rapidly during Banzer’s first administration in the 1970s with the complicity of military officials (Hargreaves 1992; Painter 1994). Cocaine, however, was not simply a Latin American affair: US officials have been implicated, most notoriously Oliver North in the well-documented Iran-Contra scandal of the 1980s. Jaime Paz Zamora, president from 1989 to 1993, was denied a visa to the United States rather capriciously, due to his

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suspected connections with drug traffickers. Banzer, on the other hand, had no visa problems, even though he could count a number of drug traffickers among his relatives and his property was used for drug shipments (Hargreaves 1992). But beyond these personal interests, most Bolivian leaders recognized cocaine’s significance to the national economy – for its ability to both absorb massive quantities of labour and provide substantial revenues. Banzer’s forcible eradication cost the Cochabamba economy between $150 to $500 million per year. The approximately 200,000 people who directly depend on Chapare coca cultivation responded by engaging in almost continuous protests (Ledebur 2002).

Aymara Far from the tropics, in the indigenous highlands, campesinos led by a charismatic indigenous separatist leader, Felipe Quispe, popularly known as el Mallku (the Aymara word meaning both condor and leader) tapped into the strong currents of indigenous identity and resistance. The often flamboyant Quispe has a long history of activism and was imprisoned for his role in an indigenous insurrectionary movement during the 1980s. In 1998, he was elected to lead the Confederation of Campesino Workers’ Unions of Bolivia (Confederación Sindical Unica de Trabajadores Campesinos de Bolivia – CSUTCB) as a compromise candidate, due to infighting between Evo Morales and Alejo Veliz, a Quechua leader from the Cochabamba valley (Albó 2002). Quispe has proven an adept leader and a harsh critic not just of neoliberalism but also of domination by an urban, westernized minority. Employing a creative merger of indigenous nationalist and leftist revolutionary rhetoric, he has called for a separate indigenous nation and the expulsion of the non-indigenous elites who have stolen the land and impoverished its native people (Quispe 2001). Under Quispe, campesinos mobilized round long-standing grievances, beginning with the 1996 National Institute of Agrarian Reform (INRA) Law, which aimed to establish a private land market and allows large landowners to protect their holdings by paying minimal annual taxes. Quispe (ibid.) argues that the INRA Law fails to address the land tenure issues, which date to indigenous displacement in colonial times. Quispe has also effectively mobilized campesinos to protest issues such as the 1999 Water Law, written without highland input, and the privatization of the Cochabamba water company, symbolically linking them to all that was wrong with neoliberal policies. 158

Bolivia’s resurgence of indigenous identity has also brought new life to the ayllus, the pre-Hispanic organizations that are still strong in some parts of the Bolivian Andes. In 1997, ayllus in the southern La Paz department, Oruro, and the north of Potosí, formed a new coordinating body, known as CONAMAQ, with a particular focus on land and territory. Active in all the protests since 2001, they have been particularly effective in blocking roads and organizing community leaders to march on La Paz. The incentive for CONAMAQ came in part from the NGO Workshop on Andean Oral History (Taller de Historia Oral Andina – THOA), which invested resources in recuperating indigenous traditions in the altiplano. An interesting organizational feature is that as traditional ayllu structure incorporates dual leadership of a husband and wife (chacha warmi), a leadership opportunity for women is part of CONAMAQ’s structure, something not found in other popular organizations (Garcia Linera et al. 2004). Many of the CONAMAQ ayllus strongly oppose the CSUTCB, whose union structure they feel is alien to indigenous culture; in particular, they reject political party influence within the CSUTCB, even that from indigenous parties. In November 2004, CONAMAQ signed a unity pact with other indigenous social movements including the CSUTCB, which places strong hopes in a constituent assembly as a mechanism to reinvent the country (ibid.: 2005). However, the demand to protect natural resources is close behind as Bernardo Condori, mallku of the CONAMAQ’s Cultural Heritage Commission, explained in a January 2005 interview: ‘Our fight is for land and territory, and these have to be shared, but foreign firms are used to plundering us’ (Renacer 2005).

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Urban social movements When the 1985 NEP opened the country’s borders to food imports, it severely battered peasant agriculture, accelerating rural to urban migration. The El Niño droughts and flooding of 1982–83 also propelled rapid urban growth, as did the general advantages of urban life that have encouraged urbanization around the world (Lipton 1977). Neoliberalism lent a certain shape to the new neighbourhoods, as migrants poured in from mining centres or impoverished farms, expanding informal settlements on the fringes of cities (Arbona 2003). Land speculators hurriedly created subdivisions on paper, laying out streets and lots with little regard for planning norms that required green spaces, schools and other public areas. Most of these neighbourhoods lacked water and sewerage systems.

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As they expanded and stabilized, newly formed organizations ( Juntas Vecinales – juntas) pressed the city to instal basic urban services (Goldstein 2004). The largest and most contentious of these new urban spaces is El Alto, the sprawling city on the plain above the La Paz basin, incorporated as a municipality in 1988. It expanded exponentially from 11,000 residents in 1950 to almost 700,000 by 2001 (Sandoval and Sostres 1989; Linera Garcia et al. 2004). Sixty per cent of the population is under twenty-five and 69 per cent work in the informal economy. Its fragmented and non-union workforce often retain direct ties to the countryside and hold a strong sense of indigenous identity (Arbona and Kohl 2004; Garcia Linera 2004: 79). In 1979, the Juntas Vecinales of El Alto formed a federation (FEJUVE). By 1989 there were 166 juntas in El Alto, by 2005 almost 350. The rise of these residential rather than work-based organizations could have facilitated an expanded leadership role for women, as the home and its management is women’s legitimate sphere. While women frequently participate in the juntas’ programmes and actions, the organizations’ roots in mining or peasant union structures have ensured that male leadership predominates. The FEJUVE, however, has achieved more female representation than most popular organizations; in 2004, ten women held leadership positions out of a total of twentynine, although most of these are in lesser positions. Before the 1994 Law of Popular Participation (LPP), the juntas and their presidents acted as the nexus between politicians and neighbourhood residents in the practice of clientelistic politics. During the 1980s, considerable corruption within local Juntas Vecinales in El Alto was tied to food donations (Garcia Linera et al. 2004). David Colque (1993) explains: The leadership from the junta vecinal comes from the grassroots. But they operate within a context of political parties where the power comes down from the top. So there’s a gap between the grassroots and the leaders. The result is ongoing political infighting and atomization of the group and a consequent loss of power. As well, in El Alto the junta offers an opportunity for a leader to advance if he can mobilize his base and deliver it to a political party. (Colque 1993; our translation)

By all rights, the neighbourhood organizations should have gained 160

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prominence following the LPP due to participatory planning provisions that require local oversight of resource allocation and municipal budgets. But, throughout the late 1990s, this was rarely the case, and political party influence increased. As Benjamin Caceres, President of the ‘First of May’ neighbourhood organization in El Alto and representative to the National Confederation of Neighbourhood Organizations (Confederación Nacional de Juntas Vecinales – CONAJUVE), explained in a 1997 interview: ‘We go through the steps [of participative planning] because it’s the law, but the mayor and the council do what they want with the AOP [Annual Operating Plan]. They [the municipality] still follow the old model of the mayor doing [the municipal plan] and then just presenting it for approval. There’s no real participation, only in theory’ (our translation). Juggling relationships with political parties to attain neighbourhood services or resources – a sign of their legitimacy as leaders – with their own personal political ambitions became increasingly difficult after 2000 as waves of protest spread throughout the country and a new, more important, political role for the juntas emerged. Between 1989 and 1997, two urban populist parties rose in importance, together capturing one-third of the vote in the 1997 presidential election and providing the principal opposition in Congress: Conscience of the Nation (Consciencia de la Patria – CONDEPA) led by radio personality Carlos Palenque, and the Union of Civic Solidarity (Unidad Cívica de Solidaridad – UCS), headed by beer magnate Max Fernandez. Their unexpected deaths in 1997 – one from a heart attack and the other in a plane crash – and the nature of caudillo politics built around a charismatic male leader, left a vacuum in the congressional opposition as the parties they formed declined propitiously with their deaths. This facilitated the occupation of the newly opened space by ‘anti-systemic’ actors. The struggle to establish a university in El Alto played a significant role. After dozens of demonstrations demanding an institution of higher learning in El Alto, Banzer capitulated in 2000, but promptly installed a rector associated with his political party and widely recognized as corrupt. Political party faithful were provided positions, and funds were channelled to leaders of FEJUVE and the Regional Workers’ Confederation (Confederación de Obreros Regionales – COR), established in El Alto in 1989. Students organized against the corruption, throwing out the first rector and his equally corrupt replacement. This

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mobilization inspired local neighbourhood groups, who increasingly realized that they could throw out their compromised leadership as well (Muruchi Poma 2005). By the first gas war protests in 2003, Juntas Vecinales and grassroots political activists pushed FEJUVE into action. Grassroots pressure was so strong that by the time Goni was on a plane to the USA, FEJUVE had new, more progressive and less corrupt, leaders. El Alto had emerged as the most militant and radical area in the country, replacing the coca growers who had spearheaded resistance in the 1990s. Just like the miners before them, forced eradication left the coca growers scrambling to survive, in turn weakening their union. In 2005, FEJUVE mobilized to force the return to public ownership of Aguas del Illimani, the municipal water company that had been privatized in 1997. The precipitating incident was the doubling of connection fees for water and sewerage systems, which the government had accepted because Suez Lyonnaise des Eaux, the French multinational that owned Aguas del Illimani, only agreed to extend coverage to the 190,000 people in El Alto if fees were raised. The initial concession contract had not required coverage for all of El Alto, and as the company overestimated average water use in El Alto, their revenues were lower than anticipated. As a result, Aguas del Illimani had no incentive – and no obligation – to provide new connections (Spronk and Webber 2005). The water war: a turning point11

Since 1990, the World Bank has required developing countries from Argentina to Senegal to embark on the privatization of public services to obtain concessionary loans. The growth of privately controlled water systems is a clear indicator of this trend; although less than 10 per cent of the world’s water was privatized by 2004, the largest global water companies were projected to control or manage two to three times that amount by 2010 (Barlow and Clarke 2004; Grusky and Flynn 2004). Privatizing a water company, or any other public utility, is more complicated than simply selling off an asset; the government must regulate the newly privatized sector. In Bolivia, as in many other countries, this involved rewriting basic legislation. The 1999 Water Law 2029 set national standards and policies for drinking water and sewerage systems, and codified rules for the sale of Bolivia’s water systems although privatization took place in La Paz and Cochabamba before its 162

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passage. Before 1999, most water companies were either cooperatives or publicly owned, and privately owned wells and irrigation systems coexisted with large public systems. Water was considered a public resource and social good rather than a market commodity. The Water Law reversed this, permitting firms exclusive rights within a given area, forcing all water users to enter contracts with the concession holder (Assies 2003: 17). The state created a regulatory agency, the ‘Superintendency’ for Basic Sanitation, which was granted the power to negotiate contracts, award and revoke licences, approve price increases and handle consumer complaints (Nickson and Vargas 2002). The superintendency could bypass local governments and water consumers to conduct negotiations behind closed doors, a lack of transparency that fomented strong political opposition, especially when the outcomes served special, rather than majority, interests. In September 1999, the Bolivian government sold the state-owned Cochabamba water company (SEMAPA) to Aguas del Tunari (Tunari Waters), an international consortium led by the London-based International Water Limited, owned in turn by Edison of Italy and the US Bechtel Corporation, one of the world’s largest construction companies. SEMAPA had been in trouble for a long time. It had a reputation, as did other Bolivian state-owned enterprises, of running a corrupt, inefficient operation with a workforce bloated by political patronage. It was chronically underfunded and unable to extend service to keep up with the rapid population growth in the semi-arid Cochabamba valley. The company’s financial burden stemmed from a history of subsidizing water use coupled with an ill-advised decision to embark on constructing the Misicuini dam, the most expensive option for solving the city’s chronic water shortage. Given World Bank insistence on financial self-sufficiency, water rates under the new private firm were bound to increase. Indeed, months before SEMAPA’s sale, a Committee for the Defence of Water and the Family Economy (Comité para la Defensa del Agua y la Economía Familiar – CODAEC), made up of regional and local organizations such as water users’ groups, and the informal coalition of People on the Move (El Pueblo en Marcha), warned that privatized rates would rise by as much as 175 per cent (Presencia, 3 July 1999). The Aguas del Tunari contract, negotiated in secret, awarded the company a forty-year concession,

