The Democratized Market Economy in Latin America (and Elsewhere): An Exercise in Institutional Thinking within Law and Political Economy

Abstract

Socially inclusive growth and national independence are two of the policy goals commanding greatest authority in the world today. This piece proposes a way of thinking, in light of past experience, about an agenda of institutional change capable of serving these aims. It is simultaneously an exercise in comparative legal analysis, in historically informed political economy, and in programmatic thinking about institutional alternatives. It pursues these concerns by addressing aspects of the development experience of Latin America from the mid twentieth century to today. In so doing, it outlines an answer to the question: What can and should come after the "Washington Consensus?"

Three main ideas inform the development of the argument here. The first idea is that sustained and inclusive growth has not been, and cannot be achieved in the circumstances of very unequal societies without an array of innovations in the institutional arrangements of the market economy. Neither arm’s-length regulation of firms by government, nor compensatory redistribution through progressive taxation and social programs are enough. A democratized market economy is one in which government uses its powers and resources to broaden access to economic and educational opportunity, including the opportunity to participate in more markets on more terms, and in which both private and public law are revised to serve this end.

The second major idea is that there is a reciprocal relation between success in democratizing the market economy and the ability of a country to participate actively in the world economy, without resigning itself to a rigid and unfavorable position in the international division of labor. Democratizing a market economy can go hand in hand with strengthening a country’s ability to diverge from the institutional formulas favored by leading powers and by international organizations. A comparison of the development experiences of Latin America and East Asia suggests the crucial role that efforts to shape and contain the penetration of the national economy by foreign capital may play in such a development strategy.

The third idea is that political economy and programmatic thinking are half-blind when unequipped by insight into the detailed legal forms of established and possible institutional arrangements. The new vocation of comparative law is to explore, in comparative legal and institutional detail, actually existing models of social organization, and the possibility of alternative models of social organization. This article provides one illustration of such an effort.

Keywords: Market-oriented reform, development, globalization, comparative law, institutions, institutional change, structural transformation, Washington Consensus, developing countries, Latin America, East Asia, law and finance, law and development, institutional economics, political economy