Politics Beyond the Capital: The Design of Subnational Institutions in South America 9780804767408

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Politics Beyond the Capital

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Politics Beyond the Capital The Design of Subnational Institutions in South America

K E N T EATON

Stanford University Press Stanford, California 2004

Stanford University Press Stanford, California © 2004 by the Board of Trustees of the Leland Stanford Junior University. All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying and recording, or in any information storage or retrieval system without the prior written permission of Stanford University Press.

Library of Congress Cataloging-in-Publication Data Eaton, Kent Politics beyond the capital : the design of subnational institutions in South America / Kent Eaton. p. cm. Includes bibliographical references and index. ISBN 0-8047-4991-4 (cloth : alk. paper) 1. Decentralization in government—South America. 2. Subnational governments—South America. I. Title. JL1859.5.D42 E28 2004 320.8'098—dc22 2003025171 Original Printing 2004 Last figure below indicates year of this printing: 13

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Designed by Rob Ehle Typeset by Classic Typography in 10.5/12 Bembo

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For my mother, Pat Chapman Eaton, and sisters, Kelly Eaton and Kim Nelson

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Contents

List of Tables

ix

Acknowledgments

xi

Part One: Introduction 1. Explaining Decentralization and Re-centralization 2. Definitions, Cases, and Patterns

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Part Two: Nineteenth-Century Origins, Twentieth-Century Trajectories 3. Decentralization from Below: Argentina before 1966, Brazil before 1964 59 4. Decentralization from Above: Chile and Uruguay before 1973 86 Part Three: Bureaucratic Authoritarianism Beyond the Capital 5. Subnational Reforms by Military Governments

113

Part Four: Subnational Institutions in the Third Wave of Democracy 6. The Reemergence of the Governors in Argentina and Brazil 7. National Engineering of Subnational Institutions in Chile and Uruguay 168 Part Five: Conclusion 8. Comparing Waves and Approaches Notes

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Works Cited Index

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Tables

2.1 Subnational Government Spending in Latin America, 1995 31 2.2 Cross-national Support for the Subnational Elections Hypothesis 49 2.3 Variation in Land Area and Population: Argentina, Brazil, Chile, and Uruguay 53 3.1 A Comparison of the 1934 and 1947 Revenue-Sharing Laws in Argentina 71 3.2 Shares of Federal Income and Excise Taxes Transferred to Municipal Governments in Brazil, 1960—1966 83 4.1 Municipal Budgets as a Percentage of Governmental Expenditures in Chile 98 4.2 Legislators' Opinions on the Territorial Organization of the Uruguayan State 107 5.1 Municipal Revenues in Chile

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5.2 Installed Capacity in the Electric Sector in Brazil: State-Level versus Federal-Level SOEs 124 5.3 Federal and State Revenue Transfers to States and Municipalities by Regional Shares in Brazil, 1983 129 5.4 Effects of the 1973 Revenue-Sharing Reform in Argentina 6.1 Provincial Revenue Sharing per Capita in Argentina

147

6.2 Status of Banks Formerly Owned by State Governments in Brazil as of October 2000 165 7.1 National, Regional, and Municipal Shares of Revenue and Expenditure in Chile 178

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Tables

7.2 Breakdown of Municipal Revenues in Chile

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7.3 Evolution in the Vote for Traditional and Non-traditional Parties in Uruguay 185 7.4 National Election Results in Uruguay, 1946—1999 185 7.5 Electoral Performance of the FA—EP in Select Departments: 1971–1999 191

Acknowledgments

THE BIGGEST debt I owe on this book is to Princeton University, both for its generosity with leave time and research funds, and for the many wonderful colleagues I've had the opportunity to work with here. I am especially grateful to Jeffrey Herbst, James Trussell, and Richard Ullman for enabling me to take a leave from teaching in the Fall semester of 2002. Travel funds from the Committee on Research in the Humanities and Social Sciences, the Princeton Institute for International and Regional Studies, and the Program in Latin American Studies made possible the research trips to Argentina, Brazil, Chile, and Uruguay on which this book is based. For advice and support during my years at Princeton, I'm indebted to Gary Bass, Adam Berinsky, Sheri Berman, Nancy Bermeo, Jerri Horner, Atul Kohli, Evan Lieberman, Edna Lloyd, Kate McNamara, Paul Sigmund, Eric Thun, and Deborah Yashar. I would also like to thank Jeremy Adelman, Miguel Centeno, Peter Johnson, and Rose Rivera for making Princeton such an excellent place to study Latin America. I had the good fortune of working on decentralization at the same time that Tyler Dickovick was writing a dissertation on the subject at the Woodrow Wilson School, and I learned a great deal from him in our collaborative work on the politics of re-centralization. Rebecca Weitz provided superb research assistance on Argentina. For reading parts or all of the manuscript and providing highly constructive comments, I'm grateful to John Carey, Kathleen O'Neill, Paul Hutchcroft, and Tulia Falleti. For the opportunity to present some of the findings from my research, I thank the following colleagues who included me on panels or invited me to give talks at their respective universities: Arun Agrawal, Lisa Baldez, John Carey, John Coatsworth, Wolfgang Danspeckgruber, Ingrid Ellen, Maria Escobar-Lemmon, Eduardo Gomez, Jonathan Hiskey, Courtney Jung, Herbert Kitschelt, Stathis Kalyvas, Steven Levitsky, Ana Margheritis, Alfred Montero,Vicky Murillo, David Samuels, and Matthew Shugart. For their admirable professionalism, I'd also like to thank Amanda Moran and Anna Eberhard Friedlander at Stanford University Press.

xii Acknowledgments I incurred numerous debts abroad in the course of conducting interviews and archival work. The most rewarding aspect of this research project on decentralization was the chance it afforded me to talk with politicians and policy makers at both the national and subnational levels. I can't name them all here, but I'm deeply grateful for the time they made to answer my questions. In Argentina, I owe much to the librarians of the Direccion de Informacion Parlamentaria in Congress for the valuable information they made available. I was lucky to visit Brazil when David Samuels was on leave in Sao Paulo, and I am grateful to him for his insights and for introducing me to such Brazilian scholars as Fernando Abrucio and Edgardo Kugelmas. In Rio de Janeiro, Octavio Amorim at the Fundacao Getulio Vargas was extremely generous with his time and helped to orient my research there. In Chile, I thank the many people at the Santiago office of the Subsecretaria de Desarrollo Regional y Administrativo (SUBDERE) who responded enthusiastically to my requests for interviews. In Valparaiso, I appreciate the interest taken in my research by Manuel Tobar of the Asociacion Nacional de Consejeros Regionales and by the staffers of the Senate's Comision del Interior. I'd also like to thank EstebanValenzuela, former mayor of Rancagua and insightful critic of Chile's centralist traditions, for taking me with him one day in August 2001 on his campaign rounds. In Uruguay, I learned much from my tutorials with the impressive group of political scientists and historians who work at the Institute de Ciencia Politica at the Universidad de la Republica, including Daniel Chasquetti, Jorge Lanzaro, Maria Elena Laurnaga, and especially Alicia Veneziano. Luz Maria de la Mora and Tim Kessler were excellent hosts in Montevideo. Finally, I am particularly grateful to Karl Britto for his tremendous support and patience during the years that I dedicated to this project, and to Annie Kauffman, whose devotion to her career has always inspired me in my own.

Politics Beyond the Capital

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CHAPTER

Explaining Decentralization and Re-centralization

1

ONE OF THE MOST striking political trends of recent times is the growing prominence of politicians who hold governmental office below the national level. Whether they are called mayors or governors, municipal councilors or state legislators, subnational politicians have come to enjoy new types of authority relative to national politicians within their respective countries.1 Examples abound of the rise of subnational actors. In Russia and China, regional and provincial officials in the 19905 acquired a much greater degree of autonomy from the center, as measured in their enhanced control over fiscal revenues and local resources (Stoner-Weiss i997;Wedeman 2003). In India, village-level committees received new responsibilities over vital governmental services as a result of constitutional amendments in 1992 (Singh and Srinivasan 2002). In the Philippines, thanks to a 1991 reform that increased the independence of subnational governments, mayors report that they no longer have to go to Manila to get a window fixed in City Hall (Eaton 2OOia). In South Africa, architects of the democratic transition accommodated the demands of regionally based ethnic groups by expanding the policymaking authority of provincial governments and by enabling them to write their own constitutions (Steytler and Mettler 2001). And in Latin America, where the strengthening of subnational governments is perhaps most pronounced, many ambitious politicians now calculate that serving as mayor of a large city offers better career opportunities than the traditional legislative path. Despite tremendous cross-regional and cross-national differences in the scope, extent, and timing of this phenomenon, in every case the rise of subnational politicians can be attributed to some form of decentralization. In some countries, subnational actors have mustered the political strength to

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Introduction

impose decentralizing changes from below on national policy makers who otherwise would have preferred to keep government centralized. In other countries, strong subnational pressures have been absent, but national politicians at the top have decided to decentralize anyway in the pursuit of a whole host of political and economic objectives. Politicians in many cases have experimented with only very cautious and gradual approaches to decentralization, but in other cases they have moved quickly to adopt quite radical and aggressive measures. These differences in the paths toward decentralization are important, and they make this topic a particularly rich one for comparative political science, but they are essentially different variations on a common theme: the unmistakable, underlying shift toward more decentralized patterns of government. In most countries, due to a research tradition that long privileged studies of national actors, events, and institutions, this shift has exposed significant gaps in our knowledge of politics below the national level and of the politicians who operate there (Linz and de Miguel 1966; Rokkan 1970; Snyder 2OOib). The attempt to understand why subnational actors have acquired greater salience and what their rise means for the political systems in which they maneuver has begun to generate significant scholarly interest in the causes and consequences of decentralization. As a study designed to contribute to the emerging literature on decentralization, the research presented in this book innovates by significantly expanding the number of cases that can be used to build and test general theories of decentralization. According to one of the book's central premises, while the current wave of decentralization appears to be more widespread than any prior wave, the phenomenon of decentralization itself is not unique to the contemporary period. For a complex set of reasons that have varied across time and space, national officials in earlier periods and in distinct policy areas have decentralized authority to subnational officials. Well before the most recent wave of decentralization attracted notice, the division of authority between national and subnational governments regularly occasioned deep and protracted political conflicts. The basic observation that decentralization is not new provides the major point of departure for this book, and informs its use of a comparative historical approach in studying these earlier episodes alongside contemporary cases. Recognizing the theoretical importance of episodes that pre-date the 19805 and 19905 offers a promising way to begin to close the gaps in our understanding of politics beyond national capitals. Due to its much earlier independence from colonial rule relative to Africa and Asia, Latin America offers a particularly rich set of cases for the study of decentralization across time. Specifically, I focus on the design and re-design of subnational institutions in the four Latin American countries that have amassed the most ex-

Decentralization and Re-centralization

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tensive records with decentralization and re-centralization: Argentina, Brazil, Chile, and Uruguay.2 The interest in earlier episodes of decentralization represents a major departure from the current literature (Angell, Lowden, and Thorp 2001; Manor 1999; O'Neill 1999; Willis, Garman, and Haggard 1999).Though theoretically sophisticated and empirically rich, this literature has suffered from its nearly exclusive focus on the contemporary period. The presentist bent of recent scholarship is easy to understand. Decentralization is a highly complex issue affecting multiple policy areas and a number of different political actors operating at several levels of government. Ironically, decentralization has emerged as one of the most exciting and important research topics just as political science as a discipline has come to place less value on field research. Relative to previous scholarly norms that neglected the subnational realm in favor of national-level politics, decentralization has significantly increased the costs and complexity of field work by requiring researchers to collect and analyze information on a multiplicity of subnational actors and institutions rather than just national-level data.3 The research challenges involved in accurately documenting change in these many policy areas and in the roles played by these different actors are daunting, with the result that few scholars have reviewed evidence from earlier periods or compared waves of decentralization through time.4 Despite these obstacles, I contend that broadening the frame of reference to include prior experiences with decentralization holds out real promise. First, empirically speaking, placing the recent shift toward decentralized governance into historical perspective will help us see what is unique and what is not about the current wave of decentralization. How does the current wave compare with earlier waves? In what ways does the mix of rights and responsibilities devolved in earlier periods differ from the mix preferred in the current period? What lessons can be learned by studying what happened when earlier waves of decentralization receded? Second, and perhaps more importantly, this research design can contribute significantly to theory-building in the area of decentralization. The exclusive focus on the contemporary period, in which such widespread phenomena as globalization, democratization, economic liberalization, and the rise of ethnic conflict all may be said to encourage decentralization, makes it difficult to isolate the influence of any one of these factors on the adoption of decentralizing policies. Incorporating earlier periods into the analysis makes it possible to control for some of these factors and expands the number of observations that can be used to identify crossnational and cross-temporal patterns and trajectories. Are the preferences of national and subnational actors toward decentralization consistent through time? Is it possible to generalize about these preferences cross-nationally?

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Introduction

Under what conditions does decentralization deliver the benefits anticipated by politicians when they decide to devolve resources and responsibilities? If history shows that decentralization is not unique to the contemporary period, it also indicates that we should not think of decentralization as irreversible. Again, for reasons that vary across cases, previous experiments with decentralization have almost always met with re-centralizing reactions. Attention to the historical record suggests that powers devolved by national policy makers to their counterparts at the subnational level can also be reclaimed. Sometimes re-centralization is promoted as a solution to the problems created by decentralization itself (e.g., macroeconomic instability and perceived declines in the quality of governmental services), but sometimes it occurs for exogenous reasons that have little to do with the consequences of decentralization, including such events as military coups or national electoral victories for parties hostile to decentralization. Although there are important reasons to think of the wave of decentralization that began in the 19808 as one that is still ongoing, in some countries this latest wave has already crested and begun to experience significant reversals (Dickovick and Eaton 2004). There are important parallels here with the earlier literature on regime change, which carefully identified and compared transitions back and forth between democratic and non-democratic regimes (Linz 1978; O'Donnell, Schmitter, and Whitehead 1986). Despite the optimism generated by democracy's third wave (Huntington 1991), continued democratization is certainly not inevitable in the developing world, and neither is continued decentralization. Rather than being a one-shot deal, the decision to decentralize opens up a new and contentious arena for political struggle. Even a cursory survey of experiences in developing countries demonstrates that the division of power between levels of government can be highly unstable and contingent, with nearly constant pressures to re-divide power in the attempt to benefit either subnational or national actors. Considering that decentralization reallocates the very authority to make decisions, the contentious nature of intergovernmental relations is hardly surprising. Stepping back from the current period, one can observe changes back and forth along a continuum marked by greater degrees of decentralization at one end and greater degrees of centralization at the other.5 At the heart of this book is the consideration of a variety of explanations for movement along this "continuum of decentralization." Puzzles of Decentralization and Re-centralization Articulating persuasive explanations of decentralization is particularly challenging because the rationale behind the decision to decentralize is seldom obvious. Many scholars have emphasized the puzzling nature of decentraliza-

Decentralization and Re-centralization

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tion (Doner and Hershberg 1999; Grindle 2000; O'Neill 1999). If decentralization transfers authority and resources to subnational actors, then the individuals who stand to lose power from decentralizing changes—politicians at the center—control the very decision to decentralize. Why would politicians surrender power? In some cases, a closer look at the actual content of "decentralizing" policies makes the decentralization puzzle altogether less puzzling. For example, the detailed analysis of decentralizing measures frequently shows that national policy makers write legislation in such a way that it preserves their ability to continue to control subnational actors, even after the formal transfer of revenues and expenditures. National legislators can be quite ingenious in this respect. For example, though the 1991 Local Government Code in the Philippines has certainly proved to be one of Asia's most significant experiences with decentralization, the Code protected the interests of national legislators in a variety of ways. Most importantly, it introduced nationally controlled audit mechanisms of local officials and forced local governments to absorb employees of the national government, many of whom had been hired at the behest of national legislators (Eaton 2001 a, 118). As another example, decentralizing reforms in Venezuela in 1996 increased the states' shares of tax revenues but gave a central government agency "responsibility to allocate these resources contingent upon the submission and approval of specific earmarked projects by regional and local governments" (Penfold Becerra 2004). A common tactic by national decision makers is the transfer of political authority to subnational actors, by allowing their direct election, without transferring additional resources, or, in the reverse, transferring resources but not allowing subnational elections. An important example of the latter phenomenon is authoritarian Chile (1973—90), where the Pinochet government transferred schools and hospitals to municipalities but replaced democratically elected mayors with individuals who were closely controlled by the regime. In these and other cases, what is called decentralization looks a lot less radical upon closer inspection. Thus, we should maintain a healthy degree of skepticism when national actors announce that they have decentralized; the changes they introduce may fall well short of genuine decentralization. In another sense, concerted attempts by national actors to re-centralize authority in the wake of decentralization may also help make certain aspects of the decision to decentralize less puzzling. Two cases in point are Argentina and Brazil, where national authorities began to pursue re-centralizing measures in the early 19905 shortly after the adoption of decentralizing changes in the late 19808. The frequency of re-centralizing attempts so soon after decentralization suggests that national politicians may indeed remain fundamentally opposed to decentralizing changes, even as they are forced to adopt

8

Introduction

them by short-term political circumstances. At any given point in time, national politicians may endorse decentralizing measures that undermine their institutional interests when they are forced to do so by other actors. In short, the weakness of the actors who oppose decentralization and the strength of those who advocate it may explain why decentralization occurs. If so, then we need to do more than search for evidence that decentralization is in fact always compatible with the underlying interests of national decision makers. Despite these caveats, in many cases, decentralization is truly puzzling. The literature is full of examples of decision makers at the center who, rather than being forced to decentralize against their wishes, were proactive in adopting decentralization for a variety of strategic reasons (Montero and Samuels 2004; O'Neill 1999, 2003;Willis, Garman, and Haggard 1999). As explained later in this chapter, I find it useful to distinguish between "bottom-up" dynamics, in which decentralization is forced on national decision makers from below, and "top-down" patterns, in which national actors, operating in a more strategic mode, choose to decentralize. According to one of the central findings of this study, much of the content of decentralizing measures can be traced to the identity of the actors (e.g., national or subnational in origin) who are responsible for inserting decentralization into the policy agenda. The success of re-centralizing efforts generates its own set of explanatory puzzles. What explains the ability of national decision makers to build sufficient political support to reclaim authority from subnational governments? In his 1999 study for the World Bank, which provides one of the most comprehensive surveys of the recent experience with decentralization, James Manor argues that attempts to re-centralize seldom face popular pressures in defense of decentralization. "In all of the many cases where higher-ups have eroded or destroyed decentralized authorities , . . there is no evidence of preventative action at the grass roots" (Manor 1999, 76). The absence of a more vigorous grassroots defense of decentralization may be explained by the reality that decentralization does not deliver tangible benefits to ordinary people, or does not deliver them soon enough (e.g., before the onset of re-centralizing pressures). But this fails to explain why subnational officials, who do stand to lose from the reversal of decentralization, are unable to prevent re-centralization. Whether or not pressures from governors and mayors were critical in the adoption of decentralization to begin with, one would expect them to defend acquired rights and resources. In addition to suggesting that we should investigate the failed responses of governors and mayors, the fact of re-centralization also directs our attention to the tools and strategies that centralizers use in seeking to reverse decentralization. Explaining re-centralization can thus be as intellectually challenging as accounting for the decentralizing episodes that so far have received more attention from scholars.

Decentralization and Re-centralization

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Interpreting Waves of Decentralization and Re-centralization Two particularly important hypotheses have emerged to explain decentralization in the contemporary period. By significantly expanding the number of cases available for study, the comparative historical approach adopted here makes it possible to evaluate these hypotheses more extensively than has been attempted to date. Stated in their most general form, these hypotheses posit liberalizing changes in political regime type and economic policy orientation as the two critical factors that explain decentralization. Drawing on the same causal logic, movements in the opposite direction, away from democracy and the market, can be identified as the chief factors responsible for recentralization. According to the logic of these hypotheses, if we want to understand the decision to decentralize or re-centralize, we must first consider the prior and more profound choices between democracy and authoritarianism, and between statism and the market. While academics, donors, and policy makers themselves commonly cite democratization and economic liberalization as factors that have caused decentralization, the consistent application of these two hypotheses to a broad set of cases is noticeably missing from the literature. In a body of scholarship that is dominated by singlecountry studies, one of the chief contributions of this book is to use a much more varied set of empirical materials to systematically test these two hypotheses across time and space.6 According to the findings that are presented in greater detail in the chapters that follow, episodic changes in economic development strategies and regime type are important but ultimately insufficient as explanations of movement along the decentralization continuum. ECONOMIC POLICY ORIENTATION

In the attempt to explain decentralization and re-centralization over time, one promising line of inquiry emphasizes the causal role played by fundamental reorientations of economic policy. Just as many developing countries have alternated between democratic and non-democratic forms of government through transitions that might explain decentralization and re-centralization, so have they experimented with different models of economic development. Can the recent wave of decentralization be traced to the economic liberalization that took place in so many countries in the 19805 and 19905? In this section, I argue that it is critical to broaden the discussion of economic liberalization by asking more generally whether movement along the decentralization continuum can be explained by successive choices between statist and market-oriented development strategies. Did the illiberal economic strategies that held sway in the middle decades of the twentieth century cause centralization, and were the more liberal strategies that predominated both earlier and later responsible for movements in a decentralizing direction?

IO

Introduction

As political scientists have amply demonstrated, the implementation of state-led followed by market-oriented development strategies set into motion profound changes in the political life of developing countries in the twentieth century. State-led industrialization, for example, facilitated the emergence of new political movements and demands (Huntington 1968), the incorporation of new interest groups into the political system (Collier and Collier 1991), and the expansion of the state itself (Stepan 1978). Consequently, the adoption of market-oriented strategies led to the ideological reconfiguration of political parties (Stokes 1999), the construction of new interest coalitions (Haggard and Kaufman 1992), and the redefinition of core state responsibilities and bureaucratic arrangements (Kahler 1990).Though the comparative literature has tended to neglect the impact on the subnational realm by focusing instead on changes in political parties, interest groups, and the state bureaucracy at the national level, the pursuit of different development models has clearly had powerful consequences for subnational governments as well. For much of the twentieth century, the pursuit of state-led development strategies undoubtedly encouraged countries to centralize power. Despite much cross-national variation in the degree to which centralization actually occurred, centralism was a core component of statism as it was practiced in most of the developing world. According to several generations of development scholars, centralization was critical for the performance of such difficult and necessary tasks as the removal of structural obstacles to industrialization (Prebisch 1959), the forging of backward and forward linkages (Hirschman 1961), and the construction of favorable alliances with domestic and foreign capital (Evans 1979). In country after country, centralization took place along both horizontal and vertical dimensions. Horizontally, statism at the national level led to the concentration of decision-making authority among chief executives and high-level bureaucrats, who gained power relative to legislators .Vertically, by wresting authority away from subnational actors, statism also led to important changes below the level of the national government. Mayors and governors with broad powers to tax, spend, and borrow were simply seen as incompatible with the pressing need to marshal and direct scarce resources toward those select industries whose growth was deemed critical for the entire country's development. Subnational actors did not lose all of their powers, and many of the most important tools acquired by national actors were not taken away from subnational governments but rather created expressly for the central government, including the important establishment of state development banks and state marketing boards (Bates 1981). Nevertheless, what appears to be clear is that twentieth-century statism left little room for robust subnational governments.

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In the closing decades of the twentieth century, many developing countries radically altered their economic development strategies, with potentially significant implications for the distribution of authority between different levels of government. The deep economic crises of the 19805 that led to the discrediting and eventual abandonment of statist models also raised awareness of the costs of centralizing too much authority in the hands of national decision makers. In the statist era, the territorial reallocation of authority away from subnational governments may have worsened some of the negative outcomes of that period, including the capture by leading industries of key decision-making bodies in the central government and the heavy concentration of industrial investment around capital cities. At the same time, the specific selection of market-oriented approaches to replace statism is broadly thought to have given additional impetus to decentralization efforts (Burki, Perry, and Dillinger 1999; Campbell 1997). At the most general level, liberalizers are attracted to decentralization because it helps them shrink the size of the central state through the off-loading of expenditure responsibilities. By weakening two groups that have been among the most steadfast supporters of a more statist policy orientation—national labor unions and public-sector bureaucrats—decentralization has further appeal to liberalizers. In an important argument derived from the Chinese case, Montinola, Qian, and Weingast (1995) have found additional cause to believe that liberalization and decentralization go together. According to these scholars, policy makers can successfully pursue market-driven growth—even in the absence of formal guarantees for investors—so long as decentralization allows for competition between subnational units. Synthesizing these various points, one could argue that decentralization has occurred not just because of the perceived failure of centralization, but because it complements the economic development model that happened to replace statism. According to the hypothesis discussed above, the centralization of policy authority for much of the twentieth century and its unmistakable decentralization in the 19805 and 19908 is merely part of the larger story of the search for effective development models.To be confident about this hypothesis, we would want to establish that major changes in the distribution of authority between levels of government are consistent with underlying shifts in economic policy orientation. While the pursuit of statist and market-oriented approaches often resulted in subnational changes in the expected direction, I argue that many important changes in the relationship between national and subnational governments cannot be attributed to changes in development models. The redistribution of authority between national and subnational officials has simply been much more frequent than the more intermittent shifts in economic policy orientation.

12 Introduction For example, even within the period in which state-led development strategies reigned supreme, countries implemented a variety of both centralizing and decentralizing changes in the prerogatives and responsibilities assigned to subnational governments. In Argentina and Brazil, revenue-sharing rules were rewritten in a decentralizing direction in the 19405, even as those countries moved decisively to centralize governing responsibilities through policies of import-substituting industrialization. Again, in Argentina, in 1973, and Brazil, in 1988, policy makers adopted an even more sweeping decentralization of revenue in the absence of any concerted shift away from statism. And even more recently, that is, within the last two decades of marketoriented policies, it is possible to identify alternating moments of expansion and contraction in the powers assigned to subnational actors.7 For instance, as I argue in Chapter 7, Chile adopted significant changes in the distribution of political authority and governing capacity in the 19905 without questioning the parameters of the underlying liberal model inherited from the authoritarian regime of Augusto Pinochet. My cases also suggest that economic liberals have responded quite differently to decentralization at distinct points in time. In Chile, in the late nineteenth century, for example, economic liberals embraced decentralization as a means of vetoing the statist proposals coming out of the executive branch. By shifting taxing authority to the municipalities, liberals hoped to prevent the president from expanding the intervention of the state in the economy. Economic liberals in Uruguay in the early twentieth century embraced decentralization for essentially the same reasons—transferring fiscal authority away from Montevideo made it harder for the president to grow the state by increasing taxes on the country's leading exporters. In late-twentiethcentury Argentina and Brazil, however, the pursuit of more liberal development strategies led to more centralized forms of government under the presidencies of Carlos Menem and Fernando Henrique Cardoso. In the 19908, Menem and Cardoso emerged as two of the most significant economic liberals in the histories of their respective countries, yet they are most accurately seen as centralizers. Both of these presidents sought to rein in subnational governments in response to the more austere fiscal conditions that faced most developing countries in the 1980$ and 19905. Understanding cross-temporal variation in the relationship between liberalization and decentralization requires us to disaggregate the latter term more carefully into its component parts, as I do in the next chapter. What liberals in the contemporary period have sought to centralize is control over fiscal resources, and what they have sought to decentralize are expenditure responsibilities (Eaton 2OOib, 25).While this mixed response seems to be quite compatible with liberalism in the contemporary period, earlier liberals were much less interested in protecting the central government's authority over revenues.

Decentralization and Re-centralization

13

Simply put, there is much room to doubt whether decentralization and re-centralization can be simply read off from deeper shifts in economic policy orientation. The Brazilian case offers an especially useful counter to the argument that a particular model of economic development unambiguously leads its advocates to adopt the same types of changes in subnational governments. As I argue in Chapter 5, statism in Brazil led to the expansion of governing capacity at the subnational as well as at the national level, which problematizes the conceptualization of statist strategies as exclusively centralizing.8 My reading of the Brazilian case suggests that scholars need to more carefully distinguish between the concepts of "statism" and "centralism." More generally, Chapter 5 casts doubt on the "policy orientation" hypothesis by showing that subnational governments in Latin America acquired newfound salience under military rule in the 19605,19705, and 19805, despite the fact that these governments pursued such different economic strategies, ranging from the highly statist approach of the generals in Brazil to Pinochets quite doctrinaire version of neoliberalism in Chile. Taken together, these findings show that the reorientation of economic development strategies offers too blunt a cut as an explanation of decisions to centralize or decentralize, and that additional causal factors deserve our attention. Here too there is an important parallel with the earlier scholarship on regime change. As that literature established, economic factors such as industrial deepening in the 1960$ and the onset of the debt crisis after 1982 shaped transitions from and to democracy, but reducing regime change to economic events seriously jeopardizes our ability to fully understand these transitions (Linz 1978; O'Donnell, Schmitter, and Whitehead 1986). Likewise, centralizing and decentralizing changes can sometimes be attributed to major economic reforms, but they often have less to do with the high politics of development strategy than with everyday struggles for political supremacy between and among national and subnational officials. R E G I M E CHANGE

I argued in the previous section that it is important to consider not just the most recent wave of economic liberalization but, in a more broadly gauged analysis, the causal roles played by reorientations of economic policy at earlier points in time and in both liberal and statist directions. In this section, I make a similar argument about political regime change. Does the shift between types of regimes (e.g., democratic and non-democratic) regularly trigger decentralizing and re-centralizing changes? Under what conditions do regime transitions lead decision makers to reallocate authority between the national and subnational governments? According to one of the most widely held beliefs about decentralization, transitions to democracy set a variety of decentralizing changes into motion (Blair 2000; Crook and

14

Introduction

Manor 1998; Nickson 1995).The salience of this hypothesis owes to the frequency with which the third wave of democracy that began in Portugal and Spain in the mid-1970s appears to have been followed by an equally widespread wave of decentralization in the 19805 and 19905. This sequence has begged the question of whether the first wave caused the second (Eaton 2OO4a; Montero and Samuels 2004; Oxhorn 2004), though in some countries the simultaneity of the two events undercuts claims of causation. Is the democratization hypothesis time-bound? On the face of it, if democratization causes decentralization, we should expect to see evidence of this dynamic in the wake of earlier democratic transitions. Evidence that prior transitions to democracy routinely led to decentralization would increase our confidence in democratization as a critical factor in the current period. Otherwise, the question becomes why this causal pattern holds only in certain periods and not in others. Both democratization and decentralization can be understood as changes that divide and fragment, rather than concentrate, power. While democratization redistributes power among executive, legislative, and judicial actors, decentralization redistributes power across levels of government. But what is the causal logic that might connect these two phenomena? As is the case with the reorientation of economic policy, a variety of causal paths can be identified.9 For example, democratically elected officials might view decentralization as a reform that will further the democratic transition itself and/or make the future breakdown of democracy less likely. According to Diamond, "In countries emerging from authoritarian rule in Latin America, decentralization was seen as a means to dilute the power of the central state and thus undermine the political, social and economic resource bases on which authoritarian rule could be rebuilt" (Diamond andTsalik 1999, 120). A similar dynamic can be identified in the Philippines, where Corazon Aquino emphasized decentralization as one of the most effective ways to secure democracy (Eaton 2OOia, n6). According to Grindle, "audacious reforms" that decentralized authority in Argentina, Bolivia, and Venezuela were also designed to strengthen democratic openings in each country (2000,18). But the more generalizable claim is that democratization empowers a variety of actors—voters, interest groups, and social movements—who may use more open political systems to act on their preference for decentralization. If voters prefer decentralization, and if elections are free and fair, then the holding of electoral contests should generate decentralizing pressures. Unlike unelected chief executives, presidents and prime ministers who are democratically elected may agree to decentralize as a means of bolstering their electoral support among groups who favor decentralization (Garman, Haggard, and Willis 1996). Where politicians calculate that decentralization will improve the economic indicators on which elections often turn, the in-

Decentralization and Re-centralization

15

troduction of elections may encourage them to decentralize even in the absence of pronounced voter interest in decentralization. In this book I privilege one particular variant of the democratization hypothesis and let this hypothesis drive the selection of cases included in my research. According to this specific "subnational elections" hypothesis, the adoption of electoral mechanisms to select subnational officials transforms these officials into powerful advocates of changes that shift authority over resources and expenditures downward. In other words, when elections replace appointments as the mechanism for selecting subnational officials, democratization at this level should produce pressures for decentralization from below. This hypothesis merits special attention precisely because so many developing countries have recently expanded the scope for democratic politics at the subnational level, or are currently debating such changes. Indeed, the use of subnational elections is one of the factors that distinguishes many countries' experiences with democracy in the third wave from earlier waves. During prior experiences with democracy, elections were often held at the national level alone. In Latin America, for example, many of the countries that participated in the third wave of democracy also participated in prior waves, but during previous democratic periods the norm was for democratically elected national officials to appoint subnational officials. As I explain in Chapter 2, by accumulating significant experiences with subnational elections well before the third wave, the four countries on which my research focuses constitute the major exceptions to this norm in Latin America. Their experiences yield numerous episodes that can be used to assess the specific claim that subnational elections lead to decentralization. When subnational officials come to their offices via election rather than appointment, it stands to reason that they would develop clear preferences for the decentralization of revenues and expenditures. Decentralization increases the power of subnational officials relative to the populations they govern and relative to the national policy makers who effectively concentrated most policymaking authority under previous periods of centralized governance. Dependence on central government officials for revenue transfers and spending projects represents a serious constraint on subnational politicians that prevents them from building their own political support coalitions independent of national politicians. The important point is that these pressures for decentralization would be absent both under periods of authoritarian rule, when subnational officials typically serve at the pleasure of de facto authorities at the center, and under rules that give democratically elected national presidents the right to appoint subnational officials. According to the second broad "regime-type" hypothesis that this study is equipped to evaluate, transitions from democratic to non-democratic regimes lead to re-centralization. Coups that overthrow presidents, close

16

Introduction

legislatures, and concentrate policymaking authority in the hands of military authorities are by definition centralizing events. But do they also lead military authorities to reassign powers and resources away from subnational governments? The breakdown of democracy itself might explain how authoritarian leaders are able to re-centralize, but it remains to ask why they should seek to introduce re-centralizing changes. With respect to subnational elections, it is easy to perceive how the continued use of elections to select subnational officials might threaten the goals of authoritarian leaders. Subnational elections would be particularly anathema to those military authorities who take power vowing to fundamentally remake the political system rather than merely dismiss the particular politicians whom they find unpalatable. One can also perceive why authoritarian regimes might try to re-centralize previously devolved resources. In Latin America and elsewhere in the developing world, military governments have often seized power in the midst of economic crises, promising to solve fundamental economic problems and deliver economic growth. In many cases, they identified prior decentralization measures as at least partially responsible for the economic difficulties that brought them to power. Thus, "housecleaning" economic reforms imposed by military regimes frequently involved cutting revenue transfers to subnational governments and rescinding their powers to collect taxes. Have democratic breakdowns regularly produced the reversal of prior decentralizing measures? According to the evidence presented in this book, there is no simple or straightforward relationship connecting regime change with either decentralization or re-centralization. Democrats are not necessarily decentralizers and authoritarians do not always re-centralize. For example, some of the earliest transitions to democracy in Latin America produced important moves in a re-centralizing rather than a decentralizing direction. As I discuss in Chapters 3 and 4, the only two Latin American countries to participate in the world's first wave of democracy—Argentina under Hipolito Yrigoyen (1916) and Uruguay under Jose Battle y Ordonez (1903)—experienced the clear centralization of political authority following the transition. In each case, presidents used the enhanced legitimacy generated by the introduction of democratic elections to pursue centralizing changes, and in each case centralization was designed to undermine regionally based opposition to the new, democratically constituted national authorities. Equally problematic for the "regime change" hypothesis is the finding that military governments in the 19605, 19705, and 19805 introduced reforms that actually expanded the administrative, managerial, and institutional capacity of subnational governments. According to the pattern that emerges from my cases, the replacement of democratically elected subnational officials

Decentralization and Re-centralization

17

with appointed individuals from the center enabled military governments to contemplate a subsequent expansion in the roles played by subnational governments. Having enforced strict political control over subnational officials, de facto authorities at the national level no longer had cause to worry that subnational spheres of government could be used in ways that would challenge or undermine their objectives. In fact, rather than see subnational governments as obstacles, military authorities enlisted these levels of government as tools that could help them implement a variety of far-reaching economic and political goals. In Chapter 5,1 explore the puzzle of why authoritarian leaders often pursue changes that enhance subnational governments, and find that the distinction between the offensive and defensive periods of military rule is critical in understanding the strategies of de facto governments. In offensive periods authoritarian governments use changes in the subnational realm in the service of ambitious transformative projects, and in defensive periods changes in subnational institutions are used to retard, delay, and/or control re-democratization.10 With respect to the "subnational elections" hypothesis, have subnational officials successfully pressed for decentralization when they are elected rather than appointed? If not, what has prevented them from serving as the handmaidens of decentralization? According to the pattern that emerges from my cases, subnational democratization in the form of elections for subnational officials routinely converted these officials into effective protagonists of decentralization in Argentina and Brazil, but not in Chile and Uruguay. In accounting for this variation in the behavior of elected subnational officials, I offer an explanation that blends attention to structure and agency. In Argentina and Brazil, the strong position of subnational officials within the structures of their respective political systems explains their ability to secure decentralization over the opposition of national politicians in the wake of successive democratic transitions. In contrast, the weak structural position of subnational officials in Chile and Uruguay denied them the type of political resources that would be necessary to make decentralization happen against the wishes of national politicians. In underscoring the importance of the internal party dynamics that either empower or marginalize subnational politicians, this study finds additional empirical support for the work of Eliza Willis, Christopher Garman, and Stephan Haggard. According to these scholars, legislators who are beholden to subnational officials within their parties are more likely to support decentralization than legislators who are more responsive to national party leaders (Willis, Garman, and Haggard 1999, 9). Many of the episodes discussed in this book demonstrate that the importance of internal party dynamics is not limited to the contemporary wave of decentralization. The

18

Introduction

status of subnational officials within their parties, and specifically the question of whether these officials are key "party brokers," is equally significant in earlier time periods. In the broader historical time frame adopted in this study, I use the status of subnational officials within their parties to explain why democratization only sometimes leads to decentralization. Thus, though it would be difficult to sustain the claim that democratization everywhere causes decentralization or that democratization is its only cause in any one case (Manor 1999), we can with greater confidence generalize about the specific conditions under which democratization sets decentralization into motion. Specifically, the adoption of subnational elections generates successful pressures for fiscal decentralization only when those officials who are elected are also powerful players in the parties to which they belong. Where the internal organization of political parties denies subnational officials much influence, these officials are usually powerless to bring decentralizing changes about, even when they are elected rather than appointed. In two important respects, however, my research departs from the approach advanced by Willis, Garman, and Haggard. First, I find that cross-national variation in the partisan strength of subnational officials is limited as a causal variable and, more generally, that attention to structural factors is insufficient. Where structural features of the party system empower subnational officials, as in Argentina and Brazil, conflict between these officials enables national politicians to limit decentralization. At times, national officials are even able to achieve re-centralization despite their relative weakness within parties.The absence of a united front by subnational actors, however strong they may be as individual actors within their parties, preserves for national officials an important degree of agency in the design of subnational institutions. Most of the recentralizing efforts that are explored in this book—some of which took place under democratic auspices and some of which were pursued by authoritarians—succeeded as the result of divide-and-conquer tactics by national politicians. By offering side deals to some subset of subnational executives, presidents were often able to defeat otherwise quite powerful subnational officials. Re-centralizing presidents have not only been able to play governors off of governors and mayors off of mayors, they have also been able to set governors and mayors against each other. In other words, conflicts between officials at the intermediate and local levels expand the scope for presidential agency just as certainly as conflicts among officials at the same subnational level. Second, I argue that decentralization does not need influential subnational advocates in order for it to occur. Where political structures deny subnational actors much influence in their parties and instead assign power to national officials, conflicts among these officials can open up considerable scope for the passage of decentralizing measures, as in Chile and Uruguay.

Decentralization and Re-centralization

19

Thus, just as conflicts between structurally powerful subnational officials can limit their decentralizing potential, conflicts between structurally powerful national officials can limit their otherwise unified stance against decentralization. Normally, when national politicians are not forced to adopt decentralizing policies by powerful subnational actors, they can agree among themselves that decentralization is not in their common interest—despite the ideological or partisan differences that otherwise divide them. As I argue in the following chapter, any decentralizing measure worthy of the name detracts from the national arenas where all national politicians operate. At various points in time, however, sharp inter-party and inter-branch conflicts have led national policy makers to endorse decentralizing changes even when the internal partisan balance of power between national and subnational officials favored the former. Decentralization in these cases is best understood as a solution to national problems and as the outcome of a national game from which subnational actors are mostly excluded. Though these decentralizing changes "from above" have not been brought about by the actions of powerful subnational officials, I argue that their effect has nevertheless been to strengthen subnational levels of government. In exploring the logic of decisions that lead national policymakers to decentralize even when they are not being buffeted by decentralizing pressures from below, my research parallels the work of Kathleen O'Neill (1999,2003, and forthcoming). According to O'Neill's influential argument, when national parties believe that subnational offices will be important to them in the future, they seek to make these offices more attractive and powerful by adopting decentralization. "Decentralization represents a desirable strategy for parties with long time horizons, whose support at subnational levels appears more secure than their prospects in national elections" (2003, 1068). Thus, O'Neill shows that governing party leaders in Colombia and Bolivia decentralized when they judged their chances of holding on to the executive branch to be quite slim, while their counterparts in Venezuela and Ecuador who had grounds to be more optimistic preferred to keep authority centralized. My research suggests that O'Neill's approach provides a great deal of analytical leverage on episodes of decentralization outside the Andes and before the contemporary period. At the same time, many of the Chilean and Uruguayan cases included in this book demonstrate that a broader set of motivations and strategic calculations drive national politicians when they decide whether and how to decentralize. For example, in my cases, it was not the fear of losing national office that drove national politicians to endorse decentralizing changes, but rather the calculation that decentralization would augment their power at the center by delivering disproportionate benefits to their own parties relative to the opposition.

2O

Introduction PRESIDENTIALISM

Within the universe of democratic regimes, and at a lower level of analysis, is the separate distinction of governmental type. Can differences between presidentialism and parliamentarism help us understand decentralization and re-centralization? Since my four country cases have mostly used presidential forms of government in each of the time periods I cover, this study cannot evaluate the hypothesis that one governmental type leads to higher levels of decentralization.11 I do find, however, that in each of my four cases deep conflicts between separately elected executive and legislative branches at the national level led to significant changes in sub national institutions. Presidentialism does not cause decentralization, but there are theoretical reasons at least to expect that it may generate particular opportunities for politicians to seek changes in subnational institutions.12 Presidentialism divides policymaking authority between chief executives and legislators, who enjoy separate sources of democratic legitimacy and often pursue separate purposes (Cox and McCubbins 2001; Mainwaring and Shugart 1997; Samuels and Shugart 2003). This division of powers contrasts with the fusion of powers characteristic of parliamentary governments. As the literature on governmental type has established, presidentialism often puts the branches at cross purposes by separating powers and purposes without providing a reliable mechanism to resolve inter-branch policy disputes when they arise (Linz 1994). Dividing power between legislators and chief executives creates the potential that these separate actors might use their joint control over the design of subnational institutions as yet another arena for inter-branch struggle. Presidents and legislators may fight over decentralization and recentralization for the same reason that they fight over other policy outputs and institutional questions: often they are responsive to different constituents and held responsible for different outcomes. Particularly where legislators are elected in subnational jurisdictions and the president is elected in a single, national district, we should expect divergence in their relationships with subnational officials and in their preferences vis-a-vis the design of subnational institutions. The distinction between presidentialism and parliamentarism might also matter "from below," in the sense that governmental type shapes the options available to subnational officials as they seek to advance their interests and increase their powers. Under presidentialism, when partisan control over the branches is divided, subnational actors can attempt to take advantage of inter-branch divisions in the interests of promoting decentralization. As a simple example, if a pro-decentralization party controls the legislature, while an anti-decentralization party controls the executive branch, subnational officials can ally with congress against the president. Under parliamentarism,

Decentralization and Re-centralization

21

subnational officials typically face a unified national government in which these opportunities are unavailable.13 From the research presented in this study, one clear pattern emerges in the relationship between presidentialism and subnational institutions, particularly in earlier periods.That presidents and legislators are often responsive to different sets of interests has generated some predictable differences in their preferences vis-a-vis decentralization and re-centralization. Beginning in the late nineteenth century and continuing for much of the twentieth century, presidents in Latin America sought to centralize power to achieve their overarching goals. As Latin America urbanized, the election of presidents in national electoral districts encouraged them to promote policies that were on balance more progressive than those favored by legislators elected in rural areas (Shugart and Nielson 1999). According to this pattern, presidents often sought to centralize power, while legislators saw decentralization as a way of checking the president and his more reform-oriented agenda. The following chapters present many examples of presidents who promoted centralization in the pursuit of national development against opposition that was concentrated in the legislature. These include Chilean president Jose Manuel Balmaceda (1888—91), Uruguayan president Jose Battle y Ordonez (1903—7, 1911-15), and Brazilian presidents Getulio Vargas (1930-45,1950-54) and Joao Goulart (1961—64). In a sense, this pattern is similar to the common conflict that pitted presidents against legislators over land reform in the 19605 (Huntington 1968, 389). While legislators often sought decentralization to limit a president's reform ambitions and in defense of the status quo, presidents in some cases promoted centralization not just to pursue their economic policy agendas but to bring their legislatures under their control. In Argentina, for example, because senators were selected by provincial authorities, President Hipolito Yrigoyen dismissed scores of provincial governors and legislators in his first term in office—a form of political centralization—in an attempt to overcome resistance in the Senate, the chief obstacle to his rule. If it was often the case that presidents preferred centralization while legislators supported greater decentralization, how were these diverging preferences in practice resolved? One can identify multiple outcomes. Diverging preferences often led to stalemate, in the sense that both decentralizing and re-centralizing changes were vetoed, a non-outcome that is difficult to observe. At times, inter-branch disputes over subnational institutions contributed to actual breakdowns in the institutional order. For example, Chile s 1891 civil war resulted in part from conflict over efforts by the legislature to pass a Municipal Autonomy Law that would have effectively decentralized political authority. Brazils 1964 military coup can be understood in part as a reaction to centralizing proposals by President Goulart that threatened

22

Introduction

state elites and their representatives in Congress. Thus, though the critique of presidentialism has generally overlooked the subnational realm, conflict over subnational institutions may be relevant to the study of how and why presidential systems break down. In other cases, diverging preferences over subnational institutions ended less dramatically. In Uruguay, for example, though the governing Colorado Party effectively centralized political authority over subnational jurisdictions in 1908, it later agreed to demands from the opposition to decentralize political authority in exchange for the opposition's support for presidential reform proposals. In this case, the separation of powers set the parameters for substantive compromises over the design of subnational institutions. According to another outcome that presidentialism makes possible, shifts back and forth between unified and divided government may lead to changes in subnational institutions. Argentina and Brazil in the last two decades are instructive in this regard. In Argentina in 1987, the emergence of divided government enabled the Peronist opposition to impose revenue decentralization on a weakened President Raul Alfonsin. Once the Peronists achieved unified control over the executive and legislative branches in the early 19905, President Carlos Menem aggressively pursued the reversal of key aspects of the 1987 legislation. The pattern is also present in Brazil, where the weak position of President Jose Sarney in the Constituent Assembly that met in 1987—88 hobbled his ability to prevent revenue decentralization. Under the administration of President Fernando Henrique Cardoso, the construction of a governing coalition that gave him the support of a majority of legislators facilitated the passage of several re-centralizing measures. In both countries, then, divided government resulted in important decentralizing outcomes, while unified control facilitated movement in a recentralizing direction. Path Dependence, Unintended Consequences, and the Plan of the Book Beyond producing a larger number of cases to better evaluate theories of decentralization and re-centralization, comparative historical research has the added benefit of demonstrating how earlier waves of subnational change have shaped subsequent waves. For all the merits of studies that expand the number of "observable implications" of a given theory, there are real limits to thinking of decentralizing or re-centralizing changes as unconnected episodes in a country's history and as truly independent observations (King, Keohane, andVerba 1993). In this book, I argue that much can be lost by divorcing changes in subnational institutions from their historical context or by ignoring how the substance of earlier decisions conditioned the set of

Decentralization and Re-centralization

23

options available to subsequent generations of institutional engineers. Despite movement back and forth along the decentralization continuum in each of my cases, politicians were unable to erase the effects of changes introduced in the previous period, and institutional designers were never working on a clean slate. This longer view also shows that attempts by politicians to alter subnational institutions to their own liking often produced effects down the line that were unanticipated, unintended, and ultimately problematic for the politicians themselves. A central concept for comparative historical approaches is path dependence, which Mahoney defines as "those historical sequences in which contingent events set into motion institutional patterns or event chains that have deterministic properties" (Mahoney 2000, 507; see also Mahoney and Rueschemeyer 2003). According to path-dependent approaches, once a particular institutional path is taken, actors adapt themselves in ways that reinforce these institutions and block other possible institutional paths. Policy feedback plays a similar role in reproducing institutions, rendering them quite "sticky" (Mahoney 2000). Policy feedback and the legacies of past institutional choices affect not only decision making in the subsequent period but the very institutional preferences of actors. In contrast to the purposive view that institutions persist when they serve the functions they were created to perform, the more historical view of institutional change emphasizes the many unintended consequences of institutional reform (Thelen 1999). My cases demonstrate that path dependence is a useful analytical concept in the study of subnational (and not just national) institutions. One of the best examples of how "contingent events" can have "deterministic properties," for example, is the introduction of revenue-sharing systems in the early 19308 in Argentina and Brazil. Rather than pursue other fiscal options, the federal government in each country chose to respond to the sudden downturn in export revenues due to the Great Depression by encroaching upon state and provincial taxes. Presidents in both cases proposed the centralized collection of tax bases that had previously been under the control of subnational governments, in exchange for sharing with these governments a cut of the revenues collected. In theory, governors could have reclaimed full taxing powers once the crisis receded, but, in practice, they became dependent on revenue transfers in the decades that followed. Again and again, subsequent conflicts between the national and subnational governments repeatedly focused on the size of transfers rather than the propriety of their continued use. In the 1960$ and 19705, coups that made it possible for military rulers to expand subnational governing capacity without experiencing the erosion of their political authority can likewise be thought of as contingent events that set new institutional patterns into place. When democratically elected politicians eventually displaced the generals, they were confronted

24

Introduction

with subnational governments whose gains under military rule could not be easily undone. Evidence of the unintended consequences of institutional change is also presented in abundance in this book. In the cases of decentralization from above, national politicians have agreed to limited decentralizing measures in the expectation that they could thereby ensure that decentralization would not significantly empower subnational actors or threaten their core interests. In Uruguay, for instance, national politicians from the country's two traditional parties agreed to a deceptively simple reform that de-linked national and subnational elections in 1996, as part of an attempt to engineer the electoral defeat of the Left in the presidential campaign of 1999. Though the reform indeed delivered the intended result, the temporal separation of national and subnational elections also set in motion much more significant changes that have enhanced the independent stature of subnational officials relative to all actors at the national level, including the parties to the original agreement. In Chile in 1991, the Center-Left governing coalition supported municipal re-democratization in the expectation that victories for its candidates in municipal elections would help counter the various institutional advantages that Pinochet had inserted to benefit the Right. Less than a decade later, this attempt at engineering subnational institutions mostly backfired, as the Right proved increasingly adept at winning municipal elections and at using its performance there as a way to distance itself from the previous dictatorship. In both of these "top-down" cases, as I argue in greater detail in Chapter 7, attempts to keep decentralization limited have nevertheless increased the authority of subnational politicians far beyond a level that national politicians anticipated at the moment of institutional change. The wish to evaluate claims of path dependence and the sometimes unintended consequences of institutional reform is reflected in the chronological structure of this book. Chapters 3 and 4 explore the origins of subnational institutions in post-independence Latin America and track key changes over much of the twentieth century. These chapters offer a baseline against which Chapter 5 measures the subsequent subnational reforms that military governments introduced in the third quarter of the twentieth century. For example, it was precisely the experience with decentralization in the firstand second-wave democracies that led military reformers to reverse prior grants of political authority to subnational governments. The authoritarianled reforms of the 19605, 19705, and 19805 are in turn critical in interpreting the meaning of a whole series of decentralizing and re-centralizing changes adopted in the ongoing third wave of democracy For instance, many of the changes introduced at the subnational level by the generals—including the transfer of authority over schools, hospitals, and taxation—immediately acquired new political meaning once subnational elections were reintroduced

Decentralization and Re-centralization

25

in the course of re-democratization. The design and redesign of subnational institutions in this contemporary period of democratic rule is the focus of Chapters 6 and 7. By way of summary, Chapter 8 compares waves of decentralization and re-centralization through time and identifies critical junctures in the evolution of subnational institutions in each country. It concludes by analyzing the impact of different approaches to decentralization on another policy trend that has captured the attention of national politicians in recent years: economic integration. To set the stage for the chronologically organized chapters at the center of this book, the following chapter addresses key definitional issues, introduces the four South American countries that are included in the study, and synthesizes salient patterns across these cases.

CHAPTER

Definitions, Cases, and Patterns

2

WHEN POLITICAL ACTORS come into conflict over decentralization and recentralization, what they are really fighting over is the design of subnational institutions. Decentralization and re-centralization result from political struggles over institutional rules that regulate how subnational officials are to be selected and what types of authority and resources they are to enjoy. Changes in the content of these subnational institutions represent the main dependent variable in this study.1 Accordingly, one of the chief goals of the book is to recast recent and ongoing conflicts over the terms of decentralization as merely the latest installment of a long struggle over the design and re-design of subnational institutions. By framing "the politics of decentralization" as "the politics of subnational institutional design," my research borrows from different theoretical approaches to the study of why institutions are created and how they evolve over time. After all, actors fight over subnational institutions for essentially the same reasons they fight over national institutions: both are sets of rules that determine the distribution of goods that individuals value. The focus on subnational institutions shifts our attention to cases that would be missed by the narrower study of decentralization. Even in those countries and time periods in which subnational governments are anemic or decentralization has been limited, this outcome can tell us much about the distribution of power in the political system more broadly. Thus, subnational institutions are important not just because they shape political and policy outcomes, but because they, like all institutions, bear the imprint of prior conflicts. That politicians expend time, energy, and political capital in the designing of subnational institutions, which reflects their intrinsic importance, serves as one of the chief justifications for this study. Furthermore, focusing on the institutional aspects of the struggle over subnational governments offers a useful

Definitions, Cases, and Patterns

27

way of moving beyond the policy orientation that characterizes much of the current literature on decentralization. Definitions The first step toward understanding decentralizing and re-centralizing changes in subnational institutions is to provide clarity on what these terms mean. For all their diversity, I argue that subnational institutions come in two forms: political institutions and governance institutions. By subnational political institutions, I refer to the rules that regulate how governments below the national level are constituted politically.2 At issue are the procedures used to select and recall individuals to serve in both executive and legislative capacities, as well as the relationship between executive and legislative branches at the subnational level.3 The first critical question here is whether subnational officials are appointed by national actors or elected in subnational jurisdictions. In Latin America, the developing region that has accrued the most significant experience with democracy, democratically elected chief executives at the national level have often reserved the right to appoint subnational officials, who serve at their pleasure. This prerogative lapsed in the course of the region's most recent democratizing wave, however, in a departure that can be thought of as a significant expansion of democratic choice at the subnational level. According to the Inter-American Development Bank, whereas only three Latin American countries held elections for mayors in 1980, this number had increased to seventeen by 1997 (IDB 1997, 152). Despite this recent increase in democratic space below the national level, the holding of elections for subnational office is not entirely unique to the third wave of democracy in Latin America, and previous periods are relevant to the study of how subnational political authority is constituted. The second critical aspect of subnational political institutions concerns the rules used to elect subnational officials in those countries where they are indeed elected.4 One important distinction is whether officials are directly or indirectly elected. In Chile, for example, councilors at the regional level of government are indirectly elected by councilors at the municipal level, who are themselves directly elected. In many countries, mayors are indirectly elected by municipal councilors. Notwithstanding important contextual differences, the shift from indirect to direct election, like the general shift from appointed to elected officials, is best understood as a decentralizing change. In their struggles with national politicians, the position of subnational officials is strengthened when they can say that they are the direct representatives of local electorates. Just as important as the question of indirect election is the choice between alternative electoral formulas to translate

28

Introduction

votes into actual political representation. Many of the design questions dominant at the national level are also relevant at the subnational level, including the use of plurality or proportional representation to elect representatives and the holding of second rounds to generate majorities for executive officials.5 Much like national electoral formulas, subnational electoral formulas are characterized by a great deal of cross-national variation.6 A final electoral distinction concerns the timing of subnational elections within the national electoral calendar. When subnational elections are decoupled from national elections and held at a separate point in time, this too can be understood as a decentralizing change because it increases the salience of local issues in subnational contests and decreases the authority of national politicians (Shugart and Carey 1992, 244;Jones I99yb, 540). According to the research presented in this study, conflict over the constitution of subnational political authorities is just as endemic as the better-documented conflict over the design of national electoral institutions. By institutions of subnational governance, I refer to the rules that specify the rights and responsibilities of subnational officials, whatever the political procedures used to select these officials. Critical here is the nature of the authority granted to the subnational level over governmental resources and expenditures. Resources come in two basic forms: fiscal and administrative. The category of "fiscal resources" is itself a heterogeneous one. It includes the tax revenues that subnational officials are authorized to raise in their own districts and through their own effort, as well as the tax revenues they receive from the national government in the form of unconditional transfers, matching grants, and earmarked funds. Also to be included in this category are non-tax revenues that subnational officials may be empowered to borrow from a variety of sources, including foreign and national governments, private holders of debt at home and abroad, and state-owned banks under the control of subnational governments themselves. Important administrative resources for subnational officials typically relate to governmental personnel. Key issues include the authority to make independent personnel decisions (e.g., can mayors hire and fire teachers and doctors?) and the question of whether subnational bureaucrats report to subnational policy makers or superiors within central government ministries. Governance institutions identify not only the resources at the disposal of subnational actors but also their responsibilities vis-a-vis a variety of governmental expenditures. Institutional rules determine, first, the types of expenditure categories in which subnational governments can participate, and second, with varying degrees of precision, the nature of their participation. With respect to the former distinction, whether the beneficiaries of a governmental service are local or not is an important factor in its assignment to

Definitions, Cases, and Patterns

29

the national or subnational level. Subnational authorities are rarely granted much of a role in national defense, but very often participate in the provision of sanitation, health care, and education. Despite the relevance of technical factors, the significance of the expenditures assigned to subnational governments is a good measure of the political importance ascribed to them. The second, more nuanced issue concerns how much authority is devolved to subnational actors within a given category of expenditure. Rarely is an expenditure category assigned entirely to one level of government; instead, the norm is commonly one of shared competence (Burki, Perry, and Dillinger 1999). For example, governmental rules in the area of education might grant provincial or municipal authorities responsibility to run primary and secondary schools while retaining for the national government the right to set education policy. Changes in the institutional rules that assign political authority and governing capacity to subnational officials do not always work in concert. In fact, one cross-national study finds that political, fiscal, and administrative decentralization are rarely simultaneous (GTZ 2000). Sometimes decision makers tinker with changes in the rules used to select political authorities without changing what these authorities can actually do. In other cases, the pressures of fiscal austerity in recent decades have encouraged national actors to shift extra responsibilities to subnational governments without expanding the resources available to them. The opposite dynamic can also be observed, as where subnational actors have successfully pressed for rule changes that augment their access to revenues without accepting clear responsibility for an additional set of expenditures. One of the most interesting questions for further research is how changes in different types of subnational institutions relate to each other. According to the hypothesis discussed in the preceding chapter, the shift toward the use of elections to select subnational authorities (e.g., political decentralization) regularly sets in motion identifiable changes in the governance attributes of subnational actors (e.g., the decentralization of governing capacity). Subnational institutions are the chief dependent variable in this study, but I also use the words decentralization and re-centralization throughout. In order to distinguish between decentralizing and re-centralizing changes in the content of subnational institutions, it is important to define these terms up front. The literature distinguishes between deconcentration and devolution as the two main forms of decentralization (Crook and Manor 1998; Rondinelli 1989). Deconcentration refers to changes within central government ministries that relocate bureaucrats to the subnational branches of these ministries. According to Crook and Manor (1998, 6), because central ministries do not surrender authority over bureaucrats who remain employees of the central

3O

Introduction

government, deconcentration may actually strengthen the central state by reinforcing its ability to penetrate into territory where its presence has traditionally been thin. Devolution, in contrast, transfers authority to subnational political actors, "the activities of which are substantially outside the direct control of the central government" (Rondinelli, Nellis, and Cheema 1984, 19). In order for devolution to occur, democratic elections for subnational officials are a necessary condition (Manor 1999, 82).Though this study looks at democratic and non-democratic regimes alike, it reserves the term decentralization for those instances in which authority is devolved to elected subnational officials.Thus, I use the term decentralization in this book as a synonym for devolution rather than deconcentration. The distinction between deconcentration and devolution also helps clarify why the delegation models that are appropriate to settings with principals and agents are inappropriate for the study of decentralization. Because deconcentration involves the intra-organizational transfer of responsibilities to officials in bureaus located in subnational jurisdictions but controlled by national bureaucrats, this transfer can be modeled as the delegation of authority from a principal to an agent. In contrast, decentralization involves the transfer of authority from one principal, the national government, to another principal, subnational governments, who do not operate as agents of the national government. Typically, it is more difficult to effect the recentralization of powers that have been devolved than to cancel powers that have been merely delegated to deconcentrated bureaucratic agents. Unlike delegation and deconcentration, decentralization involves national policy makers giving authority to actors they do not control, hence its greater interest to political scientists. Particularly powerful examples of decentralizing changes in the content of subnational institutions include such phenomena as increases in subnational revenue shares (Putnam 1993), regulatory powers (Locke 1995), and industrial policy tools (Montero 2OOib, 2002). As these examples demonstrate, the signs of decentralization can be quite diverse. One frequently used and helpful indicator of the degree of decentralization is the share of subnational expenditures as a percentage of total government expenditures. Table 2.1 presents subnational spending figures for Latin American countries. According to data compiled by the Inter-American Development Bank, subnational spending increased from 15.6 percent in 1985 to 17.2 percent in 1990 and 19.3 percent in 1995 (IDB 1997, 152). Though large-N studies look at subnational participation in total public spending as the sine qua non indicator of decentralization, it is a highly aggregate measure that fails to capture much of the action. Hence the focus in this book on the broader set of institutional rules that assign authority to subnational actors.

Definitions, Cases, and Patterns

31

TABLE 2.1

Subnational Government Spending in Latin America, 1995 Country Argentina Bolivia Brazil Chile Colombia Costa Rica Dominican Republic Ecuador El Salvador Guatemala Honduras Mexico Nicaragua Panama Paraguay Peru Trinidad and Tobago Uruguay Venezuela

Subnational spending (Percent of total spending)

49.3 26.7 45.6 13.6 39.0 2.3 2.9 7.5 6.0 10.3 12.3 25.4 5.2 3.2 6.2 10.5 7.2 14.2 19.6

SOURCE: IDE 1997, 157.