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incorporating features that conflicted with previous Bolivian resource law and customary practice. When Aguas del Tunari took over the $200 million municipal water system with an initial investment of only $15,635, the deal so poorly protected the interests of Cochabambinos (people from Cochabamba) that even the normally conservative middle class moved into the opposition camp (Olivera 2004). Most important, the contract, reflecting the planned Water Law, awarded Aguas del Tunari control of not just the city water system but of all ground water, including the right to charge for water from pre-existing wells, surface irrigation systems and even private, rainwater catchments (Assies 2003: 18; Olivera 2004). Overnight, the independent cooperatives that supply water to 25 per cent of the local population lost their right to tap ground water. Campesinos, who traditionally controlled their own water use, were expected to enter agreements with Aguas del Tunari. As a Cochabamba woman explained: ‘If God gave us water, no human being should take it away’ (Farthing and Kohl 2001). In November 1999, a week after the new Water Law was signed, members of CODAEC, many of them peasant farmers and independent water users, blockaded roads around Cochabamba. A week later, the coordinating committee (Coordinadora de Defensa del Agua y de la Vida – Coordinadora) was born in a meeting that united CODAEC with a loose coalition of local activist groups. Oscar Olivera, who eventually became its principal spokesperson, was leader of the Cochabamba Federation of Factory Workers. He recounts that as the Federation already possessed a more or less adequate infrastructure – meeting rooms, internet service, a fax machine, telephones, and a space where people could gather informally – we proposed that the Coordinadora should function out of [our] office … In this way, we began to sponsor informational and organizational meeting and, in short, became much more involved in the water struggle, even though at that time we did not understand the issue very well. (Olivera 2004: 27–8)

From this informal beginning, a social movement that united peasant farmers, environmentalists, neighbourhood groups, and blue- and white-collar workers grew to be one of the most powerful symbols of the anti-globalization movement around the world. The Coordinadora found it relatively easy to mobilize people, already suffering recurring economic crises that many of them linked to neoliberalism, against the privatization of water, ‘the source of all life’. 164

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In the urban barrios, as women were most directly affected by limited domestic water supplies, they assumed active roles in organizing. However, strongly entrenched traditions of male domination ensured that they did not assume leadership positions (Bustamente et al. 2005). A protest was called four days before the December 1999 municipal elections that attracted 10,000 people. Functioning as an informal democratic participatory ‘popular assembly’, an ad hoc town meeting insisted on a reversal of the Aguas del Tunari contract and a freeze on all rate hikes, pledging to blockade roads if their demands were not met. In December, water bills included the anticipated tariff increases, even though the chronically spotty water service had not improved. Poor families, with access to water only two or three hours a day, saw their bills increase by as much as 200 per cent and some found themselves paying 20 per cent of their monthly income for water (Shultz 2001). Even though the Cochabamba Civic Committee was one of the most progressive in Bolivia, along with the city’s mayor, the constituency of the newly formed Coordinadora perceived them as having participated in negotiating the Aguas del Tunari contract (Olivera 2004: 29). Especially given their initial refusal to recognize the popular assembly’s demands, the Coordinadora had little faith that the civic committee would stand firm against the government. Government authorities were slow to acknowledge the Coordinadora’s legitimacy – built through countless meetings from small assemblies to town meetings with up to 50,000 people – and attempted to negotiate solely with the civic committee. Olivera (ibid.) credits the Coordinadora’s success in displacing the civic committee as a key element in the water war victory. When government officials ignored popular assembly demands, the civic committee called for a one-day civic strike, while the Coordinadora called for an indefinite one. The government agreed to negotiate on the strike’s third day in offices on Cochabamba’s main plaza, where a crowd gathered to monitor the talks, a common occurrence during Bolivian political protests. The discussions broke off, however, when the police started to gas the crowd. Finally, government officials committed to a three-month reconsideration of both the water law and privatization. The crowd responded by unilaterally adding a condition of their own: they would not pay their water bills. To maintain momentum, the Coordinadora arranged a peaceful demonstration for 4 February. The government responded by transporting a military police anti-riot squad, called the Dalmatians due to

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their urban camouflage uniforms, from La Paz. Police fired tear-gas at demonstrators as the march began, and the unprovoked attacks, caught on live television, united the city, not least because of the decision to send in military police from La Paz. Olivera reports people yelling at police: ‘Go back to La Paz! Let our own police beat us, not you’ (2004: 35). The government, despite threatening to use greater force, signed an agreement with the Coordinadora and the Civic Committee to freeze water rates for two months while the contract was under study. Adept at generating publicity, the Coordinadora ran a voluntary popular referendum (consulta popular) during March, which asked voters whether they opposed the increased water tariffs, the contract with AT, and the basic tenets of the Water Law. The results showed an overwhelming rejection of the changes – between 96 and 99 per cent – from the almost 50,000 residents who participated. While it lacked legal authority, and the questions were clearly biased, the vote heightened awareness and instilled even greater outrage in Cochabamba residents. The April deadline passed with no government response. During one open public strategy meeting, the crowd decided it would take over the Aguas del Tunari office, prompting the hurried arrival of a ministerial delegation from La Paz in an attempt to diffuse confrontation. When the ministers met with local authorities, and initially excluded and then arrested the community leaders for sedition, the situation exploded into a five-day battle. Citizens held the main plaza, demanding the release of their leaders as well as the return of their water rights. During the days that followed, the Banzer government repeatedly misplayed its hand, lying to the public and increasing repression, finally calling in the military and declaring a state of siege on 8 April. When Olivera was later asked by South African water activist Trevor Ngwane how the Coordinadora had succeeded in uniting the entire population, he laughed and replied, ‘Oh, we didn’t do that, the government did it for us’ (Kruse 2001). When the government jailed Coordinadora leaders, the Prefect of the Department of Cochabamba was overheard reporting by phone to Banzer: ‘Mr President, this is not some radical group, it is all of Cochabamba. I just saw my neighbours walking past to protest in the central plaza’ (Olivera 2000). On 10 April, two days after declaring the state of siege, the government rescinded the contract, marking the first popular success in the battle against neoliberalism since 1985. The Coordinadora’s successful strategy combined an excellent sense of timing with an ability to articulate and productively direct anger. An 166

impressive degree of self-discipline prevailed among the protesters, even in the face of intense street fighting and the killing of a protester by police sharpshooters. Not a single store was looted. Olivera (ibid.) explains: ‘For the first time in 15 years, this struggle has given people confidence in themselves. We managed to build a movement that doesn’t have caudillos or untouchable leaders, doesn’t have decisions made from above, but rather is transparent and honest. Most important, it empowered people.’ This success heralded a turning point and had an enormous psychological impact on grassroots and popular organizations in Bolivia. It gave resistance movements the voice they had lost after fifteen years of continuous, unsuccessful opposition. Bolivia’s status as a poster child of neoliberalism for the World Bank and the International Monetary Fund (IMF), which had widely touted and copied its policies in other low-income countries around the world, had ended. Campesino uprisings, April and September 2000

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To compound the beleaguered Banzer administration’s troubles, during the April water war, two groups of campesinos launched massive parallel demonstrations, establishing a common protest pattern. The CSUTCB, under the leadership of Felipe Quispe, called for national mobilization and roadblocks. Highland campesinos in the largely Aymara altiplano around La Paz, and coca producers in the Chapare added revising the Water Law to their list of demands. Coca growers, led by Evo Morales, elected by a landslide to the lower House of Congress in 1997, supported the Coordinadora de Agua both in blockading Cochabamba as well as on the Chapare’s main road, which connects Cochabamba to Santa Cruz. After Banzer declared a three-month state of siege, other groups joined the protests and the COB called a general strike. Further protests turned violent in La Paz, and teachers, now the COB’s strongest force, walked out for twenty-four hours with the university students and professors following a day later (30 Días 2000: 86). Beckett (2005) points out that while the violence raised the stakes, the effective week-long isolation of La Paz by roadblocks led to food shortages that forced Banzer to negotiate. The agreement reached with the CSUTCB read like a laundry list, committing the government to revise laws on (i) water, (ii) natural resources, (iii) biodiversity and land use, (iv) land reform (the INRA law), and (v) labour rights. In addition, the government promised to assist those affected by natural disasters,

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end the state of siege and free people arrested during the protests (Presencia, 19 April 2000). When the government failed to live up to this agreement, further rounds of protest erupted, particularly by coca producers from the Yungas (deemed an area of traditional coca production), who started roadblocks that cut La Paz off from the northern tropics.12 The government settled this last strike, agreeing to respect human rights, repair roads, and allow the continued production and sale of coca for traditional use (El Diario, 19 April 2000). A second round of conflicts, more intense and widespread, began in September 2000. The month began with the powerful teachers’ union starting a roughly 300-kilometre (180-mile) march from Oruro to La Paz. As the march progressed, other groups joined in and parallel protests occurred around the country. Arriving in La Paz on 8 September, the demonstrators announced an indefinite strike and were joined by university students and pensioners, with both groups adding their own demands. The following day Felipe Quispe led mobilizations in Achacachi, less than 100 kilometres from La Paz and one of the historic highland centres of Aymara resistance. In the Chapare, coca producers imposed roadblocks, objecting to the proposed construction of three US-financed military bases in their region and the government’s commitment to forced eradication. The CSUTCB imposed general countrywide roadblocks and Bolivia ground to a halt. The government successfully split the opposition by negotiating separately with the altiplano campesinos, although it was mid-October before the situation returned to normal. The entire country had been paralysed for over three weeks; private industry lost millions; schools were closed; and cities were crippled as supplies steadily diminished. The informal alliance that spearheaded the protests forced the Banzer government to make significant concessions, even on such ‘non-negotiable’ issues as the military bases. Emboldened by their successes, the country’s social movements promised further unrest if the government failed to fulfil its promises. Not all social movements’ demands in 2000 explicitly focused on neoliberal policies as clearly as in the water war. In a 1997 interview, David Herrera, then Special Secretary of the Tropical Federation of Coca Producers, linked the growers’ fight to deeper causes: The root problem that concerns everyone is land. In Bolivia, the 1953 Agrarian Reform mostly benefited landowners, logging companies, cattle ranchers, and transnational companies. Of 88 million acres of

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productive land in Bolivia, campesinos only control about ten million. We are beginning to recognize our identity. We are neither peasants nor colonizers: we are the original owners of this country. (Kohl and Farthing 1997: 11)

After the collapse of the COB, this resurgent indigenous discourse has become increasingly interwoven with the older class-based one. Both have always drawn heavily on an oral tradition that stretches back as far as the Inca Tupac Amaru’s uprising against the Spanish conquest and the 1781 rebellion led by Tupac Katari and Bartolina Sisa. This narrative of resistance replete with martyrs and heroes, victories and defeats, links current struggles to previous ones, instilling people with a sense of continuity, the inevitability of resistance, and the legitimacy of their struggle. The psychological power of these narratives in the Bolivian psyche cannot be overestimated (Thomson 2002). This twinning of class-based and indigenous narratives of resistance was articulated in the political party formed by the coca producers, the Movimiento Hacia el Socialismo (Movement Towards Socialism – MAS). Antonio Peredo, who ran as Morales’ vice-presidential candidate in 2002, was a long-time member of the Bolivian Communist Party (PCB), and editor of Aquí, a socialist weekly newspaper. He came from a wellknown revolutionary family: two of his brothers were ‘trusted PCB militants’ killed with Che Guevara in 1967 (Dunkerley 1984: 138). Filemón Escobar, who built a career as a Trotskyist mining leader, was elected to the Senate in 2002, and served as a key political adviser to Morales for years. Long before the 2002 elections, coca producers drew on a synthesis of Marxist and indigenous political perspectives to build their political movement. The rise of the landless campesino movement

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The success in the water war emboldened the mushrooming opposition to Banzer’s administration. In August 2001, Banzer, suffering from cancer, stepped down, turning the last year of his presidency over to Jorge ‘Tuto’ Quiroga, one of the ADN’s young technocrats. Shortly after Tuto assumed office as a lame duck president, the Congress of Eastern Agriculturalists (Cámara Agropecuaria de Oriente – CAO), representing the country’s largest landowners and backed by the elitecontrolled Santa Cruz Civic Committee, demanded the government subsidize loans to agriculturalists in default. In a page borrowed from

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the campesino activist handbook, they threatened to impose blockades. After heated negotiations, Tuto forgave commercial debts of less than $5,000 and guaranteed land tenure rights even to those awarded huge tracts of government land under the discredited dictatorship of Garcia Meza, including parcels in protected areas, national parks and reserves (La Prensa, 3 October 2001). The deal infuriated indigenous groups and members of the small but growing Movement of Landless Peasants (Movimiento Sin Tierra – MST), inspired by the successful Brazilian movement of the same name, whose support centred on the eastern lowlands where the 1953 agrarian reform had had little impact. Like their Brazilian counterparts, the Bolivian MST occupied unused lands and turned them into farms. The landless also include campesinos pushed off highland and valley parcels by minifundismo.13 When the MST demonstrated against Tuto’s concessions, coca growers and campesinos with land supported their position. During the weeks that followed, violence escalated until seven campesinos were killed in a confrontation with landowners and their hired guns (Opinion, 10 November 2001, p. 13). While the MST lacked the power and resources of other peasant groups, they joined in campesino calls for strikes and roadblocks, adding their demands for a meaningful land reform to the mix. The political success of the MAS

In Bolivia, the coca growers’ decision to form a political party heralded a major change in the left. During its heyday, left parties functioned subordinate to the COB and, with one exception, never actively developed independent electoral bases. With the rise of the MAS, this was no longer true. While it spearheaded the electoral growth the left experienced at the turn of the twenty-first century, its activist core is indigenous campesinos rather than miners or factory workers (Tapia 2004: 152–3). The MAS’s growth shares certain similarities with the building of the Brazilian Workers’ Party (PT) – expanding slowly from strong union ties to control of municipalities before launching on to the national stage. With only four representatives in Congress under Banzer, coca producers and campesinos were effectively locked out of any meaningful formal political participation. Instead, as Morales had promised, they took their battles to the streets. In January 2002, he headed protests 170

