Motivation

2. Motivation • Economists, IFIs emphasize policy recipes to achieve development goals. • In Latin America this has led to adoption of “Washington Consensus” reforms. • The outcome somewhat disappointing. • IPES: Potential of policy recipes depends on the quality of the policymaking process through which policies are discussed, approved, and implemented. • Improvement (and better understanding of) policymaking processes key in order to improve the quality of public policies and achieve development objectives.

3. Motivation • Even within LAC, substantial differences in the quality of public policies. • In some countries policies are stable and predictable, in others policies change with every change in government. • Some countries able to adjust policies in response to shocks, or innovate when policies fail, others get stuck in bad policies. • Some are able to implement and enforce policies effectively, others unable to do so. • Some adopt policies with broad benefits, others reflect the pressures of special interest groups. • What determines the capacity of countries to design, approve and implement effective public policies?

4. Objectives • Improve understanding of process by which policies get enacted, approved and implemented (the PMP). • Improve understanding of relationship between PMP and quality of public policies. • Improve policy recipes, by adapting them to (political) institutional capabilities. • To contribute to the debate about reform of political institutions, shedding some light on their effects on policy.

5. Beyond a technocratic approach to policymaking • In technocratic approach to policymaking, public policies are objects of choice. • Policymakers seen as social planners, just need to adopt policies that produce best social outcomes. • Actual policymaking involves a multiplicity of political actors, interacting in a variety of arenas. • Some are professional politicians or policymakers, others members of civil society. • Each brings its own preferences and capabilities to the PMP. • Public policies not the result of purely technical considerations; political considerations play an important role.

6. Beyond a technocratic approach to policymaking • In IPES, public policies seen as the outcome of inter-temporal transactions among political (and technical) actors. • IPES places less emphasis on content of policies, more emphasis on process of policymaking, and certain resulting policy features. • These processes differ significantly from country to country, can be traced back to each country’s political institutions. • While institutions are also endogenous, depend on culture and historical legacies, in IPES we treat them mostly as exogenous. • Focus on impact of existing institutions on policy outcomes, not on the dynamics of institutional change. • More relevant “frequency” for policy implications.

7. Political institutions and policy outcomes • Literature on effects of political institutions on policy outcomes tends to focus on single institutional dimension, and explores its impact on some policy outcome. • PMP do not depend on single-factor explanations but rather on a multiplicity of factors, and their interaction. • We adopt systemic approach, more appropriate to: • understand why policy reforms that work under certain institutional environments may not work under others • think about the reform of political institutions. • Approach requires deep knowledge of institutional details of the countries under study.

8. Country focus • First phase of the research agenda focused on detailed country studies, carried out by teams of economists and political scientists in the region. • Phase I: Argentina, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay and Venezuela. • We have added Costa Rica, Guatemala and Jamaica. • Country studies are key input for the report.

9. Key features of public policies • The focus of the approach is in explaining certain common features of public policies: • Stability. • Adaptability. • Coordination and coherence. • Quality of implementation and enforcement. • Public regardedness. • Efficiency.

10. Measuring key features of policies • We use two sources of data. • International comparative indicators from the Global Competitiveness Report (GCR). • Our own State Capabilities Survey, responded by more than 150 experts in 18 countries in Latin America. • Time frame: last two decades (or since return of democracy). • Thus, our indices do not reflect the quality of policymaking under current administrations, but during this longer period. • Indices not perfect, seen as first pass at measuring these important features, good starting point to study link between political institutions and policy outcomes.

11. Example: Measuring policy stability • Volatility of Fraser index of Economic Freedom. • GCR question regarding cost of legal and political changes for firm’s planning capacity. • GCR question on the extent to which new governments honor contractual commitments and obligations of previous regimes. • SC Survey question on capacity of the State to set and maintain policy priorities among conflicting objectives. • SC Survey question on extent to which governments ensure policy stability so that policies have time to work. • SC Survey question on extent to which the State makes and maintains international commitments.