Re-centralization is a more slippery concept than decentralization and hence more difficult to define precisely. In general, re-centralization reclaims for the national government resources and responsibilities that were previously devolved to subnational actors.7 Re-centralizing changes constrain subnational autonomy and hinder the ability of subnational actors to behave in ways not sanctioned by those actors who happen to control the national government. Sometimes, these changes are easy to identify, as when the breakdown of democracy at the national level leads to the dismissal of democratically elected subnational officials and the indefinite suspension of future elections. Other unambiguous examples of re-centralizing changes in governance institutions include reforms that give national actors the authority to set subnational tax rates, force subnational officials to privatize banks and enterprises formerly owned by subnational governments, and return schools and hospitals to the national government. But the re-centralizing content of rule changes is sometimes ambiguous. In the early 19905 in Argentina, for example, the national government proposed steep reductions in the share of

32 Introduction centrally collected revenues it had to share with the provinces in exchange for guarantees that future transfers would not dip below a set amount. Though these "fiscal pacts" had immediately centralizing effects, the revenue guarantees greatly enhanced the fiscal autonomy of the provinces once tax revenues collapsed at the end of the 19905. Despite the reality that it is sometimes difficult to assess the net effect of changes in subnational institutions, and the fact that decentralizing changes can come packaged with centralizing changes (Dickovick and Eaton 2004), it is usually possible to identify the primary thrust of reforms as either decentralizing or re-centralizing. Actors, Arenas, and Preferences in the Design of Subnational Institutions Having defined decentralization and re-centralization and cited examples of each, the next step is to identify the types of individuals who participate in the design of subnational institutions and whose behavior is the subject of this study. A central irony here is that, almost always, major design decisions affecting subnational institutions are made at the national level.8 Thus, the key participants in these decisions are typically national politicians, such as chief executives and legislators, members of constituent assemblies, and leaders of political parties. Central government bureaucrats are particularly important as actors who influence the decision to decentralize and whose careers are in turn directly shaped by decentralizing measures that might reallocate bureaucrats away from national capitals. Also crucial, however, are those subnational actors, such as governors and mayors, who can project influence into these national-level debates. Collective bodies that bring together subnational officials to represent common interests (e.g., governors' leagues and associations of municipalities) are important as organizations that can counter the structural advantages of national actors in these national decisions. In addition to the governmental officials on whom I focus in this study, a whole series of other actors may seek to influence the design of subnational institutions, including public-sector unions, business associations, and international financial institutions. One of the notable aspects of the literature on decentralization is the relative absence of evidence that would support explanations based on the behavior of societal interests (Manor 1999; Slater 1990). Corporatism and statism are crucial in understanding the relative insignificance of interest groups in the turn toward decentralization. According to the literature on corporatism, there are important differences across the developing world in the way that interest groups are organized (Malloy 1977; Schmitter 1971). Despite these different arrangements, however, a common feature of interest groups in the long period of import-substituting industrialization was their focus on the central government, at which level key policy

Definitions, Cases, and Patterns

33

decisions were made and favors distributed. Because projecting power at the national level was so critical when the state intervened heavily in the economy, interest groups tended to be organized nationally rather than subnationally. Decentralization would pose a powerful threat to those who work as lobbyists at the national level and whose contacts in the capital would immediately become less valuable in the wake of decentralizing legislation. We would not expect these interest groups to champion decentralization. At the same time, the subnational interest groups who stood to benefit from policies that shifted decision-making authority below the national level have seldom been well organized at the time decentralizing decisions were made. Though subnational officials have often been able to insert themselves into national debates over decentralization, the organizational capacity to do so is far less common for subnational interest groups. The weakness of groups that would benefit from decentralization recalls John Waterbury's argument about the adoption of state-led industrialization strategies in developing countries (Waterbury 1993). According to Waterbury, in countries such as Egypt, India, Mexico, and Turkey policies that would benefit domestic industrialists were adopted by leaders such as Nasser, Nehru, Cardenas, and Atatiirk before a class of politically powerful local industrialists existed. As in his study, I find that the preferences of leading politicians and their own personal political struggles are more important than societal interests in understanding how and when decentralization has occurred. While it is difficult to attribute the decision to decentralize to the prior importance of subnational interest groups relative to their national counterparts, at times national interest groups have been able to determine the pace and extent of decentralization. According to Murillo (1999, 31), for example, the greater centralization of the teachers' union in Mexico enabled it to extract "concessions from the government that placated its opposition to decentralization," while the fragmentation of teachers' unions in Argentina prevented them from winning similar benefits. Grindie (2000, 121) shows that in Bolivia resistance by the country's powerful national peasant union forced the government to sign an agreement enabling the union to gain the legal status it would need to represent peasant communities in the new local-participatory structures established by the decentralizing legislation of 1994. As another example, the Chilean Housing Ministry re-centralized the distribution of housing subsidies in 1995 at the request of leaders of the national labor confederation, who feared that decentralization was helping regional unions assert autonomy from the central union (Valenzuela 1999, 123). For the most part, unions appear to have played a sometimes successful defensive role rather than a key proactive role behind decentralization. On the other side of the labor—management divide, evidence that business associations have played a leading role in decisions to decentralize is

34

Introduction

also lacking. In a fascinating study of the elective affinities between political decentralization and the globalization of production, Doner and Herschberg (1999) suggest that the need to produce flexibly for highly fluid international markets might be encouraging businesses to demand decentralization. Though the argument is logically plausible, convincing evidence that firms actually lobby for these changes, and that this lobbying activity has proved to be critical in the adoption of decentralization, has yet to be collected. With respect to external influences, bilateral aid agencies, donors, and international financial institutions have also participated in the struggle over subnational institutions.The U.S. Agency for International Development has been especially active in its support for decentralizing measures (Blair 2000), and pro-decentralization activities can be identified in the portfolios of all the regional development banks as well as such organizations as CARE, Catholic Relief Services, and the United Nations Capital Development Fund. In terms of explaining variation across waves of decentralization, the particular strength of external pressures in the contemporary period may help explain why the current round of decentralization has been so significant. Particularly in cases where the subnational advocates of decentralization are weak, recommendations from external actors that national authorities adopt decentralizing changes may be critical in initiating these changes. On the other hand, there are growing signs that external pressures do not unambiguously work in favor of decentralization. Increasingly, what is striking is the extent of divergence between and within external actors over decentralization (Rondinelli 1990). Within the World Bank, an important debate has emerged over the appropriate terms of decentralization, with some actors in the bank defending more gradual approaches and others promoting more aggressive measures (Dillinger and Webb 1999). By the late 19905, the bank began promoting a series of changes that would have the effect of reversing aspects of prior decentralization in Argentina, Brazil, and Colombia. Furthermore, the political-risk analysts whose assessments drive capital flows rate some aspects of decentralization positively and other aspects quite negatively. In contrast to economic liberalization, external actors do not appear to influence decentralization in any consistent direction. Shifting from actors to arenas, a great deal of diversity characterizes the actual locations where subnational institutions are designed and redesigned. Assemblies that write or amend constitutions, whether they are specially called for this purpose or represent a special session of the sitting legislature, are particularly important arenas. Often, but not always, rules that get inserted into constitutions prove to be more resilient than rules implemented via ordinary legislation. Not all of the important rules governing the subnational realm are included in the constitution, however. For example, rev-

Definitions, Cases, and Patterns

35

enue-sharing arrangements are often covered by special statutes; sometimes they are merely included as articles in omnibus budget bills that are legislated on an annual basis. Whether or not the districts of national legislators perfectly overlap with subnational jurisdictions, legislatures are critical as sites for bargaining over subnational institutions (Eaton 2002, 306).Territorially based senates are especially important locations.9 At the same time, some of the most momentous changes in subnational institutions do not result from actions by legislators, as in the decrees issued by de facto governments following the removal of democratically elected mayors and governors. As demonstrated in the empirical chapters of this book, changes that bear on the independence of subnational units can take a variety of forms, some of which at first glance might not even register as "decentralization." For example, de-linking national and subnational elections may be categorized first and foremost as an "electoral reform," and transferring subnational enterprises to the private sector may be categorized primarily as "privatization," though both sets of changes effectively rearrange authority relations between national and subnational actors. If we can generalize about the actors who matter when it comes to designing subnational institutions and the arenas in which they interact, is it similarly possible to generalize about the content of their preferences vis-avis these institutions? A central finding of this study, and one that emerges directly from its attempt to broaden the historical frame of reference, is that actors' institutional preferences are shaped by prior institutional legacies and historical contingencies. Nevertheless, provided that institutions are disaggregated with sufficient care, I argue that it is possible to make a series of assumptions about institutional preferences without knowing a great deal about the specifics of each situation. For example, subnational actors tend to prefer increases in fiscal resources much more than increases in expenditure authority, since the latter carries costs and risks as well as opportunities. Further, these actors should prefer increases in revenue transfers from the center to an increase in the authority to raise their own taxes, which carries with it important political and administrative costs. At an even lower level of analysis within the realm of transfers, subnational actors usually demonstrate strong preferences for unconditioned transfers relative to earmarked funds, though they like earmarked funds more than no funds. Preferences with respect to expenditure responsibilities lend themselves less well to universalizing assumptions since these responsibilities expand authority but impose obligations as well. In most cases, however, it is a safe assumption that national actors' preferences diverge in significant ways from those of their separately elected subnational counterparts. Thus, it is possible to generalize about actors' institutional preferences at a rather high level of generality: participants in the design of subnational institutions prefer to maximize the

36 Introduction autonomy of the level of government they represent and to minimize the costs borne by that same level of government. The Cases Within the worldwide trend of decentralization, Latin America in the contemporary period has proved to be the most dynamic region in the developing world. Virtually every country in the region has expanded the authority of subnational governments, and some of the world's most dramatic cases of decentralization can be found there. In many countries, one can identify nearly two centuries of experimentation with different types of subnational institutions. Similarly, because Latin America is the developing region that has experienced more frequent transitions to and from democracy, it lends itself particularly well to the study of how changes in regime type do or do not lead to changes in subnational institutions. During democratic periods that pre-date the third wave, the experience with subnational elections in most Latin American countries was quite limited. In some countries, elections were never held for important subnational offices before the 19805 and 19905, with national politicians retaining the right to appoint these officials.10 In other countries, elections were only held below the national level for brief periods of time before being rescinded.11 Apart from the four cases included in this study, none of the South American countries had significant experiences with subnational elections before the most recent wave of democracy. Similarly, none of the Central American Republics constructed lengthy records of reasonably free and fair subnational elections before the third wave, mostly due to prolonged non-democratic rule at the national level.12 Outside the Southern Cone, Mexico is the only Latin American country to amass a lengthy record of holding subnational elections. In fact, Mexico in the twentieth century held state and municipal elections more consistently than any of the four cases considered in this study, each of which experienced periodic suspensions of subnational elections due to the type of military interventions that never occurred in Mexico. Nevertheless, systematic electoral fraud and the ban on reelection kept subnational officials highly dependent on the national leaders of the governing party who nominated them, guaranteed their election, and named them to the posts they took up after serving in local or state government.13 As Rodriguez argues, one of the central motives behind the creation of the long-governing Partido Revolucionario Institucional (Institutional Revolutionary Party, or PRI) was "to counteract the power of local bosses" (Rodriguez 1997, 19). Only in the 1980$ did elections for some subnational offices pass the democratic thresh-

Definitions, Cases, and Patterns

37

old, making victories possible for parties other than the PRI. Mexico's experience, combined with that of most South and Central American countries, throws into relief the much more robust experience with subnational elections in Argentina, Brazil, Chile, and Uruguay. ARGENTINA

Argentina's is a federal system marked by three tiers of government: national, provincial, and municipal. One of the few countries in Latin America to experience the world's first wave of democracy, Argentina initially democratized with the 1912 passage of the Saenz Pena electoral law. This law, which established universal male suffrage and an electoral role based on military conscription lists, governed both national and provincial elections (Rock 1987,189). Subsequently, a coup in 1930 restored oligarchic, non-democratic politics; national and provincial elections were held in the "infamous decade" that followed, but they were not reasonably free and fair. Juan Peron's election in 1946 marked the arrival of democracy's second wave in Argentina, an important one at both the national and provincial levels. What followed was a forty-year period in which democratic and authoritarian governments alternated in and out of power, unable to consolidate either stable democratic or stable authoritarian rule. In democratic periods (1958— 62, 1963—66, 1973—76), provincial elections were held. In periods of military rule (1955-58, 1966-73, 1976-83), they were not. This record of transitions to and from democracy at the provincial level, which proved to be so pernicious for the development of good governance and stable institutions in Argentina (Tommasi and Spiller 2000, 29—59), nevertheless offers useful case material for the purposes of this study. In addition to repeatedly transitioning to and from democracy at the subnational level, Argentina lends itself well to this study because of the importance of intergovernmental relations in the country's history (Chiaramonte 1983). From the very beginning of its life as an independent republic, the relationship between the provinces and the Buenos Aires-based national government has produced generations of conflict. In the nineteenth century, the interior provinces struggled against the dominance of Buenos Aires province and the hegemonic control of external trade revenues afforded that province by its operation of the country's main port. In the twentieth century, aggressive state-led industrialization policies produced a concentration of industrial activity in and around Buenos Aires, worsening already pronounced regional inequalities (Sawers 1996). At the dawn of the twenty-first century, many interior provinces simply do not appear to be viable as separate governmental entities, depending heavily for their survival on revenue transfers from a national government that can ill afford to send them. The

38

Introduction

centrality of national—provincial relations in Argentina's political and economic life has generated an extensive literature on sub national institutions, on which this study draws heavily. In contrast to the salience of the provinces, municipal governments in Argentina historically have been far less important, largely because the provinces themselves have been able to prevent municipalities from emerging as separate spheres of action. When the provinces met in 1853 to delegate authority to the national government and to bring the Argentine federation into being, the constitution they wrote denied autonomy to municipal governments. Instead, the provinces reserved for themselves complete authority over the design of municipal institutions. As Nickson writes, "For over a century thereafter, provincial constitutions reflected the prevailing view that municipalities were mere administrative dependencies of provincial government" (Nickson 1995, 98). For example, each provincial constitution reserved for provincial authorities the right to dismiss municipal authorities (Hernandez 1989, 221). Some provinces allowed greater degrees of autonomy for municipal authorities than others, but throughout the country provinces trumped municipalities as the key subnational level of government (Ronco 1989).Within the last twenty years, since the country's 1983 transition to democracy, numerous provinces have rewritten their constitutions in a pronounced shift toward greater municipal autonomy (Frias 1989). Because inter-party and intra-party dynamics are central causal variables in this study, the basic features of Argentina's party system and political parties require some description. During the country's pre-democratic period of constitutional but oligarchic rule, Argentina was governed by the Partido Autonomista Nacional (National Autonomy Party, or PAN), a loose federation of provincially organized parties. Many of the descendents of these provincial organizations still operate in contemporary Argentina and are now referred to as provincial parties. Though provincial parties have often played critical roles, two major nationally organized parties dominated political life for much of the twentieth century: the Union Civica Radical (Radical Civic Union, or UCR) and the Peronist Partido Justicialista (Justicialist Party, or PJ).The UCR emerged as Argentina's majority party in the first wave of democracy (1916—30), during which period Radical Party leader and president Hipolito Yrigoyen effectively centralized authority by removing from office many of the conservative provincial politicians with whom he repeatedly clashed. Subsequent to his victory in 1946, Juan Peron sought a more conciliatory strategy, building important ties between his working-class supporters in the more advanced regions and conservative politicians in the interior (Gibson I99?a, 63).This alliance proved to be so successful that, for the next four decades, the PJ proved unbeatable when it was allowed to contest elections. In the contemporary democratic period that began in 1983, elec-

Definitions, Cases, and Patterns

39

toral competition between the UCR and PJ has produced periods of both unified and divided partisan control of the federal government, with important implications for the design and redesign of subnational institutions. Within political parties, provincial-level officials in Argentina maintain a great deal of influence over the national legislators who are elected in provincial districts, including both senators and deputies (Jones I99ya; Jones et al. 2002). This is by definition the case among the provincial parties that compete only in one province and are not organized as national parties. It is also true within the UCR and the PJ, though subject to a great deal of cross-provincial variation.14 According to Jones, factors such as the president's partisan affiliation and the presence of factional splits within provincial party organizations determine the relative influence that national and provincial party leaders exert over national legislators. Thus, at any one point in time, some provincial officials might hold greater sway over national legislators than their counterparts do in other provinces, and this should influence their ability to compel decentralization "from below."The relative balance of power between national and provincial party leaders in the struggle for authority over national legislators has also varied through time. While the charismatic leadership ofYrigoyen, Peron, and Menem circumscribed the power of provincial-based party officials when these men were dominant, their departures opened up greater space for other actors within the party, including provincial governors. Though the literature on Argentine parties traditionally emphasized national party discipline and hierarchical organization, scholars have recently emphasized the authority wielded by provincial actors (Eaton 2002; Jones I99ya; Jones et al. 2002; Levitsky 2001; Tommasi and Spiller 2000). BRAZIL Brazil is also a three-tiered federal system, currently composed of a national government based in the federal district of Brasilia, twenty-three states at the intermediate level, and over five thousand municipalities. Traditionally considered one of Latin America's most decentralized countries, and the most decentralized of Latin America's four federations (Argentina, Mexico, and Venezuela are the other three), Brazil has nevertheless experienced successive waves of decentralization and re-centralization. In the famous metaphor of General Golbery do Couto e Silva, the chief architect of Brazil's military regime (1964—85), these alternating impulses can be likened to the "diastoles" and "systoles" that mark the heart's rhythmic beating.Though Brazilian historians dispute the extent of these changes and their correct periodization, one can identify distinct episodes of decentralization and recentralization, beginning with Brazil's emergence as an independent monarchy in 1822. The monarchical period itself (1822—89) can be divided into

4O

Introduction

three relevant subperiods. Between 1822 and 1831, Dom Pedro I exerted tight centralized control, dissolving the 1823 Constituent Assembly that had sought greater autonomy for the provinces.15 In the regency period that followed his abdication (1831-40), the provinces asserted greater independence, most importantly with the passage of an act in 1834 that established provincial legislative assemblies. Centrifugal dynamics during the regency period, including the outbreak of provincial rebellions against the center in Bahia, Sao Paulo, Rio Grande do Sul, and Minas Gerais, in turn convinced provincial elites to accept renewed centralization under Dom Pedro II (1840-89) as a means of preserving social stability in Brazils slave-based economy (Carvalho 1993). The end of Brazil's monarchy did not put an end to this sequential interplay of centripetal and centrifugal forces. Under the First Republic (1889— 1930) and the Constitution of 1891, power shifted dramatically away from the center and toward the states, which maintained significant policy autonomy and their own militias. The rise to the presidency of Getulio Vargas in 1930 marked the onset of re-centralization, which became particularly pronounced during the Estado Novo period (1937—45) with the suspension of state elections and an expansion in the roles assigned to the central government. Under the Second Republic (1946—64), Brazil's first period of democratic rule, states and state governors reemerged to claim important roles in the country's political system, though they enjoyed less scope for independent state action relative to the First Republic thanks to the intervening Vargas reforms. Against the backdrop of the Second Republic, the military coup of 1964 represents a centralizing break. The two decades of military rule that followed can usefully be divided into two distinct periods. In the first decade, the generals centralized political and policy authority in a variety of arenas, until growing opposition in 1974 led to the adoption of decentralizing reforms during their second decade in power. This decentralizing trend accelerated with re-democratization in 1985 and the writing of a new Constitution in 1988 that significantly benefited the states relative to the center. Finally, the election of Fernando Henrique Cardoso in 1994 and the adoption of policies that successfully stabilized Brazil's macro-economy signaled the latest round of centripetal changes in subnational institutions. While the back-and-forth movement on the decentralization continuum is striking, it is equally clear that the pendulum has never swung fully back to its prior position, and that the effects of intervening periods of decentralization or re-centralization are never simply erased (Kugelmas 2001, 33). Policy makers in Brazil, like their counterparts in Argentina, have tried to reverse prior experiences with decentralization or re-centralization, but their efforts have

Definitions, Cases, and Patterns

41

seldom been completely successful, and instead they have been unable to escape the legacies of earlier changes. Despite important similarities with Argentina that lead me to pair these countries in the chapters that follow, one chief difference deserves special attention. In contrast to Argentina, municipal governments have played an important role in the story of Brazil's alternating waves of decentralization and re-centralization. In fact, the status of Brazilian municipalities is quite unusual in the developing world, in that the country's 1988 Constitution conferred legal status on municipal governments as separate federal entities. The scope for state interference in municipal affairs is thus much more limited than in neighboring Argentina. The political significance of the municipalities has changed through time. Under the First Republic, municipal governments were mostly dominated by the states, and the important intergovernmental relationship in this period was that between states and the national government. As I discuss in the next chapter, however, Vargas enhanced the status of the municipalities after 1930 as part of his war on the states. According to Samuels (20OOa), the municipalities likewise figured prominently in the decision making of the generals who governed Brazil after 1964 and who, like Vargas before them, sought to use the municipalities in their struggles against state-based politicians. Since the 19605, the Brazilian government has shared centrally collected tax revenues directly with the municipalities and not simply, as is the case in Argentina, with the intermediate level of government. Like Argentina, and unlike the Chilean and Uruguayan cases, subnational officials within political parties wield a great deal of authority over national legislators in Brazil (Mainwaring 1997; Samuels 2OOob, 2003). Also like Argentina, the most important subnational officials are state governors rather than state legislators (Abrucio 1998). One important area where the Brazilian and Argentine cases diverge is in the relative absence in the former of powerful national party leaders who have been able to partially counter the weight of subnational officials and enforce cross-state discipline. In the history of Brazilian party development, the absence of party-building figures like Yrigoyen and Peron in Argentina is striking. Compared to their Argentine counterparts, Brazilian governors tend to enjoy superior authority relative to the national legislators who are elected in their states.This differential is significant in the chapters that follow: though governors in Argentina and Brazil have pushed decentralizing changes, these changes, on balance, have gone further in the latter case. Another chief difference with Argentina is the party system. In contrast to the two major parties that have consistently dominated politics in Argentina, Brazil's party system has proved to be much more inchoate (Mainwaring and Scully 1995).While three parties dominated

42

Introduction

Brazil's political system in its first period of democratic rule (1945—64), by 1990 the effective number of parties in the lower chamber was 8.65, one of the highest in the world (Mainwaring 1999, 128). In the contemporary period, the fragmented nature of the party system and the authority of subnational officials within political parties have represented important obstacles to the formation of national legislative coalitions (Carey and Reinhardt 2004), including coalitions to sustain the president's re-centralizing objectives. CHILE

Chile is a unitary country traditionally made up of two levels of government: the national government based in Santiago and over three hundred municipalities. Thus, Chile lacks the vigorous intermediate level of government that has been so important in Argentina and Brazil.16 In 1974 the authoritarian government of Augusto Pinochet altered the country's institutional structure, dividing it into thirteen regions for administrative purposes. As a result of an important inter-party pact in 1991, the regions are now considered intermediate-level governments rather than mere administrative units of the national government. Indirect elections are used to select councilors in these regions, while regional executives (intendentes) continue to be appointed by the president. Current proposals for the direct election of councilors would further democratize the regions and strengthen this intermediate level of government, but these officials would not enjoy lawmaking authority. Chile effectively remains a two-tiered system, but with an emerging and increasingly important tier at the intermediate level. While Brazil is one of the region's most decentralized countries, Chile in a variety of dimensions has long been considered and today remains one of its most centralized. A few examples will suffice to draw out this contrast. Unlike Argentina, Brazil, and most of the other large Latin American countries, the central government in Chile does not automatically share any portion of the tax revenues it collects with subnational governments. Instead, national politicians determine on an annual basis, in the course of budget negotiations, the amount of funds transferred to subnational governments. A Municipal Common Fund (Fondo Comun de los Municipios, or FCM) does share revenue among the municipalities in Chile, but, in telling contrast to Brazil, the revenues that feed this fund are municipal and not national in origin. National politicians likewise wield considerable formal authority over municipal personnel decisions and over important municipal tax bases such as the property tax. To a significant extent, Chile has opted out of the decentralizing trend that has swept the region in recent decades.

Definitions, Cases, and Patterns

43

Despite its location at the centralized end of the continuum, even in Chile one can identify over time important decentralizing and re-centralizing changes in the content of subnational institutions. In the nineteenth century, tensions between locally elected municipal authorities and provincial governors appointed from Santiago provoked sharp political conflicts. In Chile, the independence movement was set in motion by the decision of municipal authorities, grouped in colonial-era cabildos, to withdraw their support from Spain in 1811. In the twenty years that followed, these municipal authorities retained significant authority and elections were even held for provincial offices, earning this period its status as Chile's only "federal" period. The successful state-building efforts of Diego Portales brought this period to an end in the 18308, formalized by an 1854 Municipal Law that gave presidential appointees the right to veto municipal decisions (Cleaves 1969, 6). As I show in Chapter 4, this centralizing period ended in 1891, when Congress successfully waged a civil war against the president and used its victory to impose decentralizing changes in the Parliamentary Republic that ensued (1891— 1925).The breakdown of constitutional government in the 19205 signaled the return to more centralized patterns of governance, despite the holding of municipal elections for the four decades that followed re-democratization in 1932.Though the Pinochet era (1973—90) witnessed the pronounced centralization of political authority, in other respects it introduced changes that strengthened the subnational sphere. Re-democratization in 1990 and the subsequent decision to reintroduce elections for municipal offices in 1992 mark the onset of the contemporary period, an important one for the hypothesis that shifting to subnational elections generates demands for decentralization from below. The question of how subnational officials behave when they are elected rather than appointed is particularly interesting in Chile because of the centralized nature of its political parties. While Chile has a long history of holding municipal elections, until the very recent emergence of mayors as credible presidential contenders, municipal officials have not been important actors within their respective parties. Subnational officials in Chile can and do influence the local voting blocs that make them invaluable allies for national legislators, but they do not play critical roles in the selection of the party candidates who run for the Senate or for the Chamber of Deputies. Instead, national party leaders have controlled candidate selection for local offices to an extent that far exceeds what national party leaders can expect to achieve in Brazil and even in Argentina.17 In pre-Pinochet Chile, according to Valenzuela, municipal elections were important political events, but chiefly as competitive arenas that enabled national parties to demonstrate their electoral support (Valenzuela 1977, 10). In post-Pinochet Chile,

44

Introduction

municipal elections have acquired additional significance due to the devolution of key expenditures to the municipalities in the 19805. Parties nevertheless remain highly centralized. The structural weakness of subnational officials within their parties leads me to group Chile with Uruguay in the chapters that follow. One area where Chile differs from the other three countries in this study deserves mention, however. In contrast to the other cases, regional parties and/or parties with strong regional identities have not emerged to play central roles in Chile's party system. In Argentina, despite the dominance of the two major national parties, provincial parties have successfully parlayed their subnational bases of support into roles as national actors in Congress (Palanza and Sin 1997, 61). In Brazil, parties have had strong regional identities, with many demonstrating greater strength either in the industrialized South and Southeast or in the politically traditional Northeast. In Uruguay, as discussed below, the country's two traditional parties have consistently found stable bases of support in different regions of the country. In Chile, regional identities have been much less pronounced, both in the parties that populated the Right, Center, and Left in the country's tres-tertios system before 1973, and in the Left and Right blocs that emerged in 1990. Many Chilean parties have had clear regional origins, such as the Radicals in the late nineteenth century and the Socialists in the early twentieth century, but regional identities have seldom survived their transformation into parties that compete nationally. Though some regional parties have sought to form in the contemporary democratic period, politicians in the country's four main parties have adopted restrictive rules to prevent their development. URUGUAY Like Chile, Uruguay is a two-tiered unitary country, made up of a national government based in Montevideo and nineteen regional governments. Also like Chile, it is on the verge of becoming a three-tiered system, in the sense that the reform of the Constitution in 1996 called for the (as yet unrealized) passage of laws that would implement separate elections for local governments within Uruguay's nineteen departments. Until these elected local bodies (juntas locales electivas) are instituted, Uruguay remains a two-tiered system. In a semantic practice that makes cross-national comparisons somewhat tricky, the governments at Uruguay's single subnational level are referred to interchangeably as "departments" and "municipalities." In this study I use the term department, to avoid unwarranted comparisons with municipal governments in other countries. Particularly in the great majority of departments that make up the country's interior, these subnational units more

Definitions, Cases, and Patterns

45

closely resemble Argentine provinces and Brazilian states than they do municipalities. The regional executives (intendentes) who govern the eighteen interior departments tend to combine roles as mayors of the departmental capitals and governors of the departments remaining territory. According to many observers, regional executives in the contemporary democratic period look less and less like mayors and more like governors, due to the adoption of new roles such as the promotion of economic development and the provision of increasingly important social services (Laurnaga and Guerrini 1994, 86). In the department of Montevideo, where roughly half of Uruguay's population lives, the executive most closely resembles the mayor of a large metropolitan area. In each of the nineteen departments, executives share governing authority with representatives (ediles), who are elected to legislative bodies called juntas departamentales (departmental councils). The design of subnational institutions has been an important element in the competition for national dominance between Uruguay's two traditional parties. From the first half of the nineteenth century, rural landowners and land-based agricultural interests have formed the core constituency of one of these parties, the Partido Nacional (National Party, more commonly referred to as the Blancos, or Whites). In contrast, urban groups, the middle sectors, and commercial interests based in and around Montevideo have been the main supporters of the Partido Colorado (Red Party). When in the second half of the nineteenth century the Colorados consolidated their control over the national government, and departmental governments along with it, the Blanco Party rebelled to protest their exclusion from government. One of the chief forms these demands took was the request for political control in the interior departments where Blanco supporters dominated. Blanco control over political offices in select interior departments was a central element in the power-sharing pacts that brought these armed conflicts to an end, including the Paz de Abril of 1872 and the Pacto de la Cruz of 1897. Uruguay's first transition to democracy in 1903, the earliest such transition in Latin America, set in motion a series of important changes in subnational institutions. As in Argentina, this first democratic period led to a significant re-centralization of authority, as President Jose Battle y Ordonez refused to recognize earlier power-sharing arrangements with the Blancos, and as Colorados reasserted their right to appoint all departmental executives in 1908. Just a few years later, however, Battle was forced to accept the introduction of departmental elections in order to build support for his proposed shift to a collegial form of executive office in the 1918 Constitution. In addition to shifting to subnational elections, this Constitution also endowed departments with a significant degree of fiscal authority. This experience

46

Introduction

with decentralization ended with the self-coup (auto-golpe) of democratically elected President Gabriel Terra in 1933, who dismissed elected subnational officials. Elections were reintroduced during a subsequent period of nearly four decades (1935—73), making this period an important one for the hypothesis that subnational elections drive decentralization. Similar to the other cases of military rule, the generals who governed Uruguay between 1973 and 1985 centralized political authority by replacing every departmental executive (except for Montevideo's) and by suspending further elections. Unlike the other three countries, the military government in Uruguay introduced few substantive changes to subnational institutions beyond some regional development programs in the poor, northernmost region of the country. In 1984 elections were restored for national and subnational offices, and the contemporary period has witnessed important debates over the design of departmental institutions and institutional relationships within the departments. These debates culminated in a new constitution in 1996, which among other reforms advanced the cause of decentralization by separating the national and subnational electoral calendar. One important aspect of continuity in the century that has elapsed since Uruguay first democratized is the fragmented nature of its two traditional parties. The chief expression of this fragmentation is the so-called Ley de Lemas, according to which parties have been allowed to run multiple candidates for national and subnational offices.This device has enabled national party leaders to avoid divisive fights within the party over candidate selection and has prevented the two traditional parties from splitting up into a myriad of separate parties (Gillespie 1991, 21).18 Despite the consequent internal fragmentation, it is critical to note that parties are not fragmented along subnational lines and that departmental executives (e.g., intendentes) have traditionally been weak within their parties. In contrast to Argentina, where intra-party fissures within the two main parties take the shape of regional cleavages headed up by governors, Uruguay's traditional parties are divided into national fragments, each of which has traditionally had a national politician as its chief referent. According to many observers, pre-1996 electoral rules that prevented Uruguayan voters from voting for different parties for national and subnational offices served to weaken the position of subnational actors within their parties (Gonzalez 1991). A partial and increasingly important exception to the fragmented nature of political parties in Uruguay is the center-left Frente Amplio—Encuentro Progresista (Broad Front—Progressive Encounter, or FA—EP), which has governed the department of Montevideo since 1989 and which, like the Blancos, has championed the cause of decentralization. Though made up of component parties that do not always agree, the FA—EP has been less fragmented than the tra-

Definitions, Cases, and Patterns

47

ditional parties, reflected in its practice of running single candidates for offices since its inception in 1971. Subnational Elections and Movement along the Decentralization Continuum In the four Latin American countries that have had lengthy but interrupted histories of subnational democracy, has the introduction or reintroduction of elections below the national level systematically triggered decentralization? In other words, has the decentralization of political authority enabled subnational officials to secure further decentralizing changes that expand their authority to govern? A number of methodological challenges complicate the answering of this important and seemingly straightforward question. First is the lack of systematic data on and scholarly agreement about the quality of democratic elections at the subnational level in each of my country cases. Scholars disagree about how free and fair elections were at the national level in pre—third wave periods, and there is even more scope for differing views about the democratic status of elections for mayors, governors, and subnational representatives. Nevertheless, so long as cases of electoral fraud do not systematically bias subnational election results in favor of national-level actors (as in Mexico before the 19905), we should still expect the introduction of less-than-perfect elections to generate demands for greater subnational powers. Fraud may prevent subnational officials from seeing decentralization as something they need to win elections, but they should still prefer more rather than less power relative to national officials. In the case studies taken up in the following chapters I make note of variation through time and space in the quality of subnational democracy. Second, in order to assess this hypothesis we need to differentiate between the preferences and capabilities of subnational officials. Determining whether these officials come to prefer decentralization when they are elected is different from determining whether they are capable of acting on their preferences successfully. Though the outcome—no decentralization—looks the same, episodes in which subnational officials sought decentralization unsuccessfully and episodes in which they failed to push for decentralization at all are analytically distinct. For example, if weak subnational officials try to bring decentralization about but fail, then their status within political parties may help explain this; if they fail to even press for decentralization, this would represent a different sort of challenge to the subnational elections hypothesis. In practice, untangling preferences and capabilities can be difficult work, particularly for the earlier periods where I am relying on secondary

48

Introduction

sources to reconstruct the micro-foundations of decisions to decentralize. This is especially difficult when it comes to assessing the behavior of subnational legislators and representatives, since the available literature tends to focus more heavily on mayors and governors and other "executive-branch" actors. As a consequence, the empirical chapters pay greater attention to subnational executives than their counterparts in representative bodies. Third, with respect to the dependent variable of subnational institutional change, one can with greater confidence compare the direction of these changes (decentralizing or re-centralizing) across periods and countries than the magnitude of these changes. Determining that authority has shifted toward the national or subnational spheres of government is easier than quantifying the shift in an exercise that would tell us that country X is more decentralized than country Y. How to compare, for example, revenue-sharing arrangements in one country that assign subnational governments a larger percentage of a smaller tax base with the practice in another country of assigning a smaller percentage on a larger base? Part of the problem here is that the independent variable—the holding of subnational elections—is a simpler one than the multifaceted dependent variable—the mix of subnational rights and responsibilities in a number of distinct policy areas. One could respond to this dilemma by specifying the dependent variable more narrowly, looking, for example, simply at revenue decentralization, but this would generate a much more limited understanding of subnational institutions. As a result of these many methodological difficulties, the case studies presented in the following chapters are the most useful method of exploring the power of this hypothesis in my four countries. Nevertheless, as a starting point, the more synthetic representation offered in Table 2.2 helps to illuminate general patterns. By differentiating periods of political decentralization and re-centralization in the four countries,Table 2.2 yields a total of twenty-eight episodes, eleven in Argentina, seven in Uruguay, and five each in Brazil and Chile. In the attempt to generate as many empirical observations as possible, this study includes some periods marked by liberalizing regime changes that fall short of democracy. Democratization in many countries led to increases in contestation before the types of changes in participation that marked the achievement of full-scale democracy (Dahl 1971; Rueschemeyer, Stephens, and Stephens 1992). Thus, for some of the episodes included in this study, I ask whether increases in elite contestation led to changes in subnational institutions in such cases as Brazil before 1945, Chile before 1920, and Uruguay before 1903. In each of these cases, territorial power-sharing agreements figured prominently in the expansion of intra-elite contestation.19

Definitions, Cases, and Patterns

49

TABLE 2.2

Cross-national Support for the Subnational Elections Hypothesis Argentina

Brazil

Chile

Uruguay

Periods of political decentralization*

1916-1930 1946-1955 1958-1962 1963-1966 1973-1976 1983-present

1889-19301945-1964 1985-present

1891-19241935-1973 1990-present

1897-19081918-1934 1938-1973 1985-present

Periods of political re-centralization^

1930-1946 1955-1958 1962-1963 1966-1970 1970-1973* 1976-1983

1930-1945 1964-1974 1974-1985*

1924-1935 1973-1990

1908-1918 1934-1938 1973-1985

"In. row one, • marks those periods of political decentralization that occurred before the country democratized. ^In row two, * marks my decision to disaggregate periods of authoritarian rule to illustrate how different governments within non-democratic interludes pursued different types of changes in subnational institutions.

In the first row of the table, periods are presented in boldface when I have been able to trace decentralizing changes in governance institutions to the demands and pressures of elected subnational officials. Argentina and Brazil offer strong support for the hypothesis, though not all of the Argentine episodes witnessed changes in governing authority in the expected direction subsequent to political decentralization. As discussed in the next chapter, Argentina's experience in the first wave (1916—30) led the governing UCR party to centralize authority in its struggle with the PAN-dominated interior. Peron s third government (1973—76) witnessed few important changes in subnational institutions, due perhaps to the passage of a sweeping decentralization measure on the eve of his return to power in 1973. In most periods, however, pressure by subnational actors for decentralization was the paramount factor at play, and these cases exhibit a strong bottom-up dynamic. The introduction of subnational elections led to decentralizing changes in Argentina (1946-55,1958-62,1963-66,1983-present) and in Brazil (1945-64, 1985—present) because governors were powerful enough within their parties to compel national legislators and members of constituent assemblies to advance decentralizing proposals. In each period, national legislators elected in state and provincial districts would stand to lose authority because of decentralization, and in each case the centralization of policymaking was a necessary condition for their status as brokers who could deliver favorable policy

5O

Introduction

treatment from the center for their districts of origin. Nevertheless, in both Argentina and Brazil, the structural power of governors over national legislators within their parties was sufficient to compel the passage of key decentralizing measures. The ability of the governors to push their demands helps explain why these two countries are, according to many indicators, the most decentralized in the region (IDB 1997, 167, 176). What is perhaps more striking in the first row is the lack of support for the hypothesis in Chile and Uruguay. Chile and Uruguay held subnational elections in periods that were, on average, longer than in the other two cases, but these elections did not similarly transform subnational officials into protagonists of decentralization. Both countries have had experiences with subnational elections and the decentralization of policy authority but there is little evidence that the former caused the latter. Instead, at different points in each country, the introduction of subnational elections has occurred simultaneously with decentralizing changes in governance institutions. Due to the simultaneous nature of these changes, one cannot argue that the practice of electing subnational officials led them to bring about the devolution of authority. Instead, changes in subnational political institutions and subnational governance institutions were introduced as the outcome of national-level political dynamics in which the preferences of subnational actors were not critical. This top-down experience with decentralization in Chile and Uruguay, strikingly different from the bottom-up dynamic at play in Argentina and Brazil, is a pattern that has consistently held up through time. Thus,Table 2.2 should not be read to suggest that decentralizing changes in subnational governance institutions have not occurred in Chile and Uruguay, but rather that the decentralization that has taken place cannot be attributed to pressures from subnational officials. The findings presented in the first row ofTable 2.2 point strongly to the importance of internal party dynamics in general and candidate selection procedures in particular. In Argentina and Brazil, governors were able to ensure that democratization led to decentralization because they influenced the selection of candidates for those national offices that would decide on decentralizing legislation. In Chile and Uruguay, national legislators pursue political careers by voting for the policies that please their national patrons, disregarding the substantive concerns of subnational officials who cannot do much for them. The importance of candidate selection procedures in accounting for the observed differences between the four cases naturally directs our attention to the origins of these procedures. Since the main purpose of my case studies is to evaluate the hypothesized impact of such factors as regime change and economic policy reorientations on decentralization and re-centralization,

Definitions, Cases, and Patterns

51

providing a comprehensive explanation of candidate selection procedures is beyond the scope of this book. Though it does not provide a thorough analysis of how these procedures originated, my research does point toward the significance of cross-national differences in the process of state consolidation. In Argentina and Brazil, political actors achieved the consolidation of the central state in the late nineteenth and early twentieth centuries through the offering of concessions to states and provinces. In Chapter 3,1 focus on policy concessions as tools that facilitated this process of consolidation, but other forms of concession were used as well. For example, beyond the realm of policy, the bargains struck between regional elites and advocates of central power preserved a great deal of influence for the former over the political procedures used to elect the individuals who would represent their jurisdictions at the national level. State consolidation looked quite different in Chile and Uruguay, as it preserved less influence for regional power holders and generated fewer regional concessions. In Chile, the pronounced concentration of economic wealth in the Central Valley and the absence of rival regional elites meant that the consolidation of the state was concluded at a very early date and in the absence of complex cross-regional negotiations. The consolidation of the state was more protracted in Uruguay, but the power-sharing deals (referred to as coparticipaciori) that eventually worked to stabilize the state were negotiated between parties and not regions, and consequently preserved control over candidate selection for national party leaders. The relative influence of national and subnational actors in the selection of national representatives is constant enough to do the explanatory work in the four cases I survey, but it is important to note that the balance of power between these officials is not entirely static. While an in-depth discussion of how candidate selection procedures change is similarly beyond the scope of this study, the case materials presented here can be mined for insights into some of the possible sources of change in these procedures. One of the most promising areas for future research is the impact of changes in subnational institutions on candidate selection procedures, in effect reversing the causal arrow posited in this study. Do decentralizing changes in subnational institutions strengthen the roles of subnational officials in selecting candidates? In Chapter 7,1 argue that the holding of subnational elections in Chile and the decoupling of national and subnational elections in Uruguay have—at the margin—begun to increase the status of subnational officials in the internal affairs of their parties. Does re-centralization within the institutions of the state generate centralization within parties in the manner of candidate selection? In Argentina, it does appear to be the case that President Menem s growing discretion over the distribution of revenues in his first term strengthened

52 Introduction his hand in disputes with Peronist governors over the content and order of party lists. Returning briefly to Table 2.2, the second row of the table serves as a first cut at another hypothesis discussed in the previous chapter: does the suspension of subnational elections and the return to subnational appointments lead in turn to re-centralizing changes in governance institutions? In the periods in boldface, the re-centralization of political authority led to the recentralization of at least some types of policy authority. For example, in Argentina (1966-70,1976-83) and Brazil (1930-45,1964-74), de facto authorities at the center either cut revenue transfers or limited subnational policy attributes. In Chile (1924—35) and Uruguay (1934—38), the suspension of subnational elections likewise enabled national politicians to reclaim some previously devolved powers.20 Thus, in contrast to the first row, evidence for this secondary hypothesis is spread out more evenly in the four countries, as each has witnessed re-centralizing change in the wake of democracy's collapse. This finding is somewhat erroneous, however, in that it masks the more nuanced story of military rule and institutional change at the subnational level. For example, while military rulers in Argentina (1966-70) and Brazil (1964—74) cut revenue transfers, the military authorities who succeeded them in power in Argentina (1970—73) and Brazil (1974—85) reversed these cuts and significantly expanded revenue sharing before giving up power. Chapter 5 offers a more detailed comparative discussion of the goals that military rulers pursued in redesigning subnational institutions. Rival Explanations: Size and Federalism The first row of Table 2.2 speaks to the importance of structures that divide power between national and subnational officials within parties. Several other structural factors may be relevant in explaining variation across my four cases. This section explores two of the most important such factors: size (territory and population), and the distinction between federal and unitary structure. One of the most obvious structural differences between these countries is their size, measured both in terms of population and territory. All things equal, one would expect larger countries to be more decentralized for a whole host of reasons, including greater socioeconomic complexity and the difficulties a single central government faces in adequately providing goods and services to a large population across an extensive area. In contrast, in smaller countries that tend to be less complex and diverse, the argument that central governments cannot accommodate the diversity of citizen pref-

Definitions, Cases, and Patterns

53

erences for governmental outputs is less compelling. The support for this hypothesis in Latin America is strong. According to the Inter-American Development Bank, size, whether measured by land area or population, is positively associated with higher decentralization, and this relationship appears to be more pronounced in Latin America than in the OECD countries (IDB 1997, 157).Table 2.3 suggests that size may help us understand at least some of the variation in my four cases. Brazil and Argentina are much larger than Chile and Uruguay, in land area and population, and they have consistently been more decentralized.21 There are limits to how much size can tell us, however. For example, though the expansion of the population in each country would lead us to expect increasingly decentralized outcomes, instead we see waves of decentralization and re-centralization through time in all four countries. Second, the size factor gives us little leverage on differences between the two larger and two smaller cases. For example, though Uruguay is much smaller than Chile in land area and population, subnational authorities in the former have long held powers to tax that far exceed those of their counterparts in Chile. Though Brazilian states on average are larger than Argentine provinces in terms of population, they have traditionally faced greater constraints on borrowing. There is simply no linear relationship according to which the larger the country, the more decentralized it will be across all policy arenas. More explicitly political factors are necessary in order to make sense of these important cross-case differences. TABLE 2.3 Variation in Land Area and Population: Argentina, Brazil, Chile, and Uruguay Land Area

Population

Population

Population

1970

Population 2000

Argentina

2,791,810

4,123,800 (1895)

13,906,694 (1943)

24,937,000

36,125,000

Brazil

8,547,403

17,438,434 (1900)

41,565,083 (1940)

93,752,000

166,296,000

Chile

756,626

3,231,022 (1907)

5,237,432 (1943)

9,636,000

14,822,000

Uruguay

176,215

1,334,455 (1916)

2,185,626 (1941)

2,802,000

3,289,000

(km*)

1900

1940

SOURCES: Anuario 2000 Iberoamericano (Madrid: Ediciones Piramide, 2000); Jack Hopkins, ed., Latin America: Perspectives on a Region (NewYork: Holmes and Meier, 1987); Rex Hudson, ed., Brazil:A Country Study (Washington, DC: Library of Congress, 1998); Bottinelli et al. 2000, 325; Zulma Recchini de Lattes, La Poblacion de Argentina (Buenos Aires: Ministerio de Economia, 1975), 23; Handbook of Latin American Population Data (Washington, DC: Office of Interamerican Affairs, 1945), 1; and Odette Tacla, Panorama Demogrqfico de Chile (Santiago: Institute Nacional de Estadistica, 1975), 5.

54 Introduction A second structural factor that deserves attention is a country's status as federal or unitary in its organization. Argentina and Brazil may be more decentralized than Chile and Uruguay simply because they are federal in structure.22 According to the logic of this hypothesis, federalism may legitimize and thereby motivate subnational actors to demand the sorts of powers that would enable them to play their constitutionally assigned roles (Failed 2001). Unitary constitutions that deny important roles for subnational officials may inhibit them from making similar demands. In his crossregional survey of decentralization, Manor finds that the existence of an intermediate level of government indeed helps to make a country more decentralized (Manor 1999).23 Particularly in Latin America, "federal" and "unitary" are labels that have long enjoyed a great deal of symbolic power. Advocates of decentralization in Argentina, for example, have made great use of the language of federalism in pushing for decentralizing changes they argue will restore the country's rightful place as a truly federal republic (Frias i98o;Vanossi 1964). In Chile, opponents of moves to expand democratic space at the regional level have opposed holding direct elections there as incompatible with the country's unitary identity. Despite the rhetorical importance of these labels, however, the distinction between federal and unitary structure is insufficient as an explanation of observed differences across my cases. The chief problem is the heterogeneous nature of each of these two categories.24 While Argentina and Brazil are highly decentralized federations, Latin America's other two federal countries—Mexico andVenezuela—have figured as the region's most centralized countries in several dimensions. Though Chile and Uruguay are quite centralized unitary cases, Bolivia and Colombia underwent two of the region's most significant experiences with decentralization in the 19905 and are also unitary countries. Comparative data on subnational spending as a percentage of total spending show that federal systems are sometimes more centralized than unitary systems, and so the question remains as to why subnational officials failed to demand greater fiscal authority in my two unitary cases. Furthermore, that each of the four cases has been either federal or unitary for nearly two hundred years means that this variable cannot generate much analytical leverage on cross-temporal changes. These labels have proved to be far less fluid than the content of subnational institutions. The Role of Agency in the Design of Subnational Institutions In the struggles over subnational institutions that have taken place in Latin America and elsewhere, rivalries between national and subnational politicians form the central axis of conflict. According to the subnational elections hypothesis, elections simply strengthen the hand of subnational officials in

Definitions, Cases, and Patterns

55

their battles with the national politicians who formerly appointed and controlled them. There are other important axes of conflict, however, and attention to these dimensions can provide a fuller understanding of change and continuity in subnational institutions. In particular, the struggles that take place among national actors and among subnational actors are as important as the struggles that pit actors at different levels against one another. Conflicts among national actors and conflicts among subnational actors open up considerable scope for agency, strategy, and leadership. In cases where subnational officials are powerful actors within their parties, their frequent inability to present a united front across subnational units vis-a-vis the national government undermines this position of strength. The inability to present a common stance is in turn frequently a function of deep-seated structural differences between these subnational units. In Argentina and Brazil, for example, tensions between the more developed states/provinces and the poorer states/provinces have created important opportunities for national politicians. As seen in Chapter 3, Brazils President Vargas (1930—45) famously exploited the interstate hostilities generated by the First Republic, during which period the most developed states of Sao Paulo and Minas Gerais monopolized control of the federal government to the detriment of the remaining states. By playing on the grievances of the marginalized states relative to the more powerful ones, Vargas enhanced his ability to redesign subnational institutions in a centralizing direction.25 Likewise, in Argentina, as Chapter 6 demonstrates, President Menem (1989—99) took advantage of the vulnerability of the country's poorer provinces by strategically offering them sidepayments in a successful attempt to mute unified provincial opposition to recentralizing changes. During Menem's first period, tension among subnational districts, combined with a degree of party discipline among the Peronist governors that exceeded party discipline in Brazil, was an important factor in the re-centralization that occurred. The top-down dynamic in Chile and Uruguay is the mirror opposite of the bottom-up cases. While national politicians in each country dominate the parties to which they belong, competitive struggles among them open up a window for the adoption of decentralizing changes, an outcome that the subnational elections hypothesis cannot help us understand. In cases of decentralization from above, the conflicts that divide national politicians take three basic forms: inter-branch, inter-party, and intra-party. Chile in the late 188 os provides one of the most powerful examples of inter-branch conflict leading to decentralization, as discussed in Chapter 4. While Conservative legislators opposed the statist policies of Liberal President Balmaceda, Liberal legislators resented the President's attempt to handpick his successor as the party's standard-bearer in the approaching presidential election. The tremendous bipartisan animosity toward the President led national politicians to

56

Introduction

decentralize, and thereby put at risk their own authority over subnational politicians. In Uruguay, it was inter-party rather than inter-branch conflict that triggered decentralization in the early twentieth century. In this period, national leaders of the Colorado and Blanco parties disagreed sharply over the electoral reforms proposed by former Colorado President Jose Battle y Ordonez. Though the conflict could have been resolved through a number of distinct deals, in the end the Blancos agreed to these reforms in exchange for the introduction of departmental elections and significant increases in departmental authority over economic policy. Thus, departmental executives enjoyed significant powers in the subsequent period, not because they demanded them successfully, but because of conflicts and negotiations between the Blancos and Colorados at the national level. Finally, conflict between politicians in the same party or coalition can also generate episodes of decentralization from above. For example, the two opposition parties that belong to Chile's right-of-center Alianza coalition disagreed strongly over the desirability of a government-sponsored bill for separate mayoral elections, a rupture that led to the passage of this important decentralizing reform in 1996. When decentralization results from conflicts among national politicians, it takes a limited and gradual form as compared to the bottom-up cases, with national politicians generally exerting tight control over its terms and pace. As I show in Chapter 7, however, even when they are carefully designed, subnational institutions may escape from the control of the national politicians who created them. In both of my "top-down" cases, though subnational officials remain comparatively weak in their parties, they have been able to exploit divisions among national politicians. In each case, limited changes have set in motion pressures for greater changes by subnational officials, and in each case subnational officials have developed associations to press for further decentralizing reforms at the national level. As a result, maintaining control over the extent of change has proved to be increasingly difficult for the national politicians who have sought to engineer subnational institutions to their liking.

CHAPTER

Decentralization from Below

3

A R G E N T I N A B E F O R E 1966, BRAZIL B E F O R E 1964

ACCORDING TO ONE of this book's main premises, past episodes of decentralization are germane to contemporary theory-building exercises that try to explain why national politicians decentralize. In expanding the set of relevant cases to include past struggles over subnational institutions, what is immediately striking is how familiar the terms of these prior struggles often seem. Argentina is a case in point, where, in the 18908 as in the 1990$, provincial governments ran up such huge debts that the federal government was able to force them to surrender various forms of policy autonomy in exchange for federal help in managing their debts. In Brazils 1945 transition to democracy, as in the democratic transition that played out nearly forty years later, pro-democracy groups deployed decentralization as a tool that could be used to undo some of the unwanted changes introduced by the preceding authoritarian government. While the continuities are striking, so too is the extent of change. In Latin America, the stakes of decentralizing in the 18908, when the state did very little, were quite different than in the 19608, when the state had significantly expanded in size, and different yet again in the 19908 subsequent to liberalizing measures that had considerably trimmed the role of the state. In addition to generating much-needed perspective on the contemporary period, investigating earlier experiments also reminds us that decentralization is not irreversible; all of the decentralizing episodes included in Part II of this book experienced some form of reversal. In this chapter, I describe and analyze patterns of decentralization and re-centralization in Argentina and Brazil. For each country, the chapter surveys a lengthy period that began in the nineteenth century with the establishment of federal republics and that ended in the 19608, when military coups brought to power leaders who believed that the pursuit of economic

6o

19th-century Origins, 20th-century Trajectories

development required the redesign of existing subnational institutions. In the interim, each country witnessed numerous changes both in regime type and in the political authority and governing capacity assigned to subnational governments.The period before 1966 in Argentina and 1964 in Brazil is thus an important one for the hypothesis that the introduction of subnational elections (i.e., political decentralization) leads to the decentralization of governing capacity, broadly defined. In this period, six liberalizing regime changes led to the holding of subnational elections: in Argentina in 1916,1946,1958, and 1963, and in Brazil in 1891 and 1945. In all of these periods save one, the holding of gubernatorial elections increased the ability of subnational officials to demand explicit changes that benefited their jurisdictions. As I argue in greater detail below, the one exception proves the rule. In the wake of Argentina's first transition to democracy in 1916, President Hipolito Yrigoyen used decree powers to dismiss elected provincial governments in a move that compromised the formal decentralization of political authority, facilitating in turn his attempt to centralize governing capacity. Regime change at the subnational level is thus an important variable in the study of decentralization.Yet, as I argue in this chapter, regime transitions by themselves cannot tell us enough about the decision-making process that leads to institutional changes at the subnational level, and still less about the unintended consequences of some of these changes. In the attempt to uncover patterns in the design and performance of subnational institutions, this chapter aims explicitly for breadth over depth. Because it makes possible comparisons with later episodes of decentralization and re-centralization, much can be gained from this admittedly highly synthetic approach. Empirical complexity makes it difficult to generalize about these past episodes, but I argue that two patterns capture much of what happened in Argentina and Brazil. According to the first pattern, when national politicians introduced decentralizing changes in this period, they did so in response to pressures exerted by subnational actors, namely governors. In other words, both countries experienced "decentralization from below," in which governors at distinct moments have amassed sufficient power to demand that national politicians cede policy authority in a variety of dimensions. In emphasizing the bottom-up dynamic, it is critical to note that the important pressures have come not from civil society groups or social movements, but rather from "officialdom" at the subnational level. This is not grassroots decentralization, but decentralization by governors striving to expand their power relative to national politicians and relative to the subnational populations they govern. In their struggles with presidents, governors in Argentina and Brazil have consistently used their leverage over national legislators as an asset that can

Decentralization from Below

61

help them compel the adoption of decentralization in national decisionmaking arenas, a finding that parallels the argument of Willis, Garman, and Haggard for the 19805 and 19905. As a simple pattern that holds up through time, the salience of the governors in the construction of decentralized institutions represents an important source of continuity in these two countries. It also goes a long way in distinguishing decentralization in Argentina and Brazil from many other Latin American countries, including the topdown dynamic in Chile and Uruguay that I analyze in the following chapter. Emphasizing the role of the governors is useful for two additional reasons. First, their particular influence helps explain the form that decentralization took in each country, namely the frequency of changes that more commonly devolved revenues than expenditure responsibilities. Second, focusing on the governors helps illuminate key differences between these two federal countries, including the establishment of more decentralized institutions in Brazil. Governors in both countries had to contend with authoritarian reversals that ended party politics, but in democratic periods Brazilian governors never underwent the loss of authority experienced by their Argentine counterparts, who had to contend with the formation of parties that were comparatively more disciplined and hierarchical. While the first pattern identifies governors as key protagonists in the push for decentralization, the second broad pattern that emerges from this period suggests that conflicts between governors have limited their ability to design institutions that favor the subnational realm relative to the federal government. These conflicts have taken different forms, but consistently they have weakened the ability of the governors to rebuff recurring attempts by national politicians to re-centralize what had been previously decentralized. In this sense, interregional conflicts have had the effect of restricting the scope of "decentralization from below." Though the federal government is not a unitary actor, the centralization of power in the office of the president meant that intergovernmental relations in this period typically pitted a single actor—the president—against multiple actors—all of the governors. The history of intergovernmental relations in each country is rich with examples of presidents playing governors off of one another to further the goals of the central government. In addition to this basic asymmetry, the potential for solidarity among the governors has been undermined by glaring inequalities in the level of development of different regions within each country. In Argentina, the economic strength of the littoral provinces (e.g., Buenos Aires, Santa Fe) has generated deep conflicts with the less productive interior provinces, and in Brazil the economic dynamism of the South and Southeast has generated clear tensions with the less developed North and Northeast. In each country, national politicians

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have been quick to exploit these basic regional divisions to serve their own centralizing ends. Rooted in underlying structural differences, disputes between governors have at various times created significant opportunities for presidents, whose agency and leadership thus become critical in explaining changes in subnational institutions. In this chapter, I focus on efforts by presidents to build political parties, craft support coalitions, and circumvent inter-branch stalemate, all of which have driven presidential preferences in the redesign of subnational institutions. In Argentina, I contrast the approaches adopted by its two most important party-builders: Hipolito Yrigoyen and Juan Peron.1 Yrigoyen's attempt to build the Radical Party led him to re-centralize political authority through the removal of opposition parties from provincial governments and their replacement with Radical governors. Peron sought a less combative and more inclusive strategy, seeking to integrate traditional provincial politicians into his movement rather than harass them.Yrigoyen's strategy of using centralization to build a political party finds no parallel in Brazil, where Vargas aggressively sought to centralize authority but did not do so as part of an attempt to build a party. Neither did presidents in the Second Republic (1946-64), though they too sought to centralize in a variety of other dimensions.2 Coalition-building by presidents has also been critical in the design of subnational institutions. In both countries, presidents played to the immediate interests of poorer provinces and states in constructing governing coalitions that would subsequently sustain centralizing projects. In Argentina, as Edward Gibson and others have argued, Peron built an urban—rural coalition that was based in working-class support in the more industrially advanced provinces, but that also included an important rural constituency in the country's less developed interior (Gibson I99ya, 62; Mora y Araujo and Llorente 1980).While most scholars have emphasized the various ways that Peron centralized authority in expanding the roles of the central state, his coalitional imperatives also led him to adopt changes that appealed to the interior provinces, chiefly in the area of revenue sharing. In the 19505 and 19605, as Peron s successors as president struggled to hold onto power, they also found that one way of solidifying the coalitions that could ensure their continued rule was to increase fiscal transfers to provinces being left behind by the country's pattern of industrialization. In Brazil, the inclusion of weaker regions in governing coalitions was an equally important strategy. To build the alliances that made possible his lengthy authoritarian rule, Getulio Vargas solicited political support from those states that had been excluded from ruling coalitions in the First Republic. By favoring certain states over others,Vargas was able to centralize power in ways that undermined the autonomy of all of the states relative to the center.

