A History of Wealth and Poverty: Why a Few Nations are Rich and Many Poor, by John P. Powelson.

Appendixes for Chapter 18

Appendix 18.1: References on State Power and Lack of Accountability in Peru

References on state power and deficient government accountability from historical sources bear a strong resemblance to those appearing in newspapers today. For comparison, they are combined into a single section, in roughly chronological order.

  1. In the sixteenth century, corregidores "prohibited outside merchants from trading in their jurisdictions and then brought in goods themselves which they forced the natives to buy at inflated prices, whether the goods were of any use to the purchasers or not." [413]
  2. Spanish economic policies of the seventeenth century were designed to squeeze resources out of Peru as Spain's own needs increased, mainly with wars on the European continent: increased taxes, trade prohibited which might compete with Spain, offices sold. [414]
  3. In 1646, Fray Buenaventura reported that corregidores "take as much as they can because they doubt that they will have an office again." [415]
  4. "If Spain could not kill Peruvian production and trade, it could limit them by increasing the amount of bribery necessary to carry on a profitable operation and by increasing the number of laws and officials charged with its suppression." [416]
  5. "The problem of resuscitating the mines was complicated by the fact that loans raised to benefit South America, both public and private, failed to reach the continent, through mismanagement on the part of the fund raisers" [417]
  6. "What does it matter," President Echenique asked in 1853, "that a few have enriched themselves whose wealth has remained in the country and contributed to the development of these benefits?" [418]
  7. In 1868, the new president, General Díaz Conseco, "wanted a railroad between his city [Arequipa] and Lima (to reward it for supporting him in the revolution)." This was constructed at a price that far exceeded the cost. The British railroad builder reported to an author that "the only way to get on with successive governments in Peru was to let each sell itself for its own price. He then added that the contract price includes the sums required by the President and the President's friends, . . . to keep all rivals at a distance." [419]
  8. "[In 1893] payments were made according to the will of the Minister who ordered them and of the Minister of Finance who could want to order their payment, or of the treasury cashier who wished to execute the order. As a result, not all the payments were honored. . . . These [orders of payment] were sold at a low price and later paid according to the circumstances." [420]
  9. "[A] law passed in 1900 gave the government the right to expropriate real estate by simple declaration; in 1903 entail (manos muertas) was abolished." [421] (In England and Europe, the abolition of entail was negotiated piecemeal and decided in the courts and parliaments over centuries. In Peru, by contrast, it was done by a single decree).
  10. In studying an agrarian reform cooperative in the 1960s, Guillet found that the sense of trust and loyalty to the group did not carry over from tribal society. Bringing together peasants from different communities increased tensions. But above all, the peasants resented the usurpation of decision making by a new level of national bureaucrats. [422]
  11. "So far [1985], only a few conservatives have publicly warned of the perils of the enormous popularity and highly centralized power enjoyed by [the new president] Mr. García, with the weekly magazine Oiga drawing an analogy with the personal style of Juan Domingo Perón, the late Argentine leader, and noting that 'demagogy is governing the country.' " [423]
  12. Relative values placed on power versus policy/ideology are exemplified by the 180-degree shift of the political party APRA in 1980. Although dedicated to agrarian and social reform, it joined right-wing parties to deny another party, Acción Popular, the funds to carry out the reforms that both of them favored. Thus APRA preferred to forgo its principles rather than allow them to be implemented by someone else. Power rather than reform was the dominating force. [424]
  13. Price controls have been used by every government since 1969, despite their manifest inability to limit inflation and their distortion of production. Upon taking office in 1985, President García announced "an emergency program to double minimum wages, freeze the price of basic goods, tighten exchange controls and raise gasoline prices to increase Government revenues." [425]
  14. " 'We realize we have mismanaged our affairs in a gross manner and we are paying the price,' said Manual Ulloa, a former Prime Minister from Peru." [He was referring to the debt crisis.] [426]
  15. One of the effects of centralized power is extreme or capricious actions. The resulting inability to predict wages and prices make business decision-making difficult. For example: "The Government increased the price of gasoline by 400 percent and of most food by 100 to 200 percent, devalued the currency by around 100 percent and increased the minimum wage by 150 percent. It then gave the private sector 10 days in which to adjust its prices, after which there was to be a 120-day across-the-board price freeze. . . . But many businesses raised their prices to anticipate inflation through January, immediately putting the prices of their products beyond the reach of most consumers and throwing the economy into a sudden and violent recession." [427]
  16. There have been many reports of mismanagement and embezzlement from state enterprises and cooperatives. For example: "In many cooperatives, charges of corruption were also leveled against managers, particularly when peasants found their wages docked to cover outstanding debt." [428]

