Towards Post-neoliberal Resource Politics? The International Political Economy (IPE) of Oil and Copper in Brazil and Chile

Abstract

The contemporary commodity boom is unprecedented in two ways. On the one hand, it takes place against the backdrop of the failure of neoliberal policies to achieve stable economic growth in Latin America. On the other hand, Left-of-centre governments, which have now been in power for over a decade, are designing new strategies to manage the increase in export earnings accrued from sustained international demand for commodities. In particular, Brazil and Chile have undergone significant market opening reforms in their resource sectors, yet persistent state ownership and the dominant role of state enterprises in key extractive industries continue to characterise their growth models. This article explains this puzzle through the application of Mahoney and Thelen's (2010) historical institutionalist framework on incremental change. In so doing, it offers a process-oriented approach in exploring how resource wealth under certain economic and political conditions provides leverage for states to promote economic development. In sum, the article hopes to contribute to the literature on neoliberal and post-neoliberal political economies in Latin America.

Keywords:

• resource politics
• post-neoliberalism
• historical institutionalism
• critical IPE
• incremental change
• state strategies
• Brazil
• Chile

Notes on contributor

Jewellord T. Nem Singh is Lecturer in Development in the Department of Geography at the University of Sheffield. Prior to this appointment, he was Post-doctoral Research Assistant at the Sheffield Institute for International Development (SIID). He earned his PhD in Politics at the University of Sheffield and holds a Masters in Asian Studies degree at Lund University, Sweden. He is editor of the special issues on ‘Post-Neoliberalism in the Southern Cone’ (Politics and Society, with Jean Grugel and Silke Staab) and ‘The New Political Economy of Natural Resources’ (Journal of Development Studies). His work has appeared in Third World Quarterly, Journal of Developing Societies, and as book sections in various projects. His main research focuses on the global governance of natural resources, political economy of development, citizenship rights and democratisation, and post-neoliberalism, with emphasis on Latin America and Southeast Asia. He is currently preparing a manuscript on ‘New Developmentalism and Extractive Politics under Left-led Latin America: Brazil and Chile in Comparative Perspectives’, to be placed in a university press.

Notes

1. However, there exist some exceptions examining resource-based trajectories of growth (see Abidin 2001; Rosser 2006, 2007; Barbier 2011; Thorpe et al. 2012). An interesting take on this debate is also expounded by Hujo and McClanahan (2009) and Hujo (2012).

2. For slightly different argument as applied to hydrocarbons sector, see Berrios et al. (2011).

3. There are important exceptions here. Latin American governments led by the Right – Peru under Alan Garcia, Colombia under Álvaro Uribe and some parts of Central America – have experienced the intensification of neoliberal tendencies in resource extraction. Ironically, there has been very little change in Chile under the Centre-right government of Sebastian Piñera in mining policy. See Nem Singh (2012) for Chile; Castillo-Ospina (forthcoming) for Colombia. Argentina follows the policy trajectory of the Left in Brazil and Chile, where the state aggressively courts foreign investment in mining, hydrocarbons, and export agriculture whilst taking incremental steps towards re-nationalisation especially in oil and natural gas sectors, which peaked in April 2012 when Cristina Kirchner announced the state capture of YPF-Repsol through a 51 per cent recapitalisation of the company (BBC 2012; Bronstein 2012).

4. Barbier (2011: 558) offers a summary of the three major perspectives on resource wealth-economic development linkages: ‘The resource curse thesis posits that commodity price booms do not lead to the investment of resource rents in more dynamic sectors of the economy, such as manufacturing, and instead directs investment and factor inputs towards the resource sector. The Dutch disease also affects the competitiveness of other products – agriculture and manufacturing – through exchange rate effects of the price boom. The open access exploitation hypothesis suggests that not only does extraction under open access conditions generate no resource rents to be reinvested but it also leads to over exploitation of natural capital in the long run. Finally, the factor endowment hypothesis maintains that unfavourable environmental conditions may directly inhibit the efficient generation of natural resource rents and returns from reinvesting these rents into other productive assets, as well as indirectly through a long-lasting influence on patterns of political and legal institutional development’. For other references, see Auty (1993, 2001), Barbier (2003, 2005), and Easterly and Levine (2003).