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In Argentina and Brazil, presidential drives for re-centralization have been both cause and effect of the inter-branch disputes that are common under presidentialism. For example, in Argentina in the 19105 and 19205 and in Brazil in the 19505 and 19605, centralizing policy proposals by chief executives in the federal government caused governors to mobilize "their" legislators in the national Congress against the president. In this sense, centralizing drives worsened inter-branch conflict and, in both cases, deepened support among subnational elites for the coups that toppled democratically elected governments in 1930 in Argentina and in 1964 in Brazil. In the latter case, for example, while some governors sided with President Joao Goulart, others resisted his centralizing proposals by supporting the military coup. But the relationship also worked in the opposite direction, in the sense that the possibility of centralizing power was particularly attractive to presidents who faced hostile legislatures. Due to the influence of governors over legislators, inter-branch conflicts that did not have much to do with intergovernmental questions nevertheless often encouraged presidents to seek centralizing changes. In Argentina, for example, Yrigoyen dismissed the elected governments of numerous provinces where national legislators are elected, in the successful attempt to manufacture a Radical majority in Congress. Considering the influence governors exert over national legislators, it is no wonder that conflicts between the executive and legislative branches at the national level so often become entangled with conflicts among chief executives at the national and subnational levels. Argentina: Change and Continuity in the Design of Subnational Institutions In this section I use the many regime changes that Argentina experienced in the twentieth century to punctuate my story about how and why politicians changed subnational institutions. One overarching theme I develop for this period is that, even in the context of frequent changes, there was an important degree of continuity in the nature of the trade-offs effected by national and subnational politicians. Repeatedly, governors endorsed changes that had the effect of reducing the long-term institutional capacity of their provinces in exchange for short-term benefits, often in the form of fiscal transfers. In the poorer interior provinces, support for such changes was built not just by releasing federal monies but through the over-representation of these provinces in federal institutions, namely, the legislature. Sometimes one must emphasize the structural conflicts between provinces that made it difficult for governors to stand together in opposition to centralizing drives by national politicians. But just as notable is the regularity with which high discount rates have encouraged governors to pursue of their

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own accord changes that delivered immediate advantages at the cost of undermining the long-term governing capacity of the provinces. These high discount rates can be understood as the logical response to provincial constitutions that mostly denied the possibility of reelection and, in a deeper sense, as the result of frequent coups that gave governors reason to doubt that they would be able to finish their single terms.3 The deals that governors brokered in post-transition settings appeared to benefit the provinces by increasing available revenues, but the cumulative effect of these deals was to render the provinces increasingly ineffective as units of government. As I argue in Chapters 5 and 6, this trend was only partially arrested with the devolution of new expenditure responsibilities to the provinces in the 19708 and 19905. Even in the contemporary period, however, one can identify examples of governors acquiescing to changes that erode subnational governing autonomy in exchange for beneficial fiscal treatment from the center. THE ROLE OF THE PROVINCES IN THE CONSOLIDATION OF THE FEDERAL GOVERNMENT! 1853-1916

The nineteenth century in Argentina produced a dizzying series of changes in the constitutional division of authority between levels of government.4 For my purposes, the critical point is that the long-standing conflict between weaker interior provinces and the dominant province of Buenos Aires generated support among the former for the creation of a federal government that would be powerful enough to check Buenos Aires's hegemonic pretensions. Decentralized arrangements that benefited the country's most advanced province were gradually replaced after 1880 in a process of centralization that came coupled with benefits for the interior provinces, a dynamic that Brazil, under Vargas, would also experience roughly half a century later. Nominally a "federal" regime but in practice one that elevated Buenos Aires Province and brutally repressed the interior, the government of Juan Manuel de Rosas (1829—53) crystallized support among the interior provinces for a national government powerful enough to constrain Buenos Aires. When provincial authorities met in 1853 to write a new constitution after the fall of Rosas, they delegated important rights and responsibilities to the federal government. In terms of the distribution of political authority, the Constitution gave the president the right to dismiss, with the consent of the national legislature, the elected government of any province in order to defend the country's republican system of government. Federal interventions would subsequently play an important centralizing role in Argentina. In terms of the distribution of governing capacity, one of the Constitution's most important features was its division of taxing authority between levels of government. The provinces delegated to the federal government exclu-

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sive rights to the country's most important tax, the tax on external trade. At the time, just one province, Buenos Aires, was able to monopolize trade taxes because of its operation of the country's most important port—to the serious detriment of the remaining provinces. The provinces retained exclusive authority over direct taxes and stipulated that both levels of government could raise domestic indirect taxes on consumption (Pirez 1986, n).The Constitution also stipulated that every power not expressly delegated to the federal government would remain with the provinces. In subsequent decades, rather than develop these powers, the provinces often accepted encroachments of the federal government on provincial prerogatives in exchange for various payoffs. In a response that reflected the framers' overarching goal of constraining the country's most important province, Buenos Aires refused to sign the 1853 Constitution, blockaded the Parana River in an attempt to bring the interior to heel, and subsequently defeated the interior in the 1861 battle of Pavon. Subsequent to its military victory, Buenos Aires agreed to sign on to the 1853 Constitution, but only after insisting on key amendments, including suppressing the language in the 1853 Constitution that would transform the city of Buenos Aires into a national capital and force it to share its trade revenues. The decentralized control over trade revenues came to an end only in 1880, when the federal government successfully put down a rebellion in the province of Buenos Aires and used its victory to impose two key changes. First, it imposed the federalization of the city of Buenos Aires and the nationalization of trade revenues along with it, a significant boon for the interior. Second, it imposed the dissolution of provincial militias, with the result that henceforth the provinces would have to depend on the national government for military support (Remmer 1984).Together, these changes indicate that centralization benefited the interior provinces relative to Buenos Aires Province, even as this process undermined the governing capacity of all provinces relative to the federal government. A similar example of this phenomenon can be found in changes in financial policy that revoked the right of Buenos Aires's bank to print currency and that centralized money printing in the national government s Banco Nacion. Centralization helped the interior provinces by revoking the special privileges of Buenos Aires Province, but, at the same time, these changes expanded the role of the federal government relative to every province.5 DEMOCRATIZATION AND CENTRALIZATION UNDER THE RADICAL PARTY: 1916-1930

Argentina's first experience with democracy, a fourteen-year period that began with the victory of the Radical Party in the presidential elections of 1916, is an important one for this study because it set in motion centralization

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rather than decentralization. The connection between democratization and centralization in this period is not incidental. Democratization brought to the presidency the head of Argentina's first truly national party, who centralized so that he could govern in a context in which most of the provinces were controlled by members of the same oligarchic party that had dominated politics in the pre-democratic period. The aggressiveness of the president's centralizing project in turn played a part in Argentina's first-ever breakdown of democracy in 1930, by convincing traditional political elites in the provinces that democracy was incompatible with their own political interests. Argentina's first transition shows that democratization does not always lead to changes in subnational institutions in the expected direction, and that country-specific factors can counter the decentralizing potential of demo cratization. In its pre-democratic period, Argentina was governed by the National Autonomy Party (Partido Autonomista Nacional, or PAN), which Gibson identifies as a "decentralized formula for oligarchic civilian rule" (Gibson I99ya, 3 5). The PAN was really a conglomeration of provincial party organizations rather than a national party per se. As Remmer argues, within the PAN, "the provincial governors generally retained independent bases of political power, and to secure their support the president could not go too far in violating their autonomy" (Remmer 1984, 29).The PAN governed over a period of legendary growth in Argentina, which by 1912 had convinced the party's more progressive wing that it could acquiesce to democratization without losing power. At the same time, many of the leaders of the main Radical opposition party had similar class backgrounds as PAN leaders and seemed unlikely to propose major policy changes. As a result, the PAN introduced electoral reforms in 1912 that made free and fair elections possible at both the provincial and national levels. In the 1916 elections the Radical Party won the presidency but failed to earn a majority in the lower chamber (Romero 2002, 50). Due to the stipulation in the 1853 Constitution that provincial legislatures would elect Senators, and the fact that most provinces were still governed by the PAN, President Yrigoyen also encountered an opposition Senate (Mustapic 1984). Having lost the presidency, which was key in the pre-i9i6 period to the resolution of inter-provincial conflicts, the PAN fragmented along provincial lines in a way that made it difficult for them to unite in their struggle against the Radicals. Though Yrigoyen did not implement a sudden change in economic policy, as the PAN had calculated, he did aggressively use his victory to build the Radical Party and to undermine the opposition. In response, the country's conservative political establishment used their provincial bases to resist him. For example, the opposition used the federal legislature to blockYrigoyen's attempt to introduce a federal income tax, a key

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centralizing proposal. ForYrigoyen, the PAN's strength in the provinces, where it used its traditional leverage over rural constituents to monopolize control of subnational elections, was a serious threat to his attempt to build the party beyond Buenos Aires. As Gibson argues, Yrigoyen was "bent on destroying the remaining organizational bases of conservative power" (Gibson i99ya, 40). Over the course of his first six-year term, between 1916 and 1922, Yrigoyen issued twenty federal interventions, fifteen of which were implemented by executive decree and all of which had the effect of displacing PAN-led provincial governments. As Rock argues, "Largely because of the interventions, by 1918 the Radicals had a majority in the Chamber of Deputies" (Rock 1987, 200). In addition to producing unified party control of the federal government, intervention was also an important party-building tool because it gave the Radicals control over the distribution of minor public jobs in the provinces, long a resource for traditional caudillos (Romero 2002, 52). By 1922, the year Yrigoyen was replaced as president by a Radical successor, the party had won provincial elections in all but two provinces. Though in later periods federal interventions sometimes backfired against the federal government (Jones I997a), in the early twentieth century political centralization helped Yrigoyen to build his party and to govern in an adverse political landscape. THE COLLAPSE OF DEMOCRACY AND THE ESTABLISHMENT OF COPARTICIPATION: 1930-1946

Argentina's first-ever breakdown of democracy, partially the result of Yrigoyen's aggressively centralizing behavior, marks the beginning of a particularly significant period for the design of subnational institutions. It was in the years immediately following this first coup that politicians established the revenue-sharing system that has dominated intergovernmental relations ever since. Over the course of the so-called infamous decade that began with the 1930 coup, power shifted back to the same coalition of Buenos Aires-based exporters and landowners in the interior provinces that governed before 1916. In contrast to the reactionary dynamic in the political system, national political leaders responded to the Great Depression by introducing important changes that expanded the economic role of the central state. Though the shift to import substitution initially occurred without much state direction, key institutional reforms were instituted in the 19305, including the creation of a central bank and the establishment of price supports for agricultural production. Especially important were the changes introduced in the fiscal relationship between the federal government and the provinces in the 19308. As in the wake of the 1890 economic downturn, the depression of the 19305 sent

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the central government scrambling for revenues due to the decline in external trade, its chief source of revenue. Whereas the federal government responded to the crisis of the 18905 by beginning to collect domestic consumption taxes, which was its constitutional prerogative, in the 19305 it sought to supplant the provincial collection of these taxes altogether. In addition, the federal government also championed Yrigoyens earlier proposal for a federal income tax, which the 1853 Constitution had reserved for the provinces alone. The result was an agreement between the provinces and the federal government according to which the provinces would delegate to the national Congress exclusive rights over certain taxes in exchange for an automatic share in the revenues collected. This agreement took the form, in late 1934, of a series of new sales, excise, and income taxes passed by Congress, which voted to share the proceeds with the provinces on the condition that they repeal any overlapping provincial taxes.6 Thus was born the system of automatic revenue sharing or copartidpadon (henceforth coparticipation). Coercion, as well as the fundamentally non-democratic context of the late 19305, are important factors in understanding how coparticipation arose. According to Pirez, the federal government encouraged key provinces to sign on to coparticipation by letting them transfer portions of their debts to the federal government (Pirez 1986, 14). The deals offered were not uniform, and this period can in part be understood as one in which multiple governors were unable to deflect the centralizing grab of the federal government for provincial revenues. But coercion is only part of the story; for a variety of reasons, sitting governors found the coparticipation system quite attractive. At a time of economic crisis, the provinces were able to shift the significant administrative and political costs of collecting taxes onto the federal government. In the undemocratic politics of the 19305, provincial governors, most of them members of political parties that descended from the PAN, had little cause to fear the federal government, which was not the case during the twoYrigoyen presidencies. Though the delegation of taxing authority advanced the interests of governors in the 19308, their decision would have long-lasting and mostly negative consequences for the governing capacity of the provinces. Delegation in the 1930$ deepened the dependence of the provinces on the center and closed off other paths, including the development of independent taxing capacity. As part of this path-dependent dynamic, once the provinces gave up collecting important taxes, the decline in their tax collecting infrastructure would increase the difficulty down the line of any attempt to reclaim these powers. While the particular rules governing revenue sharing were subsequently and frequently changed, the institution of revenue sharing proved to be remarkably enduring. There have been periods when coparticipation laws were allowed to lapse or were unilaterally altered by decree of the fed-

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eral executive, but policy makers at the center have always returned to the institution of automatic revenue sharing. The idea that federal revenue transfers should continue to substitute for the independent collection by the provinces of their own tax bases has rarely been questioned. In hindsight, the decision to centralize tax authority has proved to be something of a Faustian pact. Coparticipation obviated the need to exert much tax effort locally, but it also cut the ties between provincial governments and provincial taxpayers that could have sustained more dynamic provincial governments over time (Campbell 1997).With few exceptions, provinces became vulnerable to various sorts of manipulation. While provincial representatives to national legislatures were able to increase their provinces' shares of revenue in subsequent periods, there were serious constraints on the ability of legislators to protect the interests of their provinces. For example, their ability to do so was limited both by the frequency of de facto governments that closed the federal legislature and by the quite disciplined nature of Argentine political parties.

PERONISM AND THE INSTITUTIONALIZATION OF COPARTICIPATION: 1946-1958 In line with the regime-change hypothesis presented in Chapter i, the military governments that ruled Argentina in the years preceding Juan Peron's 1946 election introduced a number of centralizing changes in the coparticipation system that were detrimental to provincial finances. For example, the revenue-hungry federal government decreed a tax on profits in 1943 but declined to share the proceeds with the provinces, despite their exclusive constitutional authority over direct taxes. In 1945, the government issued a decree unilaterally altering the rules used to divvy up revenues from the income tax, in effect freezing the scheduled increases in provincial transfers stipulated in the 1934 law (Nunez Minana and Porto 1982). In response to the disadvantageous changes introduced under the military regime, pressures from governors to alter coparticipation in their favor exploded soon after re-democratization and the return to provincial elections in 1946. In November of that year, the provinces convened in the firstever national meeting of provincial finance ministers to discuss the fiscal relationship between the federal and provincial governments. The ministers complained not just about the military decrees, but also about the very centralization of taxing authority in 1934 by a government that many of them considered to be illegitimate. Critically, however, rather than demand the dismantling of coparticipation and the decentralization of taxing authority, the governors simply advocated greater revenue shares for the provinces. The Peron administration agreed to raise provincial shares, though he defended the tremendous revenue needs of the federal government, which

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would be necessary for it to carry out the many new tasks it proposed to undertake in the new era of state-led industrialization (Pirez 1986, 25, 27). With large Peronist majorities in both houses of Congress, the legislature approved the agreement without modifying the terms to benefit the provinces, even though it fell far short of provincial expectations. Later, democratically elected presidents without Peron's level of support would not be able to count on Congress in this way. In addition to giving the system of coparticipation democratic legitimacy, the 1947 agreement is important for a number of other reasons. First, it offers another example of governors jeopardizing the long-term institutional capacity of their provinces in exchange for revenue transfers. Though the transfers were not handouts since, as many governors clarified, they came from taxes the Constitution had originally assigned to the provinces, they nevertheless had the effect of increasing provincial dependence on Buenos Aires. Second, the 1947 changes in coparticipation reflect Peron's larger project of building a coalition that would link together traditional politicians in the interior with his base in the urban working class. Apart from increasing overall provincial shares, the 1947 law negotiated by Peron innovated relative to the 1934 agreement by introducing redistributive criteria to benefit the poorest provinces. According to the new criteria, as seen in Table 3.1, poorer provinces would gain not at the expense of the advanced provinces where Peron's urban populist coalition was based, but rather at the expense of the intermediate provinces (Nunez Mifiana and Porto 1983). Third, the 1947 agreement is important because it increased provincial revenue shares without concomitant changes in the responsibilities assigned to the provinces. In fact, even as the federal government agreed to send larger transfers to the provinces during the first and second Peronist administrations (1946-55), its own expenditures surged in a dramatic expansion of the activities taken on by the central state. Peron's strategy of using revenue sharing to build support in the interior obviated the need to impose federal interventions, none of which occurred in his government, and can be contrasted to the more combative approach adopted by Yrigoyen. Thus, re-democratization in 1946 led to a very different dynamic than in 1916. At the same time, Peron's strategy undermined rational public budgeting and set a negative precedent followed by subsequent generations of politicians. Time and again, governors in Argentina have been able to demand ever higher shares of revenue without in turn having to take responsibility for providing additional governmental goods and services. That the rise of statism saw the centralization of responsibilities but the decentralization of revenues is problematic for the argument, discussed in Chapter i,

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TABLE 3.1 A Comparison of the 1934 and ig^j Revenue-Sharing Laws in Argentina

1934 law (Percent of revenues)

1947 law (Percent of revenues)

Advanced Buenos Aires Santa Fe Cordoba Mendoza Subtotal

18.2 12.5 9.6 23.4 63.8

29.0 12.5 10.3 12.4 64.2

Intermediate San Juan San Luis Entre Rios Tucuman Salta Subtotal

10.5 0.6 3.7 10.7 2.8 28.3

5.5 1.6 6.0 7.6 2.5 22.9

0.6 0.4 1.9 3.0 2.0 7.9

1.1 1.4 4.9 1.9 3.6 12.9

100.0

100.0

Provinces organized by category

Underdeveloped La Rioja Catamarca Corrientes Jujuy Santiago del Estero Subtotal Total

SOURCE: Authors elaboration based on Nunez Mifiana and Porto 1983. Note that these two laws pre-date the creation of the provinces that were carved out of national territory in the 1950s.

that only centralizing changes will result from the adoption of illiberal development models. C O A L I T I O N - B U I L D I N G AND COPARTICIPATION IN THE AFTERMATH OF P E R O N : 1 9 5 8 — 1966

When coparticipation laws expired after the forced exile of Peron in September 1955, the military government that deposed him simply extended the laws for successive one-year periods. Unlike the subsequent experiences with military rule that I discuss in Chapter 5, the military government that displaced Peron did not introduce important changes in subnational institutions. Whereas these later governments had long-term goals for deep changes in Argentina's economy and society, the de facto government of Pedro Aramburu simply wished to remove Peron and return to elections in which he and his party would be barred from participating.

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The proscription of Peronism in the elections that Argentina held between Peron s exile in 1955 and his return in 1973 was the dominant feature of these elections (McGuire 1997). A less noted feature was the regularity with which provincial elections in this period consistently led governors to press their claims for greater revenue shares on a central government whose legitimacy was always in question. Four months after the return to democracy in May 1958 with the inauguration of Arturo Frondizi as president, provincial officials organized a conference at which they demanded that coparticipation revenues be divided equally between the federal and provincial governments.7 Initially, Frondizi responded that the government could ill afford to send any more revenues to the provinces, and proposed delaying any discussion of the coparticipation system for five years. When the provincial representatives insisted on changes, the president agreed to increase provincial shares from 21 percent to 26 percent. The governors declined his offer, leading Frondizi to propose the following schedule of increases in provincial shares: to 28 percent in 1959, 30 percent in 1961, 32 percent in 1962, and 34 percent in 1963 (Pirez 1986, 39).When the governors refused this offer as well, Frondizi took the proposal to Congress, where legislators remained true to their gubernatorial patrons by introducing further measures to benefit the provinces. Ultimately, Frondizi agreed to a 100 percent increase in provincial revenue transfers in the absence of any decentralization of expenditure responsibility. Though, like Peron, Frondizi's party held comfortable majorities in both chambers, unlike Peron, his negotiating position as president was fundamentally a weak one. Frondizi triumphed in the 1958 elections after forging a secret deal with Peron according to which the exiled leader would instruct his followers to vote for Frondizi in exchange for liberalizing the proscription of Peronism (McGuire 1997, 85). Once in office, Frondizi sought to build his own independent political coalition and neutralize Peron by imitating his policies, including wage increases and industrial deepening. Though further revenue decentralization would compromise his ability to defend a stabilization program after 1959, the weakness of his support base prevented him from ignoring provincial demands. There are signs that his strategy may have enjoyed some success: Frondizi's Intransigente wing of the Radical Party won three gubernatorial elections in 1961. These victories, however, convinced him to lift the ban on Peronism in the 1962 elections, a decision that precipitated the military coup against his government in March 1962. Representing the rival wing of the Radical Party, Arturo Illia became president in elections that the military agreed to hold the following year. In many ways, the dynamic surrounding intergovernmental fiscal relations paralleled the Frondizi experience. In both periods, governors forced a weak

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federal executive to decentralize, and in both periods Congress played an intermediary role as broker between the provinces and the president. Early in Illia's administration, governors of interior provinces including Catamarca, La Rioja, Salta, and Tucuman met in Buenos Aires to press their demands for further changes in coparticipation.They reiterated the 1958 demand that the federal government split revenues equally with them by raising the provincial share to 50 percent.8 The president agreed to raise provincial shares from 42 percent to 44 percent but no further, and sent his proposal to Congress (Pirez 1986, 39, 40). In reviewing the legislation, the lower house responded to the demands of the governors by increasing the provincial share to 46 percent.Thus, Illia was forced to accept a significant expansion in provincial revenue sharing. Like Frondizi, Illia faced serious legitimacy problems since he became president through elections in which Peronists could not participate. Unlike Frondizi, he did not enter into an electoral pact with Peron, made no real efforts to secure support among the working class, and came to power with only 25 percent of the vote. Several points deserve emphasis here. First is the regularity with which governors could count on the legislators who represented their provinces in Buenos Aires to support decentralizing measures. Second is the continuation of a pattern in which governors clearly preferred devoting time and energy to lobbying for larger revenue transfers rather than the transfer of taxing authority or other changes that would strengthen the provinces' institutional capacity. Third is the pronounced absence of changes in the assignment of expenditures, even as the provinces secured ever higher percentages of federally collected revenues. At no point in this period was the appropriateness of statism as a development model in serious dispute, even as the governors won repeated victories in their pursuit of advantageous rule changes in the distribution of tax revenue. Fourth, in the post-Peron period, governors were increasingly bold and increasingly successful in their demands on the two Radical Party presidents of the 19508 and 19605. Some of this success has to do with the proscription of the Peronists, which undermined the legitimacy of both Frondizi and Illia. But success can also be attributed to the split that divided the Radical Party between the followers of Frondizi and Illia, which undermined the authority of each president vis-a-vis the governors within his own wing of the party. Frondizi and Illia were much less the masters of their parties than Yrigoyen and Peron had been, and this fragmentation within parties translated into bolder attempts by governors to grab power and resources in this period. One can identify a somewhat similar dynamic thirty years later. Though President Menem was able to impose important losses on the provinces in his first term, subsequent to his decline in the late 19905 and the growing fragmentation within the Peronist party,

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Peronist governors were able to reverse many of these losses. The experiences of Frondizi and Illia with the governors are thus important precursors of more recent events. Brazil: Structure and Agency in the Design of Subnational Institutions While Argentina had a particularly difficult time establishing any stable form of government, authoritarian or democratic, Brazil experienced less regime volatility. Despite being less frequent, regime change in Brazil was just as important as a phenomenon that triggered changes in subnational institutions. In contrast to the five periods identified in Argentina, I focus on three periods in Brazil. In the first period, which lasted from the end of the monarchy in 1889 to the revolution of 1930, governors of two of the country's most powerful states took the lead in constructing highly decentralized institutions that benefited them disproportionately. The second period corresponds to the fifteen-year authoritarian rule of Getulio Vargas, who introduced key re-centralizing measures in the attempt to rein in regional oligarchs in the country's most powerful states. Though Vargas's political struggle with these states led to mostly centralizing changes, symbolized by his burning of the state flags in 1937, he also introduced a series of changes that had decentralizing implications, including his strategy of strengthening the municipalities as a way to weaken the states (Scares 2001, 23). In the third period, which began with Brazil's first transition to democracy, in 1945, and ended with the military coup of 1964, power shifted back to the states, although governors found that the centralizing legacy of the Estado Novo seriously constrained their authority relative to the pre-Vargas period. Thus, as in Argentina, regime type is an important factor in the decentralization story, even though changes in subnational institutions cannot always be explained as the result of underlying regime change. In focusing on regime change, I do not mean to underestimate continuities in the relationship between the national and subnational governments. Frances Hagopian, for example, argues that traditional political elites based in the states have consistently dominated politics in Brazil from the 1890$ on. During the Estado Novo, she writes, "regional oligarchic machines were undermined," but not destroyed (Hagopian 1996, 37). Even after he had claimed authoritarian powers in 1937, Vargas still had to negotiate with state-based interests in his naming of state intervenors.9 Though state-based oligarchs have been remarkably able to resist changes that would limit their power, the content of subnational institutions has nevertheless experienced tremendous changes, each of which is impossible to understand in the ab-

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sence of information about the prior period. Specifically, the second-class status of most states in the First Republic produced the animus that Vargas was able to harness when he tried to centralize, and Vargas's centralizing legacy limited how much decentralization would occur once subnational elections were reintroduced. SUBNATIONAL INSTITUTIONS IN THE FIRST R E P U B L I C : 1889-1930

During its nearly seventy years as an independent monarchy (1822—89), Brazil experienced alternating periods of centralization and decentralization. The longest such period (1840—89) was also the last, corresponding to the highly centralized reign of Dom Pedro II (Schwartzman 1982).Though elections for a federal legislature were held in this period, with participation rates that were often higher than elections after 1889, all provincial governors were appointed by the central government and not elected. Furthermore, under the imperial system, Brazils provinces had no real fiscal power independent of the center (Shoup 1965, 75—76). Most critically, in a period marked by Brazil's steadily growing insertion into the world economy as an exporter of primary goods, the provinces were unable to tax their own exports. As many historians have noted, regional economic elites chafed under these constraints, but their dependence on slave labor for economic production convinced them of the need for a strong central government (Carvalho 1993). Yet there is another structural explanation of the centralization achieved by the empire. For much of this period, the country's principal source of economic wealth and most vibrant export economy was located in the seat of centralized political power: Rio de Janeiro. Coffee planters in Rio preferred a centralized system of government and used their leverage to thwart the calls for decentralization from regional agricultural interests that produced for the internal market (Carvalho 1993, 63). In the i86os and 18708, however, coffee production shifted from the Paraiba Valley in Rio de Janeiro to Sao Paulo, and this structural change proved to be critical in amplifying the pressures for more decentralized institutions. As a result of the growing economic dominance of Sao Paulo and continued financial centralization, by 1886-87 the province contributed eight times more in tax revenue than it received from the center (Love 1980,184). Not only did the shift in production open up a growing disjuncture between economic and political power, but Sao Paulo's preference for free labor and its use of incentives for immigration served to lessen the perceived need for a strong central government (Love 1980). In contrast, Rio planters continued to depend on slave labor, which led them to abandon the emperor when he decreed the abolition of slavery without compensation. Following the Revolution of 1889 that deposed the emperor and created a republican form of

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government, Sao Paulo took the lead in pushing for an extreme form of decentralization and state autonomy (Topik 1987).The First Republic that ensued is a dramatic example of decentralization from below, the result of a powerful subnational unit capturing national power in order to fracture it and impose a more decentralized institutional structure. The contrast with Argentina in the second half of the nineteenth century is instructive. Whereas the weaker provinces in Argentina met in 1853 and delegated authority upward in the attempt to create a central government that could check the most powerful subnational unit, in Brazil the most powerful subnational unit used its control of the central government to decentralize. Since decentralization in practice played to the interests of the dominant subnational unit, it is the pre-i853 period in Argentina that more closely resembles Brazil under the First Republic. Brazil's 1891 Constitution redesigned subnational institutions in ways that directly reflect the regional identities of its framers and, more specifically, the institutional preferences of its most powerful constituent unit. In a significant shift of power from the central government to the states, the 1891 Constitution allowed states to set their own taxes on exports, borrow revenues abroad, design their own constitutions, and maintain separate military forces and electoral and judicial codes (Campello de Souza 1977, 162). According to Brasileiro, the system that resulted from the 1891 Constitution was an isolationalist form of federalism (fedemlismo isoladonistd), particularly marked in the fiscal arena, where the states and the federal government developed separate taxing structures (Brasileiro 1974). In the absence of a formal revenue-sharing system, intergovernmental fiscal relations were mostly a question of disaster relief. If the fiscal rules of the new constitution reflected the desire of the more developed states to tax their own export products, they also put the weaker states in a difficult position. Under the imperial system, they often received federal resources, but after 1891 only received transfers for calamities (Carvalho 1996, 40—43).The decentralization of military capacity also benefited the more advanced provinces. While all the states transformed their police forces into mini-armies, this was most pronounced in the case of Sao Paulo, whose economic might enabled it to build its own air force and enlist foreign military advisers. Another key design element in the 1891 Constitution was its bias in favor of the states and against the municipalities. As in Argentina's 1853 federal Constitution, Brazil's 1891 Constitution delegated to the states the exclusive right to regulate municipal governments (Brasileiro 1974, n; Hagopian 1996, 39). Municipalities were politically and fiscally weak compared to the state governments, with no taxing power of their own (Abrucio 1998, 38). In twelve of the twenty states, governors continued to appoint mayors rather than hold elections for these positions (Sherwood 1967, 36). Under

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the prevailing system of coronelismo, governors brokered fiscal and other services for local political chiefs (coronets) in exchange for votes in state elections. According to Nunes Leal, this political system depended on fiscally weak municipalities (Nunes Leal 1976, 45). Thus, the anemic quality of municipal institutions was not an incidental feature of the 1891 Constitution; instead, the subordination of municipal governments to the governors of the states was a key source of their ability to dominate politics in the First Republic. The distribution of power between subnational units, in favor of states and against municipalities, is critical in understanding Vargas s strategy in his later centralizing struggle against the states. For the Sao Paulo—based economic interests who led the charge for decentralization, dominating politics in the First Republic was not an easy business. Given the overrepresentation of the poorer provinces, Congress emerged as a key forum for the expression of regional conflicts, which often made it difficult for the president to govern (Souza 1997). Furthermore, the national parties that existed in the imperial period disappeared, and were replaced by a more fragmented party system composed of state-level republican parties (Mainwaring 1999, 65). Parties only existed at the state level, and not in all states (Carvalho 1996,43). In response to the emergence of regional conflict and in the absence of national parties that could play coordinating roles, Sao Paulo entered into a political pact with Brazil's other economic powerhouse, the state of Minas Gerais.This partnership was referred to as "the politics of coffee with milk" (apolitica de cafe com leite], a reference to the dairy-based economy of Minas Gerais and the coffee-based economy of Sao Paulo. Together these states dominated presidential elections for the remainder of the First Republic, engaging in the liberal use of federal interventions to displace problematic governors in other, smaller states (Campello de Souza 1977,188). Autonomy for elites in marginal states was respected only if it did not interfere with the interests of economic elites in the dominant states. Though the "politics of the governors" would last until 1930, regime stability masked deep structural conflicts between the states.10 SUBNATIONAL INSTITUTIONS AND THE VARGAS ERA: 1930-1946

The politics of "coffee with milk" came to a dramatic end in 1930 when President Washington Luis (1926—30) decided to break with a tradition in which politicians from Sao Paulo and Minas Gerais had alternated in the presidency. With the outbreak of an international economic crisis in 1929 and its negative implications for coffee exports, Sao Paulo elites determined that they could not afford to pass the presidency back to Minas Gerais. Though Luis's chosen successor and fellow Paulista, Julio Prestes, defeated Getulio Vargas in the 1930 elections,Vargas mobilized a powerful coalition

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that carried him to the presidency in the coup of October 1930. At the heart of Vargas's Liberal Alliance was a coalition of young army officers (tenentes, or lieutenants) who wanted to create a more robust central government, and a collection of smaller states, including Vargas's own Rio Grande do Sul, that had been locked out of power by the dominant states. Vargas quickly acted to consolidate his support by writing off the debts of marginal states with the federal government (Souza 1997). Sao Paulo, however, refused to accept the coup and demanded the writing of a new constitution that would put an end to Vargas's status as a "provisional," and thus unaccountable, president (Abrucio 1998, 44).The depth of Sao Paulo's resistance to Vargas's centralizing project can be seen in its armed rebellion in 1932, which the federal government was able to suppress only after a four-month stalemate. While the military balance of power between the federal government and Sao Paulo was thus an important factor in the subsequent emergence of more centralized institutions, in the paragraphs that follow I emphasize the role played by institutional engineering and presidential agency. Two aspects ofVargas's centralizing strategy deserve emphasis, both of which are reflected in the way he structured the writing of the 1934 Constitution. First, having identified the dominant states of Minas Gerais and Sao Paulo as the chief opponents to centralization, Vargas strategically played to the concerns of the smaller states, particularly the northern states that had lost economic and political power over the course of the nineteenth century. One key example of this strategy can be seen in Vargas's design of the electoral rules used in 1933 to elect representatives to a constitutional convention. In an attempt to stack the deck against the bigger states that he feared would dominate any constitutional convention,Vargas endorsed a key demand of the lieutenants for class-based representation in addition to territorial representation. On one level, the election of constitutional framers who would represent their professions rather than their states clearly reflects Vargas's corporatist and anti-liberal leanings. On another level, according to Castro Gomes (1980, 435), class-based representation appealed to Vargas and the northern politicians who supported him as a counterweight to the population-based criteria that would favor big southern states. In an important departure from proportional representation, each state was ultimately given the right to select the same number of non-territorial class representatives (Castro Gomes 1980,483). Vargas's attempt to integrate previously marginal states into a new governing coalition is also reflected in the content of the document produced by the constituent assembly.The 1934 Constitution expanded the powers of the federal government and reduced key state prerogatives, but it built support for these centralizing changes by introducing new institutions that would protect the weaker states in the federation (Camargo 1993). As exam-

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pies of the former, the constitution created an income tax for the first time ever, which was assigned to the federal government (Carvalho 1996, 46). It also expanded the role of the federal government in providing health care when it deemed that federal policy initiatives exceeded the capacity of the governors (Brasileiro 1974, 15). In a shift away from the separate fiscal spheres for state and federal government that characterized the First Republic, which had undermined the interests of the smaller states, the 1934 Constitution introduced a tripartite revenue-sharing system between the federal, state, and municipal governments. As in Argentina, the institution of revenue sharing would prove to be quite sticky, setting in motion generations of conflict over the rules used to divide up these revenues. While the support of the marginal states for centralizing changes is key to understanding the 1934 Constitution, it would be a mistake to overstate the extent of centralization. In contrast to the 1937 Constitution, in 1934 Vargas also had to negotiate with the larger states, which were able to defend important powers, including the authority to set independent export taxes. In his attempt to end the "politics of the governors," interstate structural conflicts enabled Vargas to play the states off of one another, but this was not his only strategy. A second strategy involved playing the municipalities off of the states toward the same goal of reducing the power of the governors (Sherwood 1967, 36).This was not the first time in Brazil that centralizers sought to use the municipalities to offset the power of the states, nor was it the last.11 In the First Republic, as noted above, the subordination of the municipalities was a cornerstone of the governors'political dominance. The 1934 Constitution granted the municipalities autonomy, and each was henceforth eligible to elect its own officeholders. In the fiscal sphere, the Constitution empowered the municipalities to levy their own taxes (Mahar and Dillinger 1983, 3).The Constitution also stipulated that 20 percent of any new taxes collected by the national government would be shared with municipalities, and that the states would be required to share with the municipalities proceeds from a business and industry tax (Nickson 1995, 119; Sherwood 1967, 122). Though the strategy of using the municipalities to strengthen the center was also used by subsequent centralizers in Brazil, centralizers in Argentina pursued no similar strategy, perhaps a reflection of the greater strength of Brazilian states and the need by national politicians to adopt more aggressive measures to control them. The institutional innovations of the 1934 Constitution certainly influenced future constitutional engineers, but its formal life was limited to just three years. In the 1937 declaration of the Estado Novo (New State), Vargas implemented a new, more centralist constitution via decree. One of the key changes was the suppression of subnational elections. Between 1937 and the return to democracy in 1945,Vargas appointed state intervenors to govern in

8o 19th-century Origins, 20th-century Trajectories place of elected governors, and the intervenors in turn appointed all municipal officials (Sherwood 1967, 120). In line with my regime-change hypothesis, the centralization of political authority during the Estado Novo undeniably facilitated the expansion of the central state along lines that elected governors would have vigorously opposed (Pandolfi 1999). Between 1937 and 1945, for example, Vargas eliminated taxes on interstate trade, expanded the role of the central state in mining, steel, and petroleum, and created a new Administrative Department of Public Service (Departamento Administrative do Servico Publico, or DASP) that would monitor subnational spending through offices (DASPinhos) set up in each state (Carvalho 1996, 47).12 Political centralization facilitated the centralization of governing capacity, but it is important to note exceptions to this general rule. For example, the 1937 Constitution did not reverse some of the fiscal decentralization measures of the 1934 Constitution (Brasileiro 1974, 160). According to Camargo, even as Vargas centralized power, he decentralized fiscal authority (Camargo 1993). In Vargas's case, revenue sharing continued to bolster his support base in the less developed states, and the assertion of political control over subnational officials made it unnecessary to reverse the fiscal decentralization introduced by the 1934 Constitution. SUBNATIONAL INSTITUTIONS IN THE SECOND REPUBLIC! 1946—1964

Just as the structural conflicts of the First Republic informed later attempts by Vargas to re-centralize, so the subnational changes he introduced in the 19305 and 19405 shaped the redesign of subnational institutions under the Second Republic. On the one hand, as Carvalho writes, with the fall of Vargas in 1945, "the pendulum once again swung back in the opposite, decentralizing direction" (Carvalho 1996, 48). Subsequent to the return to gubernatorial elections, governors clearly reemerged as powerful political actors in Brazil. On the other hand, the re-introduction of gubernatorial elections proved to be insufficient to generate a return to pre-1930 politics. The many changes Brazil experienced between 1930 and 1945 could not be simply undone by governors seeking to restore their previous authority. In this section, I highlight the chief differences between the pre-i93O and post1945 periods, and then argue that, despite the centralizing legacy of the Vargas period, the governors nevertheless managed to use democratization to reassert their roles as important brokers of national political outcomes. In a number of dimensions, governors in the Second Republic were constrained relative to their position in the First Republic. Most simply, the great majority of the centralizing changes introduced by Vargas were maintained. According to Carvalho, labor unions organized by Vargas were independent of governors and began to form a mass democracy under the signs

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of populism and nationalism, two ideologies that were opposed to federalism and decentralization (Carvalho 1996, 49). State police forces remained under centralized control. The right to tax interstate trade was not returned to the states. In addition to the centralizing legacies of the Vargas period, democratization in 1945, through a broad extension of the suffrage, increased the demands on governors, who subsequently found Vargas-era restrictions on subnational institutions particularly problematic. Finally, for the first time ever, national parties emerged in the Second Republic (Mainwaring 1999, 72).Though governors gained much leverage in these parties, with the exception of the Social Democratic Party, they did not dominate them (Carvalho 1996, 49). In its design of subnational institutions, the 1946 Constitution clearly bears the imprint of the Vargas period. One of the most important examples is the continuation of the trade-off effected by Vargas in the 19305 according to which the states surrendered taxing authority in exchange for explicit changes in the sharing of federally collected revenues. For example, the 1946 Constitution limited the taxing autonomy of the states by liberating small agricultural properties (under 20 hectares) from the tax on rural property and by placing a cap on the tax rate that states could charge on their exports. To compensate the states, the system of revenue sharing introduced by Vargas was expanded and amended to favor subnational jurisdictions (Scares 2001,25). The Vargas legacy is particularly obvious with respect to the municipalities. Many representatives to the constitutional convention supported Vargas's view that strengthening municipal governments was one way to weaken oligarchic practices at the state level. In response to the "municipalist" sentiment prevalent in the constituent assembly, the 1946 Constitution provided the municipalities with two new tax bases, a stamp tax and a business and industry tax (Sherwood 1967, 121). The Constitution also established revenue-sharing mechanisms from both the federal and state governments. According to Article 15, the federal government was obligated to share 10 percent of income-tax revenues directly with the municipalities, in addition to shares in excise taxes and taxes on fuels, electric energy, and minerals (Cann 1970, 15; Sherwood 1967, 116). Constitutional framers preferred the direct transfer of federal monies to the municipalities because they "feared state misappropriation of municipal transfers" (Cann 1970, 14). The 1946 Constitution also obliged state governments to share with the municipalities 30 percent of their excess tax revenues and 40 percent of the revenues from any new state taxes (Mahar and Dillinger 1983, 3).13 In another sign that the Second Republic would not simply replay the First, the 1946 Constitution continued the practice, initiated under Vargas, of rewarding Brazil's less developed regions through the use of redistributive

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criteria in revenue sharing. In the distribution of revenues from the income and consumption taxes, for example, the municipalities received equal shares of these transfers, regardless of differences in size, population, and local taxraising capacity. Thus, the distribution of the most important revenue transfers in the Second Republic favored poor municipalities located in the North and Northeast. According to Cann, many states allowed the number of municipalities to increase as a way of "attracting a larger portion of tax payments back to their jurisdictions" (Cann 1970, 23). At the same time, the distribution of less important tax revenues was designed to favor the more advanced states. For example, the 1946 Constitution used population and consumption to divide up among the states revenues from taxes on electricity and petroleum (Cann 1970, 14). By emphasizing population and consumption, the criteria used to distribute these revenues among the states rewarded the highly urbanized ones. Over forty years later, the 1988 Constitution would similarly implement compromises between the less developed and more developed states. By introducing language designed to protect municipalities relative to states, the 1946 Constitution cannot be said to mark a simple return to the "politics of the governors." In practice, however, the states were able to subvert the intent of constitutional framers over the course of the Second Republic. The governors did not get to write the constitution they would have favored, but they were able to use their considerable leverage over national politicians in the new democracy to weaken the Constitution s pro-municipal stance. My argument here draws on Mahar's 1971 comparison of the actual performance of revenue sharing to the state and municipal levels. While the Constitution established federal revenue transfers to both levels of government, the federal government was more diligent about transferring revenues to the states in a timely manner than it was in implementing the municipal revenue-sharing system (Mahar 1971, 79; Sherwood 1967, 127).The federal and state governments often failed to transfer the revenues they were obligated by law to share with the municipalities.Table 3.2 documents the gap between federal funds authorized for transfer to the municipalities and actual disbursements. According to Mahar, because revenue shares for subnational governments constituted line items in federal budgets, they were subject to much political manipulation. Political leverage by subnational officials was important in getting shares released (Mahar 1971, 76; Mahar and Dillinger 1983). Most municipalities remained powerless to demand that their revenues be transferred, and those larger cities that had greater political power had less reason to lobby for transfers because these transfers constituted much smaller percentages of their overall revenues (Sherwood 1967, 124). According to one mayor writing at the end of the Second Republic, eighteen of the states

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TABLE 3.2 Shares of Federal Income and Excise Taxes Transferred to Municipal Governments in Brazil, 1960-1966 Year

Total authorized (A)

Total disbursed (B)

B/A

1960 1961 1962 1963 1964 1965 1966

3,186 4,638 30,006 24,827 37,759 178,900 160,360

3,146 4,465 9,040 11,529 — 32,834 73,377

99% 96% 30% 46% — 18% 46%

SOURCE: Mahar 1971,74.

failed to make any payment at all to the municipalities, in contradiction to revenue-sharing laws (Mahar 1971, 423).Thus, although elections were held at both the state and municipal level during the Second Republic, the general conclusion about this period is that the former experienced much stronger gains, in fiscal terms, than did the latter. This difference reflects the political power governors were able to wield once state-based elections were reinstituted after the fall ofVargas. As Hagopian argues, the continued dependence of the municipalities on the states was a key factor that enabled traditional political elites to retain their dominance in the Second Republic (Hagopian 1996, 32). In addition to defending their status as the premier subnational level of government, several states also attempted to expand their governing capacity in the Second Republic through the creation of state-owned enterprises. Brazil in this period is a powerful testament to the point that statism as an economic ideology need not be limited to the enlargement of the central state alone. In the 1950$ state governments in the more developed regions established strong participation in such sectors as telecommunications, electricity, steel, highways, and railways. In both the electrical and telecommunications sectors, it was state governors who forged national linkages in the 19505 between formerly separate state-level enterprises (Prado 1996, 39). According to Prado, many states created state-owned enterprises (estatais estaduais) in this period in partnership with foreign capital. Finally, governors wielded a great deal of veto power in the Second Republic, often mediated by the federal legislature. At several key points, governors who opposed the centralizing proposals of the federal chief executive used their influence with national legislators to counter the president. At other moments, presidents sought alliances with governors in the attempt to

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isolate their opponents in Congress (Camargo 1993, 318).The most important example of the governors' continued veto power comes from the struggles over agrarian reform that rocked Brazil in the early 19605. Agrarian reform was a central proposal of President Joao Goulart, Vargas's former labor minister who became president upon the resignation of Janio Quadros in 1961. As is well known, agrarian reform provoked the resistance of landowners who were well represented in Congress. However, it also triggered the opposition of governors due to its centralizing logic. A key element of land reform was the centralization of a tax that had been an important prerogative of the governors since 1891: the tax on rural land (Cann 1970, 16; Sherwood 1967, 121). In defense of subnational institutions, most governors opposed Goulart s centralizing drive and lent their support to the 1964 coup that ended the Second Republic.14 Conclusion From their inception as independent federal republics in the nineteenth century to the breakdown of democracy in the 19605, Argentina and Brazil experienced scores of changes in subnational institutions. It would be impossible to make sense of these changes in the absence of serious attention to the many regime transitions that occurred in this period. The chronological organization of this chapter around discrete regime changes reflects their importance as phenomena that have regularly generated changes in subnational institutions. And yet regime change ultimately gives us limited analytical leverage on the content of subnational changes. For example, though democratically elected governors often pushed for changes that expanded their governing capacity, it is not the case that they always did. Often, they were willing to settle for revenue transfers from the central government, even if this required them to give up some of their independent policy authority. This was particularly pronounced in the Argentine case, but can also be seen in the 1946 Brazilian Constitution, which expanded revenue sharing while reassigning tax bases away from the states. Neither can one argue that transitions to non-democratic government regularly generated unambiguous cases of re-centralization. In each country, authoritarianism rendered moot the leverage that governors enjoyed over national legislators, but authoritarian governments introduced changes in subnational institutions that cannot be simply described as re-centralization. In Brazil, for example, President Vargas had reasons of his own to favor different types of subnational actors, strengthening the municipalities in his war on the states and introducing benefits for the weaker states to draw them into a new governing coalition. In the 193os, the federal government in Argentina, with provincial support, established a system of revenue sharing that simultane-

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ously centralized taxing authority and benefited the provinces by excusing them from the political and administrative costs of collecting taxes. In both countries, the purchasing of subnational support for centralizing projects through the institution of revenue sharing proved to be a watershed event. A number of other findings stand out in the episodes discussed in this chapter. First, changes in subnational institutions over the decades I survey do not map easily onto underlying changes in economic policy orientation. In the long period under review, each country experienced one major revision of development models through the replacement of liberalism with statism, but multiple changes in subnational institutions in both centralizing and decentralizing directions. Second, decentralization tended to favor the most powerful subnational units in each country: Buenos Aires, Minas Gerais, and Sao Paulo. Centralization, in contrast, generated important benefits for the less advanced regions by checking the hegemony of the dominant state or province. Third, it was the diverging interests of different subnational units that regularly opened up space for centralization. In both Argentina and Brazil, divisions between the governors made them quite vulnerable to the divide-and-conquer tactics of presidents. Finally, in both countries, the post1930 intergovernmental assignment of revenues and expenditures generated negative consequences for fiscal balance. Once institutions of revenue sharing were introduced in the 1930$, subsequent generations of governors pushed for higher shares, even as they eschewed responsibility for an additional set of governmental expenditures. In each case, the transfer of revenues but not responsibilities was a way of reconciling the power of the governors with the newly dominant model of economic statism. Thus, governors received revenues they were free to spend on patronage, national politicians retained control over the key policy levers deemed vital in the process of state-led industrialization, and the net effect on public finances was to create yet one more source of fiscal instability and inflation.

CHAPTER

Decentralization from Above

4

CHILE AND URUGUAY B E F O R E 1973

IN CONTRAST TO the Argentine and Brazilian experiences treated in the previous chapter, subnational officials in Chile and Uruguay have not played important roles as protagonists of decentralization. In Argentina and Brazil, governors did not always succeed in their drive to decentralize, and the centralizing strategies of presidents often put them on the defensive, but the introduction and reintroduction of subnational elections regularly encouraged governors to push for decentralization. This bottom-up dynamic has been strikingly absent in Chile and Uruguay, where subnational officials have failed to articulate a case for decentralization, even in the substantial periods during which they too were elected. As I argue in Chapters i and 2, differences in the types of political parties established in these four countries can account for the diverging behavior of subnational actors. Although Argentine parties were more disciplined and hierarchical than Brazilian parties, governors in both countries held real authority over the national legislators who belonged to their parties, which they used both directly and indirectly in demanding subnational changes. This type of leverage was simply unavailable to subnational officials in Chile and Uruguay, where the centralization of power within parties made them highly dependent on national-level actors and events. That subnational officials have not effectively demanded decentralization in Chile and Uruguay, however, does not mean that it has not occurred. In fact, though they are rarely conceptualized as "decentralization" or "recentralization" in the historiography of either country, Chile and Uruguay have both accumulated important experiences with the design and redesign of subnational institutions. As in the Argentine and Brazilian cases, one has to return to the nineteenth century in order to understand the terms of the

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struggle over subnational institutional design. Also similar to those cases, I identify two patterns that hold up in Chile and Uruguay in the lengthy period explored in this chapter, which begins in the aftermath of independence and ends in 1973, the year democracy collapsed in each country. According to the first of these patterns, national politicians, and not their subnational counterparts, have been responsible for the introduction of decentralizing changes in subnational institutions. In each case, national politicians have calculated that changes in these institutions could solve a variety of problems, including the consolidating of the central state (Uruguay in 1872 and 1897), the curtailing of presidential power (Chile in 1891), the shrinking of national budget deficits (Uruguay in 1934), and the outmaneuvering of national political rivals (Chile in 1991, Uruguay in 1996). In both countries, decentralization can be understood as the result of a national-level political game in which elected subnational officials have been relegated to the status of mere observers rather than participants. In the episodes discussed in this chapter, they figure as recipients of rights and responsibilities that national politicians have decided to devolve for their own reasons. The Chilean and Uruguayan cases speak powerfully to the point that influential subnational actors cannot be considered a necessary condition for the adoption of decentralizing reforms. In a phrase that Ignacio Irarrazaval uses to describe Chile, but that is also apt in the Uruguayan case, the process of decentralization has been marked by "decentralizing offers" from the central government rather than by strong demands from local actors (Irarrazaval 1993, 393). Chapter 7 shows that this same top-down dynamic characterized the approach to decentralization in both countries subsequent to re-democratization in the 19805 and 19905. Labeling these episodes cases of "decentralization from above" is useful not only because it offers an accurate way of distinguishing them from the bottom-up pressures that predominated in Argentina, Brazil, and other cases of "decentralization from below." My emphasis on the top-down dynamic in Chile and Uruguay also illuminates key aspects of the specific decentralization paths adopted in these two countries. When decentralization occurs because national politicians choose to decentralize, and not because they are forced to do so, the resulting changes more directly reflect the preferences of national politicians alone. In Chile and Uruguay, for example, subnational officials received greater access to revenues but were simultaneously assigned additional responsibility for the collection of taxes, in contrast with the cases discussed in Chapter 3 where governors secured revenues without having to shoulder any new responsibilities. The particular mix of rights and responsibilities devolved in the top-down cases is less advantageous and more onerous for subnational officials, and this outcome can be attributed to the absence of these officials from the institutional design process in both countries. The episodes included

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in this chapter also suggest that the price of re-centralizing may be much lower in the cases of "decentralization from above." For example, while all four of my cases experienced various re-centralizing changes in the aftermath of the early 19308 economic crisis, centralizers in Argentina and Brazil were forced to introduce revenue-sharing agreements in order to build political support for these changes. In Chile and Uruguay, re-centralization proved to be less politically difficult, with less effective resistance on the part of subnational actors. However cautious they have been, the question remains as to why national politicians would adopt any form of decentralization if they are not compelled to do so by powerful subnational officials. Even when they are limited, any decentralizing changes worthy of the name reduce the stature of national politicians. In this sense, the Chilean and Uruguayan experiences with decentralization are more theoretically challenging than the cases of "decentralization from below."The threatening quality of decentralization is usually sufficient to keep national politicians from supporting decentralization, and to unite them in the preservation of centralized forms of governance. According to the second pattern that I identify and evaluate in this chapter, however, conflict between national politicians can cause their otherwise unified stance against decentralization to dissipate. In these moments, some subset of national politicians calculates that it can profit from decentralization relative to its competitors at the national level and that these gains will outweigh the losses that decentralization necessarily imposes on all national politicians. Before the changes Pinochet introduced in the 19705 and 1980$, Chile's most important episode of decentralization occurred at the end of the nineteenth century. In the post-independence period, the Chilean state was the first in the region to undergo consolidation, with regional groups after the 18308 no longer contesting the legitimacy of a national political elite based in Santiago (Rueschemeyer, Stephens, and Stephens 1992,173).This national political elite divided in 1891, however, in the form of a conflict over the direction of economic policy that pitted members of Congress against an increasingly independent and autonomous executive branch. The desire to check the president led Congress to propose a significant decentralization measure and, subsequent to his inaction on the bill, to implement this measure after it defeated the president in the 1891 civil war. Scholars have interpreted this civil war in a variety of ways (Blakemore 1965), and one of the central purposes of this chapter is to borrow from their work in recasting the inter-branch conflict as a struggle over decentralization.1 A concern for local government was by no means the chief motivation of the conflict between the branches, but this conflict nevertheless resulted in the redesign of

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subnational institutions. The chapter also focuses on the consequences of the decision to simultaneously decentralize political authority and governing capacity after 1891: subnational actors failed to make use of the powers that they received from above but had not requested of their own accord. National actors later revoked these powers, subsequent to the breakdown of constitutional government in the 19205 and 19305.Though subnational elections were reintroduced in the 19305, they failed to generate pressures for decentralization from below, and Chile became increasingly centralized over the course of the four decades that followed. In Uruguay, conflict among national political actors also led the way to decentralization in the nineteenth century, although here the critical cleavage was partisan in nature. Whereas inter-branch conflict is central to the adoption of decentralization in Chile, it is conflict between the country's two traditional parties, the Blancos and Colorados, that explains decentralization in Uruguay. Despite strong regional dimensions in the support base of each party, with the Colorados demonstrating greater strength in Montevideo and the Blancos dominant in much of the rural interior, both parties operated as national entities, competing for national hegemony in the postindependence period. At distinct moments in the nineteenth century, national leaders of these two parties used the design of subnational institutions to negotiate settlements that ended periods of armed conflict. In the 1897 settlement between the governing Colorado Party and the opposition Blancos, the former surrendered its previous practice of appointing all subnational officials, effectively ceding political authority over certain jurisdictions to the Blanco Party leadership. Although Colorado President Jose Battle subsequently re-centralized this authority after 1903, he was later forced by the Blancos to adopt more comprehensive decentralizing measures in the 1918 Constitution. Thanks to this constitutional revision, subnational actors benefited from the simultaneous decentralization of political authority and governing capacity, both of which occurred as the result of a complicated and lengthy process of negotiation and compromise among national party leaders. As in Chile, decentralization was reversed with the breakdown of democracy in the 19305, and although elections were restored at the national and subnational levels shortly thereafter, it was not until the 19905 that national conflict would once again erupt in "decentralization from above." Presidentialism and the Adoption of Decentralization in Chile In this section, I argue that presidentialism and inter-branch conflicts are key to understanding the otherwise surprising decision of national politicians

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in Chile to decentralize in the late nineteenth century. Although Chile was not yet a full democracy due to limits on suffrage, many of the institutional arguments scholars have made about presidential democracy in the contemporary period can be applied to this earlier episode (Haggard and McCubbins 2001; Linz 1994; Shugart and Carey 1992). In particular, they can help us understand why national legislators turned to the relatively dramatic option of decentralizing in the course of their struggle with the president. The separate origin and survival of the executive and legislative branches are relevant institutional practices because they enabled a centralizing president to disregard the preferences of congressional majorities and because they denied the legislature the means of dismissing the president for policy reasons alone. As a counterfactual exercise, one can speculate that legislators in a less rigid parliamentary system would have preferred to withdraw their confidence from a chief executive whose program they opposed, rather than incur the potential risks of decentralizing power to the subnational level. The historical record from this period suggests that legislators did indeed worry about how decentralization might affect their interests, but calculated that the likely gains would exceed potential costs. In order to appreciate the significance of the fissures that developed among national politicians in the late nineteenth century, the early consolidation of the state is an important piece of this story. Like other countries in the region, Chile witnessed the fragmentation of political power in the immediate aftermath of independence. In Chile, it was the withdrawal of support for Spain by local notables grouped in town hall meetings (cabildos abiertos) that triggered the independence movement in 1810. Municipal authorities retained a great deal of authority over the following two decades, a period that also witnessed the emergence of elected provincial assemblies. Unlike most countries in the region, this period of decentralization came to an early end in Chile with the successful centralizing drive of President Diego Portales (1830-33). In addition to abolishing the provincial assemblies, Portales also checked municipal autonomy by naming provincial executives (intendentes) who would monitor the actions of the municipalities. The 1854 municipal law consolidated this centralizing shift by giving provincial executives formal veto powers over municipal councils. Beyond the imposition of national representatives on the municipalities, presidents in the post-Portales period also faced the more difficult task of bringing Congress to heel. Two sources of political conflict between the branches were presidential attempts to control both congressional and presidential elections and congressional delays in approving the budget in the attempt to influence cabinet appointments (Loveman 2001, 142). Both of these issues were key to the events of 1891—civil war and decentralization.

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PRESIDENT JOSE MANUEL BALMACEDA AND THE 189! CIVIL WAR

Though inter-branch conflict pre-dated the administration of Jose Manuel Balmaceda (1886-91), a number of structural changes in the i88os significantly increased the stakes of this conflict. A critical change was the dramatic expansion in the country's size through the acquisition of additional territory. In the South, the forces of the central government definitively conquered the Araucanian Indians in 1879, an event that significantly extended the country's southern frontier. In the North, the same year saw the beginning of a successful four-year conflict with Bolivia and Peru in the War of the Pacific, which resulted in the incorporation of additional new lands. While the southern territory was developed as an important agricultural zone, the northern territories contained substantial nitrate deposits, representing an immediate and significant infusion of export revenues for the central government. New lands and revenues undeniably improved the position of the central government, but they also worsened conflict among national politicians over how best to employ these new resources. Subsequent to his election in 1886, President Balmaceda sought to use these resources on behalf of an aggressive centralizing project that, among other things, would increase the power of the executive branch relative to the' legislature. These proposals put the president on a collision course with the traditional landowning elite of the Central Valley, who dominated Congress. According to Stabili, CentralValley landowners had provided the impetus behind territorial expansion and insisted on dictating its terms (Stabili 1993, 160). In his vision of a central state that was much more deeply involved in the domestic economy, Balmaceda's proposals constituted an important departure for Chile.2 For example, the president advocated protections for domestic industry, restrictions on British participation in the nitrate sector, labor reforms in the countryside, and the expropriation of several railways (Ramirez 1969, 113—19). When booming nitrate exports led to demands by landowners in Congress for tax reductions, Balmaceda refused, arguing that nitrate revenues should be considered extraordinary revenues, and invested instead in public works projects (Zeitlin 1984, 71). In what Galdames calls "a veritable orgy of material progress during his four-year administration," Balmaceda built more public works than in the entire previous history of the republic (Galdames 1941, 342). According to Zeitlin, some evidence suggests that Balmaceda s public works projects favored the southern latifundistas and hurt landowning groups in the center of the country (Zeitlin 1984, 124). The presidents plans for the colonization of newly acquired territories also upset CentralValley elites, who feared labor shortages and the development of a rival agricultural zone, and who opposed the president's stated preference for colonizers of

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"modest means" (Zeitlin 1984,127, 129).When Congress refused to approve a new department charged with regulating the colonization process, Balmaceda unilaterally created it by decree. In addition to this new departmental entity, the president also expanded the size of the executive branch bureaucracy in 1887 by creating an important new Ministry of Industry and Public Works (Ramirez 1969, 156). Balmaceda's program provoked a bitter split among national politicians. According to Gil, "The historical issue dividing the ruling elite was whether the parliament representing it would be controlled by a strong executive or whether the power of parliament would prevail over presidential power and secure its undisputed dominance" (Gil 1962, 25). Congress reacted aggressively to Balmaceda's reforms, accusing the president of usurping congressional prerogatives, ruling by decree, and intervening in the electoral process (Zeitlin 1984, 84). In connection with the latter charge, Balmaceda's cabinet resigned in March 1888 over his alleged interference in congressional elections.3 Though the president's Liberal Party enjoyed substantial representation in Congress, the statist direction of his program generated a split among Liberal legislators. Balmaceda was increasingly isolated, but did not waver in the advocacy of his modernizing proposals. Instead, the president questioned the legitimacy of Congress's attempt to monitor his actions, despite the fact that, in his earlier career as a legislator, he was steadfast in his defense of congressional oversight (Loveman 2001, 155). It was in this context that a cross-party coalition developed in Congress to support a new law that would decentralize by shifting responsibility over the electoral process to municipal governments. According to Pike, this decentralizing proposal secured the support of Chile's three main parties—the Conservatives, Liberals, and Radicals—for a variety of different reasons (Pike 1963, 42). For the Conservatives, who authored the legislation, decentralization was a tool to constrain a president whose statist proposals they opposed, and whose control of elections promised to lock them out of the presidency indefinitely. Devolving responsibility for elections to municipal councils was particularly attractive to Conservatives because they dominated many of these bodies. Though Liberal Party legislators feared that decentralization would benefit the Conservatives' core constituents, including local oligarchs, landowners, and the clergy, they supported decentralizing legislation as part of their own struggle with Balmaceda (Valenzuela 1977, 191). Liberal legislators were divided over Balmaceda's statism, but they were mostly united in their opposition to his attempts to circumvent Liberal Party input into the choice of his successor as the party's next presidential standard bearer (Pike 1963, 43). Although the Radicals favored many of Balmaceda's proposals, including enhanced tariff protection for domestic manufacturers, the party's increasing strength in local politics led it to favor de-

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centralization. Furthermore, according to Pike, the Radicals calculated that the end of presidential intervention in elections would mean that the party could certainly elect a sizable bloc of national legislators (Pike 1963, 42). As cross-party support for decentralization crystallized, inter-branch relations rapidly deteriorated. In January 1890 the president closed Congress and disregarded party alignments in the legislature in the appointment of a new cabinet (Loveman 2001, 157). After Congress censured the cabinet, Balmaceda refused to accept the resignation of his ministers. Congress responded by closing the 1890 session in December without passing an appropriations bill for 1891. When Balmaceda announced that he would use the previous year's budget, which was unconstitutional, Congress declared his rule illegitimate on January 7, 1891 and launched an armed revolution to depose him (Zeitlin 1984, 85). Thus, while most civil wars in Latin America in the nineteenth century had strong regional orientations, adversaries in Chiles 1891 civil war very clearly divided on the basis of institutional loyalty, with the army rallying behind the president against the naval forces allied with Congress (Cleaves 1969, 6). The seven-month conflict that followed ended with the defeat of the army and Balmaceda's suicide on September 19, 1891, the day after his term as president ended. Thus was born the Parliamentary Republic. DECENTRALIZATION AND THE PARLIAMENTARY

R E P U B L I C : 1891-1924

The political system established in Chile between 1891 and 1924 is commonly referred to as the Parliamentary Republic because of the practice of congressional control over presidential cabinets.4 In contrast to the institutional predominance of the president before 1891 and after 1924, it was the legislature that dominated under the Parliamentary Republic. The literature on this period emphasizes its corruption and instability, with cabinets turning over on average four times a year (Gil 1962; Loveman 2001; Pike 1963). Congressional participation in the appointment of cabinets, however, was not the only significant institutional innovation of the Parliamentary Republic, nor was it the only tool through which legislators sought to control the president. Just as critical was the redesign of subnational institutions. In an important illustration of the top-down approach to decentralization, legislators used subnational governments in their attempt to check what they considered to be abuses of power by the president. The relevant decentralizing instrument is the Autonomous Commune Law (Ley de Comuna Autonoma), approved on December 22, 1891, just three months after the end of the Civil War. Although the military defeat and suicide of Balmaceda would appear to render moot the need to decentralize, legislators reasoned that they still had cause to support decentralization. Even

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after Balmaceda disappeared from the scene, the substantive issues that had divided the executive and legislative branches continued to be relevant, including the possibility that nitrate wealth could finance the aggrandizement of the executive branch, and the potential for policies of colonization that could threaten the interests of established landowners.5 Likewise, the civil war did nothing to solve key procedural issues, namely the long-standing practice of presidential intervention in elections. Given these concerns, legislators designed decentralization as a preventive measure to check abuses by future occupants of the presidency. As Ramirez argues, the promoters of the civil war needed "to adopt measures to avoid the repeat of a situation they had just defeated at great pains" (Ramirez 1969, 215). Thus, although Congress implemented immediate policy changes, including dramatic cuts in the budget for colonization, education, and public works, it also sought a more permanent way of checking the president via decentralization. The Autonomous Commune Law stipulated important changes in the two dimensions of decentralization emphasized in this book: the distribution of political authority and governing capacity. It bears noting that these changes were simultaneous; in contrast to the dynamic often at play in the Argentine and Brazilian cases, it is not the case that decentralizing changes in political authority set in motion subsequent changes in governing capacity. In the 1891 law, the redistribution of political authority was particularly dramatic. The law created new Assemblies of Electors (Asambleas de Electores) composed of all eligible voters in a given municipality. These voters were authorized to elect municipal councilors, who in turn selected a mayor from among their ranks.Though the provinces would continue to be governed by presidential appointees, the 1891 law revoked their ability to veto decisions made at the municipal level (Stabili 1993, 166; Valenzuela 1977, 193). In a further move to check the president, the legislature over the course of the Parliamentary Republic forcefully exercised its right to approve all of the presidents nominees for provincial executives.6 But the truly radical nature of the 1891 redistribution of political authority was not its attempt to check presidential influence over local affairs. The more dramatic change involved the decentralization of control over the national electoral process. Specifically, the 1891 law transferred to the local Assemblies of Electors exclusive responsibility for the maintenance of electoral registers and the appointment of functionaries to electoral bodies. The law also stipulated that the municipal police would henceforth be responsible for public order during elections, rather than the national army, which had supported Balmaceda in the civil war. In effect, legislators chose to eliminate presidential interference in elections by giving local actors control over all electoral contests, including congressional elections. Over the years that fol-

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lowed, this arrangement forced Senators and Deputies to construct alliances with local governments in order to get the votes necessary to win or lose seats in parliament (Stabili 1993, 166). AsValenzuela argues, "Control over suffrage gave local governments a powerful tool, and before long deputies and senators were forced to institute alliances and to bargain with local elites in order to obtain the necessary votes to gain or remain in office" (Valenzuela 1977, 193). Such was the price legislators agreed to pay in order to secure their overarching goal of eliminating presidential control of elections.7 In terms of governing capacity, the law also introduced important decentralizing changes. Most generally, the 1891 law abolished the central government's prerogative to suspend acts of the municipalities (Irarrazaval 1993, 373).The law also transferred to the municipalities various administrative responsibilities and authority over the collection of property taxes, personal taxes, excise taxes, and taxes on industries and professions (Gleisner 1988). Decentralizing authority over these taxes enabled legislators to prevent the recurrence of inter-branch disputes over taxation during Balmaceda's administration, when the president preferred significantly higher tax rates than Congress. Scholars agree, however, that municipalities demonstrated a great deal of indifference to the powers that national politicians had decided to devolve (Cleaves 1969; Stabili 1993). Given the extent to which local notables dominated many of the municipal councils, increased tax effort would have been tantamount to local elites agreeing to tax themselves.8 Instead of imposing taxes, municipal officials calculated that they could use their control over local voting blocs as leverage in demanding centrally controlled revenues and favors from legislators (Valenzuela 1977, 199). Due to Congress's exclusive control over the budgetary process in the parliamentary period and the continued boom in nitrate exports, legislators could reasonably be asked to broker public employment for local constituents and revenues for local projects as the price to be paid for success in elections.9 AsValenzuela argues,"Ironically, precisely because they gained control of suffrage and direct access to the central coffers of the state, local governments had no incentive to institute the taxes required by the municipal law, which would have given them 'truer' autonomy" (Valenzuela 1977, 200).The decision not to develop the institutional capacity to collect local taxes would prove fateful over the course of the twentieth century, particularly once control over the electoral process was re-centralized after 1925 and urbanization began to generate increasingly sharp demands on the municipalities.10 In the post-1925 period, the fiscal dependence of municipal officials on national politicians proved to be an important political resource for the latter.