Appendix 18.2: References on State Power and Lack of Accountability in Brazil

  1. In 1888, credit to agriculture "began the inflationary process known as the 'encilhamento.' . . . [This term] indicates distrust of the government's role in the inflation, since it refers to the part of a race track where horses are girthed, and shady bets were placed if the race itself was not fixed." [429]
  2. Under the Consolidated Labor Code of 1943, local organizations were "grouped into state federations which, in turn, were united into national federations. By means of this device, [President Getúlio] Vargas was able to create an organized national labor movement where virtually none had existed before. More important still from the perspective of statist development, that movement was malleable and dependent, and constituted a political tool in the hands of the government." [430]
  3. "But even many Brazilian businessmen are concerned about Brazil's ambitious drive toward economic power, arguing that it has sharply increased the powers of the central government." [431]
  4. "Brazil is one of the most notarized, sealed, beribboned, stamped, authenticated, photocopied, docketed, registered and cross-filed countries on earth. Lines of citizen supplicants waiting to have their papers inscribed with some official emblem are as much a part of the local landscape as Sugar Loaf Mountain." [432]
  5. "Seventy percent of food moves by highway, thanks to the nation's commitment in the 1960's to create its own automobile industry and concentrate on road building. Left unattended by Government choice were the railways and the world's richest river network, two resources that, had they been developed, could have cut transportation costs. . . . Thus far, the Government has favored agribusiness with its subsidy and credit provision programs, bringing rapid improvements to productivity but leaving unattended long-range social problems posed by the continuing movement of small farmers to the overcrowded cities." [433]
  6. "The upper echelons of the state-run enterprise were filled with retired military officers, and the frills they offered ranking employees were generous and imaginative. Employees received bonuses simply for faithfully showing up at work, and officials shared in annual profits even of state corporations that were not profitable." [434]
  7. "[T]he country's giant state enterprises . . . accounted for billions of dollars of the borrowing. So much money has disappeared into the trio of steel and glass towers that some people have taken to calling the area [Rio de Janeiro] the Bermuda Triangle. . . . The military-run government has relied, with apparent justification, on the conditioning of the Brazilian public over two decades to take orders. . . . [T]he Government remains centralized and authoritarian. Local administrations have virtually no revenue-raising authority, and Congress has no say in the principal budgetary decisions." [435]
  8. "An explosion of government borrowing has kept interest costs here sky-high and is crowding out many small borrowers. Working capital costs so much that it often exceeds what businessmen can make from selling their products. Price controls are strangling business and particularly business investment without noticeably curbing inflation, which has doubled to 227 percent a year. So . . . business investment remains flat." [436]
  9. "Horror stories of bureaucratic arbitrariness abound. It took a year for Petrobras — the powerful oil monopoly — to clear through SEI [Special Secretary of Information] a license to import an IBM 3090 mainframe." [437]
  10. The World Bank criticized Brazil's welfare program because its funds were "badly managed by highly centralized government agencies and . . . their distribution is often influenced by political interests." Referring to the problem of "ghost" employees, the Bank noted that "when one northeast state recently tried to verify the 14,000 teachers on the state education payroll, it found that 6,000 individuals regularly collecting salaries could not be located." [438]
  11. Forests in Brazil are being destroyed because the government gives sizable tax breaks to cattle ranchers, whose activity is "inherently uneconomic. . . . The tragedy is that the forest could be preserved even as its resources are tapped. Permanent crops like coffee bushes do less damage than annual cropping or cattle." [439]
  12. "An inefficient state sector, rife with overmanning, corruption, and money-losing industries, continues to squander the nation's resources." [440]
  13. "20 percent to 40 percent of Brazil's output occurs in the informal economy, which operates outside of government purview in order to avoid taxes and regulation." [441]
  14. "If I was able to end the misery of 45 million people; get milk into the mouths of starving Brazilians; eradicate the illiteracy of eight million people; end external debt repayments of 4.5 percent of GNP in a country which is growing at only 0.5 percent per year . . . If I could do these things I would be making the greatest revolution on the continent." [442] I include this quotation by a presidential candidate for two reasons. First, it appears in the first person singular, perhaps indicating a belief in the enormous power of a president; and second, it cites broad, sweeping goals to combat all the perceived social ills, without attention to the microsteps, the political coordination, the moderation of conflicting interests, the cooperation of diverse groups, and the length of time that would be required before it might be implemented.