12. Policy Stability index Chile Uruguay Costa Rica Brazil Colombia Mexico El Salvador Honduras Panama Peru Dominican Rep. Paraguay Bolivia Nicaragua Guatemala Ecuador Argentina Venezuela 1 2 3 4 Stability Index (1-4 scale) Source: Authors’ compilations.

13. Policy Stability index Chile Uruguay Costa Rica Brazil High Colombia Mexico El Salvador Honduras Panama Peru Dominican Rep. Medium Paraguay Bolivia Nicaragua Guatemala Ecuador Low Argentina Venezuela 1 2 3 4 Stability Index (1-4 scale) Source: Authors’ compilations.

14. Country Stab Adapt Impl/Enf Coord / Coherence Public Reg Effic Policy Index Argentina L M L L M L L Bolivia M H M M M M M Brazil H H H H M M H Chile H H H H H H VH Colombia H H H M M M H Costa Rica H M H M H H H Dominican Rep M M M M L M M Ecuador L M L L L L L El Salvador H H H M M H H Guatemala M M L M L M L Honduras H M M M L M M Mexico H M H M M H H Nicaragua M M M L L M L Panama M L M L L L L Paraguay M L L L L L L Peru M M M M M M M Uruguay H H H M M M H Venezuela L L M L M L L Key features of public policy since 1980s

15. Key features of public policy since 1980s Country Stab Adapt Impl/Enf Coord / Coherence Public Reg Effic Policy Index Argentina L M L L M L L Bolivia M H M M M M M Brazil H H H H M M H Chile H H H H H H VH Colombia H H H M M M H Costa Rica H M H M H H H Dominican Rep M M M M L M M Ecuador L M L L L L L El Salvador H H H M M H H Guatemala M M L M L M L Honduras H M M M L M M Mexico H M H M M H H Nicaragua M M M L L M L Panama M L M L L L L Paraguay M L L L L L L Peru M M M M M M M Uruguay H H H M M M H Venezuela L L M L M L L

16. Why focus on keyfeatures of policies? • More naturally linked to the institutional environment than the content of policies themselves. • Content of policies may shift back and forth within a certain institutional environment in response to political shock. • Features such as stability or adaptability will remain the same. • More closely related to political institutions than outcome variables such as economic growth. • Reassuringly, features of public policy and the overall policy index correlate well with growth and other welfare indicators.

17. Policy Index and welfare measuresSimple and partial correlations Partial correlations (in yellow) control for GDP per capita in 1980. Developing country sample uses restricted version of policy index (excluding state capability survey questions).

18. The Policymaking Process (PMP) • Within our approach, the PMP takes center stage. Characterizing PMP in each country: • Which are the key actors that participate in it? • What powers and roles do these actors have? • What preferences, incentives and capabilities do they bring to the table? • What are the characteristics of the arenas in which they interact? • How frequent are these interactions? • What is the nature of the transactions they engage in?

19. Actors and arenas in policymaking • Background papers study role of various actors and institutions in Latin America’s PMPs. • Political parties and party systems. • The legislature (and the legislators). • The president and his cabinet. • The bureaucracy and the judiciary. • Sub-national actors. • Business organizations, unions, social movements. • Articulation of technical expertise into the PMP. • Studies discuss formal and actual roles, interaction with other actors, incentives, policymaking capabilities. • Basis for part II of the IPES (chapters 3 through 5). • “Democracies in Development” project also key input for this part of the IPES.

20. Policy Outcomes Political Institutions  PMP 

21. PMP  Policy outcomes • Key insight: features of public policies depend crucially on the ability of political actors to achieve cooperative outcomes, striking and enforcing inter-temporal deals. • In cooperative political environments, public policies will tend to be of higher quality, less sensitive to political shocks, more adaptable to changing economic conditions. • Additional insight: quality of public policies also depends on the policymaking capabilities of key actors in PMP.