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19th-century Origins, 20th-century Trajectories CENTRALIZATION AND THE BREAKDOWN OF CONSTITUTIONAL GOVERNMENT: 1924-1935

As with the decision to decentralize in 1891, movement toward centralization in the 19205 and 19305 resulted from developments at the national level. Against the backdrop of growing dissatisfaction with chronic cabinet instability, a reform movement emerged among the armed forces, ultimately triggering the end of the Parliamentary Republic in the military coup of September 1924. While the politics surrounding this regime change are complex, evidence from the period supports the argument that the breakdown of constitutional government generates important opportunities for centralizing changes in subnational institutions. There are two important phases in this period. The first corresponds to the presidency of Arturo Alessandri (1920-25), who presided over the writing of a new constitution in 1925 that returned authority from the legislature to the president. The second phase corresponds to the dictatorship of Carlos Ibanez (1927—31), who imposed a much more explicitly centralist program. Though the main thrust of the 1925 Constitution was to rearrange power at the national level between the legislative and executive branches, in several ways the document also marked the centralization of authority from the municipal to national levels. Partly this is due to the fact that municipal officials had exercised much of their power through the legislature, so that reforms that reduced Congress's formal powers necessarily weakened their leverage as well. But the constitution also involved directly centralizing changes. Most importantly, the new constitution terminated the control of municipal actors over the national electoral process, which had long served as the municipalities' main source of political leverage. It also wrested control over the police from the municipalities by placing police forces under the authority of presidential appointees (Cleaves 1969). In addition, the 1925 Constitution revoked most of the fiscal powers that had been devolved in 1891 but never used by local officials (Abalos 1994,6).The earlier decision by municipal officials during the Parliamentary Republic to let their taxing powers atrophy made it easier for the subsequent generation of national politicians to revoke this prerogative. Finally, while the 1925 Constitution allowed for the election of municipal authorities, it reserved for the president the right to appoint mayors of cities with more than 100,000 inhabitants (Cleaves 1969,13). Thus, the constitution was designed to give the president increasing authority over subnational institutions as Chile continued to urbanize.11 Several members of the 1925 constituent assembly sought to insert decentralizing measures into the constitution, but they were largely unsuccessful. Obstacles to decentralization included the participation of President Alessandri in the design process (Jara 1995, 17) and the partisan infighting

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that had plagued the municipalities in the Parliamentary Republic. In response to the discrediting of the municipalities, advocates of decentralization proposed the election of provincial assemblies that would work to supervise the municipalities and that would share governing authority with the provincial executives appointed by the president (Valenzuela 1977, 217). In the end, the constitution stipulated that the power of these assemblies would only be consultative, that provincial executives could dissolve them with the approval of the president (Jara 1995, 24), and that specific implementing legislation would be necessary in order to hold provincial assembly elections. Rather than implement these assemblies, a 1942 law abrogated this clause of the constitution and reassigned the assemblies' powers to the president s representative in the provinces (Cleaves 1969, n). The Ibanez administration also offers an unambiguous example of the centralizing logic of authoritarian rule. Whereas the institutional prerogatives of Congress served as the principal target of Alessandri's reforms, political parties were the chief object of Ibanez s institutional engineering. In a move that reflects his earlier status as a critic of the extreme partisanship of the Parliamentary Republic, Ibanez sought to weaken parties by weakening an arena that they had effectively penetrated: municipal government. In contravention to the 1925 Constitution, Ibanez suspended all elected municipal governments immediately after taking office and replaced them with presidential appointees. The move was defended as one that would make possible cleaner, more effective government (Valenzuela 1977, 219).Thus, recentralization was framed as a mechanism that one set of national political actors (e.g., the president, pro-Ibanez sectors of the military, and bureaucratic elements) could use to constrain rival political actors at the national level (e.g., political parties). Subsequent to the re-centralization of political authority, Ibanez imposed similar changes in governing capacity. A decree in 1928, for example, imposed the right of the central government to review and approve all municipal budgets (Valenzuela 1977, 218). As discussed in the following chapter, Ibanez's attempts to curtail the political autonomy of the municipal sphere were later echoed by the Pinochet regime, though Pinochet also introduced changes that strengthened subnational institutions, unlike Ibanez. CONTINUED CENTRALIZATION DESPITE RE-DEMOCRATIZATION: 1935—1973 Elections were restored for municipal offices in 1935, but in the nearly forty years that followed, subnational governments never experienced the type of political and policy authority they had previously enjoyed under the Parliamentary Republic. Table 4.1 documents the decreasing importance of municipalities as units of government in this period.

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TABLE 4.1 Municipal Budgets as a Percentage of Governmental Expenditures in Chile Year

Percentage

1896 1937 1945 1956 1963 1967

11.40 9.66 9.22 6.90 6.93 6.40

SOURCE: Valenzuela 1977,46.

Two brief points about this lengthy period deserve emphasis. The first is that subnational officials were simply too weak politically to demand powers from below, though interviews by Cleaves (1969) andValenzuela (1977) suggest that municipal officials did indeed complain about their lack of autonomy. Local officials after 1935 were still able to throw their support behind members of Congress in the attempt to secure fiscal transfers and resources from the center, as in the Parliamentary Republic. Unlike that earlier period, however, they could no longer use their direct control of the electoral process itself in making their demands vis-a-vis national brokers. Nor did they, in contrast to governors in Argentina and Brazil, exert much control over candidate selection for national races. In fact, the opposite occurred, as national party structures came to dominate the selection of candidates for subnational races. According to the literature on Chile, the forty years between the fall of Ibanez and the rise of Pinochet marked the growing centralization of power within parties (Scully 1995, io8;Valenzuela 1977, 209). Local actors were less and less in a position to make demands on national decision makers, despite the fact that municipal elections throughout this period played an important role as an arena in which national parties would demonstrate their strength. Second, though subnational officials were too weak politically to bring decentralization about, national politicians could have adopted it from above, as in the Parliamentary Republic. The same centralization of power within parties that weakened subnational actors, however, made national party leaders loathe to implement decentralizing reforms. Over the course of this fortyyear period, parties consistently proposed decentralization when in the opposition, only to abandon the measure when in office. For example, though the Conservatives and Radicals were the parties most committed to decentralization in the 18905, they failed to support decentralization when they held executive office in the 19405 and 19505. In fact, it was a Radical govern-

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ment that presided over the 1942 law abolishing elected provincial assemblies. After the 19405, the success of the Communists and Socialists in building their parties at the local level provided further cause for the governing parties of this period to oppose decentralization in practice (Cleaves 1969, 38).When a new party, the Christian Democrats, captured the presidency in 1964, they subsequently sought to bypass the municipalities through the creation of new local bodies (juntas de vecinos) that would be coordinated by the executive branch (Cleaves 1969). Subsequent to Salvador Allende's victory in 1973, the Socialist Party likewise displayed a hostility to decentralization that contrasted sharply with its former defense of municipal powers. Thus, in the post-1935 period, national parties consistently opposed decentralizing changes, reversing their earlier preference for decentralization in the 1890$. Party leaders backtracked on decentralization, but what did not change was the very dominance of national actors in the design of subnational institutions. Partisan Conflict and Subnational Institutional Design in Uruguay Over the course of the nineteenth and twentieth centuries, institutional design in the pursuit of partisan advantage emerged as one of Uruguay's most time-honored political practices. Blanco and Colorado party leaders have repeatedly used constitutional reform as a mechanism to resolve short-term political conflicts, a strategy that led to new constitutions in 1918, 1934, 1942,1952,1967, and 1996. The partisan engineering of institutions has often focused on the subnational realm, particularly in 1918, 1934, and 1996, making Uruguay an excellent case for this study. Consistently, whenever decentralizing changes have occurred in Uruguay, they have resulted from conflict between national politicians grouped in rival parties, and not from pressures exerted by subnational actors. The importance of inter-party conflict in Uruguay clearly differs from the inter-branch conflict that drove Chile s most important experience with decentralization in 1891. National politicians have used the design of subnational institutions as a tool in quite different types of political struggles in Chile and Uruguay, but in each country the key protagonists have had national and not subnational identities. Some might dispute my characterization of the design process in Uruguay as a top-down affair, opting instead to interpret the consistent support of the Blanco Party for decentralization as evidence of a bottom-up dynamic. Historically, rural interests associated with the agro-export sector in the interior have formed the political base of the Blanco Party, while the Colorados have received most of their electoral support from the professional and commercial classes in Montevideo in the South. That the Blancos

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have consistently demonstrated stronger support for decentralization than the Colorados is a direct reflection of the regionally differentiated support base of these two parties. Despite their strength in the interior, however, it would be misleading to conceptualize the Blanco politicians who have repeatedly participated in the design of subnational institutions as subnational rather than national actors. What is clear is that the Blancos have used their leverage as national actors, in such national decision-making arenas as the legislature and constituent assemblies, in seeking to establish more decentralized institutions. Decentralization has simply not come about as the result of lobbying activities by subnational officials who belong to the Blanco Party. In contrast to the Argentine and Brazilian parties discussed in the previous chapter, subnational officials in the Blanco Party have not traditionally wielded authority independent of national party leaders.12 When, in the course of the twentieth century, the Blancos supported decentralization, this should be interpreted not as pressure from below but rather as evidence of a national party strategically calculating that decentralization would enable it to take advantage of its strength in certain subnational regions (O'Neill 2003). In exploring Uruguay's top-down experience with subnational institutions before 1973, this chapter focuses on four alternating episodes of decentralization and re-centralization. First, by returning to the substance of the compromises that were brokered to end inter-party violence in the nineteenth century, I argue that decentralization played a key role in the struggle to consolidate the state. Second, the military defeat of the 1904 Blanco rebellion by the Colorado-dominated central government facilitated the implementation of centralizing changes during the first administration of President Jose Battle y Ordonez. Third, conflict between the Colorados and Blancos over the redesign of national political institutions during the second administration of Battle y Ordonez led to a compromise in 1918 in which the Blanco party leadership secured decentralizing changes in exchange for supporting Battle's proposal for a collegial executive. Fourth, the breakdown of constitutional government in 1933 led to a new constitution and the recentralization of many of the fiscal powers that had been devolved in 1918. DECENTRALIZATION AS A SOLUTION TO ARMED CONFLICT: INTER-PARTY PACTS IN THE NINETEENTH CENTURY

In contrast to Chile, the consolidation of the state in the post-independence period in Uruguay proved to be a much more protracted and gradual process. The key conflict that delayed consolidation was the bitter struggle for national hegemony between the two political groupings that came to form the country's traditional political parties, the Blancos and the Colorados. In the latter half of the nineteenth century, growing export prosperity strength-

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ened the dominance of Montevideo as the country's premier port and national capital. Export wealth and the rise of Montevideo enabled the Colorados to dominate the national government, which progressively led to the exclusion of the Blancos from significant patronage opportunities (de Posadas 1988, 88; Rueschemeyer, Stephens, and Stephens 1992, 174). After the coup that deposed a Blanco president in 1865, it was nearly a hundred years before the Blanco's next presidential victory in 1958 (Nahum 2002, 203). Control by the Colorados of the national government was particularly problematic for the Blancos in the nineteenth century due to the institutional choices embedded in the constitution of 1830. This constitution was highly centralist in design, denying the departments administrative and financial autonomy and stipulating that the departmental governors (jefes politicos) would be named by the president (Fitzgibbon 1954, 143; Sabelli 1993, 18). In other words, the exclusion of the Blancos from the national government meant that they were also excluded from government at the subnational level. Blanco demands for departmental autonomy, electoral guarantees, and the representation of opposition parties in the national government (representation de minorias) led to several armed uprisings in the nineteenth century. On at least two important occasions, Colorado Party leaders put an end to Bianco-led rebellions by agreeing to institutional changes at the margin of the 1830 Constitution that had the effect of decentralizing political authority. Specifically, in the 1872 Paz de Abril, Blanco Party leaders agreed to lay down their arms in exchange for the right to name executive officials (jefes politicos) in four interior departments. In the Pacto de la Cruz of 1897, which settled a subsequent uprising, the Colorados agreed to increase the number of departments under Blanco control to six, and to reserve onethird of the seats in the national Congress for the minority party (de Posadas 1988, 55, 85; Faig 1999,13).13The Blancos demanded the power to name subnational authorities not just because they wanted control over interior departments; being able to name the authorities of a given department meant that the Blancos would also control national parliamentary elections in that department.14 The 1897 Pact also Put an end to the majoritarian system used to constitute the legislative branch of the departments (Juntas Economico Administrativas) by granting three seats in these bodies to the minority party (Tourreilles 1999, 103; Lindahl 1962, 20).Thus, as the most important nineteenth-century manifestations of the power-sharing arrangements that Uruguayans refer to as "coparticipation" (copartidpaciori), the 1872 and 1897 pacts had crucial subnational components. Neither of the two nineteenth-century pacts led to any formal change in the governing capacity of subnational governments, however. The departments

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continued to play an insignificant role in the provision of education, public health, police, and social assistance (de Posadas 1988, 88; Fitzgibbon 1954, 143). Nevertheless, the Blancos strategized that political control over the six departments would give them a sufficient base to defend themselves from the hegemonic pretensions of the Colorado Party (de Posadas 1988, 56). The Pacto de la Cruz should be considered a potentially decentralizing reform even though it did not lead to direct elections for subnational offices and even though these positions were filled via the decisions of national Blanco Party leaders. Because the Blancos were locked out of power at the national level, the pact effectively increased the autonomy of subnational governments from the Colorado-dominated national government. With respect to Colorado Party leaders, support for decentralizing pacts can be understood as the price they were willing to pay for the pacification of the country, itself a requisite for the continued growth in revenues from trade taxes that disproportionately benefited the Colorados.Though scholars typically identify the nineteenth-century consolidation of the state as a centralizing process in Latin America, in Uruguay politicians enlisted decentralization as a tool in the service of consolidation.15 RE-CENTRALIZATION AND DEMOCRATIZATION UNDER BATTLE Y ORDONEZ: 1903 — 1915

The election of legendary Colorado President Jose Battle y Ordonez in 1903 marks the onset of an important period of centralization. Over the course of his two administrations (1903—7 and 1911—15), Battle laid the foundations of the Uruguayan welfare state, Latin America's first (Vanger 1963). Battle pushed forward a series of reforms that significantly expanded the economic roles of the central government, nationalizing banks and public utilities, borrowing abroad to finance public works, and instituting an eight-hour workday (Nahum 2002, 15—i8).The Blanco Party largely opposed Battle's statist orientation and vigorously protested tax policies that raised taxes on landowners in the interior in order to finance expenditures that mostly benefited the Colorados' urban constituency (Rilla 1985, 76).16 In a dynamic that paralleled Chile under Balmaceda, economic interests who were opposed to statism, and who mostly supported the Blanco Party, came to champion decentralization as a way of checking expansionary fiscal policies. But Battle was a centralizer not just in terms of his economic policy orientation; he also centralized political authority, despite presiding over Uruguay's first ever transition to democracy. The mix of democratization and centralization in this period is similar to the first wave of democracy in Argentina, when the victory of Yrigoyen in the country's first democratic elections served to enhance the legitimacy of his attempts to centralize political authority by repressing regional oligarchs.

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Although Battle had to agree to continue the policy of power sharing with the Blancos in order to secure the nomination of the Colorado Party in 1903 (Lindahl 1962,21), once in office he acted on his opposition to coparticipation. Specifically, Battle failed to respect the 1897 Pacto de la Cruz by attempting to give control over two of the Blanco s six departments to a faction of the Blanco Party that had supported his presidential campaign and that had been expelled from the party (Nahum 2002, 22). Battle also sent national soldiers to one of the departments, which the Blancos took as a violation of the pact (Tourreilles 1999, 56).The Blancos responded by launching an unsuccessful revolution in 1904 that ended with the death of their equally legendary leader, Aparicio Saravia. Unlike the earlier pacts, the Colorados did not use decentralization to end the armed conflict. Instead, their convincing military defeat of the Blancos enabled Battle to reverse the previous decentralization of political authority. Subsequent to the defeat of the Blancos and the unification of each party's armed forces into a single, Colorado-dominated national army, Battle was free to redesign subnational political institutions.17 Specifically, he replaced all departmental chiefs (jefatums politicas) with intendants (intendentes) who would be named by the president (Martins 1978,145; Nickson 1995, 252). The legislative bodies of the departments (Juntas Economico Administrativas) were in turn placed under the control of the intendants. Likewise, the law transferred the right to name and dismiss all departmental employees from the locally elected departmental legislatures to presidentially appointed officials (Sabelli 1993, 34).Thus, democratization at the start of the twentieth century produced clearly centralizing changes, an outcome that is just as surprising as the use of decentralizing mechanisms to achieve the consolidation of the central state in the previous century. DECENTRALIZATION AND INTER-PARTY B A R G A I N I N G OVER INSTITUTIONAL D E S I G N : 1915-1918

By the end of Battles second administration in 1915, the dynamic between the Blanco and Colorado parties changed in a way that ultimately enabled the Blanco leadership to achieve a second round of decentralizing reforms. The critical event here was Battle s proposal that Uruguay adopt a unique, collegial form of executive government composed of a nine-member National Administrative Council. In the attempt to secure this change, Battle called a constitutional convention in 1916. According to scholars of this period, one can ascribe Battle's proposed reform to a variety of motivations. Some argue that Battle s proposal was largely directed against the Blancos, who would have had to win several consecutive elections in order to secure a majority on the National Administrative Council (de Posadas 1988, 95). Others argue that Battle wanted to shift to a collegial executive in the attempt to retain his authority within the Colorado Party, which had experienced significant

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factionalization during his two presidencies. Still others argue that Battle's programmatic commitments to the welfare state led him to propose the collegial form of government as one that would safeguard the progressive legislation he had implemented from possible reversals (Lindahl 1962, 24). Whether Battle was motivated chiefly by policy concerns or personal ambition, what seems clear is that decentralization was the political price he had to pay for imposing his institutional preferences. Subsequent to the poor performance of Battle's faction in the 1916 elections for members of the constitutional convention, Battle sought to build support for his proposed reform by entering into negotiations with the Blancos. In an inter-party agreement sealed in the constituent assembly, the Blancos agreed to Battle's collegial executive in exchange for the political autonomy of the departments and fiscal decentralization (Martins 1978, 147). In terms of political authority, the 1918 Constitution introduced elections for both legislative and executive office at the departmental level. With respect to the departmental executive branch, the constitution introduced the same collegial form at the subnational level. Considering the Blanco Party's historic demands for the representation of political minorities (representation de minorias), the use of proportional representation to constitute subnational executive bodies was a significant achievement for the Blancos (Tourreilles 1999,99-104). Relative to the tight political control exercised by Battle, subnational democratization represented the clear decentralization of political authority in a shift toward what Cagnoni calls "semi-federal constitutionalism" (Cagnoni 1979, 166). Just as groundbreaking were the changes introduced in the governing capacity of departmental officials. Whereas the 1830 Constitution had denied the departments any real policy authority, and whereas the power-sharing pacts of the later nineteenth century involved no explicit changes in departmental authority, the new constitution for the first time formally devolved sweeping fiscal powers to the departments (Fitzgibbon 1954, 144).18 The only restriction placed on the right of the departments to create new taxes was that they could not tax transportation or interdepartmental sales (Cagnoni 1979). Given the fiscal burden of the welfare state that Battle had constructed and sought to defend, the decentralization of taxing authority was a substantial compromise on the part of the Colorados. Furthermore, shifting taxing powers to the departments was a significant victory for the Blanco Party, whose landowning constituents had vociferously but unsuccessfully resisted Battle's attempts to increase the tax burden on landowners (estancieros) in the interior (Rilla 1985, 76, 93). Just as importantly, the 1918 Constitution also devolved to the departments the right to borrow abroad (Martins 1978, 147).

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CENTRALIZATION AND THE BREAKDOWN OF DEMOCRACY: 1933-1938 The 1918 reform in Uruguay, like Chile's experience in 1891, represents the simultaneous decentralization of political authority and governing capacity as a solution to national-level conflicts; neither is an example of subnational elections producing demands from below for greater powers. Unlike the Chilean case, where local officials chose to depend on central government transfers rather than develop independent taxing authority, subnational officials in Uruguay made extensive use of their new powers (Cagnoni 1979, 177). In fact, fiscal decision-making in the departments over the course of the 19205, many of them governed by the Blancos, appears to have shaped key economic and political outcomes at the national level. According to Nickson, "The severe fiscal crisis of the state that erupted in 1929 was blamed on the financial profligacy of departmental governments" (Nickson 1995, 252). In a complaint that has become common in twenty-first-century Latin America, Colorado President Gabriel Terra, elected in 1931, argued that the decentralization of taxing authority was challenging his ability to implement a coherent national response to economic crisis. As he argued, "We can no longer continue with a regime that lets 19 different governmental authorities decree all manner of taxes" (Martins 1978,153). According to Sabelli, the attempt to restrict departmental autonomy was one of the driving goals behind the 1933 coup that Terra himself led (Sabelli 1993, 42). Curiously, this self-coup by a Colorado president received the blessing of the Blanco Party (Caetano and Jacob 1989), whose support illustrates the great extent to which national considerations have dominated the design of subnational institutions in Uruguay. Given Colorado dominance of the national government from 1918 to 1933, Blanco participation in subnational governments that now had real fiscal powers was particularly valuable. And yet the leaders of the main herrerista faction of the Blanco Party supported the coup because Terra, though a Colorado, was hostile to the statist tradition of Jose Battle. As Lopez-Alves argues in his study of the period, the main reason that Blancos supported an znti-battlista Colorado was their fear of a new round of progressive, Colorado-backed legislation (Lopez-Alves 1994,191).Thus, the same Blanco Party resistance to progressive battlista legislation that encouraged its support for decentralization in 1918 led national party leaders down a very different path in the early 19305, choosing to support a centralizing option in 1933 in the form of Terras coup. What is striking is the extent to which the concerns of national party leaders trumped the preferences of subnational officials in determining the Blancos' strategy. In the 19305, as in the 19905, one can identify an important tension between

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19th-century Origins, 20th-century Trajectories

the Blanco Party's ostensible support for decentralization measures that would empower the departments and its traditional fiscal conservatism. Subsequent to the 1933 coup, a new constitution was written in 1934. In the 1934 Constitution, departments retained a great deal of political, administrative, and budgeting autonomy (Martins 1978, 158), but they lost most of their independent taxing authority. As a result of the new constitution, the departments were denied the right to create new taxes and to issue debt (Cagnoni 1979, 167; Jacob 1983, 60). In order to impose new taxes, the departments would henceforth need to secure the approval of a national executive body (the Tribunal de Cuentas) and national legislators (Martins 1978, 155). In the political sphere, the new constitution reestablished a unipersonal chief executive and returned to the president the right to appoint departmental executives (Martins 1978). With respect to the regime-change hypothesis, Uruguay's 1933 rupture in democracy produced clear movement in a centralizing direction. Subsequent to the constitutional reform, national politicians wrote a new Municipal Code in 1935, which continues to govern the departments to this day. The new code tightened the control of the central government over departmental finances and centralized the provision of services in the area of hygiene, pasteurization, and activities associated with the meat industry (Cagnoni 1979, 168). Though the new code included explicit forms of centralization, in a number of respects it failed to specify what the departments could or could not do. This ambiguity has proved to be important; as I argue in Chapter 7, the vagueness of the regulatory code enabled departmental authorities to effectively expand their governing capacity in the 19905, even in the absence of explicit institutional changes. CONTINUED CENTRALIZATION DESPITE RE-DEMOCRATIZATION: 1938-1973 During the thirty-five years between the reintroduction of subnational elections in 1938 and the coup of 1973, national politicians continued to engineer subnational institutions in Uruguay, and to do so through the prism of inter-party and intra-party disputes at the national level. Incessant negotiations over the redesign of political institutions in the 19405, 19505, and 19605 tended to focus on the national level (de Posadas 1988, 99). For example, the driving force behind the 1952 and 1967 reforms of the constitution was the continued struggle over how to constitute executive authority, with Uruguay shifting back to a collegial form of executive in 1952 and returning once again to a unipersonal form in 1967. None of these reforms devolved the types of fiscal autonomy that had been transferred to the departments in the 1918 Constitution and re-centralized in 1934, however. Uruguay remained highly centralized, as reflected in the views of national legislators, presented

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in Table 4.2. Blanco legislators were much more critical of the extent of centralization and yet, in the only period during which they controlled the national executive branch (1958-66), they proposed no significant decentralizing reforms. While no significant episode of decentralization occurred in this period, national politicians did introduce some changes in subnational institutions, successively expanding and contracting subnational authority at the margin. For example, the 1952 Constitution lessened the injunction against departmental taxing authority, and the 1967 Constitution returned the power to create taxes on rural property to the national government. The 1967 reform of the constitution further diminished subnational autonomy in the fiscal sphere, largely through the introduction of regional planning that reduced departments to bodies implementing centrally devised plans (Cagnoni 1979, 177).19 For instance, departmental executives were denied participation in the new planning and budget office (Oficina de Planeamiento y Presupuesto) created by the 1967 reform (Cagnoni 1979, 169). On the other hand, the 1967 Constitution established the possibility of reelection for departmental executives. While this was not very important in the six years before the 1973 coup, it has become an important rule in the post1985 period, facilitating the emergence of departmental executives as significant political actors. Though elections were held for departmental offices between 1938 and 1973, subnational officials were not able to successfully demand the types of governing capacity they enjoyed earlier in the century (Martins 1978, 158). The continued weakness of subnational actors within their parties offers the best explanation of the absence of decentralizing pressures from below. Though national parties are highly factionalized, factional lists within each TABLE 4.2 Legislators' Opinions on the Territorial Organization of the Uruguayan State Deputies

Senators

PC

PN

FA

PC

PN

FA

5

37

20

—

36

17

18

Strongly centralized

24

20

60

33

27

17

30

Basically centralized

50

37

20

—

38

—

32

Moderately decentralized

17

3

—

57

9

33

15

4

3

—

—

—

17

3

—

—

—

10

—

16

2

100%

100%

100%

100%

100%

100%

100%

Excessively centralized

Basically decentralized No response Total

Total

SOURCE: Based on data in Bervejillo 1988,35. NOTE: PC = Partido Colorado; PN = Partido Nacional; FA = Frente Amplio. Numbers are percentages.

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19th-century Origins, 20th-century Trajectories

party are organized around national as opposed to sub national candidates. Uruguayan senators, like the president, are elected in a single, nationwide district, and factions group themselves into sublemas that support a single candidate for president and senator (Gillespie 1991, 20, 21). Departmental chief executives in Uruguay do not adopt the roles played by their counterparts in Argentina, and much less those of Brazil. Reflecting this political reality, de Posadas argues that the best way to promote decentralization in Uruguay would be to assign the departments a more important role in the election of national deputies (de Posadas 1988, 219). In addition to electoral formulas, the timing of elections helps account for the continued centralization of governing capacity. National and subnational elections throughout this period were held concurrently, with voters prevented from voting for different parties in national and departmental elections (e.g., cutting ballots). According to many scholars, the fusion of national and subnational races encouraged the nationalizing of departmental electoral contests and the downplaying of subnational interests (Gonzalez, 1991, 31; Nickson 1995, 253). Indeed, the tendency of fused elections to favor national over subnational issues led advocates of decentralization in the 19805 and 19905 to propose separating national and subnational elections, a reform that was eventually implemented in the constitutional reform of 1996. Conclusion In exploring the content and timing of changes in subnational institutions in Chile and Uruguay, this chapter has uncovered a number of surprises. First is the undeniable political importance of decentralization in two countries whose subnational levels of government have long been considered to be weak and therefore irrelevant. I argue that the design of subnational institutions in Chile and Uruguay has repeatedly been tied to each country's most interesting and politically meaningful struggles. While the attempt to understand the terms and logic of decentralization is my chief motivation here, this chapter shows that attention to subnational institutions can enhance our understanding of a whole series of other phenomena, including state-building, civil war, regime change, and constitutional design. The second lesson of this chapter is that decentralization can occur even in the absence of influential subnational actors. Consistently, decentralization took place in these countries due to strategic calculations by national politicians, for whom subnational demands were not an important consideration. As will become clear in Chapter 7, the more recent adoption of decentralizing measures in each country essentially repeats the top-down dynamic of this earlier period.

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Third, and perhaps most surprising, is the wide range of functions that decentralization has been called upon to perform. Decentralization can work as a "means" to a remarkably large number of "ends." For instance, it was used to help consolidate the state in Uruguay in the nineteenth century, to alter the inter-branch balance of power in Chile in the 18905, and to shift policies in a more conservative direction in both countries. The willingness to use decentralization in the service of other, more deeply held goals has led to some radical innovations in the design of subnational institutions. Perhaps the most dramatic of the episodes surveyed in this chapter was the decision by Chilean legislators in 1891 not simply to allow local elections and local taxing authority, but to give local officials actual control over national elections. This chapter also suggests that re-centralization can likewise be used in the service of very different types of goals. In Uruguay, Battle re-centralized authority over the appointment of subnational officials after 1903 in a purely political bid to strengthen his hand relative to the Blancos and relative to other Colorado factions who favored a more conciliatory approach toward the Blancos. Thirty years later, re-centralization under Terra took shape as an emergency response to crisis, one that would shore up the government's fiscal position in difficult economic times. Re-centralization in Chile in the 19305 looked very different, largely because subnational officials in Chile— unlike their counterparts in Uruguay—had failed to make much use in the 19205 of the taxing powers that national politicians had devolved. As a result, re-centralization under Ibanez was driven not by the need to consolidate fiscal authority but rather by the more explicitly political goal of weakening the municipalities in order to attack his real enemy: political parties. Finally, the episodes presented in this chapter speak to the important and complicated relationship between changes in subnational institutions and changes in economic development models. In the late nineteenth and early twentieth centuries, groups that advocated small government and opposed statism used decentralization in the attempt to arrest the new, fiscally expansive direction taken by reformist chief executives. When Balmaceda in Chile and Battle in Uruguay demonstrated their commitment to deep changes in the accepted role of the state, decentralization appeared to be a suitably radical response. Decentralization "worked" to different degrees in these earlier time periods. In Chile, it is possible to argue that decentralization effectively delayed the onset of more interventionist policies by decades because it shifted power away from the presidency, the office that had been used as the institutional basis of economic statism. In Uruguay, decentralization was less effective, in part due to the ambiguous stance on decentralization of its most important proponent: the Blanco Party. In the early 19305, just when Blanco intendentes at long last came to benefit from the results of decentralization,

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national leaders in the Blanco Party supported a centralizing coup in order to prevent a new round of statist policies at the national level. Ultimately, the Blancos' hostility to statism trumped their interest in decentralization. From the perspective of the early twenty-first century, the transformation in attitudes toward decentralization over time is particularly notable. In contrast to decentralization's earlier status as an important tool in the struggle against statism, in the 19905 legislators who opposed statism more often saw decentralization as a budget-busting reform. One key difference is the policy orientation of presidential incumbents in both countries in the 19905, whose fiscal conservatism bore little resemblance to the statist agendas of Balmaceda and Battle.

CHAPTER

Subnational Reforms by Military Governments

5

BY EXPLORING THE LOGIC of decentralization in the democracies of the first and second waves, the two preceding chapters sought to broaden debates over decentralization that have mostly focused on the experiences of the third wave. This chapter is devoted to the similar goal of putting contemporary events into historical perspective by evaluating what happened to subnational governments when military authorities took power in the 19605 and 19705. In Argentina, Brazil, Chile, and Uruguay, coups d'etat in these years brought to power military governments that articulated ambitious proposals for the transformation of each country. Did the centralizing drives of military rulers render the subnational realm irrelevant, or did subnational governments figure into these transformative proposals? If so, how? In this chapter I argue that these intervening periods of authoritarianism introduced important changes that had the counterintuitive effect of strengthening subnational governments. Furthermore, these changes have had powerful consequences for subsequent events, with the result that satisfying explanations of decentralization in the contemporary period need to pay considerable attention to these military-era reforms. In no case do subnational reforms by military governments count as "decentralization," defined as measures that increase the governing capacity of subnational officials who are politically independent of the national government (Manor 1999, 7). In Latin America, one of the first acts of de facto authorities after the coups that brought them to power was to remove democratically elected officials at the subnational level. In many countries, the repression of politicians and the parties to which they belonged extended deep into the subnational realm, leading to the appointment of subnational officials who served at the pleasure of the new military authorities. Not only did political re-centralization occur; authoritarian governments also moved to

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re-centralize various forms of policymaking authority devolved in the earlier democratic periods. Cuts in revenue transfers and the reduction of subnational taxing authority, for example, were introduced by military governments as a critical part of their response to the economic chaos and instability that had encouraged them to claim power in the first place. Taken together, evidence that authoritarian governments re-centralized both political authority and governing capacity conforms to the understanding of authoritarianism as an essentially centralizing project. Yet, at the same time that democratic breakdowns facilitated centralizing measures, it is also the case that many authoritarian regimes introduced changes that strengthened the capacity of subnational governments.Though these reforms fall well short of "decentralization," their adoption does challenge the view of authoritarianism as an unambiguously centralizing experience. According to the dynamic I explore in this chapter, the replacement of democratically elected subnational officials with individuals appointed from the center enabled military governments to contemplate a subsequent expansion in the roles played by lower-level governments. Having asserted direct political control over subnational officials, de facto authorities at the national level no longer had cause to worry that subnational spheres of government could be used in ways that would challenge or undermine their objectives. In fact, rather than see subnational governments as obstacles, military authorities enlisted these levels of government as tools that could help them implement a variety of far-reaching economic and political goals. My research suggests that cross-national studies of decentralization have been wrong to overlook periods of authoritarian rule. By highlighting the importance of the subnational dimension in the reformist ambitions of military governments, this chapter also questions the traditional neglect of subnational issues in the well-established literature on comparative authoritarianism. Though single-case studies of military governments have turned up some evidence of changes at the subnational level, more synthetic attempts to elucidate authoritarianism as a form of political rule have paid scant attention to politics below the national level (Collier 1979; Malloy 1977; O'Donnell 1973). I do not mean to suggest that subnational developments were as central to the construction and evolution of authoritarian governments as the more commonly studied national phenomena, including policy deadlock between the president and Congress, struggles over national development models, and attempts to repress unions as legitimate political and economic actors.1 Rarely, however, were subnational reforms incidental, and, in every case, examining the content of reforms introduced below the national level can generate a fuller understanding of the goals and objectives that motivated these regimes, and of the contradictions that also characterized military rule.

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Integrating the emerging scholarship on decentralization with the older literature on authoritarianism is useful not just as a backward-looking exercise that helps us improve our analytical grasp of regimes that, for the most part, have passed from the scene. Because they shaped political struggles over decentralization in subsequent democratic governments, military-led reforms of subnational institutions are directly relevant to the adoption of decentralizing changes in the contemporary period. In many cases, authoritarian periods represented critical junctures for the development of more robust subnational institutions, which national politicians had resisted creating in earlier democratic periods and which they had to confront once democracy was restored. This chapter focuses on the subnational reforms that five distinct military regimes introduced in the third quarter of the twentieth century. First is the so-called "Argentine Revolution" (Revolucion Argentina) that governed Argentina between 1966 and 1973 under a series of three different militaryappointed presidents. The second military regime, also drawn from the Argentine case, called itself the "Process of National Reorganization" (Proceso de Reorganizacion Nacional) and controlled the country from 1976 to 1983. Third is the lengthy period of military rule in Brazil, Latin America's longest, that began in 1964 and ended with the return to a civilian president in 1985.2 The fourth regime is the seventeen-year rule of Augusto Pinochet in Chile, beginning with the overthrow of President Salvador Allende in 1973 and terminating with the general's withdrawal from the executive branch in 1990. Fifth is the twelve-year period in Uruguay that began in 1973 with the closing of Congress by democratically elected President Juan Bordaberry, who was in turn overthrown by the military three years later. These cases represent the core regimes on which Guillermo O'Donnell based his bureaucratic authoritarian (BA) model, though subsequent research documenting the quite distinct economic projects pursued by generals in these countries suggests that the BA label is not uniformly accurate (Schamis 1991). What is important for my purposes is that each of these regimes sought to implement ambitious (though often distinct) plans for the reform of economic, social, and political life. None was a caretaker government preparing for the quick return to democratic politics; each came to power with plans to stay long enough to effect major changes in their respective countries. The chapter proceeds in four stages. First, in the interests of presenting a balanced picture of military-led reforms below the national level, I briefly examine the centralizing (and, therefore, less surprising) changes that military governments instituted, often in the immediate aftermath of coups d'etat. Second, I focus on the initial, offensive phase of these authoritarian governments, when military authorities enlisted subnational governments in the pursuit of fundamental economic and political objectives. In the case of economic

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objectives, I demonstrate how the regimes' attempts to promote economic development—whether through statist or neoliberal programs—often led to important changes in governing capacity at the subnational level. With respect to the regimes' political objectives, I document the strategies that military authorities used in subnational arenas in their attempts to engage with and control political and civil society. I argue in the third section that, in addition to their role during the offensive phase of military rule, subnational reforms also played a critical part in the defensive phase, during which the military sought to shape politics in the subsequent democratic period. Turning from the question of why military governments introduced subnational reforms, the final section provides a transition to Part IV of the book by briefly evaluating the chief consequences of military-led changes for posttransition struggles over decentralization in the 19805 and 19908. Re-centralization and the Breakdown of Democracy By definition, centralization has occurred when military authorities dismiss presidents and legislators and arrogate the authority to make policy. In twentieth-century Latin America, sometimes it was the hierarchical leaders of the military as an institution who took power in their own right, and sometimes these leaders appointed a president from the ranks of the military rather than directly exercise governmental powers. Though this distinction generated important differences, both scenarios represented a centralizing change relative to previous periods, in which the authority to make policy was divided between separately elected branches.3 One can appreciate the weakness of the legislatures that were closed in the 19605 and 19705 and the prior concentration of policy authority in the person of the president and still realize that military coups represented a distinctive centralizing rupture. To date, the literature has tended to focus on how centralization played out at the national level, through the repression of actors with national identities and through the closure of and/or intervention in national institutions such as legislatures, labor unions, and business associations. In many countries, attempts by de facto authorities to eliminate institutions and organizations that could shelter opponents of military rule had no subnational component, for the simple reason that the political systems they inherited were highly centralized. As noted in Chapter 2, for example, most countries in Latin America did not consistently hold elections for subnational offices in pre-third-wave democratic periods. In Argentina, Brazil, Chile, and Uruguay, however, the emergence of BA regimes in the 19605 and 19705 interrupted long periods of subnational democracy characterized by the direct election of leaders who enjoyed varying degrees of au-

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tonorny from the national government. By substantiating the importance of decentralization in the first- and second-wave democracies, Chapters 3 and 4 should make it easier to understand why imposing control over the subnational level was essential to military goals. Each of the five military regimes surveyed in this chapter disrupted democratic procedures at the subnational level, though they differed in the extent of the disruption. In Chile, just eight days after the September n, 1973, coup, military authorities dismissed the directly elected municipal councils that in turn selected mayors.Though the municipalities in Chile enjoyed little governing capacity before the coup, enforcing political control over municipal governments was a critical element of the regime's anti-party drive; as Valenzuela demonstrated, municipal elections had been a prime arena for partisan competition in the pre-1973 period (Valenzuela 1977,10). Not only was political centralization critical to the regime's attempt to root out party politics, it also served additional ideological objectives, given the strength of the Socialist Party in many municipalities.4 In Argentina, political repression at the subnational level focused on the provinces rather than on the municipalities.5 The same factor that led the military to repeatedly close national democratic institutions in the 19608 and 19705—anti-Peronism—encouraged intervention in provincial politics as well. In 1962, Peronist electoral successes in gubernatorial elections triggered the coup that deposed President Frondizi, and in 1966, the April victory of Peron's candidate in provincial elections in Mendoza fueled the coup that took place in June (McGuire 1997, 89, 146). In the aftermath of the 1976 coup, the military moved aggressively to repress governors, most famously in the case of La Rioja Governor Carlos Menem. After evicting the governors, control over the provincial governments was distributed among the three services (Army, Navy, and Air Force) in equal shares (Gibson I997a, 79). In Uruguay, the generals dismissed all democratically elected departmental executives, except in the most important department of Montevideo, where Oscar Rachetti continued to serve until 1983 as the only civilian intendente.6 The disruption of subnational democracy was much less pronounced in Brazil after 1964, due in part to the relative unimportance of military attempts to eradicate traditional political parties, which were less well established than in Argentina and Chile (Schwartzman 1982). In a dynamic that had an important parallel at the national level, the repression of subnational politicians was much less extreme in Brazil relative to the Southern Cone military regimes. Initially, the generals allowed the holding of regularly scheduled direct gubernatorial elections in 1965, though they shifted to indirect election when it became clear that direct elections would empower politicians opposed to a lengthy period of military rule (Abrucio and Samuels 2001). According to

118

Bureaucratic Authoritarianism

Camargo, many of the governors who supported the 1964 coup against Goulart did so in the hopes of winning the subsequent presidential election they believed the military would hold (Camargo 1993, 318).The use of any form of elections contrasts starkly with the other four regimes, but the shift to indirect elections nevertheless represented a significant departure, given the political weight of the states as key electoral arenas in Brazil. At the local level, the generals held municipal elections in all municipalities except state capitals, where governors appointed mayors, and in some 180 other municipalities of national security significance (Nickson 1995, 119; Samuels 2oooa, 87,269). Altogether, one can conclude that the centralization of political authority undeniably occurred in post-1964 Brazil, but that it was less pronounced than in military regimes in neighboring countries. In addition to altering selection procedures at the subnational level, another commonality in these five military regimes is that each implemented an economic stabilization program. As Hirschman argued, it was the perceived need to stabilize macroeconomic variables, rather than the drive to deepen industrialization, that worked as the more common impetus behind military intervention (Hirschman 1979). In Chile and Uruguay, stabilization did not demand important changes in intergovernmental fiscal relations. In Chile, as discussed in Chapter 4, the municipalities had received taxing powers at the end of the nineteenth century but failed to make much use of these powers in the decades before the 1973 coup. In Uruguay, constitutional revisions in 1934 and 1967 denied departmental authorities the considerable fiscal prerogatives that had been extended in 1918. In Argentina and Brazil, however, as a result of the decentralization of revenues that had occurred at various points in the first half of the twentieth century, stabilization by military regimes involved the curtailing of subnational authority. In Argentina, attempts by Economy Minister Adalberto Krieger Vasena to control the budget deficit and sustain an IMF-sponsored program led to sharp reductions in automatic provincial revenue transfers in March 1967 (Nunez Minana and Porto 1982, 13). Changes introduced by the Proceso government in the 19705 led to an even steeper decline in provincial transfers, in addition to the removal of the city of Buenos Aires from the revenue-sharing system altogether (FIEL 1993, 147). Considering their huge dependence on transfers from the center, cuts in revenue sharing during both Argentine military regimes had powerfully centralizing outcomes. Centralization by the generals in Brazil took a somewhat different form through the shift to the federal level of tax bases formerly under the control of the states. Whereas in Argentina the provinces had delegated most of their own taxing authority to the federal government in the 19305, in Brazil the states retained important tax-collecting roles even in the Vargas era. After the

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1964 coup, however, the generals wrested tax bases away from the states, including important taxes on exports (Hinrichs and Mahar 1972, 202). A new value-added tax (ICM) at the state level was one exception, though the federal government under the military reserved the right to set the rate of this tax (Oliveira 1995, 85). After centralizing the power to tax, the generals imposed tight earmarks on how revenues sent by the national government could be used, in addition to decreasing the size of municipal transfers by half (Nickson 1995, 119). Recognizing the significance of these very real centralizing changes— both in the selection of subnational authorities and in the resources at their disposal—serves as an important counterweight to the argument developed in the rest of this chapter that military governments also instituted changes that enhanced subnational governments. On the Offensive: Foundational Projects and Subnational Reforms Scholars have adopted a number of different labels for the distinct phases of authoritarian governments. Przeworski (1991) distinguishes between the "constitution" and "extrication" phases, Garreton (1986) contrasts the "transformative" or "foundational" periods with crisis periods that put authoritarian leaders on the defensive, and Munck (1998) divides the life cycle of authoritarian regimes into their component phases of "origin," "evolution," and "transition." Despite important nuances in the periodization of these regimes, most scholars agree on the need to distinguish between the challenges that military authorities faced as they sought to initiate new governing projects from the challenges they later faced in defending their continued rule. In bureaucratic authoritarian regimes, the initiation period was particularly crucial, given the ambitious transformative plans of military leaders. In the attempt to demonstrate how military authorities used subnational arenas during the offensive phase of their rule, this section focuses on subnational reflections of the regimes' overarching economic and political objectives. Each regime imposed new strategies designed to further economic development, and each regime articulated the need for deep-seated political reforms. Given the extent to which political objectives influenced the adoption of particular economic policies (e.g., the weakening of labor unions was a desired byproduct of trade liberalization), the distinction between the regimes' economic and political goals is something of a fiction. For analytical purposes, however, it is useful to treat the question of how these regimes sought to promote economic development separately from the question of how they at the same time tried to forge change in political and civil society.

I2O Bureaucratic Authoritarianism SUBNATIONAL REFLECTIONS OF NATIONAL ECONOMIC DEVELOPMENT PROJECTS

All five regimes included in this study privileged the search for new economic development strategies in response to similar economic crises, but tremendous differences characterized the policies they decided to adopt.While the first Argentine regime (1966-73) and the Brazilian regime sought to facilitate industrial deepening through the maintenance and/or expansion of state-led industrialization (Smith 1989; Stepan 1978), the second Argentine regime (1976—83) and the Chilean and Uruguayan regimes embraced neoliberal policies in the attempt to move away from statist models (Lewis 1990; Foxley 1983; Nahum 2002).7 Did these major reform proposals translate into identifiable changes at the subnational level? The main finding of my research is that the content of changes introduced in subnational institutions does indeed reflect the overarching economic goals pursued by the military regimes. With some exceptions, one can identify evidence of compatibility between subnational reforms and the thrust of national development strategies, suggesting that subnational arenas helped de facto authorities to pursue national objectives. If the content of subnational changes ran counter to the regime's core economic objectives, such a finding would make it difficult to conclude that military regimes sought to use subnational governments as instruments in the service of larger objectives. Beyond evidence of compatibility, this analysis generates two additional findings that deserve to be highlighted. First, as seen most clearly in the Brazilian case, the pursuit of statist economic policies is not incompatible with changes that expand subnational governing attributes; statism and centralism are not equivalent terms. In many countries, the adoption of statist development strategies undeniably set into motion changes that centralized policy authority in national or federal governments at the center (Cavarozzi 1994). In these cases, policymaking authority for subnational officials was seen as undermining the ability of the central government to overcome the significant challenges of late industrialization. In Brazil, however, statism led to the expansion of governing capacity at the subnational as well as at the national level, which suggests that statist strategies need not always centralize authority. Though the expansion of the state at the national level eclipsed its expansion at the subnational level in Brazil (Carvalho 1996), statism nevertheless enhanced certain forms of governing capacity at the subnational level relative to earlier periods. Second, despite the variety of development strategies pursued by these different regimes—statism in some cases, neoliberalism in the others—what is striking is the extent to which different economic ideologies led to similar outcomes. Specifically, subnational governments were enhanced by the

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vigorous implementation of both statist and neoliberal projects. Once one accepts that the expansion in governing capacity under statism need not accrue to national leaders exclusively, the tendency of statist models to expand subnational policy attributes is not surprising. More surprising, however, is evidence that the pursuit of neoliberal solutions could also result in the expansion of subnational attributes. The Chilean case is particularly instructive, where municipal governments acquired new responsibilities and powers due to attempts by the Pinochet regime to reduce the size of the central government. That subnational governments in Brazil and Chile emerged with new attributes despite the implementation of such different development strategies challenges the "economic policy orientation" hypothesis posited in Chapter i. It does not mean, however, that these strategies are irrelevant. Instead, the content of these strategies can tell us much about the logic of the changes introduced at the subnational level, expanding state banks and state-owned enterprises in the case of Brazil, while devolving responsibility for streamlined governmental services in the case of Chile. Neoliberalism in Chile and Uruguay. The generals who took power in both Chile and Uruguay in the 19705 embraced neoliberal ideas, though these were much more consistently and aggressively applied in the former case, where they led to particularly important subnational changes. After a broadranging debate in the early years, Pinochet definitively adopted a set of economic reforms that, by liberalizing financial markets, reducing tariff barriers, and shrinking the role of the state, signaled the beginning of a neoliberal revolution that would go on to sweep the region. In attempting to institutionalize this radically new policy orientation, the regime turned to subnational reforms at both the regional and municipal levels. According to Boisier, decentralization was as important a component in the famous "brick" (ladrillo) that laid out the new regime's neoliberal program as was the documents antiplanning stance (Boisier 1994, 29). In the year following the coup, Pinochet introduced thirteen new administrative regions, a national fund to finance regional investment projects (Fondo Nacional de Desarrollo Regional), and new budgetary rules that channeled each Ministry's budget through the regions.8 Neoliberals promoted the regions as a more efficient unit of government than the country's more numerous provinces (Gleisner 1988). In the early 19805, the military regime then introduced a series of municipal reforms, shifting responsibility for education and health care to the municipalities, who were subsequently responsible for running schools, hospitals, and clinics.The result, as seen in Table 5.1, was an important increase in the revenues at the disposal of municipalities. Regional and municipal reforms served two broad neoliberal goals. First, each promised to reduce the importance of the national government and

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Bureaucratic Authoritarianism TABLE 5 . 1

Municipal Revenues in Chile (thousands of 1992 pesos)

Municipal spending per capita Transfers to municipal governments per capita

1970

1980

1992

9.6

11.4

29.2

2.4

2.3

9.6

SOURCE: Yanez and Letelier 1995,185,187.

the Santiago-based apparatus of the central state. The capture by the Socialists of the national government in 1970 had meant that the considerable resources of a highly centralized national bureaucracy could be used to favor political groups who were anathema to the military. Shifting responsibilities to the municipalities had the further appeal of undercutting powerful national unions in the education and health-care sectors in the event of a future democratic transition. The regions also benefited from the antiSantiago bias of the military, as in Pinochet's decision in 1980 to transform the national university system into a series of independent regional universities (Gleisner i988;Valenzuela 1999). Pinochet was interested, however, not just in reducing the role of the central government relative to subnational governments, but also in shrinking the size of the state overall. In this respect, the transfer of schools and hospitals to the municipalities was introduced as a stepping stone toward their eventual privatization. Though education and health care were not completely privatized in Chile—in contrast, for example, to social security—the size of the private sector in each area underwent a significant expansion (Yanez and Letelier 1995, 142). According to some scholars, shifting public schools and hospitals to the municipalities, and subsequently denying them sufficient resources through the tight national control of municipal finances, was a means of encouraging Chileans to "voluntarily" shift toward the private suppliers of these services.9 As in Chile, neoliberal commitments and efficiency concerns encouraged the Uruguayan generals to consider replacing the traditional nineteen departments with a new layer of eight regional governments. Unlike in Chile, however, the experimentation with regions in Uruguay proved to be fleeting, important in the budget for the 1973—77 period but never institutionalized in a way that would enable the regions to survive the end of the authoritarian government (Cagnoni 1979, 187—91). Perhaps the most important subnational experiment under military rule in Uruguay was the introduction of cheap credits and tax breaks to encourage investment in the less developed northern region of the country, similar in spirit to the industrial promotion

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activities of the Argentine generals that are discussed below. Attempts by the military to modernize the North were encouraged by the development in the late ip6os of a powerful and militant labor organization in the region's sugar industry, from which emerged several leaders of the Tupamaro National Liberation Movement.10 Unlike in Argentina, however, which devolved the granting of promotional incentives to provincial governments themselves, the national government in Uruguay retained control over the awarding of these incentives, which lapsed with the return to democracy. Statism in Brazil. Analyses of the subnational dimension in Brazil under the generals focus on two events: the centralization of taxing authority in 1967 and changes in the terms of revenue transfers that favored the states after the defeat of the military-sponsored party in the 1974 elections. While these events are key, they do not exhaust the changes experienced by the states under military rule. Over the course of the two decades that the military governed in Brazil, the states witnessed the equally important but somewhat less visible expansion of such institutions as state universities, stateowned banks, and state-owned enterprises.11 For the most part, it is not the case that the military government created new institutions in these areas, but rather that it presided over their expansion in the aggressive pursuit of such goals as modernization and industrialization. In the area of education, the military presided over a massive increase in expenditure on higher education and earmarked revenues from a new tax on wages expressly for the use of the states. In the area of enterprises owned by state governments (estatais estaduais), as seen in Chapter 3, it was in the 19505 that the parastatal sector began its development (Prado 1996, n). According to the vision implemented by the military, however, the states would experience an expansion in the size and number of assets and enterprises under their control, while state officials themselves would have no real political autonomy from national authorities. By 1979, fifteen years into the military period, the number of enterprises owned by subnational governments (456) was more than twice the number of enterprises owned by the federal government (198) (Trebat 1983,38). The expansion of subnational state-owned enterprises varied significantly across sectors. For example, the military government allowed a much greater degree of participation by the states in the electricity and transportation sectors than in oil (Petrobras) and telecommunications (Telebras).12 In the electricity sector, in particular, states retained their own capital and "local political and bureaucratic interests penetrated the parastatal s decision making process" (Prado 1996,22). Brazil experienced significant growth in its capacity to generate electricity under military rule, and Table 5.2 shows the important role played in this expansion by state governments.

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Bureaucratic Authoritarianism TABLE 5.2 Installed Capacity in the Electric Sector in Brazil: State-Level versus Federal-Level SOEs (in megawatts)

1962 1965 1970 1973 1976 1979 1980 1981 1982

Capacity generated by state-level SOEs (A)

Total capacity generated by all SOEs (B)

384 1,884 3,527 6,133 9,178 12,670 15,557 16,977 18,047

5,729 7,411 10,405 15,625 21,796 28,386 31,735 37,281 38,904

Percent of total capacity by state-level SOEs (A/B) 7% 25 34 39 42 45 49 46 46

SOURCE: Villela 1984,41.

In addition to cross-sectoral variation, the experience also differed from one state to the next. According to Kugelmas, Sao Paulo experimented with the establishment of ten different state-owned enterprises for ten different regions within the state.13 It is not the case, however, that the expansion in the parastatal sector occurred only in the larger and more developed southern states; poorer states participated in the changes as well. Due to the participation of the states in state-owned enterprises, the enormous expansion of these enterprises in the military period translated into increased revenues for subnational governments. According to several scholars, revenues from the parastatal sector served to partially compensate states for the centralizing changes in taxing authority that the generals instituted in 1967 (Lopreato !997> 955 Prado 1996, 34). In addition to the estatais estaduais, state governments also entered directly into partnerships with foreign capital, including Fiat in the state of Minas Gerais and Union Carbide in Sao Paulo (Evans 1979,228,230). Statism and Neolibemlism in Argentina. While military governments in Brazil, Chile, and Uruguay differed in their pursuit of either statist or neoliberal projects, the relative coherence of economic reforms by military governments in these three countries differed dramatically from the two Argentine regimes. The seven-year Revolucion Argentina and Proceso regimes were fraught with disputes between and within the different services of the armed forces over the proper economic policy orientation. In particular, economic liberals (ortodoxos), who maintained close ties with transnational capital and

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sought to reduce state intervention, repeatedly clashed with economic nationalists, who favored preferences for domestic industry and defended trade protection (Peralta-Ramos 1990; Smith 1989).This lack of cohesion significantly hindered "the ability of the new governing elite to put forward a vision of a new political order and to design the institutions that would embody this vision" (Munck 1998, io).The incoherence and volatility that resulted at the national level can be clearly seen to have spilled over into the provincial arena. While the need to alter subnational institutions was never as well developed in Argentina as it was in Brazil and Chile, the provinces were nevertheless important tools in the fierce and ultimately unresolved conflicts within the Argentine military. During the Proceso government, the extent to which contradictory impulses pulled subnational governments in different directions was particularly pronounced. On the one hand, the neoliberal drive that dominated in the first presidency of Jorge Videla (1976—81) led to important changes in provincial finances. In the attempt to enhance market-driven growth and reduce wage costs, the Videla government abolished employer contributions to the national social security system and made up the lost revenues by imposing a 44 percent cut in provincial transfers (Eaton 2OOib, 28). Further, in a move that paralleled Pinochet's attempts to reduce the salience of the national government and national unions in Chile, the Argentine military government also transferred expenditure responsibilities for education and health care to the provinces (FIEL 1993, I 45)- On the other hand, even as the government was seeking to impose liberalism by force, it also embarked on a series of changes in provincial tax policies that significantly expanded the ability of provincial governments to intervene in the economy (Azpiazu and Basualdo 1990). In 1979, 1982, and 1983 the federal government delegated to a set of lesser-developed provinces the right to grant federal tax breaks to companies that would relocate from the more advanced parts of the country. As a result, according to Macon, this "pro-market" military government outdid its avowedly interventionist predecessors in using tax breaks to promote favored industries in select interior provinces (Macon 1985, 161). Enabling the provinces to grant long-term exemptions from federal taxes caused heavy revenue losses well into the 19905, posing a significant problem for the Alfonsin and Menem presidencies (Eaton 2001 c, 113). This inconsistent mix of liberal and statist measures in Argentina stands in stark contrast to the more consistent pursuit of neoliberalism in Chile and statism in Brazil. MILITARY INTERACTIONS WITH POLITICAL AND CIVIL SOCIETY AT THE SUBNATIONAL LEVEL

Not only were subnational governments relevant to the search for effective economic development strategies, they also figured prominently in efforts by

126

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military-led governments to alter established features of each country's political system. On one level, subnational reforms enabled the regimes to connect with actors outside the military, and at a deeper level, the design of new subnational political institutions lent the military the means to reward regime supporters and penalize regime opponents. Following Linz and Stepan, I find it useful to distinguish between political society and civil society in analyzing how military regimes used the subnational realm in their attempts to remake political life (Linz and Stepan 1996, 8). As Linz argued, two of the defining features of authoritarianism that distinguish it from other non-democratic regimes are its limited pluralism and the absence of extensive or intensive forms of political mobilization (Linz 1974,264). Thus, while the repression and torture of politicians and others were the hallmark of these regimes, one can also identify important attempts to establish connections with elements of political society at the national and subnational levels. With respect to civil society, as Gillespie argued, "military regimes born of a state of exception must seek to regularize their forms of interaction with civil society, restoring the links through which information flows to decision makers and, eventually, by which assent is granted by citizens to state policies" (Gillespie 1991, 50). Though the experiences of the five regimes vary considerably, it is possible to identify some of the more generic reasons that made the subnational level particularly attractive to de facto authorities at the center. First, reaching out to politicians and groups at the subnational level offered a less visible way of seeking out acceptable interlocutors in political and civil society. Compared to the national level, the stakes associated with subnational overtures were much reduced, which was a considerable advantage given that the desire to engage in such overtures was often highly tentative and had often produced considerable conflict within the governing regime (O'Donnell and Schmitter 1986). Second, it was often possible for military regimes to find supporters among political and civil society in the less developed, less industrialized, and more traditional interior regions of the country. Though their positions on state-led industrialization differed, each of the regimes sought changes that harmed industrial workers and thus alienated important urban constituencies. Indeed, as Munck argues, the refusal to "politically acknowledge the interests of labor" represented a major challenge to the effort to found a new political order (Munck 1998, 25). In this context, the search for possible supporters in more conservative, subnational regions was especially attractive to these regimes, though by no means was it able to serve as a lasting substitute for the labor groups that had been excluded from the political system. Uruguay is the important outlier here. The Uruguayan military did not see subnational political institutions as relevant to their attempts to weaken

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the country's traditional political parties, unlike their counterparts in Argentina and Chile. Nor did they approach the redesign of subnational institutions as a means of creating new coalitions to support military rule, as occurred in Brazil. I argue that the absence of more robust political reforms at the departmental level during Uruguay's BA period is a function of the greater problems its military faced in formulating and implementing a foundational project. In the critical years that followed President Bordaberry's military-supported self-coup in 1973, an important policy stalemate developed, as the generals consistently opposed Bordaberry's corporatist proposals before finally ousting him in 1976 (Caetano and Rilla 1987, 37). Although the military proceeded to write a new constitution that included some subnational changes, this constitution was defeated in a referendum in 1980, a major setback for the generals that forced them to begin negotiations over their withdrawal from power (Gillespie 1991, 74).The contrast with the successful revision of the Chilean constitution by the military that same year, which made possible a considerable amount of subnational institutional engineering, is particularly sharp. Controlling Civil Society in Chile. Unlike the Argentine and Brazilian experiences discussed below, the authoritarian regime in Chile was relatively uninterested in engaging with subnational political society. Instead, Pinochet identified the subnational level as the preferred arena for engaging with and controlling civil society. The redesigning of institutions to give voice to regime supporters within civil society took place at both the municipal and regional levels. At the municipal level, when the junta abolished the municipal councils in 1973, it concentrated all of the council powers in the hands of mayoral appointees, who were typically retired members of the armed forces. Beginning in the late 19705, however, the regime created new municipal bodies designed to channel social participation that it called Councils for Communal Development (Consejos de Desarrollo Comunal). Intended to channel the participation of the so-called "organized community," these councils were composed of such groups as business associations (gremios), labor groups, neighborhood organizations, and youth and cultural organizations. According to a number of scholars, in practice the organizations that participated in the CODECOs were all political supporters of the military government (Abalos i994;Valenzuela 1999). By the end of the regime, Pinochet charged the CODECOs in most municipalities with the task of appointing mayors. Although the CODECOs did not have independent decision-making capacity, they represent one of the most explicit attempts by the regime to engage with civil society. The pursuit of new institutional channels for regime supporters in civil society also played out at the regional level. Subsequent to the division of

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the country into thirteen new administrative regions in 1974, the military government designed a new institutional infrastructure at the regional level as well. Specifically, it created Regional Development Councils (Consejos Regionales de Desarrollo) that, like their counterparts at the municipal level, were composed of regime supporters and organized along corporatist lines. According to Lira and Marinovic, the authoritarian government hoped that these regional councils would replace political parties as the chief intermediaries between civil society and the state (Lira and Marinovic 2001,134). Considering institutional innovations at both the regional and municipal levels, one can conclude that Pinochet went much further than the generals in Brazil and Argentina in terms of redesigning the relationship between civil society and the state. Furthermore, within Chile, in attempting to alter the relationship between the state and civil society, the engineering of new institutions proceeded further at the subnational level than at the national level. Rewarding Subnational Supporters in Brazil In contrast to the prominence of attempts to engage with subnational civil society in Chile, it was political society at the subnational level that received the most attention from the generals in Brazil and Argentina. Attempts by the military to reengineer political society at the subnational level, however, were more coherent, consistent, and central to the authoritarian project in Brazil than they proved to be in Argentina. As a reflection of this difference, actors and events at the subnational level have appeared much more regularly in the literature on the Brazilian military regime (Abrucio and Samuels 2001; Hagopian 1996; Samuels 2OOOa; Seabra 1997). In part, the salience of subnational actors is due to the reality that the federal legislature remained open even after the military seized control of the executive branch. According to Camargo, "The functioning of Congress during the military regime, unusual in the continent, facilitated a mix of regionalist alliances and semi-federal strategies" (Camargo 2001, 316). In addition to the federal Congress, the use of direct municipal elections and indirect gubernatorial elections further ensured that subnational politicians would not disappear during the dictatorship. It is not the case, however, that the military engaged with subnational politicians merely because its interest in democratic rituals guaranteed the continuance of subnational political society. Subnational actors used the regime's limited pluralism to push for favorable policies from below, but just as important are attempts to use subnational political society in founding a new order "from the top down." Specifically, the regime sought to alter the political system by redesigning institutions in ways that would favor regime supporters and constrain opposition to the regime. From the beginning of the military period, one of the chief challenges for the generals was how to overcome opposition to an extended period of military rule that was con-

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TABLE 5.3 Federal and State Revenue Transfers to States and Municipalities by Regional Shares in Brazil, 1983 (percent) Federal transfers to states

Federal transfers to municipalities

State transfers to municipalities

Percent of national population, 1980

North

14.8

6.1

1.9

4.9

Northeast

42.5

33.7

13.3

29.3

Center-South

24.2

34.7

60.7

43.5

South

10.7

17.6

18.9

16.0

SOURCE: Selcher 1989,172.

centrated in the states of the more advanced and industrialized South and Southeast. In a move that replayed the strategy of Getulio Vargas thirty years before, they did this by playing to politicians in the states of the North and Northeast. The most important example of this interregional favoritism was the new revenue-sharing system adopted subsequent to the 1967 centralization of taxing authority. According to Rezende, the political purpose of the redistributive criteria adopted in 1967 was to assure political support for the regime by smaller and poorer states and municipalities (Rezende 1996, 228). Table 5.3 documents the redistributive quality of revenue sharing under the generals, with the North and Northeast receiving 57.3 percent of all transfers when they comprised only 34.2 percent of the total population. Another example of institutional design and coalition-building at the subnational level is the military's creation of four new states in the CenterWest and in the North: Acre (1964), Mato Grosso do Sul (1977), Roraima (1980), and Rondonia (1981). The creation of these states in the country's less developed regions, each of which automatically received guaranteed shares of federal legislative seats and federal tax revenues, was designed as a measure that would further limit the power of regime opponents in the more developed states (Camargo 1993, 315). The adoption of these new subnational institutions clearly encouraged redistributive policymaking at the federal level subsequent to the transition. The ability of the military to institutionalize rules that redistributed power within political society at the subnational level is noteworthy, given the emphasis placed in the literature on the many problems the Brazilian regime experienced in attempting to institutionalize itself (Linz 1973).