Appendix 18.3: References to Confrontation and Break-the-System in Argentina

  1. When challenged by the Organization of American States on the torture and executions in the "dirty war," Argentina "threatened to quit the assembly and perhaps the regional organization if the 27-nation body adopts a resolution naming Argentina as a violator of human rights." [443]
  2. "Argentina's largest party, the Peronists, are even more deeply divided [than the Radical Party], with about a dozen factions. Members have ranged from the extreme leftists who assassinated policemen in the mid-1970s to extreme rightists who assassinated the leftists." [444]
  3. Political parties "have had a poor record of espousing wild-eyed populism, engaging in corruption and goading the military into coups against competitors." [445]
  4. "Two weeks ago about 10,000 Peronist workers marched in front of Congress to protest the government's labor policies. Carrying banners, beating drums, singing and chanting obscene insults, they denounced President [Raúl] Alfonsín as a 'dictator' and 'gorilla' and succeeded in interrupting the debate on the new labor law for several hours." [446]
  5. "The Peronist party has been hopelessly fractured since Peron's death — riven by personal jealousies, its populism ranging from left-wing nationalism to right-wing ultra-Catholicism. As a party, it can obstruct the Government but cannot get together on a minimum agenda." [447]
  6. "A general of the army, accused of involvement in the 'dirty war,' brandished a knife against demonstrators who taunted him outside a television studio in Buenos Aires." [448]
  7. By calling a 24-hour strike in 1984, the General Confederation of Labor "halted what had been painstaking negotiations for a national accord on wages, labor laws and long-term economic policy." When the government called on business and union leaders to discuss the matter, Peronist CGT leaders refused to attend. [449]
  8. From a professor of law at the University of Buenos Aires: "Protest is essential to democracy. But demonstrations and slogans do not contribute to the dialogue necessary among all sectors to overcome grave problems. Uncritical repetition of outdated catchwords turned into dogma must be replaced by analysis and imaginative solutions." [450]
  9. In 1985, President Alfonsín imposed a sixty-day state of siege as "a move to free the Government's hand to combat a sharp increase in violence widely attributed to right-wing terrorists." [451]
  10. In 1985, differences within the Peronist party on whether to elect officers by direct vote or by delegates, and the personal dislike of an officer, caused the party to split into two parts. It is the inconsequentiality — to outside observers — of the reasons behind this split that draws our attention: "This month two groups, each claiming to be the real Peronist party, held separate congresses, a development analogous to two wings of the Democratic Party in the United States holding competing national conventions." [452]
  11. From César Jaroslavsky, Radical Party leader in the Chamber of Deputies: "This is an impossible debate in Argentina between the military and civilians . . . because the military are never going to understand or admit that they violated human rights and that no cause justified that. They want the vindication of their fight, and for us, the civilians, to render them homage." [453]
  12. "The channeling of demands through the military involved a very real threat of ouster to the government. This danger was evident in the numerous planteos (demands from the military backed by the threat of force if they were denied), as well as in the many coups and attempted coups between 1955-66. . . . By promoting social unrest, as well as by paralyzing production through strikes and the occupation of factories, they could make a government appear unable to maintain even minimum levels of law and order, and thus put it in immediate danger of being ousted." [454]

Appendix 18.4: Newspaper References to State Power and Lack of Accountability in Argentina