5. By incremental change, scholars refer to the interactions of actors between those who support and oppose the creation of new rules, and how old rules are replaced, converged, or deemed obsolete by actors. See Mahoney and Thelen (2010).

6. See Thelen (2003) and Mahoney and Thelen (2010: 14–16).

7. Chile was the testing ground of monetarist economic theory where its central proposition was to develop the productive factors of a country's comparative advantage (most notably commodities) and give up efforts towards self-sufficient industrialisation. See Pollack and Grugel (1984: 132).

8. Although CODELCO remains the biggest copper producer if we disaggregate the numbers for private firms, Minera Escondida – operated by foreign firm BHP Billiton – produced 1254 metric tons in 2009 – roughly 23.5 per cent of the total share of Chilean production.

9. Private ownership in state-owned enterprises was the typical solution offered by the World Bank (see World Bank 1995). For a critical review, see Aharoni and Ascher (1998) and Chang (2007).

10. According to DL 20.392 enacted in November 2009, CODELCO's board will be comprised of nine members: three directors were directly appointed by the Head of State; four directors were appointed from a shortlist selected by the Council of Senior Public Management (Consejo de la Alta Dirección Pública); one director was selected from a shortlist presented by the Federation of Copper Workers (FTC), and one director selected from a shortlist jointly presented by the Federation of Copper Supervisors (FESUC) and the National Association of Copper Supervisors (ANSCO). The latter three representatives are from the union of workers, engineers and supervisors who play the critical role of linking workers and company interests as part of the negotiating strategy between CODELCO and unions, which is referred as the Alianza Estratégica (Strategic Alliance). See the summary of the Code of Corporate Governance in CODELCO at www.codelco.com/english/la_corporacion/fr_organizacion.html [accessed 21 April 2011].

11. Author interviews with three members of the Board of Directors/President, CODELCO, Santiago de Chile, November 2009. For an overview of the reforms, see OECD (2011: 42–7).

12. For dependent development model and the limits of the triple alliance between state, multinational capital and domestic business, see Cardoso (1973), Cardoso and Faletto (1979) and Evans (1979, 1995).

13. There were two major phases in the programme. Phase I (1994–1999) aimed at recuperating competitiveness, profitability and credibility by reducing the costs of extraction to less than 10 centavos/pound, boosting production by 500,000 tonnes and enhancing productivity by 50 percentages. Phase II (1999–2006) sought to maximise the economic value of the company workers and the transfer of profits (dividends) to the state through the so-called ‘common project of the firm’. In practice, this means doubling its economic value and increasing the surplus production of CODELCO. See Villarzu (2005).

14. One clear division between public/private firms and workers is the issue of subcontracting. Whilst companies view subcontracting and labour flexibility as effective tools to improve its economies of scales, workers insist on the negative effects of third-party outsourcing especially in terms of their collective power and employment security. See Nem Singh (2010, 2012).

15. ENAMI is a minerals processor with a developmental mission of supporting small and medium enterprises. ENAP is the state firm in charge of oil exploration, refining and production of natural gas for Chile's energy security. Banco Estado is the national development bank.

16. In four cases involving water and sewerage utilities, the state owns minority shares (29–45 per cent), but also has ‘golden share rights’, which are rights allowing the state-elected board members to veto the transfer of ownership of water rights and drinking water and sewerage concessions of these companies – a safeguard created in the height of second stage reforms (privatisation) in the 1990s to ensure drinking water services will continue in all instances (OECD 2011: 36).

17. For discussions on coalition presidentialism, see Power (2010); on the role of the Workers' Party in moderating radical demands from below and in professionalizing other parties, see Hunter (2007, 2010); for consensus around political economy and development, see Artestis and Saad Filho (2007), Hunter and Power (2007), Hunter and Borges Sugiyama (2009) and Arbix and Martin (2010); for state–business relations, see Schneider (2004, 2009).