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Displacing Traditional Parties in Argentina. The same conflicts and lack of cohesion that plagued attempts to foster economic development in Argentina were also reflected in the political objectives of military governments. Whereas the salient economic policy cleavage pitted liberals against nationalists, the attempt to establish new political forms of government generated conflict between military factions that favored representative government and those that favored more corporatist designs. The corporatist faction gained the upper hand with the appointment of Ongania to the presidency in 1966. In the 1966-67 period, the hostility of Buenos Aires to Ongania's corporatist proposals led the regime to search for possible supporters of corporatist institutions in the interior. According to Smith, "The ultimate objective of the provincial strategy was a major state-directed realignment of political forces to destroy the traditional political parties" (Smith 1989, 61). Smith goes on to conclude that "despite their organizational charts and the expenditure of large sums of money, [advocates of corporatism] never achieved anything commensurate with their expectations." While corporatist proposals date back at least as far as the 1930 coup led by Jose Uriburu, advocates of representative government within the military were able to veto corporatism in the 19605, just as they had done in 1930 with the replacement of Uriburu by Agustin Justo (Rock 1987, 218). Shortly before the May 1969 Cordobazo uprising that signaled the beginning of the end for Ongania, the president proposed another unsuccessful plan to build corporatism in the provinces. According to this plan, which was referred to as consejalismo (councilor-ism), "provincial governors and local notables would erect new political structures to link the state and society by means of so-called 'intermediate groups' " (Smith 1989, 63). The idea of using the provinces to displace traditional parties resurfaced during the Proceso regime in the late 19705 and early 19805. Over the course of this period, conflict developed between soft-liners who were willing to engage in conversations with conservative provincial politicians and hardliners uninterested in dialogue with any elements of political society. For military hard-liners, conservative provincial politicians were associated "with the conservative legacy of political abdication that had brought on the era of populist politics," and were thus deemed a "threat to the Proceso's mission of radical political transformation" (Gibson I997a, 81, 82). In the early years of the regime, with hard-liners in the ascendant, provincial dynamics were mostly irrelevant. As seen in Gibson's study of the military's attempt to forge a "conservative transition," however, the subnational realm became more important with the initiation of a political opening in the late 19705 and with the replacement ofVidela by Roberto Viola in 1981.14 As in the 19605 military regime, the attempt to design and institutionalize a new political order that would favor conservative provincial parties over Peronist

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and Radical politicians proved to be a failure (Gibson I99ya, 77). Subsequent to the hard-line coup of December 1981 and the unsuccessful invasion of the Falkland Islands in 1982, democratization the following year took the path of reinstating pre-1976 political institutions rather than establishing new institutions that would favor the regime's conservative provincial supporters. On the Defensive: Subnational Changes in Anticipation of Democratic Transitions When military governments retreated from their initial attempts to found and institutionalize new military-led political orders, as they eventually did in each country, Subnational strategies in four out of the five regimes played a critical part in the more defensive postures they adopted. The one exception is Uruguay, where the absence of important Subnational reforms in the offensive stage of military rule served to keep similar reforms off the table in the subsequent defensive stage. In this section, I argue that military governments acting in a defensive mode used the Subnational realm to achieve a number of objectives. In Chile, the identification of a defensive period is somewhat difficult, with Pinochet more able to dictate the terms of the transition than his counterparts in most other cases of authoritarian withdrawal (Haggard and Kaufman 1992). Nevertheless, I argue that Subnational reforms bolstered Pinochet's successful attempt to weather a deep economic crisis in 1982 and growing societal opposition in the wake of that crisis. Over the course of the lengthy period of political opening (abertura) that began in Brazil in 1974, the generals used their control over revenue transfers to the states to help them control both the pace of the democratic transition and policy outcomes in the subsequent democratic period. In the case of the Argentine Revolution, once the return to democracy became a foregone conclusion, the outgoing military government employed decentralization as a way to shape the democracy that replaced it in 1973. DELAYING AND CONTROLLING THE TRANSITION IN CHILE: 1982—1990

One of the most politically difficult moments for the Pinochet regime over the course of its seventeen-year rule was the aftermath of the 1982 debt crisis, which proved to be deeper in Chile than anywhere else in Latin America. For the first time in nearly a decade, the crisis forced Pinochet to engage in a dialogue with a series of groups he had previously ignored for the most part (Silva 1998, 231).While the literature has tended to emphasize the national dimensions of this dialogue (as well as its suppression, once the economy improved), there is also a Subnational component to the story of how Pinochet weathered the crisis. According to Martelli, Pinochet used

132

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neighborhood councils (juntas de vecinos) within the municipalities as a way of channeling important social-compensation funds to groups and individuals whose opposition he needed to prevent from emerging.15 In 1983, for example, the worst year of the debt crisis, 12.3 percent of the workforce was employed in public-sector employment programs run through the municipalities. The patronage opportunities afforded municipal officials would prove to have important consequences down the line. In 1988 Pinochet used municipal officials extensively in campaigning for the plebiscite on his continued rule (Valenzuela 1999, 106). Subsequent to the transition, many of the leading politicians who emerged on the right got their beginnings as appointed mayors during the military period. In 1988 Chileans voted against the continued rule of Pinochet, a defeat that led to the initiation of a transition culminating in the 1989 electoral victory of the opposition Concertation of Parties for Democracy (Concertacion de los Partidos por la Democracia). In the time that elapsed between the 1988 plebiscite and the 1990 return to democracy, the outgoing authoritarian regime introduced a number of institutional changes designed to protect the interests of the military and favor the regime's supporters in political society, namely, the two parties of the Right. While most of this institutional tinkering took place at the national level (Boylan 2001; Siavelis 1997), in at least one case, institutional changes in anticipation of the coming transition involved the subnational governments.16 In 1989 the regime introduced a new Law of the Entrepreneurial State that, among other things, explicitly prevented regional and municipal governments from acquiring their own property (patrimonio propio).This reform was designed as a means of ensuring that, in the likely return to power by the center-left political opposition at the subnational level, Pinochet-era reforms could not be turned in a statist direction.17 PLAYING TO THE G O V E R N O R S IN BRAZIL: 1974-1985

If in the first decade of its rule, "subnational statism" lent itself to the Brazilian military's development objectives, in its second decade subnational actors proved just as important to the military's gradual process of political liberalization. According to the sizable literature on this period, the centralizing dynamic set into motion with the 1964 coup was arrested by the victory of the opposition party in legislative elections at both the state and national levels in 1974 (Hagopian 1996; Sallum 1996). In response to the defeat of candidates of the governing ARENA Party, the military began to cede powers to state governors beginning in the mid-1970s (Abrucio and Samuels 2001). According to Abrucio and Samuels, this change in the political environment led to important decentralizing reforms. First, in an attempt to court the governors, the military doubled the revenue shares of the states

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and municipalities in 1975. Second, it reduced the scope of earmarking in 1979, effectively granting a much greater degree of autonomy to state-based political elites.Third, the Passos Porto Amendment in 1983 further increased the states' and municipalities' shares in federal tax revenue. Finally, and perhaps most importantly for subsequent events, the military decided to hold direct gubernatorial elections in 1982, seven years before the return to direct presidential elections. According to a number of scholars, the privileging of subnational political realms by the military created a democracy in which subnational interests regularly prevail over national ones (Hagopian 1996; Mainwaring 1997; Samuels 2003). Specifically, the direct election of governors gave the victors in these elections a great deal of legitimacy within the still non-democratic national framework. These governors enjoyed significant leverage in the subsequent election of members to the Constituent National Assembly in 1986 that codified many of the advantageous fiscal deals secured by the governors in the post-1974 period (Souza !997» 59)-The political power of governors over the deputies who participated in the Constituent Assembly is reflected in increased taxing powers for subnational governments, the further removal of earmarks, and five constitutionally mandated revenue-sharing schemes (Abrucio and Samuels 2001; Shah 1991). PREEMPTIVE MILITARY DECENTRALIZATION IN ARGENTINA: 1970—1973 After the failure of Ongania's halfhearted attempt to create a corporatist republic and Roberto Levingston's brief succeeding government, the military appointed Alejandro Lanusse to the presidency in 1970. At the time of his appointment, the military-as-institution had decided to withdraw from power and assigned Lanusse the central task of designing the transition back to democracy (Luna 1975, 214). Inviting formerly excluded actors in political society to engage in a Great National Agreement (Gran Acuerdo Nacional), Lanusse engaged in a series of on-again, off-again negotiations with the opposition. The central issue in these negotiations concerned whether and how the Peronists would be allowed to participate in the upcoming elections. While some elements in the armed forces opposed the return of Peron, leading Lanusse to keep secret the visits of his emissary to Madrid, others saw Peron as the one leader who could stem the growing radicalization of the political Left. Ultimately, Lanusse barred Peron himself from running, by imposing a residency requirement, but let the party participate freely in elections held in October 1972. In the brief but critical interim between the sweeping victory of Peron's handpicked candidate, Hector Campora, and Campora's ascent to the presidency, the military decreed an ambitious fiscal decentralization law.

134

Bureaucratic Authoritarianism TABLE 5.4 Effects of the 1973 Revenue-Sharing Reform in Argentina Revenue shares by type of province

1971

1973

Change in percentage

Percent of total population

Revenue shares per capita by type of province

1971

1973

Change in percentage

59.4

52.5

-11.6

72.4

82

73

-11.0

Low density

7.7

9.1

+18.2

3.8

203

239

+17.7

Intermediate

14.9

16.5

+10.7

11.4

131

145

+10.7

Underdeveloped

18.0

21.9

+21.7

12.4

145

177

+22.1

Advanced

SOURCE: Based on data in Nunez Minana and Porto 1983, 37.

In a number of ways, the 1973 law served to check the incoming Peronist government, both by reducing the revenues at its disposal and by shifting resources to more conservative provincial jurisdictions (Saiegh andTommasi 1998).18 First, the law incorporated the historic demand of the provinces for an equal share in federal tax revenues. According to the legislation, the federal government would be bound to share 50 percent of the taxes it collected with the provinces, keeping only 50 percent for itself. Second, the law stipulated that any new taxes subsequently imposed by the incoming government would necessarily form part of the revenue pool subject to provincial transfers. Thus, if Peron repeated his earlier advocacy of new forms of taxation on agricultural lands, for example, he would be forced to surrender half the revenues to the provinces. Third, the law systematized the use of such redistributive criteria as poverty levels and unsatisfied basic needs in the division of revenues between the provinces, which would favor jurisdictions that are politically more conservative and traditional, as is seen in Table 5.4. Though the decentralization law was the end result of a lengthy series of technical discussions and cannot be reduced to politics alone, the timing of its adoption displayed a clear political logic as well, serving to limit the possible damage done by electoral results the military was unable to prevent. The subnational dimension was less salient in the 1983 transition than it had been in the transition that took place ten years earlier. For the most part, this difference can be explained by the much more rapid nature of the 1983 transition, marked by the absence of any sustained negotiations between representatives of the outgoing regime and the democratic opposition. Attention to the defensive activities of the generals as they prepared for their sudden withdrawal has centered mostly on the decree-laws that granted amnesty for possible human rights abuses committed in the "war against subversion." But the caretaker government of General Reynaldo Bignone also issued a decree-law that would have important subnational implications for the con-

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temporary democratic period in Argentina. Specifically, this law raised to five the minimum number of representatives that each province could send to the federal chamber of deputies (Porto 1990, 183). Thus, like its counterpart in Brazil, the military government in Argentina sought to give more traditional and conservative subnational jurisdictions enhanced leverage within national decision-making arenas in the new democratic systems that replaced the generals. Departures from the proportionality rule certainly predated the Proceso, but the worsening of malapportionment should still be considered one of the only attempts to redistribute power among the provinces that succeeded. Conclusion According to the literature on decentralization, democracy is a necessary condition for reforms that are truly decentralizing. Without subnational elections, it is simply too easy for the national government to control the subnational officials who have formally received new resources and responsibilities from above. The analysis presented in this chapter does not dispute the importance of this distinction, but it does suggest that democracy is not a necessary condition for reforms that enhance the institutional capacity of subnational governments. The uneven but undeniable expansion of subnational capacity on the military's watch (e.g., subnational statism in Brazil, provincial control over federal tax breaks in Argentina, the devolution of schools and hospitals in Chile) offers powerful evidence that we cannot dismiss authoritarian periods of government as exclusively centralizing ones. In addition to demonstrating that illiberal regime changes are not consistently centralizing, the authoritarian periods surveyed in this chapter also show that illiberal changes in economic development strategies do not always end up wresting power away from subnational governments. The most important case is that of Brazil, where the deepening of statism came coupled with changes that expanded subnational authority over state-owned enterprises. More generally, the military periods show that many intervening variables determined the impact of development strategies on subnational institutions, including the length of the offensive period and the relative coherence of decision-making procedures within the military. In Uruguay, due to the early failure of the generals' foundational project, neoliberal proposals that touted the efficiency of regional governments simply failed to take root. In Argentina, factional disputes within the armed forces over economic policy resulted in a contradictory series of subnational changes that simultaneously promoted and undermined the neoliberal project. I have argued in this chapter that non-democratic national governments could and did move to strengthen subnational institutions in a variety of

136 Bureaucratic Authoritarianism dimensions precisely because they controlled the subnational political actors who would operate these institutions. If, in the language of principal-agent models, military principals experienced no agency loss when they strengthened subnational capacities, this situation changed dramatically and immediately once elections were reintroduced at national and subnational levels. Even when negotiations over the transition did not change what mayors and governors could actually do, the "mere" reintroduction of elections automatically invested military-era reforms with new political meaning. Newly elected national officials had to contend with the reality of newly elected subnational officials who came into offices that had been changed relative to earlier democratic periods. In other words, where generals experimented aggressively with subnational reforms, they managed to put their countries on new institutional paths. In Chile, Pinochet s decision to transfer important responsibilities to the municipalities set important political changes into motion once municipal elections were reinstituted in 1992. Indeed, the extent of the increase in subnational capacity in Chile probably exceeded the Argentine and Brazilian cases by a considerable margin. While powerful governors reemerged in Argentina and Brazil in the 19805 and 19905, in Chile the new stature of municipal officials in the post-1990 period represents a fundamental break with the past. Whereas municipalities focused on relatively insignificant services before the coup, in the 19905 the responsibility for such critical services as education and health care dramatically enhanced the governing capacity of (and political opportunities for) mayors.The national government still keeps municipal authorities on a tight financial leash (Marcel 1994, 106), but the political salience of the services devolved by Pinochet works as an important asset for mayors in their constant negotiations with Santiago for additional funds. As I argue in Chapter 7, one of the undeniable consequences of Pinochet's "municipalization" campaign in the 19805 was to make mayors more politically independent from their parties and important within them in the 19908. Considering the failure of six attempts to create regional governments in the pre-1973 democratic period, and their increasing importance in the post-1990 period, the Pinochet regime also proved to be a critical juncture at the subnational level by creating the thirteen regions.Though regional councilors are currently only indirectly elected and enjoy limited powers, the introduction of new democratic space at the regional level has nevertheless created problems for important actors in the national government, including national legislators. In Brazil, the return to direct gubernatorial elections in 1982 infused subnational statism with a different sort of political significance. Governors in many states, and particularly in a few larger states, reemerged from the military period with enhanced governing attributes relative to the pre-1964

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period, thanks to the expansion in state-owned enterprises, state banks, and state universities. According to one analyst, before the wave of privatization began, the number of employees in the consolidated public sector of the state of Sao Paulo in the 19808 was roughly equal to the total number of federal government employees.19 The 1982 elections were problematic for the military, not just because its candidates lost in key races, but because they brought the opposition into subnational offices whose power had increased along with the expansion of the parastatal sector. As long as the military could control political space in the states through indirect electoral practices, subnational statism represented no challenge to the authority of the federal government. After 1982, however, subnational reforms by the military did present real problems for the federal government, setting the stage for what has been an important conflict in recent years between the states and the center over the prerogatives of each. The impact of military reforms on post-authoritarian politics was strong but short-lived in Argentina's ill-fated democracy between 1973 and 1976. Thanks to the fiscal decentralization law of the outgoing military government, the three Peronist presidents who served in this period (Campora, Peron, and his widow, Isabel) were obliged to share half of federally collected revenues with the provinces.Though most provincial governors were Peronists and strong supporters of Peron, in the context of the increasing fragmentation of the Peronist Party in this period, the provinces' independent stake in 50 percent of federal revenues was a considerable boon to the governors. Subsequent to the 1983 transition to democracy, the military's decision to devolve control over federal tax breaks to certain provinces had a less widespread but longer-lasting effect. Once appointees of the federal government no longer governed in the provinces, the ability of separately elected governors to grant exemptions on federal taxes after 1983 became highly problematic for the federal government. With nothing to lose and considerable investments, jobs, and provincial tax revenues to gain, provincial authorities were less than selective in granting federal incentives. Not only did the indiscriminate use of this authority generate inflationary pressures by reducing federal revenues, but the military's arbitrary selection of the four provinces that received this authority led to widespread tax evasion that further eroded revenues (Artana, Duarte, and Soto 1986). While the military's promotional incentives made sense so long as the military governed, once elections were reintroduced for federal and provincial offices, these incentives directly contributed to the dramatic fiscal crisis that ravaged Argentina in the late 19808. As these examples demonstrate, the significance of the expansion in subnational capacity under military rule was not uniform across the four countries. In their respective pre-authoritarian periods, subnational officials had

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enjoyed greater powers in Brazil than in Argentina, and governors in both had far superior powers than subnational officials in Chile and Uruguay before 1973.Thanks to these different starting points, it is in Chile that authoritarian reforms of subnational government represent the most dramatic departure relative to earlier patterns. But the key point here is that in each case, military reforms below the national level altered the subnational institutions that contemporary democracies have inherited. Thus, the subnational realm offers further illustration of the dynamic identified by Hagopian, namely, that when democracies reemerged in the 19805 and 19905, they did not merely pick up where preceding democracies had left off (Hagopian 1993). These contemporary democracies, and their experiences with decentralization, are the subject of the next two chapters.

CHAPTER

The Reemergence of the Governors in Argentina and Brazil

6

PART iv OF THIS BOOK focuses on the changes introduced to subnational institutions in the aftermath of the generals' withdrawal from power in the 19805 and 19908. In the four countries included in this study, re-democratization has profoundly affected the distribution of political authority and governing capacity between different levels of government. In Chile and Uruguay, as the following chapter shows, it is the redistribution of political authority rather than governing capacity that has represented the most important arena for change at the subnational level. In these two countries, changes in the electoral rules that are used to constitute subnational governments have emerged as the most significant form of decentralization, in contrast to the policymaking attributes that national politicians have jealously guarded. In Argentina and Brazil, the opposite is true, in the sense that change in the distribution of governing capacity has been far more important than change in the formal distribution of political authority. In the third wave, neither country has engaged in a serious debate over how subnational governments should be constituted; instead, the weight of the governors in earlier periods meant that the return to their direct election was a foregone conclusion when these countries re-democratized in the 19805. Both countries, however, have witnessed important debates and critical changes in what subnational officials can actually do and with what type of resources, which is the subject of this chapter. While conflict over the design of subnational institutions is nothing new, as demonstrated in Parts 2 and 3 of this book, in the contemporary period these institutions have had particularly important consequences for the major debates of the day. Each country has experienced wrenching political and economic transformations in the past twenty years, and the design of

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subnational institutions has been cause and effect of many of these transformations. For example, democrats in Argentina and Brazil promoted decentralization as a reform that would correct what they saw as the centralizing abuses of the preceding authoritarian regime; particularly in Brazil reformers understood decentralization and democratization to be integral parts of the same process of political opening. Just as certainly, however, decentralization has posed significant obstacles for the consolidation of new economic models based on fiscal austerity and macroeconomic stability, thanks to the particular form that decentralizing measures took in each country in the 19805.l Attempts to institute a new era of price stability in the 19905 led to aggressive re-centralizing drives, and in each country struggles over the redesign of subnational institutions consumed a tremendous amount of political capital from both national and subnational officials alike.2 Considering the pressing developmental challenges that continue to face both countries, the opportunity costs of time-consuming and divisive struggles over decentralization and re-centralization should not be underestimated. Making sense of two decades of change in Argentine and Brazilian subnational institutions is no easy task because these changes have been both complex and frequent. At times in the last twenty years, the design of subnational institutions has been the subject of almost constant political negotiations between federal and subnational officials. When one disaggregates "subnational governing capacity" into its component policy areas, it quickly becomes clear that each country has introduced a daunting number of changes in the contemporary democratic period. Relevant rule changes have affected everything from federally imposed reserve requirements on subnational banks to specific conditions placed on federal revenue transfers, from limits on subnational tax bases to regulations affecting the size of subnational public-sector payrolls. Many of these changes are quite opaque and subject to a level of detail that makes it difficult to determine the net impact on the balance of authority between levels of government.3 Decentralizing changes along one policy dimension have occurred simultaneously with centralizing changes along another. As scholars have noted, complexity in the structuring of subnational institutions is often intentional, the result of politicians on both sides of the struggle attempting to obscure the impact of changes on groups likely to be adversely affected (Manor 1999; Willis, Garman, and Haggard 1999). Examining the design and redesign of subnational institutions in Argentina and Brazil in the last twenty years reveals what is in many respects a similar pattern. Both countries adopted sweeping decentralizing measures either in the course of the transition (Brazil) or in its immediate aftermath (Argentina). In both countries, changes that privileged the expansion of revenue transfers over the expansion of subnational expenditure responsibilities

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directly reflected the political power of the governors. Gubernatorial authority over national legislators and within their parties (Willis, Garman, and Haggard 1999), combined with a transition that returned to pre-coup political institutions, goes a long way in explaining the common path of decentralization in each country. While governors pushed revenue transfers to new highs in Argentina and Brazil, what is perhaps more significant is that in neither case did governors use the transition to break with the institution of revenue sharing inherited from previous periods. In both countries, the generous revenue measures adopted in the 19805 contributed directly to worsening economic crises in the late 19805 and early 19905 and, ultimately, to hyperinflation. According to the opinion of a broad set of experts in both countries, the basic design of decentralizing measures adopted in the 19805 had clear and pernicious effects on macroeconomic balance and price stability (Carciofi 1990; FIEL i993;Lopreato i99y;Rezende 1996).Thus, contemporary Argentina and Brazil lend themselves well to a critical consideration of the two hypotheses based on regime change and development strategies that were presented in Chapter i. Both countries confirm the decentralizing potential of subnational elections when subnational officials also happen to be important actors within their parties. But the cases challenge the view that underlying liberal shifts in development strategies are the chief cause of decentralizing changes in subnational institutions. In fact, the opposite dynamic is clearly at play in each country: by contributing to profound economic crises, it is revenue decentralization in the 19805 that ultimately facilitated the rupture of statism in the 19905. While the structural position of governors within their parties helps us to understand how subnational institutions changed in the 19808, it is less helpful in explaining what transpired in the wake of decentralization (Montero 2OOia). In the 19905 in both countries, energetic, reformist presidents pushed for re-centralizing changes in the attempt to achieve and defend macroeconomic stability. In each case, their ability to do so led to historic reelections: Carlos Menem in 1995 and Fernando Henrique Cardoso in 1998.4 Thus, the wave of decentralizing measures in the 19805 gave way to important changes that chastened the governors by limiting their range of action and by shifting control in numerous policy areas back to the federal government. Key centralizing reforms include reductions in revenue transfers and the privatization and/or federalization of banks and enterprises formerly owned by subnational governments. In addition, national politicians in each country designed the transfer of expenditure responsibilities over services like schools and hospitals in ways that reduced the decision-making autonomy of subnational actors by imposing on them the spending preferences of the national government. The outcome of re-centralizing efforts has been

144 The Third Wave of Democracy notably uneven, with federal authorities in both countries enjoying greater success over the privatization of subnational assets than over the rescinding of revenue-sharing obligations. As I argue in this chapter, a variety of factors highlighted in Chapter i explain the outcome of re-centralizing efforts, including the shift from divided to unified partisan control of the executive and legislative branches, and conflicts between the governors that complicated the maintenance of a united front in the response to centralizing proposals. Federal—Provincial Relations in Argentina's Contemporary Democracy In sharp contrast to Brazil, the transition to democracy in Argentina in the 19805 did not incorporate systematic changes in the structure of federalprovincial relations. Whereas the design of subnational institutions figured prominently in the bargaining that occurred between the democratic opposition and the outgoing generals in Brazil, the discrediting of the Argentine generals subsequent to their economic and military defeats precluded any sustained bargaining process over institutions in Argentina. Over the course of the following two decades, however, the design of federal—provincial relations has consistently attracted the zeal of reformers, emerging as one of the most important areas of political conflict and a central issue in the national reform agenda. Features of the country's revenue-sharing procedures have been particularly problematic. In the late 19805 they played havoc with the ability of then President Raul Alfonsin to stabilize the macroeconomy, contributing in turn to his early departure from power in 1989. In the late 19905, revenue-sharing rules similarly limited the flexibility of the federal government in its attempt to respond to the country's deepening economic crisis, contributing in turn to the early departure from office of President Fernando De la Rua in 2001. In Argentina subnational institutions that would enhance economic growth and promote fiscal responsibility have proved to be quite elusive. The following discussion of key subnational changes evaluates three distinct periods: first, the adoption of decentralizing measures in the wake of re-democratization in the 19805; second, the imposition of changes that limited provincial autonomy in the first half of the 19905; and third, the continued conflict over revenue transfers in the remainder of the decade. REVENUE DECENTRALIZATION IN THE FIRST DEMOCRATIC ADMINISTRATION! 1983-1989

In Chapter 4 I argued that presidentialism helps explain the adoption of radical decentralization in the 18905 by the Chilean Congress, which calculated that it could best constrain the power of the president by shifting power

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to subnational governments. Presidentialism is likewise a critical part of the explanation of why and how decentralization took place in Argentina during the first democratic administration of Radical President Raul Alfonsin. However, while the decision to decentralize in Chile was a top-down affair in which subnational actors were largely absent, in Argentina it was governors within the Peronist Party who pushed from below for the legislature to decentralize as a reform that would simultaneously benefit them and check the Radical president. A situation of divided government that put the Peronists in control of both legislative chambers enabled them to force decentralization onto the president in exchange for legislative support on other, shorter-term executive-branch measures. The important analytical point is that parliamentary systems that more regularly produce unified government remove this significant opportunity for the passage of decentralizing legislation. Though the democratic transition itself did not incorporate any reforms of subnational institutions, several key decisions by the military government set the stage for subsequent decentralizing demands. First, as discussed in the previous chapter, the military unilaterally devolved increased responsibilities over health care and primary education to the provinces beginning in the late 19705. Second, it simultaneously cut revenue transfers to the provinces in order to finance neoliberal reform proposals that sharply reduced employer contributions to the national social security system. These decisions enhanced the governors' claims subsequent to the transition that the provinces had been forced to pay for the ideologically driven reforms of the reviled military government and that they needed to be compensated for these military-era changes. Third, before exiting from power, the caretaker government of General Reynaldo Bignone decreed an extension of the 1973 revenue-sharing law, due to expire at the end of 1983 (Nunez Mifiana 1982).Though heavily altered by the Proceso government in ways that were disadvantageous to the provinces, the 1973 law had broken new ground by giving the provinces and the federal government equal shares in the tax revenues of the federal government. Bignone issued a one-year extension to December 1984 in order to give the incoming government time to broker a new revenue-sharing arrangement. The incoming government, however, was fragmented along partisan lines and proved to be unable to agree on reforms of the revenue-sharing system, even after the expiration of the prior law at the end of 1984. Alfonsin's Radical Party held a majority in the lower chamber between 1983 and 1987, but the Peronists dominated in the Senate and held a majority of provincial governorships. Thus, neither party could impose its revenue-sharing preferences on the other party, and compromise in the context of the country's escalating economic crisis proved to be impossible. For three crucial years—

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1985,1986, and 1987—the federal government distributed tax revenues to the provinces, not according to automatic procedures or transparent criteria but according to ad hoc negotiations in which political factors predominated. Divvying up revenues became a highly valued presidential prerogative, one that Alfonsin used in the attempt to build legislative coalitions in Congress. According to the dynamic of these years, Alfonsin and his Economy Ministers negotiated the size and timing of revenue transfers directly with the governors in the attempt to build support for presidential policies among the national legislators whom the governors controlled. Peronist governors bristled at the discretion afforded the president by the ad hoc system of transfers. For example, Carlos Menem, then governor of La Rioja province, proposed that governors declare a state of rebellion in the interior, cutting the supply of energy to the capital, blocking provincial ports, and taking back all powers delegated to the federal government by the federal constitution (Pirez 1986, 68).5 Meanwhile, the Provincial Economy Minister of Chaco accused the Alfonsin government of constructing an "economic dictatorship" with its unilateral control of revenue transfers (Clarin, 4 January 1986). In the deadlocked negotiations over a new revenue-sharing law in the 1984-87 period, the key interlocutors on the Peronist side were the governors, who demanded increasing the provincial share of federal revenues to 56.6 percent. The Peronists arrived at this figure after factoring in the cost borne by the provinces in providing the services that the military had unilaterally devolved. Alfonsin s government balked at this proposal, arguing that despite the transfer of services under the military, "the federal government had taken responsibility for additional costs, including the considerable external debt of the provinces, which more than compensated for service transfers" (Clarin, 10 January 1986).6 What brought this impasse to an end was the Peronists' victory in mid-term elections in 1987, which bolstered the party's control over the lower chamber of Congress and enabled it to impose its preferences on the new revenue-sharing law. This new law increased the provincial share of federal revenues to the exact amount (56.6 percent) demanded by the Peronist governors in previous negotiations and included additional taxes in the revenue pool (FIEL 1993, 151). In addition to increasing provincial shares to an historic high, the 1987 law also served Peronist interests by making revenue sharing much more redistributive. As Table 6.1 shows, relative to earlier legislation, the new revenue-sharing criteria adopted by the Peronists in 1987 penalized the more developed provinces and rewarded the intermediate and underdeveloped ones.Though decentralization limited Alfonsin's authority at the exact moment when he would need all possible tools to build support in Congress, the president signed the bill in exchange for Peronist support for immediate tax increases

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TABLE 6.1 Provincial Revenue Sharing per Capita in Argentina (provincial average — 100) Type of Province

1960

Advanced

1973

1987

83

74

65

Sparsely populated

183

215

192

Intermediate

115

132

149

Underdeveloped

139

161

190

SOURCE: Elaborated from data in FIEL 1993,154.

that the federal government desperately needed. Thus, presidentialism, divided government, and the opportunities afforded governors by democratization are all key in explaining decentralization in this period. MENEM AND THE G O V E R N O R S : IMPOSING LIMITS ON SUBNATIONAL AUTONOMY

If "decentralization from below" in 1987 made it harder for Alfonsin to maintain control in the last two years of his administration, it created a distinct set of problems for his successor in the aftermath of macroeconomic stabilization in 1991. Specifically, the obligation to share nearly 60 percent of federal revenues with the provinces confronted the administration of Carlos Menem with serious economic and political challenges. First, because the decentralization of revenues exceeded the decentralization of expenditure responsibilities, the 1987 agreement exerted sharp pressure on the federal budget. Second, in attempting to reduce federal budget deficits, Menem, as head of the federal government, could no longer resort to the inflationary policies of the past, due to the convertibility regime that strictly tied monetary emissions to dollar reserves. Over the course of the 19905, the costs of financing social security proved to be particularly onerous for the federal government. Third, price stability and deep tax reforms generated a spike in the size of tax revenues, which translated into huge increases in revenues automatically transferred to provincial governors (Cetrangulo and Jimenez 1996).This latter phenomenon posed a problem that was, more than anything, political in nature. Automatic transfers revoked an important source of presidential power, namely, the ability of the president to condition revenue transfers on various forms of gubernatorial and legislative support.7 Due to these considerations, Menem aggressively pursued changes in the areas of revenue sharing, expenditure assignment, and subnational borrowing, all of which were designed to limit the provincial autonomy that he had championed as a governor in 1987.

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With respect to revenue sharing, Menem negotiated two different fiscal pacts between the federal government and the provinces that altered the 1987 law in a re-centralizing direction. According to the first fiscal pact, which Menem negotiated directly with governors, 15 percent of the revenues legally subject to sharing with the provinces would be deducted and channeled to the national social security system. At the heart of the second fiscal pact was an attempt by the president to force the provinces to adopt economic reforms similar to those Menem had pursued at the federal level, including deregulation, privatization, and tax reform.8 According to the terms of the second pact, the federal government would use revenue transfers to reward provincial governments that moved to introduce these federally sanctioned reforms. The two pacts were centralizing first and foremost because they increased the revenues at the disposal of the federal government and reduced the size of provincial transfers. According to some estimates, the provinces received some US$13 billion less between 1992 and 1996 as a result of the two fiscal pacts (Fundacion CECE 1997, 43). Although the 1987 law had reduced the federal government's share of revenues to 42.34 percent, the fiscal pacts of 1992 and 1993 effectively increased its share to 54.07 percent (Porto and Sanguinetti 1993). But the pacts were also centralizing in the sense that they sought to curtail the ability of the provinces to pursue independent policies.9 The centralizing thrust of the 1992 and 1993 pacts, together with the fact that governors had so recently won revenue decentralization, begs the question of how Menem achieved their legislation. Partisan factors were clearly dominant, as a vast majority of governors were Peronist (Wibbels 2004).The success of the president's stabilizing drive strengthened his influence over Peronist legislators and cemented the party's unified control over the two legislative chambers, effectively ending the period of divided government that had facilitated decentralization in 1987. In contrast to the acquiescence of Peronist governors, the fiscal behavior of opposition governors proved to be a much greater problem for the president s centralizing drive (Jones, Sanguinetti, and Tommasi 2000). Partisan considerations and unified government are not the whole story, however, as a number of other factors bolstered Menem's implementation of the pacts. For example, Menem was able to prevent the emergence of a united opposition to his proposals among the country's governors by taking advantage of basic structural asymmetries in the relationship between a unipersonal chief executive and multiple provincial executives. Partisan differences naturally played a role in impeding a unified stance by the provinces, but also important were the individual deals that Menem struck with particular governors to encourage their support for the pacts and thereby divide the provinces. For example, as part of the first pact, Menem created a special fund to handle financial disequilibria in the

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provinces and negotiated one-on-one with the governors to determine how much of this fund their individual provinces would receive. The case of Chubut is instructive, where the province's Radical governor offered early and vocal support for the pact once he had secured for his province the largest cut from the special fund (Eaton 2OOia, no). Menem likewise used selective incentives in building support for the second pact. First, his Economy Minister increased the pressure on provincial governments to sign by pledging to lift certain taxes on companies located in provinces that had signed the pact. Second, Menem pledged help in a variety of forms for provinces that were inclined not to sign (CGE 1993). Governors in Chaco and Formosa, for example, reversed their initially hostile stances after Menem promised federal help with provincial debts (Chaco) and the establishment of a special freetrade zone (Formosa). An additional factor that explains provincial support for Menem's centralizing pacts is the critical extension of minimum revenue guarantees for the provinces. According to the 1987 law, the federal government was obliged to share 56.6 percent of its revenues, with the result that the exact amount of provincial transfers would be determined by the ebb and flow of federal tax receipts. Provincial transfers would increase when revenues were flush, but would accordingly decrease in difficult economic times.10 In order to encourage governors to accept a decrease in this percentage, Menem offered the provinces a fixed floor for revenue transfers, effectively guaranteeing that the federal government would transfer a minimum amount of revenues to the provinces regardless of actual tax revenues. By adopting rigid revenue floors, the 1992 and 1993 pacts represented a significant departure from the revenue-sharing practices of the post-1930 period. Specifically, in the 1992 fiscal pact, the federal government guaranteed the provinces a minimum monthly transfer of approximately US$725 million per month. The second pact increased this floor to US$740 million. As discussed below, the form that re-centralization took would have momentous consequences down the line. Subsequent years witnessed further increases in the revenue floor, and it would be nearly a decade before these floors were removed as a design feature. Turning from revenues to expenditures, in the early 19905 unified Peronist control of the executive and legislative branches enabled Menem to reassign expenditure responsibilities in ways that limited provincial autonomy. In 1991 and 1992, the federal government transferred responsibility for secondary schools and health care to the provinces (Murillo 1999; Falleti 2001). That these transfers were legislated in the form of an article in the country's annual budget, with no previous substantive discussion, suggests that they were designed not so much to improve education or health care but rather to solve the post-Convertibility fiscal problems of the federal government.

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By transferring services but not additional revenues, these transfers were an attempt by Menem to "mop up" extra revenues that governors might otherwise devote to the expansion of provincial payrolls and other patronage activities. In other words, Menem forced the provinces to spend the additional revenues generated by tax reform on what was, until then, a federal budget responsibility. According to Menem s proposal, the federal government would immediately begin withholding from revenue transfers an amount equal to the cost of running the secondary schools. It would only release these revenues to the provinces once the specific terms of the transfer had been worked out with each province on a case by case basis. This sequence maximized the president s bargaining position in the negotiations. Menem also experienced success in the attempt to force provincial governments to privatize their banks, one of the most notable centralizing reforms of the 19905. For decades, provincial banks proved to be highly attractive to provincial politicians, who used them to direct cheap credits and employment opportunities to political supporters and to finance deficit spending (Clarke and Cull 1998; Arganaraz and Mautino 1995).While governors successfully resisted pressures to privatize in the early 19908, the onset of the Mexican tequila crisis in late 1994 enabled Menem to press his demand that the provinces relinquish control over their own banks. Specifically, capital flight following the collapse of the Mexican currency in late 1994 led to deposit losses that threatened to bankrupt the banks. In response to this window of opportunity, the federal government established a special trust fund (the Fondo Fiduciario para el Desarrollo Provincial), financed by the World Bank and Inter-American Development Bank, to pay the short-term costs of bank privatization. By the end of 1998, eighteen of twenty-six provincial banks were privatized (Clarke and Cull 1998, 8), and in 1999 an additional two provinces, Catamarca and Cordoba, privatized their banks. Though many provincial governments were happy to get rid of the banks, privatization must nevertheless be understood as a re-centralizing change that revoked provincial authority over financial policy. Considering some of the concessions granted in the pursuit of revenue re-centralization, the privatization of provincial banks appears to have been the most straightforward victory in the president s centralizing drive. Even here, however, there were important limits to efforts by the federal government to discipline the provinces. Though bank privatization took away an important set of tools from provincial governments, governors were able to use the fixed federal revenue guarantees that were instituted in the 1992 and 1993 pacts to replace the public borrowing of the past with private-sector loans. The introduction of rigid rules that fixed revenue floors thus played an important role in the expansion of provincial debt over the remainder of the 19905.

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RENEWED CONFLICT OVER PROVINCIAL-FEDERAL RELATIONS: I 9 9 5 - 2 O O I

In the previous section, I argued that one factor that facilitated the rapid passage of re-centralizing measures in 1992 and 1993 was the control of both branches and a majority of governorships by a single party, the Peronists. Over the course of Menem's second term (1995—99), the balance of power between the federal and provincial governments clearly shifted back toward the latter, despite the fact that most governors continued to be Peronists.The effort to impose discipline on the provinces and the attempt to reform revenue-sharing practices to defend the federal government's stabilizing roles both experienced clear setbacks in the second half of the 19905, with ultimately disastrous consequences for the country's macroeconomic performance. A variety of factors help explain this swing of the pendulum back to provincial dominance. First, in the wake of Menem's reelection in 1995, conflict increased over which of the Peronist governors would emerge as his successor in the following presidential elections. Menem's lame-duck status affected his ability to command legislative support for a new round of reforms needed to consolidate changes introduced in his first term. In a number of key provinces, the desire to contest the president on the political front led Peronist governors to question and oppose centralizing proposals. Even before the Peronists lost the 1997 mid-term elections, Menem's diminished authority within the party introduced a "divided government" dynamic into a period of formally unified partisan control. Second, as Menem's control of the party slipped, his interest in pushing for centralization also slipped in several dimensions. The return to a more populist orientation late in his second term, which many have attributed to his unsuccessful attempt to run again for president in 1999, also had the effect of weakening his earlier hardline stance with the provinces.Third, institutional rules played a role in bolstering the governors' bargaining position, in particular the stipulation in the new 1994 Constitution that no reform of revenue sharing could be instituted that would decrease provincial transfers compared to the relatively good year of 1994. Though the 1994 Constitution called for a new revenuesharing law by the end of 1996, this stipulation has continually paralyzed negotiations, with the result that no new law has yet to be legislated. Rather than negotiate a new law, governors focused their efforts on increasing the guaranteed transfers of the federal government, which contributed to the late 19905 economic crisis both by removing incentives for the adoption of much-needed provincial reforms and by dramatically reducing the flexibility of the federal government.

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One of the most important reform attempts to emerge in Menem's second term in the area of revenue sharing was his proposal of new criteria to divide up tax revenues. Building on the logic of the second fiscal pact of 1993, the federal government proposed using provincial tax effort as one of the criteria to be used in calculating the exact size of transfers to a particular province. Thus, Menem proposed a set of incentives that would reward provinces for their effort in collecting provincial taxes and penalize provinces for lackluster tax collection. For the federal government, the merits of including this criterion were numerous, since it would reduce provincial dependence on federal revenue transfers, share the political and administrative burdens of tax collection more widely, and reduce the excessive separation in Argentina between spending and taxing decisions. Considering that in the post-1930 period policy makers had only introduced changes in the tax bases included in the revenue-sharing pool and in the percentages devoted to different levels of government, the inclusion of provincial tax effort as a criterion would have represented a radical departure. In Menem's second term, however, Peronist governors were easily able to veto this proposal. When the federal government countered in 1998 with the proposal to use provincial tax effort only as a criterion in the distribution of revenues in excess of the minimum revenue guarantees, the governors likewise killed this more limited proposal (El Economista, 6 February 1998). Also in 1998, the governors forced Menem to retract a proposal from the legislature that would have instituted direct revenue transfers from the federal government to the municipalities, bypassing the provinces (El Economista, 13 July 1998). Menem had proposed municipal revenue transfers as a threat to prod the governors into serious negotiations over a thoroughgoing reform of the revenue-sharing system. In a further sign of the growing strength of the provinces, Peronist governors were able to extract important concessions in exchange for limited support for Menem's policies. For example, when the 1996 modification of the 1993 Federal Pact was due to expire at the end of 1998, the governors successfully altered the pact to benefit their provinces. After months of negotiation, the governors agreed to support an increase in the income tax, which the federal government proposed as a means of reducing social security contributions and the unemployment rate, and at the same time to surrender the claim of the provinces to the proceeds (Folica 1997). In exchange for this support, the federal government agreed to increase the minimum revenue guarantee from $740 million per month to $850 million per month over the course of 1999 (Ambito Financiero, 23 October 1998). Given the start of Argentina's profound and ongoing economic crisis in 1999, this change was highly advantageous to the provinces.11 According to a variety of scholars, these revenue guarantees enabled subnational governments to pursue expan-

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sive policies, even as the national government continued to adopt adjustment measures (Cao and Rubins 2001; Remmer andWibbels 2OOO;Tomassi and Spiller 2000). In Menem's second administration, the president's declining power within the Peronist Party also translated into changes within the executive branch cabinet that benefited the provinces. In the first administration, the achievement of stabilization in 1991 endowed Economy Minister Domingo Cavallo with a tremendous amount of authority vis-a-vis other ministers in the cabinet, many of whom had constructed careers within the Peronist Party and had more populist spending preferences. The more political wing of the bureaucracy certainly chafed under the aggressive leadership of Cavallo,12 but the resounding success of Convertibility in defeating hyperinflation and in generating electoral victories for the party helped him to carry the day in numerous important debates. Specifically, Cavallo was able to overcome internal Peronist Party opposition to a series of centralizing measures that shifted authority from the provinces to the federal government, including the fiscal pacts and provincial bank privatizations. After the departure of Cavallo from the government in August 1996 and his replacement by Roque Fernandez, however, there was a marked shift in the balance of power within the bureaucracy away from the Economy Ministry.13 Although cabinet meetings during the first term were marked by a great deal of conflict between Cavallo and other ministers, in the second term these conflicts were less often won by the Economy Minister. A salient case in point was the intra-bureaucratic struggle in 1998 and 1999 over how to respond to striking provincial teachers. While the Economy Ministry saw education as the responsibility of the provinces and argued that the solution must be found in provincial efforts to reallocate existing revenues toward more productive uses, Education Minister Susana Decibe proposed increases in federal taxes to finance salary increases. Ultimately, the Education Ministry won this battle, and the federal government adopted a tax on yachts, autos, and airplanes in 1999 to finance salaries that were formally the responsibility of provincial governments. Considering Menem's earlier attempt to discipline the governors, this was a significant victory for the provinces. The resurgence of the governors that began during Menem's second term accelerated noticeably under the aborted administration of Fernando De la Rua (1999—2001). What is most striking about this period is the extent to which the gathering economic crisis was insufficient to generate greater sacrifices on the part of provincial governors in the area of revenue sharing. During the two years that he governed Argentina, De la Rua's efforts to control provincial fiscal behavior and reduce revenue transfers were met with significant opposition by the governors. One of De la Rua's first moves as president, in December 1999, was to propose the creation of new taxes, the

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proceeds of which would not be shared with the provinces. In exchange, the governors forced De la Rua to increase sharply the revenue guarantee to US$i.35 billion per month in 2000 and US$i.36 billion in 2001 (Bertea and Iturre 2000, 24). If the new tax increases succeeded in generating revenue, which was risky given the state of the economy, the federal government would enhance its stature relative to the provinces. But if tax revenues did not increase as the president had hoped, then revenue guarantees would enable the provinces to gain at the expense of the center. In the end, increases in tax revenues never materialized, and the increase in revenue obligations served to hamstring the federal government precisely as it was grappling for solutions to the deepening economic crisis. Despite the worsening situation over the course of 2000, the governors were able to increase the revenue floor still further in the so-called Federal Pact for Growth and Discipline of November 2000. These changes in the institution of revenue sharing are directly implicated in the disasters of 2001. When tax revenues declined dramatically in mid2001 , the federal government failed to meet its provincial transfer obligations, arrears began to accumulate, and several provinces began issuing local bonds to pay their employees. In October 2001, De la Rua entered negotiations with Peronist governors designed to allow the federal government to reduce revenue transfers in order to forestall the national debt default, a condition of further IMF support. When these negotiations collapsed over the demands of Peronist governors that the president release US$25o million in back transfers, the collapse helped trigger a catastrophic default on the national debt. Only after the default, in early November 2001, did the governors agree to a 13 percent reduction in revenue transfers to the provinces, and even then, they were able to condition their support on federal help in the restructuring of provincial debt. Thus, rather than facilitating re-centralization, Argentina's worsening economic crisis reinforced the unwillingness of governors to accept cuts in transfers, and this failure to re-centralize in turn deepened the crisis. The Reemergence (and Restraining) of the Governors in Post-transition Brazil Brazil's most recent transition to democracy was unique in Latin America, not just for being the longest but also for the prominent role that subnational institutions took on within the negotiations that guided the transition. In other countries in the region, debates over decentralization took place after the formal end of the transition and the installation of democratically elected governments. In Argentina, Chile, and Uruguay, for example, democratization clearly informed the debate over decentralization in the

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19805 and 19905, but bargaining over the prerogatives of subnational governments did not take place during the transition itself. In Brazil, though many students of the transition initially emphasized the mobilization of civil society and demands for participation (Stepan 1989), with time it became clear that the shift in power back to the states constituted the transition's more enduring legacy (Abrucio 1998; Souza 1997). According to many different scholars, the reemergence of the governors (and traditional state-based political elites more broadly) helps explain such outcomes as inter-branch conflict and stalemate (Mainwaring 1997), state-based political careers and gubernatorial coattails (Samuels 2OOob, 2003), and the absence of equity-enhancing reform (Weyland 1997). Considering the earlier periods evaluated in Chapter 3, regime change in the 19805 undoubtedly marks yet another swing of the pendulum in Brazil back to institutional arrangements that favor subnational actors (states and municipalities) relative to the center. At the same time, however, the experience of Brazil in the third wave shows that regime type is of limited usefulness in understanding the content of reforms in subnational institutions. Just as the military adopted reforms that both constricted the states' prerogatives (e.g., centralization of tax bases) and enhanced them (e.g., expansion of subnationally owned enterprises), the contemporary democratic period has also witnessed both types of reforms. In the following paragraphs, after first documenting the decentralizing changes adopted in the 19805, I then turn to an analysis of subsequent changes that have shifted power away from subnational actors (states in particular) and back toward the federal government. Despite expectations that re-centralization would face greater obstacles in Brazil than in Argentina, attempts by the federal government to impose discipline on the governors in Brazil have enjoyed greater success in several dimensions. CONSTITUTIONAL CHANGES IN SUBNATIONAL INSTITUTIONS! THE 1987-88 CONSTITUTIONAL ASSEMBLY

Unlike in Argentina, the most important forum for negotiations over subnational governing capacity in Brazil was an assembly elected in 1986 with the express task of writing a new constitution. The constitution it produced in 1988 was one of the world's longest and most detailed, affecting policy in such a broad range of issues that the passage of much ordinary legislation in the post-1988 period has required constitutional amendments. In addition to economic statism and human rights protections, one of the distinguishing features of the 1988 Constitution is its pro-decentralization stance (Coelho and Oliveira 1989; Selcher 1989, 167).14 In redistributing rights and responsibilities between the federal and subnational governments, the constitution adopted a number of measures that clearly favored the latter.

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Most importantly, while the constitution altered revenue sharing to. the advantage, of subnational units of government, it failed to assign specific expenditure responsibilities to them. As in the analysis of Argentina in this same period, the particular form taken by decentralization in Brazil can be explained by the combination of democratization, divided government, and electoral institutions that gave governors substantial influence in Congress. The dramatic losses incurred by the federal government through the adoption of decentralizing measures begs the question of why its representatives were unable to defend federal prerogatives in the constitutional convention (Rezende 1996,228). Much of the answer has to do with the political weakness of Jose Sarney as president, who faced an assembly dominated by opposition parties. Sarney rose from the vice-presidency to the presidency after the death of Tancredo Neves, who had been indirectly elected president in 1985.Throughout his term, Sarney faced deep legitimacy problems due to the nature of his ascent to the presidency and due to his close relationship with the military (Souza 1997).15 According to Souza, Sarney devoted what little political capital he had to discussions over the form of government that Brazil was to adopt (e.g., presidential or parliamentary). In the attempt to defend and extend his term as president, Sarney successfully worked in league with military leaders to prevent the shift to a parliamentary form of government. According to this analysis, defending the fiscal prerogatives of the federal government in the medium to long term was simply beyond Sarney's powers (Souza 1997, 73). An important parallel can also be drawn to Alfonsin in Argentina. In both cases, the failure to adopt effective economic stabilization measures weakened each president s resistance to demands by subnational actors for increased shares of federal revenue, a short-term political dynamic that had far-reaching consequences in both countries. If the president was unable to provide a more vigorous defense of federal interests in the constitution, subnational actors were by contrast particularly adept at pushing for changes in the assembly that would further their interests. At the state level, the leverage of the governors over the writing of the new constitution was enhanced by electoral rules in two different ways. First, as several scholars have noted, the decision to hold direct gubernatorial elections in 1982, seven years before direct presidential elections, endowed the demands of the governors with a significant amount of legitimacy in the intervening years (Abrucio 1998; Hagopian 1996; Kugelmas 2001). Second, the election of members of the constituent assembly in 1986 coincided with gubernatorial elections (eleifies casadas). Due to the nature of partisan and electoral incentives in Brazil, many of the members of the assembly owed their positions to support from the governors of their states, making them quite

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sympathetic to constitutional proposals backed by the governors (Mainwaring 1997; Samuels 2003, 166). But the states were not the only winners in the 1988 Constitution. In fact, according to many different observers, the constitutional distribution of rights and responsibilities was even more favorable for the municipalities (Britto 1995, 63; Lordello de Mello 2001, 84). According to Samuels, we need to return to the military era in order to understand the content of changes that benefited municipalities in 1988. Specifically, due to the decision by the military to allow municipal elections in most of Brazil, "municipalities had become a relatively more important part of every Brazilian politician's career" (Samuels 2OOoa, 79).Thus, the politicians with the power to redesign subnational institutions in 1988 had cause to make municipal office-holding more attractive than it had been in the earlier democratic period. As I argue in Chapter 3, the 1946 Constitution had also expanded direct revenue sharing with the municipalities, but over the course of the Second Republic (1946-64), state-based politicians were able to undermine the pro-municipal content of that constitution. Thanks to the legacy of military-era decision making, the municipalities have been able to defend their formal constitutional powers in the contemporary democracy period. Indeed, in the 19908, the challenge of negotiating agreements among a large number of mayors (relative to a fewer number of governors) has made it particularly difficult for the federal government to revise some of the promunicipal aspects of the 1988 Constitution.16 In addition to presidential weakness and the centrifugal pull of state and municipal forces empowered by democratization, the development in the Assembly of a cross-state coalition is also key in understanding the decentralizing thrust of the 1988 Constitution. One of the chief consequences of the generals"'economic miracle" in Brazil, in addition to high growth rates and worsening income inequality, was to widen the gap between the more developed states of the South and Southeast relative to the poorer states of the North and Northeast (Britto 1995, 59). In the past, as seen in Chapter 3, antagonisms between more and lesser developed states played a critical role in facilitating the centralizing objectives of Getulio Vargas. Whereas conflict among the states opened up opportunities for centralization in the 19305 and 19405, unity among the states helped them to impose losses on Brasilia and to reinforce decentralizing outcomes in the 19805. In the 1988 Constitution, negotiations between representatives of different types of states led to the following tradeoff. In a shift that would predominantly benefit the more developed states, control over important tax bases was devolved from the federal government to state governments. In exchange, representatives from the more developed states endorsed revenue-sharing procedures that would

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benefit the less-developed regions of the country. Thus, while representatives of different types of states disagreed over other issues, including the content of industrial policy, they found common cause in the area of fiscal policy (Kugelmas 2001, 36; Rezende 2001,188). In shifting tax bases to the states, the most important changes affected the transformation of the military-era value-added tax (the imposto sobre circula$ao de mercadorias, or ICM). In 1967 the military adopted the practice, unique in the world at the time, of assigning the value-added tax to subnational governments, though it retained control over the rate of this tax. Members of the constituent assembly aided the states by expanding the base of the ICM tax through the abolition of five former federal taxes, including taxes on transport, energy, and communications (Rezende 2001; Serra and Afonso 1999). In the area of revenue sharing, the most important changes in the 1988 Constitution involved increases in the percentages of federal taxes that would be sent automatically to the states (the Fundo de Participacao dos Estados, or FPE) and to the municipalities (the Fundo de Participacao dos Municipios, or FPM). Accordingly, the federal government was required to deposit 21.5 percent of the revenues from the income tax and industrial products tax in the FPE, and a further 20 percent of the revenues from these taxes in the FPM (Shah 1991, 35). As in the 1987 law that increased revenue sharing in Argentina, members of the 1988 constituent assembly further pleased their subnational patrons by declining to impose earmarks on how these funds had to be used. According to Britto, this decision represents a dramatic about-face relative to the practice of heavy earmarking during the military regime (Britto 1995, 68). Thanks to the devolution of tax bases and increases in constitutionally mandated revenue transfers, federal shares of revenue fell from 61.1 percent in 1989 to 56.4 percent in 1996. In contrast, the states' shares increased from 25 percent to 27 percent, and municipal shares increased from 13.9 percent to 16.7 percent (Serra and Afonso 1999). If the constitution was explicit and generous in its assignment of revenues to the states, it was vague in its assignment of expenditure responsibilities. In lieu of precise language about the responsibilities to be taken up by different levels of government, the constitution favored "joint competencies." In effect, this enabled subnational governments to shirk responsibility for public-regarding services and to devote its enhanced revenues to patronage and clientelism. At the end of the Sarney government, Congress blocked an attempt by the president to shift greater responsibilities onto subnational governments, a stance that further reflects the governors' influence over national legislators (Britto 1995,70). In the aftermath of the prejudicial decisions adopted in the constituent assembly, the interests of the federal government were further undermined with the federalization of states' foreign debts in the late 19808. With this

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change, the states were effectively able to force the federal government to convert their debts with foreign creditors into a long-term debt with the National Treasury (Kugelmas 2001, 35). Between 1988 and 1998, there were seven debt agreements between the federal government and the states, most of which were not respected by the states, who were nevertheless not punished (Loureiro 2001, 85). In the aftermath of the new constitution, the Senate, with its exclusive right to set limits and conditions on the borrowing of subnational entities, continually allowed the rolling over of these debts with fresh financing from the federal government. The result was a severe erosion in the authority of the Central Bank over monetary policy, as state banks acquired the de facto capacity to print money (Kugelmas 2001, 39). By 1994, nearly a decade after the departure of the last military president, democratization in Brazil had clearly given governors the upper hand in their struggles with the center. CARDOSO'S RE-ORDERING OF INTERGOVERNMENTAL RELATIONS: 1994—2OO2

The six years following the constitutional assembly in Brazil provide a stark reminder of the dangers of decentralization. Indeed, the Brazilian experience played a key role in convincing international financial institutions and donors more broadly to rethink policy advice in the area of intergovernmental relations (Shah 1991, 98). Despite manifest signs in the late 19805 and early 19905 that the institutions adopted by the new constitution were unworkable, hope for reform seemed dim. In this period, the constitution's lopsided treatment of national and subnational governments joined the long list of ills, including party switching and party-system fragmentation, that were seen as making Brazil so ungovernable (Mainwaring 1997). In 1993, the pre-scheduled five-year review of the 1988 Constitution ended in failure, with no substantial reforms achieved. The same year, however, also marks the arrival of Fernando Henrique Cardoso in the Finance Ministry, an appointment that generated a turning-point for the redesign of subnational institutions. The success of Cardoso's stabilization plan in reducing inflation led to his victory in the 1994 presidential elections and to his reelection in 1998. Despite important differences, the two Cardoso administrations in Brazil are analogous to the two Menem administrations in Argentina, in the sense that both sought to reverse and/or revise the prior adoption of decentralizing measures. In both countries, the stakes associated with the success of recentralizing proposals were significant. The continued political success of both presidents demanded continued macroeconomic stability and, since each president adopted an approach to stabilization that was considerably more orthodox than prior attempts, the success of their stabilization programs in

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turn demanded the redesign of subnational institutions in a more centralizing direction. Though Cardoso was denied the type of partisan powers that had helped Menem in the early 19905, re-centralization in Brazil resembled re-centralization in Argentina in two key respects. First, while the president's own party did not win a majority in Congress, Cardoso engineered one by constructing an alliance with the Partido da Frente Liberal (Liberal Front Party, or PFL).Just as divided control of the federal executive and legislative branches had opened the way for decentralization in 1988, unified control after 1994 helped Cardoso put the country on a more centralist course. Second, like Menem, Cardoso deployed the by now familiar strategy of accentuating interstate rivalries in the pursuit of re-centralizing changes. An important debate has emerged in Brazil over how best to understand the many changes Cardoso proposed and implemented over the course of his eight years as president.17 Many Brazilianists argue that changes affecting what subnational governments can do are tantamount to yet another swing of the pendulum (Lopreato 1997; Loureiro 2001; Montero 2OOia; Serra and Afonso 1999). According to this view, changes in revenue transfers, expenditure responsibilities, and borrowing practices mark the end of the long cycle of decentralization that began with the generals' electoral defeat in 1974. In other words, the Cardoso administration deserves to be considered, along with the Vargas era and the first decade of military rule, as a fundamentally centralizing period. The reforms of the post-1994 period do differ from earlier centralizing periods in that they have been implemented in a democratic context. For some scholars, the democratic context of recent reforms that have shored up the position of the federal government is cause for hope that the current round of centralization will prove more successful than past experiences (Amorim 2001).The difference in regime type, however, should not mask similarities in the content of the changes pursued by the center, and in the strategies centralizers used to impose them. Other scholars dispute whether centralization is the correct term for what has transpired in Brazil, and question the extent and durability of the changes actually introduced (Garman, Silva Leite, and Silva Marques 2001; Samuels 2003).18 Kugelmas (2001), for example, emphasizes that Cardoso's reforms were composed of immediate, short-term measures, without a thoroughgoing revision of intergovernmental relations. Abrucio (2001, 104) criticizes the lack of institutionalization in the new intergovernmental relationship. According to Bresser Pereira, many of the new fiscal rules proposed by Cardoso, including the 2000 Fiscal Responsibility Law, are binding on the federal government in addition to subnational governments, which suggests that centralization is not the correct word for what has happened.19 While acknowledging the importance of some of the measures introduced in the 19905,

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Samuels emphasizes the costs associated with these measures, and suggests that, in the absence of changes in the underlying party and electoral institutions that empower governors, any conclusion that Brazil has re-centralized is premature (Samuels 2003,177—79). In this section, I strike an intermediate position in this debate. In building political support for his reforms, Cardoso has certainly had to make costly concessions, not just in the form of one-shot deals such as the renegotiation of debts on terms that favor the states, but also in the form of real policy concessions. Substantive compromises that have curbed the reach of Cardoso s initial re-centralizing proposals stand in contrast to the Argentine case, which was characterized by less-substantive debate and the exclusive use of side-payments to secure centralizing change. Despite the costs and concessions granted by Cardoso, and the piecemeal nature of his assault on subnational prerogatives, the net effect of these measures has clearly been to return discrete forms of authority to the center. From the perspective of the federal government, these changes have solved many of the thorniest problems created by the 1988 Constitution. Though not to be overstated, the post-1994 reforms are particularly important in Brazil, given the absence of the governing tools that presidents enjoy in less fragmented political environments. Cardoso s passage from the scene may well lead to the undoing of his hard-fought reforms of intergovernmental relations, in a scenario that would replay what happened in Argentina after the decline and fall of Carlos Menem. But such an outcome would not make many aspects of the reforms instituted between 1994 and 2002 less noteworthy. RULE CHANGES IN SUBNATIONAL REVENUES, EXPENDITURES, AND BORROWING PRACTICES

In the following paragraphs, I evaluate key elements of Cardoso's reform agenda in the area of revenue sharing, expenditure responsibilities, and borrowing capabilities. As this agenda advanced over the course of the 19905, Brazil witnessed the unraveling of the interstate coalition that had formed such an important part of the writing of the 1988 Constitution. One of the most important manifestations of this unraveling was the so-called tax wars (guerras fiscais) between the states, which were triggered by the constitutional devolution of the important ICMS tax. Initially confined to reductions in tax rates, the fiscal war has expanded to include loans at subsidized interest rates, the donation of land and infrastructure, and light and water subsidies (Zimmerman 2OOi;BNDES 2000).Whereas unity among different types of states had facilitated the 1988 decentralizing pact, conflict between the states created opportunities for a federal government intent on centralization, not unlike the dynamic of the 19305 discussed in Chapter 3.This is particularly

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true with respect to expenditures, where Cardoso's centralizing proposals pitted the interests of the poorer states against the more developed ones, as discussed below. In addition to interstate conflict, centralization in Brazil has been facilitated by the very success of the stabilization plan in at least two ways. First, the reduction in inflation made it impossible for state governments to inflate away their debts, as in the past. Second, the federal government's defense of the Brazilian real translated into massive increases in the interest rates on debts held by state governments; by the end of 1997 these debts reached US$97 billion (Loureiro 2001, 84). Both phenomena gave the federal government "an important bargaining tool" in its quest for a variety of centralizing reforms (Afonso and Lobo 1996).This leverage is most clearly seen in the December 1995 Program of Support for the States, which stipulated that states would receive federal help with their debts only if they adopted a series of reforms including control of public-sector wages and the privatization of state-owned enterprises (Lopreato 1997, 101). In the area of revenue sharing, the Cardoso presidency introduced a number of changes in response to the highly disadvantageous revenue decisions adopted in 1988. First, Cardoso negotiated a Social Emergency Fund (FSE) that enabled the federal government, on a temporary basis, to cut the amount of revenues it was obliged to send to the states and municipalities through the automatic transfer programs (FPE and FPM). As in Argentina, reformers argued that removing revenues from the revenue-sharing pool was necessary to enhance the credibility of the stabilization program. Subsequently, the Social Emergency Fund was extended and further institutionalized in the Fiscal Stabilization Fund. Political support among governors for both funds was secured through generous side-payments that took the form of discretionary monies for pork-barrel projects. Second, in addition to cuts in revenue transfers, the federal government moved to withhold revenue sharing from states that default on debt repayment agreements. This happened most famously in response to the declaration by Minas Gerais of a moratorium on its debt with the federal government, which prompted a run on the currency and an economic crisis in 1999.The Cardoso administration responded by simply deducting the interest payments owed to the federal government from the state's share of federal transfers before sending these transfers on to Minas Gerais (Dickovick and Eaton 2004; Dillinger and Webb 1999).20 Third, Cardoso pushed forward the so-called Kandir Law in 1996, which exempts Brazil's exports from the payment of the state ICMS tax. Though the states forced the federal government to compensate them for lost revenues, the law represents a significant amendment of the constitution by constricting the base of the most important tax devolved to the

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states in that document. Finally, the federal government has shored up its fiscal position by strategically increasing taxes and social contributions that are not subject to automatic sharing with subnational governments, in effect circumventing important constitutional rules (Britto 1995, 70; Rezende 2001, 192; Samuels 2003, 184).Though this practice has undeniably undermined efficiency overall, it must be seen as a change that has shifted revenues from subnational jurisdictions to Brasilia.21 In terms of expenditure responsibilities, a number of changes were implemented in the post-1994 period that moved Brazil considerably away from the vague assignment of responsibilities adopted in the 1988 Constitution. One of the first measures was the passage of the so-called Camata Law, which limited personnel expenditures in subnational governments to 60 percent of revenues. Subsequently, the budgeting practices of states and municipalities were further circumscribed by federal mandate with the 2000 passage of the Law of Fiscal Responsibility (LRF). Similar in spirit to the Fiscal Stabilization Fund discussed above, since it enables Brasilia to withhold revenues from subnational governments that overspend, the LRF was legislated as a "complementary law" of the national Constitution, meaning that it cannot be weakened by future generations of governors through ordinary legislation (Miranda 2001, 18). Beyond these broad budgetary measures, changes in the sectors of education and health care offer additional support for the argument that the federal government has expanded its authority relative to subnational governments. With respect to education, the most important change was a constitutional amendment in 1998 that required subnational governments to devote 15 percent of their shares of FPE and FPM to basic education and to set aside 60 percent of all public education spending to a special fund (the Fundo de Manutencao e Desenvolvimento do Ensino Fundamental e deValorizacao do Magisterio, or FUNDEF). FUNDEF funds are subsequently distributed to each school based on the number of students enrolled, with spending per student not allowed to dip below a set level. In localities where FUNDEF monies are insufficient to finance this minimum level (e.g., less developed states), the federal government committed itself to sending additional monies, beyond the transfers it already sends to subnational governments (Brown 2002, 136—37). Considering the extent of patronage and clientelism in subnational education systems, which reformers in the central bureaucracy have long identified as an obstacle to improving the quality of basic education, FUNDEF is a major victory for the federal government.22 Reforms have been instituted in the health sector that are similar, in the sense that they both redirect subnational spending toward certain types of activities and increase federal spending for governments unable to meet minimum levels of

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care (the Piso de Assistencia Basica, or PAB).23 Since it is the poorer municipalities and states that are unable to meet federally set minimums with their own revenues and revenue transfers, these reforms in the education and health sectors come at the expense of more developed states and municipalities (Rezende 2001, 198). By combining advantageous treatment of poorer regions with the enhanced control of Brasilia over subnational spending decisions, expenditure reforms in the Cardoso administrations replayed the dominant strategy of centralizers in earlier periods of Brazilian history. The privatization of enterprises and banks owned by the states is the third major area to witness a transformation in the balance of power between the federal and state governments in favor of the former. With respect to parastatals, the states have privatized twenty-nine state-owned enterprises since 1996, leading to particularly important changes in the transportation and electricity sectors (Serra and Afonso 1999). In November 1998, the Senate approved a resolution that obliged the states to use 50 percent of revenues from privatization to pay off their debts (Nunes and Nunes 2000, 146). That many of these SOEs were white elephants that the states were only too happy to privatize does not undercut the point that we should consider these privatizations as changes that decrease the tools available to state governments.24 With respect to banks, the changes have been even more pronounced. Cardoso explicitly tied the question of the states' federal debts to their continued ownership of state banks. In the past, as with provincial banks in Argentina, state banks had expanded the institutional autonomy of state officials through forced loans to state governments, forced loans to enterprises owned by the states, and rules that obliged the banks to hold debt issued by the state governments. In a 1996 decree, the Cardoso government gave the governors two options: (i) the federal government would take over the financing of a given state's debt in exchange for the privatization of its bank (or its transformation into a non-financial promotion agency), or (2) a state could maintain its own bank via the immediate payment (with the state's own revenues) of half its federal debts (Lopreato 1997, 101). By 2000, as seen in Table 6.2, of the thirty-three banks owned by subnational governments at the start of Cardoso's presidency, only four had not adopted one of these two options (Garman, Silva Leite, and Silva Marques 2001, 47).25 Particularly important was the intervention in 1995 and subsequent privatization of the state-owned banks of Sao Paulo (BANESPA) and Rio de Janeiro (BANERJ), two of the most significant moments in the broader process of re-centralization in Brazil.26

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TABLE 6.2 Status of Banks Formerly Owned by State Governments in Brazil as of October 2000 No.