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against Presidential Decree 26415, which closed the remaining legal coca market in the Chapare. The confrontations grew increasingly violent, culminating in a wave of attacks on civilians after two police officers (one military and one civilian) were beaten to death when protesters intercepted the ambulance taking them to hospital. Morales was blamed for inciting a riot and on 23 January, 104 deputies from five parties allied to expel him from Congress as the ‘intellectual author’ of the soldiers’ deaths. Morales’ growing popularity drew on his image as an opponent of US imperialism. His expulsion from Congress did little to damage his credibility, and he effectively turned his exile into the start of his presidential campaign. At the same time, Quispe was extending his networks throughout the altiplano. In the 2002 presidential elections, with both Morales and Quispe as presidential candidates, Morales came in a surprising second on the MAS ticket, winning 8 of 27 seats in the Senate and 27 of 130 seats in Congress, trailing Goni by only 1.5 per cent (Van Cott 2003). Although Goni was the only major candidate who supported continuing neoliberal policies, he was able to form a weak coalition – called a mega-coalition as so many parties were involved – that won the congressional run-off. One observer commented that, for the traditional parties, the choice between ‘getting into bed with a gringo [referring to Goni’s accent] or an indio [a derogatory term for a person of indigenous ancestry] was easy’. As it had so many times before, the alliance between the urban, mestizo middle class and indigenous peoples broke down over ethnicity. The 2002 presidential choice displayed the trumping of identity politics by economic interest. Also in the Bolivian tradition, personal rivalries were enough to keep natural allies from joining forces. Had Quispe joined forces with Morales, they probably would have won the popular vote, although it is not clear that they could have won the election in Congress. Instead, Quispe took 5 per cent nationally, which placed him ahead of the outgoing administration’s ADN party (which plunged in popularity following Banzer’s death) and won six congressional seats. Almost 70 per cent of voters supported candidates who espoused anti-neoliberal policies, and, for the first time, the indigenous majority, both urban and rural, mobilized to support their own candidates. The MAS, now the principal opposition party, had little ability to shape national policy, leading Morales to renew his commitment to fight neoliberalism both in the halls of Congress and on the streets.

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Goni’s ‘mega-coalition’ represented the worst of Bolivian ‘pacted’ politics as it represented the politics of looting. The regime was the most fragile since 1985, a principal cause of its subsequent demise. It was hamstrung from the start, with its difficulties only compounded when the MAS, the NFR and the MIP – who between them had won just under half of the popular vote – vowed active opposition. Goni had little ability to manoeuvre and, in a symbolically important move, he travelled to the altiplano to meet with Quispe, who, in characteristic fashion, not only demanded rural development and land reform, but also the annulment of the 1985 Presidential Decree 21060 that initiated the NEP (La Razón, 28 September 2002). Within six months of assuming office, crisis was constant, with Goni besieged on all sides. Opposition came from the right as well as the left: the industrial and agroindustrial lobby demanded subsidies for industrial production, credit, protective tariffs and guaranteed property rights. As new export-oriented coca plantations were discovered outside the Chapare, the US Embassy warned Goni that he must continue eradicating coca. The World Bank supported Bechtel’s claim for US $25 million dollars compensation for cancelling the Cochabamba water contract and threatened to withhold support if the government refused to guarantee investors’ property rights. The IMF, increasingly concerned about the growing deficit, made demands that would cost the government its legitimacy, presaging what García Linera (2004: 84) calls the beginning of a ‘mutilated’ neoliberal hegemony. The tax war

In February 2003, the IMF demanded that Goni reduce the national deficit from 8.5 to 5.5 per cent of GDP. Almost half was comprised of obligations owed the bankrupt pension system, which had not been financed as planned from dividend payments and stock sales of the partially privatized firms (Weyland 2004). Goni proposed tax hikes including a 12.5 per cent flat income tax, a proposal that predictably led to protest. Only this time the police went on strike, concerned about paying income tax and demanding an increase in their low starting monthly wage of US $105.14 The strike turned violent when the police’s historic rivals, the military, fired on them in front of the presidential palace. When the dust settled, twenty-nine people were dead and hundreds wounded; this disturbance in turn led to two days of riots and looting throughout the country (La Razón, 15 February 172

2003). Even though Goni withdrew his proposal, the opposition called for his resignation. The tax war might be better classified as tax riots. Unlike the water war, with its sustained actions, the tax war grew out of a single event that got out of hand. The confrontation is significant because public resistance so clearly rejected the demands of the IMF and global neoliberalism. Government willingness to use force to impose the IMF’s will sent a clear message about who was running Bolivia. This realization allowed opposition groups to tie a common nationalist, anti-neoliberal thread around what to outsiders often seemed disparate protests. Campesinos linked their protests of coca policy or land reform to the privatization of natural gas. The military, certainly never an historical ally of workers, vociferously protested the 1997 sale of the railroads to a Chilean firm along with thousands of ex-railroad workers. And pensioners from the War of the Chaco (1932–36) marched to protest the proposed sale of gas to historic national enemy Chile. The fragile hegemony had begun to crumble. The gas war

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Reversing the 1997 gas and oil privatization, generally perceived to be the source of the country’s recent economic problems, became a key rallying cry of social movements (Orgáz García 2003). Most Bolivians believe that the booming demand for natural gas could solve both the immediate economic crisis and long-term development needs, even though history has shown that economic resource booms rarely provide a springboard to broader development. The public was also well aware what a good deal the private oil corporations had: a 2003 government report revealed that Britain’s BP, US Amoco and Spain’s Repsol have among the world’s lowest operating and exploration costs in Bolivia, which has the second largest proven reserves in South America (Hylton and Thomson 2004). Reports in the press stated that the oil companies expected a return of ten to one, which further inflamed the public. A National Coordinator for the Defence and Recovery of Gas (NCDRG), based on the Cochabamba water war Coordinadora, formed in July 2002 to organize protest marches to ‘recover gas for Bolivians’. Twenty-one organizations joined the group headed by the ousted Congressman Evo Morales (set to re-enter Congress in August) and Filemón Escobar, Senator-elect of the MAS (La Prensa, 8 July 2002). The unlikely coalition included military leaders, local anti-globalization activists,

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Juntas Vecinales, octogenarian pensioners and veterans, union representatives, highland campesinos and coca growers. Bolivia’s financial inability to develop and market gas resources led LNG, a consortium that includes British Gas, Amoco, Repsol, Elf and Exxon, to propose a natural gas distribution network that would ship Bolivian gas to Mexico and the western United States. The plan included constructing a gas liquefaction plant in either a Chilean or Peruvian port. In economic terms, Chile was the best option as the route was far shorter, and hundreds of millions of dollars cheaper, in part because of the lower interest rates associated with Chile’s higher political stability rating. It also made sense given Chile’s domestic need for gas. In political terms, however, a Chilean pipeline was not feasible. The long-standing claims against Chile from the 1879 War of the Pacific, when Bolivia lost its access to the sea, are still regularly discussed at international meetings and, even 125 years later, the loss is alive among the Bolivian public. Demonstrations to renationalize gas were common by the time Goni returned to the presidency in August, and in early September 2002, the NCDRG called for a series of nationwide civil actions. As had happened previously, coca producers added their demands for alternative development funding to those of the NCDRG. Protests were constant and, by August 2003, even Goni’s allies admitted that he did not seem to be the same man who had so adroitly directed both the NEP and implemented the Plan de Todos. The final cycle of protest that led to Goni’s resignation began with an event that had little to do with the gas war. Quispe called for a roadblock to demand the release of Edwin Huampo, a campesino jailed for the alleged murder of two cattle rustlers near Achacachi after a twenty-day hunger strike failed to achieve any results. A blockade in Warisata, timed to coincide with a day of national gas protests and some seventy other demands, stranded about 200 foreign tourists in Sorata, a popular tourist resort four hours from La Paz. Three civilians and two soldiers were killed in the confrontation that occurred as the military broke through the blockade with busloads of tourists (Gómez 2004; Assies 2004). The deaths in Warisata united the Aymara of the altiplano and El Alto. Across the country people poured on to the streets to demand Goni’s resignation and an end to the military slaughter of civilian demonstrators. The situation continued to deteriorate as troops fired 174

on civilian protesters in El Alto, with the death toll reaching over seventy by the middle of October. Finally, on 17 October, Goni fled from the presidential residence in the back of an ambulance, to the El Alto airport where he boarded a plane for Miami. Following constitutional procedure, Vice-president Carlos Mesa assumed the presidency. Conclusions

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As governing coalitions became weaker over the course of the 1990s, and new forms of opposition organizations gained in strength, the state increasingly resorted to coercion, undermining government legitimacy and the hegemony of neoliberal globalization. Goni’s decision to use force was as much a cause of his government’s collapse as a sign of its increasing fragility. The emergence of coordinating committees, both in the confrontation over water in Cochabamba and over gas, represents something new in Bolivia. Tapia (2004) contends that the ongoing struggle between miners and campesinos for leadership of the COB during the 1990s, combined with the conflict between Quechuas and Aymaras over leadership of the CSUTCB, meant that the electoral growth of the left was feasible only thanks to the parallel political process initiated by the Coordinadora del Agua. Over the past fifteen years, these expanding coalitions have followed a trajectory similar to the COB’s when it functioned as a national political actor that incorporated all sectors from campesinos to factory workers. Ad hoc coalitions draw on Bolivia’s history of what Zavaleta (1986) calls ‘national-popular’ formations which, in a society as heterogeneous as Bolivia, have to forge a common sense of injured national identity to be effective. Given a profoundly racist and hierarchical society, such coalitions often have a difficult time incorporating the small urban middle classes who have repeatedly played a determinant role when elite rule is contested (Hylton and Thomson 2004). These new coalitions represent political strategies and discourses that differ from the specifically Marxist and modernist ones that dominated the left beginning in the 1920s. While applying a class-based ideology in all its variants certainly created a powerful opposition, it marginalized indigenous, rural and the most impoverished people. Oppositional politics based on the 500-year struggle of indigenous people against colonization more closely reflects the country’s reality. But an overemphasis on indigenous identity could prove to be as serious

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a limitation to greater social, economic and political equality as the class-based analysis was, as an exclusive focus on cultural identity can mask the structural basis of economic inequality. As opposed to the vertically integrated, disciplined COB, the new coalitions’ politics are based on sectoral, often geographically distinct coalitions. These often rely on a territorially-based organizing strategy rather than the workplace-based orientation of the COB. Even so, these coalitions have shown success in creating a multi-issue platform. Olivera (2004) explains that the Coordinadora was not just about water: ‘The message we bring is that resistance is possible, that victory is possible. Our work has given democracy new substance in our country.’ The popular victory was couched in language that reflects the continuity of resistance since 1985. ‘We are about to win our first victory against the neoliberal model,’ Olivera told over 50,000 cheering supporters at a Cochabamba outdoor rally (Finnegan 2002). The hole left by the COB, however, is still keenly felt. The cohesiveness and internal discipline it demonstrated was most effective during the almost continuous succession of military dictatorships between 1964 and 1982, when it could define its enemy far more clearly than in the neoliberal, nominally democratic period after 1985. In contrast to the past, when the COB presented demands as a unified bloc, with each sector maintaining solidarity until agreements were reached on all issues, the new coalitions are weaker. The lack of solidarity has empowered the government to apply a strategy of ‘divide and negotiate’. The government typically attempts to reach agreements that fragment the opposition, leaving the most intransigent for last.15 The tensions and cries of treachery this generated fuelled the competition and public feuding of the campesino leaders Quispe and Morales. Another strategic tension exists between campesinos and city dwellers, as rural workers are not as wage-dependent and therefore able to hold out far longer during strikes at less cost. Organizing has proven easier at the regional level where the Coordinadoras have had greater success, drawing their strength from having a clearly defined enemy, an experienced leadership both well connected to the grassroots and open to working in coalitions. It remains to be seen if current leaders can effectively translate this success into a long-term alternative for a country.

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Notes 1 Banzer’s support fluctuated between a high of 28.6 per cent and a low of 20 per cent in the four elections between 1985 and 1997. 2 This prosperity was, in fact, built on the flood of petrodollars that gave military dictatorships throughout Latin America an enormous boost, not only providing the aura of stability but also setting the stage for the debt crisis of the 1980s through irresponsible lending by banks awash in petrodollars, poor investments and outright theft. 3 Coca has grown on the eastern slopes of the Andes for thousands of years, and has a rich medicinal and ritual history. It was a highly symbolic article within the precapitalist context and a valuable commodity in a capitalist one. The US-led ‘war on drugs’ that began in the mid-1980s has always ignored its cultural importance. Coca dulls hunger and fatigue, aids digestion, provides vitamins and minerals lacking in Andean staples and is an effective medicine. It is offered in ritual and ceremonial events from the sowing of crops to the beginning of house construction and all life passages from birth to death. Since cocaine was discovered to be a highly addictive drug, coca has been demonized and, in a very real sense, is another victim of the drug war. Removed from its original cultural and economic context, the sacred leaf has become a commodity that threatens to disrupt the essential fabric of Andean life. For a discussion, see Sanabria (1993); Léons and Sanabria (1997); Allen (1988); and Ledebur (2002). 4 HIPC, for Heavily Indebted Poor Countries, was adopted in 1996 by the IMF, World Bank and G8 countries (USA, Japan, Great Britain, Germany, France, Italy, Canada and Russia) when the IFIs finally responded to sustained pressure from low- and medium-income governments and international NGO coalitions to recognize that the poorest countries were unable to repay their debts. 5 The IMF engaged in a similar process and recognized its role in complicating Bolivia’s political situation. Curiously, it also suggested that if it had not insisted on the implementation of deficit reduction policies in 2003 in the face of widespread popular opposition, its overall goals would have had a better chance of being met (IMF 2005). 6 Although the COB did co-govern (as a minority participant) briefly with the MNR following the 1952 revolution, even within the government, it assumed the role of the opposition, constantly pushing the government to the left (Dunkerley 1984).

