The Politics of Market Reform in Fragile Democracies: Argentina, Brazil, Peru, and Venezuela

by Kurt Weyland

Book Overview

This book takes a powerful new approach to a question central to comparative politics and economics: Why do some leaders of fragile democracies attain political success--culminating in reelection victories--when pursuing drastic, painful economic reforms while others see their political careers implode? Kurt Weyland examines, in particular, the surprising willingness of presidents in four Latin American countries to enact daring reforms and the...

• Format: Paperback
• Language: English
• ISBN: 069111787X
• ISBN13: 9780691117874
• Release Date: April 2004
• Publisher: Princeton University Press
• Length: 312 Pages
• Weight: 1.15 lbs.
• Dimensions: 0.8" x 6.2" x 9.2"

Customer Reviews

Market Reforms: Prospect and Retrospect

The market reform process in Latin America over the past two decades has inspired any number of political and economic explanations concerning the motivations of politicians and policymakers for their change in attitude. Amidst an already crowded field, Kurt Weyland offers an intriguing account based not upon the underlying assumptions of political science, but instead upon experimental economics. His cognitive psychology-based prospect theory rests upon the willingness of actors to take risks depending upon the conditions of the status quo. Weyland starts by carefully defining all competing explanatory approaches---rational choice, economic structuralism, and political institutionalism---as a prelude to their dismissal. Rational choice models, for example, come closest to challenging prospect theory; yet, while based on similar psychological micro-foundations, Weyland contends that these differ from prospect theory in that the former method posits that decisions are made according to that option which carries the highest expected value. Prospect theory, in contrast, acknowledges that decision-makers do not always choose on these grounds alone. As background, Weyland references the 1984 work of experimental economists Kahneman and Tversky, who constructed an S-shaped value curve that weighted expected value according to whether a respondent is experiencing gains or losses from the status quo. Their conclusion: decision-makers facing dire circumstances are more likely to take risks and make decisions that have lower expected values. For instance, if today is worse than yesterday, then respondents are more likely to take risks that could facilitate a return to "normalcy." Conversely, if today is better than yesterday, respondents are less prone to accept change. Thus, Weyland argues that rational choice assertions based upon expected utility fall short of a full explanation. In conjunction with prospect theory, Weyland discusses the somewhat fuzzier notion of prior option bias. This holds that once an actor has made a decision, s/he is more likely to stay the course even if conditions have worsened as a result of it. New actors, on the other hand, are more predisposed to taking risks. After establishing prospect theory's virtues, Weyland applies it to four Latin American cases---Argentina, Brazil, Peru and Venezuela---and argues that this regional focus helps to reduce the range of explanatory variables. First, all of these countries have deep cultural and historical similarities, which simplifies their comparison. Second, each was plagued by debt and hyperinflation to different degrees in the 1980's, but the threat of further economic deterioration was visible in each case. Using hyperinflation as a gauge of gains or losses, Weyland shows that in the countries where politicians and the electorate perceived hardship, all were willing to take risks. Citizens took risks by withdrawing their support from established parties and th

A novel and powerful cognitive-psychological theory

A pessimistic view about the vulnerability of Latin American democracies confronting the need to adopt harsh economic reforms predicted that any attempt at adjustment would be blocked by the population in order to avoid its high costs or, in the worst scenario, a painful reform could generate massive protests that would undermine the regime. However, the cases of Argentina and Peru refuted those predictions of incompatibility between democracy and market reforms. This book explains under what circumstances it is possible to implement successful economic reforms without destabilizing fragile democratic institutions. Weyland applies a novel and powerful cognitive-psychological theory to explain the behavior of both policy makers and the public regarding the macroeconomic stabilization and structural adjustment programs implemented in four Latin American countries during the late 1980s and 1990s. He uses prospect theory to frame this unconventional analysis of "adjustment politics". The most fundamental findings of this theory of decision-making are that individuals behave as risk-seekers when they face losses and, on the contrary, individuals avoid risk when they are situated in the domain of gains. By using an empirically supported theory of the "new behavioral economics", Weyland challenge rational choice scholars that explain decisions according to the less plausible assumptions of expected utility theory. The latter theory would predict very different outcomes in the countries under analysis, supporting the pessimistic view of incompatibility between democracy and market-oriented reforms.The central argument of this book stresses the role of severe economic problems in triggering intrepid market reforms. The author's theoretical framework suggests that both political leaders and common citizens are more likely to accept risky measures when they share the perception that the national and household economies are trapped by a grave crisis (e.g. hyperinflation). As an implication, this micro-foundation for the "crisis argument" should also explain why in fragile democracies it is possible to put into practice tough economic reforms without regime damage. In fact, the author claims, it is the other way around: "by empowering the populace, the institution of democracy - in the context of severe crises - paved the way for market reform" (p. 283).The book contains a case-oriented study that takes into account context factors. It is a synthetic effort based on extensive field research. The first three chapters are an introduction to the research question, a discussion about the rival theories, and a summary of the theoretical framework used for the description of the cases. These chapters are especially enjoyable for those who are interested in solving theoretical puzzles. Chapters four through eight are the core of the book. The author analyzes the political economy of the mid-1980s (i.e. "heterodox experiments"), and the reforms of the 1