In the 1980s, a wave of democratization swept through Latin America, igniting a wide-ranging debate on the nature and promise of democracy.1 This debate was especially welcome in a region with a long authoritarian history. Political authoritarianism in Latin America traces to the colonial heritage and a dependent form of capitalist development based largely on latifundia and servitude and not, as in the United States, on the political impulses of free farmers. Indeed, in nearly two centuries of independent political life, Latin America has not experienced a single political revolution culminating in the implantation of a democratic regime. In Mexico between 1910 and 1917, Guatemala in 1944, and Bolivia in 1952, the overriding concern of the revolution was capitalism, not democracy.

Reinforced by an historically unprecedented, worldwide democratic thrust, the democratic reform movement in the 1980’s partially overcame the burdensome legacies of this traumatic history. But even at the level of democratic thought, the victory was limited. Faced with the democratic flood, as well as the failure of “really existing socialisms” and the inability of social democracy to transcend capitalism, a significant section of the political class in Latin America-including the left-rushed to embrace a procedural understanding of democracy. That understanding, whose intellectual provenance traces to Joseph Schumpeter’s Capitalism, Socialism, and Democracy,2 identifies democracy exclusively with a choice of government through electoral competition, and the struggle for democracy with the establishment of rules of electoral competition. What falls outside the proceduralist vision are the values of social justice and equality traditionally associated with democracy.

Procedural conceptions of democracy imply a radical departure from the Western political tradition, from Plato to Marx and Tocqueville. In the introductory chapter to Democracy in America, Tocqueville portrays the epic nature of democratization with these moving words:

This whole book has been written under the impulse of a kind of religious dread inspired by the contemplation of this irresistible revolution advancing century by century over every obstacle and even now going forward amid the ruins it has itself created.3

If we take Tocqueville’s language seriously, the proceduralist view of democracy presents us with a puzzle: How could such a simple, reasonable political program ever have aroused fierce passions and dogged resistance-revolutions and counter-revolutions, protracted popular struggles and brutal repression? Was all this drama-after all, the drama of the West since Periclean Athens- the product of a simple malentendú? Why was it so much easier to abolish Brazilian slavery, and an Empire that rested on slave labor, than to democratize Brazilian capitalism?

Perhaps because democracy is, after all, something more than an innocent procedural arrangement.4 That “something more” – the sources of the “religious dread” that Tocqueville refers to – might be captured by a substantive conception of democracy, comprising four principal features:

(a) Democracy requires a set of institutions that organize a fair contest for power and have sufficient strength to enforce its outcome, even against the protests of the losers. As Adam Przeworski has put it, democracy institutionalizes uncertainty in that no party, class, or stratum is assured of success by the very structure of the political process;5

(b) It requires a basic, though historically variable, level of material well-being for all;

(c) Democracy rests on the assumption that citizens are treated as equals, thus allowing for the full development of absolutely unique individuals and the endless plurality of expressions of social life;

(d) It provides for the effective enjoyment of freedom by the citizenry by protecting basic liberties and, beyond such formal entitlements (which are already inscribed in many dead-letter Latin American constitutions), providing a distribution of material and symbolic resources that enables all to make effective use of their liberties.

In practical terms, of course, democratic capitalisms, even the most developed ones, barely meet these standards. But what difference-apart from the sheer failure to live up to the democratic promise-does this shortfall make?

Democracy and Neoliberalism
Economic crises, rebellious militaries, despotic plutocracies, and interventionist American embassies have all played crucial roles in the long history of political instability and military coups in Latin America: Every democratic step forward has carried with it a threat of authoritarian regression. Now the major threat to democracy is much subtler, more internal, perhaps more formidable: a potential loss of citizen confidence in democracy itself.

In systems with universal suffrage, the right to participate in choosing the government confers on citizens an aura of dignity and public respect. But when elected governments break the “representative covenant” and show complete indifference to the sufferings of citizens, when democracy is downgraded to an abstract set of rules and deprived of meaning for much of the citizenry, many will be inclined to regard democracy as a sham, to lose confidence in and withdraw their support for electoral institutions. The outcome of such disenchantment depends, of course, on the breadth and longevity of democratic disrepute. If just a few always believe that democracy is a sham, or if many occasionally think that, the outcome is not likely to be too severe. The worrisome case is when many people persistently believe that democracy is a sham. Even then, the consequences depend upon how many the “many” are, their organization and capacities for collective action, and, of course, the country-specific capacity to absorb popular disenchantment.

