The Changing Coordinates of Trade and Power in Latin America: Implications for Policy Space and Policy Coherence

The classical coordinates of trade and development in Latin America, which centred on the trade liberalization versus protectionism dichotomy, have changed significantly during the past decade. Instead, a complicated cartography of trade regimes and processes of regional integration has emerged. This paper examines the political and economic context and factors that explain this shift, paying particular attention to the failings of orthodox neoliberalism, the so-called turn to the Left via electoral politics, and the rise of non-state actors in influencing the policy process. It also considers the implications of changes in trade and regional integration policy, as well as in power relations, for inclusive development.

Part I examines how the changing ideational and structural conditions in Latin America are pushing beyond the classical debate concerning trade and development in the region. It maps out the variety of trade regimes that have come to the fore and conceptualizes the role of non-state actors in this new landscape. As a basis for examining the implications of contemporary trade and regional integration policy for inclusive development—which follows in Part II—this section also introduces the discussion of "policy space" and "policy coherence": two principles that have gained currency in international knowledge networks as being crucial features of policy processes conducive to inclusive development. Against the backdrop of neoliberal policies that were reinforced through donor conditionality and that initially marginalized social policy, the term “policy space” refers to the ability of governments to craft strategies and policies that are in tune with national development priorities, while “policy coherence” is taken here to refer to economic and social policies that are complementary and conducive to inclusive development.

Part II contains case studies of Bolivia, Brazil, Chile and Nicaragua that examine the dynamics of trade and development policy and policy making, and reflect on their implications for policy coherence and policy space. While these case studies reveal considerable variations in the application of neoliberalism at the country level, they illustrate the ideological decline of the Washington consensus in Latin America, the gradual comeback of the state in development strategy, and an increasing demand from civil society actors for redistributive policies that can translate economic growth into tangible development benefits and poverty eradication.

These changes are consistent with the turn to the Left. It is important, however, to nuance such a characterization. While contemporary strategies not only combine market and developmentalist approaches, the characterization of "two Lefts" in Latin America—exemplified by the moderate Chilean Concertación and the government of Evo Morales in Bolivia—is losing its heuristic power in relation to trade regimes. By weaving together free trade agreements and different regional initiatives centred on a variety of South-South relations, Latin American countries are pushing beyond the bipolar trade logic implicit in this characterization.

Democratization has fostered hybrid models whereby countries in the region accept the reality of economic liberalization, which is enshrined in conventional trade agreements, but also look to alternative institutional and policy arrangements to minimize the contradictory effects of economic liberalization and promote more inclusive patterns of development. Such complementarities are apparent in various policy arenas, including the strengthening of some features of the developmental welfare state and regional and national social policy, as well as South-South cooperation.

Averse to the asymmetries of multilateralism, Bolivia is attempting to combine the alter-globalization model of the Bolivarian Alliance for the Peoples of Our America (ALBA) with the more orthodox South-South integration schemes of the Andean Community (CAN) and the Southern Common Market (MERCOSUR). Brazil combines multilateralism with an attempt to pursue regionalism through MERCOSUR, which is not only an economic, but also a political and social project. In the case of Chile, the strategy of simply expanding the number of free trade agreements worldwide appears to be reaching its limits, with the country having to look to regional integration in order to secure conditions for economic and social development. Nicaragua, like Bolivia, is pursuing an unusual hybrid—“CAFTALBA”—seeking complementarity by combining a free trade agreement with the United States (the Dominican Republic–Central America Free Trade Agreement/DR–CAFTA) with South-South integration in ALBA.

Discursively and conceptually such arrangements seem to bode well for policy space and certain dimensions of policy coherence. However, various structural, institutional and political constraints are apparent. In Bolivia there has been an attempt to increase the government’s policy space and achieve greater coherence between the normative vision of alter-globalization (ALBA) and the export-oriented growth possibilities of conventional liberalization (CAN and MERCOSUR). The country’s small economy and its history of instability are serious impediments to this ambitious new developmentalist project. To achieve its trade and development objectives, the Morales administration must successfully negotiate an increasingly complex and volatile “two-level game” between, on the one hand, polarized domestic business and civil society actors, and, on the other hand, polarized visions of trade within CAN.

In Brazil, the technocracy, a resurgent parliament and electoral competition have played an important role in relation to policy space and coherence. But organized business interests, historically quite fragmented, are mobilizing, uniting and lobbying to greater effect. This development may serve to moderate rent-seeking demands, but it also suggests certain limits to the strengthening of the normative and regulatory framework for inclusive development, particularly in a context where those sectors of civil society—or countervailing powers—that are supportive of more inclusive patterns of development (such as social movements) remain fragmented.

Chile confronts the challenge of not only having to manage constraints on policy space that are locked in through numerous free trade agreements, but also those that give the political allies of neoliberalism and big business undue weight in the legal and policy process. In Nicaragua, the ideological melange inherent in DR–CAFTA and integration in ALBA illustrates the unconventional paths to trade and integration that are currently emerging in Latin America. DR–CAFTA locks in certain constraints on policy space and its distributional effects favour very specific sectors of business. By emphasizing principles of solidarity and equity both within and between countries, policy space and the balancing of economic and social dimensions of development have become the central objectives of ALBA although, in practice, various questions have arisen with regard to governance and sustainability.

Latin America is once again embarked on a transition that could have major implications for economic and social development. The current diversity of trade and development regimes, institutional developments related to subregional integration, and South-South cooperation yield a complex mix of opportunities and constraints vis-à-vis policy space and policy coherence. Various aspects of the evolving policy regimes appear to help promote inclusive development However, tensions that perpetuate the region’s historical syndrome of institutional ruptures are never far from the surface.