8 Roughly half of these are from the Guaraní ethnic group concentrated in the city of Santa Cruz and in the dry southern lowlands. More Guaraní live in Paraguay than in Bolivia. While most indigenous Amazonian peoples live in Beni department, a small number are found in the department of Pando as well as in northern La Paz and Cochabamba. 9 Between 1994 and 1996, in the face of the exclusion women experience

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7 The 2001 census allowed people to identify as a member of a single group. In many cases, as elsewhere in the world, a family (or even an individual) can claim membership in more than one ethnic group.

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in Bolivia’s unions, the Women’s Coordination Commission of the Six Federations of the Cochabamba Tropics (CCFNTC) formed. Despite these efforts, women remain largely marginalized from political decision-making by the male coca growers (Potter 2002). 10 This may be partially a function of the size and complexity of Bolivian families. 11 See Shultz (2000, 2001); Finnegan (2002); and Olivera (2004) for popular accounts of the Cochabamba water war. 12 Signing agreements to calm confrontations and then not fulfilling them is a common government tactic. 13 See page 63 for a discussion. 14 The police response was surprising as the proposed tax would have exempted twice the national ‘minimum wage’, about the first $110 of income per month. 15 Throughout the 1990s, the most stubborn resistance came from the coca growers and the government negotiated with them after everyone else had gone home. Since forced eradication of coca and particularly since the 2003 gas war, this mantle has fallen to El Alto, represented through FEJUVE and the regional body of the COB, known as the COR.

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8 | Global trends and local responses: contesting neoliberalism

At 10.30 p.m. on 17 October 2003, following constitutional procedures and with the unanimous support of the Bolivian Congress, Carlos Mesa assumed the presidency abandoned by Gonzalo Sánchez de Lozada (Goni).1 Confronting a country in crisis, Mesa, a television station owner and media personality, spoke to Congress without notes. He made three commitments that responded to the ‘October Agenda’. He promised to reverse Goni’s 1996 hydrocarbons law and raise taxes from 18 to 50 per cent;2 he announced a referendum to determine how the country should use its oil and gas resources; and he agreed to call a constitutional assembly that would ‘reinvent’ the country. In a move that aimed to weaken traditional political party power, Mesa drew his cabinet from independents across the political spectrum rather than from members of Goni’s party, the MNR. While Mesa committed himself to ruling by consent rather than coercion, he immediately came under pressure from the international community not to stray from the course first set by the New Economic Policy (NEP) almost twenty years earlier. On 21 October, when the diplomatic corps paid its respects, US ambassador David Greenlee informed him that any reversion of neoliberalism and coca eradication could threaten continued US support. In an opinion echoed throughout the international community, the Spanish ambassador, concerned about potential threats to the Spanish oil company Repsol, warned Mesa that the government must guarantee property rights for international firms (La Razón, 22 October 2003).3 From the start, like many other presidents before him, Mesa realized that he had to win the passive if not active support of rural Bolivia to maintain control. Unlike Goni, who appeared largely antagonistic to the campesinos, Mesa strove to incorporate them, even while struggling to limit their demands within the neoliberal framework. Mesa’s initiatives – the 2004 gas referendum, ending impunity for government officials, and a participatory constitutional assembly – confronted a hostile Congress. The resulting stalemate steadily increased opposition on the streets until 9 June 2005, when Mesa resigned and Eduardo

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Rodríguez, the president of the Supreme Court, assumed office as a transitional president, with 180 days to call new elections. In this concluding chapter, we consider what neoliberalism has wrought in Bolivia. We return to the three recurring themes in Bolivian history – international domination, indigenous resistance and regional pressures – and discuss how attempts to establish the hegemony of market democracy (shrinking the state and its role while championing the market) have interacted with them. The growing resistance to neoliberal policies threatens multinational firms’ ability to operate in Bolivia, which, given the country’s dependence on international capital, portends economic disaster. Therefore, though national-level challenges may undermine global neoliberalism’s long-term viability as an economic and political system, what this resistance can achieve remains limited. We consider the potential of the international anti-globalization movement in supporting and disseminating experiences such as Bolivia’s globally. We argue that the only chance that resistance in countries like Bolivia can succeed in the long term is through a strong global civil society capable of re-embedding the economy into social life through changing neoliberalism in high-income countries, modifying the practices of capital and international financial institutions and supporting local efforts to decommodify public goods. Neoliberal hegemony: fractured, fragmented and mutilated

The attempts by the Mesa and Rodríguez administrations to establish consensus and restore the fractured political order in what Assies and Salman (2003) have called ‘a society “at war” with its polity’, face the same challenges Bolivian presidents have confronted since the founding of the republic. These unresolved issues make governing the country extremely difficult, and, in 2005, when neoliberal hegemony was under frontal assault by popular social movements, impossible. Mesa offered his resignation on 6 March, an offer that Congress rejected. Three months later, after weeks of strikes and roadblocks, Congress finally recognized that social stability could not be maintained while Mesa remained in office. By appointing Rodríguez as head of a transitional government, Bolivia’s ruling elites bought a temporary truce.

International pressures Like elsewhere in the global south, international pressures on Bolivia become extreme when foreigners express 180

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strong interest in the country’s resources: currently, the enormous gas reserves. The country’s increasing dependence on international aid and foreign investment since 1985, however, has severely limited Bolivia’s ability to utilize these resources to its own benefit. As Bolivia undergoes the Jekyll and Hyde transformation from a poster child for neoliberal policies to a leading star for the antiglobalization movement, the IFIs are left scrambling to understand the failure of their model. In an unusually critical self-examination, the World Bank (2004b) attributes part of Bolivia’s current difficulties to failed multilateral aid initiatives. The Bank recognizes restructuring’s inability to ameliorate the government’s fiscal situation or lessen poverty. Nor has restructuring minimized the economy’s vulnerability to external shocks, such as the collapse of the Argentine economy in the late 1990s. The limited growth has tended to exacerbate visible inequality while failing to generate jobs. Politically, investments in decentralization, political reform and institution building (such as in the area of regulation) have proven unable to control political patronage, corruption and ensure a stable political party system. In social terms, investments in education and health reform have shown uneven progress in improving social indicators. The Bank acknowledged that the resources allocated were insufficient, and, as important, that their programmes ignored the structural limitations faced by Bolivia and countries like it (ibid.). Despite their assertion that ‘given the past circumstances, the World Bank cannot adopt a business-as-usual approach’ (ibid.: ii), the IFIs have resisted adopting policy modifications. Even the Wall Street Journal and The Economist, hardly radical critics of neoliberalism, have blamed Bolivia’s instability on IMF incompetence and general IFI misunderstanding. They describe the IMF as breathing down Goni’s back to adopt unpopular policies right up until he was driven from office (O’Grady 2003; The Economist 2003). It does not appear likely that the IMF has any plans to let up soon: in a February 2005 speech, Anoop Singh, IMF Latin America Director, announced that to ensure new investments, Latin America must deepen structural reforms, such as further opening markets to foreign capital and increasing labour flexibilization (Baron 2005). In Bolivia, the IMF exerted enormous pressure on the Mesa government to ensure respect for existing hydrocarbons contracts, and to move rapidly to export gas (La Razón, 19 February 2005). Such armtwisting directly reduces Bolivia’s ability to grow out of poverty: in June

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2005, 28 per cent of the Gross Domestic Product (GDP) was destined for international debt payments (Cáceres 2005). More important, given the social climate, attempts to extend the neoliberal agenda will foster opposition and further undermine political stability. International lenders have repeatedly warned the aid-dependent country that it will lose support if it renationalizes gas or implements export control measures by insisting on local industrialization. Without international assistance, which remains around 9 per cent of GDP (World Bank 2004b: 8), Mesa (2005) publicly recognized that the government would be unable to cover basic costs, including salaries. Debt repayment remains an IFI priority. Repeated debt relief has not resolved this burden – the most recent in June 2005, when the G8 countries announced that they would forgive 100 per cent of World Bank and IMF debt for eighteen of the world’s poorest countries, including Bolivia. While this means forgiving 40 per cent of the external debt, the conditionalities attached to it may prove as limiting as those attached to HIPC debt relief in the late 1990s (El Deber, 12 June 2005). The greatest pressure stems from the United States, which towers above all other countries in foreign direct investment (FDI) and international aid (El Diario, 20 March 2005). Its control over the IFIs ensures that its influence on ‘its’ continent is dominant; in a country as small as Bolivia, it verges on absolute. An anonymous Peace Corps participant reported that a past ambassador welcomed new volunteers stating: ‘Welcome to the fourth branch of the Bolivian government.’ The twentyyear US obsession with eradicating coca has been somewhat thwarted by the rise of coca grower Evo Morales to national prominence at the head of the country’s principal opposition party. Embassy representatives have accused Morales of receiving money from both Colombian guerrilla movements and Venezuelan President Hugo Chavez, and compared him to Osama Bin Laden, calling the coca growers – mostly armed with sticks – ‘the Andean Taliban’ (Ducrot 2005: 9). Aside from coca eradication, the United States, as it does elsewhere on the continent, pushes for the passage of the Free Trade Areas of the Americas (FTAA) that many fear will simply spread the environmental problems and lower wages frequently associated with the North American Free Trade Agreement (NAFTA) throughout the Americas. This international pressure tied Mesa’s hands from the start, forcing considerable manoeuvring on how to frame the promised gas referendum, to avoid directly addressing the issue of renationalization. As 182

a result, the July 2004 referendum consisted of five vaguely worded questions (see Appendix, Table A4).4 The responses to the first three indicated overwhelming public support for an increased government share of hydrocarbon revenues.5 As the Bolivian saying goes, Mesa was caught between the sword and the wall. With the IMF insisting on the passage of a hydrocarbons law as a condition for future standby agreements, he found himself at loggerheads over gas with Morales, the MAS and social movements. In an attempt at compromise, the MAS gave up demands for outright renationalization, but instead insisted on modifications in existing contracts with the transnational oil companies to raise the combination of taxes and royalties to 50 per cent. Mesa and Morales disagreed, however, about the details of the increase. Mesa proposed companies pay royalties of 18 per cent and a further 32 per cent taxes on after-expense revenue, while the MAS insisted that royalties and production taxes together total 50 per cent. The MAS argued that, as Bolivia has some of the world’s lowest production costs, increasing royalty payments would still offer a fair return to oil companies while ensuring more resources for the national treasury (La Razón, 18 March 2005). As the oil companies are infamous for inflating expenses, they maintained that a tax on production was the only means to ensure fair accounting. The 1996 Hydrocarbon Law fixed the current royalty structure (although it did not set tax rates). The multinational oil companies promised to challenge any new law in international trade court, observing that a production tax – revenues before expenses – was equivalent to a royalty increase and entailed a unilateral change in the existing contracts (La Razón, 23 March 2005). In an unusually clear statement of Bolivia’s dependency, Mesa (2005) said in his first resignation speech on 6 March:

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I want to emphasize that the Hydrocarbon Law proposed by Mr. Evo Morales is unviable and impossible. Why do I say that so absolutely? … His law is a law that the International Community will not accept and that the oil companies will take to arbitration … It is clear; everyone has told us: Brazil has told us, Spain has told us, the World Bank, the United States, the International Monetary Fund, Great Britain, and the entire European Community … The moment a single oil company calls for an injunction on the Hydrocarbons Law, the United States might decide it was impossible to continue their aid programs, the European Union could freeze assistance to our country.

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Following the passage of the hydrocarbons law on 17 May, oil companies announced their intention to seek redress in international trade courts.