Still, public confidence matters. Whereas autocracies operate relatively independently from their subject’s ideas and sentiments, democratic stability requires popular legitimacy. For this reason, public opinion data in several Latin American countries are a source of serious concern. Dissatisfaction with democracy now ranges from 40 percent in Peru and Bolivia to 59 percent in Brazil and 62 percent in Colombia.6

What explains this loss of confidence? Chile’s former president Patricio Aylwin suggested an answer when he said that in his own country, the most pressing issue confronting democracy is to redress the current “social debt.” As Aylwin’s remark indicates, the new democratic institutions have disappointed citizen expectations. That’s because most citizens are not Schumpeterian proceduralists; they do not think that democracy is simply a system of rules of electoral competition. They expect democracy to provide essential goods and services and thereby to make a positive difference in their lives. In short, they expect something of substance from democracy. But the emergence of democratic process in Latin America coincided with the adoption of neoliberal economic reforms. And because those reforms have been disastrous for ordinary citizens, nothing of substance has emerged.

The essentials of neoliberal economic reform are well-known: monetary stabilization, economic liberalization, balanced budgets, deregulation, privatization, downsizing of the state, and free rein to market forces. So, too, is the dominance of neoliberalism in Latin American political-economic debate. But the ideological accomplishments of neoliberalism far exceed its modest economic achievements, which in any case have imposed an enormous social cost.

Consider the case of Chile, commonly cited as the paradigm of neoliberal success. By 1988, after fifteen years of economic restructuring, per capita income and real wages of workers were not much higher than in 1973, notwithstanding an average unemployment rate of 15 percent between 1975 and 1985 (with a peak of 30 percent in 1983). Between 1970 and 1987 the poverty rate increased from 17 percent to 38 percent, and in 1990 the per capita consumption in Chile was still below its 1980 level.7 After celebrating the “important gains” experienced by urban minimum wages in Chile between 1990 and 1992, a recent report from the United Nations’ Economic Commission for Latin America (ECLA) concludes that they have now recovered the purchasing power they had achieved . . . in 1980!8 Not that all Chileans have been standing still: Between 1979 and 1988 the richest decile increased its earnings from 36.2 percent to 46.8 percent of national income, while the bottom half declined from 20.4 percent to 16.8 percent 9

In Mexico, more than a decade of orthodox adjustment has produced manifest social and economic involution. According to official Mexican data, per capita national income fell 12.4 percent between 1980 and 1990, despite the triumphalist rhetoric used by PRI governments to “sell” their conversion to neoliberalism.10 Between 1982 and 1988 real wages dropped 40 percent, and have remained close to their 1988 level ever since. While the unemployment rate – traditionally high in Mexico-increased, per capita consumption dropped 7 percent between 1980 and 1990.11 According to Castañeda, “when in 1992 the Mexican government publicized the first statistical accounts of income distribution in 15 years the data were terrifying.”12 Still, it took an insurrection in Chiapas, two political assassinations, a huge trade deficit, and the collapse of the peso to make local elites and their advisors realize that neoliberal policies were not working. And when they did, President Ernesto Zedillo proposed a new emergency package that was bound to impose further hardships on the poor. Government officials anticipated a 32 percent drop in the purchasing power of salaries, bringing additional suffering and deprivation to most Mexicans.13

Neoliberal reforms, in short, have not produced self-sustained growth, a more equitable income distribution, or a fair society. Nor should that be a surprise. As 50 years of Western European experience clearly shows, and as more recent experience in East Asia sharply underscores, capitalist development requires an appropriate mix of public policies, and this means a state endowed with sufficient capacity for market intervention and regulation.14

Indeed, it is worth recalling that Chile’s own economic restructuring-rather unimpressive compared with East Asia or China-has kept the strategic copper industry in government’s hands. Nationalized during the Allende years, state-owned copper firms account for about 50 percent of Chilean export revenues. Moreover, this revenue goes directly to the fiscal treasury-not, as in Argentina, Brazil, and most Latin American economies, to the pockets of private businessmen-thus strengthening public finances and state capacity. In 1995 the state-owned Corporación del Cobre transferred $1.8 billion (US dollars) to the fiscal treasury, a figure far greater than the taxes paid by all private firms in Chile.15