Location (bank name)

Privatized

6

Rio de Janeiro (Banerj), Minas Gerais (Credireal e Bemge), Pernambuco (Bandepe), Bahia (Baneb), and Parana (Banestado)

Privatized/ Federalized

7

Sao Paulo, Rondonia, Ceara, Maranhao, Goias, Amazonas, and Santa Catarina

Reformed

6

Rio Grande do Sul, Sergipe, Sao Paulo, Paraiba, Espirito Santo, and Minas Gerais

Extrajudicial liquidation

3

Alagoas, Para, and Rio Grande do Norte

No change

4

Espirito Santo, Piaui, Paraiba, and Federal District/Brasilia

Extinction

7

Santa Catarina, Minas Gerais, Mato Grosso, Acre, Roraima, Bahia, and Rio Grande do Sul

Type of change

Total

~33~

SOURCE: Garman, Silva Leite, and Silva Marques 2001,47

Conclusion This chapter has analyzed the important subnational changes introduced in the contemporary democratic period in Argentina and Brazil. Given the complexity of the issues, and the level of detail in the changes proposed and adopted, the number of parallels between these two cases is noteworthy. By increasing automatic revenue transfers that governors were free to spend as they saw fit, both countries adopted essentially the same approach to decentralization when they re-democratized in the 19805. In both countries, divided government produced an increase in revenue sharing at the exact moment that the fiscal position of the federal government was experiencing severe strain in the wake of the region's 1982 debt crisis. In both cases decentralization proved to be highly destabilizing for the center. In response, presidents employed coincident strategies in the 19908, using structural conflicts between subnational actors and unified partisan control of the executive and legislative branches to reduce subnational authority. In both countries, presidents reduced unearmarked transfers (coparticipation funds in Argentina, FPE and FPM in Brazil) through a difficult but ultimately successful process of negotiation with the governors. In both cases, presidents were able to reorient subnational spending toward expenditure categories (education and health care) that had been prioritized by the federal government. States and provinces in Brazil and Argentina also ended the 19905 without the banks that they had, for decades, used as a reliable

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source of political authority over the populations they governed and over the national decision makers from whom they repeatedly extracted bailouts. Despite key similarities, this analysis has also touched on important differences in the form and content of struggles over subnational institutions. For instance, the process of re-centralization in Argentina was much more rapid than in Brazil, due in part to the more considerable partisan powers of the Argentine president (Jones I99ya; Mainwaring and Shugart 1997). In Argentina, key re-centralization measures were quickly achieved after stabilization as the result of the president's strong partisan powers and in the form of political deals within the Peronist Party. In Brazil, re-centralization proved to be more of a political challenge. Governors of key states, including Mario Covas in Sao Paulo and Marcelo Alencar in Rio de Janeiro, were members of Cardoso's party when key reforms were initiated, but the partisan nature of the president's power over governors was much less dependable than in Argentina. Relatively more critical to Cardoso's success was the effect that his stabilization plan had on the states; by making their debts unmanageable, the Brazilian real plan forced them to take seriously the president's re-centralizing proposals despite party fragmentation, weak party discipline, and other political obstacles. While re-centralization in Argentina was faster and politically easier to manage, there is a downside to its intraparty approach. The dissipation of President Carlos Menem's powers over the course of his second term just as quickly facilitated the "return of the governors" in the second half of the 19905. In addition to the pace of change, important differences also characterized the form that re-centralization took in each country. With respect to expenditure responsibilities, in the early 19905, Menem was able to transfer schools and hospitals to the provinces without promising additional revenues. The provinces were expected to take on these new services by using the revenues they were already receiving in the form of unearmarked transfers. In Brazil, Cardoso had to pledge extra monies, in addition to the automatic transfers already sent to the states, in order to secure passage of his key education (FUNDEF) and health (PAB) reforms. According to Serra and Afonso, the savings to the federal government in Cardoso's first administration due to the FSE and FSF were more than offset by this increase in conditioned grants (Serra and Afonso 1999, 7). With respect to cuts in automatic revenue transfers, however, Cardoso was able to reduce the size of transfers to the states and municipalities without agreeing to a minimum revenue guarantee. By contrast, Menem in Argentina secured the support of the governors for his 1992 pact by guaranteeing that transfers would not dip below a certain level, irrespective of actual federal revenues. As powerful testament to the significance of institutional design, these subnational revenue guarantees contributed to a deep economic crisis later in the decade.

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167

Beyond the identification of similarities and differences in these cases of "decentralization from below," two more general findings emerge from this chapter. First, while the shift to democratic forms of government has set decentralization into motion in scores of countries, Argentina and Brazil demonstrate that the continuation of democratic rule is insufficient to protect decentralizing measures. Not only did re-centralization occur in the 19905 under democratic auspices, but it actually bolstered the prospects of centralizers in democratic elections. By balancing fiscal accounts and defending price stability, centralizing changes helped presidents win historic reelections in both Argentina (1995) and Brazil (1998). Second, rather than attribute subnational changes to deeper shifts in economic policy orientation, Argentina and Brazil in the 19905 show that it is changes in subnational institutions that contributed to the reorientation of economic policy. In each country, the reemergence of the governors in the course of re-democratization enabled them to secure decentralizing changes in 1987 and 1988.The adoption of decentralization, however, was not associated with moves to abandon statism, which had yet to gain speed in either country. Instead, decentralizing changes in revenue transfers (in the absence of concomitant transfers of expenditure responsibility) encouraged the liberal reorientation of economic policy because they directly worsened the fiscal crisis that eventually made statism unsustainable.

CHAPTER

National Engineering of Subnational Institutions in Chile and Uruguay

7

ACCORDING TO THE ANALYSIS presented in the previous chapter, democratization enabled governors in Argentina and Brazil to leverage their political authority into sweeping acts of decentralization in the 19805. In the following decade, national politicians used a variety of political tools to reverse at least part of these decentralizing measures, and presidential re-centralization drives came to dominate national reform agendas. The dynamic is nearly the opposite in the two cases explored in this chapter, Chile and Uruguay in the third wave of democracy. Other than reintroducing subnational elections after the military interlude, the politicians who took control of the national government in the aftermath of the democratic transition agreed to only very limited decentralizing changes. National politicians carefully restricted the authority of subnational actors, and the weak structural position of these actors within their parties prevented them from achieving decentralization from below. Nevertheless, the limited changes introduced have proved to be consequential. Over the course of the IQQOS, Chile and Uruguay have steadily moved in more decentralized directions, in contrast to the re-centralizing movement seen in Argentina and Brazil. Chile and Uruguay remain highly centralized relative to the current regional standard, but the growing challenge that subnational actors pose to national politicians is an important political development in each case, and one that attests to the difficulties of institutional engineering (Eaton, forthcoming). Elements of both continuity and change have characterized this most recent process of redesigning subnational institutions in Chile and Uruguay. One of the strongest elements of continuity between the last two decades and the earlier episodes discussed in Chapter 4 is the continued "top-down" logic of decentralization. Then, as now, the design of subnational institutions

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remains the prerogative of national politicians who are mostly free to disregard the preferences of subnational officials in the design process. In Chile, for example, the critical arena for the redesign of subnational institutions was a series of negotiations in 1991 among top-level party leaders of the country's two major political blocs. The decade that followed witnessed an additional series of institutional changes at the subnational level, including the protracted debate over whether to hold separate elections for mayors and councilors in the municipalities and whether to directly elect regional councilors. Although subnational actors had definite stakes in the changes under discussion, they had little power to affect outcomes in the political struggle over institutional change. Instead, the content of these subnational reforms can best be understood as the result of changing dynamics and struggles within and between national party leaders. In contemporary Uruguay, the most important venue for the discussion of decentralization was a series of closed-door, high-level meetings over constitutional reform between national leaders of the two traditional parties. Motivated largely by the desire to introduce a second round in the presidential race and thereby prevent a victory for the leftist Frente AmplioEncuentro Progresista (FA—EP), the Blancos and Colorados also adopted several decentralizing changes in the new constitution that resulted from these meetings. The most important change was the decision to separate national and subnational elections in the electoral calendar, a device that was shown to benefit the Blanco Party in the 2000 departmental elections. Much of the decentralizing language inserted into the 1996 Constitution was vague, however, and national politicians have stalled the passage of key pieces of implementing legislation in the years that followed the reform. In both Chile and Uruguay, the limited protagonism of subnational officials must be considered a key factor in the highly centralized outcomes observed. Equally pronounced in these top-down cases of controlled decentralization is the hostility of national legislators, who, unlike their Argentine and Brazilian counterparts, are not under the sway of subnational officials. In Chile and Uruguay, legislators have feared that decentralizing changes will enable subnational actors to eclipse them as policy brokers. In both countries, it is a national-level political game among national actors that has shaped subnational outcomes. The game is still a highly competitive one, pitting presidents against legislators, politicians against bureaucrats, and coalition partners against one another, but all of these actors have national and not subnational identities. When one contrasts these two countries with others in the region, the ability of national politicians to keep decentralization limited is quite impressive. But when one shifts from a cross-national to a cross-temporal frame of reference, what stands out is the extent to which subnational actors now

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The Third Wave of Democracy

enjoy greater authority than in previous periods. Although national politicians have been very careful in modifying subnational institutions and in agreeing to only very circumscribed changes, these changes have nevertheless built momentum for deeper institutional reforms. Despite cross-temporal similarities in the top-down nature of institutional design, the politics of decentralization in contemporary Chile and Uruguay have not merely replayed earlier experiences. For example, though national politicians in Chile have tried to keep subnational actors in check after the country's re-democratization in 1990, they have been unable to reverse a key legacy of the Pinochet era, which is the devolution of responsibility for important social services. Because of the devolution that occurred under Pinochet, when elections were reintroduced for municipal authorities in 1992, these authorities suddenly acquired greater prominence than they ever enjoyed in the eight decades prior to 1973. The story of how subnational institutions evolved in post-Pinochet Chile is thus a highly path-dependent one. In Uruguay, though no equivalent formal transfer of responsibilities has taken place in recent decades, the retreat of the central state, compelled by chronic budget shortfalls and economic crises, has led to a de facto expansion in the responsibilities and political relevance of departmental executives. In the last decade, against the wishes of national politicians, mayors in Chile and departmental executives in Uruguay have emerged as more important actors due to their responsibility for providing increasingly critical and visible governmental goods and services. In an unsteady process, the assumption of new responsibilities has in turn made subnational officials more important actors within their parties. Unlike in previous periods, serving as mayor in Chile and departmental executive in Uruguay are now viable paths to winning party nominations to the highest offices in each country. Though the most significant examples have been on the right in Chile (Joaquin Lavin as mayor of Santiago and Las Condes) and on the left in Uruguay (Tabare Vasquez as executive of Montevideo), in both cases subnational offices have become more useful stations in the career paths of ambitious politicians.Thus, contemporary Chile and Uruguay are not cases where subnational officials have used their partisan powers to demand decentralization, but rather cases where the limited devolution of authority from above has increased the stature of subnational officials as governing authorities and as partisan actors. If subnational actors have transformed their roles as service providers into stronger partisan roles, and if, as Willis, Garman, and Haggard argue, partisan strength enables subnational officials to secure decentralization, we should expect in the future an acceleration of successful demands for decentralization from below in Chile and Uruguay. According to the two-part argument developed in this chapter, then, national politicians in third-wave Chile and Uruguay have designed subna-

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tional institutions that are among the weakest in the region. At the same time, their efforts have not been completely successful; discrete changes by national politicians have increased the momentum for decentralization, leading to further changes not initially contemplated by enacting coalitions of "national engineers." Redesigning Regional and Municipal Institutions in Post-authoritarian Chile When Chile re-democratized in 1990, it only returned to democracy at the national level and not at the municipal or regional levels. The absence of subnational re-democratization is due to the reality that, unlike the Argentine, Brazilian, and Uruguayan transitions, the transition to democracy in Chile was governed by a constitution written exclusively by the exiting military government. While this 1980 Constitution made possible the eventual transition to democracy by binding Pinochet to a plebiscite in 1988 on his continued rule (which he lost), it also established non-democratic procedures for the selection of municipal and regional authorities. These selection mechanisms would have to be redesigned in order to democratize politics at the subnational level, which triggered sharp political conflict and an important process of political bargaining among the parties of the Left and Right in the aftermath of the national democratic transition. Understanding this critical bargaining process over decentralization would be impossible without reference to the changes that Pinochet introduced to subnational institutions (discussed in Chapter 5), namely the decision to transfer important responsibilities to the municipalities and the introduction of a new regional layer of government. Conflicting institutional preferences between national party leaders of the Left and Right were central to this dispute over the design of subnational institutions. More specifically, while parties on the center-Left grouped in the governing Concertacion (henceforth, Concertation) sought the early reintroduction of municipal elections, parties on the right grouped in an opposition Alianza (henceforth, Alliance) resisted municipal democratization and sought instead reforms to enhance the regions that Pinochet had created.1 Shortly after taking office in March 1990, President Patricio Aylwin (1990— 94) proposed amending the Constitution to reintroduce the election of municipal authorities. The parties of the Concertation, including the Partido Socialista (Socialist Party) and the Partido por la Democracia (Party for Democracy), offered strong support for the democratization of municipal government, largely because they anticipated that they would do better in these elections than the opposition (Bland 2004). Altering institutions to expand the power of the center-Left was an important priority for the Concertation in

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The Third Wave of Democracy

the early 19905, considering that most of the institutions inherited from the Pinochet period over-represented the Right, including the binomial electoral system and the use of appointed senators (Boylan 2001; Siavelis 1997, 2000). When the Concertation proposed municipal democratization in 1990, however, the very same institutional features that made it so urgent for the center-Left to democratize this level of government (i.e., the overrepresentation of the Right in Congress) enabled the Right to veto the return to municipal elections. In January 1991, the Senate vetoed Aylwin's proposed changes to municipal government due to opposition from the Alliance's two component parties: Renovacion Nacional (National Renewal, or RN) and Union Democrata Independiente (Independent Democratic Union, or UDI). Though many Alliance senators believed in the necessity of democratizing municipal elections, they used their veto power to demand the simultaneous introduction of changes to the regional level of government introduced by Pinochet.2 For the Right, expanding the regional sphere was an attractive option for several reasons. First, the parties of the Right feared they would be unable to capture the presidency in post-Pinochet Chile, at least in the medium term (Boisier and Zurita 1993). A logical response to this perception was to seek to create institutional spaces elsewhere in which they could expand their power. Second, the regions were intimately associated with Pinochet, the man who brought them into existence. Third, as Bland and others note, several changes experienced during the authoritarian period led the Right to believe that it could perform particularly well in the regions (Bland 2004; Boisier and Zurita 1993).3 For example, the shift toward a natural resource-based economic development model under Pinochet led to the strengthening of export-oriented entrepreneurs in the regions who could be expected to support rightist parties at the regional level.4 A similar argument was made for the regional universities that Pinochet had carved out of the traditional, formerly centralized university system (Valenzuela 1999). A year after Pinochet's departure from office, then, national politicians were stalemated over the design of subnational institutions. In effect, the Right was able to veto the center-Left's preferred strategy of democratizing the municipal sphere alone, but the Right could not move forward with its attempt to strengthen regional governments without support from the Concertation. This particular configuration of preferences led the way to an interparty compromise, negotiated by top party leaders in 1991, according to which the Right agreed to support municipal democratization in exchange for the Concertation's support for regional reforms. The following section analyzes the content of the top-down changes introduced at this Negotiat-

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ing Table in 1991, as well as a variety of subsequent changes in subnational institutions. GRADUAL CHANGE FROM ABOVE: DECENTRALIZATION A LA CHILENA

The most obvious pattern that emerges from a survey of the post-1990 period is the controlled and gradual nature of decentralization. In explaining this pattern, the resistance of national politicians to decentralization and the absence of powerful subnational officials who could demand decentralization are both significant factors. That the adoption of more vigorous decentralizing measures could create havoc for national politicians and compromise their own political capabilities was clearly an issue for both legislators and presidents, regardless of their partisan affiliation. Thus, despite the salient conflict between national party leaders of the Left and Right over the relative attractiveness of municipal and regional layers of government, which forced the meetings at the Negotiating Table, at another level national politicians revealed a shared preference for constraints on subnational institutions. Specifically, legislators from across the political spectrum worried about the emergence of independent support bases for subnational officials and the likelihood that these officials would use any increase in authority in ways that clashed with legislators' own needs.The paragraphs that follow investigate the design process generated by four different institutional questions: how to constitute political authorities at both the regional and municipal level, and what types of resources to give officials at these two subnational levels. Designing Subnational Institutions at the Regional Level. How to constitute political authorities at the regional level proved to be one of the thorniest questions at the Negotiating Table in 1991. At issue were the procedures used to select both regional executives (intendentes) and regional councilors (consejeros). According to the institutional design adopted in 1991, regional executives would continue to be appointed by the president and councilors would be indirectly elected by lower-level municipal councils. Presidential appointment of regional executives means that these individuals play a double role. On the one hand, they represent the president in the regions and are charged with implementing the deconcentrated activities that the national government programs for each region. On the other hand, they also serve as the heads of regional governments who, together with the regional councilors, make regional policy decisions. Many observers have noted that, in practice, this is a design that privileges the national government: when their two roles clash, regional executives typically sacrifice regional concerns

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The Third Wave of Democracy

and do the bidding of the national government (Martelli and Valenzuela 1999; SUBDERE 2001, 38). The years following the 1991 Negotiating Table witnessed several attempts to alter the structure of executive power at the regional level. According to one proposal, regional councilors would select from among their ranks a leader who would displace the intendente as chief executive of the regional government. This would prevent the intendente from playing the dual role that has proved problematic, as he or she would simply represent the president and the national government in the region.5 Given the stakes involved, it is perhaps no surprise that the president has emerged as the chief opponent of moves to elect rather than appoint regional executives, just as national legislators have emerged as the principal opponents of moves to elect regional councilors directly. The Concertation presidents who have governed Chile in the post-authoritarian period have all depended heavily on the presidential prerogative to appoint regional executives, along with the heads of the deconcentrated ministries that function in the regions (called Servicios Regionales Ministeriales, or SEREMI). Specifically, presidents have allocated regional executive positions in ways that are designed to bolster and sustain the inter-party pact on which the Concertation depends.6 While President Frei proposed the direct election of regional councilors, he defended his appointment powers over regional executives and actually tried to shift power at the regional level toward these executives and away from the councilors. According to individuals who participated in closed-door meetings with President-elect Ricardo Lagos subsequent to his second-round victory in January 2000, Lagos was similarly unwilling to surrender his authority to appoint regional executives so long as the Right continues to be over-represented by the binomial electoral system. More generally, given the institutional enclaves designed to protect the Right that still operate in Chile, pro-government legislators have defended the presidential appointment of regional executives as a practice that counters the anti-democratic thrust of Pinochet's institutional engineering.7 While presidents have been loath to surrender their right to appoint regional executives, they have taken the lead in proposing the shift to direct elections of regional councilors, much to the chagrin of national legislators. An important development in the 19905 was the proposal by President Eduardo Frei (1994—2000) to elect regional councilors directly in the regions. Though Frei first articulated the proposal in 1994 and introduced a bill to this effect in 1997, the national legislature successfully blocked the shift to direct elections. The failure of Frei s attempt cannot be interpreted as one more example of the parties on the Right vetoing institutional reforms proposed by the Concertation. The proposal elicited resistance by legislators

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across party lines, who fear that direct elections would transform regional councilors into real competitors. As national legislators explain, if direct elections at the level of the regions are introduced, in many cases the constituencies of regional councilors would be larger than the constituencies of national legislators. For example, a councilor in the fifth region would have a larger constituency than a deputy representing that region's capital, Valparaiso. Similarly, a councilor in the metropolitan region would have a larger constituency than a senator representing Santiago.8 Concern that subnational actors might supplant legislators subsequent to decentralization is by no means a rare phenomenon (Eaton 20Oia; Manor 1999).The literature on Chile, however, suggests that Chilean legislators have particular cause to worry about changes that would give subnational actors greater control over the allocation of governmental goods and services (Scully i995;Valenzuela 1977, i978).Valenzuela's work, for example, demonstrates the great extent to which legislators' careers in the twentieth century depended on the brokering of particularistic goods from the center. Decentralizing changes such as automatic revenue sharing are threatening, both because they enable subnational actors to use revenues in the service of their own support networks, but also because they reduce the pool of revenues that remain at the center, where legislators exercise influence. This dependence on particularism is not new in Chile, but because the 1980 Constitution dramatically shifted national policymaking authority to the executive branch (Siavelis 2000, 4;Baldez and Carey 2001, 114), legislators in the contemporary democratic period are even more dependent on brokering activities than they were before 1973.9The conclusion that emerges from this discussion of the 19905 is that presidents and legislators have been able to veto changes that would enhance the stature of political authorities at the regional level. Whether to empower regional officials, independent of how they are selected, also drew the attention of national politicians in the 19905. When Eduardo Frei took office as president in 1994, he promised to double the regions' share in total public investment by the end of his administration. According to SUBDERE, the Frei government accomplished this goal, raising regional investment decisions from 21 percent in 1994 to 43 percent by 2000. President Lagos promised to increase this percentage even further, so that the regions would represent over half of all public investment in Chile.10 In order to deliver on his bold promise, Frei adopted a series of changes in the institutional mechanisms used to finance public investment in the regions. First, the national government expanded the National Fund for Regional Development (FNDR), an inheritance from the Pinochet regime that was designed to finance regional investments in social infrastructure. Second, the

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The Third Wave of Democracy

Frei government increased Sectoral Investments Assigned by the Regions (Inversion Sectorial de Asignacion Regional, or ISAR), through which the sectoral ministries of the national government present lists of projects among which regional officials are free to choose. Third, Frei introduced Regional Investments Assigned by Local Governments (Inversion Regional de Asignacion Local, or IRAL).Though municipal governments play a role in identifying specific projects to be funded by IRAL monies, regional governments have the power to define the criteria used to divide up these funds among the municipalities in the region (SUBDERE 2001, 53). Fourth, in 1998 the Frei government began a series of Programming Agreements (Convenios de Programacion), which are formal accords between one or more regional governments and one or more national ministries in which both parties contribute revenues. According to critics, government claims that these four institutional mechanisms have effectively decentralized economic authority to the regions are wildly overstated. At the heart of these criticisms is the observation that each of these four mechanisms preserves a healthy dose of discretion for central government decision makers relative to the regions. On closer inspection one can see that national politicians have retained a great degree of discretion over how transfers are used. Most of the growth experienced by the FNDR over the 19905, for example, is accounted for by increases in what are known as "FNDR-profisiones" rather than the "FNDR-£rarf/ao«tf/." While the latter can be spent as dictated by each regional government, the former must be spent on projects identified by the national government. According to Jaime Zavala of the Institute Libertad (Freedom Institute), FNDR funds at the free disposal (libre disponibilidad) of the regional governments actually decreased, from 14.2 percent of public investment in 1990 to 9.1 percent in 2000.n Similar charges are made with respect to the ISAR and the IRAL funding mechanisms. According to Tobar, the national ministries present the regional governments with short lists (listas cortas) of projects for them to decide between, effectively denying them a significant degree of choice and making it unlikely that regional officials would veto any of the few projects that the ministries decide to include on these lists.12 As Senator Eugenio Cantuarias complained in an open letter to the Santiago daily La Epoca, the bulk of the increase in regional investment under Frei was due to the expansion of the highly discretionary ISAR and IRAL programs, rather than to traditional FNDR monies.13 A number of other factors have limited regional autonomy and kept the regions dependent on interventions by the national government. For example, the levels of each of these funding mechanisms (FNDR, ISAR, IRAL, and CPs) are determined each year by national politicians as part of the annual budget process (SUBDERE 2001, 55).This makes it difficult for re-

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gions to plan multi-year investments and also makes them vulnerable to national-level politics. Although, as Edgardo Boeninger argues, a decline in the funding levels for these four mechanisms is unlikely, given their current popularity with legislators, it is nevertheless important to note that regional governments still do not enjoy any sort of guaranteed revenue.14 Proposals by regional officials to automatically share one percentage point of the national value-added tax (VAT) directly with the regions have been unable to overcome the deep-seated opposition to revenue sharing by the Finance Ministry.15 Regional officials have simply failed to acquire much independent policy authority in the 19908, and this leads us to conclude that national politicians have been able to keep regional institutions quite limited in scope. Designing Subnational Institutions at the Municipal Level. The ambivalence of national politicians toward subnational authorities is also seen in the design of municipal political institutions. According to the design endorsed by the Negotiating Table in 1991, voters would elect municipal councilors on open party lists, and these councilors would then be free to pick one of their own to serve as mayor. This indirect election of the mayor by a municipal council undercut the mayor's direct rapport with voters, according to many observers. Also as a result of this design, candidates for municipal councilor who were really only interested in serving as mayor, but who were not chosen for that position, ended up delivering lackluster performances as councilors.16 In the aftermath of municipal democratization in 1992, the party leaders of the Concertation proposed shifting to the direct election of mayors. Although Concertation legislators had cause to fear separately elected mayors, struggles between the two party blocs led Concertation leaders to support separate mayoral elections as a reform that would benefit its component parties relative to the opposition. For the same reason, the leaders of the Alliance opposed the separate election of the mayor, and for several years they were able to veto any shift away from indirect mayoral elections. In addition to permeating the design of municipal electoral mechanisms, the cautious and careful stance of national politicians is also clearly visible in their approach to the question of what powers municipal authorities would have. Their hesitance is reflected in Table 7.1, which contrasts municipal, regional, and national shares of public revenues and expenditures over the course of the 19905. National politicians sought to keep elected municipal officials on a short leash by jealously guarding national authority over municipal economic matters. In a variety of ways, control over institutional design has enabled national decision makers to deny municipal officials the types of authority they

178

The Third Wave of Democracy TABLE y.I National, Regional, and Municipal Shares of Revenue and Expenditure in Chile (percent) Shares of public revenue by level of government

Shares of public expenditure by level of government

Year

National

Regional

Municipal

National

Regional

Municipal

1990

93.5

0.1

6.4

87.3

1.3

11.4

1991

93.2

0.2

6.5

87.1

1.4

11.5

1992

93.1

0.2

6.7

86.1

1.5

12.4

1993

92.9

0.2

7.0

85.7

2.6

11.7

1994

93.0

0.2

6.8

84.3

2.8

11.7

1995

92.6

0.1

7.3

84.0

2.9

13.1

1996

92.2

0.3

7.5

82.9

3.4

13.7

1997

92.1

0.2

7.6

81.7

4.1

14.2

1998

91.6

0.2

8.1

81.0

4.8

14.2

SOURCE: Based on data in SUBDERE 2001, 53.

routinely enjoy elsewhere in Latin America. First, there is a tremendous and well-documented mismatch between the significant responsibilities that are assigned to the municipalities and their anemic revenue-raising capacity (Marcel 1994, 95;Yanez and Letelier 1995,143; Garman, Haggard, and Willis 1996). Due to this mismatch, mayors are still heavily reliant on national politicians who broker funds from the national government. As a reflection of this imbalance, a major recommendation of the World Bank's 1993 mission to Chile was to "rapidly increase municipal revenues for primary health and primary and secondary education to offset shortfalls in transfers from the central government" (World Bank 1993, xi). As seen in Table 7.2, discretionary transfers from the central government for education and health formed over a third of all municipal revenues in the 19905 (SUBDERE 2001, 57). Furthermore, the rates of many of the taxes that finance the other significant category in Table 7.2, "own-source revenues" (ingresos propios), are effectively controlled by the center. Insufficient and discretionary transfers are not the only problem facing municipal officials. Subsequent to the democratic transition, the national legislature has retained authority over the adjustment of property values. These values serve as the basis for determining local property taxes, one of the most important "own-source" municipal revenues. In the 19905, critics from the Left and the Right agree, the central government continued to provide exemptions from the local property tax without compensating local governments for lost tax revenue.17 While in much of Latin America municipal governments fail to exert great effort in the collection of municipal taxes, in

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TABLE 7.2 Breakdown of Municipal Revenues in Chile (percent) 1991

1992

1993

1994

1995

1996

1997

1998

Own-source tax revenues

49

49

50

45

49

49

50

52

Other fees

10

11

10

10

9

9

8

8

Education transfers

32

30

29

32

31

32

31

30 4

Health transfers

5

5

5

5

4

5

4

Potable water subsidy

0

0

1

1

1

1

1

1

Other transfers

4

5

5

7

6

4

6

5

100

100

100

100

100

100

100

100

Total

SOURCE: Based on data in SUBDERE 2001, 57.

Chile the point is that these governments simply have far less statutory authority over their own tax bases.18 Genuine municipal autonomy threatens not just national bureaucrats but also national legislators, who have traditionally intervened in national bureaucracies on behalf of the municipalities in their districts. As a result of this interference, the research institute of the National Renewal Party concludes that "municipal autonomy today, despite being recognized in laws and in the constitution, exists only in theory."19 Though legislators amended the constitution in 1997 to decentralize authority over firing and hiring decisions, they steadfastly declined to pass the necessary implementing law to consolidate this change.20 Municipal autonomy over personnel decisions remains weak as a result. GROWING MOMENTUM FOR DECENTRALIZING CHANGES IN CHILE'S SUBNATIONAL INSTITUTIONS

According to the picture that emerges from the preceding analysis, national politicians in Chile have been quite adept at designing subnational institutions that are fundamentally compatible with their own political interests and needs. While this picture captures much of the reality, it is also incomplete. By the end of the decade that began at the Negotiating Table, both regional and municipal actors had emerged to play roles that were more robust than those contemplated in 1991 and that one would not predict based on the unimportance of these actors within political parties. As the following analysis seeks to demonstrate, the reasons for the somewhat surprising expansion of subnational authority are multiple. Part of this expansion is due to the simple reality that the cumulative effect of a number of small changes can be quite significant. Another important factor is the emergence of new institutional actors who have championed the cause of decentralization. At the regional level,

l8o The Third Wave of Democracy the key actor has been the Subsecretaria de Desarrollo Regional y Administrative (Subsecretariat for Regional and Administrative Development, or SUBDERE), established within the Interior Ministry as the logical result of the decision by Pinochet to create regional governments. SUBDERE in the 19905 served as a home in the public sector for Chile s most articulate and committed decentralizers and regularly went to battle with other forces within the national bureaucracy, including powerful opponents of decentralization located within the Ministry of Finance.21 At the municipal level, the combination of expenditure decentralization in the 19808 and municipal democratization in 1992 gave rise to an equally important municipal lobby, the Chilean Association of Municipalities (Asociacion Chilena de Municipalidades, or ACHM). According to many observers, the association has greatly facilitated collective action by municipal authorities, and national policy makers are now regularly forced to solicit the substantive input of the association in matters affecting the municipalities (Martelli 1998).22 Considering the unwillingness of national politicians to empower subnational governments, the actions of the ACHM and SUBDERE are critical in understanding why decentralization has emerged in recent years as such an important topic of debate. But much of the explanation for the surprising expansion of subnational authority in the 19905 can be found in the difficulties that individuals face when they set out to design institutions and attempt to anticipate the future performance of these institutions. Given the high discount rates of politicians who must necessarily be more concerned with the present than the future, short-term pressures in 1991 encouraged politicians to adopt institutions whose potentially threatening long-term effects they tended to discount. Chief among these pressures for the governing Concertation was the pressing desire to reintroduce municipal elections and remove Pinochetappointed mayors as soon as possible. Given uncertainty at the time of the democratic transition, politicians were limited in their ability to fully anticipate the consequences of the institutions they were designing. There is an intriguing irony here: the Concertation pushed for municipalization in the early 19905, hoping that it would have a strong base of support in the municipalities and fearing that the Right would benefit from regionalization. The Alliance resisted municipalization and sought to strengthen the regions as a natural space in which it could expand its base in Chile's new democracy. By 2000, however, the Right experienced growing successes in municipal elections, which has turned out to be more important as a "proving ground" for the pursuit of national power than the regions.23 Also by 2000, the direct election of regional authorities emerged as a much more attractive institutional reform option for the Concertation as it contemplated actually losing the presidency in 2006 for the first time since the transition.

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The Surprising Emergence of Regional Governments. One of the surprises at the regional level has been the growing momentum toward introducing direct elections for regional councilors. As noted above, legislators steadfastly opposed direct elections during the Frei government. In the 1999-2000 presidential race, both the Alliance and Concertation candidates explicitly supported the direct election of regional councilors. Shortly after taking office, President Lagos identified decentralization as one of three key reform areas. In the first year of his administration, he charged SUBDERE with the task of leading a far-reaching consultation process with civil society and governmental actors at the national and subnational levels. During this process, SUBDERE solicited input on the redesign of subnational institutions and synthesized this input in a single reform proposal: El Chile descentralizado que queremos (The Decentralized Chile that We Want] (SUBDERE 2OOi).24 One of the key reforms in this proposal is the direct election of regional councilors, who would be elected in provincial districts rather than in the larger regional districts that had generated such resistance by legislators. Within a few months of this proposal, by July 2001, eighty representatives of the lower Chamber of Deputies had signed a letter committing themselves to the direct election of regional councilors along the lines proposed by SUBDERE. On the one hand, the speed of this reversal suggests that this should be considered one more case of national politicians agreeing only to subnational changes that do not threaten them. On the other hand, the election of councilors in provincial districts would still represent an important departure from the current use of indirect elections and a significant expansion of democratic space at the regional level. With respect to the powers that regional officials enjoy, as noted above, the central government has retained a great deal of discretion over fiscal transfers to the regions. Although regional officials are not able themselves to set priority areas for regional investment, but can instead only assign centrally collected revenue to specific projects within centrally determined priority areas, this attribute alone is a highly valuable one. When mayors submit spending proposals to regional councilors within the priority areas set by the national government, these councilors are effectively in the position of picking and choosing specific projects to be funded. The power to secure national funding for local projects is precisely the type of activity that national legislators have long performed. Thus, despite the continued discretion of the central government, the decision-making powers of regional officials have experienced a significant expansion since 1994. According to some observers, in response to the powers that have accrued to regional councilors, parties have essentially acknowledged this transformation by putting more qualified candidates into these positions. Whereas parties in the early 19905 named as regional councilors individuals who were unlikely to succeed as

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legislators, the growing realization that regional councils influence the spending of increasingly large shares of national government revenue has led to the professionalization of these councilors.25 The Increased Protagonism of Municipal Authorities. For several years after the Negotiating Table, national politicians on the right vetoed attempts by Concertation leaders to separate the election of mayors and municipal councilors, a potentially significant decentralizing measure. Eventually, however, a series of events led to the separation of these elections in a change that promises to expand the political authority of mayors within the country's political system. In several high-profile races in the 1992 municipal elections, refusals by municipal councils to select as mayor the councilor candidate who had received the most votes in the election triggered growing popular demands for electoral reform.26 In 1996, the Alliance finally agreed to a compromise, according to which, if any municipal councilor candidate receives at least 35 percent of the vote, he or she would be automatically elected mayor. The 1996 reform had momentous but largely unforeseen effects on the struggle between the Concertation and Alliance over control of the municipalities. In hindsight, the reform clearly placed an onus on the ability of each of these two party blocs to agree to a common candidate (candidato de preferencia) for municipal elections.27 Otherwise, the open-list nature of these elections would tend to disperse votes for either the Concertation or Alliance so that no one candidate would surpass the 35 percent threshold. In practice, owing in part to its status as the underdog in municipal races, the Alliance was much more successful in imposing discipline and focusing its resources on a single candidate than was the Concertation. As a result, in nearly forty cities in the 2000 elections, which were the first to be governed by the 1996 law, the Concertation lost the mayoralty even though Concertation candidates together won a majority of votes.28 The city of Valdivia offers an extreme example, where the multiple candidates of the Concertation received 58 percent of the votes against 42 percent of the votes received by the Alliance s single candidate, who nevertheless landed the mayoralty. According to National Deputy Exequiel Silva Ortiz, the unintended effect of the 1996 reform was to repeat at the municipal level the overrepresentation of the Right that the binomial electoral system had achieved at the national level. After the 2000 municipal elections, the Right governed more cities in metropolitan Santiago than did the Concertation and held just ten fewer mayoralties in the country as a whole.29 Because the 1996 law translated into the overrepresentation of the Alliance in municipal offices after the 2000 elections, one would expect the parties of the Right to defend the 1996 law. After all, the Right at the na-

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tional level has tenaciously held on to the many institutional advantages introduced by Pinochet. However, the generally solid performance of the Right in these elections produced a key split among the parties of the Alliance. In particular, while the UDI continued to oppose separate mayoral elections, which it argued would weaken municipal councils, RN legislators changed their position and came to support separate mayoral elections.30 The increasing strength of the Right in municipal elections, which cannot be attributed entirely to the features of the 1996 electoral law, led the RN to believe that it no longer needed institutional rules that handicap the Concertation parties.31 This split within the Alliance was sufficient to enable the passage in May 2001 of separate elections, nearly a decade after the return to municipal democracy, and over the unified opposition of the UDI.32 By forcing each of the two blocs to come up with a single candidate for mayor, the 2001 law will counter the dispersion of votes for PPD, PS, and DC candidates that did so much to harm the Concertation in the 2000 elections. Over the course of the 19908 mayors have acquired greater political salience in Chile, and the May 2001 adoption of separate elections for mayors and councilors is likely to accelerate this trend. Though the national legislature tried to sharply delimit the municipal sphere in political life, mayors are now widely seen as being as important as legislators. Unlike legislators, mayors have their own, albeit constrained, access to tax revenues.33 In the 1999 presidential election, former mayor of Santiago (and current mayor of Las Condes) Joaquin Lavin (UDI) nearly ended the long control of the executive branch by the Concertation. He and another former mayor of Santiago, Jaime Ravinet (DC), subsequently emerged as two of the frontrunners in the 2005 presidential race. In addition to altering career paths, municipal democratization in the 19905 has challenged national party leaders by weakening the parties' ideological differences and furthering the personalization of politics. In the 1999 race, for example, Lavin ran on his record as local chief executive, distancing himself from the Pinochet era by eschewing the ideological debates of the past and presenting himself as a problem fixer. Such profiles would have been difficult for mayors to establish in the absence of the responsibilities transferred by Pinochet. The combined effect of expenditure decentralization in the 19805 and democratization in 1992 has been to challenge the national parties by making it easier for politicians to develop personalities independent of their parties. This development suggests that the 1991 decisions at the Negotiating Table have had consequences that far exceeded the expectations of the original parties to those decisions.

184 The Third Wave of Democracy Redesigning Subnational Institutions in Uruguay's New Democracy In Chile, the debate over subnational institutions has taken the form of discrete revisions of the two organic laws that govern regional and municipal governments. In Uruguay, there has been no equivalent, separate debate on subnational institutions; the code that regulates what the departments can do dates from 1935. Instead, the redesign of subnational institutions in the 19905 occurred as one part of a much larger redesign of political institutions that resulted in a major reform of the constitution in 1996. Also in contrast to Chile, there has been no explicit transfer of responsibilities to subnational governments in recent decades. Though no formal transfer of responsibilities has taken place, the 1996 reform introduced significant changes in the ways that subnational political authorities are constituted and in the organizational mechanisms that national and subnational governments use to negotiate fiscal transfers. Thus, despite differences with the Chilean case, contemporary Uruguay has also witnessed important changes in subnational institutions. Furthermore, the logic of decision making parallels the dynamic observed in Chile. In both cases, national actors have attempted to keep subnational authorities in check, and despite the success of some of these attempts, in both cases subnational actors nevertheless emerged as more influential actors in the 19905. When Uruguay returned to democracy in 1985 after more than a decade of military rule, it returned to a political system that was dominated by Blancos and Colorados. These two traditional parties survived the military interlude in a state of "suspended animation," successfully resisting various military efforts at displacement, co-optation, and repression (Gillespie 1991, 51). In the years since the transition, the two parties have monopolized control of the national executive branch through a series of coalitions led by the following presidents: Julio Maria Sanguinetti (Colorado, 1985—90), Luis Alberto Lacalle (Blanco, 1990—95),Julio Maria Sanguinetti (Colorado, 1995— 2000), and Jorge Battle (Colorado, 2000-2005).34 Notwithstanding similarities with earlier democratic periods, including the greater strength of the Colorados relative to the Blancos among the traditional parties, the contemporary party system has been greatly altered by the national emergence on the left of the Frente Amplio—Encuentro Progresista (Broad Front—Progressive Encounter, or FA—EP). Table 7.3 documents the rise of non-traditional parties relative to the Blancos and Colorados. As seen in Table 7.4, the FA—EP demonstrated in the 19905 that it was no longer limited as an electoral phenomenon to the department of Montevideo, winning over 30 percent of the national vote in 1994, nearly as

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TABLE 7.3 Evolution in the Vote for Traditional and Non-traditional Parties in Uruguay (percent)

Traditional Non-traditional

1984

1989

1994

1999

76.3 23.7

69.3 30.7

63.5 36.3

55.1 44.7

SOURCE: Laurnaga 2001, 24. TABLE 7.4

National Election Results in Uruguay, 1946-1999 (as percent of votes cast)

1946

1950

1954

1958

1962

1966

1971

1984

1989

1994

1999

PC PN FA-EP

47.8 41.8 —

52.6 38.5 —

50.6 38.9 —

40.3 49.7 —

44.5 46.5 —

49.4 40.4 —

40.9 40.2 18.3

41.2 35.0 21.3

30.3 38.9 21.2

Others

10.4

8.8

10.5

10.0

9.0

10.2

0.6

2.5

9.6

32.5 31.4 30.8 5.3

32.8 22.3 40.1 4.8

SOURCE: Cason 2002, 93.

much as each of the two traditional parties, and over 40 percent in the 1999 elections. In addition to becoming a national force, the FA—EP has governed the department of Montevideo, home to nearly half of Uruguay's population, since 1989, first under the administration of Tabare Vasquez (1989-94) and subsequently under the two administrations of Mariano Arana (1994-99 and 1999-2004). The national and subnational performance of the Left has been critical for the evolution of intergovernmental relations in two ways. First, fears that the FA—EP would win the presidency in the 1999 elections encouraged national politicians in the traditional parties to embark on a wide-ranging constitutional reform that included reforms at the subnational level. Second, the dominance of the FA—EP in Montevideo, combined with the continued dominance of the traditional parties at the national level, has produced an extended period of cohabitation between the levels of government (Moreira 1993). Using the many prerogatives at its disposal, the national government has sought to check the opposition-controlled Montevideo government in what some have called a politically driven economic blockade (bloqueo economico). When Uruguay returned to democracy in 1985, it also returned to the 1967 Constitution. At the subnational level, this implied the use of the following institutional rules: (i) multiple candidates within each party in the general elections for departmental executives, (2) an automatic majority (16

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of 31 seats) for the party of the departmental executive in each department's legislature, and (3) the inability of voters to vote for different parties in the simultaneous election of national and departmental authorities. Some of these subnational institutions became quite salient in the protracted debate over constitutional reform that took place in the 19905. For example, according to the so-called Maxi-Reforma proposal that died in the Senate in April 1994, parties would have been forced to select a single candidate (candidate unico) in elections for national and departmental executives rather than running multiple candidates on different lists (sublemas). Likewise, voters would have been allowed to vote for separate parties in national and subnational elections (voto cruzado, or "crossed vote").The shift to single candidates and the crossed vote were also included in the subsequent Mini-Reforma proposal that was approved by the legislature but defeated in a plebiscite in August 1994 (Veneziano 1995; Ferrando 1997). After Julio Maria Sanguinetti returned to the presidency in 1995, he reopened the process of negotiating constitutional reforms among leaders of all the main political parties. Key issues included the incorporation of a second round, the use of single candidates, and the separation of national and subnational elections. For the traditional parties, the most critical aspect of this reform was the introduction of a second round (balotaje) that would enable the two parties to close ranks after the first round and keep the FA—EP from winning the presidency. This measure acquired renewed urgency due to the FA—EP's strong showing in the 1994 elections (Cason 2002).The proposal to introduce an additional round, however, created significant tension between the two traditional parties since the Colorados' candidate would be much more likely than the Blancos' to make it past the first round and to have the chance to compete with the FA—EP in the second. To clinch Blanco support for the second round, the Colorados agreed to hold subnational elections six months after national elections.The Blancos insisted on this temporal lag as a reform that would enhance the political leverage of the departments—the party's most promising electoral arena.35 Once the driving interest in a second round on the part of the traditional parties became clear, the FA—EP withdrew from the inter-party negotiations over constitutional reform and campaigned against the reform in the December 1996 plebiscite (Ferrando 1997, 29).36 The constitutional reform was narrowly approved in this plebiscite with 50.45 percent of the vote, setting into motion deep changes in the country's institutional architecture. THE CENTRALIZED REDESIGN OF DEPARTMENTAL INSTITUTIONS

The purpose of this section is to assess the decentralizing content of the institutional changes that were incorporated into the constitution in 1996. Apart from the important decision to separate national and subnational

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elections, many of the changes introduced were marked by a great deal of centralism, including in the procedures adopted to govern intergovernmental fiscal relations. Other decentralizing changes were noticeable for their vagueness, including the failure to specify procedures for the election of local bodies within the departments. In the years since the 1996 reform, furthermore, there has been little progress in the passage of legislation required to implement changes called for by the 1996 reform. Foot-dragging on the decentralizing changes agreed to in 1996, which stands in such stark contrast to the resoluteness of the reforms electoral engineering aspects, has led many observers to conclude that decentralization was mere window-dressing in the 1996 reform, designed to mask the self-interested and anti-Left motivations of its negotiators.37 Although its impact is yet to be completely understood, the shift to separate elections for subnational authorities is undeniably an important decentralizing reform for Uruguay. Previously, when voters were compelled to vote for the same party at national and departmental levels, this linkage posed a serious obstacle to the development of the departments as separate political spaces. In this previous electoral system, the performance of subnational officials in their jurisdictions was less than critical as a determinant of subnational electoral outcomes. According to Colorado Deputy Jorge Barrera, as a determinant of their likely victory before 1996, local matters were less significant to candidates for subnational office than the critical decision of which presidential candidate they were going to support within their own party.38 Thus, national rather than local issues tended to dominate in subnational elections. As Diego Martinez wrote in 1992, "With a single vote Uruguayans have to decide on such matters as lighting, street cleaning and parks while at the same time deciding on anti-inflationary policies, internal and external debt questions and regional integration" (Martinez 1992, 8). With some modifications, Kathleen O'Neill's argument about why national parties decentralize can help illuminate the decision to separate subnational elections in 1996. Given the relative infrequency of Blanco control of the national executive branch and well-grounded worries about when it would next be able to break the dominance of the Colorado Party, following O'Neill one would expect support for decentralization during the Blanco presidency of Lacalle (1989-94).While one could cite Lacalle's need to construct a coalition with the Colorados as a factor that prevented decentralization in his administration, ideology provides a more convincing explanation. Unlike such previous Blanco leaders as Wilson Ferreira, Lacalle was personally opposed to decentralization.39 The Blanco Party did not decentralize when it held the presidency, but it did use its leverage as a key participant in the national negotiations over the constitution in the 19908 to push for separate elections. Furthermore, its support for this change can be

18 8 The Third Wave of Democracy attributed to the importance of the departments as an electoral arena for the party and to the perception that the rise of the FA-EP would further limit the Blanco s chances of regaining the presidency. In the short term, electoral outcomes in 1999 and 2000 validated the decision of the Blanco Party to push for separate elections. The Blanco vote in the May 2000 departmental elections was nearly six percentage points higher than in the national elections of October 1999 (28.0 percent versus 22.3 percent), which translated into Blanco control of thirteen of the country's nineteen departments (Cason 2002; Laurnaga 2001, 22). Indeed, the 1996 reform appears to have worked exactly as planned by the traditional parties: the Blancos offered the Colorado candidate Jorge Battle critical support in the second round to ensure his election as president, and six months later Colorado voters supported Blanco candidates for intendente in the many departments where Colorado candidates were not viable (Laurnaga 2001,28). Beyond the significant decision to separate departmental elections, other key aspects of the 1996 reform display a clear centralizing logic. One of the most profound changes in the new constitution is the stipulation that each party will select a single presidential candidate in internal party primaries held nearly six months before the first round of the national elections. Single candidacies promise to make parties less internally diverse. According to many observers, candidates who emerge victorious from these primaries wield a huge amount of authority within their parties in the run-up to the subsequent three electoral contests (first-round national, second-round national, and departmental).This effectively gives party activists less independence relative to the past, when multiple candidates could run in general elections.The ambivalence of many of these activists toward the end of the ley de lemas helps explain the near defeat of the 1996 plebiscite, despite its strong support by national party leaders (Ferrando 1997, 32; Laurnaga 1999,27). The centralizing thrust of the reforms is also quite clear in the procedures used to share revenue between the national and departmental governments. On the face of it, the stipulation in the constitution that a percentage of the national budget will be automatically shared with the departments appears to be an important decentralizing reform. But a closer look reveals crucial procedural advantages for the national government relative to the departments. Up until 1996, the extent of revenue sharing in Uruguay involved four different transfer mechanisms for taxes on cigarettes, gas and oil, cattle sales, and casinos.40 Through a fifth mechanism, the national government paid the social security contributions of public-sector workers in the departments (excepting Montevideo). In addition to inserting these five different mechanisms into the constitution, the 1996 reform also created two additional funds, one that would transfer revenues to the interior departments (excluding Montevideo) and another fund that would share revenues with all the de-

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partments, including Montevideo. The size of these transfers, however, was left to be decided in subsequent budgeting exercises, in contrast to the increasingly common practice in Latin America of writing revenue-sharing percentages directly into the constitution.41 Thus, constitutional reformers ignored the demands of departmental executives for the automatic sharing of a set percentage of national revenues (Carminatti 1994). In another change promoted as decentralizing, the new constitution created a Sectoral Commission on Decentralization (Comision Sectorial de Descentralizacion, or COSEDE), to be composed of representatives of both the national and subnational governments and located within the national Budget and Programming Office (Oficina de Presupuesto y Programacion, or OPP). According to the 1996 Constitution, the national government would hold six seats on the COSEDE, one each for the Ministries of Agriculture, Industry, Housing, Economy, Transport, and Tourism. Five departmental executives would also be selected to serve on the COSEDE by the Congress of Intendants (Congreso de Intendentes), an unofficial grouping of departmental executives that became official subsequent to the 1996 reform.42 Since each departmental government had to deal separately with the national government before the COSEDE existed, it would be a mistake to dismiss the creation of this body. Nevertheless, there are several reasons to question its decentralization potential. For example, though the COSEDE's recommendations on the percentage of revenue that should be shared with the departments are published along with the budget, they do not bind presidents and legislators but are instead advisory. As a sign of its limited decision-making authority, the importance of the representatives sent by each of the ministries to the meetings of the COSEDE has apparently decreased through time, from ministers themselves to sub-secretaries and finally directors.43 Given the traditional support for decentralization by the Blanco Party (Bervejillo 1988) and the key role of the Blancos in the 1996 reform, the absence of greater revenue decentralization is perhaps surprising. Internal party tensions explain part of this puzzle; though the Blancos govern many interior departments and should prefer revenue decentralization, under Lacalle s leadership the party championed the cause of fiscal austerity. The indeterminate nature of other nominally decentralizing measures in the 1996 reform is further testament to the absence of support for more vigorous changes in subnational institutions. For example, for the first time ever, the constitution distinguished between municipal and departmental governments, creating the possibility of a shift to a three-tiered system but without resolving any of the important institutional questions.44 The 1996 reform facilitated the election of local boards (juntas locales electivas) within each department, but stipulated that a separate law would need to be passed

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in order for these elections to occur (Laurnaga 1999, 22). According to the current system, the members of these local boards (which serve as executive bodies) are selected by the departmental executive and must reflect the partisan composition of the department-level legislature. By enabling a diversity of electoral outcomes within a department, the shift to elected local bodies would represent a significant revision of subnational political institutions. As another example of the failure of the constitution to decide key questions, the 1996 reform called on the COSEDE to develop policies to promote decentralization in the future. As argued by one editorialist against the 1996 constitutional reform, "In order to be implemented everything in this reform will depend on the two-thirds support of national legislators in the future. Can anyone in this country imagine Alberto Lacalle, Jorge Battle, and the rest agreeing to transfer power to the municipalities?"45 With respect to implementing the reforms adopted by the 1996 Constitution, national politicians have also demonstrated a great deal of caution. Consider the changes introduced to the fiscal relationship between levels of government. Because the budget for the 1995-99 period was already determined when the 1996 reforms were passed, the subsequent budget for the 1999—2003 period was the first to be governed by the new revenue-sharing rules. Predictably, representatives of the national and departmental governments experienced difficulties coming to agreement on the percentage of revenue that should be shared and the relative weight of earmarked transfers within the total.46 Unable to agree to a single set of recommendations, the representatives of the central ministries filed a separate report proposing that 2.75 percent of national revenues be shared with the departments (against an average of 2 percent in the 1995-99 period). In their own report, the intendentes proposed raising the rate to 4.75 percent.47 President Battle sided with his ministers in proposing 2.75 percent, which the Chamber of Deputies raised to 3.13 percent.48 With respect to the constitution's request that the COSEDE develop a fund to promote decentralization, the president likewise favored the preference of his ministers for conditioned grants. According to the 2000 budget, 75 percent of these funds will be implemented in coordination between central ministries and departmental governments, and only 25 percent will be available for projects prioritized by the departments themselves.49 There has also been little movement in the post-1996 period in terms of passing the needed laws that would regulate local elections within the departments (Magri 2001). In this period, the FA—EP has been particularly anxious to move forward with legislation that would enable the holding of elections for local boards (juntas locales), introducing several bills to this effect in Congress. For the FA—EP, there are solid political reasons to support the shift to elections at the local level. Though its fortunes are on the rise in several key departments, as seen in Table 7.5, the FA—EP does not yet govern

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TABLE 7.5 Electoral Performance of the FA-EP in Select Departments, 1971-1999 (percent of votes) Department

1971

1984

1989

1994

1999

Montevideo Canelones Maldonado Salto Paysandu Rio Negro Soriano

30.14 11.34 9.53 10.73 13.23 12.69 10.21

33.65 15.76 11.33 10.25 14.53 9.54 10.46

34.49 16.72 11.51 8.51

10.44 10.68 10.12

44.11 27.91 18.83 20.89 27.27 18.04 21.76

51.76 39.30 35.64 31.55 42.16 29.00 33.31

Colonia San Jose All Interior

11.19 9.31 9.58 18.28

12.07 10.89 10.34 21.26

11.35 10.40 9.93 21.23

20.23 20.34 19.46 30.61

30.01 31.28 31.10 40.11

Total

SOURCE: Bottinelli et al. 2000, 333.

any departments outside Montevideo, and would stand to win local contests in the capital cities of some of these departments were elections to be held.50 For example, in the important department of Canelones, the FA—EP would most likely gain control of local boards in several areas. When asked about the failure to pass the necessary electoral law, legislators from the FA—EP on the relevant committees in Congress cite the lack of political will among the traditional parties.51 According to Colorado Deputy Jorge Barrera, local elected bodies are simply less of a priority for the Colorado Party relative to other pressing economic matters.52 This is not, however, a simple case of national politicians blocking political decentralization. Departmental executives have also sought to prevent the constitution of local boards via separate elections.53 Unless and until these elections are adopted, departmental executives will continue to control the selection and operation of local boards, an important political resource. While the traditional parties that control the national government have demonstrated a lack of political will vis-a-vis institutional changes within the departments, they have demonstrated a great deal of political will in their treatment of one particular department: Montevideo. The consistent electoral victories of the FA—EP in Montevideo, combined with that department's overwhelming importance as a subnational unit, have given the national government further cause to go slowly on decentralization. A number of policy areas illustrate the hostility of the national government toward the department of Montevideo. In 1984, for example, the national government paid all of the costs of investments in drainage (saneamiento) in Montevideo, as well as