  1. The Ministry of the Economy "is so archaic in its methods that no one knows the real size of the budget deficit." [455]
  2. "The underground economy in Argentina has the same causes as everywhere else: high taxes, excessive regulations and government intervention. It is an indicator not of a sick society that evades its political duties, but of a society seeking freedom from bureaucratic distortion." [456]
  3. "Argentina is struggling with an old problem — the lack of a strong and constructive opposition. . . . Opposition parties simply have never gotten going in Argentina. They have been banned under the frequent periods of military rule — 28 of the last 55 years — and co-opted or crushed electorally by populist caudillos such as the late Gen. Juan Peron who have formed massive political movements." [457]
  4. The following was written about an Argentine industrial engineer whom the president had appointed to promote a national privatization drive. "He resigned in despair several months later, [complaining that] past loans from [international lending institutions], rather than inducing substantive, free-market changes in the economy, have often maintained and even strengthened the status quo. . . . [Several examples are mentioned, of which the following is one]: Road building and maintenance is nationally controlled by Viabilidad Nacional. Its bureaucrats are notorious opponents of toll systems; a private company running a toll system would strip them of power. They have even 'liberated' existing toll charges." [458]
  5. "The state-owned corporations that provide public services are so mismanaged that they have been running annual deficits that make up the bulk of the nation's fiscal deficit." [459]
  6. "These elephantine companies, the products of a past that saw the state as the primary engine of development, dominate the region's economic activity. Performing poorly, burdened with obsolete equipment and bloated by featherbedding, many of the enterprises have been targeted for sale or reorganization. . . . A study by a government auditing agency found that state enterprises in Argentina lack passable financial records, and some — including the telephone company and railroads — do not even have complete inventory lists. . . .' For each important decision in ENTEL,' says Nicolas Gallo, who quit in August after eight months as the company's head, 'one has to consult the ministers of economy and public works, the secretaries of communication, industry and foreign trade, the director of public enterprises, four unions, the business chambers and some important suppliers.' " [460]
  7. "The national railroads need about $750 million a year from the treasury for their operating deficit. . . . The telephone company has two to four times more employees per line than similar companies around the world. Aerolíneas Argentinas has twice the number of employees per plane." [461]
  8. "Last year, Ferrocarriles Argentinos, as the state-owned [railroad] company is known, lost $700 million following a loss of almost $1 billion in 1987. That, economist Lisandro Bril estimates, represented close to 20 percent of the state deficit in both years. The deficit is widely seen as the central factor in Argentina's persistent inflationary scourge." [462]
  9. Jeffrey Sachs of Harvard reported on the temporary success of command development under Perón (1946-55). But as early as 1948, "the Perón prosperity fell apart." [463]
  10. "Today, the list of troubles adding up to what President [Carlos Saúl] Menem calls 'the long sickness of the Argentine economy' includes fiscal deficits that typically exceed 10 percent of the gross national product, tax evasion as a way of life, low productivity, a bloated state payroll and heavy dependence on the state by private enterprise." [464]
  11. "State-owned companies are losing billions of dollars, yet their labor unions are resisting job dismissals or privatization; tax evasion is so rampant that more than half of economic activity may have gone underground; only 7% of industrial output is sold abroad; and agrarian exports, the main source of government revenue, are stagnating. [A] give-and-take-away system of subsidies and taxes has discouraged producers from investing or raising exports." [465]
  12. "[U]niversal free medical care has long become irrelevant because the public hospital system has virtually collapsed under the weight of corruption and fiscal deficits. . . . Argentines are notorious for avoiding taxes . . . partly because of the conviction that too much of public funds are siphoned off by bribes, thefts, and layers of middle men." [466]
  13. "[D]espite major rate increases telephone and electrical utilities have had to borrow to meet costs." [467]
  14. "Yacimientos Petrolíferos Fiscales [YPF] is Argentina's state oil company, and it has run up a debt of $4.5 billion, or 10 percent of the country's entire $45 billion debt. Yet in contracting this debt, YPF got its hands on just $300 million of it, a mere 6 percent, company officials say. The remaining $4.2 billion was used by the previous military government to subsidize extremely low gasoline prices, to buy arms and to finance Argentine tourists traveling abroad. [468]
  15. Maximo Flugelman, a leading Argentine banker, calls the country a "study in the impoverishment linked to the outrageous refusal to compete." [469]
  16. The final affront to accountability is the manner in which the military has escaped responsibility for the "dirty war." [470] Not being an "economic" matter, this question has avoided the purview of foreign critics, except the human-rights agencies.


Copyright © 1994 by the University of Michigan. First published in the USA by the University of Michigan Press, 1994.

Published on the World Wide Web by The Quaker Economist with permission from the University of Michigan Press, 2005.

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