18. Some observers argue that incremental changes have taken place as the Brazilian state extends its reach and scope by expanding the anti-poverty and social programmes (Hunter and Power 2007; Hunter and Sugiyama 2009), and rebuilding its industrial project through petroleum, mining and steel (Arbix and Martin 2010; Fleury and Leme Fleury 2011).

19. Incidentally, the NPC was inspired by Argentina's state-owned oil company (YPF), though Barbosa thought petroleum was better suited to be a state enterprise that was not to be entrusted to anyone, including the Brazilian industrialists.

20. However, one needs to read this law carefully. Whilst the federal government directly owned 51 per cent, the remaining 49 per cent was in practice owned by shareholders related to the government indirectly. See Nem Singh (2012) and Nem Singh and Massi (forthcoming) for an extensive discussion of this type of government ownership structure in Brazil during 1950s and 1970s.

21. Author interviews with two former senior officials in regulatory petroleum agency Agência Nacional do Petróleo, Gás Natural e Biocombustíveis (ANP), current senior official in ANP, and current executive in association of foreign and Brazilian private oil companies Instituto Brasileiro do Petróleo, Gás e Biocombustíveis (IBP), Rio de Janeiro, Brazil, August 2010.

22. The Petroleum Law also contains some positive aspects of resource management, for example, the consolidation of prudent fiscal management of oil revenues through the strict limitations of expenditure towards infrastructure building, research and development (R&D) and a fairly acceptable division of rents between the federal government and the oil-producing states and municipalities.

23. Author interview with Victor Martins Souza, Executive Director, ANP, Rio de Janeiro, Brazil, August 2010.

24. Investment under PAC was divided into three categories: (1) logistical infrastructure, which includes the construction and expansion of highways, railways, ports, airports and waterways; (2) energy infrastructure, which includes generation and transmission of electricity, as well as the production, exploration and shipping of petroleum, natural gas and renewable fuels; and (3) social and urban infrastructure, which covers sanitation, housing, subways and urban trains (Pardelli 2010: 54–7).

25. The main difference is that the concession grants model works effectively when there are high risks involved which the state cannot afford and private capital should be rewarded for the costs of extraction. In this model, private firms are given absolute rights to explore, develop, sell and export oil and minerals extracted from a specified area within a fixed period of time. On the other hand, the production-sharing model recognises state ownership of natural resources but still permits foreign corporations to manage and operate the development of oil fields. Foreign capital takes the risks of developing oil fields and this model typically works when a national state-owned and/or private company join the consortium as interest holders. This works well in cases where there are very low risks for the state and high rewards are at stake. In the latter model, the state is at its most conflictual role because it acts both as profit maximiser and as enforcer of the rule of law (Lima 2010).

26. For detailed discussion, see Massi and Nem Singh (2011).

27. This decision is made by the Ministry of Mines and Energy (MME) and regulatory agency ANP.

28. PETROBRAS By-laws. Available from: http://www.petrobras.com/data/files/49CD59792CEC904C012CF579C10974F2/petrobras-by-laws.pdf [accessed 9 January 2012].

29. With investments in 28 countries, operations of 16 refineries in Brazil and a daily production of 1,978,000 barrels per day, PETROBRAS is by far the most successful SOE in post-crisis Brazil. Available from: http://petrobras.com.br/en/about-us/profile/ [accessed 26 January 2011].

30. The scholarly interest to understand the Left turn is obvious from the extensive coverage of the literature in terms of country comparisons, general overview and political and economic analyses: Castañeda and Morales (2008), Grugel and Riggirozzi (2009, 2012), Lievesley and Ludlam (2009), Panizza (2009), Petras and Veltmeyer (2009), E. Silva (2009), Cameron and Hershberg (2010), Edwards (2010), Weyland et al. (2010), Levitsky and Roberts (2011), Sader (2011).

31. Author interview with Jorge Bande, member, Board of Directors, CODELCO, 25 April 2012, Santiago de Chile.

32. There are a few joint projects currently in operation, for example in Brazil and Ecuador (CODELCO 2010, 2012).