Indigenous resistance As at other moments of Bolivian history, indigenous peoples’ active resistance to national policies has proven critical throughout the neoliberal period. Of the six neoliberal governments since 1985, three (Paz Estenssoro, Paz Zamora and Mesa) have made either passive or active attempts to limit campesino unrest. But Goni (in both administrations), Banzer and Quiroga (completing Banzer’s term) instituted policies that sparked considerable rural dissent. Since 1997, for the first time in Bolivian history, indigenous people have resisted government policies from within Congress itself. By the December 2004 local elections, the MAS emerged as the largest force in the fragmented municipal political panorama. Often the success of indigenous groups has brought them into direct conflict with local and regional elites, but their steady political empowerment, extension of their citizenship rights, and electoral system changes have encouraged participation in national electoral politics. The 2002 national elections marked the first time an indigenous candidate came within reach of winning the presidency. This achievement, however, was insufficient to transform the long-established confrontational style of Bolivian politics. Even with the combined forces of the MAS under Morales and the MIP under Quispe, the indigenous opposition was unable to shape congressional policy. After a period of relative truce, Morales’s and Quispe’s increasing frustration meant a return to the tactics of mobilization. As in 2000, the sphere of conflicts broadened throughout 2004 and 2005 beyond demands for rural development to include control of gas revenues, urban infrastructure and constitutional reform. By the time Mesa left office in June 2005, 119 roadblocks were reported throughout the country and international highway access was cut to four of Bolivia’s five neighbouring countries.6

Regional pressures Unresolved pressures for greater regional autonomy that have plagued Bolivia since its founding only accelerated under neoliberalism. Civic committees have pushed for a greater share of regional resources, direct elections of prefects, and increased political autonomy. In Cochabamba and Potosí, the Civic Committees have 184

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joined local demands for jobs, gas nationalization and, rather belatedly, reversing water privatization. While the decentralizing Law of Popular Participation (LPP) provided greater municipal autonomy, many in the regional movements saw this as an effort to distract attention away from demands for departmental independence (Mariaca 1995; Laserna 1995). The Santa Cruz regional movement, led by local elites, remains the strongest in the country, and its discourse has become increasingly separatist. In January 2005, during what verged on an insurrection, civic committee leader Rubén Costas announced that their intent was to form a provisional autonomous government. His justification was that ‘with more than 25 per cent of Bolivia’s population, we generate almost half of the national taxes and we carry most of the economy on our backs’ (Chávez and Garcia Linera 2005: 8). The Santa Cruz uprising was sparked when the government cut diesel subsidies in Decmber 2004. The IMF insisted on the policy change in an effort to reduce the government deficit.7 As in 2003, IMF demands provoked a visceral social response (Cáceres 2005), as 250,000 people took over central Santa Cruz. Initial demands for continued diesel subsidies soon translated into calls for departmental autonomy – one that apparently was to ensure cotton, sugar and soy producers access to cheap fuel. The unrest spread to the southern department of Tarija where people blockading roads to the Argentinian border pushed for the proposed refinanced state hydrocarbons company to be headquartered in their department, near the gasfields. The protests surged in part due to the national leadership vacuum fuelled by Mesa’s repeated vacillation since taking office. But they also mirrored the loss of eastern elite influence in the central government. Since 1985, Santa Cruz business interests had controlled more than their fair share of government ministries and traditional ruling party leadership positions. When Mesa took over in 2003, many of those privileges disappeared. Unable to dominate the 2004 municipal elections, Santa Cruz elites shifted their focus to demanding more power for the departmental government, where they thought they could exert greater control. Their success in mobilizing such powerful popular regional demonstrations illustrates their skill in convincing the urban working class and poor majority that unemployment, social problems and discrimination are principally the fault of Bolivia’s centralist system.8 In contrast,

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highland social movements have successfully persuaded their base that current problems are due to neoliberalism (Chávez and Garcia Linera 2005). This difference mirrors a fundamental divide in the country: the economically dynamic eastern and southern regions, with most of the oil and gas, are controlled by a powerful, conservative oligarchy, while the social movements that forced Goni from office are based in the highlands and valleys and draw their strength from indigenous and working-class groups (Garcia Linera 2004). Nationalist challenges to global neoliberal hegemony

Bolivia’s resistance reflects the key role of national states in contesting neoliberal globalization, despite the increasing emphasis on transnational processes (Robinson 2001; Johnston and Laxer 2003). When Bolivians protest, they direct their ire towards their own government rather than marching on the World Bank, the InterAmerican Development Bank, the IMF or the US Embassy.9 Between 2000 and 2005, opposition to successive administrations successfully forced the national government to modify its course. In 1999, few could have imagined that an odd coalition of social movements would successfully challenge one of the world’s largest construction firms, become an icon for the anti-globalization movement and overthrow one of neoliberalism’s champions in low-income countries. Nationally the water war created a new model that superseded both the more narrowly class-based COB and the sectoral organizations of the urban and rural indigenous movements. It provided an alternative to the ongoing political squabbles within the COB and the CSUTCB, both of which were incapable of mounting viable resistance to neoliberalism (Tapia 2004). The Coordinadora of the water war effectively combined the overlapping claims of disparate groups and linked them together in a coherent critique, clarifying the connections between neoliberalism and daily life. The ability to construct a frame that connects practical or immediate needs to broader strategic or structural needs allowed social movements to build on the accomplishments of one struggle as validation for another broader one. The victory, then, of the water war served not as an endpoint but rather as an anchor to establish further claims. This lesson, to some degree, clarifies the difference between the ill-named tax war uprising in February 2003 and the gas war that led 186

to the ouster of two presidents. The tax war was a single event: a riot followed by looting when the police walked off their jobs after a deadly confrontation with the army. Even as an isolated incident, however, it marked a loss of government legitimacy and the onset of the collapse, even if only temporary, of the neoliberal state. The gas war, on the other hand, built on a broad alliance that included campesinos, residents in underserved neighbourhoods, the urban middle class and even military nationalists. Like the blind men describing an elephant, each group perceived the gas issue from its own particular perspective. The Coordinadora, taking its lessons from the water war, rather than insisting on a single interpretive framework, welcomed the strength diversity brought. Just as the success of the water war can be credited to government officials who miscalculated, the state’s use of increasing force during the gas war was key in Goni’s expulsion. This experience heightened Mesa’s awareness of the importance of avoiding force. Going global: challenges in constructing an anti-neoliberal discourse

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The Cochabamba water war not only paved the road for more contentious politics in Bolivia, but anti-globalization activists elsewhere incorporated it into their critiques of privatization and neoliberalism (Finnegan 2002; Shiva 2002). Unfortunately, in some cases the facts, which need no embellishment, suffer in the retelling as the water war is portrayed as a valiant battle against the greed of global capitalists.10 The dominant narrative as a ‘David versus Goliath’ struggle of a poor population against the evils of neoliberal globalization obscures a more nuanced story – one which offers a better base for shaping future action. In Cochabamba, the water company – public once again – still does not provide adequate access to clean water. Even as the US $430 million Misicuni project came online in early 2005, much of the city’s population remains off the water grid as informal settlements continue their rapid expansion. The water supply problem cannot be blamed exclusively on Bechtel’s rapaciousness, nor even on the World Bank’s insistence on full cost recovery for water services. Instead, its roots are found in the 1970s’ decision to build Misicuni (the most expensive option for supplying Cochabamba water) by military governments with ties to construction interests and the Cochabamba elite. They all saw in Miscuni a monumental symbol of regional modernity (and perhaps

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an opportunity for massive construction and maintenance contracts and payoffs). Although the project stayed on the drawing board for over twenty years, it eventually acquired enough political momentum because of its symbolic values, tied to Cochabamba’s aspirations to modernity. Goni, known for his tasteless humour, joked during the 2002 presidential campaign that the people of Cochabamba were so stupid that ‘when you ask them if they wanted water they insisted on Misicuni’ (La Voz, 15 June 2002). Difficulties arose when pressure from the World Bank forced the government to apply market logic. The Italian government offered loans to finish the Misicuni tunnel (with the contract awarded, unsurprisingly, to an Italian construction company), even though World Bank reports argued that the proposed project jeopardized full cost-recovery attempts to privatize the Cochabamba water company. There is a further paradox. When the water system was publicly owned, individual users appropriated water, a public good, and used it for commercial ends. The 1999 Water Law sought government control over water, so that it then could be privatized. Initial opposition came from peasant farmers and the owners of private water systems seeking to protect their customary use of what is a public resource. Not only did the Water Law appropriate these hydraulic resources but it also transferred them to a private firm and guaranteed that firm an annual profit. No one asked whether individual firms (whether formal or informal – a family farmer or a factory owner) utilizing a public resource (water) as an economic input for commodity production (whether vegetables or shoes) should be allowed to appropriate that resource. Permitting this kind of appropriation serves as a form of subsidy, the cost of which is assumed by the public at large. Such nuances and complications unfortunately rarely enter the anti-globalization lexicon, diminishing the movement’s ability to mount informed and sophisticated challenges to neoliberal hegemony. Instead, the tendency is to maintain simplistic ‘good’ and ‘evil’ dichotomies incapable of generating viable alternative proposals. Placing a local resistance movement like the Cochabamba water war on the international stage achieved important, if limited, results. On the one hand, the perceived people’s victory shares features with other less known, successful protests against privatization in other parts of the world such as Argentina, the Philippines, Mexico and Uruguay. If the Cochabamba water war is not unique, then it is worth asking how it 188

captured the global spotlight in popular struggles against neoliberalism while others did not.11 Apart from the thousands of Bolivians who participated in the struggle, two international activists, both originally from the United States, Jim Shultz and Tom Kruse, played important roles in making the water war international. Shultz, director of the Democracy Center, a small NGO that runs advocacy training, used a well connected online newsletter to get (and keep) the story on the international stage. Shultz, author of the Democracy Owner’s Manual: A Practical Guide to Changing the World (2002), suggests that the success in bringing the water war to a broader audience was simple: The facts lent themselves to the creation of a solid, honest story line: the World Bank forces privatization, a big corporation gets the deal, the government botches the deal for reasons of corruption and incompetence, the deal puts the cost of water out of the reach of the poorest, and the poor rebel and boot out company. The Democracy Center framed that story line early and well and spread it broadly. At exactly that time, anti-globalizers were looking for exactly such a story line. The debate had gotten very rhetorical and Cochabamba nailed it down. In fact, some of this was dumb luck, the fact that the water war happened the same week as the mobilization on Washington, DC aimed at the IMF and WB. The rest was just momentum. (Shultz 2005b: 3 January)

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The story attracted journalist William Finnegan, who sold a print version to the New Yorker and a video journal to Bill Moyers of the US Public Broadcasting System. Coordinadora spokesperson Oscar Olivera, accompanied by Tom Kruse, embarked on a whirlwind tour that covered thirteen US cities in two weeks in October 2000. During this trip, Olivera appeared in front of audiences that included people who would eventually award him the Goldman Prize, known as the ‘Nobel prize for peace activists’. The Cochabamba water wars continue to resonate. When Bechtel sued Bolivia for $25 million in the International Center for Settlement of Investment Disputes (ICSID), the little-known arbitration arm of the World Bank, the Democracy Center and its allies mounted a public campaign to pressure the huge corporation to back down (Shultz 2004a, 2004b). Activists generated considerable publicity, casting Bechtel as a greedy multinational using corporate-friendly dispute mechanisms

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to steal from impoverished people. The Bolivia–Bechtel case could be a turning point in reducing the secrecy surrounding the adjudication of trade disputes and in permitting greater participation by the public ( Johnson and Laxer 2003). In a move designed to garner publicity and to discredit Bechtel across borders, Direct Action to Stop the War, working against US policy in Iraq, assisted with the placement in a major Baghdad newspaper of an ad from the people of Cochabamba warning Iraqis about Bechtel (Groll 2003). Limitations of national resistance movements in a global market

While the widely touted ‘success’ of the water war and Bolivia’s other social movements may have slowed the short-term onslaught of neoliberalism, their long-term impact is not so clear. Each round – for social control of water, against income taxes and for the renationalization of gas – carries high social and economic costs. Even where national struggles are successful, the global backlash can further marginalize poor people at the bottom of the chain of global capitalism. In Bolivia, throughout the constant roadblocks, very often the greatest costs fall on campesinos and the urban poor. Most important, of course, are the casualties in confrontations with police and military, almost all of whom were among the poor. The roadblocks have wreaked havoc on Bolivia’s small capitalist class as well as on importers of both legitimate and contraband goods, who lose money as goods pile up at the borders, exports fail to arrive in time, or key production inputs never appear. In 2000, chicken producers in the Cochabamba valley lost tens of thousands of birds to starvation, as feed was unable to pass roadblocks, in many cases destroying any sympathy producers might have had for the protesters’ causes (M. D. personal communication, Ramirez 2000). The greatest material damage, however, resulted during the violence and looting in the 2003 tax war as protesters torched government buildings. Real estate records went up in smoke, generating renewed fears that a new property census would increase taxes on previously tax-exempt campesino landholdings. The city hall in El Alto, the poorest of the country’s large cities and the one least able to absorb the cost, was also burned and some municipal offices moved to office space donated by a local NGO. Political instability has important long-term effects that are hard to 190

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quantify. Investors weighing global alternatives expect the highest rate of return in the riskiest locations. Bolivia’s ability to resist potential exploitation by global capital has a contradictory effect that reproduces its subordinate position within the global economy. At an individual level, Paul Willis (1981) made similar observations about how class is reproduced, finding that working-class students in England were unsuccessful in school in part because of their behaviour. This in turn limited educational and career opportunities. In other words, the active resistance of working-class youth feeds into the process that reproduces their exploitation. At the national level, the social unrest in Bolivia hinders national development even as it attempts to reverse historic trends of exploitation. The anti-globalization movement or any other systematic resistance to neoliberal globalization also reproduces certain global social and economic relations. Other things being equal, when given a choice between locating a factory in a country with a disciplined workforce and a strong government, or where oppositional social movements frequently challenge a weak government like Bolivia, rational investors would certainly be fools not to opt for the former. The June 2005 blockades convinced several companies to relocate to countries such as Chile, even though wages and business costs are higher. Places like Bolivia, then, are only attractive with a risk premium, an orientation mirrored in the national entrepreneurial class, which has always expected high and rapid returns. With hydrocarbons and minerals – whose fixed locations do not so easily allow companies to move operations to more favourable political climates – this means relatively low effective tax rates even given very low exploration and production costs (La Razón, 18 March 2005). The same corporate logic, then, that makes Bolivia suitable as a site of exploitation, will deepen opposition among the country’s people who realize that resource exploitation primarily profits foreign capital and national managers. As local opposition grows, the perceived, and indeed very real, risks increase, propelling firms either to expect an even higher return or, when the situation simply becomes too unstable, to abandon the country. Around the world, places like Haiti or much of sub-Saharan Africa are largely forsaken by global capital. A good example of this corporate logic is found in Bechtel’s insistence on a contract that guaranteed 13 per cent annual return on investment in dollars12 and the World Bank’s insistence on full cost recovery.