22. What determines cooperation? • Number of actors with impact on the policymaking game. • Discount rate of actors (related to expected tenure). • Frequency of their interactions. • Extent of convergence or divergence of preferences. • Well-functioning institutionalized arenas for political exchange (institutionalized parties, congress). • Credible enforcement technologies (an independent judiciary, strong bureaucracy to which public policies can be delegated).

23. Political Institutions  PMP • In turn, key aspects of the PMP are determined by the nature of the political institutions. • Constitutional rules determine role played by each actor involved in the PMP, rules of engagement among them. • Electoral rules also help shape number of actors and their incentives. • Political institutions also determine whether the primary arena where political transactions take place is the legislature, or whether the key actors are party leaders (or governors).

24. Different looks at policymaking • IPES looks at links between political institutions, policymaking processes and policy outcomes from different angles. • Cross-sectional analysis (chapter 6) • Policymaking in action in specific countries (chapter 7) • Chile: Policymaking in an institutionalized setting • Colombia: the 1991 Constitution and the policymaking process • Brazil and Ecuador: Policymaking in fragmented party systems • Policymaking in specific sectors (chapters 8 – 11) • Tax policy • Public services • Education • Decentralization, budget processes, and feedback effects • Combined, these perspectives offer a good view of complex world of policymaking, and the politics involved.

25. Different looks at policymaking • IPES looks at links between political institutions, policymaking processes and policy outcomes from different angles. • Cross-sectional analysis (chapter 6) • Policymaking in action in specific countries (chapter 7) • Chile: Policymaking in an institutionalized setting • Colombia: the 1991 Constitution and the policymaking process • Brazil and Ecuador: Policymaking in fragmented party systems • Policymaking in specific sectors (chapters 8 – 11) • Tax policy • Public services • Education • Decentralization, budget processes, and feedback effects • Combined, these perspectives offer a good view of complex world of policymaking, and the politics involved.

26. Cross-Sectional AnalysisSome results

27. Some results from cross-section analysis • High-quality policies are associated with: • Congress with good policy capabilities • Political parties that are institutionalized and programmatic • Strong bureaucracies • Independent judiciaries • Many of these institutional “blessings” tend to occur together. • Impact of other institutional variables, such as presidential powers, or degree of proportionality of electoral systems, depends on interactions with other institutional dimensions.

28. Congressional capabilities • National legislature is natural arena for discussion, negotiation and enforcement of political agreements. • A legislature made up of professional legislators, with technical capabilities, with adequate organizational structures, may encourage consensual and consistent policies over time. • We build an index of congressional capabilities, which includes: • Different measures of public perception of Congress • Education of legislators • Years of legislative experience • Specialization in Committees • A few more subjective variables

29. Congressional Capabilities and the Quality of Policies 4.0 3.5 3.0 Policy Index (1-4 scale) 2.5 2.0 1.5 1.0 1.0 1.2 1.4 1.6 1.8 2.0 2.2 2.4 2.6 2.8 3.0 Congressional Capability Index (1-3 scale) Source: Authors' compilation.

30. Characteristics of political party systems • In some countries, political parties play key role in defining policy programs, engage effectively in public policy debates. • In others, party systems affect the PMP indirectly, influencing executive-legislative relations, possibilities for coordination in Congress, incentives of elected officials, etc. • Institutionalized parties, when they are programmatic (competing on basis of public policies and policy outcomes) are more likely to encourage long horizons, and prevent opportunistic behavior. • They can facilitate inter-temporal bargains within and between parties, since commitments made by current party leaders are more likely to be respected in the future.