Putting aside the particulars of copper, the size of the Chilean state (measured by the ratio of public expenditures to GDP) grew continuously in the last decade, as did state regulation of financial markets. So Chilean economic restructuring is hardly a compelling example of neoliberal policies, and the economy would arguably be in vastly worse shape had it not been for these sharp departures from the neoliberal project. Yet all these “peculiarities” of the Chilean model have apparently passed unnoticed at the World Bank. In a recent official document-which includes a section on “Chile as a Model”-the World Bank’s Chief Economist Sebastián Edwards fails to mention these disturbing facts even in a modest footnote.16

The results of “free-market fundamentalism” extend throughout the region, and are not at all confined to Chile and Mexico, the countries once advertised as “success” stories. Neoliberal policies have vastly increased the numbers of the poor and “extremely poor,” and widened the gulf separating rich and poor. According to a recent report from ECLA:

Poverty is the greatest challenge for the economies of Latin America and the Caribbean. Between 1980 and 1990 it worsened as a result of the crisis and the adjustment policies, wiping out most of the progress in poverty reduction achieved during the 1960’s and 1970’s. Recent estimates place the number of poor at the beginning of this decade, depending on the definition of poverty, somewhere between 130 and 196 million. . . . Recession and adjustment in the eighties also increased income inequality in most of the region. In the countries with the most highly concentrated income distribution, the richest 10 percent of the households receive 40 percent of the total income.17

By thus augmenting economic inequality, neoliberal policies have simultaneously magnified the bargaining power of a handful of privileged collective actors, whose demands are heard at the upper echelons of the government and central bureaucracy, undermined the material foundations of citizenship by fostering a demobilized, disorganized, depoliticized, often submissive populace, and weakened the capacity of the state to redress this corrosive imbalance.

A Sovereign State?
Latin American neoliberalism bears significant responsibility, then, for the loss of citizen confidence in democracy. That loss of confidence has been further exacerbated by two features of Latin American political economy that impose further limits on state capacity: the persistence of the “tax veto” still successfully wielded by capitalists throughout Latin America, and the effects of economic globalization.

Tax Veto

The Latin American rich refuse to pay taxes. They react with anger and contempt when governments try to tax their properties, profits, and earnings, and regard even modest taxes on private boats, airplanes, sports cars, and summer homes as communist confiscations.

This “tax veto,” an aberrant social and economic tradition dating back to colonial times, has periodically created unbearable pressures on the state budget. Given the resulting rigidities on the revenue side of state budgets, policy-makers routinely try to “solve” fiscal troubles by cutting expenditures or, when possible, raising new indirect and socially regressive taxes. In either case, the burden rests on the shoulders of workers and the poor. In Argentina, a World Bank study indicated that, in the late 1980’s, the richest 10 percent of the population was paying 27 percent of its total income in taxes, while the poorest 10 percent of the population paid 29.3 percent of its earnings. Unfortunately, in this matter at least, the “structural reform” launched by Menem in the 1990’s only served to make things worse.18

With the 1980’s debt crisis, the chronic underfinancing of the state in Latin America became a source of major and urgent national and international concern. To repay an ever-growing external debt, heavily indebted countries need to run a budgetary surplus. Therefore, amidst the severe crisis of the 1980’s, Latin American states reinforced the recessive trends of the economy with a pro-cyclical fiscal policy that further depressed the purchasing power of large sections of the population, reduced middle class incomes, and generated-in accordance with fashionable “supply-side” theories-new “tax incentives” to the rich. Harsh cuts in social expenditures and public spending became cornerstones of the neoliberal blueprint, justified by the need to “keep the numbers in the black” and reduce allegedly oversized states.

But the fiscal troubles of Latin American states are caused by the chronic inability of governments to collect taxes from the wealthy, not by overgrown expenses. While World Bank research reveals the extreme regressiveness of Latin American tax systems, Bank leadership exhorts our governments to attract private investment by reducing the “tax burden.” But the tax burden (as a percent of GDP and excluding social security contributions) of the more developed countries of Latin America is roughly 17 percent while in the OECD countries this proportion is 37.5 percent. Even more striking are the tax rates on capital gains and profits, which average 14 percent of GDP in OECD countries, while running at 4 percent in Brazil, 3 percent in Argentina, Chile, and Uruguay, and 1 percent in Bolivia.19 Latin American governments that were strong enough to dismantle and/or sell large-and sometimes very efficient-public enterprises at bargain prices, and that have shut down governmental agencies, terminated social programs, privatized all kinds of public services, destroyed labor unions, slashed public budgets, and overwhelmed public resistance to these policies, appear surprisingly frail when faced with the task of organizing an equitable and progressive tax regime.