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in all the interior departments. In 1989, when the FA—EP won Montevideo, the national government cut the city's funding in half, and then eliminated it altogether in 1994. For all other departments, the national government provides the guarantee for loans from the Inter-American Development Bank, but not for Montevideo. Until the 2000 budget, and in sharp contrast to the treatment of capital cities in most developing countries, all revenue-transfer mechanisms in Uruguay excluded Montevideo. Though stationed largely in Montevideo, the fleet of cars and trucks owned by the national government pays vehicular taxes outside of Montevideo.54 Defenders of the national government argue that the preferential treatment of other departments reflects not political criteria but the reality that Montevideo is far more developed than the other departments.55 Critics among the Left respond that before 1989, when the Colorados governed Montevideo, it was one of the most privileged departments, and that the department of Maldonado—site of the famous beach resort Punta del Este—is included in the preferential treatment despite its high per capita income. SIGNS OF THE EMERGENCE OF DEPARTMENTAL EXECUTIVES

Despite attempts by national politicians to constrain subnational governments and to limit subnational authority relative to the national government, decentralization in Uruguay has nevertheless advanced over the course of the 19905. In a change that parallels the growing prominence of mayors and regional councilors in Chile, the chief executives who govern Uruguay's nineteen departments have gradually claimed greater political authority in their own right. The transformation in Uruguay is perhaps even more striking, given that no explicit transfer of responsibilities has taken place. The following paragraphs evaluate the signs of this transformation and its possible causes. According to a variety of sources, the twin phenomena of re-democratization and economic crisis in the 19805 and 19905 have compelled departmental executives to adopt roles formerly played by national actors (Bervejillo 1993, 12; Lanzaro 1994, 174; Laurnaga and Guerrini 1994, 83). Alternately referred to as the retreat of the central state and the decline of the welfare state, the withdrawal of the national government in a context of fiscal austerity has posed serious challenges but also opportunities for departmental executives. Although the national government has not explicitly augmented the powers of departmental executives, as the previous discussion demonstrates, the imprecision of a 1935 municipal code regulating what they can and cannot do in fact has given them a great deal of autonomy. In other words, departmental executives have had significant formal autonomy since the 19305, but only began using their powers in the 19805 and 19905, when economic crisis increased demands on them. Laurnaga and Guerrini argue that legal indefinition has enabled departmental executives

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to innovate in the contemporary period, and that many of the functions they are currently performing are not explicitly granted in the law (Laurnaga and Guerrini 1994, 83). One can thus conclude from this case that an exogenous shock (e.g., fiscal crisis) has led to behavioral change (e.g., an expansion in governmental activity by the departments) in the absence of institutional changes (e.g., explicit transfers of authority). A key factor in the emergence of departmental executives is their status as recipients of increasing demands for relief in the difficult economic times that Uruguay experienced in the 19805 and 19905. During economic downturns these executives are among the most visible of public figures. Compared to the national government, which citizens view as more distant and which has adopted austerity measures in recent years in response to international pressures, departmental executives have been natural targets of requests for assistance. Within departments, the absence of mayors and the reality that local boards (juntas locales) are mere extensions of the departmental government also serve to increase attention on departmental officials. Traditionally focused on services such as cleaning streets and operating cemeteries, the steep increase in unemployment, poverty, and social problems in recent decades have all generated much stronger pressures on departmental leaders. As Orrico argues, the departmental executives have been called on to put out fires in areas traditionally controlled by the national government, including health and housing.56 The cumulative effect of these pressures, according to Percovich, is that national and departmental authorities now effectively share responsibility for the provision of health care in Uruguay, despite the absence of explicit transfers of formal authority.57 In addition to filling voids left open by the national government, departmental executives have also adopted more proactive roles, adding socioeconomic development activities to their traditional responsibilities, including the generation of new sources of employment and the creation of special promotion units.58 One of the most salient examples in this regard is Juan Chiruchi, chief executive of the department of San Jose, who has created jobs by aggressively pursuing foreign investment. By offering to transfer public lands and by helping companies deal with bureaucratic constraints, Chiruchi has signed seven contracts with foreign companies.59 According to most observers, it is not that departmental executives have abandoned their traditional clientelistic roles but rather that they have mixed these roles with activities that are more characteristic of governors than mayors (Laurnaga and Guerrini 1994, 86). According to Lanzaro (1994, 175), departmental executives remain caudillos in many respects, but they are now "caudillos de la modernization" (modernizing caudillos). Departmental executives themselves concur in this picture of how their roles have expanded (Carminatti and Larranaga 1993; Carminatti 1994; Perez Piera 1994). According to

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one politician who has served as both departmental executive and senator, departmental executives have significant scope for action, despite the continued discretionary control of the national government.60 The assumption by departmental executives of new roles has had important political consequences. For example, the increased salience of departmental executives has led to changes in their relationship with national legislators. So long as the Uruguayan welfare state (estado benefactor) was in place, national legislators played a key role distributing the largesse of the central state, a position that afforded them considerable leverage vis-a-vis departmental executives. In the context of fiscal austerity and its negative impact on the range and quality of the policy favors to be distributed from the center, however, legislators have experienced a crisis in their status. In contrast, though departmental executives have limited resources, they do indeed have their own tax bases. According to Lanzaro (1994), one of the chief consequences of these changes is that departmental executives have now supplanted the traditional roles of legislators. As one legislator noted, these executives now exert more ownership of departmental decisions and are much less dependent on national actors than was previously the case.61 One important implication of this transformation is that legislators consequently face even greater incentives to oppose such explicit decentralization measures as automatic revenue sharing and the formal transfer of responsibilities. The greater protagonism of departmental executives has also had interesting implications for political career paths. The office of departmental executive is now considered a viable stepping stone to the highest offices in the national government. This stands in contrast to the past, when Congress served as the chief stepping stone to the presidency. In the 1994 elections, for example, four of the departmental executives who had been elected in 1989 were included on presidential tickets, and almost 80 percent of them disputed high-level posts in the 1994 elections (Laurnaga and Guerrini 1994, 85). The most important example of this phenomenon isTabareVasquez, whose five years as head of the department of Montevideo fueled serious runs for the presidency in 1994 and 1999. Within the Blanco Party, the emergence of Jorge Larraiiaga as head of the party's Alianza faction and likely presidential candidate can be traced to his experience as two-term executive of Paysandu (1989-99). There are also important cases of politicians preferring to serve as departmental executives rather than take positions at the national level. For example, after serving as executive of San Jose for two terms (1984—94) and as Minister under Sanguinetti (1994—99),Juan Chiruchi in 1999 withdrew from both the Senate race and from a likely ministerial position in order to serve as executive once again.62 According to one legislator, many other senators have resigned to serve as the executives of their

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departments; especially in the three or four most important departments, these executives are simply more powerful than senators.63 Another factor in the emergence of departmental executives in the contemporary democratic period is the inheritance of subnational institutions from the 1967 Constitution that centralize power in the figure of the departmental executive. According to electoral procedures established by the constitution, for example, the party of the executive automatically receives a majority of seats in the departments legislature, leading to highly "presidentialist" outcomes at this subnational level (Lanzaro 1994, 176). Despite the factionalized nature of Uruguayan parties and the need for special majorities in certain policy areas such as long-term borrowing, this rule provides the executive with significant advantages. As Moraes notes, automatic majorities have taken on added importance as the country has shifted from a two-party to a multi-party system (Moraes 1997, 9). A further hindrance that prevents the departmental legislature from playing a more active role is the fact that departmental legislators are not paid positions and most of these legislators from the traditional parties earn their livings as state employees of the departmental governments.64 In addition to horizontal imbalances that favor the departmental executives relative to legislators, vertically, these executives enjoy tremendous authority over the local bodies they continue to appoint in the absence of a national law that would implement elections for these bodies. As a result of such practices, as claimed by one former departmental executive, Mario Carminatti, executives in the departments almost have more power and attributes in their field than presidents do in theirs (Carminatti 1994). With the partial exception of the department of Montevideo (discussed below), experiences of decentralizing authority within the departments remain rare in Uruguay. In addition to the increased salience of departmental executives, one can also find evidence of the growing importance of departments as distinct political arenas within the national political system. While the rise of the executives is a phenomenon that predates the 1996 reform of the constitution, the new political status of the departments is mostly the result of the decision in that reform to separate departmental and national elections. In this sense, the shift to non-simultaneous departmental elections has set decentralizing changes into motion that partially counter the centralizing effects of the shift to single candidacies in presidential races. In the 1999—2000 electoral cycle, for example, several observers noted that departmental executives refrained from participating in national elections and chose instead to invest time and money only on departmental elections. According to Colorado Deputy Jorge Barrera, departmental leaders will think twice about participating in national elections because if they support a candidate who loses the presidential nomination in

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their party, this could hurt them in the subsequent elections in their own departments.65 Consequently, parties are increasingly organizing themselves departmentally as a result of the 1996 reform. Likewise, national party leaders neglected to campaign heavily in departmental elections in 2000, which helps explain the otherwise surprising gains of the FA—EP in several interior departments.66 These observations have led many to anticipate the fragmenting of parties due to the separation of elections, though the emergence of separate regional parties is unlikely.67 In addition to increasing fragmentation, the 1996 reform has also set into motion a variety of regional political alignments and departmental coalitions. For example, in the 1999 legislative election, lists were constructed in five departments that included candidates for the Senate who were only run in those departments (Laurnaga 2001, 21). Furthermore, where national issues formerly dominated in subnational elections, electoral outcomes at the subnational level can now shape dynamics at the national level. Within the Blanco Party, for example, the poor performance of former President Lacalle in the first round of the 1999 presidential elections was followed by particularly strong performances in the departmental elections by Blanco departmental executives who did not belong to Lacalle's (Herrerista) faction, including Paysandu executive Jorge Larranaga. According to Laurnaga, these subnational electoral outcomes have influenced the struggle between Lacalle and Larranaga for control of the party.68 Thus, the separation of elections has created new arenas for intra-party struggles. In response to some of these developments, there is now a move among national party leaders (namely Lacalle) to return to the practice of holding national and subnational elections on the same day, while allowing voters to cross their votes (voto cruzado).69 Though this has been articulated chiefly as a fiscal measure (to reduce the so-called costo politico), it also reflects a growing realization of the threat that separate elections pose to national politicians. Two additional factors help account for the reality that decentralization in Uruguay has advanced beyond what one would expect considering the resistance of national politicians. First is the role of external actors. Loans channeled to the departments by the World Bank and the Inter-American Development Bank have strengthened subnational governments.Though the national government plays a role in determining how funds are used, these loans have also expanded the resources available to subnational authorities, making it harder for the national governments to keep them in check (Bervejillo 1993). The presence of these actors may explain why decentralization in the contemporary period has advanced beyond previous experiences. A second factor is the role played by changes introduced within the department of Montevideo beginning with the administration of Tabare Vasquez in 1989, which some view as decentralization and others dismiss as mere

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deconcentration (Quintana 1992; Perez Piera 1992).Though the analysis of intra-Montevideo reforms is beyond the scope of this study, the general perception that these changes contributed to the electoral successes of the Left has helped to insert decentralization as a powerful theme into the country's political and policy vocabulary. Conclusion The pairing of Chile and Uruguay in the contemporary period generates a number of interesting findings. First, as in earlier periods in these same countries, decentralization has occurred as the result of conflicts and divisions among national politicians that weaken their normal resolve against the strengthening of subnational institutions. Second, when national politicians have opted to decentralize, they have sought to ensure that decentralization would not challenge their basic interests. In both countries, legislators have proved themselves to be especially worried about stronger subnational governments, deeply threatened as they are by the prospect of subnational actors who might supplant their traditional political roles as brokers.The chief sources of this resistance are different (e.g., new constitutional limits on the policymaking activities of legislators in Chile and an economic crisis that has shrunk the policy tools available to national representatives in Uruguay), but the outcome is similar: a highly cautious approach to decentralization. Not only did national politicians prefer to adopt only limited decentralizing measures, but they were able to do so thanks to the partisan weakness of subnational elected officials. Chile after 1990 and Uruguay after 1985 offer strong support for the argument presented in Chapter i that the use of subnational elections will not lead to "decentralization from below" if subnational officials are unimportant within their parties, which they decidedly were in both countries. Equally manifest, however, is evidence from both countries that subnational levels of government have in fact become more important subsequent to re-democratization, despite the shared preferences of national politicians for limited subnational authority. A central factor that helps explain this development is the frequency and seriousness of competitive struggles between groupings of national politicians. In contrast to Argentina and Brazil, where conflicts between subnational politicians contributed to re-centralization in the 19905, the more important conflicts experienced in Chile and Uruguay in that same decade were conflicts between national politicians, which pushed decentralization forward in both countries. In Chile, struggles within the Right (between the RN and the UDI) over the structure of municipal institutions led to the historic decision to separate the election of mayors and municipal councilors in 2000. Likewise, conflicting preferences between presi-

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dents and legislators over the design of regional institutions have led the former to propose separating the election of regional councilors from the election of municipal councilors. In Uruguay, conflicting preferences on how to reform the constitution in 1996 led to a series of compromises between the Blanco and Colorado parties, one of which has proved to be the most important decentralizing change in decades: the separation of national and departmental elections. In making sense of movement along the continuum of decentralization, paying attention to these often bitter political fights between politicians is much more helpful than focusing on underlying shifts in economic policies. While the retreat of the welfare state in Uruguay increased the stature of departmental officials in the 19905, the more important events in both countries were struggles between national politicians that weakened their otherwise shared interest in keeping power centralized. Thanks to conflicts among politicians at the center, subnational actors have been able to claim more important governmental responsibilities even in the absence of prior sources of partisan influence. The specific stories about how these actors have claimed new responsibilities differ in these two countries. In Chile, responsibilities were explicitly transferred under Pinochet, while in Uruguay a de facto transfer of responsibilities has occurred due to changes in the role of the central state. Whether they have been acquired via explicit transfers or not, the performance of new roles has increased the power of mayors, councilors, and departmental executives. In both cases, functional changes from above in what they can do as elected officials have enabled subnational actors to wield greater authority within their parties. Finally, in both cases, subnational executive office has emerged as a much more important route to high office. To date, the significance of subnational office as a stepping stone is more pronounced on the left in Uruguay and on the right in Chile. Nevertheless, the experiences of individuals such as former Santiago mayor Jaime Ravinet and former Paysandu executive Jorge Larrafiaga suggest that this new career path is not limited to the right in Chile nor to the left in Uruguay. The growing relevance of subnational offices is thus a phenomenon that cuts across party lines.

CHAPTER

Comparing Waves and Approaches

8

THE PREVIOUS FIVE chapters have focused on such seemingly disparate phenomena as Argentina's economic meltdown at the turn of the twenty-first century, the subnational statism of Brazilian generals in the 19605, Uruguay's historic constitutional reform in 1996, and the Civil War in Chile in 1891. For all of their differences, each of these periods witnessed important struggles over the design and redesign of subnational institutions. These struggles were not always the result of concerted attempts to expand or contract the authority of subnational governments; decentralization and re-centralization have often occurred as the unintended byproducts of conflicts that initially had little to do with the intergovernmental distribution of power. Over the course of the long period surveyed in this book, national politicians frequently expanded the attributes of subnational governments, not because decentralization was their primary concern, but because it served a variety of more pressing needs. At various points in time, for example, decentralization "worked" as a solution for politicians contemplating how they could restore balance to interbranch relations (e.g., late-nineteenth-century Chile), foster rapid industrial growth (e.g., Brazil under the generals), constrain the fiscal position of a successor government (e.g., Argentina on the eve of Peron's return), and respond to constituent demands for lower taxation (e.g., Uruguay in 1918). Decentralization has indeed functioned as an effective means to a number of distinct ends, and this flexibility helps explain why subnational institutions have been implicated in some of the region's most transcendent political and economic conflicts.This broader understanding of decentralization directly challenges the view that Latin America's subnational realm has become important only with the fraying of its centralist traditions in the last two decades. In this final chapter, I take a step back from the empirical detail of these episodes and present two sets of more general observations. First, I return to

2O2

Conclusion

some of the questions that emerge from the book's comparative historical approach initially posed in Chapter I. How did episodes of decentralization and re-centralization vary through time and what is unique about the contemporary wave? In what ways did earlier episodes shape subsequent ones, and what critical junctures can one identify in the evolution of subnational institutions over time? Second, turning from the identification of past patterns to a more speculative discussion of the future, I close by analyzing the likely impact of decentralization on a policy trend that promises to take Latin America in the opposite direction: regional economic integration. How does the decentralization of authority "downward" to subnational actors influence the devolution of authority "upward" that is characteristic of successful integration efforts? I argue that the different approaches to decentralization that have been adopted in my four countries pose a distinct set of risks and opportunities for politicians as they pursue regional economic integration. Drawing on the experiences of these countries, I contrast the hesitant approach to decentralization that has dominated in Chile and Uruguay with the more radical approach pursued in Argentina and Brazil. Because each approach poses different challenges for economic integration, the experience of these four countries can be used to draw out lessons that might be useful to countries that have only recently decentralized or that are currently debating whether and how to do so. Comparing Waves of Decentralization and Re-centralization Considering the historical breadth of this study, and the profound political and economic changes experienced in each of the four countries under review, the existence of patterns that hold up across time is noteworthy. In the most important such pattern, I find that decentralization has usually occurred as the result of pressures from below in Argentina and Brazil, while in Chile and Uruguay it has always emerged as the result of fissures among national politicians at the top. Within the "bottom-up" dynamic at play in Argentina and Brazil, the most significant pressures have been exerted by subnational officials rather than subnational civil society, and among subnational officials, it is governors in each country who have taken the lead in demanding additional resources and powers. Subsequent to successive democratic transitions, the partisan leverage of governors over the national legislators who represent their districts has been an important tool in securing decentralization. In each period, this protagonism of the governors is directly reflected in the content of the decentralizing policies adopted, specifically in the steady preference for the decentralization of revenues over expenditures. All important exceptions to the pattern of "bottom-up" decentralization in these two countries have

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occurred under military rule, precisely when the end of democracy undercut the relevance of gubernatorial leverage over national legislators. During military periods, the downward transfers of authority that occurred were introduced in a "top-down" fashion, as when the generals expanded state-level, state-owned enterprises (estatais estaduais) in Brazil and made it possible for provinces to grant federal tax breaks in Argentina. Despite the strength of the governors in democratic periods, I find that conflicts between them in the twentieth century repeatedly limited their ability to defend the states and provinces against the centralizing ambitions of national politicians. Tensions between subnational units, often worsened by the development gap between them, have made it possible for presidents to divide and conquer in their pursuit of more centralized institutions, as in the Vargas era in Brazil (Chapter 3) and the Menem era in Argentina (Chapter 6). Due to rivalries among the governors and the jurisdictions they govern, it is not always possible to predict the outcome of disputes over subnational institutions based on the leverage that governors wield within their parties. In addition to conflicts that divide governors as a group, centralizing presidents have also sought to take advantage of the institutional jealousies that pit governors against mayors. The attempt to weaken subnational authorities at the intermediate level by strengthening authorities at the municipal level was particularly important in Brazil, under Vargas in the 19305 and the generals in the 19605, though it also appealed to defenders of a strong central government at the 1946 constitutional convention. More recently, one can identify a similar dynamic in Argentina, as when Menem floated the idea of sharing revenues directly with the municipalities in the attempt to scare governors into endorsing a series of presidential reform proposals that were comparatively less threatening. In Chile and Uruguay, in the absence of equally powerful subnational officials, decentralization has taken place in these countries only because it has appealed to the political interests of national politicians. "Top-down" decentralization has been the outcome of a national-level political game in which national conflicts and issues have predominated, and from which subnational actors have continually been excluded. The nature of the national conflict has changed through time—sometimes intra-branch conflict encourages legislators to decentralize in their struggle with the president (e.g., Chile in 1891), sometimes it is inter-party competition that leads national politicians to decentralize in the pursuit of partisan advantage (e.g., Chile in 1991; Uruguay in 1918 and 1996). What does not change, however, is the importance of divisions among national politicians as the key variable that explains the puzzling decision to decentralize in political systems where subnational actors cannot force this outcome on the national government.

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Conclusion

As in the Argentine and Brazilian cases, attention to structure and agency can illuminate elements of continuity across time in Chile and Uruguay. Structurally, the partisan weakness of subnational officials helps explain why these two countries remained two of the region's most centralized polities throughout the twentieth century. In both countries, the fact that subnational officials cannot much influence the careers of national decision makers renders moot the preferences these officials might entertain for decentralization. The intra-party distribution of authority, however, cannot explain why decentralization took place when it did, which requires instead that we take agency seriously by focusing on the strategies and calculations that encouraged national politicians to choose decentralization of their own accord. In contrast to Argentina and Brazil, it is the decentralization of political authority via the redesign of subnational electoral procedures in Chile and Uruguay that has consistently occupied the attention of decentralizers, and not the decentralization of governing capacity. Just as the frequency of changes in revenue transfers speaks to the governors' protagonism in Argentina and Brazil, the fascination with electoral tinkering reflects the dominance of national politicians in Chile and Uruguay Rather than prioritize transfers of policy authority or resources, national politicians in Santiago and Montevideo have proved themselves to be much more interested in calculating how various electoral procedures at the subnational level might deliver partisan benefits. Consistently, the identity of the protagonists who push forward the process of institutional design tells us a great deal about the content of the subnational changes that are ultimately introduced. Another constant across time is the highly purposive behavior that has driven politicians to redesign subnational institutions.The evidence presented in this book demonstrates that political actors seek to design institutions to their liking, and that they often succeed. Instrumentalism in the design of subnational institutions is particularly noticeable where national politicians chose to decentralize in the absence of significant subnational pressures and as a proactive measure to secure various political and economic objectives. In Chile in the i88os, while very different goals motivated the support for decentralization by members of the Conservative, Liberal, and Radical parties in Congress, the purposive behavior of each party in supporting decentralization is undeniable. One hundred years later, Pinochet strengthened subnational institutions in the 19805 in the attempt to lock in the neoliberal changes that he had introduced in the previous decade. In Uruguay, fiscal decentralization in the 1918 Constitution and the separation of national and subnational elections that took place nearly eight decades later were both designed as institutional solutions to immediate political problems at the national level. Strategic choice is also key to understanding institutional change in the cases of decentralization "from below." In Argentina, Peron was able to

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placate provincial demands for a greater share of federally collected revenue as a concession that would help him cement his support base in the interior. In Brazil, strategic calculations explain the preferential treatment that Vargas offered to municipalities and poorer states in the attempt to enlist them as allies in his struggle against political elites in the dominant states. To a considerable extent, institutional engineering at the subnational level has been successful, in the sense that it delivered the benefits anticipated by the actors who enacted institutional change. In explaining institutional choice, one of the striking patterns to emerge from the previous chapters is the importance of the high discount rates that face politicians, particularly in democratic contexts. Elections require successful politicians to remain focused on the short term, and this often leads them to downplay the long-term consequences of institutional change. Evidence of this phenomenon can be found in both the "bottom-up" and "topdown" cases. In Argentina and Brazil, a focus on the short term drove governors to accept changes that reduced subnational autonomy in the long run because they came coupled with immediate increases in revenue transfers. In Chile and Uruguay, short-term concerns drove national politicians to adopt decentralizing measures whose long-term effects were uncertain and potentially negative for all national politicians as a class of actor. For example, Chilean Liberals who were angry about Liberal President Balmaceda s attempt to hand-pick his successor responded by supporting a very radical decentralization measure in 1891. In 1991, the pressing desire of the new Concertation government to hold municipal elections as soon as possible—and thereby dismiss the Pinochet-appointed mayors who continued in their posts even after the transition—encouraged it to downplay concerns about the possibly negative implications for national politicians in the future. In Uruguay, the urgent need to prevent a presidential victory for the Left in the 1999 elections led the traditional parties to adopt a series of reforms that were, for Uruguay, quite dramatic, including running single candidates for each political party and separating elections for national and subnational offices. In contrast to short-term political calculation, normative commitments to decentralized governance have seldom driven the decision to reform subnational institutions. The preceding chapters also present plenty of cross-temporal and crossnational evidence to support the rather simplistic assumptions about actors' preferences that were set out in Chapter 2. My research underscores the considerable reach of universalizing assumptions about the divergence in the institutional preferences of national and subnational politicians. In Argentina and Brazil, for example, governors consistently lobbied harder for increases in unearmarked revenue transfers than for increases in subnational taxing authority, and they largely declined to press for greater expenditure responsibilities. In fact, every significant episode of expenditure decentralization

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Conclusion

took place at the insistence of national politicians. In Argentina, it was the generals in the 19705 and President Menem in the 19905 who forced the transfer of primary and secondary schools onto the provinces. In Brazil, it was President Cardoso and his health and education ministers who devised ways of forcing the states to take on greater responsibility for the provision of social services in the 19905 through the FUNDEF and PAB reforms.The consistent caution of the national government in Chile and Uruguay, which has repeatedly declined to adopt automatic revenue-sharing institutions, provides much empirical support for the assumption that national politicians, if they can get away with it, prefer centralized and discretionary control over revenues. According to one of the chief re-centralizing patterns that emerges from this study, inherent structural features in the relationship between national and subnational governments favor the former when it moves to re-centralize authority. For example, efforts by subnational authorities to prevent recentralization have often been undercut by the reality that the national chief executive—a single actor—can play subnational executives off one another. More than once, subnational solidarity vis-a-vis the national government has unraveled in response to the offering of special deals to some subset of subnational executives. Just as importantly, national actors have almost always had access to superior financial and fiscal resources relative to their subnational counterparts, which they can use to build support for re-centralization. National policy makers can promise much-needed short-term policy favors and one-offside payments to subnational governments, if these governments acquiesce, in turn, to re-centralizing changes in subnational institutions.1 There is nothing new about this strategy: Argentina's first president, Bartolome Mitre, purchased support for his centralizing reforms in the i86os with handouts to provincial elites (Rock 1987, 126). Over a century later, as I argue for both Argentina and Brazil in Chapter 6, national authorities were able to weaken subnational resistance to the privatization of subnational banks by offering certain states and provinces either debt forgiveness or favorable debt repayment terms. PERIOD EFFECTS

While some patterns are resilient across time, it is also possible to identify period effects that distinguish one wave of subnational change from the next. In a finding that challenges two of the most influential theories of decentralization, I have shown that liberalizing changes in regime type and economic policy orientation do not consistently result in decentralizing measures. In the last two decades of the twentieth century, democratization appeared to unleash pressures for decentralization not only in Latin America but in many of the other countries where authoritarianism similarly gave way to democratic rule. In the first two decades of the twentieth century,

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however, the region's first-ever experiences with democratization clearly triggered episodes of centralization in Argentina and Uruguay. As I show in Chapters 3 and 4, when Presidents Yrigoyen and Battle came to power in 1916 and 1903, respectively, they both confronted decentralized arrangements that provided regional shelters for their political adversaries. Both aggressively used the considerable authority that accrued to them following their democratic elections to remove what they considered to be the decentralized vestiges of a pre-democratic past. Democratization appeared to demand centralization. One can also identify period differences in the relationship between economic liberalization and decentralization. In the early twentieth century, economic liberals embraced decentralization. In Chapter 4, for example, I show how two of Latin America's earliest attempts to reorient economic policy in a statist direction at the end of the nineteenth century provoked strongly decentralizing reactions from liberals in Chile and Uruguay. In Chile, traditional landed elites in the Central Valley supported decentralization in the bold attempt to prevent the president from increasing the state's role in the economy in ways that would challenge their own economic interests. In Uruguay, the Blancos reacted to the construction of a welfare state under Colorado President Jose Battle by demanding the decentralization of taxing authority to prevent its further expansion. Elsewhere in Latin America, economic liberals turned to military solutions when threatened by statist policies, but in Chile and Uruguay decentralization proved to be the more attractive solution in this early period. At the end of the twentieth century, in contrast, economic liberals demonstrated much less enthusiasm for decentralization and, in many cases, provided outright support for movement in a centralizing direction. In all four countries in the 19905, liberals worried that decentralization would serve to expand the overall size of government and that automatic revenue sharing in particular would place major obstacles in the way of fiscal stability. One especially interesting case is that of the Uruguayan Blanco Party, whose traditional support for decentralization came into direct conflict in the 19908 with its liberal commitments to fiscal balance. If the impact of political and economic liberalization on subnational institutions changed through time, the same can also be said of presidentialism. In the democracies that were constructed before the rise of bureaucratic authoritarianism, the separate election of presidents and legislators generated support for centralization in the executive branch and support for decentralization in the legislature. The pattern of legislative support for decentralization against presidential support for more centralized outcomes appears to be less robust through time, however. In Latin America's past, legislators representing subnational jurisdictions in the national government often did little more than serve the interests of the landed elites who dominated their districts politically and

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economically. In contemporary democracies, the relationship between national legislators and subnational economic interests has become much more complex, as are subnational economic elites themselves. As a result, we see increasing diversity in the preferences of legislators toward decentralization. In response to growing complexity within subnational jurisdictions, legislators face greater cause to resist decentralization as a reform that would favor subnational individuals whom they perceive to be rivals rather than patrons (Eaton 2OOia). It is increasingly difficult to generalize about how legislators respond to decentralization; their preferences on subnational institutions have much to do with the rules that govern their own election, including such aspects as district size and term limits (Hutchcroft 2001; Willis, Garman, and Haggard 1999). As an example of a particularly strong period effect, the 19305 witnessed important centralizing changes in the tax structures of all four countries. To date, the Great Depression's impact on industrialization strategies has received the most attention from scholars of Latin America, but it is also the case that the ensuing economic crisis drove national governments to centralize, with sharply negative consequences for subnational governing capacity. In Uruguay, as I argue in Chapter 4, the Great Depression fueled attempts by national politicians to re-centralize taxing authority from the departmental officials who were blamed for the severity of the economic crisis. In Argentina and Brazil, the economic downturn of the 19305 led national politicians in Buenos Aires and Rio to set their sights on subnational tax bases, a crisis-induced encroachment that would have a long-lasting impact on the substance of intergovernmental relations for decades to come. Subsequently, the wave of authoritarian rule that swept the region in the 19605 and 19705 generated its own distinct dynamic. Earlier breakdowns in democracy brought to office de facto authorities without plans for deepseated reforms at either the national or subnational level. In contrast, in the third quarter of the twentieth century, a new breed of generals took power with ambitious and transformative plans for their countries' economies and polities. The content of the reforms they articulated varied considerably across my cases, but what held constant in this period was the depth of the reforms that were planned and the extent to which these plans affected the subnational level. According to the argument presented in Chapter 5, the political centralization that took place when the generals suspended and/or altered subnational elections freed them to introduce changes that had the surprising effect of enhancing the administrative, managerial, and institutional capacity of subnational governments. Different development strategies led the generals to introduce different changes in subnational institutions, as statism in Brazil triggered the expansion in the size of the subnational parastatal sector, while neoliberalism in Chile resulted in the transfer of both unfunded and under-

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funded expenditure responsibilities to municipal governments. Nevertheless, an important commonality that runs through the four countries in this period is the importance of the rupture in democracy for the redesign of subnational institutions. A final period effect concerns the tendency of decentralization to benefit more economically developed subnational units while centralization advances the interests of less developed regions. This pattern obtained in the nineteenth and early twentieth centuries, but it appears to have been reversed with the later establishment of increasingly redistributive systems of revenue sharing. Before 1880 in Argentina, decentralized control over trade taxes effectively enabled the country's most powerful province—Buenos Aires—to dominate the interior. After 1880, centralization in the form of the central state's victory over Buenos Aires came coupled with the myriad policy and institutional advantages for less developed interior provinces that are discussed in Chapter 3. A similar pattern can be observed in Brazil, where decentralization under the First Republic in practice gave Sao Paulo and Minas Gerais predominant positions relative to all the other states. Against this backdrop, Vargas after 1930 was able to enlist the poorer states of the North and Northeast as key allies who would support centralizing reforms in exchange for advantageous treatment from the center. More recent decades have upset this cross-national pattern. In both countries, decentralization has come to favor the less developed regions rather than the more developed regions, largely because it has taken the form of redistributive changes in the sharing of centrally collected revenues with subnational jurisdictions. So long as decentralization referred to the devolution of tax bases, it tended to reward the more economically advanced areas of the country. Subsequent to the establishment of revenue sharing, however, this pattern was reversed, with successive changes that assigned greater shares of federal revenues to less productive regions in the interior.2 FEATURES UNIQUE TO THE CURRENT WAVE

In addition to expanding the number of relevant cases, studying earlier waves of subnational change is useful because they enable us to better understand what is unique about the most recent wave. In general, decentralization in the contemporary period has achieved greater political momentum and salience than in earlier periods, but it would be a mistake to overstate the magnitude of current experiences relative to earlier ones. For example, the decision to decentralize control over national elections in Chile in 1891 was far more radical than anything contemplated in the next important debate over decentralization, which took place one hundred years later in 1991. In Uruguay, the departments enjoyed greater fiscal authority in the 19205, as a result of the 1918 reform of the constitution, than they have in the democratic

2IO

Conclusion

period initiated in the 19805. Due to the aggressive decentralizing thrust of the 1891 Constitution, Brazil's states wielded greater powers in the First Republic than they were able to recover either in the Second Republic or in the contemporary democratic period. That earlier measures cannot be dismissed as trivial, and were sometimes more significant than reforms in recent years, underscores the need to broaden the frame of reference to include past episodes of decentralization. Though we cannot conclude that the current wave has decentralized greater powers to subnational actors relative to past waves, several factors do distinguish decentralization in the contemporary period. Most important is the emergence of external actors and forces that have altered the terms of the domestic struggle between national and subnational politicians. This external dimension was not absent in the past; the centralization of taxing authority in the 19305, for example, can be understood as a domestic response to a crisis whose origins were international. As another example, British nitrate interests in Chile in the 18905 strengthened the domestic coalition in favor of decentralization against President Balmaceda, whose centralizing reforms had included the imposition of limits on foreign control of that sector. What distinguishes the contemporary period is the multiplicity of external pressures and actors. Most importantly, multinational companies have been joined by multilateral actors such as the International Monetary Fund, the World Bank, and the Inter-American Development Bank, all of which have advocated forms of decentralization. External actors do not speak with one voice, but in general they have strengthened the position of subnational governments. The external dimension has been particularly important in those cases where subnational actors do not enjoy the types of political leverage that enable them to demand decentralization from below. In Chile and Uruguay, for example, external pressures have partially compensated for the partisan weakness of subnational officials. In Chile, the Inter-American Development Bank provided an important impetus behind the decision in the 1980$ and 19905 to funnel a greater share of total public investment through the regions. In Uruguay, foreign companies have directly approached departmental executives, who, acting independently of the national government, have been able to attract fixed investments by offering public-land concessions and other incentives. Another factor that distinguishes the contemporary period is the range of domestic actors who have participated in the redesign of subnational institutions. According to the literature on decentralization, civil society actors and interest groups have been remarkably absent from the decision to decentralize, which has instead been dominated by political elites and governing officials (Manor 1999; Oxhorn 2004). My research suggests that, while govern-

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mental actors continue to eclipse non-governmental actors in the contemporary struggle over decentralization, the number of actors who participate in this debate has increased relative to earlier episodes. In Argentina and Brazil, the decentralizing charge of the 19805 was still led by governors, as it had been in the past, but a broader set of non-state actors influenced outcomes as well. In Argentina, teachers' unions shaped the process by which schools were transferred to the provinces in the early 19905, and protests by teachers later in the decade forced the federal government to find additional federal monies for what was by then a provincial responsibility (Failed 2001; Eaton 2OOia). In Brazil, civil society mobilized to a far greater extent in the democratic transition of the 19805 relative to the first transition in the 19405, and this difference helps explain why the 1988 Constitution was more decentralist than the 1946 Constitution (Souza 1997). Without romanticizing civil society, it makes sense to expect that when a broader set of interests and actors participate in the design of subnational institutions, this should alter the type of decentralization that we see. In particular, if high discount rates have made governors quite vulnerable to past offers of revenue transfers in exchange for reforms that reduce subnational governing autonomy, the participation of a broader set of non-state actors may limit the negotiation of similar deals in the future. The expansion in the range of actors who now shape subnational institutions is also at play in the top-down cases of decentralization. In earlier democratic periods, it was easier for national politicians in these cases to ensure that their strategic decisions to redesign subnational institutions would not get out of hand. In Chile, national politicians could use the municipalities to check the president in the 18905 without having municipalities emerge as independent threats to their power. In Uruguay, national politicians were able to wrest taxing power away from the departments in 1933 when the governing Colorados decided that it had been abused. In the contemporary period reviewed in Chapter 7, new organizations composed of subnational officials have strengthened their hand relative to the national government. Due to the lobbying efforts of Chile s municipal association and a new forum that enables departmental executives in Uruguay to collectively negotiate with the national government, in the 19905 it became harder for national politicians to control the process of institutional change. By helping individual subnational officials to overcome the costs of collective action, these new organizational actors may challenge the top-down logic of future changes in subnational institutions, even in the absence of changes that make subnational actors more important within their parties. Re-centralization in the contemporary period can also be distinguished from earlier attempts by national politicians to set institutions on a centralizing

212 Conclusion path. On the one hand, democratization posed challenges for re-centralizing drives in the 19905 that were mostly absent in the past. As Chapter 6 demonstrated, attempts by Carlos Menem in Argentina and Fernando Henrique Cardoso in Brazil to rein in subnational governments presented each president with serious political challenges. Their experiences were much more fraught than prior attempts to re-centralize in non-democratic contexts; democratization has simply foreclosed certain options available to centralizers in earlier periods. With respect to subnational political institutions, military governments in Latin America were typically able to depose elected subnational officials with the same dispatch with which they dismissed national politicians. One important case in point is Carlos Menem, who was removed as governor of La Rioja province in the military coup of 1976 and incarcerated in a prison ship off Buenos Aires before the return to democracy seven years later enabled him to resume his political career. With respect to subnational governance institutions, in Argentina (1966 and 1976) and Brazil (1967), military-led governments were quickly able to achieve such centralizing measures as the reduction in revenue transfers and the centralization of tax bases without entering into negotiations with subnational officials. On the other hand, if democratization makes re-centralization more difficult in the contemporary period, there are reasons to suspect that the recent economic reforms that have accompanied democratization may have made it easier. In Argentina and Brazil, the particular difficulties that neoliberal adjustment policies have posed for poorer provinces and states have increased the vulnerability of the officials who govern them. Governors have often had little choice but to accept the side payments offered by the federal government in exchange for political support for centralizing measures.Thus, in the contemporary period, democratization and economic reform are working at cross-purposes when it comes to re-centralizing designs on subnational institutions. The effects of economic reform on the interior have favored the centralizing drives of national politicians, while democratization has had the opposite effect by limiting the set of tools that centralizers can use. CRITICAL JUNCTURES

The chronological organization of this study makes it possible to identify critical junctures in the development of subnational institutions in each country. Taking the long view puts into relief those moments of change that ended up shifting subnational governments onto new institutional paths. In Argentina, the introduction of a revenue-sharing system in 1934 provides an excellent example of a "contingent event" with "deterministic properties" (Mahoney 2000, 507). As discussed in Chapter 3, the decline in trade revenues due to the world economic crisis of the early 19305 sent the

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federal government scrambling for additional funds. Though other options were available, the federal government proposed taking over the collection of what had always been provincial tax bases. When the provinces agreed to surrender responsibility for these tax bases, their decision had powerful and highly negative consequences for the integrity of provincial governments for years down the line. Technically, the provinces in subsequent decades were free to revoke the right of the federal government to collect their taxes each time they negotiated extensions of the coparticipation law. In the 19805, as mentioned in Chapter 6, Carlos Menem in his role as governor of La Rioja province threatened to do just that. But such a threat was far from credible. Once the provinces delegated taxing authority in the 19305, provincial tax-raising capacity atrophied in a way that, for all intents and purposes, foreclosed this option. Atrophy in the ability of provincial governments to raise their own taxes was particularly pronounced in the less developed jurisdictions that make up the great majority of provinces. In effect, the 1934 decision shifted the terms of the debate over subnational institutions from a discussion over the appropriate division of governing responsibilities to a nearly constant negotiation over the division of revenues collected by the federal government. In the 19405,19505, and 19605, decentralizing pressures from the governors almost exclusively took the form of demands for greater provincial shares of federal monies rather than for the restitution of fuller provincial taxing powers. In the early 19905, through the first and second fiscal pacts, the fiscal dependence of provinces on the federal government facilitated the further erosion of subnational governing capacity. In hindsight, events in 1934 mark a watershed in the subsequent relationship between the provinces and the federal government. In Brazil, the Vargas era likewise represented a critical juncture for subsequent institutional paths at the subnational level. For example,Vargas's highly contingent attempt to weaken the states by strengthening the municipalities was a key turning point in the development of more robust municipal governments, today one of the distinguishing features of Brazilian federalism. Vargas sought to neutralize his most threatening opposition—state-based politicians—by building a direct relationship between the federal government and the municipalities. Subsequent to the return to democracy in 1946, state-based politicians sought to bring the municipalities to heel, but the generals took up Vargas's same strategy in the 19608 and 19705 (Samuels 2OOOa). These attempts by the federal government to play to the municipalities culminated in the 1988 Constitution, with its recognition of municipal governments as separate members of the federation. The Vargas era also proved to be a critical juncture for the development of more robust federal institutions of the sort that subsequent generations of decentralizers could not easily undo. The transition to democracy in 1946 certainly shifted power back to

214 Conclusion the governors, but the preceding fifteen years of institutional engineering had created new and powerful interests opposed to the highly decentralized status quo that prevailed in the pre-i93O period. As it did for so many other aspects of political life in Chile, it is the Pinochet regime that represents a critical juncture for the subsequent evolution of subnational institutions. In the many decades of democratic rule before the Pinochet coup, national politicians had jealously guarded their policymaking prerogatives by vetoing proposals that would transfer authority to subnational actors. The period between 1938 and 1966, for example, witnessed seven failed attempts to introduce a regional level of government between the provincial and national governments (Illanes 2000,18). Due to the closure of the legislature in 1973, the authoritarian regime was able to expand the governing roles played by subnational officials in ways that democratically elected national politicians would have found profoundly threatening. As demonstrated in Chapter 7, Pinochet-era reforms proved to be quite sticky. At the municipal level, Pinochet's decision to channel important social compensation funds through the municipalities popularized "municipalization" and foreclosed the possibility of reversing decentralization in the early 19905. At the regional level, though politicians on the right had opposed the regions before the coup, the legacy of Pinochet's regional reforms led them to update their institutional preferences and to support a series of regional decentralization measures in the wake of the transition. It would be quite difficult to understand why the Right supported regional decentralization in the 1991 negotiations without referring to the radical socioeconomic changes instituted by Pinochet. In Uruguay, a critical juncture for subnational institutions is the 1996 decision to hold subnational elections apart from national ones. Though it is still too early to assess the full impact of this decentralizing electoral reform, it has already altered Uruguayan politics in important ways. According to my argument in Chapter 3, economic crisis in the early 19305 provided the Colorados with a pretext to reverse decentralization, and for decades thereafter departmental officials exercised very little political or economic authority Politicians in the country's two traditional parties agreed to keep governing capacity centralized and, unlike the three other countries in this study Uruguay's generals did not innovate in the area of subnational institutional design. Against this backdrop, the decision in 1996 to decouple national and subnational elections is indeed an historic one. For most of the twentieth century, Uruguayan voters had to vote for departmental and national candidates who represented the same party, a design feature that contributed significantly to the dominance of national politicians. The key "contingent event" that changed this traditional arrangement was the surge in support for a new, leftist party in the 19905. As demonstrated in Chapter 7, the decision to separate out depart-

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mental elections from the national electoral calendar emerged as a byproduct of the bold attempt by Colorados and Blancos to prevent the Left from gaming the presidency in 1999. The effects of the 1996 reform, which were immediately felt in the first elections to be regulated by the new electoral laws, include such important outcomes as the construction of departmental coalitions, the fragmentation of parties along departmental lines, and the growing independence of intendentes from national authorities. The traditional parties certainly succeeded in producing the electoral outcome they desired in 1999—2000, but the long-term and negative impact of separate subnational elections on the stature of national politicians is not to be underestimated. Approaches to Decentralization in the Context of Regional Integration This book has explored the logic of decisions by national politicians to devolve political authority and governing capacity downward to subnational governments. A fitting way to conclude it is to discuss how these decisions impact simultaneous efforts by these same politicians to delegate power upward in the pursuit of regional integration. If, as Snyder argues, "we live in an era of decentralization" (200ib, 93), then it is also the case that we live in an era of integration. In Latin America and elsewhere, the combined effect of decentralization and integration has been to dramatically constrain the number and quality of policy tools available to the men and women who run national governments. Based on the lengthy experiences of the four countries included in this study, I argue in this concluding section that decentralization poses a mix of risks and opportunities for national politicians in Latin America as they set out to integrate the region's economies. Specifically, decentralization impacts in powerful ways the two pillars on which regional economic integration is predicated in the contemporary period: market-oriented economics and democratic governance.3 Although subnational elections were not common during the region's earlier attempts at integration, their more widespread use in the 19805 and 19905 has posed real dilemmas for national politicians. The current approach to economic integration demands fiscal stability, with the result that national politicians increasingly find themselves in the difficult position of confronting directly elected subnational officials who have the authority to make independent taxing and spending decisions. In the 19905, Argentina, Brazil, Paraguay, and Uruguay sought to create a common market (Mercado Comun del Sur, or MERCOSUR) through the negotiated reduction of tariff barriers. Despite a great deal of forward momentum in the early 19905, the effort has faced significant obstacles, including

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considerable differences in the size of member economies and in their openness to external flows of trade and capital (Barbato 2000; Gionco 2000). Indeed, one of the reasons that kept Chile out of MERCOSUR (though it did sign on as an associate member) is the legacy of its unilateral trade liberalization under Pinochet, which rendered the Chilean economy much more open than its neighbors. By the late 19905, major economic disruptions in Argentina and Brazil dampened hopes that MERCOSUR could serve as an alternative to NAFTA in the construction of a hemisphere-wide common market. Notwithstanding these setbacks, most countries in the region remain committed to economic integration, and the pursuit of regional trading blocs elsewhere in the world promises to keep this issue alive in the policy agenda. At first glance, because decentralization essentially rearranges authority within country borders, it may appear to be unrelated to efforts at regional integration. After all, the forging of economic relationships between countries has traditionally been the exclusive prerogative of policy makers situated at the national level. As Putnam argues, these national policy makers are engaged in a two-level game, negotiating not just with their counterparts in other countries but with a series of domestic constituents as well (Putnam 1988), some of whom might have subnational identities. Thanks to the decentralization of both political and policy authority, however, some of these subnational constituents are now players in their own right. As a result, foreign economic relations have become the prerogative of a multiplicity of actors and negotiators. Some of the examples of this phenomenon are quite well known, as in the case of the tax wars discussed in Chapter 6 that have erupted among Brazilian states. But similar trends are under way in less likely places as well, as seen in my discussion of the departmental officials in Uruguay who have begun to court foreign investors directly. The cumulative impact of these emerging subnational actors suggests the need to rethink previous models that understood regional integration through the prism of national politics alone. Depending on how it is designed, decentralization holds out tremendous opportunities and risks for Latin American countries as they consider integrating their economies more tightly. With respect to the opportunities, decentralization can help consolidate the liberal political and economic models on which current integration efforts depend. For instance, to the extent that democratic consolidation in Latin America can be furthered by putting into place additional checks on arbitrary actions by national chief executives, political decentralization is a positive development, analogous to the strengthening of legislative and judicial branches at the national level. Decentralization in this sense may help limit the scope for the type of dramatic policy swings that have been quite common in the region and that can easily jeopardize forward movement on integration. In the contemporary period, unlike in most previous periods, decentralizing measures have moved beyond

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the empowering of subnational elected officials and have sought to broaden participation by non-governmental actors traditionally excluded from policymaking (Crook and Manor 1998). In at least some subnational regions of some Latin American countries, these attempts to broaden participation have experienced important successes. Beyond the impact on politics and policymaking procedures, decentralization can also have directly positive implications for economic performance in developing countries that are simultaneously pursuing liberalization and integration. For example, shifting responsibility over schools and hospitals to local governments can free up the central state to concentrate on implementing second-stage reforms, including the types of transparent judicial systems that integrated economies will need (Nairn 1995). More importantly, perhaps, when control over revenues is shifted to subnational actors, governments at this level can begin to play the role ascribed to them by the theory of fiscal federalism, namely, they can begin to differentiate the set of goods and services provided by government (Musgrave 1965). Subnational flexibility makes a great deal of sense in the context of a development model that requires firms in different subnational regions to participate aggressively in international markets. Greater policy autonomy for subnational officials in those jurisdictions that lie near national borders may be an especially critical tool in promoting regional integration. In many of Latin America's more centralized countries, including Chile, subnational officials are not able to offer the types of basic investment incentives that make the most of regional comparative advantages.4 On the other hand, decentralization also poses a series of risks for Latin America and other regions pursuing integration. If, on the political side, democracy is now seen as a requisite for close integration, it is significant that many scholars worry that decentralization is complicating the consolidation of democracy Rather than empower civil-society actors who have long been locked out of decision-making channels, decentralization may merely empower authoritarian enclaves at the local level (Fox 1994). The ability of local elites to dominate the bodies that are now receiving control over revenues and expenditures is often so great that it has led many civilsociety organizations to consider these bodies illegitimate and to avoid even attempting to participate in them (Schonwalder 1997). In many cases, the types of oversight activities that might detect abuses by policy makers are weaker at the local level than at the national level, and lower-income groups have often been able to amass greater associational power at the national level than at the subnational level. According to these scenarios, by worsening clientelism, decentralization may make it very unlikely that local governments will provide the types of specialized services that firms need if they are to produce for an integrated regional economy.

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On the economic side, decentralization can threaten integration by compromising the main components of the liberal model that currently holds sway in the region: macroeconomic stability and a reduction in state intervention. The first has received a great deal of attention in the literature, particularly by analysts working in the international financial institutions (Burki, Perry, and Dillinger 1999; Dillinger and Webb 1999, 2001). At the heart of this threat is the ability of separately elected subnational authorities to behave in ways that sabotage the fight against inflation by national policy makers. Along with such areas as defense and foreign policy, responsibility for economic stabilization is not a governmental attribute that can be decentralized. Independent spending and taxing decisions by subnational authorities can effectively counter stabilizing attempts by national leaders (Fukasaku and Hausmann 1998). Most frequently, this has taken the form of high levels of spending by subnational officials at a time when national authorities are trying to rein in expenditure. A related problem is the failure of subnational officials to spend revenue transfers on the expenditures that have been devolved, which national authorities tend to compensate for by sending additional revenues to the subnational level in order to prevent interruptions in the provision of basic governmental services.These interventions play havoc with rational public budgeting and typically have negative consequences for national budget deficits. THE RADICAL APPROACH TO DECENTRALIZATION

In navigating these considerable risks and opportunities, the four countries included in this study have chosen two very different approaches. I argue that their specific experiences are relevant to those who wish to understand the more general relationship between decentralization and integration. In Argentina and Brazil, policy makers have adopted the vigorous decentralization measures that are detailed in Chapter 6, and have experienced, in turn, all the advantages and disadvantages that are specific to this approach. With respect to the advantages, decentralization has increased the scope for innovation at the subnational level in both countries. It would, of course, be a gross mistake to conclude that traditional clientelist practices no longer pervade politics at the subnational level. Despite this disturbing continuity, however, at least some subnational governments in each country have been able to use their expanded powers to innovate in important ways.5 Within these two countries, the performance of local governments looks increasingly heterogeneous, with pockets of robust democracy mixed in with local authoritarian enclaves. In Argentina, the province of Mendoza has emerged in the contemporary period as a model of decent government, in sharp contrast to the more publicized cases of provincial corruption and clientelism (Chavez 2003). In Brazil,Tendler's work on the state of Ceara in the North-

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east shows what can happen when reformist subnational authorities decide they can win elections by such innovative practices as "collecting taxes already on the books . . . and insisting that new government employees be hired only through competitive exams" (Tendler 1997,9). Innovative practices have also taken root in more developed subnational units in Brazil (Arretche and Rodriguez 2000). Most salient here is the establishment of participatory budgeting by the Workers' Party government (Partido dos Trabalhadores) in the southern city of Porto Alegre. Having won the UN. Habitat prize for best-governed city, Porto Alegre's open-budgeting model has subsequently been copied by governments in other cities, including the conservative government of Recife (Heller 2001). Though a more radical mode of decentralization has facilitated participation and policy innovation, there is also a negative side to these more aggressive approaches.This can be seen most clearly in the extent to which fiscal decentralization challenged the ability of national authorities in Argentina and Brazil to retain control over national budget deficits in the 19805 and 1990s.6 As argued in Chapter 6, the important shift toward decentralization in Argentina occurred in 1987, when Peronist governors demanded the passage of a revenue-sharing law that greatly increased provincial tax transfers. Though fiscal pacts signed in 1992 and 1993 enabled the federal government to cut the percentage of revenues it had to share with the provinces, it purchased support for this measure by guaranteeing to transfer a minimum level of revenues, an agreement that operated like a straight]acket on the government once the economy began to contract later in the decade. That Argentina's collapse has so destabilized MERCOSUR provides powerful support for the contention that regional integration is increasingly being shaped by the design of subnational institutions, and that decentralization may complicate the pursuit of integration. In Brazil, irresponsible spending and borrowing decisions by the states triggered a national economic recession in 1999, provoking a currency devaluation that threw regional integration efforts into a profound state of crisis. For many countries in the region, the deep instability resulting from radical decentralization in Argentina and Brazil has sounded a note of caution in debates over how to design subnational institutions. THE TENTATIVE APPROACH TO DECENTRALIZATION

The more tentative approach to decentralization has enabled Chile and Uruguay to avoid the pitfalls of more radical approaches, but by resisting deeper changes, these countries have necessarily failed to benefit from many of the positive aspects of decentralization. In neither country have the independent spending, taxing, or borrowing decisions of subnational officials posed a threat to macroeconomic stability. Due to the sharp limits on the fiscal powers of subnational officials that are reviewed in Chapter 7, the struggle

22O

Conclusion

for economic stabilization in these countries is fundamentally different than in the cases of more aggressive decentralization. Pro-stabilization actors in the national government in Chile and Uruguay face a variety of obstacles, but the legal obligation to share a fixed percentage of revenue with independently elected subnational authorities is not one of them. Chile s experience is particularly important since its moderate and gradual approach to decentralization has made it a model for many developing countries, particularly in contrast to some of the failures of the more radical approaches adopted in Argentina and Brazil.7 In Chile, widespread commitment to the overarching goal of fiscal stability was achieved much earlier than in other countries in the region and has proved to be especially solid. Consistently, this goal has been articulated as one that is incompatible with the more extreme forms of decentralization adopted by neighboring countries. As argued by Carlos Ominami, former senator and economy minister, "In Chile, centralized formulation of the budget and equally centralized tax collection have been fundamental for assuring good management of public finances," with the result that "the most fruitful and interesting path to decentralization is a gradually decentralized allocation of sectoral resources defined in the budget" (Ominami 1995,178). Unsurprisingly, the gains associated with decentralization in the areas of innovation and participation have been quite limited in these countries. In Uruguay, as I argue in Chapter 7, legal indefinition has made it possible for departmental officials to expand their authority relative to the national government, but centrally imposed limits on departmental finances constrain their ability to innovate. In Chile, national policy makers have continued to stall reforms that would further democratize regional governments by shifting from indirect to direct elections of regional councilors. As a consequence, democracy at the subnational level remains more anemic in Chile than in virtually all of the big Latin American economies, significantly reducing opportunities for innovative and participatory policymaking. According to a comparative study by Angell, Lowden, and Thorp, more dynamic and innovative mayors have failed to emerge in Chile, not for lack of talent, but because insufficient resources have denied them "the power to make real change" (Angell, Lowden, and Thorp 2001, 219). TRADEOFFS AND CONVERGENCE

The experiences of Argentina, Brazil, Chile, and Uruguay suggest that many of the significant advantages that decentralization promises to deliver necessarily come coupled with an equally significant set of disadvantages. Though institutional design matters, the tradeoffs inherent in both aggressive and tentative approaches may not be completely avoidable through institutional engineering. In practice, genuine decentralization requires that subnational officials wield real authority over revenues—rarely is it enough to

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merely give them control over expenditure decisions while keeping revenues centralized.8 Without decentralizing revenues, countries cannot take advantage of the various gains in innovation, local dynamism, and democracy that decentralization can make possible. Where national politicians have resisted endowing subnational actors with real authority, the use of highly centralist development models has undercut the pursuit of an open-borders approach to integration. On the other hand, when national authorities do devolve the right to influence revenue and expenditure decisions, they by definition open themselves up to the macroeconomic threat posed by independently elected subnational officials. National politicians who have been more radical in the decentralization of economic policy authority have directly undermined their own ability to keep regional integration efforts on track. It is not likely that Latin American countries will ever converge on a single model of decentralization, but a central challenge for policy makers in the future will be to find ways of maximizing the strengths and minimizing the weaknesses associated with these different approaches. In countries that, like Argentina and Brazil, choose to endorse more aggressive measures, national authorities will have to design mechanisms that defend the viability of stabilizing policy tools without reintroducing too much discretion or complexity in the relation between national and subnational policy makers. In the past, national governments have routinely used discretion and complexity to hollow out decentralizing legislation (Manor 1999). Policy makers in Latin American countries where decentralization has been more tentative face the opposite challenge. In this set of countries, national authorities need to appreciate that the retention of overly centralized approaches to governance comes at a cost. More to the point, as the region continues to experience economic integration and liberalization, the cost of remaining highly centralized is likely to increase. According to this analysis, neither the aggressive nor the tentative approach to decentralization is free of problems and each has elements that would recommend it to would-be decentralizers. Countries that have pursued decentralization more aggressively demonstrate the long-term benefits for democratic policymaking that decentralizing measures can achieve. Countries that have adopted a less comprehensive version of decentralization illustrate the importance of ensuring that national policy makers continue to play the critical stabilizing roles that only they can play. From afar, the pursuit of regional integration in a period characterized by the routine holding of subnational elections appears to have shrunk the range of policy options currently available to national politicians. Despite these constraints, however, the varied experiences of the four countries included in this book show that national politicians still have important choices to make in the design and redesign of subnational institutions.

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Reference Matter

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Notes

CHAPTER I. E X P L A I N I N G DECENTRALIZATION AND R E - C E N T R A L I Z A T I O N

1. I use the term "subnational" to refer to all levels of government below the national level. In federal systems, there are generally two levels of subnational government, the intermediate level (e.g., states and provinces) and the local level (e.g., municipalities and villages). Unitary systems tend to have just one subnational level of government, though many have adopted a second subnational tier as well. Significant cross-national variation in the actual names used to refer to these units, including regions, departments, states, provinces, municipalities and counties, indicates the usefulness of "subnational" as a generic term. 2. Attention to earlier waves of decentralization puts into question the uniformity of the "centralist tradition" that Latin America is said to have inherited (Veliz 1980). 3. In the 19905 many of the holes in our knowledge of how basic national institutions work in Latin America were filled in, thanks to such works as Carey and Shugart 1998, Mainwaring and Scully 1995, Mainwaring and Shugart 1997, and Shugart and Carey 1992. At the subnational level, however, these holes remain significant. 4. For important exceptions, see Hutchcroft 2002 and Rondinelli, Nellis, and Cheema 1984. 5. Scholars have posited a number of continua in the attempt to account for and interpret cross-national variation in intergovernmental relations, including Riker s (1964) contrasting of "centralized" and "peripheralized" federations and Step an's (2001) "demos-constraining" and "demos-enabling" distinctions. 6. Important multicountry studies of decentralization have been conducted, but these studies have examined the causal roles played by such factors as legitimacy crises (Grindle 2000), internal party structures (Willis, Carman, and Haggard 1999), and electoral returns (O'Neill 1999) rather than underlying changes in development models and regime type. 7. For an important example of how subnational development strategies can differ markedly from national development strategies within the same time period, see Snyder 2001 a. 8. Subnational reforms in Bolivia likewise involved the establishment of regional state-owned enterprises (GTZ 2000).

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9. See Oxhorn 2004 for the argument that the relationship between democratization and decentralization is theoretically ambiguous. 10. See Rodriguez 1997 for related arguments about decentralization in Mexico and China. 11. Departures from strict presidentialism in my cases include Brazil's brief experimentation with parliamentarism in the early 19605 and the collegial executives adopted in Uruguay's 1918 and 1952 constitutions. 12. This section draws on the arguments about presidentialism that are developed in Shugart and Carey 1992, Mainwaring and Shugart 1997, and Carey and Shugart 1998. 13. Recent research suggests that minority governments are more common in parliamentary systems than previously believed (Strom 1990; Cheibub 2002). CHAPTER 2. DEFINITIONS, CASES, AND PATTERNS

1. Although I focus in this study on changes over time in subnational institutions, center-local relations are also profoundly shaped by national institutional design, including presidentialism and the intra-cabinet balance of power between different ministries. I am grateful to Paul Hutchcroft for this point. 2. As Hutchcroft (2001) argues, the existing literature has tended to neglect questions of political decentralization and emphasized instead aspects of administrative decentralization. 3. The term "legislative" is useful but not without problems since representatives to subnational decision-making bodies such as municipal councils often do not enjoy lawmaking powers. 4. Note that officials at one subnational level might be appointed (e.g., chief executives at the intermediate level), whereas officials at another subnational level are elected (e.g., municipal councilors and mayors). 5. The rules governing subnational recalls are also significant, as demonstrated in Hiskey and Seligson 2003. 6. It is not just the case that subnational formulas may differ from national formulas, but that—as in Argentina—subnational units themselves can employ a variety of distinct formulas, making the subnational realm a rich laboratory for institutional analysis. 7. On the failure of re-centralization in China in the early 19905, see Montinola, Qian, andWeingast 1995. On the aftermath of decentralization in Latin America and Spain, see Montero 2001 a. 8. Despite this book's focus on national designs of subnational institutions, it is also the case that in some countries subnational governments themselves have considerable scope to design institutions within their own jurisdictions. For examples from Russia, see Stepan 2001, 328. 9. For the demos-constraining impact of such bodies and the role played by malapportionment, see Stepan 2001 and Samuels and Snyder 2001. 10. For example, Panama and Paraguay held local elections for the first time in 1994 and 1991, respectively. In Venezuela, governors and municipal leaders were appointed until 1989 (Willis, Garman, and Haggard 1999, 36).