31. 8 Chile 7 Uruguay El Salvador 6 Policy Index = 2.57 5 Programmatic Index (0-8 scale) 4 Policy Index = 2.04 Policy Index = 2.06 3 Mexico 2 Brazil Argentina Honduras 1 Ecuador Paraguay Costa Rica Colombia Venezuela Dominican Rep. Guatemala Peru Panama Bolivia 0 40 50 60 70 80 Institutionalization Index (0-100 scale) Policy Index = "Very high" Policy Index = "High" Policy Index = "Medium" Policy Index = "Low" Note: Boxes show the average value of the Policy Index for the countries in each quadrant. Source: Authors' compilation and Jones (2005). Party System Institutionalization, Programmatic Orientation and the Quality of Policies

32. Judiciaries and Bureaucracies • Good enforcement and implementation facilitate cooperation, strengthen quality of policies. • Judiciary most obvious enforcer. Independent courts ensure that the president does not overstep his boundaries, and that neither branch violates the constitution. • Inter-temporal cooperation hindered if courts are not independent, actors are not held to their commitments. • Bureaucracy plays a predominant role in policy implementation. • But a strong bureaucracy can also facilitate inter-temporal bargains. Delegation to an independent bureaucracy can help enforce inter-temporal implementation of political and policy agreements (Independent central banks, autonomous agencies).

33. Source: Authors' compilation and World Economic Forum (2004). Judicial Independence and the Quality of Policies 4.0 3.5 3.0 Policy Index (1- 4 Scale) 2.5 2.0 1.5 1.0 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 Judicial Independence Index (1-7 Scale)

34. Source: Authors' compilation and Iacoviello and Zuvanic (2005). Development of Civil Service and the Quality of Policies 4.0 3.5 3.0 Policy Index (1- 4 scale) 2.5 2.0 1.5 1.0 0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 Development of Civil Service System Index (0-1 scale)

35. Political Institutions and the Quality of Policies Country by Policy Congress Judicial Party system Programmatic Development of Index level Index independ. institut. parties civil service VERY HIGH Chile H 4.60 65 8.00 0.59 HIGH Brazil H 3.90 59 2.00 0.68 Colombia H 3.10 60 0.00 0.47 Costa Rica M 3.80 61 1.00 0.49 El Salvador M 2.90 66 7.00 0.11 Mexico M 3.30 67 2.00 0.40 Uruguay H 4.80 76 7.00 0.48 MEDIUM Bolivia M 1.70 56 0.00 0.24 Dominican Rep. L 3.60 74 0.00 0.28 Honduras L 1.90 68 2.00 0.16 Peru L 1.90 53 0.00 0.16 LOW Argentina L 1.80 62 2.00 0.50 Ecuador M 1.90 53 1.00 0.18 Guatemala L 2.20 48 0.00 0.21 Nicaragua M 1.60 0.19 Panama M 2.20 67 0.00 0.08 Paraguay M 1.40 64 1.00 0.16 Venezuela M 1.20 55 0.00 0.37 Note; dark bue is high, light blue is medium, white is low in each institutional dimension. Source: Authors' compilation; Jones (2005); Iacoviello and Zuvanic (2005) and World Economic Forum (2004).

36. Institutional blessings are not independent • “Good” institutions tend to come together. Countries with stronger congresses tend to have more independent judiciaries. • Both variables reflect equilibrium behavior of a number of political actors. • Virtuous dynamics: If executives do not tinker with the Courts, this increases its independence and reputation. Independent judiciaries enforce the domain and prerogatives of Congress, increases incentives of legislators to invest in capabilities. • Vicious dynamics can also occur, unfortunately. • Problem: strong institutions take time to build, but can be destroyed overnight.

37. Policymaking in specific countries:Contrasting the cases of Brazil and Ecuador

38. Policymaking in fragmented party systems: Brazil and Ecuador • Political institutions have important common elements • Most fragmented party systems in Latin America

39. Political Party Fragmentation Brazil Ecuador Bolivia Colombia Venezuela Peru El Salvador Guatemala Argentina Costa Rica Panama Mexico Uruguay Paraguay Dominican Republic Nicaragua Honduras Chile 1 2 3 4 5 6 7 8 Effective Number of Legislative Parties Source: Jones (2005).

