In August of 2014, Brazilian President Dilma Rousseff, a left-leaning candidate, was a month away from elections determining whether she would remain in power. Unfortunately for her, Brazil was simultaneously experiencing a falling GDP, plunging Brazil’s economy into a recession. Voter confidence in Rousseff’s ability to improve the economy was falling when she narrowly won the re-election. After her election, Rousseff brought in Joaquim Levy to replace her current minister of finance – a conservative-leaning technocrat in the field of economics who does not align with her partisan agenda. Why did President Rousseff bring in a conservative economic advisor after being elected on a leftist platform? Stephen Kaplan’s working paper, “Partisan Technocratic Cycles in Latin America,” provides a trend of such appointments that could prove Rousseff’s particular case to be undistinctive and maybe even predictable. Kaplan’s paper, previously published in the February 2017 issue of Electoral Studies, aims to determine whether the Latin American left bucks party lines in times of economic troubles. He finds they often appoint mainstream economic advisors with a penchant for austerity policies, in which governments pursue deficit reduction as a pathway to financial stability, business confidence, and investment-led growth. However, cyclical upturns mitigate this trend, lessening the likelihood of left governments appointing mainstream advisors by almost 5 percent and suggesting that there is a significant effect of the business cycle on the ideologies of economic appointees.
In creating his own binary Index of Economic Advisors, Kaplan allows for a separation of advisors into mainstream and heterodox (more progressive) camps. Kaplan finds that when the economic health of a nation is experiencing a downturn and voters are starting to become worried, leftist governments will turn away from partisan promises and turn towards moderate technocrats. These moderate technocrats, pragmatic and focused on targeted expertise, will typically push for an economic policy based around budgetary constraints. However, these constraints come in direct conflict with left-wing goals of funding programs that boost the middle class, showing that politicians are just as motivated to prevent negative income shocks as they are in creating new gains.
The inverse is also true: when the economy is flourishing, the government is under less scrutiny and can bring in heterodox advisors that align with their leftwing goals. The partisan advisors brought in often push government policies towards target redistribution, boosting wages, and creating more jobs.
Left governments hope to solve a long-standing governance dilemma between markets and society through their ministerial appointments.
In Latin America, economic volatility has historically had the capacity to devastate both individuals and firms during times of strong downturn. One Latin American nation presently in crisis, Venezuela, has economic difficulties permeating so many aspects of life that many news sources have called it the worst economy in the world currently. In a desperate attempt at power consolidation under falling approval ratings and economic and humanitarian crises, President Nicolás Maduro appointed a new Minister of the Economy, Luis Salas, who is known to be both a socialist and an inflation denier. In the democratic nations examined in this working paper, the general trend of appointments has been exactly the opposite, with nations following a more conservative rather than socialist path during times of crisis in order to shore up their economies. As Venezuela experiences this economic turmoil and popular demand for true democracy is on the rise, it will be interesting to see if the same principles will apply once the nation sees regime change.
The dilemma of carrying out leftist welfare policies while maintaining economic stability is not a new phenomenon in Latin America. An inherent tension exists between the Latin American core constituency’s desire to benefit from broad income redistribution and liberal social policies while also avoiding the economic volatility of the region. The region as a whole has been seeing a turn towards social liberalism since the 1990s, with countries such as Colombia, Ecuador, Peru, Bolivia, and Argentina loosening restrictions on gay marriage, abortion, and marijuana usage. On the conservative side, the social welfare systems in these nations sometimes run up against the goals of a constrained state and a balanced budget that classical economists deem necessary during an economic downturn.
Any political party naturally interested in appealing to the bulk of its electorate, regardless of ideology, will try to assuage fears and ensure stability in an attempt to appeal to the bulk of its electorate. One way to do that during economic downturns is by appointing advisors who worry less about aggressive stimulus and more about budget discipline. In terms of the electorate, Kaplan states, “redistribution is important, but not if it jeopardizes economic stability.” Not surprising, then, is a similar restructuring in the government that reflects the worries of the people. Party lines are blurred when left governments appoint mainstream economists, and it brings into question how different the parties actually are in practice. Dilma Rousseff’s aforementioned mainstream economic cabinet in November 2014 was a key example of this blurring party binary. During Luiz Inacio Lula’s presidency and the first term of Rousseff’s, the Brazilian economy was dependent on exports of goods that grew cheaper as time went on. Rousseff’s heavy government spending policy increased debt and put strains on the failing economy. When debt was almost 10% of GDP in 2014, Rousseff understood the need for more conservative economic appointees, even though her party was part of a fiscally liberal platform. Joaquin Levy, who was educated at the University of Chicago, stood as a stark contrast to Rousseff’s left government, but he was selected as a symbol of economic stability in 2014.