The outbreak of the debt crisis in Latin America thus hastened the relentless dismantling of the state apparatuses and the disorderly retreat of governments from policy-areas in which their contribution had been very positive and important for large sections of the popular classes. If these countries fail to break the back of the “tax veto,” reconstructed Latin American capitalism will increasingly resemble corrupt and mafia-ridden “free-market” Russia, rather than Switzerland or Austria-hardly fertile soil for democratic consolidation.


Economic globalization only made things worse. Coupled with the “tax veto,” globalization-to simplify a complex but familiar story-radically weakened national states, reduced their administrative and decision-making capacities, undermined the quality of governance, and increased vulnerability in front of an increasingly complex domestic and international environment. The new Latin American democracies surrendered important margins of national sovereignty and self-determination, de facto, and sometimes transferred formal decision-making powers in sensitive areas to transnational firms and international financial institutions and/or foreign governments under the guise of commercial agreements, “conditionalities,” and “country risk” evaluations. This enfeeblement has produced a profound distortion in political preferences: Governments in the region are, in the first instance, responsive to the interests of foreign governments and creditors and key sections of international capital and its “watchdogs” (the World Bank and International Monetary Fund); then they respond to domestic “market forces,” a euphemism for big capital and firms, local or foreign, operating in our markets; ordinary citizens come last.

It is difficult to conceive of a stable democracy that has not achieved a minimum threshold of national sovereignty, sufficient to make autonomous decisions with important distributional impact. Given the formidable reach of globalization, and the role of external debt in reinforcing financial dependence, a democracy sitting on a weak state increasingly deprived of decisional autonomy is likely to decay.

State enfeeblement and globalization, then, have hardly been neutral in their distributional impact. Local capitalists and their metropolitan partners have gained in several ways from the dramatic “downsizing” of the old developmental state. First, they substantially reinforced their economic predominance by drastically reducing public control of markets, and undermining the consistency and scope of public policy. Today, Latin American societies have become highly “privatized”: The state has retreated to minimal functions, and previously collective goods-health, nutrition, education, housing, occupational training-have become individual problems whose solution must be found in the market. The name of the game is the survival of the fittest; the rest-the poor, elderly, children, the sick, the homeless, the unemployed and unemployable-can be the new clients of the Red Cross and a host of other charitable non-governmental organizations.

Second, the withering away of national states and the wholesale privatization of state-owned enterprises and state-administered services transferred highly profitable monopolies to capitalists, and guaranteed the repayment of the foreign debt-contracted, as in Argentina, Brazil, Chile, and Uruguay-by irresponsible, corrupt, and de facto military rulers. Neoliberalism supplied the general justification for the transfer of public assets and state-owned enterprises, paid for with public savings, even in areas considered “taboo” and untouchable until a few years ago, such as electricity, aviation, oil, or telecommunications.

Thirdly, these reforms have so dramatically shifted the balance between state and market that any future government sensitive to popular demands, or inspired by even some vague reformist vocation, will immediately realize that it lacks some of the most elementary instruments of public policy-making as well as the administrative cadre to carry out these tasks. That is why one of the most urgent tasks facing Latin American societies is the reconstruction of the state. As a former ministry of industry in Venezuela observed, by the end of the 1990’s, “Washington may encounter some surprises to the south. Latin America, which has spent the last 10 years demolishing the state, will spend the next 10 rebuilding it.”20

