Power, crises, and distribution in Latin America

Abstract

What factors shape the distribution of funds and functions in Latin American federations? In this chapter, I empirically assess the capacity of the theoretical argument developed in Chapter 1 to account for changes in the distribution of funds and functions across cases and time in Latin America. The main hypothesis is that changes in the distribution of funds and functions in Latin American federations are more likely when either the president or subnational actors hold more political power and when the fiscal context in which they interact is more critical. I present statistical evidence to sustain some of the expectations in the argument and discuss some of its limitations. The immense majority of countries in Latin America, being federal or unitary, with relatively strong or weak subnational governments, have transferred funds and/or functions (or initiated some kind of decentralization policies1) during the last two decades. In political terms, this means that where subnational officials are usually appointed, many Latin American countries are electing intermediate governments, and the vast majority of them (in fact, all South American countries) have now elected local authorities.2 In fiscal terms, new resources have been transferred to lower levels of government across the region (Falleti, 2000, 1; 2005, 327; Rodden, 2006, 25-26; World Bank, 1998, 2001, 2004a).3 Likewise, new functions and administrative capabilities have also been transferred to subnational governments in several countries. Lower levels of government in Argentina, Bolivia, Brazil, Chile, Colombia, and Mexico (among other countries; see: Di Gropello and Cominetti, 1998; Falleti, 2000) now handle the administration of education and health care services. This dramatic convergence in Latin America toward the decentralization of funds and functions to subnational governments has generated a vast body of literature and theoretical frameworks to explain the dynamics and characteristics of these policies. A large share of the scholarly works on the topic have been interested in explaining the policy results rather than exploring the dynamics of the bargaining processes that led to the outcome. In the following sections, I first review some of the main arguments, which stress institutional factors (such as electoral rules or party nomination procedures), economic variables (such as fiscal crisis or the level of economic growth), external pressures (from international financial organizations), or demands from civil society as the main factors that promoted decentralization in the region. In this chapter, I attempt to, first, empirically assess the main theoretical contributions in these frameworks to explain changes in the distribution of funds and functions in all the federal countries in the region (Argentina, Brazil, Mexico, and Venezuela) and some unitary ones (Chile, Ecuador, and Uruguay), stressing some of their shortcomings and limitations. I selected these cases in order to have the widest possible range of variation in the dependent variables. Second, I examine the empirical strength of the argument developed in Chapter 1, according to which the distribution of funds and functions is the result of power struggles between central and subnational governments in federal democracies in conditions of fiscal crises. This claim is valid for federal democracies with relatively autonomous states or provinces. But I also include evidence for unitary countries with more dependent subnational governments (although in some of these countries subnational governments have recently gained more power). This argument can help us to account for the distribution of funds and functions across cases (federal and unitary), and it can provide dynamic explanations for decentralization and centralization processes alike. In the following sections, I first define what I mean by distribution of funds and functions. Second, I put forward the central hypothesis and operationalize it. Third, I develop a statistical analysis of the main and the competing arguments. I present the results, analyze them, and conclude in the final section.