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When violent (though unpredicted) social protests forced Bechtel to abandon Aguas del Tunari, they sued for breach of contract. Not only did Bechtel expect to earn a risk premium, it also counted on the government to assume the political and social risks. While this scenario paints the company in an unfavourable light, many accounts of Bechtel in Bolivia miss an important point: the huge engineering firm was the only bidder for Cochabamba’s water system. An economic journalist reported off the record that Suez, which owns the La Paz water company: ‘took a good look at the proposed terms of the contract, and could see it was a disaster in the making. Bechtel has been hot to get into the water business and they thought they had a bargain on their hands so they jumped right in. And you can bet their friends at Suez had a good laugh.’ The implication is clear: if Bechtel had done more comprehensive risk analysis, like the mature players in the field, it could have avoided the Cochabamba minefield. Bechtel’s failure to grasp the social environment contributed to the water war just as much as the World Bank’s demands. Even as national activists built on the lessons learned during the water war to invent new forms of contentious politics, global capital utilized well developed strategies to cope with the deteriorating conditions. After Mesa resigned from office, Standard and Poor’s downgraded the country’s credit rating from B to B-, which will increase interest rates for projects underwritten in Bolivia. Conclusions

Bolivia’s experience of neoliberalism demonstrates the difficulties of creating hegemonies in countries with highly unequal power relationships, histories of extreme political instability, confrontational political styles and economic dependency. The international institutions that pushed neoliberalism on Bolivia attempted, as they have elsewhere, to privilege the economic over the political in policy-making and to reduce the complex political realities of poverty to simple technical problems. As Bolivia dramatically shows, politics intimately affects economic decision-making, and ‘political space … is defined much more by negotiation, contestation, confrontation, resistance and … power relations than by government politics or consent’ (Ejdesgaard Jeppesen 2002: 32). Even given the internal contradictions between markets and democracy, a model that minimizes the economic role of the state is 192

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inappropriate in a country like Bolivia that remains desperately poor after 500 years of providing raw materials to global markets. Bolivia’s elites have repeatedly handed over bits of the country and its resources to whoever would best line their pockets – why should the early twentyfirst century be any different? Especially in the absence of an adequate regulatory structure and a well-developed capacity to negotiate with foreigners, increasing Bolivia’s dependency and transferring rentseeking from the public to the private sector appears the inevitable outcome of privatization. An unfortunate result of conflating markets with democracy, and the failure of relatively unfettered markets to improve living standards, is a drop in Bolivians’ belief in democracy mirroring a trend throughout Latin America. Over twenty years after the COB headed bloody battles to restore democracy, which it saw as essential to improving society, a national study by the National Electoral Court found that 65 per cent of Bolivians do not believe that it has brought any benefits to the country (CNE 2005). Neoliberalism has shrunk the centralized Bolivian state, but rather than bringing about sustained growth through a miracle of the market, it has weakened the government’s capacity to address the population’s needs. Somewhat paradoxically, devolving state functions to municipalities has in fact increased the reach of the government into rural areas and strengthened its presence at the local level. The expanded government presence has awakened a new interest among the rural indigenous population in participating in democratic processes even as faith in democracy declines in the nation’s cities. Democracy in rural municipalities, however, is largely direct and highly participatory, a model that is poorly equipped to fill a national stage. Within Bolivia’s popular movement, shortsighted rivalries and prejudices lead to unproductive infighting with the poor paying the highest price for the left’s failure to provide a coherent alternative vision. The fragmentation of counter-hegemonic movements may make for a reasonable opposition strategy, but it cannot form the basis of a viable alternative model. The continuing undemocratic, androcentric, caudillo system of leadership effectively concentrates power and excludes both broader perspectives and experiences. The entrenched sexism in many social movements effectively excludes the half of the population who suffer the most from poverty, abuse and political marginalization. The pervasive racism and classism extends into progressive organizations,

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limiting the effectiveness of well educated Bolivians as allies to popular movements. Tim Wright13 attributes part of neoliberalism’s failure in Bolivia to the individualist assumptions that form its philosophical underpinnings. He argues that this individualism has never effectively taken root in a context where traditional indigenous communal culture, the collectivist orientation of the State of ’52 and the COB’s class solidarity still have a strong influence. These entrenched social patterns have resisted the incursion of an economic philosophy built on definitions of individual autonomy that, if examined in the context of human history, are an anomaly. While the collapse of the COB, rapid urbanization and the growth of the formal economy have broken down much of Bolivia’s traditional solidarity, enough remains to make neoliberalism’s ideological, psychological and philosophical hold tenuous. As what happens in La Paz, Sucre or even a small town like Monteagudo can now be rapidly transmitted around the globe in a manner of minutes, local efforts to contest neoliberalism have become international in scope. Networks developed by activists in different countries, tied together by events such as the World Social Forum, demonstrate the importance of transnational social movements both within countries and across borders in attacking the neoliberal hegemonic regime at different scales. As the ability of activists to disseminate the water war story internationally shows, individual agency plays a vital role. The Zapatistas in southern Mexico perhaps best reflect the synergies that can evolve between national and transnational actors. In the ten years since the Zapatista rebellion began, they have expanded with the internet, reaching out to gain support and to learn lessons from other parts of the world (McMichael 2004). For Bolivia, despite the enormous transformations, the challenges are much the same as they were 150 or even 500 years ago: how to develop the country’s resources for the public good, how to incorporate the indigenous population fully into political and economic life, and how to address the needs of diverse regions. While strong arguments exist for a return to state ownership of resource-based extractive industries and public services, such a move will require confronting the persistent problems of government corruption and inefficiency that contributed to the call for privatization in the first place. In practical terms, however, given the current global neoliberal hegemony, little chance exists that, even if Bolivia were to nationalize its gas and min194

eral resources, it could gain access to the capital necessary to develop them. The question of whether a single, small, dependent country can develop a model to withstand transnational neoliberal pressures echoes the unresolved debates between Trotsky and Stalin during the 1920s about the possibility of socialism in one country. For Bolivia and countries like it to succeed in creating alternatives to neoliberal globalization, a strong global civil society capable of re-embedding the economy into social life needs to flourish. Not only must the practices of neoliberalism in high-income, capital-exporting countries change, but capital and international financial institutions must be modified, and local efforts to decommodify public goods, recognizing their social rather than economic importance, must be supported. Having forced the resignation of two presidents in as many years, there is no doubt that Bolivians will continue to take to the streets. Despite the sacrifice that their ongoing resistance requires, without the end of neoliberalism’s world dominance they have little hope of changing a global system that has exploited them since the Spanish conquest and shows little inclination to refrain from doing so. Notes 1 A year later, the Bolivian Congress initiated a suit against Goni and two of his ex-ministers for the deaths that occurred during October 2003. In 2004, Goni sold his holdings in the Bolivian mining company COMSUR for US $220 million to US financier Marc Rich. President Bill Clinton pardoned Rich on multiple counts of fraud, reputedly after a US $1 million donation to the Democratic Party. The Bolivian press, almost without exception, sees Goni’s sale of his COMSUR shares as an attempt to avoid paying taxes, and to protect his wealth against lawsuits from the families or the government for his role in the gas war deaths (El Deber, 20 February 2005). After fleeing Bolivia, Goni gave speeches in the United States presenting himself as the victim of a mob of ‘narco-terrorists’ (Sánchez de Lozada 2003).

3 These warnings would be repeated in June 2005 after Rodríguez replaced Mesa. 4 Certainly the wording was less than subtle: linking the hydrocarbons law to Goni by itself was sufficient to guarantee a ‘yes’ vote. 5 The fourth and fifth questions, trading gas for access to the sea and on gas exports without restrictions, did not get the same level of support. Morales ran an active campaign against the last two questions, stating that

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2 The 1996 law reduced royalties on ‘new’ hydrocarbon production from 50 per cent to 18 per cent. The government applied the lower royalty to fields proven, but not yet in production, before the law.

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‘yes’ votes would be interpreted as support for Mesa’s energy policy, which fell short of nationalization. The government failure to win them reflected Morales’s ability to mobilize the urban and rural poor. 6 As in earlier blockades, very often the poor suffered disproportionately, although businesses also lost millions. 7 In 2005, the subsidy for diesel was projected to exceed US $80 million. The primary beneficiaries were the agro-industrial producers of Santa Cruz and the transportation industry (La Prensa, 24 June 2005, p. 4c). 8 The much smaller rural population of Santa Cruz, however, formed groups opposing the calls for departmental autonomy as they recognized that their interests were not aligned with those of the urban elites. Instead, some groups started to call for the formation of a new department that would encompass Santa Cruz’s rural, gas-producing hinterland. 9 On several occasions, however, coca growers have demanded that they negotiate directly with the US Embassy rather than Bolivian government officials (Farthing and Ledebur 2004). 10 The clearest example is the reporting of water costs. Regulations put in place after the Aguas del Tunari contract called for water hikes between 10 and 106 per cent for metered water. Copies of water bills show that fees to homeowners with a basic hookup but without water meters, increased by 60 per cent. For people living off US $20, or even US $100 per month, such an increase is significant (Shultz 2005b). But many reports state that the rates went up 200 per cent, a retelling that costs anti-globalization activists their credibility. The truth – that cancelling the contract saved water users US $3.4 million – should make a sufficient case against predatory privatization. 11 For example, the successful popular movement in Tucumán, Argentina, against the French firm Compagnie Générales des Eaux, was as significant a victory as Cochabamba, but received little international attention. For a description, see Bennett et al. (2005). In relation to the popularization of the Cochabamba water war, see Albro (2005) for a detailed account. 12 While the consortium that bought Aguas del Tunari invested almost none of its own resources, it wanted a guaranteed profit to protect it from currency risk. 13 From his PhD dissertation (in progress): ‘Bolivia – Making Gays in a Queer Place: The Modernization of a Camouflaged “Community”’, University of California, Los Angeles, Department of Anthropology.

196

Appendix

table a1 Geographic, social and economic indicators, 1980–2002

Area 1,099,000 square kilometres Gross national product per capita ranking 1980: 79 of 125 1990 81 of 125 Population (millions) Human Development Index (UNDP) GDP per capita (US$) Average annual GNP per capita growth previous decade (%) Average annual inflation rate previous decade (%) Adult literacy (%) Debt service as a percentage of exports Net direct foreign direct investment (US $m.) Official foreign aid as percentage of GDP Population living in poverty (%) Life expectancy at birth (1960 1980) Child mortality per thousand (under five) Maternal mortality per 100,000 Fertility rate Population with access to improved water (%) Urban population (%)

1980

1990

2002

5.8 .548 570

7.2 .603 630

8.8 .670 8862

2.1

-0.1

3.91

8.1 50 (1977) 24 42

318 26

n/a 15 (1999) 481 677 8.72 62 64 71 420 3.8 83 (2000)2 632

50 156 480 6.1 34 (1975) 33

40 45 11.22 60 109 4.8 71 51

Notes: 1. The Economist (2003); 2. UNDP (2003) Sources: for 1980: World Bank (1982); for 1990: World Bank (1992); for 2002:

Appendix

table a2 Income inequality, 1999 Share of income or consumption (%) Poorest 10% Poorest 20% Richest 20% Richest 10% Inequality ratio (richest 10% to poorest 10%)

1.3 4.0 49.1 24.6 24.6

Gini index

44.7

Source: table a3 Composition of Bolivian exports by sector (US$ millions)

Traditional (minerals and hydrocarbons) Minerals Zinc Tin Hydrocarbons Non-traditional Soy Jewellery

1990

1996

2004

634.4 407.7 146.8

619.3 478 151.7

1302.8 455.8 151.6

226.7 288.3 40.2 0

141.3 595.2 200.6 39.8

847 881 423.6 44.5

Source: table a4 Questions for hydrocarbons referendum 1. Do you agree that the Hydrocarbons Law 1689 approved by Sánchez de Lozada should be changed? 2. Do you agree that the state should recover ownership of hydrocarbons at the well-head? 3. Do you agree that YFPB [the residual state oil company] should be refunded the public shares of the capitalized companies so it can participate in all stages of hydrocarbon production? 4. Do you agree with President Carlos Mesa’s policy to use gas as a strategic resource to recover useful and sovereign access to the Pacific? 5. Do you agree that Bolivia should export gas under a policy framework that (a) ensures supplies for Bolivians; (b) encourages industrialization of gas in Bolivia; (c) levies a combination of taxes and royalties on 50 per cent of projected profits; and (d) earmarks revenues from gas mainly for health, education, roads and jobs? Source: (our translation)