Civil Society
Fragmented and heterogeneous societies, crisscrossed by profound inequalities and cleavages of ethnicity, class, gender, and region: that is the principal legacy of fifteen years of neoliberal hegemony. Nor is the problem exclusive to Latin American societies. In Western Europe the social involution resulting from the decline of the welfare state has prompted some analysts to talk about a “two-thirds” society. And economist Richard Freeman recently suggested in the Harvard Business Review that the United States may be moving toward an “apartheid economy,” in which “the rich live aloof in their exclusive suburbs and expensive apartments with little connection to the working poor in their slums.”21 In the conservative capitalist societies of the late Ś80s and Ś90s, a wide sector-roughly one third of the population-has been progressively excluded from the benefits of material progress, doomed to become an underclass or decaying segment of modern society, unable to be reinserted in the formal labor markets of
advanced capitalism.22

The issue is not merely the immorality of social exclusion. A “society” debilitated by unfettered market dynamics-and Latin American countries are quickly approaching it-is a mere juxtaposition of radically disparate social universes. Though it may seem paradoxical, slave-owning Brazil and colonial Mexico were far more socially integrated than their late twentieth century capitalist successors. In those pre-capitalist systems, class exploitation demanded forms of sociability, structural integration, and inter-class relationships that are largely absent in contemporary Brazil or Mexico. Though antagonistic, the fazendeiro and slave, like the landowner and indigenous peasant, belonged to the same society. Their conflicts developed within a single social and economic structure, unified by exploitative bonds of slavery and servitude and a host of other social relations. At the end of the twentieth century, Latin America is more profoundly divided. The “winners” in this game of capitalist restructuring seek refuge in exclusive residential districts, protected by sophisticated surveillance systems and small armies of security guards. Their children attend private schools and bi-lingual institutes, and then graduate to American colleges and universities. Their doctors live in Houston and Miami; their entertainers in New York, London, and Paris. Their wealth is highly diversified, global in scope: Physical contact with a member of the laboring masses is increasingly improbable. What economic and social relationship can exist between this fin de siecle bourgeoisie, and the “losers”-the “wretched of the earth,” the millions who sell candy, gum, and cigarettes in the busiest intersections of our decaying cities; the fire-eaters or ragged clowns in the downtown’s sidewalks; the windshield cleaners at congested intersections; the precarious and informal workers who live in tin and cardboard shacks, and have no skills, no formal education, no access to medical care? As Darcy Ribeiro once noted, marginal groups do not fight against capitalist exploitation but struggle to become an exploitable labor force. But even that fight is hard to win when neoliberal restructuring is destroying the state, dismantling public education and health services, and eliminating institutions that train people in the skills demanded in the labor market. For growing sections of Latin American societies, class exploitation is not the most immediate problem: Their problem is their inability to become an exploitable labor force.

Conservative thinkers answer that some more or less subtle form of popular disenfranchisement is necessary to prevent this “underclass” from gaining political influence and to permit “responsible” people to conduct the business of government without interference from the rabble. Discussing the American governability crisis of the early Ś70s, Samuel Huntington wrote that the problems besieging industrialized countries were the consequence of democracy’s excesses, not capitalism’s inequities.23 His thesis was wrong then; it is wrong again now. The main problem undermining democracy and democratic governance at the end of the century is capitalism-more precisely, the way in which capitalist production and bourgeois society have evolved-and not the supposedly inevitable self-destructive tendencies of democracy.

Addressing these challenges will, of course, take much more than the delicate work of political engineering: An adequate institutional setting, a reasonable compromise between elites, improved political leadership, and better public policies are all necessary, but insufficient. More fundamental, structural changes are needed in capitalist societies, and to this end, a radical program of social and economic reform. Some items on such a reform agenda are straightforward: progressive tax reform; political restructuring aimed at enhancing the state’s capacity to regulate markets effectively, produce decent public policies, and ensure the public goods needed for bare survival; a deepening and strengthening of democratic institutions, thus upgrading government responsiveness and accountability.24 Moreover, this program of fundamental structural reforms must take precedence over such considerations as repaying illegitimate foreign debts, balancing state budgets, or maintaining a “friendly atmosphere” for investors.

Neoliberals reject this premise. In a notorious interview with the Chilean conservative newspaper El Mercurio during Pinochet’s years, Friedrich von Hayek asserted that, for a while, he was ready to sacrifice democracy and political rights in exchange for a governmental program committed to unfettered capitalist development. In the end, Hayek ventured, economic freedoms would reassert themselves and open the door to democracy and political liberty.