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11. In Bolivia, for example, politicians adopted elections for mayoral office in 1942, but these elections were only held for a seven-year period, after which the system returned to the appointment of subnational officials, between 1949 and 1987 (Nickson 1995, 108). Between 1987 and 1995 municipal elections were only held in approximately thirty of the largest cities. In Ecuador, a municipal code granting some local autonomy was passed in 1966 but not implemented until the 19805 (Nickson 1995,169). In Peru, though direct elections for municipal office were supposed to begin in 1892, local elections only took place between 1963 and 1968, after which a military coup ended this incipient experience with local democracy (GTZ 2000; Nickson 1995, 238). In Colombia, elections for mayor in 1988 were the first to be held in one hundred years. 12. There are some partial exceptions to this general absence of subnational democracy in Central America that merit further investigation and may be relevant to the hypothesis that subnational elections trigger decentralization. For example, elections for local office were introduced in Costa Rica in 1970 and local governments there have played an important service-delivery role. Guatemala's democratic revolution in 1944 introduced political autonomy for local governments, until the decision in 1982 to appoint rather than elect local offices. Honduras held local elections between 1957 and 1972 (Nickson 1995,156,184, 192). 13. Due to the undemocratic nature of the system, national control of subnational officials in Mexico is analytically distinct from other cases (e.g., Chile and Uruguay) where national officials dominate subnational candidate selection but cannot guarantee electoral victories. 14. Both of these national parties are constituted by provincial UCR or PJ party organizations. 15. During the pre-Republican period, states were called provinces in Brazil. 16. Throughout its history as an independent republic, Chile has maintained a provincial level between the municipalities and the national government, but after the 18405 the provinces have operated as administrative units rather than as separate spheres of government. 17. Interestingly, national politicians have preserved their prerogatives vis-a-vis local candidate selection despite the shift to open-list proportional representation, an electoral formula that has produced local control in countries such as Brazil. 18. In the 1996 constitutional reforms that are discussed in Chapter 7, electoral rules were revised to require each party to run a single candidate in national races, ending the era of multiple party candidates for single offices. 19. While much can be learned from studying these essentially oligarchic, predemocratic governments, dynamics in these periods are not strictly relevant to the hypothesis that subnational democratization generates decentralizing demands from subnational elected officials. 20. Later experiences with military rule in Chile (1973—90) and Uruguay (1973—85) are not presented in boldface; neither needed to recentralize due to the already highly centralized nature of pre-1973 institutions. 21. With respect to population, each country is characterized by profound regional imbalances in the concentration of the population. In Brazil, southern states are much more densely populated than states in the north and northeast. A high

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percentage of the population is concentrated in and around capital cities in Argentina (30 percent), Chile (30 percent), and Uruguay (50 percent). In these countries, important pressures have emerged to increase the control of capital cities by city governments rather than national governments, and pressures to decentralize within these municipal governments have also grown. 22. For the distinction between federal and unitary systems and competing definitions of federalism, see Riker 1964, Elazar 1987, and Stepan 2001. 23. See Escobar-Lemmon 2001 for the argument that federalism is a strong predictor of fiscal decentralization in Latin America. 24. For the argument that formally unitary systems may have federal features and that formally federal structures may fail to adopt federal principles, see Elazar 1987 andWeingast 1995. 25. In other words, on Vargas's watch, institutions became both more centralized and more asymmetrical. As Stepan (2001) has argued, such asymmetrical institutions are crucial for "holding-together" forms of federalism. CHAPTER 3. DECENTRALIZATION FROM BELOW

1. Given the anti-party antics of these leaders, both of whom actively discouraged the organization of party structures independent from their own persons (McGuire 1997), it may be misleading to think of these men as "party-builders." Nevertheless, it is possible to contrast the approaches they took to building distinct electorates for their parties since these led to a much more visible form of centralization in the case ofYrigoyen. 2. The centralization that Vargas achieved under the Estado Novo, however, did influence his subsequent party-building efforts. As Vargas prepared for the democratic transition in 1945, the individuals he appointed in the 19305 to replace democratically elected governors formed the core of one of the two parties he created, the Social Democratic Party. 3. Only after the most recent transition to democracy in 1983 did the ban on reelection begin to unravel in numerous provinces (Frias 1989). 4. For a discussion of regional conflicts in the formation of Argentine federalism, see Gibson and Failed 2004. 5. In the i88os and 18905 the federal government was able to compel further centralizing changes due to the significant debts incurred by provincial governments. The federal government took over the debts of the provinces as part of the agreement it negotiated with foreign lenders in response to the Baring crisis of 1889. In return, according to Randall, "the government's assumption of those debts signified the end of independent provincial action, since the level of sales taxes was determined by the federal government, taxes by the provinces on exports were prohibited, and foreign borrowing was not immediately feasible" (Randall 1978, 118). Thus, although the provinces reserved the right to collect indirect taxes in the 1853 Constitution, by the 18905 their own fiscal profligacy forced them to accept the encroachment of the federal government in this area. 6. The laws also adopted criteria that rewarded provinces in proportion to their contribution, since how much individual provinces gave up in the form of locally

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collected taxes would determine how much they would receive in the form of transfers (Nunez Mifiana and Porto 1983, 3). 7. La Nation, 7 July 1958. 8. Diario de Sesiones, 29 January 1964. 9. Luciano Dias, political consultant and professor, Fundacao Getulio Vargas, interview with author, January 2002, Rio de Janeiro. 10. Signs of the coming shift toward more centralized institutions can be seen in the 1926 reform of the constitution, which forced the states to get the federal government's approval to borrow abroad and expanded the powers of the federal government to intervene in the states to defend municipal autonomy (Brasileiro 1974, 11). 11. According to Camargo, the strategy of supporting municipalities in order to control states and build national unity dates to the Codigo de Proceso of the nineteenth century. Later, in the 19605, General Golbery "repeated the strategy, absolutely aware that the municipality was the great ally of the central government" (Camargo 1999,45). 12. Between 1939 and 1946, states and municipalities were obliged to request approval from the federal government before granting tax exemptions (Lagemann 1995,332). 13. Fifteen years into this democratic period, further changes were made that increased fiscal decentralization to the municipalities. In 1961 a constitutional amendment increased revenue sharing with the municipalities by giving them a 15 percent share in federal consumption tax revenues (Cann 1970, 15). 14. The governors of Sao Paulo, Minas Gerais, and Guanabara all lent their state police forces to the military coup (Carvalho 1996, 50). CHAPTER 4. DECENTRALIZATION FROM ABOVE

1. Some scholars emphasize class or economic interests (Edwards Vives 1952, Pike 1963, Ramirez Necochea 1969), others focus on personal and political antagonisms (Blakemore 1965), and still others emphasize institutional loyalties and preferences (Gil 1962). For a review, see Zeitlin 1984. 2. Rafael Sagredo, Subdirector, Institute de Historia, Catholic University, interview with author, 16 August 2001, Santiago. 3. Although there was nothing novel about presidential attempts to control elections, Balmaceda's political style also introduced important innovations. According to a new work by Rafael Sagredo, for example, Balmaceda pioneered the use of presidential travel as a campaign tool (Sagredo 2002). 4. As Siavelis notes, despite its name, the system lacked elements common to parliamentarism. For example, the president could not dissolve the legislature (Siavelis 2000,6). 5. Cleaves notes the "reactionary flavor in this recipe for decentralization" (Cleaves 1969,9). 6. According to Stabili, attempts by legislators to impose their personal choices for provincial executive routinely led to governmental crises in this period (Stabili 1993, 166).

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7. Though legislators from all parties gained by making it harder for the president to manipulate elections, decentralization was far from neutral with respect to its impact on different parties, whose local support varied widely. 8. The contrast with Argentina and Brazil here is instructive. Whereas key commodity exports in Argentina and Brazil were privately owned and hard to tax, the dominance of minerals in Chile's export structure may have convinced subnational officials that collecting their own taxes or demanding automatic transfers was unnecessary. 9. By elevating the importance of these exchanges of centrally dispensed favors for municipal voting blocs, decentralization had the effect of cementing ties between legislators and particular subnational jurisdictions. According to Valenzuela, whereas deputies before 1891 "were more likely to be transferred from constituency to constituency," in the parliamentary period they were more likely to represent just one district (Valenzuela 1977, 203). 10. This willingness to rely on transfers from the center is analogous to the acquiescence of the governors in Argentina and Brazil to the introduction of revenuesharing systems in the 19305, though the latter involved greater protections for subnational governments. In Chile, all transfers were subject to ad hoc negotiations, whereas in Argentina and Brazil, the sharing of revenues was more structured (though not without elements of discretion). 11. In subsequent years, however, Congress checked this presidential power by refusing to use current census figures in calculating which mayoral offices the president could control. By 1969, for example, thirteen cities had a population over 100,000 but only three had appointed mayors (Cleaves 1969,13). 12. As I argue in Chapter 7, this began to change only in the contemporary period after the adoption of separate elections for national and subnational officials. 13. The Pacto de la Cruz was directly negotiated between Colorado President Cuestas and the national leader of the Blanco Party, Aparicio Saravia (Lindahl, 1962, 19). 14. Gerardo Caetano, Professor of History, Universidad de la Republica, interview with author, 2 May 2002, Montevideo. 15. Jorge Lanzaro, Professor of History, Universidad de la Republica, interview with author, 5 May 2002, Montevideo. 16. According to Rilla, rural property owners paid a higher tax rate than Montevideo-based property owners, which increased the importance of fiscal decentralization as a key Blanco Party demand (Rilla 1985, 76). 17. Walter Morodo, Edil, Junta Departamental de Montevideo, interview with author, 3 May 2002, Montevideo. 18. It also allowed for the creation of a parastatal sector (entes autonomos) which is a form of decentralization (de Posadas 1988, 95; Rondinelli, Nellis, and Cheema 1984). 19. Planning in Uruguay had a strong sectoral as opposed to territorial component.

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CHAPTER 5. SUBNATIONAL REFORMS BY MILITARY G O V E R N M E N T S

1. The desire to wrest power away from democratically elected politicians at the subnational level does not appear to have been a prominent motivation behind the formation of coup coalitions. One exception is the collapse of democracy in 1933 in Uruguay, where the attempt to restrict independent fiscal behavior by the departments was one of the driving goals of the coup led by President Gabriel Terra (Sabelli 1993,42). 2. Different scholars identify different terminal points for the period of military rule in Brazil, with some using the return to direct gubernatorial elections in 1982, others using the indirect election of a civilian president in 1985, and still others using the return to direct presidential elections in 1989. I use the most commonly accepted date of 1985 here. 3. Arguably, the second scenario was less centralizing due to the maintenance of two distinct power centers: the military-appointed president and the military-asinstitution. However, in cases where the different services of the armed forces differed over policy, as in the Argentine Proceso, the direct control of government by the armed forces did not enhance centralized policymaking. 4. In fact, according toValenzuela (1999,106), while Pinochet jailed mayors from the governing Unidad Popular Party, he left some Christian Democratic mayors in their positions. 5. Before the revision of provincial constitutions in the 19805, Argentina lacked a tradition of municipal autonomy (Nickson 1995, 98). 6. Rachetti's close personal friendship with President Bordaberry may explain why he was able to continue to serve as intendente,When Rachetti's term expired in 1977, the military asked him to stay in the post, and Rachetti says he did so at the request of Colorado Party leaders Jorge Pacheco Areco and Jorge Battle (Rachetti interview, in "A mi los militares siempre me tuvieron respeto," El Pals, 2 May 2002, 10, n). 7. It is important to note that each of the two Argentine regimes was composed of at least three distinct sub-periods, each of which partially reversed the objectives of earlier sub-periods, making it difficult to ascribe a single economic development strategy to either of these two regimes. In analyzing the economic objectives of these regimes, I opted to focus on the initial, distinguishing phases of each: the Ongania presidency between 1966 and 1970, and theVidela presidency between 1976 and 1981. 8. Jaime Zavala, former Director of Municipal Administration in the Subsecretariat for Regional Development (1984—90), interview with author, 22 August 2001, Las Condes. 9. Jorge Caro, Chief, Division of Regionalization Policy, Subsecretariat for Regional Development, interview with author, 24 August 2001, Santiago. 10. Professor Jose Arocena, Catholic University, interview with author, 8 May 2002, Montevideo. 11. Luciano Dias, Fundacao Getulio Vargas, interview with author, 25 January 2002, Rio de Janeiro.

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12. On the electricity sector, seeTendler 1968. 13. Eduardo Kugelmas, Universidade de Sao Paulo, interview with author, 31 January 2002, Sao Paulo. 14. See Botana (2001, n) for the argument that "political elites managed to participate in the governments of their respective districts during periods of military rule." 15. Giorgio Martelli, research analyst, Fundacion Ebert Stiftung, interview with author, 17 August 2001, Santiago. 16. According to Senator Edgardo Boeninger, unlike the Brazilian transition, decentralization in Chile was not a key issue in the democratic transition itself (Boeninger, interview with author, 17 August 2001, Santiago). 17. See Eaton 20O4b for a lengthier analysis of Pinochet's subnational engineering. 18. Pirez (1986, 52) argues that fiscal decentralization in 1973 can be understood "as something of a present from the government to civil society," a change that reflects "the importance of regionally-based opposition and protest movements "The timing of decentralization, however, just ten days after the 1973 elections and not in the aftermath of the 1969 Cordobazo, raises questions about this interpretation. 19. Dias, interview. CHAPTER 6. THE R E E M E R G E N C E OF THE GOVERNORS IN ARGENTINA AND BRAZIL

1. On the relationship between decentralization and economic reform in Argentina, see Gibson I997b, Gibson and Calvo 2000, and Remmer and Wibbels 2000. On Brazil, see Britto 1995, Loureiro 2001, and Rezende 1996. 2. For the systematic analysis of rival explanations of re-centralization in Argentina and Brazil, see Dickovick and Eaton 2004. 3. Even analyses that eschew the study of aggregate changes in intergovernmental relationships in favor of a narrower look at particular aspects of this relationship face challenges in determining the net impact of changes introduced in the 19908. For example, in a focused case study of how the bank of Sao Paulo (BANESPA) was wrested away from subnational authorities, Garman, Silva Leite, and Silva Marques (2001) emphasize the considerable concessions granted by the federal government as the price of securing the bank's privatization. 4. In neither case, it is important to note, did these two presidents frame re-centralizing moves as antagonistic toward decentralized power per se. I am grateful to Kathleen O'Neill for this point. 5. Discretionary transfers were also useful in maintaining party discipline within the Radical Party. In the April 1985 meetings with Radical governors, for example, Alfonsin's economy minister conditioned the continuation of transfers on the approval of the president's budget proposals. 6. A comparison of how much provinces spent and how much they received in transfers demonstrates that the governors overstated their burden. According to FIEL (1993, 152), in the 1969-72 period, the provincial revenue transfers from the federal government represented 2.44 percent of GDP. This number more than dou-

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bled to 5.1 percent of GDP after the new 1987 revenue-sharing law, although the provincial share of government expenditure increased less than i percent of GDP. 7. Raul Baglini, former president of the Budget and Finance Committee, interview with author, n August 1999, Buenos Aires; and Jose Octavio Bordon, former governor of Mendoza Province, interview with author, 7 August 1996, Buenos Aires. 8. Ana Maria Mosso, former economy minister of Mendoza Province, interview with author, 12 August 1999, Buenos Aires; and Hugo Garnero, former economy minister of Santa Fe Province, interview with author, 22 July 1996, Santa Fe. 9. Oscar Cetrangulo, Center for Studies on Structural Change, interview with author, 15 March 1996, Buenos Aires. 10. Thus, revenue sharing as it has traditionally been practiced is highly procyclical (IDE 1997). 11. In Menem's second term, the governors were likewise able to assert growing protagonism vis-a-vis the federal government in the area of expenditure decentralization (Failed 2001). 12. Menem himself publicly vied with the economy minister over claims of responsibility for the stabilization program. 13. Jorge Matzkin, head of the Peronist Party bloc in the Chamber of Deputies (1990-97), interview with author, 13 August 1999, Buenos Aires. 14. The most important piece of decentralizing legislation to be adopted between the 1982 return to direct gubernatorial elections and the 1988 Constitution was the 1983 Passes Porto amendment, which increased revenue sharing to states and municipalities. 15. Sarney had served as president of the Democratic Social Party that the military sponsored. 16. Francois de Bremaeker, Institute Brasileiro da Administracao Municipal, interview with author, 24 January 2002, Rio de Janeiro. 17. Differences of opinion over the extent of re-centralization are part of a larger debate among Brazilianists over the performance of Brazil's political institutions. In the schism that has developed in recent years, while some scholars continue to emphasize the negative performance of these institutions and such phenomena as weak party discipline, party-system fragmentation, and inter-branch conflicts (Ames, Mainwaring, Samuels, Weyland), others argue that Brazil's governability problems have been overstated (Figueiredo, Limongi, Cheibub, Power). 18. In the area of education and health care, for example, the term"re-centralization" might imply that the federal government has sought to take over the provision of services formerly provided by subnational governments. Though such changes have occurred in other countries, such an outcome was never proposed by Brasilia. 19. Luiz Carlos Bresser Pereira, former minister of Administration and State Reform, interview with author, 30 January 2002, Sao Paulo. 20. Of equal importance to Cardoso's decision to deduct interest payments from transfers to Minas Gerais was the decision of the judiciary (Supremo Tribunal) to sustain this decision. According to Loureiro, the judiciary has mostly supported the federal government in its centralizing drive relative to the states (Loureiro 2001, 89).

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21. Sergio Guimaraes, National Development Bank (BNDES), interview with author, 22 January 2002, Rio de Janeiro. 22. In the Northeast, a 1992 survey found that 32 percent of teachers began their careers as political appointees (Souza 1997,114). 23. Jose Serra, Institute for Advanced Study, Princeton, interview with author, 24 February 2003, Princeton. 24. Luciano Dias, Professor, Fundacao Getulio Vargas, interview with author, 25 January 2002, Rio de Janeiro. 25. The 1996 decree was structured in a way that made it particularly difficult for the states to adopt the second path, and as a result, privatization has been by far the most common response. 26. In a further move that limited the borrowing capacity of subnational governments, the Senate delegated to the Central Bank some of its authority to endorse borrowing requests by subnational governments in an effort to tie its own hands (Loureiro 2001, 87). CHAPTER 7. NATIONAL E N G I N E E R I N G OF SUBNATIONAL INSTITUTIONS IN CHILE AND URUGUAY

1. For the sake of clarity, I refer to the opposition bloc as the Alliance although these two parties only took the name Alianza later in the 19905 and were initially referred to by other names, including Democracia y Progreso and the Union por el Progreso. 2. Senator Carlos Cantero, interview with author, 22 August 2001,Valparaiso. 3. Party leaders on the right believed they would receive especially strong support in such southern regions as Araucania and Magallanes (Jose Antonio Abalos, Director Ejecutivo, CONAREDE, interview with author, 16 August 2001, Santiago). 4. Edison Ortiz, Municipal Councilor, Rancagua, interview with author, 24 August 2001, Rancagua. 5. Luis Angulo, Chief, Department of Regional Development and Decentralized Institutions, SUBDERE, interview with author, 17 August 2001, Santiago. Though critics believe that it would set the stage for bruising conflicts between the president of the Regional Council and the representative of the national government in the region (e.g., the intendente), the proposal has gained sway among top-level bureaucrats who believe that the option of directly electing the intendente is not politically viable (SUBDEPJE 2001). 6. Esteban Valenzuela, former mayor of Rancagua and Secretary General of the Party for Democracy (PPD), interview with author, 24 August 2001, Rancagua. 7. Anonymous interview with legislator. 8. Manuel Tobar, President of the National Association of Regional Councilors (Asociacion Nacional de Consejeros Regionales), interview with author, 20 August, 2001,Valparaiso. Since only one regional councilor had successfully run for national legislative office as of 2001, these fears would seem to be overstated. 9. This point was supported in my interviews with National Deputy Exequiel Silva Ortiz (21 August 2001, Valparaiso) and Mario Tapia, secretary of the Senate's Committee of the Interior (20 August 2001,Valparaiso).

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10. Jorge Caro, Chief, Division of Regionalization Policy, SUBDERE, interview with author, 24 August 2001, Santiago. 11. Jaime Zavala, consultant, Institute Libertad, the research institute of the National Renewal (RN) party, 22 August 2001, Las Condes. 12. Tobar, interview. 13. Eugenio Cantuarias, La Epoca, 19 November 1997. 14. Senator Edgardo Boeninger, interview with author, 17 August 2001, Las Condes. 15. See "Plantean que parte del IVA quede en regiones," El Mercuric de Valparaiso, 23 June 1999;Tobar, interview; and Caro, interview. 16. Boeninger, interview. 17. Institute Libertad y Desarrollo, "Rentas municipales: El balance final," Temas Publicos, no. 217 (10 November 1994); andValenzuela 1999, 118. 18. Institute Libertad, "Decentralizacion: Eleccion clave," Perspectiva 4 (87): 2. In addition to keeping tight control over municipal revenues, central government ministries in the 19905 continued to interfere in responsibilities that are now the purview of municipal officials. 19. Ibid. 20. Article no of the Constitution; Rodrigo Pineda, assistant secretary of the Senate s Committee of the Interior, interview with author, 20 August 2001, Valparaiso. 21. Abalos, interview. According to Abalos, in the late 19905, this group of decentralizers within the SUBDERE began to disband, having realized that it could best push the cause of decentralization from a multiplicity of institutional bases. 22. Martelli, interview; Tobar, interview; and Professor Fernando Arenas, Geography Department, Catholic University, interview with author, 14 August 2001, Santiago. 23. According to Jaime Ravinet, former mayor of Santiago, many Pinochet-era mayors ran for parliament and were elected precisely because of the personal reputations they built as successful municipal officers (see Ravinet 1995). Giorgio Martelli made a similar point in my interview with him (17 August 2001, Santiago). 24. This document has subsequently served as the basis for inter-branch and interparty discussions on subnational reform (Caro, interview). 25. Arenas, interview. 26. Arenas, interview; Angulo, interview. 27. Tapia, interview; Pineda, interview. 28. Silva Ortiz, interview; Martelli, interview. 29. Arenas, interview. 30. This finding that a split between the Alliance parties led to a key subnational institutional change (e.g., the shift to separate elections) is particularly interesting since the absence of similar intra-bloc rifts has served to prevent institutional reforms at the national level (e.g., the shift away from the binomial system). 31. There were other reasons as well for the reversal in the RN's position. In the Senate, Carlos Cantero conditioned his support for separate mayoral elections on a commitment by the Lagos government to accelerate reforms that would strengthen regional governments (Cantero, interview). 32. Law 19,737, Diario Oficial de la Republica de Chile, 6 July 2001, 2-3.

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33. Boeninger, interview; Silva Ortiz, interview; and Arturo Fontaine, Director, Centro de Estudios Publicos, interview with author, 25 August 2001, Las Condes. 34. For an analysis of these coalitions, see Buquet, Chasquetti, and Moraes 1998. 35. Senator Rodolfo Nin Novoa, interview with author, 6 May 2002, Montevideo. Nin Novoa served as intendente of Cerro Largo from 1984 to 1994. Initially elected as a Blanco, he left the party subsequent to the neoliberal turn of Blanco President Alberto Lacalle in 1990 and ran as the vice-presidential candidate of the FA-EP in the 1999 election. 36. Many actors and sectors within the Left continued to support the plebiscite, including its leader Danilo Astori, who resigned as party leader over the decision to oppose the reform (see "Astori: La opinion deVasquez es una mas," El Diario, n February 1994). Considering the elimination of the ley de lemas and the separation of elections, many on the left believed that more was gained than lost in this reform (Departmental Legislator Carlos Varela (FA—EP), Junta Departamental de Montevideo, interview with author, 10 May 2002, Montevideo). 37. Enrique Gallicheo, coordinador, Programa Desarrollo Local, CLAEH, interview with author, 7 May 2002, Montevideo. 38. Deputy Jorge Barrera (PC), interview with author, 8 May 2002, Montevideo; and Deputy Alejo Fernandez Chavez (PC), interview with author, 9 May 2002, Montevideo. 39. National Deputy Margarita Percovich, interview with author, 7 May 2002, Montevideo. 40. Jorge Rodriguez, Pro-Secretario, Congreso de Intendentes, interview with author, 7 May 2002, Montevideo. 41. In contrast to Chile's annual budget process, in Uruguay the size of the transfers are determined every five years as part of its presupuesto quinquenal 42. In June 2000 Congress passed a law (17,243) that increased to six the number of departmental executives who sit on COSEDE and stipulated that one of the seats would belong to Montevideo. 43. Anonymous interview. 44. Professor Jose Arocena, Universidad Catolica, interview with author, 8 May 2002, Montevideo. 45. JoseTognola,"Descentralizar?" La Republica, 29 November 1996. 46. Gonzalo Cibils, Subdirector de la Oficina de Planeamiento y Presupuesto, interview with author, 10 May 2002, Montevideo. 47. Diario de Sesiones de la Cdmara de Senadores, 7 December 2000, tomo 405, primer periodo ordinario de la XLV Legislatura, 58-62. 48. Ibid., 121—23. 49. Ibid., 5. 50. Ana Olivera, Directora de la Division Region Oeste, Departamento de Descentralizacion, Intendencia Municipal de Montevideo, interview with author, 3 May 2002, Montevideo. 51. Percovich, interview; Orrico, interview. 52. Barrera, interview. 53. As one of my interviewees argued, the "departmental executives reproduce centralization within their own departments" (Fernandez Chavez, interview).

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54. Gallicheo, interview. 55. Cibils, interview. 56. Orrico, interview. 57. Percovich, interview. 58. Arocena, interview. 59. Chiruchi is the only military-appointed intendente who was able to continue his career subsequent to re-democratization in 1985. Chiruchi is a member of the neoliberal faction of the Blanco Party, headed by former President Alberto Lacalle. 60. Nin Novoa, interview. 61. In the words of Deputy Barrera,"Son mas duenos de sus decisiones departamentales." 62. Professor Daniel Chasquetti, Instituto de Ciencia Politica, interview with author, 2 May 2002, Montevideo. 63. Fernandez Chavez, interview. 64. Varela, interview. 65. Barrera, interview. 66. Chasquetti, interview. 67. According to Chasquetti, institutional rules adopted in 1996 make the emergence of local or regional parties unlikely because candidates for departmental executive are picked in national party conventions (held at the same time as the primaries that pick each party's single presidential candidate). 6 8. Laurnaga, interview. 69. Arocena, interview; Laurnaga, interview. CHAPTER 8. COMPARING WAVES AND APPROACHES

1. One might argue, however, that such one-shot side payments are unlikely to purchase lasting institutional change (see Samuels 2003). 2. In Chile and Uruguay, national politicians have bucked regional trends by declining to adopt revenue-sharing systems. In the absence of formal revenue sharing, and considering the concentration of productive activities near the capital in both countries, it is easy to see how decentralizing tax bases to subnational governments would harm poorer jurisdictions, as in nineteenth-century Argentina and Brazil. 3. In the 19605 and 19705, attempts to forge regional integration took place in an era in which democracy was rare and economic policies were highly statist. For a lengthier treatment of the relationship between decentralization and integration, see Eaton 2003. 4. Senator Carlos Cantero, interview with author, 22 August 2001,Valparaiso. 5. Bolivia and Colombia offer two additional examples of how more generous fiscal decentralization policies can promote innovation at the subnational level. On Bolivia, see Blair 2000, Grindle 2000, and O'Neill 1999; on Colombia, see Angell, Lowden, and Thorp 2001. 6. Colombia's quite radical experience with decentralization in the 19905 has also placed serious strains on government finances. Loath to be displaced by revenues that are now transferred directly to subnational authorities, legislators in the 19905 came to depend increasingly on a co-financing system that enables them to claim

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Notes to Chapter 8

credit for sending additional funds to their home districts. This discretionary padding of automatic transfers has widened budget deficits and complicated the budgeting process (Dillinger and Webb 1999). 7. Fernando Rojas, World Bank, personal communication, 10 July 2001. 8. The Chilean case is an important example of the limits of an approach that allows regional officials to assign specific projects within the general spending categories set by national ministries while denying them an independent stake in revenues.

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Index

Page numbers in italic type indicate tables. Abrucio, Fernando Luiz, 132, 160 ACHM. See Chilean Association of Municipalities Administrative resources, 28 Afonso,Jose Roberto Rodrigues, 166 Agency for International Development, U.S. See U.S. Agency for International Development Alessandri, Arturo, 96 Alfonsin, Raul, 22, 125, 144, 145-47, 156 Allende, Salvador, 99, 115 Alliance (Chile, Alianza), 56, 171—72, 177, 180-83,234^1 Angell, Alan, 220 Aramburu, Pedro, 71 Arana, Mariano, 185 Araucanian Indians, 91 ARENA Party (Brazil), 132-33 Argentina: Brazil compared to, 41, 76, 142— 43, 165-67; Buenos Aires, 64-65, 70, 85, 118, 130, 209; caudillos in, 67; centralization in, 21, 63-67; Chaco, 149; Chubut, 149; coalition-building in, 71—74; consejalismo in, 130; Constitution of, 54, 64-65, 68, 70, 151; Convertibility in, 153; coparticipation in, 67—74; critical junctures in subnational institutions of, 212—13; decentralization by military in, 133-35; decentralization from below in, 55, 59— 74, 84—85, 202—3; decentralization in, 144—47, 204—5, 211; decentralization/ re-centralization cycle in, 22; democracy and governing capacity in, 141; democracy in, 65—67, 144—54; economic policy

and political authority distribution in, 12; economic problems in, 137, 142—43, 153-54, 208, 219; elections in, 17, 71-72; federal-provincial relations in, 144-54; Formosa, 149; government control of parties in, 130-31; governors in, 49-50, 60-64, 69-70, 72-73, 141-54, 165-67, 202-3; Great National Agreement, 133; "infamous decade" in, 37, 67; interbranch conflict in, 63; market-oriented economy in, 124-25; Mendoza, 218; and MERCOSUR, 215-16; military government in, 69, 71-72, 115, 117, 118, 124-25, 130-31, 133-35, !37> 203; overview of, 37-39; parties in, 38-39, 44, 49-50, 62, 66-67, 130-31; Peronism (see Peronism); provincial role in centralization, 64—65, 68, 125, 130—31; provincial role in decentralization, 134, 137; provincial versus municipal governments, 37—38; radical decentralization in, 218—19; re-centralization in, 31-32, 147-50, 212; regime type and political authority distribution in, 16; revenue floors in, 149, 150, 154; revenue sharing in, 23, 67—69, 71, 118, 134, 134, 142—54, 147, 205, 212—13; statist economic policy in, 70, 124-25; subnational autonomy in, 147-50; subnational conflicts in, 55; subnational elections in, 17; subnational institutions in, 212—13; taxation in, 64-65, 68-69, 125, 147, 152, 153-54, 213; teachers' unions in, 33 "Argentine Revolution" (Revolucion Argentina), 115, 124-25

258

Index

Associations of municipalities, 32 Atatiirk, Kemal, 33 Authoritarian regimes. See Military governments Autonomous Commune Law (Chile, 1891), 93-95 Aylwin, Patricio, 171—72 Balmaceda,Jose Manuel, 21, 55, 91—93, 94, 109,205, 210 Banco Nacion, Argentina, 65 Banks: in Argentina, 150; in Brazil, 159, 164, 165; regional development, 34. See also Financial institutions Barrera,Jorge, 187, igi, 195 Battle, Jorge, 184, 190 Battle y Ordonez, Jose, 16, 21, 45, 56, 89, 100, 102—4, 109, 207 Bignone, Reynaldo, 134, 145 Blancos (Uruguay; National Party). See Partido Nacional Bland, Gary, 172 Boeninger, Edgardo, 177 Boisier, Sergio, 121 Bolivia: Chilean conflict with, 91; constitutional structure and decentralization in, 54; decentralization in, 19; national peasant union, 33 Bordaberry,Juan, 115, 127 Bottom-up decentralization. See Decentralization from below Brasileiro, Ana Maria, 76 Brazil: agrarian reform in, 84; Argentina compared to, 41, 76, 142—43, 165—67; Ceara, 218—19; centralization in, 21, 77—84, 159—64, 212, 233^17; coalitions in, 77—78, 128—29; constitutional assembly (1987-88) in, 155-59; Constitution of, 54, 76—82, 155—59, 161, 163, 210, 211, 213; coronelismo in, 77; critical junctures in subnational institutions of, 213; decentralization from below in, 55, 59—63, 74—85, 202-3; decentralization in, 155-59, 205, 211; decentralization/re-centralization waves in, 22, 39—40; democracy and governing capacity in, 141; democracy in, 154—65; "economic miracle" in, 157; economic policy and political authority distribution in, 12, 13; economic problems in, 142—43, 208, 219; economic stabiliza-

tion in, 157, 159, 162; electric sector in, 123, 124; Estado Novo, 40, 74, 79-80; federalism in, 76, 213; First Republic, 75—77; governors in, 41, 49—50, 60—62, 80, 82-84, 118, 132-33, 136-37, 141-44, 154—67, 202—3; inter-branch conflict in, 63; and MERCOSUR, 215-16; military coup (1964), 21—22; military government in, 76, 115, 117-19, 123-24, 128-29, 13233, 135, 136-37, 203; Minas Gerais, 77, 78, 85, 124, 162, 209; municipalities in, 41, 76-77, 79, 81-83, 118, 157, 213; overview of, 39—42; parties in, 41—42, 44, 49-50, 77, 81, 159; Porto Alegre, 219; radical decentralization in, 218—19; Recife, 219; revenue sharing in, 23, 79, 81-83, 83, 129, 129, 132-33, 142-43, 156—58, 162; Rio de Janeiro, 75, 164; Sao Paulo, 75—78, 85, 124, 137, 164, 209; Second Republic, 80—84; slave labor in, 75; state ownership of enterprises, 123— 24, 124; state role in centralization, 78— 79, 123-24; state role in decentralization, 75-77, 82-83, 155-59; state unity and disunity in, 154—64; state versus municipal governments, 76—77, 79; statist economic policy in, 83, 120, 123—24, 155, 208; subnational conflicts in, 55; subnational elections in, 17, 79—80, 117—18, J 33 5 136—37, 156; subnational politics and government control in, 128—29; subnational institutions in, 213; taxation in, 76, 79, 81, 118-19, 158, 161-62; tax wars in, 161, 216 Bresser Pereira, Luiz Carlos, 160 Britto Alvares Affonso, Rui de, 158 Buenos Aires, Argentina, 64—65, 70, 85, 118, 130,209 Bureaucratic authoritarian (BA) model, 115 Bureaucratic authoritarianism, 113—38 Bureaucrats: central government, 32; publicsector, ii Business associations, decentralizing role of, 32, 33-34 Cagnoni,Jose, 104 Camargo, Aspasia, 80, 118, 128 Camata Law (Brazil), 163 Campora, Hector, 133 Candidate selection procedures, 50—52

Index Canelones, Uruguay, 191 Cann, Kenneth, 82 Cantuarias, Eugenic, 176 Cardenas, Lazaro, 33 Cardoso, Fernando Henrique, 12, 22, 40, l 43-> I59~64-, I(56, 206, 212 CARE, 34 Carminatti, Mario, 195 Carvalho,Jose Murilo de, 80 Case study method, advantages of, 47—48 Castro Gomes, Angela Maria de, 78 Catholic Relief Services, 34 Caudillos de la modernizacion, 193 Cavallo, Domingo, 153 Ceara, Brazil, 218-19 Central government bureaucrats, decentralizing role of, 32 Centralization: market-oriented economy and, 12, 207, 212; presidentialism and, 21; statist economy as encouraging, 10, 120. See also under specific countries; Re-centralization Chaco, Argentina, 149 Chile: centralization in, 21, 42, 86—99; civil society and government control in, 127— 28; civil war (1891), 21, 93; Constitution of, 54, 96, 127, 171, 175, 179; critical junctures in subnational institutions of, 214; debt crisis (1982) in, 131—32; decentralization from above in, 55—56, 86—99, 108-10, 168-69, 203-4; decentralization in, 7, 19, 93-95, 173-83, 204, 205; decentralization/re-centralization waves in, 43; democracy and distribution of authority in, 141; democratic transition from military government in, 131—32; economic policy and political authority distribution in, 12; elections in, 24, 94—95, 209; expansion of, 91; external factors influencing decentralization in, 210; inter-branch conflict in, 88—99; labor unions in, 33; Las Condes, 170, 183; market-oriented economy in, 121-23, 2°8; mayors in, 136, 177-78, 182-83; and MERCOSUR, 216; military government in, 115, 117, 118, 121-23, 127—28, 131—32, 136; municipalities in, 90, 94-97, 98, 117, 121-22, 122,

127, 132,

136,171-73, 177-80,178,179,182-83, 214; municipal officials in, 43—44; na-

259

tional engineering of subnational institutions in, 93-95, 168-83, 197-98; Negotiating Table (1991), 172-83; neighborhood councils in, 132; overview of, 42—44; Parliamentary Republic in, 93—95; parties in, 44, 98—99, 117, 170, 171, 183; political authority redistributed in, 94-95; regions' role in, 128, 136, 172-77, 178, 181—82, 227^16; public investment in, 175—76; revenue sharing in, 178, 237^2; Santiago, 122, 170, 183; statist economic policy in, 91-93, 109, 207; subnational elections in, 17, 24, 50, 136, 175, 181, 204; subnational institutions re-designed, 93-95, 168-83, 197-98, 214; taxation in, 95, 178—79; tentative decentralization in, 219—20; Uruguay compared with, 197—98;Valdivia, 182 Chilean Association of Municipalities (ACHM), 180 China: decentralization in, n; subnational politicians in, 3 Chiruchi,Juan, 193, 194 Christian Democrats (Chile), 99 Chubut, Argentina, 149 Civil society: in Chile, 127—28; decentralizing role of, 210— ii; decentralization threats to, 217; military governments and,125-31 Civil war, Chile (1891), 21, 93 Cleaves, Peter, 98 Clientelism: in Argentina, 218; in Brazil, 158, 163, 218; decentralization and, 217; in Uruguay, 193 Coalitions, 62; in Argentina, 71-74; in Brazil, 77—78, 128—29 CODECOs, 127 "Coffee with milk" politics, 77 Colombia: constitutional structure and decentralization in, 54; decentralization in, 19,34 Colorados (Uruguay). See Partido Colorado Communist Party (Chile), 99 Comparative historical research, 4, 9, 22, 23 Concertation of Parties for Democracy (Chile; Concertacion de los Partidos por la Democracia), 132, 171-72, 174, 177, 180-83, 205 Concessions from national to local levels, 51

260

Index

Congress of Intendants, 189 Consejalismo (councilor-ism), 130 Conservative Party (Chile), 92, 98 Constitutional assemblies: Brazil, 155—59; and rules for subnational institutions, 34 Constitutions: Argentina, 54, 64—65, 68, 70, 151; Brazil, 54, 76—82, 155—59, 161, 163, 210, 211, 213; Chile, 54, 96, 127, 171, 175, 179; Uruguay, 54, 99, 101, 103-4, 106-8, 127,169,184, 185-86, 188-90,195 Convertibility, in Argentina, 153 Coparticipation (coparticipaciori): in Argentina, 67-74; in Uruguay, 51, 101, 103 Coronelismo, 77 Corporatism: in Argentina, 130; decentralization and, 32 COSEDE, 189, 190 Councils for Communal Development (Chile; Consejos de Desarrollo Comunal, CODECOs), 127 Coups d'etat. See Military governments Couto e Silva, Golbery do, 39 Crook, Richard, 29 Crossed vote (voto cruzado), 186, 196 Debt: in Argentina, 59, 68, 146, 149, 150, 154; in Brazil, 78, 158-59, 162, 164; in Chile, 131-32 Decentralization: authoritarian regimes and, 16—17; contemporary period of, 209—11; deconcentration versus devolution, 29—30; definition of, 29—31; degree of, 7; democracy and, 13-14, 135; direction versus magnitude of, 48; economic performance and, 217; economic policy as factor in, 9—13; factors in, 6—8, 10—22; federalism and, 54; functions of, 109, 201; globalization and, 34; history of, 4, 5; indicators of, 30-31; integration and, 215—21; market-oriented economy and, n, 218; and policymaking on economic integration, 216; presidentialism and, 20; radical approach to, 218-19, 221; regime type as factor in, 13—19; resource transfer and, 7; size of country and, 52—53, 53; statist economic policy and, 12, 13, 109-10, 120, 207; study of, 5-6; subnational elections and, 7, 17-18, 49, 60; subnational institutions and, 26; subna-

tional politics and, 18; tentative approach to, 219-20, 221; tradeoffs of, 220-21. See also Decentralization continuum; Decentralization from above; Decentralization from below; Decentralization/ re-centralization waves; and under specific countries Decentralization continuum, 47—52 Decentralization from above, 8, 19, 86-no; characteristics of, 87—88; in Chile, 55—56, 86-99,108-10, 168-69, 203-4; in Uruguay, 55-56, 86-89, 99-no, 168-69, 203-4 Decentralization from below, 8, 59—85; in Argentina, 55, 63-74, 84-85, 202-3; in Brazil, 55, 59-63, 74-85, 202-3; subnational elections as encouraging, 15 Decentralization/re-centralization waves, 6; in Argentina, 22; in Brazil, 22, 39—40; in Chile, 43; comparison of, 202—21; current instance of, 209—12; economic policy and, 9—13; overview of, 48—50, ^p; period effects in, 206—9; regime change as model for understanding, 6, 9-13; regime type and, 13—19; residual effects in, 22-23 Decibe, Susana, 153 Deconcentration, 29-30 De la Rua, Fernando, 144, 153-54 Delegation of political authority, 30 Democracia y Progreso (Chile), 234^1 Democracy: in Argentina, 65—67, 144—54; in Brazil, 154-65; centralization and, 65-67, 102-3, 2°7; decentralization and, 13—14, 135, 206; military governments and, 116—18, 131—35; re-centralization and, 16, 167, 212; in subnational elections, variation in, 47; in Uruguay, 102—3. See also Third wave of democracy Departments, in Uruguay, 44—45, 101, 104, 106,122-23, 186-97, 209-10 De Posadas, Diego, 108 Depression. See Great Depression Devolution, definition of, 30. See also Decentralization Diamond, Larry, 14 Divided government. See Inter-branch conflict Doner, Richard, 34

Index Economic integration. See Regional economic integration Economic policy: decentralization/ re-centralization and, 9—13, 84, 135, 143, 207; market-oriented (see Marketoriented economic policy); military governments and, 118—19, 120—25; statist (see Statist economic policy); subnational institution changes and, 167. See also Regional economic integration Ecuador, decentralization in, 19 Education: in Argentina, 153, 206, 211; in Brazil, 163, 206; in Chile, 178. See also Universities Elections: in Argentina, 71—72; in Chile, 24, 94-95, 209; as decentralization factor, 7, 14—15. See also Subnational elections Estado Novo, Brazil, 40, 74, 79—80 Expenditures, 28-29; in Argentina, 205-6; in Brazil, 158, 163-64; in Chile, 178; preferences regarding, 35; subnational versus total government, 30,31 External factors, influence on decentralization of, 34, 210 Falkland Islands, 131 Federalism: in Brazil, 76, 213; effect on decentralization of, 54; fiscal, 217; isolationist form of, 76 Federal Pact for Growth and Discipline (Argentina, 2000), 154 Fernandez, Roque, 153 Ferreira, Wilson, 187 Fiat, 124 Field work, 5 Financial institutions, international, 32 Fiscal federalism, 217 Fiscal Responsibility Law (Brazil, 2000), 160,163 Fiscal Stabilization Fund (Brazil), 162 Fondo Fiduciario para el Desarrollo Provincial, 150 Formosa, Argentina, 149 Frei, Eduardo, 174, 175—76, 181 Frente Amplio—Encuentro Progresista (Uruguay; Broad Front—Progressive Encounter, FA-EP), 46-47, 169, 184-86, 190—92, 191, 196 Frondizi, Arturo, 72, 117

261

Fundo de Manutencao e Desenvolvimento do Ensino Fundamental e deValorizacao do Magisterio (FUNDEF), 163, 206 Fundo de Participa9ao dos Estados (FPE), 158,162,163 Fundo de Participa9ao dos Municipios (FPM), 158, 162, 163 Galdames, Luis, 91 Carman, Christopher, 17, 18, 61, 170 Garreton, Manuel, 119 Gibson, Edward, 62, 66, 67, 130 Gil, Federico, 92 Gillespie, Charles, 126 Globalization, decentralization and, 34 Goulart,Joao, 21, 63, 84, 118 Governors: in Argentina, 49-50, 60-64, 69—70, 72—73, 141—54, 165—67, 202—3; in Brazil, 41, 49-50, 60-62, 80, 82-84, 118, 132-33, 136-37, Hi-44, 154-67, 202-3; decentralizing role of, 60-61, 63, 72-73, 80, 82—84; disputes between, 61—62; and short-term benefits versus long-term institutional capacity, 63—64, 69—70 Governors' leagues, 32 Great Depression, 23, 67, 208 Great National Agreement (Argentina; Gran Acuerdo Nacional), 133 Grindle, Merilee, 14, 33 Guerrini,Aldo, 192 Haggard, Stephen, 17, 18, 61, 170 Hagopian, Frances, 74, 83, 138 Health sector: in Brazil, 163-64, 206; in Chile, 178 Herschberg, Eric, 34 Hirschman, Albert, 118 Human rights, 155 Ibafiez, Carlos, 96, 97, 109 Illia, Arturo, 72—73 India: national politicians versus interest groups in, 33; subnational politicians in, 3 "Infamous decade" (Argentina), 37, 67 Institutions. See Subnational institutions Integration. See Regional economic integration Inter-American Development Bank, 150, 192,196,210

262

Index

Inter-branch conflict, 20, 21-22; in Argentina, 63, 145, 151; in Brazil, 63; in Chile, 88-99 Interest groups: decentralizing role of, 32— 33, 210-11; national versus subnational, 32-33 Intermediate levels of government. See Departments; Provinces: in Argentina; Regions; States International Monetary Fund (IMF), 154, 210 Inter-party conflict, 19; in Argentina, 38; in Chile, 203; in Uruguay, 56, 99, 100-102, 103—4,106, 203 Irarrazaval, Ignacio, 87 Jones, Mark, 39 Justo, Agustin, 130 Kandir Law (Brazil, 1996), 162 Kugelmas, Eduardo, 124, 160 Labor unions: in Chile, 33; military government opposition to, 126; support of statist policy by, n Lacalle, Luis Alberto, 184, 187, 189, 190, 196 Lagos, Ricardo, 174, 175, 181 Lanusse, Alejandro, 133 Lanzaro, Jorge, 193, 194 Larrafiaga, Jorge, 194, 196, 198 Las Condes, Chile, 170, 183 Latin America: decentralization in, 13, 36-37; subnational politicians in, 3 Laurnaga, Maria Elena, 192, 196 Lavin,Joaquin, 170, 183 Law of the Entrepreneurial State (Chile, 1989), 132 Legislators: decentralization attitudes of, 207—8; effect on subnational institutions of, 34—35; presidentialism and, 20—22. See also Inter-branch conflict Levingston, Roberto, 133 Ley de Lemas (Uruguay), 46, 188 Liberal Alliance (Brazil), 78 Liberal economics. See Market-oriented economic policy Liberal Party (Chile), 92 Linz,Juan, 126 Lira, Luis, 128 Lobbyists, decentralization and, 33

Local Government Code (Philippines, I99i),7 Lopez Alvez, Fernando, 105 Lowden, Pamela, 220 Luis, Washington, 77 Macon, Jorge, 125 Mahar, Dennis, 82 Mahoney, James, 23 Manor, James, 8, 29, 54 Marinovic, Fernando, 128 Market-oriented economic policy: in Argentina, 124-25; centralization and, 12, 207, 212; in Chile, 121—23; decentralization encouraged by, n; decentralization threats to, 218; in Uruguay, 121—23 Martelli, Giorgio, 131 Martinez, Diego, 187 Maxi-Reforma proposal (Uruguay), 186 Mayors: in Chile, 136, 177-78, 182-83; elections for, 27 Mendoza, Argentina, 218 Menem, Carlos, 39, 125, 143, 166, 206; Cardoso compared to, 159-61; centralization under, 12, 22, 51, 55, 73, 147—53, 2O3, 212; as governor, 117, 146, 212, 213 Mercado Comun del Sur (MERCOSUR), 215-16, 219 Mexico: constitutional structure and decentralization in, 54; economic problems in, 150; national politicians versus interest groups in, 33; subnational elections in, 36-37; teachers' union in, 33 Military governments: in Argentina, 69, 71—72, 115, 117, 118, 124—25, 130—31, 133—35, 137, 203; in Brazil, 115, 117—19, 123-24, 128-29, 132-33, 135, 136-37, 203; in Chile, 115, 117, 118, 121-23, 127-28, 131-32, 136; decentralization accompanying, 16—17; defensive phases of, I I 3 ~35i democracy disrupted by, 116—18; democratic transition and subnational changes, 131—35; economic policies and subnational institutions under, 120—25; economic stabilization programs of, 118—19; offensive phases of, 119—31; phases of, terminology for, 119; politics and civil society at subnational level under, 125-31; re-centralization by, 15-16, 69, 113—19; reform orientation of, 208;

Index repression and torture under, 126; rural areas under, 126; subnational elections and, 136—37; subnational reforms by, 113— 38; urban areas under, 126; in Uruguay, 115, 117, 118, 121-23, 131. 135 Minas Gerais, Brazil, 77, 78, 85, 124, 162, 209 Mini-Reforma proposal (Uruguay), 186 Mitre, Bartolome, 206 Montevideo, Uruguay, 101, 117, 170, 184-85, 188-89, 191-92,194,195, 196-97 Montinola, Gabriela, n Multinational companies, 210 Munck, Gerardo, 119, 125, 126 Municipal Autonomy Law (Chile, 1891), 21 Municipal Code (Uruguay, 1935), 106 Municipalities: in Argentina, 37—38; in Brazil, 41, 76-77, 79, 81-83, 118, 157, 213; in Chile, 90, 94-97, 98, 117, 121-22, 122, 127, 132, 136, 171—73, 177—80, 178, 179, 182—83, 214; provinces versus, 37—38, 76-77,79 Murillo, Maria Victoria, 33 NAFTA, 216 Nasser, Gamal Abdel, 33 National Fund for Regional Development (Chile, FNDR), 175-76 National politicians, 89-99; attitudes toward decentralization, 7-8, 197; conflicts between, 55—56, 88, 92, 99, 197—98, 203; decentralizing role of, 18-19, 32, 87-88, 169-70, 211 Nehru, Jawaharlal, 33 Neighborhood councils (juntas de vecinos), 132 Neoliberalism. See Market-oriented economic policy Neves, Tancredo, 156 Nickson, R.Andrew, 38, 105 North American Free Trade Agreement (NAFTA), 216 Nunes Leal,Victor, 77 O'Donnell, Guillermo, 115 Ominami, Carlos, 220 O'Neill, Kathleen, 19, 187 Ongania,Juan Carlos, 130, 133 Pacto de la Cruz (Uruguay, 1897), 45, 101, 102, 103

263

Paraguay, and MERCOSUR, 215-16 Parliamentarism, 20, 145 Partido Autonomista Nacional (Argentina; National Autonomy Party, PAN), 38, 49, 66-67,68 Partido Colorado (Uruguay; Red Party), 22,45,56, 89, 99-106,109, 169, 184, 186-88,191, 192, 195, 198, 214-15 Partido da Frente Liberal (Brazil; Liberal Front Party, PFL), 160 Partido Justicialista (Argentina; Justicialist Party, PJ), 38-39. See also Peronism Partido Nacional (Uruguay; National Party, Blancos), 45, 56, 89, 99—107, 109—10,169,184, 186—89, T 94> : 96,198, 207,214-15 Partido por la Democracia (Chile). See Party for Democracy Partido Revolucionario Institucional (Mexico; Institutional Revolutionary Party, PRI), 36-37 Partido Socialista (Chile). See Socialist Party Parties: in Argentina, 38—39, 44, 49—50, 62, 66-67, 130-31; in Brazil, 41-42, 44, 49-50, 77, 81, 159; in Chile, 44, 98-99, 117, 170, 171, 183; decentralizing role of, 18-19, 49—50; subnational politicians influenced by, 17-18; in Uruguay, 44, 45, 46-47, 56, 89, 99-108, 169, 170, 184-85, 185, 188, 195-96 Party for Democracy (Chile, Partido por la Democracia), 171, 183 Passos Porto Amendment (Brazil, 1983), 133 Path dependence, 23-25, 170, 212-13 Patronage: in Argentina, 85, 150; in Brazil, 85, 158, 163; in Chile, 132; in Uruguay, 101 Pavon, battle of (Argentina, 1861), 65 Paysandu, Uruguay, 194 Paz de Abril (Uruguay, 1872), 45, 101 Peasant unions, 33 Pedro I, Emperor of Brazil, 40 Pedro II, Emperor of Brazil, 40, 75 Percovich, Margarita, 193 Peron,Juan, 37, 38, 39, 41, 49, 62, 69-71, 72,133,204 Peronism, 22, 69-74, H7> I33~34, 137, 145-46,148, 149, 151-54

264

Index

Personalization of politics, 183 Peru, Chilean conflict with, 91 Philippines: decentralization in, 7; subnational politicians in, 3 Pike, Frederick, 92-93 Pinochet, Augusto, 24, 43, 88, 115, 172; economic policy of, 12, 204, 216; and municipalities, 7,121,127,131—32,136, 170, 183, 198, 204, 214; and regions, 42, 128, 171,214 Pirez, Pedro, 68 Piso de Assistencia Basica (PAB), 164, 206 Policy feedback, 23 Political authority: Chilean redistribution of, 94; democracy and distribution of, 141; devolution versus deconcentration of, 30; economic policy as factor in distribution of, 11—12; military governments and distribution of, 113—14 Political-risk analysts, on decentralization, 34 Politics. See Subnational politics Portales, Diego, 43, 90 Porto Alegre, Brazil, 219 Portugal, democracy and decentralization in, 14 Prado, Sergio, 83 Presidentialism, 20—22, 207; in Argentina, 145; centralization and, 21; in Chile, 89—99; decentralization and, 20. See also Inter-branch conflict Presidents, centralization role of, 62. See also Inter-branch conflict; and individual presidents Prestes, Julio, 77 Principal-agent models, 136 Privatization: in Argentina, 144, 150; in Brazil, 137, 144, 162, 164; in Chile, 122 Proceso de Reorganizacion Nacional (Process of National Reorganization), 115, 124-25,130, 145 Programming Agreements (Chile), 176 Program of Support for the States (Brazil, 1995), 162 Property values, in Chile, 178 Proportional representation: in Argentina, 13 5; in Uruguay, 104 Provinces: in Argentina, 64—65, 68, 125, 130—31, 134, 137, 144—54; centralization and, 64-65, 68, 78-79; decentralization

and, 75—77, 82—83; developed versus undeveloped, 209; municipal governments versus, 37~38, 76-7? Przeworski,Adam, 119 Public investment, in Chile, 175—76 Public-sector bureaucrats, support of statist policy by, n Putnam, Robert, 216 Qian,Yingyi, n Quadros, Janio, 84 Rachetti, Oscar, 117 Radical Party (Argentina). See Union Civica Radical Radical Party (Chile), 44, 92-93, 98-99 Ramirez, Necochea, 94 Ravinet, Jaime, 183, 198 Re-centralization: authoritarian regimes as encouraging, 15—16; contemporary period of, 143-44, 211-12; definition of, 31—32; economic policy as factor in, 9—13, 212; factors in, 6, 8, 10—22; functions of, 109; indicators of, 31—32; lack of opposition to, 8; national-subnational government relationship and, 206; regime type as factor in, 13—19. See also Centralization; Decentralization/re-centralization waves; and under specific countries Recife, Brazil, 219 Regime change, as model for understanding decentralization/re-centralization cycle, 6, 13 Regime type, decentralization/ re-centralization and, 13—19, 74, 84—85, 135, 206—7. $ee also Military governments; Presidentialism Regional development banks, 34 Regional Development Councils (Chile; Consejos Regionales de Desarrollo), 128 Regional economic integration, 202, 215—21; decentralization influences on, 216; decentralization pros and cons for, 216—18, 220—21; economic performance enhanced by decentralization, 217; national-subnational tensions in, 215—16; radical decentralization and, 218—19; tentative decentralization and, 219—20 Regional Investments Assigned by Local Governments (Chile, IRAL), 176

Index Regions, in Chile, 128, 136, 172—77, 178, 181-82, 227^16 Remmer, Karen, 66 Renovacion Nacional (Chile; National Renewal, RN), 172, 183 Repression, under military governments, 126 Resources: administrative, 28; fiscal, 28 Revenue floors, 149, 150, 154 Revenue sharing: in Argentina, 67—74, 71, 118, 134, 134, 142-54, 147,205, 212-13; in Brazil, 79, 81-83, 83, 129, 129, 132-33, 142-43, 156-58, 162; in Chile, 178, 237712; fiscal instability and, 85; in Uruguay, 188-89,190,!92, 237^2 Revolucion Argentina (Argentine Revolution), 115, 124—25 Rezende, Fernando, 129 Rio de Janeiro, Brazil, 75, 164 Rock, David, 67 Rodriguez,Victoria, 36 Rosas, Juan Manuel de, 64 Russia, subnational politicians in, 3 Sabelli, Martha, 105 Saenz Peiia electoral law (Argentina, 1912), 37 Samuels, David, 41, 132, 157, 161 Sanguinetti, Julio Maria, 184, 186, 194 San Jose, Uruguay, 194 Santiago, Chile, 122, 170, 183 Sao Paulo, Brazil, 75—78, 85, 124, 137, 164, 209 Saravia,Aparicio, 103 Sarney, Jose, 22, 156, 158 Sectoral Commission on Decentralization (COSEDE), 189, 190 Sectoral Investments Assigned by the Regions (Chile, ISAR), 176 Serra,Jose, 166 Servicios Regionales Ministeriales (SEREMI), 174 Silva, Exequiel, 182 Size of countries, effect on decentralization of, 52—53, 53, 91 Slave labor, in Brazil, 75 Smith, William, 130 Snyder, Richard, 215 Social Democratic Party (Brazil), 81 Social Emergency Fund (Brazil, FSE), 162

265

Socialist Party (Chile, Partido Socialista), 44,99, 117, 122, 171, 183 Social security: in Argentina, 125, 145, 147, 148, 152; in Chile, 122; in Uruguay, 188 South Africa, subnational politicians in, 3 Souza, Celina, 156 Spain, democracy and decentralization in, 14 States, in Brazil, 75—79, 82—83, 154—65 Statist economic policy: in Argentina, 70, 124-25; in Brazil, 83, 120, 123-24, 155, 208; centralization encouraged by, 10, 120; in Chile, 91—93, 109, 207; decentralization and, 12, 13, 109—10, 120, 207; horizontal dimension of, 10; in Uruguay, 102-3, 109; vertical dimension of, 10 Stepan, Alfred, 126 SUBDERE, 180, 181 Subnational, definition of, 225^1 Subnational elections: in Brazil, 17, 79-80, 117—18, 133, 136—37, 156; in Chile, 17, 24, 50, 136, 175, 181, 204; cross-national patterns in, 49; decentralization continuum and, 47—52; decentralization influenced by, 15, 17—18, 49, 60; democratic nature of, disputes about, 47; devolution and, 30; direct, 27, 117-18, 128, 175; formulas for, 27—28, 104; indirect, 27, 117—18, 128; Latin American history of, 36; for mayor, 27; military governments and, 136—37; rise of, 27; rules for, 27-28; timing of, 28,108,169,186, 187—88,195, 196, 214— 15; in Uruguay, 24, 50, 107, 108, 169, 185—91, 195, 204, 214—15 Subnational institutions: actors in design of, 32—34, 54—56, 210— ii; arenas in design of, 34—35; autonomy of in Argentina, 147-50; changes in, for democratic transitions, 131—35; critical junctures in, 212—15; decentralization and struggle over, 26; design of, 32—36, 54, 204—5, 210— ii; design of in contemporary period, 141-42; economic policy influenced by changes in, 167; economic policy of military governments reflected in, 120—25; expenditures by, 28—29; governance institutions, 28—29; military government reforms of, 113-38; national engineering of change in, 168—98; political institutions, 27—28; politics of military

266

Index

governments reflected in, 125—31; preferences in design of, 35-36, 47-48; redesign of in Chile, 93—95; resource control by, 28; short-term benefits versus long-term institutional capacity for, 63-64, 69-70 Subnational politicians, 99—110; appointment versus election of, 27, 43—44, 52, 79-80, 96, 97, 101, 113-14, 117-18, 171, 173-75; conflicts between, 55, 61-62, 85, 203; decentralizing role of, 18, 32, 49; effect of parties on, 17—18; increasing prominence of, 3; powers of in centralized government, 10. See also Governors; Mayors Subnational politics: in Argentina, 130—31; in Brazil, 128—29; elections and, 7; military governments and, 125—31; study of, 4 Subnational statism, in Brazil, 132, 135, 136-37, 201 Subsecretaria de Desarrollo Regional y Administrativo (SUBDERE), 180, 181 Taxation: Argentina, 64-65, 68-69, 125, 147, 152, 153-54, 213; Brazil, 76, 79, 81, 118-19, 158, 161-63; Chile, 95, 178-79; Uruguay, 104, 105, 106 Teachers' unions, 33, 211 Tendler, Judith, 218-19 Terra, Gabriel, 46, 105, 109 Theory building, through historical comparisons, 5—6 Third wave of democracy, 15, 141—98 Thorp, Rosemary, 220 Time, as factor in political decisions, 205 Tobar, Manuel, 176 Top-down decentralization. See Decentralization from above Torture, under military governments, 126 Tupamaro National Liberation Movement (Uruguay), 123 Turkey, national politicians versus interest groups in,33 Unintended consequences, 23—25, 180—83 Union Carbide, 124 Union Civica Radical (Argentina; Radical Civic Union, UCR), 38-39, 49, 62, 63, 66-67,72,73, 145

Union Democrata Independiente (Chile; Independent Democratic Union, UDI), 172,183 Union por el Progreso (Chile), 234^1 Unions, public-sector: in Chile, 122; decentralizing role of, 32, 33; labor (see Labor unions); peasant, 33; teachers', 33,2ii United Nations Capital Development Fund, 34 Universities: in Brazil, 123; in Chile, 122, 172 Uriburu,Jose, 130 Uruguay: Canelones, 191; centralization in, 21, 99—108, 107; Chile compared with, 197-98; Constitution of, 54, 99, 101, 103-4, 106-8, 127, 169, 184, 185-86, 188-90, 195; coparticipation in, 51, 101, 103; critical junctures in Subnational institutions of, 214—15; decentralization from above in, 55—56, 86—89, 99—110, 168—69, 203—4; decentralization in, 19, 22, 204, 205; democracy and distribution of authority in, 141; department executives in, 192—97; department role in centralization, 122—23; department role in decentralization, 101, 104, 106; departments in, 44—45, 186—92, 209—10; economic policy and political authority distribution in, 12; economic problems in, 193, 208; external factors influencing decentralization in, 210; market-oriented economic policy in, 121—23; and MERCOSUR, 215-16; military government in, 115, 117, 118, 121—23, 126—27, 131, 135; Montevideo, 101, 117, 170, 184—85, 188-89, 191-92, 194, 195, 196-97; Municipal Code (1935), 106; national engineering of subnational institutions in, 99—108, 168—71, 184—98; northern region of, 46, 91, 122—23; overview of, 44—47; parties in, 44, 45, 46—47, 56, 89, 99—108, 169, 170, 184-85, 185, 188, 195-96; partisan conflict in, 99-108; Paysandu, 194; regime type and political authority distribution in, 16; revenue sharing in, 188-89, 190, 192, 237^2; San Jose, 194; statist economic policy in, 102-3, i°9; subnational elections in, 17, 24, 50, 107, 108,169,185—91, 195, 204, 214—15; sub-

Index national institutional design in, 99—108, 168-71, 184-98; taxation in, 104, 105, 106; tentative decentralization in, 219-20; territorial organization of, legislators' opinions on, 107; as welfare state, 102, 104,194, 207 U.S. Agency for International Development, decentralization and, 34 Valdivia, Chile, 182 Valenzuela, Arturo, 43, 95, 98, 117, 175 Valenzuela, Esteban, 33 Vargas, Getulio, 40, 129; centralization under, 21, 55, 62, 74, 75, 77-80,84,157, 203, 209, 213; and municipalities, 41, 74, 79, 84, 203,205,213 Vasena,Adalberto Krieger, 118 Vasquez,Tabare, 170, 185, 194, 196-97 Venezuela: constitutional structure and decentralization in, 54; decentralization in, 7, 19

267

Videla, Jorge, 125, 130 Viola, Roberto, 130 Voto cruzado (crossed vote), 186, 196 War of the Pacific, 91 Waterbury,John, 33 Waves of decentralization and re-centralization. See Decentralization/ re-centralization waves Weingast, Barry, u Welfare state, in Uruguay, 102, 104, 194, 207 Willis, Eliza, 17, 18, 61, 170 Workers' Party (Brazil, Partido dos Trabalhadores), 219 World Bank, 34, 150, 178, 196, 210 Yrigoyen, Hipolito, 16, 21, 38, 39, 41, 60, 62, 63, 66-68, 70, 207 Zavala, Jaime, 176 Zeitlin, Maurice, 91