198

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References

227

Index

Age of Andean Insurrection, 39 agrarian reform, 84, 92, 95, 125, 130, 172 Agrarian Reform (1953), 46, 47, 63, 65, 92, 93, 103, 168, 170 Agricultural Bank, 65 agriculture, 43, 63, 65, 113, 121, 159; modernization of, 41 Aguas de Illimani, returned to public ownership, 162 Aguas del Tunari, 163, 164, 166, 192 aid, external, 50, 86, 88, 96, 119, 133, 139, 181, 182, 183; from US, 80 (military, 74) airlines, asset-stripping of, 116–18 Allende, Salvador, overthrow of, 70 Altamirano, Benjamín, 143 Amaru I, 39 Amoco company, 173, 174 Andean Development Corporation (CAF), 119 Andean Initiative, 74, 157 Anderson, Perry, 22–3, 32 Andrien, Kenneth, 38 anti-clerical reforms, 56 anti-globalization movements, 10, 31 Apex Silver company, 5 Aramayo family, 44 Argentina, 2–3, 6, 18, 40, 50, 74; collapse of economy, 113, 149, 151, 181 Asbún, Ernesto, 117 Asian economic crisis, 21, 22 Assembly for [Indigenous] People’s Sovereignty (ASP), 145, 154 asset-stripping, 116–18 ayllu organizations, 39, 42, 46, 133, 144, 145, 159; war between, 134 Aymara people, 37, 39, 45, 52, 152, 153, 154, 155, 156, 158–9, 167, 168, 175 Aymara Katarista movement, 77, 86

Bank of America, 55 Banzer, Hugo, 50, 51, 52, 54, 65, 67, 79, 98, 109, 113, 115, 120, 121, 150, 157, 158, 161, 166, 167, 168, 169, 170, 184; death of, 171; dictatorship brought down, 75 Barbie, Klaus, 51 Barrientos, René, 50, 52 Bechtel Corporation, 163, 187, 191, 192; compensation demand, 172; sues Bolivia, 189–90 Bedegral, Guillermo, 69 Beni Indigenous Peoples Central (CPIB), 156 Blyth, Mark, 19 Bolívar, Simon, 2, 41 Bolivia, constitution of, 41, 90–1; economy, of, 62–5 Bolivia–Brazil gas pipeline, 112, 113, 119, 120, 121 Bolivian Communist Party (PCB), 169 Bolivian Confederation of Indigenous Peoples (CIDOB), 156 Bolivian Mining Corporation (COMIBOL), 51, 64, 71 Bolivian Peasants’ Confederation (CSUTCB), 52, 76–7, 100, 133, 156, 158, 159, 167, 168, 175, 186 Bolivian Private Business Confederation (CEPB), 53, 54, 56, 70 Bolivian Workers’ Federation (COB), 46, 49, 50, 51, 53, 54, 55, 56, 68, 80, 82, 99, 100, 132, 149, 156, 167, 169, 170, 176, 186, 193, 194; leadership structure of, 153, 175; weakening of, 75–7, 143 Bolivida social payment, 98 bonded labour (pongueage), 39, 46 BONOSOL social payment, 97, 98, 109, 111, 113, 114, 115 BP company, 173

Brazil, 2–3, 6, 37, 42; annexation of Acre, 43; decentralization in, 130 British Gas, 174 Bush, George H., 74, 157

229

Index

Caceres, Benjamin, 161 caciques, 36, 40 campesinos, 48, 51, 52, 63, 75, 77, 81, 88, 91, 92, 94, 100, 103, 126, 131, 144, 145, 153, 154, 155, 157, 158, 164, 168, 169, 170, 173, 175, 176, 179, 184, 190; massacre of, 52; organizations of, 132, 133, 134, 135, 136; uprisings of, 167–70 Canadian Agency for International Development (CIDA), 119 capitalization, 113–14, 115, 116, 117, 118, 119, 150; as political practice, 122; social responses to, 120–1 Cárdenas, Victor Hugo, 86, 91 Carter, Jimmy, 53 Catholic Church, 51, 56–7, 62, 77–9, 152 caudillos, 150, 161, 167, 193 Central Intelligence Agency (CIA), 50 centre-regional relations, 36, 49 Chaco generation, 45 Chaco War see War of the Chaco Chavez, Hugo, 2, 5 children, effect of neoliberalism on, 81–2 Chile, 2, 6, 11, 17, 18, 29, 37, 50, 97, 120; annexation of Bolivian coastline, 42–3 CIPE organization, 136 citizenship, 88–90, 94, 100, 127; definition of, 41; neoliberal regimes of, 90; rights, 8, 96, 97, 101, 123, 130, 155, 184 civil rights, 92–3 clientelism, 145 coca: eradication programmes, 9, 113, 149, 150, 151, 153, 157, 158, 171, 172, 173, 179, 182; exports of, 79–80; growers, 151, 152, 162, 170 (movements of, 126, 143, 144, 149, 153, 154, 156–8, 167, 168,

174; political power of, 135); production of, 34, 83, 94, 102 Coca Zero programme, 151 cocaine: Cochabamba-centred production of, 60, 74, 91; exports of, 79–80; growing demand for, 156; production of, 54, 57, 73–5, 83 (offensives against, 67); significance to economy, 158; trade in, 51; US involvement in, 157 Cochabamba, 52; coca production and trade in, 60, 74, 91; privatization of water company, 158; water war in see water war Cochabamba Civic Committee, 165, 166, 184 Cochabamba Federation of Factory Workers, 164 Cold War, 49 Collective Capitalization Fund (FCC), 115 College of Bolivian Economists, 142 colonialism, 34, 36 Committee for the Defense of Water and the Family Economy, 163 communism, 48, 49, 50, 57 COMSUR company, 53, 64, 67 CONAMAQ organization, 159; Cultural Heritage Committee, 159 Condor, Bernardo, 159 Congress, Bolivian, 2, 11 Congress of Eastern Agriculturalists (CAO), 169 Conscience of the Nation (CONDEPA), 82, 161 Conservatives, 43, 44, 69 Constitutional Assembly, 4–5, 11; demand for, 1 constitutional reform, 90–1, 184 contraband, 73–5, 102 Coordinadora de Defensa del Agua y de la Vida, 164, 165, 166, 167, 173, 175, 176, 186, 187 copper, 3 Core International, 108 corruption, 13, 29, 38, 54, 71, 80, 94, 100, 105, 106, 120, 127, 128, 135,

Index

ESTALSA company, 53 European Community, 5 exchange rates, 21

142, 143, 146, 157, 160, 161, 163, 181, 187, 194 Costas, Rubén, 185 COSUDE development agency, 141 criollos, 35, 40, 42, 57 Cruz Blanco company, 112, 116, 117 Cruz Feliciano, 27 debt: external, 3, 51, 53, 54, 55, 57, 67, 72, 151–2, 182 (changing composition of, 121–2; Mexican default, 20); internal, 114 (to pension system, 97); relief of, 182; decentralization, 13, 29, 53, 100, 125, 127–30, 137, 138, 146, 154, 181, 185; in Brazil, 130, of government, 29 democracy, 14, 17, 25–6; delegative, 25; low-intensity, 26; market democracy, 14, 25, 103 Democracy Center, 189 development, 6, 141–2; sustainable, 7 dictatorships, 64, 75, 92, 150 Direct Action to Stop the War, 190 diseases, spread of, 38 dollarization, 66 Eastern Europe, privatization in, 106 The Economist, 181 Edison company, 163 education, 6, 14, 46, 47, 50, 73, 77, 84, 86, 89, 95–6, 128, 131, 138, 143, 157, 159, 168, 181; reform of, 95–6 Education Code (1955), 95 Education Reform, 96, 99, 101 elections, 52, 54; in 1989, 69; in 1993, 126; in 1997, 150; in 2002, 171, 184; municipal, in 1995, 144 Electoral Law (1986), 69, 70, 90, 126 Empresa Petrolera Andina, 118 Empresa Petrolera Chaco, 118 EMUSA company, 53, 64 ENDE company, 112 Enron company, 119, 120, 122 ENTEL company, 112, 115, 118, 122 environmental projects, 67 Escobar, Filemón, 169, 173

Federation of Urban Neighbourhood Organizations (FEJUVE), 132, 160, 161, 162 Fernandez, Max, 161 Ferro Carril Andino, 117 fertilizer, production of, 4 Finnegan, William, 189 First of May organization, El Alto, 161 Foucault, Michel, 24 Free Bolivia Movement (MBL), 86, 145 Free Trade of the Americas Agreement (FTAA), 182 Friedman, Milton, 18, 25; Capitalism and Freedom, 16 Friedman, Thomas, 21 Fukuyama, Francis, 16, 17, 25 Fundamental Agrarian Reform Bill (1984), 130 García Meza, Luís, 51, 54, 170 gas, 112, 119, 182, 186; discovery of new reserves, 181; exploration for, 104; export of, 79, 181; nationalization of, 185; pipelines, 9, 112 see also Bolivia–Brazil gas pipeline; privatization of, 109, 111, 120, 173; production of, 34, 53, 80, 112, 113 (costs of, 118); referendum on, 179, 182; source of revenues, 98 see also gas war and nationalization, of gas gas war, 3, 4, 11, 162, 149–78, 186, 187 gender issues, 30, 31, 139 Germany, development aid of, 139, 141 Gill, Stephen, 24, 25 globalization, 6, 7, 11–33, 61, 86, 175, 186, 187, 191 gold, production of, 3, 38, 57, 64 Gramsci, Antonio, 22–3, 24, 32, 125 Gran Poder, 2 grassroots territorial organizations

230

(GTOs), 100, 126, 132, 133, 134, 135, 136–7, 139, 144, 146, 167 Greenlee, David, 179 guano: production of, 57; taxation from, 42 Guaraní people, 94, 134, 156; movement of, 144 Guevara, Ernesto ‘Che’, execution of, 50 Gulf Oil, nationalization of, 50, 51 haciendas, 39, 43, 47, 48, 92, 136 Haiti, 32 hardwoods, 112; export of, 72 Harvard University, La Paz programme, 140 Hayek, Frederick, 17, 25, 68; Road to Serfdom, 16 healthcare, 14, 47, 50, 86, 89, 128, 131, 138, 143, 157, 181 hegemony, 24, 32; concept of, 22–3; construction of, 75–7 Herrera, David, 168 Hochschild, Mauricio, 44 Huallpa, Diego, 38 Huampo, Edwin, 174 human rights, 23–4, 53, 90, 168; violation of, 91, 151, 156 hydrocarbons: income from, 80; industry, 63, 91, 111, 121; laws and regulations regarding, 11, 118, 119, 179, 183–4; sale of companies, 118–20; source of revenues, 67, 98, 183

Jacobs, Perry, 112 Japan, 121; as creditor, 72 job creation, 73, 108 Juntas Vecinales, 160, 162, 174 Katarista Movement, 52 Kirshner, Nestor, 3 Kruse, Tom, 189 La Paz, 49; growth of, 44; revolt of, 40; siege of, 39 labour movement, 49, 50, 51, 52, 54, 75, 77, 86, 143, 144, 153

231

Index

illiteracy, 95 import substitution industrialization (ISI), 48, 50, 60, 61 Incas, 36, 37, 38, 39, 40, 45 independence of Bolivia, 40 Indians see indigenous peoples indigenous peoples, 4, 34–6, 39–40, 44, 45, 47–8, 52, 57, 83, 86, 91, 92, 94, 125, 126, 130, 134, 143, 144, 145, 146, 149, 152, 159, 169, 170, 171, 175, 193; demands of, 37; first congress of, 46; identity of, 160, 176, 194 (fluidity of, 154–5);

indios, 47; land title of, 93; landholdings dismantled, 41; leaders among, 127; movements of, 1, 46, 69, 77, 180, 184, 186; organizations of, 131, 132, 133, 153, 154, 156; religious tradition among, 56; rights of, 5, 101; risings of, 3; taxation of, 38, 42 inequality, 27, 30; growth of, 14 inflation, 55 informal sector, 104 Institutional Revolutionary Party (PRI) (Mexico), 47, 48 Inter-American Development Bank (IADB), 65, 67, 72, 80, 108, 119, 121 interest rates, 21 International Center for Settlement of Investment Disputes (ICSID), 3, 189 international financial institutions (IFI), 12, 20, 26, 31, 55, 61, 62, 68, 70, 71, 72, 80, 85, 88, 97, 101, 105, 107, 121, 123, 152, 181, 182 International Labor Organization (ILO): Convention, 91; Covenant 169, 5 International Mining company, 64 International Monetary Fund (IMF), 3, 5, 8, 13, 14, 18, 19, 20, 21, 24, 25, 49, 58, 61, 62, 65, 67, 80, 107, 115, 167, 172, 173, 181, 182, 183, 185 international pressures on Bolivia, 180–4