40. Brazil and Ecuador: party system fragmentation 60 Chile Nicaragua Paraguay 50 Honduras Argentina Guatemala Uruguay Peru Dominican Republic Costa Rica 40 Panama Mexico President's Chamber Contingent Venezuela El Salvador 30 Bolivia Ecuador 20 Colombia Brazil 10 0 2 4 6 8 10 Effective Number of Parties Source: Jones (2005), Saiegh (2005).

41. Policymaking in fragmented party systems: Brazil and Ecuador • Political institutions have important common elements • Most fragmented party systems in Latin America • Strong presidential constitutional powers (to compensate for weak partisan powers)

42. Presidential Legislative Powers Chile Brazil Ecuador Colombia Peru Argentina Panama Uruguay El Salvador Venezuela Guatemala Dominican Republic Honduras Mexico Bolivia Costa Rica Paraguay Nicaragua 0.0 0.2 0.4 0.6 0.8 1.0 Presidential Legislative Powers index (0-1 scale) Source: Payne and others (2002).

43. Policymaking in fragmented party systems: Brazil and Ecuador • Political institutions have important common elements • Most fragmented party systems in Latin America • Strong presidential constitutional powers (to compensate for weak partisan powers) • Legislators elected under similar electoral rules: open list, PR, incentives to deliver benefits to their jurisdictions.

44. Policymaking in fragmented party systems: Brazil and Ecuador • Political institutions have important common elements • Most fragmented party systems in Latin America • Strong presidential constitutional powers (to compensate for weak partisan powers) • Legislators elected under similar electoral rules: open list, PR, incentives to deliver benefits to their jurisdictions. • Yet completely different political and policy outcomes

45. Key features of public policy and overall index Country Stab Adapt Impl/Enf Coord / Coherence Public Reg Effic Policy Index Argentina L M L L M L L Bolivia M H M M M M M Brazil H H H H M M H Chile H H H H H H VH Colombia H H H M M M H Costa Rica H M H M H H H Dominican Rep M M M M L M M Ecuador L M L L L L L El Salvador H H H M M H H Guatemala M M L M L M L Honduras H M M M L M M Mexico H M H M M H H Nicaragua M M M L L M L Panama M L M L L L L Paraguay M L L L L L L Peru M M M M M M M Uruguay H H H M M M H Venezuela L L M L M L L

46. How can these differences be explained? • Substantial differences in capabilities of key institutions. • Brazil has congress with good policymaking capabilities, strong bureaucracy, and fairly independent judiciary. • Ecuador lacks all of the above.

47. Lower House Reelection Rates Chile (1993-2001) Uruguay (1989-99) Panama (1999) Brazil (1995-2002) Paraguay (1998-2003) Colombia (1990-98) El Salvador (2003) Ecuador (1996-2002) Bolivia (2002) Venezuela (1989-2004) Guatemala (1994-2004) Argentina (1989-2003) Peru (2001) 0 10 20 30 40 50 60 70 Rates of Immediate Reelection to the Lower House (percentage) Source: Saiegh (2005)

48. Source: World Economic Forum (2004). Judicial Independence Index Uruguay Chile Brazil Costa Rica Dominican Rep. Mexico Colombia El Salvador Panama Guatemala Peru Honduras Ecuador Argentina Bolivia Nicaragua Paraguay Venezuela 1 2 3 4 5

49. Source: Iacoviello and Zuvanic (2005). Index of Development of the Civil Service Brazil Chile Argentina Costa Rica Uruguay Colombia Mexico Venezuela Dominican Rep. Bolivia Guatemala Nicaragua Ecuador Peru Paraguay Honduras El Salvador Panama 0.0 0.2 0.4 0.6 0.8 1.0

50. How can these differences be explained? • Substantial differences in capabilities of key institutions. • Brazil has congress with good policymaking capabilities, strong bureaucracy, and fairly independent judiciary • Ecuador lacks all of the above • Presidents in Brazil have necessary tools to engage in political exchanges with other parties, and sustain coalitions in Congress.