Partisanship Amidst Convergence: The Politics of Labor Reform in Latin America

Abstract

The increasing internationalization of the world economy has eroded the regulatory capacity of national governments. Countries have to compete to attract capital.1 Nowhere is this competition more apparent than in capital-scarce less developed countries.2 Competition took root in Latin America between 1985 and 1998, when most countries adopted structural reforms as a generalized response to international economic pressures.3 In the mid 1980s the failure of traditional policies to attract capital inflows to cover fiscal deficits and debt services exposed the crisis of the pre vious developmental strategies and facilitated the emergence of a new policy con sensus around economic liberalization and state retrenchment. Led by Mexico, most countries in the region opened their economies and shrank their states between 1985 and 1998, when, due to international financial crises, capital flows declined regard less of policy signals. The reform process in Latin America moved consistently toward increasing liber alization across an array of policy areas.4 Among the reasons why Latin American governments, conservative and populist alike, implemented structural reforms were the shortage of capital and fiscal and macroeconomic imbalances. Under harsh macroeconomic conditions, multilateral organizations, creditors, and investors, aided by domestic technocrats sharing their economic ideas, became more influential in providing incentives for policy convergence.5 However, partisan policymaking did not disappear. Political parties continued to adopt sectoral policies with concentrated eifects on traditional supporters to keep their backing. Labor-linked parties used labor market regulation to keep labor sup porters despite the regional convergence toward labor deregulation.6 Market reforms included trade liberalization, deregulation of capital flows, and privatization of state-owned enterprises. All these policies generated pressure on labor costs, which had been previously passed on to consumers, thereby straining labor regulations. Because most of the Spanish and Portuguese speaking countries of the region reformed their labor laws during this period, economic pressures seemed to erode government regulatory capacity in this policy area regardless of partisan ship.7 However, partisanship still exercised influence on policymaking in the area of labor regulations.