Case studies illustrating this effect extend beyond Brazilian politics. In Uruguay, a country which the Economic Intelligence Unit (EIU) considers a “full democracy,” the appointment of partisan technocrats aligns well with Kaplan’s research. Uruguay’s Minister of Economy and Finance, Danilo Astori, leads the center-left Asamblea party and is known as a social democrat. He served this post once from 2005-2008, in a time of cyclical upturn, and has again been serving the post since 2015, a time marked by a global slowdown. When Astori was first appointed to this post in 2005, Uruguay was seeing record growth as a result of increased international export competitiveness, cooperation with the IMF, and an upsurge in public confidence. During this cyclical economic upturn, former Uruguayan President José Mujica, under the advisory of Astori, focused his ambitions on an agenda outside of the economic realm, tackling issues such as climate change and the environment and even encouraging people to return to lives based on personal relationships, not ones tied to the markets. Since Astori’s second appointment in 2015, during a cyclical economic downturn in Uruguay, current President Tabaré Vázquez, although still left-leaning, has been following a more fiscally conservative path.
Fearing punishment from voters during cyclical downturns, left governments tend to use fiscal discipline to signal their governance credentials to the electorate, businesses, and investors.
In 2015, Argentina voted in a conservative president after 12 years of left government rule, due in large part to a strenuous recession that also featured the re-emergence of inflation. Nestor Kirchner and his wife Cristina Fernandez de Kirchner both led Argentina in their respective presidencies from 2003 to 2015 until the fiscally more conservative Mauricio Macri took over. Though the Kirchner presidencies based themselves on a left-leaning platform known as Kirchnerism, they were not opposed to taking fiscal austerity during times of economic troubles, most notably perhaps in the austerity policy known as “Sintonía fina” that began in 2012. It is the appointment of advisors who will suggest such actions that is the crux of Kaplan’s research. Argentina and Brazil are not the only Latin American countries that have been met with recent recessions. Ecuador, too, now finds itself in difficult times.
To a certain extent, this line-blurring effect played out in the US when President Trump appointed Gary Cohn to the position of Chief Economic Advisor during a time of cyclical expansion for the nation, one key difference being that the Trump administration is far from leftist. Cohn’s ideology in terms of public policy are still yet to be completely clear, but it has been reported that Cohn will arguably follow a more middle-ground path, matching Trump’s agenda of deregulating business and cutting taxes, yet not expressing support for some of the president’s more radically conservative ideas, all of which seem to fall in line with his position as a former investment banking CEO. Among Cohn’s breaks with the administration, he has been wary of agenda points such as protectionist policies, tariff threats, plans for a southern border wall, and immigration ban. Kaplan’s paper expects cyclicality in economic policymaking. As economic activity accelerates in the United States, economic advisors like Cohn should be more apt to advocate for a fiscally conservative agenda, emphasizing economic stability and balanced budgets, to mitigate concerns about the potential adverse economic effects of an aggressive fiscal relaxation policy. It will be interesting to watch whether these voices emerge as a check to Trump’s agenda that may deprioritize fiscal discipline even amid an economic upturn.
But why do governments in developing countries often use economic advisors to signal security, as opposed to more rigid policy decision-makers such as the implementation of central bank independence or fixed exchange rates? Kaplan argues that the answer lies in how easily governments can change appointment decisions in response to a change in economic status: it is much easier to replace an advisor when the economy fluctuates than it is to undo the legislation of creating a rigid system of central banking or fixed exchange rates.
What separates Kaplan’s study from others? For one, the Index of Economic Advisors pays close attention to context. It takes on a regional approach that similar indices do not. It codes certain Latin American universities, including the Pontificia Universidad Católica de Chile and Universidad Torcuato Di Tella in Argentina, as mainstream economics departments while previous indices only considered United States programs as mainstream. Presence of the AHE’s International Directory for Heterodox Economists at these universities is considered when coding as well. This is all corroborated by survey data taken from Kaplan’s 2015-16 study that asked economists from local universities in 16 Latin American countries to score their national universities on a scale from mainstream to heterodox.
The broader implications of Kaplan’s findings addresses political economic literature and serve to demonstrate the key role that partisanship, the economy, and key presidential advisers play in shaping policy choices. By showing how fear of backlash from voters during economic downturns can lead governance to turn away from partisan goals, Kaplan has opened a conversation examining what he terms the ‘supply side’ of how the government works. When the goods being supplied or withheld are military expenditures, funds for social spending, and development investments, the determination of partisan shifts patterns holds extreme importance.
Written by Rachael Hughen, Caroline Nester, & Mark Tagliamonte
Edited by Alexa Smith-Rommel