But democracy is a higher, more cherished value than free markets and profits: Political liberty is a necessity, John Stuart Mill used to say, whereas economic liberty is a convenience. The principal project of reform-minded leadership in Latin America should be to make our countries safe for democracy; given the disturbing loss of citizen confidence in democracy, and the role of neoliberalism in producing that loss, the reform project will need to extend well beyond electoral process and deliver on democracy’s substantive promise. If democracy is, as Tocqueville said, an “irresistible revolution advancing century by century over every obstacle and even now going forward amid the ruins it has itself created,” surely it will not respectfully stop at the gates of capitalism. Serious democratic reform in Latin America will need to begin by halting the destructive impact of neoliberalism, and will require empowering ordinary women and men to protect themselves from the unprecedented social euthanasia brought about by the free marketeers.


1 This section draws on my State, Capitalism, and Democracy in Latin America (Boulder and London: Lynne Rienner Publishers, 1995).

2 (New York: Harper and Row, 1942).

3 Alexis de Tocqueville, Democracy in America (Doubleday: Garden City, 1969), p. 12.

4 A note on terminology: I use the expression “democratic capitalism” rather than the more common “capitalist democracy” because the latter misleadingly suggests that “capitalist” barely qualifies the workings of a full-blown democracy. In contrast, “democratic capitalism” accurately conveys that the democratic features are, for all their importance, hardly more than political modifiers of the underlying undemocratic structure of capitalism. See Boron, State, Capitalism, and Democracy, pp. 189-220.

5 See Adam Przeworski, Capitalism and Social Democracy (Cambridge: Cambridge University Press, 1985), pp. 138-145. We should stress, though, the “relative” nature of this guarantee. In bourgeois democracies, some political games are played with “loaded” dice, and others are not played at all: for example, no country has ever decided the form of property-ownership through popular referenda.

6 Stephan Haggard and Robert R. Kaufman, The Political Economy of Democratic Transitions (Princeton, NJ: Princeton University Press, 1995), pp. 330-34.

7 Patricio Meller, “Latin American Adjustment and Economic Reforms: Issues and Recent Experience” (Santiago: CIEPLAN, 1992).

8 Panorama Social de América Latina (Santiago: CEPAL, 1994), p. 10.

9 Jorge Castañeda, La Utopía Desarmada (Buenos Aires: Ariel, 1993), p. 284.

10 Oscar Altimir, “Cambios en las desigualdades de ingreso y en la pobreza en América Latina,” (Buenos Aires: Instituto Torcuato Di Tella, 1992).

11 Luiz C. Bresser Pereyra, “Economic Reforms and Economic Growth: Efficiency and Politics in Latin America,” in L. C. Bresser Pereira, J. M. Maravall and A. Przeworski, eds., Economic Reforms in New Democracies. A Social-Democratic Approach (Cambridge: Cambridge University Press, 1993), pp. 15-76.

12 Jorge Castañeda, La Utopía Desarmada, pp. 283-84.

13 A. DePalma, “Mexicans Ask How Far Social Fabric Can Stretch,” The New York Times 10 January 1995).

14 Robin Blackburn, “Socialism after the Crash,” New Left Review 185 (January-February 1991): 5-66.

15 Interlink Headline News 432 (April 6, 1996).

16 Sebastián Edwards, America Latina y el Caribe. Diez Años después de la Crisis de la Deuda (Washington, D.C.: Banco Mundial, 1993), pp. 34-35.

17 CEPAL, Panorama Social, p. 1.

18 Juan José Santiere, Distribución de la Carga Tributaria por Niveles de Ingreso (Buenos Aires: World Bank, 1989).

19 Equidad y Transformación Productiva. Un Enfoque Integrado (Santiago: CEPAL, 1992), p. 92.

20 Moisés Naim, “Latin America: Post-Adjustment Blues,” Foreign Policy 92 (Fall 1993), p. 133.

21 “Toward An Apartheid Economy,” Harvard Business Review (September-October 1996), p. 120.

22 See André Gorz, Critique of Economic Reason (London: Verso, 1989).

23 Michel Crozier, Samuel P. Huntington, and Joji Watanuki, The Crisis of Democracy: Report on the Governability of Democracies to the Trilateral Commission (New York: New York University Press, 1975), p. 73.

24 There are no terms in Spanish or Portuguese that correspond to either “responsiveness” or “accountability.” Our long-standing authoritarian political tradition succeeded in making those words unnecessary in everyday life.