Index

labour rights, 167 labour unions, 30, 31, 45, 46, 48, 70, 75, 76, 77, 78, 120, 125, 132, 134, 139, 145, 152, 157, 160, 170 see also teachers, unions of land: abandoned, 92; privatization of, 101 land invasions, 47–8 land reform see agrarian reform Law of Administrative Decentralization (1994), 94 Law of Capitalization (1994), 97–8, 99, 101, 103, 107, 109 Law of Communities (1866), 42 Law of the National Agrarian Reform Institute (INRA) (1996), 92, 93, 101, 158, 167 Law of Popular Participation (1994), 93, 94, 95, 99, 100, 101, 126, 127, 130–2, 133, 134, 141, 142, 143, 144, 145, 160, 185; annual operating plans, 131, 139, 161; empowering effect of, 146; impact of, 137–45; municipal development plans, 131, 139 Law of Privatization (1992), 107 Law of Separation (1874), 35 lead, 5 Lechín, Juan, 77 Left Revolutionary Movement (MIR), 60, 71, 86, 150; MIR–ADN coalition, 79–80 Letwin, Oliver, 19 Ley de Ex-vinculación (1874), 42 Liberals, 43, 44, 69 literacy, 47 Lloyd Aero Boliviano (LAB), 109, 112, 117 LNG consortium, 174 Maclean, Ronald, 67 March for Dignity and Territory, 156 Marshall, T.H., 30, 88–90, 96 Melgarejo, Mariano, 41; overthrow of, 42 Mesa, Carlos, 2, 4, 9, 175, 179, 180, 181, 182, 183, 184, 185, 187; resignation of, 11, 179, 192

mestizos, 36, 40, 42, 44, 48, 57, 86, 155, 171 Mexico, 42; default on debt, 20; privatization in, 28 middle classes, 47, 52, 81 migration, rural to urban, 159 military, 41, 45, 50, 52, 53, 54, 56, 60, 64, 69, 120, 151, 157, 166, 172, 173, 174; awarded land grants, 92; US-financed bases, 168 miners, 153, 170, 175 mines: closure of, 70–1, 104, 112 mining, 63, 113, 121; privatization of, 121 Misicuni dam, 163, 187, 188 mita, 38 Morales, Evo, 145, 154, 157, 158, 167, 169, 170, 171, 173, 176, 182, 183, 184 Morales, Juan Antonio, 66 mother–child health programme, 139 Movement of Landless Peasants (MST) (Brazil), 170 Movement Towards Socialism (MAS), 135, 145, 149, 153, 169, 171, 172, 183, 184; success of, 170–2 Moyers, Bill, 189 municipal reform, 9 Napoleon Bonaparte, 40 National Association of Mediumsized Miners (ANMM), 52, 53 National Commission for Agrarian Reform (CAN), 92 National Confederation of Neighbourhood Organizations (CONAJUVE), 161 National Coordinator for the Defence and Recovery of Gas (NCDRG), 173, 174 National Democratic Action (ADN), 79, 71, 76, 169, 171 National Revolutionary Movement (MNR), 45, 46, 47, 48, 49, 60, 66, 68, 69, 71, 76, 84, 100, 150, 179; overthrown, 50 National Secretariat of Popular Participation (SNPP), 86, 139

232

nationalization: of gas, 1, 2, 3, 5, 11, 185; of Gulf Oil, 50, 51; of mines, 47; of Standard Oil, 64 natural resources, 1, 64, 119, 123, 167, 191, 193; appropriation of, 34; state control of, 48 neoliberalism, 1, 2, 4, 6, 7, 11–33, 37, 56, 58, 61, 62, 67, 81; and the state, 28–30; as hegemonic system, 22–5; disciplinary, 25; opposition to, 11, 30–2 Netherlands, 139 New Economic Policy (1985) (NEP), 60, 61, 65, 66, 67, 70, 71, 72, 73, 74, 76, 78, 79, 80, 81, 82, 83, 84, 85, 104, 107, 113, 121, 159, 172, 174, 179; resistance to, 75 Nganwe, Trevor, 166 Nicaragua, 27, 54 nitrates, 3 non-governmental organizations (NGOs), 62, 73, 77–9, 80, 86, 130, 131, 136, 139, 140, 141, 142, 143, 145, 146, 152; European, 78 North American Free Trade Agreement (NAFTA), 182 North, Oliver, 83, 157 October Agenda, 4, 179 O’Donnell, Guillermo, 25 oil, 98, 112, 119, 186; exploration for, 104; exports of, 79; privatization of, 109, 111, 120, 173; production of, 53, 80, 113; referendum on resources, 179 Olivera, Oscar, 164, 165, 166, 167; Goldman Prize, 189 opposition movements, 153–4 organic intellectuals, 125 Oversight Committees (OCs), 134 Oxhorn, Philip, 27

233

Index

Pachamama, 1 Paraguay, 43 participation, 127–30 see also women, participation of Patiño, Simon, 44, 48 Paz Estenssoro, Victor, 8, 60, 61, 62,

66, 67, 69, 70, 75, 76, 77, 79, 80, 81, 107, 184 Paz Zamora, Jaime, 79, 80, 86, 107, 108, 156, 157, 184 peasants, 44; free indigenous (piqueros), 45; movements of, 77 see also campesinos Peet, Richard, 12, 23, 24 pension fund administrators (AFPs), 109, 111, 113, 114, 116, 118, 122 pensions: bankruptcy of system, 172; reform of, 97–8 People on the Move, 163 Peredo, Antonio, 169 Peredo, Juan, 54 periphery, 34 Peru, 2, 6, 40, 43, 50 Petrobras, 119, 122 piqueros, 47 Plan de Todos (1994), 8, 9, 70, 82, 84–102, 103, 108, 174 Polanyi, Karl, The Great Transformation, 22 political accountability, 142–3 political rights, 93–5 pongos, 47 Popular and Democratic Union (UDP), 54, 55, 56, 57, 76, 153; government, 65 (failure of, 77) popular participation, 125, 131 Potosí, 38, 40, 49, 52, 134 poverty, 18, 193; reduction of, 78, 101, 152, 181 Poverty Reduction Strategy Papers, 152 Presidential Decrees: no. 21060, 60, 65, 75, 76, 79, 80, 172; no. 26415, 171 PriceWaterhouseCoopers, 119 private sector, 12, 13, 15, 18, 28, 29, 66 privatization, 8, 13, 17, 18, 19, 21, 26, 28, 49, 61, 66, 82, 84, 86, 97–8, 99, 102, 103–24, 127, 153, 187, 189, 193; of gas, 173; of land, 101; of mining, 121; of oil, 149, 173; of public services, 162; of railroads, 173; of water, 164, 165, 185

Index

Pro-Santa Cruz Civic Committee, 49 property, private, 30 property rights, 30; security of, 21 Public Advocate, 91 Quechua people, 45, 152, 155, 156, 158, 175 quinine, production of, 34 Quiroga, Jorge, 98, 120, 169, 170, 184 Quispe, Felipe (el Mallku), 154, 158, 167, 168, 171, 172, 174, 176, 184 racism, 4, 23, 193 railroads: asset-stripping of, 116–18; privatization of, 173 Ramírez, Esteban, 125 Ramos, Pablo, 76 Reagan, Ronald, 18, 19, 105 Reducciones resettlement programme, 38 regional autonomy, 69, 184–6 Regional Development Corporations (RDCs), 131 Regional Workers’ Confederation (COR), 161 remittances, 73–5, 102, 113, 149, 151 Repsol company, 173, 174, 179 Republican Law of Communities (1866), 35 resources see natural resources restructuring, 7, 60 revolutions: of 1899, 36; of 1952, 35, 44, 45, 46, 48, 56, 64, 68, 71, 75, 84, 93, 100, 123, 134, 143, 145 Revolutionary Workers’ Party (POR), 45 rights, in rural areas, 126 see also civil rights and political rights Robinson, William I., 26 Rodríguez, Eduardo, 1, 2, 11, 179–80 Royal Dutch Shell, 45 rubber, production of, 34, 43, 57 Russia, privatization in, 29 Sachs, Jeffrey, 14, 61, 66, 67 Salamanca, Daniel, 44, 45 San Cristobál mine, 5 Sánchez de Lozada, Gonzalo (Goni),

2, 9, 11, 67, 69, 79, 84, 86, 97, 98, 99, 100, 102, 103, 104, 108, 118, 120, 150, 162, 171, 172, 173, 174, 179, 181, 184, 186, 188; administration, legislation of, 85; as Finance Minister, 75; as Minister of Planning, 70; flight of, 175, 187 Sandinistas, Nicaragua, 54 Santa Cruz: model of, 51–2; rebellion of, 49 Santa Cruz Civic Committee, 53, 131, 169 Savings and Loans scandal, 17 School of the Americas (SOA), 50 schools see education sea, access to, 3, 6 Sectoral Regulatory System (SIRESE), 98 sewerage systems, 159 sexism, 76 Shultz, Jim, 189 Siles Zuazo, Hernán, 54, 55, 56, 57, 60 da Silva, Ignacio ‘Lula’, 2 silver: export of, 43; production of, 3, 34, 38, 39, 40, 44, 57; taxation from, 42 Singh, Anoop, 181 Sisa, Bartolina, 169 Smith, Adam, 15 Social Investment Fund (SIF), 73 social movements, 11, 37; sexism within, 193; urban, 149, 153, 154, 159–62 social programmes, 72 socialism, 16, 17 Somoza administration, Nicaragua, 54 Soros, George, 21 de Soto, Hernando, 20, 28, 29, 150 Spain, 34; colonialism of, 39, 35, 36, 57 (arrival of in 1532, 37–8); rebellion against, 40 speculative capital, 21 stabilization plan (1956), 65 Standard Oil, 45; nationalization of, 64

234

Starr, Pamela, 27 state: role of, transformed, 13; shrinking of, 107 State of ‘52, 49, 61, 65, 82, 100, 123, 194 state of siege: in 1985, 76; in 1986, 77; in 1999, 166, 167 state-owned enterprises (SOEs), 13, 29, 63, 84; sale of, 103 STET company, 111, 118 Stiglitz, Joseph, 21 strikes, general (1936), 45 structural adjustment programmes, 7, 14, 18–22, 20, 21, 49, 60, 61, 73, 131, 152, 153 students, 44, 45, 51, 54; movements of, 154, 161, 167, 168 Sub-Secretariat of Ethnic, Generational and Gender Affairs, 86 Suez Lyonnaise des Eaux, 162, 192 suffrage: extension of, 47; universal, 95 Superintendency for Basic Sanitation, 163

unemployment, 71

Vatican Council, Second, 56 Velasco, Juan, 50 Veliz, Alejo, 158 Venezuela, 2, 5 Viacao Aérea Sao Paolo (VASP), 109, 117 Villaroel, Gualberto, 46, 47 Wall Street Journal, 181 War of the Chaco, 43, 44–5, 173 War of the Pacific, 120, 174 War on Drugs, 74, 113, 157 Washington Consensus, 20–1, 23, 61 water, 5, 98; access to, 142, 143, 159 see also water war Water Law (1999), 158, 162, 163, 164, 165, 166, 167, 188 water war, 3, 9, 14, 127, 149–78, 186, 187, 188, 190, 194; as a turning point, 162–7 Williamson, John, 20, 23 women, 93; effect of neoliberalism on, 81–2; exclusion of, 133; health programmes for, 139; illiteracy of, 95; organization of, 133;

235

Index

tax war, 116, 172–3, 186–7, 190 taxation, 25, 26, 35, 38, 39, 41, 42; cuts, 19 teachers, 167; unions of, 76, 99, 101 (female,153); march by, 168 telecommunications, 118 Thatcher, Margaret, 18–19, 105 thymotic man, 17 tin: market for, 43; October 1985 crash, 66; production of, 3, 34, 44, 58; rising prices of, 51 Tiwanaku civilization, 37 de Toledo, Francisco, 38–9, 58 ‘Toronto treatment’, 67 trade unions see labour unions transnational corporations, 3, 6, 7, 22, 61, 84, 118, 120, 151, 162, 183 Transporte Boliviano de Hidrocarburos, 118 Tupac Amaru, 169 Túpaj Katari, 39, 40, 52, 169

Union of Civic Solidarity (UCS), 82 Union of Pensioners, 99 Union of Soviet Socialist Republics (USSR), collapse of, 153 United Kingdom (UK), 20 United Nations (UN), 96, 139 United States of America (USA), 5, 12, 20, 49–50, 53–4, 58, 65, 67, 68, 72, 74, 80, 88, 97, 107, 108, 121, 139, 151, 158, 171, 179, 182, 183; drug control agencies, 83; imperialism of, 2; rise of neoliberalism in, 19; sale of tin reserves, 48; Special Forces, 50 see also War on Drugs urban–rural relations, 139 Urioste, Miguel, 130 Uruguay, 2, 6, 37 US Agency for International Development (USAID), 86, 135, 157 US Trade and Development Agency, 108

Index

participation of, 76, 159, 160, 164–5; rights of, 92 Workers’ Party (PT) (Brazil), 146, 170 working class, 47, 88, 185 Workshop on Andean Oral History (THOA), 159 World Bank, 5, 8, 12, 13, 14, 19, 20, 24, 28, 58, 67, 68, 80, 86, 98, 106, 107, 108, 121, 139, 152, 162, 163, 167, 172, 181, 182, 183, 187, 188, 189, 191, 192; restructuring initiatives, 87; Social Emergency Fund (SEF), 62, 73, 78

World Conference on Education for All, 96 World Social Forum, 194 World Trade Organization (WTO), 14; Seattle protests, 31 Yacimientos Petroleros Fiscales Bolivianos (YPFB), 51, 104, 111, 112, 118, 120, 122; sale of, 151 Yuki people, 154 Zapatista movement (Mexico), 194 zinc, 5

236